-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G+vXGRi7DRoMyzGNBrXhlLFjH51mDDVtBmAFsUawLMSB5QKPZOtTQeUxt1gQMelW TjqneJ66AuSPQbryQS3E5g== 0000944209-96-000334.txt : 19961001 0000944209-96-000334.hdr.sgml : 19961001 ACCESSION NUMBER: 0000944209-96-000334 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19960927 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOX KIDS WORLDWIDE INC CENTRAL INDEX KEY: 0001023186 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-12995 FILM NUMBER: 96636489 BUSINESS ADDRESS: STREET 1: 10960 WILSHIRE BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3102355100 MAIL ADDRESS: STREET 1: 10960 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90024 S-1 1 FOX KIDS WORLDWIDE, INC. FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- FOX KIDS WORLDWIDE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7812 95-4596247 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
10960 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90024 (310) 235-5555 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- MEL WOODS, PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER FOX KIDS WORLDWIDE, INC. 10960 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90024 (310) 235-5100 (310) 235-5102 (FAX) (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- Copies to: RICHARD E. TROOP JONATHAN A. SCHAFFZIN LINDA M. GIUNTA CAHILL GORDON & REINDEL TROOP MEISINGER STEUBER & PASICH, LLP 80 PINE STREET 10940 WILSHIRE BOULEVARD NEW YORK, NEW YORK 10005 LOS ANGELES, CALIFORNIA 90024 (212) 701-3000 (310) 824-7000 (212) 269-5420 (FAX) (310) 443-7599 (FAX)
--------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. --------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------- Class A Common Stock, par value $0.001 per share............. $150,000,000 $51,724 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee, pursuant to Rule 457(o) under the Securities Act of 1933. --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement contains two forms of prospectus, one to be used in connection with an underwritten offering in the United States and Canada (the "U.S. Prospectus") and one to be used in connection with a concurrent international offering outside the United States and Canada (the "International Prospectus"). The two prospectuses relate to an initial public offering of up to shares of Class A Common Stock, par value $0.001 per share, of Fox Kids Worldwide, Inc., including up to shares that may be sold pursuant to the underwriters' over-allotment option, if exercised. The complete U.S. Prospectus follows this explanatory note. After the U.S. Prospectus are the following alternate pages for the International Prospectus: a front cover page, the Underwriting section and a back cover page. All other pages of the U.S. Prospectus are to be used for both the United States offering and the international offering. Each alternate page for the International Prospectus included herein is labeled "Alternate Page for International Prospectus." Final forms for each Prospectus will be filed with the Securities and Exchange Commission pursuant to Rule 424(b). ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 27, 1996 PROSPECTUS SHARES FOX KIDS WORLDWIDE, INC. [LOGO OF FOX KIDS] CLASS A COMMON STOCK ----------- Of the shares of Class A Common Stock, par value $0.001 per share (the "Class A Common Stock"), of Fox Kids Worldwide, Inc. (the "Company") offered hereby, shares are being offered initially in the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and shares are being offered in a concurrent offering outside the United States and Canada by the International Underwriters (the "International Offering," and together with the U.S. Offering, the "Offerings"). The initial public offering price and the underwriting discount per share will be identical for both Offerings. See "Underwriting." Immediately following the Offerings, the Company's outstanding common stock will be comprised of Class A Common Stock and Class B Common Stock, par value $0.001 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"). The rights of holders of each class of Common Stock are identical, except that each share of Class B Common Stock entitles its holder to ten votes and each share of Class A Common Stock entitles its holder to one vote. Immediately following the Offerings, the holders of the Company's Class B Common Stock will have approximately %, in aggregate, of the combined voting power with respect to all matters submitted for the vote of all stockholders, except as required by law. Immediately following the Offerings, 50% of the shares of Class B Common Stock will be beneficially owned by Fox Broadcasting Company, an indirect wholly owned subsidiary of The News Corporation Limited, and 50% of the shares of Class B Common Stock will be beneficially owned by the former stockholders of Saban Entertainment, Inc. See "Principal Stockholders" and "Description of Securities." All of the shares of Class A Common Stock offered hereby are being offered by the Company. Prior to the Offerings, there has been no public market for the Class A Common Stock. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company intends to apply for listing of the Class A Common Stock on the New York Stock Exchange. SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- PROCEEDS TO THE PRICE TO PUBLIC UNDERWRITING DISCOUNT(1) COMPANY(2) - ----------------------------------------------------------------------------------------------------- Per Share............................ $ $ $ - ----------------------------------------------------------------------------------------------------- Total(3)............................. $ $ $ - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses, estimated at $ , payable by the Company. (3) The Company has granted the U.S. Underwriters and the International Underwriters options, exercisable within 30 days after the date hereof, to purchase up to an aggregate of shares and shares of Class A Common Stock, respectively, at the initial price to public per share, less the underwriting discount, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." ----------- The Class A Common Stock is being offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of certificates for the shares of Class A Common Stock will be made in New York, New York on or about , 1996. ----------- MERRILL LYNCH & CO. ALLEN & COMPANY INCORPORATED BEAR, STEARNS & CO. INC. ----------- The date of this Prospectus is , 1996. [PICTURES TO COME] ---------------- IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---------------- Mighty Morphin Power Rangers(R), Power Rangers(R), Saban(R) and Saban's VR Troopers(R) are registered trademarks of Saban Entertainment, Inc. and Saban International N.V. Big Bad Beetleborgs(TM), Eagle Riders(TM), Jim Knopf(TM), Masked Rider(TM), Power Rangers ZEO(TM), Princess Sissi(TM), Saban Kids Network(TM), Saban's Adventures of Oliver Twist(TM), Samurai Pizza Cats(TM), The Why Why Family(TM), Walter Melon(TM) and Wunschpunsch(TM) are trademarks of Saban Entertainment, Inc., and Saban International N.V. Eek! The Cat(R) is a registered trademark of Fox Children's Network, Inc. Bobby's World(TM)and The Tick(TM) are trademarks of Fox Children's Network, Inc. Space Strikers(TM), Bureau of Alien Detectors (TM) and The Mouse and the Monster(TM) are trademarks of UPN Kids, a joint venture in which Saban Entertainment, Inc. and Saban International N.V. are partners. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the financial statements and notes thereto, included elsewhere in this Prospectus. Fox Kids Worldwide, Inc. (the "Company") was incorporated in August 1996 in order to acquire (i) all of the outstanding capital stock of FCN Holding, Inc. (together with its consolidated subsidiary corporations, "FCN Holding"), which is currently an indirect subsidiary of Fox Broadcasting Company ("Fox Broadcasting"), (ii) all of the outstanding capital stock of Saban Entertainment, Inc. (together with its consolidated subsidiary corporations, "Saban") and (iii) Fox Broadcasting's direct and indirect members interests in Fox Kids Worldwide, L.L.C., a strategic alliance between Saban and FCN Holding (the "LLC") in the "Reorganization" (see "The Reorganization"). Unless otherwise indicated, the term the "Company" refers collectively to the Company, FCN Holding, Saban and the LLC, and their respective subsidiaries; and the information in this Prospectus gives effect to the Reorganization, which will be effected immediately prior to the closing of the Offerings. All references in this Prospectus to ratings refer to ratings compiled and published by Nielsen Media Research ("Nielsen"). Unless otherwise indicated, the information in this Prospectus assumes no exercise of the Underwriters' over-allotment options, and an assumed initial public offering price of $ per share, the mid-point of the initial offering price range. See "Underwriting." THE COMPANY The Company is a fully-integrated global children's television entertainment company which develops, acquires, produces, broadcasts and distributes quality animated and live-action children's television programming. The Company's principal operations are conducted by (i) Fox Children's Network, Inc. ("FCN"), which operates the Fox Kids Network--the top-rated children's (ages 2-11) oriented broadcast television network in the United States and (ii) Saban, whose library of more than 3,700 half-hours of children's programming is among the largest in the world. The Company is the result of the joint venture launched in 1995 by Fox Broadcasting and Saban to match the complementary programming and broadcasting strengths of the Fox Kids Network and the international reach of Fox Broadcasting's parent company, The News Corporation Limited ("News Corp."), with the development, production, distribution and merchandising strengths of Saban. This combination has created a company with the ability to manage children's properties and brands from the initial creative concept through production, broadcast and the merchandising of related consumer products. Children represent an important and growing segment of the global consumer market. The steady rise in birth rates and an increase in children's purchasing power has resulted in increased marketing expenditures on products targeted toward children. In the United States alone, children influence spending decisions on over $150 billion worth of products annually. In order to reach this market, manufacturers and other companies targeting children devote significant resources to advertising and in the 1995-1996 broadcast season, an estimated $725 million was spent in the United States on advertising directed at children. Spending by these advertisers is concentrated on television commercials; and over 80% of children report learning about new products through watching television. The growth in advertising expenditures aimed at children has led to the increased demand for children's programming from a growing group of basic cable and broadcast television services targeting children, including the Fox Kids Network and the Company's Saban Kids Network. While television programming targeted toward children in the United States has developed significantly over the past several years, the Company believes that the children's television entertainment market in most countries remains relatively underserved. The Company creates, produces and acquires quality animated and live-action children's television programming with brand-name characters and elements which are either widely known to children, such as the Mighty Morphin Power Rangers (including the recently introduced Power Rangers Zeo, "Power Rangers"), The Tick, X-Men and Bobby's World, or which are or have been developed or acquired due to their likelihood of maturing into popular brands. The Company produced 13 series in the 1995-1996 broadcast season and is 3 currently producing 16 series for the 1996-1997 broadcast season, including Power Rangers, which since shortly after its launch in 1993 has been the highest rated children's television program in the United States, as well as in most of the international markets in which it is broadcast. The Company operates the Fox Kids Network, the leading U.S. children's broadcast television network, and the Saban Kids Network, an ad hoc syndicated distribution network. Collectively, these outlets will broadcast 26 1/2 hours of children's programming per week during the 1996-1997 broadcast season, more than double the number of hours broadcast by its nearest competitor, The Walt Disney Company. The Fox Kids Network, launched in 1990, will broadcast 19 hours of children's programming each week during the 1996-1997 broadcast season to 97% of U.S. television households, the broadest reach of any network targeting children. The Fox Kids Network was formed by Fox Broadcasting and most of the FOX Television Network member stations to provide children's programming weekdays and Saturday mornings. The Fox Kids Network has been the number one rated children's broadcaster for each of the past three seasons, and has had the highest viewership among children in its time period during 15 consecutive "sweeps" periods. According to Nielsen, 20 million children--approximately 52% of all children in the United States--watch the Fox Kids Network at least once each month. This network affords advertisers the opportunity to reach children in a cost-effective manner, while ensuring consistent nationwide placement of their advertisements by generally broadcasting its programming at the same local time and on the same day ("day-and-date") in each market. The Fox Kids Network's advertising customers include virtually every major advertiser to children. The Company also distributes 7 1/2 hours of programming each week through the Saban Kids Network which enables its programming on a weighted average basis to reach over 86% of the television households in the United States. One of the essential attributes of quality children's programming is its "portability." Children's programming produced for exhibition in a particular country is considered "portable" because it generally can be modified at modest cost and resold for exhibition in other countries through editing and dubbing into other languages. The Company currently distributes its programming over terrestrial broadcast services in most major television markets throughout the world. To further capitalize on its broad library of children's programming and its relationship with News Corp.--which has significant equity interests in cable and satellite services in most major international markets--the Company has recently agreed or agreed in principle to launch full time or partial day "Fox Kids" branded direct-to-home ("DTH") satellite and cable channels in various markets in Europe and Latin America. On October 19, 1996, the Company launched a Fox Kids branded channel as part of BSkyB's Sky Multichannels package, which through DTH and cable services is currently estimated to reach over 5.5 million viewers in the United Kingdom and Republic of Ireland. Subject to completion of negotiation of definitive agreements, additional international channels are currently contemplated to be launched over the next two years on DTH satellite and cable in Latin America and Asia. See "Business--Distribution: Networks and Syndication--International Channels." In Australia, the Foxtel cable service has been carrying a Fox Kids Network children's channel segment since 1994 under a license recently assigned to the Company by Fox Broadcasting. Children's programming provides excellent opportunities for licensing and merchandising, and the Company has been successful in licensing its properties for use in toys and other children's products. The Company attempts to retain worldwide rights to its brands, and licenses their use to manufacturers for specific products in exchange for royalties, typically accompanied by cash advances. The Company currently has toy licenses with Bandai, Mattel, Hasbro and Toybiz, as well as licenses for other merchandise with over 500 licensees worldwide. The Company also realizes revenues through the distribution of its programs in the U.S. and international home video markets. Through an agreement in principle with Twentieth Century Fox Home Entertainment, Inc. ("Fox Video"), the Company is positioned to increase materially its presence in the children's home video market. The Company believes that as a result of its strengths in substantially all facets of the children's television entertainment business, it is well positioned to exploit a broad range of domestic and international children's entertainment opportunities, including television, merchandising, licensing and home video. The Company intends to expand its business in the United States by capitalizing on the network strengths of the Fox Kids 4 Network and the production and distribution strengths of Saban. As DTH satellite and cable services continue to expand and become more prevalent worldwide, the Company plans to launch additional international children's television channels under the "Fox Kids" name. As the Company continues to expand the distribution outlets which the Company controls, the Company believes that it will also be able further to develop new programs, grow its library of children's programming, build on its popular and branded characters and increase revenue from its licensing and merchandising activities. The Company is a Delaware corporation. Its principal executive offices are located at 10960 Wilshire Boulevard, Los Angeles, California 90024 and its telephone number is (310) 235-5100. THE OFFERINGS Class A Common Stock Offered: U.S. Offering................................... shares(1) International Offering.......................... shares(1) ---- Total................................... shares Common Stock to be outstanding after the Offerings: Class A Common Stock............................ shares(2) Class B Common Stock............................ shares ---- Total................................... shares Voting and Conversion Rights....................... The rights of the holders of the Class A Common Stock and Class B Common Stock are identical, except that each share of Class B Common Stock entitles the holder to ten votes per share, while each share of Class A Common Stock entitles the holder to one vote per share. The Class A Common Stock and the Class B Common Stock vote as a single class on all matters, except as otherwise required by law. The Class B Common Stock is convertible at any time at the election of the holder on a share-for- share basis into Class A Common Stock, and automatically converts into Class A Common Stock under certain circumstances. See "Principal Stockholders" and "Description of Securities." Use of Proceeds.................................... The aggregate net proceeds from the Offerings are estimated to be approximately $ , all of which will be used for general corporate purposes, including working capital. See "Use of Proceeds." Proposed New York Stock Exchange Symbol............ The Company intends to apply for listing of the Class A Common Stock on the New York Stock Exchange.
- -------- (1) Assumes no exercise of the over-allotment options granted by the Company to the Underwriters. (2) Does not include an aggregate of shares of the Class A Common Stock currently issuable upon exercise of options granted to certain members of management of the Company, nor an aggregate of approximately shares of Class A Common Stock issuable upon the exercise of options, exercisable at the initial offering price, which the Company intends to grant to certain officers and employees under its stock incentive plan prior to the completion of the Offerings. See "Management--Stock Options and Stock Incentive Plan." 5 THE REORGANIZATION The Company's principal current operations are conducted by (i) Saban, which is one of the largest suppliers of broadcast children's television programming in the world, and (ii) FCN, which operates the Fox Kids Network-- the top-rated children's (ages 2-11) oriented broadcast television network in the United States. FCN is an indirect wholly-owned subsidiary of FCN Holding, itself an indirect subsidiary of Fox Broadcasting, and both companies are indirect subsidiaries of News Corp. Effective June 1, 1995, FCN Holding and Saban agreed to form the LLC, a strategic alliance limited liability company, and since November 1, 1995, each of Saban and FCN have been operated by their respective managements subject to the overall supervision of the Members Committee of the LLC. Fox Kids Worldwide, Inc. was incorporated in Delaware in August 1996 in connection with the Offerings to act as a holding company of FCN Holding, Saban and the LLC. It currently conducts no business or operations. Immediately prior to the closing of the Offerings, (i) Fox Broadcasting Sub, Inc., a wholly-owned indirect subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"), will exchange its capital stock in FCN Holding, which indirectly owns FCN, for shares of the Class B Common Stock, (ii) the other stockholders of FCN Holding will exchange their capital stock in FCN Holding for an aggregate of shares of the Class A Common Stock, (iii) Haim Saban and the other stockholders of Saban (together, the "Saban Stockholders") (none of whom are affiliated with News Corp.) will exchange their capital stock in Saban for an aggregate of shares of the Class B Common Stock and (iv) all outstanding management options to purchase Saban capital stock will become options to purchase an aggregate of shares of the Class A Common Stock. In addition, Fox Broadcasting will exchange its preferred, non-voting interest in the LLC for an aggregate of 1,000,000 shares of the Company's Series A Redeemable Preferred Stock, $0.001 par value per share (the "Series A Preferred Stock"), and will exchange a $50 million contingent note receivable from the LLC for a new preferred, non-voting interest in the LLC, which will entitle the holder thereof to a priority right to "distributable cash" (see note 2 to "Capitalization") of the LLC, Saban and FCN Holding and their respective subsidiaries. See "Principal Stockholders," "Management--Stock Options and Stock Incentive Plan," "Certain Transactions," "Underwriting" and "Description of Securities." As a result of these transactions, which are referred to in this Prospectus as the "Reorganization," FCN Holding, FCN, Saban and the LLC will become direct or indirect subsidiaries of the Company. The charts on the following page illustrate a simplified ownership structure of the parties to the Reorganization (i) immediately before the Reorganization, and (ii) immediately after the Reorganization and the Offerings. Certain intermediate subsidiary corporations have not been included in these charts. 6 BEFORE THE REORGANIZATION: This flow chart sets forth the ownership structure of the Company before the Reorganization. Fox Children's Network, Inc. is a subsidiary of FCN Holding which is a subsidiary of Fox Broadcasting Sub, which is a subsidiary of Fox Broadcasting, which is a subsidiary of News Corp. Fox Broadcasting owned a non- voting preferred interest in the LLC and FCN Holding owned a 50% voting interest in the LLC. The Saban stockholders own Saban and Saban has a 50% voting interest in the LLC. [CHART APPEARS HERE] AFTER THE REORGANIZATION AND THE OFFERINGS: This flow chart sets forth the ownership structure of the Company after the Reorganization and the Offerings. FCN Holding, FCN, the LLC and Saban are now subsidiaries of the Company. Fox Broadcasting Sub owns 50% of the Class B Common Stock of the Company and the Former Saban Stockholders own the other 50% of the Class B Common Stock. Fox Broadcasting owns all of the Series A Preferred Stock and the Public and Other STockholders own all of the Class A Common Stock. Fox Broadcasting owns a non-voting preferred interest in the LLC. [CHART APPEARS HERE] The consummation of the Reorganization is a condition to the Offerings. Unless the context otherwise requires, for purposes of this Prospectus the Reorganization is assumed to have been consummated, and all descriptions in this Prospectus of the Company, its business, operations, capitalization and ownership are presented as if the Reorganization had already occurred. 7 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA Fox Kids Worldwide, Inc. was incorporated in Delaware in August 1996 in order to effect the Reorganization. Prior to the Reorganization, it will not engage in any business activities. Immediately following the Offerings and the Reorganization, its sole assets will consist of the net proceeds of the Offerings and the capital stock of its direct subsidiaries. Since November 1, 1995 (the "Effective Date"), each of Saban and FCN have been operated by their respective managements subject to the overall supervision of the Members Committee of the LLC. In connection with the Offerings, the Reorganization will be effected, pursuant to which Saban, FCN Holding and the LLC will become wholly-owned subsidiaries of Fox Kids Worldwide, Inc. Solely for financial statement presentation purposes, although the Company will not acquire any of the shares of the capital stock of Saban until immediately prior to the closing of the Offerings, and the Reorganization will not be effected until immediately prior to the closing of the Offerings, the assets and liabilities of Saban, FCN Holding and the LLC are being presented on a combined basis and recorded at historical cost from and after the Effective Date. The following tables set forth, for the periods and on the dates indicated, summary historical and pro forma consolidated financial data derived from the financial statements included elsewhere in the Prospectus. The unaudited pro forma financial data for the Company gives effect to the Reorganization as though it had occured on July 3, 1995 (with respect to the statements of operations data) and on June 30, 1996 (with respect to the balance sheet data). The information presented below should be read together with the historical financial statements and pro forma financial information included elsewhere herein. The pro forma information, as well as the Company financial information subsequent to October 31, 1995, are not necessarily indicative of actual results of operations and financial position that would have been achieved had the transactions been consummated on that date, and are not necessarily indicative of future results of operations or financial position. STATEMENTS OF OPERATIONS DATA: SABAN ENTERTAINMENT, INC.
FIVE MONTHS YEAR ENDED MAY 31, ENDED ------------------------------------- OCTOBER 31, 1992 1993 1994 1995 1995 -------- -------- -------- -------- ----------- (IN THOUSANDS) Revenues(1)............. $47,907 $57,244 $ 84,372 $242,468 $105,130 Operating income........ 9,011 11,286 27,338 73,017 51,570 Interest expense........ 1,274 1,279 2,337 1,315 539 Net income.............. 7,201 8,407 16,800 44,675 36,742 FCN HOLDING, INC. AND THE COMPANY FCN HOLDING || THE COMPANY ------------------------------------------------- || ------------------------------ || EIGHT YEAR ENDED FOUR MONTHS || MONTHS FROM PRO FORMA ------------------------------------- ENDED || NOVEMBER 1, FOR THE JUNE 30, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || 1995 TO JUNE 30, YEAR ENDED 1992 1993 1994 1995 1995 || 1996 JUNE 30, 1996 -------- -------- -------- -------- ----------- || ---------------- ------------- (IN THOUSANDS) || || Net revenues(1)......... $35,027 $85,729 $130,600 $168,871 $46,286 || $191,621 $327,105 Operating income || (loss)(2) ............. 364 (567) 7,435 18,174 (174) || 60,759 117,105 Interest expense........ 2,708 2,017 2,218 1,630 145 || 885 1,566 Net income (loss)....... (2,344) (2,584) 5,217 16,544 (319) || 31,600 71,370
See Notes to Summary Historical and Pro Forma Financial Data 8 BALANCE SHEET DATA: THE COMPANY
AS OF JUNE 30, 1996 -------------------- AS ACTUAL ADJUSTED(3) -------- ----------- (IN THOUSANDS) Cash and cash equivalents.............................. $ 16,044 $ Programming costs, less accumulated amortization....... 181,427 Total assets........................................... 336,270 Long-term obligations (including current maturities)... 101,487 Stockholders' equity(4)................................ 72,831
OTHER DATA: SABAN ENTERTAINMENT, INC.
FIVE MONTHS ENDED OCTOBER 31, YEAR ENDED MAY 31, 1995 ----------------------------------- ----------- 1992 1993 1994 1995 -------- --------- ------- -------- (IN THOUSANDS) EBITDA(5)............... $ 9,122 $11,423 $27,521 $73,360 $51,730 Capital expenditures.... 480 789 1,795 2,242 4,020 Amortization of programming costs...... 27,088 32,367 40,292 84,109 32,651 Investment in programming(6)......... 38,340 50,388 65,092 114,903 34,988 FCN HOLDING, INC. AND THE COMPANY FCN HOLDING || THE COMPANY ----------------------------------------------- || ----------------------- || EIGHT MONTHS FOUR || FROM PRO FORMA YEAR ENDED MONTHS || NOVEMBER 1, FOR THE ----------------------------------- ENDED || 1995 TO YEAR ENDED JUNE 30, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || JUNE 30, JUNE 30, 1992 1993 1994 1995 1995 || 1996 1996 -------- --------- ------- -------- ----------- || ------------ ---------- (IN THOUSANDS) || || EBITDA(4)............... $ 377 $ (531) $ 7,443 $ 18,191 $ (161) || $ 61,269 $117,756 Capital expenditures.... 0 6 10 91 31 || 3,053 6,897 Amortization of || programming costs...... 23,918 63,179 94,160 98,309 26,937 || 84,490 143,767 Investment in || programming(6)......... 27,475 66,545 88,999 107,368 28,884 || 113,506 170,777
See Notes to Summary Historical and Pro Forma Financial Data 9 NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA (1) Includes revenues recognized by Saban from FCN and revenues recognized by FCN from Saban, as set forth below:
FIVE MONTHS FOUR MONTHS FISCAL YEAR ENDED ENDED ------------------------------ OCTOBER 31, OCTOBER 31, 1992 1993 1994 1995 1995 1995 ------- ------ ------- ------- ----------- ----------- (IN THOUSANDS) Saban revenues from FCN. $ -- $2,535 $10,483 $16,228 $9,651 n/a FCN revenues from Saban. -- -- 885 14,662 n/a $973
(2) Under agreements between FCN and Fox Broadcasting and certain of its affiliated corporations (the "Fox Parties"), for periods prior to June 1, 1995, FCN accrued administrative fees, distribution fees and other payments to the Fox Parties. Effective June 1, 1995, the Fox Parties assigned to the Company its rights to these payments. Amounts expensed under these agreements were $2.7 million, $13.5 million, $19.8 million, $26.9 million and $9.1 million for the 1992, 1993, 1994 and 1995 fiscal years and for the four months ended October 31, 1995. (3) As adjusted to give effect to (i) the Offerings, (ii) the Reorganization and (iii) the repayment by the LLC of $14.5 million of its $64.5 million non-interest bearing indebtedness to Fox Broadcasting in September 1996, and the receipt of $50 million of non-voting Class A Members Interests in the LLC (see note 2 to "Capitalization") in exchange for the balance of such indebtedness. (4) Included in stockholders' equity are (i) Class A Preferred Member's Interests in the LLC, which entitle the holder thereof (Fox Broadcasting) to preferential distributions of "distributable cash" of $40 million at June 30, 1996 ($50 million as adjusted) (see note 2 to Capitalization), and (ii) Series A Preferred Stock of the Company with dividend and liquidation preferences of $0 at June 30, 1996 ($50 million as adjusted). (5) EBITDA represents income from operations before interest, taxes, depreciation and amortization (excluding amortization of programming costs), and (with respect to the Company) a $10 million non-cash charge for investment advisory services rendered to FCN Holding in connection with the formation of the LLC. EBITDA is presented because the Company believes it is a standard financial statistic commonly reported and widely used by analysts and other interested parties in the television industry. The Company believes that EBITDA, while providing useful information, should not be considered in isolation or as a substitute for net income or loss, as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity. EBITDA also does not represent funds available for dividends, reinvestment or other discretionary uses. (6) Includes acquisitions of existing programming and programming libraries. 10 RISK FACTORS Prospective investors should consider carefully the following factors, in addition to the other information contained in this Prospectus, including the financial statements and the notes thereto, in evaluating the Company and its business before purchasing shares of Class A Common Stock offered hereby. DEPENDENCE ON POWER RANGERS Since its introduction in the United States in 1993, the Power Rangers series has been materially important to the success and growth of the Company, and accounted for a significant portion of the Company's pro forma consolidated revenues and operating profits for the fiscal year ended June 30, 1996, as well as a substantial portion of the historical revenues and operating profits of Saban and FCN. For the fiscal year ended June 30, 1996, revenues derived from the Company's production, distribution and worldwide exploitation of Power Rangers accounted for approximately 44% of the Company's pro forma consolidated revenues. While ratings of the Power Rangers over the past three years have declined, Power Rangers has in each of these years been the most watched children's television program in United States. However, children's preferences change frequently, and there can be no assurance that television viewership of Power Rangers will be maintained or that related revenues will not be affected adversely. In addition, the carriage of highly rated programs such as Power Rangers tends to enhance the viewership, and ratings, of other programs broadcast on the Fox Kids Network, and thus further contributes to the network's ratings. Any material decline in the viewership of Power Rangers could also lead to a decline in the ratings of other programs broadcast on the Fox Kids Network. Therefore, material declines in the ratings of Power Rangers could materially and adversely affect the Company's results of operations and financial condition. See "--Dependence on Key Contracts," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations" and "Business--Programming." POSSIBLE DECLINE IN POPULARITY OF OTHER CURRENT PROGRAMS AND UNCERTAINTY OF ACCEPTANCE OF NEW PROGRAMS The Company's revenues are derived from the creation, development, production, acquisition, distribution, merchandising and other exploitation of children's television properties. For the fiscal year ended June 30, 1996, revenues from these sources represented approximately 94% of the Company's pro forma consolidated revenues. The success of each series depends upon unpredictable and volatile factors beyond the Company's control, such as children's preferences, competing programming and the availability of other entertainment activities for children. A shift in children's interests could cause the Company's current television programming to decline in popularity, which could materially and adversely affect the Company's results of operations and financial condition. The Company also intends to continue to produce or acquire new properties, the success of which depends entirely upon market acceptance. There can be no assurance as to the continuing commercial success of any of the Company's currently distributed properties, or that the Company will be successful in generating sufficient demand and market acceptance for its new properties. While the Company is committed to the ongoing development and acquisition of children's television programming, the inability of the Company to develop or acquire new programs that are capable of achieving commercial success could materially and adversely affect the Company's results of operations and financial condition. See "--Competition." DEPENDENCE ON KEY PERSONNEL The Company's success depends to a significant extent upon the expertise and services of certain key executives, including Haim Saban, the Company's Chairman and Chief Executive Officer and the founder of Saban. The Company has entered into an employment agreement with Mr. Saban and certain of its other key executives. For a description of the terms of these agreements, see "Management--Employment Agreements." The Company does not maintain "key person" life insurance policies on any of its executives. The loss of the services of Mr. Saban or any of the key personnel could have a material adverse effect on the results of 11 operations and financial condition of the Company. For a discussion of agreements to which Mr. Saban is a party relating to his shareholdings, see "Management--Employment Agreements," "--Agreement Regarding Election of Directors; Change in Control" and "Description of Securities--Registration Rights." POSSIBILITY OF NON-RENEWAL OF FOX KIDS NETWORK AFFILIATED STATIONS The Company currently distributes network programming to the television stations which carry the Fox Kids Network (the "Fox Kids Network Affiliates") pursuant to affiliation agreements, which will expire over the next two to ten years. Although the Company currently expects to continue to be able to renew its affiliation agreements as they mature, no assurance can be given that these renewals will be obtained, or that they will be obtained on a cost- effective basis. Substantially all of the current Fox Kids Network Affiliates are also affiliates ("member stations") of Fox Broadcasting (the "FOX Television Network"), and it is anticipated that renewals of most of the Fox Kids Network affiliation agreements will occur in conjunction with renewals of FOX Television Network affiliate agreements. If a FOX Television Network member station decides not to renew its status as such, it is less likely that it would renew its Fox Kids Network affiliate agreement. See "Business-- Distribution: Networks and Syndication" and "Business--The Strategic Alliance with Fox/News Corp." LIMITED NUMBER OF TIME SLOTS FOR U.S. CHILDREN'S TELEVISION PROGRAMMING In addition to providing programming for the Fox Kids Network, the Company is engaged in the creation, development and production of children's television programming intended for broadcast on other networks, and in syndication, in both the U.S. and international markets. For the fiscal year ended June 30, 1996, in the U.S. and international markets, respectively, approximately 3% and 15% of the Company's pro forma consolidated revenues were derived from these activities. With respect to this programming, the Company competes for time slots with a variety of companies which produce animated or live-action television programming targeted at children. The number of U.S. outlets available to producers of children's programming has expanded in the last decade due, in part, to the growth in the number of broadcast and cable outlets. However, the number of time slots currently allocated to children's television programming remains limited (a "slot" is typically a half hour broadcast time period for a program that either airs five times per week-- Monday through Friday--or once per week, usually on the weekend). In addition to the seven shows owned and produced by the Company for broadcast on the Fox Kids Network, the Company has cleared nine series in the United States for the 1996-1997 broadcast season, which will air primarily on the Saban Kids Network and on UPN. The success of the Company will continue to be materially dependent upon its ability to continue to be successful in obtaining commercially reasonable levels of clearance for its programming. DEPENDENCE ON KEY CONTRACTS The Company has toy license agreements with Bandai America Incorporated ("Bandai") pursuant to which the Company has granted to Bandai worldwide toy manufacturing and distribution rights to three series, including Power Rangers. For the fiscal year ended June 30, 1996, approximately 20% of the Company's pro forma consolidated revenues were derived from its license agreements with Bandai. Should the Company's agreements with Bandai terminate, there can be no assurance that the Company would be able to enter into license agreements with other toy manufacturers on terms comparable to the Bandai agreements. See "Business--Merchandising and Licensing." In addition, three of the Company's 16 series for the 1996-1997 broadcast season are based on programs originally developed by Toei Company Ltd. ("Toei"), which is currently Japan's largest film company. The Company has been granted rights in perpetuity to each of these series, including Power Rangers. Toei is obligated to provide the Company with an exclusive option to acquire additional children's programming through at least 2004. While the Company believes that its ability successfully to develop future programming is not materially dependent on its relationship with Toei, the possibility nonetheless exists that any change in the Company's relationship with Toei, or the failure of Toei to perform its obligations under its agreements with the Company, could have a material adverse effect on the results of operations and financial condition of the Company. See "Business--Programming--Relationships with Marvel and Toei." 12 OVERESTIMATION OF REVENUES OR UNDERESTIMATION OF COSTS The Company follows Financial Accounting Standards Board Statement No. 53, "Financial Reporting by Producers and Distributiors of Motion Picture Films," regarding revenue recognition and amortization of production costs, in which the Company owns or controls all applicable rights. All costs incurred in connection with an individual program or film, including acquisition, development, production and allocable production overhead costs and interest, are capitalized as television and film costs. These costs are stated at the lower of unamortized cost or estimated net realizable value. Estimated total production costs for an individual program or film are amortized in the proportion that revenue realized relates to management's estimate of the total revenues expected to be received from such program or film. For programs in which the Company acquires only network broadcast rights, the Company amortizes such program costs over the estimated number of broadcasts in accordance with Financial Accounting Standards Board Statement No. 63, "Financial Reporting by Broadcasters." If revenue or cost estimates change with respect to a program or film, the Company may be required to write down all or a portion of the unamortized costs for such program or film. No assurance can be given that such write-downs, if they occur, will not have a material adverse effect on the Company's results of operations or financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Use of Estimates." SEASONALITY All of the Company's television programming revenues are recognized either when the program is available for broadcast or when advertising spots which appear in the programs are broadcast. For this reason, significant fluctuations in the Company's total revenues and net income can occur from period to period depending upon availability dates of programs and advertising revenues. In the United States, revenues from advertising targeted at children are concentrated in the fourth calendar quarter of each year. In the international television market, a significant portion of revenues are recognized in connection with sales at international trade shows (principally MIP in April and MIP-COM in October). As a result, the second and fourth quarters of each calendar year have generally contributed a substantial portion of the Company's total revenues. Due, in part, to these seasonality factors, the results of any one quarter are not necessarily indicative of results for future periods, and cash flows may not correlate with revenue recognition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Revenue Recognition and Seasonality." COMPETITION The businesses in which the Company engages are highly competitive. Each of the Company's primary business operations is subject to competition from companies which, in some instances, have greater production, distribution and capital resources than the Company. The Company competes on the basis of relationships and pricing for access to a limited supply of facilities and talented creative personnel to produce its programs. The Company competes with major motion picture studios, such as Warner Bros. Television Distribution, Inc. ("Warner Bros.") and The Walt Disney Company, and animation production companies including Hanna-Barbera and Film Roman for the services of writers, producers, animators, actors and other creative personnel and specialized production facilities. In the United States, the Company competes for time slots, ratings and related advertising revenues. The Company currently competes, through its Fox Kids Network, with the other broadcast television networks, public television and cable television channels, such as Nickelodeon, USA cable network and The Cartoon Network, for market acceptance of its programming and for viewership ratings. In addition, The Walt Disney Company has recently announced plans to launch an educational cable television channel for children. Over the past five years, cable television has captured an increasing market share while overall viewership of the networks, and broadcast television in general, has declined. Further, the Company vies for the children's audience with independent television stations, suppliers of cable television programs, direct broadcast satellite and other DTH 13 systems, radio and other forms of media. Through the Saban Kids Network, the Company also competes with other syndicators, including The Disney Afternoon, on a market-by-market basis for time slots, coverage commitments, ratings and advertising revenue. As a result of heightened competition for the children ages 2-11 category, virtually every major broadcast network suffered a decline in ratings for each of the last two television seasons, and there can be no assurance that such trend will not continue. Internationally, the Company contends with a large number of U.S.-based and international distributors of children's programming, including The Walt Disney Company and Warner Bros., with whom it must also compete in the development or acquisition of programming expected to appeal to international audiences. Such programming often must comply with foreign broadcast rules and regulations which may stipulate certain local content requirements. See "--Licensing and Merchandising," "--Government Regulation," "Business--Competition" and "Business--Distribution: Networks and Syndication." LICENSING AND MERCHANDISING For the fiscal year ended June 30, 1996, the Company derived approximately 35% of its pro forma consolidated revenues from the licensing of its program characters and other readily identifiable programming elements to others for the production and distribution of a variety of products ranging from toys to apparel and to merchandisers that utilized these characters or elements for promotional purposes in their businesses. The Company competes with hundreds of owners of creative content who seek to license their characters and properties to a limited number of manufacturers and distributors. Although the Company currently has entered into merchandising agreements with over 500 different manufacturing and commercial organizations, including manufacturers such as Bandai, Toybiz, Hasbro and Mattel, and although the Company's characters have been, and continue to be used in marketing campaigns by international franchises such as McDonald's and Taco Bell, the ability of the Company to continue successfully to exploit the merchandising opportunities afforded by its programs will continue to be dependent on the favorable ratings of the programs and the ability of the Company's characters to continue to provide attractive merchandising features to its customers. See "Business--Merchandising and Licensing." INTERNATIONAL SUBCONTRACTING OF ANIMATION As with other producers of animated programming, the Company subcontracts some of the less creative and more labor-intensive components of its animation production process to studios located in countries with relatively low-cost labor, primarily in the Far East. With an increasing number of animated feature films and animated television programs being produced in recent years, the demand for the services of overseas studios has increased substantially. This increased demand may lead overseas studios to increase their fees, which could result in increased animated programming production costs incurred by the Company or the inability of the Company to contract with its preferred overseas studios. No assurance can be given that future subcontracting arrangements will be obtainable on terms which are as favorable to the Company as its current arrangements. INTERNATIONAL SALES Approximately 31% of the Company's pro forma consolidated revenues for the fiscal year ended June 30, 1996 was derived from international operations. As part of its business strategy, the Company intends to expand its international program production and distribution activities, as well as its worldwide merchandising, licensing and ancillary activities, including the launch of children's channels on DTH satellite and cable platforms throughout the world. See "Business--Business Strategies." The Company is subject to the special risks inherent in international business activities, including (i) general economic, social and political conditions in each country, (ii) currency fluctuations, (iii) double taxation, (iv) unexpected changes in applicable regulatory requirements and (v) compliance with a variety of international laws and regulations. The operations of the Company's international entities are measured in part in local currencies. For reporting purposes, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of each reporting period. Revenues and expenses are translated into U.S. dollars at the average exchange rates prevailing during the period. As a result, the Company can expect to record foreign exchange losses and gains in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Overview." 14 RAPID EXPANSION AND INTEGRATION OF THE BUSINESS During the past three years, the Company has experienced rapid and substantial growth in revenues, and diversification of its businesses. Any future growth may place a significant strain on management and on its financial and information processing systems. In addition, the integration of the operations and business of the Fox Kids Network and Saban will require the dedication of substantial management resources and may result in increased administrative expenses. The failure to maintain or upgrade these systems, to recruit additional staff and key personnel or to respond effectively to difficulties encountered during expansion could have a material adverse effect on the Company's results of operations and financial condition. GOVERNMENT REGULATION The Company's broadcast of its programming must comply with the provisions of the Children's Television Act of 1990 ("CTA") and the rules and policies of the Federal Communications Commission ("FCC") pertaining to the production and distribution of television programs directed to children, particularly with respect to the amount and type of commercial matter broadcast during programs directed at children. Failure to comply with the children's television commercial limitations can result in the imposition of sanctions, including substantial monetary fines, on a broadcast television station, which could adversely impact the Company. On August 8, 1996, the FCC amended its rules to establish a "processing guideline" for broadcast television stations of at least three hours per week, averaged over a six-month period, of "programming that furthers the educational and informational needs of children 16 and under in any respect, including the child's intellectual/cognitive or social/emotional needs." Core Programming has been defined as educational and informational programming that, among other things, (i) has serving the educational and informational needs of children "as a significant purpose," (ii) has a specified educational and informational objective and a specified target child audience, (iii) is regularly scheduled, weekly programming, (iv) is at least 30 minutes in length, and (v) airs between 7:00 a.m. and 10:00 p.m. Any station that satisfies the processing guideline by broadcasting at least three weekly hours of Core Programming will receive FCC staff-level approval of the portion of its license renewal application pertaining to the CTA. Alternatively, a station may qualify for staff-level approval even if it broadcasts "somewhat less" than three hours per week of Core Programming by demonstrating that it has aired a weekly package of different types of educational and informational programming that is "at least equivalent" to three hours of Core Programming. Non-core programming that can qualify under this alternative includes specials, public service announcements, short-form programs and regularly scheduled non-weekly programs, "with a significant purpose of educating and informing children." Although the Company has cleared a series called The Why Why Family in the U.S. syndication market for the Fall of 1996, which it believes qualifies as Core Programming under the new rules, the adoption of the new quantitative guideline could result in a material increase in the amount of educational and informational children's programming broadcast; and it is unclear what impact, if any, such a result would have on the Company's business. The United States Congress and the FCC also currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters which could, directly or indirectly, materially adversely affect the operations of the Company. The Company is unable to predict the outcome of future federal legislation or the impact of any such laws or regulations on its operations. See "Business--Government Regulation." The Company is also subject to local content and quota requirements in international markets which, although a significant portion of the Company's library meets such current requirements in Europe, effectively limits access to particular markets. CONTROL BY EXISTING STOCKHOLDERS Upon completion of the Offerings, Haim Saban, the other Saban Stockholders (each of which has granted to Haim Saban the irrevocable right to vote its shares) and Fox Broadcasting (collectively, the "Class B 15 Stockholders") will beneficially own all of the outstanding shares of the Class B Common Stock, representing approximately % ( % if the Underwriters' over-allotment options are exercised in full) of the votes eligible to be cast on all matters submitted to a vote of the Company's stockholders, except as required by law. The voting of the shares of the Class B Common Stock owned by the Class B Stockholders is subject to the discretion of the Class B Stockholders, which may differ from the interests of the Company. As a result, the Class B Stockholders will have voting control on all stockholder actions, including the sale or merger of the Company or a sale of substantially all of its assets. In addition, holders of shares of the Class A Common Stock and Class B Common Stock do not have cumulative voting rights, and the Class B Stockholders will be able to elect all of the Company's directors. This would effectively prevent a third party from acquiring control of the Company without the Class B Stockholders' approval and could adversely affect the market price of the Class A Common Stock. Moreover, while the Class B Stockholders' positions as principal stockholders may make an unsolicited takeover relatively unlikely, the enhanced voting power of Class B Common Stock will enable Class B Stockholders to retain control of the Company even if their economic stake is reduced, thereby further diminishing the likelihood of a takeover bid, a merger proposal, a tender offer or a proxy contest. The Class B Stockholders may have interests with respect to their ownership of the Company which diverge from those of the Company's public stockholders. There can be no assurance that the Company will not be adversely impacted by the control which the Class B Stockholders will have with respect to matters affecting the Company. See "Summary--The Reorganization," "Principal Stockholders," "Certain Transactions" and "Description of Securities." POTENTIAL FOR DEADLOCKS The holders of the Class B Common Stock have agreed, so long as neither Fox Broadcasting nor the former Saban Stockholders as a group have disposed of more than one third of their respective initial Class B Common Stock beneficial holdings, to vote their shares together on all matters presented to the stockholders, and if they cannot agree as to how to vote on a matter, to abstain from voting with respect thereto. With respect to the election of directors, they have agreed to vote their shares for three directors selected by Mr. Saban, three directors selected by Fox Broadcasting, and two independent directors generally selected by both. Because the charter documents provide that no Board action may be taken without a vote of at least three-quarters of the directors, the possibility exists that, as a result of differences which may arise in the future between Fox Broadcasting and Mr. Saban, the Company may experience difficulties in defining and meeting its business objectives, or in effecting a transaction which would be in the best interests of the Company, which could materially and adversely affect the results of operations and financial condition of the Company. See "Principal Stockholders" and "Description of Securities." STRATEGIC RELATIONSHIPS WITH NEWS CORP. AND FOX The Company has had, and continues to have, a close strategic relationship with News Corp. and its affiliated entities, including Fox Broadcasting, and believes that this relationship is materially important to its business and business strategies. However, except as may be provided in the agreements between them which are discussed elsewhere in this Prospectus, neither News Corp. or its affiliated companies, nor the Company, are obligated to engage in any business transactions or jointly participate in any opportunities with the other, and the possibility exists that the current strategic relationships between the parties could materially change in the future. TRANSACTIONS WITH STOCKHOLDERS AND THEIR AFFILIATES The Company has in the past entered into transactions and agreements, some of which are ongoing, with Mr. Saban and with Fox Broadcasting and News Corp. and their affiliated companies. In addition, the Company may in the future enter into additional agreements and other transactions with certain of these affiliates. Although the Company has adopted a policy that future transactions between the Company and any of these affiliates or family members must be approved by a majority of the Board of Directors of the Company, including a majority of the disinterested members of the Board, there can be no assurance that any such future transactions will prove to be favorable to the Company. See "Certain Transactions." 16 BROAD DISCRETION AS TO USE OF PROCEEDS The Company intends to use the net proceeds of the Offerings for general corporate purposes, including working capital primarily to finance the Company's development, acquisition and licensing of children's programming and its expansion in international television markets. In addition, the Company may use a portion of the net proceeds to acquire businesses, libraries, and other assets believed by the Company to be complementary to the Company's current businesses or which support the Company's strategic goals; although, except as described in this Prospectus, the Company has no such commitments. As a result, a significant portion of the net proceeds will be available for projects that are not yet identified, and management will have broad discretion with respect to the application of such proceeds. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offerings, there has been no public market for the Class A Common Stock and there can be no assurance that an active public market for the Class A Common Stock will develop after the Offerings. The initial public offering price will be determined by negotiations between the Company and the Underwriters based upon several factors, and there can be no assurance that the market price of the Class A Common Stock after the Offerings will equal or exceed the initial public offering price. The market price of the Company's Class A Common Stock could be subject to wide fluctuations in response to variations in operating results, announcements of developments by the Company or its competitors, and other events or factors. In addition, the stock market has from time to time experienced extreme price and volume fluctuations, including those which have particularly affected the market price for entertainment companies, and that may be unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of the Class A Common Stock. See "Underwriting." SUBSTANTIAL DILUTION Assuming an initial offering price of $ per share, purchasers of the Class A Common Stock in the Offerings will realize immediate and substantial dilution in net tangible book value as of June 30, 1996 of $ per share. See "Dilution." POTENTIAL ANTI-TAKEOVER EFFECTS As a result of the agreements and charter provisions discussed under "Control by Existing Stockholders" above, it is highly unlikely that any transaction involving a change of control of the Company, including transactions in which stockholders might receive a substantial premium for their shares over then current market prices, could be effected without the consent of both Fox Broadcasting and Mr. Saban, either of whom might determine that such a transaction was not in its or his best interests. In addition, other provisions of the Certificate of Incorporation and Bylaws, as well as provisions of the Delaware General Corporation Law (the "DGCL"), may have the effect of delaying or preventing transactions involving a change of control of the Company, including transactions in which stockholders might receive a substantial premium for their shares over then current market prices, and may limit the ability of stockholders to approve transactions that they deem to be in their best interest. See "Description of Securities." IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offerings, the Company will have outstanding shares of Class A Common Stock ( shares if the Underwriters' over- allotment options are exercised in full), of which all but shares are being sold in the Offerings, and shares of Class B Common Stock. Any portion, or all, of the shares of Class B Common Stock are convertible into shares of Class A Common Stock on a share-for-share basis at any time at the option of the holder. Immediately following the Offerings, all shares of Class B Common Stock will be held by "affiliates" (as defined in the Securities Act) of the Company and will be "restricted 17 securities" under the Securities Act. Under current rules of the Securities and Exchange Commission, these shares cannot be sold other than pursuant to an effective registration statement under the Securities Act or an applicable exemption from the registration requirements of the Securities Act, including Rule 144 thereunder. The Company intends to file a registration statement under the Securities Act within 180 days following the completion of the Offerings covering the shares of Class A Common Stock reserved for issuance upon exercise of outstanding stock options, and additional options granted pursuant to the Company's stock incentive plan. No prediction can be made as to the effect, if any, that future sales of shares of Class A Common Stock or the availability of these shares for future sale will have on the market price of shares of Class A Common Stock prevailing from time to time. See "Shares Eligible for Future Sale." USE OF PROCEEDS The net proceeds to the Company from the Offerings, at an assumed offering price of $ per share and after deducting the underwriting discount and expenses, are estimated to be approximately $ million ($ million if the Underwriters' over-allotment options are exercised in full). The Company intends to use the net proceeds for general corporate purposes, including working capital, primarily to finance the Company's development, acquisition and licensing of children's programming and its expansion in international television markets. In addition, the Company may use a portion of the net proceeds to acquire businesses, libraries and other assets believed by the Company to be complementary to the Company's current businesses or which support the Company's strategic goals; although the Company currently has no such commitments. Although the Company on a regular basis has had, and intends to continue to engage in, exploratory discussions and analyses concerning acquisition opportunities which might be favorable to it, none of these discussions has, to date, resulted in a probable acquisition opportunity. Pending these uses, the net proceeds of the Offerings will be invested in deposits with financial institutions, investment grade securities and short- term, income-producing investments, including government obligations and other money-market instruments. See "Risk Factors--Broad Discretion as to Use of Proceeds." DIVIDEND POLICY The Company has no current intention of paying cash dividends on its Common Stock. Any future determination to pay cash dividends will be made at the discretion of the Board of Directors of the Company, and will be dependent upon the Company's results of operations, financial condition and other factors deemed relevant by the Board of Directors. The Certificate of Incorporation of the Company provides that the Class A Common Stock and Class B Common Stock participate on a share for share basis in all dividends paid to holders of Common Stock (see "Description of Securities--Class A Common Stock and Class B Common Stock"). The Company has outstanding 1,000,000 shares of Series A Preferred Stock, all of which are owned by Fox Broadcasting. The Series A Preferred Stock has a liquidation value of $50 per share less any dividends declared and paid by the Company with respect thereto. The Company's Certificate of Incorporation provides that, as long as any shares of Series A Preferred Stock remain outstanding, the Company cannot pay, or set aside and reserve for payment, any cash dividends on any series or class of equity securities ranking junior to the Series A Preferred Stock. In addition, under the terms of the Class A Members Interest of the LLC, Fox Broadcasting has a priority right to receive the first $50 million of "distributable cash" (as defined) of the LLC, Saban and FCN Holding and their respective subsidiaries. The Series A Preferred Stock and the Class A Members Interest of the LLC may each have the effect of precluding the payment of cash dividends for an extensive period of time. The current line of credit of Saban with its principal U.S. bank prohibits the payment of dividends from that subsidiary to the Company for any purpose, including the payment of dividends by the Company to its stockholders, without prior bank approval. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." For a description of distributions made prior to the Reorganization, see "Certain Transactions." 18 DILUTION The net tangible book value of the Company at June 30, 1996, was $ million or $ per share of Common Stock. Net tangible book value per share of Common Stock is equal to the Company's total assets less its total liabilities, less the $50 million liquidation preference of the Series A Preferred Stock, divided by the total number of outstanding shares of Common Stock. After giving effect to the sale of shares of the Class A Common Stock in the Offerings at an assumed initial public offering price of $ per share, and the receipt and application of the net proceeds therefrom (after deducting the estimated underwriting discount and expenses), the pro forma net tangible book value of the Company at June 30, 1996 would have been approximately $ million or $ per share of Common Stock. This represents an immediate increase in such net tangible book value of $ per share to the existing stockholders and an immediate dilution of $ per share to new stockholders purchasing shares in the Offerings. If the initial public offering price is higher or lower, the dilution to the new stockholders will increase or decrease accordingly. The following table illustrates this per share dilution: Assumed initial public offering price per share(1).............. $ Net tangible book value per share of Common Stock as of June 30, 1996.......................................... $ ----- Increase in net tangible book value per share of Common Stock attributable to new stockholders............................. ----- Pro Forma net tangible book value per share of Common Stock as of June 30, 1996 after the Offerings.............................. ----- Dilution in net tangible book value per share of Common Stock to new stockholders in the Offerings........................... $ =====
- -------- (1) Before deduction of the underwriting discount and estimated expenses. The calculations in the table set forth above assume no exercise of the Underwriters' over-allotment options and do not reflect the shares of Class A Common Stock reserved for issuance pursuant to outstanding options or options to be granted in connection with the Offerings. See "Management-- Stock Options and Stock Incentive Plan." The following table summarizes, as of June 30, 1996, the difference between the number of shares acquired from the Company and the total consideration and average price per share paid therefor by existing stockholders (assuming no exercise of any outstanding options by the holders thereof) and by new investors, assuming an initial public offering price of $ per share:
SHARES TOTAL PURCHASED(1) CONSIDERATION(2) -------------- ------------------ AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ------ ------- --------- -------- ------------- Existing Stockholders....... % $ % $ New Investors............... ------ --- --------- ------ ------ Total................... 100% $ 100% $ ====== === ========= ====== ======
- -------- (1) Does not include shares of Class A Common Stock issuable upon exercise of outstanding management stock options, of which will be exercisable immediately after the Offerings (which options, if exercised in full, would generate aggregate proceeds to the Company of $ ). (2) Based upon the purchase price paid, including services rendered, by the existing stockholders for the securities of the companies which are parties to the Reorganization; does not reflect (i) distributions and dividends to the existing stockholders; or (ii) the receipt by Fox Broadcasting of Series A Preferred Stock, with a $50 million liquidation value, or Class A Members Interest in the LLC, with a $50 million preference value, in connection with the Reorganization. See "Summary--The Reorganization" and "Certain Transactions." 19 CAPITALIZATION The following table sets forth the combined capitalization of the Company (i) at June 30, 1996 and (ii) as adjusted to give effect to the Reorganization, to the repayment and exchange effected in September 1996 with respect to $64.5 million in indebtedness due to Fox Broadcasting and to the sale of shares of the Class A Common Stock offered hereby, at an assumed offering price of $ per share.
AT JUNE 30, 1996 ------------------ AS ACTUAL ADJUSTED -------- -------- (IN THOUSANDS) Cash and cash equivalents................................. $ 16,044 $ ======== ====== Long-term debt (including current portion)(1)............. $101,487 $ Capitalized lease obligations............................. -- -------- ------ Total long-term obligations............................. 101,487 -------- ------ Stockholders' equity: Class A Preferred Member's Interest in the LLC ($40,000,000 liquidation preference actual and $50,000,000 liquidation preference as adjusted)(2)..... 40,000 50,000(3) Series A Preferred Stock, $0.001 par value; 1,000,000 shares authorized; none outstanding; 1,000,000 shares issued and outstanding as adjusted ($40,000,000 liquidation preference actual and $50,000,000 liquidation preference as adjusted).................... -- Preferred Stock, $0.001 par value; 15,000,000 shares authorized; no shares issued or outstanding............ -- Class A Common Stock, $0.001 par value; shares authorized; none outstanding; shares issued and outstanding as adjusted(4)............................. -- Class B Common Stock, $0.001 par value; shares authorized; none outstanding; shares issued and outstanding as adjusted..................... -- Common stock, $.01 par value, 10,000 shares authorized, 800 shares issued and outstanding (Saban Entertainment, Inc.).................................................. -- Common stock, no par value, 2,000 shares authorized, 2,000 shares issued and outstanding (FCN Holding, Inc.) ....................................................... 2 Contributed capital..................................... 49,245 Cumulative translation adjustment....................... (11) Retained deficit........................................ (16,405) -------- ------ Total stockholders' equity.............................. $ 72,831 $ -------- ------ Total capitalization.................................. $174,318 $ ======== ======
- ------- (1) Includes $64.5 million of non-interest bearing indebtedness to Fox Broadcasting. Of this indebtedness, $14.5 million was repaid after June 30, 1996. The balance of this indebtedness will on the Reorganization be exchanged for $50 million of Class A Members Interest in the LLC. (2) This non-voting members interest is entitled to preferential distributions out of "distributable cash" (as defined), if any, of the LLC (which includes cash available for Saban and FCN Holding and their respective subsidiaries). The $40 million of Class A Members Interest in the LLC, and a $10 million contingent liability of the LLC outstanding at June 30, 1996, will on the Reorganization be exchanged for 1,000,000 shares of the Series A Preferred Stock of the Company. See "Certain Transactions-- Formation of the LLC and the Reorganization." (3) Terminates in the event that $50 million in distributions have been received . (4) Does not include an aggregate of shares of the Class A Common Stock currently issuable upon exercise of options granted to certain members of management of the Company, nor an aggregate of approximately shares of Class A Common Stock issuable upon the exercise of options, exercisable at the initial offering price, which the Company intends to grant to certain officers and employees under its stock incentive plan prior to the closing of the Offerings. See "Management--Stock Options and Stock Incentive Plan." 20 UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma consolidated balance sheet reflects the Reorganization as if it had occurred as of June 30, 1996. The following pro forma consolidated statement of operations reflects, on a consolidated basis, the results of operations of the Company, FCN Holding, Saban and the LLC as if the Reorganization had occurred as of July 3, 1995. The pro forma information is based on the historical financial statements of the Company, FCN Holding, Saban and the LLC giving effect to the Reorganization, the results of operations on a consolidated basis and the assumptions and adjustments in the accompanying notes to the pro forma financial statements. Included in the pro forma consolidated statement of operations for the year ended June 30, 1996 are the statement of operations of the Company for the eight months ended June 30, 1996 and the statement of operations of FCN Holding for the four months ended October 31, 1995. The pro forma consolidated statements have been prepared by the Company's management based upon the financial statements of the Company, FCN Holding, Saban and the LLC included elsewhere herein. These pro forma consolidated statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma consolidated financial statements should be read in conjunction with the audited financial statements and notes of the Company, FCN Holding and Saban contained elsewhere herein. 21 PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) JUNE 30, 1996 (IN THOUSANDS, EXCEPT SHARE INFORMATION)
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS CONSOLIDATED ----------- ----------- ------------ ASSETS: Cash and cash equivalents............... $ 16,044 $ 16,044 Restricted cash......................... 8,000 8,000 Accounts receivable, net................ 56,225 56,225 Amounts receivable from related parties. 25,789 25,789 Programming costs, less accumulated amortization........................... 181,427 181,427 Property and equipment, at cost, less accumulated depreciation .............. 8,711 8,711 Deferred income taxes .................. 27,023 27,023 Other assets............................ 13,051 13,051 -------- -------- Total assets........................ $336,270 $336,270 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable........................ $ 8,192 $ 8,192 Accrued liabilities..................... 30,247 30,247 Deferred revenue........................ 67,882 67,882 Fox Kids Network affiliate participations payable................. 13,738 13,738 Accrued programming expenditures........ 15,179 15,179 Accrued residuals and participations.... 22,040 22,040 Income taxes payable.................... 3,884 3,884 Deferred income taxes................... 790 790 Debt.................................... 19,916 19,916 Amounts payable to related parties...... 81,571 (60,000)(a) 21,571 -------- ------- -------- Total liabilities................... 263,439 (60,000) 203,439 Commitments and contingencies -- -- Stockholders' equity Common stock, $.01 par value, 10,000 shares authorized, 800 shares issued and outstanding (Saban).............. -- -- Common stock, no par value, 2,000 shares authorized, 2,000 shares issued and outstanding (FCN Holding). 2 2 Class A Preferred Member's Interest in the LLC ($40,000,000 liquidation preference and $50,000,000 liquidation preference as adjusted).. 40,000 10,000(a) 50,000 Series A Preferred Stock, $0.001 par value; 1,000,000 shares authorized; none outstanding; 1,000,000 shares issued and outstanding as adjusted ($50,000,000 liquidation preference as adjusted)......................... -- 50,000(a) 50,000 Preferred Stock, $0.001 par value; 15,000,000 shares authorized; no shares issued or outstanding......... -- -- Class A Common Stock, $0.001 par value; shares authorized; none outstanding; shares issued and outstanding as adjusted.............. -- -- Class B Common Stock, $0.001 par value; shares authorized; none outstanding; shares issued and outstanding as adjusted.......... -- -- Contributed capital................... 49,245 49,245 Cumulative translation adjustment..... (11) (11) Retained deficit...................... (16,405) (16,405) -------- ------- -------- Total stockholders' equity.............. 72,831 60,000 132,831 -------- ------- -------- Total liabilities and stockholders' equity................................. $336,270 $336,270 ======== ======= ========
See notes to pro forma consolidated financial statements. 22 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) TWELVE MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS)
AS REPORTED PRO FORMA ADJUSTMENTS ----------------------------------- ---------------------------- FCN HOLDING, SABAN FCN HOLDING AND THE LLC SABAN OTHER ---------------- ------------------ ------------------- -------- PERIOD FROM JULY 3, 1995 EIGHT MONTHS FOUR MONTHS TO ENDED ENDED PRO FORMA OCTOBER 31, 1995 JUNE 30, 1996 OCTOBER 31, 1995(B) CONSOLIDATED(C) ---------------- ------------------ ------------------- -------- --------------- Net revenues............ $46,286 $191,621 $99,538 $(10,340)(c) $327,105 Costs and expenses: Amortization of programming costs, residuals and participations........ 29,698 98,937 39,177 (8,101)(c) 159,711 Fees and costs to a related party......... 7,313 -- -- (7,313)(c) -- Selling, general and administrative........ 2,566 23,072 10,397 700 (c) 36,735 Fox Kids Network affiliate participations........ 6,883 8,853 -- (2,182)(c) 13,554 ------- -------- ------- -------- -------- Operating (loss) income ....................... (174) 60,759 49,964 6,556 (c) 117,105 Investment advisory fee. -- 10,000 -- -- 10,000 Interest expense........ 145 885 536 -- 1,566 ------- -------- ------- -------- -------- (Loss) income before provision for income taxes.................. (319) 49,874 49,428 6,556 105,539 Provision for income taxes.................. -- 18,274 13,840 2,055 (c) 34,169 ------- -------- ------- -------- -------- Net (loss) income ...... $ (319) $ 31,600 $35,588 $ 4,501 $ 71,370 ======= ======== ======= ======== ========
See notes to pro forma consolidated financial statements. 23 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1996 (IN THOUSANDS) (a) In connection with the formation of the LLC, the Company agreed to pay to Fox Broadcasting a fee of $10 million for providing all uplink, transponder and other facilities necessary to deliver via satellite Fox Kids Network programming for broadcast to the Fox Kids Network Affiliates, and certain other services. Such amount is included in other assets, net of accumulated amortization, and amounts payable to related parties in the "As Reported" column. In September 1996, the LLC paid this $10 million to Fox Broadcasting. Immediately upon receipt of this $10 million payment, Fox Broadcasting made a contribution to the LLC of $10 million in exchange for additional Class A Member's Interest. In connection with the Reorganization, the $10 million of additional Class A Member's Interest will be exchanged for $10 million of Series A Preferred Stock in the Company. In connection with the Reorganization the existing Class A Preferred Member's Interest in the LLC will be exchanged for Series A Preferred Stock in the Company. Fox Broadcasting made a $64.5 million interest free loan to the LLC, of which $14.5 million of the loan was repaid in September 1996. The $50 million remainder of this loan is to be paid out of Distributable Cash of the LLC before any distributions are made on the Class A and Class B Members Interests. In connection with the Reorganization, immediately prior to the closing of the Offerings, Fox Broadcasting will exchange this loan for new Class A Members Interests in the LLC, which will grant Fox Broadcasting a priority right to receive distributions of Distributable Cash and other distributions from the LLC until it has received aggregate distributions of $50 million, whereupon this interest will terminate and expire. "Distributable Cash" means the amount of cash available for distribution by the LLC (including cash available from Saban and FCN Holding), taking into account all cash, debts, liabilities and obligations of the LLC then due and after setting aside reserves to provide for the LLC's capital expenditures, debt service, working capital and expansion plans. (b) Represents results of operations of Saban for the four months ended October 31, 1995 (c) A summary of adjustments to combine Saban, FCN Holding and the LLC for the four months ended October 31, 1995: Elimination of revenues between FCN and Saban................... $(10,340) Reduction of amortization of programming costs resulting from the elimination of revenues and costs between FCN and Saban.. 8,101 Amortization of Services Fee to Fox Broadcasting................ (700) Elimination of fees and costs to related party(1)............... 7,313 Elimination of Fox Kids Network affiliate participations related to Fox O&O's................................................. 2,182 Increase in provision for income taxes resulting from pro forma adjustments.................................................. (2,055) -------- $ 4,501 ========
- -------- (1) On December 22, 1995, in connection with the formation of the LLC, distribution fees from the Fox Parties were assigned to the LLC by the Fox Parties. The incremental costs to the Fox Parties for providing these distribution services to the Company are not material. In future periods these distribution services will be provided by the Company. The incremental costs to the Company in connection with these distribution services for such additional programs are not material. 24 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA The selected financial data of Saban set forth below as of May 31, 1994 and 1995 and as of October 31, 1995 and for each of the two years in the period ended May 31, 1995 and for the five months ended October 31, 1995 are derived from Saban's consolidated financial statements audited by Ernst & Young LLP, independent auditors, included elsewhere in this Prospectus. The selected financial data of Saban presented below as of May 31, 1992 and 1993 and for the two years ended May 31, 1993 are derived from Saban's consolidated financial statements audited by Ernst & Young LLP, independent auditors. The selected financial data of FCN Holding set forth below as of July 3, 1994, July 2, 1995 and as of October 31, 1995 and for each of the annual fiscal periods in the two years ended July 2, 1995 and for the four months ended October 31, 1995 are derived from FCN Holding's consolidated financial statements audited by Ernst & Young LLP, independent auditors, included elsewhere in this Prospectus. The selected financial data of FCN Holding at June 30, 1992 and June 27, 1993 and for each of the annual fiscal periods in the two years ended June 27, 1993 are derived from FCN Holding's unaudited consolidated financial statements. The unaudited consolidated financial statements from which such selected financial data are derived include all adjustments, consisting of only normal recurring accruals, which management considers necessary for a fair presentation. The selected financial data of the Company set forth below as of June 30, 1996 and for the eight months ended June 30, 1996 are derived from the Company's combined financial statements audited by Ernst & Young LLP, independent auditors, included elsewhere in this Prospectus. The selected financial data presented below and under "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the consolidated and combined financial statements, including the notes thereto, appearing elsewhere in this Prospectus. SABAN ENTERTAINMENT, INC.
FIVE MONTHS YEAR ENDED MAY 31, ENDED -------------------------------- OCTOBER 31, 1992 1993 1994 1995 1995 ------- ------- ------- -------- ----------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues(1)............. $47,907 $57,244 $84,372 $242,468 $105,130 Costs and expenses: Amortization of programming costs, residuals and participations........ 33,043 39,703 48,101 117,557 42,022 Selling, general and administrative expenses.............. 5,853 6,255 8,933 51,894 11,538 ------- ------- ------- -------- -------- Operating income........ 9,011 11,286 27,338 73,017 51,570 Interest expense........ 1,274 1,279 2,337 1,315 539 ------- ------- ------- -------- -------- Income before income tax expense................ 7,737 10,007 25,001 71,702 51,031 Income tax expense...... 536 1,600 8,201 27,027 14,289 ------- ------- ------- -------- -------- Net income.............. $ 7,201 $ 8,407 $16,800 $ 44,675 $ 36,742 ======= ======= ======= ======== ======== AS OF MAY 31, AS OF -------------------------------- OCTOBER 31, 1992 1993 1994 1995 1995 ------- ------- ------- -------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents............ $ 990 $ 1,554 $ 3,849 $ 14,584 $ 16,207 Programming costs, less accumulated amortization........... 42,258 60,279 85,079 115,873 118,210 Total assets............ 69,043 94,916 136,967 218,197 207,479 Long-term obligations (including current maturities)............ 25,330 28,933 34,023 5,623 5,605 Stockholders' equity.... 28,241 36,648 53,253 58,122 94,971
25 FCN HOLDING, INC. AND THE COMPANY
FCN HOLDING || THE COMPANY --------------------------------------------------- || -------------------- YEAR ENDED || -------------------------------------- || || EIGHT PRO FOUR MONTHS || MONTHS FORMA YEAR ENDED || ENDED ENDED JUNE 30, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || JUNE 30, JUNE 30, 1992 1993 1994 1995 1995 || 1996 1996 -------- -------- -------- -------- ----------- || -------- ----------- STATEMENT OF OPERATIONS || DATA: (IN THOUSANDS) || || Net revenues(1)......... $ 35,027 $ 85,729 $130,600 $168,871 $46,286 || $191,621 $327,105 Costs and expenses: || Amortization of || programming costs, || residuals and || participations........ 26,954 67,804 98,725 109,259 29,698 || 98,937 159,711 Fees and costs to a || related party......... 4,434 14,682 20,861 24,713 7,313 || -- Selling, general and || administrative || expenses.............. 3,275 3,810 3,579 5,202 2,566 || 23,072 36,735 Fox Kids Network || affiliate || participation......... -- -- -- 11,523 6,883 || 8,853 13,554 -------- -------- -------- -------- ------- || -------- -------- Operating income || (loss)(2).............. 364 (567) 7,435 18,174 (174) || 60,759 117,105 Investment advisory fee. -- -- -- -- -- || 10,000 10,000 Interest expense........ 2,708 2,017 2,218 1,630 145 || 885 1,566 -------- -------- -------- -------- ------- || -------- -------- Income (loss) before || income tax expense..... (2,344) (2,584) 5,217 16,544 (319) || 49,874 105,539 Income tax expense...... -- -- -- -- -- || 18,274 34,169 -------- -------- -------- -------- ------- || -------- -------- Net income (loss)....... $ (2,344) $ (2,584) $ 5,217 $ 16,544 $ (319) || $ 31,600 $ 71,370 ======== ======== ======== ======== ======= || ======== ======== AS OF || AS OF JUNE 30, 1996 --------------------------------------------------- || -------------------- JUNE 30, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || AS 1992 1993 1994 1995 1995 || ACTUAL ADJUSTED(3) -------- -------- -------- -------- ----------- || -------- ----------- BALANCE SHEET DATA: (IN THOUSANDS) || || Cash and cash || equivalents............ $ 82 $ 304 $ 268 $ -- $ 317 || $ 16,044 $ Programming costs, less || accumulated || amortization........... 18,879 22,245 17,084 26,143 28,090 || 181,427 Total assets............ 27,321 39,476 35,950 49,816 52,792 || 336,270 Long-term obligations || (including current || maturities)............ 43,813 41,416 27,163 10,686 8,727 || 101,487 Stockholders' equity || (deficit).............. (22,991) (25,575) (20,356) (3,811) (4,130) || 72,831
- -------- (1) Includes revenues recognized by Saban from FCN and by FCN from Saban as set forth below:
FIVE MONTHS FOUR MONTHS FISCAL YEAR ENDED ENDED ----------------------------- OCTOBER 31, OCTOBER 31, 1992 1993 1994 1995 1995 1995 ------ ------ ------- ------- ----------- ----------- (IN THOUSANDS) Saban revenues from FCN. $ -- $2,535 $10,483 $16,228 $9,651 n/a FCN revenues from Saban. -- -- 885 14,662 n/a $973
(2) Under agreements between FCN and Fox Broadcasting, for periods prior to June 1, 1995, FCN paid administrative and other fees to Fox Broadcasting. Effective June 1, 1995, Fox Broadcasting assigned to the Company its rights to these payments. Amounts expensed under these agreements were $2.7 million, $13.5 million, $19.8 million, $26.9 million and $9.1 million, for the years ended June 30, 1992, 1993, 1994 and 1995 and the four months ended October 31, 1995. (3) As adjusted to give effect to (i) the Offerings, (ii) the Reorganization and (iii) the repayment by the LLC of $14.5 million of its $64.5 million non-interest bearing indebtedness to Fox Broadcasting in September 1996, and the receipt of $50 million of non-voting Class A Members Interests in the LLC (see note 2 to "Capitalization") in exchange for the balance of such indebtedness. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's current principal operations are conducted by FCN, Saban and the LLC. FCN commenced operations with the launch, in September 1990, of the Fox Kids Network, which is currently the top-rated children's oriented broadcast television network in the United States. Saban, which commenced business in the mid-1980's, is currently one of the largest suppliers of children's television programming in the world. The LLC was formed by FCN Holding (a parent of FCN) and Saban pursuant to agreements executed on November 1, 1995, as a strategic alliance between Saban and FCN. Under the terms of the agreements relating to the strategic alliance, since November 1, 1995 each of Saban and FCN have been operated by their respective managements subject to the overall supervision by the Members Committee of the LLC. The Company was incorporated in August 1996 in connection with the Offerings to act as a holding company of FCN Holding, Saban and the LLC, and their respective subsidiaries. The Company currently conducts no business or operations. The Reorganization will be effected pursuant to an agreement among the stockholders of FCN Holding and Saban, which was entered into in connection with the formation of the LLC, and which, among other things, specified the manner in which the companies should be combined at the time of any public offering of the combined companies. After consummation of the Offerings and the closing of the Reorganization, the Company's sole assets will consist of the net proceeds of the Offerings and the capital stock of Saban and FCN Holding. Solely for financial statement presentation purposes, although the Company will not acquire any of the shares of the capital stock of Saban until immediately prior to the closing of the Offerings, and although the Reorganization will not be effected until immediately prior to the closing of the Offerings, as the result of the foregoing, the assets and liabilities of Saban, FCN Holding and the LLC are being presented on a combined basis and recorded at historical cost from and after the Effective Date. Included in this Prospectus are (i) pro forma consolidated financial statements of the Company for the year ended June 30, 1996, which on a hypothetical basis reflect the accounts of the Company, FCN Holding, Saban and the LLC as if the Reorganization had occurred as of July 3, 1995, (ii) the consolidated financial statements of Saban covering the two year period ended May 31, 1995 and the five month period ended October 31, 1995 (the close of business prior to the Effective Date), (iii) the consolidated financial statements of FCN Holding covering the two year period ended July 2, 1995, and the four month period ended October 31, 1995, and (iv) the combined financial statements of the Company (FCN Holding, Saban and the LLC) for the eight month period commencing on the Effective Date and ending June 30, 1996. The following discussion provides information and analysis with respect to results of operations reflected in the financial statements included in this Prospectus, as well as the liquidity and capital resources of the Company. This discussion should be read in conjunction with the historical and pro forma financial statements and related notes, "Selected Historical and Pro Forma Consolidated Financial Data" and "The Reorganization" included elsewhere in this Prospectus. Use of Estimates As is industry practice, management has made a number of estimates and assumptions relating to the amortization of programming costs and the reporting of assets and liabilities in the preparation of the financial statements discussed herein. Actual results could differ materially from these estimates. Management periodically reviews and revises its estimates of future airings and revenues for program and film rights, as necessary, which may result in revised amortization of its program and film rights and may be significantly affected by the periodic adjustments in such amortization. Revenue Recognition and Seasonality Children's television programming revenues have historically represented a significant portion of the Company's total revenues, and, for the fiscal year ended June 30, 1996, accounted for approximately 55% of the Company's pro forma consolidated revenues (see "Results of Operations"). Revenues from television 27 programming lease agreements are recognized when the lease period begins, collectibility is reasonably assured and the product is available pursuant to the terms of the lease agreement. Advertising revenue is recognized as earned in the period in which the advertising commercials are broadcast. For this reason, significant fluctuations in the Company's revenues, and net income, can occur from period to period depending upon the availability dates of programs and advertising revenues. In the United States, revenues from advertising targeted at children are concentrated in the fourth calendar quarter, and in the international markets, a significant portion of revenues are recognized in April and October. While 31% of the Company's pro forma consolidated revenues for the fiscal year ended June 30, 1996 ("Fiscal 1996") were recognized in the first fiscal quarter, in part as the result of significant revenues from merchandising realized by the Company in that quarter, the Company expects that its second and fourth fiscal quarters will generally contribute a disproportionate share of total revenues for any fiscal year. During the fiscal year ended June 30, 1996, 31% and 26%, respectively, of the Company's pro forma consolidated television programming revenues were recognized in the second fiscal quarter and fourth fiscal quarter of that year. See "Risk Factors--Seasonality." RESULTS OF OPERATIONS Overview The Company's revenues have historically been generated from (i) the operations of FCN's Fox Kids Network, (ii) Saban's U.S. and international distribution of children's television programming, (iii) the merchandising and licensing of its characters and properties, (iv) home video and other ancillary exploitation of its children's-oriented properties and (v) telefilms and other non-children related activities. The following tables set forth, for the periods indicated, certain data with respect to revenues, and costs and expenses as a percentage of total revenues: REVENUE SUMMARY
SABAN ENTERTAINMENT, INC. FCN HOLDING, INC. || THE COMPANY ------------------------------------ -------------------------------------- || ----------------- || PRO || EIGHT FORMA YEAR ENDED MAY 31, FIVE MONTHS YEAR ENDED FOUR MONTHS || MONTHS YEAR ------------------------ ENDED -------------------------- ENDED || ENDED ENDED OCTOBER 31, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || JUNE 30, JUNE 30, 1993 1994 1995 1995 1993 1994 1995 1995 || 1996 1996 ------- ------- -------- ----------- -------- -------- -------- ----------- || -------- -------- (IN THOUSANDS) || || Revenues: || Children's programming: || U.S. television || distribution(1)...... $ 8,837 $11,995 $ 31,529 $ 14,823 $80,008 $124,666 $148,725 $42,845 || $ 85,883 $132,810 Foreign television || distribution(2)...... 27,060 16,367 29,944 19,931 -- -- -- || 29,389 47,480 Merchandising and || licensing, home video || and other ancillary || revenues............. 4,037 32,274 164,273 65,772 5,721 5,934 20,146 3,441 || 60,541 127,631 ------- ------- -------- -------- ------- -------- -------- ------- || -------- -------- Total................. 39,934 60,636 225,746 100,526 85,729 130,600 168,871 46,286 || 175,813 307,921 ------- ------- -------- -------- ------- -------- -------- ------- || -------- -------- Telefilms: || U.S. distribution..... 8,156 13,954 1,196 26 -- -- -- -- || 4,474 4,500 Foreign distribution.. 9,154 9,782 15,526 4,578 -- -- -- -- || 11,334 14,684 ------- ------- -------- -------- ------- -------- -------- ------- || -------- -------- Total................. 17,310 23,736 16,722 4,604 -- -- -- -- || 15,808 19,184 ------- ------- -------- -------- ------- -------- -------- ------- || -------- -------- Total revenues........ $57,244 $84,372 $242,468 $105,130 $85,729 $130,600 $168,871 $46,286 || $191,621 $327,105 ======= ======= ======== ======== ======= ======== ======== ======= || ======== ======== Power Rangers-related || revenues as a || percentage of total || revenues............. 8% 55% 72% 66% -- 15% 33% 23% || 38% 44%
- -------- (1) Television distribution in the United States consists principally of advertising sales generated by FCN and barter advertising sales in syndication generated by Saban. (2) Foreign television distribution consists principally of cash transactions with foreign broadcasters. 28 COSTS AND EXPENSES AS A PERCENTAGE OF TOTAL REVENUES
SABAN ENTERTAINMENT, INC. FCN HOLDING, INC. || THE COMPANY ----------------------------- ------------------------------------- || ----------------- || PRO YEAR ENDED || EIGHT FORMA MAY 31, FIVE MONTHS YEAR ENDED FOUR MONTHS || MONTHS YEAR ---------------- ENDED ------------------------- ENDED || ENDED ENDED OCTOBER 31, JUNE 27, JULY 3, JULY 2, OCTOBER 31, || JUNE 30, JUNE 30, 1993 1994 1995 1995 1993 1994 1995 1995 || 1996 1996 ---- ---- ---- ----------- -------- ------- ------- ----------- || -------- -------- || Costs and expenses: || Amortization of films || and television costs, || residuals and || participations........ 69.4% 57.0% 48.5% 40.0% 79.1 % 75.6% 64.7% 64.2 % || 51.6% 48.8% Affiliate || participations........ 6.8 14.9 || 4.6 4.1 Fees and costs to a || related party......... 17.1 16.0 14.6 15.8 || 0.0 0.0 Selling, general and || administrative || expenses.............. 10.9 10.6 21.4 11.0 4.4 2.7 3.1 5.5 || 12.0 11.2 ---- ---- ---- ---- ----- ---- ---- ----- || ---- ---- Total costs and || expenses............ 80.3% 67.6% 69.9% 50.9% 100.6 % 94.3% 89.2% 100.4 % || 68.2% 64.1% Operating income (loss). 19.7% 32.4% 30.1% 49.1% (0.6)% 5.7% 10.8% (0.4)% || 31.8% 35.9%
Comparability Even though, for accounting purposes, FCN Holding is deemed the "surviving company" in the Reorganization, the operating results of the Company for the eight month period ended June 30, 1996 are not comparable to the financial statements of FCN Holding for periods prior to the Effective Date. Subsequent to the Effective Date, the operations of the Company for the first time included both FCN Holding and Saban, and thus the combined profit for that period can be attributable to the results of both operations. In addition, since 1993, Saban has licensed to FCN the Power Rangers, as well as other series, for broadcast on the Fox Kids Network, and the parties have entered into other arm's-length transactions concerning licensing, merchandising and promotional activities. The following table sets forth revenues recognized by Saban from FCN, and revenues recognized by FCN from Saban, in each period preceding the Effective Date:
FIVE MONTHS FOUR MONTHS FISCAL YEAR ENDED ENDED ---------------------- OCTOBER 31, OCTOBER 31, 1993 1994 1995 1995 1995 ------ ------- ------- ----------- ----------- (IN THOUSANDS) Saban revenues from FCN.......... $2,535 $10,483 $16,228 $9,651 n/a FCN revenues from Saban.......... -- 885 14,662 n/a $973
Commencing on the Effective Date, all revenues between FCN and Saban have been eliminated in the combined financial statements. In addition, in connection with the formation of the LLC, Fox Broadcasting and certain of its affiliate companies agreed, among other things, to assign to the LLC, effective June 1, 1995, substantially all of their contracts with FCN, and all revenues received or receivable from FCN (which had previously been reflected as "fees and costs to related party" in FCN Holding's statements of operations) thereafter. Importance of the Power Rangers and Increased International Focus Since its introduction in 1993, the Power Rangers series has been materially important to the success and growth of the Company, and has accounted for a significant portion of the Company's children's programming 29 revenues, foreign distribution revenues and merchandising and licensing revenues. While ratings for the Power Rangers have somewhat declined, Power Rangers remains the most watched children's program in the United States, as well as in most of the international markets in which it is broadcast. Some continued decline in Power Rangers related revenues may be expected. Material declines in the viewership of the Power Rangers could materially and adversely affect the Company's results of operations and financial condition. See "Risk Factors--Dependence on Power Rangers." In recent years, revenues derived from international operations have become increasingly significant to Saban (representing 31% of the Company's pro forma consolidated revenues for the fiscal year ended June 30, 1996). As part of its business strategy, the Company intends to expand its international program production and distribution activities. See "Business--Business Strategies" and "--Distribution: Networks and Syndication--International Channels." It may be expected that certain of these activities, such as the rollout of new international channels, will require material marketing and other expenses in advance of the receipt of related revenues, thereby adversely affecting the Company's results of operations as these activities are expanded and the international markets are developed. Minimum guarantees to Fox Kids Network Affiliates The Fox Kids Network Affiliates are entitled to receive participations in "net profits" (as defined) of FCN; and through June 30, 1996, an aggregate of $31.4 million in participations had been accrued to Fox Kids Network Affiliates, of which $15 million has been paid through June 30, 1996. In connection with the formation of the LLC, certain of the Fox O&O's have waived their rights in favor of the Company to their share of Fox Kids Network net profits participations (see "Business--Distribution: Network and Syndication-- Fox Kids Network"). In connection with the Reorganization, the Company has offered Fox Kids Network Affiliates that, should the Company launch a block of children's programming on a U.S. cable channel, the Company would share with the Fox Kids Network Affiliates 50% of the "net profits" (adjusted to deduct all costs related to the cable channel and a 15% administrative fee) realized by the Company from such block of programming. In addition, the Company has offered to guarantee that profit participations to Fox Kids Network Affiliates, including the Fox O&O's (Fox O&O's have been entitled to approximately 31% of distributions to date) from both the cable operations and from FCN will aggregate at least $75 million over the five year period commencing January 1, 1997; to the extent that net profits distributed in any year are less than $15 million, subject to certain recoupment rights, the Company would advance the shortfall (see "Business--Distribution: Networks and Syndication--Fox Kids Network"). The Fox Kids Network Affiliates are currently considering this offer. To the extent that this offer is accepted, amounts paid to non-Fox O&O Kids Network Affiliates in excess of their participations in net profits will, for accounting purposes, be treated as expenses. To the extent that net income of FCN and such cable operations is significantly below the $15 million amount, net income of the Company would be adversely affected. PRO FORMA FISCAL YEAR ENDED JUNE 30, 1996 In the discussion and analysis which follows, the results of operations for the period from July 3, 1995 to June 30, 1996 are combined for certain items of revenue and expense for the purpose of presenting the pro forma results of operations of the Company for the fiscal year ended June 30, 1996 ("Fiscal 1996") as if the Effective Date had been July 3, 1995 and the operations of the Company had been combined since that date. Pro forma information for the fiscal year ended July 2, 1995 ("Fiscal 1995") has been prepared on a similar basis. These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma financial statements should be read in conjunction with the audited financial statements and notes of the Company, FCN Holding and Saban contained elsewhere herein. The Company's pro forma consolidated revenues for Fiscal 1996 were $327.1 million, a 14% decline from the pro forma consolidated revenues of $380.4 million for the period from July 4, 1994 to July 2, 1995. On a pro forma basis, U.S. broadcasting revenues from the Fox Kids Network decreased by $16 million, or 30 approximately 11%, from Fiscal 1995 to Fiscal 1996, primarily as the result of the decline in ratings as compared to the prior year, offset, in part, by a 5% increase in such revenues as a result of increases in rates (cost per thousand viewers ("CPMs")) charged to advertisers. Management believes that the decline in ratings of the Fox Kids Network (which during both periods remained the number one rated U.S. children's network) was attributable to increased competition from other children's services and an expected normal decline in the ratings of Power Rangers from its previous extraordinary levels. Early ratings results from the 1996-1997 broadcast season, which commenced in September 1996, indicate a modest increase in Fox Kids Network ratings from the comparable period of the prior year. However, children's preferences change, and no assurance can be given that the Company will be able to sustain this ratings improvement. See "Risk Factors--Possible Decline in Popularity of Other Current Programs and Uncertainty of Acceptance of New Programs." Merchandising, licensing and promotion royalties for Fiscal 1996 represented approximately 35% of total pro forma consolidated revenues for the period. Approximately 94% of these revenues were generated from the exploitation of Power Rangers. Total merchandising, licensing and promotion pro forma consolidated revenues related to Power Rangers in Fiscal 1996 were comparable to those generated in the prior year. Royalties from home video distribution during Fiscal 1996 decreased by approximately $24.2 million from the prior year. The balance of pro forma combined revenues for Fiscal 1996 was generated principally from the foreign television distribution of children's programming and telefilms. Revenues from foreign distribution of children's programming increased by approximately $18.0 million, or 60%, from Fiscal 1995 to Fiscal 1996. Approximately 50% of this increase was attributable to the distribution of the European co-production Iznogoud, with the balance attributable to an increase in library sales. Revenues generated from the foreign distribution of telefilms (see "Business--Home Video and Telefilms") for Fiscal 1996 were comparable to the corresponding period of the prior year. The Company and its predecessors have realized a significant reduction over the past four years in amortization of programming costs, residuals and participations ("Cost of Sales") as a percentage of total revenues. This decrease in Cost of Sales as a percentage of total revenues is primarily attributable to two factors--FCN's reduced dependence on programming supplied by Warner Bros., and the significant increase in revenues from the Power Rangers. Historically, a significant portion of Fox Kids Network programming was licensed from Warner Bros. under programming agreements which generally required FCN to pay Warner Bros. 100% of broadcast revenues net, of commissions, after payment of a 15% administration fee to Fox Broadcasting, earned from Warner Bros.-supplied programming. The following table sets forth the average number of Warner Bros. supplied programming hours broadcast or scheduled to be broadcast by FCN each week during the periods indicated:
AVERAGE FCN AVERAGE WARNER BROS. HOURS BROADCAST HOURS BROADCAST ON PER WEEK FCN PER WEEK --------------- -------------------- Fiscal 1993.......................... 19 13 1/2 Fiscal 1994.......................... 19 11 Fiscal 1995.......................... 19 8 1/2 Fiscal 1996.......................... 19 5 Fiscal 1997.......................... 19 2 1/2
All broadcast commitments to Warner Bros. expire at the end of the current (1996-1997) broadcast season. The second factor contributing to the decrease over the past four years in Cost of Sales as a percentage of total revenues is the significant increase in Power Rangers-related revenues as a percentage of total revenues. The success of Power Rangers has resulted in higher than normal profit margins, leading to an overall decrease in Cost of Sales as a percentage of total revenues. 31 Affiliate participations as a percentage of pro forma consolidated total revenues in Fiscal 1996 were approximately 4%, a significant reduction from prior periods. This reduction is attributable primarily to the agreement of the Fox Parties, effective June 1, 1995, to cause certain of the Fox O&O's to waive the right to their share of Fox Kids Network affiliate participations (see "Business--Distribution: Network and Syndication--Fox Kids Network"). Because of the determination of the Company to offer to guarantee minimum net profit participation payments to Fox Kids Network Affiliates, the possibility exists that this percentage relationship could increase in future periods. See "--Minimum guarantees to Fox Kids Network Affiliates". "Fees and costs to a related party" consists of administrative and other fees charged by Fox Broadcasting to FCN. As described above, effective June 1, 1995, Fox Broadcasting and certain of its affiliates assigned to the LLC all revenues received or receivable from FCN which had previously been reflected in this item. As a result, no fees and costs to a related party are included in the pro forma consolidated costs and expenses of the Company for Fiscal 1996. Selling, general and administrative expenses, which were 11.2% of pro forma consolidated total revenues for Fiscal 1996, include the combined overhead, net of capitalized amounts, for FCN, Saban and the LLC during Fiscal 1996. In Fiscal 1996, the Company recognized a non-cash $3.8 million charge as a result of vesting under stock options granted by Saban to certain of its executive officers; following the offerings, no similar charges are expected to be required with respect to these options (see "Saban Entertainment, Inc.--Year Ended May 31, 1995 ("Saban Fiscal 1995") compared with the year ended May 31, 1994 ("Saban Fiscal 1994")"). The Fiscal 1996 results also include a one-time $10.0 million charge for investment advisory services to FCN Holding rendered in connection with the formation of the LLC. Excluding the effect of charges with respect to the options, and the one-time charge for investment advisory services, selling, general and administrative expenses would have represented approximately 7% of pro forma consolidated total revenues for fiscal 1996. Selling, general and administrative expenses during Saban Fiscal 1995 included a charge of $18.1 million for bonus compensation paid to Haim Saban. As discussed further below, no bonuses are payable to Mr. Saban for periods subsequent to Fiscal 1995. Primarily as a result of the factors discussed above, pro forma consolidated net income increased by 5% from $68.2 million in Fiscal 1995 to $71.4 million in Fiscal 1996. SABAN ENTERTAINMENT, INC. Five months ended October 31, 1995 Revenues for the five months ended October 31, 1995 totaled $105.1 million, of which approximately 66% represented revenues attributable to Power Rangers, as compared to 72% of Saban total revenues for the fiscal year ended May 31, 1995 ("Saban Fiscal 1995"). VR Troopers, Masked Rider and the European co- production Iznogoud each contributed approximately 6% of revenues for the five month period, and X-Men contributed just over 3%. Cost of Sales for the five months ended October 31, 1995 was $42.0 million, or 40% of total revenues for the period. Cost of Sales for Saban Fiscal 1995, as a percentage of total revenues, was 48%. This improvement in Cost of Sales as a percentage of revenues is attributable to an improvement in the gross profit margin on Power Rangers. Gross profit from Power Rangers in Saban Fiscal 1995 had been negatively impacted by costs of litigation which was resolved during Saban Fiscal 1995. Selling, general and administrative expenses for the five months ended October 31, 1995 were $11.5 million, or approximately 11% of revenues for the period. Selling, general and administrative expenses for Saban Fiscal 1995 were approximately 21% of revenues. This improvement in selling, general and administrative expenses as a percentage of revenues is attributable to the elimination of the contractual bonus payable to Haim Saban, and to a significant reduction in non-cash charges related to stock options, both of which are discussed further below. Excluding the effect of these items, selling, general and administrative expenses would have been approximately 9% of revenues for Saban Fiscal 1995. 32 Saban's effective tax rate for the five months ended October 31, 1995 was 28%. The effective tax rate for Saban Fiscal 1995 was 38%. This change is attributable to an increase in foreign source revenues as a percentage of total revenues. Year ended May 31, 1995 ("Saban Fiscal 1995") compared with the year ended May 31, 1994 ("Saban Fiscal 1994") Revenues for Saban Fiscal 1995 increased 187% to $242.5 million from $84.4 million for the prior fiscal year. This increase is primarily attributable to the success of Power Rangers, in particular, significant increases (626%) in toy, merchandising and licensing royalties and, to a lesser extent, increases in broadcast related revenues, home video royalties and ancillary revenues. During Saban Fiscal 1995, toy, merchandising and licensing royalties increased to $115.1 million from $13.4 million for the prior fiscal year, accounting for 64% of the increase in total revenues for the year. Home video royalties generated by Power Rangers in Saban Fiscal 1995 increased by $9.9 million, broadcast related revenues increased by $8.2 million, and ancillary revenues from the Power Rangers live stage tour (all of the revenues of which were realized in 1995), and the Power Rangers fan club, contributed another $13.0 million and $3.1 million, respectively, to the increase in revenues for the year. The series VR Troopers and Sweet Valley High, which began broadcast in the Fall of 1994, contributed another $22.7 million and $5.1 million, respectively, of revenues for Saban Fiscal 1995. Cost of Sales for Saban Fiscal 1995 decreased as a percentage of total revenues from 57% in Saban Fiscal 1994 to 48% in Saban Fiscal 1995. In dollars, Cost of Sales in Saban Fiscal 1995 increased 144% to $117.6 million from $48.1 million for the prior year. Approximately 65% of this increase is attributable to increases in the amortization of production costs and accrual of profit participations in connection with the significant increase in revenues from the Power Rangers, described above. To a lesser extent, Cost of Sales increased as a result of amortization of production costs related to the series VR Troopers and Sweet Valley High. Selling, general and administrative expenses for Saban Fiscal 1995 increased 483% to $51.9 million from $8.9 million for the prior year. This increase is primarily attributable to $18.1 million in bonus compensation paid Haim Saban pursuant to his previous employment agreement, and the recognition of a non- cash $11 million charge related to stock options granted by Saban to certain of its executive officers. On December 22, 1995, Mr. Saban entered into a new employment agreement with the LLC pursuant to which his compensation has been fixed, commencing July 1, 1995, at $1 million per year. The charge with respect to options was required because of a provision in the option agreements which obligates Saban, so long as it remains private, to repurchase the option shares, and vested options, at fair market value upon termination of the optionee's employment. Following the Offerings, no similar charges are expected to be required with respect to these options. The balance of the increase in selling, general and administrative expenses for Saban Fiscal 1995 as compared to Saban Fiscal 1994 can be attributed to increased legal and personnel costs associated with the growth of Saban. Excluding the effect of Mr. Saban's bonus, and charges with respect to the options, selling, general and administrative expenses would have decreased as a percentage of total revenues from 11% in Saban Fiscal 1994 to 9% in Saban Fiscal 1995. Saban's effective tax rate for Saban Fiscal 1995 increased to 38% from 33% for the prior fiscal year. This increase in the effective tax rate resulted from an increase in income generated in the United States as a percentage of total revenues. As noted in the notes to Saban's consolidated financial statements, earnings from Saban's foreign subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for U.S. Federal or state income taxes has been recorded in connection with foreign earnings. To the extent that Saban's international operations continue to expand, it can be expected that the effective tax rate would decline. Year ended May 31, 1994 ("Saban Fiscal 1994") compared with the year ended May 31, 1993 ("Saban Fiscal 1993") Revenues for Saban Fiscal 1994 increased 48% to $84.4 million from $57.2 million for Saban Fiscal 1993. Of this increase, $41.7 million of this increase is attributable to the initial release in August 1993 of Power 33 Rangers, and $8 million is attributable to an increase in revenues from telefilms, offset by a reduction in sales of library programming. During Saban Fiscal 1994, Saban realized significant increases in revenues generated by Power Rangers from worldwide home video sales, worldwide licensing and merchandising royalties and broadcast fees for Germany. Cost of Sales for Saban Fiscal 1994 decreased as a percentage of total revenues from 69% in Saban Fiscal 1994 to 57% in Saban Fiscal 1993, but increased in dollars by 21%, to $48.1 million from $39.7 million for the prior fiscal year. Amortization of film costs and the accrual of profit participations related to Power Rangers increased $11.7 million in Saban Fiscal 1994 and amortization on telefilms increased by $6.1 million as a result of the increase in related revenues. The reduction in library revenues resulted in a decrease in amortization related thereto. Selling, general and administrative expenses for Saban Fiscal 1994 increased 41% to $8.9 million from $6.3 million for the prior fiscal year, but as a percentage of total revenues remained relatively constant. This increase is the result primarily of increased personnel costs associated with Saban's revenue growth. Saban's effective tax rate for Saban Fiscal 1994 increased to 33% from 16% for the prior fiscal year. This increase is primarily related to an increase in U.S. revenues resulting from the release of Power Rangers in September 1993. FCN HOLDING, INC. Four months ended October 31, 1995 Revenues for the four months ended October 31, 1995 were $46.3 million and Cost of Sales as a percentage of revenues was 64%. Cost of Sales as a percentage of revenues for the four month period is comparable to Cost of Sales as a percentage of revenues for Fiscal 1995. The administrative fee payable to Fox Broadcasting is based upon a percentage of net advertising revenues, and thus varied in direct proportion to revenues. Selling, general and administrative expenses for the four month period increased from the prior year, both on a pro rata basis and as a percentage of revenues. This increase in selling, general and administrative expenses is attributable primarily to increased promotion costs of FCN. Fiscal 1995 compared with Fiscal 1994 Revenues for Fiscal 1995 increased 29% to $168.9 million from $130.6 million for Fiscal 1994. This increase of $38.3 million is attributable to an increase in net revenues from advertising sales of $24.0 million, with the balance related to an increase in ancillary revenues. This increase in revenue was primarily a result of the success of Power Rangers, and to a lesser extent, to the strength of the advertising market. Cost of Sales as a percentage of revenues was 65% for Fiscal 1995 as compared to 76% for Fiscal 1994. Cost of Sales for Fiscal 1995 increased 11% to $109.3 million from $98.7 million for Fiscal 1994. While the overall increase in Cost of Sales for Fiscal 1995 is attributable to the 29% increase in revenues described above, the improvement in gross margin is attributable principally to the increase in revenues related to Power Rangers, which generated significantly higher gross margins than other FCN programming, as well as to a reduction in the number of Warner Bros. supplied programming hours. The administrative and other fees payable to Fox Broadcasting for Fiscal 1995 increased 20% to $21.5 million from $17.9 million for Fiscal 1994. The administrative fee is based, in part, upon net advertising revenues and the increase for the year is directly attributable to the increase in net advertising revenues for the year. The Fox Kids Network affiliation agreements provide that FCN is to pay to each of the Fox Kids Network affiliates (including Fox O&O's) participation based upon the cumulative "net profits" (as defined) of FCN. Fiscal 1995 was the first year in which FCN reached a level of defined net profits on a cumulative basis. Therefore, Fiscal 1994 did not reflect a charge for affiliate participations. 34 Since the net profits of FCN are distributed to the affiliates, no taxes have been provided on the income of FCN. THE COMPANY Eight Months ended June 30, 1996 The discussion and analysis for the eight months ended June 30, 1996 which follows should be read in conjunction with the above discussion and analysis for the pro forma consolidated results of operations for the fiscal year ended June 30, 1996. The following table compares the Company's revenues, by category, for the eight months ended June 30, 1996 to the pro forma consolidated revenues for the year ended June 30, 1996: REVENUE SUMMARY
EIGHT MONTHS ENDED PRO FORMA YEAR ENDED JUNE 30, 1996 JUNE 30, 1996 ----------------------- ----------------------- DOLLARS DOLLARS IN PERCENTAGE OF IN PERCENTAGE OF THOUSANDS TOTAL THOUSANDS TOTAL --------- ------------- --------- ------------- Revenues: Children's programming: U.S. television distribu- tion(1)................... $ 85,883 45% $132,810 40% Foreign television distri- bution(2)................. 29,389 15 47,480 15 Merchandising and licens- ing, home video and other ancillary revenues........ 60,541 32 127,631 39 -------- --- -------- --- Total.................... 175,813 92 307,921 94 Telefilms: U.S. distribution............ 4,474 2 4,500 1 Foreign distribution......... 11,334 6 14,684 5 -------- --- -------- --- Total.................... 15,808 8 19,184 6 -------- --- -------- --- Total revenues................. $191,621 100% $327,105 100% ======== === ======== ===
Revenues from the U.S. television distribution of children's programming during the eight months ended June 30, 1996 represented 45% of total revenues during the eight month period, as compared to 40% of pro forma consolidated revenues for the year ended June 30, 1996. For the eight month period ended June 30, 1996, revenues from merchandising and licensing, home video and other ancillary revenues represented 32% of total consolidated revenues, as compared to 39% of pro forma consolidated revenues for the year ended June 30, 1996. These changes in relative contribution to total revenues during the periods are directly attributable to the inclusion in the pro forma consolidated revenues of the results of operations of Saban for the four months ended October 31, 1995. During the four months ended October 31, 1995, U.S. television revenues for Saban represented 14% of its revenues for the period and merchandising and licensing, home video and other ancillary revenues represented 63% of its revenues for the period. Cost of Sales and affiliate participations as a percentage of revenues for the eight months ended June 30, 1996 were comparable to the pro forma consolidated results for the year ended June 30, 1996. Selling, general and administrative expenses were approximately 12% of revenues for the eight months ended June 30, 1996. Included in selling, general and administrative expenses for the eight month period was a $10 million charge for investment advisory services rendered to FCN Holding in connection with the formation of the LLC. Without this charge, selling, general and administrative expenses as a percentage of revenues would have been approximately 7%. 35 LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements arise primarily from (i) its working capital needs, principally costs related to the development, production and acquisition of children's programming, accounts receivable and other related operating costs, and (ii) the international expansion of its operations (see "Business--Business Strategies"). During the fiscal year ended June 30, 1996, the Company also expended significant funds in connection with the transactions relating to the formation of the LLC and the Reorganization. The Company on a regular basis has had, and intends to continue to engage in, exploratory discussions concerning programming and other acquisition opportunities, and any such acquisition could result in additional requirements for liquidity. The discussion of comments of cash flows of Saban and FCN Holding for the five and four months periods ended October 31, 1995, as applicable, includes items of cash flow between these two companies (which are eliminated in the combined cash flows for the eight month period ended June 30, 1996). Management does not consider the existence of such intercompany items to be material to an understanding of cash flows for Fiscal 1996. See "--Result of Operations--Overview." Net cash provided by (used in) operating activities (i) of the Company during the eight month period ended June 30, 1996, (ii) of Saban during the five month period ended October 31, 1995 and (iii) of FCN Holding during the four month period ended October 31, 1995 were $12.9 million, $5.6 million and $2.3 million, respectively. During this period, the Company distributed an aggregate of $10.3 million to non-Fox O&O Affiliates. See "--Results of Operations--Overview--Minimum guarantees to Fox Kids Network Affiliates." Net cash provided by (used in) investing activities (i) of the Company during the eight month period ended June 30, 1996, (ii) of Saban during the five month period ended October 31, 1995 and (iii) of FCN Holding during the four month period ended October 31, 1995, were $7.4 million, ($4.0 million) and ($.03 million), respectively. The Company's net cash flow from investing activities included $5.8 million (net of cash received) incurred in connection with the purchase of U.S. and international programming and libraries, and $16.2 million, representing Saban's cash balances at November 1, 1995. The net cash flows used in investing activities of Saban and FCN Holdings related to the purchase of property and equipment during the period. Net cash provided by (used in) financing activities (i) of the Company during the eight month period ended June 30, 1996 and (ii) of FCN Holding during the four month period ended October 31, 1995, were ($4.5 million) and ($2.0 million), respectively. Net cash flows from financing activities of Saban during the five month period ended October 31, 1995 were not significant. The principal financing activities of the Company related to agreements entered into in connection with the formation of the LLC, pursuant to which Fox Broadcasting loaned the LLC $64.5 million, and the LLC paid the stockholders of Saban an aggregate of $80.1 million in connection with rights acquired under the Stock Ownership Agreement. See "Certain Transactions-- Formation of LLC and the Reorganization." The Company's total unrestricted cash balances at June 30, 1996 were $16.0 million. Saban and its Saban International N.V. subsidiary have credit facilities, currently aggregating $50 million, with a syndicate of banks. Borrowings under these facilities are based upon the value of collateral available to the banks. The credit facilities restrict payment of dividends, and contain certain restrictive covenants regarding, among other things, the maintenance of certain financial ratios and restrictions on the distribution of assets. At June 30, 1996, no amounts have been borrowed under these credit facilities. See Note 5 of Notes to the Company's combined financial statements. Following the Offerings, the Company intends to seek expansion of these credit facilities. However, no assurance can be given that the Company will be successful in its efforts to expand these facilities. The Company recently launched a DTH satellite and cable television children's service in the United Kingdom and Republic of Ireland, and plans to launch additional international channels over the next two years (see "Business -- Distribution: Networks and Syndication -- International Channels"). The Company has also explored and continues to explore opportunities to develop a U.S. cable network. The Company also, from time to time, considers the acquisition of other children's-oriented television programming distribution and production 36 companies, entertainment companies and libraries. The Company plans to produce and release from 15 to 20 telefilms annually with an expected production budget ranging from $500,000 to $1 million for each picture, and the Company also plans to produce or co-produce a limited number of limited theatrical release or direct-to-video children's films with expected production budgets ranging from $3.0 million to $6.0 million for each film. The Company cannot estimate with any degree of certainty the amount of other expenditures it may make in the future in connection with such investments and acquisitions, although if many of the Company's plans in this regard materialize, such expenditures could be substantial. The Company anticipates funding all such other investments and acquisitions from proceeds of the Offerings, internally generated cash flow, additional borrowings, or additional issuances of its Class A Common Stock. The Company believes that the net proceeds of the Offerings, together with cash flow from operations and borrowings under the Company's current borrowing facilities, should be sufficient to fund its operations for the foreseeable future. 37 BUSINESS The Company is a fully-integrated global children's television entertainment company which develops, acquires, produces, broadcasts and distributes quality animated and live-action children's television programming. The Company's current operations are conducted by (i) FCN, which operates the Fox Kids Network--the top-rated children's (ages 2-11) oriented broadcast television network in the United States and (ii) Saban, whose library of more than 3,700 half-hours of children's programming is among the largest in the world. The Company is the result of the joint venture launched in 1995 by Fox Broadcasting and Saban to match the complementary programming and broadcasting strengths of the Fox Kids Network and the international reach of Fox Broadcasting's parent company, News Corp., with the development, production, distribution and merchandising strengths of Saban. This combination has created a company with the ability to manage children's properties and brands from the initial creative concept through production, broadcast and the merchandising of related consumer products. Children represent an important and growing segment of the global consumer market. The steady rise in birth rates and an increase in children's purchasing power has resulted in increased marketing expenditures on products targeted toward children. In the United States alone, children influence spending decisions on over $150 billion worth of products annually. In order to reach this market, manufacturers and other companies targeting children devote significant resources to advertising and in the 1995-96 broadcast season, an estimated $725 million was spent in the United States on advertising directed at children. Spending by these advertisers is concentrated on television commercials; and over 80% of children report learning about new products through watching television. The growth in advertising expenditures aimed at children has led to the increased demand for children's programming from a growing group of basic cable and broadcast television services targeting children, including the Fox Kids Network and the Company's Saban Kids Network. While television programming targeted toward children in the United States has developed significantly over the past several years, the Company believes that the children's television entertainment market in most countries remains relatively underserved. The Company creates, produces and acquires quality animated and live-action children's television programming with brand-name characters and elements which are either widely known to children, such as Power Rangers, The Tick, X- Men and Bobby's World, or which are or have been developed or acquired due to their likelihood of maturing into popular brands. The Company produced 13 series in the 1995-1996 broadcast season and is currently producing 16 series for the 1996-1997 broadcast season, including Power Rangers, which since shortly after its launch in 1993 has been the highest rated children's television program in the United States, as well as in most of the international markets in which it is broadcast. The Company operates the Fox Kids Network, the leading U.S. children's broadcast television network, and the Saban Kids Network, an ad hoc syndicated distribution network. Collectively, these outlets will broadcast 26 1/2 hours of children's programming per week during the 1996-1997 broadcast season, more than double the number of hours broadcast by its nearest competitor, The Walt Disney Company. The Fox Kids Network, launched in 1990, will broadcast 19 hours of children's programming each week during the 1996-1997 broadcast season to 97% of U.S. television households, the broadest reach of any network targeting children. The Fox Kids Network was formed by Fox Broadcasting and most of the FOX Television Network member stations to provide children's programming weekday mornings and afternoons, and Saturday mornings. The Fox Kids Network has been the number one rated children's broadcaster for each of the past three seasons, and has had the highest viewership among children in its time period during 15 consecutive "sweeps" periods. According to Nielsen, 20 million children--approximately 52% of all children in the United States-- watch the Fox Kids Network at least once each month. This network affords advertisers the opportunity to reach children in a cost-effective manner, while ensuring a consistent "day-and-date" placement of their advertisements in each television market. The Fox Kids Network's advertising customers include virtually every major advertiser to children. The Company also distributes 7 1/2 hours of programming each week through the Saban Kids Network which enables its programming on a weighted average basis to reach over 86% of the television households in the United States. 38 One of the essential attributes of quality children's programming is its "portability." Children's programming produced for exhibition in a particular country is considered "portable" because it can generally be modified at modest cost and resold for exhibition in other countries through editing and dubbing into other languages. The Company currently distributes its programming over terrestrial broadcast services in most major television markets throughout the world. To further capitalize on its broad library of children's programming and its current relationship with News Corp.--which has significant equity interests in cable and satellite services in most international markets--the Company has recently agreed or agreed in principle to launch full time or partial day "Fox Kids" branded DTH satellite and cable channels in various markets in Europe and Latin America. On October 19, 1996, the Company launched a Fox Kids branded channel as part of BSkyB's Sky Multichannels package, which through DTH and cable services, is currently estimated to reach over 5.5 million viewers in the United Kingdom and Republic of Ireland. Subject to completion of negotiation of definitive agreements, additional international channels are currently contemplated to be launched over the next two years on DTH and cable in Latin America and Asia. See "-- Distribution: Networks and Syndication--International Channels." In Australia, the Foxtel cable service has been carrying a Fox Kids Network children's channel segment since 1994 under a license recently assigned to the Company by Fox Broadcasting. Children's programming provides excellent opportunities for licensing and merchandising, and the Company has been successful in licensing its properties for use in toys and other children's products. The Company attempts to retain worldwide rights to its brands, and licenses their use to manufacturers for specific products in exchange for royalties, typically accompanied by cash advances. The Company currently has toy licenses with Bandai, Mattel, Hasbro and Toybiz, as well as licenses for other merchandise with over 500 licensees worldwide. The Company also realizes revenues through the distribution of its programs in the U.S. and international home video markets. Through an agreement in principle entered into with Fox Video, the Company is positioned to increase materially its presence in the children's home video market. The Company believes that as a result of its strengths in substantially all facets of the children's television entertainment business, it is well positioned to exploit a broad range of domestic and international children's entertainment opportunities, including television, merchandising, licensing and home video. The Company intends to expand its business in the United States by capitalizing on the network strengths of the Fox Kids Network and the production and distribution strengths of Saban. As satellite and cable services continue to expand and become more prevalent worldwide, the Company plans to launch additional international children's television channels under the "Fox Kids" name. As the Company continues to expand the distribution outlets which the Company controls, the Company believes that it will also be able further to develop new programs, grow its library of children's programming, build on its popular and branded characters and increase revenue from its licensing and merchandising activities. INDUSTRY OVERVIEW Children's Television The U.S. television market is served principally by network-affiliated stations, independent stations and cable or satellite television operators. Historically, four major broadcast networks--ABC, CBS, FOX and NBC-- collectively have been watched by the vast majority of the television viewing audience. In recent years UPN and WB have been launched as new national broadcast television networks. Additional television entertainment options, including cable channels and DTH satellite services, have also been launched in recent years. The networks and cable channels have increased the amount of children's television programming broadcast in recent years. Because network affiliates generally broadcast network programming nationwide, generally at the same local time and on the same day, the formation of a children's network, such as the Fox Kids Network, has allowed advertisers to efficiently plan and execute their national advertising campaigns. As other networks recognized the value of providing programming for this audience, the number of services offering children's programming blocks has expanded. Weekend morning children's programming now airs on Fox Kids Network, ABC, CBS, UPN Kids and Kids WB. In addition, Fox Kids Network and Kids WB broadcast animated and live-action programming for children Monday through Friday mornings and afternoons. For the 1996-97 broadcast 39 season, children's animated and live-action programming will occupy approximately 40 hours of air time per week on the U.S. broadcast television networks. UPN and the USA cable network, as well as many first-run syndicators, provide children's programming blocks on Sunday mornings. Cable channels which broadcast advertiser-supported children's programs include The Cartoon Network, Nickelodeon, USA cable network and The Family Channel. In the United States, an estimated $725 million was spent in the 1995-1996 broadcast season by advertisers on children, and expenditures have grown at an average annual rate of 13% since 1990. For the period from September 1995 through May 1996, national advertiser expenditures on television commercials targeting children, including major toy companies such as Mattel and Hasbro, other children's consumer product companies such as Kellogg's and Quaker Oats, and major fast food chains such as McDonald's, Burger King and Taco Bell were over $230 million in the aggregate. The growth in the number of international television outlets has created additional global demand for children's programming. The privatization of the international television industry has encouraged a ratings/revenue-oriented focus among international broadcasters, increasing the demand for high-quality television entertainment. Children's programs produced in the United States have enjoyed wide acceptance internationally. In addition, the number of cable and satellite programming services addressing the international community has grown significantly in recent years. These added programming services have created an opportunity for distributors, including the Company, to license simultaneously both traditional broadcast and DTH satellite programing rights within the same territory. International television, cable, DTH satellite and home video sales of a children's program produced in the United States can account for more than half of the revenue for a given program. Suppliers and Distributors Suppliers of television programming include the production divisions and affiliated companies of the major motion picture studios, independent production companies, syndicators, broadcast television networks, station owners and advertising agencies. These suppliers sell programming to broadcast networks or television stations for a fixed cash fee per episode, by barter, or by a combination of cash and barter. Virtually all children's programming sold though syndication is sold by barter, where a syndicator obtains commitments from television stations to broadcast a program at a certain time, retains a portion of the advertising time in the program in lieu of receiving cash licensing fees and sells the retained advertising time for its own account to national advertisers. Broadcasters of children's television programming in the United States consist primarily of networks (both over the air broadcast television networks and basic cable networks) and independent television stations. Distributors of children's programming generally sell television series to networks on a cash basis and sell to independent television stations on a barter basis. Networks typically pay a distributor a fixed cash license fee which entitles the network to a number of runs of a series over a defined period of time. Networks are generally entitled to retain 100% of the advertising revenues generated by the broadcast of a series and sell advertising spots to national advertisers on the basis of guaranteed ratings. Independent television stations, which obtain series programming through barter transactions, agree to provide a distributor with a certain number of advertising spots during each broadcast of the series on the station in exchange for the local broadcast rights. The advertising spots retained by the independent station are sold by the station on a local basis. The advertising spots retained by the distributor are sold to national advertisers on the basis of guaranteed ratings. Nielsen periodically publishes data on the percentage of viewers actually watching each program. If the actual viewership falls below the guaranteed rating, the distributor or network, as the case may be, generally provides the advertiser with "make-goods"--additional airings of the advertiser's commercial in order to achieve the promised audience level-- or in some cases, cash refunds. When selling national advertising time, the network or distributor typically holds back a certain number of advertising spots to be used as future "make-goods." Since stations do not receive any compensation for delivering ratings in excess 40 of the guarantee, and "make-goods" lower the inventory of available commercial time which can be sold on an up-front basis, accurately predicting a series' rating is important to maximizing advertising revenues. Licensing and Merchandising In addition to utilizing television to advertise products to children, children's programming itself provides broad licensing and merchandising opportunities. Characters developed in a popular series, and often the series themselves, achieve a high level of recognition and popularity among children, making them valuable assets for the licensing and merchandising market, where they can provide attractive "branding" opportunities. The children's market is one of the fastest growing segments in licensed merchandising sales, with over 70% of the $6 billion spent in the United States on entertainment and character-related properties in 1995 relating to children-oriented products. Among the most popular licensed items are toys, t-shirts, food, dinnerware/lunch boxes, watches and soft vinyl goods such as boots, backpacks and raincoats. There are currently over 38 million children in the United States between the ages of 2-11, with approximately 4.5 million children entering the marketplace annually, and the average annual amount spent on toy purchases for a child up to ten years of age is estimated at between $240 and $300. BUSINESS STRATEGIES The Company intends to continue to increase its presence in the children's television entertainment business, with the goal of becoming the leading worldwide producer, broadcaster and distributor of children's television programming. The principal elements of the Company's strategies for achieving this objective include the following: Develop Strong Branded Characters and Properties. Strong characters and names not only dramatically improve the ratings, longevity and worldwide distribution potential of programming, but also develop household name "franchise values," which are leveragable into merchandising, movies and spin-off and sequel shows. The Company intends to continue to create and develop new entertainment properties with potential franchise value and to further build on its existing and widely recognized institutional and programming brands. Some of the Company's programming, such as the Power Rangers, have already achieved franchise status, and their high consumer awareness should provide opportunities to generate revenues from multiple sources on a long-term basis (the Company expects to continue periodically to freshen these series with new characters and other creative elements). In addition, the Company's agreement with Marvel Entertainment Group ("Marvel") should provide access to many well-known comic book characters (see "--Programming--Relationships with Marvel and Toei"). On an institutional basis, the Fox Kids Network is a known leader in the United States, and the Fox Kids and Saban names are recognized by broadcasters internationally for popular and high quality programming. The Company intends to use its Fox Kids brand for all of its international channels. Maximize Revenue from Licensing and Merchandising. The Company intends to capitalize on the popularity and recognition of its properties in all media and markets, including toys, merchandising, home video and consumer products. The Company plans to leverage the expertise it has developed through its merchandising campaigns for Power Rangers, which have generated retail sales in excess of $2.0 billion since 1993, and the relationships it has built with major retailers, toy companies and more than 500 licensees worldwide, to exploit the merchandising and other ancillary revenue potential of its properties. Revenues from the licensing and merchandising of the Company's branded characters and properties have contributed materially to the Company's operating results, and represented approximately 35% of the Company's pro forma consolidated revenues for the fiscal year ended June 30, 1996. Strengthen U.S. Broadcasting and Distribution Operations. The Company strives to maintain and improve the ratings, reach and penetration of its U.S. broadcasting and distribution operations. The Fox Kids Network is the top-rated children's oriented broadcast television network in the United States, currently reaching 97% of the television households in the United States. The Saban Kids Network, an ad hoc syndicated network of independent stations, currently broadcasts 7 1/2 hours of children's programming each 41 week, with market reach, on a weighted average basis, to over 86% of U.S. television households. The Company plans to seek to further improve its ratings for both of its U.S. services, and to expand the reach of its Saban Kids Network, by continuing to develop, acquire or license quality programming which is attractive to children. The Company, which has created such "hit" programs as the Power Rangers and Bobby's World, currently owns most of the underlying rights to 15 of the 21 programs broadcast on its networks, and will strive to increase the number of its owned programs broadcast. This integration of ownership and distribution has the potential to enhance the profitability of both the Fox Kids Network and the Company's programming. In addition, its competitive position and reputation have improved the Company's ability to attract quality sources for its programming, such as those series opportunities available to the Company under its recent agreement in principle with Marvel. See "--Programming-- Relationships with Marvel and Toei." Broaden International Television Channels. The Company believes that significant expansion opportunities exist in the international television markets, where the Company believes that children's programming has been relatively underserved. With its library of over 3,700 half-hour episodes of children's programming, a significant portion of which meet the "local content" requirement of various European countries, the Company intends to focus significant resources on the expansion of its international operations. The Company has an important strategic advantage because of its current relationship with News Corp., and News Corp.'s interests in international television distribution platforms have been helpful in securing carriage agreements on those platforms. The Company intends to expand globally the Fox Kids Network by launching "Fox Kids" branded cable and DTH satellite channels targeting children in all major territories, and the Company has recently entered into agreements or agreements in principle to launch channels in the United Kingdom and Republic of Ireland and Latin America, and is currently in active negotiations to launch several channels in Europe and Asia. See "--Distribution: Networks and Syndication-- International Channels." Expand Breadth and Depth of Programming Library. As services targeting children expand worldwide, competition for access to attractive children's programming has intensified. By owning a large, diversified library of easily portable children's television programming, the Company has been able to provide a consistent supply of programming for its own U.S. and international broadcast and distribution operations without reliance on third party suppliers, and believes that it is important to continue to expand this library. The Company intends to continue to build its library through internal creation, development and production, by pursuing co- production arrangements with international partners and by acquiring properties and libraries from third parties. In the twelve month periods ended June 30, 1994, 1995 and 1996, the Company added 165, 343 and 1,595 half-hour episodes, respectively, to its library, which as of June 30, 1996, included 3,721 half-hour episodes of children's programming. By managing every stage of the children's television business, from the creation and production of programming to the worldwide licensing and merchandising of properties, the Company believes it will be able to coordinate all forms of exploitation in tandem with the timing of television broadcasts on a worldwide basis with the goal of maximizing market reach and revenues. PROGRAMMING The Company creates, produces and acquires quality animated and live-action children's television programming. The Company believes that its library of more than 3,700 half-hours of children's television programming is one of the largest children's libraries in the world. The principal programming objective of the Company is to develop or acquire on a cost-effective basis appealing characters and concepts that can be commercially exploited throughout the world through television exhibition, home video sales, licensing and merchandising. One of the essential attributes of quality children's programming is its "portability." Children's programming produced for exhibition in a particular country is "portable" because it can generally be modified 42 at a modest cost and resold for exhibition in other countries through editing and dubbing into other languages. The Power Rangers live-action series is an example of this portability. Since its launch on the Fox Kids Network in August 1993, Power Rangers has been the number one rated children's television program in the United States. In 1992, the Company acquired rights from Toei, a leading Japanese film company, to adapt, as the Power Rangers, a Japanese program for sale and distribution throughout the world (other than certain parts of Asia). The genre of programming which includes Power Rangers has been continuously exhibited in Japan for over 25 years. By adapting the series for the U.S. television market and acquiring broad U.S. and international rights to license and otherwise exploit the series, the Company has developed a long- running popular television series with extensive brand appeal. For the year ended June 30, 1996, Power Rangers-related revenues (including broadcasting, licensing and other merchandising revenues) accounted for approximately $142.7 million, or 44% of the Company's pro forma consolidated revenues. From time to time, the Company refreshes the Power Rangers characters by changing their costumes and ethnicity and last year introduced a sequel, Power Rangers Zeo. Power Rangers is currently being broadcast in approximately 40 countries, including Germany, the United Kingdom, France, Latin America and Australia. Programming Library As of June 30, 1996, the Company's library of children's programming was comprised of 3,721 half-hour episodes. The two principal sources of the Company's programming library are (i) television series that have been originally produced by the Company for broadcast in the United States and internationally (approximately 1,160 half-hours) and (ii) programming produced by others for which the Company has acquired various distribution rights (approximately 2,561 half-hours), of which approximately 40% have been "freshened" with new scripts, voices and music prior to distribution. Of the Company's library, 1,262 half-hours are original co-produced programming that meet applicable European content requirements and are intended for initial broadcast in Europe. Approximately 86% of the library is animated programming, and the balance is live-action. The Company believes that its distribution rights are broad enough as to territory to permit it to meet broadcasters' requirements in markets throughout the world. Of the episodes in the Company's library, approximately 87% are parts of series consisting of 26 or more episodes, facilitating their distribution as complete series in the United States and international markets. The Company's international programming includes worldwide distribution rights to a 445 half-hour episode library of family- oriented programming acquired in the April 1996 acquisition of Paris-based Creativite & Developpement ("C&D"), a leading European producer of family entertainment, and a 706 half-hour episode library of animated children's programming acquired in the April 1996 acquisition of Vesical Limited, a library of international rights to programming originally produced by DIC. The Vesical library includes non-U.S. rights to classic series such as Inspector Gadget, Heathcliff and Dennis the Menace. The following table sets forth, as of June 30, 1996, the growth in the size of the Company's library. Approximately 31% of the library is relatively new, having been produced since 1995. Approximately 472 additional half-hour episodes were in production as of June 30, 1996 for release in 1997.
TOTAL NUMBER OF EPISODES ---------------------------------------------------------------- YEAR ENDED EXISTING AT END OF JUNE 30, PRODUCED ACQUIRED FISCAL YEAR ---------- -------- -------- ------------------ 1990 80 172 945 1991 169 127 1,241 1992 29 140 1,410 1993 117 91 1,618 1994 152 13 1,783 1995 267 76 2,126 1996 284 1,311 3,721
43 Creation and Development of Programming The Company has and will continue to pursue ideas and properties for original production from a number of sources. For example, the Company may acquire production, distribution and possibly other rights to an existing property (such as Marvel's X-Men or Francine Pascal's Sweet Valley High) or series (such as Power Rangers or Heathcliff), develop internally a new property based on an existing public domain property (such as Adventures of Oliver Twist) or create or acquire an entirely new idea or character (such as Eek! Stravaganza). The Company considers itself the producer of all series which it has financed or co-financed, and in which it owns substantial distribution rights. The Company has teams of employees in the United States and France involved in programming development and currently has over 35 projects in various stages of active development. In general, production does not commence without significant commitments for broadcasting by networks or independent television stations. Typically, the Company has seven months to one year to produce and deliver anywhere from 13 half-hour episodes (the typical number of episodes ordered for a weekly series) to 65 half-hour episodes (the typical maximum number of episodes ordered for a weekday series). The Company attempts to produce programming in a cost-effective manner while maintaining control over critical parts of the production process to ensure continued high quality. For example, with respect to programming in which the Company has assumed responsibility for physical production, freelance script writers are utilized but supervised by a Company production executive and certain labor-intensive animation work may be subcontracted to countries with relatively low-cost labor, while the Company handles or directly supervises both initial creative development and all post-production work. Pursuant to a letter agreement between them, Saban and UPN have each agreed, subject to any third party contractual restrictions and other conditions, to provide a Saban-UPN joint venture with a "first look" at any children's properties for which it owns or controls U.S. network television distribution rights, and, under certain circumstances, to co-finance the production of children's programming for first run on UPN. The current Bureau of Alien Detectors and The Mouse and the Monster series are being co-produced by this venture. As a result of certain disagreements among the parties, the parties are currently negotiating a termination of the letter agreement. The Company also produces most of the on-air promotions, sales films and public service announcements for its Fox Kids Network. The Company has received numerous national awards of recognition for its Fox Kids Network public service campaigns, including the George Foster Peabody Award, the International Monitor Award, the Parent's Choice Award and the National Education Association Award for the Advancement of Learning through Broadcasting. 44 The following is a list of the programs currently being broadcast in the United States for the 1996-1997 broadcast season for which the Company owns or controls most of the underlying property and distribution rights.
EPISODES IN PRODUCTION YEARS FOR 1996-97 PROGRAM ON SERIES SEASON SCHEDULE AIR PROGRAM DESCRIPTION ------ ------------- ------------- -------- ------------------------ Fox Kids Network: Big Bad Beetleborgs+ 53 Weekday premiere Three kids become comic book superheroes in this comedy-adventure series. Bobby's World* 3 Weekday 7 Combines point of view of a 4-year old with spirit of Howie Mandel. Eek! Stravaganza* 9 Weekday 5 The offbeat adventures of everyone's favorite feline and his zany friends. Power Rangers Zeo+ 40 Weekday 4 The next generation of the Power Rangers saga. Life With Louie* 13 Saturday A.M. 2 Comedian Louie Anderson's childhood ups 'n downs of dodging bullies, eating pies and going on family vacations. The Tick* 10 Saturday A.M. 3 A garden variety giant blue 400-pound crime fighter. X-Men* 14 Saturday A.M. 5 Marvel comic book heroes still going strong after 30 years. Saban Kids Network: Masked Rider+ 13 Weekday 2 Alien superhero protects the earth while leading a normal life. Samurai Pizza Cats* 40 Weekday premiere Futuristic feline superheroes save the world. Adventures of Oliver Twist* 13 Weekend A.M. premiere Inspired by Charles Dickens' timeless classic. Eagle Riders* 13 Weekend A.M. premiere Secret agents who glide like birds in a battle against VORAK. Sweet Valley High+ 22 Saturday 3 Twins living the California dream. The Why Why Family* 13 Weekend A.M. premiere Animated "edutainment" series. UPN: Bureau of Alien Detectors 13 Sunday A.M. premiere Idealistic individuals (B.A.D.)*(1) defend humanity. The Mouse and the Monster*(1) 13 Sunday A.M. premiere An 8-foot, one-eyed blue monster, Mo and his buddy, Chesbro the mouse.
- -------- + Live-Action * Animation (1) Financed by a joint venture between Saban and UPN; the Company controls worldwide merchandising and all international sales with respect to this series. 45 Production Facilities The Company handles or directly supervises most aspects of the creative development of a property from initial concept through the post-production of a series, from the development of a story and writing of scripts to the production of voices, music and special effects. Of the 15 series listed in the foregoing table, 13 are being internally produced by the Company. The Company films all of its live-action series at its production facilities in Valencia, California. The Company also maintains a state of the art post- production facility in Los Angeles, California. The Company records all of the music for its programming and edits and adds audio and sound effects to its programming. The Company has a full-service animation studio in Paris which develops programming containing content that meets the local content requirements of various European countries for local broadcast television. The Paris studio has produced almost 200 half-hours of programming since its inception in 1990 and has an additional 78 half-hours in development for the Fall 1996 television season. In general, the Company enters into strategic co-production alliances to develop its French and European content programming. Many of the projects developed by the Paris studio are based upon existing, popular European characters, such as Iznogoud, which was based upon the popular comic books of Rene Goscinny, creator of Asterix (which have sold 350 million copies in Europe). Among the Company's European co-production partners are Canal Plus, France 2, M6 and Television Francaise 1 ("TF1") in France, Radio Television Luxembourg 4 ("RTLF4") in Holland, Compagnie Luxembourgois de Telediffusion ("CLT") in Luxemburg, British Broadcasting Company ("BBC") in the United Kingdom, Television Suisse Romande ("TSR") in Switzerland, Radio- Television Belge de la Communaute ("RTFB") in Belgium, Radiotelevisione Italiana ("RAI") in Italy, Tele 5 in Spain and Arbeitsgemeinschaft der Oeffentlichen Rechtlichen Rundfunkanstalten Deutschlands ("ARD") in Germany. Relationships with Marvel and Toei The two most significant third party sources for characters on which the Company bases original programming have been, and are currently expected to continue to be, Marvel and Toei. In June 1996, the Company and Marvel reached an understanding on the principal terms of an agreement granting to the Company the exclusive right to produce and distribute animated series, subject to other preexisting agreements, based on characters from Marvel's library of approximately 3,500 comic book characters, including Silver Surfer, Captain America and Daredevil. Marvel has agreed, subject to the negotiation and execution of definitive documents, to contribute a portion of the Company's production costs while the Company will bear all development and distribution costs. The parties are in the final stages of negotiations with respect to the definitive agreement, and the Company expects this agreement to be executed in the near future. The remainder of this paragraph assumes that the agreement is executed in its current form; no assurance can be given that the final agreement will not vary materially from the discussion which follows, or that any agreement will be executed. Pursuant to the agreement, the Company will commit to produce a minimum of 52 episodes of at least four new series over the next seven years. The Company will have worldwide television and home video distribution rights to all series produced for a period of 21 years. The term of the agreement may be extended for an additional three year period if during the first two years, the Company orders a minimum of 104 episodes and such programming is comprised of a minimum of 8 separate series, with each series based on a different Marvel character. While Marvel has retained all merchandising and other ancillary rights to its characters, the Company will receive a portion of worldwide merchandising revenues received by Marvel from characters or series broadcast on the Company's Fox Kids Network. The Company and Marvel will share U.S. syndication revenues. To date, the Company plans to develop, produce and distribute either a Silver Surfer or Captain America series for inclusion in the 1997-1998 Fox Kids Network schedule. Although the Company's relationship with Toei dates from the 1980's, it was through an August 1992 distribution agreement that the Company acquired the right to adapt elements of Toei's live-action programming into new series. The first adaptation resulted in Mighty Morphin Power Rangers. The distribution agreement granted the Company the exclusive right to acquire additional Toei live-action programming through March 46 1995, subject to extension by one year for each new series so acquired. To date, the Company has exercised this option nine times, thus extending its exclusive right to acquire additional series through March 2004. The additional series acquired by the Company have been used as the basis for additional Power Rangers episodes, VR Troopers, Masked Rider and Big Bad Beetleborgs. The distribution agreement grants the Company the right in perpetuity to distribute, adapt and exploit all elements and characters of these series in all non-Asian markets through all media outlets including television, video, music, soundtracks, theatrical use and literary publishing and all other ancillary rights. In general, the Company pays Toei a fee per episode for all rights to exploit the applicable property throughout the world (other than certain parts of Asia) in all media and pays Toei a royalty based on merchandising royalties and/or certain distribution revenues. DISTRIBUTION: NETWORKS AND SYNDICATION The Company distributes its own programming, as well as the programming of others, throughout the United States and in major markets throughout the world. The Company is uniquely positioned as a distributor as a result of its strategic relationship with Fox Broadcasting and News Corp. and by reason of its large programming library. See "Risk Factors--Strategic Relationships with News Corp. and Fox," "--The Strategic Alliance with Fox/News Corp." and "-- Programming." In the United States, the Company operates the Fox Kids Network, the number one rated children's television broadcaster in its time slots for the last three seasons. Through the FOX Television Network, the Fox Kids Network reaches approximately 97% of U.S. television households. According to Nielsen, 20 million children--approximately 52% of all children in the United States-- watch the Fox Kids Network at least once each month. In the 1996-97 broadcast season, the Fox Kids Network will broadcast 19 televised hours of children's programming each week, of which approximately 12 hours will represent the Company's own programming. The Company has recently agreed or agreed in principle, to launch full time or partial day "Fox Kids" branded DTH satellite and cable channels in various markets in Europe and Latin America. On October 19, 1996, the Company launched a Fox Kids branded channel, as part of BSkyB's Sky Multichannels package, which through DTH and cable services is expected to reach more than 5.5 million viewers in the United Kingdom and Republic of Ireland. Subject to completion of negotiation of definitive agreements, additional international channels are currently contemplated to be launched over the next two years on DTH and cable in Latin America and Asia. In Australia, the Foxtel cable service has been carrying a Fox Kids Network children's channel segment since 1994 under a license recently assigned to the Company by Fox Broadcasting. In the United States the Company also distributes programming through syndication to independent television stations. One of the Company's current distribution strategies in the United States is to package some of its original and library programming under the Saban Kids Network name. In the 1996-97 broadcast season, the Company will distribute under the Saban Kids Network name a block of 7 1/2 hours of programming each week which, on a weighted average basis, reaches over 86% of the television households in the United States. See "--Syndication." Fox Kids Network The Fox Kids Network, launched in September 1990, is the result of an arrangement between Fox Broadcasting and participating FOX Television Network member stations which formed a broadcast television network focused on children (ages 2-11). This Network was the first television network to broadcast children's programs during the week (Monday through Friday) as well as on Saturday. The guiding philosophy of the Fox Kids Network is to provide a diverse slate of quality entertainment targeted toward children. Of its 19 hours of children's programming per week, the Fox Kids Network generally broadcasts four hours on Saturday mornings, one hour each weekday morning and two hours each weekday afternoon. At least three hours of programming each week are dedicated to educational programming for children. See "--Government Regulation." Now in its sixth broadcast season, the Fox Kids Network currently is carried by 172 affiliated stations (the "FOX Kids Network Affiliates"), including ten of Fox Television Station, Inc.'s ("FOX Television") 12 47 currently owned and operated stations ("Fox O&O's") and (representing over 91% of the FOX Television Network member stations). The Fox Kids Network Affiliates currently reach approximately 97% of all U.S. television households. According to Nielsen, 20 million children--approximately 52% of all children in the United States--watch the Fox Kids Network at least once each month. The Fox Kids Network produces and acquires programs, markets and promotes those programs, makes its schedule available to its Fox Kids Network Affiliates and sells network advertising. Under an Administration Agreement between Fox Broadcasting and FCN, Fox Broadcasting agreed to perform certain of FCN's activities, including network national advertising sales and the administration thereof, commercial trafficking and broadcast operations (including the delivery of programming to the Fox Kids Network Affiliates) and overhead charges related to Fox Broadcasting's in-house administrative support in the areas of research, promotion, business affairs, legal affairs and accounting. In exchange for these services, FCN agreed to pay Fox Broadcasting an administrative fee, which is currently equal to 15% of the net advertising revenues derived from Fox Kids Network national commercials and other advertising. Effective June 1, 1995, Fox Broadcasting assigned all of its rights under this agreement to the Company, including the rights to such fees, and agreed to continue to provide the Company for a one-time fee (which has been paid) all uplink, transponder and other facilities necessary to deliver via satellite Fox Kids Network programming for broadcast to the Fox Kids Network Affiliates, as well as certain other services. See "Certain Transactions--Formation of the LLC and the Reorganization." The extensive reach of the Fox Kids Network affords Fox Kids Network advertisers substantial day-and-date capacity to conduct nationwide advertising campaigns. The Company believes that day-and-date capacity, coupled with programming which has won 15 consecutive sweeps victories, has resulted in the Fox Kids Network achieving the highest advertising rate structure among all of the competitors for its target audience of children (ages 2-11). Advertising. Substantially all of the revenues of the Fox Kids Network are derived from national network advertising and the merchandising of its characters and related series elements. Of the top 20 advertisers targeting children who advertised on FOX, ABC, NBC, Nickelodeon and The Cartoon Network, the Company believes that over $110 million, or over 45% of their total U. S. children's television advertising budgets for the 1995-1996 broadcast season, were spent on national advertising on the Fox Kids Network. The following advertisers are representative of those who have historically advertised on the Fox Kids Network on a regular basis:
FAST FOOD CEREAL FRANCHISES MANUFACTURERS TOY COMPANIES ---------- ------------- ------------- Burger King Corp. Kellogg Co. Hasbro Inc. Nintendo Co. McDonald's Corp. Quaker Oats Company Lego Systems Inc. Toybiz Inc. Taco Bell Corp. Post Cereals Lewis Galoob Toys Inc. Tyco Toys Inc. Wendy's Interna- Mattel Inc. tional, Inc.
FOOD AND BEVERAGE COMPANIES ENTERTAINMENT COMPANIES CANDY COMPANIES ----------------- ----------------------- --------------- Campbell Soup Co. Fox Hershey Foods Corp. Coca Cola Co. Time Warner Inc. Mars Inc. Kraft The Walt Disney Company Nestle SA Nabisco William Wrigley Jr. Co. Oscar Mayer Pepsi-Cola Inc.
48 Ratings and Programming. The following table sets forth, for each of the broadcast seasons indicated, the average number of weekly hours of children's programming which appeared on the Fox Kids Network, the number of FOX Television Network member stations carrying the Fox Kids Network, and clearance information.
BROADCAST SEASON --------------------------------------------------------------------- 1990-1991 1991-1992 1992-1993 1993-1994 1994-1995 1995-1996 1996-1997 --------- --------- --------- --------- --------- --------- --------- Average Number of Weekly Hours Broadcast........ 5.5 10.5 19 19 19 19 19 Fox Kids Network Affiliates: Independent Fox television member stations(1).......... 133 143 150 152 145 130 142 Fox O&O's............. 7 7 7 8 8 12 12 Non-Fox member stations(2).......... -- -- -- -- 8 19 18 --- ---- --- --- --- --- --- Total............... 140 150 157 160 161 161 172 % of Coverage of U.S. Television Households.. 91% 92% 94% 95% 95% 97% 97%
- -------- (1)Stations which carry both FOX prime-time and Fox Kids Network. (2)Stations which carry only Fox Kids Network. The following table sets forth, for each of the broadcast seasons indicated, ratings and share information relating to the Fox Kids Network, Monday through Saturday, and as compared to ABC, CBS, NBC and Kids WB for Saturday mornings, as well as Fox Kids Network's Saturday morning rank. In the television industry, for the 1996-1997 broadcast season each kids 2-11 rating point represents an estimated 388,900 children, or 1% of the total number of children (ages 2-11) in the United States, and references to one share point are to 1% of these children who are watching television during the time slot involved. In the past two seasons, the Fox Kids Network has experienced some erosion in its ratings due to the increasing competition from cable television and other forms of entertainment targeted at children. Despite the decline in ratings, the Fox Kids Network garnered a 20 share for the 1995-96 season--more than one in five children watching television at the time Fox Kids Network was broadcasting was watching the Fox Kids Network.
BROADCAST SEASON ------------------------------------------------------------------------ 1990-1991 1991-1992 1992-1993 1993-1994 1994-1995 1995-1996 1996-1997(3) --------- --------- --------- --------- --------- --------- ------------ Kids 2-11 Rating/ Share(1): Fox Kids (M-Sat.)...... 3.4/15 3.5/20 4.3/24 5.7/30 5.1/30 3.3/20 3.5/21 Fox Kids (M-F Only).... 4.7/25 4.0/24 4.6/27 5.4/33 4.9/31 3.0/21 2.6/19 Fox Kids (Sat. Only)... 3.2/15 3.7/16 5.2/21 6.6/27 5.7/25 4.4/20 5.1/22 ABC (Sat. A.M.)........ 5.9/23 5.0/21 4.6/19 4.1/17 3.5/15 2.5/12 2.9/13 CBS (Sat. A.M.)........ 6.6/26 5.5/22 4.7/19 3.9/16 3.0/13 2.3/10 1.5/7 NBC (Sat. A.M.) (2).... 4.2/16 3.6/14 2.6/10 1.2/5 1.5/6 1.4/6 1.3/6 Kids WB (Sat. A.M.).... n/a n/a n/a n/a n/a 1.9/9 1.7/8 Fox Kids Saturday A.M. Rank................... #4 #3 #3 #1 #1 #1 #1
- -------- (1) Ratings are for children, ages 2-11, in the Monday-Saturday television schedule. Fox Kids Network remains the leader in children's broadcasting. (2)NBC has changed the focus of its programming for Saturday morning from children to teens. (3)Represents the period from September 7, 1996 through September 14, 1996. 49 The current Fox Kids Network schedule for the 1996-1997 broadcast season is set forth below. The Company believes that the programming designated below as "educational" complies with the FCC's requirement that broadcast television stations show at least three hours of "educational" programming per week. SATURDAY MORNING PROGRAMMING
TIME PERIOD YEARS ON (EST) PROGRAM PRODUCER AIR PROGRAM DESCRIPTION ----------- ------------------- ------------------- -------- ------------------------ 8:00-8:30 AM C Bear & Jamal Film Roman premiere Life of Jamal Wingo, a (educational) 10-year old African- American boy, whose thrift-store teddy bear comes to life. 8:30-9:00 AM Big Bad Beetleborgs The Company premiere Three kids become comic book superheroes in this comedy-adventure series. 9:00-9:30 AM Casper Universal Family 1 The friendly ghost. Entertainment 9:30-10:00 AM Spider-Man Marvel Films 3 Based on the most Animation popular Marvel comic book hero in history. 10:00-10:30 AM Goosebumps Scholastic/Protocol 2 Based on the best- selling suspense novels by R.L. Stine. 10:30-11:00 AM Life With Louie The Company 2 Comedian Louie Anderson's childhood ups 'n downs of dodging bullies, eating pies and going on family vacations. 11:00-11:30 AM X-Men The Company 5 Marvel comic book heroes still going strong after 30 years. 11:30 AM- The Tick The Company 3 A garden variety, giant 12 NOON blue 400-pound crime fighter. WEEKDAY PROGRAMMING TIME PERIOD YEARS ON (EST) PROGRAM PRODUCER AIR PROGRAM DESCRIPTION ----------- ------------------- ------------------- -------- ------------------------ 7:30-8:00 AM Bobby's World The Company 7 Combines point-of-view of a 4-year old with the spirit of comedian Howie Mandel. 8:00-8:30 AM Where On Earth DIC 4 Master thief Carmen Is Carmen Sandiego? Sandiego is tracked (educational) down by teen super sleuths while teaching viewers geography, art and history. 3:00-3:30 PM Eek! Stravaganza The Company 5 The offbeat adventures of everyone's favorite feline and his zany friends. 3:30-4:00 PM The Adventures of Warner 3 The Dynamic Duo use Batman & Robin their powers to protect the citizens of Gotham City. 4:00-4:30 PM Big Bad Beetleborgs The Company premiere Three kids become comic book superheroes in this comedy-adventure series. 4:30-5:00 PM Power Rangers ZEO The Company 4 The next generation of the Power Rangers saga.
50 Fox Kids Affiliation Agreements. Currently, more than 91% of the FOX Television Network member stations, including ten of the 12 Fox O&O's, carry the Fox Kids Network pursuant to their affiliation agreements with Fox Broadcasting. These affiliation agreements expire over the next two to ten years and there can be no assurance that they will be renewed. See "Risk Factors--Possibility of Non-Renewal of Fox Kids Network Affiliated Stations." The Fox Kids Network affiliation agreements provide that FCN is to pay to each of the Fox Kids Network Affiliates (including the Fox O&O's) participations based upon the "net profits" (as defined) of FCN, with the participations allocated among the Fox Kids Network Affiliates based upon each affiliate's percentage of audience delivery as compared to the other Fox Kids Network Affiliates. "Net profits" is defined on a cumulative basis to include amounts actually received by FCN from the exhibition, distribution and other exploitation of Fox Kids programs and the merchandising and other rights relating thereto, less administrative fees, production/license fees, distribution and merchandising fees (including those payable to the Company), overhead and other expenses and reserves. Certain of the Fox O&O's have waived in favor of the Company their rights to receive these participations, and the amounts of their participations are retained by the Company, representing through June 30, 1996 $4.7 million, or approximately 31% of the total amounts paid to all Fox Kids Network Affiliates. The non-Fox O&O Fox Kids Network Affiliates have appointed a board of their members (the "Affiliate Board") for the purpose of representing all of the non-Fox O&O Affiliates in dealings with FCN. On behalf of the Company, Fox Broadcasting from time to time meets with the Affiliate Board to review the operations and operating policies of FCN and the Fox Kids Network. In connection with the announcement of the Reorganization to the Fox Kids Network Affiliates, the Company has offered to the Fox Kids Network Affiliates that, should the Company launch a block of children's programming on a U.S. cable channel, the Company would share with the Fox Kids Network Affiliates 50% of the "net profits" (adjusted to deduct all costs related to the cable channel and a 15% administrative fee) realized by the Company from such block of programming. In addition, the Company has offered to guarantee that, for the five-year period commencing January 1, 1997, profits (including net profits from both cable operations and from FCN) distributed to the Fox Kids Network Affiliates as a group (including certain of the Fox O&O's, who have, however, waived their rights to receive their share of these participations in favor of the Company) will aggregate at least $75 million. To the extent that net profits distributed in any year during the guarantee period are less than $15 million, the Company would advance the shortfall. To the extent that net profits distributable in any year during the guarantee period exceed $15 million, the Company would be entitled to credit the excess against advances previously paid or thereafter due. The Fox Kids Network Affiliates are currently considering this offer. On July 17, 1996, News Corp. agreed, subject to customary closing conditions, to acquire New World Communications Group Incorporated ("New World"), which owns 11 television stations (one of which, an NBC affiliate is scheduled to be sold). Although none of the New World stations had carried the Fox Kids Network, one of these stations has agreed, commencing September 14, 1996, to provide clearance of the Fox Kids Network's Monday through Saturday line-up in addition to FOX prime-time, news and sports coverage. All of the New World stations are located in markets currently served by existing Fox Kids Network Affiliates. Promotions. The Company also promotes the Fox Kids Network with innovative contests, promotions and other programs targeting children, including the following: Contests. The Company regularly sponsors contests, such as Fox Kids McWorld Home Arcade, in which over 650,000 entries were received from children, and the winner received four full-sized arcade games. Contests have been effective ways to promote the Company's television programs because they appeal to children and at the same time provide valuable information about the Company's programming. Fox Kids Club. Fox Kids Club is a club linking the Fox Kids Network with over 5.3 million of its viewers. The Company publishes a monthly full-color magazine called Totally Kids, which includes games, 51 articles and celebrity interviews, that is mailed to each club member's household. In addition, the Company sells advertising in the magazine and allocates space to each of its local affiliates so that the magazine is tailored to the broadcast schedule of each local market. Fox Kids Countdown. Fox Kids Countdown is a nationally syndicated weekly radio program for children which is currently broadcast by 183 radio stations. The Company produces a two hour top contemporary hits countdown show, including guest hosts from the Company's shows, and national sponsorships from such companies as McDonald's, Marvel and Bandai. Fox Kids Countdown provides an attractive way to reach current and potential viewers, and to extend the Company's brands though the exploitation of additional media outlets. Fox Kids Website. Fox Kids Network launched its Fox Kids Cyberstation (www.foxkids.com) site on the World Wide Web on July 1, 1996. This website includes excerpts from Totally Kids magazine, inside scoops on the Company's programming, contests and coloring books featuring, for example, The Tick, Goosebumps and Eek! Stravaganza. The Website also offers children the opportunity to join the Fox Kids Club. Syndication Saban Kids Network. The Company syndicates programming, currently under the Saban Kids Network name, to television stations with market reach on a weighted average basis of over 86% of television households in the United States. For the 1996-1997 broadcast season, two Monday through Friday half- hour television shows and five weekly half-hour series are being broadcast. The Company intends to attempt to increase its share of broadcasting hours in existing markets by continuing to provide broadcasters with attractive syndicated programming and by using its available resources, including its extensive library, to offer additional programming to existing and potential program distributors. Distribution through the Saban Kids Network affords the Company the opportunity to generate additional revenues at modest additional cost by exploiting its existing library and broadcasting lower cost acquired programming. Beginning in the 1996-1997 broadcast season, Fox Broadcasting's advertising sales staff has assumed responsibility for sales of advertisements for the Saban Kids Network; one apparent result of this arrangement has been a 14% increase in average advertising rates for Saban Kids Network's programming. The following table sets forth, for each of the seasons indicated, the average number of weekly hours of children's syndicated programming distributed by Saban, as well as ratings and clearance information. The Company began using the name "Saban Kids Network" in the 1996-1997 broadcast season.
BROADCAST SEASON ----------------------------- 1994-1995 1995-1996 1996-1997 --------- --------- --------- Average Number of Weekly Hours................... 4.0 4.5 7.5 Average Ratings (children 2-11).................. 1.9 1.1 n/a Average Percent of Coverage of U.S. Television Households...................................... 79% 75% 86%
International Channels The Company believes that it is positioned strategically to take advantage of growth in international DTH satellite and cable television services and the resulting increase in demand for television programming, including through its current relationship with News Corp. In addition to its recent launch of Fox Kids branded DTH satellite and cable channels in the United Kingdom and Republic of Ireland, the Company is in active discussions and negotiations to launch additional Fox Kids branded channels on other distribution platforms throughout the world. Except with respect to British Sky Broadcasting Group plc ("BSkyB") and certain Latin American cable operators, the Company has not yet reached agreement as to the terms of carriage, and no assurance can be given that the parties will be able to reach such agreement, or that any such agreement will be on terms favorable to the Company. 52 United Kingdom and Republic of Ireland. On October 19, 1996, pursuant to an agreement with BSkyB, the Company launched a Fox Kids channel as part of BSkyB's Sky Multichannels package, a service which, through DTH and cable, is currently estimated to reach over 5.5 million viewers in the United Kingdom and Republic of Ireland. News Corp. holds a 40% interest in BSkyB, a public company, which operates the leading pay television broadcasting service in the United Kingdom and the Republic of Ireland. The Fox Kids channel is carried from 6 a.m. to 7 p.m. each day. The term of the agreement is eight years. The Fox Kids Channel is part of the Sky Multichannels DTH package, sharing a transponder with Sky2 which occupies the balance of the schedule each day. As part of its agreement with BSkyB, the Company has acquired, for approximately $3.7 million, all of BSkyB's United Kingdom license rights to approximately 1,400 half-hours of children's programming which had been acquired for broadcast by BSkyB prior to launch of this channel. BSkyB also carries Nickelodeon, a 24-hour service targeting children. In September 1996, media reports in the United Kingdom disclosed that Viacom, which owns Nickelodeon, had expressed concerns about the carriage of the Fox Kids Network on BSkyB, and was considering filing an action for injunctive relief to prevent launch of the Company's channel on BSkyB. To the knowledge of the Company, at the date of this Prospectus, no such action had been filed. The Company is unable at this time to assess the merits of Viacom's reported position. Should such an action be filed, and should Viacom prevail, the Company's ability to launch a United Kingdom-targeted children's service could be materially and adversely affected. Latin America. Since 1994, Canal FOX, a general entertainment channel servicing 19 countries in Latin America (and reaching, in June 1996, approximately 5.9 million households), has carried a Fox Kids-branded children's programming block under a license agreement between FCN and Canal FOX, which expired in September 1996. Revenues to the Company under this license have not been material. It is anticipated that the Fox Kids-branded channel will be carried over the pan-regional channels described below, commencing November 1, 1996. The Company plans to launch its own 24 hour Fox Kids-branded pan-regional Latin America DTH satellite and cable channels, which will simultaneously broadcast programming in Spanish, Portuguese and English, and is currently in active negotiations with a number of DTH satellite and cable operators for carriage of this service. The following paragraphs describe the current status of these operations. On November 1, 1996, the Company is scheduled to launch the Fox Kids channel in Brazil over NetSat Serbicos Ltda. ("NetSat"). NetSat is a DTH satellite platform which currently reaches over 100,000 Brazilian households, and is 36% owned indirectly by News Corp. The Company is also currently negotiating carriage of this channel on various Brazilian cable systems. The Company expects shortly to reach agreement to launch the Fox Kids channel over various cable services in the balance of South America, commencing November 1, 1996. Subject to the negotiation and execution of agreements, the Company intends to expand the channel to Mexico (DTH satellite and cable) and Central America in December 1996. The Company is also in preliminary discussions for the launch of the Fox Kids channel on DTH satellite and cable platforms covering the balance of South America during the first half of 1997. The launch of each of these services is dependent on the conclusion of negotiations concerning the terms of carriage. No assurance can be given that agreement will be reached in time to meet the Company's launch schedule, or that any or all of these channels will be launched. Australia. Foxtel, an Australian-based cable service, has carried a Fox Kids Network children's channel segment since 1994 under a license agreement between Foxtel and an affiliate of Fox Broadcasting. This license was recently assigned to the Company. Revenues to the Company under this license are not material. Foxtel is a 50/50 partnership between News Corp. and the Australian telephone company, Telstra. 53 Asia, India and the Pacific Rim. STAR TV is a 100% owned subsidiary of News Corp., and is currently the Asia Pacific region's largest DTH satellite television broadcaster (News Corp. has entered into a binding agreement to sell 7.5% of its interest in STAR TV to a third party). STAR TV broadcasts television and radio programming over an area covering all of China and India, as well as approximately 50 other countries. The Company has recently entered into exploratory negotiations with STAR TV for carriage of Fox Kids branded services over various STAR TV platforms. Germany. The Company has commenced discussions with DF1, a DTH satellite joint venture between BSkyB and Germany's Kirsh Group, for the carriage of a Fox Kids channel targeting German speaking Europe. International Distribution The Company also distributes its programming to others on a worldwide basis. The Company believes that by owning and controlling the international distribution rights to its programming, it not only can generate significant revenue from the sales of its programming, but can also establish an international presence for the Company and its properties which should support its international licensing and merchandising efforts. The Company is currently party to distribution arrangements with international television broadcasters and distributors to exhibit and distribute the Company's programming to over 375 terrestrial, cable and satellite distribution platforms in approximately 100 countries. The Company has also used its international presence to expand its operations in emerging television markets. In January 1996, the Company entered into a distribution agreement with ARD, the largest broadcaster in Germany, pursuant to which the Company agreed to grant to ARD rights to at least 24 two-hour movies for television ("telefilms"), six co-produced animated children's program series (consisting of Jim Knopf, Wunschpunsch, Walter Melon, The Why Why Family, Princess Sissi and The Adventures of Oliver Twist), plus any coproduced series based on German author Michel Ende's stories for which the Company controls the rights, and 390 half-hour episodes of other children's animated programs. The territory is limited to German-speaking Europe. ARD's rights include the right to transmit (with unlimited runs), broadcast, exhibit, dub and sublease within its territory each telefilm and series, and to receive a profit participation, as defined in the agreement, in net revenues, from the distribution of certain properties covered by the agreement. The terms are ten years for the telefilms, thirteen years for the six co-produced series and seven years for the other half hour episodes. MERCHANDISING AND LICENSING The Company capitalizes on its popular characters and properties by entering into licensing agreements with manufacturers and retailers of children's products. By controlling licensing and merchandising rights, the Company earns revenue from the sale of products while limiting the costs and risks associated with manufacturing, distributing and marketing merchandise. The revenue derived from licensing and merchandising depends not only on the success, recognition and appeal of a character, but also on the quality and extent of the marketing efforts of the Company and its licensees. Sales of licensed products also help the Company's shows by promoting the Company's characters. The Company has entered into toy license agreements with a number of toy manufacturers pursuant to which the toy companies are given the exclusive right to create, manufacture and develop toys representing characters from the Company's series. For example, the Company has toy licenses with Bandai covering Power Rangers, Masked Rider and Big Bad Beetleborgs, with Hasbro covering VR Troopers, with Mattel covering Bureau of Alien Detectors and with Toybiz covering Space Strikers. These licenses generally grant the exclusive right to manufacture and sell toys based upon the characters and other creative elements in the licensed series. Pursuant to these agreements, the Company generally receives an up-front advance that is non-refundable but credited against royalties, generally based on a percentage of net sales of the licensed product. The Company also retains approval rights regarding advertising, packaging and the quality of its licensed product, as well as 54 continued ownership of the copyright and trademark. For the year ended June 30, 1996, the Company's licensing and merchandising activities represented approximately 35% of the Company's pro forma consolidated revenues. The Company has licensing arrangements in place with over 500 different licensees for consumer products targeting children, such as apparel, school supplies, watches and dinnerware/lunch boxes. Merchandise based on the Company's characters and properties is sold in approximately 60 countries throughout the world. The following table sets forth examples of the licensee and products for some of the more than 60 licensees of the Power Rangers series.
LICENSEE PRODUCTS INCLUDING -------- ------------------ Aladdin Properties Plastic lunch kits Bandai Toys including action figures and video games Best Personalized Books Childrens' books Butterick Company Halloween costumes and sweatshirts Colgate-Palmolive Company Colgate Plus toothbrush Ero Marketing Backpacks and other soft vinyl goods Fruit of the Loom, Inc. Girl's and boy's underwear Good Humor-Breyers Ice Cream Frozen novelties Hasbro Games and puzzles High Point Knitting Belts, hats and other apparel Milton Appel Co., Inc. Childrens' optical frames R. F. Frookies Cookies and candy Springs Industries Sheets and other bedding products Toybiz Fitness sets and remote control vehicles Tyco Industries Individual films and film viewers Zebco Corporation Fishing rods & reels and fishing tackle
HOME VIDEO AND TELEFILMS Home Video. The Company produces direct-to-video feature films, in addition to granting home video distribution rights to manufacture and distribute video cassettes based upon its television programming. For example, the Company has acquired the rights to produce films based upon the characters "Casper" and "Richie Rich." The Company has also acquired the rights to produce new live- action television specials and series programs based upon the "The Addams Family" characters. The Company also receives royalties from the sale of home video cassettes of its television programming. Telefilms. The Company, through its Libra Pictures division, acquires international distribution rights to telefilms--ranging from 12 to 15 motion pictures per year over the past three years. While the Company occasionally acquires U.S. rights to these films, the primary objective of acquiring telefilms is to complement the Company's international sales activities. These films are typically targeted at prime time audiences and consist of dramas, thrillers and action/adventure features. The films typically have a budget of less than $2.0 million, but include one or more "name" actors to enhance the film's commercial appeal. The Company distributes these features internationally to television broadcasters and home video distributors and generally seeks to limit its cost for such international distribution rights to less than $800,000 per film. THE STRATEGIC ALLIANCE WITH FOX/NEWS CORP. News Corp., along with its subsidiaries, including Fox Broadcasting, is a diversified international communications company principally engaged in the production and distribution of motion pictures and television programming; television broadcasting; the publication of newspapers, magazines, books and free standing inserts; computer information services; and digital broadcasting systems. As of September 1, 1996, the FOX Television Network had 165 prime time primary television station affiliates and seven prime time secondary 55 television station affiliates across the United States, including 12 Fox O&O's, reaching over 96% of U.S. television households. Each television station affiliate is a party to an affiliation agreement with Fox Broadcasting, which governs the terms of the relationship between them. The Fox Kids Network is distributed to its Fox Kids Network Affiliates over the same broadcast facilities as the FOX Television Network. In December 1995, Fox Broadcasting and certain of its affiliated companies (the "Fox Parties") entered into a long-term strategic alliance with the Company for the mutual support of the Fox Parties and the Company in the children's entertainment business. See "Certain Transactions." Set forth below is a summary of certain of the material portions of the relevant strategic alliance provisions contained in the Asset Assignment Agreement (the "Asset Assignment Agreement"), pursuant to which the Fox Parties assigned, effective as of June 1, 1995, certain assets and interests to the Company. See "Certain Transactions." This summary is qualified by reference to the full Asset Assignment Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. License of "Fox" Name. The Fox Parties granted to the Company, on the terms set forth in the Asset Assignment Agreement, the perpetual worldwide exclusive right to use the name "Fox" in conjunction with the words "Kids," "Kid" or "Children," and agreed not to use or license the name "Fox" to others for similar purposes. New Services and other Noncompetition Provisions. The Fox Parties agreed not to operate in the United States any broadcast, cable or non-standard programming service targeted at children, ages 2-11 (a "kids' service") other than Fox Kids Network. If the Fox Parties at any time determine to acquire a new kids' service anywhere else in the world, which kids' service would bear the "Fox" name, they are required to provide the Company, pursuant to the terms of the agreement, with a right of first refusal to acquire and own that new kids' service. Moreover, should the Fox Parties or any of their affiliates at any time acquire a television, cable or satellite network or any other business which includes a kids' programming service, the Fox Parties will be required to offer the Company, pursuant to the terms of the Asset Assignment Agreement, the right to acquire and own that kids' service. First Right to Fox Parties Originated Programming. The Fox Parties have agreed to provide the Company with the first right to acquire first run exhibition rights to any new programming suitable for a kids' service ("kids' programming") prior to its sale or license to any third party; however, the Fox Parties may freely license kids' programming to any broad based entertainment network (which is not a kids' service) for prime time or late night broadcast and programming derived from properties (such as The Simpsons) not originally launched on the Fox Kids Network. The Company is working with News Corp. to capitalize on the international demand for quality children's programming. In addition to its current channel in the United Kingdom, the Company plans to launch additional new children's television channels, generally using the name "Fox Kids," on television distribution platforms in certain of the territories in which News Corp. has an interest in such platforms. See "--Distribution: Networks and Syndication-- International Channels." Other Fox Services. The Company has historically maintained a close working relationship with the Fox Parties, pursuant to which the Company and its operating subsidiaries have been granted access to the Fox Parties' motion picture studio and other ancillary facilities, as well as their distribution and administrative services (see "Certain Transactions"), and, although the Fox Parties are not generally obligated to provide these or similar services in the future, the Company intends to seek access to these services where the Company believes that they may be beneficial to the Company. For example, although the Company has no current plans generally to enter the theatrical feature film business, in 1995 the Company's Mighty Morphin Power Rangers motion picture, which had U.S. box office receipts in excess of $38 million, was financed, produced and distributed worldwide by Twentieth Century Fox. 56 The Company is currently producing a lower budget sequel to the initial Power Rangers movie which is expected to be released in the Spring of 1997. The sequel will be produced and financed by the Company and will be distributed worldwide by Twentieth Century Fox. Twentieth Century Fox will be responsible for all print and advertising costs and will retain a distribution fee after recouping its print, advertising and other distribution costs; all other net receipts after fees and costs will be remitted to the Company. While the Company has no definitive plans to produce future feature films for theatrical release, the Company may determine that it is appropriate to produce a motion picture based on one of its programs. The Company is required to afford Twentieth Century Fox the first right of negotiation with respect to the distribution of any of these films. The Company also is planning to produce within the next 18 months three direct to video films, including sequels to Casper, Richie Rich and The Addams Family. See "--Home Video and Telefilms." It is anticipated that all of these films will be co-produced with Twentieth Century Fox and distributed in the home video markets by Fox Video, with the exception of Richie Rich, which will be distributed in the home video markets by Warner Bros. COMPETITION The businesses in which the Company engages are highly competitive. Each of the Company's primary market business operations is subject to competition from companies which, in some instances, have greater production, distribution and capital resources than those of the Company. Production. The Company competes on the basis of relationships and pricing for access to a limited supply of facilities and talented creative personnel to produce its programs. The Company competes with major motion pictures studios, such as Warner Bros. and The Walt Disney Company, and animation production companies including Hanna-Barbera and Film Roman, for the services of writers, producers, animators, actors and other creative personnel and specialized production facilities. Distribution. In the United States, the Company competes for time slots, ratings and related advertising revenues. The Company currently competes, through Fox Kids Network, with the other broadcast television networks, public television and cable television channels, such as Nickelodeon, USA cable network and The Cartoon Network for market acceptance of its programming and for viewership ratings. The Walt Disney Company has recently announced its plans to launch a 24-hour cable television children's channel. Further, the Company vies for the children's audience with independent television stations, suppliers of cable television programs, direct broadcast satellite and other DTH satellite systems, radio and other forms of media. Through the Saban Kids Network, the Company also competes with other syndicators, including The Disney Afternoon, on a market-by-market basis for time slots, coverage commitments, ratings and advertising revenue. Internationally, the Company contends with a large number of U.S.-based and international distributors of children's programming, including The Walt Disney Company and Warner Bros., with whom it must compete in the development or acquisition of programming expected to appeal to international audiences. Such programming often must comply with foreign broadcast rules and regulations which may stipulate certain minimum local content requirements. 57 The following chart reflects, for the Fox Kids Network and its primary competitors, the percentage of coverage of U.S. television households for the 1995-1996 broadcast season to date through July 1996. [Bar graph depicting the percentage of coverage of U.S. television households for the 1995-1996 broadcast season through July 1996. The "y" axis reflects values from 0% to 100%. The "x" axis compares Fox Kids Network coverage (97%) to each of ABC (91%), CBS (91%), The Disney Afternoon (88%), Kids WB (83%), Nickelodeon (69%) and The Cartoon Network (28%)] Source: Nielsen Media Research. Merchandising. The Company also competes with hundreds of owners of creative content who seek to license their characters and properties to a limited number of manufacturers and distributors. Although the Company currently has entered into merchandising agreements with over 500 different manufacturing and commercial organizations, including manufacturers such as Bandai, Toybiz, Hasbro and Mattel, and although the Company's characters have been used in marketing campaigns by retail chains such as McDonald's and Burger King, the ability of the Company to continue successfully to exploit the merchandising opportunities afforded by its programs will continue to be dependent on the favorable ratings of its programs and the ability of the Company's characters to continue to provide attractive merchandising features to its customers. GOVERNMENT REGULATION The Company's programming must comply with the provisions of the CTA and the rules and policies of the FCC pertaining to the production and distribution of television programs directed to children. With respect to programs originally produced and broadcast primarily for children ages 12 and under, the CTA and FCC rules, among other things, (i) limit the number of minutes of commercial matter per hour, (ii) generally require that program material be clearly separated from commercial matter, (iii) prohibit the broadcast within a program of commercials for products associated with that program, and (iv) prohibit program personalities, whether live or animated, from delivering commercials during, or in close proximity to, programs in which the personalities appear or with which they are associated. Failure to comply with the children's television commercial limitations can result in the imposition of sanctions, including substantial monetary fines, on a broadcast television station. On August 8, 1996, the FCC amended its rules to establish a "processing guideline" for broadcast television stations of at least three hours per week, averaged over a six-month period, of "programming that furthers the educational and informational needs of children 16 and under in any respect, including the child's intellectual/cognitive or social/emotional needs." Core Programming has been defined as educational and informational programming that, among other things, (i) has served the educational and informational needs of children "as a significant purpose," (ii) has a specified educational and informational objective and a specified target child audience, (iii) is regularly scheduled, weekly programming, (iv) is at least 30 minutes in length, and 58 (v) airs between 7:00 a.m. and 10:00 p.m. Any station that satisfies the processing guideline by broadcasting at least three weekly hours of Core Programming will receive FCC staff-level approval of the portion of its license renewal application pertaining to the CTA. Alternatively, a station may qualify for staff-level approval even if it broadcasts "somewhat less" than three hours per week of Core Programming by demonstrating that it has aired a weekly package of different types of educational and informational programming that is "at least equivalent" to three hours of Core Programming. Non-core programming that can qualify under this alternative includes specials, public service announcements, short-form programs and regularly scheduled non-weekly programs, "with a significant purpose of educating and informing children." A licensee that does not meet the processing guideline under either of these alternatives will be referred by the FCC's staff to the Commissioners of the FCC, who will evaluate the licensee's compliance with the CTA on the basis of both its programming and its other efforts related to children's educational and informational programming, e.g., its sponsorship of Core Programming on other stations in the market, or nonbroadcast activities "which enhance the value" of such programming. A television station ultimately found not to have complied with the CTA could face sanctions including monetary fines and the possible non-renewal of its broadcast license. The Company believes that its current program offering on the Fox Kids Network exceeds the processing guidelines. In addition, the Company has cleared a series called The Why Why Family in the U.S. syndication market for the Fall of 1996, which it believes qualifies as Core Programming under the new rules. Nonetheless the adoption of the new quantitative guideline could result in a material increase in the amount of educational and informational children's programming broadcast; and it is unclear what impact, if any, such a result would have on the Company's business. Pursuant to the 1992 Cable Act, the FCC substantially reregulated the cable television industry in various areas, including rate regulation, competitive access to programming, "must-carry" and retransmission consent for broadcast stations, and customer service regulations. These rules, among other things, restrict the extent to which a cable system may profit from (or recover the costs associated with) adding new program channels, impose certain carriage requirements with respect to television broadcast stations, limit exclusivity provisions in programming contracts, and require prior notice for channel additions, deletions and changes. Cable operators and satellite cable or satellite broadcast programmers in which cable operators have attributable interests are prohibited from using unfair methods of competition or unfair acts or deceptive acts or practices, the purpose or effect of which is to hinder significantly or prevent any multichannel video programming distributor from providing satellite cable or satellite broadcast programming to customers. A cable operator with an attributable interest (defined as five percent equity or five percent voting control) in a satellite cable or satellite broadcast programmer must not improperly influence the programmer's decision to sell programming to an unaffiliated multichannel video programming distributor (or the terms and conditions of such a sale). Similarly, a satellite cable programmer in which a cable operator has an attributable interest may not discriminate among competing cable systems or other multichannel video programming distributors in the prices, terms and conditions of sale or delivery of programming. Such programmers may offer discounts, however, based on actual cost savings. Exclusive contracts between affiliated cable operators and programmers are prohibited for areas not served by the cable operator as of October 1992. In areas served by the affiliated cable operator, exclusive contracts are prohibited unless the FCC makes a prior determination that such a contract would serve the public interest. Multichannel video programming distributors are generally prohibited from restraining the ability of unaffiliated programmers to compete fairly by discriminating in the selection, terms or conditions of carriage of programming services based on affiliation. It is not possible to predict at this time the impact, if any, that these rules may have on the Company's plans to distribute programming through cable and DTH satellite systems, some of which could be deemed to be affiliated with the Company. The United States Congress and the FCC also currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters which could, directly or indirectly, 59 materially adversely affect the operations of the Company. The Company is unable to predict the outcome of future federal legislation or the impact of any such laws or regulations on its operations. The Company is also subject to local content and quota requirements in international markets which, although a significant portion of the Company's library meets current European and French requirements, effectively limits access to particular markets. FACILITIES The Company currently leases a total of 111,225 square feet of office and production space in its headquarters building in Los Angeles, California under a lease expiring in April 2006, subject to two separate five-year extension options. The Company's Fox Kids Network also leases 18,568 square feet of office and production space in a separate facility in Los Angeles on a month- to-month arrangement with FOX Television. See "Certain Transactions." The Company also leases a multi-purpose production facility in Valencia, California under a lease expiring in January 1997, subject to two separate one-year extension options. The Company's Paris animation studio currently leases 1,379 square meters of office and production space under a lease expiring February 28, 2005, but the lease may be canceled by the Company with six months notice on February 28, 1999 or February 28, 2002. The Company also leases office facilities in other locations throughout the world, none of which are considered material. The Company believes that its current office and production space, together with space readily available without material cost in the markets in which it operates, are adequate to meet its needs for the foreseeable future. EMPLOYEES As of September 1, 1996, the Company had 366 full-time employees in the United States and 38 full-time employees outside the United States. The Company also regularly engages freelance creative staff and other independent contractors on a project-by-project basis. The Company believes its relations with its employees are good. 60 INTELLECTUAL PROPERTY The Company generally holds copyrights to its owned programming in its library. Additionally, the Company holds registered trademarks on the various characters and series contained in its owned programming. The Company also holds significant rights as licensee of other productions, programming, characters and series, most of which are subject to copyrights and trademarks owned by the respective licensors of such properties. The following table lists the Company's network and syndication programming for the 1996-1997 broadcast season, the nature of the ownership of the copyrights and trademarks associated with such programming and certain restrictions applicable to such licensed copyrights and trademarks.
INTELLECTUAL PROPERTY DISTRIBUTION RIGHTS --------------------- ------------------------------------------------------------------ HOME NON- COPYRIGHTS TRADEMARKS TERRITORY TELEVISION VIDEO THEATRICAL THEATRICAL MERCHANDISING ---------- ---------- ------------- ---------- ----- ---------- ---------- ------------- Adventures of Oliver . . Worldwide . . . . . Twist Big Bad Beetleborgs . . Worldwide . . . . . (except Asia) Bobby's World . . Worldwide . . . . . Bureau of Alien .(1) .(1) International . . . . . Detectors (B.A.D.) (worldwide) Dragonball Z V(2) V(2) United States . . V V V Eagle Riders V(3) . Worldwide . . . . . (except Asia) Eek! Stravaganza . . Worldwide . . . . . Life With Louie . . Worldwide . . . . . Masked Rider . . Worldwide . . . . . The Mouse and the .(1) .(1) International . . . . . Monster (worldwide) Power Rangers Zeo . . Worldwide . . . . . (except Asia) Samurai Pizza Cats V(4) . Worldwide . . . . . (except Asia) Sweet Valley High . V Worldwide . . . . . (except publishing) The Tick . . Worldwide . . . . . The Why Why Family . . Worldwide . . . . . X-Men V(5) V(5) Worldwide . . V V V
- -------- ("." Company owns the intellectual property rights or programming distribution rights; "V" Company does not own the intellectual property rights or programming distribution rights) (1) Copyrights and trademarks are owned jointly with UPN. (2) FUNimation and Toei Animation own copyrights and trademarks. The Company has exclusive U.S. distribution rights on a year-to-year basis through 2001. (3) Tatsunoko and Intervision own copyrights. The Company has exclusive distribution rights through 2004, with a right to extend for 15 years. (4) Tatsunoko owns copyrights. The Company has distribution rights through 2000, with a right to extend for 10 years. (5) Marvel owns copyrights and trademarks. The Company has exclusive distribution rights for 15 years. The Company considers its owned and licensed copyrights and trademarks to be of significant value and importance to the Company's business. Accordingly, the Company's policy is to vigorously enforce copyrights and trademarks with respect to owned and licensed programming against unlawful infringement by third parties. LEGAL PROCEEDINGS The Company is engaged in litigation in the ordinary course of its business, none of which the Company believes is material. 61 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company, and their ages at June 30, 1996, are as follows:
NAME AGE POSITION ---- --- -------- Haim Saban 51 Chairman of the Board and Chief Executive Officer of the Company; Chairman and Chief Executive Officer of Saban Margaret Loesch 50 President and Director of the Company; Chairman and Chief Executive Officer of Fox Kids Networks Worldwide Mel Woods 44 President, Chief Operating Officer, Chief Financial Officer and Director of the Company; President and Chief Operating Officer of Saban Shuki Levy 50 Executive Vice President and Director of the Company William Josey 49 Senior Vice President, Business Affairs and General Counsel--Saban Mark Ittner 44 Senior Vice President of Finance--Saban K. Rupert Murdoch 65 Director Chase Carey 42 Director
The Company intends to appoint two independent directors to its Board of Directors within 90 days of the date of this Prospectus, and expects that each of such directors will be appointed as members of the audit and compensation committees of the Board of Directors. HAIM SABAN, the founder of Saban, has served as its Chairman and Chief Executive Officer since the establishment of the company in 1983. Mr. Saban is a creator and executive producer of the Company's live-action series, Power Rangers. Mr. Saban has also served as a Senior Executive Officer of the LLC since June 1995. MARGARET LOESCH has served as President of Fox Kids Networks Worldwide since January 1996. Ms. Loesch has been President of Fox Kids Network since its inception in March 1990. From 1984 to 1990, Ms. Loesch was President and Chief Executive Officer of Marvel Productions Ltd., where she supervised the development of numerous series, including Jim Henson's Muppet Babies, Dungeons and Dragons and Jim Henson's Fraggle Rock. Before joining Marvel, Ms. Loesch was Executive Vice President of Programming for Hanna-Barbera Productions, which she joined in 1979 as Vice President of Children's Programming. Ms. Loesch is an active member of the Academy of Television Arts and Sciences, where she served three terms as an Academy Governor for children's programming. She currently serves as Vice President of the Academy of Television Arts and Sciences Foundation. Ms. Loesch is the recipient of four Emmy Awards. MEL WOODS has served as the President and Chief Operating Officer of Saban since 1991. Mr. Woods has also been a director of Saban since 1991. From 1987 to 1991, Mr. Woods served as Senior Vice President and Chief Financial Officer of DIC Enterprises, an animation production company. Prior to joining DIC, Mr. Woods was Senior Vice President, Chief Financial Officer and Treasurer of Orion Pictures Corp. and served as a member of its board of directors. SHUKI LEVY has served as an independent contractor performing production related assignments for Saban since 1983. Mr. Levy became the Executive Vice President of the Company in 1996, responsible for productions. Mr. Levy is executive producer of the Company's live-action series, Power Rangers, and also serves as executive producer for Big Bad Beetleborgs and Masked Rider. Mr. Levy is also a singer, having sold more than 14 million records worldwide, a composer of theme music for television movies, series and feature films, a screenwriter and a feature film director. 62 WILLIAM JOSEY has served as Senior Vice President of Business Affairs and General Counsel since joining Saban in 1991. Prior to joining Saban, Mr. Josey served as Senior Vice President of MGM/UA Telecommunications, supervising business and legal matters. During the past 20 years, Mr. Josey has also held a number of executive positions, including Vice President of Business and Legal Affairs for The Disney Channel; Vice President of Business Affairs for Lorimar Television; Vice President of Business Affairs for Polygram Television; Director of Business Affairs for Columbia Pictures Television; and Director of Contracts for ABC Television Network. Mr. Josey received his Juris Doctor from the University of Houston in 1973. MARK ITTNER has served as Senior Vice President of Finance of Saban since joining the company in 1993. From 1990 to 1993, Mr. Ittner served as Vice President and Controller of Imagine Films, a motion picture and television production company. Prior to joining Imagine Films, Mr. Ittner was the acting Co-Chief Financial Officer of Weintraub Entertainment Group, after joining Weintraub as a Vice President and Controller in January 1988. From 1979 to 1984, Mr. Ittner was first Assistant Controller and then in 1984, Vice President and Controller, of Hanna-Barbera Productions, Inc., and its parent company, The Taft Entertainment Company. Mr. Ittner is a Certified Public Accountant and is a member of the California Society of Certified Public Accountants and the American Institute of Certified Public Accountants. K. RUPERT MURDOCH has served as Executive Director of News Corp. since 1959 and remains its Chairman, Managing Director and Chief Executive. He also has served as Director of News Limited, News Corp.'s principal subsidiary in Australia, since 1953. He has been Director of News International plc, News Corp.'s principal subsidiary in the United Kingdom, since 1969 and Managing Director from December 1986 to January 1990. He has served as Chairman, Chief Executive Officer and a director of News America Holdings Incorporated ("NAHI"), News Corp.'s principal subsidiary in the United States, since 1973. He became President of NAHI in October 1985. He has served as Chairman and a Director of STAR TV since July 1993. He also has been a Member of the Board of Directors of BSkyB since November 1990. CHASE CAREY has served as Chairman and Chief Executive Officer of Fox Television since July 1994. Mr. Carey is responsible for all divisions of Fox Television including Fox Broadcasting, Fox Television, Twentieth Television's domestic syndication unit and Fox's cable interests. Mr. Carey joined Fox Inc. in 1988 as Executive Vice President, served as Chief Financial Officer, and assumed the title of Chief Operating Officer in February 1992. Prior to joining Fox, Mr. Carey worked at Columbia Pictures in several executive positions, including President of Pay/Cable and Home Entertainment and Executive Vice President of Columbia Pictures International. Mr. Carey is a member of the board of directors of Gateway 2000 and Colgate University. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors will establish an Audit Committee and a Compensation Committee following the Offerings. The Audit Committee, which will consist of the two independent directors of the Company and will, among other things, make recommendations to the Board of Directors regarding the independent auditors to be nominated for ratification by the stockholders, review the independence of those auditors, approve the scope of the annual activities of the independent auditors and review audit results. The Compensation Committee, which will consist of the two independent directors of the Company, will recommend to the Board compensation plans and arrangements with respect to the Company's executive officers and key personnel. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to consummation of the Offerings, there was no Compensation Committee of the Board of Directors. During the fiscal year ended June 30, 1996, executive compensation decisions were made at Saban by the management of Saban and at FCN by the management of Fox Broadcasting. 63 TERMS OF OFFICE Each director is elected to hold office until the next annual meeting of stockholders and until his or her respective successor is elected and qualified. Officers serve at the discretion of the Board of Directors, except that Haim Saban may not be removed or replaced until such time as he and the other stockholders whose shares he controls collectively transfer to unaffiliated parties more than one-third of their beneficial Class B Common Stock holdings. AGREEMENT REGARDING ELECTION OF DIRECTORS; CHANGE IN CONTROL Under the terms of an agreement between them, Fox Broadcasting and Mr. Saban have agreed to vote all of the shares of Class B Common Stock beneficially owned by each of them to the election of three directors designated by Fox Broadcasting, three directors designated by Mr. Saban, and two independent directors generally acceptable to each of them. If they are unable to mutually agree as to the independent directors, Fox Broadcasting has the right to nominate one independent director and Mr. Saban has the right to nominate the other, and each will vote for both. Fox Broadcasting has agreed with Ms. Loesch that she will, during the term of her employment with the Company, be one of Fox's designees to the Board of Directors. Fox Broadcasting's other designees are currently Messrs. Murdoch and Carey. Messrs. Saban, Woods and Levy are the designees of Mr. Saban. See "Principal Stockholders." Under agreements between Mr. Saban, the other Saban Stockholders and Fox Broadcasting, Fox Broadcasting has the right and option, commencing in December 2002 or earlier in certain circumstances, to acquire all of the shares of Class B Common Stock of the Company then held by Mr. Saban and the other Saban Stockholders and Mr. Saban has the right and option, commencing in December 2000, or earlier in the event of a change in control of Fox Broadcasting or certain limited circumstances, to cause Fox Broadcasting to purchase all of these shares. These agreements do not restrict Mr. Saban's ability publicly to dispose of his shares. EXECUTIVE COMPENSATION The following table sets forth the aggregate cash and non-cash compensation paid or accrued by the Company to the Chief Executive Officer and the other four most highly compensated executive officers ("Named Executive Officers") compensated in excess of $100,000 for the fiscal year ended June 30, 1996: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION --------------------------- NAME AND PRINCIPAL POSITION YEAR SALARY BONUS --------------------------- ---- ---------- -------- Haim Saban......................................... 1996 $1,000,000 $ -- Chairman and Chief Executive Officer Margaret Loesch.................................... 1996 500,000 250,000 President Mel Woods.......................................... 1996 428,000 624,000 President, Chief Operating Officer and Chief Financial Officer Shuki Levy(1)...................................... 1996 500,000(1) -- Executive Vice President William Josey...................................... 1996 238,700 15,000 Senior Vice-President, Business Affairs and General Counsel--Saban
- -------- (1) Includes amounts paid to Mr. Levy as a consultant during the fiscal year ended June 30, 1996. The Company intends to pay Mr. Levy a bonus of $700,000 for services rendered. See "Certain Transactions--Transactions between Haim Saban, other executive officers and Saban" for information with respect to certain loans, forgivenesses of loans and other transactions for the benefit of certain of the Named Executive Officers. 64 EMPLOYMENT AGREEMENTS Haim Saban Effective December 22, 1995, Haim Saban entered into an employment agreement with the Company which extends through June 20, 2002. Pursuant to the terms of the employment agreement, Mr. Saban is to be paid an annual salary of $1.0 million. Mr. Saban may not be removed or replaced with or without cause until he and the other stockholders whose shares he controls collectively transfer more than one-third of the number of shares of Class B Common Stock they beneficially own at the time of the Offerings. If Mr. Saban is terminated following such an event, he will be entitled to receive an amount equal to his annual base salary from the date of his termination through June 30, 2002. Other Executives The Company has entered into employment agreements with each of the following executives on substantially the same terms and conditions. Pursuant to the terms of each employment agreement, the Company may terminate the executive's employment at any time with or without cause and the executive may terminate his or her employment upon the Company's material breach of the employment agreement. If the executive is terminated by the Company with cause, he or she will be entitled to receive (i) annual base salary for the period in which the date of termination falls, pro-rated to the date of such termination and (ii) vested rights with respect to certain stock options granted in connection with the employment agreement. Should the executive terminate his or her employment or should his or her employment be terminated by the Company without cause, the executive will be entitled to receive (i) his or her annual base salary for the period in which the date of termination falls, pro-rated to the date of such termination, (ii) severance pay for the balance of the term of the employment agreement, subject to offset against the executive's future earnings, (iii) bonus compensation for the period in which the date of termination falls, pro-rated to the date of such termination and (iv) vested rights with respect to certain stock options granted in connection with the employment agreement. Margaret Loesch. Effective January 1, 1996, Margaret Loesch entered into a five-year employment agreement with the Company. Pursuant to the terms of the employment agreement, Ms. Loesch is to be paid an annual base salary of $550,000 for 1996, increasing by $25,000 each year thereafter, and an annual contingent bonus of between $300,000 and $575,000 for 1996, with the maximum bonus increasing $25,000 each year thereafter. Concurrent with the execution of the employment agreement, the Company and Ms. Loesch entered into a five- year, non-exclusive consulting agreement pursuant to which, among other things, the Company agreed that if the employment agreement is not extended beyond its five-year term, the Company would, on the terms set forth therein, be obligated to pay Ms. Loesch over a five-year period an annual consulting fee at a rate not exceeding $250,000 per year. In connection with the execution of Ms. Loesch's employment agreement, Fox Broadcasting agreed to nominate Ms. Loesch (for the term of her employment) as one of the Fox appointees to the Board of Directors of the Company. In addition, Fox Broadcasting agreed with Ms. Loesch that all stock options granted by New Corp. to Ms. Loesch through December 31, 1995 would remain outstanding and continue to vest as if Ms. Loesch were still employed by Fox, Inc. or a Fox, Inc. subsidiary. Mel Woods. Effective June 1, 1994, Mr. Woods entered into a five-year employment agreement with the Company. Pursuant to the terms of the employment agreement, Mr. Woods is to be paid an annual base salary of $450,000, $475,000 and $500,000 for each of the remaining 1996-97, 1997-98 and 1998-99 periods, respectively, and an annual contingent bonus which is limited to $650,000, $675,000 and $700,000 for each of the 1996-97, 1997-98 and 1998-99 periods, respectively. Shuki Levy. Effective June 1, 1996, Mr. Levy entered into an employment agreement with the Company. The term of the employment agreement extends through May 31, 1999. Pursuant to the terms of the employment agreement, Mr. Levy is to be paid an annual base salary of $500,000 for 1996-97, 1997-98 and 1998-99, respectively, and is eligible to receive additional benefits. 65 STOCK OPTIONS AND STOCK INCENTIVE PLAN The following table sets forth information for the Named Executive Officers with respect to grants of options to purchase Class A Common Stock of the Company made during the fiscal year ended June 30, 1996. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR INDIVIDUAL GRANTS 10-YEAR OPTION TERM --------------------------------------------------- ------------------------------ NUMBER OF PERCENT OF SECURITIES TOTAL OPTIONS UNDERLYING GRANTED TO PER SHARE OPTIONS EMPLOYEES EXERCISE EXPIRATION NAME GRANTED(1) IN FISCAL YEAR PRICE DATE 0% 5% 10% - ---- ---------- -------------- --------- --------------- --------- --------- ---------- Margaret Loesch......... 100% January 1, 2006
- -------- (1) This option vested with respect to one-fifth of the shares on January 1, 1996. The balance of the option will vest in 20% increments on each December 31 thereafter. The option will terminate on January 1, 2006, unless terminated earlier as provided in the stock option agreement. The following table summarizes information with respect to the number of shares of Class A Common Stock underlying stock options held by each of the Named Executive Officers at June 30, 1996, and the value of unexercised options, assuming a value of $ per share, which is the assumed initial public offering price per share of Class A Common Stock in the Offerings. AGGREGATED FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END ---------------------------------------------- ------------------------------------ NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- --------------------- ---------------------- ---------------- ----------------- Margaret Loesch......... $ $ Mel Woods............... Shuki Levy..............
Each of these options has a term of 10 years from the date of its grant (June 1, 2004 in the case of Messrs. Woods and Levy, and January 1, 2006 in the case of Ms. Loesch), unless terminated earlier as provided in the agreement granting the option. Stock Incentive Plan In September 1996, the Board of Directors and stockholders of the Company approved the Company's 1996 Stock Incentive Plan (the "1996 Plan"). The 1996 Plan was adopted in order to enable the Company and its subsidiaries to attract, retain and motivate selected eligible directors, officers, employees and consultants of the Company by providing for or increasing the proprietary interests of those persons in the Company, and by associating their interests in the Company with those of the Company's stockholders. Any person who is a director, officer, employee or consultant of the Company, or any of its current or future subsidiaries, shall be eligible to be considered for the grant of Awards under the Plan. The Plan shall be administered by a committee of the Board of Directors of the Company (the "Committee"). Pursuant to the 1996 Plan, the Committee may grant, without limitation, any of the following awards: shares of Class A Common Stock or any option, warrant, convertible security, stock appreciation right or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the value of an equity security (an "Award"). Awards are not restricted to any specified form or structure and may include, but need not be limited to, sales, bonuses and other transfers of stock, restricted stock, stock options, reload stock options, stock purchase warrants, other rights to acquire stock or securities convertible into or redeemable for stock, stock appreciation rights, phantom stock, dividend equivalents, performance units or 66 performance shares, and an Award may consist of one such security or benefit, or two or more of them in tandem or in the alternative. The Committee, in its sole discretion, determines all of the terms and conditions of each Award granted under the 1996 Plan. An aggregate of shares of Class A Common Stock have been reserved for issuance in connection with the Awards made under the 1996 Plan. The 1996 Plan is effective for a period of ten years, through 2006. The Committee may amend or terminate the 1996 Plan at any time and in any manner but no such amendment or termination may terminate or modify any Award previously granted under the 1996 Plan without the consent of the recipient of the Award. The Company has granted to independent directors and certain members of management options to purchase an aggregate of shares of the Class A Common Stock. In addition, the Company intends to grant prior to the closing of the Offerings to certain officers and employees under its stock incentive plan options to purchase shares of Class A Common Stock, exercisable at the initial offering price. 67 PRINCIPAL STOCKHOLDERS The following table sets forth certain information as of September 15, 1996 (after giving effect to the Reorganization) with respect to the shares of Class A Common Stock and Class B Common Stock beneficially owned by (i) each director of the Company; (ii) each person known to the Company to be the beneficial owner of more than 5% of either class of Common Stock; (iii) each Named Executive Officer; and (iv) all directors and executive officers of the Company as a group. Except as may be indicated in the footnotes to the table, each of such persons has the sole voting and investment power with respect to the shares owned, subject to applicable community property laws. The address of each person listed is in care of the Company, 10960 Wilshire Boulevard, Los Angeles, California 90024.
CLASS B CLASS A COMMON STOCK (1) COMMON STOCK (1) --------------------------- ------------------ PERCENT OF CLASS AGGREGATE VOTING OWNED POWER ------------------- ------------------- NUMBER PRIOR TO AFTER NUMBER PERCENT PRIOR TO AFTER OF THE THE OF OF CLASS THE THE SHARES OFFERINGS OFFERINGS SHARES OWNED OFFERINGS OFFERINGS ------- --------- --------- --------- -------- --------- --------- Haim Saban(2)(3)........ 100.0% 100.0% 100.0% Silverlight Enterprises, L.P.(2)(3)............. 17.4 17.4 17.4 Fox Broadcasting(3)..... 100.0 100.0 100.0 Margaret Loesch......... Mel Woods............... Shuki Levy.............. Rupert Murdoch.......... 100.0 100.0 100.0 Chase Carey............. 100.0 100.0 100.0 All of the Company's executive officers and directors as a group (eight persons)........ 100.0 100.0 100.0
- -------- * Less than one percent (1) Under Rule 13d-3 of the Securities Exchange Act, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by that person (and only that person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership or voting power with respect to the number of shares of Common Stock actually outstanding at September 15, 1996. (2) Pursuant to Rule 13d-3 under the Securities Exchange Act, Haim Saban may be deemed to beneficially own all shares of Class B Common Stock held by the Company as the result of an agreement between them, pursuant to which Mr. Saban has the right to direct the voting of these shares with respect to all matters submitted to a vote of the stockholders, including the election of directors of the Company. (3) Pursuant to Rule 13d-3 under the Securities Exchange Act, Haim Saban and Fox Broadcasting may be deemed to beneficially own all shares of Class B Common Stock held by each of them, and by the other stockholders identified in the following table, as the result of an agreement pursuant to which Mr. Saban and Fox Broadcasting have the right to direct the voting of such shares with respect to all matters submitted to a vote of the stockholders, including the election of directors of the Company. With regard to the election of directors, Fox Broadcasting has agreed to vote in favor of three nominees designated by Haim Saban and Haim Saban has agreed to vote in favor of three nominees designated by Fox Broadcasting. Fox Broadcasting and Haim Saban will mutually agree on the two independent directors. If they are unable to 68 mutually agree, Fox Broadcasting will nominate one independent director and Haim Saban will nominate the other and they will each vote for both nominees. If either Haim Saban or Fox Broadcasting transfers more than one- third of their initial holdings of Class B Common Stock, then, at the option of the other, the voting agreement will terminate. As part of the voting agreement, both Mr. Saban and Fox Broadcasting have agreed to a standstill whereby neither of them will, without the consent of the other, among other things, (i) purchase, acquire, offer or agree to purchase or acquire any shares of capital stock or other voting securities of the Company; (ii) solicit stockholders for the approval of stockholder proposals; or (iii) otherwise act, alone or in concert with others, to assert or encourage any other person or entity in seeking to control the management, board of directors or policies of the Company or to propose or effect a business combination, restructuring, recapitalization, liquidation, dissolution or similar transaction. See "Management--Agreement Regarding Election of Directors; Change in Control." Under agreements between Mr. Saban, the other Saban Stockholders and Fox Broadcasting, Fox Broadcasting has the right and option, commencing in December 2002 or earlier in certain circumstances, to acquire all of the shares of Class B Common Stock of the Company held by Mr. Saban and the other Saban Stockholders and Mr. Saban has the right and option, commencing in December 2000, or earlier in the event of a change in control of Fox Broadcasting or certain limited circumstances, to cause Fox Broadcasting to purchase all of such shares. As of September 15, 1996, the number of shares of Common Stock beneficially owned by Mr. Saban, the entities which he controls, and Fox Broadcasting over which each member thereof had sole investment power was as follows:
PRIOR TO THE AFTER OFFERINGS THE OFFERINGS -------------------- ------------- NUMBER OF AGGREGATE AGGREGATE SHARES VOTING POWER VOTING POWER ------- ------------ ------------- Haim Saban............................... 49.9% Quartz Enterprises, L.P.................. 4.8 Merlot Investments, a California general partnership............................. 4.0 Silverlight Enterprises, L.P............. 17.4 Celia Enterprises, L.P................... 0.1 Fox Broadcasting......................... 49.9
(4) Because of their positions with the Company, each of Messrs. Murdoch and Carey may be deemed to beneficially own all of the shares of Common Stock owned or controlled by Fox Broadcasting. Each of Messrs. Murdoch and Carey disclaims any pecuniary interest in such securities. 69 CERTAIN TRANSACTIONS The following discussion is qualified by reference to the full agreements, each of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. FORMATION OF THE LLC AND THE REORGANIZATION In connection with the formation of the LLC, Haim Saban, Saban and the Fox Parties entered into a series of agreements. As a result of the Reorganization, the LLC will become a subsidiary of the Company and the Company will be entitled to the benefits of and subject to these agreements. On November 1, 1995, Saban, FCN Holding and Fox Broadcasting entered into a LLC Formation Agreement pursuant to which the parties agreed to cause the formation of the LLC. Pursuant thereto, Fox Broadcasting agreed to enter into an Asset Assignment Agreement (described below) with the LLC, and deliver certain cash, documents and other assets, summarized below, at the closing of the formation of the LLC. In addition, FCN Holding and Saban each paid and contributed $100,000 to the LLC. In consideration for Fox Broadcasting's contribution, Fox Broadcasting received a non-voting Class A Members Interest in the LLC; and in consideration for the contributions from Saban and FCN Holding, each received a Class B Members Interest in the LLC. See "Summary-- The Reorganization." As a Class A Member of the LLC, Fox Broadcasting was granted a priority right to receive distributions of Distributable Cash (defined below) and other distributions until it has received aggregate distributions in an amount equal to $40 million. As described below, in September 1996, Fox Broadcasting purchased, for $10 million cash, an additional $10 million of Class A Members Interest. Pursuant to the terms of the Reorganization, immediately prior to the closing of the Offerings, Fox Broadcasting will exchange all of its Class A Members Interest for shares of the Company's Series A Preferred Stock. See "Summary--The Reorganization." This Series A Preferred Stock terminates once an aggregate of $50 million in dividend and redemption amounts are paid to Fox Broadcasting. See "Description of Securities--Series A Preferred Stock." As a Class B Member of the LLC, each of Saban and FCN Holding also obtained the right to receive distributions of Distributable Cash, and other distributions, generally junior in right to the distributions of Fox Broadcasting. Fox Broadcasting also made a $64.5 million interest free loan to the LLC, of which $14.5 million was repaid in September 1996. The $50 million remainder of this loan was to be paid from time to time out of Distributable Cash of the LLC before any distributions are made on the Class A and Class B Members Interest. In connection with the Reorganization, immediately prior to the closing of the Offerings, Fox Broadcasting will exchange this loan for a new Class A Members Interest in the LLC, which will grant Fox Broadcasting a priority right to receive distributions of Distributable Cash and other distributions from the LLC until it has received aggregate distributions of $50 million, whereupon it will terminate and expire. Distributable Cash generally means the amount of cash available for distribution by the LLC (including cash available from Saban and FCN Holding and their respective subsidiaries), taking into account all cash, debts, liabilities and obligations of the LLC then due and after setting aside reserves to provide for the LLC's capital expenditures, debt service, working capital and expansion plans. Pursuant to the Asset Assignment Agreement (which survives the Reorganization), the Fox Parties agreed to provide the LLC certain business opportunities (see "Business--The Strategic Alliance with Fox/News Corp."), and the parties further agreed to the following: Programming. The LLC agreed to make programming available at market rates to any program services which were offered to and rejected by the LLC and thereafter operated by the Fox Parties or their affiliates. Distribution Services. The Fox Parties and their affiliates were granted a right of first negotiation and first refusal, with certain exceptions, to provide any of the distribution services which the Fox Parties typically provide and which the LLC decides to obtain from a third party. If the Fox Parties or their affiliates 70 do not accept the offer, the LLC may obtain the services from a third party. In the event of any material change in terms, the LLC must reoffer the opportunity to the Fox Parties. Other Agreements. The Fox Parties also assigned to the LLC most of their other agreements with FCN, including agreements which had granted the Fox Parties the right, for a fee, to provide programming, distribution and merchandising services for FCN (discussed below). The Fox Parties also assigned to the LLC all of their rights in an Administration Agreement (discussed below) between Fox Broadcasting and FCN pursuant to which Fox Broadcasting agreed to provide for a fee certain administrative services to FCN, including network national advertising sales, commercial trafficking and broadcast operations and certain in-house administrative support in the areas of research, promotions, business affairs, legal affairs and accounting. See "Business--Distribution: Networks and Syndication--Fox Kids Network." In addition to assigning to the LLC the agreements referred to above, the Fox Parties agreed to pay to the LLC (i) an amount equal to the aggregate of the distribution fees and commissions received by or credited to the Fox Parties in connection with the merchandising and distribution agreements described under "Other Strategic Relationships", (ii) certain "net" revenues with respect to the existing series properties, and (iii) fees and commissions under the Administration Agreement, in each case for the period from June 1, 1995 through December 22, 1995 (collectively, the "Catch-Up Payments"). All of the payments were due on or before July 15, 1996, with interest on the amount in excess of $14.5 million at a rate of 7% per annum. In September 1996, the Fox Parties paid $25.4 million to the LLC pursuant to these provisions. Fox Broadcasting also agreed to contribute to the LLC an amount equal to the difference, if any, between $35,755,000 and the amount of actual cash payments made to the LLC pursuant to the Asset Assignment Agreement plus certain dividends paid to a subsidiary of FCN Holding pursuant to the terms of the LLC Operating Agreement. In September 1996, Fox Broadcasting paid $10.4 million to the LLC pursuant to these provisions. As part of the closing of the formation of the LLC, Saban, the Saban Stockholders, Fox Broadcasting, FCN Holding and one of its subsidiaries entered into a Strategic Stockholders Agreement which provided, among other things, for restrictions on transfer of the stock held by the parties, certain voting rights between them, as well as the terms of the Reorganization, should either party subsequently determine to effect an initial public offering of a successor entity, such as the Offerings. The parties to the Strategic Stockholders Agreement also agreed to provide Haim Saban and the Saban Stockholders and Fox Broadcasting certain registration rights. See "Description of Securities--Registration Rights." In connection with the Reorganization, in September 1996, the LLC paid to Fox Broadcasting $10 million, representing the unpaid balance of a fee for providing all uplink, transponder and other facilities necessary to deliver via satellite Fox Kids Network programming for broadcast to the Fox Kids Network Affiliates, and certain other services. Immediately upon receipt of this $10 million payment, Fox Broadcasting made a contribution to the LLC of $10 million in exchange for the additional Class A Members Interest described above. Pursuant to a Stock Ownership Agreement dated December 22, 1995, the LLC was granted an option to purchase, upon the occurrence of certain events, all of the Saban common stock (or the stock of a successor entity, including the Company) held by the Saban Stockholders, and any of their transferees. The option is triggered upon the occurrence of the following events and may be exercised as follows: (i) for a period of one year following the death of Haim Saban, if he dies prior to December 22, 2012; (ii) upon delivery of written notice by Fox Broadcasting at any time on or after December 22, 2002 or before December 22, 2012; or (iii) upon receipt by Fox Broadcasting of written notice (which generally cannot be delivered prior to December 22, 2001) from Haim Saban of his desire to cause Fox Broadcasting to purchase all of the shares of Class B Common Stock held by the Saban Stockholders. The LLC paid to the Saban Stockholders an aggregate 71 of $80.1 million for the grant of the option. The purchase price formula under the option is based on the fair market value of the Company. As part of the Reorganization, in September 1996 the LLC distributed the Stock Ownership Agreement to FCN Holding, which immediately distributed that agreement to Fox Broadcasting Sub. CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND THE FOX PARTIES In May 1996, Saban entered into an agreement in principle with Fox Video (the "Fox Agreement") for the production and distribution of a live-action feature film for the home video market based upon the animated character of Casper (the "Film") to be delivered to Fox Video no later than June 30, 1997. See "Business--Home Video and Telefilms." The distribution term runs for seven years from the earlier of the initial release date or December 31, 1997. Pursuant to the Fox Agreement, Saban will develop, produce and deliver the Film to Fox Video. Saban has the right and obligation to market, distribute (at no charge) and exploit the Film in all forms of television, non-theatrical and airline markets. Fox Video has the right and obligation to market, manufacture, package, distribute (at no charge) and exploit the Film in home video formats, and will release the Film in the United States and major international territories. Saban and Fox Video each will contribute one-half of the production costs of the Film subject to the rights of both parties to recoup certain of these costs. Saban and Fox Video will share the television net income 55% and 45%, respectively, and the home video net income 45% and 55%, respectively subject to the participation rights of the Harvey Entertainment Company which holds the copyright to Casper. Fox Video and Saban are currently negotiating a Home Video Rights Acquisition Agreement pursuant to which, under the proposed terms of the agreement, Saban will grant to Fox Video the right to distribute English and Spanish language versions throughout the United States and Canada of certain of its programs, including Sweet Valley High, all television programs produced for children and owned or controlled by Saban or FCN, all television programs produced or to be produced pursuant to the Marvel Agreement and all television programs which are owned or controlled first by Marvel and subsequently by Saban, the LLC or the Company. The execution of this agreement is subject to the earlier termination of an agreement (the "Warner Agreement") dated as of March 1, 1994 between Saban and Warner Home Video. The beginning of the term of this agreement varies by type of program, but the term ends as to all programs between seven and nine years from the date of termination of the Warner Agreement. Saban is required to make available for release by Fox Video at least six programs each year, at least two of which will not have been previously released for home video distribution in any of the territories covered by the agreement. In consideration of the grant of the distribution rights, Fox Video has agreed to pay Saban 50% of gross receipts, after deduction of certain expenses. The Company has also entered into, and is currently in negotiations with respect to, a number of agreements with affiliates of News Corp. to launch new international children's channels. See "Business--Distribution: Networks and Syndication--International Channels." Saban and Fox Broadcasting are parties to a Barter Syndication Agreement dated as of January 5, 1996, pursuant to which Saban engaged Fox Broadcasting to provide barter advertising sales for the 1996-1997 broadcast season for the Saban Kids Network. Fox Broadcasting's services will include advertising sales, sales administration, account maintenance, ratings processing, credit and collection, sales data entry and reporting and commercials broadcast standards and practices. In consideration for the services rendered by Fox Broadcasting to Saban, Saban has agreed to pay Fox Broadcasting a barter advertising sales fee of $800,000. FCN and Twentieth Century Fox Licensing and Merchandising, a unit of Fox Inc. ("Twentieth Fox Licensing") are parties to a Merchandising Rights Acquisition Agreement dated as of July 1, 1990, pursuant to which FCN licenses to Twentieth Fox Licensing the right to acquire and exercise throughout the world literary publishing rights and merchandising rights with respect to each program currently existing or produced by or on behalf of FCN for initial exhibition in the United States, including, for example, Bobby's World. The term of the agreement extends in perpetuity, unless FCN sets forth limitations with respect to the term of a particular program. In consideration for the rights granted, Twentieth Fox Licensing agreed to pay to FCN an amount equal to 100% of "Net Profits," which equaled gross receipts less distribution fees and expenses. For the fiscal years 72 ended June 30, 1994 and 1995, Twentieth Fox Licensing retained approximately $218,000 and $567,000 as distribution fees under this agreement. On December 22, 1995, in connection with the formation of the LLC, this agreement, and all amounts retained as distribution fees by Twentieth Fox Licensing from June 1, 1995, were assigned to the LLC by the Fox Parties. FCN and Twentieth Century Fox are parties to a Distribution Rights Acquisition Agreement dated as of September 1, 1990, pursuant to which FCN licensed to Twentieth Century Fox certain worldwide distribution rights with respect to programming provided by FCN to its affiliated television stations. The term of the agreement extends in perpetuity, unless FCN sets forth limitations regarding a particular program's duration. In consideration for the rights granted, Twentieth Century Fox agreed to pay to FCN 100% of Net Profits, which equaled gross receipts less distribution fees and expenses. For the fiscal years ended June 30, 1994 and 1995, Twentieth Century Fox retained approximately $1.2 million in each year as distribution fees under this agreement. On December 22,1995, in connection with the formation of the LLC, this agreement, and all rights of Twentieth Century Fox commencing June 1, 1995, were assigned to the LLC by the Fox Parties. FCN and Fox Broadcasting are parties to an Administration Agreement dated as of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide the following services to FCN: network national advertising sales and the administration thereof, commercial trafficking and broadcast operations (including program delivery to Fox Kids Network Affiliates) and overhead charges related to Fox Broadcasting in-house administrative support in the areas of research, promotion, business affairs, legal affairs and accounting. FCN agreed to pay to Fox Broadcasting a fee equal to 15% of 100% of the net advertising revenue (gross advertising revenue less advertising agency commissions) derived with respect to national commercials, commercial material or other advertising matter included or used in connection with any of the programs exhibited on the Fox Kids Network. For the fiscal years ended June 30, 1994 and 1995, FCN paid to Fox Broadcasting approximately $16.2 million and $21.3 million in fees pursuant to this agreement. On December 22, 1995, in connection with the terms of LLC, this agreement, and all rights of Fox Broadcasting to receive management fees on or subsequent to June 1, 1995, were assigned to the LLC by the Fox Parties. Saban is currently negotiating with Fox Family Films, Inc. ("Distributor") for the distribution of Mighty Morphin Power Rangers II, a "PG-rated" sequel to the original motion picture (the "Sequel"). Under the proposed terms of the agreement, Saban will produce and deliver the Sequel to Distributor for worldwide distribution and grant to Distributor all rights necessary to advertise, promote, publicize and distribute the Sequel. Saban will hold the copyright to the Sequel as well as certain rights including, without limitation, merchandising, television, stage and animated-theatrical rights. Commercial tie-in rights will be mutually controlled by Saban and Distributor. Saban will receive 100% of gross receipts after certain distribution fees and expenses are deducted, based upon a formula set forth in the agreement. Saban is party to six program exhibition agreements for the 1996-1997 broadcast season with FOX Television and one with FoxNet, both subsidiaries of Fox Broadcasting, pursuant to which Saban licenses certain of Fox Television's owned and operated stations and the FoxNet cable television service the right to broadcast certain series which are part of the Saban Kids Network. All series are licensed on a barter basis, as described in "Distribution: Networks and Syndication--Syndication." TRANSACTIONS BETWEEN HAIM SABAN, OTHER EXECUTIVE OFFICERS AND SABAN From time to time, Saban has loaned and advanced funds to Haim Saban, the Company's Chairman and Chief Executive Officer. For the past three fiscal years, the highest aggregate amounts outstanding from Mr. Saban to Saban were approximately $922,000 for the fiscal year ended June 30, 1994, and $2.7 million for each of the fiscal years ended June 30, 1995 and June 30, 1996. In connection with the formation of the LLC, on December 22, 1995, Saban forgave in full all amounts then owing from Haim Saban, aggregating $2,649,000. All of these loans accrued interest at the rate of one percent over City National Bank's prime rate. 73 During the same period Haim Saban loaned and advanced funds to Saban to cover working capital needs of Saban. The highest aggregate amounts outstanding from Saban to Mr. Saban were approximately $13.3 million for the fiscal year ended June 30, 1994 and $9.0 million for the fiscal year ended June 30, 1995. The balance of these loans was repaid in full in October 1994. All of the loans owing to Mr. Saban accrued interest at the rate of one percent over City National Bank's prime rate. From time to time, Saban has loaned and advanced funds to Shuki Levy, the Company's Executive Vice President. For the past three fiscal years, the highest aggregate amounts outstanding from Mr. Levy to Saban were $980,000 for the fiscal year ended June 30, 1994, $1.0 million for the fiscal year ended June 30, 1995 and $1.2 million for the fiscal year ended June 30, 1996. As of September 1, 1996, the total amount outstanding, including accrued and unpaid interest, was $1.2 million. All of the amounts outstanding under these loans accrued interest at rates ranging from 5% to 6.5% per annum. Saban currently leases and distributes certain of its properties (e.g., motion pictures, television programs, merchandising and licensing rights) in Israel through Duveen Trading Ltd., a corporation wholly-owned by Haim Saban's brother. The term of the agreement extends through December 31, 1997, subject to extension by Saban for an additional three years. Duveen Trading Ltd. is not obligated to make any payments to Saban under this agreement. In connection with Mr. Saban's employment agreement, the LLC agreed to reimburse Mr. Saban for all out-of-pocket costs and expenses for domestic and international travel, including private air charter which may include aircraft owned by Mr. Saban. Saban has entered into a contract with the agency which leases Mr. Saban's airplane to charter from that agency Mr. Saban's or another similar airplane for a minimum of fifty charter hours during a twelve-month period. From March 1996 through June 30, 1996, Saban has paid approximately $370,000 for such services. In September 1994, Saban entered into a music services agreement (the "Music Agreement") with Haim Saban, which agreement was amended in June 1995 and assigned to a corporation wholly-owned by Mr. Saban in January 1996. The Music Agreement remains in effect until August 31, 2001. Under the terms of the Music Agreement, all original theme music, underscores, cues and songs for use in all programming produced by Saban will be supplied to Saban through Mr. Saban. Saban is entitled to license third party musical compositions for use in its programming so long as such compositions are not used as opening or closing themes nor constitute more than 15% of the total musical content of any program or episode, without Haim Saban's prior written consent. Saban has the royalty-free right to use the compositions in articles of merchandise such as home video units, video games and interactive toys. Saban has been granted the non-exclusive, worldwide, perpetual license to (i) synchronize and perform compositions in theatrical motion pictures and (ii) synchronize compositions in all other forms of programming. Saban creates and owns all right, title and interest in master recordings of compositions for use in Saban's programming, and Saban owns the proceeds derived from all forms of exploitation thereof. In consideration for the provision of the compositions to Saban, Mr. Saban is entitled to receive all publishing income, directly or through Saban, in connection with the exploitation of such compositions. Saban is entitled to reimbursement from Mr. Saban of certain costs associated with the creation of the compositions. To date, Saban has made no payments of publishing income to Mr. Saban and Mr. Saban has made no payments for reimbursement of costs to Saban. For the fiscal year ended June 30, 1996 approximately $262,000 was owed to Mr. Saban under this agreement. 74 DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of shares of Class A Common Stock, shares of Class B Common Stock, 15,000,000 shares of Preferred Stock, and 1,000,000 shares of Series A Preferred Stock. As of the Closing Date, including the shares being offered hereunder, shares of Class A Common Stock, shares of Class B Common Stock and 1,000,000 shares of Series A Preferred Stock will be issued and outstanding and no shares of Preferred Stock will be issued or outstanding. The following descriptions of the securities of the Company and certain provisions of the Company's Certificate of Incorporation and Bylaws are summaries, do not purport to be complete and are subject to the detailed provisions of, and are qualified in their entirety by reference to, the Certificate of Incorporation and Bylaws of the Company. CLASS A COMMON STOCK AND CLASS B COMMON STOCK The Certificate of Incorporation provides for two classes of common stock, Class A Common Stock and Class B Common Stock, the two classes of which are substantially identical, except for disparity in voting power. Voting. Each share of Class B Common Stock entitles the holder of record to ten votes and each share of Class A Common Stock entitles the holder to one vote at each annual or special meeting of stockholders, in the case of any written consent of stockholders, and for all other purposes. The holders of Class A Common Stock and Class B Common Stock will vote as a single class on all matters submitted to a vote of the stockholders, except as otherwise provided by law. Neither the holders of Class A Common Stock nor the holders of Class B Common Stock have cumulative voting rights. The Company may, as a condition to counting the votes cast by any holder of Class B Common Stock at any annual or special meeting of stockholders, in the case of any written consent of stockholders, or for any other purpose, require the furnishing of such affidavits or other proof as it may reasonably request to establish that the Class B Common Stock held by such holder has not, by virtue of the provisions of the Certificate of Incorporation, been converted into Class A Common Stock. Conversion Rights. Each share of Class B Common Stock is convertible at the holder's option at all times, without cost to the stockholder, into one share of Class A Common Stock. In addition, Class B Common Stock is subject to automatic conversion in the event of a transfer in violation of the transfer restrictions described below. Dividends and Other Distributions. The holders of Class A Common Stock and Class B Common Stock will be entitled to receive dividends and other distributions as may be declared thereon by the board of directors of the Company out of assets or funds of the Company legally available therefor, subject to the rights of the holders of the Series A Preferred Stock or any other series of Preferred Stock and any other provision of the Certificate of Incorporation. The Certificate of Incorporation provides that if at any time a dividend or other distribution in cash or other property is paid on Class A Common Stock or Class B Common Stock, a like dividend or other distribution in cash or other property will also be paid on Class B Common Stock or Class A Common Stock, as the case may be, in an equal amount per share. In this connection, the Certificate of Incorporation specifically provides that if shares of Class B Common Stock are paid on Class B Common Stock and shares of Class A Common Stock are paid on Class A Common Stock, in an equal amount per share of Class B Common Stock and Class A Common Stock, such payment will be deemed to be a like dividend or other distribution. In the case of any split, subdivision, combination or reclassification of Class B Common Stock or Class A Common Stock, the shares of Class A Common Stock or Class B Common Stock, as the case may be, will also be split, subdivided, combined or reclassified so that the number of shares of Class B Common Stock and Class A Common Stock outstanding immediately following such split, subdivision, combination or reclassification will bear the same relationship to each other as that which existed immediately prior thereto. Distributions Upon Liquidation. In the event of any liquidation, dissolution or winding up of the Company, the holders of Class B Common Stock and the holders of Class A Common Stock will be entitled to receive the 75 assets and funds of the Company available for distribution after payments to creditors and to the holders of the Series A Preferred Stock or any Preferred Stock of the Company that may at the time be outstanding, in proportion to the number of shares held by them, respectively, without regard to class. Transferability of Shares. The shares of Class A Common Stock offered hereby are freely transferable, subject to certain restrictions on resale imposed on affiliates of the Company. Class B Common Stock is not transferable by a stockholder except to the following transferees (each a "Permitted Transferee"): (i) to any other Class B Stockholder, any of Haim Saban's family members, any trust established solely for the benefit of one or more of Haim Saban's family members or any legal entity in which Haim Saban or such persons are the sole beneficial owners; (ii) to a direct or indirect wholly-owned subsidiary of such Class B Stockholder (or with respect to a Class B Stockholder which is a natural person, a corporation or other person wholly- owned by the Class B Stockholder); or (iii) to a Fox Inc. Subsidiary. A "Fox Inc. Subsidiary" is Twentieth Holdings Corp. and any corporation or other person in which Fox Inc., or Twentieth Holdings Corp. is the sole beneficial owner (either directly or indirectly though one or more wholly-owned subsidiaries) of all the outstanding voting securities of that corporation or other person. Any purported transfer of Class B Common Stock other than to a Permitted Transferee shall be null and void and of no effect and the purported transfer by a holder of Class B Common Stock, other than to a Permitted Transferee, will result in the immediate and automatic conversion of such holder's shares of Class B Common Stock into shares of Class A Common Stock. Reorganization. In the event of any corporate merger, consolidation, purchase or acquisition of property or stock, or other reorganization in which any consideration is to be received by the holders of Class B Common Stock or the holders of Class A Common Stock, the holders of Class B Common Stock and the holders of Class A Common Stock will receive the same consideration on a per share basis; except that, if such consideration shall consist in any part of voting securities) (or of options or warrants to purchase voting securities, or of securities convertible into or exchangeable for voting securities), the holders of Class B Common Stock may receive, on a per share basis, voting securities with ten times the number of votes per share as those voting securities to be received by the holders of Class A Common Stock (or options or warrants to purchase, or securities convertible into or exchangeable for, voting securities with ten times the number of votes per share as those voting securities issuable upon the exercise of the options or warrants, or into which the convertible or exchangeable securities may be converted or exchanged, received by the holders of Class A Common Stock). Except as expressly set forth in the Certificate of Incorporation, the rights of the holders of Class B Common Stock and the rights of the holders of Class A Common Stock are in all respects identical. SERIES A PREFERRED STOCK The holders of Series A Preferred Stock have no preemptive rights and are not subject to future assessments by the Company. All outstanding shares of Series A Preferred Stock are fully paid and nonassessable. The Series A Preferred Stock has aggregate dividend and/or redemption obligations of $50 million. Once an aggregate of $50 million has been paid, the Series A Preferred Stock will cease to be outstanding. The Series A Preferred Stock, with respect to dividend rights and rights on liquidation, winding up and dissolution, ranks senior to the Preferred Stock and to the Common Stock. The holders of the shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cash dividends in an amount equal to the Distributable Cash of the Company. No more than $49 in dividends may be paid with respect to any share of Series A Preferred Stock. "Distributable Cash" means, at the time a determination of Distributable Cash is made, the net cash provided by operating activities of the Company (on a consolidated basis) from the date of issuance of the Series A Preferred Stock through the end of the last fiscal quarter ending not less than 90 days prior to the time of determination, less the sum of (i) all restricted cash, (ii) all Reserves, and (iii) all amounts previously paid as dividends on the Series A Preferred Stock. "Reserves" are those amounts determined from time to time by the Board of Directors as necessary to provide, over such period as the Board of Directors considers appropriate, for current and planned capital expenditures, debt service, working capital requirements and expansion plans; and if the Board of Directors is unable to reach agreement thereon, the 76 Reserves shall be maintained at a level equal to the sum of (i) $30 million, plus (ii) the net proceeds realized by the Company from the Offerings. The Company will have the right from time to time to redeem the Series A Preferred Stock, in whole or in part, with the consent of the holders of the Series A Preferred Stock, at a redemption price equal to the then-current liquidation value of the Series A Preferred Stock. If the liquidation value of the Series A Preferred Stock is $1.00 per share, the Company will have the right and power at any time thereafter to redeem all, and not less than all, of the Series A Preferred Stock at a redemption price of $1.00 per share. The holders of Series A Preferred Stock will have no voting rights with respect to corporate matters except as provided by law. PREFERRED STOCK The Certificate of Incorporation provides that shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences and the relative participation, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, of any unissued series of Preferred Stock, to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding). Accordingly, the Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company's Class B Common Stock and Class A Common Stock. In the event of issuance, these shares of Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing an acquisition or a change in control of the Company. The Company currently does not intend to issue any of the authorized but unissued shares of its Preferred Stock. REGISTRATION RIGHTS Following the closing of the Offerings, Haim Saban and the other former Saban Stockholders and Fox Broadcasting Sub (the "Holders") who hold all of the shares of the Class B Common Stock in the aggregate (the "Registrable Securities") will be entitled to certain rights with respect to the registration of such shares under the Securities Act. Pursuant to the terms of the Company's Certificate of Incorporation, upon transfer, the Registrable Securities become Class A Common Stock. The rights are provided under the terms of an agreement among the Holders, Saban and FCN Holding. Subject to certain limitations in the agreement, the Holders of at least 10% of the Registrable Securities may require the registration of at least the lesser of 50% of the Registrable Securities then outstanding or a number of shares expected to have an aggregate offering price of $15 million at any time after six months from the effective date of the Offerings. If the Company receives a request to register any of the Common Stock for the account of the Holders, or the Company registers Common Stock for its own account, the Company must offer to other Holders of Registrable Securities and all others who have a contractual right, the opportunity to include their shares in the registration. The Holders may require no more than two long-form registration statements in any year and no more than three registration statements on Form S-3 for which the Company will pay all registration expenses. The Company is not required to pay for a long-form registration statement unless the Registrable Securities will be disposed of in a firm commitment underwritten offering. A Holder's right to include shares in an underwritten registration is subject to the ability of the underwriters to limit the number of shares included in the offering. The Company is not required to prepare and file a registration statement which would become effective within 270 days following the effective date of a registration statement filed by the Company. DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS Certain provisions of the DGCL and of the Certificate of Incorporation and Bylaws, summarized in the following paragraphs, may be considered to have an anti-takeover effect and may delay, deter or prevent a tender offer, proxy contest or other takeover attempt that a stockholder might consider to be in such stockholder's best interest, including such an attempt as might result in payment of a premium over the market price for shares held by stockholders. 77 Delaware Anti-Takeover Law. Section 203 ("Section 203") of the DGCL provides, in general, that a stockholder acquiring more than 15% of the outstanding voting stock of a corporation subject to the statute (an "Interested Stockholder") but less than 85% of such stock may not engage in certain "Business Combinations" with the corporation for a period of three years subsequent to the date on which the stockholder became an Interested Stockholder unless (i) prior to such date the corporation's board of directors approved either the Business Combination or the transaction in which the stockholder became an Interested Stockholder or (ii) the Business Combination is approved by the corporation's board of directors and authorized by a vote of at least 66 2/3% of the outstanding voting stock of the corporation not owned by the Interested Stockholder. The Restated Certificate of Incorporation of the Company, which will be filed immediately prior to the closing of the Reorganization, will exclude the Company from the restrictions imposed by Section 203. Special Meetings of Stockholders. The Bylaws provide that special meetings of stockholders may be called only by the Chairman of the Board of Directors, Chief Executive Officer or by order of the Board of Directors. Removal of Directors and Related Matters. Any director may be removed with or without cause only by the vote of at least 75% of the shares entitled to vote for the election of directors. The Certificate of Incorporation and Bylaws require the affirmative vote of holders of at least 66 2/3% of the combined voting power of the then outstanding shares of stock of all classes entitled to vote generally in the election of Directors cast at a meeting of the stockholders, as well as more than 66 2/3% of the then-outstanding Class B Common Stock, called for the purpose to amend or repeal these Certificate of Incorporation provisions. Voting by Directors. All actions of the Board of Directors (including, but not limited to, interested party transactions, financing transactions, mergers and acquisitions, changes in executive officers, director nominations and committee appointments) will require the vote of at least 75% of the then duly elected and acting members of the Board of Directors. Interested directors will be counted and may cast votes. In addition, the Bylaws provide that any committee of the Board of Directors, other than the audit and compensation committees, shall have four members and that decisions of the committee shall be made by at least three of the four members. Director Liability and Indemnification. The Certificate of Incorporation and the Bylaws, taken together, provide that the Company shall, to the fullest extent permitted by the DGCL as then in effect, indemnify any person who was or is involved in any manner or was or is threatened to be made so involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as director, officer, employee or agent of another corporation or other enterprise against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such proceeding. The Certificate of Incorporation provides that no director of the Company will be personally liable to the Company or to its stockholders for monetary damages for breach of fiduciary duty as a director. This right to indemnification includes the right to receive payment of any expenses incurred by the person being indemnified in connection with such proceeding in advance of the final disposition of the proceeding consistent with applicable law as then in effect. All rights to indemnification conferred in the Certificate of Incorporation shall be contract rights. The right of indemnification, including the right to receive payment in advance of expenses, conferred by the Certificate of Incorporation and Bylaws are not exclusive of any other rights to which any person seeking indemnification may otherwise be entitled. The Certificate of Incorporation requires the affirmative vote of holders of at least % of the combined voting power of the then outstanding shares of stock of all classes entitled to vote generally in the election of Directors to amend or repeal the Certificate of Incorporation indemnification provisions. TRANSFER AGENT The registrar and transfer agent for the Class A Common Stock is . 78 SHARES ELIGIBLE FOR FUTURE SALE The shares of Class A Common Stock sold by the Company in the Offerings will be freely tradable without restriction or further registration under the Securities Act., except for shares held by "affiliates" of the Company (as that term is defined in Rule 144 under the Securities Act). Upon completion of the Offerings, the Company will have shares of Class A Common Stock outstanding ( shares if the Underwriters' over-allotment options are exercised in full) and shares of Class B Common Stock outstanding. Each share of Class B Common Stock is convertible into a share of Class A Common Stock at any time at the option of the holder. Any shares held by affiliates of the Company may be sold only if they are registered under the Securities Act or are sold pursuant to an applicable exemption from the registration requirements of the Securities Act, including Rule 144 thereunder. Immediately following the Offerings, the shares of Class B Common Stock will be held by affiliates and will be "restricted securities" under the Securities Act. Such shares cannot be sold other than pursuant to an effective registration statement under the Securities Act or an applicable exemption from the registration requirements of the Securities Act, including Rule 144 thereunder. All current holders of Class A Common Stock and Class B Common Stock (representing % of the outstanding Class A Common Stock and % of the Class B Common Stock) and all directors and executive officers of the Company have agreed with the Underwriters not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any of their shares or any securities convertible into or exchangeable for their shares or in any other manner transfer all or a portion of the economic consequences associated with ownership of their shares for a period of 180 days after the date of this Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated acting on behalf of the Underwriters. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) who has beneficially owned shares for at least two years is entitled to sell, within any three-month period, a number of shares which does not exceed the greater of 1% of the then-outstanding shares of the Company's Common Stock (approximately shares immediately after the Offerings) or the average weekly trading volume of the Company's Common Stock in the over-the-counter market or on a recognized exchange during the four calendar weeks preceding the date on which notice of the sale is filed with the Commission. Sales under Rule 144 may also be subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. Any person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the three months preceding a sale, and who has beneficially owned shares within the definition of "restricted securities" under Rule 144 for at least three years, is entitled to sell such shares under Rule 144(k) without regard to the volume limitation, manner of sale provisions, public information requirements or notice requirements. To the extent shares were acquired from an affiliate of the Company, such stockholder's holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate. The Commission has recently proposed to amend Rule 144 to shorten each of the two-year and three-year holding periods by one year. The Company is authorized to issue up to shares of Class A Common Stock under its Stock Incentive Plan, of which are subject to options which have been granted as of the date of this Prospectus (see "Management--Stock Options and Stock Incentive Plan"). The Company intends to file a registration statement under the Securities Act within 180 days following the completion of the Offerings covering these shares of Class A Common Stock. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, subject to vesting restrictions and the lock-up arrangements described above. 79 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following is a general discussion of certain United States Federal tax consequences of the ownership and disposition of Class A Common Stock by a holder that, for United States Federal income tax purposes, is not a "United States person" (a "Non-United States Holder"). For purposes of this discussion, a "United States person" means a citizen or resident of the United States; a corporation or partnership created or organized in the United States or under the laws of the United States or of any political subdivision thereof; or an estate or trust the income of which is includible in gross income for United States Federal income tax purposes regardless of its source. Resident alien individuals will be subject to United States Federal income tax with respect to the Class A Common Stock as if they were United States citizens. This discussion does not consider any specific facts or circumstances that may apply to a particular Non-United States Holder. Prospective investors are urged to consult their tax advisors regarding the United States Federal tax consequences of owning and disposing of Class A Common Stock (including such investor's status as a United States person or Non-United States Holder), as well as any tax consequences that may arise under the laws of any state, municipality or other taxing jurisdiction. Proposed United States Treasury Regulations were issued on April 15, 1996 (the "Proposed Regulations") which, if adopted, would affect the U.S. taxation of dividends paid to a Non-United States Holder on Class A Common Stock. The Proposed Regulations are generally proposed to be effective with respect to dividends paid and other payments made after December 31, 1997, subject to certain transition rules. The discussion below is not intended to be a complete discussion of the provisions of the Proposed Regulations, and prospective investors are urged to consult their tax advisors with respect to the effect the Proposed Regulations would have if adopted. DIVIDENDS Dividends paid to a Non-United States Holder generally will be subject to withholding of United States Federal income tax at the rate of 30% unless the dividend is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder, in which case the dividend will be subject to the United States Federal income tax on net income that applies to United States persons (and, with respect to corporate holders and under certain circumstances, the branch profits tax). Non-United States Holders should consult any applicable income tax treaties which may provide for reduced withholding or other rules different from those described above. A Non-United States Holder may be required to satisfy certain certification requirements in order to claim treaty benefits or to otherwise claim a reduction of or exemption from withholding under the foregoing rules. Under the Proposed Regulations, to obtain a reduced rate of withholding under a treaty, a Non-United States Holder would generally be required to provide an Internal Revenue Service Form W-8 certifying such Non-United States Holder's entitlement to benefits under a treaty together with, in certain circumstances, additional information. The Proposed Regulations also would provide special rules to determine whether, for purposes of determining the applicability of a tax treaty and for purposes of the 30% withholding tax described above, dividends paid to a Non-United States Holder that is an entity should be treated as paid to the entity or to those holding an interest in that entity. GAIN ON DISPOSITION Subject to special rules applicable to individuals as described in the next paragraph, a Non-United States Holder will not generally be subject to United States Federal income tax on gain recognized on a sale or other disposition of Class A Common Stock unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder (or by a partnership, trust or estate in which the Non-United States Holder is a partner or beneficiary) or (ii) the Company is or becomes a "United States real property holding corporation" for United States Federal income tax purposes (a "USRPHC") and certain 80 other requirements are met. The Company believes that it has not been, and is not currently, a USRPHC. It is possible, however, that the Company may become a USRPHC in the future. If the Company were to become a USRPHC at any time within the shorter of (a) the five year period preceding a sale of Class A Common Stock by a Non-United States Holder or (b) such Non-United States Holder's holding period for such stock (the "Testing Period"), then gain realized on a disposition of Class A Common Stock by a Non-United States Holder that owns, actually or constructively, more than 5% of the Class A Common Stock at any time during the Testing Period generally will be treated as effectively connected with the conduct of a trade or business within the United States by such Non-United States Holder. Gain that is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder will be subject to the United States Federal income tax on net income that applies to United States persons (and, with respect to corporate holders and under certain circumstances, the branch profits tax) and may be subject to withholding. Non-United States Holders should consult applicable income tax treaties, which may provide for different rules. In addition to being subject to the rules described above, an individual Non-United States Holder who holds Class A Common Stock as a capital asset will generally be subject to tax at a 30% rate on any gain recognized on the disposition of such stock if such individual is present in the United States for 183 days or more in the taxable year of disposition. Individual Non-United States Holders may also be subject to tax pursuant to provisions of United States Federal income tax law applicable to certain United States expatriates. FEDERAL ESTATE TAXES Class A Common Stock owned or treated as owned by an individual who is not a citizen or resident (as specially defined for United States Federal estate tax purposes) of the United States at the date of death will be included in such individual's estate for United States Federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. INFORMATION REPORTING AND BACKUP WITHHOLDING The Company must report annually to the Internal Revenue Service (the "Service") and to each Non-United States Holder the amount of dividends paid to, and the tax withheld with respect to, such holder, regardless of whether tax was actually withheld. That information may also be made available to the tax authorities of the country in which the Non-United States Holder resides. United States Federal backup withholding (which generally is withholding imposed at the rate of 31% on certain payments to persons not otherwise exempt who fail to furnish certain information) will not generally apply to dividends paid to a Non-United States Holder that are subject to withholding at the 30% rate (or would be so subject but for a reduced rate under an applicable treaty). In addition, the payor of dividends currently may rely on the payee's foreign address in determining that the payee is exempt from backup withholding, unless the payor has knowledge that the payee is a United States person. Those backup withholding and information reporting requirements also apply to the gross proceeds paid to a Non-United States Holder upon the disposition of Class A Common Stock by or through a United States office of a United States or foreign broker, unless the holder certifies to the broker under penalties of perjury as to its name, address and status as a Non-United States Holder or the holder otherwise establishes an exemption. Information reporting requirements (but not backup withholding) will apply to a payment of the proceeds of a disposition of Class A Common Stock by or through a foreign office of (i) a United States broker, (ii) a foreign broker 50% or more of whose gross income for certain periods is effectively connected with the conduct of a trade or business in the United States or (iii) a foreign broker that is a "controlled foreign corporation" for United States Federal income tax purposes, unless the broker has documentary evidence in its records that the holder is a Non-United States Holder and certain other conditions are met, or the holder otherwise establishes an exemption. Neither backup withholding nor information reporting generally will apply to a payment of the proceeds of a disposition of Class A Common Stock by or through a foreign office of a foreign broker not subject to the preceding sentence. 81 The Proposed Regulations would, if adopted, alter the foregoing rules in certain respects. Among other things, the Proposed Regulations would provide certain presumptions under which a Non-United States Holder would be subject to backup withholding and information reporting unless the Company receives certification from the holder of non-United States status. Any amounts withheld under the backup withholding rules will be refunded or credited against the Non-United States Holder's United States Federal income tax liability, provided that required information is furnished to the Service. 82 UNDERWRITING Subject to the terms and conditions set forth in a purchase agreement (the "U.S. Purchase Agreement"), the Company has agreed to sell to each of the underwriters named below (the "U.S. Underwriters"), and each of the U.S. Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Allen & Company Incorporated and Bear, Stearns & Co. Inc. are acting as representatives (the "U.S. Representatives"), severally has agreed to purchase, the aggregate number of shares of Class A Common Stock set forth opposite its name below.
NUMBER OF U.S. UNDERWRITERS SHARES ----------------- -------- Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................ Allen & Company Incorporated..................................... Bear, Stearns & Co. Inc.......................................... -------- Total.......................................................... ========
The Company has also entered into a purchase agreement (the "International Purchase Agreement" and, together with the U.S. Purchase Agreement, the "Purchase Agreements") with Merrill Lynch International, Allen & Company Incorporated and Bear, Stearns International Limited, acting as representatives (the "International Representatives" and, together with the U.S. Representatives, the "Representatives"), and certain other underwriters outside the United States and Canada (collectively, the "International Underwriters" and, together with the U.S. Underwriters, the "Underwriters"). Subject to the terms and conditions set forth in the International Purchase Agreement, the Company has agreed to sell to the International Underwriters, and the International Underwriters severally have agreed to purchase, an aggregate of shares of Class A Common Stock. In each Purchase Agreement, the Underwriters named therein have agreed, subject to the terms and conditions set forth in such Purchase Agreement, to purchase all of the shares of Class A Common Stock being sold pursuant to such Purchase Agreement if any of the shares of Class A Common Stock being sold pursuant to such Purchase Agreement are purchased. Under certain circumstances, under the Purchase Agreements, the commitments of non- defaulting Underwriters may be increased. Each Purchase Agreement provides that the Company is not obligated to sell, and the Underwriters named therein are not obligated to purchase, the shares of Class A Common Stock under the terms of the Purchase Agreement unless all of the shares of Class A Common Stock to be sold pursuant to the Purchase Agreements are contemporaneously sold. The U.S. Representatives have advised the Company that the U.S. Underwriters propose to offer the shares of Class A Common Stock offered hereby to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share of Class A Common Stock, and that the U.S. Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share of Class A Common Stock on sales to certain other dealers. After the Offerings, the public offering price, concession and discount may be changed. The public offering price per share of Class A Common Stock and the underwriting discount per share of Class A Common Stock are identical for both Offerings. The Company has granted to the U.S. Underwriters and the International Underwriters options to purchase up to an aggregate of shares and shares of Class A Common Stock, respectively, at the initial public offering price, less the underwriting discount. Such options, which will expire 30 days after the date of this Prospectus, may be exercised solely to cover over-allotments. The Company has been informed that the Underwriters have entered into an agreement (the "Intersyndicate Agreement") providing for the coordination of their activities. Pursuant to the Intersyndicate Agreement, the 83 U.S. Underwriters and the International Underwriters are permitted to sell shares of Class A Common Stock to each other. The Company has been informed that, under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Class A Common Stock will not offer to sell or resell shares of Class A Common Stock to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, and the International Underwriters and any bank, broker or dealer to whom they sell shares of Class A Common Stock will not offer to resell shares of Class A Common Stock to U.S. persons or to Canadian persons or to persons they believe intend to resell to U.S. persons or to Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement which, among other things, permits the Underwriters to purchase from each other and to offer to resell such number of shares of Class A Common Stock as the selling Underwriter or Underwriters and the purchasing Underwriter or Underwriters may agree. The Company, Fox Broadcasting, Haim Saban and certain officers and directors of the Company have each agreed not to sell or grant any option for the sale of, or otherwise dispose of, any Common Stock, or any securities convertible into or exchangeable or exercisable for shares of Common Stock, other than the shares of Common Stock that may be offered by the Company in the Offerings and not to file or request to be filed, as the case may be, any registration statement with respect to Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Merrill Lynch. The U.S. Underwriters and the International Underwriters have informed the Company that they do not intend to sell shares of Class A Common Stock offered hereby to any accounts over which they exercise discretionary authority. Prior to the Offerings, there has been no public market for the Class A Common Stock of the Company. The initial public offering price for the Class A Common Stock has been determined by negotiation between the Company and the U.S. Representatives and International Representatives. Among the factors that were considered in determining the initial public offering price were the Company's results of operations, the Company's current financial condition, its future prospects, the experience of its management, the economics of the industry in general, the general condition of the equity securities market, the demand for similar securities of companies considered comparable to the Company and other relevant factors. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. Certain of the Underwriters or their affiliates have provided from time to time, and may provide in the future, commercial and investment banking services to News Corp. and its affiliates, for which such Underwriters or their affiliates have received or will receive fees and commissions. Allen & Company Incorporated ("Allen") has, over the years, rendered investment banking and financial advisory services to News Corp. and various of its subsidiaries, as well as to Saban, in connection with a number of matters. Stanley S. Shuman, a Managing Director and Executive Vice President of Allen, has been a non-Executive Director of News Corp. since 1982. Allen acquired 16 16/99 shares of common stock of FCN Holding in lieu of a cash fee earned in December 1995 for certain financial advisory and other investment banking services rendered to FCN Holding in connection with the negotiation, structuring, formation and capitalization of the LLC. These shares will be exchanged in the Reorganization for shares of Class A Common Stock of the Company. As a result, after the Reorganization and before the Offerings, Allen will own an aggregate of shares of Class A Common Stock of the Company. 84 LEGAL MATTERS Counsel for the Company, Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California, has rendered an opinion to the effect that the Class A Common Stock offered by the Company upon sale will be duly and validly issued, fully paid and nonassessable. Certain legal matters will be passed upon for the Underwriters by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York. EXPERTS The consolidated financial statements of Saban Entertainment, Inc. at May 31, 1994 and 1995 and at October 31, 1995, and for each of the three years in the period ended May 31, 1995 and the five month period ended October 31, 1995, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of FCN Holding, Inc. at July 3, 1994, July 2, 1995 and October 29, 1995, and for each of the two years in the period ended July 2, 1995 and for the four months ended October 29, 1995 and the Balance Sheet of Fox Kids Worldwide, Inc. at September 27, 1996, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The combined financial statements of FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization, Fox Kids Worldwide, Inc.) at June 30, 1996 and for the eight months ended June 30, 1996, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission a Registration Statement under the Securities Act with respect to the shares of Class A Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto, certain portions of which have been omitted pursuant to the rules and regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and with respect to any contract or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. For further information with respect to the Company and the shares offered hereby, reference is hereby made to the Registration Statement and exhibits thereto. A copy of the Registration Statement, including the exhibits thereto, may be inspected without charge at the Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain prescribed rates. Upon consummation of the Offerings, the Company will become subject to the information and reporting requirements of the Securities Exchange Act and, in accordance therewith, will file reports and other information with the Commission in accordance with its rules. Such reports and other information concerning the Company may be inspected and copied at the address set forth above and the Commission's Regional Offices in New York (Suite 1300, Seven World Trade Center, New York, New York 10048) and Chicago (Citicorp Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). Application has been made to list the Class A 85 Common Stock on the New York Stock Exchange. If approved for listing, any such material will also be available for inspection at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The Company intends to furnish holders of Class A Common Stock annual reports containing audited consolidated financial statements and quarterly reports containing unaudited financial information. Such audited financial statements and unaudited quarterly financial information will be prepared in accordance with generally accepted accounting principles in the United States. 86 INDEX TO FINANCIAL STATEMENTS
PAGE ---- FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) Report of Independent Auditors......................................... F-2 Combined Balance Sheet as of June 30, 1996............................. F-3 Combined Statement of Operations for the eight months ended June 30, 1996.................................................................. F-4 Combined Statement of Stockholders' Equity for the eight months ended June 30, 1996......................................................... F-5 Combined Statement of Cash Flows for the eight months ended June 30, 1996.................................................................. F-6 Notes to Combined Financial Statements................................. F-7 FCN HOLDING, INC. Report of Independent Auditors.......................................... F-21 Consolidated Balance Sheets as of July 3, 1994, July 2, 1995 and October 31, 1995............................................................... F-22 Consolidated Statements of Operations for the periods ended July 3, 1994, July 2, 1995 and October 31, 1995................................ F-23 Consolidated Statements of Stockholder's Equity for the periods ended July 3, 1994, July 2, 1995 and October 31, 1995........................ F-24 Consolidated Statements of Cash Flows for the period ended July 3, 1994, July 2, 1995 and October 31, 1995...................................... F-25 Notes to Consolidated Financial Statements.............................. F-26 SABAN ENTERTAINMENT, INC. Report of Independent Auditors.......................................... F-31 Consolidated Balance Sheets as of May 31, 1994 and 1995 and October 31, 1995................................................................... F-32 Consolidated Statements of Operations for the years ended May 31, 1994 and 1995 and for the five months ended October 31, 1995................ F-33 Consolidated Statements of Stockholders' Equity for the years ended May 31, 1994 and 1995 and for the five months ended October 31, 1995....... F-34 Consolidated Statements of Cash Flows for the years ended May 31, 1994 and 1995 and for the five months ended October 31, 1995................ F-35 Notes to Consolidated Financial Statements.............................. F-36 FOX KIDS WORLDWIDE, INC. Report of Independent Auditors.......................................... F-47 Balance Sheet as of September 27, 1996.................................. F-48 Notes to Financial Statements........................................... F-49
F-1 REPORT OF INDEPENDENT AUDITORS Boards of Directors and Members Committee FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. We have audited the accompanying combined balance sheet of FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization (Note 1), Fox Kids Worldwide, Inc.) as of June 30, 1996 and the related combined statements of operations, stockholders' equity, and cash flows for the eight months ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization (Note 1), Fox Kids Worldwide, Inc.) and the combined results of their operations and their cash flows for the eight months ended June 30, 1996, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California September 27, 1996 F-2 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) COMBINED BALANCE SHEET JUNE 30, 1996 ASSETS Cash and cash equivalents........................................ $ 16,044,000 Restricted cash.................................................. 8,000,000 Accounts receivable, net of allowance for doubtful accounts of $1,690,000 and including $3,119,000 from related parties........ 56,225,000 Amounts receivable from related parties.......................... 25,789,000 Programming costs, less accumulated amortization................. 181,427,000 Property and equipment, at cost, less accumulated depreciation... 8,711,000 Deferred income taxes............................................ 27,023,000 Other assets..................................................... 13,051,000 ------------ Total assets..................................................... $336,270,000 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable................................................. $ 8,192,000 Accrued liabilities.............................................. 30,247,000 Deferred revenue................................................. 67,882,000 Fox Kids Network affiliate participation payable................. 13,738,000 Accrued programming expenditures................................. 15,179,000 Accrued residuals and participations............................. 22,040,000 Income taxes payable............................................. 3,884,000 Deferred income taxes............................................ 790,000 Debt............................................................. 19,916,000 Amounts payable to related parties............................... 81,571,000 ------------ Total liabilities................................................ $263,439,000 Commitments and contingencies.................................... -- Stockholders' equity Preferred class A members interest............................. 40,000,000 Common stock, $.01 par value, 10,000 shares authorized, 800 shares issued and outstanding (Saban Entertainment, Inc.)..... -- Common stock, no par value, 2,000 shares authorized, 2,000 shares issued and outstanding (FCN Holding, Inc.) ............ 2,000 Contributed capital............................................ 49,245,000 Cumulative translation adjustment.............................. (11,000) Retained deficit............................................... (16,405,000) ------------ Total stockholders' equity....................................... 72,831,000 ------------ Total liabilities and stockholders' equity....................... $336,270,000 ============
See accompanying notes. F-3 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) COMBINED STATEMENT OF OPERATIONS EIGHT MONTHS ENDED JUNE 30, 1996 Net revenues (including $5,498,000 from related parties)........... $191,621,000 Costs and expenses: Amortization of programming costs, residuals and participations.. 98,937,000 Selling, general and administrative (including $1,114,000 to a related party).................................................. 23,072,000 Fox Kids Network affiliate participations........................ 8,853,000 ------------ Operating income................................................... 60,759,000 Investment advisory fee............................................ 10,000,000 Interest expense (including $170,000 to a related party)........... 885,000 ------------ Income before provision for income taxes........................... 49,874,000 Provision for income taxes......................................... 18,274,000 ------------ Net income......................................................... $ 31,600,000 ============ Net income attributable to common stock............................ $ ============ Net income per common share........................................ $ ============ Weighted average shares outstanding................................ ============
See accompanying notes. F-4 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) COMBINED STATEMENT OF STOCKHOLDERS' EQUITY JUNE 30, 1996
PREFERRED CLASS A MEMBERS INTEREST COMMON STOCK CUMULATIVE ------------------ ------------- CONTRIBUTED TRANSLATION RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL ------ ----------- ------ ------ ----------- ----------- ------------ ------------ Balance at November 1, 1995 .................. -- $ -- 2,000 $2,000 $ -- $ -- $ (4,132,000) $ (4,130,000) Transactions at November 1, 1995: Capital contributions.. -- -- -- -- 29,344,000 -- -- 29,344,000 Forgiveness of debt.... -- -- -- -- 5,124,000 -- -- 5,124,000 Distribution........... -- -- -- -- -- -- (2,700,000) (2,700,000) Saban Entertainment, Inc................... -- -- 800 -- 11,751,000 46,000 83,174,000 94,971,000 Elimination of certain amounts between FCN Holding, Inc. and Saban Entertainment, Inc. ................. -- -- -- -- -- -- (4,247,000) (4,247,000) Payment to a related party for a stock purchase option........ -- -- -- -- -- -- (80,100,000) (80,100,000) Related party tax obligation............. -- -- -- -- 3,026,000 -- -- 3,026,000 Exchange loss on translation of foreign subsidiaries' financial statements............. -- -- -- -- -- (57,000) -- (57,000) Net income.............. -- -- -- -- -- -- 31,600,000 31,600,000 Amount attributable to Series A Preferred Stock.................. -- 40,000,000 -- -- -- -- (40,000,000) -- --- ----------- ----- ------ ----------- -------- ------------ ------------ Balance at June 30, 1996................... -- $40,000,000 2,800 $2,000 $49,245,000 $(11,000) $(16,405,000) $ 72,831,000 === =========== ===== ====== =========== ======== ============ ============
See accompanying notes. F-5 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) COMBINED STATEMENT OF CASH FLOWS EIGHT MONTHS ENDED JUNE 30, 1996 OPERATING ACTIVITIES Net income..................................................... $ 31,600,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of programming costs............................ 84,490,000 Depreciation................................................. 1,585,000 Cumulative translation adjustment............................ (57,000) Investment advisory fee...................................... 10,000,000 Changes in operating assets and liabilities: Restricted cash............................................ (3,000,000) Accounts receivable........................................ 11,896,000 Amounts receivable from related parties.................... (8,672,000) Additions to programming costs............................. (113,506,000) Other assets............................................... 2,194,000 Accounts payable........................................... (8,009,000) Accrued liabilities........................................ 224,000 Accrued residuals and participations....................... 5,771,000 Administration fee payable to a related party.............. (6,173,000) Income taxes payable and deferred income taxes............. (9,583,000) Deferred revenue........................................... 23,437,000 Fox Kids Network affiliate participation payable........... (4,667,000) Accrued programming expenditures........................... (4,637,000) ------------- Net cash provided by operating activities...................... 12,893,000 INVESTING ACTIVITIES Purchase of property and equipment............................. (3,053,000) Acquisition of programming rights.............................. (7,200,000) Acquisition of Creativite & Developpement SA................... (1,722,000) Cash acquired in acquisition of Creativite & Developpement SA.. 3,151,000 Cash acquired in deemed acquisition of Saban Entertainment, Inc........................................................... 16,207,000 ------------- Net cash provided by investing activities...................... 7,383,000 FINANCING ACTIVITIES Proceeds from bank borrowings.................................. 15,880,000 Payments on bank borrowings.................................... (11,606,000) Payment to a related party for a stock purchase option......... (80,100,000) Proceeds from related parties.................................. 207,400,000 Payments to related parties.................................... (139,433,000) Capital contributions from related parties..................... 3,310,000 ------------- Net cash used in financing activities.......................... (4,549,000) ------------- Increase in cash and cash equivalents.......................... 15,727,000 Cash and cash equivalents at beginning of period............... 317,000 ------------- Cash and cash equivalents at end of period..................... $ 16,044,000 ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of amounts capitalized)........................ $ 414,000 ============= Income taxes................................................. $ 27,796,000 ============= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: Amounts payable to a related party of $5,124,000 were forgiven and recorded as contributed capital. The Company accrued $10,000,000 in other assets and amounts payable to related parties in connection with the formation of the LLC. A receivable from a related party of $2,700,000 was forgiven and charged to retained earnings. The Company recorded $3,026,000 arising under a tax sharing obligation which was deemed to be contributed to capital by the related party.
See accompanying notes. F-6 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 1996 1. BASIS OF FINANCIAL STATEMENT PRESENTATION, ORGANIZATION AND RELATED PARTY TRANSACTIONS On November 1, 1995 (the "Effective Date") FCN Holding, Inc. ("FCN Holding") and Saban Entertainment, Inc. ("Saban") formed Fox Kids Worldwide, L.L.C. (the "LLC"), a limited liability company, for the purpose of jointly expanding the worldwide childrens' businesses of FCN Holding and Saban. Since the Effective Date, FCN Holding and Saban have been operated by their respective managements subject to the overall supervision of the Members Committee of the LLC. In connection with the initial public offerings referred to below (the "Offerings"), a reorganization (the "Reorganization") will be effected pursuant to which Saban, FCN Holding and the LLC will become wholly-owned subsidiaries of Fox Kids Worldwide, Inc. ("Fox Kids Worldwide" or the "Company"). Solely for financial statement presentation purposes, although the Company will not acquire any of the shares of the capital stock of Saban until immediately prior to the closing of the Offerings, and although the Reorganization will not be effected until immediately prior to the closing of the Offerings, as the result of the foregoing, the assets and liabilities of Saban, FCN Holding and the LLC are being recorded at historical cost from and after the Effective Date. The combined historical financial statements of the Company (as the deemed successor to Saban, FCN Holding and the LLC) included herein represent the historical financial statements of FCN Holding (after giving effect to such combination as of the Effective Date). The combined financial statements of the Company includes the balance sheets of FCN Holding, Saban and the LLC at June 30, 1996 together with the combined results of operations of FCN Holding, Saban and the LLC since November 1, 1995. The operations of certain foreign subsidiaries of Saban have been combined at May 31, 1996 and include operations for the eight month period ended May 31, 1996. Unaudited pro forma consolidated statements of operations for the period from July 4, 1994 to July 2, 1995 and from July 3, 1995 to June 30, 1996, which would consolidate the results of operations of FCN Holding, Saban and the LLC from the beginning of the respective periods are presented below.
PERIOD FROM PERIOD FROM JULY 4, 1994 JULY 3, 1995 TO TO JULY 2, 1995 JUNE 30, 1996 ------------ ------------- Pro-forma revenues.............................. $380,449,000 $327,105,000 Pro-forma net income............................ $ 68,170,000 $ 71,370,000 ============ ============
The Company is a fully-integrated global children's television entertainment company which develops, acquires, produces, broadcasts and distributes quality animated and live-action children's television programming. The Company's principal operations are conducted by (i) Fox Children's Network, Inc. ("FCN"), which operates the Fox Kids Network--the top rated children's (ages 2-11) oriented broadcast television network in the United States ("Fox Kids Network") and (ii) Saban, whose library of more than 3,700 half-hours of children's programming is among the largest in the world. The Company is the result of the joint venture (the LLC) formed in 1995 by Fox Broadcasting Company ("Fox Broadcasting") and Saban. All significant intercompany transactions and accounts have been eliminated. THE REORGANIZATION Fox Kids Worldwide was incorporated in Delaware in August 1996 and currently conducts no business or operations. Immediately prior to the closing of the Offerings, (i) Fox Broadcasting Sub, Inc.; a wholly-owned subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"), will exchange its capital stock in FCN Holding, which indirectly owns FCN, for 50% of the number of shares of the Fox Kids Worldwide's class B common F-7 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) stock, par value $0.001 per share ("Class B Common Stock"), which will be outstanding immediately after the Reorganization and prior to the closing of the Offerings (the "Reorganization Closing"), (ii) the other stockholders of FCN Holding will exchange their capital stock in FCN Holding for an aggregate of one percent of the aggregate number of shares of Class A Common Stock and Class B Common Stock (the "Common Stock") which will be outstanding immediately after the Reorganization Closing, (iii) the Chairman and Chief Executive Officer of Saban ("Haim Saban") and the other stockholders of Saban will exchange their capital stock in Saban for an aggregate of 50% of the number of shares of Class B Common Stock which will be outstanding immediately after the Reorganization Closing and (iv) all outstanding management options to purchase Saban capital stock will become options to purchase an aggregate of approximately four percent of the aggregate number of shares of Common Stock which will be outstanding immediately after the Reorganization Closing. In addition, Fox Broadcasting will exchange its preferred, non-voting interest in the LLC for an aggregate of 1,000,000 shares of Fox Kids Worldwide's series A redeemable preferred stock, $0.001 par value per share (the "Series A Preferred Stock") and will exchange a $50 million contingent note receivable from the LLC for a new preferred, non-voting interest in the LLC. As a result of these transaction, FCN Holding, FCN, Saban and the LLC will become direct or indirect subsidiaries of Fox Kids Worldwide, Inc. RELATED PARTY TRANSACTIONS IN CONNECTION WITH THE FORMATION OF THE LLC AND THE SUBSEQUENT REORGANIZATION As described more fully below, in connection with the formation of the LLC and the subsequent Reorganization, various corporate affiliates of Fox Broadcasting transferred certain distribution rights and other contractual rights to the LLC, made a cash loan to the LLC and committed to provide certain administrative services to FCN Holding on an on-going basis. In consideration, Fox Broadcasting is entitled to receive payment of its loan and certain other cash distributions in priority to the common stockholders of the Company. FCN and Twentieth Century Fox Licensing and Merchandising, a unit of Fox, Inc. ("Twentieth Fox Licensing") had previously entered into a Merchandising Rights Acquisition Agreement, dated as of July 1, 1990, pursuant to which FCN licensed to Twentieth Fox Licensing the worldwide merchandising rights to properties owned or controlled by FCN. The term of the agreement extends in perpetuity. In consideration for the rights granted, Twentieth Fox Licensing agreed to pay FCN an amount equal to 100% of net profits from exploitation of such merchandising rights, which equaled gross receipts less distribution fees and expenses. On December 22, 1995, in connection with the formation of the LLC, this agreement, and all amounts retained as distribution fees by Twentieth Fox Licensing from June 1, 1995 through that date, were assigned to the LLC by Fox Broadcasting and certain of its affiliates ("Fox Parties"). FCN and Twentieth Century Fox Film Corporation ("Twentieth Century Fox") are parties to a Distribution Rights Acquisition Agreement, dated as of September 1, 1990, pursuant to which FCN licensed to Twentieth Century Fox certain worldwide distribution rights with respect to programming owned or controlled by FCN. The term of this agreement extends in perpetuity. In consideration for the rights granted, Twentieth Century Fox agreed to pay FCN 100% of net profits, which equals gross receipts less distribution fees and expenses. On December 22, 1995, in connection with the formation of the LLC, this agreement, and all rights retained by Twentieth Century Fox commencing June 1, 1995, were assigned to the LLC by the Fox Parties. FCN and Fox Broadcasting are parties to an Administration Agreement, dated as of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide the following services to FCN: network national advertising sales and the administration thereof, commercial trafficking and broadcast operations (including F-8 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) all uplink, transponder and other facilities necessary to deliver via satellite Fox Kids Network programming for broadcast to the Fox Kids Network Affiliates (defined below)) and overhead charges related to Fox Broadcasting's in-house administrative support in the areas of research, promotion, business affairs, legal affairs and accounting. FCN agreed to pay to Fox Broadcasting a fee equal to 15% of 100% of the net advertising revenue (gross advertising revenue less advertising agency commissions) derived with respect to national commercials, commercial material or other advertising matter included or used in connection with any of the programs exhibit on the Fox Kids Network. On December 22, 1995, in connection with the terms of the LLC, this agreement, and all rights of Fox Broadcasting to receive management fees on or subsequent to June 1, 1995, were assigned to the LLC by the Fox Parties. Consequently, the Company agreed to pay to Fox Broadcasting a fee of $10 million for providing these services and such amount is included in other assets and amounts payable to related parties at June 30, 1996. In September 1996, the Company paid this fee and, immediately upon receipt of this $10 million payment, Fox Broadcasting made a contribution to the LLC of $10 million in exchange for additional Class A Members Interest, described above. Fox Broadcasting continues to be obligated to provide the services described above and estimates the incremental costs for providing these services to the Company to be $2,200,000 per annum. Accordingly, the Company is amortizing the $10 million fee over approximately five years, representing the period over which the value of the services is estimated to be incurred, and has recorded amortization of $1,467,000 for the eight months ended June 30, 1996. Fox Broadcasting believes that these estimates were made on a reasonable basis. However, these estimates may not necessarily be indicative of the level of expenses that might have been incurred had the Company operated on a stand- alone basis. Fox Broadcasting has not made a study or any attempt to obtain quotes from third parties to determine what the costs of obtaining such services from third parties would have been. Pursuant to terms of the affiliation agreements ("Agreements") among the Company, Fox Broadcasting and substantially all of its affiliated television stations ("Fox Kids Network Affiliates"), the Fox Kids Network Affiliates, including owned operated television stations of certain affiliates of Fox Broadcasting ("Fox O&O's") are entitled to compensation which is equal to 100% of FCN's programming Net Profits (as defined below). Amounts payable under these compensation arrangements are due quarterly in amounts derived pursuant to the provisions in the Agreements. "Net Profits" is defined on a cumulative basis to include amounts actually received by FCN from the exhibition, distribution and other exploitation of the Company's programs and the merchandising and other rights relating thereto, less administrative fees, production/license fees, distribution and merchandising fees (including those payable to the Company), overhead and other expenses and reserves. Certain of the Fox O&O's have waived in favor of the Company their rights to receive these participations. In addition to assigning to the LLC the agreements and Net Profit participations referred to above, Fox Broadcasting agreed that the net cash flow to the LLC from such agreements and participations for the twelve months ended June 30, 1996 would be a minimum of $35,755,000. For the eight months ended June 30, 1996, the Company recorded $16,611,000 as a decrease in expenses. The remaining balance of $19,144,000 was recorded as a capital contribution. Subsequent to June 30, 1996, the outstanding balance was paid. In connection with the formation of the LLC, Fox Broadcasting made a $64.5 million interest free loan to the LLC, of which $14.5 million of the loan was repaid in September 1996. The $50 million balance of this loan must be paid out of Distributable Cash of the LLC before any distributions are made on the Class A and Class B Members Interests. In connection with the Reorganization, concurrent with the closing of the Offerings, Fox Broadcasting will exchange this loan for new Class A Members Interests in the LLC, which will grant Fox Broadcasting a priority right to receive distributions of Distributable Cash (as defined below) and other F-9 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) distributions from the LLC until it has received aggregate distributions of $50 million, whereupon it will terminate and expire. Distributable Cash means the amount of cash available for distribution by the LLC (including cash available from Saban and FCN Holding), taking into account all cash, debts, liabilities and obligations of the LLC then due and after setting aside reserves to provide for the LLC's capital expenditures, debt service, working capital and expansion plans ("Distributable Cash"). In addition to the priority distributions described in the paragraph above, in connection with the formation of the LLC, Fox Broadcasting was also granted a priority right to receive distributions of Distributable Cash and other distributions until it receives aggregate distributions in an amount equal to $40 million. As described below, in September 1996, Fox Broadcasting purchased, for $10 million cash, an additional $10 million of Class A Members Interest. Pursuant to the terms of the Reorganization and concurrent with the closing of the Offerings, Fox Broadcasting will exchange this Class A Members Interest for 1,000,000 shares of the Company's Series A Preferred Stock. This Series A Preferred Stock terminates once an aggregate of $50 million in dividends and redemption amounts are paid to Fox Broadcasting. The difference between the carrying value of the Series A Preferred Stock and the liquidation value has been accreted and charged against retained earnings. Pursuant to an agreement, dated December 22, 1995, between the LLC and the stockholders of Saban, the LLC was granted an option to purchase, upon the occurrence of certain events, all of the Saban common stock (or the stock of a successor entity, including the Company) held by the stockholders of Saban, and any of their transferees ("Stock Ownership Agreement"). The option is triggered upon the occurrence of the following events and may be exercised as follows: (i) for a period of one year following the death of Haim Saban, if he dies prior to December 22, 2012; (ii) upon delivery of written notice by Fox Broadcasting at any time on or after December 22, 2002 or before December 22, 2012; or (iii) upon receipt by Fox Broadcasting of written notice (which generally cannot be delivered prior to December 22, 2001) from Haim Saban of his desire to cause Fox Broadcasting to purchase all of the shares of Class B Common Stock held by the stockholders of Saban. The LLC paid to the stockholders of Saban an aggregate of $80.1 million for payment under the Stock Ownership Agreement. The purchase price formula under the option is based on the fair market value of the Company. As part of the Reorganization, the LLC distributed the Stock Ownership Agreement to Fox Broadcasting Sub. OTHER RELATED PARTY TRANSACTIONS Receivables from related parties include advances of $1,329,000 to certain non-stockholder officers and directors of the Company. Saban and Fox Broadcasting are parties to a barter syndication agreement, dated as of January 5, 1996, pursuant to which Saban engaged Fox Broadcasting to provide barter advertising sales for the 1996-1997 broadcast season for the Saban Kids Network, an ad hoc syndicated distribution network. Related companies of Fox Broadcasting have funded the operations of FCN Holding from its inception through loans to the Company. All amounts derived by the operations of FCN Holding are used to reduce such outstanding borrowings. Amounts outstanding bear interest at the prime rate (8.25% at June 30, 1996). Amounts due to the related companies of Fox Broadcasting in connection therewith, including interest, totalled $7,071,000 at June 30, 1996. F-10 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The Company has also entered into a number of binding agreements with affiliated companies of The News Corporation Limited, the parent company of Fox Broadcasting, to launch new international children's channels. From time to time, Saban has loaned and advanced funds to Haim Saban. In connection with the formation of the LLC and as inducement to Haim Saban to enter into certain documentation in connection with the formation of the LLC, on December 22, 1995, Saban forgave in full the loan plus accrued interest owing from Haim Saban in the amount of approximately $2,700,000. This amount was treated as a distribution and charged to retained earnings in the eight months ended June 30, 1996. In connection with Haim Saban's employment agreement, dated December 22, 1995, with the LLC, the LLC agreed to reimburse Haim Saban for all out-of-pocket costs and expenses for domestic and international travel, including private air charter which may include aircraft owned directly or indirectly by Haim Saban. For the eight months ended June 30, 1996, Saban has paid approximately $370,000 for such services. Saban currently leases and distributes its entertainment properties (e.g., motion pictures, television programs, merchandising and licensing rights) in Israel through Duveen Trading Ltd. ("Distributor"), a corporation owned wholly by Haim Saban's brother. The term of the agreement extends through December 31, 1997, subject to extension by Saban for an additional three years. Duveen Trading Ltd. is not obligated to make any payments to Saban under this agreement. In September 1994, Saban entered into a music services agreement (the "Music Agreement") with Haim Saban. The Music Agreement remains in effect until August 31, 2001. Under the terms of the Music Agreement, all original theme music, underscore, cues and songs for use in all programming produced by Saban will be supplied through Haim Saban. Saban has been granted the non-exclusive, worldwide, perpetual license to (i) synchronize and perform compositions in theatrical motion pictures and (ii) synchronize composition in all other forms of programming and has the royalty-free right to use the compositions in articles of merchandise such as home video units, video games and interactive toys. All music publishing income earned in connection with such musical compositions is retained by Haim Saban. The Company has accrued $262,000 for payment to Haim Saban pursuant to the terms of the Music Agreement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR-END The Company's fiscal year ends on the Sunday closest to June 30. REVENUE RECOGNITION Advertising revenue is recognized as earned in the period in which the advertising commercials are telecast and are net of agency commission fees of $20,817,000. Revenues from television, music and merchandising lease agreements, which provide for the receipt by the Company of nonrefundable guaranteed amounts, are recognized when the lease period begins, collectibility is reasonably assured and the product is available pursuant to the terms of the lease agreement. Amounts in excess of minimum guarantees under these lease agreements are recognized when earned. Amounts received in advance of recognition of revenue are recorded as deferred revenue. FCN Holding generally provides advertisers with guaranteed ratings in connection with its domestic network broadcasts. Revenue is recorded net of estimated shortfalls, which are settled either by additional advertising time ("make goods") or cash refunds to the advertiser. FCN Holding accounts for the full amount of the estimated shortfall. F-11 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) PROGRAMMING COSTS Programming costs, consisting of direct production costs, acquisition of story rights, costs to acquire distribution rights, allocable production overhead, interest and exploitation costs (which benefit future periods) are capitalized as incurred. The individual film forecast method is used to amortize programming costs in which the Company owns or controls distribution rights. Costs accumulated in the production of a program are amortized in the proportion that gross revenues realized bear to management's estimate of the total gross revenues expected to be received. Estimated liabilities for residuals and participations are accrued and expensed in the same manner as programming cost inventories are amortized. For programs in which the Company acquires only network broadcast rights, the Company amortizes such program costs over the estimated number of telecasts. The Company evaluates its programming rights for possible changes in the estimated number of telecasts or the possibility of impairment. Revenue estimates on a program-by-program basis are reviewed periodically by management and are revised, if warranted, based upon management's appraisal of current market conditions. Based on this review, if estimated future gross revenues from a program are not sufficient to recover the unamortized costs, the unamortized programming cost will be written down to net realizable value. CONCENTRATION OF CREDIT RISKS Financial instruments which potentially subject the Company to concentration of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions or in a mutual fund which invests in government securities and therefore are subject to reduced risk. The Company has not incurred any losses relating to these investments. The Company leases its product to distributors and broadcasters throughout the world. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Generally, payment is received in full or in part prior to the Company's release of product to such distributors and broadcasters. At June 30, 1996, substantially all of the Company's trade receivables were from customers in the entertainment or broadcast industries or from advertising agencies. Receivables generally are due within 30 days. Credit losses relating to customers in the entertainment and broadcast industries or advertising agencies consistently have been within management's expectations. CASH AND CASH EQUIVALENTS For the purposes of balance sheet classification and the statement of cash flows, the Company considers all highly liquid investments that are both readily convertible into cash with original maturities when purchased of three months or less to be cash equivalents. RESTRICTED CASH Restricted cash represents amounts held by financial institutions as collateral on outstanding debt. FINANCIAL INSTRUMENTS Financial instruments are carried at historical cost which approximates fair value. F-12 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciation is computed using the straight-line method over their estimated useful lives of three to five years. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful lives of the improvement using the straight-line method. FOREIGN CURRENCY TRANSLATION AND CUMULATIVE ADJUSTMENT Saban International N.V. ("SINV"), after the Effective Date deemed to be a wholly-owned subsidiary of the Company, uses the U.S. dollar as the functional currency. Saban International Paris S.A.R.L. ("SIP"), Saban Entertainment Germany GmbH and Saban Merchandising and Licensing GmbH and Saban Entertainment (UK) Limited, all foreign subsidiaries of the Company, use local currency as the functional currency. Assets and liabilities are translated into U.S. dollars at current exchange rates. Revenue and expenses have been translated into U.S. dollars based generally on the average rates prevailing during the period. Gains and losses arising from foreign currency transactions are included in determining net income for the period. The aggregate transaction gains for the eight months ended June 30, 1996 were $132,000. The cumulative translation adjustment in stockholders' equity at June 30, 1996 represents the Company's net unrealized exchange losses on the translation of foreign subsidiaries' financial statements. INCOME TAXES The Company provides for income taxes based on the liability method under Statement of Financial Accounting Standards No. 109. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes including amortization of programming costs. Actual results could differ from those estimates. Management periodically reviews and revises its estimates of future airings and revenues for program costs, as necessary, which may result in revised amortization of its program costs and may be significantly affected by the periodic adjustments in such amortization. STOCK-BASED COMPENSATION The Company accounts for its stock compensation arrangements under the provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" and intends to continue to do so. NET INCOME PER COMMON SHARE The per share data is based on the weighted average number of common and common equivalent shares outstanding during the period and are calculated in accordance with a Staff Accounting Bulletin of the Securities and Exchange Commission whereby common and common share equivalents issued within a 12- month period prior to an initial public offering are treated as outstanding for all periods presented if the issue price was less than the proposed initial public offering price. In addition, shares issuable upon the exercise of options within the 12-month period are considered to have been outstanding since inception of the Company. F-13 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) For the eight months ended June 30, 1996, the per share amount gives effect to the accretion of the preferred class A members interest up to its liquidation value of $40,000,000. 3. PROGRAMMING COSTS Programming costs, net of accumulated amortization, is comprised of the following:
NET ACCUMULATED PROGRAMMING COST AMORTIZATION COSTS ------------ ------------ ------------ Children's programming, broadcast.... $303,161,000 $285,615,000 $ 17,546,000 Children's programming, other........ 434,773,000 344,638,000 90,135,000 Movies and mini-series............... 121,642,000 88,642,000 33,000,000 Projects in production............... 38,999,000 -- 38,999,000 Development.......................... 1,747,000 -- 1,747,000 ------------ ------------ ------------ $900,322,000 $718,895,000 $181,427,000 ============ ============ ============
Based on the Company's estimate of future revenues, approximately 76% of unamortized released programming costs at June 30, 1996 will be amortized during the three years ending June 30, 1999. 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following: Studio equipment................................................ $ 8,338,000 Office furniture and fixtures................................... 3,257,000 Leasehold improvements.......................................... 2,455,000 Other........................................................... 64,000 ----------- 14,114,000 Less accumulated depreciation................................... 5,403,000 ----------- $ 8,711,000 ===========
5. DEBT Debt is comprised of the following: DeNationale Investeringsbank N.V.; secured line of credit due April 18, 1999; interest at three month LIBOR (5.58% at June 30, 1996) plus 0.4% paid quarterly; maximum borrowings of $8,000,000.................................................... $ 6,862,000 Secured lines of credit with varying due dates between December 31, 1997 and April 13, 1998; maximum borrowing availability varying between FF 3,500,000 ($674,000 at June 30, 1996) and FF 16,462,000 ($3,170,000 at June 30, 1996); varying interest rates (between 4.79% and 8.75% at June 30, 1996) paid quarterly..................................................... 3,554,000 Secured promissory notes with varying due dates between April 16, 1997 and August 5, 1999; original principal amounts paid quarterly or at maturity; notes are non-interest bearing...... 6,484,000 Norwest Equipment Finance, Inc.; secured promissory note due February 9, 2000 and principal paid annually; original principal of $3,912,000; interest at 7.5% per annum and paid annually...................................................... 3,016,000 ----------- $19,916,000 ===========
F-14 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Payments of principal on promissory notes in future periods are as follows:
YEAR ENDING JUNE 30 ------------------- 1997............................................................ $6,895,000 1998............................................................ 947,000 1999............................................................ 879,000 2000............................................................ 779,000 ---------- $9,500,000 ==========
In July 1995, Saban and SINV separately entered into credit agreements with Imperial Bank ("Imperial"), as agent, and a group of lenders for secured revolving credit facilities ("Credit Facilities") aggregating $50 million maturing on July 31, 1998. Interest on the borrowings is at either the prime rate (8.25% at June 30, 1996) plus .5% or .25% depending on Saban's and SINV's tangible net worth or three month or six month LIBOR (5.58% and 5.81%, respectively, at June 30, 1996) plus 2.25% or 2% depending on Saban's and SINV's tangible net worth. Interest is payable at the end of the interest period which is either one, three or six months. Saban and SINV are required to pay a quarterly commitment fee of .25% per annum of the average daily unused portion of the commitment. Saban and SINV also paid a loan fee amounting to .75% of the commitment. The combined amount available for borrowing under the Credit Facilities at any time is limited in accordance with a formula based upon the value of collateral in Saban's and SINV's borrowing bases. The borrowing bases include on and off balance sheet receivables and amounts attributable to the value of Saban's and SINV's film library. Saban's credit facility is secured by substantially all of the assets of Saban and its subsidiaries (excluding SINV and other foreign subsidiaries of Saban) and SINV's credit facility is secured by substantially all of the assets of Saban and its subsidiaries. The Credit Facilities restrict the payment of dividends. The Credit Facilities contain restrictive covenants regarding, among other things, additional indebtedness, payments and advances for product, the maintenance of certain financial ratios and restrictions on the disposition of assets. At June 30, 1996 the Company and SINV were in compliance or had obtained waivers for these covenants. At June 30, 1996 no amounts were outstanding under these Credit Facilities. 6. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows: Deferred tax liabilities: Accounts receivable...................................... $ 581,000 State taxes.............................................. 209,000 ------------ Total deferred tax liabilities............................. $ 790,000 Deferred tax assets: Deferred revenue......................................... $ 18,813,000 Book over tax amortization............................... 665,000 Accrued expenses and reserves............................ 6,095,000 Other.................................................... 1,450,000 ------------ Total deferred tax assets.................................. 27,023,000 Valuation allowance for deferred tax assets................ -- ------------ Net deferred tax assets.................................... 27,023,000 ------------ Net deferred tax assets.................................... $(26,233,000) ============
F-15 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) For financial reporting purposes, income before income taxes includes the following components: Pretax income: United States............................................... $33,149,000 Foreign..................................................... 16,725,000 ----------- $49,874,000 =========== Significant components of the provision for income taxes are as follows: Current: Federal..................................................... $14,316,000 State....................................................... 3,964,000 Foreign..................................................... 586,000 ----------- $18,866,000 ----------- Deferred: Federal..................................................... $ (431,000) State....................................................... (161,000) Foreign..................................................... 0 ----------- $ (592,000) ----------- Total......................................................... $18,274,000 =========== The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is: Tax at U.S. statutory rates................................. 35 % State taxes, net of federal benefit......................... 5 Foreign subsidiary's income not subject to state or federal tax........................................................ (13) Foreign taxes............................................... 1 Other....................................................... 1 Non-deductible investment advisory fees..................... 8 ----------- 37 % ===========
A liability attributable to the tax provision of FCN Holding was deemed to be contributed to capital by a related party. Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $78,000,000 at June 30, 1996. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability. F-16 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 7. COMMITMENTS AND CONTINGENCIES The Company leased office space in Burbank, California, under a ten year lease which was terminated in December 1995, and a lease termination fee of $305,000 was paid. The Company also leases office space in New York City under a three year lease which is cancelable after the end of each year by payment of a termination fee. In addition, the Company leases office space in Paris, France, Cologne, Germany and London, England under nine year, five year and three year operating leases, respectively. One of the Paris, France leases provides for early termination on January 15, 1997 and the other on February 28, 1999 and February 28, 2002, both upon six months advance written notice. The London, England lease provides for early termination upon six months advance written notice. In July 1995, the Company entered into a 10 year lease commencing on April 1, 1996 for office space in Los Angeles, California. The lease provides for early termination at the end of the sixth and eighth years upon payment of a termination fee. The lease calls for monthly payments plus maintenance and property tax payments. The Company also has two leases for production facilities, one is a short-term lease in Los Angeles, California expiring March 1997, and the other is a two-year lease in Valencia, California expiring in January 1997 and subject to two one-year extensions. Noncancelable future minimum payments for the remainder of the initial, noncancelable lease periods are as follows:
YEAR ENDING JUNE 30 - ------------------- 1997.............................................................. $ 4,095,000 1998.............................................................. 1,961,000 1999.............................................................. 2,208,000 2000.............................................................. 3,157,000 2001.............................................................. 3,307,000 Thereafter........................................................ 17,850,000 ----------- $32,578,000 ===========
Rent expense for the eight months ended June 30, 1996, net of amounts capitalized, was approximately $1,006,000. The Fox Kids Network occupies approximately 18,568 square feet of space in a facility subleased from FOX Television Stations, Inc. ("FOX Television"). FOX Television leases the space from Metromedia Inc. The Fox Kids Network currently pays to FOX Television an annual rate of $24.17 per square foot for use of this space. There is no written agreement evidencing any obligation between the Fox Kids Network and FOX Television. The Company is involved in various lawsuits, both as a plaintiff and defendant, in the ordinary course of its business. Based on an evaluation which included consultation with counsel concerning legal and factual issues involved, management is of the opinion that the foregoing claims and lawsuits will not have a material adverse effect on the Company's consolidated financial position. The Company has entered into employment agreements with certain key members of management. Such agreements are for terms ranging from one to six and one- half years and generally include bonus provisions. Additionally, one key member of management has entered into a five-year, non-exclusive consulting agreement pursuant to which, among other things, the Company agreed that if the employment agreement is not extended F-17 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) beyond the current five-year term, the Company would, on the terms set forth therein, be obligated to pay this individual over a five-year period an annual consulting fee at a rate not exceeding $250,000 per year. Future minimum payments under these agreements approximate $24,543,000 of which $10,400,000 is due in 1997, $5,433,000 is due in 1998, $3,470,000 is due in 1999, $1,639,000 is due in 2000 and $1,454,000 is due in 2001. Effective June 1994, Saban issued to two employees and a consultant options to purchase an aggregate of 48.981 shares of common stock, 19.592 of which were exercisable at June 30, 1996. These options vest ratably over five years and are exercisable at $122,496 per share, which approximates the fair market value at the time of grant. Effective January 1996, Saban issued to one key employee options to purchase 16.327 shares of common stock, 3.265 of which were exercisable at June 30, 1996. These options vest ratably over five years and are exercisable at $612,500 per share, which approximates the fair market value at the time of grant. No options have been exercised at June 30, 1996. With respect to termination for any reason, so long as the Company is not public, the Company will purchase from the employee and the employee will sell to the Company any and all option shares owned by the employee and the option granted to the employee for an amount equal to the fair market value of the option shares owned by the employee plus the fair market value of the option shares with respect to which the employee's option has vested but not exercised less the exercise price. Included in selling, general and administrative expenses for the eight months ended June 30, 1996 is $3,800,000 and in accrued liabilities at June 30, 1996 is $17,200,000 related to compensation recorded in connection with these options. In connection with the Reorganization as described in Note 1, all options will become options to purchase shares of the Class A Common Stock and will have a term of 10 years from the date of grant, unless terminated earlier as provided in the agreement granting the options. As of June 30, 1996 65.308 shares of Saban common stock are reserved for future issuance related to options. Future estimated program commitments are approximately $37,173,000. Effective April 3, 1996, FCN Holding has agreed to issue to an investment banker 16.16 shares of common stock of FCN Holding as compensation for certain financial advisory and other investment banking services rendered in connection with the negotiation, structuring, formation and capitalization of the LLC. In connection therewith, $10,000,000 is included in the combined statement of operations for the eight months ended June 30, 1996. FCN Holding has reserved 16.16 shares for future issuances. 8. PROFIT SHARING PLAN Saban has a qualified tax deferred profit sharing plan (the "Plan") for all of its eligible employees. Under the Plan, employees become eligible on the first January 1 following such employees' completion of six months of service with Saban. Each participant is permitted to make voluntary contributions, not to exceed 15% of his or her respective compensation and the applicable statutory limitation, which are immediately 100% vested. Saban, at the discretion of the Board of Directors, may make matching contributions to the Plan. Related expense for the eight months ended June 30, 1996, was approximately $43,000. 9. ACQUISITIONS On April 16, 1996, the Company acquired the stock of Creativite & Developpement SA ("C&D"), a leading Paris-based producer of family entertainment for $2,869,000, $1,721,000 payable upon closing (April 16, F-18 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 1996) and $1,148,000 payable on April 16, 1997 and is secured by a letter of credit. The Company has accounted for the acquisition as a purchase. No goodwill was recorded as the entire purchase price was allocated to the respective assets and liabilities. The acquisition included the international distribution rights to over 400 half-hour episodes of children's programming. As a result, the balance sheet of C&D at May 31, 1996, together with the results of operations of C&D since the purchase date of April 16, 1996 have been consolidated with the Company's results of operations for the year ended June 30, 1996. Unaudited pro forma combined statements of operations for the years ended June 30, 1996 and July 2, 1995, which would combine the results of operations of the Company and C&D are not presented herein as such information is not material to the combined results of operations. In December 1995, the Company purchased from Vesical Limited ("Vesical") its interest and rights to certain television programming and related account receivable balances for $12,000,000, $7,200,000 payable upon closing (April 18, 1996) and $4,800,000 payable on April 18, 1997 and secured by a letter of credit. The Company allocated the purchase price between the account receivable balances and the television programming rights based upon the respective assets fair market values using a discounted cash flow analysis. 10. SIGNIFICANT CUSTOMERS AND PROPERTIES AND GEOGRAPHICAL INFORMATION The Company operates in one business segment which is the acquisition, production and worldwide broadcast, distribution and leasing of entertainment properties. For the eight months ended June 30, 1996, the Company earned revenues from one significant customer of approximately $32,148,000 (17%). The Company earned revenues of $72,668,000 (38%) from one significant property (Power Rangers). F-19 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Geographic information concerning the Company's operations is as follows: Revenues: Domestic..................................................... $129,645,000 International, principally Europe(/2/)....................... 61,976,000 ------------ Total.......................................................... 191,621,000 Operating profit(/1/) Domestic..................................................... 67,970,000 International, principally Europe(/2/) 24,714,000 ------------ Total.......................................................... 92,684,000 Selling, general and administrative expenses................... 23,072,000 Fox Kids Network affiliate participations...................... 8,853,000 Investment advisory fee........................................ 10,000,000 Interest expense............................................... 885,000 ------------ Income before provision for income taxes....................... $ 49,874,000 ============ Identifiable assets: Domestic..................................................... $197,315,000 International, principally Europe(/2/)....................... 138,955,000 ------------ Total.......................................................... $336,270,000 ============
- -------- (1) For purposes of this presentation, operating profit is total revenues less amortization of programming costs residuals and profit participations. (2) International amounts relate principally to Western Europe in connection with the Company's subsidiary, SINV, a Netherlands Antilles company with offices in Switzerland. 11. SUBSEQUENT EVENT In connection with the Reorganization, on September 25, 1996 the Company's Board of Directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission to sell shares of its common stock. F-20 REPORT OF INDEPENDENT AUDITORS Board of Directors FCN Holding, Inc. We have audited the accompanying consolidated balance sheets of FCN Holding, Inc., as of July 3, 1994, July 2, 1995 and October 31, 1995, and the related consolidated statements of operations, stockholder's equity, and cash flows for the period from June 28, 1993 to July 3, 1994, the period from July 4, 1994 to July 2, 1995 and the period from July 3, 1995 to October 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FCN Holding, Inc. and the results of its operations and its cash flows for the period from June 28, 1993 to July 3, 1994, the period from July 4, 1994 to July 2, 1995 and the period from July 3, 1995 to October 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California September 27, 1996 F-21 FCN HOLDING, INC. CONSOLIDATED BALANCE SHEETS
JULY 3, JULY 2, OCTOBER 31, 1994 1995 1995 ----------- ----------- ----------- ASSETS Cash and cash equivalents............... $ 268,000 $ -- $ 317,000 Accounts receivable, including $3,717,000 (1994), $2,265,000 (July 2, 1995) and $2,341,000 (October 31, 1995) from related parties................... 18,491,000 23,539,000 23,175,000 Programming costs, less accumulated amortization........................... 17,084,000 26,143,000 28,090,000 Property and equipment, at cost, less accumulated depreciation .............. 10,000 85,000 103,000 Other assets............................ 97,000 49,000 1,107,000 ----------- ----------- ----------- Total assets............................ $35,950,000 $49,816,000 $52,792,000 =========== =========== =========== LIABILITIES AND STOCKHOLDER'S DEFICIT Accounts payable........................ $ 2,367,000 $ 1,991,000 1,718,000 Accrued liabilities..................... 1,095,000 876,000 1,291,000 Deferred revenue........................ -- 1,763,000 791,000 Fox Kids Network affiliate participation payable................................ -- 11,523,000 18,406,000 Accrued programming expenditures........ 21,052,000 21,960,000 19,816,000 Administrative fee payable to a related party.................................. 4,629,000 4,828,000 6,173,000 Amounts payable to related parties...... 27,163,000 10,686,000 8,727,000 ----------- ----------- ----------- Total liabilities....................... 56,306,000 53,627,000 56,922,000 Commitments and contingencies -- -- -- Stockholder's deficit: Common stock, no par value, 2,000 authorized, issued and outstanding 1,000 shares (1994) and 2,000 shares (1995) .............................. 1,000 2,000 2,000 Retained deficit...................... (20,357,000) (3,813,000) (4,132,000) ----------- ----------- ----------- Total stockholder's deficit............. (20,356,000) (3,811,000) (4,130,000) ----------- ----------- ----------- Total liabilities and stockholder's deficit................................ $35,950,000 $49,816,000 $52,792,000 =========== =========== ===========
See accompanying notes. F-22 FCN HOLDING, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM PERIOD FROM PERIOD FROM JUNE 28, 1993 JULY 4, 1994 JULY 3, 1995 TO TO TO JULY 3, 1994 JULY 2, 1995 OCTOBER 31, 1995 ------------- ------------ ---------------- Net revenues (including $8,778,000 (1994), $8,443,000 (July 2, 1995) and $2,822,000 (October 31, 1995) from related parties)............. $130,600,000 $168,871,000 $46,286,000 Costs and expenses: Amortization of programming costs, residuals and participations ................. 98,725,000 109,259,000 29,698,000 Ancillary market distribution costs to a related party ....... 2,922,000 3,255,000 1,140,000 Administrative fee to a related party........................... 17,939,000 21,458,000 6,173,000 Selling, general and administrative (including $1,118,000 (1994), $1,075,000 (July 2, 1995) and $448,000 (October 31, 1995) to related parties)........................ 3,579,000 5,202,000 2,566,000 Fox Kids Network affiliate participations.................. -- 11,523,000 6,883,000 ------------ ------------ ----------- Operating income (loss)............ 7,435,000 18,174,000 (174,000) ------------ ------------ ----------- Interest expense to a related party............................. 2,218,000 1,630,000 145,000 ------------ ------------ ----------- Income (loss) before provision for income taxes...................... 5,217,000 16,544,000 (319,000) Provision for income taxes......... -- -- -- ------------ ------------ ----------- Net income (loss).................. $ 5,217,000 $ 16,544,000 $ (319,000) ============ ============ =========== Net income per common share........ $ $ $ ============ ============ =========== Weighted average shares outstanding....................... ============ ============ ===========
See accompanying notes. F-23 FCN HOLDING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
COMMON STOCK ------------- RETAINED SHARES AMOUNT DEFICIT TOTAL ------ ------ ------------ ------------ Balance at June 27, 1993............. 1,000 $1,000 $(25,574,000) $(25,573,000) Net income......................... -- -- 5,217,000 5,217,000 ----- ------ ------------ ------------ Balance at July 3, 1994.............. 1,000 1,000 (20,357,000) (20,356,000) Net income......................... -- -- 16,544,000 16,544,000 Issuance of stock.................. 1,000 1,000 -- 1,000 ----- ------ ------------ ------------ Balance at July 2, 1995.............. 2,000 2,000 (3,813,000) (3,811,000) Net loss........................... -- -- (319,000) (319,000) ----- ------ ------------ ------------ Balance at October 31, 1995.......... 2,000 $2,000 $ (4,132,000) $ (4,130,000) ===== ====== ============ ============
See accompanying notes. F-24 FCN HOLDING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM PERIOD FROM PERIOD FROM JUNE 28, 1993 JULY 4, 1994 JULY 3, 1995 TO TO TO JUNE 3, 1994 JULY 2, 1995 OCTOBER 31, 1995 ------------- ------------- ---------------- OPERATING ACTIVITIES Net income (loss).............. $ 5,217,000 $ 16,544,000 $ (319,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization of programming costs....................... 94,160,000 98,309,000 26,937,000 Depreciation................. 8,000 17,000 13,000 Provision for doubtful accounts.................... -- 480,000 -- Changes in operating assets and liabilities: Accounts receivable........ (1,611,000) (5,528,000) 364,000 Additions to programming costs .................... (88,999,000) (107,368,000) (28,884,000) Other assets............... (56,000) 48,000 (1,058,000) Accounts payable........... 1,949,000 (376,000) (273,000) Accrued liabilities........ 106,000 (219,000) 415,000 Administration fee payable to a related party........ 1,753,000 199,000 1,345,000 Deferred revenue........... -- 1,763,000 (972,000) Fox Kids Network affiliate participation payable..... -- 11,523,000 6,883,000 Accrued programming expenditures.............. 1,700,000 908,000 (2,144,000) ------------- ------------- ------------ Net cash provided by operating activities.................... 14,227,000 16,300,000 2,307,000 INVESTING ACTIVITIES Purchase of property and equipment..................... (10,000) (91,000) (31,000) ------------- ------------- ------------ Net cash used in investing activities.................... (10,000) (91,000) (31,000) FINANCING ACTIVITIES Proceeds from related parties.. 127,113,000 180,765,000 68,308,000 Payments to related parties.... (141,366,000) (197,242,000) (70,267,000) ------------- ------------- ------------ Net cash used in financing activities.................... (14,253,000) (16,477,000) (1,959,000) ------------- ------------- ------------ (Decrease) increase in cash and cash equivalents.............. (36,000) (268,000) 317,000 Cash and cash equivalents at beginning of period........... 304,000 268,000 -- ------------- ------------- ------------ Cash and cash equivalents at end of period................. $ 268,000 $ -- $ 317,000 ============= ============= ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest..................... $ 2,172,000 $ 2,053,000 $ 201,000 ============= ============= ============ Income taxes................. $ -- $ -- $ -- ============= ============= ============
See accompanying notes. F-25 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 1. BASIS OF FINANCIAL STATEMENT PRESENTATION AND ORGANIZATION The accompanying consolidated financial statements include the accounts of FCN Holding, Inc. and its wholly-owned subsidiaries, Fox Kids Club, Fox Kids Countdown and Fox Storymakers (collectively "FCN Holding"). All significant intercompany transactions and accounts have been eliminated. FCN Holding is an indirect subsidiary of Fox Broadcasting Company ("Fox Broadcasting"), itself an indirect subsidiary of The News Corporation Limited. FCN Holding's largest operating entity is an indirect wholly-owned subsidiary, Fox Children's Network, Inc. ("FCN"), which began primary operations on September 8, 1990. FCN Holding produces and licenses children's animated and live-action television shows with initial exploitation on the Fox Broadcasting television network followed by distribution in ancillary markets when such rights exist. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR-END FCN Holding's fiscal year ends on the Sunday closest to June 30. REVENUE RECOGNITION Advertising revenue is recognized as earned in the period in which the advertising commercials are telecast and are net of agency commission fees of $21,343,000, $25,490,000 and $7,328,000 for the periods ended July 3, 1994, July 2, 1995 and October 31, 1995, respectively. Revenues from foreign and merchandising license agreements, which provide for the receipt by FCN Holding of nonrefundable guaranteed amounts, are recognized when the license period begins and the product is available pursuant to the terms of the license agreement. Amounts in excess of minimum guarantees under these license agreements are recognized when earned. Amounts received in advance of recognition of revenue are recorded as deferred revenue. FCN Holding generally provides advertisers with guaranteed ratings in connection with its domestic network broadcasts. Revenue is recorded net of estimated shortfalls, which are settled either by additional advertising time ("make goods") or cash refunds to the advertiser. FCN Holding accounts for the full amount of the estimated shortfall. PROGRAMMING COSTS Program licenses and rights include exhibition and exploitation rights acquired under license agreements and costs of developing and producing original programming for use by FCN Holding on its network. The individual film forecast method is used to amortize programming costs in which FCN Holding owns or controls distribution rights. Costs accumulated in the production of a program are amortized in the proportion that gross revenues realized bear to management's estimate of the total gross revenues expected to be received. Estimated liabilities for residuals and participations are accrued and expensed in the same manner as programming cost inventories are amortized. For programs in which the Company acquires only broadcast network rights, the Company amortizes such program costs over the estimated number of telecasts. The Company evaluates its programming rights for possible changes in the estimated number of telecasts or the possibility of impairment. Revenue estimates on a program-by-program basis are reviewed periodically by management and are revised, if warranted, based upon management's appraisal of current market conditions, such as changes in the F-26 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) distribution marketplace or changes in expected usage of a program on the network. Based on this review, if estimated future gross revenues from a program are not sufficient to recover the unamortized costs, the unamortized programming cost will be written down to net realizable value. CONCENTRATION OF CREDIT RISKS Financial instruments which potentially subject FCN Holding to concentration of credit risk consist principally of temporary cash investments and trade receivables. FCN Holding places its temporary cash investments with high credit quality financial institutions and therefore is subject to reduced risk. FCN Holding has not incurred any losses relating to these investments. At October 31, 1995, substantially all of FCN Holding's trade receivables were from advertising agencies. FCN Holding performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables generally are due within 30 days. Credit losses relating to advertising agencies consistently have been within management's expectations. CASH AND CASH EQUIVALENTS For the purposes of balance sheet classification and the statement of cash flows, FCN Holding considers all highly liquid investments that are both readily convertible into cash with original maturities when purchased of three months or less to be cash equivalents. FINANCIAL INSTRUMENTS Financial instruments are carried at historical cost which approximates fair value. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciation is computed using the straight-line method over their estimated useful lives of three to five years. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful lives of the improvements using the straight-line method. INCOME TAXES FCN Holding provides for income taxes based on the liability method under Statement of Financial Accounting Standards No. 109. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes including amortization of programming costs. Actual results could differ from those estimates. Management periodically reviews and revises its estimates of future airings and revenues for program costs, as necessary, which may result in revised amortization of its program costs and may be significantly affected by the periodic adjustments in such amortization. NET INCOME PER COMMON SHARE The per share data is based on the weighted average number of common and common equivalent shares outstanding during the period. F-27 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. PROGRAMMING COSTS Programming costs, net of accumulated amortization, are comprised of the following:
JULY 3, JULY 2, OCTOBER 31, 1994 1995 1995 ------------ ------------ ------------ Programming costs, broadcast....... $159,565,000 $244,599,000 $261,078,000 Programming costs, produced........ 64,654,000 89,493,000 99,730,000 Programming costs in development and production.................... 3,803,000 1,298,000 3,466,000 ------------ ------------ ------------ 228,022,000 335,390,000 364,274,000 ------------ ------------ ------------ Accumulated amortization........... 210,938,000 309,247,000 336,184,000 ------------ ------------ ------------ $ 17,084,000 $ 26,143,000 $ 28,090,000 ============ ============ ============
Based on FCN Holding's estimate of future revenues, substantially all of the unamortized released programming costs at October 31, 1995 will be amortized during the three year period ending October 31, 1998. 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
JULY 3, JULY 2, OCTOBER 31, 1994 1995 1995 ------- ------- ----------- Computer equipment............................. $43,000 $93,000 $100,000 Office furniture and fixtures.................. 4,000 4,000 28,000 Machinery and equipment........................ 31,000 41,000 41,000 Leasehold improvements......................... -- 32,000 32,000 ------- ------- -------- 78,000 170,000 201,000 Less accumulated depreciation.................. 68,000 85,000 98,000 ------- ------- -------- $10,000 $85,000 $103,000 ======= ======= ========
5. RELATED PARTY TRANSACTIONS FCN and Twentieth Century Fox Licensing and Merchandising, a unit of Fox, Inc. ("Twentieth Fox Licensing") are parties to a Merchandising Rights Acquisition Agreement, dated as of July 1, 1990, pursuant to which FCN licenses to Twentieth Fox Licensing the worldwide merchandising and licensing rights, in perpetuity, to programming owned or controlled by FCN. In consideration for the rights granted, Twentieth Fox Licensing agreed to pay to FCN an amount equal to 100% of net profits, which equaled gross receipts less distribution fees and expenses. FCN and Twentieth Century Fox Film Corporation ("Twentieth Century Fox") are parties to a Distribution Rights Acquisition Agreement, dated as of September 1, 1990, pursuant to which FCN licensed to Twentieth Century Fox the worldwide distribution rights, in perpetuity, with respect to programming owned or controlled by FCN. In consideration for the rights granted, Twentieth Century Fox agreed to pay to FCN 100% of net profits as defined in the agreement. FCN and Fox Broadcasting are parties to an Administration Agreement, dated as of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide the following services to FCN: network national advertising sales and the administration thereof, commercial trafficking and broadcast operations (including program delivery to Fox Kids Network Affiliates (see Note 8--"Fox Kids Network Affiliate Participation F-28 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Payable")) and overhead charges related to Fox Broadcasting in-house administrative support in the areas of research, promotion, business affairs, legal affairs and accounting. FCN agreed to pay to Fox Broadcasting a fee equal to 15% of 100% of the net advertising revenue (gross advertising revenue less advertising agency commissions) derived with respect to national commercials, commercial material or other advertising matter included or used in connection with any of the programs exhibited on the Fox Kids Network. FCN Holding leases office space on a month to month basis from a company related to Fox Broadcasting. Rent expense to this related party was $199,000, $231,000 and $88,000 for the periods ended July 3, 1994, July 2, 1995 and October 31, 1995. Related companies of Fox Broadcasting have funded the operation of FCN Holding from its inception through loans to FCN Holding. All amounts derived by the operations of FCN Holding are used to reduce such outstanding borrowings. Amounts outstanding bear interest at the prime rate (8.75% at October 31, 1995). Amounts due to the related companies of Fox Broadcasting including interest totalled $27,163,000, $10,686,000 and $8,727,000 at July 3, 1994, July 2, 1995 and October 31, 1995, respectively. 6. INCOME TAXES FCN Holding, together with other related companies of Fox Broadcasting, files consolidated federal and state income tax returns. No deferred tax assets or liabilities arising from FCN Holding's activities have been allocated. FCN Holding did not incur any current or deferred tax expense due to the utilization of prior year net operating loss carryforwards. The actual tax expense differs from the "expected" federal tax rate of 35% as follows:
PERIOD FROM PERIOD FROM PERIOD FROM JUNE 28, 1993 JULY 4, 1994 JULY 3, 1995 TO TO TO JULY 3, 1994 JULY 2, 1995 OCTOBER 31, 1995 ------------- ------------ ---------------- Computed "expected" tax expense. 35 % 35 % --% Impact of utilized net operating loss carryforward.............. (35)% (35)% --% --- --- --- -- -- -- === === ===
7. COMMITMENTS AND CONTINGENCIES Future estimated program commitments are approximately $58,648,000. FCN Holding is involved in certain legal proceedings arising from the normal course of operations. Management believes that the ultimate resolution of these matters will not have a material effect on its financial position or results of operations. FCN Holding has entered into employment agreements with several key employees extending through fiscal year 1999 requiring future payments of $1,135,000 in the one year period ended October 31, 1996, $788,000 in the one year period ended October 31, 1997 and $257,000 in the one year period ended October 31, 1998. F-29 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. FOX KIDS NETWORK AFFILIATE PARTICIPATION PAYABLE Pursuant to the terms of the affiliation agreements ("Agreement") among Fox Broadcasting and substantially all of its affiliated television stations ("Fox Kids Network Affiliates"), the Fox Kids Network Affiliates in total are entitled to compensation which is equal to 100% of FCN's programming Net Profits (as defined below). Amounts payable under these compensation arrangements are due quarterly in amounts derived pursuant to the provisions in the Agreement. Net profits are defined on a cumulative basis to include amounts actually received by FCN from the exhibition, distribution and other exploitation of FCN Holding's programs and the merchandising and other rights relating thereto, less amounts paid for administrative fees, production/license fees, distribution and merchandising fees (including those payable to FCN Holding), overhead and other expenses and reserves. 9. MAJOR CUSTOMERS AND PROPERTIES For the year ended July 3, 1994, FCN Holding earned net revenues from two significant customers of approximately $25,126,000 (20%). For the period ended July 2, 1995, FCN Holding earned net revenues from two significant customers of approximately $32,723,000 (20%). For the period ended October 31, 1995, FCN Holding earned net revenues from three significant customers of approximately $15,957,000 (34%). For the periods ended July 3, 1994, July 2, 1995 and October 31, 1995, FCN Holding earned net revenues from one significant property (Power Rangers) of $19,240,000 (15%), $55,805,000 (33%) and $10,847,000 (23%), respectively. 10. SUBSEQUENT EVENT On November 1, 1995 (the "Effective Date") FCN Holding and Saban Entertainment, Inc. ("Saban") formed Fox Kids Worldwide, L.L.C. (the "LLC"), a limited liability company, for the purpose of jointly expanding the worldwide childrens' businesses of FCN Holding and Saban. Since the Effective Date, FCN Holding and Saban have been operated by their respective managements subject to the overall supervision of the members committee of the LLC. THE REORGANIZATION Fox Kids Worldwide, Inc. was incorporated in Delaware in August 1996 and currently conducts no business or operations. Immediately prior to the closing of proposed initial public offerings ("Offerings"), (i) Fox Broadcasting Sub, Inc.; a wholly-owned subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"), will exchange its capital stock in FCN Holding, which indirectly owns FCN, for 50% of the number of shares of the Fox Kids Worldwide, Inc.'s class B common stock, par value $0.001 per share ("Class B Common Stock"), which will be outstanding immediately after the Reorganization and prior to the closing of the Offerings (the "Reorganization Closing"), (ii) the other stockholders of FCN Holding will exchange their capital stock in FCN Holding for an aggregate of one percent of the aggregate number of shares of Fox Kids Worldwide, Inc.'s class A common stock, par value $0.001 per share ("Class A Common Stock") and Class B Common Stock (Class A Common Stock and Class B Common Stock are collectively the "Common Stocks") which will be outstanding immediately after the Reorganization Closing, (iii) the Chairman and Chief Executive Officer of Saban ("Haim Saban") and the other stockholders of Saban will exchange their capital stock in Saban for an aggregate of 50% of the number of shares of Class B Common Stock which will be outstanding immediately after the Reorganization Closing and (iv) all outstanding management options to purchase Saban capital stock will become options to purchase an aggregate of approximately four percent of the aggregate number of shares of Common Stock which will be outstanding immediately after the Reorganization Closing. In addition, Fox Broadcasting will exchange its preferred, non-voting interest in the LLC for an aggregate of 1,000,000 shares of Fox Kids Worldwide, Inc.'s series A redeemable preferred stock, $0.001 par value per share (the "Series A Preferred Stock") and will exchange a $50 million contingent note receivable from the LLC for a new preferred, non-voting interest in the LLC. As a result of these transactions, FCN Holding, FCN, Saban and the LLC will become direct or indirect subsidiaries of Fox Kids Worldwide, Inc. F-30 REPORT OF INDEPENDENT AUDITORS Board of Directors Saban Entertainment, Inc. We have audited the accompanying consolidated balance sheets of Saban Entertainment, Inc. as of May 31, 1994 and 1995 and as of October 31, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended May 31, 1994 and 1995 and for the five months ended October 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Saban Entertainment, Inc. at May 31, 1994 and 1995, and at October 31, 1995 and the results of its operations and its cash flows for the years ended May 31, 1994 and 1995 and for the five months ended October 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California September 27, 1996 F-31 SABAN ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS
MAY 31 -------------------------- OCTOBER 31 1994 1995 1995 ------------ ------------ ------------ ASSETS Cash and cash equivalents............. $ 3,849,000 $ 14,584,000 $ 16,207,000 Restricted cash....................... 299,000 5,000,000 5,000,000 Accounts receivable, net of allowance for doubtful accounts of $385,000 at May 31, 1994, $1,385,000 at May 31, 1995 and $1,385,000 at October 31, 1995 38,238,000 37,338,000 30,157,000 Amounts receivable from related par- ties................................. 1,147,000 3,796,000 3,832,000 Programming costs, less accumulated amortization......................... 85,079,000 115,873,000 118,210,000 Property and equipment, at cost, less accumulated depreciation ............ 2,684,000 3,630,000 7,079,000 Deferred income taxes................. 4,920,000 35,473,000 26,186,000 Other assets.......................... 751,000 2,503,000 808,000 ------------ ------------ ------------ Total assets.......................... $136,967,000 $218,197,000 $207,479,000 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable...................... $ 4,208,000 $ 6,818,000 $ 8,817,000 Accrued liabilities................... 3,479,000 29,606,000 23,411,000 Deferred revenue...................... 14,764,000 62,755,000 48,155,000 Accrued residuals and participations.. 12,335,000 9,672,000 10,074,000 Income taxes payable.................. 5,723,000 36,378,000 15,680,000 Deferred income taxes................. 9,182,000 9,233,000 766,000 Debt.................................. 19,891,000 5,623,000 5,605,000 Amounts payable to related parties.... 14,132,000 -- -- ------------ ------------ ------------ 83,714,000 160,085,000 112,508,000 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, 10,000 shares authorized, 1,067 shares issued and outstanding at May 31, 1994 and 800 shares issued and outstanding at May 31, 1995 and October 31, 1995 .................. -- -- -- Contributed capital................. 11,751,000 11,751,000 11,751,000 Cumulative translation adjustment... (255,000) (71,000) 46,000 Retained earnings................... 41,757,000 46,432,000 83,174,000 ------------ ------------ ------------ Total stockholders' equity............ 53,253,000 58,112,000 94,971,000 ------------ ------------ ------------ Total liabilities and stockholders' equity............................... $136,967,000 $218,197,000 $207,479,000 ============ ============ ============
See accompanying notes. F-32 SABAN ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FIVE MONTHS YEAR ENDED MAY 31 ENDED ------------------------ OCTOBER 31 1994 1995 1995 ----------- ------------ ------------ Revenues................................. $84,372,000 $242,468,000 $105,130,000 Costs and expenses: Amortization of programming costs, residuals and participations.......... 48,101,000 117,557,000 42,022,000 Selling, general and administrative.... 8,933,000 51,894,000 11,538,000 ----------- ------------ ------------ Operating income......................... 27,338,000 73,017,000 51,570,000 ----------- ------------ ------------ Interest expense......................... 2,337,000 1,315,000 539,000 ----------- ------------ ------------ Income before provision for income taxes. 25,001,000 71,702,000 51,031,000 Provision for income taxes............... 8,201,000 27,027,000 14,289,000 ----------- ------------ ------------ Net income............................... $16,800,000 $ 44,675,000 $ 36,742,000 =========== ============ ============ Net income per common share.............. $ $ $ =========== ============ ============ Weighted average shares outstanding...... =========== ============ ============
See accompanying notes. F-33 SABAN ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK CUMULATIVE -------------- CONTRIBUTED TRANSLATION RETAINED SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS TOTAL ------ ------ ----------- ----------- ------------ ----------- Balance at May 31, 1993....... 1,067 $-- $11,751,000 $ (60,000) $ 24,957,000 $36,648,000 Exchange loss on translation of foreign subsidiaries' financial statements....... -- -- -- (255,000) -- (255,000) Realized translation loss on sale of equity investment in unconsolidated affiliated company......... -- -- -- 60,000 -- 60,000 Net income.................. -- -- -- -- 16,800,000 16,800,000 ----- ---- ----------- --------- ------------ ----------- Balance at May 31, 1994....... 1,067 -- 11,751,000 (255,000) 41,757,000 53,253,000 Exchange gain on translation of foreign subsidiaries' financial statements....... -- -- -- 184,000 -- 184,000 Purchase of minority stockholder shares......... (267) -- -- -- (40,000,000) (40,000,000) Net income.................. -- -- -- -- 44,675,000 44,675,000 ----- ---- ----------- --------- ------------ ----------- Balance at May 31, 1995....... 800 -- 11,751,000 (71,000) 46,432,000 58,112,000 Exchange gain on translation of foreign subsidiaries' financial statements....... -- -- -- 117,000 -- 117,000 Net income.................. -- -- -- -- 36,742,000 36,742,000 ----- ---- ----------- --------- ------------ ----------- Balance at October 31, 1995... 800 $-- $11,751,000 $ 46,000 $ 83,174,000 $94,971,000 ===== ==== =========== ========= ============ ===========
See accompanying notes. F-34 SABAN ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS OPERATING ACTIVITIES
FIVE MONTHS YEAR ENDED MAY 31 ENDED --------------------------- OCTOBER 31 1994 1995 1995 ------------ ------------- ------------ Net income......................... $ 16,800,000 $ 44,675,000 $ 36,742,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of programming costs........................... 40,292,000 84,109,000 32,651,000 Depreciation..................... 827,000 1,296,000 571,000 Cumulative translation adjust- ment............................ (195,000) 184,000 117,000 Provision for doubtful accounts.. -- 1,000,000 Changes in operating assets and liabilities: Restricted cash................ 51,000 (4,701,000) -- Accounts receivable............ (8,733,000) (100,000) 7,181,000 Amounts receivable from related parties....................... (811,000) (2,649,000) (36,000) Additions to programming costs. (65,092,000) (114,903,000) (34,988,000) Other assets................... 425,000 (1,752,000) 1,695,000 Accounts payable............... 2,173,000 2,610,000 1,999,000 Accrued liabilities............ (4,373,000) 26,127,000 (6,195,000) Accrued residuals and partici- pations....................... 2,740,000 (2,663,000) 402,000 Accrued interest to related parties....................... (488,000) (2,359,000) -- Income taxes payable and de- ferred income taxes........... 7,524,000 153,000 (19,878,000) Deferred revenue............... 7,372,000 47,991,000 (14,600,000) ------------ ------------- ------------ Net cash (used in) provided by op- erating activities................ (1,488,000) 79,018,000 5,661,000 INVESTING ACTIVITIES Purchase of property and equipment. (1,795,000) (2,242,000) (4,020,000) ------------ ------------- ------------ Net cash used in investing activi- ties.............................. (1,795,000) (2,242,000) (4,020,000) FINANCING ACTIVITIES Proceeds from bank borrowings...... 41,891,000 7,395,000 11,000,000 Payments on bank borrowings........ (35,282,000) (21,663,000) (11,018,000) Proceeds from related parties...... 700,000 1,000,000 -- Payments to related parties........ (1,731,000) (12,773,000) -- Purchase of minority stockholder shares............................ -- (40,000,000) -- ------------ ------------- ------------ Net cash provided by (used in) fi- nancing activities................ 5,578,000 (66,041,000) (18,000) ------------ ------------- ------------ Increase in cash and cash equiva- lents............................. 2,295,000 10,735,000 1,623,000 Cash and cash equivalents at begin- ning of year...................... 1,554,000 3,849,000 14,584,000 ------------ ------------- ------------ Cash and cash equivalents at end of year.............................. $ 3,849,000 $ 14,584,000 $ 16,207,000 ============ ============= ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest (net of amounts capital- ized)........................... $ 2,377,000 $ 3,280,000 $ 347,000 ============ ============= ============ Income taxes..................... $ 486,000 $ 26,884,000 $ 34,156,000 ============ ============= ============
See accompanying notes. F-35 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 1. BASIS OF FINANCIAL STATEMENTS PRESENTATION AND ORGANIZATION Saban Entertainment, Inc. and its subsidiaries (collectively "Saban"), is a broad-based entertainment company specializing in the creation, production, acquisition, distribution, merchandising and licensing of animated and live- action children's programming in the worldwide entertainment marketplace. Saban is one of the largest independent suppliers of children's programming in the world and its library of children's television programming is one of the largest children's libraries in the world. Saban provides programming in all dayparts for network, first-run syndication and cable television for both domestic and international television. In the United States, Saban syndicates its programming under the Saban Kids Network name. In addition, Saban is involved in the creation and production of music and the acquisition of international distribution rights to telefilms and mini series. Saban's operations are conducted through offices in the United States, France, Switzerland, Germany, Italy and the United Kingdom. The accompanying consolidated financial statements include the accounts of Saban Entertainment, Inc. and subsidiaries. All significant intercompany transactions and accounts have been eliminated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Revenues from television, music and merchandising lease agreements, which provide for the receipt by the Company of nonrefundable guaranteed amounts, are recognized when the lease period begins, collectibility is reasonably assured and the product is available pursuant to the terms of the lease agreement. Amounts in excess of minimum guarantees under these lease agreements are recognized when earned. Amounts received in advance of recognition of revenue are recorded as deferred revenue. PROGRAMMING COSTS Programming costs, consisting of direct production costs, acquisition of story rights, costs to acquire distribution rights, allocable production overhead, interest and exploitation costs (which benefit future periods) are capitalized as incurred. The individual film forecast method is used to amortize programming costs in which Saban owns or controls distribution rights. Costs accumulated in the production of a program are amortized in the proportion that gross revenues realized bear to management's estimate of the total gross revenues expected to be received. Estimated liabilities for residuals and participations are accrued and expensed in the same manner as programming cost inventories are amortized. Revenue estimates on a program-by-program basis are reviewed periodically by management and are revised, if warranted, based upon management's appraisal of current market conditions. Based on this review, if estimated future gross revenues from a program are not sufficient to recover the unamortized costs, the unamortized programming cost will be written down to net realizable value. CONCENTRATION OF CREDIT RISKS Financial instruments which potentially subject Saban to concentration of credit risk consist principally of temporary cash investments and trade receivables. Saban places its temporary cash investments principally in a mutual fund which invests in government securities and therefore are subject to reduced risk. Saban has not incurred any losses relating to these investments. F-36 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Saban leases its product to distributors and broadcasters throughout the world. Saban performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Generally, payment is received in full or in part prior to Saban's release of product to such distributors and broadcasters. At October 31, 1995, substantially all of Saban's trade receivables were from customers in the entertainment or broadcast industries. Receivables generally are due within 30 days. Credit losses relating to customers in the entertainment and broadcast industries consistently have been within management's expectations. CASH AND CASH EQUIVALENTS For the purposes of balance sheet classification and the statement of cash flows, Saban considers all highly liquid investments that are both readily convertible into cash with original maturities when purchased of three months or less to be cash equivalents. RESTRICTED CASH Restricted cash represents amounts held by financial institutions as collateral on outstanding debt. FINANCIAL INSTRUMENTS Financial instruments are carried at historical cost which approximates fair value. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciation is computed using the straight-line method over their estimated useful lives of five years. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful lives of the improvement using the straight-line method. FOREIGN CURRENCY TRANSLATION AND CUMULATIVE ADJUSTMENT Saban International N.V. ("SINV"), a wholly-owned subsidiary of Saban uses the U.S. dollar as the functional currency. Saban International Paris S.A.R.L. ("SIP"), Saban Entertainment Germany GmbH and Saban Merchandising and Licensing GmbH and Saban Entertainment (UK) Limited, all foreign subsidiaries of Saban, use local currency as the functional currency. Assets and liabilities are translated into U.S. dollars at current exchange rates. Revenue and expenses have been translated into U.S. dollars based generally on the average rates prevailing during the period. Gains and losses arising from foreign currency transactions are included in determining net income for the period. The aggregate transaction (losses) gains for the years ended May 31, 1994 and 1995, and for the five months ended October 31, 1995 were $(523,000), $577,000 and $135,000, respectively. The cumulative translation adjustment in stockholders' equity at May 31, 1993, 1994 and 1995, and at October 31, 1995, represents Saban's net unrealized exchange (losses) gains on the translation of foreign subsidiaries' financial statements. INCOME TAXES In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("FAS") No. 109, "Accounting for Income Taxes." Saban adopted the provisions of the new standard in its financial statements for the year ended May 31, 1994. As permitted by the FAS, prior year financial statements have not been restated to reflect the change in accounting method. The cumulative effect as of June 1, 1993, of adopting FAS 109 was not material to Saban's financial statements. Under FAS 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of FAS 109, income tax expense was determined using the deferred F-37 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and the tax returns and were measured at the tax rate in effect in the year the difference originated. STOCK-BASED COMPENSATION Saban accounts for its stock compensation arrangements under the provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" and intends to continue to do so. NET INCOME PER COMMON SHARE The per share data is based on the weighted average number of common and common equivalent shares outstanding during the period and are calculated in accordance with a Staff Accounting Bulletin of the Securities and Exchange Commission whereby common and common share equivalents issued within a 12- month period prior to an initial public offering are treated as outstanding for all periods presented if the issue price was less than the proposed initial public offering price. In addition, shares issuable upon the exercise of options within the 12-month period are considered to have been outstanding since inception of the Company. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes including amortization of programming costs. Actual results could differ from those estimates. Management periodically reviews and revises its estimates of future airings and revenues for program costs, as necessary, which may result in revised amortization of its program costs and may be significantly affected by the periodic adjustments in such amortization. RECLASSIFICATIONS Certain reclassifications have been made to the 1994 financial statements to conform to the current period presentation. 3. PROGRAMMING COSTS Programming costs, net of accumulated amortization, is comprised of the following:
MAY 31, 1994 MAY 31, 1995 ----------------------------------------- ----------------------------------------- ACCUMULATED NET PROGRAMMING ACCUMULATED NET PROGRAMMING COST AMORTIZATION COSTS COST AMORTIZATION COSTS ------------ ------------ --------------- ------------ ------------ --------------- Children's programming.. $113,730,000 $ 76,502,000 $37,228,000 $203,765,000 $147,813,000 $ 55,952,000 Movies and mini-series.. 85,049,000 63,413,000 21,636,000 101,656,000 76,211,000 25,445,000 Projects in production.. 25,471,000 -- 25,471,000 33,008,000 -- 33,008,000 Development............. 744,000 -- 744,000 1,468,000 -- 1,468,000 ------------ ------------ ----------- ------------ ------------ ------------ $224,994,000 $139,915,000 $85,079,000 $339,897,000 $224,024,000 $115,873,000 ============ ============ =========== ============ ============ ============
OCTOBER 31, 1995 ----------------------------------------- ACCUMULATED NET PROGRAMMING COST AMORTIZATION COSTS ------------ ------------ --------------- Children's programming................ $237,286,000 $177,232,000 $ 60,054,000 Movies and mini-series................ 112,554,000 79,443,000 33,111,000 Projects in production................ 24,177,000 -- 24,177,000 Development........................... 868,000 -- 868,000 ------------ ------------ ------------ $374,885,000 $256,675,000 $118,210,000 ============ ============ ============
F-38 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Based on Saban's estimate of future revenues, approximately 70% of unamortized released programming costs at October 31, 1995 will be amortized during the three years ending October 31, 1998. Interest in the amount of $757,000, $304,000 and $32,000 was capitalized to programming costs during the years ended May 31, 1994 and 1995 and for the five months ended October 31, 1995, respectively. 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
MAY 31 --------------------- OCTOBER 31 1994 1995 1995 ---------- ---------- ----------- Studio equipment ............................ $3,384,000 $5,280,000 $ 5,832,000 Office furniture and fixtures................ 764,000 907,000 1,505,000 Leasehold improvements....................... 924,000 1,095,000 3,965,000 Other........................................ 67,000 64,000 64,000 ---------- ---------- ----------- 5,139,000 7,346,000 11,366,000 Less accumulated depreciation................ 2,455,000 3,716,000 4,287,000 ---------- ---------- ----------- $2,684,000 $3,630,000 $ 7,079,000 ========== ========== ===========
5. DEBT Debt is comprised of the following:
MAY 31 ---------------------- OCTOBER 31 1994 1995 1995 ----------- ---------- ---------- Imperial Bank; secured revolving line of credit; interest at prime rate (8.75% at October 31, 1995) plus .5% due monthly; maximum borrowings of $25,000,000 (terminated on December 4, 1995).......... $19,372,000 $ -- $ -- DeNationale Investeringsbank N.V.; secured line of credit due July 31, 1997; interest at three month or six month LIBOR (5.94% and 5.88%, respectively, at October 31, 1995) plus 0.4% paid quarterly; maximum borrowings of $5,000,000................................ -- 5,000,000 5,000,000 Coficine; secured revolving credit facility due March 28, 1996; interest at the bank's basis rate (8.1% at October 31, 1995) plus 1% paid quarterly; maximum borrowings of FF 7,200,000.............................. 519,000 623,000 605,000 ----------- ---------- ---------- $19,891,000 $5,623,000 $5,605,000 =========== ========== ==========
In July 1995, Saban and SINV separately entered into credit agreements with Imperial Bank ("Imperial"), as agent, and a group of lenders for secured revolving credit facilities ("Credit Facilities") aggregating $50 million maturing on July 31, 1998. Interest on the borrowings is at either the prime rate (8.75% at October 31, 1995) plus .5% or .25% depending on Saban's and SINV's tangible net worth or at three month or six month LIBOR (5.94% and 5.88%, respectively, at October 31, 1995) plus 2.25% or 2% depending on Saban's and SINV's tangible net worth. Interest is payable at the end of the interest period which is either one, three or six months. Saban and SINV are required to pay a quarterly commitment fee of .25% per annum of the average daily unused portion of the commitment. Saban and SINV also paid a loan fee amounting to .75% of the commitment. The combined amount available for borrowing under the Credit Facilities at any time is limited in accordance with a formula based upon the value of collateral in Saban's and SINV's borrowing bases. The borrowing bases include on and off balance sheet receivables and amounts attributable to the value of Saban's F-39 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) and SINV's film library. Saban's credit facility is secured by substantially all of the assets of Saban and its subsidiaries (excluding SINV and other foreign subsidiaries of Saban) and SINV's credit facility is secured by substantially all of the assets of Saban and its subsidiaries. The Credit Facilities restrict the payment of dividends. The Credit Facilities contain restrictive covenants regarding, among other things, additional indebtedness, payments and advances for product, the maintenance of certain financial ratios and restrictions on the disposition of assets. At October 31, 1995 Saban and SINV were in compliance or had obtained waivers for those covenants. At October 31, 1995 no amounts have been borrowed under the Credit Facilities. In June 1993, SINV entered into a credit agreement with Imperial as agent and DeNationale Investeringsbank N.V. (the "Bank Facility"). An additional bank, Banque Nationale de Paris was added to the Bank Facility in March 1994. SINV paid a quarterly commitment fee of .5% per annum of the average daily unused portion of the commitment. Substantially all of SINV's cash collections were paid into accounts controlled by Imperial and applied to repayment of borrowings under the Bank Facility. The restricted cash balance of $299,000 at May 31, 1994, represented cash held by Imperial and not yet transferred to Saban. The amount that SINV borrowed was based upon the value of collateral in the borrowing base which consists principally of accounts receivable. All borrowings were collateralized by substantially all of the assets of Saban. Further, Saban agreed to maintain, on a quarterly average basis, $1,000,000 in compensating balances at Imperial. The Bank Facility contained restrictive covenants regarding, among other things, additional indebtedness, payments and advances for product, the maintenance of certain financial ratios and restrictions on the disposition of assets. On December 4, 1995, the Bank Facility was replaced by the Credit Facilities and any outstanding obligation plus interest was paid. SIP has a revolving credit facility with Coficine bank which provides for borrowings against project receivables up to a maximum of FF 7,200,000 ($1,475,000 at October 31, 1995). In March 1996 the outstanding obligation plus interest was paid in full. In September 1994, SIP entered into a credit agreement with DeNationale Investeringsbank N.V. ("NIB"). The facility provides for maximum borrowings of $5,000,000. The facility is secured by a $5,000,000 deposit at NIB pledged by SINV. Such $5,000,000 deposit is included in restricted cash at October 31, 1995 and at May 31, 1995. In April 1996 the outstanding obligation plus interest was paid in full and SIP and NIB entered into a new agreement for a facility with similar terms, providing maximum borrowings of $8,000,000. The new facility is secured by an $8,000,000 deposit at NIB pledged by SINV. 6. RELATED PARTY TRANSACTIONS In March 1995, Saban purchased all of the outstanding shares of Saban held by a former minority stockholder. Receivables from stockholders and related parties consist of the following:
MAY 31 --------------------- OCTOBER 31 1994 1995 1995 ---------- ---------- ---------- Advances due from the Chairman and Chief Executive Officer of Saban ("Haim Saban"), or entities controlled by Haim Saban, interest at prime rate (8.75% at October 31, 1995) plus 1% and due on demand.................... $ -- $2,649,000 $2,610,000 Advances to certain non-stockholder officers and directors of Saban ($885,000 at 5% and $337,000 noninterest bearing with varying due dates)....................................... 1,147,000 1,147,000 1,222,000 ---------- ---------- ---------- $1,147,000 $3,796,000 $3,832,000 ========== ========== ==========
F-40 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Notes and accrued interest payable to stockholders is comprised of the following:
MAY 31 ---------------- OCTOBER 31 1994 1995 1995 ----------- ---- ---------- Notes and advances payable to Haim Saban or enti- ties controlled by Haim Saban, interest at prime rate (8.75% at October 31, 1995) plus 1%. Paid in full October 1994................................. $10,773,000 $-- $-- Note payable to Visionlights, S.A., a controlled subsidiary of a former minority stockholder, interest at prime rate (8.75% at October 31, 1995) plus 1%. Paid in full November 1994............... 1,000,000 -- -- Accrued interest to stockholders................... 2,359,000 -- ----------- ---- ---- $14,132,000 $-- $-- =========== ==== ====
During the year ended May 31, 1994, Saban paid approximately $880,000 to a former outside director of Saban for selling, writing and production services rendered in connection with various entertainment properties produced by Saban. An outside director of Saban acts as a legal consultant to Saban. Fees paid to this director were approximately $315,000, $153,000 and $62,000 for the years ended May 31, 1994 and 1995 and for the five months ended October 31, 1995, respectively. In September 1994, Saban entered into a music services agreement (the "Music Agreement") with Haim Saban. The Music Agreement remains in effect until August 31, 2001. Under the terms of the Music Agreement, all original theme music, underscore, cues and songs for use in all programming produced by Saban will be supplied through Haim Saban. Saban has been granted the non-exclusive, worldwide, perpetual license to (i) synchronize and perform compositions in theatrical motion pictures and (ii) synchronize composition in all other forms of programming and has the royalty-free right to use the compositions in articles of merchandise such as home video units, video games and interactive toys. All music publishing income earned in connection with such musical compositions is retained by Haim Saban. As of October 31, 1995, no amounts were owed to Haim Saban pursuant to the terms of the Music Agreement. Saban currently licenses and distributes its entertainment properties (e.g., motion pictures, television programs, merchandising and licensing rights) in Israel through Duveen Trading Ltd. ("Distributor"), a corporation owned wholly by Haim Saban's brother. The term of the agreement extends through December 31, 1997, subject to extension by Saban for an additional three years. Duveen Trading Ltd. is not obligated to make any payments to Saban under this agreement. 7. COMMITMENTS AND CONTINGENCIES Saban leased office space in Burbank, California, under a ten year lease which was terminated in December 1995, and a lease termination fee of $305,000 was paid. Saban also leases office space in New York City under a three year lease which is cancelable after the end of each year by payment of a termination fee. In addition, Saban leases office space in Paris, France, Cologne, Germany and London, England under nine year, five year and three year operating leases, respectively. The Paris, France lease provides for termination on February 28, 1999 and February 28, 2002, both upon six months advance written notice. The London, England lease provides for early termination upon six months advance written notice. In July 1995, Saban entered into a 10 year lease which commenced on April 1, 1996 for office space in Los Angeles, California. The lease contains two separate five-year extension options and provides for early termination at the end of the sixth and eighth years upon payment of a termination fee. The lease calls for F-41 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) monthly payments plus maintenance and property tax payments. Saban also has two leases for production facilities, one is a short-term lease in Los Angeles, California originally expiring in November 1995 and subsequently extended to March 1997, and the other is a two year lease in Valencia, California expiring in January 1997 and subject to two separate one-year extension options. Noncancelable future minimum payments for the remainder of the initial, noncancelable lease periods are as follows:
TWELVE MONTHS ENDED OCTOBER 31 ------------------------------ 1996............................................................ $ 2,449,000 1997............................................................ 2,921,000 1998............................................................ 1,838,000 1999............................................................ 2,589,000 2000............................................................ 3,157,000 Thereafter...................................................... 20,105,000 ----------- $33,059,000 ===========
Rent expense for the years ended May 31, 1994 and 1995 and for the five months ended October 31, 1995, net of amounts capitalized, was approximately $275,000, $797,000 and $365,000, respectively. Saban is involved in various lawsuits, both as a plaintiff and defendant, in the ordinary course of its business. Based on an evaluation which included consultation with counsel concerning legal and factual issues involved, management is of the opinion that the foregoing claims and lawsuits will not have a material adverse effect on Saban's consolidated financial position. Saban has entered into employment agreements with certain key members of management including Haim Saban. Such agreements are for terms ranging from one to seven years and generally include bonus provisions. Future minimum payments under these agreements approximate $20,939,000 of which $5,184,000 is due for the twelve months ended October 31, 1996, $5,104,000 is due in the twelve months ended October 31, 1997, $4,434,000 is due in the twelve months ended October 31, 1998 and $6,216,000 is due thereafter. Effective June 1994, Saban issued to two employees and a consultant options to purchase an aggregate of 48.981 shares of common stock, 9.796 of which were exercisable at October 31, 1995. These options vest ratably over five years and are exercisable at $122,496 per share, which approximates the fair market value at the time of grant. No options have been exercised at October 31, 1995. With respect to termination for any reason, so long as the Company is not public, the Company will purchase from the employee and the employee will sell to the Company any and all option shares owned by the employee and the option granted to the employee for an amount equal to the fair market value of the option shares owned by the employee plus the fair market value of the option shares with respect to which the employee's option has vested but not exercised less the exercise price. Included in selling, general and administrative expenses is $11,000,000 and $2,400,000 for the year ended May 31, 1995 and the five months ended October 31, 1995, respectively, and in accrued liabilities is $11,000,000 and $13,400,000 at May 31, 1995 and October 31, 1995, respectively, related to compensation recorded in connection with these options. As of October 31, 1995, 48.981 shares of common stock are reserved for future issuance related to options. F-42 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. PROFIT SHARING PLAN Saban has a qualified tax deferred profit sharing plan (the "Plan") for all of its eligible employees. Under the Plan, employees become eligible on the first January 1 following such employees' completion of six months of service with Saban. Each participant is permitted to make voluntary contributions, not to exceed 15% of his or her respective compensation and the applicable statutory limitation, which are immediately 100% vested. Saban, at the discretion of the Board of Directors, may make matching contributions to the Plan. Related expense for the years ended May 31, 1994 and 1995, and for the five months ended October 31, 1995 was approximately $45,000, $40,000 and $10,000, respectively. 9. INCOME TAXES Effective June 1, 1993, Saban changed its method of accounting for income taxes from the deferred method to the liability method required by FAS 109, "Accounting for Income Taxes" (see Note 2 "Income Taxes"). As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of adopting FAS 109 as of June 1, 1993, was not material to Saban's financial statements. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Saban's deferred tax liabilities and assets are as follows:
MAY 31 ------------------------ OCTOBER 31 1994 1995 1995 ----------- ------------ ------------ Deferred tax liabilities: Accounts receivable.................... $ 7,068,000 $ 3,181,000 $ 563,000 Tax over book amortization............. 2,114,000 6,052,000 -- State taxes............................ -- -- 203,000 ----------- ------------ ------------ Total deferred tax liabilities......... $ 9,182,000 $ 9,233,000 $ 766,000 Deferred tax assets: State taxes............................ $ 101,000 $ 1,511,000 $ -- Deferred revenue....................... 3,582,000 20,268,000 18,244,000 Accrued expenses and reserves.......... 939,000 12,015,000 4,590,000 Tax over book amortization............. -- -- 2,299,000 Other.................................. 298,000 1,679,000 1,053,000 ----------- ------------ ------------ Total deferred tax assets.............. 4,920,000 35,473,000 26,186,000 Valuation allowance for deferred tax assets................................ -- -- -- ----------- ------------ ------------ Net deferred tax assets................ 4,920,000 35,473,000 26,186,000 ----------- ------------ ------------ Net deferred tax liabilities (assets).. $ 4,262,000 $(26,240,000) $(25,420,000) =========== ============ ============
For financial reporting purposes, income before income taxes includes the following components:
FIVE MONTHS YEAR ENDED MAY 31 ENDED ------------------------ OCTOBER 31 1994 1995 1995 ----------- ------------ ------------ Pretax income: United States........................ $19,846,000 $ 56,193,000 $ 33,872,000 Foreign.............................. 5,155,000 15,509,000 17,159,000 ----------- ------------ ------------ $25,001,000 $ 71,702,000 $ 51,031,000 =========== ============ ============
F-43 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Significant components of the provision for income taxes are as follows:
YEAR ENDED MAY 31 FIVE MONTHS ENDED ----------------------- OCTOBER 31 1994 1995 1995 ---------- ------------ ----------------- Current: Federal............................ $4,421,000 $ 47,213,000 $11,514,000 State.............................. 751,000 8,777,000 2,802,000 Foreign............................ 180,000 1,539,000 489,000 ---------- ------------ ----------- 5,352,000 57,529,000 14,805,000 Deferred: Federal............................ $2,344,000 $(25,776,000) $ (301,000) State.............................. 392,000 (4,726,000) (215,000) Foreign............................ 113,000 -- -- ---------- ------------ ----------- 2,849,000 (30,502,000) (516,000) ---------- ------------ ----------- $8,201,000 $ 27,027,000 $14,289,000 ========== ============ ===========
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is:
YEAR ENDED MAY 31 FIVE MONTHS ENDED ---------- OCTOBER 31 1994 1995 1995 ---- ---- ----------------- Tax at U.S. statutory rates........................ 35% 35% 35% State taxes, net of federal benefit................ -- 6 5 Foreign subsidiary's income not subject to state or federal tax....................................... (7) (7) (13) Foreign taxes...................................... 1 2 1 Other.............................................. 4 2 0 --- --- --- 33% 38% 28% === === ===
Undistributed earnings of Saban's foreign subsidiaries amounted to approximately $61,000,000 at October 31, 1995. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, Saban would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability. During the year ended May 31, 1994, the Internal Revenue Service completed an examination of the Saban's May 31, 1990 tax returns and concluded that no changes were necessary to the income tax reported by the Company. 10. SIGNIFICANT CUSTOMERS AND PROPERTIES AND GEOGRAPHICAL INFORMATION Saban operates in one business segment which is the acquisition, production and worldwide distribution and leasing of entertainment properties. Saban did not have any significant customers for the years ended May 31, 1994 and 1995. For the five months ended October 31, 1995, Saban earned revenues from one significant F-44 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) customer of approximately $33,332,000 (32%). For the year ended May 31, 1995, Saban earned revenues from one significant customer of $26,308,000 (11%). For the year ended May 31, 1994, Saban earned revenues from one significant customer of $10,483,000 (12%). For the years ended May 31, 1994 and 1995, and for the five months ended October 31, 1995, Saban earned revenues from one significant property (Power Rangers) of $46,444,000 (55%), $174,389,000 (72%) and $68,975,000 (66%), respectively. Geographic information concerning Saban's operations is as follows:
FIVE MONTHS YEAR ENDED MAY 31 ENDED ------------------------- OCTOBER 31 1994 1995 1995 ------------ ------------ ------------ Revenues: Domestic.............................. $ 56,455,000 $172,239,000 $ 61,671,000 International, principally Eu- rope(/2/)............................ 27,917,000 70,229,000 43,459,000 ------------ ------------ ------------ Total................................... 84,372,000 242,468,000 105,130,000 Operating profit:(/1/) Domestic.............................. 24,366,000 97,433,000 42,128,000 International, principally Eu- rope(/2/)............................ 11,905,000 27,478,000 20,980,000 ------------ ------------ ------------ Total................................... 36,271,000 124,911,000 63,108,000 Selling, general and administrative ex- penses................................. 8,933,000 51,894,000 11,538,000 Interest expense........................ 2,337,000 1,315,000 539,000 ------------ ------------ ------------ Income before provision for income tax- es..................................... $ 25,001,000 $ 71,702,000 $ 51,031,000 ============ ============ ============ Identifiable assets: Domestic.............................. $ 47,089,000 $ 89,772,000 $ 82,145,000 International, principally Eu- rope(/2/)............................ 89,878,000 128,425,000 125,334,000 ------------ ------------ ------------ Total................................... $136,967,000 $218,197,000 $207,479,000 ============ ============ ============
- -------- (1) For purposes of this presentation, operating profit is total revenues less amortization of programming costs, residuals and profit participations. (2) International amounts relate principally to Western Europe in connection with the Company's subsidiary, SINV, a Netherlands Antilles company with offices in Switzerland. 11. SUBSEQUENT EVENTS On April 16, 1996, Saban acquired the stock of Creativite & Developpement SA ("C&D"), a leading Paris-based producer of family entertainment for $2,869,000, payable $1,721,000 upon closing (April 16, 1996) and $1,148,000 payable on April 16, 1997 and is secured by a letter of credit. Saban accounted for the acquisition as a purchase. No goodwill was recorded as the purchase price was allocated to the respective assets and liabilities. The acquisition included the international distribution rights to over 400 half- hour episodes of children's programming. In December 1995, Saban purchased from Vesical Limited ("Vesical") its interest and rights to certain television programming and certain account receivable balances for $12,000,000, payable $7,200,000 upon closing (April 18, 1996) and $4,800,000 payable on April 18, 1997 and is secured by a letter of credit. Saban allocated the purchase price between the account receivable balances and the television programming rights based upon the respective assets fair market values using a discounted cash flow analysis. F-45 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Effective June 1, 1995, FCN Holding, Inc. ("FCN Holding") and Saban formed a strategic alliance limited liability company ("LLC"), and since November 1, 1995, Saban and FCN Holding have been operating under the management of the LLC. THE REORGANIZATION Fox Kids Worldwide, Inc. was incorporated in Delaware in August 1996 and currently conducts no business or operations. Immediately prior to the closing of proposed initial public offerings ("Offerings"), (i) Fox Broadcasting Sub, Inc.; a wholly-owned subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"), will exchange its capital stock in FCN Holding, which indirectly owns FCN, for 50% of the number of shares of the Fox Kids Worldwide, Inc.'s class B common stock, par value $0.001 per share ("Class B Common Stock"), which will be outstanding immediately after the Reorganization and prior to the closing of the Offerings (the "Reorganization Closing"), (ii) the other stockholders of FCN Holding will exchange their capital stock in FCN Holding for an aggregate of one percent of the aggregate number of shares of Fox Kids Worldwide, Inc.'s class A common stock, par value $0.001 per share ("Class A Common Stock") and Class B Common Stock (Class A Common Stock and Class B Common Stock are collectively the "Common Stock") which will be outstanding immediately after the Reorganization Closing, (iii) the Chairman and Chief Executive Officer of Saban ("Haim Saban") and the other stockholders of Saban will exchange their capital stock in Saban for an aggregate of 50% of the number of shares of Class B Common Stock which will be outstanding immediately after the Reorganization Closing and (iv) all outstanding management options to purchase Saban capital stock will become options to purchase an aggregate of approximately four percent of the aggregate number of shares of Common Stock which will be outstanding immediately after the Reorganization Closing. In addition, Fox Broadcasting will exchange its preferred, non-voting interest in the LLC for an aggregate of 1,000,000 shares of Fox Kids Worldwide, Inc.'s series A redeemable preferred stock, $0.001 par value per share (the "Series A Preferred Stock") and will exchange a $50 million contingent note receivable from the LLC for a new preferred, non-voting interest in the LLC. As a result of these transaction, FCN Holding, FCN, Saban and the LLC will become direct or indirect subsidiaries of Fox Kids Worldwide, Inc. OTHER RELATED PARTY TRANSACTIONS From time to time, Saban has loaned and advanced funds to Haim Saban. In connection with the formation of the LLC and as inducement to Haim Saban to enter into certain documentation in connection with the formation of the LLC, on December 22, 1995, Saban forgave in full the loan plus accrued interest owing from Haim Saban in the amount of approximately $2,700,000. In connection with Haim Saban's employment agreement, dated December 22, 1995, with the LLC , the LLC agreed to reimburse Haim Saban for all out-of-pocket costs and expenses for domestic and international travel, including private air charter which may include aircraft owned directly or indirectly by Haim Saban. F-46 REPORT OF INDEPENDENT AUDITORS The Board of Directors Fox Kids Worldwide, Inc. (a Delaware corporation) We have audited the accompanying balance sheet of Fox Kids Worldwide, Inc. (a Delaware corporation) as of September 27, 1996. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Fox Kids Worldwide, Inc. (a Delaware corporation) as of September 27, 1996, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California September 27, 1996 F-47 FOX KIDS WORLDWIDE, INC. (A DELAWARE CORPORATION) BALANCE SHEET SEPTEMBER 27, 1996 STOCKHOLDERS' EQUITY Common Stock, $0.001 par value: 1,000 shares authorized; none issued... $ -- Additional paid-in capital............................................. 300 Receivable from FCN Holding, Inc....................................... (300) ----- $ -- =====
See notes to balance sheet. F-48 FOX KIDS WORLDWIDE INC. (A DELAWARE CORPORATION) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 27, 1996 1. DESCRIPTION OF BUSINESS Fox Kids Worldwide, Inc. (the "Company") was incorporated in Delaware in August 1996 in connection with proposed initial public offerings ("Offerings") of certain shares of class A common stock, par value $0.001 per share ("Class A Common Stock") of the Company and to hold the shares and interests of FCN Holding, Inc. ("FCN Holding"), Saban Entertainment, Inc. and its subsidiaries ("Saban") and a strategic alliance limited liability company ("LLC") formed between Fox Broadcasting Company ("Fox Broadcasting"), FCN Holding and Saban. The Company currently conducts no business or operations. Immediately prior to the closing of the Offerings, (i) Fox Broadcasting Sub, Inc., a wholly-owned subsidiary of Fox Broadcasting, will exchange its capital stock in FCN Holding, which indirectly owns Fox Children's Network, Inc. ("FCN"), for 50% of the number of shares of the class B common stock, par value $0.001 per share ("Class B Common Stock"), which will be outstanding immediately after the Reorganization and prior to the closing of the Offerings (the "Reorganization Closing"), (ii) the other stockholders of FCN Holding will exchange their capital stock in FCN Holding for an aggregate of one percent of the aggregate number of shares of Class A Common Stock and Class B Common Stock (the "Common Stock") which will be outstanding immediately after the Reorganization Closing, (iii) Haim Saban, the Chief Executive Officer and Chairman of Saban ("Haim Saban"), and the other stockholders of Saban will exchange their capital stock in Saban for an aggregate of 50% of the number of shares of the Class B Common Stock which will be outstanding immediately after the Reorganization Closing and (iv) all outstanding management options to purchase Saban capital stock will become options to purchase an aggregate of approximately four percent of the aggregate number of shares of Common Stock which will be outstanding immediately after the Reorganization Closing. In addition, Fox Broadcasting will exchange its preferred, non-voting interest in the LLC for an aggregate of 1,000,000 shares of the Company's series A redeemable preferred stock, $0.001 par value per share (the "Series A Preferred Stock") and will exchange a $50 million contingent note receivable from the LLC for a new preferred, non-voting interest in the LLC. As a result of these transactions, FCN Holding, FCN, Saban and the LLC will become direct or indirect subsidiaries of the Company. DESCRIPTION OF SECURITIES Simultaneously with the Reorganization, the capital stock of the Company will be changed as follows: The authorized capital stock of the Company consists of shares of Class A Common Stock, shares of Class B Common Stock, 15,000,000 shares of preferred stock ("Preferred Stock"), and 1,000,000 shares of Series A Preferred Stock. As of the Closing Date, including the shares being offered hereunder, shares of Class A Common Stock, shares of Class B Common Stock and 1,000,000 shares of Series A Preferred Stock will be issued and outstanding and no shares of Preferred Stock will be issued or outstanding. CLASS A COMMON STOCK AND CLASS B COMMON STOCK The Certificate of Incorporation provides for two classes of common stock, Class A Common Stock and Class B Common Stock, the two classes of which are substantially identical, except for disparity in voting power. Voting. Each share of Class B Common Stock entitles the holder of record to ten votes and each share of Class A Common Stock entitles the holder to one vote at each annual or special meeting of stockholders, in the case of any written consent of stockholders, and for all other purposes. The holders of Class A Common Stock and Class B Common Stock will vote as a single class on all matters submitted to a vote of the stockholders, except as otherwise provided by law. Neither the holders of Class A Common Stock nor the holders of Class B F-49 FOX KIDS WORLDWIDE INC. (A DELAWARE CORPORATION) NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Common Stock have cumulative voting rights. The Company may, as a condition to counting the votes cast by any holder of Class B Common Stock at any annual or special meeting of stockholders, in the case of any written consent of stockholders, or for any other purpose, require the furnishing of such affidavits or other proof as it may reasonably request to establish that the Class B Common Stock held by such holder has not, by virtue of the provisions of the Certificate of Incorporation, been converted into Class A Common Stock. Conversion Rights. Each share of Class B Common Stock is convertible at the holder's option at all times, without cost to the stockholder, into one share of Class A Common Stock. In addition, Class B Common Stock is subject to automatic conversion in the event of a transfer in violation of the transfer restrictions described below. Dividends and Other Distributions. The holders of Class A Common Stock and Class B Common Stock will be entitled to receive dividends and other distributions as may be declared thereon by the board of directors of the Company out of assets or funds of the Company legally available therefor, subject to the rights of the holders of the Series A Preferred Stock or any other series of Preferred Stock and any other provision of the Certificate of Incorporation. The Certificate of Incorporation provides that if at any time a dividend or other distribution in cash or other property is paid on Class A Common Stock or Class B Common Stock, a like dividend or other distribution in cash or other property will also be paid on Class B Common Stock or Class A Common Stock, as the case may be, in an equal amount per share. In this connection, the Certificate of Incorporation specifically provides that if shares of Class B Common Stock are paid on Class B Common Stock and shares of Class A Common Stock are paid on Class A Common Stock, in an equal amount per share of Class B Common Stock and Class A Common Stock, such payment will be deemed to be a like dividend or other distribution. In the case of any split, subdivision, combination or reclassification of Class B Common Stock or Class A Common Stock, the shares of Class A Common Stock or Class B Common Stock, as the case may be, will also be split, subdivided, combined or reclassified so that the number of shares of Class B Common Stock and Class A Common Stock outstanding immediately following such split, subdivision, combination or reclassification will bear the same relationship to each other as that which existed immediately prior thereto. Distributions Upon Liquidation. In the event of any liquidation, dissolution or winding up of the Company, the holders of Class B Common Stock and the holders of Class A Common Stock will be entitled to receive the assets and funds of the Company available for distribution after payments to creditors and to the holders of the Series A Preferred Stock or any Preferred Stock of the Company that may at the time be outstanding, in proportion to the number of shares held by them, respectively, without regard to class. Transferability of Shares. The shares of Class A Common Stock offered hereby are freely transferable, subject to certain restrictions on resale imposed on affiliates of the Company. Class B Common Stock is not transferable by a stockholder except to the following transferees (each a "Permitted Transferee"): (i) to any other Class B Stockholder, any of Haim Saban's family members, any trust established solely for the benefit of one or more of Haim Saban's family members or any legal entity in which Haim Saban or such persons are the sole beneficial owners; (ii) to a direct or indirect wholly-owned subsidiary of such Class B Stockholder (or with respect to a Class B Stockholder which is a natural person, a corporation or other person wholly- owned by the Class B Stockholder); or (iii) to a Fox Subsidiary. A "Fox Inc. Subsidiary" is Twentieth Holdings Corp. and any corporation or other person in which Fox Inc., or Twentieth Holdings Corp. is the sole beneficial owner (either directly or indirectly through one or more wholly-owned subsidiaries) of all the outstanding voting securities of that corporation or other person. Any purported transfer of Class B Common Stock other than to a Permitted Transferee shall be null and void and of no effect and the purported transfer by a holder of Class B Common Stock, other than to a Permitted Transferee, will result in the immediate and automatic conversion of such holder's shares of Class B Common Stock into shares of Class A Common Stock. F-50 FOX KIDS WORLDWIDE INC. (A DELAWARE CORPORATION) NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Reorganization. In the event of any corporate merger, consolidation, purchase or acquisition of property or stock, or other reorganization in which any consideration is to be received by the holders of Class B Common Stock or the holders of Class A Common Stock, the holders of Class B Common Stock and the holders of Class A Common Stock will receive the same consideration on a per share basis; except that, if such consideration shall consist in any part of voting securities) (or of options or warrants to purchase voting securities, or of securities convertible into or exchangeable for voting securities), the holders of Class B Common Stock may receive, on a per share basis, voting securities with ten times the number of votes per share as those voting securities to be received by the holders of Class A Common Stock (or options or warrants to purchase, or securities convertible into or exchangeable for, voting securities with ten times the number of votes per share as those voting securities issuable upon the exercise of the options or warrants, or into which the convertible or exchangeable securities may be converted or exchange, received by the holders of Class A Common Stock). Except as expressly set forth in the Certificate of Incorporation, the rights of the holders of Class B Common Stock and the rights of the holders of Class A Common Stock are in all respects identical. SERIES A PREFERRED STOCK The holders of Series A Preferred Stock have no preemptive rights and are not subject to future assessments by the Company. All outstanding shares of Series A Preferred Stock are fully paid and nonassessable. The Series A Preferred Stock has aggregate dividend and/or redemption obligations of $50 million. Once an aggregate of $50 million has been paid, the Series A Preferred Stock will cease to be outstanding. The Series A Preferred Stock, with respect to dividend rights and rights on liquidation, winding up and dissolution, ranks senior to the Preferred Stock and to the Common Stock. The holders of the shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the board of directors, out of funds legally available therefor, cash dividends in an amount equal to the Distributable Cash of the Company. No more than $49 in dividends may be paid with respect to any share of Series A Preferred Stock. "Distributable Cash" means, at the time a determination of Distributable Cash is made, the net cash provided by operating activities of the Company (on a consolidated basis) from the date of issuance of the Series A Preferred Stock through the end of the last fiscal quarter ending not less than 90 days prior to the time of determination, less the sum of (i) all restricted cash, (ii) all Reserves, and (iii) all amounts previously paid as dividends on the Series A Preferred Stock. "Reserves" are those amounts determined from time to time by the board of directors as necessary to provide, over such period as the board of directors considers appropriate, for current and planned capital expenditures, debt service, working capital requirements and expansion plans; and if the board of directors is unable to reach agreement thereon, the Reserves shall be maintained at a level equal to the sum of (i) $30 million, plus (ii) the net proceeds realized by the Company from the Offerings. The Company shall have the right from time to time to redeem the Series A Preferred Stock, in whole or in part, with the consent of the holders of the Series A Preferred Stock, at a redemption price equal to the then-current liquidation value of the Series A Preferred Stock. If the liquidation value of the Series A Preferred Stock is $1.00 per share, the Company shall have the right and power at any time thereafter to redeem all, and not less than all, of the Series A Preferred Stock at a redemption price of $1.00 per share. The holders of Series A Preferred Stock shall have no voting rights with respect to corporate matters except as provided by law. PREFERRED STOCK The Certificate of Incorporation provides that shares of Preferred Stock may be issued from time to time in one or more series. The board of directors is authorized to fix the voting rights, if any, designations, powers, preferences and the relative participation, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, of any unissued series of Preferred Stock, to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares of such F-51 FOX KIDS WORLDWIDE INC. (A DELAWARE CORPORATION) NOTES TO FINANCIAL STATEMENTS--(CONTINUED) series then outstanding). Accordingly, the Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company's Class B Common Stock and Class A Common Stock. In the event of issuance, these shares of Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing an acquisition or a change in control of the Company. The Company currently does not intend to issue any of the authorized but unissued shares of its Preferred Stock. STOCK OPTIONS AND STOCK INCENTIVE PLAN In 1996, the Board of Directors and stockholders of the Company approved the Company's 1996 Stock Incentive Plan (the "1996 Plan"). The 1996 Plan was adopted in order to enable the Company and its subsidiaries to attract, retain and motivate selected eligible directors, officers, employees and consultants of the Company by providing for or increasing the proprietary interests of those persons in the Company, and by associating their interests in the Company with those of the Company's stockholders. Any person who is a director, officer, employee or consultant of the Company, or any of its current or future subsidiaries, shall be eligible to be considered for the grant of Awards under the Plan. The Plan shall be administered by a committee of the Board of Directors of the Company (the "Committee"). Pursuant to the 1996 Plan, the Committee may grant, without limitation, any of the following awards: shares of Class A Common Stock or any option, warrant, convertible security, stock appreciation right or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the value of an equity security (an "Award"). Awards are not restricted to any specified form or structure and may include, but need not be limited to, sales, bonuses and other transfers of stock, restricted stock, stock options, reload stock options, stock purchase warrants, other rights to acquire stock or securities convertible into or redeemable for stock, stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares, and an Award may consist of one such security or benefit, or two or more of them in tandem or in the alternative. The Committee, in its sole discretion, determines all of the terms and conditions of each Award granted under the 1996 Plan. An aggregate of shares of Class A Common Stock have been reserved for issuance in connection with the Awards made under the 1996 Plan. The 1996 Plan is effective for a period of ten years, through 2006. The Committee may amend or terminate the 1996 Plan at any time and in any manner but no such amendment or termination may terminate or modify any Award previously granted under the 1996 Plan without the consent of the recipient of the Award. The Company has granted to independent directors and certain members of management options to purchase an aggregate of shares of the Class A Common Stock. In addition, the Company intends to grant prior to the closing of the Offerings to certain officers and employees under its stock incentive plan options to purchase shares of Class A Common Stock, exercisable at the initial offering price. F-52 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO- RIZED BY THE COMPANY OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors ............................................................. 11 Use of Proceeds........................................................... 18 Dividend Policy........................................................... 18 Dilution ................................................................. 19 Capitalization............................................................ 20 Unaudited Pro Forma Financial Information................................. 21 Selected Historical and Pro Forma Financial Data.......................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 27 Business.................................................................. 38 Management................................................................ 62 Principal Stockholders.................................................... 68 Certain Transactions...................................................... 70 Description of Securities................................................. 75 Shares Eligible for Future Sale........................................... 79 Certain United States Federal Tax Consequences to Non-United States Holders.................................................................. 80 Underwriting.............................................................. 83 Legal Matters............................................................. 85 Experts................................................................... 85 Available information..................................................... 85 Index to Financial Statements............................................. F-1
--------------- UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES [LOGO OF FOX KIDS] FOX KIDS WORLDWIDE, INC. CLASS A COMMON STOCK --------------- PROSPECTUS --------------- MERRILL LYNCH & CO. ALLEN & COMPANY INCORPORATED BEAR, STEARNS & CO. INC. , 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 27, 1996 PROSPECTUS SHARES FOX KIDS WORLDWIDE, INC. [LOGO OF FOX KIDS] CLASS A COMMON STOCK ----------- Of the shares of Class A Common Stock, par value $0.001 per share (the "Class A Common Stock"), of Fox Kids Worldwide, Inc. (the "Company") offered hereby, shares are being offered initially in the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and shares are being offered in a concurrent offering outside the United States and Canada by the International Underwriters (the "International Offering," and together with the U.S. Offering, the "Offerings"). The initial public offering price and the underwriting discount per share will be identical for both Offerings. See "Underwriting." Immediately following the Offerings, the Company's outstanding common stock will be comprised of Class A Common Stock and Class B Common Stock, par value $0.001 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"). The rights of holders of each class of Common Stock are identical, except that each share of Class B Common Stock entitles its holder to ten votes and each share of Class A Common Stock entitles its holder to one vote. Immediately following the Offerings, the holders of the Company's Class B Common Stock will have approximately %, in aggregate, of the combined voting power with respect to all matters submitted for the vote of all stockholders, except as required by law. Immediately following the Offerings, 50% of the shares of Class B Common Stock will be beneficially owned by Fox Broadcasting Company, an indirect wholly owned subsidiary of The News Corporation Limited and 50% of the shares of Class B Common Stock will be beneficially owned by the former stockholders of Saban Entertainment, Inc. See "Principal Stockholders" and "Description of Securities." All of the shares of Class A Common Stock offered hereby are being offered by the Company. Prior to the Offerings, there has been no public market for the Class A Common Stock. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company intends to apply for listing of the Class A Common Stock on the New York Stock Exchange. SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- PROCEEDS TO THE PRICE TO PUBLIC UNDERWRITING DISCOUNT(1) COMPANY(2) - ----------------------------------------------------------------------------------------------------- Per Share............................ $ $ $ - ----------------------------------------------------------------------------------------------------- Total(3)............................. $ $ $ - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses, estimated at $ , payable by the Company. (3) The Company has granted the U.S. Underwriters and the International Underwriters options, exercisable within 30 days after the date hereof, to purchase up to an aggregate of and shares of Class A Common Stock, respectively, at the initial price to public per share, less the underwriting discount, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." ----------- The Class A Common Stock is being offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of certificates for the shares of Class A Common Stock will be made in New York, New York on or about , 1996. ----------- MERRILL LYNCH INTERNATIONAL ALLEN & COMPANY INCORPORATED BEAR, STEARNS INTERNATIONAL LIMITED ----------- The date of this Prospectus is , 1996. [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] UNDERWRITING Subject to the terms and conditions set forth in the international purchase agreement (the "International Purchase Agreement"), the Company and the Selling Stockholders have agreed to sell to each of the underwriters named below (the "International Underwriters"), and each of the International Underwriters, for whom Merrill Lynch International, Allen & Company Incorporated and Bear, Stearns International Limited are acting as representatives (the "International Representatives"), severally has agreed to purchase the aggregate number of shares of Class A Common Stock set forth opposite its name below.
NUMBER OF INTERNATIONAL UNDERWRITERS SHARES -------------------------- --------- Merrill Lynch International......................................... Allen & Company Incorporated........................................ Bear, Stearns International Limited................................. ------- Total........................................................... =======
The Company has also entered into the U.S. purchase agreement (the "U.S. Purchase Agreement" and, together with the International Purchase Agreement, the "Purchase Agreements") with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Allen & Company Incorporated and Bear, Stearns & Co. Inc., acting as representatives (the "U.S. Representatives" and, together with the International Representatives, the "Representatives"), and certain other underwriters in the United States and Canada (collectively, the "U.S. Underwriters" and, together with the International Underwriters, the "Underwriters"). Subject to the terms and conditions set forth in the U.S. Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters severally have agreed to purchase, an aggregate of shares of Class A Common Stock. In each Purchase Agreement, the Underwriters named therein have agreed, subject to the terms and conditions set forth in such Purchase Agreement, to purchase all of the shares of Class A Common Stock being sold pursuant to such Purchase Agreement if any of the shares of Class A Common Stock being sold pursuant to such Purchase Agreement are purchased. Under certain circumstances, under the Purchase Agreements, the commitments of non- defaulting Underwriters may be increased. Each Purchase Agreement provides that the Company is not obligated to sell, and the Underwriters named therein are not obligated to purchase, the shares of Class A Common Stock under the terms of the Purchase Agreement unless all of the shares of Class A Common Stock to be sold pursuant to the Purchase Agreements are contemporaneously sold. The International Representatives have advised the Company that the International Underwriters propose to offer the shares of Class A Common Stock offered hereby to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share of Class A Common Stock, and that the International Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share of Class A Common Stock on sales to certain other dealers. After the Offerings, the public offering price, concession and discount may be changed. The public offering price per share of Class A Common Stock and the underwriting discount per share of Class A Common Stock are identical for both Offerings. The Company has granted to the International Underwriters and the U.S. Underwriters options to purchase up to an aggregate of shares and shares of Class A Common Stock at the initial public offering price, less the underwriting discount. Such options, which will expire 30 days after the date of this Prospectus, may be exercised solely to cover over-allotments. [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] The Company has been informed that the Underwriters have entered into an agreement (the "Intersyndicate Agreement") providing for the coordination of their activities. Pursuant to the Intersyndicate Agreement, the International Underwriters and the U.S. Underwriters are permitted to sell shares of Class A Common Stock to each other. The Company has been informed that, under the terms of the Intersyndicate Agreement, the International Underwriters and any dealer to whom they sell shares of Class A Common Stock will not offer to sell or resell shares of Class A Common Stock to persons who are U.S. or Canadian persons or to persons they believe intend to resell to persons who are U.S. or Canadian persons, and the U.S. Underwriters and any bank, broker or dealer to whom they sell shares of Class A Common Stock will not offer to resell shares of Class A Common Stock to non-U.S. persons or to non-Canadian persons or to persons they believe intend to resell to non-U.S. persons or to non-Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement which, among other things, permits the Underwriters to purchase from each other and to offer to resell such number of shares of Class A Common Stock as the selling Underwriter or Underwriters and the purchasing Underwriter or Underwriters may agree. The Company, Fox Broadcasting, Haim Saban and certain officers and directors of the Company have each agreed not to sell or grant any option for the sale of, or otherwise dispose of, any Common Stock, or any securities convertible into or exchangeable or exercisable for shares of Common Stock, other than the shares of Common Stock that may be offered by the Company in the Offerings and not to file or request to be filed, as the case may be, any registration statement with respect to Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Merrill Lynch. Each International Underwriter has agreed that (i) it has not offered or sold and it will not offer or sell, directly or indirectly, any shares of Common Stock offered hereby in the United Kingdom by means of any document, except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985, (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Common Stock in, from or otherwise involving the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issuance of Common Stock if that person is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a person to whom the document may otherwise lawfully be issued or passed on. No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of Common Stock, or the possession, circulation or distribution of this Prospectus or any other material relating to the Company or shares of Common Stock, in any jurisdiction where action for that purpose is required. Accordingly, the shares of Common Stock may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the shares of the Common Stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of such country or jurisdiction. Purchasers of the shares of Common Stock offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase, in addition to the offering price set forth on the cover page hereof. The International Underwriters and the U.S. Underwriters have informed the Company that they do not intend to sell shares of Class A Common Stock offered hereby to any accounts over which they exercise discretionary authority. Prior to the Offerings, there has been no public market for the Class A Common Stock of the Company. The initial public offering price for the Class A Common Stock has been determined by negotiation between the Company and the U.S. Representatives and International Representatives. Among the factors that were considered in determining the initial public offering price were the Company's results of operations, the [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] Company's current financial condition, its future prospects, the experience of its management, the economics of the industry in general, the general condition of the equity securities market, the demand for similar securities of companies considered comparable to the Company and other relevant factors. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. Certain of the Underwriters or their affiliates have provided from time to time, and may provide in the future, commercial and investment banking services to News Corp. and its affiliates, for which such Underwriters or their affiliates have received or will receive fees and commissions. Allen & Company Incorporated ("Allen") has, over the years, rendered investment banking and financial advisory services to News Corp. and various of its subsidiaries, as well as Saban, in connection with a number of matters. Stanley S. Shuman, a Managing Director and Executive Vice President of Allen, has been a non-Executive Director of News Corp. since 1982. Allen acquired 16 16/99 shares of Common Stock of FCN Holding in lieu of a cash fee earned in December 1995 for certain financial advisory and other investment banking services rendered to FCN Holding in connection with the negotiation, structuring, formation and capitalization of the LLC. These shares will be exchanged in the Reorganization for shares of Class A Common Stock of the Company. As a result, after the Reorganization and before the Offerings, Allen will own an aggregate of shares of Class A Common Stock of the Company. [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON- NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO- RIZED BY THE COMPANY OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE CLASS A COMMON STOCK OF- FERED HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT 1986 AND THE COMPANIES ACT 1985 WITH RESPECT TO ANYTHING DONE BY ANY PERSONS IN RELATION TO THE CLASS A COMMON STOCK IN, FROM OR OTHERWISE IN- VOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING." IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE TO UNITED STATES DOL- LARS UNLESS STATED OTHERWISE. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors ............................................................. 11 Use of Proceeds........................................................... 18 Dividend Policy........................................................... 18 Dilution ................................................................. 19 Capitalization............................................................ 20 Unaudited Pro Forma Financial Information................................. 21 Selected Historical and Pro Forma Financial Data.......................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 27 Business.................................................................. 38 Management................................................................ 62 Principal Stockholders.................................................... 68 Certain Transactions...................................................... 70 Description of Securities................................................. 75 Shares Eligible for Future Sale........................................... 79 Certain United States Federal Tax Consequences to Non-United States Holders.................................................................. 80 Underwriting.............................................................. 83 Legal Matters............................................................. 85 Experts................................................................... 85 Available Information..................................................... 85 Index to Financial Statements............................................. F-1
--------------- UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES [LOGO OF FOX KIDS] FOX KIDS WORLDWIDE, INC. CLASS A COMMON STOCK --------------- PROSPECTUS --------------- MERRILL LYNCH INTERNATIONAL ALLEN & COMPANY INCORPORATED BEAR, STEARNS INTERNATIONAL LIMITED , 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table itemizes the expenses incurred by the Registrant in connection with the issuance and distribution of the Class A Common Stock being registered, other than underwriting discounts. All the amounts shown are estimates except the Securities and Exchange Commission registration fee, the NASD filing fee and the New York Stock Exchange filing fee. Registration fee--Securities and Exchange Commission............. $51,724 NASD filing fee.................................................. 15,500 New York Stock Exchange filing fee............................... Accounting fees and expenses..................................... Legal fees and expenses (other than blue sky).................... Printing; stock certificates..................................... Transfer agent and registrar fees................................ Miscellaneous.................................................... ------- Total.......................................................... $ =======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The U.S. Purchase Agreement and International Purchase Agreement (Exhibits 1.1 and 1.2 hereto) provide for indemnification by the Underwriters of the Company and its officers and directors, and by the Company of the Underwriters, for certain liabilities arising under the Securities Act or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. (a) Since June 1, 1994, the Registrant and its predecessors have issued and sold the following unregistered securities: (1) On June 1, 1994, Saban granted to each of Mel Woods, Shuki Levy and Stan Golden an option to purchase 16.327 shares of Saban common stock at a purchase price of $122,496.48 per share. On January 1, 1996, Saban granted to Margaret Loesch an option to purchase 16.327 shares of Saban common stock at a purchase price of $612,500 per share. (2) On September 26, 1996, FCN Holding issued and sold to Allen and Company Incorporated ("Allen") and its affiliates including Stanley Shuman ("Shuman"), an employee of Allen, effective as of April 3, 1996, 16 16/99 shares of the common stock of FCN Holding valued at $10 million, in consideration for financial advisory services and other investment banking services rendered by Allen and Shuman to FCN Holding in connection with the formation of the LLC. (3) Immediately prior to the closing of the Offerings, (i) Fox Broadcasting Sub, a wholly-owned subsidiary of Fox Broadcasting, will exchange its capital stock in FCN Holding, which indirectly owns FCN, for shares of the Class B Common Stock, (ii) the other stockholders of FCN Holding will exchange their capital stock in FCN Holding for an aggregate of shares of the Class A Common Stock, (iii) Haim Saban and the other stockholders of Saban (none of whom are affiliated with News Corp.) will exchange their capital stock in Saban for an aggregate of shares of the Class B Common Stock and (iv) all outstanding management options to purchase Saban common stock, as outstanding management options to purchase Saban common stock, as more particularly described in Item 15(a) (1) above, will become options to purchase an aggregate of shares of the Class A Common Stock. In addition, Fox Broadcasting will exchange its preferred, non-voting interest in the LLC for an aggregate of 1,000,000 shares of the Company's Series A Redeemable Preferred Stock, $0.001 par value per share. As a result of these transactions, FCN Holding, FCN, Saban and the LLC will become direct or indirect wholly-owned subsidiaries of the Company. II-1 (b) There were no underwritten offerings employed or commissions paid to any person in connection with any of the transactions set forth in Item 15(a). The issuances of the securities set forth in Item 15(a) were deemed to be exempt from registration under the Securities Act of 1933, as amended (the "Act") in reliance on Section 4(2) of such Act as transactions by an issuer not involving any public offering. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in such transactions. All recipients of these securities had adequate access, through their relationships with the Registrant and its subsidiaries, to information about the Registrant and each affiliated issuer of securities involved in the transactions. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits:
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1 Form of U.S. Purchase Agreement.* 1.2 Form of International Purchase Agreement.* 2.1 Share Transfer Agreement dated as of April 15, 1996 by and among Saban International Paris, as Purchaser and certain parties as Sellers relating to Creativite & Developpement.(1)+ 2.2 Agreement for the Purchase of Film Assets dated as of December 31, 1995 by and between Vesical Limited and Saban International N.V.(1)+ 3.1 Certificate of Incorporation of the Registrant. 3.2 Restated Certificate of Incorporation (to be filed with the Delaware Secretary of State prior to effectiveness of this Registration Statement). 3.3 Bylaws of the Registrant. 4.1 Specimen certificate evidencing Class A Common Stock of the Registrant.* 5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP.* 10.1 Strategic Stockholders Agreement dated as of December 22, 1995, by and among Saban Entertainment, Inc., Haim Saban, certain entities listed on Schedule A thereto, Fox Broadcasting Company, FCN Holding, Inc. and FCNH Sub, Inc.+ 10.2 Amendment No. 1 to Strategic Stockholders Agreement dated as of February 26, 1996. 10.3 Amendment No. 2 to Strategic Stockholders Agreement dated as of September 26, 1996.+ 10.4 Amendment No. 3 to Strategic Stockholders Agreement dated as of September 26, 1996 (to be executed prior to closing). 10.5 Form of Indemnification Agreement and Schedule of Indemnified Parties. 10.6 1996 Stock Incentive Plan. 10.7 Employment Agreement effective December 22, 1995, between Fox Kids Worldwide, L.L.C. and Haim Saban. 10.8 Employment Agreement effective January 1, 1996, between Fox Kids Worldwide, L.L.C. and Margaret Loesch; Stock Option Agreement effective January 1, 1996, between Saban Entertainment, Inc. and Margaret Loesch, as amended by Amendment No. 1. 10.9 Employment Agreement effective June 1, 1994, between Saban Entertainment, Inc. and Mel Woods, as amended by Amendment No. 1 to Employment Agreement. 10.10 Employment Agreement effective June 1, 1996, between Saban Entertainment, Inc. and Shuki Levy; Stock Option Agreement effective June 1, 1994 between Saban Entertainment, Inc. and Shuki Levy, as amended by Amendment No. 1.
II-2
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.11 LLC Formation Agreement dated as of November 1, 1995, between Saban Entertainment, Inc., FCN Holding, Inc. and Fox Broadcasting Company. 10.12 Operating Agreement for Fox Kids Worldwide, L.L.C. dated as of December 22, 1995 by and among Saban Entertainment, Inc., FCN Holding, Inc. and Fox Broadcasting Company.+ 10.13 Amendment No. 1 to Operating Agreement dated as of September 26, 1996. 10.14 Amendment No. 2 to Operating Agreement dated as of , 1996.* 10.15 Asset Assignment Agreement dated as of December 22, 1995 by and between Fox Kids Worldwide, L.L.C., on the one hand, and Fox, Inc., Fox Broadcasting Company, Twentieth Century Fox Film Corporation, Fox Television Stations, Inc., and FCN Holding, Inc.+ 10.16 Management Agreement dated as of December 22, 1995, by and among Fox Kids Worldwide, L.L.C., Saban Entertainment, Inc. and FCN Holding Sub, Inc. 10.17 Stock Ownership Agreement dated as of December 22, 1995 by and among Haim Saban, certain entities listed on Schedule 1.1(a) thereto and Fox Kids Worldwide, L.L.C.+ 10.18 Amendment No. 1 to Stock Ownership Agreement dated as of September 26, 1996.+ 10.19 Home Video Rights Acquisition Agreement (Casper) dated as of May 24, 1996, by and among Twentieth Century Fox Home Entertainment Inc. on the one hand and Saban Entertainment, Inc. and Saban International N.V. on the other hand.* 10.20 Form of Fox Broadcasting Company Station Affiliate Agreement. 10.21 Merchandising Rights Acquisition Agreement dated as of July 1, 1990 between Twentieth Century Fox Licensing and Merchandising and Fox Children's Network, Inc.+ 10.22 Indemnification Agreement dated as of December 22, 1995 between Fox Broadcasting Company and Fox Children's Network, Inc. 10.23 Distribution Rights Acquisition Agreement dated of September 1, 1990 between Twentieth Century Fox Film Corporation and Fox Children's Network, Inc.+ 10.24 Administration Agreement dated as of February 7, 1990 between Fox Broadcasting Company and Fox Children's Network, Inc. 10.25 Registration Agreement dated as of December 22, 1995 between Haim Saban and Saban Entertainment, Inc. and certain entities listed on Schedule A thereto. 10.26 Amendment No. 1 to Registration Agreement dated as of April 3, 1996. 10.27 Assumption Agreement dated as of , 1996.* 10.28 Guarantee dated as of December 22, 1995 by The News Corporation Limited. 10.29 Senior Note in the amount of $64,500,000 dated as of December 22, 1995 between Fox Kids Worldwide, L.L.C. as Payor and Fox Broadcasting Company as Payee. 10.30 Credit Agreement among Saban Entertainment, Inc., as borrower, the lenders named therein and Imperial Bank, as agent for the lenders, dated July 31, 1995. 10.31 Credit Agreement among Saban International N.V., as borrower, the lenders named therein and Imperial Bank, as agent for the lenders, dated July 31, 1995. 10.32 Heads of Agreement for Broadcasting Services for The Fox Kids Network between Fox Kids (UK) and British Sky Broadcasting Limited.* 10.33 Home Video Rights Acquisition Agreement among Saban Entertainment, Inc., Saban International N.V. and Twentieth Century Fox Home Entertainment, Inc.* 10.34 Agreement dated as of June 24, 1996 between Fox Kids Worldwide, L.L.C. and Saban International N.V., on the one hand, and Marvel Characters Group, Inc., on the other hand.*
II-3
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.35 Distribution Agreement dated as of August 21, 1992, as amended, between Saban International N.V. and Saban International Services, Inc. on the one hand and Toei Company Ltd.+ 10.36 Memorandum of Agreement dated as of January 19, 1996 between Saban Merchandising, Inc. and Ventura Film Distributors, B.V. on the one hand and Bandai America Incorporated, on the other hand.+ 10.37 Term Sheet--Mighty Morphin Power Rangers II between Fox Family Films, Inc. and Saban International N.V.* 10.38 10960 Wilshire Boulevard Office Lease dated as of July 17, 1995 between 10960 Property Corporation and Saban Entertainment, Inc. 10.39 Production Facility Agreement dated as of January 5, 1994 between Magic Movie Studios of Valencia, Ltd. and Saban Entertainment, Inc. 10.40 Letter Agreement dated as of January 1, 1995 between Saban International, N.V. and Duveen Trading Ltd.* 10.41 Barter Syndication Agreement dated as of January 5, 1996 between Saban Entertainment, Inc. and Fox Broadcasting Company (to be executed prior to closing). 10.42 Letter Agreement dated as of September 26, 1996, but effective as of April 3, 1996 by and among Stanley S. Shuman, FCN Holding, Inc., and Allen & Company Incorporated, as amended by that certain Side Letter Agreement dated as of September 26, 1996, but effective as of April 3, 1996. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion filed as Exhibit 5.1 hereto) (to include (S) 462 consent). 23.2 Consent of Ernst & Young LLP. 24.1 Power of Attorney (included in page II-6). 27.1 Financial Data Schedule.
- -------- *To be supplied by amendment. + Portions of exhibits deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentiality. (1) Upon request, the Registrant will furnish supplementally to the Securities and Exchange Commission a copy of omitted schedule. (b) Financial Statement Schedules. FCN Holding, Inc., Saban Entertainment, Inc., and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization, Fox Kids Worldwide, Inc.) Schedule II--Valuation and Qualifying Accounts FLN Holding, Inc. Schedule II--Valuation and Qualifying Accounts Saban Entertainment, Inc. Schedule II--Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Commission are either not required under the related instructions or are inapplicable, and therefore have been omitted. II-4 ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer of controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned registrant hereby undertakes that: (1) For the purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON SEPTEMBER 26, 1996. FOX KIDS WORLDWIDE, INC. By /s/ Haim Saban ------------------------------------- Haim Saban Chief Executive Officer EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS HAIM SABAN AND MEL WOODS AND EACH OF THEM, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND A NEW REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) OF THE SECURITIES ACT OF 1933 AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE FOREGOING, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR EITHER OF THEM, OR THEIR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Haim Saban Chairman and Chief Executive September 26, 1996 ____________________________________ Officer Haim Saban /s/ Margaret Loesch President, Director September 26, 1996 ____________________________________ Margaret Loesch /s/ Mel Woods President, Chief Financial September 26, 1996 __________________________________ Officer, Chief Operating Mel Woods Officer, Director /s/ Mark Ittner Principal Accounting Officer September 26, 1996 ____________________________________ Mark Ittner
II-6
SIGNATURE TITLE DATE --------- ----- ---- /s/ Shuki Levy Director September 26, 1996 ____________________________________ Shuki Levy /s/ Rupert Murdoch Director September 26, 1996 ____________________________________ Rupert Murdoch /s/ Chase Carey Director September 26, 1996 ____________________________________ Chase Carey
II-7 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS ------------------ BALANCE CHARGED AT TO COSTS CHARGED BALANCE BEGINNING AND TO OTHER AT END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- --------- -------- -------- ---------- --------- SABAN ENTERTAINMENT, INC. FY ended May 1994 Allowance for doubtful accounts.................. 385,000 0 0 0 385,000 FY ended May 1995 Allowance for doubtful accounts.................. 385,000 1,000,000 0 0 1,385,000 Five months ended October 1995 Allowance for doubtful accounts.................. 1,385,000 0 0 0 1,385,000
S-1 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS ------------------- BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ---------- ---------- -------- ---------- ---------- FCN HOLDINGS, INC. FY ended July 3, 1994 Allowance for doubtful accounts............... 0 0 0 0 0 FY ended July 2, 1995 Allowance for doubtful accounts............... 0 480,000 0 0 480,000 Four months ended October 29, 1995 Allowance for doubtful accounts............... 480,000 0 0 0 480,000
S-2 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE ------------------- AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- --------- ---------- -------- ---------- --------- FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION, FOX KIDS WORLDWIDE, INC.) Eight months ended June 30, 1996 Allowance for doubtful accounts................ 1,865,000 0 0 (175,000) 1,690,000
S-3 EXHIBIT INDEX
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ------------ 1.1 Form of U.S. Purchase Agreement.* 1.2 Form of International Purchase Agreement.* 2.1 Share Transfer Agreement dated as of April 15, 1996 by and among Saban International Paris, as Purchaser and certain parties as Sellers relating to Creativite & Developpement.(1)+ 2.2 Agreement for the Purchase of Film Assets dated as of December 31, 1995 by and between Vesical Limited and Saban International N.V.(1)+ 3.1 Certificate of Incorporation of the Registrant. 3.2 Restated Certificate of Incorporation (to be filed with the Delaware Secretary of State prior to effectiveness of this Registration Statement). 3.3 Bylaws of the Registrant. 4.1 Specimen certificate evidencing Class A Common Stock of the Registrant.* 5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP.* 10.1 Strategic Stockholders Agreement dated as of December 22, 1995, by and among Saban Entertainment, Inc., Haim Saban, certain entities listed on Schedule A thereto, Fox Broadcasting Company, FCN Holding, Inc. and FCNH Sub, Inc.+ 10.2 Amendment No. 1 to Strategic Stockholders Agreement dated as of February 26, 1996. 10.3 Amendment No. 2 to Strategic Stockholders Agreement dated as of September 26, 1996.+ 10.4 Amendment No. 3 to Strategic Stockholders Agreement dated as of September 26, 1996 (to be executed prior to closing). 10.5 Form of Indemnification Agreement and Schedule of Indemnified Parties. 10.6 1996 Stock Incentive Plan. 10.7 Employment Agreement effective December 22, 1995, between Fox Kids Worldwide, L.L.C. and Haim Saban. 10.8 Employment Agreement effective January 1, 1996, between Fox Kids Worldwide, L.L.C. and Margaret Loesch; Stock Option Agreement effective January 1, 1996, between Saban Entertainment, Inc. and Margaret Loesch, as amended by Amendment No. 1. 10.9 Employment Agreement effective June 1, 1994, between Saban Entertainment, Inc. and Mel Woods, as amended by Amendment No. 1 to Employment Agreement. 10.10 Employment Agreement effective June 1, 1996, between Saban Entertainment, Inc. and Shuki Levy; Stock Option Agreement effective June 1, 1994 between Saban Entertainment, Inc. and Shuki Levy, as amended by Amendment No. 1. 10.11 LLC Formation Agreement dated as of November 1, 1995, between Saban Entertainment, Inc., FCN Holding, Inc. and Fox Broadcasting Company. 10.12 Operating Agreement for Fox Kids Worldwide, L.L.C. dated as of December 22, 1995 by and among Saban Entertainment, Inc., FCN Holding, Inc. and Fox Broadcasting Company.+ 10.13 Amendment No. 1 to Operating Agreement dated as of September 26, 1996. 10.14 Amendment No. 2 to Operating Agreement dated as of , 1996.*
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ------------ 10.15 Asset Assignment Agreement dated as of December 22, 1995 by and between Fox Kids Worldwide, L.L.C., on the one hand, and Fox, Inc., Fox Broadcasting Company, Twentieth Century Fox Film Corporation, Fox Television Stations, Inc., and FCN Holding, Inc.+ 10.16 Management Agreement dated as of December 22, 1995, by and among Fox Kids Worldwide, L.L.C., Saban Entertainment, Inc. and FCN Holding Sub, Inc. 10.17 Stock Ownership Agreement dated as of December 22, 1995 by and among Haim Saban, certain entities listed on Schedule 1.1(a) thereto and Fox Kids Worldwide, L.L.C.+ 10.18 Amendment No. 1 to Stock Ownership Agreement dated as of September 26, 1996.+ 10.19 Home Video Rights Acquisition Agreement (Casper) dated as of May 24, 1996, by and among Twentieth Century Fox Home Entertainment Inc. on the one hand and Saban Entertainment, Inc. and Saban International N.V. on the other hand.* 10.20 Form of Fox Broadcasting Company Station Affiliate Agreement. 10.21 Merchandising Rights Acquisition Agreement dated as of July 1, 1990 between Twentieth Century Fox Licensing and Merchandising and Fox Children's Network, Inc.+ 10.22 Indemnification Agreement dated as of December 22, 1995 between Fox Broadcasting Company and Fox Children's Network, Inc. 10.23 Distribution Rights Acquisition Agreement dated of September 1, 1990 between Twentieth Century Fox Film Corporation and Fox Children's Network, Inc.+ 10.24 Administration Agreement dated as of February 7, 1990 between Fox Broadcasting Company and Fox Children's Network, Inc. 10.25 Registration Agreement dated as of December 22, 1995 between Haim Saban and Saban Entertainment, Inc. and certain entities listed on Schedule A thereto. 10.26 Amendment No. 1 to Registration Agreement dated as of April 3, 1996. 10.27 Assumption Agreement dated as of , 1996.* 10.28 Guarantee dated as of December 22, 1995 by The News Corporation Limited. 10.29 Senior Note in the amount of $64,500,000 dated as of December 22, 1995 between Fox Kids Worldwide, L.L.C. as Payor and Fox Broadcasting Company as Payee. 10.30 Credit Agreement among Saban Entertainment, Inc., as borrower, the lenders named therein and Imperial Bank, as agent for the lenders, dated July 31, 1995. 10.31 Credit Agreement among Saban International N.V., as borrower, the lenders named therein and Imperial Bank, as agent for the lenders, dated July 31, 1995. 10.32 Heads of Agreement for Broadcasting Services for The Fox Kids Network between Fox Kids (UK) and British Sky Broadcasting Limited.* 10.33 Home Video Rights Acquisition Agreement among Saban Entertainment, Inc., Saban International N.V. and Twentieth Century Fox Home Entertainment, Inc.* 10.34 Agreement dated as of June 24, 1996 between Fox Kids Worldwide, L.L.C. and Saban International N.V., on the one hand, and Marvel Characters Group, Inc., on the other hand.* 10.35 Distribution Agreement dated as of August 21, 1992, as amended, between Saban International N.V. and Saban International Services, Inc. on the one hand and Toei Company Ltd.+
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ------------ 10.36 Memorandum of Agreement dated as of January 19, 1996 between Saban Merchandising, Inc. and Ventura Film Distributors, B.V. on the one hand and Bandai America Incorporated, on the other hand.+ 10.37 Term Sheet--Mighty Morphin Power Rangers II between Fox Family Films, Inc. and Saban International N.V.* 10.38 10960 Wilshire Boulevard Office Lease dated as of July 17, 1995 between 10960 Property Corporation and Saban Entertainment, Inc. 10.39 Production Facility Agreement dated as of January 5, 1994 between Magic Movie Studios of Valencia, Ltd. and Saban Entertainment, Inc. 10.40 Letter Agreement dated as of January 1, 1995 between Saban International, N.V. and Duveen Trading Ltd.* 10.41 Barter Syndication Agreement dated as of January 5, 1996 between Saban Entertainment, Inc. and Fox Broadcasting Company (to be executed prior to closing). 10.42 Letter Agreement dated as of September 26, 1996, but effective as of April 3, 1996 by and among Stanley S. Shuman, FCN Holding, Inc., and Allen & Company Incorporated, as amended by that certain Side Letter Agreement dated as of September 26, 1996, but effective as of April 3, 1996. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion filed as Exhibit 5.1 hereto) (to include (S) 462 consent). 23.2 Consent of Ernst & Young LLP. 24.1 Power of Attorney (included in page II-6). 27.1 Financial Data Schedule.
- -------- * To be supplied by amendment. + Portions of exhibits deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentiality. (1) Upon request, the Registrant will furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule. Registrant has requested confidentiality of entire exhibit. Accordingly, none of these exhibits have been filed. EX-3.1 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF INCORPORATION ---------------------------- OF FOX KIDS WORLDWIDE, INC. FIRST: The name of the Company is FOX KIDS WORLDWIDE, INC. ----- SECOND: The address of the registered office of the Company in the State ------ of Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent, 19901. The name of its registered agent at that address is National Corporate Research, Ltd. THIRD: The purpose of the Company is to engage in any lawful act or ----- activity for which a corporation may be organized under the Delaware General Corporation Law (the "DGCL"). FOURTH: This Company is authorized to issue one class of shares designated ------ "Common Stock," par value $0.001 per share. The number of shares of Common Stock authorized to be issued is 1,000. FIFTH: The following provisions are inserted for the management of the ----- business and the conduct of the affairs of the Company, and for further definition, limitation and regulation of the powers of the Company and of its directors and stockholders: a. The business and affairs of the Company shall be managed by or under the direction of the Board of Directors. b. All actions of the Board of Directors (including, but not limited to, interested party transactions, financing transactions, mergers and acquisitions, changes in executive officers, director nominations and committee appointments) will require the vote of at least 75% of the then duly elected and acting members of the Board of Directors. Interested directors will be counted and may cast votes. c. The directors shall have concurrent power with the stockholders to adopt, amend, or repeal the Bylaws of the Company. d. The number of directors of the Company shall be as from time to time fixed by, or in the manner provided in, the Bylaws of the Company. Election of directors need not be by written ballot unless the Bylaws so provide. e. No director shall be personally liable to the Company or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct of a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article FIFTH by the stockholders of the Company shall not adversely affect any right or protection of a director of the Company existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. f. In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Company, subject, nevertheless, to the provisions of the DGCL, this Certificate of Incorporation and any Bylaws adopted by the stockholders; provided, however, that no Bylaws hereafter adopted by the stockholders shall - -------- ------- invalidate any prior act of the directors which would have been valid if such Bylaws had not been adopted. SIXTH: The Company shall, to the fullest extent permitted by the ----- provisions of Section 145 of the DGCL, as the same may be amended and supplemented, indemnify any and all directors and officers whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights of which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, and administrators of such person. Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a director or officer of the Company existing hereunder with respect to any act or omission occurring prior to such repeal or modification. SEVENTH: Meetings of stockholders may be held within or without the State ------- of Delaware, as the Bylaws may provide. The books of the Company may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the Bylaws of the Company. EIGHTH: The Company reserves the right to amend, alter, change or repeal ------ any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed in this Certificate of Incorporation, the Bylaws of the Company or the laws of the State of Delaware, and all rights herein conferred upon stockholders are granted subject to such reservation. IN WITNESS WHEREOF, the Company has caused this Certificate of Incorporation to be duly executed this 26th day of August, 1996. /s/ Linda M. Giunta ------------------------------- Linda M. Giunta Incorporator 2 EX-3.2 3 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.2 RESTATED CERTIFICATE OF INCORPORATION OF FOX KIDS WORLDWIDE, INC. Fox Kids Worldwide, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is Fox Kids Worldwide, Inc. Fox Kids Worldwide, Inc. was originally incorporated under the same name and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on August 26, 1996. 2. Pursuant to Sections 241 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation. 3. This Restated Certificate of Incorporation was duly adopted in accordance with Sections 241 and 245 of the Delaware General Corporation Law. 4. The Corporation has not received any payment for any of its stock. 5. The text of the Restated Certificate of Incorporation is hereby restated and further amended to read in its entirety as follows: FIRST: The name of the Company is FOX KIDS WORLDWIDE, INC. ----- SECOND: The address of the registered office of the Company in the State ------ of Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent, 19901. The name of its registered agent at that address is National Corporate Research, Ltd. THIRD: The purpose of the Company is to engage in any lawful act or ----- activity for which a corporation may be organized under the Delaware General Corporation Law (the "DGCL"). FOURTH: (a) Authorized Capital Stock. The Company is authorized to ------ ------------------------ issue ___________ shares of capital stock, of which ___________ shares shall be shares of Class A Common Stock, par value $0.001 per share ("Class A Common Stock"), ___________ shares shall be shares of Class B Common Stock, par value $0.001 per share ("Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"), 15,000,000 shares shall be shares of Preferred Stock, par value $0.001 per share ("Preferred Stock"), of which [1,000,000] shares shall be shares of Series A Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"). (b) Common Stock. The powers, preferences and rights, and the ------------ qualifications, limitations and restrictions of each class of the Common Stock are as follows: (1) Voting. (i) At each annual or special meeting of stockholders, in ------ the case of any written consent of stockholders in lieu of a meeting and for all other purposes, each holder of record of shares of Class A Common Stock on the relevant record date shall be entitled to one (1) vote for each share of Class A Common Stock standing in such person's name on the stock transfer records of the Company, and each holder of record of Class B Common Stock on the relevant record date shall be entitled to ten (10) votes for each share of Class B Common Stock standing in such person's name on the stock transfer records of the Company. Except as otherwise required by law, and subject to the rights of holders of the Series A Preferred Stock of the Company or any other series of Preferred Stock of the Company that may be issued from time to time, the holders of shares of Class A Common Stock and of shares of Class B Common Stock shall vote as a single class on all matters with respect to which a vote of the stockholders of the Company is required under applicable law, this Certificate of Incorporation or the Bylaws of the Company, or on which a vote of stockholders is otherwise duly called for by the Company, including, but not limited to, the election of directors, matters concerning the sale, lease or exchange of all or substantially all of the property and assets of the Company, mergers or consolidations with another entity or entities, dissolution of the Company and amendments to this Certificate of Incorporation. Except as provided in this Article FOURTH or by applicable law, whenever applicable law, this Certificate of Incorporation or the Bylaws of the Company provide for the necessity of an affirmative vote of the stockholders entitled to cast at least a majority (or any other greater percentage) of the votes which all stockholders are entitled to cast thereon, or a "majority (or any other greater percentage) of the voting stock," or language of similar effect, any and all such language shall mean that the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall vote as one class and that a majority (or any other greater percentage) consists of a majority (or such other greater percentage) of the total number of votes entitled to be cast in accordance with the provisions of this Article FOURTH. (ii) Neither the holders of shares of Class A Common Stock nor the holders of shares of Class B Common Stock shall have cumulative voting rights. (iii) The Company may, as a condition to counting the votes cast by any holder of shares of Class B Common Stock at any annual or special meeting of stockholders, in the case of any written consent of stockholders in lieu of a meeting, or for any other purpose, require the furnishing of such affidavits or other proof as it may reasonably request to establish that the shares of Class B Common Stock held by such holder have not, by virtue of the provisions of subparagraphs (b)(6) or (7) of this Article FOURTH, been converted into shares of Class A Common Stock. (2) Dividends; Stock Splits. Subject to the rights of the holders of ----------------------- shares of any series of Preferred Stock, and subject to any other provisions of this Certificate of Incorporation, holders of shares of Class A Common Stock and shares of Class B Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Company as may be declared thereon by the Board of Directors of the Company from time to time out of assets or funds of the Company legally available therefor. If at any time a dividend or other distribution in cash or other property (other than dividends or other distributions payable in shares of Common Stock or options or warrants to purchase shares of Common Stock or 2 securities convertible into or exchangeable for shares of Common Stock) is paid on the shares of Class A Common Stock or the shares of Class B Common Stock, a like dividend or other distribution in cash or other property also shall be paid on shares of Class B Common Stock or shares of Class A Common Stock, as the case may be, in an equal amount per share. If at any time a dividend or other distribution payable in shares of Common Stock or options or warrants to purchase shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock is paid on shares of Class A Common Stock or Class B Common Stock, a like dividend or other distribution shall be paid also on shares of Class B Common Stock or Class A Common Stock, as the case may be, in an equal amount per share; provided that, for this purpose, if shares of Class A Common -------- Stock or other voting securities, or options or warrants to purchase shares of Class A Common Stock or other voting securities or securities convertible into or exchangeable for shares of Class A Common Stock or other voting securities, are paid on shares of Class A Common Stock and shares of Class B Common Stock or voting securities identical to the other securities paid on the shares of Class A Common Stock (except that the voting securities paid on the Class B Common Stock may have ten (10) times the number of votes per share as the other voting securities to be received by the holders of the Class A Common Stock) or options or warrants to purchase shares of Class B Common Stock or such other voting securities or securities convertible into or exchangeable for shares of Class B Common Stock or such other voting securities, are paid on shares of Class B Common Stock in an equal amount per share of Class A Common Stock and Class B Common Stock, such dividend or other distribution shall be deemed to be a like dividend or other distribution. In the case of any split, subdivision, combination or reclassification of shares of Class A Common Stock or Class B Common Stock, the shares of Class B Common Stock or Class A Common Stock, as the case may be, also shall be split, subdivided, combined or reclassified so that the number of shares of Class A Common Stock and Class B Common Stock outstanding immedi ately following such split, subdivision, combination or reclassification shall bear the same relationship to each other as did the number of shares of Class A Common Stock and Class B Common Stock outstanding immediately prior to such split, subdivision, combination or reclassification. (3) Liquidation, Dissolution, etc. In the event of any liquidation, ------------------------------ dissolution or winding up (either voluntary or involuntary) of the Company, the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall be entitled to receive the assets and funds of the Company available for distribution, after payments to creditors and to the holders of the Series A Preferred Stock or any Preferred Stock of the Company that may at the time be outstanding, in proportion to the number of shares held by them, respectively, without regard to class. (4) Mergers, etc. In the event of any corporate merger, consolidation, ------------- purchase or acquisition of property or stock, or other reorganization in which any consideration is to be received by the holders of shares of Class A Common Stock or the holders of shares of Class B Common Stock, the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall receive the same consideration on a per share basis; provided that, if such -------- consideration shall consist in any part of voting securities (or of options or warrants to purchase, or of securities convertible into or exchangeable for, voting securities), the holders of shares of Class B Common Stock may receive, on a per share basis, voting securities with 3 ten (10) times the number of votes per share as those voting securities to be received by the holders of shares of Class A Common Stock (or options or warrants to purchase, or securities convertible into or exchangeable for, voting securities with ten (10) times the number of votes per share as those voting securities issuable upon exercise of the options or warrants to be received by the holders of the shares of Class A Common Stock, or into which the convertible or exchangeable securities to be received by the holders of the shares of Class A Common Stock may be converted or exchanged). (5) No Preemptive or Subscription Right. No holder of shares of Class A ----------------------------------- Common Stock or Class B Common Stock shall be entitled to preemptive or subscription rights. (6) Transfer Restriction; Change of Control of Holders. Shares of Class A -------------------------------------------------- Common Stock are freely transferable, however, (i) except as provided in subparagraph (b)(6)(iv) of this Article FOURTH, no person holding record ownership of shares of Class B Common Stock (hereinafter called a "Class B Holder") may transfer, and the Company shall not register the transfer of, such shares of Class B Common Stock, except to a Permitted Transferee of such Class B Holder. Any purported transfer by a Class B Holder, other than to a Permitted Transferee, shall be null and void and of no effect and such purported transfer by the Class B Holder will result in the immediate and automatic conversion of such Holder's shares of Class B Common Stock into shares of Class A Common Stock. For the purposes hereof, a "Permitted Transferee" shall mean: (A) any other Class B Stockholder, any of Haim Saban's family members, any trust established solely for the benefit of one or more of Haim Saban's family members or any legal entity in which Haim Saban or such persons are the sole beneficial owners; (B) a direct or indirect wholly-owned subsidiary of such Class B Stockholder (or with respect to a Class B Stockholder which is a natural person, a corporation or other person wholly-owned by the Class B Stockholder); (C) in the case of a Class B Holder which is the estate of a deceased Class B Holder, or which is the estate of a bankrupt or insolvent Class B Holder, such Class B Holder's "Permitted Transferee" means a Permitted Transferee of such deceased, bankrupt or insolvent Class B Holder; or (D) in the case of any Class B Holder, such Class B Holder's "Permitted Transferee" means, without limitation of the foregoing, any direct or indirect Permitted Transferee of a Permitted Transferee of such Class B Holder. (ii) Notwithstanding anything to the contrary set forth herein, but subject to the provisions of subparagraph (b)(6)(iv) of this Article FOURTH, in the event of any direct or indirect transfer of beneficial ownership of any shares of Class B Common Stock which, had such transfer also been a transfer of record ownership of such shares of Class B Common Stock, would not have been to a Permitted Transferee, each share of Class B Common Stock transferred shall be deemed, without further act of the part of the holder thereof or the 4 Company, to be converted into one share of Class A Common Stock, and stock certificates formerly representing each share of Class B Common Stock shall thereupon and thereafter be deemed to represent such number of shares of Class A Common Stock as equals the number of shares of Class A Common Stock into which such shares of Class B Common Stock could be converted pursuant to the terms hereof. (iii) Notwithstanding anything to the contrary set forth herein, any event which would result in the automatic conversion of shares of Class B Common Stock into shares of Class A Common Stock shall not result in such conversion if, after such event, the record holder of such shares of Class B Common Stock is a corporation, limited liability company or partnership as to which, with respect to the shares of Class B Common Stock held by such corporation, limited liability company or partnership, any Permitted Transferee of the Class B Holder prior to such event has, directly or indirectly, both investment power (which includes the power to dispose, or direct the disposition of such shares of Class B Common Stock) and voting power (which includes the power to vote, or direct the voting of, such shares of Class B Common Stock); provided that no -------- transaction or event intended to avoid the automatic conversion provisions of this subparagraph (b)(6) of Article FOURTH shall in any event be entitled to the benefit of this subparagraph (b)(6)(iii) of Article FOURTH. (iv) Notwithstanding anything to the contrary set forth herein, any Class B Holder may pledge such Class B Holder's shares of Class B Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for any indebtedness or other obligation of any person; provided that, -------- even if such shares are registered in the name of the pledgee or its nominee (which registration is hereby expressly permitted and shall not be considered a transfer hereunder), such shares shall remain subject to the provisions of this subparagraph (b)(6) of Article FOURTH. In the event that such pledged shares of Class B Common Stock (the "Pledged Stock") are foreclosed upon, each share of such Pledged Stock shall be deemed, without further act on the part of the holder thereof or the Company, to be converted into one share of Class A Common Stock, and stock certificates formerly representing one share of Class B Common Stock shall thereupon and thereafter be deemed to represent such number of shares of Class A Common Stock as equals the number of shares of Class A Common Stock into which such shares of Class B Common Stock could be converted pursuant to the terms hereof upon the earlier of (i) if the pledgor is contesting the foreclosure on such shares of Pledged Stock, 30 days after the date on which the foreclosure on such Pledged Stock becomes final and non-appealable or (ii) if the pledgor is not contesting the foreclosure on such shares of Pledged Stock, 30 days after the date on which such Pledged Stock is foreclosed upon; provided -------- that the Pledged Stock shall not be automatically converted as provided in this subparagraph (b)(6)(iv) of Article FOURTH hereof as a result of such foreclosure if, prior to expiration of either such 30-day period, the Pledged Stock shall be transferred by the pledgee or the purchaser in such foreclosure to a Class B Holder or one or more Permitted Transferees of a Class B Holder. (v) Notwithstanding anything to the contrary herein, the Company shall not register the transfer of any shares of Class B Common Stock, unless the transferee and the transferor of such Class B Common Stock have furnished such affidavits and other proof as the Company may reasonably request to establish that such proposed transferee is a Permitted 5 Transferee. In addition, upon any purported transfer of shares of Class B Common Stock not permitted hereunder, each share of Class B Common Stock purported to be so transferred shall be deemed, without further act on the part of the holder thereof or the Company, to be converted into one share of Class A Common Stock, and stock certificates formerly representing one share of Class B Common Stock shall thereupon and thereafter be deemed to represent such number of shares of Class A Common Stock as equals the number of shares of Class A Common Stock into which such shares of Class B Common Stock could be converted pursuant to the terms hereof, and the Company shall register such shares of Class A Common Stock in the name of the person to whom such shares of Class B Common Stock were purported to be transferred. (vi) The Company shall include on the certificates for shares of Class B Common Stock a legend referring to the restrictions on transfer and registration of transfer imposed by this subparagraph (b)(6) of Article FOURTH. (7) Automatic Conversion. (i) In the event the aggregate number of --------------------- shares of Class B Common Stock and Class A Common Stock held by the Class B Holders and their Permitted Transferees at any time shall constitute less than ten percent (10%) of the total number of shares of Common Stock issued and outstanding at such time, then, without any further act on the part of the holder thereof or the Company, each share of Class B Common Stock then issued and outstanding shall be deemed to be converted into one share of Class A Common Stock, and stock certificates formerly representing each share of Class B Common Stock shall thereupon and thereafter be deemed to represent such number of shares of Class A Common Stock as equals the number of shares of Class A Common Stock into which such shares of Class B Common Stock could be converted pursuant to the terms hereof. For purposes of the immediately preceding sentence, any shares of Class A Common Stock and Class B Common Stock repurchased or otherwise acquired by the Company and not subsequently sold or otherwise transferred by the Company shall no longer be deemed "outstanding," from and after the date of repurchase. Any event set forth in subparagraph (b)(6) or (7) of this Article FOURTH pursuant to which shares of Class B Common Stock have been automatically converted into shares of Class A Common Stock is hereafter referred to as an "Event of Automatic Conversion." (ii) Conversion pursuant to an Event of Automatic Conversion shall be deemed to have been effected at the time the Event of Automatic Conversion occurred (such time being the "Conversion Time"). The person entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Class A Common Stock at and as of the Conversion Time, and the rights of such person as a holder of shares of Class B Common Stock with respect to the shares of Class B Common Stock that have been converted, shall cease and terminate at and as of the Conversion Time. (8) Voluntary Conversion. Each share of Class B Common Stock shall be -------------------- convertible, at the option of its record holder, at any time into one validly issued, fully paid and non-assessable share of Class A Common Stock. At the time of a voluntary conversion, the record holder of shares of Class B Common Stock shall deliver to the principal office of the Company or any transfer agent for shares of the Class A Common Stock (i) the certificate or 6 certificates representing the shares of Class B Common Stock to be converted, duly endorsed in blank or accompanied by proper instruments of transfer and (ii) written notice to the Company specifying the number of shares of Class B Common Stock to be converted into shares of Class A Common Stock and stating the name or names (with addresses) and denominations in which the certificate or certificates representing the shares of Class A Common Stock issuable upon such conversion are to be issued and including instructions for the delivery thereof. Conversion shall be deemed to have been effected at the time when delivery is made to the Company of both such written notice and the certificate or certificates representing the shares of Class B Common Stock to be converted or such later time as may be specified in such written notice, and as of such time each person named in such written notice as the person to whom a certificate representing shares of Class A Common Stock is to be issued shall be deemed to be the holder of record of the number of shares of Class A Common Stock to be evidenced by that certificate. Delivery of such certificates and such written notice shall obligate the Company to issue such shares of Class A Common Stock, and thereupon the Company or its transfer agent shall promptly issue and deliver at such stated address to such record holder of shares of Class A Common Stock a certificate or certificates representing the number of shares of Class A Common Stock to which such record holder is entitled by reason of such conversion, and shall cause such shares of Class A Common Stock to be registered in the name of such record holder. (9) Unconverted Shares; Notice Required. In the event of the conversion ----------------------------------- of less than all of the shares of Class B Common Stock evidenced by a certificate surrendered to the Company in accordance with the procedures of subparagraphs (b)(6), (7) or (8) of this Article FOURTH, the Company shall execute and deliver to or upon the written order of the holder of such unconverted shares, without charge to such holder, a new certificate evidencing the number of shares of Class B Common Stock not converted. (10) Reservation. The Company hereby reserves and shall at all times ----------- reserve and keep available, out of its authorized and unissued shares of Class A Common Stock, for the purposes of effecting conversions, such number of duly authorized shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock. All of the shares of Class A Common Stock so issuable shall, when so issued, be duly and validly issued, fully paid and non-assessable. The Company shall take all action as may be necessary to ensure that all such shares of Class A Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the shares of Class A Common Stock are or may be listed, or of any inter- dealer quotation system of a registered national securities association upon which the shares of Class A Common Stock are or may be listed or authorized for quotation. (11) Power to Sell and Purchase Shares. Subject to applicable law, the --------------------------------- Company shall have the power and authority to issue and sell all or any part of any shares of any class of capital stock herein or hereafter authorized to such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. The Company shall have the power to purchase any shares of any class of capital stock herein or hereafter authorized from such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, 7 determine, whether or not less consideration could be paid upon the purchase of the same number of shares of another class, and as otherwise permitted by law. (12) Rights Otherwise Identical. Except as expressly set forth herein, -------------------------- the rights of the holders of Class A Common Stock and the rights of the holders of Class B Common Stock shall be in all respects identical. (13) For purposes of this Article FOURTH: (i) The relationship of any person that is derived by or through legal adoption shall be considered a natural one. (ii) Each joint owner of shares of Class B Common Stock shall be considered a "Class B Holder" of such shares. (iii) A minor for whom shares of Class B Common Stock are held pursuant to the Uniform Gifts to Minors Act or similar law shall be considered a "Class B Holder" of such shares. (iv) The term "beneficial ownership" (including, with a correlative meaning, the term "beneficially own"), shall have the meaning assigned such term in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, as in effect on July 31, 1996, except that a person shall be deemed to have "beneficial ownership" of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. (v) Unless otherwise specified, the term "person" means both natural persons and legal entities. (vi) The term "transfer" means any direct or indirect transfer (including by sale, assignment, gift, bequest, appointment or otherwise), and shall also include, with respect to any Class B Holder, any direct or indirect change in control of such person. (vii) The term "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person or entity, whether through the ownership of voting securities, by contract or otherwise. (c) Preferred Stock. --------------- (1) The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions 8 adopted by the Board of Directors providing for the authorization of such class or series, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices, (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series, (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Company, and/or (iv) convertible into, or exchangeable for, shares of any other class or classes of capital stock, or of any other series of the same or any other class or classes of stock, of the Company at such price or prices or at such rates of exchange and with such adjustments, all as may be stated in such resolution or resolutions. (2) Series A Preferred Stock. The relative powers, preferences and ------------------------ rights, and the qualifications, limitations and restrictions of and with respect to the Series A Preferred Stock are as follows: (i) Designation and Amount. The Series A Preferred Stock is hereby ---------------------- designated as a separate series of the Preferred Stock, with a par value of $0.001 per share; and the number of shares constituting the Series A Preferred Stock shall be [1,000,000] shares. (ii) Dividends. Subject to the restrictions on dividends and --------- distributions to stockholders under the DGCL, the holders of record of Series A Preferred Stock on the record date as established by the Board of Directors, pursuant to subparagraph (b)(2) of this Article FOURTH shall from time to time be entitled to receive dividends in an amount equal to the per share "Distributable Cash" of the Company, when, as and if declared by the Board of Directors of the Company; provided, that no more than an aggregate of $49 in -------- dividends shall be paid with respect to any share of Series A Preferred Stock. (iii) Distributable Cash. The per share "Distributable Cash" of the ------------------ Company shall mean, at the time a determination of per share Distributable Cash is made, an amount in United States dollars equal to (A) the net cash available to the Company provided by operating activities of the Company and its direct and indirect subsidiary companies (on a consolidated basis), and by Fox Kids Worldwide, L.L.C., a Delaware limited liability company, from December 22, 1995 and through the end of the last fiscal quarter of the Company ending not less than 90 days prior to the time of determination, less the sum of (i) all ---- Restricted Cash (defined below), (ii) all Reserves, (iii) all amounts previously paid as dividends on the Series A Preferred Stock, and (iv) all amounts paid in redemption of shares of the Series A Preferred Stock; divided by (B) the number ------- of shares of the Series A Preferred Stock issued and outstanding at the time of determination. "Reserves" shall be those amounts determined from time to time by the Board of Directors as necessary to provide, over such period as the Board of Directors considers appropriate, for current and planned capital expenditures, debt service, working capital requirements and expansion plans; and if the Board of Directors is unable to reach agreement thereon, the Reserves shall be maintained at a level equal to the sum of (x) $30 million plus (y) the ---- net proceeds realized by the Company from the sale of Class A Common Stock in connection with its initial public offering. "Restricted Cash" shall mean cash and cash equivalent assets 9 which, under agreements binding upon the Company and its subsidiaries, or applicable law, are not readily available to the Company for the payment of dividends. (iv) Determination of Distributable Cash. Within 15 business days ----------------------------------- following the end of each fiscal quarter of the Company ending subsequent to the date of issuance of any Series A Preferred Stock and as long as any Series A Preferred Stock remains issued and outstanding, the Board of Directors shall determine whether any Distributable Cash then exists, and if any Distributable Cash then exists, the Board of Directors shall declare a per share dividend on the Series A Preferred Stock equal to the per share Distributable Cash, payable on the 30th business day following the end of such fiscal quarter to holders of record on the 20th business day following the end of such fiscal quarter. (v) Liquidation Rights. Upon any liquidation, dissolution or ------------------ winding up of the affairs of the Company, whether voluntary or involuntary (collectively a "Liquidation"), no distribution shall be made to the holders of the Company's Common Stock or any other class or series of capital stock of the Company ranking junior to the Series A Preferred Stock (collectively referred to as the "Junior Stock") unless, prior to any such distribution, the holders of the Series A Preferred Stock shall have received in cash, out of the assets of the Company available for distribution to its stockholders, after satisfaction of indebtedness and other liabilities (the "net assets"), whether such assets are capital or surplus and whether any dividends as such are declared, the amount of $50 per share, less all dividends declared and paid by the Company with respect thereto, for each outstanding share of Series A Preferred Stock (the "Liquidation Value"). In the event of any Liquidation of the Company, after payment in cash shall have been made to the holders of shares of Series A Preferred Stock of the full amount to which they shall be entitled as aforesaid, the holders of any class of Junior Stock shall be entitled, to the exclusion of the holders of shares of Series A Preferred Stock, to share according to their respective rights and preferences in all remaining assets of the Company available for distribution to its stockholders. If the net assets distributable in any Liquidation to the holders of Series A Preferred Stock or any class or series of stock on a parity with the Series A Preferred Stock as to Liquidation (the "Liquidation Parity Stock") are insufficient to permit the payment to such holders of the full preferential amounts to which they may be entitled, such assets shall be distributed ratably among the holders of the Series A Preferred Stock and such Liquidation Parity Stock in proportion to the full preferential amount each such holder would otherwise be entitled to receive. Neither a merger nor a consolidation of the Company with or into any other corporation or corporations nor a sale, conveyance, exchange or transfer of all or any part of the assets of or property of the Company shall be deemed to be a Liquidation. (vi) Redemption. The Company may, by resolution of its Board of ---------- Directors, redeem at any time or from time to time, all or a portion of the outstanding shares of Series A Preferred Stock at a redemption price per share equal to the then-current Liquidation Value of the Series A Preferred Stock; provided, that unless the Company shall have received a written legal opinion - -------- from its counsel, in form and substance reasonably satisfactory to the holders of a majority of the then-outstanding Series A Preferred Stock, that such redemption would not, 10 under applicable provisions of the U.S. Internal Revenue Code, as then in effect, be treated as a dividend for federal income tax purposes, the Company shall not effect such redemption. If the Company pays $50 million, in the aggregate, either in dividends on the Series A Preferred Stock, or in redemption thereof, the Series A Preferred Stock shall no longer be deemed to be outstanding and shall have the status of authorized but unissued shares of preferred stock, unclassified as to series, and all rights of the holders thereof as stockholders of the Company on account thereof shall cease. At such time, upon written demand by the Company, all holders of the Series A Preferred Stock immediately shall surrender and return to the Company any and all certificates and other documents evidencing ownership of shares of the Series A Preferred Stock. (vii) Procedure for Redemption. (1) In the event that fewer than ------------------------ all of the outstanding shares of Series A Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected by lot or pro rata as -------- may be determined by the Board of Directors. (2) In the event the Company shall redeem shares of Series A Preferred Stock, notice of such redemption shall be given by first class mail, postage prepaid or by personal delivery, mailed or delivered not less than 10 and not more than 30 days prior to the applicable redemption date to each holder of record of the shares of Series A Preferred Stock to be redeemed at such holder's address as the same appears on the stock register of the Company; provided, however, that neither the failure to give such notice nor any defect - -------- ------- therein shall affect the validity of the proceeding for the redemption of any share of Series A Preferred Stock to be redeemed and such notice requirement may be waived or modified by the holders of the Series A Preferred Stock in writing. Each such notice shall state (i) the redemption date; (ii) the number of shares of Series A Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of shares to be redeemed from such holder; (iii) the applicable redemption price; and (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price. (3) Notice having been mailed as aforesaid, from and after the applicable redemption date, unless the Company defaults in paying the applicable redemption price, such shares shall no longer be deemed to be outstanding and shall have the status of authorized but unissued shares of preferred stock, unclassified as to series, and shall not be reissued as shares of Series A Preferred Stock and all rights of the holders thereof as stockholders of the Company with respect thereto (except the right to receive from the Company the applicable redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state), such shares shall be redeemed by the Company at the applicable redemption price. In case fewer than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. 11 (viii) Voting Rights. Except as otherwise provided by law, the holders ------------- of Series A Preferred Stock shall not be entitled as such to vote on any matters submitted for a vote of the holders of the Common Stock or of any other class of capital stock. (ix) Preemptive Rights and Assessments. The holders of Series A --------------------------------- Preferred Stock shall have no preemptive rights and are not subject to future assessments by the Company. FIFTH: The following provisions are inserted for the management of the ----- business and the conduct of the affairs of the Company, and for further definition, limitation and regulation of the powers of the Company and of its directors and stockholders: (1) The business and affairs of the Company shall be managed by or under the direction of the Board of Directors. (2) All actions of the Board of Directors (including, but not limited to, interested party transactions, financing transactions, mergers and acquisitions, changes in executive officers, director nominations and committee appointments) will require the vote of at least 75% of the then duly elected and acting members of the Board of Directors. Interested directors will be counted, and may cast votes. (3) The directors shall have concurrent power with the stockholders to adopt, amend, or repeal the Bylaws of the Company. (4) The number of directors of the Company shall be as from time to time fixed by, or in the manner provided in, the Bylaws of the Company. Election of directors need not be by written ballot unless the Bylaws so provide. (5) The Board of Directors may by resolution designate one or more committees and delegate certain responsibilities, powers and the authority to act to such committees, except to the extent such delegation is prohibited by Section 141 of the DGCL, and only as provided for more specifically in the Bylaws of the Company. (6) No director shall be personally liable to the Company or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct of a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article FIFTH by the stockholders of the Company shall not adversely affect any right or protection of a director of the Company existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. (7) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Company, subject, nevertheless, to the provisions of the DGCL, this Certificate of Incorporation and any Bylaws adopted by the 12 stockholders; provided, however, that no Bylaws hereafter adopted by the -------- ------- stockholders shall invalidate any prior act of the directors which would have been valid if such Bylaws had not been adopted. SIXTH: The Company shall, to the fullest extent permitted by the DGCL, as ----- the same may be amended and supplemented, indemnify any and all directors whom it shall have power to indemnify under said law from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said law, and the indemnification provided for herein shall not be deemed exclusive of any other rights of which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director and shall inure to the benefit of the heirs, executors, and administrators of such person. The Company shall, in its sole discretion, have the power to indemnify any and all officers of the Company and its subsidiaries to the fullest extent permitted by the DGCL, as the same may be amended and supplemented. Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a director or officer of the Company existing hereunder with respect to any act or omission occurring prior to such repeal or modification. SEVENTH: Meetings of stockholders may be held within or without the State ------- of Delaware, as the Bylaws may provide. The books of the Company may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Company. EIGHTH: The Company reserves the right to amend, alter, change or repeal ------ any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed in this Certificate of Incorporation, the Bylaws of the Company or the laws of the State of Delaware, and all rights herein conferred upon stockholders are granted subject to such reservation. IN WITNESS WHEREOF, the Company has caused this Certificate of Incorporation to be duly executed this _____ day of ___________, 1996. _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ ATTEST: ____________________ 13 EX-3.3 4 BYLAWS OF REGISTRANT EXHIBIT 3.3 BYLAWS OF FOX KIDS WORLDWIDE, INC. A DELAWARE CORPORATION
BYLAWS OF FOX KIDS WORLDWIDE, INC. A DELAWARE CORPORATION Page No. -------- ARTICLE I - CORPORATE OFFICES. Section 1. Registered Office................................................ 1 Section 2. Principal Office................................................. 1 Section 3. Other Offices.................................................... 1 ARTICLE II - STOCKHOLDERS MEETINGS. Section 1. Place of Meeting................................................ 1 Section 2. Annual Meetings................................................. 1 Section 3. Special Meetings................................................ 1 Section 4. Notice of Meetings.............................................. 2 Section 5. Quorum.......................................................... 3 Section 6. Adjourned Meeting............................................... 3 Section 7. Voting.......................................................... 3 Section 8. Proxies......................................................... 4 Section 9. Stockholder List................................................ 4 Section 10. Consent of Stockholders in Lieu of Meeting...................... 4 Section 11. Inspectors of Election.......................................... 5 Section 12. Record Date..................................................... 5 Section 13. Procedures for Meetings......................................... 6 Section 14. Opening and Closing of Polls.................................... 6 ARTICLE III - BOARD OF DIRECTORS. Section 1. Powers......................................................... 6 Section 2. Number and Qualification....................................... 7 Section 3. Election and Term of Office.................................... 7 Section 4. Vacancies...................................................... 7 Section 5. Place of Meeting............................................... 8 Section 6. Regular Meetings............................................... 8 Section 7. Special Meetings............................................... 9 Section 8. Meetings by Communication Equipment............................ 9 Section 9. Quorum and Manner of Acting.................................... 9 Section 10. Validation of Defectively Called or Noticed Meetings........... 9 Section 11. Action Without Meeting......................................... 9 Section 12. Compensation of Directors...................................... 10 Section 13. Committees..................................................... 10
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ARTICLE IV - OFFICERS. Section 1. Officers..................................................... 10 Section 2. Election of Officers......................................... 10 Section 3. Subordinate Officers......................................... 10 Section 4. Removal and Resignation of Officers.......................... 11 Section 5. Vacancies in Offices......................................... 11 Section 6. Chairman of the Board........................................ 11 Section 7. Chief Executive Officer...................................... 11 Section 8. Office of the President...................................... 11 Section 9. Vice Presidents.............................................. 12 Section 10. Secretary.................................................... 12 Section 11. Chief Financial Officer...................................... 12 ARTICLE V - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. Section 1. Agents, Proceedings and Expenses.............................. 12 Section 2. Actions Other Than By The Company............................. 13 Section 3. Actions by the Company........................................ 13 Section 4. Successful Defense by Agent................................... 14 Section 5. Required Approval............................................. 14 Section 6. Advance of Expenses........................................... 14 Section 7. Contractual Rights............................................ 14 Section 8. Limitations................................................... 14 Section 9. Insurance..................................................... 14 Section 10.Constituent Corporations...................................... 15 Section 11.Definitions................................................... 15 ARTICLE VI - MISCELLANEOUS. Section 1. Inspection of Books and Records by Stockholders.............. 15 Section 2. Inspection of Books and Records by Directors................. 16 Section 3. Checks, Drafts, Evidences of Indebtedness.................... 16 Section 4. Corporate Contracts and Instruments; How Executed............ 16 Section 5. Certificates for Shares...................................... 16 Section 6. Transfer of Shares........................................... 16 Section 7. Lost, Stolen or Destroyed Certificates....................... 17 Section 8. Representation of Shares of Other Companies.................. 17 Section 9. Construction and Definitions................................. 17 Section 10. Amendments................................................... 17 Section 11. Conformance to the Law....................................... 17 Section 12. Seal......................................................... 17 Section 13. Fiscal Year.................................................. 17 Section 14. Dividends; Surplus........................................... 17
ii BYLAWS OF FOX KIDS WORLDWIDE, INC. A DELAWARE CORPORATION ARTICLE I CORPORATE OFFICES ----------------- Section 1. Registered Office. The registered office of Fox Kids ----------------- Worldwide, Inc. (the "Company") in the State of Delaware is hereby located at 9 East Loockerman Street, City of Dover, County of Kent, 19901. Section 2. Principal Office. The principal office of the Company is ---------------- hereby located at 10960 Wilshire Boulevard, Los Angeles, California 90024. The Board of Directors (herein referred to as the "Board") is hereby granted the full power and authority, by a resolution of a majority of the directors, to change the principal office from one location to another. Any such change shall be noted in these Bylaws opposite this section, and this section may be amended to state the new location. Section 3. Other Offices. The Company may establish any additional ------------- offices, at any place or places, as the Board may designate, or as the business of the Company shall require. ARTICLE II STOCKHOLDERS MEETINGS --------------------- Section 1. Place of Meeting. Meetings of the Stockholders of the Company ---------------- shall be held at the principal office or at such place, within or without the State of Delaware, as may from time to time be designated for that purpose either by the Board or by the written consent of all persons entitled to vote thereat and not present at the meeting, given either before or after the meeting and filed with the Secretary of the Company. Section 2. Annual Meetings. The annual meeting of the Stockholders shall --------------- be held on such date and at such time designated, from time to time, by resolution of the Board. Section 3. Special Meetings. Special meetings of the Stockholders for the ---------------- purpose of taking any action which the Stockholders are permitted to take under the General Corporation Law of the State of Delaware (herein, as the same may from time to time be amended, referred to as the "DGCL") may be called at any time by the Chairman of the Board of Directors, either President, or by order of the Board of Directors. Section 4. Notice of Meetings. Except as otherwise provided by statute, ------------------ written or printed notice of each meeting of the Stockholders of the Company, whether annual or special, shall be given not less than ten nor more than sixty days prior to the date upon which the meeting is to be held to each Stockholder entitled to vote at such meeting by leaving such notice with him personally at, or by transmitting such notice with confirmed delivery (including telex, telegraph, cable or other form of recorded communication, provided that delivery of such notice in written form is confirmed in a writing) to, his residence or usual place of business. If mailed, such notice shall be deemed delivered when deposited in the United States mail in a sealed envelope addressed to the Stockholder at his address as it appears on the stock records of the Company, with postage thereon prepaid. Such notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken and, at the adjourned meeting, such business may be transacted as might properly have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. Notice of a Stockholders' meeting or adjournment thereof is waived upon the occurrence of the following: (a) A Stockholders' meeting is adjourned and a time and place for readjournment is announced at the meeting at which the adjournment is taken, and such date of readjustment is no more than 30 days from the date of adjournment. (b) Receipt by the Company of a written notice of waiver, signed by the person entitled to notice before or after the time stated therein. (c) Attendance by the person entitled to notice and failure of such person to object to the transaction of any business because the meeting is not lawfully called or convened. Whenever notice is required to be given under any statute or the Certificate of Incorporation or these Bylaws to any Stockholder to whom (a) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings or (b) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve month period, have been mailed addressed to such person at his address as shown on the records of the Company and have been returned undeliverable, the giving of notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the Company a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. 2 In the event that the action taken by the Company is such as to require the filing of a certificate under any of the other sections of the DGCL, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this Section 4. Section 5. Quorum. On all questions, the presence of the holders of a ------ majority of the shares entitled to vote, in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the Stockholders. On all questions, the Stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough Stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 6. Adjourned Meeting. Any Stockholders' meeting, annual or ----------------- special, whether or not a quorum is present, may be adjourned by vote of a majority of the shares present, either in person or by proxy, but in the absence of a quorum no other business may be transacted at such meeting, except as expressly provided in Section 5 of this Article. Section 7. Voting. ------ (a) The Stockholders entitled to notice of any meeting or to vote at such meeting shall only be persons whose names stand on the stock records of the Company on the record date determined in accordance with the provisions of Section 12 of this Article; provided, however, that if no such record date shall -------- ------- be fixed by the Board, only persons in whose names shares stand on the stock records of the Company at the close of business on the business day next preceding the day on which notice of the meeting is given or if such notice is waived, at the close of business on the business day next preceding the day on which the meeting of Stockholders is held, shall be entitled to vote at such meeting, and such day shall be the record date for such meeting. (b) Voting shall in all cases be subject to the provisions of Sections 217 and 218 of the DGCL (relating to voting of shares held by fiduciaries, or pledges, held in joint ownership, and voting of shares by voting trusts or in accordance with other voting agreements). (c) At each meeting of the Stockholders of the Company, holders of a majority of the voting power of the Company entitled to vote thereat, present either in person or by proxy, shall constitute a quorum for the transaction of business. In the absence of a quorum, the Stockholders of the Company present in person or by proxy and entitled to vote at the meeting may, by majority vote, or, in the absence of all Stockholders, any officer entitled to preside or act as Secretary at such meeting, shall have the power to adjourn the meeting from time to time until Stockholders holding the requisite amount of stock shall be present in person or by proxy. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. 3 (d) Each Stockholder of the Company entitled to vote on such questions shall be entitled to vote in person or by proxy one vote for each share of Class A Common Stock and ten votes for each share of Class B Common Stock of the Company held by such Stockholder. Unless otherwise provided in the Certificate of Incorporation or by statute, a casting in the affirmative of a majority of the votes represented and voting at a duly held meeting at which a quorum is present shall be the act of the Stockholders. Unless demanded by a Stockholder present in person or by proxy at any meeting and entitled to vote thereat, the vote on any question need not be by ballot. Upon demand for a vote by ballot upon any question by any Stockholder present in person or by proxy at any meeting and entitled to vote thereat, such vote shall be taken by ballot. On any vote taken by ballot, each ballot shall be signed by the Stockholder voting, or by his lawful proxy, and shall state the number and kind of shares voted. Section 8. Proxies. Each Stockholder entitled to vote at a meeting of ------- Stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of such meeting, at or prior to the time designated in the order of business for so delivering such proxies. A duly elected proxy shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Company generally. Section 9. Stockholder List. The officer who has charge of the stock ---------------- ledger of the Company shall prepare and make, at least ten days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list also shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. Section 10. Consent of Stockholders in Lieu of Meeting. Any action ------------------------------------------ required to be taken, or that may be taken, at any annual or special meeting of the Stockholders of the Company, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action to be taken, shall have been signed by the holders of outstanding stock, eligible to vote on such action, having not less than the minimum number of votes of each class of stock that would be necessary to authorize or take such action at a meeting at which all shares of each class of stock entitled to vote thereon were present and voted. 4 The Secretary shall give prompt notice of the taking of any corporate action without a meeting by less than unanimous written consent to those Stockholders who have not consented in writing. Section 11. Inspectors of Election. In advance of any meeting of the ---------------------- Stockholders, the Board shall appoint at least one person, other than nominees for office as inspectors of election to act at such meeting or any adjournment thereof. The number of such inspectors of election shall be one or three. In case any person appointed as inspector fails to appear or refuses to act, the vacancy shall be filled by appointment by the Board in advance of the meeting, or at the meeting by the chairman of the meeting. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. The duties of each such inspector shall include: determining the number of shares outstanding and voting power of each; determining the shares represented at the meeting; determining the existence of a quorum; determining the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; retaining for a reasonable period the disposition of any challenges made to the inspector's determinations; counting and tabulating all votes; determining when the polls shall close; determining the result of any election; certifying the determination of the number of shares represented at the meeting, and the count of all votes and ballots; certifying any information considered in determining the validity and counting of proxies and ballots if that information is used for the purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the Stockholder holds of record; and performing such acts as may be proper to conduct the election or vote with fairness to all Stockholders. Section 12. Record Date. In order that the Company may determine the ----------- Stockholders entitled to notice of or to vote at any meeting of Stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (a) The record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; 5 (b) The record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; (c) The record date for determining Stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of Stockholders of record entitled to notice of or to vote at a meeting of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned - -------- ------- meeting. Section 13. Procedures for Meetings. All meetings of Stockholders shall ----------------------- be conducted according to such rules and procedures as the Board of Directors may establish by resolution from time to time as being in the best interests of the Stockholders and as may be deemed appropriate for insuring that such meetings are conducted in a fair and orderly manner and in accordance with the Certificate of Incorporation and these Bylaws. Section 14. Opening and Closing of Polls. An announcement shall be made ---------------------------- at each meeting of the Stockholders by the chairman of the meeting of the date and time of the opening and closing of polls for each matter upon which the Stockholders will vote at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Delaware Court of Chancery upon application by a Stockholder shall determine otherwise. ARTICLE III BOARD OF DIRECTORS ------------------ Section 1. Powers. The business and affairs of the Company shall be ------ managed by, or under the direction of the Board, except as may be otherwise provided by the DGCL or in the Certificate of Incorporation or these Bylaws. Without prejudice to such powers, but subject to the same limitation, it is hereby expressly declared that the directors shall have the following powers in addition to other powers enumerated in these Bylaws: (a) To select and remove all officers, agents and employees of the Company; prescribe any powers and duties for them that are consistent with law, with the Certificate of Incorporation, and with these Bylaws; fix their compensation; and require from them security for faithful service; (b) To conduct, manage and control the affairs and business of the Company, and to make rules and regulations therefor consistent with law, with the Certificate of Incorporation and with these Bylaws; 6 (c) To change the offices of the Company from one location to another; to fix and locate from time to time one or more other offices of the Company within or without the State of Delaware; to cause the Company to be qualified to do business and to conduct business in any other state, territory, dependency or country; and to designate any place within or without the State of Delaware for the holding of any Stockholders meeting or meetings, including annual meetings; (d) To adopt, make and use a corporate seal; to prescribe the forms and certificates of stock; and to alter the form of the seal and certificates; (e) To authorize the issuance of shares of stock of the Company from time to time, upon such terms and for such consideration as may be lawful; (f) To borrow money and incur indebtedness for the purposes of the Company, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, and other evidences of debt and securities therefor. Section 2. Number and Qualification. The number of directors of the ------------------------ Company shall be not less than three (3) nor more than twelve (12), the actual number to be fixed from time to time by resolution of the Board. The actual number of directors until changed by subsequent resolution of the Board shall be eight (8). Directors need not be Stockholders of the Company unless required by the Certificate of Incorporation. Section 3. Election and Term of Office. Members of the initial Board --------------------------- shall hold office until the first annual meeting of Stockholders and until their successors have been elected and qualified. The directors of the Company shall be elected at the annual meeting of the Stockholders, but if such annual meeting is not held or the directors are not elected thereat, the directors may be elected at a special meeting held for that purpose. Each director shall hold office until the next annual meeting and until a successor is elected and qualified. Section 4. Vacancies. --------- (a) Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the Stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (b) If at any time, by reason of death or resignation or other cause, the Company should have no directors in office, then any officer or any Stockholder or an executor, administrator, trustee or guardian of a Stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a Stockholder, may call a special meeting of Stockholders in accordance with the provisions of the Certificate of Incorporation and the Bylaws 7 or may apply to the Delaware Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL. (c) If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any Stockholder or Stockholders holding at least 10 percent of the total number of shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by Section 211 of the DGCL. (d) Unless otherwise provided in the Certificate of Incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in these Bylaws. (e) Any director or the entire Board may be removed, with or without cause, by the holders of [75]% of the shares then entitled to vote at an election of directors. (f) Any director may resign effective upon giving written notice to the Chairman of the Board, either President, the Secretary or the Board, unless the notice specifies a later date for the effectiveness of such resignation. Section 5. Place of Meeting. Unless otherwise provided in the Certificate ---------------- of Incorporation, or by unanimous written consent of all acting directors, meetings, both regular and special, of the Board shall be held at the Company's principal executive offices within the State of California or at such other place or places within or without the State of Delaware, as the Board may from time to time determine. Section 6. Regular Meetings. Immediately following each annual meeting of ---------------- the Stockholders, the Board shall hold a regular meeting at the same place at which such Stockholders' meeting is held, or any other place as may be fixed from time to by the Board. Notice of such meeting need not be given. Other regular meetings of the Board shall be held without call at such time and place as the Board may from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday. Notice of a regular meeting need not be given. 8 Section 7. Special Meetings. Except as otherwise provided in the ---------------- Certificate of Incorporation, special meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, either President, the Secretary or by any three directors. Written notice of the time and place of special meetings shall be delivered personally to each director or communicated to each director by telephone or telegraph or telex or cable or mail or other form of recorded communication, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Company or, if it is not so shown on such records or is not readily ascertainable, at that director's residence or usual place of business. In case such notice is mailed, it shall be deposited in the United States mail at least seven days prior to the time of the holding of the meeting. In case such notice is delivered personally or by other form of written communication, it shall be delivered at least 48 hours before the time of the holding of the meeting. The notice shall state the time of the meeting, but need not specify the place of the meeting if the meeting is to be held at the principal executive office of the Company. The notice need not state the purpose of the meeting unless expressly provided otherwise by statute. Section 8. Meetings by Communication Equipment. Members of the Board, or ----------------------------------- any committee designated by the Board, may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. Section 9. Quorum and Manner of Acting. The presence of a majority of the --------------------------- total number of directors shall constitute a quorum for the transaction of business, and the act of 75% of all directors shall be the act of the Board. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. Notice of an adjourned meeting need not be given. Section 10. Validation of Defectively Called or Noticed Meetings. The ---------------------------------------------------- transactions of any meeting of the Board, however called and noticed or wherever held, shall be as valid as though made or performed at a meeting duly held after regular call and notice, if, either before or after the meeting, each of the directors not present or who, though present, has prior to the meeting or at its commencement protested the lack of proper notice to such director, signs a written waiver of notice or a consent to holding such meeting or approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 11. Action Without Meeting. Any action required or permitted to ---------------------- be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee. 9 Section 12. Compensation of Directors. Directors and members of ------------------------- committees may receive such compensation, if any, for their services, and such reimbursement for expenses incurred by them, as may be fixed or determined by resolution of the Board. Section 13. Committees. The Board may, by resolution passed by a majority ---------- of the directors, designate one or more committees, each committee (other than the Audit and Compensation Committees) to consist of four directors of the Company. All actions by such committee(s) will require the affirmative vote of three of its four members. The Audit and Compensation Committees shall have two members, [each of which shall be independent directors not otherwise employed by the Company.] The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company, with the exception of any authority the delegation of which is prohibited by Section 141 of the DGCL and may authorize the seal of the Company to be affixed to all papers which may require it. Any director may be removed from a committee with or without cause by the affirmative vote of a majority of the entire Board. ARTICLE IV OFFICERS -------- Section 1. Officers. The officers of the Company shall be a Chairman, a -------- Chief Executive Officer, two Presidents (who collectively operate the Office of the President), a Chief Financial Officer and a Secretary. The Company may also have, at the discretion of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. Any number of offices may be held by the same person. Section 2. Election of Officers. The officers of the Company, except such -------------------- officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the Board, and each shall serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of employment or other contractual arrangement with the Company or its affiliates which prohibits his removal by the Board. Section 3. Subordinate Officers. The Board may appoint, and may empower -------------------- the Chief Executive Officer to appoint, such other officers as the business of the Company may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as the Board or Chief Executive Officer may from time to time determine. 10 Section 4. Removal and Resignation of Officers. Without prejudice to the ----------------------------------- rights, if any, of an officer under any contract of employment or other contractual arrangement with the Company or its affiliates which prohibits his removal by the Board, any officer may be removed, either with or without cause, by the Board, at any regular or special meeting of the Board, or by any officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party. Section 5. Vacancies in Offices. A vacancy in any office because of -------------------- death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular election or appointment to such office. Section 6. Chairman of the Board. The Chairman of the Board, if such an --------------------- officer be elected, shall, if present, preside at all meetings of the Board and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board. Section 7. Chief Executive Officer. Subject to such supervisory powers, ----------------------- if any, as may be given by the Board to the Chairman of the Board, the Chief Executive Officer, if such an officer be elected, shall, subject to the control of the Board and the Chairman, have general supervision, direction and control of the business and the officers of the Company. The Chief Executive Officer shall preside at all meetings of the Stockholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board. The Chief Executive Officer shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Board. Section 8. Office of the President. Subject to such supervisory powers, ----------------------- if any, as may be given by the Board to the Chairman of the Board and the Chief Executive Officer, if there be such officers, the Office of the President shall, subject to the control of the Board, have general supervision, direction, and control of the business and the officers of the Company (other than the Chairman and Chief Executive Officer). The Office of the President shall consist of two Presidents of equal authority to act on behalf of the Company. At least one President shall preside at all meetings of the Stockholders in the absence of the Chairman and the Chief Executive Officer, and, in the absence of the Chairman and the Chief Executive Officer, at all meetings of the Board. Each President shall have the general powers and duties of management usually vested in the office of the president and general manager of a corporation, and shall have such other powers and duties as may be prescribed by the Board and the Chief Executive Officer. 11 Section 9. Vice Presidents. In the absence or disability of the Chairman, --------------- the Chief Executive Officer and both Presidents, the Vice Presidents, if any, in order of their rank as fixed by the Board, or, if not ranked, the Vice President designated by the Board shall perform all the duties of such officer, and when so acting shall have all the powers of, and be subject to all the restrictions upon, such offices. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board, the Chief Executive Officer or the Office of the President. Section 10. Secretary. The Secretary shall keep, or cause to be kept, at --------- the principal executive office or such other place as the Board may direct, a book of minutes of all meetings and actions of directors, committees of directors, and Stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at Stockholders' meetings, and the proceedings. The Secretary shall give, or cause to be given, notice of all meetings of the Stockholders and of the Board required by the Bylaws or by law to be given, and he shall keep the seal of the Company, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board. Section 11. Chief Financial Officer. The Chief Financial Officer shall ----------------------- keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Company, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares, and shall send or cause to be sent to the Stockholders of the Company such financial statements and reports as are by law or these Bylaws required to be sent to them. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all monies and other valuables in the name or to the credit of the Company with such depositories as may be designated by the Board. The Chief Financial Officer shall disburse the funds of the Company as may be ordered by the Board, shall render to the Presidents and directors, whenever they request it, an account of all transactions undertaken as Chief Financial Officer and of the financial condition of the Company, and shall have such other powers and perform such other duties as may be prescribed by the Board. ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS ------------------------------------ Section 1. Agents, Proceedings and Expenses. For the purposes of this -------------------------------- Article, "agent" means any person who is or was a director, officer, employee or other agent of the corporation, or is or was a director, officer, employee or other agent of the corporation as a 12 director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under Section 2 or Section 3 of this Article. Section 2. Actions Other Than By The Company. The Company shall have the --------------------------------- power to indemnify any person who was or is a party or is threatened to be made a party to any threat ened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was an agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 3. Actions by the Company. The Company shall have power to ---------------------- indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was an agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. 13 Section 4. Successful Defense by Agent. To the extent that a director, --------------------------- officer, employee or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 2 and 3 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 5. Required Approval. Any indemnification under Sections 1 and 2 ----------------- of this Article (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 2 and 3. Such determination shall be made (a) by the Board by a 75% vote [of a quorum] consisting of directors who were not parties to such action, suit or proceeding, or (b) if such disinterested directors so direct, by independent legal counsel in a written opinion, or (c) by the affirmative vote of a majority of Stockholders. Section 6. Advance of Expenses. Expenses incurred in defending a civil or ------------------- criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized by the Board in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Company as authorized in this Article. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. Section 7. Contractual Rights. The indemnification provided by this ------------------ Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any agreement, vote of Stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 8. Limitations. No indemnification or advance shall be made under ----------- this Article, except as provided in Section 4 of this Article, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the Certificate of Incorporation, a resolution of the Stockholders or an agreement in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. Section 9. Insurance. The Company shall have the power to purchase and --------- maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the 14 Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Article. Section 10. Constituent Corporations. For purposes of this Article, ------------------------ references to "the Company" shall include, in addition to the Company, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 11. Definitions. For purposes of this Article, references to ----------- "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Article. ARTICLE VI MISCELLANEOUS ------------- Section 1. Inspection of Books and Records by Stockholders. Any ----------------------------------------------- Stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Company's stock ledger, a list of its Stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a Stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the Stockholder. The demand under oath shall be directed to the Company at its registered office in the State of Delaware or at its principal place of business. 15 Section 2. Inspection of Books and Records by Directors. Any director -------------------------------------------- shall have the right to examine the Company's stock ledger, a list of its Stockholders and its other books and records for a purpose reasonably related to his position as a director. Such right to examine the books and records of the Company shall include the right to make copies and extracts therefrom. Section 3. Checks, Drafts, Evidences of Indebtedness. All checks, drafts ----------------------------------------- or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Company, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Section 4. Corporate Contracts and Instruments; How Executed. The Board, ------------------------------------------------- except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Company, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the Company by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 5. Certificates for Shares. Every holder of stock in the Company ----------------------- shall be entitled to have a certificate signed by, or in the name of the Company by the Chairman, Chief Executive Officer or either President, and by the Chief Financial Officer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company representing the number of shares owned by him in the Company. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 6. Transfer of Shares. Transfers of shares of the capital stock ------------------ of the Company shall be made only on the books of the Company by the holder thereof, or by his attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary of the Company or a transfer agent of the Company, if any, and on surrender of the certificate or certificates for such shares properly endorsed. A person in whose name shares of stock appear on the books of the Company shall be deemed the owner thereof as regards the Company, and upon any transfer of shares of stock the person or persons into whose name or names such shares shall have been transferred, shall enjoy and bear all rights, privileges and obligations of holders of stock of the Company as against the Company or any other person or persons. The term "person" or "persons" wherever used herein shall be deemed to include any partnership, corporation, association or other entity. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact, if known to the Secretary or to such transfer agent, shall be so expressed in the entry of transfer. 16 Section 7. Lost, Stolen or Destroyed Certificates. The Company may issue -------------------------------------- a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 8. Representation of Shares of Other Companies. The Chairman of ------------------------------------------- the Board, Chief Executive Officer, each President or any person designated by any of such officers, is authorized, in the absence of authorization by the Board, to vote on behalf of the Company any and all shares of any other corporation or corporations, foreign or domestic, for which the Company has the right to vote. The authority granted to these officers to vote or represent on behalf of the Company any and all shares held by the Company in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by proxy duly executed by these officers. Section 9. Construction and Definitions. Unless the context requires ---------------------------- otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural and the plural number includes the singular. Section 10. Amendments. Unless otherwise provided in the Certificate of ---------- Incorporation, the power to adopt, amend or repeal any Bylaws of the Company shall be in the Board of Directors or Stockholders of the Company entitled to vote. Section 11. Conformance to the Law. In the event that it is determined ---------------------- that these Bylaws, as now written or as amended, conflict with the DGCL, or any other applicable law, as now enforced or as amended, these Bylaws shall be deemed amended, without action of the Board or the Stockholders, to conform with such law. Such amendment to be so interpreted as to bring these Bylaws within minimum compliance. For purposes of this section "amendment" shall include a repeal of, or a change in interpretation of, the relevant compendium. Section 12. Seal. The Board of Directors shall provide a corporate seal, ---- which shall be in the form of a circle and shall have inscribed thereon the name of the Company, the year of its incorporation and the words "Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 13. Fiscal Year. The fiscal year of the Company shall begin on ----------- the first day of July of each year. Section 14. Dividends; Surplus. Subject to the provisions of the ------------------ Certificate of Incorporation and any restrictions imposed by statute, the Board may declare dividends out of the net assets of the Company in excess of its capital or, in case there shall be no such excess, 17 out of the net profits of the Company for the fiscal year then current and/or the preceding fiscal year, or out of any funds at the time legally available for the declaration of dividends (hereinafter referred to as "surplus or net profits") whenever, and in such amounts as, in its sole discretion, the conditions and affairs of the Company shall render advisable. The Board in its sole discretion may, in accordance with law, from time to time set aside from surplus or net profits such sum or sums as it may think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for the purpose of maintaining or increasing the property or business of the Company, or for any other purpose as it may think conducive to the best interests of the Company. 18 EX-10.1 5 STRATEGIC STOCK HOLDERS AGREEMENT DATED 12/22/95 Exhibit 10.1 Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "x" indicating deleted information. EXHIBIT 10.1 STRATEGIC STOCKHOLDERS AGREEMENT This Strategic Stockholders Agreement (the "Agreement") is made and entered into as of December 22, 1995, by and among Saban Entertainment, Inc., a Delaware corporation ("SEI"), Haim Saban ("Saban"), each of the entities listed on Schedule "A" hereto (the "SEI Entities" and, with Saban, the "SEI Stockholders"), Fox Broadcasting Company, a Delaware corporation ("FBC," and, together with the SEI Stockholders, the "Shareholders"), FCN Holding, Inc., a Delaware corporation ("FCNH") and FCNH Sub, Inc., a Delaware corporation ("FCNH Sub"). R E C I T A L S --------------- A. The SEI Stockholders own, in the aggregate, 800 shares of the common stock, par value $0.01 per share, of SEI (the "SEI Common Stock"), constituting all of the shares of SEI Common Stock outstanding on the date hereof. B. FBC owns 800 shares of the common stock, without par value, of FCNH (the "FCNH Common Stock", and with the SEI Common Stock, the "Shares"), constituting all of the shares of FCNH Common Stock outstanding on the date hereof. C. Concurrent with the execution of this Agreement, the closing under that certain LLC Formation Agreement, dated as of November 1, 1995, among SEI, FBC and FCNH (the "LLC Formation Agreement") has occurred; the LLC Formation Agreement provides, among other things, for the formation of FOX KIDS WORLDWIDE L.L.C., a Delaware limited liability company (the "Management Company"), and the execution and delivery of this Agreement is a condition to that closing. D. The SEI Stockholders and FBC desire to maximize the long-term strategic values of their respective corporations, and have determined that it would be in their respective best interests to achieve this objective by entering into a strategic alliance for the purpose of sharing with each other their respective strengths, to the mutual benefit of all of them, all on the terms and conditions of this Agreement, the LLC Formation Agreement, and the other agreements referred to herein or therein (collectively, the "Alliance Agreements"). A G R E E M E N T ----------------- NOW, THEREFORE, in consideration of the foregoing facts and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Defined Terms. The terms defined in Exhibit "A", which is ------------- incorporated herein by this reference, shall have the same meanings when used herein. 2. Restrictions on Transfer. ------------------------ (a) General Restriction. Except as permitted in this Agreement, none ------------------- of the Shares may be transferred. ANY ATTEMPTED TRANSFER OF SEI COMMON STOCK OR FCNH COMMON STOCK OTHER THAN IN ACCORDANCE WITH THIS AGREEMENT SHALL BE NULL AND VOID AND OF NO FORCE OR EFFECT. (b) No Liens. Except as specifically contemplated hereby, no Shares -------- may be voluntarily subjected to a Lien by any party hereto, and any such Lien shall be NULL AND VOID AND OF NO FORCE OR EFFECT. (c) Effect of Transfers. Except for transfers covered by Section ------------------- 3(a)(i) or 3(a)(ii): (i) any Shares transferred in a transaction permitted hereunder shall remain subject to all of the terms and provisions hereof as if they were still owned by the transferor, and, without limiting the foregoing, (x) all transfers of Shares by the transferee shall be subject to this Agreement; and (y) SEI Common Stock transferred shall remain subject to the Options granted in Section 7 hereof, and shall be transferred and sold at the same time as the other shares of SEI Common Stock are transferred and sold pursuant thereto; (ii) the transferee shall enter into a written agreement for the benefit of the parties hereto, prepared by the corporation which is the issuer of such Shares and in form and substance reasonably acceptable to Saban and FBC, to be bound by the provisions of this Agreement relating to the transferred Shares; and (iii) unless Saban and FBC shall otherwise agree, the transferor of such Shares shall remain fully liable for all of its obligations with respect to such Shares hereunder. 3. Permitted Transfers. Subject to Section 2(c), Shares may be ------------------- transferred under the circumstances, and strictly upon the terms and conditions of, any one of the following Sections: (a) Public Transfers. Any Shareholder may transfer any or all its ---------------- Shares free and clear of any and all obligations and restrictions imposed on such Shares under this Agreement: (i) pursuant to the "Initial Public Offering" (as defined below) or otherwise in a public offering effected in accordance with the provisions of the "Registration Agreement" (as defined below); or (ii) at any time or from time to time following the Initial Public Offering, in a transaction effected on or through the facilities of a national securities exchange or an automated quotations system. 2 Any Shares transferred pursuant to this Section 3(a) shall cease to be "Shares" under, or subject to, this Agreement; and without limiting the generality of the foregoing, such Shares shall cease to be subject to the Options granted in Section 7 of this Agreement. (b) Transfers to Family Members or Trusts. The SEI Stockholders, or ------------------------------------- any of them, may transfer all or any portion of their respective Shares, by death or inter vivos, to any other SEI Stockholders, to any of Saban's family ----- ----- members (including the "spouse" of an "affected SEI Stockholder" (as defined below)), to any trust established solely for the benefit of one or more of Saban's family members, or to any legal entity in which Saban or any such Persons are the sole beneficial owners; provided, however, that the Shares -------- ------- transferred to the executor of an estate, in the case of death, to any such family member, trust or legal entity shall be subject to the provisions of this Agreement. In the event of the dissolution of the marital relationship of any SEI Stockholder, including Saban, or in the event of the execution of a binding agreement or issuance of an order with respect to marital property of any SEI Stockholder, including Saban, any and all Shares transferred pursuant thereto to the spouse (or ex-spouse) (herein, the "spouse") of such SEI Stockholder (the "affected SEI Stockholder") shall be subject to all of the provisions of this Agreement, including the provisions of Section 4 and Section 7 hereof; provided, -------- that if the spouse desires to transfer any or all of such Shares pursuant to the provisions of Section 4 hereof, the spouse shall first offer to sell to the affected SEI Stockholder the Shares proposed to be transferred, and all of the procedures of Section 4 shall apply thereto (with all references therein to "Transferor" applying to the spouse, and all references to the "offeree" therein applying to the affected SEI Stockholder); and the provisions of Section 8 of this Agreement shall continue to be applicable to such spouse, notwithstanding such dissolution or order. (c) Transfer to Affiliates. Any Shareholder may transfer all or any ---------------------- portion of its Shares to a direct or indirect wholly-owned subsidiary of the Shareholder (or, with respect to a Shareholder which is a natural person, a corporation or other Person wholly-owned by the Shareholder), or, with respect to FBC, to a Fox Inc. Subsidiary. A "Fox Inc. Subsidiary" is Twentieth Holdings Corp. and any Person in which Fox Inc., a Colorado corporation, or Twentieth Holdings Corp., a Delaware corporation, is the sole beneficial owner (either directly or indirectly through one or more wholly-owned subsidiaries) of all of the outstanding voting securities of that Person. If any transferee subsidiary, including a Fox Inc. Subsidiary, loses its status as such, it shall, within 30 days of the occurrence of such event, transfer all of its Shares to a Person which is then wholly-owned by a Shareholder, or a Fox, Inc. Subsidiary, as the case may be, which transfer shall be effected in compliance with all other applicable provisions of this Agreement. 3 (d) Other Permitted Transfers. Any Person may effect a transfer ------------------------- authorized by Sections 4, 6, 7 of this Agreement, or under and pursuant to the "Stock Ownership Agreement," (as defined in Section 7(b) below). 4. Refusal Rights. No Shares may be transferred pursuant to this Section -------------- 4 prior to the first to occur of (i) the Initial Public Offering (subject to the provisions of the Registration Agreement) or (ii) December 13, 1998. (a) Offer. [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX ----- XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] (b) Manner of Payment. Payment of the purchase price for the offered ----------------- Shares may, at the election of the offeree, be made by either (i) bank cashiers' check in immediately available funds made payable to the order of the Transferor, or (ii) wire transfer of immediately available funds to a designated bank account of the offeree. (c) Acceptance and Closing. Transferor's offer may be accepted only ---------------------- by delivering to Transferor written notice of acceptance prior to the expiration of the offer period; provided, that such acceptance may be made subject to the -------- final determination of the Fair Market Value of any non-cash consideration, in which event such acceptance shall so state, and be accompanied by the offeree's estimate of such Fair Market Value; and if the actual Fair Market Value differs in any material respect from the offeree's estimate, the offeree may, within four business days following receipt of the final determination of Fair Market Value, withdraw its acceptance of the offer. If the offer is accepted and not withdrawn as aforesaid, the closing of the sale shall take 4 place at the time and place, and upon the terms, specified in the offer; provided, however, that if the offeree disputes the Transferor's estimate of the - -------- ------- Fair Market Value of any non-cash consideration, the closing shall be delayed to five business days following the date of final determination of such Fair Market Value, and if the purchase and sale of such Shares requires the obtaining of any regulatory approvals or compliance with any other laws, the closing shall be delayed for such time as is reasonably necessary to obtain such approvals and comply with such laws; and provided further, however, that if the seeking of -------- ------- such regulatory approvals and compliance with other applicable laws delays the closing by more than 90 days, at any time subsequent to such 90-day period and prior to the closing, the Transferor may, by written notice to offeree, treat such delay as a rejection of the offer, and, following delivery of such notice, the provisions of Section 4(d) shall be applicable; and provided further, if the Management Company, SEI, FCNH or any of their respective Subsidiaries then owns or controls a television broadcasting station operating under a license issued by the Federal Communications Commission ("FCC"), and as a result of the proposed transfer approval by the FCC is required, then such 90-day period referred to in the preceding proviso shall be a one-year period. At the closing, Transferor shall deliver to the offeree documents of transfer in form and substance reasonably acceptable to the offeree and its counsel, necessary to vest in the offeree good and marketable title to the Shares so sold, free and clear of any and all Liens, other than those imposed under or pursuant to this Agreement, against delivery by the offeree to the Transferor of the purchase price therefor. (d) Sale Pursuant to Bona Fide Offer. If the offeree fails to -------------------------------- accept, or rejects, Transferor's offer, then, subject to the provisions of Section 2(c), Transferor shall have the right to sell to the Person specified in the Bona Fide Offer the Shares so offered pursuant to the terms and conditions specified in the Bona Fide Offer or otherwise on terms and conditions no less favorable to Transferor than the terms set forth in the Bona Fide Offer; provided, that such sale is consummated within ninety days of the date of - -------- delivery of Transferor's offer. (e) Transferred Shares Subject to Agreement. All Shares transferred --------------------------------------- pursuant to this Section 4 shall continue to be subject to this Agreement. 5. Covenants and Voting Agreements. ------------------------------- (a) Of FBC and FCNH. Except as provided in or contemplated by this --------------- Agreement or the LLC Formation Agreement, without the prior written consent of Saban, which consent may be withheld by Saban at his sole and absolute discretion, FCNH shall not, and FBC shall take any and all actions necessary to cause FCNH not to: (i) issue or sell any FCNH Common Stock, or authorize, issue or sell any shares of any other class or series of capital stock of FCNH, or any options, warrants or rights to subscribe for or acquire, with or without additional consideration, any shares of 5 FCNH Common Stock or other class or series of FCNH capital stock; (ii) merge or consolidate with any other Person; (iii) declare or pay any dividends or distributions on or with respect to its outstanding securities, or make any other payments, whether in the form of advances or loans, to FBC or any of its Affiliates; (iv) sell, lease or dispose of any assets; (v) liquidate, dissolve, recapitalize or reorganize in any form of transaction; (vi) engage in any business or other material activity, other than that of holding its interest in the Management Company, in FCNH Sub or own any other non-cash equivalent assets; (vii) amend its Certificate of Incorporation or By-Laws; (viii) breach or fail to perform any of its obligations under the Operating Agreement of the Management Company, dated as of the date hereof, between SEI, FBC and FCNH (as such agreement may from time to time be amended, the "Operating Agreement"); (ix) do any act, or permit any act to be done, which would result in FCNH being unable to perform its obligations under this Agreement; (x) do any act, or permit any act to be done, which would result in FCN being unable to perform its obligations under the Management Agreement of even date herewith among, inter ----- alia, the Management Company, SEI and FCNH Sub (the "Management Agreement") or - ---- the other Alliance Agreements to which it is a party; or (xi) enter into any commitment or agreement directly or indirectly to effect any of the foregoing. (b) Of FNCH and FCNH Sub. Except as provided in or contemplated by -------------------- this Agreement or the LLC Formation Agreement, without the prior written consent of Saban, which consent may be withheld by Saban at his sole and absolute discretion, FCNH Sub shall not, and FNCH shall take any and all actions necessary to cause FCNH Sub not to: (i) issue or sell any FCNH Sub Common Stock, or authorize, issue or sell any shares of any other class or series of capital stock of FCNH Sub, or any options, warrants or rights to subscribe for or acquire, with or without additional consideration, any shares of FCNH Sub Common Stock or other class or series of FCNH Sub capital stock; (ii) merge or consolidate with any other Person; (iii) declare or pay any dividends or distributions on or with respect to its outstanding securities, or make any other payments, whether in the form of advances or loans, to FCNH or any of its Affiliates; (iv) sell, lease or dispose of any assets; (v) liquidate, dissolve, recapitalize or reorganize in any form of transaction; (vi) engage in any business or other material activity, other than that of holding its interest in FCN and FCP; (vii) amend its Certificate of Incorporation or By-Laws; (viii) do any act, or permit any act to be done, which would result in FCNH Sub being unable to perform its obligations under this Agreement; (ix) do any act, or permit any act to be done, which would result in FCNH Sub or FCN being unable to perform its obligations under the Management Agreement of even date herewith among, inter alia, the Management Company, SEI and FCNH Sub (the "Management ----- ---- Agreement") or the other Alliance Agreements to which it is a party; (x) breach or fail to perform any of its obligations under the Management Agreement; or (xi) enter into any commitment or agreement directly or indirectly to effect any of the foregoing. 6 (c) Of Saban, the SEI Stockholders and SEI. Except as provided in or -------------------------------------- contemplated by this Agreement or the LLC Formation Agreement, without the prior written consent of FBC, which consent may be withheld by FBC at its sole and absolute discretion, SEI shall not, and Saban and the SEI Stockholders shall take any and all actions necessary to cause SEI not to: (i) issue or sell any SEI Common Stock other than pursuant to options and warrants outstanding on the date hereof, or authorize, issue or sell any shares of any other class or series of capital stock of SEI, or any options, warrants or rights to subscribe for or acquire, with or without additional consideration, any shares of SEI Common Stock or other class or series of SEI capital stock other than pursuant to agreements existing as of the date hereof; (ii) merge or consolidate with any other Person; (iii) declare or pay any dividends or distributions on or with respect to its outstanding securities, or make any other payments, whether in the form of advances or loans, to Saban and the SEI Stockholders or any of their Affiliates; (iv) sell, lease or dispose of any assets other than in the ordinary course of business; (v) liquidate, dissolve, recapitalize or reorganize in any form of transaction; (vi) amend its Certificate of Incorporation or By-Laws; (vii) breach or fail to perform any of its obligations under the Operating Agreement or the Management Agreement; (viii) do any act, or permit any act to be done, which would result in SEI being unable to perform its obligations under this Agreement or the Management Agreement or the other Alliance Agreements to which it is a party; or (ix) enter into any commitment or agreement directly or indirectly to effect any of the foregoing. (d) Performance. (i) Each of the SEI Stockholders shall take any and ----------- all actions within their power as stockholders of SEI, including the calling of special meetings of the stockholders of SEI and the voting of the SEI Common Stock owned by them, required to cause SEI to perform its obligations under this Agreement, the Management Agreement and the other Alliance Agreements to which it is a party; (ii) FBC shall take any and all actions within its power as a stockholder of FCNH, and shall cause FCNH to take any and all actions within its power as stockholder of FCNH Sub, including the calling of special meetings of the stockholders of FCNH or FCNH Sub, and the voting of the FCNH Common Stock or the capital stock of FCNH Sub, required to cause FCNH and FCNH Sub to perform all of their respective obligations under this Agreement and the other Alliance Agreements to which either or both of them is a party; (iii) without limiting the generality of clauses (i) and (ii), above, during the continuance of any material breach or default by SEI, on the one hand, or FCNH or FCNH Sub, on the other hand (a "breaching company") of any of its obligations under this Agreement or the other Alliance Agreements to which it is a party, if the controlling Shareholder (Saban or FBC) of the non-breaching company shall so demand, the Shareholder(s) of the breaching company shall promptly discharge their obligations under clause (i) or (ii), above, as applicable; and if the Shareholders of the breaching company shall refuse or fail to vote or take the demanded corporate action in compliance with this Section 5(c), without 7 limiting any other rights which may then be available at law or in equity with respect thereto, their Shares may be voted by the other of FBC or Saban, as the case may be, to cure such breach or rectify such default; and in furtherance thereof, each SEI Stockholder hereby appoints FBC, and FBC hereby appoints Saban, as their or its respective proxies and attorneys-in-fact pursuant to the provisions of Section 212(e) of the Delaware General Corporation Law, with full power and authority from time to time to vote or act by written consent with respect to the Shares, but only following written demand to the Shareholder(s) granting such proxy to vote their Shares as required hereby, and then only as may be necessary to ensure full compliance with the provisions of this Section 5(c). Each proxy granted hereby is coupled with an interest in the Shares to which it relates, and in the corporation which has issued such Shares generally, which interests include the rights granted to the Shareholders pursuant to the provisions of Sections 6 and 7 of this Agreement, and the respective rights of the parties hereto under the other Alliance Agreements to which they or some of them are parties, and shall be irrevocable for the term of this Section 5. (e) Term. All provisions of this Section 5 shall terminate and ---- expire on the first to occur of (i) the Initial Public Offering; or (ii) the closing of the purchase and sale of the SEI Common Stock pursuant to Section 7. 6. Initial Public Offering. ----------------------- (a) Election to Effect Initial Public Offering. ------------------------------------------ (i) Either Saban or FBC may at any time propose to the other that the "Successor Entity" formed pursuant to Section 6(b) effect a firmly underwritten public offering (the "Initial Public Offering") of its common stock pursuant to a registration statement filed with the Commission under the Securities Act and otherwise in accordance with the registration agreement between the parties of even date herewith (the "Registration Agreement"), a copy of which is attached hereto as Exhibit "B". Saban and FBC shall thereafter attempt in good faith to reach agreement as to the terms of the Initial Public Offering, including the designation of the managing underwriter(s) (the "Underwriters") thereof, the size of the offering, and the maximum aggregate offering price of securities to be offered by the Successor Entity in the offering. (ii) If Saban and FBC fail to agree on the terms of the offering within 15 days from the date of the original proposal, the party first proposing the Initial Public Offering (the "Initiating Holder") shall have the right to cause the Initial Public Offering to be effected on such terms as the Initiating Holder and the Underwriters designated by the Initiating Holder may in good faith mutually agree; and all parties to this Agreement shall fully cooperate in the Initial Public Offering. 8 (iii) If the Initial Public Offering is terminated prior to the sale of any securities, the provisions of this Section 6(a) shall be applicable until an Initial Public Offering is actually effected. FBC and each of the SEI Stockholders shall have the right to participate in the Initial Public Offering, and in other future offerings, pursuant to the Registration Agreement. (iv) In no event may the effective date of the registration statement relating to the Initial Public Offering occur prior to October 1, 1996 without the mutual approval of Saban and FBC. (b) Formation and Structure of the Successor Entity. ----------------------------------------------- (i) If an Initial Public Offering is to be effected pursuant to Section 6(a), the parties hereto shall cooperate fully with each other, and with the Underwriters, to cause SEI and FCNH to be restructured and reorganized (the "Reorganization"), effective (the "Effective Time") immediately prior to the first closing of the sale of securities to the Underwriters pursuant to the Initial Public Offering, into a corporation or such other entity as the Underwriters shall advise the parties is necessary or reasonably advisable in order to successfully effect the Initial Public Offering of the securities of an entity owning the business and operations of both SEI and FCNH (such corporation or other entity being referred to herein as the "Successor Entity"), and, subject to the foregoing, (x) Saban and FBC shall consult with, and be guided by, the auditors and tax counsel for the Management Company as to the form of the Reorganization (including questions as to choice of entity, whether to form a new holding company or effect a merger of SEI and FCNH and other structural issues) and, if the accounting treatment or the tax treatment would differ depending on the structure, the structure chosen shall be reasonably acceptable to, and jointly approved by, both Saban and FBC (and, if they are unable, following good faith reasonable efforts, to so agree: (A) the Successor Entity shall be a newly-formed Delaware corporation, whose Certificate of Incorporation and By-Laws shall include such standard and customary provisions as shall then be applicable to public corporations incorporated under Delaware law; (B) the Successor Entity shall have authorized but one class of voting securities, which shall be shares of its common stock, with a par value of $0.001 per share, and which shares shall be "Successor Entity Equity Securities," as defined below; (C) the Successor Entity shall have authorized one class of non-voting Preferred Stock to be issued to FBC, which class shall have no voting or dividend rights and shall have a liquidation preference and redemption right (in preference over any dividends on or redemption of common stock) in the face amount of $50 million less any amounts previously distributed to the Class A Member pursuant to the provisions of Sections 5.7.3 9 and 5.7.4 of the Operating Agreement to be paid at the times provided for therein and no other rights, (D) the Certificate of Incorporation and By- laws of the Successor Entity shall have the broadest indemnification and exculpation provisions provided by Delaware law; (E) unless distributed sooner immediately prior to the Reorganization, the Management Company shall distribute to FBC the "Call Option" (as defined in Section 7(b) below); and (F) the Reorganization shall be effected by the contribution to the Successor Entity by each of the SEI Stockholders of all of their respective Shares and by FBC of all of its Shares and its Class A Interest in the Management Company, solely in exchange for Shares of the Successor Entity Equity Securities and Preferred Stock of the Successor Entity, allocated as provided in (ii), below, which Reorganization shall be effected in such a manner as to comply with the provisions of Section 351 of the Internal Revenue Code of 1986, as amended); (y) the Successor Entity shall assume, and the parties hereto shall take any and all actions necessary to cause the Successor Entity to assume, all obligations ascribed to it under the Registration Agreement; and (z) Saban and FBC shall use their respective best efforts in good faith to promptly designate and agree upon which (if any) of those governance provisions contained in the Operating Agreement are to continue in effect after the Reorganization, and which are not to survive, and the manner in which they are to be implemented or terminated. (ii) The rights, preferences and privileges with respect to the Successor Entity Equity Securities to be issued to the SEI Stockholders and FBC by the Successor Entity shall be identical. In connection with the Reorganization, the then-outstanding shares of SEI Common Stock shall be exchanged for 50% of the Successor Entity Equity Securities to be outstanding at the Effective Time, and the then-outstanding shares of FCNH Common Stock shall be exchanged for 50% of the Successor Entity Equity Securities to be outstanding at the Effective Time; provided, that any -------- shares of SEI Common Stock or FCNH Common Stock issued subsequent to the date hereof and prior to the Effective Time pursuant to the exercise of stock options or other rights to purchase or acquire either SEI Common Stock or FCNH Common Stock, as the case may be, shall be allocated 50% against the shares otherwise issuable with respect to the other company's Common Stock. The then outstanding Class A Interest in the Management Company shall be exchanged for all of the Preferred Stock of the Successor Entity to be outstanding at the Effective Time. All Shares of Successor Entity Equity Securities issued with respect to the SEI Common Stock owned by the SEI Stockholders or any of their transferees (other than FBC) shall thereafter be deemed to be "SEI Common Stock" hereunder, and all Shares of Successor Entity Equity Securities issued with respect to the FCNH Common Stock owned by FBC or its transferees (other than Saban) shall thereafter be deemed to be "FCNH Common Stock" hereunder; the Persons receiving such Successor Entity Equity 10 Security shall be deemed to be "Shareholders" hereunder; and, except as specifically otherwise provided herein, all of such Shares shall following the Reorganization continue to be subject to the provisions of this Agreement. (iii) The closing of the Reorganization shall be subject to such conditions as Saban and FBC shall reasonably agree upon, including compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1986, the obtaining of all required regulatory approvals and compliance with all other laws and the obtaining of all material consents applicable to the Reorganization and the Initial Public Offering; but no such conditions shall alter the exchange ratio set forth in (ii), above and the parties to this Agreement shall fully cooperate with each other with respect to the Reorganization, and shall take any and all such actions, and sign and deliver any and all documents, as may be necessary or appropriate to effect the Reorganization. (iv) If required in connection with the Reorganization, at the closing of the Reorganization, each of the Shareholders shall deliver to the Successor Entity such documents of transfer or other documents or agreements, in form and substance reasonably acceptable to Saban and FBC and their counsel, necessary to vest in the Successor Entity good and marketable title to their Shares, free and clear of any and all Liens, other than those imposed under or pursuant to this Agreement, against delivery to the Shareholders of the Successor Entity Equity Securities. (c) FCNH Financial Statements. FBC shall, promptly following the ------------------------- execution of this Agreement, take any and all actions as may be necessary or appropriate in order to prepare, or cause to be prepared, consolidated historical financial statements of FCNH, FCN and all of the businesses, assets, liabilities and obligations contributed to the Management Company pursuant to that certain Asset Assignment Agreement of even date herewith among, inter alia, ----- ---- the Management Company, FBC and FCNH (the "Asset Assignment Agreement") (FCNH, FCN and such businesses, assets, liabilities and obligations being herein collectively referred to as the "FBC-related Assets"), which financial statements shall (i) cover a period of at least three fiscal years, with the most recent fiscal year ended on or prior to July 1, 1995; (ii) be prepared in accordance with Regulation S-X of the Commission; (iii) be certified without material qualification by Arthur Andersen & Co. LLP; and (iv) otherwise contain such information and notes as the independent certified public accountants for the Management Company shall advise FBC are reasonably anticipated to be required in connection with an Initial Public Offering whose effective date would fall on October 1, 1996; and FBC shall cause Arthur Andersen & Co. LLP to fully cooperate with the Successor Entity and its independent certified public accountants with respect to the Initial Public Offering. 11 7. Put Option. ---------- (a) Option. ------ (i) Upon the occurrence of each and every "Triggering Event," as that term is defined in clause (ii), below, Saban shall have the right and option (the "Put Option") to require FBC to purchase (x) with respect to any Triggering Event which occurs prior to the Initial Public Offering, all, and not less than all, of the SEI Common Stock owned by the SEI Stockholders or any of their transferees (other than FBC); and (y) with respect to any Triggering Event which occurs thereafter, all Shares of the Successor Entity which, pursuant to Section 6(b), are deemed to be shares of SEI Common Stock and which are owned by the SEI Stockholders or any of their transferees (other than FBC and excluding Shares transferred pursuant to Section 3(a)(i) or 3(a)(ii)); (the Shares subject to the Put Option are referred to herein as the "SEI Option Shares") for the per share cash purchase price determined pursuant to Section 7(c), by delivering written notice of his election to FBC within the time period for that Triggering Event set forth in clause (ii) below, accompanied by a separate written notice to the Management Company, or to the person then holding the Stock Ownership Agreement, of his election to cause a "Call Triggering Event" thereunder. (ii) The "Triggering Events," and the time periods for delivery of election notices with respect thereto, shall be as follows: (x) death of Saban prior to the 17th anniversary of this Agreement -- 12 calendar months following death; notice of election may be given by the executor of his estate, or by a majority in interest of the holders of the affected Shares of SEI Common Stock; (y) a Change in Control of FBC -- 90 business days after the first public announcement of such event; (z) the fifth anniversary of the date of this Agreement -- notice must be given not later than 180 calendar days prior to the fifth anniversary of the date of this Agreement; or (aa) upon delivery of written notice by Saban of exercise of the Option at any time on or after the seventh anniversary of the date of this Agreement and on or prior to the seventeenth anniversary of the date of this Agreement -- notice may be given at any time during the period. 12 The date of the Triggering Event to which the exercise of the Put Option relates shall be the "Effective Date" of the Put Option. The failure or decision not to exercise the Put Option upon the occurrence of a Triggering Event shall not affect Saban's right to exercise the Put Option on any subsequent Triggering Event. (b) Rules of Priority of Call Option Over Put Option. The Management ------------------------------------------------ Company and Saban have entered into a separate Stock Ownership Agreement (the "Stock Ownership Agreement") of even date herewith pursuant to which the SEI Stockholders have granted a call option (the "Call Option") to the Management Company. For purposes of determining whether the SEI Option Shares are being sold under the Call Option or the Put Option, the following rules will apply: (i) if the holder of the Call Option has duly exercised the Call Option, unless the Management Company thereafter breaches or is unable to perform its obligations with respect thereto, Saban shall not have the right to exercise the Put Option; and (ii) if Saban exercises the Put Option, and the holder of the Call Option thereafter duly and timely exercises its Call Option, the exercise of the Call Option shall take precedence over the Put Option, and the SEI Option Shares shall be sold under and pursuant to the Call Option. (c) Calculation of Purchase Price. ----------------------------- (i) Put Option Price. The per share purchase price for the SEI ---------------- Option Shares under the Put Option shall be an amount equal to: [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 13 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] (d) Put Option Closing. The closing of the purchase and sale of the ------------------ SEI Option Shares pursuant to this Section 7 shall take place at such time and place as Saban and FBC shall mutually agree upon; provided, that the date of -------- closing shall be five business days following the later of (i) the date of final determination of Fair Market Value; and (ii) if the purchase and sale of such Shares requires the obtaining of any material regulatory approvals or compliance with any other material laws or regulations, the date upon which all such approvals shall have been obtained, and such compliance effected; provided -------- further, however, that if through no fault of the SEI Stockholders FBC is unable - ------- fully to satisfy all conditions of clause (ii) within six calendar months of the date of final determination of Fair Market Value, then FBC shall on the first business day following the end of such six-month period pay and deliver to the holders of the SEI Option Shares an amount equal to the per share purchase price for such Shares, and the holders of the SEI Option Shares shall enter into such agreements with respect to the subsequent voting and transfer of such Shares as FBC shall reasonably request, including the agreement at any time thereafter to transfer such Shares, without receipt of further consideration, to such Person or Persons as may be designated by FBC. At the closing, each of the holders of the SEI Option Shares shall deliver to FBC documents of transfer in form and substance reasonably acceptable to FBC and its counsel, necessary to vest in FBC good and marketable title to the SEI Option Shares so sold by the holder thereof, free and clear of any and all Liens, other than those imposed under or pursuant to this Agreement, against delivery by FBC to such holder of the purchase price therefor, payable, at the election of Saban, by either (x) bank cashiers' checks in 14 immediately available funds payable to the order of the selling holders, or (y) wire transfer of immediately available funds to an account or accounts designated by Saban. 8. Special Provisions Concerning Spouses of SEI Stockholders. --------------------------------------------------------- This Agreement has been executed by Saban and consented to by his spouse, who may claim a community property interest, or other interest, in some or all of the Shares or other rights hereunder held by Saban. Such spouse, in executing her consent in the form of Exhibit "C" hereto, represents that she has read provisions of this Agreement (including, without limitation, Sections 2 and 11(b) hereof) and that she has carefully reviewed the same with her counsel, and acknowledges and irrevocably agrees that by such execution she is waiving any rights which she may have during the continuance of her marriage, or at any time thereafter, prior to the death or incompetency of Saban, to control SEI or the Management Company. In making such waiver, she has carefully considered the provisions of Section 1100 of the Family Code of the State of California which grants to her, among other things, equal right to management and control of certain community assets, and waives all of her rights thereunder with respect thereto. Further, she specifically consents to and agrees that the SEI Common Stock, to the extent that it is controlled by Saban, and the consent, veto and other rights personally granted to him pursuant to this Agreement, the Management Agreement and the other Alliance Agreements, constitute a "business or an interest in a business" which is being operated or managed by Saban, so as to cause Saban to have primary right to the management and control thereof, and waives her right to prior notice of any sale, lease, exchange, encumbrance or other disposition of all or substantially all of the personal property used in the operation of such business. A copy of Section 1100 is attached as an exhibit to Exhibit "C". 9. Representations and Warranties. ------------------------------ (a) Representations of FBC and the SEI Stockholders as to FCNH, FCNH ---------------------------------------------------------------- Sub, FCN and SEI. Each of the SEI Stockholders jointly and severally represents - ---------------- and warrants to FBC with respect to SEI, and FBC represents and warrants to the SEI Stockholders with respect to FCNH, FCNH Sub and FCN, (SEI, FCNH, FCNH Sub and FCN each being separately referred to below as "Company") that, except as set forth in the Schedule of Exceptions with respect to that Company attached hereto as Schedules "SEI," "FCNH" and "FCN," the following statements are true and correct in all material respects as of the date hereof(except with respect to Subsections (vi), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii) and (xviii), which, as to SEI and FCN, are made as of the date of the LLC Formation Agreement (the "LLC FA Date"), and need only be true and correct on that date; and under no circumstances shall any party be obligated to provide more current documents or otherwise update or bring down to a more current date any of the representations and warranties set forth therein): 15 (i) Due Incorporation and Authority. Company is a corporation ------------------------------- duly organized, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own its properties and to carry on its business as now conducted. (ii) Subsidiaries and Other Affiliates. Schedule 9(a)(ii) sets --------------------------------- ----------------- forth the name and jurisdiction of organization of each Subsidiary of Company. Except for the Subsidiaries, Company does not directly or indirectly own any interest in any other person. (iii) Qualification. Each of Company and each of its Subsidiaries ------------- is duly qualified or otherwise authorized as a foreign corporation or other entity to transact business and is in good standing in the jurisdictions in which such qualification or authorization is required by law, except for jurisdictions in which the failure to be so qualified or to be in good standing would not have a Material Adverse Effect. (iv) Outstanding Capital Stock. All of the issued and ------------------------- outstanding shares of Common Stock of SEI, FCN, FCNH and FCNH Sub are owned, beneficially and of record, by, respectively, the SEI Stockholders, FCNH, FBC and FCNH Sub, free and clear of all Liens, other than Liens imposed under this Agreement and the other Alliance Agreements, and applicable restrictions generally imposed by law. All of the issued and outstanding shares of capital stock of Company and its Subsidiaries are duly authorized and validly issued, fully paid and nonassessable. No other class of capital stock or other ownership interest of Company or any of the Subsidiaries is authorized or outstanding. (v) Options or Other Rights. There are no outstanding right, ----------------------- subscriptions, warrants, unsatisfied preemptive rights, options or other agreements of any kind to purchase or otherwise to receive from Company, any of its Subsidiaries, the SEI Stockholders, FCNH, FBC or FCNH Sub any of the outstanding, authorized but unissued, unauthorized or treasury shares of the capital stock or any other securities of Company or any of its Subsidiaries, and there are no outstanding securities of any kind convertible or exchangeable, with or without consideration, into any such capital stock. (vi) Financial Statements. The consolidated balance sheets of -------------------- Company and its Subsidiaries as of May 31, 1995 (with respect to SEI) and June 4, 1995 (with respect to FCN), respectively and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended, including the footnotes thereto, certified by Ernst & Young LLP, independent certified public accountants, and the Senior Vice President, Finance of Fox Inc., respectively, which have been delivered to FBC and Saban, as the case may 16 be, fairly present the consolidated financial position of Company and its Subsidiaries as at such date and the consolidated results of operations and cash flows of Company and its Subsidiaries for such periods, in each case in accordance with generally accepted accounting principles ("GAAP") consistently applied for the periods covered thereby. The foregoing consolidated financial statements of FCN and its Subsidiaries include the operations of Fox Kids Music, Inc. and Fox Children's Music, Inc. The foregoing consolidated financial statements of Company and its Subsidiaries are sometimes herein called the "Financial Statements", the consolidated balance sheet is sometimes herein called the "Balance Sheet" and May 31, 1995 and June 4, 1995, respectively, are sometimes herein called the "Balance Sheet Date" with respect to the related Company. (vii) FCNH. FCNH was formed as a Delaware corporation on October ---- 26, 1995, and since such date has conducted no business, other than the undertaking of matters incidental to the execution, delivery and performance of this Agreement and the other Alliance Agreements to which it is a party. The only assets of FCNH consist of (A) all of the issued and outstanding shares of capital stock and other securities of FCNH Sub; (B) those assets, if any, described in the Asset Assignment Agreement as being owned by FCNH, all of which have, concurrent with the execution of this Agreement, been transferred and assigned to the Management Company; (C) its membership interest in the Management Company, for which it has paid and contributed $100,000 to the Management Company; and (D) not more than $50,000 in cash and cash-equivalent assets; its only material obligations are those arising under and pursuant to this Agreement and the other Alliance Agreements to which it is party; and FCNH has no material liabilities. (viii) FCNH Sub. FCNH Sub was formed as a Delaware corporation on -------- November 6, 1995, and since such date has conducted no business, other than the undertaking of matters incidental to the execution, delivery and performance of this Agreement and the other Alliance Agreements to which it is a party. The only assets of FCNH Sub consist of (A) those assets, if any, described in the Asset Assignment Agreement as being owned by FCNH Sub, all of which have, concurrent with the execution of this Agreement, been transferred and assigned to the Management Company; (B) all of the issued and outstanding capital stock and other securities of FCN and Fox Children's Productions, Inc., a Delaware corporation; and (C) not more than $50,000 in cash and cash-equivalent assets; its only material obligations are those arising under and pursuant to this Agreement and the other Alliance Agreements to which it is party; and FCNH Sub has no material liabilities. 17 (ix) Conduct of Business; No Material Adverse Change. Since the ----------------------------------------------- Balance Sheet Date, each of FCN and SEI has been run in the ordinary course and except as disclosed in the Schedule of Exceptions, or other schedules to this Agreement, (A) there has been no change in the condition (financial or otherwise), business, properties, assets or liabilities of Company, and its Subsidiaries, considered as a whole, other than changes in the ordinary course of its business, consistent with past practice, which, when considered as a whole, have not had a Material Adverse Effect; (B) Company has not declared or paid any dividend or made any distribution on or with respect to its capital stock; redeemed, purchased or otherwise acquired any of its capital stock; granted any options, warrants or other rights to purchase shares of, or any other securities which may be convertible into or exchangeable for, its capital stock; or issued any shares of its capital stock; (C) there have been no loans for borrowed monies or guarantees made by Company or any of its Subsidiaries to or for the benefit of any Person, except in the ordinary course of business and consistent with past practice; (D) there has been no increase in the compensation or benefits payable or to become payable to any of the employees or executives of Company or any of its Subsidiaries, other than increases in the ordinary course of business and consistent with past practice; (E) there has been no indebtedness incurred by Company or any of its Subsidiaries, or any commitment for any such occurrence, except in the ordinary course of business and consistent with past practice; (F) there has been no sale or other disposition of any of the properties or assets of Company or any of its Subsidiaries (whether tangible or intangible), except in the ordinary course of business and consistent with past practice; and (G) there has been no agreement binding upon Company or any of its Subsidiaries to do any of the foregoing. (x) Litigation. Except as set forth on Schedule 9(a)(x), there ---------- is no litigation, investigation or proceeding before any court or governmental or other regulatory agency pending or, to the knowledge of Saban or FBC, as applicable, threatened against Company or any of its Subsidiaries which, if adversely determined, would have a Material Adverse Effect or which questions or challenges the validity of this Agreement or will prevent or interfere with the consummation of any transaction contemplated hereby. (xi) Title to Assets. Company and its Subsidiaries each has good --------------- and marketable title to, or leasehold interests in, all of its assets, free and clear of any Liens, except (i) for Liens for taxes not yet due, (ii) for Liens imposed by law and incurred in the ordinary course of business for obligations not yet due to carriers, warehousemen, laborers, materialmen and the like, (iii) for Liens in respect of pledges or deposits under workers' compensation laws or similar legislation, (iv) for Liens 18 outstanding and aggregating less than $1,000,000, (v) for Liens disclosed in the Financial Statements or the notes thereby, or incurred thereafter in the ordinary course of its business, (vi) for Liens incurred in the ordinary course of business for obligations to film and sound laboratories, (vii) for Liens incurred in the ordinary course of business for obligations to the Screen Actors' Guild of America, the Directors' Guild of America and/or any other collective bargaining guilds or unions having jurisdiction over any intellectual property owned or controlled by the Company and its Subsidiaries; (viii) for Liens incurred in the ordinary course of business for obligations to completion guarantors in connection with the production of motion pictures, television programs or other productions or (xi) for distribution and other exploitation rights and license heretofore granted by Company and its Subsidiaries to Third Persons with respect to any intellectual property owned or controlled by the Company and its Subsidiaries. (xii) Taxes. Company and each of its Subsidiaries has filed or ----- caused to be filed, all federal, state, local and foreign income tax returns and tax reports which were required to be filed by, or with respect to the business of, Company or its Subsidiaries on or prior to the LLC FA Date (taking into account any extension of time to file granted to or on behalf of the Company or such Subsidiaries) (collectively, the "Returns"), except where the failure to file any of such Returns would not have a Material Adverse Effect. All material federal, state, local and foreign income taxes (including interest and penalties) ("Taxes") shown to be due and payable on or prior to the LLC FA Date on the Returns by Company or its Subsidiaries have been paid. Neither Company nor any of its Subsidiaries is delinquent in the payment of any tax, assessment or governmental charge, does not have any tax deficiencies proposed or assessed against it and has not executed any waiver of the statute of limitations on the assessment or collection of any tax (collectively, any "Delinquencies"), except Delinquencies whose failure to remedy would not, individually or when aggregated with other Deficiencies, have a Material Adverse Effect. There are no present disputes as to Taxes of any nature previously paid or currently payable by Company or any of its Subsidiaries. (xiii) Receivables. All accounts and notes receivable reflected on ----------- the Balance Sheet, and all accounts and notes receivable arising in the ordinary course of business subsequent to the Balance Sheet Date, have arisen in the ordinary course of business of Company or its Subsidiaries, and the reserve for bad debts reflected in the Balance Sheet has been computed in a manner substantially consistent with past practice and, to the best knowledge of Saban and FBC, as the case may be, is reasonably estimated to reflect the probable results of collection. 19 (xiv) Intangible Property. To the best knowledge of Saban or FBC, ------------------- as applicable, Company and its Subsidiaries (i) own or have adequate rights with respect to the underlying intellectual property rights material to the conduct of its business as presently conducted, and (ii) Company and its Subsidiaries are conducting their respective businesses without claim of infringement of any material license, copyright or other intellectual property right of others. (xv) No Undisclosed Liabilities. To the best knowledge of Saban -------------------------- or FBC, as applicable, Company and its Subsidiaries do not have any material liabilities, obligations or commitments of any nature (whether absolute, accrued, contingent or otherwise), matured or unmatured (herein "Liabilities"), except (A) Liabilities that were disclosed or provided for in the Financial Statements; (B) Liabilities not required to be disclosed in Company's Financial Statements in accordance with GAAP, consistently applied in accordance with past practice; (C) Liabilities disclosed in this Agreement or in Company's Schedule of Exceptions; (D) Liabilities not required to be disclosed in Company's Schedule of Exceptions, none of which will, individually, or when aggregated with all other such Liabilities not required to be disclosed in the Company Schedule of Exceptions, result in a Material Adverse Effect, and (E) Liabilities which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date. (xvi) Material Contracts and Commitments. ---------------------------------- (A) Schedule 9(a)(xvi) sets forth a list of all those ------------------ currently effective contracts and agreements to which Company or its Subsidiaries is a party which would be required by Rule 601 of Regulation S-K of the rules and regulations of the Commission to be included as exhibits to its annual report on Form 10-K as of the LLC FA Date, if Company were subject on that date to Section 12(g) of the Securities Exchange Act of 1934, as amended (collectively, the "Contracts"); (B) (I) each of the Contracts is a valid and binding agreement of Company or its Subsidiaries, as applicable; and (II) there has not occurred any material default under any of the Contracts on the part of Company or its Subsidiaries, as applicable, or, to the best knowledge of Saban or FBC, as applicable, on the part of any other party thereto, which would have a Material Adverse Effect. (xvii) Interested Party Contracts. No officer, director, -------------------------- stockholder or Affiliate of Company has any 20 agreement with Company or any of its Subsidiaries or any interest in any material property (real, personal or mixed, tangible or intangible) used in or pertaining to the business of Company or any of its Subsidiaries, except this Agreement, the other Alliance Agreements to which it is a party, or any agreements solely as a shareholder or as an employee of Company. (xviii) Disclosure. As of LLC FA Date, there was no fact within the ---------- best knowledge of Saban or FBC, as the case may be, (and thus not known or provided to the other parties hereto, or their auditors, counsel or advisors, or generally known or publicly available) which at that time materially affected, or which in the future would, so far as could then be foreseen, materially affect, the business, properties, assets or the condition, financial or otherwise, of Company and its Subsidiaries, considered as a whole, which was withheld from the other parties hereto, or their auditors, counsel or other advisors, for the purpose of inducing them to enter into this transaction, or for any other wrongful purpose. (b) Representations and Warranties of each of FBC, FCNH and the SEI --------------------------------------------------------------- Stockholders. Each of FBC and FCNH, jointly and severally for itself and - ------------ themselves and with respect to FCN and its and their other Affiliates, and Saban and the other SEI Stockholders, jointly and severally for itself and themselves and with respect to SEI and its Subsidiaries, make the following representations and warranties: (i) Authorization; Execution and Delivery. Each of SEI, the SEI ------------------------------------- Stockholders, FBC, FCNH and FCN has the requisite power and authority to execute and deliver this Agreement and each of the other Alliance Agreements to which it is a party and to consummate the transactions pursuant hereto, and in the case of SEI, FBC, FCNH, FCN and each of the SEI Entities, such execution, delivery and consummation have been duly authorized by all necessary corporate or partnership action. This Agreement has been duly executed and delivered by such Person and constitutes the valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings at law or in equity). (ii) Consents. Except as set forth on Schedule 9(b)(ii), neither -------- ----------------- the execution and delivery of this Agreement and each of the other Alliance Agreements to which it is a party by SEI, the SEI Stockholders, FBC, FCNH or FCN nor the consummation of the transactions pursuant hereto or thereto will require any consent, approval, or authorization of, 21 waiver by, notification to, or filing with, any court, governmental agency or regulatory or administrative authority (each, a "Governmental Entity") on the part of such Person or any of its Affiliates, other than filings of certificates and other documents with respect to the transactions contemplated hereby. (iii) No Violation or Creation of Rights. The execution and ---------------------------------- delivery of this Agreement and each of the other Alliance Agreements to which it is a party by SEI, the SEI Stockholders, FBC, FCNH or FCN or any of their respective Affiliates and the performance by such Person and its Affiliates of its and their obligations hereunder or thereunder do not and will not (A) violate, conflict with, or constitute or result in a breach of, any term, condition or provision of, or constitute a default (or an event which, with notice or the lapse of time, or both, would constitute a default), or result in the creation of any Lien upon any of their respective assets under, or (with respect to the execution and delivery of this Agreement, the execution, delivery or closing of the LLC Formation Agreement, or the execution, delivery or closing of any of the other Alliance Agreements whose execution, delivery or closing are being effected concurrently with the execution and delivery of this Agreement) result in the creation of any other right on the part of a third party to receive payment of funds or other consideration on account thereof under (x) the constitutive documents of such Person or any of its Subsidiaries, or (y) any mortgage, indenture, loan or credit agreement or any other agreement or instrument to which such Person is a party, or pursuant to which it is the direct or indirect obligor, or by which such Person or any of its Affiliates' properties are bound or affected, (B) violate any law, regulation, judgment, injunction, order or decree binding upon such Person or any of its Affiliates, (C) result in the loss of any license, franchise, permit, legal privilege or legal right enjoyed or possessed by such Person or any of its Affiliates, or (D) require the consent of any third party (including a Governmental Entity). No such Person and no such Affiliate is in violation of any statute, judgment, decree, order, rule or regulation applicable to it, which, singly or in the aggregate, has materially adversely affected or could reasonably be expected to materially adversely affect such Person's ability to perform its obligations hereunder or under any of the other Alliance Agreements to which it is a party. (iv) Finders; Investment Bankers. Neither such party nor any of --------------------------- its Affiliates, nor any of their respective officers or directors, has employed any broker, finder or investment banker or incurred any liability for any brokerage fees, commissions or finder's fees in connection with the execution and delivery of this Agreement or the other Alliance Agreements, except for those entities listed on Schedule 9(b)(iv) hereto, all of whose ----------------- fees shall, under the terms of 22 the LLC Formation Agreement, following mutual approval of Saban and FBC, be paid by the Management Company. (c) Best Knowledge. -------------- (i) Best Knowledge of Saban. The term "best knowledge", ----------------------- as it applies to the knowledge of Saban, shall refer only to those matters which are actually known by Saban or Mel Woods. (ii) Best Knowledge of FBC. The term "best knowledge", as --------------------- it applies to the knowledge of FBC, shall refer only to those matters which are actually known by Chase Carey, Bruce Churchill, Marc DiLorenzo, Larry Jacobson or Margaret Loesch. (d) No party makes any representation or warranty to the other except as set forth in this Agreement. Without limiting the generality of the foregoing, except as and to the extent provided in Sections 10(h) and 10(i) hereof, no party hereto makes any representation or warranty to any other party hereto with respect to any financial projection, forecast or other forward- looking information with respect to its assets, business or operations. 10. Survival of Representations and Warranties; Indemnification. ----------------------------------------------------------- (a) Survival of Representations and Warranties. All representations ------------------------------------------ and warranties contained in this Agreement shall survive the execution and delivery of this Agreement and any investigation at any time made; and, with respect to those matters subject to Section 10(c)(ii), below, shall terminate and expire on the expiration of the "Indemnification Period" defined in Section 10(c)(ii), and shall be of no further force or effect thereafter, except with respect to any claim written notice of which shall have been delivered to the party making the representation or warranty subject to Section 10(c)(ii) on or prior to the termination of the Indemnification Period, but only, if such claim shall not thereto-fore have been settled, if litigation with respect to which shall have been commenced on or prior to six months following the termination of the Indemnification Period. (b) Indemnification. FBC and FCNH, with respect to representations --------------- and warranties made by either or both of them in Section 9 with respect to themselves, FCNH or FCN, and the SEI Stockholders, with respect to representations or warranties made by any of them in Section 9 with respect to themselves, the other SEI Stockholders, or SEI (each group the "indemnifying party"), jointly and severally agree to indemnify, defend, and hold the other (such group, the "indemnified party") harmless against and in respect of: (i) if and to the extent that any of the representations and warranties of the indemnifying parties set forth in Section 9(a) are incorrect, the damages sustained by 23 the indemnified parties as a result thereof, which damages shall be fixed at 50% of the positive difference, if any, between (i) the Fair Market Value as of the LLC FA Date of SEI and its Subsidiaries (if the indemnified parties are FBC or FCNH) or of FCNH and FCN (if the indemnified parties are the SEI Stockholders) had the representations and warranties been true, correct and complete in all respects (and thus taking into consideration misstatements, errors and omissions which would have had the effect of increasing such price, as well as those having the effect of depressing such price), and (ii) the actual Fair Market Value as of the LLC FA Date of SEI and its Subsidiaries, or of FCNH and FCN, as applicable; (ii) if and to the extent that any representations and warranties of the indemnifying parties in this Agreement other than in Section 9(a) are incorrect, any loss, cost, liability or damage incurred by the indemnified parties by reason thereof; (iii) any and all loss, cost, liability, or damage incurred by the indemnified party or the Management Company or operating companies managed by it as the result of any claim, demand, action, suit or proceeding by any third party alleged to be based upon any mortgage, indenture, loan or credit agreement or any other agreement or instrument, which, if the allegations in such claim, demand, action, suit or proceeding were to be proved, would result in a breach of the representations and warranties of the indemnifying party set forth in Section 9(b)(iii)(A)(y); (iv) any and all loss, cost, liability, damage or deficiency arising out of or in connection with any breach of any covenant or agreement made or to be performed by the indemnifying parties under the terms of this Agreement; and (v) all claims, demands, actions, suits, proceedings, judgments, costs, reasonable attorneys' fees and expenses, or liens, charges, or encumbrances upon the assets of any of the indemnified parties relating to or incurred by the indemnified parties incident to the foregoing. If a claim is made under Section 10(b)(i), Fair Market Value shall be determined using only a "discounted cash flow" analysis, with the discount rate fixed at 10%. (c) Limitations. ----------- (i) The parties' rights to indemnification under this Section 10 shall be available only if a party entitled to indemnification pursuant to this Section 10 delivers written notice to the party or parties required to provide indemnification, setting forth in detail the factual basis for indemnification and the amount thereof, or a good faith estimate thereof, sought to be indemnified (the "Indemnification Notice"). The indemnified party 24 or parties shall use its or their best efforts to provide in its or their Indemnification Notice sufficient detail to enable the indemnifying party or parties to evaluate the claim. Except with respect to Indemnification Claims covered by Section 10(d) (which relates to third party claims), within 30 days (the "Objection Period") of the date such Indemnification Notice is given, the indemnifying party shall respond to the Indemnification Notice. The indemnifying party shall be entitled to cure any default which is capable of cure during the Objection Period, and the amount of the claim for indemnification contained in the Indemnification Notice shall be reduced by the amount of the damages mitigated by cure; and, to the extent that any default relates to a matter covered by Section 10(h) or 10(i) hereof, payments made or to be made thereunder shall be deemed to be payments made to cure such defaults, in whole or in part. If the indemnifying party or parties agree in writing during the Objection Period to accept any of the claims included in the Indemnification Notice, such party shall promptly pay the amounts so agreed upon. In all other cases, the indemnified party or parties and the indemnifying party or parties shall use their respective good faith reasonable efforts to resolve the dispute within 60 days of the date such Indemnification Notice is given (the "Settlement Period"). If the dispute is not resolved within the Settlement Period, the parties shall be free to commence litigation to enforce their rights to indemnification under this Section 10; provided, however, that -------- ------- if such litigation has not been commenced on or prior to six months following the date such Indemnification Notice is given, all rights of the indemnified party or parties to indemnification with respect to the matters set forth in that Indemnification Notice shall be deemed to have been irrevocably waived and released by the indemnified party or parties, and shall terminate and expire. (ii) Notwithstanding any provision of this Section 10 to the contrary, the parties' rights to indemnification for breaches of the representations and warranties contained in Section 9(a) shall be available only if the party entitled to such indemnification delivers an Indemnification Notice with respect to such claim prior to the date which is 24 months after the date of this Agreement (the "Indemnification Period"). The rights of the parties to this Agreement to indemnification under this Section 10 relating to any other representation or warranty shall survive the Closing, and shall not be subject to the foregoing Indemnification Period. (d) Defense. If any of the indemnified parties is made or threatened ------- to be made a defendant in or party to any action or proceeding, judicial or administrative, instituted by any third party for the liability under which or the costs or expenses of which any of the indemnified parties is entitled to be indemnified pursuant to Section 10 (any such third party action or proceeding being referred to as an "Indemnification Claim"), the indemnified party or parties shall give prompt notice thereof to the indemnifying party; provided -------- that the failure to give such notice 25 shall not affect the indemnified party or parties' ability to seek indemnification hereunder unless such failure has materially and adversely affected the indemnifying party or parties' ability to prosecute successfully an Indemnification Claim. Each indemnified party shall permit the indemnifying party, at its own expense, to assume the defense of any such claim or any litigation to which this Section 10(d) may be applicable, by counsel reasonably satisfactory to the indemnified party or parties; provided, that the indemnified -------- party or parties shall be entitled at any time, at its or their own cost and expense (which expense shall not be recoverable from the indemnifying party unless the indemnifying party is not adequately representing or, because of a conflict of interest, may not adequately represent, the indemnified party or parties' interests), to participate in such claim, action or proceeding and to be represented by attorneys of its or their own choosing. If the indemnified party or parties elects to participate in such defense, such party or parties will cooperate with the indemnifying party in the conduct of such defense. The indemnified party or parties may not concede, settle or compromise any Indemnification Claim without the consent of the indemnifying party. The indemnifying party, in the defense of any such claim or litigation, shall not, except with the approval of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party or parties of a full and complete release from all liability in respect to such claim or litigation. If the Indemnification Claim arises under Section 10(b)(iii), the indemnifying party shall defend the third party claim in the name of the indemnifying party and pay any amounts to be indemnified under such section directly to the claiming party. (e) Indemnification is Sole and Exclusive Remedy. Except as provided -------------------------------------------- in Section 5(c) and Section 11(l) of this Agreement, the rights of the parties to indemnification under this Section 10 shall constitute the sole and exclusive remedies of the parties for all breaches of representations and warranties of the parties hereto or for the nonfulfillment or other breach by any of them of any of their respective covenants and agreements contained herein, and each party hereby waives any other rights or remedies which it may have against any of the others, or arising out of any action or failure to act by any of them. If any such breach or nonfulfillment of any representation, warranty or covenant hereunder constitutes a breach or nonfulfillment of any representation, warranty or covenant under any other of the Alliance Agreements, the damaged party or parties shall have the right to seek relief under each of such agreements; but in no event shall the amounts paid or recovered by such party and its Affiliates result in a duplication of damages. (f) Limitation on Claims. Except with respect to (i) third party -------------------- Indemnification Claims subject to the terms and provisions of Section 10(d) of this Agreement, (ii) claims based upon the failure of any party fully to comply with all of its 26 obligations under Sections 2 through 8 of this Agreement, no party shall have the right to deliver an Indemnification Notice pursuant to this Section 10 unless (i) the amount of each of such party's separate claims included therein is in excess of $500,000 (each, a "Permitted Claim") and the aggregate amount of all such party's Permitted Claims included in that Indemnification Notice exceeds $2,000,000, or (ii) the aggregate amount of all such party's claims included in such Indemnification Notice (whether Permitted Claims or not) exceeds $3,000,000. (g) Discharge of Indemnification Obligation. Notwithstanding any --------------------------------------- provision of this Section 10 to the contrary, with respect to any damages relating to a breach of the representations and warranties set forth in Section 9(a), the indemnifying party or parties may, at its or their election, either pay the damages with respect thereto directly to the indemnified parties, or, alternatively, contribute such additional property reasonably acceptable to FBC and Saban, or cash, or a combination thereof, to their Company to increase the Fair Market Value thereof, defined under Section 10(b)(i), to that value which it should have had, had the complained of representations and warranties been true, correct and complete. (h) SEI Net Cash Flow Payment. [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX ------------------------- XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] (i) FBC Cash Receipts Payments. FBC agrees, on the terms and subject -------------------------- to the conditions of this Section 10(i), to loan to FCN amounts provided for in Section 10(i)(A) below and indemnify the Management Company for amounts set forth in Section 10(i)(B) below: 27 (A) Promptly following the end of June 1996, FBC shall cause FCN to prepare, or cause to be prepared, and deliver to the Management Company and Saban a statement of FCN's programming "Net Profits," as determined pursuant to Exhibit "C" to the Station Affiliate Agreements, through June 30, 1996 (the "FCN Net Profits Statement"), which report shall include the (i) the actual amounts paid by FCN to FCN's Station Affiliates as their share of FCN's programming Net Profits for fiscal 1996; (ii) any advances (the "Advances") made by FCN to the FCN Station Affiliates in excess of the actual amount of FCN cash available for payment to the FCN Station Affiliates with respect to their share of FCN's programming Net Profits for fiscal 1996; and (iii) the actual amount of FCN cash available for payment at June 30, 1996. If the Advances were paid pursuant to the mutual agreement of FCNH and Saban, then FBC shall loan FCN an amount equal to the aggregate of such Advances, which such loan shall (x) be evidenced by a promissory note containing terms and conditions customary in commercial transactions, (y) bear interest at the rate historically charged FCN for advances by FBC, and (z) shall be repaid on the same terms and at the same times as the Advances are recouped by FCN from the Station Affiliates. (B) If the aggregate amount of cash received by the Management Company pursuant to or with respect to the Asset Assignment Agreement during the period from the date of this Agreement though June 30, 1996 plus the amounts paid to FCNH Sub by way of dividend pursuant to the terms of Section 5.9.2 of the Operating Agreement (the "Actual Cash Payments") are less than $36,881,000, FBC shall, within 30 days following receipt of the FCN Net Profits Statement, contribute to the Management Company, without offset, an amount equal to the difference between $36,881,000 and the Actual Cash Payments. (C) Any payments made by FBC pursuant to Section 10(i)(B) above shall be treated, as between FBC, FCNH and FCN, as payments subject to Section 19.11 of the Asset Assignment Agreement. This Section 10(i) is intended for the benefit of, and is enforceable by, the Management Company, SEI and Saban. 11. Miscellaneous Provisions. ------------------------ (a) In this Agreement, headings are for convenience only and shall not affect interpretation, and except to the extent that the context otherwise requires: (i) references to any legislation or to any provision of any legislation include any modification or re-enactment of, or any legislative provision substituted for, and all statutory instruments issued under, such legislation or such 28 provision; (ii) words denoting the singular include the plural and vice versa; (iii) words denoting individuals include corporations and other Persons and vice versa; (iv) words denoting any gender include all genders; (v) references to any document, agreement or other instrument (including this Agreement) include references to such document, agreement or other instrument as amended, novated, supplemented or replaced from time to time; (vi) references to clauses, sub- clauses, sections, sub-sections, Schedules and Exhibits are to clauses, sub- clauses, sections, sub-sections, Schedules and Exhibits of this Agreement; (vii) "or" is not exclusive; (viii) "$", and all other references to dollar amounts, are in U. S. currency; (ix) references to any party to this Agreement or any other document, agreement or other instrument includes its successors or permitted assigns; and (x) "writing" and cognate expressions include all means of reproducing words in a tangible and permanently visible form. (b) Rights Personal to FBC and Saban. Each and every right and -------------------------------- obligation which refers to "Saban" or "FBC" is personal to Saban or FBC, as the case may be, and shall not attach to, or be deemed to relate to or concern the Shares held by Saban or FBC; and thus, without the prior written consent of both Saban and FBC, none of such rights or obligations may be assigned, delegated or transferred to any other Person; provided, however, that in the event of the -------- ------- incompetency or death of Saban, all rights granted to Saban hereunder shall be exercisable by his conservator, executor or administrator, or by a single Person from time to time designated by SEI Stockholders then holding a majority of the then outstanding Shares of SEI Common Stock held by all SEI Stockholders. (c) Notices. All notices, demands or other communications hereunder ------- shall be in writing and shall be deemed to have been duly given (i) if delivered in person, upon delivery thereof, or (ii) if mailed, certified first class mail, postage pre-paid, with return receipt requested, on the fifth day after the mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed on the same day in the manner provided in (ii) above, when transmitted and receipt is confirmed by telephone or telex or facsimile response, or (iv) if otherwise actually delivered, when delivered: (i) if to FBC: Fox Broadcasting Company, Inc. P.O. Box 900 10201 West Pico Boulevard Los Angeles, CA 90035 Attention: Jay Itzkowitz, Esq. Fax: (310) 369-1391 29 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Attention: Harvey Horowitz, Esq. Fax: (212) 697-6686 (ii) if to FCNH: FCN Holding, Inc. Fox Inc. 10201 West Pico Boulevard Los Angeles, CA 90035 SVP Legal Affairs Fox Television Group Attention: Jay Itzkowitz, Esq. Fax: (310) 369-2572 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Attention: Harvey Horowitz, Esq. Fax: (212) 697-6686 (iii) If to Saban or any of the Other SEI Stockholders: Haim Saban Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, CA 90024 Fax: (310) 235-5108 With a copy to: Matthew G. Krane, Esq. 2051 Hercules Drive Los Angeles, CA 90046 Fax: (213) 851-1178 and with a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard, Suite 800 Los Angeles, California 90024 Attention: Richard E. Troop, Esq. Fax: (310) 443-8503 30 or at such other address or addresses as may have been furnished by such Person in like manner to the other parties. (d) Severability. Should any Section or any part of a Section within ------------ this Agreement be rendered void, invalid or unenforceable by any court of law for any reason, such invalidity or unenforceability shall not void or render invalid or unenforceable any other Section or part of a Section in this Agreement. (e) Governing Law. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY ------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. (f) No Adverse Construction. The rule that a contract is to be ----------------------- construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. (g) Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. (h) Costs and Attorneys' Fees. In the event that any action, suit, ------------------------- or other proceeding is instituted concerning or arising out of this Agreement, the prevailing party shall recover all of such party's costs, and attorneys' fees incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall mean the full and actual costs of any legal services actually rendered in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services, and shall not be limited to "reasonable attorneys' fees" as defined by any statute or rule of court. (i) Successors and Assigns. Except as otherwise provided in this ---------------------- Agreement, all rights, covenants and agreements of the parties contained in this Agreement shall be binding upon and inure to the benefit of their respective successors and permitted assigns. Except as otherwise specifically set forth herein, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. (j) Amendments and Waivers. Neither this Agreement nor any term ---------------------- hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be 31 amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of Saban and FBC; provided, however, that no such -------- ------- amendment or waiver shall extend to or affect any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder. (k) Entire Agreement. This Agreement, the attached Exhibits and ---------------- Schedules and the Alliance Agreements, and the agreements referred to herein and therein, together contain the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof unless expressly referred to herein. No party to this Agreement makes any representation or warranty except as expressly set forth herein. (l) Specific Performance and Other Remedies. The parties hereto --------------------------------------- acknowledge and agree that the Shares (including the SEI Common Stock, the FCNH Common Stock and the Successor Entity Equity Securities) are unique, and that the parties will have no adequate remedy at law should any party hereto breach the provisions of Sections 2 through 8 hereof. In the event of the refusal or failure of any party hereto to fully comply with any of those provisions, the other parties, and each of them, shall have the right, in addition to any other rights and remedies which it or they may have hereunder, to specific performance, and other appropriate injunctive relief with respect thereto. In no event shall any party to any such proceeding urge or raise as a defense in any such action that an adequate remedy at law exists. (m) Agreement to Perform Required Acts. Each party hereto agrees to ---------------------------------- perform any further acts and to execute and deliver any further documents that may be reasonably necessary to carry out the provisions hereof, that may be required to secure performance of any party's duties hereunder or that may be required to assure the legal and binding effect of the provisions hereof. (n) Consent to Jurisdiction; Forum Selection. Any actions, suits or ---------------------------------------- proceedings instituted in connection with this Agreement or the performance by the parties of their obligations hereunder shall be instituted and maintained exclusively in the Superior Court for the State of California, County of Los Angeles or in the United States District Court for the Central District of California. By execution and delivery hereof, each party hereto hereby consents, for itself and in respect of its property, to the jurisdiction of the aforesaid courts solely for the purpose of adjudicating its rights or obligations under, or any disputes involving, this Agreement or any document related hereto. Each party hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, without limitation, any 32 objection that the other corporate party or parties lack the capacity to sue or defend based upon its or their lack of a certificate of qualification to conduct intrastate business in California, and any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have ----- --- ---------- to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related hereto. (o) Legends. Each of the SEI Stockholders, SEI, FBC and FCNH hereby ------- agree that each certificate or other writing evidencing any of the Shares or any securities of FCN, and each certificate or other writing issued in exchange or upon the transfer of any Shares or any securities of FCN shall be stamped or otherwise imprinted with a legend, either on the face of such certificate, or on the reverse of such certificate, with reference thereto appearing on the face of such certificate, in substantially the following form: [DESCRIBE THE SHARES] REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO MATERIAL RESTRICTIONS ON TRANSFER, RIGHTS OF FIRST REFUSAL, OPTIONS TO PURCHASE AND IRREVOCABLE PROXIES, AMONG OTHER RESTRICTIONS, UNDER THAT CERTAIN STRATEGIC STOCKHOLDERS AGREEMENT DATED AS OF DECEMBER 22, 1995, BY AND AMONG THE ISSUER, THE RECORD HOLDER OF THE SECURITIES SUBJECT TO THIS CERTIFICATE AND CERTAIN OTHER PERSONS. A COPY OF THE STRATEGIC STOCKHOLDERS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE ISSUER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE TO THE HOLDER HEREOF UPON SUCH HOLDER'S WRITTEN REQUEST. Each of SEI and FCNH covenants and agrees that it shall refuse to recognize any transfer of any Shares effected otherwise than in strict compliance with the provisions of this Agreement. (p) Additional Alliance Agreement. The following agreement has been ----------------------------- executed by the parties concurrent with the execution and delivery of this Agreement, and has applicability to the provisions of this Agreement: The guarantee of The News Corporation Limited, substantially in the form of Exhibit "D" hereto. 33 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SABAN ENTERTAINMENT, INC. By: /s/ Haim Saban --------------------------- Haim Saban Its: Chief Executive Officer /s/ Haim Saban --------------------------------- HAIM SABAN QUARTZ ENTERPRISES, L.P. By: /s/ Stan Golden ---------------------------- _____________________________ MERLOT INVESTMENTS By: /s/ Bill Josey ---------------------------- _____________________________ SILVERLIGHT ENTERPRISES, L.P. By: /s/ Mel Woods ---------------------------- _____________________________ [SIGNATURES CONTINUED ON NEXT PAGE] 34 CELIA ENTERPRISES, L.P. By: /s/ Matt Krane ---------------------------- ____________________________ 35 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. FOX BROADCASTING COMPANY By: /s/ Jay Itzkowitz ---------------------------- Its: Senior Vice President FCN Holding, Inc. By: /s/ Jay Itzkowitz ---------------------------- Its: Senior Vice President 36 EXHIBITS AND SCHEDULES Exhibits - -------- Exhibit "A" - Defined Terms Exhibit "B" - Registration Agreement Exhibit "C" - Spousal Consent Exhibit "D" - The News Corporation Limited Guarantee Exhibit 10(h) - SEI Projections Schedules - --------- Schedule "A" Schedule 9(a)(ii) Subsidiaries Schedule 9(a)(iv) Stock Pledged Schedule 9(a)(v) Stock Options Granted Schedule 9(a)(x) Litigation Schedule 9(a)(xi) Credit Agreements Schedule 9(a)(xvi) Material Contracts Schedule 9(a)(xvii) Interested Party Contracts Schedule 9(a)(xviii) Disclosures Schedule 9(b)(ii) Consents Schedule 9(b)(iv) Investment Banking Relationships SCHEDULE "A" SEI STOCKHOLDERS NUMBER OF SHARES - ---------------- ----------------
HAIM SABAN 377.56 QUARTZ ENTERPRISES, L.P. 76.80 MERLOT INVESTMENTS 65.19 SILVERLIGHT ENTERPRISES, L.P. 278.76 CELIA ENTERPRISES, L.P. 1.69
EXHIBIT "A" Definitions. As used in the Agreement to which this Exhibit is ----------- attached (the "Agreement"), the following terms shall have the following meanings: "Affiliate" means, when used with reference to a specified Person, any Person that directly or indirectly through one or more intermediaries controls or is controlled by, or is under common control with, the specified Person. "Bona Fide Offer" shall mean an offer from a person which is not an Affiliate, or otherwise related to, the offeree, and which person has the means to make or obtain financing for the offer, and which offer clearly identifies, and is binding upon, the offeror, and which contains all relevant terms and conditions of an offer to purchase any Shares, including (i) the length and expiration of the offer, (ii) the purchase price, (iii) the manner of acceptance, (iv) the manner and mode of payment, and (v) the time, place and date of the proposed closing. "Change in Control" of FBC shall mean any event or series of events, regardless of how structured, as the result of which (i) FBC ceases to be an Affiliate of Fox Inc. or The News Corporation Limited, or (ii) the primary business of FBC ceases to be controlled by Fox Inc. or The News Corporation Limited. "Commission" shall mean the U.S. Securities and Exchange Commission. "Control" (including as used in the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities by contract or otherwise. "Fair Market Value" shall mean the value determined pursuant hereto consistent with the provisions of the Agreement, and, with respect to Section 7 of the Agreement, shall be determined on the basis of the businesses, properties, historical financial performance and financial condition, projections and prospects for the further growth of the entity or entities whose Fair Market Value is being determined. The parties will, in each case, use reasonable efforts to reach agreement on Fair Market Value. In the event of a disagreement between the parties regarding the Fair Market Value, (i) each of Saban and FBC shall retain a reputable investment bank to determine such value, and within 30 days thereafter, shall deliver to the other the written report of its investment bank as to such value; (ii) if the higher valuation is less than 10% above the lower valuation, the average shall be the Fair Market Value; (iii) if the valuations exceed such 10% difference, Saban and FBC shall instruct their investment banks to forthwith select a third reputable investment bank, and (x) if the third investment bank's valuation is between the valuations of the other banks, the third investment bank's valuation shall be the Fair Market Value, or (y) if the third investment bank's valuation is outside the range of the other banks, the other banks will continue to select new third investment banks, until a third bank so selected provides a valuation which is between the first two valuations, and such valuation shall be the Fair Market Value. In connection with such valuations, the parties shall cause the entity or entities being valued to, on a confidential basis, deliver or provide access to each investment bank of all information reasonably requested by the investment bank in order to determine Fair Market Value. The cost of the appraisal (x) shall be shared equally by the parties if Fair Market Value is determined without reference to a third investment bank, and (y) otherwise, shall be borne by the party whose investment bank's valuation is furthest from the Fair Market Value. "Family Member" shall any descendant of the grandfather of Saban or his spouse. "FCN" means Fox Children's Network, Inc., a Delaware corporation. "FCNH" means FCN Holding, Inc., a Delaware corporation. "FCNH Sub" means FCNH Sub, Inc., a Delaware corporation. "FCP" means Fox Children's Productions, Inc., a Delaware corporation. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect to such asset. For purposes of the Agreement, any Person shall be deemed to own, subject to a Lien, any asset which it has acquired or holds, subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Material Adverse Effect" shall mean any event, act or failure to act which would have a material adverse effect upon the business, properties or financial condition of the entity with respect to which such term is used and all of its Affiliates and Subsidiaries, considered as a whole. "O & O's" shall have the meaning ascribed thereto in the Asset Assignment Agreement. "Person" includes an individual, partnership, trust, corporation, joint venture, limited liability company, association, government bureau or agency or other entity of whatsoever kind or nature. "Securities Act" means the Securities Act of 1933. 2 "Shares" shall include, without limitation, any securities issued with respect to such Shares upon the Reorganization, any security issued by the issuer of such Shares by way of dividend or split or similar transaction, or by the issuer or successor issuer in connection with any recapitalization, merger, consolidation or other reorganization. "Station Affiliate" and "Station Affiliate Agreements" shall have the meanings ascribed to such terms in the Asset Assignment Agreement. "Subsidiary" of a Person means (i) any corporation of which equity securities possessing a majority of the ordinary voting power in electing the board of directors are, at the time as of which such determination is being made, owned by such Person either directly or through one or more Subsidiaries, and (ii) any Person (other than a corporation) in which such Person, or any Subsidiary or Subsidiaries, directly or indirectly, has more than a 50% ownership interest. With respect to FBC, FCNH, FCN and their respective subsidiaries, the term "Subsidiary" shall include Twentieth Holding Corporation and its subsidiaries. The "transfer" of any Share shall include, without limitation, any direct or indirect sale, transfer (with or without consideration, or whether by operation of law or otherwise), assignment, pledge, hypothecation, encumbrance, or other disposition of the Share, or the making, issuance, grant or sale, directly or indirectly, of any option, warrants, convertible security or other right or agreement which affords any Person the right to purchase or otherwise acquire the Share. "Voting Power" means the power to vote, directly or indirectly, for the election of directors or exercise other rights of holders of voting common shares to vote on, approve or consent to matters as a shareholder under the General Corporation Law of the State of Delaware, as the same may from time to time be amended. 3 EXHIBIT "C" SPOUSAL ACKNOWLEDGMENT AND CONSENT The undersigned, Cheryl Saban, acknowledges and agrees that: (i) she has read the Strategic Stockholders Agreement, dated as of December 22, 1995 (the "Agreement"), to which this Spousal Acknowledgment and Consent (this "Consent") is attached, the parties to which include her husband, and including, without limitation, Sections 2, 3, 8 and 11(b) thereof; and that the execution and delivery of this Consent is a condition precedent to the "Closing" referred to in the Agreement; (ii) she consents to the execution and performance of the Agreement by her husband, and specifically consents and agrees that all provisions of the Agreement, and the other "Alliance Agreements" (as therein defined) which relate to the SEI Stock also relate to any shares of the SEI Stock in which she has or may have or may hereafter acquire a community property or other interest; and she agrees to be subject to, and abide by the terms of, such provisions (including, without limitation, the terms and conditions set forth in Section 2 and 3 thereof) as if she had been a party to the Agreement and such other Alliance Agreements; (iii) she hereby waives any rights she may have during the continuance of her marriage, or at any time thereafter, prior to the death or incompetency of her spouse, to control and/or manage Saban Entertainment, Inc. ("SEI") or the "Management Company," as that term is defined in the Agreement; (iv) she has carefully considered the provisions of Section 1100 of the California Family Code attached hereto, which Section grants to her, among other things, equal rights to management and control of certain community assets, and understands that by executing this Consent she has waived any rights she may have thereunder with respect to SEI or the Management Company; and she specifically consents to and agrees that the SEI Common Stock, to the extent that it is controlled by her spouse, and the consent, approval and other rights personally granted to him pursuant to the Agreement, the Management Agreement and other Alliance Agreements, constitute a "business or an interest in a business" which is being operated or managed by her spouse, so as to cause her spouse to have primary right to the management and control thereof, and she waives her right to prior notice of any sale, lease, exchange, encumbrance or other disposition of any or all of the personal property used in the operation of such business. (v) she was advised to seek independent counsel to review and advise her with respect to the negotiation and execution of this Consent. She hereby acknowledges that, of her own free will, she declined to do so. IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent as of the 22nd day of December, 1995. _________________________________ Cheryl Saban 2 (S) 1100. Community personal property; management and control; restrictions on disposition (a) Except as provided in subdivisions (b), (c), and (d) and Sections 761 and 1103, either spouse has the management and control of the community personal property, whether acquired prior to or on or after January 1, 1975, with like absolute power of disposition, other than testamentary, as the spouse has of the separate estate of the spouse. (b) A spouse may not make a gift of community personal property, or dispose of community personal property for less than fair and reasonable value, without the written consent of the other spouse. This subdivision does not apply to gifts mutually given by both spouses to third parties and to gifts given by one spouse to the other spouse. (c) A spouse may not sell, convey or encumber community personal property used as the family dwelling, or the furniture, furnishings, or fittings of the home, or the clothing or wearing apparel of the other spouse or minor children which is community personal property, without the written consent of the other spouse. (d) Except as provided in subdivisions (b) and (c), and in Section 1102, a spouse who is operating or managing a business or an interest in a business that is all or substantially all community personal property has the primary management and control of the business or interest. Primary management and control means that the managing spouse may act alone in all transactions but shall give prior written notice to the other spouse of any sale, lease, exchange, encumbrance, or other disposition of all or substantially all of the personal property used in the operation of the business (including personal property used for agricultural purposes), whether or not title to that property is held in the name of only one spouse. Written notice is not, however, required when prohibited by the law otherwise applicable to the transaction. Remedies for the failure by a managing spouse to give prior written notice as required by this subdivision are only as specified in Section 1101. A Failure to give prior written notice shall not adversely affect the validity of a transaction nor of any interest transferred. (e) Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request. 2 EX-10.2 6 AMEND NO. 1 TO STOCKHOLDERS AGREEMENT 2/26/96 Exhibit 10.2 AMENDMENT NO. 1 TO STRATEGIC STOCKHOLDERS AGREEMENT This Amendment No. 1 to Strategic Stockholders Agreement (the "Amendment") is made and entered into as of February 26, 1996, by and among Haim Saban ("Saban") and Fox Broadcasting Company, a Delaware corporation ("FBC"). R E C I T A L S - - - - - - - - A. Saban and FBC are two of the parties to that certain Strategic Stockholders Agreement (the "Agreement"), dated as of December 22, 1995, among Saban, FBC, the other "Shareholders" (as therein defined), and Saban Entertainment, Inc., FCN Holding, Inc. and FCNH Sub, Inc., which are each Delaware corporations. All terms defined in the Agreement which are not defined in this Amendment shall have the same meanings when used in this Amendment. B. The parties desire to amend the Agreement to correct a mathematical error in Section 10(i)(B) thereof. C. Pursuant to Section 11(j) of the Agreement, the Agreement may be amended with the written consent of FBC and Saban. This Amendment constitutes that consent. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto agree as follows: 1. Section 10(i)(B) of the Agreement is amended to read in full as follows: (B) If the aggregate amount of cash received by the Management Company pursuant to or with respect to the Asset Assignment Agreement during the period from the date of this Agreement through June 30, 1996 plus the amounts paid to FCNH Sub by way of dividend pursuant to the terms of Section 5.9.2 of the Operating Agreement (the "Actual Cash Payments") are less than $35,755,000, FBC shall, within 30 days following receipt of the FCN Net Profits Statement, contribute to the Management Company, without offset, an amount equal to the difference between $35,755,000 and the Actual Cash Payments. 2. Except as expressly modified herein, all terms of the Strategic Stockholders Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. FOX BROADCASTING COMPANY By /s/ Chase Carey --------------- /s/ Haim Saban ---------------------- Its Chairman and CEO HAIM SABAN ---------------- 2 EX-10.3 7 AMEND NO. 2 TO STOCKHOLDERS AGREEMENT 9/26/96 Exhibit 10.3 AMENDMENT NO. 2 TO STRATEGIC STOCKHOLDERS AGREEMENT This Amendment No. 2 to Strategic Stockholders Agreement (the "Amendment") is made and entered into as of September 26, 1996, by and among Saban Entertainment, Inc., a Delaware close corporation ("SEI"), Haim Saban ("Saban"), each of the entities listed on Schedule "A" hereto (the "SEI Entities" and, with Saban, the "SEI Stockholders"), Fox Broadcasting Company, a Delaware corporation ("FBC," and, together with the SEI Stockholders, the "Shareholders"), FCN Holding, Inc., a Delaware close corporation ("FCNH"), FCNH Sub, Inc., a Delaware close corporation ("FCNH Sub") and Allen & Company Incorporated, a New York corporation ("Allen"). R E C I T A L S - - - - - - - - A. SEI, the Shareholders, FCNH and FCNH Sub are parties to that certain Strategic Stockholders Agreement, dated as of December 22, 1995 (as amended by Amendment No. 1 to Strategic Stockholders Agreement, dated as of February 26, 1996 and this Amendment, the "Agreement"). All terms defined in the Agreement which are not defined in this Amendment shall have the same meanings when used in this Amendment. B. Pursuant to a letter agreement, dated as of September 26, 1996, but effective as of April 3, 1996 (the "Allen Agreement") between FCNH and Allen, FCNH has, concurrently with the execution and delivery of this Amendment, issued and sold to Allen 16 16/99 shares (the "Allen Shares") of the Common Stock, without par value, of FCNH. C. The parties desire to amend the Agreement in order, inter alia, to ----- ---- consent to the issuance and sale of the Allen Shares, and clarify and otherwise provide for the manner in which the Allen Shares are to be treated pursuant to the provisions of the Agreement. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing facts, and the mutual covenants and agreements contained herein, the parties hereto agree as follows: EXHIBIT A --------- 1. Definitions. Except as otherwise expressly hereinafter provided, all ----------- references in Sections 2, 3 (but excluding Section 3(b)), 4, 5(dd), 6(b), 11(j), 11(l) and 11(o) of the Agreement (i) to the "FCNH Common Stock" and/or the "Shares" shall include the Allen Shares, and (ii) to a "Shareholder" or the "Shareholders" shall include Allen. 2. Restrictions on Transfer. Subsection 2(c)(i) of the Agreement is ------------------------ amended by appending thereto the following clause: "and (z) Allen Shares transferred shall remain subject to the option granted in Section 6(a) of the Allen Agreement, and shall be transferred and sold at the same time as the other Allen Shares are transferred and sold pursuant thereto;" 3. Permitted Transfers. Section 3(d) of the Agreement is amended to read ------------------- in full as follows: "(d) Other Permitted Transfers. Any Person may effect a transfer ------------------------- authorized by Sections 4, 6 or 7 of this Agreement; any holder of SEI Common Stock may effect a transfer under and pursuant to the "Stock Ownership Agreement" (as defined in Section 7(b) below); and any Person may effect a transfer of the Allen Shares under and pursuant to Section 6(a) of the Allen Agreement." 4. Refusal Rights. -------------- (i) The first sentence of Section 4(a) of the Agreement is amended to read in full as follows: "(a) Offer. If any Shareholder ("Transferor") desires to transfer any ----- Shares pursuant to this Section 4, it shall deliver a written offer to sell for cash the Shares, and all rights with respect to the Shares (excluding rights under this Agreement which, pursuant to Section 11(b), are personal to Saban or FBC), (x) if Transferor is an SEI Stockholder, to FBC, (y) if Transferor acquired the Shares pursuant to this Section 4 directly or indirectly: (A) from FBC, to Saban, or (B) from an SEI Stockholder, to FBC, or (C) from Allen, to both Saban and FBC; (z) if Transferor is FBC, to Saban; and (aa) if Transferor is Allen, to both FBC and Saban. In case of an offer to both FBC and Saban, each of FBC and Saban shall be entitled to subscribe to purchase 50% of the offered Shares, plus any and all of the offered ---- Shares not subscribed for by the other of Saban or FBC." (ii) In case of an offer to both FBC and Saban pursuant to Section 4(a) of the Agreement, the provisions of Sections 4(b), 4(c) and 4(d) of the Agreement shall be separately applicable to 2 each of FBC and Saban, as an offeree, with respect to the Shares offered to, subscribed for and purchased by, such offeree; and thus, if, for example, Saban fails to accept, or rejects, Transferor's offer, but FBC accepts Transferor's offer, Transferor would not have the right pursuant to Section 4(d) of the Agreement to sell any of the Shares which FBC has so elected to purchase. 5. Covenants and Voting Agreements. ------------------------------- (i) Section 5(d) of the Agreement is amended by substituting for each reference to "Section 5(c)" a reference to "Section 5(d)." (ii) Section 5 of the Agreement is amended by inserting the following Section 5(dd) immediately preceding Section 5(e) of the Agreement: (dd) Irrevocable Proxy. Allen hereby irrevocably and unconditionally ----------------- appoints FBC, with full power of substitution, as its proxy and attorney-in-fact pursuant to the provisions of Section 212(e) of the Delaware General Corporation Law, with full power and authority from time to time to attend meetings, vote, act by written consent, and in all other ways act in Allen's place and stead with respect to the Allen Shares (and any and all shares or other securities issued in respect of such shares). The proxy granted hereby is coupled with an interest in the Allen Shares, which interest includes the rights granted to the Shareholders pursuant to the provisions of Section 6 of this Agreement, and the rights granted to FCNH pursuant to the Allen Agreement, and shall be irrevocable for the term of this Section 5. For purposes of Section 5(d) of this Agreement only, the Allen Shares shall be deemed to be "Shares" owned and controlled by FBC; and the irrevocable proxy granted to Saban by FBC in Section 5(d) of this Agreement shall include the grant by FBC to Saban (under the irrevocable proxy created by this Section 5(dd)) of the power to vote or act by written consent with respect to the Allen Shares, as therein provided with respect to the Shares of FBC. 6. Initial Public Offering. ----------------------- (i) Subsection 6(b)(i)(F) of the Agreement is amended by inserting after the phrase "...the SEI Stockholders of all of their respective Shares..." the following: "..., by Allen of all of its Allen Shares," (ii) Subsection 6(b)(i) of the Agreement is further amended by appending thereto the following sentence: 3 "All determinations which are made pursuant to this Section 6(b)(i), and including, without limitation, all determinations as to the form and structure of the Successor Entity, and the terms and relative rights, preferences and privileges of the Successor Entity Equity Securities and the Preferred Stock, shall be binding upon all other holders of the SEI Common Stock and/or the FCNH Common Stock, including, without limitation, the other SEI Stockholders and Allen." (iii) Subsection 6(b)(ii) of the Agreement is amended by substituting for the second sentence thereof the following: "In connection with the Reorganization, the Successor Entity Equity Securities to be outstanding at the Effective Time (the "Pre-Offering Equity Securities") shall be allocated as follows: (x) each share of the then-outstanding SEI Common Stock, other than "Later Issued SEI Shares," as defined below, shall be exchanged for that number of Pre-Offering Equity Securities equal to 50% of the Pre-Offering Equity Securities divided by the sum of (A) the number of shares of SEI Common Stock (excluding the Later Issued SEI Shares) then outstanding plus (B) 50% of the total "Later Issued ---- Shares" (as defined below) then outstanding; (y) each share of the then-outstanding FCNH Common Stock, other than "Later Issued FCNH Shares," as defined below, shall be exchanged for that number of Pre-Offering Equity Securities equal to 50% of the Pre-Offering Equity Securities divided by the sum of (A) the number of shares of FCNH Common Stock (excluding the Later Issued FCNH Shares) then outstanding plus (B) 50% of the total Later Issued ---- Shares then outstanding; and (z) each share of the then-outstanding Later-Issued Shares shall be exchanged for that number of Pre-Offering Equity Securities equal to 100% of the Pre-Offering Equity Securities divided by the sum of (A) the number of shares of FCNH Common Stock (excluding the Later Issued FCNH Shares) then outstanding plus (B) the number of shares of ---- SEI Common Stock (excluding the Later Issued SEI Shares) then outstanding, plus the total Later Issued Shares then outstanding. ---- 4 Pursuant to Section 5 of this Agreement, neither FCNH nor SEI may, without the consent of Saban and FBC, effect any changes in the number of their respective outstanding Shares through stock split, reverse stock split or stock dividend. If any such changes are permitted, Saban and FBC shall amend this subsection 6(b)(ii) to equitably adjust the foregoing exchange ratios. If the rights, preferences and privileges included in the charter documents of the Successor Entity with respect to the Successor Entity Equity Securities to be sold in the Initial Public Offering differ from the rights, preferences and privileges applicable to the Successor Entity Equity Securities to be retained by the SEI Stockholders and FBC, then all of the shares of Pre-Offering Equity Securities to be issued pursuant to clause (z), above, shall have the same rights, preferences and privileges as the securities to be sold in the Initial Public Offering; provided, that Saban and FBC may, at any time prior to -------- the Effective Time, determine that some, or all, of such Pre-Offering Equity Securities shall have rights, preferences and privileges identical to those applicable to the Shares to be retained by the SEI Stockholders and FBC; and in making such determination, Saban and FBC shall not be required to treat Allen, or any other holder of the Later Issued Shares, in the same manner as other holders of the Later Issued Shares. As used in this Agreement, any shares of SEI Common Stock issued and sold by SEI subsequent to December 22, 1995 and prior to the Effective Time are referred to as "Later Issued SEI Shares," any shares of FCNH Common Stock issued and sold by FCNH subsequent to December 22, 1995 and prior to the Effective Time, including, without limitation, the Allen Shares, are referred to as "Later Issued FCNH Shares," and the Later Issued SEI Shares and the Later Issued FCNH Shares are collectively referred to as the "Later Issued Shares." " (iv) Subsection 6(b)(ii) of the Agreement is further amended by inserting in the fourth sentence thereof, immediately following the phrase " ...deemed to be "SEI Common Stock" hereunder,..." the following: "all Shares of Successor Entity Equity Securities issued with respect to the Allen Shares shall be deemed to be "Allen Shares" hereunder," 5 7. Put Option. ---------- (i) The title of Section 7 of the Agreement is amended to read in full as follows: "7. Put Option and Exchange Obligation". ----------------------------------- (ii) Subsection 7(c)(i)(A) of the Agreement is amended to read in full as follows: [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] (iii) Section 7 of the Agreement is amended by adding, immediately following Section 7(d), the following: "(e) Exchange Obligation. (x) If none of the following events (the ------------------- "Liquidity Events") have occurred on or before the 17th anniversary of this Agreement: (i) the Reorganization; (ii) the Initial Public Offering; (iii) the Effective Date of the Put Option; or (iv) the effective date of the Call Option; then FBC shall during the 12 month period following the 17th anniversary of this Agreement have the right and option, by delivering during such period written notice of its election to SEI and all then holders of the Allen Shares (excluding SEI and FBC), to require SEI and such holders to effect the following transactions: (A) each such holder of the Allen Shares shall deliver to SEI [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] and (B) SEI shall, [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.] If any of the Liquidity Events occurs on or prior to the 17th anniversary of this Agreement, this Section 7(e) shall terminate and be of no further force or effect. 6 (y) The closing of the exchange and transfer provided in (x)(A) and (x)(B) above shall take place at the time (which shall be within 120 days of the delivery of the notice of election) and place designated by FBC in its notice of election. At the closing, each of the holders of the Allen Shares shall deliver to SEI documents of transfer in form and substance reasonably acceptable to FBC and SEI and their respective counsel, necessary to vest in SEI, and in FBC as its transferee, good and marketable title to the Allen Shares so exchanged by the holder thereof, free and clear of any and all Liens, other than those imposed under or pursuant to this Agreement or the Other Agreements, against delivery by SEI of the SEI Common Stock to be exchanged therefor, registered in the name of the exchanging holder; and upon receipt thereof, SEI shall deliver to FBC documents of transfer in form and substance reasonably acceptable to FBC and its counsel, necessary to transfer to FBC all right, title and interest of SEI in and to the Allen Shares which it has so received in the exchange. All Shares of SEI Common Stock received by such holders in the exchange shall be "Allen Shares" and "Shares" subject to the terms of this Agreement. (z) The exchange ratio provided in Section 7(e)(x)(A) of this Agreement shall be appropriately adjusted for any increase or decrease in the number of shares of issued and outstanding SEI Common Stock or FCNH Common Stock, as the case may be, resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split-up, stock distribution or combination of shares, or payment of a share dividend of other increase or decrease in the number of such Shares outstanding effected without receipt of consideration by the issuing corporation." 8. Miscellaneous Provisions. ------------------------ (i) Section 11(c) of the Agreement is amended by adding, immediately following clause (iii) thereof, the following: "(iv) If to Allen: Allen & Company Incorporated 711 Fifth Avenue New York, New York 10022 Attention: Stanley S. Shuman, Executive Vice President Fax: (212) 832-8023" (ii) Section 11(j) of the Agreement is amended to read in full as follows: 7 "(j) Amendments and Waivers. Neither this Agreement nor any term ---------------------- hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) by (and only by) a written document executed by Saban and FBC; and any such amendment or waiver executed by both Saban and FBC shall be binding upon all of the parties to this Agreement, including each and every Person (including Allen) who has agreed to be bound by provisions of this Agreement relating to the Shares which it holds; provided, -------- however, that no such amendment or waiver shall extend to or affect ------- any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder." (iii) Financial Statements. Until the first to occur of a -------------------- Liquidity Event or the date upon which Allen ceases to own at least 50% of the Allen Shares, SEI and FCNH shall each from time to time deliver, on a confidential basis, to Allen, within a reasonable time after their availability: (x) with respect to each of the first three fiscal quarters of each fiscal year ending on or subsequent to the date of this Amendment, an unaudited consolidated balance sheet of each of SEI and FCNH, as well as (if available) Fox Kids, (each herein, the "Reporting Company") as of the end of such period, and the related consolidated statements of operations and cash flows of the Reporting Company for each such period and for the period from the beginning of the current fiscal year to the end of such quarterly period, setting forth in each case, to the extent applicable, comparisons to the corresponding period of the previous fiscal year; and (y) with respect to each fiscal year ending after the date of this Amendment, a consolidated balance sheet of the Reporting Company as at the end of such year and consolidated statements of operations and cash flows of the Reporting Company for such year, setting forth in each case comparisons, to the extent applicable, to the previous fiscal year, and, if and to the extent audited, accompanied by the opinion thereon of the auditors for the Reporting Company. 8 9. Consent of Saban. Saban hereby consents to the issuance and sale of ---------------- the Allen Shares to Allen pursuant to the Allen Agreement. 10. Agreement of Allen. The Agreement is amended by adding thereto the ------------------ following Section 12: "12. Agreement of Allen. By executing Amendment No. 2 to the ------------------ Agreement, Allen agrees to be bound by all of the provisions of Sections 1 through 6, Section 7(e) and Section 11, of the Agreement, including, without limitation, any provision included therein applicable to the Allen Shares, or Allen as a "Shareholder" or "party" to the Agreement. The provisions of Sections 7 (other than Section 7(e)), Section 8 and Section 9 of the Agreement are not for the benefit of, or enforceable by, Allen. Allen further agrees to indemnify, defend and hold all of the other parties to the Agreement, and each of them, harmless against and in respect of any and all loss, cost, liability, damage or deficiency arising out of or in connection with any breach by Allen of any covenant or agreement made or to be performed by Allen under the terms of the Agreement, and all claims, demands, actions, suits, proceedings, judgments, costs, attorneys' fees and expenses, or liens, charges or encumbrances upon the assets of any of the indemnified parties relating to or incurred by the indemnified parties incident to the foregoing." 11. Effective Date of Amendment. While this Amendment has been executed --------------------------- as of its date, it shall be deemed to be effective as of April 3, 1996. 12. Effect of Amendment. Except as expressly modified herein, all terms ------------------- of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. SABAN ENTERTAINMENT, INC. By: /s/ Haim Saban ---------------------- Haim Saban Its: Chief Executive Officer [Signatures continued on next page] 9 QUARTZ ENTERPRISES, L.P. By: /s/ Stan Golden -------------------- Its: ____________________ MERLOT INVESTMENTS By: /s/ Bill Josey -------------------- Its: ____________________ SILVERLIGHT ENTERPRISES, L.P. By: /s/ Mel Woods -------------------- Its: ____________________ CELIA ENTERPRISES, L.P. By: /s/ Matthew Krane -------------------- Its: ____________________ FOX BROADCASTING COMPANY By: /s/ Larry Jacobson ____________________ Its: EVP ____________________ FCN HOLDING, INC. By: /s/ Larry Jacobson ____________________ Its: EVP ____________________ [Signatures continued on next page] 10 FCNH SUB, INC. By: /s/ Larry Jacobson ____________________ Its: EVP ____________________ ALLEN & COMPANY INCORPORATED By: /s/ Stanley S. Shuman ------------------------ Its: Executive Vice President ------------------------ 11 SCHEDULE "A" SEI STOCKHOLDERS ---------------- Haim Saban Quartz Enterprises, L.P. Merlot Investments Silverlight Enterprises, L.P. Celia Enterprises, L.P. 12 EX-10.4 8 AMENDMENT NO. 3 TO STRATEGIC STOCKHOLDERS AGMT. EXHIBIT 10.4 AMENDMENT NO. 3 TO STRATEGIC STOCKHOLDERS AGREEMENT This Amendment No. 3 to Strategic Stockholders Agreement (the "Amendment") is made and entered into as of ___________, 1996, by and among Saban Entertainment, Inc., a Delaware close corporation ("SEI"), Haim Saban ("Saban"), each of the entities listed on Schedule "A" hereto (the "SEI Entities," and, with Saban, the "SEI Stockholders"), Fox Broadcasting Company, a Delaware corporation ("FBC"), Fox Broadcasting Sub, Inc., a Delaware close corporation ("FBC Sub," and, together with the SEI Stockholders, the "Shareholders"), and FCN Holding, Inc., a Delaware close corporation ("FCNH"). R E C I T A L S - - - - - - - - A. SEI, Saban, the SEI Entities, FBC, FCNH and FCNH Sub and Allen & Company Incorporated are parties to that certain Strategic Stockholders Agreement, dated as of December 22, 1995 (as amended by Amendment No. 1 to Strategic Stockholders Agreement, dated as of February 26, 1996, Amendment No. 2 to Strategic Stockholders Agreement, dated as of September 26, 1996 and this Amendment, the "Agreement"). All terms defined in the Agreement which are not defined in this Amendment shall have the same meanings when used in this Amendment. B. On September 26, 1996, FBC transferred and conveyed to FBC Sub all of the FCNH Common Stock owned by it, and FBC Sub agreed to be bound by all of the terms of the Agreement, as it then existed. C. Pursuant to Section 6(b) of the Strategic Stockholders Agreement, Fox Kids Worldwide, Inc., a Delaware corporation, has been formed as the Successor Entity, and on September 26, 1996, agreed to assume and be bound by all obligations of the Successor Entity under the Registration Agreement and the other Alliance Agreements. D. The Successor Entity has filed a registration statement under the Securities Act of 1933, as amended, with respect to the Initial Public Offering. E. In connection with the Reorganization, the parties desire to amend the Agreement in order, inter alia, to provide for certain voting and other ----- ---- agreements among the parties. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing facts, and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. A new Section 12 is added to the Agreement, and shall read in full as follows: 12. Additional Voting and Other Agreements with respect to the Successor -------------------------------------------------------------------- Entity. - ------ (a) Election of Directors of the Successor Entity. --------------------------------------------- (i) Number of Authorized Directors. The SEI Stockholders, FBC and FBC ------------------------------ Sub shall use their respective best efforts to cause the number of authorized members ("Directors") of the Board of Directors to be fixed at eight, or at such other number as Saban and FBC may from time to time agree upon and mutually designate in writing. (ii) Nominees for Directors. Within 90 days subsequent to the end of ---------------------- each fiscal year of the Company, commencing with the fiscal year ending June 30, 1997, (x) Saban shall furnish to FBC his list of three nominees (the "Saban Nominees") and two "Independent Directors" (as hereinafter defined) for election as Directors at the annual meeting of the stockholders of the Successor Entity to be held thereafter (the "Subject Meeting"), and (y) FBC shall furnish to Saban its list of three nominees (the "FBC Nominees") and two Independent Directors for election as Directors at the Subject Meeting. Notwithstanding the foregoing, if Saban transfers, in the aggregate, 1/3 or more of the Shares which are deemed to be SEI Common Stock hereunder (prior to such list being furnished to and accepted by FBC), then Saban shall be entitled to nominate only two Saban Nominees and no Independent Directors for election as Directors at the Subject Meeting. If either or both of Saban and FBC fail to furnish the other with its list of such nominees, the persons then serving on the Board of Directors of the Successor Entity as that person's nominees, or as Independent Directors, shall be that person's nominees for the Subject Meeting. Following exchange of their lists, Saban and FBC shall endeavor to meet and jointly agree upon the persons to be nominees for Independent Directors; and if Saban and FBC have not reached agreement with respect thereto within 20 days following the exchange of their lists, Saban shall have the right to designate one of the persons on his list as his nominee for Independent Director, and FBC shall have the right to designate one of the persons on its list as its nominee for Independent Director; and Saban and FBC shall promptly thereafter advise the Secretary of the Successor Entity of the identity of the nominees so selected, and Saban and FBC shall use their best efforts to cause the slate of nominees selected by the Board of Directors of the Successor Entity to consist of the Saban Nominees, the FBC Nominees and the two Independent Directors selected as hereinabove provided. 2 (iii) Independent Directors. For purposes of this Agreement, an --------------------- "Independent Director" shall be a person who, but for his or her position as a Director of the Successor Entity and/or one or more of its subsidiary corporations, would qualify as a "Non-Employee Director" (as that term is defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) and an "Outside Director" (as that term is defined in the regulations of the Internal Revenue Service under Section 162(m) of the Internal Revenue Code of 1986, as amended) of all of (x) the Successor Entity, (y) Saban and any Person directly or indirectly controlled by Saban, and (z) The News Corporation Limited ("News Corp."), and any Person directly or indirectly controlled by News Corp. (iv) Election of Directors. At each Subject Meeting, (x) FBC, FBC Sub --------------------- and each of their respective transferees, successors and assigns (other than with respect to transfers of Shares pursuant to Section 3(a)(i) or Section 3(a)(ii) of this Agreement) shall vote all of the Shares which are deemed to constitute FCNH Common Stock hereunder, (y) Saban, each of the SEI Entities, and each of their respective transferees, successors and assigns (other than with respect to transfers of Shares pursuant to Section 3(a)(i) or Section 3(a)(ii) of this Agreement) shall vote all of the Shares which are deemed to be SEI Common Stock hereunder, and (z) each shall vote any and all other Shares of the voting securities of the Successor Entity with respect to which he or it has sole or shared voting power, in favor of the FBC Nominees, the Saban Nominees and the Independent Nominees. (v) Special Circumstances. If any Saban Nominee or FBC Nominee shall --------------------- for any reason be unwilling or unable to serve as a Director of the Successor Entity, the person designating such Nominee shall have the right at any time prior to the opening of the polls with respect to the election of Directors at the Subject Meeting to designate a replacement Nominee, and all parties shall cast their respective votes for such replacement Nominee, in lieu of the originally designated Nominee. If Saban desires at any time or from time to time to remove any Saban Nominee, or FBC desires at any time or from time to time to remove any FBC Nominee, Saban and FBC shall cooperate with each other, and shall take any and all actions as reasonably may be required, to cause the removal of such Director. If any Saban Nominee or FBC Nominee shall cease to serve as a Director for any reason, Saban and FBC shall cooperate with each other, and shall take any and all actions as reasonably may be required, to cause the vacancy resulting therefrom to be filled, respectively, by a designee of Saban or FBC. If any Independent Director for any reason is unwilling or unable to serve as a Director, or ceases to serve as a Director for any reason, or ceases to be an Independent Director, Saban and FBC shall cooperate with each other, and shall take any and all actions 3 as reasonably may be required, to replace such Director with a new Independent Director selected by the party who initially proposed the former Independent Director; and if the parties cannot agree as to which initially proposed the former Independent Director, and are unable to reach agreement as to a replacement Independent Director for that Director, the vacancy shall not be filled until the next annual meeting of Stockholders. If any Directors are to be elected at a meeting other than an annual meeting, or by means of written consents, all of the provisions of this Section 12(a) shall apply to such meeting or action, mutatis mutandis. ------- -------- (b) Other Shareholder Actions. With respect to each matter other than ------------------------- the election or removal of Directors submitted to a vote of the stockholders of the Successor Entity, or the holders of any class or classes of its outstanding voting securities, whether at a meeting of stockholders or by written consent, FBC, FBC Sub, Saban, each of the SEI Entities, and each of their respective transferees, successors and assigns (other than with respect to transfers of Shares pursuant to Section 3(a)(i) or Section 3(a)(ii) of this Agreement) shall vote all of the Shares which are deemed to be FCNH Common Stock or SEI Common Stock hereunder, as applicable, and any and all other Shares of the voting securities of the Successor Entity with respect to which he or it has sole or shared voting power, as follows: (i) if Saban and FBC are able to reach agreement as to the manner in which the Shares are to be voted, in accordance with that agreement; and (ii) in all other cases, each shall abstain from voting or taking any other action with respect to such matter. (c) Negative Covenants. ------------------ Without the prior written consent of FBC and Saban, neither (i) FBC, or any direct or indirect Affiliate of FBC (including, without limitation, News Corp. and its Affiliates), nor (ii) any of the SEI Stockholders, or any direct or indirect Affiliate of any of the SEI Stockholders (excluding, however, with respect to (i) or (ii) above, the Successor Entity and any Person directly or indirectly controlled by the Successor Entity) shall: i) purchase, acquire or offer or agree to purchase or acquire any Successor Entity Equity Securities or other voting securities of the Successor Entity; ii) solicit, or encourage any persons to solicit, proxies or become a "participant" or otherwise engage in any "solicitation" (as those terms are defined in Regulation 14A under the Exchange Act), without regard to whether the Successor Entity is subject to Regulation 14A, or otherwise seek to advise or influence any person, entity or group to vote in opposition to a recommendation of not less than two-thirds of the authorized number 4 of Directors of the Successor Entity with respect to any matter submitted to the stockholders (except the election of Directors) of the Successor Entity; iii) initiate, propose or otherwise solicit stockholders for the approval of one or more stockholder proposals (as described in Rule 14a-8 under the Exchange Act) with respect to the Successor Entity; iv) directly or indirectly participate in or encourage the formation of, or in any manner provide assistance to, any "group" (as defined in Section 13(d)(3) of the Exchange Act) seeking to acquire or effect control of the Successor Entity, or for the purpose of acquiring, holding or disposing of voting securities of the Successor Entity; v) deposit any voting securities in a voting trust, or subject any voting securities to a voting agreement, understanding or similar agreement; vi) otherwise act, alone or in concert with others, to assist or encourage any other person, entity or group in seeking to control the management, Board of Directors or policies of the Successor Entity or to propose or effect any form of business combination with the Successor Entity or any restructuring, recapitalization, liquidation, dissolution or other similar transaction with respect to the Successor Entity; or vii) enter into any agreement or understanding with any person to do or effect any of the foregoing. (d) Performance; Irrevocable Proxy. (i) Each of the SEI ------------------------------ Stockholders, FBC and FBC Sub shall take any and all actions within their power as stockholders of the Successor Entity, including the calling of special meetings of the stockholders of the Successor Entity and the voting of all of the Shares with respect to which he or it has sole or shared voting power, in order to carry out and perform their respective obligations under this Agreement; (ii) FBC shall take any and all actions within its power as a stockholder of FBC Sub, including the calling of special meetings of the stockholders of FBC Sub, and the voting of the shares of capital stock of FBC Sub, required to cause FBC Sub to perform all of its obligations under this Agreement; and (iii) without limiting the generality of clauses (i) or (ii) above, if and so long as any party hereto (a "breaching party") fails or refuses to perform its obligations under this Section 12, following demand to perform such obligations by Saban or FBC (whichever is not the breaching party, or a party in control of the breaching party), without limiting any other rights which may then be available at law or in equity with respect thereto, all of the Shares of the breaching party (and, if 5 the breaching party is FBC Sub, all of the voting securities of FBC Sub) and its controlled Affiliates may be voted by the other of Saban or FBC Sub, as the case may be, to cure such breach or rectify such default; and in furtherance thereof, Saban hereby appoints FBC Sub, and FBC and FBC Sub each hereby appoints Saban, as its proxy and attorney-in-fact pursuant to the provisions of Section 212(e) of the Delaware General Corporation Law, with full power and authority from time to time to vote or act by written consent with respect to the Shares, but only following demand to the party granting such proxy to vote the Shares as required hereby, and then only as may be necessary to ensure full compliance with the provisions of this Section 12. Each proxy granted hereby is coupled with an interest in the Shares to which it relates, and shall be irrevocable for the term of this Section 12. (e) Termination of Section 12. If at any time following the Initial ------------------------- Public Offering (i) the SEI Stockholders, together with all other Persons to whom the SEI Stockholders, or any of them, have transferred Shares pursuant to Section 3(b) or 3(c) of this Agreement, beneficially own, in the aggregate less than ________ Shares [33 1/3%] of the Class B Common Stock, par value $0.001 per share (the "Class B Stock"), of the Successor Entity; or (ii) FBC, or FBC Sub, together with all other Persons to whom FBC or FBC Sub have transferred Shares pursuant to Section 3(b) or 3(c) of this Agreement, beneficially own, in the aggregate, less than _____ shares of the Class B Stock; then FBC (in case of (i), above) or Saban (in case of (ii), above), as the case may be, shall have the right and power, by delivery of written notice to the transferring party, to terminate the provisions of this Section 12. As used in this Section 12(a), a Person shall have "beneficial ownership" of shares only if he or it has the power to direct the voting of, and the disposition of, the Shares, which power or powers are shared with no Person other than an Affiliate of such Person or Persons to whom such Person could transfer the Shares under Section 3(b) or #(c) of this Agreement. The number of shares referred to above shall be subject to ratable and equitable adjustment with respect to any stock splits, stock dividends, reverse stock splits, recapitalizations and other events affecting all of the holders of the Surviving Entity's Class B Common Stock. The termination of the provisions of this Section 12 shall not affect the continuing validity of the other provisions of the Agreement. (f) Legends. The certificates representing all of the Shares ------- subject to this Section 12, until transferred pursuant to the provisions of Section 3(a)(i) or 3(a)(ii) of the Agreement, shall bear the legend set forth in Section 11(o) of the Agreement, except that the reference to "Strategic Stockholders Agreement dated as of December 22, 1995" shall refer instead to "Strategic Stockholders Agreement dated as of December 22, 1995, as amended." 6 (g) Transfer of Shares. Unless Saban and FBC shall otherwise agree, ------------------ all Shares transferred pursuant to Section 3(b), 3(c) or 4 of the Agreement shall continue to be subject to this Section 12. 2. Incorporation by Reference. All of the terms and provisions of -------------------------- Section 11 of the Agreement shall be applicable to this Amendment. 3. Effect of Amendment. Except as expressly modified herein, all ------------------- terms of the Agreement, as heretofore amended, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. SABAN ENTERTAINMENT, INC. By: ____________________ Haim Saban Its: Chief Executive Officer QUARTZ ENTERPRISES, L.P. By: ____________________ Its: ____________________ MERLOT INVESTMENTS By: ____________________ Its: ____________________ SILVERLIGHT ENTERPRISES, L.P. By: ____________________ Its: ____________________ [Signatures continued on next page] 7 CELIA ENTERPRISES, L.P. By: ____________________ Its: ____________________ ___________________________ HAIM SABAN FOX BROADCASTING COMPANY By: ____________________ Its: ____________________ FOX BROADCASTING SUB, INC. By: ____________________ Its: ____________________ FCN HOLDING, INC. By: ____________________ Its: ____________________ 8 CONSENT OF NEWS CORP. As a material inducement to the parties to the Strategic Stockholders Agreement dated as of December 22, 1995, as amended, to further amend such agreement pursuant to Amendment No. 3 thereto (the "Amendment"), to which this Consent is appended, the undersigned, The News Corporation Limited, a corporation organized under the laws of South Australia, hereby covenants and agrees that it shall, and it shall cause each of its Affiliates to, observe and comply with all of the provisions of Section 12(c) of the Strategic Stockholders Agreement, as reflected in the Amendment. DATED: ___________, 1996 THE NEWS CORPORATION LIMITED By: _______________________ And by: _______________________ 9 SCHEDULE "A" SEI STOCKHOLDERS ---------------- Haim Saban Quartz Enterprises, L.P. Merlot Investments Silverlight Enterprises, L.P. Celia Enterprises, L.P. 10 EX-10.5 9 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.5 LIST OF INDEMNITEES ------------------- The attached Form of Indemnification Agreement will be entered into by and between Fox Kids Worldwide, Inc. and the following persons, each an "Indemnitee". 1. Haim Saban 2. Mel Woods 3. Margaret Loesch 4. K. Rupert Murdoch 5. Chase Carey 6. Shuki Levy 7. William Josey 8. Mark Ittner INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of this _____ day of _____, 1996, by and between FOX KIDS WORLDWIDE, INC., a Delaware corporation (the "Company"), and __________________ ("Indemnitee"). RECITALS A. The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers, employees and agents, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. B. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, and agents to expensive litigation risk at the same time that the availability and coverage of liability insurance has been severely limited. C. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors, officers, employers and agents of the Company may not be willing to continue to serve as directors, officers, employees and agents without additional protection. D. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as directors, officers, employees and agents of the Company and to indemnify its directors, officers, employees and agents so as to provide them with the maximum protection permitted by law. AGREEMENT The Company and Indemnitee hereby agree as follows: 1. AGREEMENT TO SERVE. Indemnitee agrees to serve and/or continue to serve the Company, at the Company's will (or under separate written agreement approved by the Board of Directors of the Company, if such agreement exists), in the capacity Indemnitee currently serves the Company, as long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the Bylaws of the Company or any subsidiary of the Company or (subject to any employment agreement between Indemnitee and the Company) until such time as Indemnitee tenders a written resignation or is removed in accordance with the Bylaws; provided, however, that nothing contained in this Agreement is intended -------- ------- to or shall create any right (express or implied) to continued employment by Indemnitee. 2. INDEMNIFICATION. (a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director, officer, employee or agent, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including, without limitation, attorneys' fees, disbursements and retainers, accounting and witness fees, travel and deposition costs, and expenses of investigations), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a ---- ---------- presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director, officer, employee or agent, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including, without limitation, attorneys' fees, disbursements and retainers, accounting and witness fees, travel and deposition costs, and expenses of investigations) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit (i) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee's duty to the Company and its stockholders unless and only to the extent that the court in which such action or suit is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly 2 and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine; (ii) if Indemnitee is a director, to the extent that the action or contemplated action seeks monetary damages for breach of Indemnitee's duties to the Company and its stockholders in circumstances under which Indemnitee's personal liability therefor has been eliminated as a result of the provisions of Section 102(b)(7) of the Delaware General Corporation Law; or (iii) if Indemnitee is an agent other than a director, to the extent that, were Indemnitee a director, Indemnitee would have the right to be indemnified under Section 2(b)(ii), above; and in the case of Section 2(b)(ii) and 2(b)(iii) above, indemnification shall include, to the extent not prohibited by law, indemnification against all judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding. (c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Subsection (a) or (b) of this Section 2 or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including, without limitation, attorneys' fees, disbursements and retainers, accounting and witness fees, travel and deposition costs, and expenses of investigations) actually and reasonably incurred by Indemnitee in connection therewith. (d) INDEMNIFICATION FOR SERVING AS A WITNESS. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitee's status as a director, officer, employee or agent of the Company, a witness in any action, suit or proceeding, whether civil, criminal, administrative or investigative, Indemnitee shall be indemnified against expenses actually and reasonably incurred by Indemnitee in connection therewith. 3. EXPENSES; INDEMNIFICATION PROCEDURE. (a) ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil, criminal, administrative or investigative action, suit or proceeding referenced in Section 2(a) or (b) hereof (but not amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within 45 days following delivery of a written request therefor by Indemnitee to the Company. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice, in accordance with Section 14 hereof, of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 3 (c) PROCEDURE. Any indemnification and advances provided for in Section 2 and this Section 3 shall be made no later than 45 days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within 45 days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 13 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee. Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the intention of the parties that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceedings against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ separate counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and 4 Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or its officers, employees or agents, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested Directors, the Corporation Law of the State of Delaware or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees and/or agents under this Agreement or other wise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the directors, officers, employees and agents of the Company with coverage for losses from wrongful acts, or to ensure 5 the Company's performance of its indemnification obligations under this agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all such policies of liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not an director of the Company but is an officer; or of the Company's employees, if Indemnitee is not a director or officer but is an employee; or of the Company's agents, if Indemnitee is not a director, officer or employee but is an agent. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are dispro portionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall never theless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement : (a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; (b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and 6 amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance or other policy of insurance maintained by the Company; (d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute; (e) UNLAWFUL CLAIMS. To indemnify Indemnitee in any manner which is contrary to public policy or which a court of competent jurisdiction has finally determined to be unlawful; (f) FAILURE TO SETTLE PROCEEDING. To indemnify Indemnitee for liabilities in excess of the total amount at which settlement reasonably could have been made, or for any cost and/or expenses incurred by Indemnitee following the time such settlement reasonably could have been effected, if Indemnitee shall have unreasonably delayed, refused or failed to enter into a settlement of any action, suit or proceeding (or investigation or appeal thereof) recommended in good faith, in writing, by the Company; or (g) BREACH OF EMPLOYMENT AGREEMENT. To indemnify Indemnitee for any breach by Indemnitee of any employment agreement between Indemnitee and the Company or any of its subsidiaries. 10. CONSTRUCTION OF CERTAIN PHRASES. (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees and/or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company or any subsidiary of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee 7 reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interest of the Company" as referred to in this Agreement. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 13. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 14. NOTICE. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California, or in Federal courts located in such State. 8 16. CHOICE OF LAW. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. FOX KIDS WORLDWIDE, INC., a Delaware corporation, as the Company By:____________________________________ Name:_____________________________ Title:____________________________ Notice Address: Fox Kids Worldwide, Inc. 10960 Wilshire Boulevard Los Angeles, California 90024 AGREED TO AND ACCEPTED: INDEMNITEE: ___________________________ ___________________________ Notice Address: ___________________________ ___________________________ ___________________________ 9 EX-10.6 10 1996 STOCK INCENTIVE PLAN EXHIBIT 10.6 FOX KIDS WORLDWIDE, INC. 1996 STOCK INCENTIVE PLAN 1. PURPOSE OF THE PLAN. The purpose of this 1996 Stock Incentive Plan (the "Plan") is to provide incentives and rewards to selected eligible directors, officers, employees and consultants of Fox Kids Worldwide, Inc. (the "Company") or its subsidiaries in order to assist the Company and its subsidiaries in attracting, retaining and motivating those persons by providing for or increasing the proprietary interests of those persons in the Company, and by associating their interests in the Company with those of the Company's stockholders. 2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a committee of the Board of Directors of the Company (the "Committee") consisting of two or more directors, each of whom shall be both a "Non-Employee Director," as that term is defined in Rule 16b- 3(b) of the Rules and Regulations (the "Rules") of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and an "outside director" for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations of the Internal Revenue Service adopted thereunder, as such Rules and such Section and regulations may from time to time be amended or interpreted. Members of the Committee shall serve at the pleasure of the Board of Directors of the Company. The Committee shall have all the powers vested in it by the terms of the Plan, including exclusive authority (i) to select from among eligible directors, officers, employees and consultants those persons to be granted "Awards" (as defined below) under the Plan; (ii) to determine the type, size and terms of individual Awards (which need not be identical) to be made to each employee selected; (iii) to determine the time when Awards will be granted and to establish objectives and conditions (including, without limitation, vesting and performance conditions), if any, for earning Awards and whether Awards will be paid after the end of the Award period; (iv) to amend the terms or conditions of any outstanding Award, subject to applicable legal restrictions and to the consent of the other party to such Award; (v) to determine the duration and purpose of leaves of absences which may be granted to holders of Awards without constituting termination of their employment for purposes of their Awards; (vi) to authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; and (vii) to make any and all other determinations which it determines to be necessary or advisable in the administration of the Plan. The Committee shall have full power and authority to administer and interpret the Plan and to adopt, amend and revoke such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable. The Committee's interpretation of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including the Company, its stockholders, any participants in the Plan and any other employee of the Company or any of its subsidiaries. 3. PERSONS ELIGIBLE UNDER THE PLAN. Any person who is a director, officer, employee or consultant of the Company, or any of its current or future subsidiaries (an "Employee"), shall be eligible to be considered for the grant of Awards under the Plan. 4. AWARDS. (a) Common Stock and Derivative Security Awards. Awards authorized under the Plan shall consist of any type of arrangement with an Employee that is not inconsistent with the provisions of the Plan and that, by its terms, involves or might involve or be made with reference to the issuance of (i) shares of the Class A Common Stock, par value $0.001 per share, of the Company (the "Class A Common Stock") or (ii) a "derivative security" (as that term is defined in Rule 16a-l(c) of the Rules, as the same may be amended from time to time) with an exercise or conversion price related to the Class A Common Stock or with a value derived from the value of the Class A Common Stock. (b) Types of Awards. Awards are not restricted to any specified form or structure and may include, but need not be limited to, sales, bonuses and other transfers of stock, restricted stock, stock options, reload stock options, stock purchase warrants, other rights to acquire stock or securities convertible into or redeemable for stock, stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares, or any other type of Award which the Committee shall determine is consistent with the objectives and limitations of the Plan. An Award may consist of one such security or benefit, or two or more of them in tandem or in the alternative. (c) Consideration. Class A Common Stock may be issued pursuant to an Award for any lawful consideration as determined by the Committee, including, without limitation, services rendered, or to the extent permitted by applicable state law, to be rendered by the recipient of the Award, or the delivery of a promissory note or other deferred payment obligation by the Employee. With respect to an Award under which shares of the Class A Common Stock are or may in the future be issued for any other type of consideration, the amount of such consideration shall be at least equal to the amount (such as the par value of such shares) required under applicable state law to be received by the Company. (d) Guidelines. The Committee may adopt, amend or revoke from time to time written policies implementing the Plan. Such policies may include, but need not be limited to, the type, size and term of Awards to be made to participants and the conditions for payment of such Awards. 2 (e) Terms and Conditions. Subject to the provisions of the Plan, the Committee, in its sole and absolute discretion, shall determine all of the terms and conditions of each Award granted pursuant to the Plan, which terms and conditions may include, among other things: (i) any provision necessary for such Award to qualify as an incentive stock option under Section 422 of the Code (an "Incentive Stock Option"); (ii) a provision permitting the recipient of such Award to pay the purchase price of the Class A Common Stock or other property issuable pursuant to such Award, or to pay such recipient's tax withholding obligation with respect to such issuance, in whole or in part, by delivering previously owned shares of capital stock of the Company (including "pyramiding") or other property, or by reducing the number of shares of Class A Common Stock or the amount of other property otherwise issuable pursuant to such Award; or (iii) a provision conditioning or accelerating the receipt of benefits pursuant to the Award, or terminating the Award, either automatically or in the discretion of the Committee, upon the occurrence of specified events, including, without limitation, a change of control of the Company, an acquisition of a specified percentage of the voting power of the Company, the dissolution or liquidation of the Company, a sale of substantially all of the property and assets of the Company or an event of the type described in Section 8 of the Plan. (f) Maximum Awards. An Employee may be granted multiple Awards under the Plan. However, notwithstanding any other provision of the Plan, the maximum number of shares of Class A Common Stock with respect to which options or rights or other Awards may be granted under the Plan to any Employee during any fiscal year shall be , subject to adjustment as provided in Section 8 of the Plan. (g) Suspension or Termination of Awards. If the Company believes that an Employee has committed an act of misconduct as described below, the Company may suspend the Employee's rights under any then outstanding Award pending a determination by the Board of Directors of the Company. If the Board of Directors determines that an Employee has committed an act of embezzlement, fraud, nonpayment of any obligation owed to the Company or any subsidiary, breach of fiduciary duty or deliberate disregard of the Company's rules resulting in loss, damage or injury to the Company, or if an Employee makes an unauthorized disclosure of trade secret or confidential information of the Company, engages in any conduct constituting unfair competition, or induces any customer of the Company to breach a contract with the Company, neither the Employee nor his or her estate shall be entitled to exercise any rights whatsoever with respect to such Award. In making such determination, the Board of Directors shall act fairly and shall give the Employee a reasonable opportunity to appear and present evidence on his or her behalf at a hearing before a committee of the Board of Directors; 3 and if the Employee is an "officer" under Rule 16a-l(f) of the Rules, the determination of the Board of Directors shall be subject to the approval of the Committee. 5. SHARES OF CLASS A COMMON STOCK SUBJECT TO THE PLAN. The aggregate number of shares of Class A Common Stock that may be issued or issuable pursuant to all Awards under the Plan (including Awards in the form of Incentive Stock Options and Non-Statutory Options) shall not exceed an aggregate of shares of Class A Common Stock, subject to adjustment as provided in Section 8 of the Plan; and the aggregate number of shares of Class A Common Stock that may be issued pursuant to all Incentive Stock Options granted under the Plan shall not exceed shares, subject to adjustment as provided in Section 8 of the Plan. Shares of Class A Common Stock subject to the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. Any shares of Class A Common Stock subject to an Award which for any reason expires or is terminated unexercised as to such shares shall again be available for issuance under the Plan. For purposes of this Section 5, the aggregate number of shares of Class A Common Stock that may be issued at any time pursuant to Awards granted under the Plan shall be reduced by: (i) the number of shares of Class A Common Stock previously issued pursuant to Awards granted under the Plan, other than shares of Class A Common Stock subsequently reacquired by the Company pursuant to the terms and conditions of such Awards and with respect to which the holder thereof received no benefits of ownership, such as dividends; and (ii) the number of shares of Class A Common Stock which were otherwise issuable pursuant to Awards granted under this Plan but which were withheld by the Company as payment of the purchase price of the Class A Common Stock issued pursuant to such Awards or as payment of the recipient's tax withholding obligation with respect to such issuance. 6. PAYMENT OF AWARDS. The Committee shall determine the extent to which Awards shall be payable in cash, shares of Class A Common Stock or any combination thereof. The Committee may, upon request of a participant, determine that all or a portion of a payment to that participant under the Plan, whether it is to be made in cash, shares of Class A Common Stock or a combination thereof, shall be deferred. Deferrals shall be for such periods and upon such terms as the Committee may determine in its sole discretion. 7. VESTING. The Committee may determine that all or a portion of a payment to a participant under the Plan, whether it is to be made in cash, shares of Class A Common Stock or a combination thereof, shall be vested at such times and upon such terms as may be selected by the Committee in its sole discretion. 4 8. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the outstanding shares of the Class A Common Stock or other securities then subject to the Plan by reason of any stock split, reverse stock split, stock dividend, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, or if the outstanding securities of the class then subject to the Plan are exchanged for or converted into cash, property or a different kind of securities, or if cash, property or securities are distributed in respect of such outstanding securities (other than a regular cash dividend), then, unless the terms of such transaction shall provide otherwise, such equitable adjustments shall be made in the Plan and the Awards thereunder (including, without limitation, appropriate and proportionate adjustments in (i) the number and type of shares or other securities or cash or other property that may be acquired pursuant to Incentive Stock Options and other Awards theretofore granted under the Plan, (ii) the maximum number and type of shares or other securities that may be issued pursuant to Incentive Stock Options and other Awards thereafter granted under the Plan and (iii) the maximum number of securities with respect to which Awards may thereafter be granted to any Employee in any fiscal year) as the Committee determines are necessary or appropriate, including, if necessary, any adjustments in the maximum number of shares referred to in Section 5 of the Plan. Such adjustments shall be conclusive and binding for all purposes of the Plan. 9. MISCELLANEOUS PROVISIONS. (a) Definitions. As used herein, "subsidiary" means any current or future corporation which would be a "subsidiary corporation," as that term is defined in Section 425(f) of the Code, of the Company; and the term "or" means "and/or." (b) Conditions on Issuance. Securities shall not be issued pursuant to Awards unless the grant and issuance thereof shall comply with all relevant provisions of law and the requirements of any securities exchange or quotation system upon which any securities of the Company are listed, and shall be further subject to approval of counsel for the Company with respect to such compliance. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is determined by Company counsel to be necessary to the lawful issuance and sale of any security or Award, shall relieve the Company of any liability in respect of the nonissuance or sale of such securities as to which requisite authority shall not have been obtained. (c) Rights as Stockholder. A participant under the Plan shall have no rights as a holder of Class A Common Stock with respect to Awards hereunder, unless and until certificates for shares of such stock are issued to the participant. (d) Assignment or Transfer. No Awards under the Plan or any rights or interests therein shall be assignable or transferable by a participant except by will or the laws of descent 5 and distribution. During the lifetime of a participant, Awards hereunder are exercisable only by, and payable only to, the participant. (e) Agreements. All Awards granted under the Plan shall be evidenced by written agreements in such form and containing such terms and conditions (not inconsistent with the Plan) as the Committee shall from time to time adopt. (f) Withholding Taxes. The Company shall have the right to deduct from all Awards hereunder paid in cash any federal, state, local or foreign taxes required by law to be withheld with respect to such awards and, with respect to awards paid in stock, to require the payment (through withholding from the participant's salary or otherwise) of any such taxes. The obligation of the Company to make delivery of Awards in cash or Class A Common Stock shall be subject to currency or other restrictions imposed by any government authorities. (g) No Rights to Award. No Employee or other person shall have any right to be granted an Award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any Employee any right to be retained in the employ of the Company or any of its subsidiaries or shall interfere with or restrict in any way the rights of the Company or any of its subsidiaries, which are hereby reserved, to discharge the Employee at any time for any reason whatsoever, with or without good cause. (h) Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Company and not charged to any Award nor to any Employee receiving an Award. (i) Funding of Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under the Plan. 10. AMENDMENTS AND TERMINATION. (a) Amendments. The Committee may at any time terminate or from time to time amend the Plan in whole or in part, but no such action shall adversely affect any rights or obligations with respect to any Awards theretofore made under the Plan. However, with the consent of the Employee affected, the Committee may amend outstanding agreements evidencing Awards under the Plan in a manner not inconsistent with the terms of the Plan. (b) Stockholder Approval. To the extent that Rule 16b-3 of the Rules, Section 422 of the Code, other applicable law, or the rules, regulations, procedures or listing agreement of any national securities exchange or quotation system, requires that any such amendment to the Plan be approved by the stockholders of the Company, no such amendment shall be effective unless and until it is approved by the stockholders in such a manner and to such a degree as is required. 6 (c) Termination. Unless the Plan shall theretofore have been terminated as above provided, the Plan (but not the awards theretofore granted under the Plan) shall terminate on and no awards shall be granted after September __, 20__ . 11. EFFECTIVE DATE. The Plan is effective on September ___, 1996, the date on which it was adopted by the Board of Directors of the Company and the holders of the majority of the Class A and Class B Common Stock of the Company. 12. GOVERNING LAW. The corporate law of Delaware shall govern issues related to the validity and issuance of Class A Common Stock. Otherwise, the Plan and any agreements entered into thereunder shall be construed and governed by the laws of the State of California applicable to contracts made within, and to be performed wholly within, such state. 7 OPTION CERTIFICATE (NON-STATUTORY STOCK OPTION) THIS IS TO CERTIFY that Fox Kids Worldwide, Inc., a Delware corporation (the "COMPANY"), has granted to the person named below ("OPTIONEE") a non- statutory stock option (the "OPTION") to purchase shares of the Company's Class A Common Stock (the "SHARES") under its 1996 Stock Incentive Plan and upon the terms and conditions as follows: Name of Optionee: __________________________________ Address of Optionee: __________________________________ __________________________________ __________________________________ Number of Shares: __________________________________ Option Exercise Price: $_______________________ per share Date of Grant: _______________________ ___, 199__ Option Expiration Date: ______________________ ___, 200__ EXERCISE SCHEDULE: The Option shall become exercisable as follows: SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is attached to this Option Certificate (the "CERTIFICATE") as Annex I. This Certificate summarizes certain of the provisions of the Option Agreement for your information, but is not complete. Your rights are governed by the Option Agreement, not by this summary. The Company strongly suggests that you --- carefully review the full Option Agreement prior to signing this Certificate or exercising the Option. 8 Among the terms of the Option Agreement are the following: EMPLOYMENT: The Option Agreement does not obligate the Company to retain you for any period of time. Unless otherwise agreed in writing, the Company -- ------- reserves the right to terminate any employee at any time, with or without cause. See Section 5(d) of the attached Option Agreement. TERMINATION OF EMPLOYMENT: While the Option terminates on the Option Expiration Date, it will terminate earlier if you cease to be employed by the Company. If your employment ends due to death or permanent disability, the Option terminates six months after the date of death or disability, and is exercisable during such six-month period as to the portion of the Option which had vested prior to the date of death or disability. In all other cases, the Option terminates 45 days after the date of termination of employment, and is exercisable during such time period as to the portion of the Option which had vested prior to the date of termination of employment; provided, however, if you -------- ------- are terminated "for cause," the Option will terminate 30 days after the date of termination of your employment and is exercisable during such time period as to the portion of the Option which had vested prior to the date of termination of employment. See Section 5 of the attached Option Agreement. TRANSFER: The Option is personal to you, and cannot be sold, transferred, assigned or otherwise disposed of to any other person, except by will or the laws of descent and distribution. See Section 15(d) of the attached Option Agreement. EXERCISE: You can exercise the Option (once it is exercisable), in whole or in part, by delivering to the Company a Notice of Exercise identical to Exhibit "A" attached to the Option Agreement, accompanied by payment of the Exercise Price for the Shares to be purchased. The Company will then issue a certificate to you for the Shares you have purchased. You are under no obligation to exercise the Option. See Section 4 of the attached Option Agreement. ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which affect your rights in the event of stock splits, stock dividends, mergers and other major corporate reorganizations. See Section 7 of the attached Option Agreement. WAIVER: By signing this Certificate, you will be agreeing to all of the terms of the Option Agreement, including those not summarized in this Certificate. You will waive your rights to options or stock which may otherwise have been promised to you. See Section 8 of the attached Option Agreement. WITHHOLDING: The Company may require you to make any arrangements necessary to insure the proper withholding of any amount of tax, if any, required to be withheld by the Company as a result of the exercise of the Option. See Section 13 of the attached Option Agreement. 9 AGREEMENT Fox Kids Worldwide, Inc., a Delaware corporation, and Optionee each hereby agrees to be bound by all of the terms and conditions of the Stock Option Agreement (Non-Statutory Stock Option) which is attached hereto as Annex I and incorporated herein by this reference as if set forth in full in this document. DATED: ________________________ FOX KIDS WORLDWIDE, INC. By: __________________________________________ Its: __________________________________________ OPTIONEE _______________________________________________ Name: _______________________________________________ (Please print your name exactly as you wish it to appear on any stock certificates issued to you upon exercise of the Option) 10 ANNEX I STOCK OPTION AGREEMENT (NON-STATUTORY STOCK OPTION) This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered into as of the execution date of the Option Certificate to which it is attached (the "CERTIFICATE") by and between Fox Kids Worldwide, Inc., a Delaware corporation (the "COMPANY"), and the person named in the Certificate ("OPTIONEE"). Pursuant to the Fox Kids Worldwide, Inc. 1996 Stock Incentive Plan (the "PLAN"), the Board of Directors of the Company (the "BOARD") has authorized the grant to Optionee of a non-statutory stock option to purchase shares of the Company's Class A Common Stock, par value $.0.001 per share (the "CLASS A COMMON STOCK"), upon the terms and subject to the conditions set forth in this Option Agreement and in the Plan. The Company and Optionee agree as follows: GRANT OF OPTION. The Company hereby grants to Optionee the right and option (the "OPTION"), upon the terms and subject to the conditions set forth in this Option Agreement and the Plan, to purchase all or any portion of that number of shares of the Class A Common Stock (the "SHARES") set forth in the Certificate at the Option exercise price set forth in the Certificate (the "EXERCISE PRICE"). 1. TERM OF OPTION. The Option shall terminate and expire on the Option Expiration Date set forth in the Certificate (the "EXPIRATION DATE"), unless sooner terminated as provided herein. In no event shall the Option be exercisable after the expiration of ten years from the date it was granted. 2. EXERCISE PERIOD. (a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this Option Agreement, the Option shall become exercisable (in whole or in part) upon and after the dates set forth under the caption "Exercise Schedule" in the Certificate. The installments shall be cumulative; i.e., the Option may be ---- exercised, as to any or all Shares covered by an installment, at any time or times after the installment first becomes exercisable and until the Option Expiration Date or the termination of the Option. 11 (b) Notwithstanding anything to the contrary contained in this Option Agreement, the Option may not be exercised, in whole or in part, unless and until any then-applicable requirements of all federal, state and local laws and regulatory agencies shall have been fully complied with to the satisfaction of the Company and its counsel. 3. EXERCISE OF OPTION. There is no obligation to exercise the Option, in whole or in part. The Option may be exercised, in whole or in part, only by delivery to the Company of: (a) written notice of exercise in form and substance identical to Exhibit "A" attached to this Option Agreement stating the number of Shares then being purchased (the "PURCHASED SHARES"); (b) payment of the Exercise Price of the Purchased Shares, either (1) in cash, or (2) with the consent of the Board (which may be withheld in its absolute discretion), by (i) delivery to the Company of other shares of Class A Common Stock with an aggregate Fair Market Value equal to the total Exercise Price of the Purchased Shares, (ii) according to a deferred payment or other arrangement (which may include without limiting the generality of the foregoing, the use of other shares of Class A Common Stock) with the person to whom the Option is granted or to whom the Option is transferred pursuant to the terms of this Option Agreement or (iii) in any other form of legal consideration that may be acceptable to the Board; and (c) if requested by the Company, a letter of investment intent in such form and containing such provisions as the Company may require. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be payable at the minimum rate of interest necessary to avoid the imputation of interest, under the applicable provision of the Internal Revenue Code of 1986, as amended (the "CODE") and Treasury Regulations. Following receipt of the notice and payment referred to above, the Company shall issue and deliver to Optionee a stock certificate or stock certificates evidencing the Purchased Shares; provided, however, that the -------- ------- Company shall not be obligated to issue a fraction or fractions of a share of its Class A Common Stock, and may pay to Optionee, in cash or by check, the Fair Market Value of any fraction or fractions of a share exercised by Optionee. "FAIR MARKET VALUE" shall be determined as follows: (1) if the Class A Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market, the Fair Market Value of a share of Class A Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in the Class A Common Stock) on the last market trading day prior to the day of determination, as reported 12 in the Wall Street Journal or such other source as the Board deems reliable; (2) if the Class A Common Stock is quoted on the Nasdaq System (but not on the Nasdaq National Market) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of Class A Common Stock shall be the mean between the bid and asked prices for the Class A Common Stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; and (3) in the absence of an established market for the Class A Common Stock, the Fair Market Value shall be determined in good faith by the Board. 4. TERMINATION OF SERVICES. (a) If Optionee shall cease to be an officer, director, consultant or employee of the Company, or any Subsidiary or Parent of the Company, for any reason other than death or permanent disability (a "TERMINATING EVENT"), Optionee shall have the right, subject to the provisions of Section 5(c) below, to exercise the Option at any time following such Terminating Event until the earlier to occur of (1) 45 following the date of such Terminating Event and (2) the Expiration Date. The Option may be exercised following a Terminating Event only to the extent exercisable as of the date of the Terminating Event. To the extent unexercised at the end of the period referred to above, the Option shall terminate. The Board, in its sole and absolute discretion, shall determine whether or not authorized leaves of absence shall constitute termination of employment for purposes of this Option Agreement. (b) If, by reason of death or disability (a "SPECIAL TERMINATING EVENT"), Optionee shall cease to be an officer, director, consultant or employee of the Company or any Subsidiary or Parent of the Company, then Optionee, Optionee's executors or administrators or any person or persons acquiring the Option directly from Optionee by bequest or inheritance, shall have the right to exercise the Option at any time following such Special Terminating Event until the earlier to occur of (1) six months following the date of such Special Terminating Event and (2) the Expiration Date. The Option may be exercised following a Special Terminating Event only to the extent exercisable at the date of the Special Terminating Event. To the extent unexercised at the end of the period referred to above, the Option shall terminate. For purposes of this Option Agreement, "disability" shall mean total and permanent disability as defined in Section 22(e)(3) of the Code. Optionee shall not be considered permanently disabled unless he furnishes proof of such disability in such form and manner, and at such times, as the Board may from time to time require. (c) If Optionee shall be terminated "for cause" by the Company, any Subsidiary or any Parent, Optionee shall have the right to exercise the Option at any time following such Terminating Event until the earlier to occur of (1) 30 days following the date of such Terminating Event and (2) the Expiration Date. For purposes of this Option Agreement, "for cause" shall mean: 13 (1) with respect to Optionees of the Company the following to the extent it results in substantial harm to the Company or could reasonably be expected to result in substantial harm to the Company: (i) the willful failure or refusal by Optionee to perform his duties to the Company; or (ii) Optionee's willful disobedience of any orders or directives of the Board or any officers thereof acting under the authority thereof or Optionee's deliberate interference with the compliance by other employees of the Company with any such orders or directives; or (iii) the willful failure or refusal of Optionee to abide by or comply with the written policies, standard procedures or regulations of the Company; or (iv) any willful or continued act or course of conduct by Optionee which the Board in good faith determines might reasonably be expected to have a material detrimental effect on the Company or the business, operations, affairs or financial position thereof; or (v) the committing by the Optionee of any fraud, theft, embezzlement or other dishonest act against the Company; or (vi) the determination by the Board, in good faith and in the exercise of reasonable discretion, that Optionee is not competent to perform his duties of employment; and (2) with respect to consultants, any material breach of their consulting agreement with the Company. (d) Nothing in the Plan, the Certificate or this Option Agreement shall confer upon Optionee any right to continue in the service and/or employ of the Company or any Affiliate (as defined in the Plan) or shall affect the right of the Company or any Affiliate to terminate the relationship or employment of Optionee, with or without cause. 5. RESTRICTIONS ON PURCHASED SHARES. (a) SECURITIES LAW RESTRICTIONS. None of the Purchased Shares shall be Transferred (with or without consideration) and the Company shall not be required to register any such Transfer and the Company may instruct its transfer agent not to register any such Transfer, unless and until all of the following events shall have occurred: 14 (1) the Purchased Shares are Transferred pursuant to and in conformity with (i) (A) an effective registration statement filed with the Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933 Act, or (B) an exemption from registration under the 1933 Act, and (ii) the securities laws of any state of the United States; and (2) Optionee has, prior to the Transfer of such Purchased Shares, and if requested by the Company, provided all relevant information to Company's counsel so that upon Company's request, Company's counsel is able to, and actually prepares and delivers to the Company a written opinion that the proposed Transfer (i) (A) is pursuant to a registration statement which has been filed with the Commission and is then effective, or (B) is exempt from registration under the 1933 Act as then in effect, and the Rules and Regulations of the Commission thereunder, and (ii) is either qualified or registered under any applicable state securities laws, or exempt from such qualification or registration. The Company shall bear all reasonable costs of preparing such opinion. (b) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which is not in full compliance with this Section 6 shall be null and void ab initio, --------- and of no force or effect. 6. ADJUSTMENTS UPON RECAPITALIZATION. (a) Subject to the provisions of Section 7(b), if any change is made in the Class A Common Stock, without receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company) the Option will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to the Option. Such adjustments shall be made by the Board, the determination of which shall be final, binding and conclusive. The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company." (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Class A Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then, at the sole discretion of the Board and to the extent permitted by applicable law, the Option shall (i) terminate upon such event and may be exercised prior thereto to the extent the Option is then exercisable or (ii) continue in full force and effect and, if applicable, the surviving corporation or an Affiliate of such surviving corporation shall assume the Option and/or shall substitute a similar option or award in place of the Option. 15 (c) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board, and its determination shall be final, binding and conclusive. (d) The provisions of this Section 7 are intended to be exclusive, and Optionee shall have no other rights upon the occurrence of any of the events described in this Section 7. (e) The grant of the Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure, or to merge, consolidate, dissolve or liquidate, or to sell or transfer all or any part of its business or assets. 7. WAIVER OF RIGHTS TO PURCHASE STOCK. By signing this Option Agreement, Optionee acknowledges and agrees that neither the Company nor any other person or entity is under any obligation to sell or transfer to Optionee any option or equity security of the Company, other than the Shares subject to the Option and any other right or option to purchase Class A Common Stock which was previously granted in writing to Optionee by the Board. By signing this Option Agreement, Optionee specifically waives all rights which he or she may have had prior to the date of this Option Agreement to receive any option or equity security of the Company. 8. INVESTMENT INTENT. Optionee represents and agrees that if he or she exercises the Option in whole or in part, and if at the time of such exercise the Plan and/or the Purchased Shares have not been registered under the 1933 Act, he or she will acquire the Shares upon such exercise for the purpose of investment and not with a view to the distribution of such Shares, and that upon each exercise of the Option he or she will furnish to the Company a written statement to such effect. 9. LEGEND ON STOCK CERTIFICATES. Optionee agrees that all certificates representing the Purchased Shares will be subject to such stock transfer orders and other restrictions (if any) as the Company may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange upon which the Class A Common Stock is then listed and any applicable federal or state securities laws, and the Company may cause a legend or legends to be put on such certificates to make appropriate reference to such restrictions. 10. NO RIGHTS AS SHAREHOLDER. Except as provided in Section 7 of this Option Agreement, Optionee shall have no rights as a shareholder with respect to the Shares until the date of the issuance to Optionee 16 of a stock certificate or stock certificates evidencing such Shares. Except as may be provided in Section 7 of this Option Agreement, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued. 11. MODIFICATION. Subject to the terms and conditions and within the limitations of the Plan, the Board (excluding the Optionee) may modify, extend or renew the Option or accept the surrender of, and authorize the grant of a new option in substitution for, the Option (to the extent not previously exercised). No modification of the Option shall be made which, without the consent of Optionee, would alter or impair any rights of the Optionee under the Option. 12. WITHHOLDING. (a) The Company shall be entitled to require as a condition of delivery of any Purchased Shares upon exercise of any Option that the Optionee agree to remit, at the time of such delivery or at such later date as the Company may determine, an amount sufficient to satisfy all federal, state and local withholding tax requirements relating thereto, and Optionee agrees to take such other action required by the Company to satisfy such withholding requirements. (b) With the consent of the Board (excluding the Optionee), and in accordance with any rules and procedures from time to time adopted by the Board, Optionee may elect to satisfy his or her obligations under Section 13(a) above by (1) directing the Company to withhold a portion of the Shares otherwise deliverable (or to tender back to the Company a portion of the Shares issued where the Optionee (a "SECTION 16(B) RECIPIENT") is required to report the ownership of the Shares pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, and has not made an election under Section 83(b) of the Code (a "WITHHOLDING RIGHT")); or (2) tendering other shares of the Class A Common Stock of the Company which are already owned by Optionee which in all cases have a Fair Market Value (as determined in accordance with the provisions of Section 4 hereof) on the date as of which the amount of tax to be withheld is determined (the "TAX DATE") equal to the amount of taxes to be paid by such method. (c) To exercise a Withholding Right, the Optionee must follow the election procedures set forth below, together with such additional procedures and conditions set forth in this Option Agreement or otherwise adopted by the Board: (1) the Optionee must deliver to the Company a written notice of election (the "ELECTION") and specify whether all or a stated percentage of the applicable taxes will be paid in accordance with Section 13(b) above and whether the amount so paid shall be 17 made in accordance with the "flat" withholding rates for supplemental wages or as determined in accordance with Optionee's form W-4 (or comparable state or local form); (2) unless disapproved by the Board (excluding the Optionee) as provided in subsection (3) below, the Election once made will be irrevocable; (3) no Election is valid unless the Board (excluding the Optionee) has the right and power, in its sole discretion, with or without cause or reason therefor, to consent to the Election, to refuse to consent to the Election, or to disapprove the Election; and if the Board has not consented to the Election on or prior to the Tax Date, the Election will be deemed approved; and (4) if the Optionee on the date of delivery of the Election to the Company is a Section 16(b) Recipient, the following additional provisions will apply: (i) the Election cannot be made during the six calendar month period commencing with the date of grant of the Withholding Right (even if the Option to which such Withholding Right relates has been granted prior to such date); and (ii) the Election (and the exercise of the related Option) must be made either during the period beginning on the third business day following the date of release for publication of the quarterly or annual summary statements of sales and earnings of the Company and ending on the 12th business day following such date or at least six calendar months or more prior to the Tax Date. 13. CHARACTER OF OPTION. The Option is not intended to qualify as an "incentive stock option" as that term is defined in Section 422 of the Code. 14. GENERAL PROVISIONS. (a) FURTHER ASSURANCES. Optionee shall promptly take all actions and execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Option Agreement. (b) NOTICES. All notices, requests, demands and other communications under this Option Agreement shall be in writing and shall be given to the parties hereto as follows: (1) If to the Company, to: Fox Kids Worldwide, Inc. 10960 Wilshire Boulevard 18 Los Angeles, California 90024 (2) If to Optionee, to the address set forth in the records of the Company, or at such other address or addresses as may have been furnished by such either party in writing to the other party hereto. Any such notice, request, demand or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mail by first-class certified mail, return receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by any other means, when delivered at the address specified in this subsection (b). (c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company may at any time transfer and assign its rights and delegate its obligations under this Option Agreement to any other person, corporation, firm or entity, including its officers, directors and stockholders, with or without consideration. (d) OPTION NON-TRANSFERABLE. Optionee may not sell, transfer, assign or otherwise dispose of the Option except by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of Optionee only by Optionee or by his or her guardian or legal representative in the case of a disability, and upon Optionee's death only by his or her Estate or by any person who acquired the Option by bequest or inheritance or by reason of the death of Optionee. (e) SUCCESSORS AND ASSIGNS. Except to the extent specifically limited by the terms and provisions of this Option Agreement, this Option Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and personal representatives. (f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN. (g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted pursuant to the terms of the Plan, the terms of which are incorporated herein by reference, and it is intended that this Option Agreement shall be interpreted in a manner to comply therewith. Any provision of this Option Agreement inconsistent with the Plan shall be superseded and governed by the Plan. (h) A COMMITTEE. As provided in the Plan, the Board may delegate administration of the Plan and this Option Agreement to a committee (the "Committee"). If 19 administration is delegated to a Committee, the Committee shall have, in connection with the this Option Agreement, the powers theretofore possessed by the Board (and references in this Option Agreement to the Board shall thereafter be to the Committee). (i) MISCELLANEOUS. Titles and captions contained in this Option Agreement are inserted for convenience of reference only and do not constitute a part of this Option Agreement for any other purpose. Except as specifically provided herein, neither this Option Agreement nor any right pursuant hereto or interest herein shall be assignable by any of the parties hereto without the prior written consent of the other party hereto. THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE OF THE CERTIFICATE. 20 Exhibit "A" NOTICE OF EXERCISE (To be signed only upon exercise of the Option) To: Fox Kids Worldwide, Inc. The undersigned, the holder of the enclosed Stock Option Agreement (Non- Statutory Stock Option), hereby irrevocably elects to exercise the purchase rights represented by the Option and to purchase thereunder _________ * shares of Class A Common Stock of Fox Kids Worldwide, Inc. (the "COMPANY"), and herewith encloses payment of $__________ and/or _________ shares of the Company's Class A Common Stock in full payment of the purchase price of such shares being purchased. Dated: ______________________ ______________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Option) ______________________________________________ (Please Print Name) ______________________________________________ (Address) * Insert here the number of Shares called for on the face of the Option (or, in the case of a partial exercise, the number of Shares being exercised), in either case without making any adjustment for additional Class A Common Stock of the Company, other securities or property which, pursuant to the adjustment provisions of the Option, may be deliverable upon exercise. 21 OPTION CERTIFICATE (INCENTIVE STOCK OPTION) THIS IS TO CERTIFY that Fox Kids Worldwide, Inc., a Delaware corporation (the "COMPANY"), has granted to the employee named below ("EMPLOYEE") an incentive stock option (the "OPTION") to purchase shares of the Company's Common Stock (the "SHARES") under its 1996 Stock Incentive Plan and upon the terms and conditions as follows: Name of Employee: ___________________________________ Address of Employee: ___________________________________ ___________________________________ ___________________________________ Number of Shares: ___________________________________ Option Exercise Price: $________________________ per share Date of Grant: ________________________ ___, 199__ Option Expiration Date: ________________________ ___, 200__ EXERCISE SCHEDULE: The Option shall become exercisable as follows: SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option Agreement (Incentive Stock Option) (the "OPTION AGREEMENT") which is attached to this Option Certificate (the "CERTIFICATE") as Annex I. This Certificate summarizes certain of the provisions of the Option Agreement for your information, but is not complete. Your rights are governed by the Option Agreement, not by this summary. The Company strongly suggests that you --- carefully review the full Option Agreement prior to signing this Certificate or exercising the Option. 22 Among the terms of the Option Agreement are the following: EMPLOYMENT: The Option Agreement does not obligate the Company to retain you for any period of time. Unless otherwise agreed in writing, the Company -- ------- reserves the right to terminate any employee at any time, with or without cause. See Section 5(d) of the attached Option Agreement. TERMINATION OF EMPLOYMENT: While the Option terminates on the Option Expiration Date, it will terminate earlier if you cease to be employed by the Company. If your employment ends due to death or permanent disability, the Option terminates six months after the date of death or disability, and is exercisable during such six-month period as to the portion of the Option which had vested prior to the date of death or disability. In all other cases, the Option terminates 45 days after the date of termination of employment, and is exercisable during such time period as to the portion of the Option which had vested prior to the date of termination of employment; provided, however, if you -------- ------- are terminated "for cause," the Option will terminate 30 days after the date of termination of your employment and is exercisable during such time period as to the portion of the Option which had vested prior to the date of termination of employment. See Section 5 of the attached Option Agreement. TRANSFER: The Option is personal to you, and cannot be sold, transferred, assigned or otherwise disposed of to any other person, except on your death. See Section 15(d) of the attached Option Agreement. EXERCISE: You can exercise the Option (once it is exercisable), in whole or in part, by delivering to the Company a Notice of Exercise identical to Exhibit "A" attached to the Option Agreement, accompanied by payment of the Exercise Price for the Shares to be purchased. The Company will then issue a certificate to you for the Shares you have purchased. You are under no obligation to exercise the Option. See Section 4 of the attached Option Agreement. If at the time of the grant of the Option you own stock possessing more than 10 percent (10%) of the total combined voting power of all classes of stock of the Company (applying the attribution rules), you may not exercise the Option for five (5) years from the date the Option is granted. MARKET STAND-OFF: The Option provides that in connection with any underwritten public offering by the Company, you may not sell or transfer any of your Shares without the prior written consent of the Company or its underwriters for a period of up to 180 days after the effective date of the offering. See Section 6(a) of the attached Option Agreement. ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which affect your rights in the event of stock splits, stock dividends, mergers and other major corporate reorganizations. See Section 7 of the attached Option Agreement. WAIVER: By signing this Certificate, you will be agreeing to all of the terms of the Option Agreement, including those not summarized in this Certificate. You will waive your 23 rights to options or stock which may otherwise have been promised to you. See Section 8 of the attached Option Agreement. WITHHOLDING: The Company may require you to make any arrangements necessary to insure the proper withholding of any amount of tax, if any, required to be withheld by the Company as a result of the exercise of the Option. See Section 13 of the attached Option Agreement. 24 AGREEMENT Fox Kids Worldwide, Inc., a Delaware corporation, and Employee each hereby agrees to be bound by all of the terms and conditions of the Stock Option Agreement (Incentive Stock Option) which is attached hereto as Annex I and incorporated herein by this reference as if set forth in full in this document. DATED: _________________________ FOX KIDS WORLDWIDE, INC. By: _______________________________________ Its: _______________________________________ EMPLOYEE ____________________________________________ Name: ____________________________________________ (Please print your name exactly as you wish it to appear on any stock certificates issued to you upon exercise of the Option) 25 ANNEX I STOCK OPTION AGREEMENT (INCENTIVE STOCK OPTION) This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered into as of the execution date of the Option Certificate to which it is attached (the "CERTIFICATE") by and between Fox Kids Worldwide, Inc., a Delaware corporation (the "COMPANY"), and the employee named in the Certificate ("EMPLOYEE"). Pursuant to the Fox Kids Worldwide, Inc. 1996 Stock Incentive Plan (the "PLAN"), the Board of Directors of the Company (the "BOARD") has authorized the grant to Employee of an incentive stock option to purchase shares of the Company's Common Stock, par value $.____ per share (the "COMMON STOCK"), upon the terms and subject to the conditions set forth in this Option Agreement and in the Plan. The Company and Employee agree as follows: 1. GRANT OF OPTION. The Company hereby grants to Employee the right and option (the "OPTION"), upon the terms and subject to the conditions set forth in this Option Agreement and the Plan, to purchase all or any portion of that number of shares of the Common Stock (the "SHARES") set forth in the Certificate at the Option exercise price set forth in the Certificate (the "EXERCISE PRICE"). 2. TERM OF OPTION. The Option shall terminate and expire on the Option Expiration Date set forth in the Certificate (the "EXPIRATION DATE"), unless sooner terminated as provided herein. In no event shall the Option be exercisable after the expiration of ten years from the date it was granted. 3. EXERCISE PERIOD. (a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this Option Agreement, the Option shall become exercisable (in whole or in part) upon and after the dates set forth under the caption "Exercise Schedule" in the Certificate. The installments shall be cumulative; i.e., the Option may be ---- exercised, as to any or all Shares covered by an installment, at any time or times after the installment first becomes exercisable and until the Option Expiration Date or the termination of the Option. 26 (b) Notwithstanding anything to the contrary contained in this Option Agreement, the Option may not be exercised, in whole or in part, unless and until any then-applicable requirements of all federal, state and local laws and regulatory agencies shall have been fully complied with to the satisfaction of the Company and its counsel. (c) Nothwithstanding anything to the contrary contained in this Option Agreement, if at the time of the grant of the Option you own stock possessing more than 10 percent (10%) of the total combined voting power of all classes of stock of the Company (applying the attribution rules as required under the Code), you may not exercise the Option for five (5) years from the date the Option is granted. 4. EXERCISE OF OPTION. There is no obligation to exercise the Option, in whole or in part. The Option may be exercised, in whole or in part, only by delivery to the Company of: (a) written notice of exercise in form and substance identical to Exhibit "A" attached to this Option Agreement stating the number of Shares then being purchased (the "PURCHASED SHARES"); (b) payment of the Exercise Price of the Purchased Shares, either (1) in cash, or (2) with the consent of the Board (which may be withheld in its absolute discretion), by (i) delivery to the Company of other shares of Common Stock with an aggregate Fair Market Value equal to the total Exercise Price of the Purchased Shares, (ii) according to a deferred payment or other arrangement (which may include without limiting the generality of the foregoing, the use of other shares of Common Stock) with the person to whom the Option is granted or to whom the Option is transferred pursuant to the terms of this Option Agreement, or (iii) in any other form of legal consideration that may be acceptable to the Board; and (c) if requested by the Company, a letter of investment intent in such form and containing such provisions as the Company may require. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be payable at the minimum rate of interest necessary to avoid the imputation of interest, under the applicable provision of the Internal Revenue Code of 1986, as amended (the "CODE") and Treasury Regulations. Following receipt of the notice and payment referred to above, the Company shall issue and deliver to Employee a stock certificate or stock certificates evidencing the Purchased Shares; provided, however, that the -------- ------- Company shall not be obligated to issue a fraction or fractions of a share of its Common Stock, and may pay to Employee, in cash or by check, the Fair Market Value of any fraction or fractions of a share exercised by Employee. "FAIR MARKET VALUE" shall be determined as follows: (1) if the Common Stock is listed on any established 27 stock exchange or a national market system, including without limitation the Nasdaq National Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq System (but not on the Nasdaq National Market) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the bid and asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; and (3) in the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. 5. TERMINATION OF EMPLOYMENT. (a) If Employee shall cease to be an officer or employee of the Company, or any Subsidiary or Parent of the Company, for any reason other than death or permanent disability (a "TERMINATING EVENT"), Employee shall have the right, subject to the provisions of Section 5(c) below, to exercise the Option at any time following such Terminating Event until the earlier to occur of (1) 45 days following the date of such Terminating Event and (2) the Expiration Date. The Option may be exercised following a Terminating Event only to the extent exercisable as of the date of the Terminating Event. To the extent unexercised at the end of the period referred to above, the Option shall terminate. The Board, in its sole and absolute discretion, shall determine whether or not authorized leaves of absence shall constitute termination of employment for purposes of this Option Agreement. (b) If, by reason of death or disability (a "SPECIAL TERMINATING EVENT"), Employee shall cease to be an officer or employee the Company or any Subsidiary or Parent of the Company, then Employee, Employee's executors or administrators or any person or persons acquiring the Option directly from Employee by bequest or inheritance, shall have the right to exercise the Option at any time following such Special Terminating Event until the earlier to occur of (1) six months following the date of such Special Terminating Event and (2) the Expiration Date. The Option may be exercised following a Special Terminating Event only to the extent exercisable at the date of the Special Terminating Event. To the extent unexercised at the end of the period referred to above, the Option shall terminate. For purposes of this Option Agreement, "disability" shall mean total and permanent disability as defined in Section 22(e)(3) of the Code. Employee shall not be considered permanently disabled unless he furnishes proof of such disability in such form and manner, and at such times, as the Board may from time to time require. (c) If Employee shall be terminated "for cause" by the Company, any Subsidiary or any Parent, Employee shall have the right to exercise the Option at any time following such Terminating Event until the earlier to occur of (1) 30 days following the date of 28 such Terminating Event and (2) the Expiration Date. For purposes of this Option Agreement, "for cause" shall mean the following to the extent it results in substantial harm to the Company or could reasonably be expected to result in substantial harm to the Company: (1) the willful failure or refusal by Employee to perform his duties to the Company; or (2) Employee's willful disobedience of any orders or directives of the Board or any officers thereof acting under the authority thereof or Employee's deliberate interference with the compliance by other employees of the Company with any such orders or directives; or (3) the willful failure or refusal of Employee to abide by or comply with the written policies, standard procedures or regulations of the Company; or (4) any willful or continued act or course of conduct by Employee which the Board in good faith determines might reasonably be expected to have a material detrimental effect on the Company or the business, operations, affairs or financial position thereof; or (5) the committing by the Employee of any fraud, theft, embezzlement or other dishonest act against the Company; or (6) the determination by the Board, in good faith and in the exercise of reasonable discretion, that Employee is not competent to perform his duties of employment. (d) Nothing in the Plan, the Certificate or this Option Agreement shall confer upon the Employee any right to continue in the employ of the Company or any affiliate (as defined in the Plan) or shall affect the right of the Company or any Affiliate to terminate the employment of the Employee, with or without cause. 6. RESTRICTIONS ON PURCHASED SHARES. (a) MARKET STAND-OFF. (1) In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the "1933 ACT"), including the Company's initial public offering, Employee shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to any Purchased Shares without the prior written consent of the Company or its underwriters, for such period of time from and after the effective date of such registration statement as may be requested by the Company or such 29 underwriters; provided, however, that in no event shall such period exceed 180 -------- ------- days. Employee agrees to execute and deliver to the Company such further documents or instruments as the Company reasonably determines to be necessary or appropriate to effect the provisions of this Section 6(a). (2) In the event of any stock dividend, stock split, recapitalization or other transaction resulting in an adjustment under Section 7 hereof, then any new, substituted or additional securities or other property which is by reason of such transaction distributed with respect to or in exchange for the Purchased Shares shall be immediately subject to the provisions of this Section 6(a), to the same extent the Purchased Share are at such time covered by such provisions. (3) In order to enforce the provisions of Section 6(a), the Company may impose stop-transfer instructions with respect to the Purchased Shares until the end of the applicable stand-off period. (b) SECURITIES LAW RESTRICTIONS. None of the Purchased Shares shall be Transferred (with or without consideration) and the Company shall not be required to register any such Transfer and the Company may instruct its transfer agent not to register any such Transfer, unless and until all of the following events shall have occurred: (1) the Purchased Shares are Transferred pursuant to and in conformity with (i) (A) an effective registration statement filed with the Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933 Act, or (B) an exemption from registration under the 1933 Act, and (ii) the securities laws of any state of the United States; and (2) Employee has, prior to the Transfer of such Purchased Shares, and if requested by the Company, provided all relevant information to Company's counsel so that upon Company's request, Company's counsel is able to, and actually prepares and delivers to the Company a written opinion that the proposed Transfer (i) (A) is pursuant to a registration statement which has been filed with the Commission and is then effective, or (B) is exempt from registration under the 1933 Act as then in effect, and the Rules and Regulations of the Commission thereunder, and (ii) is either qualified or registered under any applicable state securities laws, or exempt from such qualification or registration. The Company shall bear all reasonable costs of preparing such opinion. (c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which is not in full compliance with this Section 6 shall be null and void ab initio, --------- and of no force or effect. 7. ADJUSTMENTS UPON RECAPITALIZATION. (a) Subject to the provisions of Section 7(b), if any change is made in the Common Stock, without receipt of consideration by the Company (through merger, 30 consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company) the Option will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to the Option. Such adjustments shall be made by the Board, the determination of which shall be final, binding and conclusive. The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company." (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then, at the sole discretion of the Board and to the extent permitted by applicable law, the Option shall (i) terminate upon such event and may be exercised prior thereto to the extent the Option is then exercisable or (ii) continue in full force and effect and, if applicable, the surviving corporation or an Affiliate of such surviving corporation shall assume the Option and/or shall substitute similar option or award in place of the Option. (c) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board, and its determination shall be final, binding and conclusive. (d) The provisions of this Section 7 are intended to be exclusive, and Employee shall have no other rights upon the occurrence of any of the events described in this Section 7. (e) The grant of the Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure, or to merge, consolidate, dissolve or liquidate, or to sell or transfer all or any part of its business or assets. 8. WAIVER OF RIGHTS TO PURCHASE STOCK. By signing this Option Agreement, Employee acknowledges and agrees that neither the Company nor any other person or entity is under any obligation to sell or transfer to Employee any option or equity security of the Company, other than the Shares subject to the Option and any other right or option to purchase Common Stock which was previously granted in writing to Employee by the Board. By signing this Option Agreement, Employee specifically waives all rights which he or she may have had prior to the date of this Option Agreement to receive any option or equity security of the Company. 31 9. INVESTMENT INTENT. Employee represents and agrees that if he or she exercises the Option in whole or in part, and if at the time of such exercise the Plan and/or the Purchased Shares have not been registered under the 1933 Act, he or she will acquire the Shares upon such exercise for the purpose of investment and not with a view to the distribution of such Shares, and that upon each exercise of the Option he or she will furnish to the Company a written statement to such effect. 10. LEGEND ON STOCK CERTIFICATES. Employee agrees that all certificates representing the Purchased Shares will be subject to such stock transfer orders and other restrictions (if any) as the Company may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange upon which the Common Stock is then listed and any applicable federal or state securities laws, and the Company may cause a legend or legends to be put on such certificates to make appropriate reference to such restrictions. 11. NO RIGHTS AS SHAREHOLDER. Except as provided in Section 7 of this Option Agreement, Employee shall have no rights as a shareholder with respect to the Shares until the date of the issuance to Employee of a stock certificate or stock certificates evidencing such Shares. Except as may be provided in Section 7 of this Option Agreement, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued. 12. MODIFICATION. Subject to the terms and conditions and within the limitations of the Plan, the Board (excluding the Employee) may modify, extend or renew the Option or accept the surrender of, and authorize the grant of a new option in substitution for, the Option (to the extent not previously exercised). No modification of the Option shall be made which, without the consent of Employee, would cause the Option to fail to continue to qualify as an "incentive stock option" under Section 422 of the Code or would alter or impair any rights of the Employee under the Option. 13. DISQUALIFYING DISPOSITION; WITHHOLDING. (a) To receive the favorable tax treatment accorded grants and exercises of incentive stock options, Employee must hold the Purchased Shares until the later of two years after the grant of this Option or one year after the issuance of the Purchased Shares to the Employee (the "HOLDING PERIOD"). Employee understands that should he or she make a disposition of those shares (as defined in Section 424(c) of the Code) (a "DISQUALIFYING 32 DISPOSITION") before the end of the Holding Period, Employee will recognize taxable ordinary income to the extent of the difference between the Fair Market Value of the Purchased Shares upon the exercise and the Exercise Price. Employee agrees that should he or she make a Disqualifying Disposition of all or any of the Purchased Shares, he or she shall immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of such Purchased Shares. Employee agrees that he or she shall maintain all Purchased Shares in his or her name so long as he or she maintains beneficial ownership of such Shares. (b) The Company shall be entitled to require as a condition of delivery of any Purchased Shares upon exercise of any Option that the Employee agree to remit, at the time of such delivery or at such later date as the Company may determine, an amount sufficient to satisfy all federal, state and local withholding tax requirements relating thereto, and Employee agrees to take such other action required by the Company to satisfy such withholding requirements. (c) With the consent of the Board, and in accordance with any rules and procedures from time to time adopted by the Board, Employee may elect to satisfy his or her obligations under Section 13(b) above by (1) directing the Company to withhold a portion of the Shares otherwise deliverable (or to tender back to the Company a portion of the Shares issued where the Employee (a "SECTION 16(B) RECIPIENT") is required to report the ownership of the Shares pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, and has not made an election under Section 83(b) of the Code (a "WITHHOLDING RIGHT")); or (2) tendering other shares of the Common Stock of the Company which are already owned by Employee which in all cases have a Fair Market Value (as determined in accordance with the provisions of Section 4 hereof) on the date as of which the amount of tax to be withheld is determined (the "TAX DATE") equal to the amount of taxes to be paid by such method. (d) To exercise a Withholding Right, the Employee must follow the election procedures set forth below, together with such additional procedures and conditions set forth in this Option Agreement or otherwise adopted by the Board: (1) the Employee must deliver to the Company a written notice of election (the "ELECTION") and specify whether all or a stated percentage of the applicable taxes will be paid in accordance with Section 13(c) above and whether the amount so paid shall be made in accordance with the "flat" withholding rates for supplemental wages or as determined in accordance with Employee's form W-4 (or comparable state or local form); (2) unless disapproved by the Board as provided in subsection (3) below, the Election once made will be irrevocable; (3) no Election is valid unless the Board has the right and power, in its sole discretion, with or without cause or reason therefor, to consent to the Election, to refuse 33 to consent to the Election, or to disapprove the Election; and if the Board has not consented to the Election on or prior to the Tax Date, the Election will be deemed approved; and (4) if the Employee on the date of delivery of the Election to the Company is a Section 16(b) Recipient, the following additional provisions will apply: (i) the Election cannot be made during the six calendar month period commencing with the date of grant of the Withholding Right (even if the Option to which such Withholding Right relates has been granted prior to such date); and (ii) the Election (and the exercise of the related Option) must be made either during the period beginning on the third business day following the date of release for publication of the quarterly or annual summary statements of sales and earnings of the Company and ending on the 12th business day following such date or at least six calendar months or more prior to the Tax Date. 14. CHARACTER OF OPTION. The Option is intended to qualify as an "incentive stock option" as that term is defined in Section 422 of the Code. 15. GENERAL PROVISIONS. (a) FURTHER ASSURANCES. Employee shall promptly take all actions and execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Option Agreement. (b) NOTICES. All notices, requests, demands and other communications under this Option Agreement shall be in writing and shall be given to the parties hereto as follows: (1) If to the Company, to: Fox Kids Worldwide, Inc. 10960 Wilshire Boulevard Los Angeles, California 90024 (2) If to Employee, to the address set forth in the records of the Company, or at such other address or addresses as may have been furnished by such either party in writing to the other party hereto. Any such notice, request, demand or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mail by first-class certified mail, return receipt requested, postage prepaid, addressed as aforesaid, 34 or (ii) if given by any other means, when delivered at the address specified in this subsection (b). (c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company may at any time transfer and assign its rights and delegate its obligations under this Option Agreement to any other person, corporation, firm or entity, including its officers, directors and stockholders, with or without consideration. (d) OPTION NON-TRANSFERABLE. Employee may not sell, transfer, assign or otherwise dispose of the Option except by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of Employee only by Employee or by his or her guardian or legal representative in the case of a disability, and upon the Employee's death only by his or her Estate or by any person who acquired the Option by bequest or inheritance or by reason of the death of the Employee. (e) SUCCESSORS AND ASSIGNS. Except to the extent specifically limited by the terms and provisions of this Option Agreement, this Option Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and personal representatives. (f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN. (g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted pursuant to the terms of the Plan, the terms of which are incorporated herein by reference, and it is intended that this Option Agreement shall be interpreted in a manner to comply therewith. Any provision of this Option Agreement inconsistent with the Plan shall be superseded and governed by the Plan. (h) A COMMITTEE. As provided in the Plan, the Board may delegate administration of the Plan and this Option Agreement to a committee (the "COMMITTEE"). If administration is delegated to a Committee, the Committee shall have, in connection with the this Option Agreement, the powers theretofore possessed by the Board (and references in this Option Agreement to the Board shall thereafter be to the Committee). (i) MISCELLANEOUS. Titles and captions contained in this Option Agreement are inserted for convenience of reference only and do not constitute a part of this Option 35 Agreement for any other purpose. Except as specifically provided herein, neither this Option Agreement nor any right pursuant hereto or interest herein shall be assignable by any of the parties hereto without the prior written consent of the other party hereto. THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE OF THE CERTIFICATE. 36 Exhibit "A" NOTICE OF EXERCISE (To be signed only upon exercise of the Option) To: Fox Kids Worldwide, Inc. The undersigned, the holder of the enclosed Stock Option Agreement (Incentive Stock Option), hereby irrevocably elects to exercise the purchase rights represented by the Option and to purchase thereunder ______* shares of Common Stock of Fox Kids Worldwide, Inc. (the "COMPANY"), and herewith encloses payment of $__________ and/or _________ shares of the Company's Common Stock in full payment of the purchase price of such shares being purchased. Dated: ____________________ ____________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Option) ____________________________________________ (Please Print Name) ____________________________________________ (Address) * Insert here the number of Shares called for on the face of the Option (or, in the case of a partial exercise, the number of Shares being exercised), in either case without making any adjustment for additional Common Stock of the Company, other securities or property which, pursuant to the adjustment provisions of the Option, may be deliverable upon exercise. EX-10.7 11 HIAM SABAN EMPLOYMENT AGREEMENT DATED 12/22/95 EXHIBIT 10.7 MEMORANDUM OF EMPLOYMENT AGREEMENT This Memorandum of Employment Agreement (this "Agreement"), is made and entered into as of December 22, 1995, by and between FOX KIDS WORLDWIDE, L.L.C., a Delaware limited liability company (the "Company"), and HAIM SABAN ("Executive"). R E C I T A L S A. Concurrent with the execution of this Agreement, the closing under that certain LLC Formation Agreement (the "LLC Formation Agreement") dated as of November 1, 1995, among Saban Entertainment, Inc., a Delaware close corporation ("SEI"), FCN Holding, Inc., a Delaware close corporation ("FCNH") and Fox Broadcasting Company, a Delaware corporation ("FBC") has occurred; the LLC Formation Agreement provides, among other things, for the formation and capitalization of the Company and the negotiation, execution and delivery of this Agreement; and the execution and delivery of this Agreement is a condition to that closing. B. All terms defined in the LLC Formation Agreement which are not otherwise defined herein shall have the same meanings when used herein; and all terms defined in the Operating Agreement of the Company (the "Operating Agreement") dated as of December 22, 1995, by and among SEI, FCNH and FBC, which are not otherwise defined in the LLC Formation Agreement or this Agreement shall have the same meanings when used herein. C. The parties hereto have determined that it is in their respective best interests to enter into this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing facts and the mutual covenants and agreements contained herein, the parties agree as follows: 1. Engagement. Company hereby employs Executive as the Senior Executive- ---------- Saban Entertainment of the Company, to manage, control and supervise, in all respects and particulars, SEI and each of its direct and indirect subsidiaries (other than as provided in that certain Employment Agreement dated as of July 1, 1994, by and between Executive and Saban International N.V., for certain non- United States services of Executive (such agreement, as amended by a Memorandum of Amendment of even date herewith, the "Other Employment Agreement")), and the other SEI Managed Businesses, and the businesses, activities, operations, assets, obligations and liabilities of the SEI Managed Businesses. The rights, powers and duties of Executive as the Senior Executive-Saban Entertainment shall include all such rights and powers 1 delegated to the person holding that title pursuant to the Operating Agreement, and shall include, without limitation, to the maximum extent permitted by law and subject to the limitations contained in the Operating Agreement and subject to any contractual obligations of the SEI Managed Businesses, any and all rights, powers and obligations with respect to the SEI Managed Businesses which under Delaware law are granted to the shareholders, Boards of Directors, general managers and/or executive officers of the SEI Managed Businesses, including but not limited to, the right to appoint and remove the directors of the SEI Managed Businesses, to determine the retention, termination, and designation and appointment of all corporate officers and other employees, and to delegate any of such duties and responsibilities to other officers and employees of the SEI Managed Businesses. The rights, powers and authorities delegated to the Senior Executive-Saban hereunder shall include, but not be limited to, the exercise of all rights, powers and authorities of the Company with respect to SEI under the Management Agreement. All other officers of the SEI Managed Businesses shall report to, and be subject to the final authority of, Executive. Executive hereby accepts such engagement and agrees to be bound by all of the terms and conditions hereof. 2. Term. The term of engagement hereunder ("Term") shall commence on ---- December 22, 1995 and shall expire on the close of business on June 30, 2002, unless sooner terminated pursuant to the terms of this Agreement. 3. No Power to Remove or Replace Executive. Except as specifically --------------------------------------- provided in the Operating Agreement, without the prior written consent of Executive, the Company shall not have the right or power to remove or replace Executive as Senior Executive-Saban Entertainment, with or without cause, or to terminate this Agreement or to terminate or modify in any respect or particular the rights and powers delegated to Executive pursuant to this Agreement, whether during the Term of this Agreement or thereafter; and notwithstanding the expiration of the Term, so long as Executive remains Senior Executive-Saban Entertainment under the terms and conditions of the Operating Agreement, subject to any written agreement between the parties hereto, the terms and conditions of this Agreement shall continue to govern the terms of the employment of Executive as Senior Executive-Saban Entertainment. 4. Exclusive Engagement. Executive shall, during the Term and for so -------------------- long thereafter as he continues as the Senior Executive-Saban Entertainment under the terms of the Operating Agreement, devote substantially all of his business time to the business and affairs of the Company and the SEI Managed Businesses and shall 2 give such businesses his highest business priority; provided, however, that -------- Executive shall have the right to devote a reasonable amount of time to carry on for his own account (i) any activity within the scope of that certain music production agreement between Haim Saban d/b/a Bubale Music and SEI, or (ii) any activity which is outside the scope of the current or anticipated businesses of the Company or the SEI Managed Businesses, (including, without limitation, the management of his own investments (none of which would constitute a "Competitive Activity" under Section 6 hereof) and/or his continued involvement in charitable and community activities and pursuits) in each case so long as such activities do not materially affect Executive's ability to fully and faithfully perform his duties hereunder. 5. Compensation. In consideration for the services to be rendered by ------------ Executive hereunder, the Company shall pay to Employee: (a) A base salary (i) (x) of $1,000,000 per year for each "Contract Year" of this agreement; and (y) at the rate of $1,000,000 per year for the period from December 22, 1995 through June 30, 1996, and for any other partial Contract Year ( "Contract Year" shall mean that 12 calendar month period commencing on July 1 in a year during which this Agreement is in effect); in each case less any amounts allocable to Executive's services pursuant to Section 4(a) of the Other Employment Agreement. If during the period from July 1, 1995 through the date of this Agreement Executive has received payments of base salary under that certain Employment Agreement dated as of July 1, 1994 between Executive and SEI (the "Assumed Agreement") and/or the Other Employment Agreement (without regard to the amendment to that document effected concurrently with the execution of this Agreement) with respect to the current Contract Year, which payments in the aggregate exceeded $473,972, the amount of such excess payments shall be deemed to be payments of base salary to Executive under this Section 5(a) and Section 4(a) of the Other Employment Agreement, as amended, and shall be applied as a credit against the first payments of base salary to be made to Executive hereunder and under the Other Employment Agreement. (b) Reimbursement for all ordinary and necessary out-of-pocket expenses incurred by Executive in connection with the business of the Company, including any entertainment expenses and any expenses incurred by Executive in carrying on the business of the Company or the Saban Managed Businesses at Executive's home. In addition, Company shall provide to Executive for Executive's use Company's limousine and driver and shall further reimburse or pay directly all gas, oil maintenance, insurance and license and registration fees for one automobile of Executive, specified by Executive. Executive is authorized to incur and will be reimbursed 3 by the Company for all out-of pocket costs and expenses of Executive for domestic and international business travel, including, with respect to air travel, all costs and expenses of private air charter (which may include, if Executive so determines, aircraft owned or personally leased by Executive or an Affiliate of Executive, in which case Executive will be entitled to charge the Company for the use of such aircraft at then-current market rates for comparable aircraft). Executive shall keep such records and provide such documentation as shall be required to substantiate such expenses in accordance with applicable Internal Revenue regulations. 6. Noncompetition. Executive agrees that for so long as Executive -------------- remains Senior Executive -- Saban Entertainment under the Operating Agreement, and for a period terminating five years thereafter (excluding, however, any period following termination of Executive as a result of the breach of this Agreement by the Company), he will not, directly or indirectly, provide consultative services to, or own, manage, operate, control, participate in, or be connected as a stockholder, partner or otherwise with, any Person (including that Person's Affiliates) that is engaged in competition with the business of the Company or any subsidiary of the Company, as such business has been conducted during the 12-month period ending on the date of termination of Executive's employment as Senior Executive - Saban Entertainment (such activities collectively, the "Competitive Activities"). Notwithstanding the foregoing, Executive shall not be deemed to be engaged in a Competing Activity by reason of owning up to five percent of any class of the outstanding debt or equity securities of a Person, any of whose securities are listed on a national securities exchange, registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, or otherwise regularly traded in the over-the-counter market. The provisions of Section 11 of the Assumed Agreement shall apply to any breach by Executive of the provisions of this Section 7. 7. Additional Right to Terminate. Notwithstanding the provisions of ----------------------------- Section 16 of the Assumed Agreement (as modified by the provisions of Section 8 of this Agreement), this Agreement may be terminated by the Company at any time subsequent to the date upon which a "Terminating Event" (as that term is defined in Section 4.10 of the Operating Agreement) has occurred, by delivery to Executive of written notice of the Company's election to terminate Executive pursuant hereto, accompanied by payment, in immediately available funds, and without offset, of an amount equal to Executive's base salary for the balance of the Term, determined by multiplying Executive's annual base salary as in effect at the date of such notice by the number of Contract Years, and fractions of a Contract Year, between the date of such notice and June 30, 2002. 4 8. Assumed Agreement; Incorporation by Reference. All of the terms of --------------------------------------------- the Assumed Agreement, a copy of which is attached hereto as Exhibit "A", which are not inconsistent with this Agreement are incorporated herein by reference and shall form a part of this Agreement, as if they had been fully set forth herein; provided, that all references therein to "Employer," "Employee" and -------- "TVE" shall refer instead, mutatis mutandis, to the Company, Executive, and the ------- -------- Senior Executive-Children's Network; the following provisions are not incorporated herein, and shall be of no force or effect: Section 1, Section 2, the first four sentences of Section 3, Section 4, Section 6(a)(iii), Section 7(a)(iii), the last sentence of Section 16 and Section 18; and the Company's right to terminate the Agreement pursuant to Section 16 shall be subject to Section 3 of this Agreement (provided, however, that Section 16 shall apply in -------- ------- full at such time as either a "Triggering Event" or a "Terminating Event," as those terms are defined in Section 4.10 of the Operating Agreement, has occurred); and the following provisions are modified as follows: all references to "Section 4(a)" shall refer instead to Section 5(a) of this Agreement; and the address set forth in Section 19 shall refer instead to 10960 Wilshire Boulevard, Los Angeles, California 90024. Except as incorporated herein and assumed hereby, the Assumed Agreement shall not be applicable for any periods subsequent to the date of this Agreement, and Executive shall be the employee of the Company, and not SEI, effective December 22, 1995. 9. Miscellaneous Provisions. ------------------------ 9.1 In this Agreement, headings are for convenience only and shall not affect interpretation, and except to the extent that the context otherwise requires: (i) references to any legislation or to any provision of any legislation include any modification or re-enactment of, or any legislative provision substituted for, and all statutory instruments issued under, such legislation or such provision; (ii) words denoting the singular include the plural and vice versa; (iii) words denoting individuals include corporations and other Persons and vice versa; (iv) words denoting any gender include all genders; (v) references to any document, agreement or other instrument (including this Agreement) include references to such document, agreement or other instrument as amended, novated, supplemented or replaced from time to time; (vi) references to clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits are to clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits of this Agreement; (vii) "or" is not exclusive; (viii) "$", and all other references to dollar amounts, are in U. S. currency; (ix) references to any party to this Agreement or any other document, agreement or other instrument includes its successors or permitted assigns; and (x) "writing" and 5 cognate expressions include all means of reproducing words in a tangible and permanently visible form. 9.2 Notices. All notices, demands or other communications hereunder ------- shall be in writing and shall be deemed to have been duly given (i) if delivered in person, upon delivery thereof, or (ii) if mailed, certified first class mail, postage pre-paid, with return receipt requested, on the fifth day after the mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed on the same day in the manner provided in (ii) above, when transmitted and receipt is confirmed by telephone or telex or facsimile response, or (iv) if otherwise actually delivered, when delivered: 9.2.1 If to Company, the registered agent in the State of Delaware. With a copy to: Squadron, Ellenoff, Plesent & Scheinfeld, LLP 555 Fifth Avenue New York, New York 10176 Fax: (212) 697-6686 Attn: Harvey Horowitz, Esq. 9.2.2 If to Executive: Haim Saban Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, CA 90024 Fax: With a copy to: Matthew G. Krane, Esq. 2051 Hercules Drive Los Angeles, CA 90046 Fax: 213-851-1178 and with a copy to: Troop Meisinger Steuber & Pasich 10940 Wilshire Boulevard, Suite 800 Los Angeles, California 90024 Attention: Richard E. Troop, Esq. Fax: 310-443-8503 6 or at such other address or addresses as may have been furnished by such Person in like manner to the other parties. 9.3 Severability. Should any Section or any part of a Section within ------------ this Agreement be rendered void, invalid or unenforceable by any court of law for any reason, such invalidity or unenforceability shall not void or render invalid or unenforceable any other Section or part of a Section in this Agreement. 9.4 Governing Law. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY ------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. 9.5 Amendments and Waivers. Neither this Agreement nor any term ---------------------- hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of both parties hereto. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder. 9.6 Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof unless expressly referred to herein. No party to this Agreement makes any representation or warranty except as expressly set forth herein. 9.7 Formal Documentation. Pursuant to Section 4.4 of the LLC -------------------- Formation Agreement, Executive and FCNH were to negotiate and cause to be prepared, and to be executed and delivered, the "Saban Employment Agreements" therein referred to. This Agreement and the amendment to the Other Employment Agreement constitute such agreements, and are fully binding on the parties hereto. However, in the interests of time, the terms of the Assumed Employment Agreement incorporated herein by reference, and the terms of the Other Employment Agreement, have not been fully negotiated by the parties; and each party reserves the right at any time on or prior to June 30, 1996 to require both parties to enter into negotiations with respect thereto, and to cause an integrated contract resulting therefrom to be executed by the parties; all disputes arising in such negotiations shall be subject to the dispute resolution 7 procedures set forth in said Section 4.4. In no event shall any proposed modifications to the provisions of Sections 1 through 5 hereof be subject to such proceedings. 9.8 Rules of Precedence. In the event of any conflict between the ------------------- provisions of this Agreement and either the LLC Formation Agreement, the Operating Agreement or the Assumed Agreement, the conflicts will be resolved in the following order of precedence: the Operating Agreement, this Agreement, the LLC Formation Agreement and the Assumed Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Memorandum of Employment Agreement to be duly executed and delivered as of the date first written above. /s/ Haim Saban ---------------------------------- HAIM SABAN FOX KIDS WORLDWIDE, L.L.C By: /s/ Jay Itzkowitz ------------------------------ Its: _________________________ 8 CONSENT THE UNDERSIGNED, Saban Entertainment, Inc., hereby consents to the foregoing assumption by Fox Kids Worldwide, L.L.C., of the Employment Agreement of Haim Saban dated as of July 1, 1994. DATED: December 22, 1995 SABAN ENTERTAINMENT, INC. By: /s/ Mel Woods ------------------------------ Mel Woods Its: Chief Operating Officer 9 EX-10.8 12 MARGARET LOESCH EMPLOYMENT AGREEMENT - 1/1/96 EXHIBIT 10.8 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (this "Agreement") is entered into as of the first day of January, 1996 by and between Fox Kids Worldwide, L.L.C., a Delaware limited liability company ("Company"), and Margaret Loesch ("Employee"): 1. ENGAGEMENT. (a) Engagement; Title. Company hereby engages Employee (i) until ----------------- such time as the "Reorganization" (as defined in the Strategic Stockholders Agreement dated as of December 22, 1995 by and among Saban Entertainment, Inc. ("Saban"), Haim Saban, each of the entities listed in Schedule A thereto, Fox Broadcasting Company, FCN Holding, Inc. and FCNH Sub, Inc. ("FCNHSub") (the "Strategic Stockholders Agreement")) is effected, to render services as the "Senior Executive -- Children's Network" of Company, and as the "Chairman and Chief Executive Officer" of its Fox Kids Networks Worldwide division, and (ii) from and after the date upon which a Reorganization is effected, to render services as one of the two Presidents of the "Successor Entity" (as defined in the Strategic Stockholders Agreement) and as the Chairman and Chief Executive Officer of its Fox Kids Networks Worldwide division, in each case pursuant to the terms and conditions hereof, and Employee hereby accepts such engagement. (b) Effect of Reorganization. If the Reorganization is effected, ------------------------ this Agreement shall be assigned by Company to the Successor Entity, which shall assume all obligations of Company hereunder; and unless the context shall otherwise require, from and after the date of the Reorganization all references in this Agreement to "Company" shall refer instead to the Successor Entity. All references in this Agreement to the "Board of Directors" of the Company shall, prior to the Reorganization, refer instead to the Members Committee (and including the Operating Committee thereof) of the Company. (c) Reporting. Employee shall initially report and be subject to the --------- overall direction and supervision of the Operating Committee of Company. Following the Reorganization, Employee shall report to and be subject to the overall direction and supervision of Haim Saban, the Chairman and Chief Executive Officer of the Successor Entity. Should the position of Chairman and Chief Executive Officer of the Successor Entity be held at any time by two different people, Employee shall report to and be subject to the overall direction and supervision of the Chief Executive Officer. Employee understands that certain other executives of Company will also report directly to Haim Saban and to the Chief Executive Officer of the Successor Entity. (d) Directorships; Other Responsibilities. Initially, Employee will ------------------------------------- be named a Class I Committee Member of the Members committee and the Operating Committee of Company. Following the Reorganization, subject to legal and other considerations, it is intended that Employee will be elected as one of the Fox appointees to the Board of Directors of Successor Entity. Employee agrees to accept her election or appointment to each of such positions. 2. NATURE AND PLACE OF SERVICES. (i) Employee shall be primarily responsible for the customary and regular duties of a network president, including but not limited to the creative aspects of programming relating to the Fox Kids Channel, and to each other Fox Kids Channel included in Fox Kids Networks Worldwide, including cable and satellite services (collectively, "Network Responsibilities"), and will render all services usually and customarily rendered by and required of executives similarly employed in the entertainment industry, as well as such other services as may be reasonably required by Company. Company will not, during the term of this Agreement, hire any person with Network Responsibilities senior to Employee or any person with Network Responsibilities who does not report, directly or indirectly, to Employee. (ii) Employee shall render her services for the Company in Los Angeles County, California. 3. EXCLUSIVITY. Employee shall work full-time for Company and its affiliates during the Term hereof. Without limiting the foregoing, Employee's services shall be rendered exclusively to Company and its affiliates hereunder during the Term (as defined below) of this Agreement, and Employee shall not render services of any nature to or for any other person, firm or corporation during the Term of this Agreement without the prior written consent of Company. For so long as Employee is employed pursuant to the terms hereof, Employee shall not become financially interested in or associated with, directly or indirectly, any other person or entity engaged in the production, distribution or exhibition of motion pictures, television programs, phonograph recordings, or any visual or audio recordings of any kind, or in the broadcasting or music publishing businesses, anywhere in the world; provided, that Employee may invest in the capital stock or other securities of any corporation whose stock or other securities are publicly owned or are regularly traded on any securities exchange or in the over-the-counter market, so long as Employee's ownership of such securities does not exceed 5% of the issued and outstanding securities of such entity and Employee's holdings in any one such entity does not in 2 the aggregate cost Employee more than $100,000. Company acknowledges that Employee has an ownership interest in certain radio stations in the North Carolina area. This investment is hereby excluded from the application of this Paragraph 3 as long as such investment does not interfere with Employee's ability to perform the duties set forth hereunder. 4. TERM. The term of this Agreement ("Term") shall commence on January 1, 1996 and, subject to termination as hereinafter provided, expire with the close of business on December 31, 2000. Each consecutive year of the Term beginning on January 1 and ending on the following December 31 shall be referred to as a "Term Year." 5. COMPENSATION. (a) Fixed Salary. As consideration for the services to be rendered by ------------ Employee pursuant hereto, and upon condition that Employee is substantially performing all of the services required hereunder, that Employee is not in material default, and that grounds do not then exist under this Agreement for the termination of Employee hereunder, Company will pay or will cause to be paid to Employee, subject to all applicable laws and requirements respecting withholding of federal, state, and/or local taxes, a fixed annual salary, payable in equal installments, no less frequently than semi-monthly, in the following amounts: FOR THE FIRST TERM YEAR: Five Hundred Fifty Thousand Dollars ($550,000). FOR THE SECOND TERM YEAR: Five Hundred Seventy-Five Thousand Dollars ($575,000). FOR THE THIRD TERM YEAR: Six Hundred Thousand Dollars ($600,000). FOR THE FOURTH TERM YEAR: Six Hundred Twenty-Five Thousand Dollars ($625,000). FOR THE FIFTH TERM YEAR: Six Hundred Fifty Dollars ($650,000). (b) Contingent Bonus. Provided Employee is not in material default ---------------- hereof, and that grounds do not then exist under this Agreement for the termination of Employee hereunder, Company will pay or will cause to be paid to Employee, subject to all applicable laws and requirements respecting withholding of federal, state, and/or local taxes, the "Contingent Bonus," as hereinafter defined, for each Term Year. The Contingent Bonus for any Term Year shall be an amount equal to the greater of (i) one percent (1%) of the "Net Pre-Tax Income" ------- of FCNHSub, as defined in Paragraph 5(c) below, for the fiscal year of FCNHSub ending within 3 such Term Year, or (ii) one percent (1%) of the "Combined Net Pre-Tax Income" of FCNHSub and Saban, as defined in Paragraph 5(d) below, for the fiscal year of FCNHSub ending within such Term Year; provided, however, that the Contingent -------- ------- Bonus shall be no less than $300,000 in any one Term Year and shall not be in excess of $575,000 in the First Term Year, $600,000 in the Second Term Year, $625,000 in the Third Term Year, $650,000 in the Fourth Term Year or $675,000 in the Fifth Term Year. (c) Net Pre-Tax Income. "Net Pre-Tax Income" for any Term Year shall ------------------ be the net pre-tax income, before extraordinary items, of FCNHSub and its consolidated subsidiaries (excluding, for purposes of such computation, the net pre-tax income of Company) for the fiscal year of FCNHSub which ends within such Term Year. (d) Combined Net Pre-Tax Income. "Combined Net Pre-Tax Income" for --------------------------- any Term Year shall be the amount, if any, by which the net pre-tax income of Saban and FCNHSub, for the fiscal year of FCNHSub which ends within such Term Year, on a combined basis, before extraordinary items, and after combining adjustments to avoid duplication of items of income or expenses, exceeds $60 million. (e) Payment of Contingent Bonus. The Contingent Bonus, if any, for --------------------------- any Term Year shall be payable to Employee on the last business day of the first calendar week in the first calendar year following the Term Year; provided, that -------- if the auditors for FCNHSub and Saban have not issued their respective audited consolidated financial statements for their fiscal years by the end of the related Term Year, Company will pay or will cause to be paid to Employee, subject to all applicable laws and requirements respecting withholding of federal, state, and/or local taxes, an amount equal to eighty-five percent (85%) of the amount that would constitute the Contingent Bonus for such Term Year if the Contingent Bonus were computed based on FCNHSub's and Saban's then most recently prepared unaudited consolidated income statements for such fiscal year. However, if FCNHSub's audited financial statements are completed but Saban's are not, or vice versa, then Company shall pay to Employee the portion of the ---- ----- Contingent Bonus based on such individual company's audited financial statements. In any case, such amount shall constitute an advance against the Contingent Bonus for such Term Year. In the event such advance is in excess of the Contingent Bonus for such Term Year, Employee shall, within three (3) business days after issuance of the audited consolidated financial statements for such fiscal year, pay to Company an amount equal to such excess. (f) Stock Options. Saban has, effective January 1, 1996, granted to ------------- Employee an option to purchase sixteen and three hundred twenty-seven one thousandths (16.327) shares ("Option 4 Shares") of Saban common stock at a purchase price of Six Hundred Twelve Thousand Five Hundred Dollars ($612,500.00) per share, subject to the terms and conditions of that certain Stock Option Agreement dated as of January 1, 1996 between Saban and Employee (the "Stock Option Agreement"). (g) Employee Benefits. (i) Reimbursements. Company shall reimburse Employee for -------------- all ordinary and necessary business, entertainment and other expenses reasonably incurred by Employee in the performance of Employee's duties and obligations under this Agreement, including reimbursement for air travel and accommodations for business travel. Company agrees to repay or reimburse Employee for such business expenses upon the presentation of itemized statements of such business expenses in accordance with Company's policy. (ii) Annual Vacations. Employee shall be entitled to take ---------------- four (4) weeks annual vacation for each Term Year. (iii) Health Insurance and Other Employee Benefits. -------------------------------------------- Company shall provide Employee with health insurance for her and her dependents no less favorable in benefits than any other employee of Company. To the extent that Company establishes any other employee benefit plan which provides benefits to executives of Company generally, Employee shall be entitled to participate in such plan pursuant to the terms thereof, except that Company may exclude Employee's participation in any plan which is a stock option plan or plan similar to a stock option plan. If Employee cannot receive medical coverage under Company's medical plans, Company will make certain that Employee does not lose medical coverage on the transfer of her employment from Fox, Inc. to Company. 6. CONSULTING AGREEMENT. Provided that Employee is not in material default hereof, and that grounds do not then exist under this Agreement (other than the expiration of the Term hereof) for the termination of Employee hereunder, if not less than three months nor more than six months prior to the expiration of the Term Employee requests in writing that the Company renew this Agreement, on substantially the same terms (excluding, however, the grant of any additional stock options), for a period of not less than two years, and if the Company does not renew this Agreement for at least two years, then, effective on the last day of the Term, Company and Employee will enter into a five-year, non- exclusive Consulting Agreement, substantially in the form of Exhibit "A" hereto, pursuant to which, inter alia, Company will agree, on the terms and conditions ----- ---- therein set forth, that Company shall pay to Employee, ratably over the five- year period, an amount equal, in the aggregate, to the amount (if any) by which $1,250,000 exceeds 5 ((A) the fair market value of Employee's Option Shares with respect to which Employee's option granted under the Stock Option Agreement has vested but has not been exercised, less Employee's purchase price for the Option Shares with respect to which Employee's option has vested but has not been exercised, plus (B) the fair market value of any Option Shares owned by Employee, or any individual, corporation or other entity which acquired such shares from Employee other than on an arm's-length basis (such persons referred to herein as the "related holders"), less the option exercise paid by Employee therefor, plus (c) ---- the aggregate amount actually received by Employee or any related holders on the sale or other disposition of Option Shares, less the option exercise price paid ---- by Employee therefor) (such amount is hereinafter referred to as the "Consulting Payment"). The value referred to in the preceding sentence shall be determined as of the termination date. If there is no Consulting Payment, the parties will not enter into the Consulting Agreement. 7. REPRESENTATIONS AND WARRANTIES. (a) Representations of Employee. Employee represents and warrants --------------------------- that Employee has all right, power, authority and capacity, and is free to enter into this Agreement; that by doing so, Employee will not violate or interfere with the rights of any other person or entity; and that Employee is not subject to any contract, understanding or obligation which will or might prevent, interfere with or impair the performance of this Agreement by Employee. Employee will indemnify and hold Company harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys fees and court costs) resulting from or arising out of any claim or action based upon Employee's entering into this Agreement. (b) Representations of Company. Company represents and warrants that -------------------------- Company has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement. All corporate and other actions required to be taken by Company to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken. This Agreement is the lawful, valid and legally binding obligation of Company, enforceable in accordance with its terms. (c) Materiality of Representations. The representations, warranties ------------------------------ and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto. 8. RELATIONSHIP AND COVENANTS OF EMPLOYEE. 6 (a) Covenant Not To Disclose. Employee shall not at any time during ------------------------ or after the termination of the Term, knowingly reveal, divulge or make known to any person (other than Company or its affiliates) or use for Employee's own account any non-public information concerning or used by Company of which Employee was apprised or otherwise had become aware during the term of Employee's employment by Company (excluding any such information which becomes public for reasons other than Employee's breach of this Agreement or which Employee is required to disclose by law). (b) Covenant to Deliver Records. All memoranda, notes, records and --------------------------- other documents made or compiled by Employee, or made available to Employee during the term of this Agreement concerning the business of Company shall be Company's property and shall be delivered to Company on the termination of this Agreement or at any other time on request. Employee shall keep in confidence and shall not use for Employee or others, or divulge to others, any secret or confidential information, knowledge or data of Company obtained by Employee as a result of Company's employment, unless authorized by Company or required by law. Employee shall be entitled to retain for her own records only copies of any and all memoranda, notes, records and other documents made or compiled by Employee during the Term of this Agreement. (c) Covenant Not To Divert. Employee shall not so long as Employee is ---------------------- employed hereunder, or if such employment shall terminate during or at the expiration of the Term, for a period of two years following such termination, directly or indirectly, either on Employee's own behalf, or as a member of a partnership, joint venture or corporation, or as an employee or agent on behalf of any person, firm, partnership, joint venture or corporation, either (i) solicit, induce (or attempt to induce), or endeavor to entice away any clients of Company (unless Company consents in writing), (ii) solicit, divert, or seek to develop or exploit any existing entertainment projects on which Company is working at the time of termination (unless Company thereafter advises Employee in writing that it has abandoned such project), or (iii) solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee (other than Employee's assistant) associated with Company to become affiliated with her or any other person, firm, partnership, joint venture, corporation or business organization. (d) Limitations Upon Covenants. The provisions under this Paragraph 8 -------------------------- shall survive the termination of this Agreement. The parties hereto agree that, in the event any of the provisions set forth in this Paragraph 8 are held by any court or other duly constituted legal authority to be effective in any particular area or jurisdiction only if modified to limit their duration or scope or to be void or otherwise unenforceable in any particular area or jurisdiction, then such provisions shall be deemed amended and 7 modified with respect to that particular area or jurisdiction so as to comply with the order of any such court or other duly constituted legal authority and, as to all other areas and jurisdictions, and as to all other provisions of this Paragraph 8, such provisions shall remain in full force and effect as set forth in this Agreement. (e) Remedies. Employee acknowledges that Company will have no -------- adequate remedy at law if Employee violates the terms of the provisions of this Paragraph 8 or any other provisions of this Agreement (including, without limitation, the exclusivity provisions of Paragraph 3, above). In such event, Company shall have the right, in addition to any other rights it may have, to obtain in any court of competent jurisdiction injunctive relief to restrain any breach or threatened breach or specific performance of this Agreement. 9. CERTAIN RIGHTS OF COMPANY. (a) Announcement. Subject to Company's obligations in connection ------------ with becoming a public company, or as a public company, Company shall provide Employee with the right to review and approve any public announcement of the terms, provisions, or execution of this Agreement; provided, however, that -------- ------- Employee shall not unreasonably withhold such approval. (b) Use of Name, Likeness and Biography. Company shall have the right ----------------------------------- (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of Employee to advertise, publicize and promote the business of Company and of affiliates, but not for the purposes of direct endorsement without Employee's consent. An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of Employee, or any biographical information or life story concerning the professional career of Employee, which has been submitted to and approved by Employee prior to its first use, publication or broadcast, such approval not to be unreasonably withheld. (c) Corporate Offices. In addition to her positions described in ----------------- Paragraph 1, Company or its affiliates may from time to time appoint Employee to one or more corporate offices of Company or its affiliates. Employee agrees to accept such offices if consistent with Employee's stature and experience. (d) Right to Insure. Company shall have the right to secure in its --------------- own name, or otherwise, and at its own expense, life, health, accident or other insurance covering Employee, and Employee shall have no right, title or interest in and to such insurance. 8 Employee shall assist Company in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance. 10. TERMINATION. (a) Disability. If Employee shall be rendered incapable by illness ---------- (physical or mental disability) of substantially complying with the material terms, provisions and conditions hereof on her part to be performed for a period in excess of 90 consecutive days or 250 days in the aggregate during the Term, then Company may, at its option, prior to the date Employee resumes the rendering of services, terminate this Agreement by written notice to that effect sent by registered or certified mail. Such termination shall terminate any and all obligations to Employee under this Agreement effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, (ii) Employee's right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of such written notice falls, prorated to the date of such written notice (payable at the time set forth in Paragraph 5(e)), and (iii) Employee's vested rights with respect to the option set forth in the Stock Option Agreement. (b) Death. If Employee dies during the Term of this Agreement, such ----- death shall terminate any and all obligations to Employee under this Agreement effective as of the date of death except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of death falls, pro-rated to the date of death, (ii) Employee's right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of death falls, pro-rated to the date of death (payable at the time set forth in Paragraph 5(e)), and (iii) Employee's vested rights with respect to the option set forth in the Stock Option Agreement. (c) Cause. Company may terminate Employee's employment hereunder for ----- cause, which shall mean (i) indictment of Employee for a felony or a crime involving a high degree of moral turpitude, (ii) the commission by Employee of an act or acts of dishonesty constituting a crime, which act or acts are intended to result, directly or indirectly, in gain or personal enrichment at the expense of Company or any of its subsidiaries or affiliates by Employee, (iii) certification by a medical doctor that Employee is a habitual alcoholic or is a narcotic addict, (iv) Employee's material breach of this Agreement. To the extent that a breach pursuant to subparagraph (iv) is curable by Employee without harm to Company or its reputation, then Company shall, instead of 9 immediately terminating Employee pursuant to this Paragraph, provide Employee with notice of such breach and, specifying the actions required to cure such breach, Employee shall have ten days to cure such breach by performing the actions so specified. If Employee fails to cure such breach within the ten day period, Company may terminate Employee. Any termination pursuant to this Paragraph shall terminate any and all obligations to Employee under this Agreement and the Stock Option Agreement effective as of the date of such written notice except Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice. (d) At Convenience of Company. Company shall have the absolute and ------------------------- unconditional right to terminate Employee's employment hereunder at any time, other than pursuant to Paragraphs 10(a), 10(b) or 10(c), by written notice to that effect delivered in person or sent by registered or certified mail. Subject to the provisions of Paragraph 11, if applicable, such termination shall terminate any and all obligations to Employee under this Agreement effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, (ii) Employee's right to receive the Severance Pay provided in, and subject to the terms and conditions of, Paragraph 11 hereof, (iii) Employee's right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of such written notice falls, prorated to the date of such written notice (payable at the time set forth in Paragraph 5(e)), and (iv) Employee's vested rights with respect to the option set forth in the Stock Option Agreement. (e) At Employee's Election. Employee may terminate her employment ---------------------- hereunder upon Company's material breach of this Agreement by written notice to that effect delivered in person or sent by registered or certified mail. Such termination shall terminate any and all obligations of Company to Employee under this Agreement, including liabilities with respect to such breach, effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, (ii) Employee's right to receive the Severance Pay provided in, and subject to the terms and conditions of, Paragraph 11 hereof, (iii) Employee's right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of such written notice falls, prorated to the date of such written notice (payable at the time set forth in Paragraph 5(e)), and (iv) Employee's vested rights with respect to the option set forth in the Stock Option Agreement. 10 11. SEVERANCE PAY. In the event Employee's services are terminated by Company pursuant to Paragraph 10(d) or by Employee pursuant to Paragraph 10(e) above prior to the completion of the Term, Employee shall receive Employee's fixed salary set forth in Paragraph 5(a) hereof for the balance of the Term, payable in equal installments no less frequently than semi-monthly. The termination benefits contemplated by this Paragraph shall be reduced by the aggregate amount of any wages, salaries, fees or other compensation ("Earnings") earned by Employee during the period in which payments pursuant to the first sentence of this Paragraph are otherwise to be made, as compensation for full-time or part-time services rendered as an employee, consultant, manager, independent contractor or in any other employment capacity. For the purposes of determining the amount of such Earnings, if any, Employee shall apprise Company from time to time, upon its request, of such amounts earned, providing to Company such evidence thereof (on a confidential basis), including, without limitation, Employee's federal and state income tax returns, as Company may reasonably request. 12. ARBITRATION. (a) The terms of this Paragraph 12 contain the sole and exclusive method, means and procedure to resolve any and all claims, disputes or disagreements arising under this Agreement, except those arising under the provisions of Paragraph 8, above. The parties irrevocably waive any and all rights to the contrary and shall at all times conduct themselves in accordance with the terms of this Paragraph 12; any attempt to circumvent the terms of this Paragraph 12 shall be null and void and of no force or effect. (b) Within ten (10) days after delivery of written notice (the "Notice of Dispute") of the existence and nature of any dispute given by any party to the other party, and unless otherwise provided herein in any specific instance, the parties shall each (i) appoint one (1) lawyer actively engaged in the licensed and full time practice of law in the County of Los Angeles for a continuous period immediately preceding the date of delivery (the "Dispute Date") of the Notice of Dispute of not less than ten (10) years, but who has at no time ever represented or acted on behalf of any of the parties, and (ii) deliver written notice of the identity of such lawyer and a copy of his or her written acceptance of such appointment and acknowledgment of and agreement to be bound by the time constraints and other terms of this Paragraph 12 (the "Acceptance") to the other party hereto. In the event that any party fails to so act, that party's arbitrator shall be appointed pursuant to the same procedure that is followed when agreement cannot be reached as to the third arbitrator. Within ten (10) days 11 after such appointment and notice, such lawyers shall appoint a third lawyer (who, together with the first two (2) lawyers, shall hereinafter be referred to collectively as the "Arbitration Panel") of the same qualification and background as the first two (2) lawyers (including the qualification that he or she has at no time ever represented or acted on behalf of any of the parties) and shall deliver written notice of the identity of such lawyers and a copy of his or her written Acceptance of such appointment to each of the parties. If agreement cannot be reached on the appointment of a third lawyer within such period, such appointment and notification shall be made as rapidly as possible by any court of competent jurisdiction, by any licensing authority, agency or organization having jurisdiction over such lawyers, by any professional association of lawyers in existence for not less than ten (10) years at the time of such dispute or disagreement and the geographical membership boundaries of which extend to the County of Los Angeles, or by any arbitration association or organization in existence for not less than ten (10) years at the time of such dispute or disagreement and the geographic boundaries of which extend to the County of Los Angeles, as determined by the party giving such Notice of Dispute and simultaneously confirmed in writing delivered by such party to the other party. Any such court, authority, agency, association or organization shall be entitled either to directly select such third lawyer or to designate in writing delivered to each of the parties an individual who shall do so. In the event of any subsequent vacancies or inabilities to perform among the Arbitration Panel, the lawyer or lawyers involved shall be replaced in accordance with the terms of this Paragraph 12 as if such replacement was an initial appointment to be made under this Paragraph 12 within the time constraints set forth in this Paragraph 12, measured from the date of notice of such vacancy or inability to the person or persons required to make such appointment, with all attendant consequences of failure to act timely if such appointment is not so made. Unless the parties shall otherwise agree, all arbitration proceedings shall be conducted at such location within Los Angeles County as the members of the Arbitration Panel shall by majority vote from time to time designate. (c) Consistent with the terms of this Paragraph 12, the members of the Arbitration Panel shall utilize their utmost skill and shall apply themselves diligently so as to hear and decide, by majority vote, the outcome and resolution of any dispute or disagreement submitted to the Arbitration Panel as promptly as possible, but in any event on or before the expiration of sixty (60) days after the appointment of the members of the Arbitration Panel. None of the members of the Arbitration Panel shall have any liability whatsoever for any acts or omissions performed or omitted in good faith pursuant to the provisions of this Article. 12 (d) The Arbitration Panel shall (i) enforce and interpret the rights and obligations set forth in this Agreement to the extent not prohibited by law, (ii) fix and establish any and all rules as it shall consider appropriate in its sole and absolute discretion to govern the proceedings before it, including any and all rules of discovery, procedure and/or evidence, provided however, that such rules shall be consistent with such rules established by the American Arbitration Association and (iii) make and issue any and all orders, final or otherwise, and any all awards, as a court of competent jurisdiction sitting at law or in equity could make and issue and as it shall consider appropriate in its sole and absolute discretion, including the awarding of monetary damages (but specifically excluding the awarding of consequential, punitive or exemplary damages or the awarding of attorneys' fees and costs to either party) to the prevailing party as determined by the Arbitration Panel in its sole and absolute discretion, and the issuance of injunctive relief. (e) The decision of the Arbitration Panel shall be final and binding, and may be confirmed and entered by any court of competent jurisdiction at the request of any party and may not be appealed to any court of competent jurisdiction or otherwise, except upon a claim of fraud on the part of any member of the Arbitration Panel (except as to the arbitrator chosen by the party claiming the fraud), or on the basis of a manifest error as to the applicable law. The Arbitration Panel shall retain jurisdiction over any dispute until its award has been implemented, and judgment on any such award may be entered in any court having appropriate jurisdiction and may be enforced against either party and its assets pursuant to applicable laws and procedures. (f) Each member of the Arbitration Panel (i) shall be compensated for any and all services rendered under this Paragraph 12 at a rate of compensation equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum shall be increased each year in accordance with annual increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim- Riverside, California 1982-84 = 100 ("CPI"), and (ii) shall be reimbursed for any and all expenses incurred in connection with the rendering of such services, payable in full promptly upon conclusion of the proceedings before the Arbitration Panel. Such compensation and reimbursement shall be borne by the non-prevailing party as determined by the Arbitration Panel in its sole and absolute discretion, unless the Arbitration Panel does not make a determination that one of the parties is the prevailing party, in which case the parties shall bear the cost as fixed by the Arbitration Panel. 13. INDEMNIFICATION. Concurrent with the execution and delivery of this Agreement, Company and Employee have entered into 13 an Indemnification Agreement, pursuant to which, inter alia, Company has agreed, ----- ---- on the terms and conditions therein set forth, to indemnify Employee against certain claims arising by reason of the fact that she is or was an officer or director of Company. 14. GENERAL. (a) Assignment; Successors; Affiliates. Company may assign this ---------------------------------- Agreement (or the interest of Company therein) to any affiliate of Company or to any entity which is a party to a merger, reorganization, or consolidation with Company or to a subsidiary of Company or to an entity or entities acquiring substantially all of the assets of Company or of any division with respect to which Employee is providing services (providing any such assignee assumes Company's obligations under this Agreement). Employee shall, if requested by Company, perform Employee's services and duties, as specified in this Agreement, to or for the benefit of any subsidiary or other affiliate of Company. Upon such assignment, acquisition, merger, consolidation, or reorganization, the term "Company" as used herein shall be deemed to refer to such assignee or such successor entity. Employee shall not have the right to assign Employee's interest in this Agreement, any rights under this Agreement or any duties imposed under this Agreement nor shall Employee (or Employee's spouse, heirs, beneficiaries, administrator's or executors) have the right to pledge, hypothecate or otherwise encumber Employee's right to receive compensation hereunder without the consent of Company. (b) Headings. The subject headings of the paragraphs and -------- subparagraphs of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. (c) Severability. It is agreed that if any term, covenant, provision, ------------ paragraph or condition of this Agreement shall be illegal, such illegality shall not invalidate the whole Agreement but it shall be construed as if not containing the illegal part, and the rights and obligations of the parties shall be construed and enforced accordingly. (d) Entire Agreement. The parties hereto agree that this Agreement ---------------- supersedes all existing agreements between Company and Employee, whether oral, written, expressed or implied, and contains the entire understanding and agreement between the parties. This Agreement shall not be amended, modified or supplemented in any respect except by a subsequent written agreement entered into by both parties hereto. (e) Choice of Law. This Agreement and the performance hereunder shall ------------- be construed in accordance with and under and 14 pursuant to the internal substantive laws of the State of California applicable to agreements fully executed and to be performed entirely in such state. (f) Notices. All communications and notices hereunder shall be in ------- writing and shall be deemed to have been duly given and delivered personally if sent by United States registered or certified mail, postage prepaid: If to Company: Fox Kids Worldwide, L.L.C. 10960 Wilshire Boulevard Los Angeles, California 90024 Attn: Haim Saban 15 With a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard Los Angeles, California 90024 Attention: Richard E. Troop, Esq. If to Employee: Margaret Loesch Fox Kids Network 5746 Sunset Boulevard, #635 Los Angeles, California 90028 With a copy to: Myman, Abell, Fineman, Greenspan & Bowan 11777 San Vicente Boulevard Suite No. 880 Los Angeles, California 90049 Attention: Leslie B. Abell, Esq. or to such other addresses as may be designated in writing by either of the parties. (g) No Joint Venture. Nothing herein contained shall constitute a ---------------- partnership between or joint venture by the parties hereto or appoint any party the agent of any other party. No party shall hold itself out contrary to the terms of this paragraph and, except as otherwise specifically provided herein, no party shall become liable for the representation, act or omission of any other party. This Agreement is not for the benefit of any third party who is not referred to herein and shall not be deemed to give any right or remedy to any such third party. (h) The News Corporation Limited Stock Options. Subject to the terms ------------------------------------------ of The News Corporation Limited ("News Corp.") Share Option Plan, Company acknowledges that for so long as Employee remains employed by Company or Successor Entity, all News Corp. stock options granted to Employee, through December 31, 1995, may, if News Corp. and Employee so agree, remain outstanding and continue to vest as if Employee were still employed by Fox, Inc. or a Fox, Inc. subsidiary. (i) Contractual Nomenclature. All reference herein to "Dollars" or ------------------------ "$" shall mean Dollars of the United States of America, its legal tender for all debts public and private. Where used herein and to the extent appropriate, the masculine, feminine or neuter gender shall include the other two genders, the singular 16 shall include the plural, and the plural shall include the singular. (i) Time of Essence. Time is of the essence of each provision in --------------- this Agreement in which time is an element. (j) No Adverse Construction. The rule that a contract is to be ----------------------- construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. (k) Effective Date; 1996 Salary and Bonus Payments from Fox, Inc. and ----------------------------------------------------------------- its Subsidiaries. While this Agreement has been executed as of August __, 1996, - ---------------- it is effective as of January 1, 1996, the date upon which the parties agreed to the material terms hereof; provided, however, that the first dollar amounts -------- ------- payable to Employee as Fixed Salary under the provisions of Paragraph 5(a) hereof shall be reduced, dollar-for-dollar, by the gross amount (before deduction for federal, state and/or local taxes, or any other amounts withheld) actually received by Employee during 1996 from News Corp., Fox, Inc. or any Fox, Inc. subsidiary (including Fox Children's Network, Inc.), including, without limitation, salary and bonus payments, on account of Employee's services during 1996. To the extent Employee receives bonus payments during 1996 which apply to services rendered during 1995, one-half of such bonus payments paid during 1996 will not be deducted from the Fixed Salary paid to Employee in 1996. * * * IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of the first day of January, 1996. FOX KIDS WORLDWIDE, L.L.C. By \s\ Mel Woods ------------------------- \s\ Margaret Loesch ----------------------------- MARGARET LOESCH 17 STOCK OPTION AGREEMENT ---------------------- This Stock Option Agreement (this "Agreement") is entered into as of the first day of January, 1996 by and between Saban Entertainment, Inc. ("Company") and Margaret Loesch ("Loesch"). R E C I T A L S - - - - - - - - 1. Loesch and Fox Kids Worldwide, L.L.C., a Delaware limited liability company ("Fox Kids"), are parties to that certain Employment Agreement, pursuant to which, inter alia, effective January 1, 1996, Fox Kids engaged Loesch as its ---------- Senior Executive -- Children's Network (the "Employment Agreement"). 2. In connection with the employment of Loesch by Fox Kids, Company has agreed to grant to Loesch certain stock options. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing facts and the mutual covenants and agreements contained herein, the parties hereto agree as follows: I. Defined Terms. A. All terms which are defined in the Employment Agreement and which are not defined in this Agreement shall have the same meanings when used herein. B. All terms which are defined in that certain Strategic Stockholders Agreement dated as of December 22, 1995 by and among Company, Haim Saban, the other "SEI Stockholders" (as therein defined), Fox Broadcasting Company, a Delaware corporation ("FBC"), FCN Holding, Inc., a Delaware close corporation ("FCNH") and FCNH Sub, Inc., a Delaware close corporation ("FCNH Sub") (as amended by Amendment No.1 and Amendment No.2 thereto, and as the same may hereafter from time to time be amended, the "Strategic Stockholders Agreement") and which are not defined in this Agreement shall have the same meanings when used herein. II. Grant of Stock Option. Subject to the terms and conditions hereof, including the vesting requirements under Paragraph IV., below, Company hereby grants to Loesch the option to purchase sixteen and three hundred twenty-seven one thousandths (16.327) shares ("Option Shares") of the common stock, par value $0.001 per share (the "Common Stock"), of the Company, at a purchase price of Six Hundred Twelve Thousand Five Hundred Dollars ($612,500.00) per share. III. Term of Stock Option. The option shall terminate and expire on January 1, 2006, unless sooner terminated as provided herein. IV. Exercisability A. The option shall vest and be exercisable by Loesch with respect to one-fifth (1/5) of the Option Shares on the date of execution of this Agreement. The 80% balance of the option shall vest and be exercisable by Loesch, with respect to 20% of the 80% (or 16%) after the completion of each Term Year of the Term (and thus the first 16% installment shall vest as of the close of business on December 31, 1996) provided Loesch is and has continuously been employed by Fox Kids or the Successor Entity at the end of each such Term Year. Notwithstanding the foregoing: (1) if (I) Loesch dies during the Term or Loesch's employment is terminated by reason of disability as set forth in Paragraph 10(a) of the Employment Agreement, (II) Loesch was until then continuously employed by Fox Kids or Successor Entity, and (III) the option has then vested and become exercisable with respect to less than one-half (1/2) of the Option ---- ---- Shares, based on a vesting period beginning June 1, 1994, then the option shall immediately vest and be exercisable by Loesch with respect to an additional number of Option Shares equal to one-half the Option Shares less the number of Option Shares which have theretofore vested and become exercisable; (2) if (I) Loesch's employment is terminated during any Term Year pursuant to Paragraph 10(d) of the Employment Agreement (a termination other than for cause), (II) Loesch was until then continuously employed by Fox Kids or Successor Entity, and (III) the option has then vested and become exercisable with respect to less than one-half (1/2) of the Option --------- Shares, based on a vesting period beginning June 1, 1994, then the option shall immediately vest and be exercisable by Loesch with respect to an additional number of Option Shares equal to one-half the Option Shares less the number of Option Shares which have theretofore vested and become exercisable; and (3) if (I) Loesch's employment is terminated during any Term Year pursuant to Paragraph 10(d) of the Employment Agreement, (II) Loesch was until then continuously employed by Fox Kids or Successor Entity, and (III) the option has then vested and become exercisable with respect to at least -------- one-half (1/2) of the Option Shares, based on a vesting period beginning June 1, 1994, then the option shall, effective immediately prior to such termination, vest and be exercisable by Loesch with respect to that portion of the Option Shares which would have vested upon completion of the Term Year in which Loesch's termination occurs, had such termination not occurred. B. Upon termination of Loesch's employment with Fox Kids or Successor Entity for any reason, Loesch shall be entitled to exercise only the portion of the option that has vested pursuant to Paragraph IV.A., above, as of the termination date. Nothing in this Paragraph IV.B. shall, however, be construed to limit any of Loesch's rights or remedies in the event of Fox Kids' or Successor Entity's breach of the Employment Agreement. C. During Loesch's lifetime, the option may be exercised only by her and may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise) other than by will or the applicable laws of descent or distribution. If Loesch dies at a time when the option, or a portion thereof, is exercisable by her, the portion of the option that is then exercisable by her shall be exercisable by Loesch's executors, personal representatives, legatees or distributees, as applicable. D. The option granted hereunder shall be exercised by Loesch by giving written notice to Company in form and substance identical to Exhibit "A" attached to this Agreement stating the number of Option Shares with respect to which the option is being exercised and tendering payment therefor in cash or by certified check. As a condition to the issuance of the Option Shares, Loesch shall (1) execute such further documents and instruments and take whatever acts are necessary in order for the issuance to be in compliance with all applicable federal and state securities laws, (2) enter into a stockholders agreement restricting the transferability of the Option Shares and providing for such other matters as the parties may agree, the terms of which stockholders agreement shall be negotiated in good faith, and (3) enter into a voting trust agreement or such other arrangement as is reasonably satisfactory to Company whereunder Haim Saban (or, in the event of Haim Saban's death, his successor) is granted the power to vote the Option Shares. As soon as reasonably practicable thereafter, a certificate representing the Option Shares with respect to which the option is exercised shall be delivered to Loesch. Such certificate may contain a legend thereon reflecting the restrictions set forth in subparagraphs (1), (2) and (3), above, and Paragraphs VIII.A. and B., below. E. Upon the exercise of the option hereunder, Company shall have the right to require Loesch to remit to Company, prior to the issuance of any Option Shares, an amount sufficient to satisfy all federal, state and local withholding tax requirements. V. No Rights As Stockholder Loesch shall have none of the rights or privileges of a stockholder of Company in respect of any of the Option Shares, unless and until the purchase price for such Option Shares shall have been paid in full. VI. Adjustments The number of Option Shares shall be appropriately adjusted for any increase or decrease in the number of shares of issued and outstanding common stock of Company resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split-up, stock distribution or combination of shares, or payment of a share dividend or other increase or decrease in the number of such shares outstanding effected without receipt of consideration by Company. In the event of any such adjustment, the purchase price per share for the Option Shares as so adjusted shall be adjusted by dividing Ten Million Dollars ($10,000,000) by the number of Option Shares as so adjusted. Upon a merger or consolidation of Company in which Company is not the surviving corporation or an exchange of all of the outstanding shares of common stock of Company or all or a substantial portion of the assets of Company for shares of another corporation or equity interests in a partnership, limited partnership, limited liability company or other entity (any such corporation and any such entity is referred to in this Paragraph VI. as a "corporation"), the successor or exchanging corporation shall assume all obligations under this Agreement and such option shall be converted into an option for a number of shares or other equity interests of the successor or exchanging corporation (or cash, property or such other consideration) that Loesch would have received pursuant to the applicable terms of the Strategic Stockholder's Agreement if Loesch had owned the Option Shares on the effective date of such transaction, and the purchase price per share of the stock or other equity interests of the successor or exchanging corporation under such converted option shall be equal to Ten Million Dollars ($10,000,000) divided by the number of shares of the stock or other equity interests of such successor or exchanging corporation to which the converted option applies (if, following such merger, consolidation or exchange, Loesch would receive non-share (or other equity interest) consideration upon exercise of the option, the purchase price to be paid upon exercise of the option shall be equal to Ten Million Dollars ($10,000,000) multiplied by a fraction equal to that portion of the option then being exercised). Upon the dissolution or liquidation of Company other than following an asset transfer subject to this Paragraph VI., the option granted hereunder shall expire as of the effective date of such transaction, provided, however, that Company shall give at least sixty (60) days prior written notice of such event to Loesch during which time she shall have a right to exercise her unexercised vested option. VII. Registration As soon as reasonably practicable following the "initial public offering" (as that term is defined in Paragraph VIII.D. hereof), Successor Entity shall prepare, or cause to be prepared, and file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"), (or such successor form of registration statement as shall then have been adopted by the Commission) covering the offer and sale by Company of the Option Shares underlying the then unexercised portion of the option granted to Loesch hereunder, and, to the extent permitted under such form, any Option Shares issued upon exercise of such option prior to the initial public offering; and Successor Entity shall use its best efforts during the term of the option to maintain such registration statement in effect, and to comply with the rules and regulations of the Commission applicable to securities covered by such registration statement, so that the issuance of any Option Shares upon exercise of the option shall be registered under the Act. VIII. Repurchase of Stock by Company A. After Loesch's employment with Fox Kids or Successor Entity is terminated for any reason, Company shall purchase from Loesch and Loesch shall sell to Company any and all Option Shares owned by Loesch and the option granted to Loesch hereunder for an amount (the "Termination Purchase Price") equal to (A) the fair market value of the Option Shares owned by Loesch plus the fair market value of the Option Shares with respect to which Loesch's option has vested but has not been exercised, less (B) Loesch's purchase price, determined under Paragraph II., above, for the Option Shares with respect to which Loesch's option has vested but has not been exercised. The fair market value of the Option Shares for purposes of the Termination Purchase Price shall be determined as of the date of Loesch's termination of her employment ("Termination Date"). The per share fair market value of the Option Shares is an amount equal to 50% of the Fair Market Value as of the Termination Date of the Company and FCNH Sub and their respective subsidiaries and other consolidated or owned operations, divided by the sum of (i) the number of shares of Common Stock then outstanding (excluding the Later Issued FCNH Shares) plus (ii) 50% of the number of Later Issued Shares then outstanding. If any securities of Company are at any time issued to Loesch with respect to the Option Shares, whether by stock split, stock dividend or otherwise, or if the option or Option Shares are exchanged for securities of the Successor Entity pursuant to the provisions of the Strategic Stockholders Agreement, or otherwise, all of such securities and options shall be considered "Option Shares" for purposes of this Paragraph VIII.A., and shall be subject to repurchase as herein provided. The Fair Market Value for purposes of the Termination Purchase Price shall be determined by mutual agreement of the parties; provided, if the parties are -------- unable to reach agreement within thirty (30) days of the Termination Date, the fair market value of the Option Shares shall be determined by the following appraisal procedure: Each party shall appoint an appraiser by giving notice of such appointment to the other party within forty-five (45) days from the Termination Date. Such appraiser shall be a certified public accountant practicing in the entertainment, licensing and television industries or such other person with experience in valuing companies in the entertainment, licensing and television businesses. If either party fails to appoint an appraiser within said time period, the other party's appointed appraiser shall be the sole appraiser. If both parties have so appointed appraisers, then within thirty (30) days from the appointment of both parties' appraisers, the appraisers so appointed shall appoint a third appraiser, with the same qualifications. The third appraiser (or the sole appraiser if either party fails to appoint an appraiser within the required time period) shall then determine the fair market value of the Option Shares within sixty (60) days after the appointment of the third appraiser (or within sixty (60) days after the failure by either party to appoint an appraiser within the required time period). The third appraiser, or such sole appraiser, as applicable, is referred to hereinbelow as the "Selected Appraiser." The determination of the Selected Appraiser shall be binding on the parties hereto. The costs and fees of the Selected Appraiser shall be borne equally by the parties hereto. Company shall give the Selected Appraiser reasonable access to its books and records to enable him or her to undertake his or her appraisal. Within ten (10) days after the parties' agreement on the fair market value of the Option Shares, or, failing such agreement, the notification by the Selected Appraiser of his or her appraisal, Company shall pay to Employee ten percent (10%) of the Termination Purchase Price (the "Down Payment") and shall deliver to Employee a promissory note (the "Note") for payment of the remainder of the Termination Purchase Price in nine (9) equal annual installments. The Note shall provide for the annual payment of interest on the outstanding balance of the remainder of the Termination Purchase Price at the rate per annum equal to the "prime" or "reference" rate charged by Company's principal bank (currently Imperial Bank), as determined from time to time. Concurrently with the payment of the Down Payment and delivery of the Note, Employee shall execute and deliver to Company an assignment of the option in form reasonably satisfactory to Company and an assignment separate from certificate for the Option Shares, in each case free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. B. Except as provided below, in the event Haim Saban, any member of his immediate family or any of his affiliated entities (collectively with Haim Saban and such family members, "Saban Entities") sells to a third party in a bona fide sale any of his or its shares of the common stock of Company ("Saban Shares"), the parties agree as follows: 1. Company shall purchase from Loesch and Loesch shall sell to Company the "Applicable Percentage," as defined below, of the Option Shares owned by Loesch for a per-share consideration equal to the per-share consideration paid by the third party for the Saban Shares. If the consideration paid by the third party for the Saban Shares includes non-cash consideration and/or deferred consideration, the consideration paid by Company to Loesch for the Option Shares sold by Loesch to Company under this subparagraph 1. shall consist of similar non-cash and/or deferred consideration in the same ratio as the non-cash and/or deferred consideration paid by the third party for the Saban Shares bears to the total consideration paid by the third party for the Saban Shares. The "Applicable Percentage" shall equal the percentage that the Saban Shares sold to the third party represents of the total shares of Company owned by the Saban Entities immediately prior to the sale. The purchase and sale of the Option Shares under this subparagraph 1. shall close no later than ten (10) days after the closing of the sale of the Saban Shares to the third party. Concurrently with the purchase and sale of the Option Shares under this subparagraph 1., Loesch shall execute and deliver to Company an assignment separate from certificate for the Option Shares, free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. 2. Company shall pay to Loesch an amount equal to the Applicable Percentage (as defined in subparagraph 1. above) of (x) the per-share consideration paid by the third party for the Saban Shares multiplied by the number of Option Shares with respect to which Loesch's option has vested but has not been exercised, less (y) Loesch's purchase price, determined under Paragraph II., above, for such Option Shares. If the consideration paid by the third party for the Saban Shares includes non-cash consideration and/or deferred consideration, the payment by Company to Loesch under this subparagraph 2. shall consist of similar non-cash and/or deferred consideration in the same ratio as the non-cash and/or deferred consideration paid by the third party for the Saban Shares bears to the total consideration paid by the third party for the Saban Shares. The payment under this subparagraph 2. shall be made no later than ten (10) days after the closing of the sale of the Saban Shares to the third party. 3. The number of Option Shares Loesch shall have the option to purchase pursuant to Paragraph A shall immediately be reduced by a number of shares of Company equal to the Applicable Percentage (as defined in subparagraph 1., above) of the Option Shares with respect to which Loesch's option has vested but has not been exercised. Such reduction shall reduce only the Option Shares with respect to which Loesch's option has vested but has not been exercised and shall not reduce any Option Shares with respect to which Loesch's option has not then vested. 4. If in connection with any sale of Saban Shares subject to this Paragraph B., Haim Saban is required to enter into an agreement which includes provisions restricting his ability to compete, directly or indirectly (including, without limitation, through an ownership or licensing arrangement with a competitor or potential competitor of Company), with Company ("noncompetition provisions"), and if the purchaser of the Saban Shares so requires, Loesch shall, in connection with the sale of the Option Shares and payment for vested options under this Paragraph B., execute and deliver to Company and such purchaser an agreement, in form and substance reasonably acceptable to the purchaser, which agreement shall contain noncompetition provisions, the scope, duration, terms and provisions of which are substantially identical to the noncompetition provisions contained in Haim Saban's agreement; provided, that no separate payment will be required to be made to Loesch on account of such agreement. This subparagraph 4. shall not apply to (A) any sale by a Saban Entity pursuant to an "initial public offering" (as defined in Paragraph D.) of the common stock of Company or (B) any transaction subject to Paragraph VI.A., above. C. The obligations of Company to make any payment or payments to Loesch with respect to the purchase of Option Shares by Company (including any payments under the Note) are subject to the satisfaction by Company of any applicable statutory provisions restricting Company's ability to make such payments, including, without limitation, Section 160 of the Delaware General Corporation Law and Chapter 5 of the California General Corporation Law, and if and to the extent that under those provisions, any such payment would expose the directors of Company to any liability, or would be unlawful, Company shall deliver to Loesch, in lieu of such payment, a promissory note with terms identical to the Note, which note shall be due and payable at the earliest practicable date thereafter when such payment would not be violative of such statutory provisions. D. Notwithstanding any provision of this Paragraph VIII. to the contrary, following the earlier to occur of (I) the first closing of an offer and sale of shares of the common stock of Company (whether such shares are sold by Company, existing stockholders or both) for cash pursuant to a firmly underwritten public offering effected pursuant to a registration statement filed by Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (or such successor legislation as shall then be in effect) or (II) the date upon which the shares of common stock of Company are first authorized for quotation on the Nasdaq National Market, or listed on the New York Stock Exchange or American Stock Exchange (either event, an "initial public offering"): 1. the provisions of Paragraphs VIII.A. and B. shall terminate and be of no further force or effect; 2. the provisions of any voting trust agreement entered into pursuant to Paragraph VI.D. shall not prevent or restrict Employee's right to sell and transfer any of the Option Shares free and clear of the obligations therein set forth; 3. the option shall terminate and expire, to the extent not theretofore exercised, (x) if Loesch's employment with Company is terminated for any reason other than for "cause" pursuant to Paragraph 10(c) of the Employment Agreement, on the first anniversary of the date of such termination, and (y) if Employee's employment with Company is terminated for "cause" pursuant to Paragraph 10(c) of the Employment Agreement, on the thirtieth (30th) day following the date of such termination; and 4. after Loesch's employment with Company is terminated for any reason, Company shall have the right and option, exercisable at any time prior to the date of expiration of the option by delivery of written notice of such exercise to Loesch, to purchase from Loesch, and if such option is exercised, Loesch shall sell to Company, any and all Option Shares owned by Loesch on the date of receipt of the notice of exercise (or acquired thereafter upon exercise of the option and prior to the closing of such purchase) and the option granted to Loesch hereunder for an amount equal to the "Termination Purchase Price," as provided in Paragraph VIII.A. above; provided, however, that -------- ------- the fair market value of an Option Share shall be equal to the average closing price of the Common Stock over the 20 trading day period ending on the Termination Date. Company shall pay the Termination Purchase Price to Loesch, against delivery by Loesch to Company of an assignment of the option in form reasonably satisfactory to Company and an assignment separate from certificate for the Option Shares, in each case free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. IX. TRANSFER RESTRICTIONS. A. Loesch is aware that Company is a Delaware statutory close corporation, and that significant restrictions exist under that law, this Agreement and the Strategic Stockholders Agreement with respect to any sale, transfer, assignment, pledge, hypothecation or other disposition (with or without consideration) of shares of Saban, and Loesch agrees that she will abide by all such restrictions and will enter into a stockholders agreement to that effect, as provided in Paragraph VI.D. B. In the event of the initial public offering of Successor Entity (as contemplated by the Strategic Stockholders Agreement), if the underwriters so request, Loesch shall enter into a lock-up agreement with the underwriters, pursuant to which Loesch will agree, for a period of up to 180 days from the offering date, not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock of Company or Successor Entity, any options or warrants to purchase such shares or securities convertible into or dischargeable for shares of common stock owned or later acquired by Loesch. X. INVESTMENT INTENT. Loesch represents and agrees that if Loesch exercises the option in whole or in part and if at the time of such exercise the Option Shares have not been registered under the Securities Act of 1933, Loesch will acquire the Option Shares upon such exercise for the purpose of investment and not with a view to the distribution of such Option Shares, and that upon each exercise of the option, Loesch will furnish to the Company a written statement to such effect. XI. GENERAL. A. Assignment; Successors; Affiliates. Company may assign this ---------------------------------- Agreement (or the interest of Company therein) to any affiliate of Company or to any entity which is a party to a merger, reorganization, or consolidation with Company or to a subsidiary of Company or to an entity or entities acquiring substantially all of the assets of Company (providing any such assignee assumes Company's obligations under this Agreement). Upon such assignment, acquisition, merger, consolidation, or reorganization, the term "Company" as used herein shall be deemed to refer to such assignee or such successor entity. Loesch shall not have the right to assign Loesch's interest in this Agreement, any rights under this Agreement or any duties imposed under this Agreement. B. Headings. The subject headings of the paragraphs and subparagraphs -------- of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. C. Severability. It is agreed that if any term, covenant, provision, ------------ paragraph or condition of this Agreement shall be illegal, such illegality shall not invalidate the whole Agreement but it shall be construed as if not containing the illegal part, and the rights and obligations of the parties shall be construed and enforced accordingly. D. Entire Agreement. The parties hereto agree that this Agreement ---------------- supersedes all existing agreements between Company and Employee, whether oral, written, expressed or implied, and contains the entire understanding and agreement between the parties. This Agreement shall not be amended, modified or supplemented in any respect except by a subsequent written agreement entered into by both parties hereto. E. Choice of Law. This Agreement and the performance hereunder shall ------------- be construed in accordance with and under and pursuant to the internal substantive laws of the State of California applicable to agreements fully executed and to be performed entirely in such state. F. Further Assurances. Loesch shall promptly take all actions and ------------------ execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Agreement. G. Notices. All communications and notices hereunder shall be in ------- writing and shall be deemed to have been duly given and delivered personally if sent by United States registered or certified mail, postage prepaid: If to Company: Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, California 90024 Attention: Haim Saban With a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard Los Angeles, California 90024 Attention: Richard E. Troop, Esq. If to Margaret Loesch: Margaret Loesch 5746 Sunset Boulevard, #635 Los Angeles, California 90028 With a copy to: Myman, Abell, Fineman, Greenspan & Bowan 11777 San Vicente Boulevard, Suite 880 Los Angeles, California 90049 Attention: Leslie B. Abell or to such other addresses as may be designated in writing by either of the parties. H. No Joint Venture. Nothing herein contained shall constitute a ---------------- partnership between or joint venture by the parties hereto or appoint any party the agent of any other party. No party shall hold itself out contrary to the terms of this paragraph and, except as otherwise specifically provided herein, no party shall become liable for the representation, act or omission of any other party. This Agreement is not for the benefit of any third party who is not referred to herein and shall not be deemed to give any right or remedy to any such third party. I. Contractual Nomenclature. All reference herein to "Dollars" or ------------------------ "$" shall mean Dollars of the United States of America, its legal tender for all debts public and private. Where used herein and to the extent appropriate, the masculine, feminine or neuter gender shall include the other two genders, the singular shall include the plural, and the plural shall include the singular. (i) Time of Essence. Time is of the essence of each provision in --------------- this Agreement in which time is an element. (j) No Adverse Construction. The rule that a contract is to be ----------------------- construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. * * * IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of the first day of January, 1996. SABAN ENTERTAINMENT, INC. By /s/ Haim Saban ___________________________ Haim Saban Chief Executive Officer /s/ Margaret Loesch ___________________________ MARGARET LOESCH Exhibit "A" NOTICE OF EXERCISE (To be signed only upon exercise of the Option) TO: Saban Entertainment, Inc. The undersigned, the holder of an option ("Option") to purchase that number of shares of Common Stock of Saban Entertainment, Inc. (the "Company") as set forth in the attached Stock Option Agreement, hereby irrevocably elects to exercise the option and to purchase thereunder _______* shares of Common Stock of the Company, and herewith encloses payment of $_________ and/or ___________ shares of the Company's Common Stock in full payment of the purchase price of such shares being purchased. Dated: _____________, ____ __________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the option) __________________________________________ (Please Print Name) __________________________________________ (Address) * Insert here the number of shares called for on the face of the option (or, in the case of a partial exercise, the number of shares being exercised), in either case without making any adjustment for additional Common Stock of the Company, other securities or property which, pursuant to the adjustment provisions of the option, may be deliverable upon exercise. AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT This Amendment No. 1 to Stock Option Agreement (the "Amendment") is made and entered into as of September 26, 1996, by and between Saban Entertainment, Inc., a Delaware corporation ("SEI") and Margaret Loesch ("Loesch"). R E C I T A L S - - - - - - - - A. Loesch and SEI are parties to that certain Stock Option Agreement, dated as of January 1, 1996 (the "Agreement"). All terms defined in the Agreement which are not defined in this Amendment shall have the same meanings when used in this Amendment. B. The parties hereto desire to amend the Agreement from and after the effective date of the initial public offering (the "Initial Public Offering") of Fox Kids Worldwide, Inc., a Delaware corporation ("Fox Kids Worldwide"). A G R E E M E N T ----------------- NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto agree that from and after the effective date of the Initial Public Offering, the following sections are amended as follows: 1. Termination of Option. From and after the effective date of the --------------------- Initial Public Offering, Paragraph VIII(D)(4) of the Agreement shall terminate and be of no further force or effect. 2. Effect of Amendment. Except as expressly modified herein, all terms ------------------- of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. SABAN ENTERTAINMENT, INC. By: Mel Woods _____________________________ Its: President ____________________________ MARGARET LOESCH /s/ Margaret Loesch ____________________________ EX-10.9 13 MEL WOODS EMPLOYMENT AGREEMENT DATED 6/1/94 EXHIBIT 10.9 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is entered into as of the 1st day of June, 1994 by and between Saban Entertainment, Inc., a Delaware corporation ("Company") and Mel Woods ("Employee"): 1. ENGAGEMENT. Company hereby engages Employee to render services as President and Chief Operating Officer of Company pursuant to the terms and conditions hereof, and Employee hereby accepts such engagement. Employee shall report solely to Haim Saban, the Chairman and Chief Executive Officer of Company, subject to the overall direction and supervision of Company's Board of Directors; provided that from and after a "Change of Control," as defined in Section 12, below, Employee agrees that he may be required to report to some other person. If Employee is elected to the Board of Directors of Company, Employee agrees to accept such appointment. 2. NATURE AND PLACE OF SERVICES. Employee shall render all services usually and customarily rendered by and required of executives similarly employed in the entertainment industry and such other services as may be reasonably required by Company. The location of Employee's office shall be at Company's principal Southern California executive offices, which will be located at such place or places in Los Angeles County as the Board of Directors of Company shall from time to time designate; and the duties of Employee shall be performed at such offices, except for such travel as may from time to time be required. 3. EXCLUSIVITY. Employee shall work full-time for Company and its affiliates during the Term hereof. Without limiting the foregoing, Employee's services shall be rendered exclusively to Company and its affiliates hereunder during the Term of this Agreement, and Employee shall not render services of any nature to or for any other person, firm or corporation during the Term of this Agreement without the prior written consent of Company. For so long as Employee is employed pursuant to the terms hereof, Employee shall not become financially interested in or associated with, directly or indirectly, any other person or entity engaged in the production, distribution or exhibition of motion pictures, television programs, phonograph recordings, or any visual or audio recordings of any kind, or in the broadcasting or music publishing businesses, anywhere in the world; provided, that Employee may invest in the capital stock or other securities of any corporation whose stock or other securities are publicly owned or are regularly traded on any securities exchange or in the over-the-counter market, so long as Employee's ownership of such securities does not exceed 5% of the issued and outstanding securities of such entity and Employee's holdings in any one such entity does not in the aggregate cost Employee more than $100,000. 4. TERM. The term of this Agreement ("Term") shall commence on June 1, 1994 and, subject to termination as hereinafter provided, expire with the close of business on May 31, 1999. Each consecutive year of the Term beginning on June 1 and ending on the following May 31 shall be referred to as a "Term Year." 5. COMPENSATION. (a) Fixed Salary. As consideration for the services to be rendered by Employee pursuant hereto, and upon condition that Employee is substantially performing all of the services required hereunder, that Employee is not in material default, and that grounds do not then exist under this Agreement for the termination of Employee hereunder, Company will pay or will cause to be paid to Employee, subject to all applicable laws and requirements respecting withholding of federal, state, and/or local taxes, a fixed annual salary, payable in equal installments, no less frequently than semi-monthly, in the following amounts: FOR THE FIRST TERM YEAR: Four Hundred Twenty-Six Thousand Dollars ($426,000). FOR THE SECOND TERM YEAR: Four Hundred Twenty-Six Thousand Dollars ($426,000). FOR THE THIRD TERM YEAR: Four Hundred Fifty Thousand Dollars ($450,000). FOR THE FOURTH TERM YEAR: Four Hundred Seventy-Five Thousand Dollars ($475,000). FOR THE FIFTH TERM YEAR: Five Hundred Thousand Dollars ($500,000). (b) Contingent Bonus. Provided Employee is not in material default hereof, and that grounds do not then exist under this Agreement for the termination of Employee hereunder, Company will pay or will cause to be paid to Employee, subject to all applicable laws and requirements respecting withholding of federal, state, and/or local taxes, the "Contingent Bonus," as hereinafter defined, for each Term Year. The Contingent Bonus for any Term Year shall be an amount equal to the lesser of one percent (1%) of the "Consolidated Pre-Tax ------ Income" of Company, as defined in Paragraph 5(c), below, for such Term Year, or the "Maximum Bonus Amount," as defined in Paragraph 5(d), below, for such Term Year. 2 (c) Consolidated Pre-Tax Income. "Consolidated Pre-Tax Income" for any Term Year shall be the "Consolidated Pre-Tax Income" of Company, as such term is defined in Section 4 of that certain Employment Agreement dated as of July 1, 1994 by and between Company and Haim Saban; and, as is provided therein, no portion of any Annual Bonus Amount payable or paid to Haim Saban shall be treated as an expense in computing "Consolidated Pre-Tax Income" for any period. (d) Maximum Bonus Amount. The "Maximum Bonus Amount" for any Term Year shall be as follows: FOR THE FIRST TERM YEAR: Five Hundred Seventy-Four Thousand Dollars ($574,000). FOR THE SECOND TERM YEAR: Six Hundred Twenty-Four Thousand Dollars ($624,000). FOR THE THIRD TERM YEAR: Six Hundred Fifty Thousand Dollars ($650,000). FOR THE FOURTH TERM YEAR: Six Hundred Seventy-Five Thousand Dollars ($675,000). FOR THE FIFTH TERM YEAR: Seven Hundred Thousand Dollars ($700,000). (e) Payment of Contingent Bonus. The Contingent Bonus, if any, for any Term Year shall be payable to Employee within thirty (30) days after the issuance by Company's auditors of Company's audited consolidated financial statements for Company's fiscal year which is concurrent with such Term Year; provided that, if such statements are not issued within nine (9) months after the close of such fiscal year, Company will pay or will cause to be paid to Employee, subject to all applicable laws and requirements respecting withholding of federal, state, and/or local taxes, an amount equal to eighty-five percent (85%) of the amount that would constitute the Contingent Bonus for such Term Year if the Contingent Bonus were computed based on the lesser of the Maximum Bonus Amount or Company's then most recently prepared unaudited consolidated income statements for such fiscal year. Such amount shall constitute an advance against the Contingent Bonus for such Term Year and in the event such amount is in excess of the Contingent Bonus for such Term Year, Employee shall, within three (3) business days after issuance of the audited consolidated financial statements for such fiscal year, pay to Company an amount equal to such excess. (f) Stock Options. 3 (i) Subject to the terms and conditions hereof, including the vesting requirements under Paragraph 5(f)(ii), below, Company hereby grants to Employee the option to purchase sixteen and three hundred twenty-seven one thousandths (16.327) shares ("Option Shares") of Company common stock at a purchase price of One Hundred Twenty-Two Thousand Four Hundred Ninety-Six Dollars and Forty-Eight Cents ($122,496.48) per share. (ii) The option shall vest and be exercisable by Employee with respect to one-fifth (1/5) of the Option Shares after the completion of the first Term Year provided Employee is then and has continuously been employed by Company. The option shall vest and be exercisable by Employee with respect to an additional one-fifth (1/5) of the Option Shares after the completion of each Term Year of the Term, provided Employee is and has continuously been employed by Company at the end of each such Term Year. Notwithstanding the foregoing: (A) if (I) Employee dies during the Term or Employee's employment is terminated by reason of disability as set forth in Paragraph 10(a) hereof, (II) Employee was until then continuously employed by Company, and (III) the option has then vested and become exercisable with respect to less than one-half (1/2) of the Option Shares, then the option shall immediately vest and be exercisable by Employee with respect to an additional number of Option Shares equal to one-half the Option Shares less the number of Option Shares which have theretofore vested and become exercisable; (B) if (I) Employee's employment is terminated during any Term Year pursuant to Paragraph 10(d) hereof (a termination other than for cause), (II) Employee was until then continuously employed by Company, and (III) the option has then vested and become exercisable with respect to less than one-half (1/2) of the Option Shares, then the option shall immediately vest and be exercisable by Employee with respect to an additional number of Option Shares equal to one-half the Option Shares less the number of Option Shares which have theretofore vested and become exercisable; and (C) if (I) Employee's employment is terminated during any Term Year pursuant to Paragraph 10(d) hereof, (II) Employee was until then continuously employed by Company, and (III) the option has then vested and become exercisable with respect to at least one-half (1/2) of the Option Shares, then the option shall,effective immediately prior to such termination, vest and be exercisable by Employee with respect to that portion of the Option Shares which would have vested upon completion of the Term Year in which 4 Employee's termination occurs, had such termination not occurred. (iii) Upon termination of Employee's employment with Company for any reason, Employee shall be entitled to exercise only the portion of the option that has vested pursuant to Paragraph 5(f)(ii), above, as of the termination date. Nothing in this Paragraph 5(f)(iii) shall, however, be construed to limit any of Employee's rights or remedies in the event of Company's breach of this Agreement. (iv) During Employee's lifetime, the option may be exercised only by him and may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise) other than by will or the applicable laws of descent or distribution. If Employee dies at a time when the option, or a portion thereof, is exercisable by him, the portion of the option that is then exercisable by him shall be exercisable by Employee's executors, personal representatives, legatees or distributees, as applicable. (v) The option granted hereunder shall be exercised by Employee by giving written notice to Company stating the number of Option Shares with respect to which the option is being exercised and tendering payment therefor in cash or by certified check. As a condition to the issuance of the Option Shares, Employee shall (A) execute such further documents and instruments and take whatever acts are necessary in order for the issuance to be in compliance with all applicable federal and state securities laws, (B) enter into a shareholders agreement restricting the transferability of the Option Shares and providing for such other matters as the parties may agree, the terms of which shareholders agreement shall be negotiated in good faith, and (C) enter into a voting trust agreement or such other arrangement as is reasonably satisfactory to Company whereunder Haim Saban (or, in the event of Haim Saban's death, his successor) is granted the power to vote the Option Shares. As soon as reasonably practicable thereafter, a certificate representing the Option Shares with respect to which the option is exercised shall be delivered to Employee. Such certificate may contain a legend thereon reflecting the restrictions set forth in subparagraphs (A), (B) and (C), above, and Paragraphs 5(f)(ix) and 5(f)(x), below. (vi) Employee shall have none of the rights or privileges of a shareholder of Company in respect of any of the Option Shares, unless and until the purchase price for such Option Shares shall have been paid in full. (vii) The number of Option Shares shall be appropriately adjusted for any increase or decrease in the number of shares of issued and outstanding common stock of Company 5 resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split-up, stock distribution or combination of shares, or payment of a share dividend or other increase or decrease in the number of such shares outstanding effected without receipt of consideration by Company. In the event of any such adjustment, the purchase price per share for the Option Shares as so adjusted shall be adjusted by dividing Two Million Dollars ($2,000,000) by the number of Option Shares as so adjusted. Upon a merger or consolidation of Company in which Company is not the surviving corporation or an exchange of all of the outstanding shares of common stock of Company or all or a substantial portion of the assets of Company for shares of another corporation or equity interests in a partnership, limited partnership, limited liability company or other entity (any such corporation and any such entity is referred to in this subparagraph (vii) as a "corporation"), the successor or exchanging corporation shall assume all obligations under this Agreement and such option shall be converted into an option for a number of shares or other equity interests of the successor or exchanging corporation (or cash, property or such other consideration) that Employee would have received if Employee had owned the Option Shares on the effective date of such transaction, and the purchase price per share of the stock or other equity interests of the successor or exchanging corporation under such converted option shall be equal to Two Million Dollars ($2,000,000) divided by the number of shares of the stock or other equity interests of such successor or exchanging corporation to which the converted option applies (if, following such merger, consolidation or exchange, Employee would receive non-share (or other equity interest) consideration upon exercise of the option, the purchase price to be paid upon exercise of the option shall be equal to Two Million Dollars ($2,000,000) multiplied by a fraction equal to that portion of the option then being exercised). Upon the dissolution or liquidation of Company other than following an asset transfer subject to this subparagraph (vii), the option granted hereunder shall expire as of the effective date of such transaction, provided, however, that Company shall give at least sixty (60) days prior written notice of such event to Employee during which time he shall have a right to exercise his unexercised vested option. (viii) Upon the exercise of the option hereunder, Company shall have the right to require Employee to remit to Company, prior to the issuance of any Option Shares, an amount sufficient to satisfy all federal, state and local withholding tax requirements. As soon as reasonably practicable following the "initial public offering" (as that term is defined in Paragraph 5(f)(xii) hereof), Company shall prepare, or cause to be prepared, and file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"), (or such successor 6 form of registration statement as shall then have been adopted by the Commission) covering the offer and sale by Company of the Option Shares underlying the then unexercised portion of the option granted to Employee hereunder, and, to the extent permitted under such form, any Option Shares issued upon exercise of such option prior to the initial public offering; and Company shall use its best efforts during the term of the option to maintain such registration statement in effect, and to comply with the rules and regulations of the Commission applicable to securities covered by such registration statement, so that the issuance of any Option Shares upon exercise of the option shall be registered under the Act. (ix) After Employee's employment with Company is terminated for any reason, Company shall purchase from Employee and Employee shall sell to Company any and all Option Shares owned by Employee and the option granted to Employee hereunder for an amount (the "Termination Purchase Price") equal to (A) the fair market value of the Option Shares owned by Employee plus the fair market value of the Option Shares with respect to which Employee's option has vested but has not been exercised, less (B) Employee's purchase price, determined under Paragraph 5(f)(i), above, for the Option Shares with respect to which Employee's option has vested but has not been exercised. The fair market value of the Option Shares for purposes of the Termination Purchase Price shall be determined by mutual agreement of the parties as of the date of Employee's termination of his employment ("Termination Date"). In the event the parties are unable to reach agreement within thirty (30) days of the Termination Date, the fair market value of the Option Shares shall be determined by the following appraisal procedure: Each party shall appoint an appraiser by giving notice of such appointment to the other party within forty-five (45) days from the Termination Date. Such appraiser shall be a certified public accountant practicing in the entertainment, licensing and television industries or such other person with experience in valuing companies in the entertainment, licensing and television businesses. If either party fails to appoint an appraiser within said time period, the other party's appointed appraiser shall be the sole appraiser. If both parties have so appointed appraisers, then within thirty (30) days from the appointment of both parties' appraisers, the appraisers so appointed shall appoint a third appraiser, with the same qualifications. The third appraiser (or the sole appraiser if either party fails to appoint an appraiser within the required time period) shall then determine the fair market value of the Option Shares within sixty (60) days after the appointment of the third appraiser (or within sixty (60) days after the failure by either party to appoint an appraiser within the required time period). The third appraiser, or such sole appraiser, as applicable, is referred to hereinbelow as the 7 "Selected Appraiser." The determination of the Selected Appraiser shall be binding on the parties hereto. The costs and fees of the Selected Appraiser shall be borne equally by the parties hereto. Company shall give the Selected Appraiser reasonable access to its books and records to enable him or her to undertake his or her appraisal. Within ten (10) days after the parties' agreement on the fair market value of the Option Shares, or, failing such agreement, the notification by the Selected Appraiser of his or her appraisal, Company shall pay to Employee ten percent (10%) of the Termination Purchase Price (the "Down Payment") and shall deliver to Employee a promissory note (the "Note") for payment of the remainder of the Termination Purchase Price in nine (9) equal annual installments. The Note shall provide for the annual payment of interest on the outstanding balance of the remainder of the Termination Purchase Price at the rate per annum equal to the "prime" or "reference" rate charged by Company's principal bank (currently Imperial Bank), as determined from time to time. Concurrently with the payment of the Down Payment and delivery of the Note, Employee shall execute and deliver to Company an assignment of the option in form reasonably satisfactory to Company and an assignment separate from certificate for the Option Shares, in each case free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. (x) Except as provided below, in the event Haim Saban, any member of his immediate family or any of his affiliated entities (collectively with Haim Saban and such family members, "Saban Entities") sells to a third party in a bona fide sale any of his or its shares of the common stock of Company ("Saban Shares"), the parties agree as follows: (A) Company shall purchase from Employee and Employee shall sell to Company the "Applicable Percentage," as defined below, of the Option Shares owned by Employee for a per-share consideration equal to the per-share consideration paid by the third party for the Saban Shares. If the consideration paid by the third party for the Saban Shares includes non-cash consideration and/or deferred consideration, the consideration paid by Company to Employee for the Option Shares sold by Employee to Company under this subparagraph (A) shall consist of similar non-cash and/or deferred consideration in the same ratio as the non-cash and/or deferred consideration paid by the third party for the Saban Shares bears to the total consideration paid by the third party for the Saban Shares. The "Applicable Percentage" shall equal the percentage that the Saban Shares sold to the third party represents of the total shares of Company owned by the Saban Entities immediately prior to the sale. The purchase and sale of the Option Shares under this subparagraph (A) shall close no later than ten (10) days after the closing of the sale of the Saban Shares to the third party. Concurrently with the purchase and sale 8 of the Option Shares under this subparagraph (A), Employee shall execute and deliver to Company an assignment separate from certificate for the Option Shares, free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. (B) Company shall pay to Employee an amount equal to the Applicable Percentage (as defined in subparagraph (A) above) of (x) the per- share consideration paid by the third party for the Saban Shares multiplied by the number of Option Shares with respect to which Employee's option has vested but has not been exercised, less (y) Employee's purchase price, determined under Paragraph 5(f)(i), above, for such Option Shares. If the consideration paid by the third party for the Saban Shares includes non-cash consideration and/or deferred consideration, the payment by Company to Employee under this subparagraph (B) shall consist of similar non-cash and/or deferred consideration in the same ratio as the non-cash and/or deferred consideration paid by the third party for the Saban Shares bears to the total consideration paid by the third party for the Saban Shares. The payment under this subparagraph (B) shall be made no later than ten (10) days after the closing of the sale of the Saban Shares to the third party . (C) The number of Option Shares Employee shall have the option to purchase pursuant to this Paragraph 5(f) shall immediately be reduced by a number of shares of Company equal to the Applicable Percentage (as defined in subparagraph (A), above) of the Option Shares with respect to which Employee's option has vested but has not been exercised. Such reduction shall reduce only the Option Shares with respect to which Employee's option has vested but has not been exercised and shall not reduce any Option Shares with respect to which Employee's option has not then vested. (D) If in connection with any sale of Saban Shares subject to this Paragraph 5(f)(x), Haim Saban is required to enter into an agreement which includes provisions restricting his ability to compete, directly or indirectly (including, without limitation, through an ownership or licensing arrangement with a competitor or potential competitor of Company), with Company ("noncompetition provisions"), and if the purchaser of the Saban Shares so requires, Employee shall, in connection with the sale of the Option Shares and payment for vested options under this Paragraph 5(f)(x), execute and deliver to Company and such purchaser an agreement, in form and substance reasonably acceptable to the purchaser, which agreement shall contain noncompetition provisions, the scope, duration, terms and provisions of which are substantially identical to the noncompetition provisions contained in Haim Saban's agreement; provided, that no separate payment will be required to be made to Employee on account of such agreement. 9 This subparagraph (x) shall not apply to (A) any sale by a Saban Entity pursuant to an "initial public offering" (as defined in Paragraph 5(f)(xii)) of the common stock of the Company or (B) any transaction subject to Paragraph 5(f)(vii), above. (xi) The obligations of Company to make any payment or payments to Employee with respect to the purchase of Option Shares by Company (including any payments under the Note) are subject to the satisfaction by Company of any applicable statutory provisions restricting Company's ability to make such payments, including, without limitation, Section 160 of the Delaware General Corporation Law and Chapter 5 of the California General Corporation Law, and if and to the extent that under those provisions, any such payment would expose the directors of Company to any liability, or would be unlawful, Company shall deliver to Employee, in lieu of such payment, a promissory note with terms identical to the Note, which note shall be due and payable at the earliest practicable date thereafter when such payment would not be violative of such statutory provisions. (xii) Notwithstanding any provision of this Paragraph 5(f) to the contrary, following the earlier to occur of (I) the first closing of an offer and sale of shares of the common stock of Company (whether such shares are sold by Company, existing stockholders or both) for cash pursuant to a firmly underwritten public offering effected pursuant to a registration statement filed by Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (or such successor legislation as shall then be in effect) or (II) the date upon which the shares of common stock of Company are first authorized for quotation on the Nasdaq National Market, or listed on the New York Stock Exchange or American Stock Exchange (either event, an "initial public offering"): (A) the provisions of Paragraphs 5(f)(ix) and 5(f)(x) shall terminate and be of no further force or effect; (B) the provisions of any voting trust agreement entered into pursuant to Paragraph 5(f)(v)(C) shall not prevent or restrict Employee's right to sell and transfer any of the Option Shares free and clear of the obligations therein set forth; (C) the option shall terminate and expire, to the extent not theretofore exercised, (x) if Employee's employment with Company is terminated for any reason other than for "cause" pursuant to Paragraph 10(c) hereof, on the first anniversary of the date of such termination, and (y) if Employee's employment with Company is terminated for "cause" pursuant to Paragraph 10(c) hereof, on the thirtieth (30th) day following the date of such termination; and 10 (D) after Employee's employment with Company is terminated for any reason, Company shall have the right and option, exercisable at any time prior to the date of expiration of the option by delivery of written notice of such exercise to Employee, to purchase from Employee, and if such option is exercised, Employee shall sell to Company, any and all Option Shares owned by Employee on the date of receipt of the notice of exercise (or acquired thereafter upon exercise of the option and prior to the closing of such purchase) and the option granted to Employee hereunder for an amount equal to the "Termination Purchase Price," as defined in and determined pursuant to the procedures provided in Paragraph 5(f)(ix), above; and within ten (10) days after the parties' agreement on the fair market value of the Option Shares, or, failing such agreement, the notification by the Selected Appraiser of his or her appraisal, Company shall pay the Termination Purchase Price to Employee, against delivery by Employee to Company of an assignment of the option in form reasonably satisfactory to Company and an assignment separate from certificate for the Option Shares, in each case free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. (g) Employee Benefits. (i) Reimbursements. Company shall reimburse Employee for all ordinary and necessary business, entertainment and other expenses reasonably incurred by Employee in the performance of Employee's duties and obligations under this Agreement, including reimbursement for air travel and accommodations for business travel. Company agrees to repay or reimburse Employee for such business expenses upon the presentation of itemized statements of such business expenses in accordance with Company's policy. (ii) Annual Vacations. Employee shall be entitled to take four (4) weeks annual vacation for each Term Year. (iii) Health Insurance and Other Employee Benefits. Company shall provide Employee with health insurance for him and his dependents no less favorable in benefits than any other employee of Company. To the extent that Company establishes any other employee benefit plan which provides benefits to executives of Company generally, Employee shall be entitled to participate in such plan pursuant to the terms thereof, except that Company may exclude Employee's participation in any plan which is a stock option plan or plan similar to a stock option plan. (h) Signing Bonus. On or prior to execution hereof, Company will pay or will cause to be paid to Employee, subject to 11 all applicable laws and requirements respecting withholding of federal, state, and/or local taxes, a signing bonus of One Hundred Thousand Dollars ($100,000). Employee hereby acknowledges receipt in full of such signing bonus. 6. [INTENTIONALLY DELETED] 7. REPRESENTATIONS AND WARRANTIES. (a) Representations of Employee. Employee represents and warrants that Employee has all right, power, authority and capacity, and is free, to enter into this Agreement; that by doing so Employee will not violate or interfere with the rights of any other person or entity; and that Employee is not subject to any contract, understanding or obligation which will or might prevent, interfere with or impair the performance of this Agreement by Employee. Employee will indemnify and hold Company harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys fees and court costs) resulting from or arising out of any claim or action based upon Employee's entering into this Agreement. (b) Representations of Company. Company represents and warrants that Company has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement. All corporate and other actions required to be taken by Company to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken. This Agreement is the lawful, valid and legally binding obligation of Company, enforceable in accordance with its terms. (c) Materiality of Representations. The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto. 8. RELATIONSHIP AND COVENANTS OF EMPLOYEE. (a) Covenant Not To Disclose. Employee shall not at any time during or after the termination of the Term, knowingly reveal, divulge or make known to any person (other than the Company or its affiliates) or use for Employee's own account any non-public information concerning or used by Company of which Employee was apprised or otherwise had become aware during the term of Employee's employment by Company (excluding any such information 12 which becomes public for reasons other than Employee's breach of this Agreement or which Employee is required to disclose by law). (b) Covenant to Deliver Records. All memoranda, notes, records and other documents made or compiled by Employee, or made available to Employee during the term of this Agreement concerning the business of Company shall be Company's property and shall be delivered to Company on the termination of this Agreement or at any other time on request. Employee shall keep in confidence and shall not use for Employee or others, or divulge to others, any secret or confidential information, knowledge or data of Company obtained by Employee as a result of Company's employment, unless authorized by Company or required by law. Employee shall be entitled to retain for his own records copies of any and all memoranda, notes, records and other documents made or compiled by Employee during the Term of this Agreement. (c) Covenant Not To Divert. Employee shall not so long as Employee is employed hereunder, or if such employment shall terminate during or at the expiration of the Term, for a period of two years following such termination, directly or indirectly, either on Employee's own behalf, or as a member of a partnership, joint venture or corporation, or as an employee or agent on behalf of any person, firm, partnership, joint venture or corporation, either (i) solicit, induce (or attempt to induce), or endeavor to entice away any clients of Company (unless Company consents in writing), (ii) solicit, divert, or seek to develop or exploit any existing entertainment projects on which Company is working at the time of termination (unless Company thereafter advises Employee in writing that it has abandoned such project), or (iii) solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee (other than Employee's assistant) associated with Company to become affiliated with him or any other person, firm, partnership, joint venture, corporation or business organization. (d) Limitations Upon Covenants. The provisions under this Paragraph 8 shall survive the termination of this Agreement. The parties hereto agree that, in the event any of the provisions set forth in this Paragraph 8 are held by any court or other duly constituted legal authority to be effective in any particular area or jurisdiction only if modified to limit their duration or scope or to be void or otherwise unenforceable in any particular area or jurisdiction, then such provisions shall be deemed amended and modified with respect to that particular area or jurisdiction so as to comply with the order of any such court or other duly constituted legal authority and, as to all other areas and jurisdictions, and as to all other provisions of this Paragraph 8, 13 such provisions shall remain in full force and effect as set forth in this Agreement. (e) Remedies. Employee acknowledges that Company will have no adequate remedy at law if Employee violates the terms of the provisions of this Paragraph 8 or any other provisions of this Agreement (including, without limitation, the exclusivity provisions of Paragraph 3, above). In such event, Company shall have the right, in addition to any other rights it may have, to obtain in any court of competent jurisdiction injunctive relief to restrain any breach or threatened breach or specific performance of this Agreement. 9. CERTAIN RIGHTS OF COMPANY. (a) Announcement. Company shall have the sole right to make a public announcement of the terms, provisions, or execution of this Agreement. (b) Use of Name, Likeness, and Biography. Company shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of Employee to advertise, publicize and promote the business of Company and of affiliates, but not for the purposes of direct endorsement without Employee's consent. An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of Employee, or any biographical information or life story concerning the professional career of Employee, which has been submitted to and approved by Employee prior to its first use, publication or broadcast, such approval not to be unreasonably withheld. (c) Corporate Offices. In addition to his positions as President and Chief Operating Officer of the Company, Company or its affiliates may from time to time appoint Employee to one or more corporate offices of Company or its affiliates. Employee agrees to accept such offices if consistent with Employee's stature and experience. (d) Right to Insure. Company shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering Employee, and Employee shall have no right, title or interest in and to such insurance. Employee shall assist Company in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance. 14 10. TERMINATION. (a) Disability. If Employee shall be rendered incapable by illness (physical or mental disability) of complying with the terms, provisions and conditions hereof on his part to be performed for a period in excess of 90 consecutive days or 250 days in the aggregate during the Term, then Company may, at its option, prior to the date Employee resumes the rendering of services, terminate this Agreement by written notice to that effect sent by registered or certified mail. Such termination shall terminate any and all obligations to Employee under this Agreement effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, (ii) Employee's right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of such written notice falls, prorated to the date of such written notice (payable at the time set forth in Paragraph 5(e)), and (iii) Employee's vested rights with respect to the option set forth in Paragraph 5(f). (b) Death. In the event Employee dies during the Term of this Agreement, such death shall terminate any and all obligations to Employee under this Agreement effective as of the date of death except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of death falls, pro-rated to the date of death, (ii) Employee's right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of death falls, pro-rated to the date of death (payable at the time set forth in Paragraph 5(e)), and (iii) Employee's vested rights with respect to the option set forth in Paragraph 5(f). (c) Cause. Company may terminate Employee's employment hereunder for cause, which shall mean (i) indictment of Employee for a felony or a crime involving a high degree of moral turpitude, (ii) the commission by Employee of an act or acts of dishonesty constituting a crime, which act or acts are intended to result, directly or indirectly, in gain or personal enrichment at the expense of Company or any of its subsidiaries or affiliates by Employee, (iii) certification by a medical doctor that Employee is a habitual alcoholic or is a narcotic addict, (iv) Employee's material breach of this Agreement. Such termination shall terminate any and all obligations to Employee under this Agreement effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, and (ii) Employee's 15 vested rights with respect to the option set forth in Paragraph 5(f). (d) At Convenience of Company. Company shall have the absolute and unconditional right to terminate Employee's employment hereunder at any time, other than pursuant to Paragraphs 10(a), 10(b) or 10(c), by written notice to that effect delivered in person or sent by registered or certified mail. Such termination shall terminate any and all obligations to Employee under this Agreement effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, (ii) Employee's right to receive the Severance Pay provided in, and subject to the terms and conditions of, Paragraph 11 hereof, (iii) Employee's right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of such written notice falls, prorated to the date of such written notice (payable at the time set forth in Paragraph 5(e)), and (iv) Employee's vested rights with respect to the option set forth in Paragraph 5(f). (e) At Employee's Election. Employee may terminate his employment hereunder upon Company's material breach of this Agreement by written notice to that effect delivered in person or sent by registered or certified mail. Such termination shall terminate any and all obligations of Company to Employee under this Agreement, including liabilities with respect to such breach, effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, (ii) Employee's right to receive the Severance Pay provided in, and subject to the terms and conditions of, Paragraph 11 hereof, (iii) Employee's right to receive the Contingent Bonus in Paragraph 5(b) for the Term Year in which the date of such written notice falls, prorated to the date of such written notice (payable at the time set forth in Paragraph 5(e)), and (iv) Employee's vested rights with respect to the option set forth in Paragraph 5(f). 11. SEVERANCE PAY. In the event Employee's services are terminated by Company pursuant to Paragraph 10(d) or by Employee pursuant to Paragraph 10(e) above prior to the completion of the Term, Employee shall receive Employee's fixed salary set forth in Paragraph 5(a) hereof for the balance of the Term, payable in equal installments no less frequently than semi-monthly. The termination benefits contemplated by this Paragraph shall be reduced by the aggregate amount of any wages, salaries, fees or other compensation ("Earnings") earned by Employee during the period in which payments 16 pursuant to the first sentence of this Paragraph are otherwise to be made, as compensation for full-time or part-time services rendered as an employee, consultant, manager, independent contractor or in any other employment capacity. For the purposes of determining the amount of such Earnings, if any, Employee shall apprise Company from time to time, upon its request, of such amounts earned, providing to Company such evidence thereof (on a confidential basis), including, without limitation, Employee's federal and state income tax returns, as Company may reasonably request. 12. CHANGE OF CONTROL. (a) For the purposes of this Section 12, the following definitions shall apply: The following events shall each constitute a "Change of Control" of Company: (i) the acquisition of one or more shares of the voting securities of Company by any Acquiring Person, or any group of two or more Acquiring Persons acting in concert, as a result of which such Person or group beneficially owns fifty percent (50%) or more of the issued and outstanding voting securities of Company; (ii) the consolidation with, or merger with or into, any other entity, by Company and, in connection with such merger or consolidation, Company is not the continuing or surviving entity; (iii) the sale or transfer by other means by Company in one transaction or a series of related transactions, of assets or earning power aggregating fifty percent (50%) or more of the assets or earning power of Company and its subsidiaries (taken as a whole and calculated on the basis of Company's most recent regularly prepared financial statements) to any other person or persons (but excluding sales of inventory in the ordinary course of business). The determination as to which party to a merger or consolidation is the "continuing" or "surviving" corporation shall be made on the basis of the relative equity interests of the shareholders in the corporation existing after the merger or consolidation, as follows: if following any merger or reorganization, the holders of outstanding voting securities of Company immediately prior to the merger or consolidation beneficially own fifty percent (50%) or more of the voting power of the entity existing following the merger or consolidation, then for purposes of this Agreement, Company shall be the survivor or continuing corporation. In making the determination of beneficial ownership by the shareholders of a corporation immediately after the merger or consolidation, of equity securities which the shareholders owned immediately before the merger or consolidation, shares which they beneficially owned as shareholders of another party to the transaction shall be disregarded. 17 "Acquiring Person" shall mean any individual, corporation, partnership, limited liability company or other entity or group other than Haim Saban or any other of the Saban Entities, Employee or Company or any of its wholly-owned subsidiaries. "Beneficial Ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. (b) If, in the event of a Change of Control of Company, any Acquiring Person or other person or group proposing to acquire control of Company and/or the business of Company (the "Proposed Acquiror") objects to any of the terms of this Agreement, Employee agrees to negotiate in good faith with Company to amend this Agreement in such manner as to make it acceptable to the Proposed Acquiror. Haim Saban and Company shall in any event use their best efforts to cause the Proposed Acquiror to accept the terms of this Agreement. 13. ARBITRATION. (a) The terms of this Paragraph 13 contain the sole and exclusive method, means and procedure to resolve any and all claims, disputes or disagreements arising under this Agreement, except those arising under the provisions of Paragraph 8, above. The parties irrevocably waive any and all rights to the contrary and shall at all times conduct themselves in accordance with the terms of this Paragraph 13; any attempt to circumvent the terms of this Paragraph 13 shall be null and void and of no force or effect. (b) Within ten (10) days after delivery of written notice (the "Notice of Dispute") of the existence and nature of any dispute given by any party to the other party, and unless otherwise provided herein in any specific instance, the parties shall each (i) appoint one (1) lawyer actively engaged in the licensed and full time practice of law in the County of Los Angeles for a continuous period immediately preceding the date of delivery (the "Dispute Date") of the Notice of Dispute of not less than ten (10) years, but who has at no time ever represented or acted on behalf of any of the parties, and (ii) deliver written notice of the identity of such lawyer and a copy of his or her written acceptance of such appointment and acknowledgment of and agreement to be bound by the time constraints and other terms of this Paragraph 13 (the "Acceptance") to the other party hereto. In the event that any party fails to so act, that party's arbitrator shall be appointed pursuant to the same procedure that is followed when agreement cannot be reached as to the third arbitrator. Within ten (10) days 18 after such appointment and notice, such lawyers shall appoint a third lawyer (who, together with the first two (2) lawyers, shall hereinafter be referred to collectively as the "Arbitration Panel") of the same qualification and background as the first two (2) lawyers (including the qualification that he or she has at no time ever represented or acted on behalf of any of the parties) and shall deliver written notice of the identity of such lawyers and a copy of his or her written Acceptance of such appointment to each of the parties. If agreement cannot be reached on the appointment of a third lawyer within such period, such appointment and notification shall be made as rapidly as possible by any court of competent jurisdiction, by any licensing authority, agency or organization having jurisdiction over such lawyers, by any professional association of lawyers in existence for not less than ten (10) years at the time of such dispute or disagreement and the geographical membership boundaries of which extend to the County of Los Angeles, or by any arbitration association or organization in existence for not less than ten (10) years at the time of such dispute or disagreement and the geographic boundaries of which extend to the County of Los Angeles, as determined by the party giving such Notice of Dispute and simultaneously confirmed in writing delivered by such party to the other party. Any such court, authority, agency, association or organization shall be entitled either to directly select such third lawyer or to designate in writing delivered to each of the parties an individual who shall do so. In the event of any subsequent vacancies or inabilities to perform among the Arbitration Panel, the lawyer or lawyers involved shall be replaced in accordance with the terms of this Paragraph 13 as if such replacement was an initial appointment to be made under this Paragraph 13 within the time constraints set forth in this Paragraph 13, measured from the date of notice of such vacancy or inability to the person or persons required to make such appointment, with all attendant consequences of failure to act timely if such appointment is not so made. Unless the parties shall otherwise agree, all arbitration proceedings shall be conducted at such location within Los Angeles County as the members of the Arbitration Panel shall by majority vote from time to time designate. (c) Consistent with the terms of this Paragraph 13, the members of the Arbitration Panel shall utilize their utmost skill and shall apply themselves diligently so as to hear and decide, by majority vote, the outcome and resolution of any dispute or disagreement submitted to the Arbitration Panel as promptly as possible, but in any event on or before the expiration of sixty (60) days after the appointment of the members of the Arbitration Panel. None of the members of the Arbitration Panel shall have any 19 liability whatsoever for any acts or omissions performed or omitted in good faith pursuant to the provisions of this Article. (d) The Arbitration Panel shall (i) enforce and interpret the rights and obligations set forth in this Agreement to the extent not prohibited by law, (ii) fix and establish any and all rules as it shall consider appropriate in its sole and absolute discretion to govern the proceedings before it, including any and all rules of discovery, procedure and/or evidence, provided however, that such rules shall be consistent with such rules established by the American Arbitration Association and (iii) make and issue any and all orders, final or otherwise, and any all awards, as a court of competent jurisdiction sitting at law or in equity could make and issue and as it shall consider appropriate in its sole and absolute discretion, including the awarding of monetary damages (but specifically excluding the awarding of consequential, punitive or exemplary damages or the awarding of attorneys' fees and costs to either party) to the prevailing party as determined by the Arbitration Panel in its sole and absolute discretion, and the issuance of injunctive relief. (e) The decision of the Arbitration Panel shall be final and binding, and may be confirmed and entered by any court of competent jurisdiction at the request of any party and may not be appealed to any court of competent jurisdiction or otherwise, except upon a claim of fraud on the part of any member of the Arbitration Panel (except as to the arbitrator chosen by the party claiming the fraud), or on the basis of a manifest error as to the applicable law. The Arbitration Panel shall retain jurisdiction over any dispute until its award has been implemented, and judgment on any such award may be entered in any court having appropriate jurisdiction and may be enforced against either party and its assets pursuant to applicable laws and procedures. (f) Each member of the Arbitration Panel (i) shall be compensated for any and all services rendered under this Paragraph 13 at a rate of compensation equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum shall be increased each year in accordance with annual increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim- Riverside, California 1982-84 = 100 ("CPI"), and (ii) shall be reimbursed for any and all expenses incurred in connection with the rendering of such services, payable in full promptly upon conclusion of the proceedings before the Arbitration Panel. Such compensation and reimbursement shall be borne by the non-prevailing party as determined by the Arbitration Panel in its sole and absolute discretion, unless the Arbitration Panel does not make a determination that one of the parties is the prevailing party, in 20 which case the parties shall bear the cost as fixed by the Arbitration Panel. 14. INDEMNIFICATION. Concurrent with the execution and delivery of this Agreement, Company and Employee have entered into an Indemnification Agreement, pursuant to which, inter alia, Company has agreed, on the terms and conditions ----- ---- therein set forth, to indemnify Employee against certain claims arising by reason of the fact that he is or was an officer or director of Company. 15. GENERAL. (a) Assignment; Successors; Affiliates. Company may assign this Agreement (or the interest of Company therein) to any affiliate of Company or to any entity which is a party to a merger, reorganization, or consolidation with Company or to a subsidiary of Company or to an entity or entities acquiring substantially all of the assets of Company or of any division with respect to which Employee is providing services (providing any such assignee assumes Company's obligations under this Agreement). Employee shall, if requested by Company, perform Employee's services and duties, as specified in this Agreement, to or for the benefit of any subsidiary or other affiliate of Company. Upon such assignment, acquisition, merger, consolidation, or reorganization, the term "Company" as used herein shall be deemed to refer to such assignee or such successor entity. Employee shall not have the right to assign Employee's interest in this Agreement, any rights under this Agreement or any duties imposed under this Agreement nor shall Employee (or Employee's spouse, heirs, beneficiaries, administrator's or executors) have the right to pledge, hypothecate or otherwise encumber Employee's right to receive compensation hereunder without the consent of Company. (b) Headings. The subject headings of the paragraphs and subparagraphs of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. (c) Severability. It is agreed that if any term, covenant, provision, paragraph or condition of this Agreement shall be illegal, such illegality shall not invalidate the whole Agreement but it shall be construed as if not containing the illegal part, and the rights and obligations of the parties shall be construed and enforced accordingly. (d) Entire Agreement. The parties hereto agree that this Agreement supersedes all existing agreements between Company and Employee, whether oral, written, expressed or implied, and contains 21 the entire understanding and agreement between the parties. This Agreement shall not be amended, modified, or supplemented in any respect except by a subsequent written agreement entered into by both parties hereto. (e) Choice of Law. This Agreement and the performance hereunder shall be construed in accordance with and under and pursuant to the internal substantive laws of the State of California applicable to agreements fully executed and to be performed entirely in such state. (f) Notices. All communications and notices hereunder shall be in writing and shall be deemed to have been duly given and delivered personally if sent by united States registered or certified mail, postage prepaid: If to Company: Saban Entertainment, Inc. 4000 West Alameda Avenue Burbank, California 91505 Attn: Haim Saban With a copy to: Matthew G. Krane, Esq. Attorney 2051 Hercules Drive Los Angeles, California 90046 If to Employee: Mel Woods 1430 Beaudry Boulevard Glendale, California 91208 or to such other addresses as my be designated in writing by either of the parties. (g) No Joint Venture. Nothing herein contained shall constitute a partnership between or joint venture by the parties hereto or appoint any party the agent of any other party. No party shall hold itself out contrary to the terms of this paragraph and, except as otherwise specifically provided herein, no party shall become liable for the representation, act or omission of any other party. This Agreement is not for the benefit of any third party who is not referred to herein and shall not be deemed to give any right or remedy to any such third party. 22 (h) Contractual Nomenclature. All reference herein to "Dollars" or "$" shall mean Dollars of the United States of America, its legal tender for all debts public and private. Where used herein and to the extent appropriate, the masculine, feminine or neuter gender shall include the other two genders, the singular shall include the plural, and the plural shall include the singular. (i) Time of Essence. Time is of the essence of each provision in this Agreement in which time is an element. (j) No Adverse Construction. The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. * * * IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of the 1st day of June 1994. SABAN ENTERTAINMENT, INC. By \s\ Haim Saban ------------------------------------------------- \s\ Mel Woods -------------------------------------------------- MEL WOODS 23 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement (the "Amendment") is made and entered into as of September 26, 1996, by and between Saban Entertainment, Inc., a Delaware corporation ("SEI") and Mel Woods ("Woods"). R E C I T A L S ---------------- A. Woods and SEI are parties to that certain Employment Agreement, dated as of June 1, 1994 (the "Agreement"). All terms defined in the Agreement which are not defined in this Amendment shall have the same meanings when used in this Amendment. B. The parties hereto desire to amend the Agreement from and after the effective date of the initial public offering (the "Initial Public Offering") of Fox Kids Worldwide, Inc., a Delaware corporation ("Fox Kids Worldwide"). A G R E E M E N T ----------------- NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto agree that from and after the effective date of the Initial Public Offering, the following sections are amended as follows: 1. Expiration of Stock Option. From and after the effective date of the -------------------------- Initial Public Offering, Paragraph 5(f)(i) of the Agreement is amended by adding the following sentence at the end of such Paragraph. "As long as the option is not earlier exercised or terminated in accordance with the terms of this Agreement, the option shall expire on June 1, 2004." 2. Termination of Option. From and after the effective date of the --------------------- Initial Public Offering, Paragraph 5(f)(xii)(D) of the Agreement shall terminate and be of no further force or effect. 3. Effect of Amendment. Except as expressly modified herein, all terms ------------------- of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. SABAN ENTERTAINMENT, INC. By: /s/ Haim Saban ________________________________________ Its: Chairman and Chief Executive Officer ________________________________________ MEL WOODS /s/ Mel Woods ________________________________________ EX-10.10 14 SHUKI LEVY EMPLOYMENT AGREEMENT DATED 9/1/96 EXHIBIT 10.10 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is entered into as of the 1st day of June, 1996 by and between Fox Kids Worldwide, Inc., a Delaware corporation ("Company") and Shuki Levy ("Employee"): 1. ENGAGEMENT. Company hereby engages Employee to render services as Executive Vice-President and Supervising Producer of Live Action Programming of Company pursuant to the terms and conditions hereof, and Employee hereby accepts such engagement. Concurrently with the execution of this Agreement, the parties hereto acknowledge the termination of that certain Loan Out Agreement dated as of January 1, 1995 by and between Saban Entertainment, Inc. and Arpeggio Productions, Inc. Employee shall report solely to Haim Saban, the Chairman and Chief Executive Officer of Company, subject to the overall direction and supervision of Company's Board of Directors; provided that from and after a "Change of Control," as defined in Section 12, below, Employee agrees that he may be required to report to some other person. If Employee is elected to the Board of Directors of Company, Employee agrees to accept such appointment. 2. NATURE AND PLACE OF SERVICES. Employee shall render all services usually and customarily rendered by and required of executives similarly employed in the entertainment industry and such other services as may be reasonably required by Company. The location of Employee's office shall be at Company's principal Southern California executive offices, which will be located at such place or places in Los Angeles County as the Board of Directors of Company shall from time to time designate; and the duties of Employee shall be performed at such offices, except for such travel as may from time to time be required. 3. EXCLUSIVITY. Employee shall work for Company and its affiliates during the Term hereof on a full-time, non-exclusive basis. Notwithstanding the foregoing, the Company and its affiliates shall have priority on Employee's services during the Term of this Agreement, and Employee shall not render services of any nature to or for any other person, firm or corporation in connection with children's entertainment during the Term of this Agreement without the prior written consent of Company. For so long as Employee is employed pursuant to the terms hereof, Employee shall not become financially interested in or associated with, directly or indirectly, any other person or entity engaged in the production, distribution or exhibition of motion pictures, television programs, phonograph recording, or any visual or audio recordings of any kind (except in connection with Employee's employment as a composer by Bubale Music and/or 5161 Corporation), or in the broadcasting or music publishing businesses, anywhere in the world; provided, that Employee may invest in the capital stock or other securities of any corporation whose stock or other securities are publicly owned or are regularly traded on any securities exchange or in the over-the-counter market, so long as Employee's ownership of such securities does not 1 exceed 5% of the issued and outstanding securities of such entity and Employee's holdings in any one such entity does not in the aggregate cost Employee more than $100,000. 4. TERM. The term of this Agreement ("Term") shall commence on June 1, 1996 and, subject to termination as hereinafter provided, expire with the close of business on May 31, 1999. Each consecutive year of the Term ending on May 31 shall be referred to as a "Term Year." 5. COMPENSATION. (a) Fixed Annual Compensation. The Company shall pay to Employee, as consideration for all services rendered by Employee pursuant to this Agreement fixed compensation of Five Hundred Thousand Dollars ($500,000) per year for each Term Year hereunder. (b) Stock Options. On June 1, 1994, Employee and Saban Entertainment, Inc. entered into a Stock Option Agreement, a copy of which is attached to this Agreement. The Stock Option Agreement shall continue in full force and effect during the Term, with all references therein to "Consultant" and "engagement" being deemed to refer to and include, respectively, Employee and his engagement hereunder. (c) Bonuses. The Company may in its discretion grant to Employee a discretionary bonus for each Term Year. (d) Employee Benefits. (i) Reimbursements. Company shall reimburse Employee for all ordinary and necessary business, entertainment and other expenses reasonably incurred by Employee in the performance of Employee's duties and obligations under this Agreement, including reimbursement for air travel and accommodations for business travel. Company agrees to repay or reimburse Employee for such business expenses upon the presentation of itemized statements of such business expenses in accordance with Company's policy. (ii) Annual Vacations. Employee shall be entitled to take four (4) weeks annual vacation for each Term Year. (iii) Health Insurance and Other Employee Benefits. Company shall provide Employee with health insurance for him and his dependents no less favorable in benefits than any other employee of Company. To the extent that Company establishes any other employee benefit plan which provides benefits to executives of Company generally, Employee shall be entitled to participate in 2 such plan pursuant to the terms thereof, except that Company may exclude Employee's participation in any plan which is a stock option plan or plan similar to a stock option plan. 6. [INTENTIONALLY DELETED] 7. REPRESENTATIONS AND WARRANTIES. (a) Representations of Employee. Employee represents and warrants that Employee has all right, power, authority and capacity, and is free, to enter into this Agreement; that by doing so Employee will not violate or interfere with the rights of any other person or entity; and that Employee is not subject to any contract, understanding or obligation which will or might prevent, interfere with or impair the performance of this Agreement by Employee. Employee will indemnify and hold Company harmless with respect to any losses, liabilities, demands, claims, fees, expenses, damages and costs (including attorneys fees and court costs) resulting from or arising out of any claim or action based upon Employee's entering into this Agreement. (b) Representations of Company. Company represents and warrants that Company has all right, power and authority, without the consent of any other person, to execute and deliver, and perform its obligations under, this Agreement. All corporate and other actions required to be taken by Company to authorize the execution, delivery and performance of this Agreement and the consummation of all transactions contemplated hereby have been duly and properly taken. This Agreement is the lawful, valid and legally binding obligation of Company, enforceable in accordance with its terms. (c) Materiality of Representations. The representations, warranties and covenants set forth in this Agreement shall be deemed to be material and to have been relied upon by the parties hereto. 8. RELATIONSHIP AND COVENANTS OF EMPLOYEE. (a) Covenant Not To Disclose. Employee shall not at any time during or after the termination of the Term, knowingly reveal, divulge or make known to any person (other than the Company or its affiliates) or use for Employee's own account any non-public information concerning or used by Company of which Employee was apprised or otherwise had become aware during the term of Employee's employment by Company (excluding any such information which becomes public for reasons other than Employee's breach of this Agreement or which Employee is required to disclose by law). 3 (b) Covenant to Deliver Records. All memoranda, notes, records and other documents made or compiled by Employee, or made available to Employee during the term of this Agreement concerning the business of Company shall be Company's property and shall be delivered to Company on the termination of this Agreement or at any other time on request. Employee shall keep in confidence and shall not use for Employee or others, or divulge to others, any secret or confidential information, knowledge or data of Company obtained by Employee as a result of Company's employment, unless authorized by Company or required by law. Employee shall be entitled to retain for his own records copies of any and all memoranda, notes, records and other documents made or compiled by Employee during the Term of this Agreement. (c) Covenant Not To Divert. Employee shall not so long as Employee is employed hereunder, or if such employment shall terminate during or at the expiration of the Term, for a period of two years following such termination, directly or indirectly, either on Employee's own behalf, or as a member of a partnership, joint venture or corporation, or as an employee or agent on behalf of any person, firm, partnership, joint venture or corporation, either (i) solicit, induce (or attempt to induce), or endeavor to entice away any clients of Company (unless Company consents in writing), (ii) solicit, divert, or seek to develop or exploit any existing entertainment projects on which Company is working at the time of termination (unless Company thereafter advises Employee in writing that it has abandoned such project), or (iii) solicit, interfere with, induce (or attempt to induce) or endeavor to entice away any employee (other than Employee's assistant) associated with Company to become affiliated with him or any other person, firm, partnership, joint venture, corporation or business organization. (d) Limitations Upon Covenants. The provisions under this Paragraph 8 shall survive the termination of this Agreement. The parties hereto agree that, in the event any of the provisions set forth in this Paragraph 8 are held by any court or other duly constituted legal authority to be effective in any particular area or jurisdiction only if modified to limit their duration or scope or to be void or otherwise unenforceable in any particular area or jurisdiction, then such provisions shall be deemed amended and modified with respect to that particular area or jurisdiction so as to comply with the order of any such court or other duly constituted legal authority and, as to all other areas and jurisdictions, and as to all other provisions of this Paragraph 8, such provisions shall remain in full force and effect as set forth in this Agreement. (e) Remedies. Employee acknowledges that Company will have no adequate remedy at law if Employee violates the terms of the provisions of this Paragraph 8 or any other provisions of this 4 Agreement (including, without limitation, the exclusivity provisions of Paragraph 3, above). In such event, Company shall have the right, in addition to any other rights it may have, to obtain in any court of competent jurisdiction injunctive relief to restrain any breach or threatened breach or specific performance of this Agreement. 9. CERTAIN RIGHTS OF COMPANY. (a) Announcement. Company shall have the sole right to make a public announcement of the terms, provisions, or execution of this Agreement. (b) Use of Name, Likeness, and Biography. Company shall have the right (but not the obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved likeness and approved biographical material of Employee to advertise, publicize and promote the business of Company and of affiliates, but not for the purposes of direct endorsement without Employee's consent. An "approved likeness" and "approved biographical material" shall be, respectively, any photograph or other depiction of Employee, or any biographical information or life story concerning the professional career of Employee, which has been submitted to and approved by Employee prior to its first use, publication or broadcast, such approval not to be unreasonably withheld. (c) Corporate Offices. In addition to his positions as Executive Vice- President and Supervising Producer of Live Action Programming of the Company, Company or its affiliates may from time to time appoint Employee to one or more corporate offices of Company or its affiliates. Employee agrees to accept such offices if consistent with Employee's stature and experience. (d) Right to Insure. Company shall have the right to secure in its own name, or otherwise, and at its own expense, life, health, accident or other insurance covering Employee, and Employee shall have no right, title or interest in and to such insurance. Employee shall assist Company in procuring such insurance by submitting to examinations and by signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance. 10. TERMINATION. (a) Disability. If Employee shall be rendered incapable by illness (physical or mental disability) of complying with the terms, provisions and conditions hereof on his part to be performed for a period in excess of 90 consecutive days or 250 days in the aggregate during the Term, then Company may, at its option, prior 5 to the date Employee resumes the rendering of services, terminate this Agreement by written notice to that effect sent by registered or certified mail. Such termination shall terminate any and all obligations to Employee under this Agreement effective as of the date of such written notice except Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice. (b) Death. In the event Employee dies during the Term of this Agreement, such death shall terminate any and all obligations to Employee under this Agreement effective as of the date of death except Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of death falls, pro-rated to the date of death. (c) Cause. Company may terminate Employee's employment hereunder for cause, which shall mean (i) indictment of Employee for a felony or a crime involving a high degree of moral turpitude, (ii) the commission by Employee of an act or acts of dishonesty constituting a crime, which act or acts are intended to result, directly or indirectly, in gain or personal enrichment at the expense of Company or any of its subsidiaries or affiliates by Employee, (iii) certification by a medical doctor that Employee is a habitual alcoholic or is a narcotic addict, (iv) Employee's material breach of this Agreement. Such termination shall terminate any and all obligations to Employee under this Agreement effective as of the date of such written notice except Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice. (d) At Convenience of Company. Company shall have the absolute and unconditional right to terminate Employee's employment hereunder at any time, other than pursuant to Paragraphs 10(a), 10(b) or 10(c), by written notice to that effect delivered in person or sent by registered or certified mail. Such termination shall terminate any and all obligations to Employee under this Agreement effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, and (ii) Employee's right to receive the Severance Pay provided in, and subject to the terms and conditions of, Paragraph 11 hereof. (e) At Employee's Election. Employee may terminate his employment hereunder upon Company's material breach of this Agreement by written notice to that effect delivered in person or sent by registered or certified mail. Such termination shall terminate any and all obligations of Company to Employee under this 6 Agreement, including liabilities with respect to such breach, effective as of the date of such written notice except (i) Employee's right to receive the Fixed Salary in Paragraph 5(a) for the Term Year in which the date of such written notice falls, pro-rated to the date of such written notice, and (ii) Employee's right to receive the Severance Pay provided in, and subject to the terms and conditions of, Paragraph 11 hereof. 11. SEVERANCE PAY. In the event Employee's services are terminated by Company pursuant to Paragraph 10(d) or by Employee pursuant to Paragraph 10(e) above prior to the completion of the Term, Employee shall receive Employee's fixed salary set forth in Paragraph 5(a) hereof for the balance of the Term, payable in equal installments no less frequently than semi-monthly. The termination benefits contemplated by this Paragraph shall be reduced by the aggregate amount of any wages, salaries, fees or other compensation ("Earnings") earned by Employee during the period in which payments pursuant to the first sentence of this Paragraph are otherwise to be made, as compensation for full- time or part-time services rendered as an employee, consultant, manager, independent contractor or in any other employment capacity. For the purposes of determining the amount of such Earnings, if any, Employee shall apprise Company from time to time, upon its request, of such amounts earned, providing to Company such evidence thereof (on a confidential basis), including, without limitation, Employee's federal and state income tax returns, as Company may reasonably request. 12. CHANGE OF CONTROL. (a) For the purposes of this Section 12, the following definitions shall apply: The following events shall each constitute a "Change of Control" of Company: (i) the acquisition of one or more shares of the voting securities of Company by any Acquiring Person, or any group of two or more Acquiring Persons acting in concert, as a result of which such Person or group beneficially owns fifty percent (50%) or more of the issued and outstanding voting securities of Company; (ii) the consolidation with, or merger with or into, any other entity, by Company and, in connection with such merger or consolidation, Company is not the continuing or surviving entity; (iii) the sale or transfer by other means by Company in one transaction or a series of related transactions, of assets or earning power aggregating fifty percent (50%) or more of the assets or earning power of Company and its subsidiaries (taken as a whole and calculated on the basis of Company's most recent regularly prepared financial statements) to any other person or persons (but excluding sales of inventory in the ordinary course of business). The determination as to which party to a merger or consolidation is 7 the "continuing" or "surviving" corporation shall be made on the basis of the relative equity interests of the shareholders in the corporation existing after the merger or consolidation, as follows: if following any merger or reorganization, the holders of outstanding voting securities of Company immediately prior to the merger or consolidation beneficially own fifty percent (50%) or more of the voting power of the entity existing following the merger or consolidation, then for purposes of this Agreement, Company shall be the survivor or continuing corporation. In making the determination of beneficial ownership by the shareholders of a corporation immediately after the merger or consolidation, of equity securities which the shareholders owned immediately before the merger or consolidation, shares which they beneficially owned as shareholders of another party to the transaction shall be disregarded. "Acquiring Person" shall mean any individual, corporation, partnership, limited liability company or other entity or group other than Haim Saban or any other of the Saban Entities, Employee or Company or any of its wholly-owned subsidiaries. "Beneficial Ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. (b) If, in the event of a Change of Control of Company, any Acquiring Person or other person or group proposing to acquire control of Company and/or the business of Company (the "Proposed Acquiror") objects to any of the terms of this Agreement, Employee agrees to negotiate in good faith with Company to amend this Agreement in such manner as to make it acceptable to the Proposed Acquiror. Haim Saban and Company shall in any event use their best efforts to cause the Proposed Acquiror to accept the terms of this Agreement. 13. ARBITRATION. (a) The terms of this Paragraph 13 contain the sole and exclusive method, means and procedure to resolve any and all claims, disputes or disagreements arising under this Agreement, except those arising under the provisions of Paragraph 8, above. The parties irrevocably waive any and all rights to the contrary and shall at all times conduct themselves in accordance with the terms of this Paragraph 13; any attempt to circumvent the terms of this Paragraph 13 shall be null and void and of no force or effect. (b) Within ten (10) days after delivery of written notice (the "Notice of Dispute") of the existence and nature of any dispute given by any party to the other party, and unless otherwise 8 provided herein in any specific instance, the parties shall each (i) appoint one (1) lawyer actively engaged in the licensed and full time practice of law in the County of Los Angeles for a continuous period immediately preceding the date of delivery (the "Dispute Date") of the Notice of Dispute of not less than ten (10) years, but who has at no time ever represented or acted on behalf of any of the parties, and (ii) deliver written notice of the identity of such lawyer and a copy of his or her written acceptance of such appointment and acknowledgment of and agreement to be bound by the time constraints and other terms of this Paragraph 13 (the "Acceptance") to the other party hereto. In the event that any party fails to so act, that party's arbitrator shall be appointed pursuant to the same procedure that is followed when agreement cannot be reached as to the third arbitrator. Within ten (10) days after such appointment and notice, such lawyers shall appoint a third lawyer (who, together with the first two (2) lawyers, shall hereinafter be referred to collectively as the "Arbitration Panel") of the same qualification and background as the first two (2) lawyers (including the qualification that he or she has at no time ever represented or acted on behalf of any of the parties) and shall deliver written notice of the identity of such lawyers and a copy of his or her written Acceptance of such appointment to each of the parties. If agreement cannot be reached on the appointment of a third lawyer within such period, such appointment and notification shall be made as rapidly as possible by any court of competent jurisdiction, by any licensing authority, agency or organization having jurisdiction over such lawyers, by any professional association of lawyers in existence for not less than ten (10) years at the time of such dispute or disagreement and the geographical membership boundaries of which extend to the County of Los Angeles, or by any arbitration association or organization in existence for not less than ten (10) years at the time of such dispute or disagreement and the geographic boundaries of which extend to the County of Los Angeles, as determined by the party giving such Notice of Dispute and simultaneously confirmed in writing delivered by such party to the other party. Any such court, authority, agency, association or organization shall be entitled either to directly select such third lawyer or to designate in writing delivered to each of the parties an individual who shall do so. In the event of any subsequent vacancies or inabilities to perform among the Arbitration Panel, the lawyer or lawyers involved shall be replaced in accordance with the terms of this Paragraph 13 as if such replacement was an initial appointment to be made under this Paragraph 13 within the time constraints set forth in this Paragraph 13, measured from the date of notice of such vacancy or inability to the person or persons required to make such appointment, with all attendant consequences of failure to act timely if such appointment is not so made. Unless the parties shall otherwise agree, all arbitration proceedings shall be conducted at such location within Los Angeles County as the members of the 9 Arbitration Panel shall by majority vote from time to time designate. (c) Consistent with the terms of this Paragraph 13, the members of the Arbitration Panel shall utilize their utmost skill and shall apply themselves diligently so as to hear and decide, by majority vote, the outcome and resolution of any dispute or disagreement submitted to the Arbitration Panel as promptly as possible, but in any event on or before the expiration of sixty (60) days after the appointment of the members of the Arbitration Panel. None of the members of the Arbitration Panel shall have any liability whatsoever for any acts or omissions performed or omitted in good faith pursuant to the provisions of this Article. (d) The Arbitration Panel shall (i) enforce and interpret the rights and obligations set forth in this Agreement to the extent not prohibited by law, (ii) fix and establish any and all rules as it shall consider appropriate in its sole and absolute discretion to govern the proceedings before it, including any and all rules of discovery, procedure and/or evidence, provided however, that such rules shall be consistent with such rules established by the American Arbitration Association and (iii) make and issue any and all orders, final or otherwise, and any all awards, as a court of competent jurisdiction sitting at law or in equity could make and issue and as it shall consider appropriate in its sole and absolute discretion, including the awarding of monetary damages (but specifically excluding the awarding of consequential, punitive or exemplary damages or the awarding of attorneys' fees and costs to either party) to the prevailing party as determined by the Arbitration Panel in its sole and absolute discretion, and the issuance of injunctive relief. (e) The decision of the Arbitration Panel shall be final and binding, and may be confirmed and entered by any court of competent jurisdiction at the request of any party and may not be appealed to any court of competent jurisdiction or otherwise, except upon a claim of fraud on the part of any member of the Arbitration Panel (except as to the arbitrator chosen by the party claiming the fraud), or on the basis of a manifest error as to the applicable law. The Arbitration Panel shall retain jurisdiction over any dispute until its award has been implemented, and judgment on any such award may be entered in any court having appropriate jurisdiction and may be enforced against either party and its assets pursuant to applicable laws and procedures. (f) Each member of the Arbitration Panel (i) shall be compensated for any and all services rendered under this Paragraph 13 at a rate of compensation equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum shall be increased each year in accordance with annual increases in the Consumer Price Index for 10 Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim-Riverside, California 1982-84 = 100 ("CPI"), and (ii) shall be reimbursed for any and all expenses incurred in connection with the rendering of such services, payable in full promptly upon conclusion of the proceedings before the Arbitration Panel. Such compensation and reimbursement shall be borne by the non-prevailing party as determined by the Arbitration Panel in its sole and absolute discretion, unless the Arbitration Panel does not make a determination that one of the parties is the prevailing party, in which case the parties shall bear the cost as fixed by the Arbitration Panel. 14. INDEMNIFICATION. Concurrent with the execution and delivery of this Agreement, Company and Employee have entered into an Indemnification Agreement, pursuant to which, inter alia, Company has agreed, on the terms and conditions ----- ---- therein set forth, to indemnify Employee against certain claims arising by reason of the fact that he is or was an officer or director of Company. 15. GENERAL. (a) Assignment; Successors; Affiliates. Company may assign this Agreement (or the interest of Company therein) to any affiliate of Company or to any entity which is a party to a merger, reorganization, or consolidation with Company or to a subsidiary of Company or to an entity or entities acquiring substantially all of the assets of Company or of any division with respect to which Employee is providing services (providing any such assignee assumes Company's obligations under this Agreement). Employee shall, if requested by Company, perform Employee's services and duties, as specified in this Agreement, to or for the benefit of any subsidiary or other affiliate of Company. Upon such assignment, acquisition, merger, consolidation, or reorganization, the term "Company" as used herein shall be deemed to refer to such assignee or such successor entity. Employee shall not have the right to assign Employee's interest in this Agreement, any rights under this Agreement or any duties imposed under this Agreement nor shall Employee (or Employee's spouse, heirs, beneficiaries, administrator's or executors) have the right to pledge, hypothecate or otherwise encumber Employee's right to receive compensation hereunder without the consent of Company. (b) Headings. The subject headings of the paragraphs and subparagraphs of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. (c) Severability. It is agreed that if any term, covenant, provision, paragraph or condition of this Agreement shall be illegal, such illegality shall not invalidate the whole 11 Agreement but it shall be construed as if not containing the illegal part, and the rights and obligations of the parties shall be construed and enforced accordingly. (d) Entire Agreement. The parties hereto agree that this Agreement supersedes all existing agreements between Company and Employee, whether oral, written, expressed or implied, and contains the entire understanding and agreement between the parties. This Agreement shall not be amended, modified, or supplemented in any respect except by a subsequent written agreement entered into by both parties hereto. (e) Choice of Law. This Agreement and the performance hereunder shall be construed in accordance with and under and pursuant to the internal substantive laws of the State of California applicable to agreements fully executed and to be performed entirely in such state. (f) Notices. All communications and notices hereunder shall be in writing and shall be deemed to have been duly given and delivered personally if sent by united States registered or certified mail, postage prepaid: If to Company: Fox Kids Worldwide, Inc. 10960 Wilshire Boulevard Los Angeles, California 90024 Attn: Haim Saban With a copy to: Matthew G. Krane, Esq. Attorney 2051 Hercules Drive Los Angeles, California 90046 If to Employee: Shuki Levy c/o Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, CA 90024 or to such other addresses as my be designated in writing by either of the parties. (g) No Joint Venture. Nothing herein contained shall constitute a partnership between or joint venture by the parties hereto or appoint any party the agent of any other party. No party shall hold itself out contrary to the terms of this paragraph and, 12 except as otherwise specifically provided herein, no party shall become liable for the representation, act or omission of any other party. This Agreement is not for the benefit of any third party who is not referred to herein and shall not be deemed to give any right or remedy to any such third party. (h) Contractual Nomenclature. All reference herein to "Dollars" or "$" shall mean Dollars of the United States of America, its legal tender for all debts public and private. Where used herein and to the extent appropriate, the masculine, feminine or neuter gender shall include the other two genders, the singular shall include the plural, and the plural shall include the singular. (i) Time of Essence. Time is of the essence of each provision in this Agreement in which time is an element. (j) No Adverse Construction. The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. * * * IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of the _____ day of September 1996. FOX KIDS WORLDWIDE, INC. By /s/ MEL WOODS --------------------------------- MEL WOODS /s/ SHUKI LEVY --------------------------------- SHUKI LEVY 13 STOCK OPTION AGREEMENT ---------------------- This STOCK OPTION AGREEMENT (this "Option Agreement") is made and entered into as of the 1st day of June, 1994 by and between Saban Entertainment, Inc., a Delaware corporation ("Company"), and Shuki Levy ("Consultant"): R E C I T A L S --------------- A. Consultant is currently engaged by Company as a consultant pursuant to an oral consulting agreement, terminable at will by either party, with or without cause; the parties intend to memorialize that agreement in the near future. If and when the agreement is memorialized, terms used herein will be defined consistent with the understanding of the parties as to their use and meaning herein. B. As used herein, "Term Year" means a period of twelve (12) consecutive calendar months ending on May 31 of each year. The first Term Year shall commence on the date of this Agreement. The "Term" shall be a period of five (5) consecutive years, commencing with the date of this Agreement. Company and Consultant agree as follows: 1. Subject to the terms and conditions hereof, including the vesting requirements under Paragraph 2, below, Company hereby grants to Consultant the option to purchase sixteen and three hundred twenty-seven one thousandths (16.327) shares ("Option Shares") of Company common stock at a purchase price of One Hundred Twenty-Two Thousand Four Hundred Ninety-Six Dollars and Forty-Eight Cents ($122,496.48) per share. 2. The option shall vest and be exercisable by Consultant with respect to one-fifth (1/5) of the Option Shares after the completion of the first Term Year, provided Consultant is then and has continuously been engaged by Company. The option shall vest and be exercisable by Consultant with respect to an additional one-fifth (1/5) of the Option Shares after the completion of each Term Year of the Term, provided Consultant is and has continuously been engaged by Company at the end of each such Term Year. Notwithstanding the foregoing: (A) if (I) Consultant dies during the Term or Consultant's engagement is terminated by reason of disability, (II) Consultant was until then continuously engaged by Company, and (III) the option has then vested and become exercisable with respect to less than one-half (1/2) of the Option Shares, then the option shall immediately vest and be exercisable by Consultant with respect to an additional number of Option Shares equal to one-half the Option Shares less the number of Option Shares which have theretofore vested and become exercisable; (B) if (I) Consultant's engagement is terminated during any Term Year other than for cause, death or disability, (II) Consultant was until then continuously engaged by Company, and (III) the option has then vested and become exercisable with respect to less than one-half (1/2) of the Option Shares, then the option shall immediately vest and be exercisable by Consultant with respect to an additional number of Option Shares equal to one-half the Option Shares less the number of Option Shares which have theretofore vested and become exercisable; and (C) if (I) Consultant's engagement is terminated during any Term Year other than for cause, death or disability, (II) Consultant was until then continuously engaged by Company, and (III) the option has then vested and become exercisable with respect to at least one-half (1/2) of the Option Shares, then the option shall, effective immediately prior to such termination, vest and be exercisable by Consultant with respect to that portion of the Option Shares which would have vested upon completion of the Term Year in which Consultant's termination occurs, had such termination not occurred. 3. Upon termination of Consultant's engagement with Company for any reason, Consultant shall be entitled to exercise only the portion of the option that has vested pursuant to Paragraph 2, above, as of the termination date. Nothing in this Paragraph 3 shall, however, be construed to limit any of 2 Consultant's rights or remedies in the event of Company's breach of this Agreement. 4. During Consultant's lifetime, the option may be exercised only by him and may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise) other than by will or the applicable laws of descent or distribution. If Consultant dies at a time when the option, or a portion thereof, is exercisable by him, the portion of the option that is then exercisable by him shall be exercisable by Consultant's executors, personal representatives, legatees or distributees, as applicable. 5. The option granted hereunder shall be exercised by Consultant by giving written notice to Company stating the number of Option Shares with respect to which the option is being exercised and tendering payment therefor in cash or by certified check. As a condition to the issuance of the Option Shares, Consultant shall (A) execute such further documents and instruments and take whatever acts are necessary in order for the issuance to be in compliance with all applicable federal and state securities laws, (B) enter into a shareholders agreement restricting the transferability of the Option Shares and providing for such other matters as the parties may agree, the terms of which shareholders agreement shall be negotiated in good faith, and (C) enter into a voting trust agreement or such other arrangement as is reasonably satisfactory to Company whereunder Haim Saban (or, in the event of Haim Saban's death, his successor) is granted the power to vote the Option Shares. As soon as reasonably practicable thereafter, a certificate representing the Option Shares with respect to which the option is exercised shall be delivered to Consultant. Such certificate may contain a legend thereon reflecting the restrictions set forth in subparagraphs (A), (B) and (C), above, and Paragraphs 9 and 10, below. 6. Consultant shall have none of the rights or privileges of a shareholder of Company in respect of any of the Option Shares, unless and until the purchase price for such Option Shares shall have been paid in full. 7. The number of Option Shares shall be appropriately adjusted for any increase or decrease in the number 3 of shares of issued and outstanding common stock of Company resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split-up, stock distribution or combination of shares, or payment of a share dividend or other increase or decrease in the number of such shares outstanding effected without receipt of consideration by Company. In the event of any such adjustment, the purchase price per share for the Option Shares as so adjusted shall be adjusted by dividing Two Million Dollars ($2,000,000) by the number of Option Shares as so adjusted. Upon a merger or consolidation of Company in which Company is not the surviving corporation or an exchange of all of the outstanding shares of common stock of Company or all or a substantial portion of the assets of Company for shares of another corporation or equity interests in a partnership, limited partnership, limited liability company or other entity (any such corporation and any such entity is referred to in this Paragraph 7 as a "corporation"), the successor or exchanging corporation shall assume all obligations under this Agreement and such option shall be converted into an option for a number of shares or other equity interests of the successor or exchanging corporation (or cash, property or such other consideration) that Consultant would have received if Consultant had owned the Option Shares on the effective date of such transaction, and the purchase price per share of the stock or other equity interests of the successor or exchanging corporation under such converted option shall be equal to Two Million Dollars ($2,000,000) divided by the number of shares of the stock or other equity interests of such successor or exchanging corporation to which the converted option applies (if, following such merger, consolidation or exchange, Consultant would receive non-share (or other equity interest) consideration upon exercise of the option, the purchase price to be paid upon exercise of the option shall be equal to Two Million Dollars ($2,000,000) multiplied by a fraction equal to that portion of the option then being exercised). Upon the dissolution or liquidation of Company other than following an asset transfer subject to this Paragraph 7, the option granted hereunder shall expire as of the effective date of such transaction, provided, however, that Company shall give at least sixty (60) days prior written notice of such event to Consultant during which time he shall have a right to exercise his unexercised vested option. 4 8. Upon the exercise of the option hereunder, Company shall have the right to require Consultant to remit to Company, prior to the issuance of any Option Shares, an amount sufficient to satisfy all federal, state and local withholding tax requirements. As soon as reasonably practicable following the "initial public offering" (as that term is defined in Paragraph 5(f)(xii) hereof), Company shall prepare, or cause to be prepared, and file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"), (or such successor form of registration statement as shall then have been adopted by the Commission) covering the offer and sale by Company of the Option Shares underlying the then unexercised portion of the option granted to Employee hereunder, and, to the extent permitted under such form, any Option Shares issued upon exercise of such option prior to the initial public offering; and Company shall use its best efforts during the term of the option to maintain such registration statement in effect, and to comply with the rules and regulations of the Commission applicable to securities covered by such registration statement, so that the issuance of any Option Shares upon exercise of the option shall be registered under the Act. 9. After Consultant's engagement with Company is terminated for any reason, Company shall purchase from Consultant and Consultant shall sell to Company any and all Option Shares owned by Consultant and the option granted to Consultant hereunder for an amount (the "Termination Purchase Price") equal to (A) the fair market value of the Option Shares owned by Consultant plus the fair market value of the Option Shares with respect to which Consultant's option has vested but has not been exercised, less (B) Consultant's purchase price, determined under Paragraph 1, above, for the Option Shares with respect to which Consultant's option has vested but has not been exercised. The fair market value of the Option Shares for purposes of the Termination Purchase Price shall be determined by mutual agreement of the parties as of the date of Consultant's termination of his engagement ("Termination Date"). In the event the parties are unable to reach agreement within thirty (30) days of the Termination Date, the fair market value of the Option Shares shall be determined by the following appraisal procedure: Each party shall appoint an appraiser by giving notice of such appointment to the other party within forty-five (45) days 5 from the Termination Date. Such appraiser shall be a certified public accountant practicing in the entertainment, licensing and television industries or such other person with experience in valuing companies in the entertainment, licensing and television businesses. If either party fails to appoint an appraiser within said time period, the other party's appointed appraiser shall be the sole appraiser. If both parties have so appointed appraisers, then within thirty (30) days from the appointment of both parties' appraisers, the appraisers so appointed shall appoint a third appraiser, with the same qualifications. The third appraiser (or the sole appraiser if either party fails to appoint an appraiser within the required time period) shall then determine the fair market value of the Option Shares within sixty (60) days after the appointment of the third appraiser (or within sixty (60) days after the failure by either party to appoint an appraiser within the required time period). The third appraiser, or such sole appraiser, as applicable, is referred to hereinbelow as the "Selected Appraiser." The determination of the Selected Appraiser shall be binding on the parties hereto. The costs and fees of the Selected Appraiser shall be borne equally by the parties hereto. Company shall give the Selected Appraiser reasonable access to its books and records to enable him or her to undertake his or her appraisal. Within ten (10) days after the parties' agreement on the fair market value of the Option Shares, or, failing such agreement, the notification by the Selected Appraiser of his or her appraisal, Company shall pay to Consultant ten percent (10%) of the Termination Purchase Price (the "Down Payment") and shall deliver to Consultant a promissory note (the "Note") for payment of the remainder of the Termination Purchase Price in nine (9) equal annual installments. The Note shall provide for the annual payment of interest on the outstanding balance of the remainder of the Termination Purchase Price at the rate per annum equal to the "prime" or "reference" rate charged by Company's principal bank (currently Imperial Bank), as determined from time to time. Concurrently with the payment of the Down Payment and delivery of the Note, Consultant shall execute and deliver to Company an assignment of the option in form reasonably satisfactory to Company and an assignment separate from certificate for the Option Shares, in each case free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. 6 10. Except as provided below, in the event Haim Saban, any member of his immediate family or any of his affiliated entities (collectively with Haim Saban and such family members, "Saban Entities") sells to a third party in a bona fide sale any of his or its shares of the common stock of Company ("Saban Shares"), the parties agree as follows: (a) Company shall purchase from Consultant and Consultant shall sell to Company the "Applicable Percentage," as defined below, of the Option Shares owned by Consultant for a per-share consideration equal to the per-share consideration paid by the third party for the Saban Shares. If the consideration paid by the third party for the Saban Shares includes non-cash consideration and/or deferred consideration, the consideration paid by Company to Consultant for the Option Shares sold by Consultant to Company under this subparagraph (a) shall consist of similar non-cash and/or deferred consideration in the same ratio as the non-cash and/or deferred consideration paid by the third party for the Saban Shares bears to the total consideration paid by the third party for the Saban Shares. The "Applicable Percentage" shall equal the percentage that the Saban Shares sold to the third party represents of the total shares of Company owned by the Saban Entities immediately prior to the sale. The purchase and sale of the Option Shares under this subparagraph (a) shall close no later than ten (10) days after the closing of the sale of the Saban Shares to the third party. Concurrently with the purchase and sale of the Option Shares under this subparagraph (a), Consultant shall execute and deliver to Company an assignment separate from certificate for the Option Shares, free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. a. Company shall pay to Consultant an amount equal to the Applicable Percentage (as defined in subparagraph (a) above) of (x) the per- share consideration paid by the third party for the Saban Shares multiplied by the number of Option Shares with respect to which Consultant's option has vested but has not been exercised, less (y) Consultant's purchase price, determined under Paragraph 1, above, for such Option Shares. If the consideration paid by the third party for the Saban Shares includes non-cash consideration and/or deferred consideration, the payment by Company to Consultant under this subparagraph (b) shall consist of similar non-cash and/or deferred consideration in the same ratio as the 7 non-cash and/or deferred consideration paid by the third party for the Saban Shares bears to the total consideration paid by the third party for the Saban Shares. The payment under this subparagraph (b) shall be made no later than ten (10) days after the closing of the sale of the Saban Shares to the third party. b. The number of Option Shares Consultant shall have the option to purchase pursuant to this Agreement shall immediately be reduced by a number of shares of Company equal to the Applicable Percentage (as defined in subparagraph (a), above) of the Option Shares with respect to which Consultant's option has vested but has not been exercised. Such reduction shall reduce only the Option Shares with respect to which Consultant's option has vested but has not been exercised and shall not reduce any Option Shares with respect to which Consultant's option has not then vested. d. If in connection with any sale of Saban Shares subject to this Paragraph 10, Haim Saban is required to enter into an agreement which includes provisions restricting his ability to compete, directly or indirectly (including, without limitation, through an ownership or licensing arrangement with a competitor or potential competitor of Company), with Company ("noncompetition provisions"), and if the purchaser of the Saban Shares so requires, Consultant shall, in connection with the sale of the Option Shares and payment for vested options under this Paragraph 10, execute and deliver to Company and such purchaser an agreement, in form and substance reasonably acceptable to the purchaser, which agreement shall contain noncompetition provisions, the scope, duration, terms and provisions of which are substantially identical to the noncompetition provisions contained in Haim Saban's agreement; provided, that no separate payment will be required to be made to Consultant on account of such agreement. This Paragraph 10 shall not apply to (i) any sale by a Saban Entity pursuant to an "initial public offering" (as defined in Paragraph 12) of the common stock of the Company or (ii) any transaction subject to Paragraph 7, above. 11. The obligations of Company to make any payment or payments to Consultant with respect to the purchase of Option Shares by Company (including any payments under the Note) 8 are subject to the satisfaction by Company of any applicable statutory provisions restricting Company's ability to make such payments, including, without limitation, Section 160 of the Delaware General Corporation Law and Chapter 5 of the California General Corporation Law, and if and to the extent that under those provisions, any such payment would expose the directors of Company to any liability, or would be unlawful, Company shall deliver to Consultant, in lieu of such payment, a promissory note with terms identical to the Note, which note shall be due and payable at the earliest practicable date thereafter when such payment would not be violative of such statutory provisions. 12. Notwithstanding any provision of this Paragraph Agreement to the contrary, following the earlier to occur of (I) the first closing of an offer and sale of shares of the common stock of Company (whether such shares are sold by Company, existing stockholders or both) for cash pursuant to a firmly underwritten public offering effected pursuant to a registration statement filed by Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (or such successor legislation as shall then be in effect) or (II) the date upon which the shares of common stock of Company are first authorized for quotation on the Nasdaq National Market, or listed on the New York Stock Exchange or American Stock Exchange (either event, an "initial public offering"): (A) the provisions of Paragraphs 9 and 10 shall terminate and be of no further force or effect; (B) the provisions of any voting trust agreement entered into pursuant to Paragraph 5(C) shall not prevent or restrict Consultant's right to sell and transfer any of the Option Shares free and clear of the obligations therein set forth; (C) the option shall terminate and expire, to the extent not theretofore exercised, (x) if Consultant's engagement with Company is terminated for any reason other than for "cause", on the first anniversary of such termination, and (y) if Consultant's engagement with Company is terminated for "cause", on 9 the thirtieth (30th) day following the date of such termination; and (D) after Consultant's engagement with Company is terminated for any reason, Company shall have the right and option, exercisable at any time prior to the date of expiration of the option by delivery of written notice of such exercise to Consultant, to purchase from Consultant, and if such option is exercised, Consultant shall sell to Company, any and all Option Shares owned by Consultant on the date of receipt of the notice of exercise (or acquired thereafter upon exercise of the option and prior to the closing of such purchase) and the option granted to Consultant hereunder for an amount equal to the "Termination Purchase Price," as defined in and determined pursuant to the procedures provided in Paragraph 9, above; and within ten (10) days after the parties' agreement on the fair market value of the Option Shares, or, failing such agreement, the notification by the Selected Appraiser of his or her appraisal, Company shall pay the Termination Purchase Price to Consultant, against delivery by Consultant to Company of an assignment of the option in form reasonably satisfactory to Company and an assignment separate from certificate for the Option Shares, in each case free and clear of any and all liens, claims, encumbrances and restrictions of any type, kind or nature. 13. ARBITRATION. (a) The terms of this Paragraph 13 contain the sole and exclusive method, means and procedure to resolve any and all claims, disputes or disagreements arising under this Agreement, except those arising under the provisions of Paragraph 9, above. The parties irrevocably waive any and all rights to the contrary and shall at all times conduct themselves in accordance with the terms of this Paragraph 13; any attempt to circumvent the terms of this Paragraph 13 shall be null and void and of no force or effect. (b) Within ten (10) days after delivery of written notice (the "Notice of Dispute") of the existence and nature of any dispute given by any party to the other party, and unless otherwise provided herein in any specific instance, the parties shall each 10 (i) appoint one (1) lawyer actively engaged in the licensed and full time practice of law in the County of Los Angeles for a continuous period immediately preceding the date of delivery (the "Dispute Date") of the Notice of Dispute of not less than ten (10) years, but who has at no time ever represented or acted on behalf of any of the parties, and (ii) deliver written notice of the identity of such lawyer and a copy of his or her written acceptance of such appointment and acknowledgment of and agreement to be bound by the time constraints and other terms of this Paragraph 13 (the "Acceptance") to the other party hereto. In the event that any party fails to so act, that party's arbitrator shall be appointed pursuant to the same procedure that is followed when agreement cannot be reached as to the third arbitrator. Within ten (10) days after such appointment and notice, such lawyers shall appoint a third lawyer (who, together with the first two (2) lawyers, shall hereinafter be referred to collectively as the "Arbitration Panel") of the same qualification and background as the first two (2) lawyers (including the qualification that he or she has at no time ever represented or acted on behalf of any of the parties) and shall deliver written notice of the identity of such lawyers and a copy of his or her written Acceptance of such appointment to each of the parties. If agreement cannot be reached on the appointment of a third lawyer within such period, such appointment and notification shall be made as rapidly as possible by any court of competent jurisdiction, by any licensing authority, agency or organization having jurisdiction over such lawyers, by any professional association of lawyers in existence for not less than ten (10) years at the time of such dispute or disagreement and the geographical membership boundaries of which extend to the County of Los Angeles, or by any arbitration association or organization in existence for not less than ten (10) years at the time of such dispute or disagreement and the geographic boundaries of which extend to the County of Los Angeles, as determined by the party giving such Notice of Dispute and simultaneously confirmed in writing delivered by such party to the other party. Any such court, authority, agency, association or organization shall be entitled either to directly select such third lawyer or to designate in writing delivered to each of the parties an individual who shall do so. In the event of any subsequent vacancies or inabilities to perform among the Arbitration Panel, the lawyer or 11 lawyers involved shall be replaced in accordance with the terms of this Paragraph 13 as if such replacement was an initial appointment to be made under this Paragraph 13 within the time constraints set forth in this Paragraph 13, measured from the date of notice of such vacancy or inability to the person or persons required to make such appointment, with all attendant consequences of failure to act timely if such appointment is not so made. Unless the parties shall otherwise agree, all arbitration proceedings shall be conducted at such location within Los Angeles County as the members of the Arbitration Panel shall by majority vote from time to time designate. (c) Consistent with the terms of this Paragraph 13, the members of the Arbitration Panel shall utilize their utmost skill and shall apply themselves diligently so as to hear and decide, by majority vote, the outcome and resolution of any dispute or disagreement submitted to the Arbitration Panel as promptly as possible, but in any event on or before the expiration of sixty (60) days after the appointment of the members of the Arbitration Panel. None of the members of the Arbitration Panel shall have any liability whatsoever for any acts or omissions performed or omitted in good faith pursuant to the provisions of this Article. (d) The Arbitration Panel shall (i) enforce and interpret the rights and obligations set forth in this Agreement to the extent not prohibited by law, (ii) fix and establish any and all rules as it shall consider appropriate in its sole and absolute discretion to govern the proceedings before it, including any and all rules of discovery, procedure and/or evidence, provided however, that such rules shall be consistent with such rules established by the American Arbitration Association and (iii) make and issue any and all orders, final or otherwise, and any all awards, as a court of competent jurisdiction sitting at law or in equity could make and issue and as it shall consider appropriate in its sole and absolute discretion, including the awarding of monetary damages (but specifically excluding the awarding of consequential, punitive or exemplary damages or the awarding of attorneys' fees and costs to either party) to the prevailing party as determined by the Arbitration Panel in its sole and absolute discretion, and the issuance of injunctive relief. 12 (e) The decision of the Arbitration Panel shall be final and binding, and may be confirmed and entered by any court of competent jurisdiction at the request of any party and may not be appealed to any court of competent jurisdiction or otherwise, except upon a claim of fraud on the part of any member of the Arbitration Panel (except as to the arbitrator chosen by the party claiming the fraud), or on the basis of a manifest error as to the applicable law. The Arbitration Panel shall retain jurisdiction over any dispute until its award has been implemented, and judgment on any such award may be entered in any court having appropriate jurisdiction and may be enforced against either party and its assets pursuant to applicable laws and procedures. (f) Each member of the Arbitration Panel (i) shall be compensated for any and all services rendered under this Paragraph 13 at a rate of compensation equal to the sum of Two Hundred Fifty Dollars ($250.00) per hour, which sum shall be increased each year in accordance with annual increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-Anaheim- Riverside, California 1982-84 = 100 ("CPI"), and (ii) shall be reimbursed for any and all expenses incurred in connection with the rendering of such services, payable in full promptly upon conclusion of the proceedings before the Arbitration Panel. Such compensation and reimbursement shall be borne by the non-prevailing party as determined by the Arbitration Panel in its sole and absolute discretion, unless the Arbitration Panel does not make a determination that one of the parties is the prevailing party, in which case the parties shall bear the cost as fixed by the Arbitration Panel. 14. GENERAL. A. Assignment; Successors; Affiliates. Company may assign this Agreement (or the interest of Company therein) to any affiliate of Company or to any entity which is a party to a merger, reorganization, or consolidation with Company or to a subsidiary of Company or to an entity or entities acquiring substantially all of the assets of Company or of any division with respect to which Consultant is providing services (providing any such assignee 13 assumes Company's obligations under this Agreement). Consultant shall, if requested by Company, perform Consultant's services and duties, as specified in this Agreement, to or for the benefit of any subsidiary or other affiliate of Company. Upon such assignment, acquisition, merger, consolidation, or reorganization, the term "Company" as used herein shall be deemed to refer to such assignee or such successor entity. Consultant shall not have the right to assign Consultant's interest in this Agreement, any rights under this Agreement or any duties imposed under this Agreement nor shall Consultant (or Consultant's spouse, heirs, beneficiaries, administrator's or executors) have the right to pledge, hypothecate or otherwise encumber Consultant's right to receive compensation hereunder without the consent of Company. B. Headings. The subject headings of the paragraphs and subparagraphs of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. C. Severability. It is agreed that if any term, covenant, provision, paragraph or condition of this Agreement shall be illegal, such illegality shall not invalidate the whole Agreement but it shall be construed as if not containing the illegal part, and the rights and obligations of the parties shall be construed and enforced accordingly. D. Entire Agreement. The parties hereto agree that this Agreement supersedes all existing agreements between Company and Consultant, whether oral, written, expressed or implied, and contains the entire understanding and agreement between the parties. This Agreement shall not be amended, modified, or supplemented in any respect except by a subsequent written agreement entered into by both parties hereto. E. Choice of Law. This Agreement and the performance hereunder shall be construed in accordance with and under and pursuant to the internal substantive laws of the State of California applicable to agreements fully executed and to be performed entirely in such state. 14 F. Notices. All communications and notices hereunder shall be in writing and shall be deemed to have been duly given and delivered personally if sent by united States registered or certified mail, postage prepaid: If to Company: Saban Entertainment, Inc. 4000 West Alameda Avenue Burbank, California 91505 Attn: Haim Saban With a copy to: Matthew G. Krane, Esq. Attorney 2051 Hercules Drive Los Angeles, California 90046 If to Consultant: Shuki Levy ------------------------ ------------------------ or to such other addresses as my be designated in writing by either of the parties. G. No Joint Venture. Nothing herein contained shall constitute a partnership between or joint venture by the parties hereto or appoint any party the agent of any other party. No party shall hold itself out contrary to the terms of this paragraph and, except as otherwise specifically provided herein, no party shall become liable for the representation, act or omission of any other party. This Agreement is not for the benefit of any third party who is not referred to herein and shall not be deemed to give any right or remedy to any such third party. H. Contractual Nomenclature. All reference herein to "Dollars" or "$" shall mean Dollars of the United States of America, its legal tender for all debts public and private. Where 15 used herein and to the extent appropriate, the masculine, feminine or neuter gender shall include the other two genders, the singular shall include the plural, and the plural shall include the singular. (i) Time of Essence. Time is of the essence of each provision in this Agreement in which time is an element. (j) No Adverse Construction. The rule that a contract is to be construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. * * * IN WITNESS WHEREOF, Company and Consultant have executed this Agreement as of the 1st day of June 1994. SABAN ENTERTAINMENT, INC. By /s/ Haim Saban ---------------------------- /s/ Shuki Levy ---------------------------- SHUKI LEVY 16 AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT This Amendment No. 1 to Stock Option Agreement (the "Amendment") is made and entered into as of September 26, 1996, by and between Saban Entertainment, Inc., a Delaware corporation ("SEI") and Shuki Levy ("Levy"). R E C I T A L S ---------------- A. Levy and SEI are parties to that certain Stock Option Agreement, dated as of June 1, 1994 (the "Agreement"). All terms defined in the Agreement which are not defined in this Amendment shall have the same meanings when used in this Amendment. B. The parties hereto desire to amend the Agreement from and after the effective date of the initial public offering (the "Initial Public Offering") of Fox Kids Worldwide, Inc., a Delaware corporation ("Fox Kids Worldwide"). A G R E E M E N T ----------------- NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto agree that from and after the effective date of the Initial Public Offering, the following sections are amended as follows: 1. Expiration of Stock Option. From and after the effective date of the -------------------------- Initial Public Offering, Paragraph 1. of the Agreement is amended by adding the following sentence at the end of such Paragraph. "As long as the option is not earlier exercised or terminated in accordance with the terms of this Agreement, the option shall expire on June 1, 2004." 2. Termination of Option. From and after the effective date of the --------------------- Initial Public Offering, Paragraph 12(D) of the Agreement shall terminate and be of no further force or effect. 3. Effect of Amendment. Except as expressly modified herein, all terms ------------------- of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. SABAN ENTERTAINMENT, INC. By: /s/ Mel Woods _________________________ Its: President ________________________ SHUKI LEVY /s/ Shuki Levy _________________________ EX-10.11 15 LLC FORMATION AGREEMENT DATED 11/1/95 EXHIBIT 10.11 LLC FORMATION AGREEMENT THIS LLC FORMATION AGREEMENT (the "Agreement") is made and entered into as of November 1, 1995 by Saban Entertainment, Inc., a Delaware corporation ("SEI"), FCN Holding Company, a Delaware corporation ("FCNH") and Fox Broadcasting Company, Inc., a Delaware corporation ("FBC"). R E C I T A L S - - - - - - - - A. SEI, FCNH and FBC desire to maximize their respective long-term strategic values, and have determined that it would be in their respective best interests to achieve this objective by entering into a strategic alliance for the purpose of sharing with each other their strengths, to the mutual benefit of all of them all on the terms and conditions of this Agreement, all of the agreements attached hereto as exhibits and all of the other agreements referred to herein or therein (collectively, the "Alliance Agreements"). B. In connection with the foregoing, SEI, FCNH and FBC desire to cause the formation of FOX KIDS COMPANY L.L.C. (the "Management Company"), as a limited liability company under the Delaware Limited Liability Company Act (the "Act"), on the terms and conditions hereof. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing facts and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. ORGANIZATION OF THE MANAGEMENT COMPANY. On the terms and subject to the conditions set forth in this Agreement, at the "Closing" (as defined in Section 2): 1.1 ORGANIZATION OF THE MANAGEMENT COMPANY. FCNH, FBC and SEI shall -------------------------------------- form the Management Company under the Act pursuant to the terms of an Operating Agreement, substantially in the form of Exhibit "A" hereto (the "Operating ----------- Agreement"); and 1.2 CONTRIBUTIONS; ACQUISITION OF MEMBERSHIP INTERESTS. FBC shall -------------------------------------------------- execute and deliver to the Management Company an Asset Assignment Agreement, substantially in the form of Exhibit "B" (the "Asset Assignment Agreement") and ----------- fully perform all obligations, and deliver all cash, documents, agreements and other assets, to be performed or delivered at the Closing pursuant to the Asset Assignment Agreement (the "FBC Contribution"); and each of SEI and FCNH shall pay and contribute $100,000 to the Management Company (the "Saban Contribution" and the "FCNH Contribution," respectively, and together with the FBC Contribution, the "Contributions"). In consideration for the FBC Contribution, FBC shall receive its Class A membership interest and in consideration for the Saban Contribution and the FCNH Contribution, SEI and FCNH, respectively, shall receive their respective Class B membership interests in the Management Company, all as provided in the Operating Agreement. 2. CLOSING. 2.1 THE CLOSING. The Closing of the formation and initial ----------- capitalization of the Management Company as provided in Section 1 (the "Closing") shall take place on December 14, 1995, at 10:00 a.m., Los Angeles time, at the offices of Troop Meisinger Steuber & Pasich, LLP, 10940 Wilshire Boulevard, Los Angeles, California, or at such other time or place as the parties hereto shall mutually determine; provided, however, that if any of the -------- ------- conditions set forth in this Agreement have not been satisfied or waived on or prior to that date, the Closing shall take place on the second business day following satisfaction or waiver of all of such conditions, or at such other time or place as the parties hereto shall mutually agree. The date of the Closing is referred to herein as the "Closing Date." 2.2 ACTIONS OF THE PARTIES AT THE CLOSING. In addition to the ------------------------------------- Contributions provided in Section 1.2, at or prior to the Closing, SEI, FBC and FCNH shall (i) cause a Certificate of Formation of the Management Company to be filed as required under the Act; (ii) execute and deliver among themselves, and the other parties, if any, thereto, the Operating Agreement and each of the other Alliance Agreements to which such Person is a party; and (iii) cause the Management Company to execute and deliver each of the Alliance Agreements to which it is a party. 2.3 FURTHER ASSURANCES. From and after the date hereof, each of the ------------------ parties shall do such acts and things, and, in connection therewith, execute and deliver such documents and instruments, as may be required to effect and otherwise carry out the purposes of this Agreement and the transactions contemplated hereby, including using its best efforts to obtain all necessary waivers, consents and approvals, executing and delivering all such documents, and effecting all necessary registrations, filings and applications, including, without limitation, effecting all required filings, if any, under the Hart- Scott-Rodino Antitrust Improvements Act of 1986 ("HSR Act") and using its best efforts to respond to any requests or inquiries from any government or government agency (each, a "Governmental Entity") with respect thereto. Without limiting the generality of the foregoing, if and to the extent that any Governmental Entity or other Person demands, as a condition to 2 granting any such waiver, consent or approval, that the parties hereto, or either of them, execute any agreements or perform or refrain from performing any acts or actions, including, without limitation, the disposition by the parties of any assets, or restrictions on or modifications to the terms of the Operating Agreement or any other Alliance Agreement, and if the parties are unable to agree upon the course of action to be taken with respect thereto, the parties shall select and designate special counsel (whose firm shall not have represented either of the parties or any of their Affiliates within the prior three years) to represent the interests of the Management Company in respect thereto, and the parties shall take such acts as such counsel shall advise are mandatorily required in order to obtain such waivers, consents and/or approvals. 3. REPRESENTATIONS AND WARRANTIES. SEI represents and warrants to FCNH and FBC with respect to SEI; FCNH represents and warrants to SEI and FBC with respect to FCNH; and FBC represents and warrants to SEI and FCNH with respect to FBC (each of SEI, FBC and FCNH being separately referred to below as "Company") that, except as set forth in the Schedule of Exceptions with respect to that Company attached hereto as Schedules "SEI," "FBC" and "FCNH," the following statements are true and correct in all material respects as of the date hereof: 3.1 DUE INCORPORATION AND AUTHORITY. Company is a corporation duly ------------------------------- organized, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own its properties and to carry on its business as now conducted. 3.2 AUTHORIZATION; EXECUTION AND DELIVERY. Company has the requisite ------------------------------------- power and authority to execute and deliver this Agreement, and each of the Alliance Agreements to which it is to be a party, and to consummate the transactions pursuant hereto and thereto, and such execution, delivery and consummation has been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by Company and constitutes the valid and binding obligation of Company, enforceable against Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings at law or in equity) and each of the Alliance Agreements to which Company is a party, when executed and delivered by Company, will constitute the valid and binding obligation of Company, enforceable against Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the enforcement of creditors' rights 3 generally and by general equitable principles (whether enforcement is sought by proceedings at law or in equity). 3.3 NO VIOLATION OR CREATION OF RIGHTS. The execution and delivery ---------------------------------- of this Agreement and each of the Alliance Agreements to which it is a party by the Company and the performance by the Company of its obligations hereunder or thereunder does not and will not (a) violate, conflict with, or constitute or result in a breach of, any term, condition or provision of, or constitute a default (or an event which, with notice or the lapse of time, or both, would constitute a default), or result in the creation of any Lien upon any of its assets under this or (with respect to the execution, delivery and closing under this Agreement or the execution, delivery and closing of the other Alliance Agreements which execution, delivery and closing are being effected concurrently hereunder) result in the creation of any other right on the part of a third party to receive a payment of funds or other consideration on account thereof under (i) the certificate of incorporation or by-laws of Company, or (ii) any mortgage, indenture, loan or credit agreement or any other agreement or instrument to which Company is a party, or pursuant to which it is the direct or indirect obligor, or by which Company's properties are bound or affected; (b) violate any law, regulation, judgment, injunction, order or decree binding upon Company; (c) result in the loss of any license, franchise, permit, legal privilege or legal right enjoyed or possessed by Company; or (d) require the consent of any third party (including a governmental entity). Company is not in violation of any statute, judgment, decree, order, rule or regulation applicable to it, which, singly or in the aggregate, has materially adversely affected or could reasonably be expected to materially adversely affect Company's ability to perform its obligations hereunder or under any of the other Alliance Agreements to which it is a party. 4. PRE-CLOSING COVENANTS. 4.1 COVENANTS OF FCNH. From and after the date hereof and through the ----------------- Closing, FCNH shall take any and all actions as may be necessary to execute and deliver at the Closing the Operating Agreement and each of the other Alliance Agreements to which it is a party, and FCNH shall take any and all actions as may be necessary to cause FCNH Sub, Inc., a Delaware corporation and a wholly owned subsidiary of FCNH ("FCNH Sub"), to execute and deliver at the Closing each of the Alliance Agreements to which FCNH Sub is a party. Except with the prior consent of SEI, from and after the date hereof and through the Closing, FCNH shall, and FCNH shall cause FCNH Sub, to, perform all acts and refrain from performing any act, which, had the Operating Agreement and all of the Alliance Agreements then been in full force and effect, would be required, or prohibited, as the case may be, thereunder, or 4 which would result in the representations and warranties of FCNH hereunder not being true and correct at and as of the Closing Date. 4.2 COVENANTS OF SEI. From and after the date hereof and through the ---------------- Closing, SEI shall take any and all actions as may be necessary to execute and deliver at the Closing the Operating Agreement and each of the other Alliance Agreements to which it is a party. Except with the prior consent of FCNH, from and after the date hereof and through the Closing SEI shall perform all acts, and refrain from performing any act, which, had the Operating Agreement and the Alliance Agreements then been in full force and effect, would be required, or prohibited, as the case may be, thereunder, or which would result in the representations and warranties of SEI hereunder not being true and correct at and as of the Closing Date. 4.3 COVENANTS OF FBC. From and after the date hereof and through the ---------------- Closing, FBC shall take any and all actions as may be necessary to execute and deliver at the Closing the Operating Agreement and each of the other Alliance Agreements to which it is a party. Except with the prior consent of SEI, from and after the date hereof and through the Closing, FBC shall perform all acts, and refrain from performing any act, which, had the Operating Agreement and the Alliance Agreements then been in full force and effect, would be required, or prohibited, as the case may be, thereunder, or which would result in the representations and warranties of FBC hereunder not being true and correct at and as of the Closing Date. 4.4 SABAN EMPLOYMENT AGREEMENTS. Promptly following execution and --------------------------- delivery of this Agreement, Haim Saban ("Saban") and FCNH, on behalf of the Management Company, shall negotiate and use their respective best efforts (i) to agree upon all of the terms and conditions of a seven-year employment agreement between the Management Company and Saban, for services of Saban within the United States, and a seven-year employment agreement between Saban International, N.V., a Netherlands Antilles corporation ("SINV"), and Saban, for services of Saban outside of the United States, which agreements shall be on terms and conditions complementary to this Agreement and the Operating Agreement, shall provide that Saban shall devote substantially all of his business time and otherwise within industry-standard terms applicable to the chief executive officer of a company within the entertainment industry comparable to the combined businesses of FCN, Fox Children's Productions, Inc., a Delaware corporation, SEI and the Management Company; and (ii) to cause such employment agreements (the "Saban Employment Agreements") to be prepared, and to be executed and delivered on or prior to the Closing Date. If Saban and FCNH have not reached agreement as to the terms and conditions of the Saban Employment Agreements within 30 days following the date of this Agreement, either party shall have the right at any time thereafter 5 by notice to the other to initiate the following dispute resolution procedure: (a) Saban and FCNH shall each (i) appoint a reputable lawyer whose practice includes significant representation and advice concerning executive employment agreements, and who has not within the prior three years represented or acted on behalf of any of the parties, or any of their Affiliates and (ii) advise the other of such appointment, accompanied by a written undertaking of such lawyer to be bound by the time constraints and other terms of this Section 4.3. If either party fails to so act, that party's lawyer shall be appointed pursuant to the procedure provided below to be followed when agreement cannot be reached as to the third lawyer. Within five days after such appointment, such lawyers shall appoint a third, similarly qualified, lawyer (together with the first two lawyers, the "Panel"), who shall deliver a similar undertaking. If the appointment of a third lawyer has not been effected within such period, such appointment and notification shall be made as rapidly as practicable by any court of competent jurisdiction, by any licensing authority, agency or organization having jurisdiction over such lawyers, by any professional association of lawyers located in Los Angeles County, or by any recognized arbitration association or organization located in Los Angeles County, as selected by the party commencing such proceedings. (b) The members of the Panel shall utilize their utmost skill and shall apply themselves diligently so as to promptly determine any then-open terms and conditions of the Saban Employment Agreement and decide, by majority vote, the outcome and resolution of any dispute or disagreement submitted to them as promptly as possible, but in any event on or before the expiration of thirty days after the appointment of the last member of the Panel. (c) In connection with the proceedings, the Panel shall (i) interpret the rights and obligations set forth in this Agreement, (ii) retain such compensation experts as it considers appropriate, and (iii) retain jurisdiction over the matter until it has been furnished and has reviewed and approved the final draft of the Saban Employment Agreements. (d) The decision of the Panel shall be final and binding upon Saban, FCNH, FBC, SEI and the Management Company, and may not be appealed to any court or otherwise. (e) Each member of the Panel shall be compensated at his or her then regular hourly rates, and shall be reimbursed for any and all expenses incurred in connection with the rendering of such services. Such compensation and reimbursement shall be borne and paid by the Management Company. 6 4.5 CORPORATE RESTRUCTURING. On or prior to the Closing, FCNH shall ----------------------- form a new, wholly owned subsidiary ("FCNH Sub") and FBC and FCNH, and their respective Affiliates, shall take any and all actions necessary (i) to cause FCN and FCP to become wholly owned subsidiaries of FCNH Sub and (ii) to cause Storymakers, Inc., a Delaware corporation, ("SI") to become a wholly owned subsidiary of FCP. Fox Children's Music, Inc., a Delaware corporation, ("FCM") and Fox Kids Music, Inc., a Delaware corporation, ("FKM") are wholly owned subsidiaries of FCN. 4.6 ELECTION RE CLOSE CORPORATION. On or prior to the Closing, SEI ----------------------------- shall elect, and FCNH shall cause each of FCNH Sub, FCN, FCP, FCM, FKM and SI to elect, pursuant to the provisions of Section 344 of the Delaware General Corporation Law, to become a "close corporation," as defined in Subchapter XIV of such law, by executing, acknowledging, filing and recording the certificate of amendment of its certificate of incorporation, substantially in the form of Exhibit "E" to this Agreement. - ----------- 5. CONDITIONS TO OBLIGATIONS OF SEI. The obligations of SEI to perform the actions required hereunder to be performed at the Closing are subject to the fulfillment at or prior to the Closing of the following conditions, any of which may be waived,in whole or in part, by SEI: 5.1 CONSENTS AND WAIVERS. FCNH and FBC shall have obtained any and -------------------- all consents, permits and waivers, and made any and all filings, necessary or appropriate for the consummation of the transactions contemplated by this Agreement and the Alliance Agreements, including, without limitation, such filings as are required under the HSR Act. 5.2 HSR ACT WAITING PERIOD. The HSR Act waiting period, if any, ---------------------- shall have expired and no proceeding or action thereunder with respect thereto shall have been instituted or filed. 5.3 SABAN EMPLOYMENT AGREEMENTS. The Management Company shall have --------------------------- executed and delivered to Saban a signed counterpart of the Saban Employment Agreement to which it is a party. 5.4 OTHER ALLIANCE AGREEMENTS. Each of FCN, FBC, FCNH Sub and News ------------------------- Corporation shall have executed and delivered counterpart copies of each of the Alliance Agreements to which it is a party. 6. CONDITIONS TO OBLIGATIONS OF FCNH AND FBC. The obligations of FCNH to perform the actions required hereunder to be performed at the Closing are subject to the fulfillment at or prior to the Closing of the following conditions, any of which may be waived,in whole or in part, by FCNH and FBC: 7 6.1 CONSENTS AND WAIVERS. SEI shall have obtained any and all -------------------- consents, permits and waivers, and made any and all filings, necessary or appropriate for the consummation of the transactions contemplated by this Agreement and the Alliance Agreements, including, without limitation, such filings as are required under the HSR Act. 6.2 HSR ACT WAITING PERIOD. The HSR Act waiting period shall have ---------------------- expired and no proceeding or action thereunder with respect thereto shall have been instituted or filed. 6.3 SABAN EMPLOYMENT AGREEMENTS. Saban shall have executed and --------------------------- delivered to the Management Company a signed counterpart of the Saban Employment Agreement to which they are parties, and Saban and SINV shall have executed and delivered among themselves signed counterparts of the Saban Employment Agreement to which they are parties. 6.4 OTHER ALLIANCE AGREEMENTS. Each of the stockholders of SEI shall ------------------------- have executed and delivered counterpart copies of each of the Alliance Agreements to which it is a party. 7. MISCELLANEOUS PROVISIONS. 7.1 GENERAL. In this Agreement, headings are for con venience only ------- and shall not affect interpretation, and except to the extent that the context otherwise requires: (a) words denoting the singular include the plural and vice versa; (b) words denoting individuals include corporations and other Persons and vice versa; (c) words denoting any gender include all genders; (d) references to clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits are to clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits of this Agreement; (e) "or" is not exclusive; and (f) "$", and all other references to dollar amounts, are in U. S. currency; 7.2 NOTICES. All notices, demands or other communications hereunder ------- shall be in writing and shall be deemed to have been duly given (i) if delivered in person, upon delivery thereof, or (ii) if mailed, certified first class mail, postage pre-paid, with return receipt requested, on the fifth day after the mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed on the same day in the manner provided in (ii) above, when transmitted and receipt is confirmed by telephone or telex or facsimile response, or (iv) if otherwise actually delivered, when delivered: 8 (a) if to FCNH: FCN Holding Company FOX INC. 10201 W. Pico Boulevard SVP Legal Affairs Fox Television Group Bldg. 12, Room 111 Attention: Jay Itzkowitz, Esq. Fax: (310) 369-2572 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld 551 Fifth Avenue New York, New York 10176 (b) if to FBC: FOX INC. 10201 W. Pico Boulevard SVP Legal Affairs Fox Television Group Bldg. 12, Room 111 Attention: Jay Itzkowitz, Esq. Fax: (310) 369-2572 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld 551 Fifth Avenue New York, New York 10176 (c) If to SEI: Saban Entertainment, Inc. 4000 West Alameda Avenue Burbank, CA 91505 Fax: 818-972-4894 With a copy to: Matthew G. Krane, Esq. 2051 Hercules Drive Los Angeles, CA 90046 Fax: 213-851-1178 9 and with a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard, Suite 800 Los Angeles, California 90024 Attention: Richard E. Troop, Esq. Fax: 310-443-8503 or at such other address or addresses as may have been furnished by such Person in like manner to the other parties. 7.3 SEVERABILITY. Should any Section or any part of a Section within ------------ this Agreement be rendered void, invalid or unenforceable by any court of law for any reason, such invalidity or unenforceability shall not void or render invalid or unenforceable any other Section or part of a Section in this Agreement. 7.4 GOVERNING LAW. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY ------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. 7.5 NO ADVERSE CONSTRUCTION. The rule that a contract is to be ----------------------- construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. 7.6 COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 7.7 COSTS AND ATTORNEYS' FEES. In the event that any action, suit, ------------------------- or other proceeding is instituted concerning or arising out of this Agreement, the prevailing party shall recover all of such party's costs, and attorneys' fees incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall mean the full and actual costs of any legal services actually rendered in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services, and shall not be limited to "reasonable attorneys' fees" as defined by any statute or rule of court. 7.8 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this ---------------------- Agreement, all rights, covenants and agreements of 10 the parties contained in this Agreement shall be binding upon and inure to the benefit of their respective successors and permitted assigns. Except as otherwise specifically set forth herein, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 7.9 AMENDMENTS AND WAIVERS. Neither this Agreement nor any term ---------------------- hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of SEI, FCNH and FBC; provided, however, that no such amendment or waiver shall extend -------- ------- to or affect any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder. 7.10 ENTIRE AGREEMENT. This Agreement, the attached Exhibits and the ---------------- Alliance Agreements, and the agreements referred to herein and therein, together contain the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof unless expressly referred to herein. No party to this Agreement makes any representation or warranty except as expressly set forth herein. 7.11 AGREEMENT TO PERFORM REQUIRED ACTS. Each party hereto agrees to ---------------------------------- perform any further acts and to execute and deliver any further documents from and after the Closing that may be reasonably necessary to carry out the provisions hereof, that may be required to secure performance of any party's duties hereunder or that may be required to assure the legal and binding effect of the provisions hereof. 7.12 CONSENT TO JURISDICTION; FORUM SELECTION. Any actions, suits or ---------------------------------------- proceedings instituted in connection with this Agreement or the performance by the parties of their obligations hereunder shall be instituted and maintained exclusively in the Superior Court for the State of California, County of Los Angeles or in the United States District Court for the Central District of California. By execution and delivery hereof, each party hereto hereby consents, for itself and in respect of its property, to the jurisdiction of the aforesaid courts solely for the purpose of adjudicating its rights or obligations under, or any disputes involving, this Agreement or any document related hereto. Each party hereto hereby irrevocably waives, to the extent permitted by 11 applicable law, any objection, including, without limitation, any objection that the other corporate party or parties lack the capacity to sue or defend based upon its or their lack of a certificate of qualification to conduct intrastate business in California, and any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the ----- --- ---------- bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related hereto. 7.13 PUBLICITY. FCNH, FBC and SEI shall treat this Agreement and the --------- other Alliance Agreements in confidence and shall consult with one other and mutually agree upon any proposed publicity or releases concerning the transactions referred to in this Agreement or any Alliance Agreement to be issued by any party at or prior to the Closing. 7.14 DEFINITIONS. When used in this Agreement, the following terms ----------- shall have the meanings set forth below: "Affiliate" means, when used with reference to a specified Person, any Person that directly or indirectly through one or more intermediaries controls or is controlled by, or is under common control with, the specified Person; "Control" (including as used in the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities by contract or otherwise; "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect to such asset; and "Person" includes an individual, partnership, trust, corporation, joint venture, limited liability company, association, government bureau or agency or other entity of whatsoever kind or nature. 7.15 EXPENSES. SEI, FBC and FCNH agree to cause the Management -------- Company to pay all costs and expenses incurred by each party and their respective Affiliates to this Agreement or any of the Alliance Agreements, on or prior to the Closing, including, without limitation, any fees and disbursements of counsel, accountants, investment bankers and other experts and any and all costs and out of pocket expenses incurred by such party, in connection with the documentation, negotiation and execution of this Agreement or any of the Alliance Agreements and the consummation of the transactions contemplated by such agreements. 12 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date and year first above written. SABAN ENTERTAINMENT, INC. By: /s/ Haim Saban ------------------------------ Haim Saban Its Chief Executive Officer FCN HOLDING COMPANY By: /s/ Jay Itzkowitz ------------------------------ Its _________________________ FOX BROADCASTING COMPANY, INC. By: /s/ Jay Itzkowitz ------------------------------ Its _________________________ 13 AFFILIATE AGREEMENT Each of the undersigned Affiliates of either SEI, FBC or FCNH hereby agrees to, and to take any and all actions as may be necessary to, execute and deliver at the Closing each of the Alliance Agreements to which it is a party and to cause each of its subsidiaries to execute and deliver at the Closing each of the Alliance Agreements to which such subsidiary is a party. Saban additionally agrees to be bound by the terms of Section 4.3 of the LLC Formation Agreement to which this document is attached, as if he had been a signatory thereto. /s/ Haim Saban ----------------------------------- HAIM SABAN QUARTZ ENTERPRISES, L.P., A LIMITED PARTNERSHIP By: Indigo Enterprises, L.P., its General Partner By: /s/ Stan Golden ------------------------- Its ____________________ MERLOT INVESTMENTS, A CALIFORNIA GENERAL PARTNERSHIP ___________________________________ By: Indigo Enterprises, L.P., its General Partner By: /s/ Bill Josey ------------------------- Its ____________________ SILVERLIGHT ENTERPRISES, L.P. By: Glass Wave Enterprises, L.P., its General Partner By: /s/ Mel Woods ------------------------- Its ____________________ 14 CELIA ENTERPRISES, L.P. By: /s/ Matthew Krane ------------------------------ Its _________________________ THE NEWS CORPORATION LIMITED By: /s/ (Signature Unknown) ------------------------------ Its _________________________ FOX BROADCASTING COMPANY, INC. By: /s/ Jay Itzkowitz ------------------------------ Its _________________________ FOX CHILDREN'S NETWORK, INC. By: /s/ Bruce Churchill ------------------------------ Its Senior Vice President ------------------------- FOX CHILDREN'S PRODUCTIONS, INC. By: /s/ Bruce Churchill ------------------------------ Its Senior Vice President ------------------------- 15 EXHIBIT INDEX Exhibit A - Operating Agreement Exhibit B - Asset Assignment Agreement Exhibit C - Management Agreement Exhibit D - Strategic Stockholders Agreement Exhibit E - Close Corporation Provisions Exhibit F - Call Option 16 December 22, 1996 Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, CA 90024 Attention: Haim Saban Fox Broadcasting Company 10201 West Pico Boulevard Los Angeles, CA 90035 Attention: Jay Itzkowitz,Esq. FCN Holding, Inc. c/o Fox Children's Network, Inc. 10201 West Pico Boulevard Los Angeles, CA 90035 Attention: Margaret Loesch Re: Modifications to LLC Formation Agreement and Alliance Agreements Dear Sirs: Reference is made to that certain LLC Formation Agreement, dated as of November 1, 1995, by and among Saban Entertainment,Inc., a Delaware corporation ("SEI"), Fox Broadcasting Company, a Delaware corporation and "FCN Holding Company", a Delaware corporation (the "LLC Formation Agreement"). All terms defined therein shall have the same meaning when used herein. The parties hereto agree as follows: 1. FCNH. The LLC Formation Agreement, and certain of the Alliance ---- Agreements, inadvertently referred to FCN Holding, Inc., a Delaware corporation, as "FCN Holding Company." The parties agree that all references in the LLC Formation Agreement to "FCN Holding Company" and "FCNH" are references to FCN Holding, Inc.; and the other Alliance Agreements have, prior to their execution, been revised, inter alia, to correct such references. ----- ---- 2. The Management Company. The parties have determined that name of the ---------------------- Management Company shall be "Fox Kids Worldwide, L.L.C., " and not "Fox Kids Company, L.L.C., and all references in LLC Formation Agreement to "Fox Kids Company, L.L.C, "are references to Fox Kids Worldwide, L.L.C.; and the other Alliance Agreements have, prior to their execution, been revised, inter alia, to reflect ----- ---- this change. 3. SEI Schedule of Exceptions. SEI has determined that it needs to -------------------------- receive waivers from Imperial Bank under its Credit Agreement with Imperial Bank dated July 31, 1995. The waivers are exceptions to be representations and warranties set forth in Section 3 of the LLC Formation Agreement, and are therefore set forth in the Schedule of Exceptions attached hereto as Exhibit A. --------- 4. Call Option. The Schedule of Exhibits to the LLC Formation Agreement ----------- and certain of the Alliance Agreements inadvertently referred to the Stock Ownership Agreement as the "Call Option." The parties agree that all references in the LLC Formation Agreement and the Schedule of Exhibits thereto "Call Option" are references to the Stock Ownership Agreement and the other Alliance Agreements have, prior to their execution, been revised, inter alia, to correct ----- ---- such references. 5. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute on and the same instrument. Accepted and Agreed by: SABAN ENTERTAINMENT, INC. By:\s\ Mel Woods ------------------- Its:________________ FOX BROADCASTING COMPANY By:\s\Jay Itzkowitz ------------------- Its:________________ FCN HOLDING, INC. By:\s\Jay Itzkowitz ------------------- Its:________________ EX-10.12 16 OPERATING AGREEMENT FOR FOX KIDS DATED 12/22/95 Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "x" indicating deleted information. EXHIBIT 10.12 OPERATING AGREEMENT OF FOX KIDS WORLDWIDE, L.L.C. A DELAWARE LIMITED LIABILITY COMPANY
TABLE OF CONTENTS PAGE R E C I T A L S......................................................................................... 2 ARTICLE 1 DEFINED TERMS............................................................................... 2 1.1 Defined Terms............................................................................... 2 ARTICLE 2 FORMATION AND BUSINESS OF THE COMPANY....................................................... 2 2.1 Formation of the Company.................................................................... 2 2.2 Name of Company............................................................................. 3 2.3 Place of Business........................................................................... 3 2.4 Service Of Process: Registered Office....................................................... 3 2.5 Purposes.................................................................................... 3 2.6 Powers...................................................................................... 3 2.7 Term........................................................................................ 4 ARTICLE 3 MEMBERS..................................................................................... 4 3.1 Limited Liability........................................................................... 4 3.2 Class A Member. 3.3 Class B Members. 3.4 Admission of Additional Members............................................................. 4 3.5 Withdrawals................................................................................. 5 3.6 Transfer and Assignment of Interests........................................................ 5 3.7 Transactions between Members and their Affiliates........................................... 5 ARTICLE 4 GOVERNANCE AND MANAGEMENT................................................................... 5 4.1 Members Committee........................................................................... 5 4.1.1 Composition of the Members Committee................................................. 5 4.2 Meetings Of The Members Committee........................................................... 6 4.3 Voting By Members of the Members Committee.................................................. 7 4.4 Operating Committee......................................................................... 7 4.5 Other Committees Of The Members Committee................................................... 7 4.6 Vote by Haim Saban.......................................................................... 7 4.7 Delegation Of Authority; Officers........................................................... 8 4.8 Senior Executives........................................................................... 9 4.9 Operational Veto Rights..................................................................... 10 4.10 Sale of More than One-Third Original Interest............................................... 11 4.11 Indemnification............................................................................. 11 4.12 Special Provision Related to Israel Licensee................................................ 12 4.13 Saban Receivable............................................................................ 12 4.14 Fiduciary Duties............................................................................ 12 ARTICLE 5 CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS, ALLOCATION OF TAX ITEMS; MEMBER LOANS; DISTRIBUTIONS........................................ 12 5.1 Initial Capital Contributions............................................................... 12 5.2 Additional Capital Contributions............................................................ 13 5.3 Maintenance Of Capital Accounts............................................................. 13 5.4 Allocation Of Tax Items..................................................................... 13 5.5 Negative Capital Accounts................................................................... 14
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5.6 Tax Distributions........................................................................... 14 5.7 Additional Distributions.................................................................... 14 5.8 FBC Loan.................................................................................... 15 5.9 Transfer of Distributable Cash to the Company; Dividends ................................... 15 5.10 Return of Distributions..................................................................... 15 5.11 No Interest................................................................................. 16 5.12 Tax Matters Partner......................................................................... 16 5.13 Taxation As a Partnership................................................................... 16 ARTICLE 6 EXCULPATION; INDEMNIFICATION............................................................... 16 6.1 No Liability................................................................................ 16 6.2 Company Indemnity Obligations............................................................... 16 6.3 Settlement; Procedures...................................................................... 17 6.4 Withdrawal.................................................................................. 17 6.5 Settlements Conditioned Upon Full Release................................................... 17 6.6 Subrogation................................................................................. 17 ARTICLE 7 BOOKS OF ACCOUNT, ACCOUNTING AND REPORTS.................................................... 18 7.1 Books and Records........................................................................... 18 7.2 Inspection Rights........................................................................... 18 7.3 Annual and Quarterly Statements............................................................. 18 7.4 Certified Public Accountants................................................................ 19 7.5 Bank Accounts............................................................................... 19 7.6 Tax Elections............................................................................... 19 ARTICLE 8 DISSOLUTION AND LIQUIDATION OF THE COMPANY.................................................. 19 8.1 Dissolution................................................................................. 19 8.2 Effect Of Dissolution....................................................................... 19 8.3 No Recourse Against Members For Distribution................................................ 20 8.4 Liquidation................................................................................. 20 ARTICLE 9 MISCELLANEOUS PROVISIONS.................................................................... 21 9.1 Miscellaneous............................................................................... 21 9.2 Rights Personal to FCNH and Saban........................................................... 21 9.3 Notices..................................................................................... 22 9.3.4 Severability....................................................................... 23 9.3.5 Governing Law...................................................................... 23 9.3.6 No Adverse Construction............................................................ 23 9.3.7 Counterparts....................................................................... 23 9.3.8 Costs and Attorneys' Fees.......................................................... 24 9.3.9 Successors and Assigns............................................................. 24 9.3.10 Amendments and Waivers............................................................. 24 9.3.11 Entire Agreement................................................................... 24 9.3.12 Agreement to Perform Required Acts................................................. 25 9.3.13 Consent to Jurisdiction; Forum Selection........................................... 25 9.3.14 Deadlock........................................................................... 25 EXHIBIT A Defined Terms............................................................................... 27
ii OPERATING AGREEMENT FOR FOX KIDS WORLDWIDE, L.L.C. A DELAWARE LIMITED LIABILITY COMPANY This Operating Agreement (the "Agreement") is made and entered into as of December 22, 1995, by and among Saban Entertainment, Inc., a Delaware corporation ("SEI"), FCN Holding, Inc., a Delaware corporation ("FCNH"), and Fox Broadcasting Company, a Delaware corporation ("FBC"). R E C I T A L S --------------- A. SEI, FBC and FCNH desire to maximize their long-term strategic values, and have determined that it would be in their respective best interests to achieve this objective by entering into a strategic alliance for the purpose of sharing with each other their respective strengths, to the mutual benefit of all of them, all on the terms and conditions of this Agreement, and in connection therewith have entered into that certain LLC Formation Agreement dated as of November 1, 1995 (the "Formation Agreement"). B. Pursuant to the Formation Agreement, SEI, FCNH and FBC have formed FOX KIDS WORLDWIDE, L.L.C. (the "Company") under the laws of the State of Delaware and have entered into this Agreement to regulate the rights, preferences and privileges of the Members of the Company. ARTICLE 1 DEFINED TERMS ------------- 1.1 DEFINED TERMS. The terms defined in Exhibit "A" shall have the same ------------- meanings when used herein. ARTICLE 2 FORMATION AND BUSINESS ---------------------- OF THE COMPANY -------------- 2.1 FORMATION OF THE COMPANY. Pursuant to the Delaware Act, the Members have formed a Delaware limited liability company under the laws of the State of Delaware by filing the Certificate of Formation attached hereto as Schedule 2.1 with the Delaware Secretary of State and entering into this - ------------ Agreement. It is the 2 intent of the parties that this Agreement be deemed effective as of June 1, 1995 and that, to the extent permissible under GAAP, the operations of the Company and the Operating Entities be accounted for as if this Agreement had been entered into at such time. The rights and obligations of the Members shall be determined pursuant to the Delaware Act and this Agreement. To the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Delaware Act, control. 2.2 NAME OF COMPANY. The name of the Company is FOX KIDS WORLDWIDE, L.L.C., and all of the Company's business shall be conducted under this name or under any other name approved by the Members Committee, but in any case, only to the extent permitted by applicable law. The Operating Entities shall operate under their respective names as of the date of this Agreement unless otherwise determined by the Members Committee. 2.3 PLACE OF BUSINESS. The location of the principal place of business shall from time to time be determined by the Members Committee. The Company may have such additional offices and places of business as may be established at such other locations as may from time to time be approved by the Members Committee. 2.4 SERVICE OF PROCESS: REGISTERED OFFICE. The registered agent for the service of process and the registered office shall be that Person and location reflected in the Certificate of Formation. The Members Committee may, from time to time, change the registered agent or office through appropriate filings with the Secretary of State of the State of Delaware. In the event the registered agent ceases to act as such for any reason, or the registered office shall change, the Members Committee promptly shall designate a replacement registered agent or file a notice of change of address as the case may be, all in accordance with any applicable requirements of the Delaware Act. 2.5 PURPOSES. The purpose of the Company shall be to engage in the business of forming and operating an integrated children's entertainment business which shall include, but not be limited to, the business currently operated or contemplated by the Operating Entities (including, in the case of SEI, the operations of its movie, merchandising and consumer products divisions). Initially, it is contemplated that the Company's primary operations will be limited to the management of the Operating Entities pursuant to the provisions of the Management Agreement. The Company may engage in any lawful business which is incidental, necessary, or desirable to carry out the business of the Company as described herein. 2.6 POWERS. The Company will have the power to do any and all acts and things necessary, appropriate, advisable, or 3 convenient for the furtherance and accomplishment of the purposes of the Company, including, without limitation, to engage in any kind of activity and to enter into and perform obligations of any kind necessary to or in connection with, or incidental to, the accomplishment of the purposes of the Company. 2.7 TERM. Unless sooner terminated in accordance with Article 8 hereof, the Company shall liquidate and dissolve on October 31, 2070. ARTICLE 3 MEMBERS ------- 3.1 LIMITED LIABILITY. Except as required under the Act or as expressly set forth in this Agreement, no Member shall be personally liable for any debt, obligation, or liability of the Company, whether that liability or obligation arises in contract, tort or otherwise. 3.2 CLASS A MEMBER. FBC shall be a Class A Member hereunder. As a Class A Member, FBC shall have the right to receive distributions of Distributable Cash pursuant to Sections 5.7.3 and 5.7.4 hereof, distributions on dissolution or liquidation pursuant to Sections 8.4.1(c) and 8.4.1(d) and allocations of net profits and net losses and similar items from the Company as expressly provided for in Section 5.4 hereof, but shall not have any other rights of a Member including, without limitation, the right to vote or participate in the management or any right to information concerning the business and affairs of the Company. FBC's Class A membership in the Company shall terminate at such time as FBC shall receive aggregate distributions from the Company under Sections 5.7.3, 5.7.4, 8.4.1(c) and 8.4.1(d) or otherwise in an aggregate amount equal to $50 million. 3.3 CLASS B MEMBERS. Each of SEI and FCNH shall be a Class B Member. As a Class B Member, each of SEI and FCNH shall have the right to receive distributions of Distributable Cash pursuant to Section 5.7 hereof, distributions on dissolution or liquidation pursuant to Section 8.4.1(e) hereof, allocations of net profits and net losses and similar items from the Company as expressly provided for in Section 5.4 hereof, and the right to vote on or participate in the management and the right to receive information concerning the business and affairs of the Company, all as provided for herein. 3.4 ADMISSION OF ADDITIONAL MEMBERS. The Company shall not admit any Members other than SEI, FCNH and FBC. 4 3.5 WITHDRAWALS OR RESIGNATIONS. No Member may withdraw or resign from the Company. 3.6 TRANSFER AND ASSIGNMENT OF INTERESTS. No Member shall be entitled to transfer, assign, convey, sell, encumber or in any way alienate all or any part of its membership interest in the Company, including by way of involuntary transfer. 3.7 TRANSACTIONS BETWEEN MEMBERS AND THEIR AFFILIATES. Except as provided in Sections 4.12 and 4.13 hereof, (i) all transactions between any Member or any Subsidiary of such Member, on the one hand, and any Affiliate of such Member, on the other, shall be made only with the prior approval of the Senior Executive-Children's Network, in the case of SEI and its Subsidiaries and Affiliates, and the Senior Executive-Saban Entertainment, in the case of FCNH and FBC and their respective Subsidiaries and Affiliates, and (ii) all agreements between the Company, on the one hand, and any Member or any Affiliate of a Member, on the other, shall be negotiated and approved by the Senior Executive-Children's Network, in the case of SEI and its Subsidiaries and Affiliates, and the Senior Executive-Saban Entertainment, in the case of FCNH and FBC and their respective Subsidiaries and Affiliates. SEI shall have the right and power, without approval of the Members Committee, to cause the Company, SEI or any of its Subsidiaries to pursue any claim or litigation against FBC or FCNH or any of their respective Affiliates for breach of any contract between such Person and the Company or any of the Operating Entities. FCNH shall have the right and power, without approval of the Members Committee, to cause the Company, FCNH or FBC or any of their respective Subsidiaries, to pursue any claim or litigation against SEI or any of its Affiliates for breach of any contract between such Person and the Company or any of the Operating Entities. ARTICLE 4 GOVERNANCE AND MANAGEMENT ------------------------- 4.1 MEMBERS COMMITTEE 4.1.1 COMPOSITION OF THE MEMBERS COMMITTEE. The Members shall manage the Company's Business through a members committee (the "Members Committee") which, except as otherwise expressly provided herein, shall have and exercise full power and discretion and final authority with respect to the management of the affairs of the Company. The Members Committee shall be comprised of eight members (each, a "Member of the Members Committee" or a "Committee Member") to be elected by the Class B Members as provided in this Section 4.1.1 and Section 4.10 below. Until the occurrence of a Terminating Event, the Committee Members shall be divided into two (2) classes. Subject to the provisions of Section 4.10 below, the 5 first class ("Class I Committee Members") shall consist of four (4) Committee Members to be designated by FCNH and the second class ("Class II Committee Members") shall consist of four (4) Committee Members to be designated by Saban. FCNH or Saban each may, at any time, change any or all of the Class I or Class II Committee Members, respectively, appointed by it and, upon such change, or the death, permanent disability sufficient to prevent performance of the duties of a Member of the Members Committee or resignation of any Class I or Class II Committee Member, a successor shall be designated (in a notice delivered to all Members) by the Person which appointed the Member of the Members Committee being replaced. From and after a Terminating Event, the Members Committee shall consist of one class of four Committee Members to be elected as provided in Section 4.10 below. 4.2 MEETINGS OF THE MEMBERS COMMITTEE. 4.2.1 Regular meetings of the Members Committee may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the Members Committee. Special meetings of the Members Committee may be called by either Class B Member on 48 hours notice to each Member of the Members Committee, given in person or by telephone or facsimile transmission, or by overnight mail or courier delivery. Actions taken at a meeting at which a quorum is present shall be effective irrespective of the lack of appropriate notice to any Member of the Members Committee. The business to be transacted at a Special Meeting must be specified in the notice of such meeting. 4.2.2 Subject to the provisions of Section 4.10 below, a quorum of the Members Committee shall consist of at least two Class I Committee Members and two Class II Committee Members (except if Saban is present at the meeting, his presence shall be sufficient for quorum purposes so long as two Class I Committee Members are also present). No vote of Committee Members at any meeting at which a quorum is not present shall be effective. If a quorum is not present at any meeting, the meeting shall be adjourned and reconvened only with the giving of notice as required by Section 4.2.1. 4.2.3 Committee Members may participate in a meeting of the Members Committee by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 4.2.4 Any action required or permitted to be taken at a meeting of the Members Committee may be taken without a meeting upon consent of a majority vote of each Class of Committee Members. Such consent shall be obtained through the signing of a resolution 6 authorizing action without a meeting. Such resolution shall be provided to all Committee Members in advance of a vote thereon. The signed consent to action without a meeting shall be inserted in the minutes of the Members Committee along with the record of the written vote on the underlying action. 4.3 VOTING BY MEMBERS OF THE MEMBERS COMMITTEE. On all matters submitted to the Members Committee, each Member of the Members Committee shall be entitled to one vote. Subject to the provisions of Section 4.10 below, action by the Members Committee shall require the approval or authorization by the Members Committee evidenced by a resolution adopted by a vote of a majority of the Class I Committee Members present and voting and a majority of the Class II Committee Members present and voting at a duly called meeting of the Members Committee. 4.4 OPERATING COMMITTEE. Subject to the provisions of Section 4.10 below, there shall be an Operating Committee to be composed of two Class I Committee Members to be appointed by the Class I Committee Members as a group and two Class II Committee Members (which shall include Saban) to be appointed by the Class II Committee Members as a group. The Operating Committee shall have all of the powers of the Members Committee as a whole and shall oversee the operations of the Company. A quorum of the Operating Committee shall consist of at least one Class I Committee Member and at least one Class II Committee Member. An action by the Operating Committee shall require the approval or authorization by such committee evidenced by a resolution adopted unanimously by all of the Committee Members present and voting at a duly called meeting of the committee. The provisions of Sections 4.2.2, 4.2.3 and 4.2.4 shall also govern the conduct of the Operating Committee to the extent not otherwise inconsistent with the provisions of this Section 4.4. 4.5 OTHER COMMITTEES OF THE MEMBERS COMMITTEE. The Members Committee may designate from among the Committee Members such other committees as it shall deem appropriate to conduct such investigation and other business as it deems necessary or appropriate from time to time. 4.6 VOTE BY HAIM SABAN. Notwithstanding anything to the contrary contained herein, until such time as the Successor Entity (as defined in the Strategic Shareholders Agreement) registers any of its equity securities under the Securities Act of 1933, as amended, if Saban is present and voting at any meeting of the Members Committee or any meeting of a committee thereof of which he is a member (including, but not limited to, the Operating Committee), then he shall have the sole right to cast any vote of the Class II Committee Members. If the vote or consent of the Members Committee or committee thereof is being solicited by written consent pursuant to the provisions of Section 4.2.4 hereof, 7 the action of Saban evidenced by his written consent shall be deemed the written consent of all other Class II Committee Members entitled to vote thereon notwithstanding their failure or refusal to execute such written consent. 4.7 DELEGATION OF AUTHORITY; OFFICERS. 4.7.1 The officers of the Company shall include a Senior Executive-Children's Network and a Senior Executive-Saban Entertainment, each of whom shall be employees of the Company. The Company also may have such other officers as the Members Committee may in its discretion appoint, including without limitation: (a) one or more Vice Presidents, (b) a Chief Financial Officer, (c) a Chief Operating Officer, and (d) a Secretary. Any number of the offices established in the discretion of the Members Committee may be held by the same individual. 4.7.2 The initial Senior Executive-Children's Network shall be Loesch and the initial Senior Executive-Saban Entertainment shall be Saban (referred to herein collectively as the "Senior Executives"). Saban may not be removed or replaced as Senior Executive-Saban Entertainment by vote of the Members, the Members Committee or any committee thereof (including the Operating Committee) or otherwise, with or without cause; provided, however, that, subject -------- ------- to the terms and provisions of any employment agreement between the Company and Saban, the provisions of this sentence shall have no force or effect at such time as either a "Triggering Event" or a "Terminating Event," as those terms are defined in Section 4.10 hereof, as occurred. Until the first to occur of (i) a Triggering Event, (ii) a Terminating Event, or (iii) that date on which this Section 4.7.2 is amended (which shall require the consent of each of SEI, FCNH and Saban) to provide that the Senior Executives shall be appointed and serve at the pleasure of the Members Committee, FCNH shall have the sole and exclusive right to appoint (or remove) the Senior Executive Officer-Children's Network and Saban shall have the sole and exclusive right to appoint (or remove) the Senior Executive-Saban Entertainment; provided, however, each such Person will have the right to veto one person proposed by the other to serve as such Senior Executive in the course of designating each successor for Saban and Loesch. From and after the date of such event or amendment identified in the preceding sentence, the Senior Executives shall be appointed by the Members Committee. 4.7.3 Subject to the provisions of Section 4.8 below, the officers of the Company shall have such powers, duties and obligations as are from time- to-time designated by the Members Committee or the Operating Committee. 8 4.8 SENIOR EXECUTIVES. 4.8.1 Subject to the provisions of Section 4.9 and 4.10 below, the Members hereby delegate to and authorize the Senior Executive-Saban Entertainment, to manage, control and supervise, in all respects and particulars, SEI and any other businesses allocated to Senior Executive-Saban Entertainment pursuant to Section 4.8.3 hereof (collectively, the "SEI Managed Businesses"), and the business, activities, operations, assets, obligations and liabilities of the SEI Managed Businesses. The rights, powers and duties of the Senior Executive-Saban Entertainment shall, to the maximum extent permitted by law, and subject to any contractual obligations of the SEI Managed Businesses, include any and all rights, powers and obligations with respect to the SEI Managed Businesses which under Delaware laws are granted to the shareholders, board of directors, general managers and/or executive officers of the SEI Managed Businesses, including but not limited to, the right to appoint and remove the directors of the SEI Managed Businesses, to determine the retention, termination, and designation and appointment of all corporate officers and other employees, and to delegate any of such duties and responsibilities to other officers and employees of the SEI Managed Businesses. The rights, powers and authorities delegated to the Senior Executive-Saban hereunder shall include, but not be limited to, the exercise of all rights, powers and authorities of the Company with respect to SEI under the Management Agreement. 4.8.2 Subject to the provisions of Sections 4.9 and 4.10 below, the Members hereby delegate to and authorize the Senior Executive- Children's Network to manage, control and supervise, in all respects and particulars, FCN, FCNH Sub and FCP, and any other businesses allocated to Senior Executive- Children's Network pursuant to Section 4.8.3 hereof (collectively, the "Children's Network Managed Businesses")and the business, activities, operations, assets, obligations and liabilities of the Children's Network Managed Businesses. The rights, powers and duties of the Senior Executive- Children's Network hereunder shall, to the maximum extent permitted by law, and subject to any contractual obligations of the Children's Network Managed Businesses, include any and all rights, powers and obligations with respect to each such Person which, under the Delaware laws are granted at law to the shareholders, board of directors, general managers and/or executive officers of the Children's Network Managed Businesses, including but not limited to, the right to appoint and remove the directors of the Children's Network Managed Businesses, to determine the retention, termination, and designation and appointment of all corporate officers and other employees, and to delegate any of such duties and responsibilities to other officers and employees of the Children's Network Managed Businesses. The rights, powers and authorities delegated to the Senior Executive-Children's Network hereunder shall include, but not be limited to, 9 the exercise of all rights, powers and authorities of the Company with respect to FCN and FCP under the Management Agreement. 4.8.3 For purposes of this Agreement, those assets assigned to the Management Company at the closing under the Formation Agreement pursuant to that certain Asset Assignment Agreement of even date herewith and any operating assets acquired after the date hereof (such as a separate kid's service or production company), shall be allocated by the Members Committee to either or both of the Children's Network Managed Businesses and the SEI Managed Businesses. 4.9 OPERATIONAL VETO RIGHTS. 4.9.1 [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXX] 10 4.10 SALE OF MORE THAN ONE-THIRD ORIGINAL INTEREST. Upon the occurrence of a Triggering Event with respect to SEI or FCNH, then (x) the rights of the applicable Senior Executive under Section 4.9 above shall terminate, (y) a quorum for the conduct of business by the Members Committee and Operating Committee under Sections 4.2.2 and 4.4 shall be modified to mean a majority of the Committee Members of the Company, in the case of the Members Committee, and a majority of the members of the committee, in the case of the Operating Committee, (z) the requirement that action by the Members Committee or Operating Committee be approved by a majority of the Class I Committee Members and a majority of the Class II Committee Members shall terminate, and all further action shall take place solely upon vote of a majority of those entitled to vote thereon, and (aa) the class of Committee Members to be appointed by FCNH and Saban, as the case may be, shall be reduced by one-half and the number of representatives from such class on the Operating Committee shall be reduced by one-half, and (bb) the right of FCNH or Saban, as the case may be, to appoint the applicable Senior Executive pursuant to Section 4.7.2 shall terminate. Upon the occurrence of a Terminating Event, the applicable party (FCNH in the case of a Terminating Event with respect to FCNH and Saban with respect to a Terminating Event with respect to SEI) shall lose all rights to appoint Committee Members to the Members Committee of the Company and all other approval rights provided for in this Agreement. For purposes of this Agreement, a Triggering Event with respect to SEI or FCNH shall be deemed to occur on such date as the SEI Stockholders or FBC, respectively, transfer more than one-third (after adjustment for any stock splits, stock dividends, reorganization or recapitalization effected after the date hereof) of the number of shares of SEI Common Stock or FCNH Common Stock which they own at the date hereof; provided, however, that any transfer effected pursuant to Section 3(b) or 3(c) of the Strategic Stockholders Agreement shall not be deemed a transfer for these purposes. A Terminating Event with respect to SEI or FCNH shall be deemed to occur on such date as the SEI Stockholders or FBC, respectively, transfer more than two-thirds (after adjustment for any stock splits, stock dividends, reorganization or recapitalization effected after the date hereof) of the number of shares of SEI Common Stock or FCNH Common Stock which they own at the date hereof; provided, however, that any transfer effected pursuant to Section 3(b) or 3(c) of the Strategic Stockholders Agreement shall not be deemed a transfer for these purposes. 4.11 INDEMNIFICATION. The officers, Committee Members, employees and agents of the Company shall be entitled to be indemnified by the Company for any action taken or failure to act within the scope of the authority conferred on the Member by this Agreement or by law, unless such action or omission was performed or omitted in bad faith, involved intentional misconduct or a knowing violation of law. This right of indemnification shall not be construed as being in lieu of, or otherwise limiting, any right 11 that any party may have under any agreement providing for indemnification by the Company, any Member or any Operating Entity. 4.12 SPECIAL PROVISION RELATED TO ISRAEL LICENSEE. SEI currently licenses and distributes certain of its properties (e.g., motion pictures, television programs, other productions, merchandising and license rights) in the country of Israel through Israel Audiovisual Corporation (the "Israeli ------------------ Licensee"). Notwithstanding anything to the contrary contained herein or in any of other Alliance Agreement, so long as Saban is the Senior Executive-Saban Entertainment, SEI may distribute and/or license all current or future properties of the Company, FCN and SEI to the Israel Licensee on the same basis as SEI currently distributes its properties in Israel. Notwithstanding the foregoing, SEI shall not grant rights to the Israeli Licensee that conflict with or restrict the Company's ability to grant to others satellite broadcast rights in a territory including Israel. 4.13 SABAN RECEIVABLE. At the date hereof, Saban owes SEI an amount equal to $2,649,000. Notwithstanding anything to the contrary contained herein, effective as of the date hereof, SEI shall forgive the payment of such amount and Saban shall have no further liability with respect thereto. 4.14 FIDUCIARY DUTIES. Notwithstanding anything to the contrary contained herein, each of the Members, on its own behalf and on behalf of its Affiliates, agrees that it will exercise the governance rights and veto rights accorded to it pursuant to this Agreement and the other Alliance Agreements in good faith and in a manner it believes to be in the best interests of the Company and the Members taken as a whole and shall not exercise any of such rights for the purpose of exploiting a business opportunity itself separate from the Company. ARTICLE 5 CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS, ALLOCATION OF TAX ITEMS; MEMBER LOANS; - ------------------------------------------------------------------------------- DISTRIBUTIONS ------------- 5.1 INITIAL CAPITAL CONTRIBUTIONS. 5.1.1 Each of SEI, FBC and FCNH have made initial capital contributions to the Company as provided in the Formation Agreement. 5.1.2 SEI shall make an additional capital contribution in an amount up to $14.5 million to the Company to the extent the Members Committee determines that such contribution is necessary in 12 order to allow the Company to make the first installment payment due on the FBC Loan referred to in Section 5.8 hereof. 5.1.3 For purposes of this Agreement, any payment to the Company by FBC pursuant to Section 10(i)(B) of the Strategic Stockholders Agreement shall constitute a capital contribution by FBC. 5.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Other than as set forth in Section 5.1 hereof or pursuant to the provisions of Section 5.9.1 hereof, no Member is required to make any additional capital contribution to the Company and no such additional capital contribution may be made by any Member without the approval of the Members Committee. 5.3 MAINTENANCE OF CAPITAL ACCOUNTS. A Capital Account shall be established and maintained on the books of the Company for each Member. 5.4 ALLOCATION OF TAX ITEMS. "Net Income" and "Net Loss" shall mean, with respect to each taxable year of the Company, the net income or net loss of the Company for such taxable year for federal and state income tax purposes, including, without limitation, each item of Company taxable income, loss, deduction or credit and any net gain or net loss from the sale, exchange or other disposition of Company assets. 5.4.1 Net Income for each taxable year of the Company (the "Subject Taxable Year") shall be allocated to the Members as follows: (a) First, to the Members to the extent that aggregate Net Losses allocated to them pursuant to Section 5.4.2 hereof, from the inception of the Company, are in excess of aggregate Net Income allocated to them pursuant to this Section 5.4.1(a), from the inception of the Company, in accordance with the ratio of such excesses, until all such excesses shall have been eliminated. (b) Second, to the Class A Member, to the extent of the excess, if any, of (i) the aggregate of the amounts distributed to it under Sections 5.7.3, 5.7.4, 8.4.1(c) and 8.4.1(d) with respect to all taxable years of the Company up to and including the Subject Taxable Year over (ii) the aggregate Net Income allocated to it under this Section 5.4.1(b) for all taxable years of the Company prior to the Subject Taxable Year. (c) Third, to the Class B Members in accordance with their Interests in the Company. 13 5.4.2 Net Loss for each taxable year of the Company shall be allocated to the Members in accordance with their Interest in the Company. 5.4.3 Notwithstanding any provision in this Section 5, if by reason of any of the transactions set forth in this Agreement or the Asset Assignment Agreement any Member is treated as receiving imputed interest from the Company, any corresponding deduction allowed to the Company for such interest shall be specially allocated to the Member which is treated as receiving such imputed interest. 5.4.4 Notwithstanding any provision in this Section 5, if any distribution to a Member under this Section 5 is treated as a payment to a Member other than in its capacity as a Member and such payment constitutes income to such Member for tax purposes, any deduction allowed to the Company by reason of such treatment shall be specially allocated to such Member. 5.5 NEGATIVE CAPITAL ACCOUNTS. Except to the extent the Members make contributions to the capital of the Company, no Member shall be required to pay to the Company or to any other Member any deficit or negative balance which may exist from time to time in such Member's Capital Account. 5.6 TAX DISTRIBUTIONS. The Company shall make mandatory distributions of Distributable Cash to cover the actual tax liability of the Members with respect to their allocable share of the income of the Company, except that no such distributions shall be made to cover any Member's tax liability with respect to any income allocated to it under Section 5.4.1(a) or Section 5.4.1(b) hereof. In no event shall distributions be made under this Section 5.6 to the Class A Member until the aggregate Net Income allocated to it from the inception of the Company exceeds the aggregate Net Losses allocated to it from the inception of the Company by $50,000,000. 5.7 ADDITIONAL DISTRIBUTIONS. Unless the Members Committee of the Company determines otherwise (which discretion shall terminate at the time of a Triggering Event), the Company shall distribute all of its Distributable Cash at the end of each fiscal year within 90 days thereafter in the following order of priority: 5.7.1 First, as provided in Section 5.6 hereof; 5.7.2 Second, to reduce the principal balance on the FBC Loan prov1 ided for in Section 5.8 hereof until such principal balance has been paid in full; 14 5.7.3 Third, to FBC in payment of the Company's obligations under Section 9.3.15 hereof until such obligation is paid in full; 5.7.4 Fourth, to the Class A Member until the Class A Member has received aggregate distributions under this Section 5.7.4 in the aggregate amount of $40 million, after which the Class A Member shall not have any further right to receive any distributions hereunder. 5.7.5 Fifth, to the Class B Members as from time to time determined by the Members Committee. 5.8 FBC LOAN. FBC shall loan the Company $64.5 million interest free on the date of this Agreement, which loan (the "FBC Loan") shall (i) be evidenced by a separate unsecured promissory note reasonably acceptable to the Company and FBC which contains the terms summarized in this Section 5.8 and otherwise terms and conditions customary in commercial transactions, and (ii) be repaid in installments, the first installment being in the amount of $14.5 million and payable on July 15, 1996 and the remaining installments payable solely out of Distributable Cash as provided in Section 5.7.2 and liquidation proceeds as provided in Section 8.4.1(b) hereof. 5.9 TRANSFER OF DISTRIBUTABLE CASH TO THE COMPANY; DIVIDENDS. 5.9.1 In the event any Distributable Cash is located in the accounts of any Operating Entity and the Company is obligated under this Agreement to distribute such Distributable Cash, then the Members shall cooperate with one another in order to arrange for a transfer of such Distributable Cash to the Company for distribution to the Members. 5.9.2 Further, FCNH agrees to cause FCN to make a dividend payment to FCNH Sub at the time or times during each fiscal year that FCN distributes net profits to its station affiliates in the amount that would have been payable to Fox Television Stations, Inc. on behalf of the Designated Fox O&Os (as defined in the Asset Assignment Agreement dated as of the date hereof by and between FBC and the Company (the "Asset Assignment Agreement") pursuant to the terms of the Station Affiliate Agreements between such entities and FCN had such Station Affiliate Agreements not been amended in accordance with the provisions of the Asset Assignment Agreement. 5.10 RETURN OF DISTRIBUTIONS. Except for distributions made in violation of the Delaware Act or this Agreement, no Member shall be obligated to return any distribution to the Company or pay the amount of any distribution for the account of the Company or to any 15 creditor of the Company. The amount of any distribution returned to the Company by a Member or paid by a Member for the account of the Company or to a creditor of the Company shall be added to the account or accounts from which it was subtracted when it was distributed to the Member. 5.11 NO INTEREST. No Member shall be entitled to receive any payment or accrual in the nature of interest on such Member's capital contributions. 5.12 TAX MATTERS PARTNER. The Members Committee shall designate one of the Members as the "tax matters partner" (as defined in the Code). The Tax Matters Partner shall take no action which is reasonably likely to have a material adverse affect on one or more of the Members unless such action is approved by the Members Committee or the Operating Committee. 5.13 TAXATION AS A PARTNERSHIP. The Members intend that, for federal and state tax purposes, the Company should and will be taxed as a partnership. The Members agree to cooperate and to take such steps as are reasonably necessary, if any, by amendment of this Agreement or otherwise to assure that the Company will be taxed as a partnership. ARTICLE 6 EXCULPATION; INDEMNIFICATION ---------------------------- 6.1 NO LIABILITY. No Member, officer, director, partner, shareholder, employee, attorney, trustee, manager or adviser of any Member or any of the Operating Entities shall be liable, accountable or responsible in damages or otherwise to a Member or the Company for any action taken or failure to act within the scope of the authority conferred on the Member or such other Person by this Agreement or with regard to this Agreement by law, unless such action or omission was performed or omitted in bad faith, involved intentional misconduct or a knowing violation of law. 6.2 COMPANY INDEMNITY OBLIGATIONS. The Company shall indemnify and hold harmless each of the Members, their respective Affiliates, and their respective officers, directors, partners, shareholders, employees, attorneys, trustees, managers, advisers and agents (the "Indemnified Parties") from and against any and all losses incurred by any of them by reason of any acts, omissions or alleged acts or omissions by any of the Indemnified Parties (i) undertaken or omitted in the good faith belief that such act or omission was in furtherance of the Company's Business, (ii) undertaken or omitted not in contravention of this Agreement, and (iii) other than where such loss is incurred as a result of any actual or threatened civil, criminal, administrative or 16 investigative action, proceeding or claim; provided, however, that if an Indemnified Party is finally determined by any court of competent jurisdiction or by any arbitrator to have acted or omitted to act in a manner which is in contravention of the standard set forth in any of the foregoing clauses (i), (ii) or (iii), the Indemnified Party shall repay all amounts paid or reimbursed by the Company. 6.3 SETTLEMENT; PROCEDURES. The Company shall not be required to indemnify any Indemnified Party for any amount paid or payable by such Indemnified Party in the settlement of any action, proceeding or investigation agreed to without the written consent of such Company (which consent shall not be unreasonably withheld or delayed). Promptly after receipt by an Indemnified Party of notice of its involvement in any action, proceeding or investigation, such Indemnified Party shall, if a claim in respect thereof is to be made against the Company under this Section, notify Company in writing of such involvement. No failure by such an Indemnified Party to so notify the Company shall relieve the Company from the obligation to indemnify such Indemnified Party unless and to the extent that the Company shall have been actually prejudiced by such failure. To the extent it wishes, the Company shall be entitled to assume the defense of any action that is the subject of this Section with counsel reasonably satisfactory to such Indemnified Party; provided, -------- however, that such Indemnified Party may retain its own counsel at its expense - ------- if representation of both such Indemnified Party and the Company would, in the reasonable judgment of such Indemnified Party, be inappropriate due to actual or potential differing interests between them. 6.4 WITHDRAWAL. This Article 6 shall survive the withdrawal of any Member from the Company and any termination or dissolution of the Company: provided, however, that in no event shall any Member (or former Member) be - -------- ------- liable for any liability or obligation resulting from acts or omissions which occurred following such withdrawal, termination or dissolution except as expressly provided in this Agreement. 6.5 SETTLEMENTS CONDITIONED UPON FULL RELEASE. The Company will not, without the prior written consent of each affected Indemnified Party, settle or compromise any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought under this Article 6, unless such settlement or compromise includes a full and unconditional release of each such Indemnified Party from all liability arising out of such claim, action, suit or proceeding, reasonably satisfactory in form and substance to such Indemnified Party. 6.6 SUBROGATION. If any Indemnified Party receives payment or other indemnification from the Company with respect to any claim or demand by any third Person against the Indemnified Party, the 17 Company shall be subrogated to the extent of such payment or indemnification to all rights in respect of the subject matter of such claim to which the Indemnified Party may be entitled, to institute appropriate action for the recovery thereof, and the Indemnified Party agrees to provide reasonable levels of assistance and cooperation to the Company, in enforcing such rights; provided, however, that no right of subrogation shall exist in favor of the - -------- ------- Company to institute any action for the recovery of any amount from any officer or Member of the Members Committee or any officer or director of any Member, if the actions of such officer, director or Member of the Members Committee giving rise to the indemnified claim would prohibit indemnification by the Company of such officer, director or Member of the Members Committee under this Agreement solely because such officer, director or Member of the Members Committee did not meet the applicable standard of conduct set forth in this Agreement, and not as a result of the unavailability of indemnification as a result of any public policy or for any other reason. ARTICLE 7 BOOKS OF ACCOUNT, ACCOUNTING AND REPORTS ---------------------------------------- 7.1 BOOKS AND RECORDS. The books and records of the Company shall be kept, and the financial position and the results of its operations recorded, in accordance with the GAAP. The books and records of the Company shall reflect all Company transactions and shall be appropriate and adequate for the Company's business. 7.2 INSPECTION RIGHTS. Each Class B Member and any of its designated representatives has the right, upon reasonable request for purposes reasonably related to the interest of the Person as a Member, to inspect and copy, at the Company's expense, during normal business hours any of the Company books and records. 7.3 ANNUAL AND QUARTERLY STATEMENTS. 7.3.1 Within 45 days following the end of each fiscal quarter of the Company, the Members Committee shall prepare and submit or cause to be prepared and submitted to the Class B Members an unaudited income statement for such fiscal quarter and a balance sheet as of the end of such quarter, in each case (where applicable) with information for the comparable period during the prior fiscal year of the Company and further, in each case prepared in accordance with GAAP. 7.3.2 Within 90 days following the end of each fiscal year of the Company, the Members Committee shall prepare and submit or cause to be prepared and submitted to the Class B Members (i) an audited balance sheet, together with audited income statements, 18 Members equity and changes in financial position for the Company during such fiscal year; a report on activities during the fiscal year; and an audited statement showing any amounts distributed to a Member in respect of such fiscal year. 7.3.3 The Members Committee shall cause to be prepared at least annually, at the expense of the Company, information necessary for the preparation of the Members' federal and state income tax returns. The Members Committee shall send or cause to be sent to each Member within 60 days after the end of each taxable year such information as is necessary to complete its federal and state income tax or information returns, and, a copy of the Company's federal, state, and local income tax or information returns for that year. 7.4 CERTIFIED PUBLIC ACCOUNTANTS. Until otherwise determined by the Members Committee, Ernst & Young LLP shall serve as the outside accountants for the Company. 7.5 BANK ACCOUNTS. All funds and monies of the Company shall be deposited in its name in such accounts and at such banks as shall be from time to time determined by the Members Committee. 7.6 TAX ELECTIONS. All federal or state income tax elections, and other tax policy determinations shall be subject to approval of the Members Committee. ARTICLE 8 DISSOLUTION AND LIQUIDATION OF THE COMPANY ------------------------------------------ 8.1 DISSOLUTION. The Company shall dissolve upon the happening of any one of the following events: 8.1.1 Any event which results in the Company having less than two Members. 8.1.2 The Bankruptcy, death, retirement, withdrawal, or incapacity of any Member, unless the remaining Members determine to continue the existence of the Company. Each of SEI and FCNH hereby agree to continue the existence of the Company notwithstanding the termination of FBC's Class A Membership pursuant to the provisions of Section 3.2 hereof. 8.2 EFFECT OF DISSOLUTION. The dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until this Agreement has been canceled and the assets of the Company shall have been distributed as provided in Section 8.4 of this Agreement and the Delaware Act. Notwithstanding the dissolution of the 19 Company, prior to the termination of the Company, the business of the Company and the affairs of the Members, as such, shall continue to be governed by this Agreement. The dissolution of the Company shall not result in the termination or modification of any provision of any other agreement between the Company and any of its Members or Affiliates thereof except as provided in such other agreement. 8.3 NO RECOURSE AGAINST MEMBERS FOR DISTRIBUTION. Except as expressly provided herein to the contrary, each Member shall look solely to the assets of the Company for all distributions with respect to the Company, for return of its capital contribution thereto, for its share of net profit or net loss, and for any other payment in respect of its interest in the Company, and shall have no recourse therefor (upon dissolution or otherwise) against the other Members. 8.4 LIQUIDATION. 8.4.1 Upon dissolution of the Company, the Class B Members shall liquidate the assets of the Company, and after allocating all Net Income or Net Loss for the fiscal year in which such dissolution occurs (including any capital gain or loss resulting from the disposition of such assets) in accordance with Section 5.4 hereof and shall apply and distribute the proceeds thereof (a) first, to the payment of the obligations of the Company to third parties, to the expenses of liquidation, and to the setting up of any reserves for contingencies which the Members may consider necessary, (b) second, to FBC to retire any remaining outstanding and unpaid principal on the FBC Loan, (c) third, to FBC in an amount equal to the positive difference, if any, between $10 million and the aggregate of all payments out of Distributable Cash paid to FBC pursuant to Section 5.7.3 hereof, (d) fourth, to the Class A Member in an amount equal to the positive difference, if any, between $40 million and the aggregate of all distributions of Distributable Cash distributed to the Class A Member pursuant to Section 5.7.4 hereof, and (e) the balance to the Class B Members in accordance with their respective Capital Accounts (as adjusted to reflect the aforesaid allocation of Net Income or Net Loss). 8.4.2 Notwithstanding Section 8.4.1, in the event that the Class B Members determine that an immediate sale of all or any portion of the Company's assets would cause undue loss to the Members, the Class B Members, in order to avoid such loss, may either defer liquidation of and withhold from distribution for a reasonable time any assets of the Company except those necessary to satisfy the Company's debts and obligations, or distribute the assets to the Members in kind. 8.4.3 If any assets of the Company are to be distributed in kind, such assets shall be distributed on the basis 20 of the fair market value thereof, and any Member entitled to any interest in such assets shall receive an interest therein as a tenant-in-common with all other Members so entitled. 8.4.4 The Members Committee or surviving Member shall cause the cancellation of this Agreement following the liquidation and distribution of all of the Company's assets. 8.4.5 Notwithstanding anything in this Article 8 to the contrary, in the event of dissolution as required in Section 8.1.1 the Members shall work with one another to arrive at terms and conditions for the ordinary and equitable dissolution of the Company. 8.4.6 No Member shall have any obligation to restore any deficit balance in such Member's Capital Account upon completion of the liquidation described in this Section 8.4. ARTICLE 9 MISCELLANEOUS PROVISIONS ------------------------ 9.1 MISCELLANEOUS. In this Agreement, headings are for con venience only and shall not affect interpretation, and except to the extent that the context otherwise requires: (a) references to any legislation or to any provision of any legislation include any modification or re-enactment of, or any legislative provision substituted for, and all statutory instruments issued under, such legislation or such provision; (b) words denoting the singular include the plural and vice versa; (c) words denoting individuals include corporations and other Persons and vice versa; (d) words denoting any gender include all genders; (e) references to any document, agreement or other instrument (including this Agreement) include references to such document, agreement or other instrument as amended, novated, supplemented or replaced from time to time; (f) references to clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits are to clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits of this Agreement; (g) "or" is not exclusive; (h) "$", and all other references to dollar amounts, are in U. S. currency; (i) references to any party to this Agreement or any other document, agreement or other instrument includes its successors or permitted assigns; and (j) "writing" and cognate expressions include all means of reproducing words in a tangible and permanently visible form. 9.2 RIGHTS PERSONAL TO FCNH AND SABAN. Each and every right and obligation which refers to "Saban" or FCNH is personal to Saban or FCNH, as the case may be, and shall not attach to, or be deemed to relate to or concern the Shares held by Saban or FCNH; and thus, without the prior written consent of both Saban and FCNH none of 21 such rights or obligations may be assigned, delegated or transferred to any other Person; provided, however, that in the event of the incompetency or death -------- ------- of Saban, all rights granted to Saban hereunder shall be exercisable by his conservator, executor or administrator, or by a single Person from time to time designated by SEI Stockholders then holding a majority of the then outstanding Shares of SEI Common Stock held by all SEI Stockholders. 9.3 NOTICES. All notices, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given (i) if delivered in person, upon delivery thereof, or (ii) if mailed, certified first class mail, postage pre-paid, with return receipt requested, on the fifth day after the mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed on the same day in the manner provided in (ii) above, when transmitted and receipt is confirmed by telephone or telex or facsimile response, or (iv) if otherwise actually delivered, when delivered: 9.3.1 If to FCNH: FCN Holding, Inc. FOX INC. 10201 W. Pico Boulevard Los Angeles, CA 90035 SVP Legal Affairs Fox Television Group Attention: Jay Itzkowitz, Esq. Fax: (310) 369-2572 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Attention: Harry Horowitz, Esq. Fax: (212) 697-6686 9.3.2 If to FBC: FOX INC. 10201 W. Pico Boulevard Los Angeles, CA SVP Legal Affairs Fox Television Group Attention: Jay Itzkowitz, Esq. Fax: (310) 369-2572 22 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Attention: Harry Horowitz, Esq. Fax: (212) 697-6686 9.3.3 If to Saban or SEI: Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, CA 90024 Fax: (310) 235-5108 With a copy to: Matthew G. Krane, Esq. 2051 Hercules Drive Los Angeles, CA 90046 Fax: (213) 851-1178 and with a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard, Suite 800 Los Angeles, California 90024 Attention: Richard E. Troop, Esq. Fax: (310) 443-8503 or at such other address or addresses as may have been furnished by such Person in like manner to the other parties. 9.3.4 SEVERABILITY. Should any Section or any part of a Section within this Agreement be rendered void, invalid or unenforceable by any court of law for any reason, such invalidity or unenforceability shall not void or render invalid or unenforceable any other Section or part of a Section in this Agreement. 9.3.5 GOVERNING LAW. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. 9.3.6 NO ADVERSE CONSTRUCTION. The rule that a contract is to be construed against the party drafting the contract 23 is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. 9.3.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 9.3.8 COSTS AND ATTORNEYS' FEES. In the event that any action, suit, or other proceeding is instituted concerning or arising out of this Agreement, the prevailing party shall recover all of such party's costs, and attorneys' fees incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall mean the full and actual costs of any legal services actually rendered in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services, and shall not be limited to "reasonable attorneys' fees" as defined by any statute or rule of court. 9.3.9 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Agreement, all rights, covenants and agreements of the parties contained in this Agreement shall be binding upon and inure to the benefit of their respective successors and permitted assigns. Except as otherwise specifically set forth herein, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 9.3.10 AMENDMENTS AND WAIVERS. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of each of the Class B Members and Saban; provided, however, that no such amendment or -------- ------- waiver shall extend to or affect the obligation to make distributions to the Class A Member pursuant to Sections 5.7.2, 5.7.3, 5.7.4, 8.4.1(b), 8.4.1(c) or 8.4.1(d) without the consent of the Class A Member; and provided further, that ---------------- no such amendment or waiver shall extend to or affect any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder. 24 9.3.11 ENTIRE AGREEMENT. This Agreement, the attached Exhibits and Schedules and the agreements referred to herein and therein, together contain the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof unless expressly referred to herein. No party to this Agreement makes any representation or warranty except as expressly set forth herein. 9.3.12 AGREEMENT TO PERFORM REQUIRED ACTS. Each party hereto agrees to perform any further acts and to execute and deliver any further documents that may be reasonably necessary to carry out the provisions hereof, that may be required to secure performance of any party's duties hereunder or that may be required to assure the legal and binding effect of the provisions hereof. 9.3.13 CONSENT TO JURISDICTION; FORUM SELECTION. Any actions, suits or proceedings instituted in connection with this Agreement or the performance by the parties of their obligations hereunder shall be instituted and maintained exclusively in the Superior Court for the State of California, County of Los Angeles or in the United States District Court for the Central District of California. By execution and delivery hereof, each party hereto hereby consents, for itself and in respect of its property, to the jurisdiction of the aforesaid courts solely for the purpose of adjudicating its rights or obligations under, or any disputes involving, this Agreement or any document related hereto. Each party hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, without limitation, any objection that the other corporate party or parties lack the capacity to sue or defend based upon its or their lack of a certificate of qualification to conduct intrastate business in California, and any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have ----- --- ---------- to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related hereto. 9.3.14 DEADLOCK. The parties intend that any controversy or dispute with regard to the management of the Company which results in a deadlock between them, or between members of the Members Committee or the Operating Committee, is to be resolved between them without the intervention of any court or other tribunal and each party expressly waives the right or power to seek relief (including, but not limited to dissolution) from any court (whether sitting in law or equity) with respect thereto. 9.3.15 ADMINISTRATION AGREEMENT. Pursuant to Section 10.2 of the Asset Assignment Agreement, the Company has assumed all of the executory obligations of FBC under that certain Administration Agreement by and between FCN and FBC dated as of 25 February 7, 1990 ("Administration Agreement"). For so long as FCNH remains a Member hereunder, it shall be the sole responsibility of FBC to carry out all of such obligations on behalf of the Company. FBC shall receive a fixed fee in the amount of $10,000,000 in consideration of all services performed under this Section, which amount shall be solely paid out of Distributable Cash or liquidation proceeds as provided in Sections 5.7.3 and 8.4.1(c). The Company may, upon delivery of six months notice to FBC, release FBC from any and all of its obligations under this Section 9.3.15, provided that such release shall not -------- ---- affect FBC's right to receive its fee hereunder, and provided further, that such -------- ------- release shall not affect the obligations in the Administration Agreement assumed by Company. 26 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SABAN ENTERTAINMENT, INC. By: /s/ Haim Saban ---------------------------- Haim Saban Its: Chief Executive Officer 27 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. FCN HOLDING, INC. By: /s/ Jay Itzkowitz ------------------------------ Its: Senior Vice President FOX BROADCASTING COMPANY By: /s/ Jay Itzkowitz ------------------------------ Its: Senior Vice President 28 EXHIBIT A DEFINED TERMS Definitions. As used in the Agreement to which this Exhibit is attached ----------- (the "Agreement"), the following terms shall have the following meanings: "AFFILIATE" shall mean, any Person which directly or indirectly controls, or is controlled by, or is under common control with another Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "ALLIANCE AGREEMENTS" shall have the meaning set forth in the Formation Agreement. "ASSET ASSIGNMENT AGREEMENT" means that certain Asset Assignment Agreement, dated as of the date hereof, by and among, inter alia, FBC and the ----- ---- Company. "BANKRUPTCY" means: (a) the filing of an application by a Member for, or its consent to, the appointment of, a trustee, receiver or custodian of its assets; (b) the entry of an order for relief with respect to a Member in proceedings under the United States Bankruptcy Code, as amended from time to time; (c) the making by a Member of a general assignment for the benefit of creditors; (d) the entry of an order, judgment or decree by any court of competent jurisdiction appointing a trustee, receiver or custodian of the assets of a Member unless the proceedings and the Person appointed are dismissed within one hundred twenty (120) days; or (e) the failure by a Member generally to pay its debts as the debts become due within the meaning of Section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the admission by a Member in writing of its inability to pay its debts as they become due. "CAPITAL ACCOUNTS" mean capital accounts maintained for the Members in accordance with Section 1.704-1(b) of the Treasury Regulations. "CERTIFICATE OF FORMATION" means the Certificate of Formation of the Company in the form set forth in Schedule 2.1, which has been filed with the ------------ Secretary of State of the State of Delaware. 29 "CLASS A MEMBER" means FBC. "CLASS B MEMBERS" means SEI and FCNH. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY" shall mean FOX KIDS WORLDWIDE, L.L.C., the limited liability company formed hereby. "COMPANY'S BUSINESS" shall have the meaning set forth in Section 2.5 of this Agreement. "DELAWARE ACT" shall mean the Limited Liability Company Act of the State of Delaware as the same may be amended from time to time. "DISTRIBUTABLE CASH" means, at the time a determination of Distributable Cash is made, the amount of cash which the Members Committee reasonably determines is available for distribution to Members taking into account all cash amounts, debts, liabilities, and obligations of the Company and each of the Operating Entities then due and after setting aside reserves ("Reserves") in an amount reasonably deemed necessary to provide for the Company's or such Operating Entities' current or planned capital expenditures, debt service, working capital and expansion plans. If the Members Committee is unable to agree as to the amount of the Reserves, then Reserves shall be maintained in an amount equal to $30 Million. "FBC" shall mean the Fox Broadcasting Company, a Delaware corporation. "FBC COMMON STOCK shall have the meaning ascribed to such term in the Strategic Stockholders Agreement. "FBC LOAN" shall have the meaning set forth in Section 5.8 of this Agreement. "FBC SERVICE FEE" shall have the meaning set forth in Section 9.3.15 of this Agreement. "FCN" means the Fox Children's Network, Inc., a Delaware corporation, and its direct and indirect subsidiaries. "FCNH SUB" means FCNH Sub, Inc., a Delaware corporation and a wholly owned subsidiary of FCNH and the parent of FCN and FCP. "FCNH" means FCN Holding, Inc., a Delaware corporation. 30 "FCP" means Fox Children's Productions, Inc., a Delaware corporation. "FORMATION AGREEMENT" shall have the meaning set forth in the Recitals to this Agreement "GAAP" means generally accepted principles as in effect on the date hereof. "INTEREST IN THE COMPANY" shall mean with respect to each Member its "partner's interest in the partnership," as such term is defined in Section 704(b) of the Code and the Treasury Regulations thereunder. "LOESCH" means Margaret Loesch. "MANAGEMENT AGREEMENT" means that certain Management Agreement, dated as of the date hereof, by and among FCNH Sub, SEI and the Company. "MANAGEMENT DECISION NOTICE" shall have the meaning set forth in Section 4.9.1 of this Agreement. "MEMBER(S)" shall mean individually each of the Class A Members and the Class B Members and collectively all of the foregoing. "MEMBERS COMMITTEE" shall have the meaning set forth in Section 4.1.1 of this Agreement. "OPERATING AGREEMENT" shall mean this Operating Agreement entered into by and between SEI, FBC and FCNH. "OPERATING COMMITTEE" shall mean that certain operating committee established by the Members Committee pursuant to Section 4.4 of the Operating Agreement. "OPERATING ENTITIES" shall mean and include SEI, FCN and FCP and their respective subsidiaries. "PERSON" means an individual, partnership, corporation, limited liability company, limited liability partnership, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "SABAN" means Haim Saban. "SEI" means Saban Entertainment, Inc., a Delaware corporation, and its direct and indirect subsidiaries. 31 "SEI STOCKHOLDERS AND SEI COMMON STOCK shall have the meanings ascribed to such terms in the Strategic Stockholders Agreement. "STRATEGIC SHAREHOLDERS AGREEMENT" shall mean that certain Strategic Shareholders Agreement dated as of the date hereof by and between, among others, SEI, FCNH, Saban, FBC and the SEI Stockholders named therein. "TERMINATING EVENT" shall have the meaning set forth in Section 4.10 of this Agreement. "TREASURY REGULATIONS" means the Treasury Regulations, as amended, adopted by the Internal Revenue Service under the Code. "TRIGGERING EVENT" shall have the meaning set forth in Section 4.10 hereof. 32 EX-10.13 17 AMEND NO. 1 TO OPERATING AGREEMENT DATED 9/26/96 Exhibit 10.13 AMENDMENT NO. 1 to OPERATING AGREEMENT This Amendment No. 1 to the Operating Agreement (the "Amendment") is made and entered into as of September 26, 1996, by and among Saban Entertainment, Inc. ("SEI"), FCN Holding, Inc. ("FCNH") and Fox Broadcasting Company ("FBC"), which are each Delaware corporations. R E C I T A L S - - - - - - - - A. SEI, FCNH and FBC are parties to that certain Operating Agreement, dated as of December 22, 1995 (the "Agreement"). All terms defined in the Agreement which are not defined in this Amendment shall have the same meanings when used in this Amendment. B. The parties desire to amend the Agreement to reflect agreed upon modifications and deletions of various sections thereof. C. Pursuant to Section 9.3.10 of the Agreement, Sections 3.2, 5.7.4 and 8.4.1(d) of the Agreement may be amended only with the written consent of each of the Class B Members, Saban and the Class A Member. D. The parties to this Amendment have determined that it is in the best interest of all of the parties that the obligation to pay $10 million to FBC pursuant to Section 9.3.15 of the Agreement be fixed and unconditional. E. Concurrently with the execution of this Amendment, Fox Kids Worldwide, L.L.C. (the "LLC") has paid to FBC $10 million representing the full satisfaction of all obligations owing to FBC related to the services heretofore performed and hereafter to be performed by FBC for and on behalf of the LLC pursuant to Section 9.3.15 of the Agreement and that certain Agreement re Obligations under Administration Agreement. F. Upon receipt of the $10 million from the LLC, FBC concurrently has paid $10 million to the LLC in exchange for an additional $10 million of Class A Members Interests in the LLC. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing facts, the parties hereto agree as follows: 1. Section 3.2 of the Agreement is amended to read in full as follows: 3.2 Class A Member. FBC shall be a Class A Member hereunder. As a Class A Member, FBC shall have the right to receive distributions of Distributable Cash pursuant to Section 5.7.4 hereof, distributions on dissolution or liquidation pursuant to Section 8.4.1(d) hereof and allocations of net profits and net losses and similar items from the Company as expressly provided for in Section 5.4 hereof, but shall not have any other rights of a Member including, without limitation, the right to vote or participate in the management or any right to information concerning the business and affairs of the Company. FBC's Class A membership in the Company shall terminate at such time as FBC shall receive aggregate distributions from the Company under Sections 5.7.4 and 8.4.1(d) or otherwise in an aggregate amount equal to $50 million. 2. Section 5.4.1(b) of the Agreement is amended to read in full as follows: Second, to the Class A Member, to the extent of the excess, if any, of (i) the aggregate of the amounts distributed to it under Sections 5.7.4 and 8.4.1(d) with respect to all taxable years of the Company up to and including the Subject Taxable Year over (ii) the aggregate Net Income allocated to it under this Section 5.4.1(b) for all taxable years of the Company prior to the Subject Taxable Years. 3. Section 5.7.3 of the Agreement is amended to read in full as follows: 5.7.3 [Intentionally deleted.] 4. Section 5.7.4 of the Agreement is amended to read in full as follows: 5.7.4 Third, to the Class A Member until the Class A Member has received aggregate distributions under this Section 5.7.4 in the aggregate amount of $50 million, after which the Class A Member shall not have any further right to receive any distributions hereunder. 5. Section 5.7.5 of the Agreement is amended to read in full as follows: 5.7.5 Fourth, to the Class B Members as from time to time determined by the Members Committee. 6. Section 8.4.1(c) of the Agreement is amended to read in full as follows: (c) [Intentionally deleted.] 7. Section 8.4.1(d) of the Agreement is amended to read in full as follows: (d) third, to the Class A Member in an amount equal to the positive difference, if any, between $50 million and the aggregate of all distributions of Distributable Cash distributed to the Class A Member pursuant to Section 5.7.4 hereof. 8. Section 9.3.15 of the Agreement is amended by adding the following sentence at the end of such Section. From and after the date of that certain Agreement re Obligation Under Administration Agreement between FBC and the Company, this Section 9.3.15 shall have no further force or effect. 9. Except as expressly modified herein, all terms of the Operating Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. SABAN ENTERTAINMENT, INC. By /s/ Haim Saban -------------------------- Haim Saban Its: Chief Executive Officer FOX BROADCASTING COMPANY FCN HOLDING, INC. By /s/ Jay Itzkowitz By /s/ Jay Itzkowitz ---------------------- --------------------------- Jay Itzkowitz Jay Itzkowitz Its: Senior Vice President Its: Senior Vice President The Undersigned hereby consents and agrees to the foregoing Amendment, as of the date first above written. /s/ Haim Saban ---------------------------- Haim Saban EX-10.15 18 ASSET ASSIGNMENT AGREEMENT DATED 12/22/95 Exhibit 10.16 Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "x" indicating deleted information. Exhibit 10.15 ASSET ASSIGNMENT AGREEMENT This Asset Assignment Agreement is entered into as of this 22nd day of December, 1995 by and between Fox Kids Worldwide L.L.C. (the "Management Company"), on the one hand, and Fox, Inc. ("Fox"), Fox Broadcasting Company ("FBC"), Twentieth Century Fox Film Corporation ("Twentieth"), Fox Television Stations, Inc. ("FTSI") and FCN Holding, Inc. ("FCNH") (Fox, FBC, Twentieth, FTSI and FCNH being collectively referred to herein as the "Fox Parties" and each being individually referred to as a "Fox Party"), on the other hand. WHEREAS, the Management Company, a Delaware limited liability company, currently owned by Saban Entertainment, Inc. ("SEI"), FBC and FCNH, and the Fox Parties desire to enter into this Agreement in connection with the Management Company's creation, operation and management of an integrated children's entertainment business; and WHEREAS, the Fox Parties, other than FBC, are direct or indirect Affiliates of FBC, each of which will be directly or indirectly benefitted by the formation and capitalization of the Management Company; and WHEREAS, pursuant to Section 1.2 of that certain LLC Formation Agreement dated as of November 1, 1995 ("LLC Formation Agreement") by and among SEI, FBC and FCNH, FBC is obligated to deliver this Agreement to the Management Company, in consideration for the acquisition by FBC of a membership interest therein; and WHEREAS, as an inducement to SEI to enter into and perform its obligations under that certain Operating Agreement of the Management Company dated as of the date hereof ("Operating Agreement") by and among SEI, FCNH Sub and FBC, the Fox Parties desire to enter into and perform their obligations under this Agreement; and WHEREAS, FCNH currently controls the Fox Children's Network, Inc. ("FCN"), as a wholly-owned second tier subsidiary; NOW THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto), the Management Company and the Fox Parties hereby agree as follows: 1. DEFINITIONS: Capitalized terms used but not defined herein shall have the ----------- respective meanings ascribed thereto in Exhibit "A" attached hereto and incorporated herein by this reference. 1 2. ASSIGNMENT OF MERCHANDISING AGREEMENT: ------------------------------------- 2.1. Assignment: The Fox Parties hereby irrevocably and unconditionally ---------- assign and transfer to the Management Company, effective as of June 1, 1995, all of the Fox Parties' right, title and interest in and to, and arising under, that certain Merchandising Rights Acquisition Agreement dated as of July 1, 1990 between Fox Licensing and FCN (the "Merchandising Agreement"), free and clear of any Liens, other than Excepted Liens; in addition, the Fox Parties hereby irrevocably and unconditionally assign and transfer to the Management Company, effective as of June 1, 1995, all of the Fox Parties' right, title and interest, in their capacity as the licensor or transferor thereunder, in and to and arising under the Existing Merchandising Licenses (as defined in Paragraph 16.4.2 below), free and clear of any Liens. 2.2. Assumption of Obligations: The Management Company hereby assumes and ------------------------- agrees to perform all of the executory obligations of the Fox Parties under the Merchandising Agreement; in addition, the Management Company hereby assumes and agrees to perform all of the executory obligations of the Fox Parties, in their capacity as the licensor or transferor thereunder, under the Existing Merchandising Licenses. 2.3. Payment Adjustment: Concurrently with the execution of this ------------------ Agreement, the Fox Parties shall, and hereby agree to, pay to the Management Company an amount equal to the aggregate of the distribution fees and commissions received by or credited to the account of the Fox Parties in connection with the Merchandising Agreement during the period commencing on June 1, 1995 and concluding on the date hereof. 2.4. Remittance of Funds: If, at any time from and after the date hereof ------------------- and notwithstanding the assignment set forth in Paragraph 2.1 above, the Fox Parties, in their capacity as the former licensor or transferor thereunder, shall receive (or have credited to their account) any further sums under any Existing Merchandising Agreement, the Fox Parties shall be deemed to hold the same in trust for the Management Company and shall, and hereby agree to, promptly remit an amount equal to such sums, without deduction of any kind, to the Management Company. 3. ASSIGNMENT OF DISTRIBUTION AGREEMENT: ------------------------------------ 3.1. Assignment: The Fox Parties hereby irrevocably and unconditionally ---------- assign and transfer to the Management Company, effective as of June 1, 1995, all of the Fox Parties' right, title and interest in and to, and arising under, that certain Distribution Agreement dated as of September 1, 1990 between Twentieth and FCN (the "Distribution Agreement"), free and clear of 2 any Liens, other than Excepted Liens; in addition, the Fox Parties hereby irrevocably and unconditionally assign and transfer to the Management Company, effective as of June 1, 1995, all of the Fox Parties' right, title and interest, in their capacity as the distributor or transferor thereunder, in and to and arising under the Existing Distribution Licenses (as defined in Paragraph 16.5.2 below), free and clear of any Liens. 3.2. Assumption of Obligations: The Management Company hereby assumes and ------------------------- agrees to perform all of the executory obligations of the Fox Parties under the Distribution Agreement; in addition, the Management Company hereby assumes and agrees to perform all of executory obligations of the Fox Parties, in their capacity as the distributor or transferor thereunder, under the Existing Distribution Licenses. 3.3. Payment Adjustment: Concurrently with the execution of this ------------------ Agreement, the Fox Parties shall, and hereby agree to, pay to the Management Company an amount equal to the aggregate of the distribution fees and commissions received by or credited to the account of the Fox Parties in connection with the Distribution Agreement during the period commencing on June 1, 1995 and concluding on the date hereof. 3.4. Remittance of Funds: If, at any time from and after the date hereof ------------------- and notwithstanding the assignment set forth in Paragraph 3.1 above, the Fox Parties, in their capacity as the former distributor or transferor thereunder, shall receive (or have credited to their account) any further sums under any Existing Distribution Agreement, the Fox Parties shall be deemed to hold the same in trust for the Management Company and shall, and hereby agree to, promptly remit an amount equal to such sums, without deduction of any kind, to the Management Company. 4. ASSIGNMENT OF EXISTING SERIES PROPERTIES: ---------------------------------------- 4.1. Assignment: The Fox Parties, on behalf of the Fox Group, hereby ---------- irrevocably and unconditionally assign and transfer to the Management Company, effective as of June 1, 1995, all of the Fox Group's right, title and interest in and to, and in connection with, each of the television series described on Schedule "4.1" attached hereto (and incorporated herein by this reference) (each an "Existing Series Property" and collectively the "Existing Series Properties"), including, without limitation, the Fox Group's right to hereafter Exhibit and Exploit the same; without limiting the foregoing, the Fox Parties, on behalf of the Fox Group, hereby irrevocably and unconditionally assign and transfer to the Management Company, effective as of June 1, 1995, with respect to each Existing Series Property, all of the Fox Group's right, title and interest in and to: (i) the component parts of such Existing 3 Series Property, including, without limitation, the individual episodes thereof, the characters, storylines, music and artwork created in connection therewith and title(s) thereof; (ii) any and all physical materials embodying such Existing Series Property, or any episode thereof, including, without limitation, any and all filmed or videotaped materials, any and all sound materials and any and all animation cels; (iii) the right to produce (and/or authorize any Person to produce) additional theatrical, television or other productions based on such Existing Series Property (or on the component parts thereof), including new episodes thereof; and (iv) any and all agreements with third Persons, if any, relating to the Fox Group's acquisition, development and/or production of such Existing Series Property. 4.2. Restrictions: The Management Company's right to Exhibit and Exploit ------------ the rights assigned to the Management Company pursuant to Paragraph 4.1 above with respect to each Existing Series Property is: (i) subject to any pre- existing obligations or commitments in favor of third Persons arising under (a) any Existing Merchandising License and/or Existing Distribution License in connection with such Existing Series Property and/or (b) any of the agreements referred to in clause (iv) of Paragraph 4.1 above; and (ii) limited to the rights with respect to such Existing Series Property actually owned or controlled by the Fox Group (as set forth on Schedule "4.1"). 4.3. Payment Adjustment: Concurrently with the execution of this ------------------ Agreement, the Fox Parties shall, and hereby agree to, pay to the Management Company an amount equal to the aggregate "net" revenues (i.e., revenues less actual direct third party out-of-pocket costs) received by (or credited to the account of) the Fox Group, in their capacity as the Person(s) owning or controlling rights in and to the Existing Series Properties, during the period commencing on June 1, 1995 and concluding on the date hereof from the Exhibition or Exploitation of the Fox Group's rights with respect to the Existing Series Properties. 4.4. Remittance of Funds: If, at any time from and after the date hereof ------------------- and notwithstanding the assignment set forth in Paragraph 4.1 above, the Fox Group, in their capacity as the Person(s) formerly owning or controlling rights in and to the Existing Series Properties, shall receive (or have credited to their account) any further revenues from the Exhibition or Exploitation of the Fox Group's rights with respect to the Existing Series Properties, the Fox Parties shall be deemed to hold the same in trust for the Management Company and shall, and hereby agree to, promptly remit an amount equal to such "net" revenues, without any further deduction of any kind, to the Management Company. 4 5. FOX KIDS CLUB: ------------- 5.1. Assignment: The Fox Parties hereby assign and transfer to the ---------- Management Company, effective as of June 1, 1995 and free and clear of all Liens, other than Excepted Liens, the unincorporated division/operation of FBC which is doing business as the "Fox Kids Club". 5.2. Assumption of Obligations: The Management Company hereby assumes and ------------------------- agrees to perform all of the executory obligations of the "Fox Kids Club". 5.3. Access to Subscriber List: Notwithstanding the assignment set forth ------------------------- in Paragraph 5.1 above, the Fox Group shall continue to have a non-exclusive right of access to the Fox Kids Club subscriber list; the foregoing right of access shall be at no cost to the Fox Group. 6. FOX KIDS COUNTDOWN: ------------------ 6.1. Assignment: The Fox Parties hereby assign and transfer to the ---------- Management Company, effective as of June 1, 1995 and free and clear of all Liens, other than Excepted Liens, the unincorporated division/operation of FBC which is doing business as the "Fox Kids Countdown". 6.2. Assumption of Obligations: The Management Company hereby assumes and ------------------------- agrees to perform all of the executory obligations of the "Fox Kids Countdown". 7. LICENSE OF FOX NAME: The Management Company shall have the right to use ------------------- the name "Fox" and certain related trade and service names, marks, emblems and logos in connection with the Management Company's business, subject to and in accordance with the Fox License Agreement attached hereto as Exhibit "B" (and incorporated herein by this reference). 8. ACTIONS OF THE MANAGEMENT COMPANY HEREUNDER: The approval/decision-making ------------------------------------------- rights of the Management Company under this Agreement (including, without limitation, Paragraph 12 hereof), unless otherwise noted, shall be exercised by "Saban" (as defined in the Operating Agreement), until such time as a "Terminating Event" (as defined in the Operating Agreement) has occurred. 5 9. FBC AFFILIATION AGREEMENTS: -------------------------- 9.1. Affiliation Clearance Levels/Maintenance: ---------------------------------------- 9.1.1. Current Clearance Agreements: Schedule "9.1.1" attached ---------------------------- hereto (and incorporated herein by this reference) sets forth the existing clearance arrangements for FCN as of November 1, 1995. FBC shall use its best efforts to enforce all existing agreements with current FCN Station Affiliates. The existing agreements are substantially in the form of Exhibit "C" to the FBC Station Affiliation Agreement, a copy of which is attached hereto as Exhibit "C- 1" (and incorporated herein by this reference) and largely expire in 1998. 9.1.2. Clearance Levels: In the course of renewing Station ---------------- Affiliation Agreements, FBC shall (a) [XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] These obligations will run through the [XXXXXXXXXXXXXXXXXXXXXXXXXXXX] In determining whether or not FBC has met its clearance obligations, the following will apply: (a) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] (b) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] 9.1.3. Fox O&Os: FBC will have the following obligations with -------- regard to the Fox O&Os (in addition to its obligations under Paragraphs 9.1.1 and 9.1.2 above): (a) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]. 6 (b) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXX]. (c) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]. 9.1.4. For the Benefit of the Management Company: The Fox Parties ----------------------------------------- hereby acknowledge and agree that the undertakings and agreements by FBC pursuant to this Paragraph 9.1 are for the express benefit of, and are enforceable by, the Management Company. 9.2. Waiver of Right to Receive Certain Payments/Certain FBC -------------------------------------------------------- Payments/Dropped Stations/Re-Categorizing Stations: - -------------------------------------------------- 9.2.1. Waiver of Rights to Receive FCN Net Profits: FTSI, on behalf of ------------------------------------------- the Designated Fox O&Os and effective as of June 1, 1995, hereby irrevocably and unconditionally releases FBC and FCN from making, and waives any further right to receive or demand, any payment of FCN Net Profits which would have otherwise have become due and payable to the Designated Fox O&Os pursuant to the Station Affiliation Agreements to which they are a party (collectively, the "Designated Fox O&Os Waived Payments"). FTSI, for itself and on behalf of the Designated Fox O&Os, and FBC hereby agree to execute an amendment to each of the Station Affiliation Agreements to which the Designated Fox O&Os are a party confirming the waiver and release set forth in this Paragraph 9.2.1. Such amendments are attached hereto as Schedule 9.2.1. 9.2.2. Payment Adjustment: Concurrently with the execution of this ------------------ Agreement, the Fox Parties shall, and hereby agree to, cause FTSI, on behalf of the Designated Fox O&Os, to return and rebate to FCN an amount equal to any and all payments of FCN Net Profits (if any) received by (or credited to the account of) FTSI, for the account of the Designated Fox O&Os, during the period commencing on June 1, 1995 and concluding on the date hereof. 9.2.3. Dropped Stations: [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX ---------------- XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 7 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]. 9.2.4. [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] 10. ADMINISTRATION AGREEMENT: ------------------------ 10.1. Administration Agreement: The Fox Parties hereby irrevocably and ------------------------ unconditionally assign and transfer to the Management Company, effective as of June 1, 1995, all of the Fox Parties' right, title and interest in and to, and arising under, that certain Administration Agreement dated as of February 7, 1990 between FBC and FCN (the "Administration Agreement"), free and clear of any Liens, other than Excepted Liens. 10.2. Assumption of Obligations: The Management Company hereby assumes ------------------------- and agrees to perform all of the executory obligations of FBC under the Administration Agreement. 8 10.3. Payment Adjustment: Concurrently with the execution of this ------------------ Agreement, the Fox Parties shall, and hereby agree to, pay to the Management Company an amount equal to the aggregate of the fees and commissions received by or credited to the account of FBC in connection with the Administration Agreement during the period commencing on June 1, 1995 and concluding on the date hereof. 10.4. Remittance of Funds: If, from and after the date hereof and ------------------- notwithstanding the assignment set forth in Paragraph 10.2 above, FBC shall receive (or have credited to its account) any further fees and commissions under the Administration Agreement, FBC shall be deemed to hold the same in trust for the Management Company and shall, and hereby agrees to, promptly remit an amount equal to such sums, without deduction of any kind, to the Management Company. 11. FOX NON-COMPETITION PROVISIONS: ------------------------------ The Fox Parties, on behalf of the Fox Group, hereby agree that the Fox Group will not compete with the Management Company (except and to the limited extent provided in Paragraph 12.2 below) as follows: (a) by operating a U.S. terrestrial broadcasting service featuring multiple programs transmitted as one or more discrete blocks of programming targeted at the 2-11 year old audience, other than FCN; and/or (b) by operating a programming service primarily targeted at the 2-11 year old audience in the U.S. by means of cable or other Non-Standard Television technology (specifically, excluding, however, any "on-line" computer service such as Delphi). For purposes of this Agreement, a programming service primarily targeted at the 2-11 year old audience, whether delivered by means of terrestrial broadcast television or Non-Standard Television, shall constitute a "Kids Service". 12. MANAGEMENT COMPANY OPPORTUNITIES: -------------------------------- 12.1. Programming Service Opportunities: --------------------------------- (a) The Fox Parties, on behalf of the Fox Group, shall offer ("Programming Service Offer") the Management Company the opportunity to own the following (each, an "Offered Programming Service"): any non-U.S. Kids Service which would bear the "Fox" name (in whole or in part). (b) If the Management Company does not decide to accept or conditionally accept (as set forth in Paragraph 12.1(d) below) 9 the Programming Service Offer within 20 days of the Management Company's receipt thereof, the Fox Group will be free to itself pursue the applicable Offered Programming Service on substantially the same terms as were offered to the Management Company pursuant to Paragraph 12.1.(a) above. In the case of a Programming Service Offer relating to an Offered Programming Service which broadcasts during only a portion of a day on a given satellite transponder or broadcast or cable channel, the Programming Service Offer presented by the Fox Parties will relate only to the portion of program time actually occupied by the Offered Programming Service. (c) In the event that the Fox Group is prepared to pursue an Offered Programming Service (which had been offered to but was ultimately not accepted by the Management Company) on terms which are not substantially the same terms as were offered to the Management Company pursuant to Paragraph 12.1.(a), the Fox Parties, on behalf of the Fox Group, shall first offer the Offered Programming Service to the Management Company on such other terms and conditions (a "Revised Programming Service Offer") before pursuing the same. If the Management Company does not decide to accept or conditionally accept (as set forth in Paragraph 12.1(d) below) the Revised Programming Service Offer within 20 days of the Management Company's receipt thereof, the Fox Group will be free to pursue the Offered Programming Service on substantially the same terms as were offered to the Management Company pursuant to this Paragraph 12.1.(c). The provisions of this Paragraph 12.1.(c) shall apply each time that the Fox Group is prepared to pursue an Offered Programming Service on terms which are not substantially the same as those last offered to the Management Company. (d) The Management Company shall have the right to condition its acceptance of a Programming Service Offer or a Revised Programming Service Offer, as applicable, upon the Management Company's securing of financing (on terms acceptable to the Management Company) for the applicable transaction and/or upon the Management Company's satisfaction with the outcome of its due diligence review of the Offered Program Service. If the Management Company gives a conditional acceptance, but does not, within the 25 business day period following immediately thereafter, unconditionally accept the applicable Programming Service Offer or Revised Programming Service Offer, the Fox Group will be free to itself pursue the applicable Offered Programming Service on substantially the same terms as were offered to the Management Company pursuant to applicable offer and the Management Group shall be deemed to have rejected the applicable offer (subject always, however, to the Management Company's continuing rights and the Fox Parties' continuing obligations under Paragraph 12.1(c) above). (e) If the Management Company accepts (as distinguished from the Management Company conditionally accepting) a Programming 10 Service Offer or a Revised Programming Service Offer pursuant to this Paragraph 12.2, the parties shall use good faith efforts to conclude the purchase and sale (or the creation, if applicable) of the applicable Offered Programming Service as expeditiously as is reasonably practicable, taking into account any and all regulatory or other legal requirements. 12.2. New Acquisitions: ---------------- (a) If the Fox Group acquires a business which includes a U.S. Kids Service (a "Business Acquisition"), the Fox Parties shall cause the Fox Group to allocate, in good faith, a portion of the Fox Group's total purchase price for the acquired business to such U.S. Kids Service (the "Proportionate Price"). (b) The Fox Parties shall then, on behalf of the Fox Group, offer ("Service Acquisition Offer") the Management Company the opportunity to acquire such U.S. Kids Service for the Proportionate Price. (c) If the Management Company does not decide to accept or conditionally accept (pursuant to Paragraph 12.2(e) below) the Service Acquisition Offer within 20 days of the date of the Management Company's receipt thereof, the Fox Group will be free to retain or dispose of such U.S. Kids Service as it sees fit, subject to Paragraph 12.2.(d) below. (d) If the Fox Group is prepared to dispose of a U.S. Kids Service (which had been offered to but was ultimately not accepted by the Management Company) for less than the Proportionate Price (the "Reduced Price"), the Fox Parties shall, on behalf of the Fox Group, first offer ("Revised Service Acquisition Offer") the U.S. Kids Service to the Management Company at the Reduced Price. If the Management Company does not decide to accept or conditionally accept (pursuant to Paragraph 12.2(e) below) the Revised Service Acquisition Offer within 20 days after the date of the Management Company's receipt thereof, the Fox Group will be free to retain or dispose of such U.S. Kids Service as it sees fit, subject to being obligated to re-offer the same to the Management Company pursuant to this Paragraph 12.2.(d) if (and each time that) the Fox Group offers to dispose of such U.S. Kids Service to a third Person at a price below the Reduced Price last offered to the Management Company pursuant to this Paragraph 12.2.(d). (e) The Management Company shall have the right to condition its acceptance of a Service Acquisition Offer or a Revised Service Acquisition Offer, as applicable, upon the Management Company's securing of financing (on terms acceptable to the Management Company) for the applicable transaction and/or upon the Management Company's satisfaction with the outcome of its due 11 diligence review of the offered U.S. Kids Service. If the Management Company gives a conditional acceptance, but does not, within the 25 business day period following immediately thereafter, unconditionally accept the applicable Service Acquisition Offer or Revised Service Acquisition Offer, the Fox Group will be free to retain or dispose of such U.S. Kids Service, subject always, however, to the Management Company's continuing rights and the Fox Parties' continuing obligations under Paragraph 12.2(d) above. (f) If the Management Company accepts (as distinguished from the Management Company conditionally accepting) a Service Acquisition Offer or Revised Service Acquisition Offer pursuant to this Paragraph 12.2, the parties shall use good faith efforts to conclude the purchase and sale of the applicable U.S. Kids Service as expeditiously as is reasonably practicable, taking into account any and all regulatory or other legal requirements. (g) In connection with any U.S. Kids Service which the Management Company has elected to acquire hereunder, it shall be incumbent upon the Management Company to provide or otherwise secure the financing necessary to make the purchase thereof. If, notwithstanding the Management Company having exhausted all reasonable, commercially practicable means of securing the financing for such purchase, the Management Company is unable to secure the necessary financing, then the Fox Parties shall provide the necessary financing to the Management Company, on a market rate basis (with the balance of the terms and conditions of such financing to be negotiated at the time, in good faith and upon commercially reasonable terms, between the Fox Parties and the Management Company). (h) In the event that the Proportionate Price for a U.S. Kids Service allocated by the Fox Group is greater than or equal to fifty percent (50%) of the price of the corresponding Business Acquisition, the Management Company shall have the right, at any time within 20 days after the Management Company's receipt of the applicable Service Acquisition Offer (or 25 business days after the Management Company's conditional acceptance of the applicable Service Acquisition Offer, if applicable), to elect to submit the issue of the proper valuation of the Proportionate Price to binding arbitration (in accordance with the rules and procedures of the American Arbitration Association). In such event, all relevant time periods set forth in this Paragraph 12.2 shall be "tolled" until the resolution of the arbitration. 12.3. Fox Originated Programs: ----------------------- (a) The Fox Parties shall, on behalf of the Fox Parties and their Controlled Affiliates, offer ("First Run Exhibition Offer") the Management Company the opportunity to acquire the first 12 run exhibition rights (at a minimum) to any new programming suitable to a Kids Service ("New Kids Programming") prior to its sale/license to any third Person; provided, that the foregoing shall be subject to Paragraph 12.3(b) below. The parties specifically acknowledge that the rights offered by the Fox Parties as part of a First Run Exhibition Offer may (but need not) include, without limitation, the right to produce the applicable New Kids Programming and/or the right to acquire and exploit the motion picture and/or the allied and ancillary rights in connection with the applicable New Kids Programming. (b) Notwithstanding the provisions of Paragraph 12.3(a) above: (i) the Fox Parties are free to license, in their sole discretion, the first run exhibition rights to any New Kids Programming to any broad based entertainment network (which is not a Kids Service) for (but only for) prime time or late night broadcast/cablecast (e.g., such rights may be licensed to ABC, CBS, NBC, ---- USA or HBO for prime time or late night broadcast/cablecast, but not the Cartoon Channel or Nickelodeon); and (ii) the term "New Kids Programming" shall not include programming produced for or on behalf of the Fox Group which is derived from properties originally launched by the Fox Group other than on FCN (e.g., ---- none of the following would constitute "New Kids Programming" for purposes of this Paragraph 12.3: a children's version of THE SIMPSONS, an animated show ------------ featuring characters from HOME ALONE, or an animated version of a Harper Collins ---------- book such as Where The Wild Things Are). ------------------------- (c) If the Management Company does not decide to accept (or conditionally accept, pursuant to Paragraph 12.3(e) below) the First Run Exhibition Offer within 20 days of the Management Company's receipt thereof, the Fox Group will be free to enter into a first run exhibition agreement with a third Person with respect to the applicable New Kids Programming, subject to Paragraph 12.3.(d) below. (d) In the event that the Fox Group is prepared to enter into an agreement with a third Person with respect to any New Kids Programming (which had been offered to but was ultimately not accepted by the Management Company) on terms and conditions less favorable to the Fox Group than those last offered to the Management Company, the Fox Parties shall, on behalf of the Fox Group, first offer ("Revised First Run Exhibition Offer") the applicable New Kids Programming to the Management Company on such other terms and conditions. If the Management Company does not decide to accept (or conditionally accept, pursuant to Paragraph 12.3(e) below) the Revised First Run Exhibition Offer within 20 days after the date of the Management Company's receipt thereof, the Fox Group will be free to enter into a first run exhibition agreement with a third Person with respect to the applicable New 13 Kids Programming, subject to being obligated to re-offer the same to the Management Company pursuant to this Paragraph 12.3.(d) if (and each time that) the Fox Group offers to license the first run exhibition rights to such New Kids Programming to a third Person on terms and conditions less favorable to the Fox Group than those last offered to the Management Company pursuant to this Paragraph 12.3.(d). (e) The Management Company shall have the right to condition its acceptance of a First Run Exhibition Offer or a Revised First Run Exhibition Offer, as applicable, upon the Management Company's securing of financing (on terms acceptable to the Management Company) for the applicable transaction and/or upon the Management Company's satisfaction with the outcome of its due diligence review of the offered New Kids Programming. If the Management Company gives a conditional acceptance, but does not, within the 25 business day period following immediately thereafter, unconditionally accept the applicable First Run Exhibition Offer or Revised First Run Exhibition Offer, the Fox Group will be free to enter into a first run exhibition agreement with a third Person with respect to the applicable New Kids Programming, subject always, however, to the Management Company's continuing rights and the Fox Parties continuing obligations under Paragraph 12.3(d) above. (f) If the Management Company accepts (as distinguished from the Management Company conditionally accepting) a First Run Exhibition Offer or Revised First Run Exhibition Offer pursuant to this Paragraph 12.3, the parties shall use good faith efforts to conclude the documentation evidencing such transaction as expeditiously as is reasonably practicable, taking into account any and all regulatory or other legal requirements. 13. OPPORTUNITIES TO BE MADE AVAILABLE TO THE FOX PARTIES: ----------------------------------------------------- 13.1. Programming: ----------- 13.1.1. Undertaking: The Management Company, on its own behalf and ----------- on behalf of FCN and the Management Company's Operating Entities, hereby agrees: (i) to make the programming of the Management Company, FCN and/or the Management Company's Operating Entities (collectively, the "MC Programming") available, at market rates, to program services which are offered to and rejected by the Management Company (pursuant to Paragraph 12.1 above) and which thereafter become owned or operated by the Fox Group (collectively, the "Covered Fox Services"); and (ii) to negotiate in good faith with any presently existing Fox or Fox-Affiliate-owned program services that desires to license some or all of the MC Programming. Notwithstanding the foregoing: (a) the Management Company shall have no obligation to the Fox Group in connection with any 14 particular Covered Fox Service above unless such Covered Fox Service shall commit to license, on a "pay-or-play" basis, not less than 80% of the MC Programming made available by the Management Company in the applicable market serviced by such Covered Fox Service; (b) the obligations set forth in clauses (i) and (ii) above, as they relate to the programming of the SEI Group, is subject to any pre-existing contractual obligations of the SEI Group in favor of third Persons; and (c) the Covered Fox Services shall not include any U.S. Kids Service offered to but rejected by the Management Company pursuant to Paragraph 12.2 above. 13.1.2. Exceptions/Restrictions: Notwithstanding the foregoing, the ----------------------- Management Company's obligation to make any particular MC Programming available to a Covered Fox Service shall be subject to: (i) any and all applicable Laws, (ii) any "holdback"-type restrictions applicable to such programming and (iii) any limitations or restrictions (including, without limitation, any limitations or restrictions expressed in terms of term, territory or media) on the rights controlled by the Management Company with respect to such programming. 13.1.3 Right to Sublicense: With respect to any MC Programming made ------------------- available to and licensed by a Covered Fox Service pursuant to this Paragraph 13.1.1, such Covered Fox Service shall have the right to sublicense the same (within the limits and restrictions of the applicable license); provided, that in no event shall any Covered Fox Service be entitled to sublicense any MC Programming within the United States. 13.2. Third Party Services: The Fox Group will have a right of first -------------------- negotiation and first refusal to provide, on market terms, any of the distribution services which the Fox Group provides in the normal course of their business and which are described on Schedule "13.2" attached hereto (and incorporated herein by this reference), which the Management Company, itself or on behalf of FCN and the Management Company Operating Entities, desires to obtain from a third Person provider ("Required Third Party Services"), as follows: (a) With respect to any such Required Third Party Services, the Management Company shall offer (a "Required Third Party Services Offer") the Fox Parties the opportunity to have the Fox Group perform such Required Third Party Services; provided, that the Management Company's foregoing obligation, as set forth above and as it relates to the programming of the SEI Group, is subject to any pre-existing contractual obligations of the SEI Group in favor of third Persons; provided further, that notwithstanding the foregoing obligation, the Management Company and any Management Company Operating Entities shall have the right to obtain the Required Third Party Services from Ventura Film 15 Distributors, B.V., a Netherlands corporation and/or Atalanta Films Australia (Pty) Ltd., an Australian corporation, without first offering the Fox Parties the opportunity to perform the same. (b) If the Fox Parties, on behalf of the Fox Group, do not decide to accept the Required Third Party Services Offer within 20 days of the Fox Parties' receipt thereof, the Management Company will be free to engage a third Person to perform the Required Third Party Services, subject to Paragraph 13.2.(c) below. (c) If the Management Company is prepared to enter into an agreement with a third Person to perform any Required Third Party Services (which had been offered to but not accepted by the Fox Parties) on terms and conditions less favorable to the Management Company than those last offered to the Fox Parties, the Management Company shall first offer ("Revised Required Third Party Services Offer") the applicable Required Third Party Services to the Fox Parties on such other terms and conditions. If the Fox Parties do not decide to accept the Revised Required Third Party Services Offer within 20 days after the date of the Fox Parties' receipt thereof, the Management Company will be free to enter into an agreement with a third Person with respect to the Required Third Party Services on such terms and conditions, subject to being obligated to re-offer the same to the Fox Parties pursuant to this Paragraph 13.2.(c) if (and each time that) the Management Company offers to engage a third Party to perform the applicable Required Third Party Services on terms and conditions less favorable to the Management Company than those last offered to the Fox Group pursuant to this Paragraph 13.2.(c). (d) If the Fox Parties accept a Required Third Party Services Offer or Revised Required Third Party Services Offer pursuant to this Paragraph 13.2, the parties shall use good faith efforts to conclude the documentation evidencing such transaction as expeditiously as is reasonably practicable, taking into account any and all regulatory or other legal requirements. (e) By way of clarification, the Fox Group's rights under this Paragraph 13.2 do not apply in the circumstance where the Management Company intends to perform the applicable distribution function itself or through a member thereof. For example, the Management Company is free to produce a motion picture version of one of its properties on its own, provided, however, that if the Management Company desires to engage an un-Affiliated third Person to distribute such motion picture, the Fox Group would have the rights described in Paragraphs 13.2(a)-(c) above. 14. FCN INDEMNIFICATION AGREEMENT: Concurrently herewith, FBC and FCN are ----------------------------- entering into an Indemnification Agreement in the form of Exhibit "D" attached hereto (and incorporated herein by this 16 reference). FBC hereby acknowledges and agrees that the Management Company, on behalf of (and if necessary, in the name of) FCN shall have the right to enforce FCN's rights arising thereunder. 15. COVENANT REGARDING CERTAIN FOX "PLATFORMS": The Fox Parties, on behalf of ------------------------------------------ the Fox Group, hereby agree they will not, and will not permit, any non-U.S. programming "platform" which is controlled by the Fox Group to solicit from any third Persons an equity interest in any Kids Service intended for possible inclusion within the applicable programming "platform"; however, the Fox Parties or such non-U.S. programming "platform" may take an equity interest in a third Person's Kids Service so long as that third Person initiated the discussions. 16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FOX PARTIES: ------------------------------------------------------------ The Fox Parties hereby represent, warrant and covenant as follows: 16.1. Corporate Power: Each of the Fox Parties has the requisite --------------- corporate power and authority to enter into this Agreement and to perform its obligations hereunder. 16.2. Duly Authorized: The execution and delivery of this Agreement --------------- by each of the Fox Parties and the consummation by each of the Fox Parties of the transactions contemplated hereby have been duly authorized and no other corporate proceeding or consent on the part of the Fox Parties is necessary to authorize this Agreement and the transactions contemplated hereby. 16.3. Power to Act on Behalf of the Fox Group: The Fox Parties have --------------------------------------- the right to act on behalf of, and to commit and obligate, the Fox Group in the manner contemplated by this Agreement. 16.4. Merchandising Agreement: ----------------------- 16.4.1. Exhibit "E" attached hereto (and incorporated herein by this reference) is a true and correct copy of the Merchandising Agreement (including any and all amendments, supplements, exhibits and/or schedules thereto). 16.4.2. Schedule "16.4.2" attached hereto (and incorporated herein by this reference) sets forth a true and complete listing of each and every presently effective license entered into by Fox Licensing pursuant to the exercise of its rights under the Merchandising Agreement (the "Existing Merchandising Licenses"). 17 16.4.3. Fox Licensing has not heretofore transferred or assigned any of its rights or interests in the Merchandising Agreement. 16.4.4. Fox Licensing has the right to freely assign to the Management Company (a) Fox Licensing's right, title and interest in and to the Merchandising Agreement and (b) Fox Licensing's right, title and interest in and to each of the Existing Merchandising Licenses. 16.4.5. Fox Licensing is not in breach or default of the Merchandising Agreement, nor, to the best knowledge of Fox Licensing (including that which it should have known in the exercise of reasonable prudence), is FCN; with respect to the each of the Existing Merchandising Licenses, Fox Licensing is not in breach or default thereof, nor, to the best knowledge of Fox Licensing (including that which it should have known in the exercise of reasonable prudence), is the licensee thereunder. 16.5. Distribution Agreement: ---------------------- 16.5.1. Exhibit "F" attached hereto (and incorporated herein by this reference) is a true and correct copy of the Distribution Agreement (including any and all amendments, supplements, exhibits and/or schedules thereto). 16.5.2. Schedule "16.5.2" attached hereto (and incorporated herein by this reference) sets forth a true and complete listing of each and every presently effective license entered into by Twentieth pursuant to the exercise of its rights under the Distribution Agreement (the "Existing Distribution Licenses"). 16.5.3. Twentieth has not heretofore transferred or assigned any of its rights or interests in the Distribution Agreement. 16.5.4. Twentieth has the right to freely assign to the Management Company (a) Twentieth's right, title and interest in and to the Distribution Agreement and (b) Twentieth's right, title and interest in and to each of the Existing Distribution Licenses. 16.5.5. Twentieth is not in breach or default of the Merchandising Agreement, nor, to the best knowledge of Twentieth (including that which it should have known in the exercise of reasonable prudence), is FCN; with respect to the each of the Existing Distribution Licenses, Twentieth is not in breach or default thereof, nor, to the best knowledge of Twentieth (including that which it should have known in the exercise of reasonable prudence), is the licensee thereunder. 18 16.6. Administration Agreement: ------------------------ 16.6.1. Exhibit "G" attached hereto (and incorporated herein by this reference) is a true and correct copy of the Administration Agreement (including any and all amendments, supplements, exhibits and/or schedules thereto). 16.6.2. FBC has not heretofore transferred or assigned any of its rights or interests in the Administration Agreement. 16.6.3. FBC has the right to freely assign to the Management Company all of FBC's right, title and interest in and to the Administration Agreement. 16.6.4. FBC is not in breach or default of the Administration Agreement, nor, to the best knowledge of FBC (including that which it should have known in the exercise of reasonable prudence), is FCN. 16.7. Existing Series Properties: -------------------------- 16.7.1. Schedule 4.1 attached hereto (and incorporated herein by this reference): (i) sets forth, as the "Existing Series Properties", a true and accurate list of the television series programming which was originally launched on FCN or which is derived from any television series programming which was originally launched on FCN; and (ii) fully and accurately sets forth, in summary form, the nature and extent of the Fox Group's rights in connection with each of the Existing Series Properties. 16.7.2. Neither the Existing Series Properties nor any part thereof infringes upon the copyright, common-law right or literary, dramatic, musical or motion picture right of any Person whomsoever; neither the Existing Series Properties nor any part thereof constitute a libel or defamation of any Person or an invasion of any other rights (including, without limitation, privacy or publicity rights) of any Person. Neither the use, reproduction, performance or exhibition of the Existing Series Properties, nor any part thereof, by or on behalf of the Management Company, nor the exercise of any of the rights therein which are included in the assignment set forth in Paragraph 4.1, will in any way infringe upon the rights of any Person. 16.7.3. The Fox Group has not granted, assigned, mortgaged, pledged or hypothecated any right, title and interest of any kind whatsoever in or to any of the Existing Series Properties, other than pursuant to the Merchandising License Agreement and/or the Distribution Agreement. 19 16.7.4. There are no Liens, other than Excepted Liens, on the Existing Literary Properties or adverse claims with respect thereto, nor is there pending any litigation involving the Existing Literary Properties or any part thereof. 16.8. FOX KIDS CLUB: ------------- 16.8.1. Schedule "16.8.1" attached hereto (and incorporated herein by this reference) sets forth a true and correct list of any and all agreements, written or oral, to which the "Fox Kids Club" is a party or to which the business or assets of the "Fox Kids Club" are subject which (i) creates any liability on the part of the "Fox Kids Club" or which commits or obligates the "Fox Kids Club" to incur any liability which is in excess of $200,000 and/or (ii) calls for the performance of services on the part of the "Fox Kids Club" over a time period in excess of one year. 16.8.2. FBC is the sole owner of all of the rights, businesses and assets of the "Fox Kids Club" and has not heretofore transferred or assigned any of its rights or interests therein to any third Person. 16.8.3. FBC has the right to freely assign to the Management Company all of FBC's right, title and interest in and to rights, businesses and assets of the "Fox Kids Club". 16.8.4. FBC is not in breach or default of any of the agreements, written or oral, to which the "Fox Kids Club" is a party or to which the businesses or assets of the "Fox Kids Club" are subject. 16.8.5. The aggregate liabilities of the "Fox Kids Club", both "on- balance sheet" and "off-balance sheet," (i) do not exceed, in the aggregate, $1,000,000 and (ii) do not include any liabilities arising after June 1, 1995 except in the ordinary course of the business of "Fox Kids Club." 16.8.6. The $5,000,000 indebtedness owed by "Fox Kids Club" to FBC as of November 1, 1995, has been irrevocably and unconditionally forgiven by FBC. 16.9. FOX KIDS COUNTDOWN: ------------------ 16.9.1. Schedule "16.9.1" attached hereto (and incorporated herein by this reference) sets forth a true and correct list of any and all agreements, written or oral, to which "Fox Kids Countdown" is a party or to which the business or assets of "Fox Kids Countdown" are subject which (i) creates any liability on the part of "Fox Kids Countdown" or which commits or obligates 20 "Fox Kids Countdown" to incur any liability which is in excess of $200,000 and/or (ii) calls for the performance of services on the part of "Fox Kids Countdown" over a time period in excess of one year. 16.9.2. FBC is the sole owner of all of the rights, businesses and assets of "Fox Kids Countdown" and has not heretofore transferred or assigned any of its rights or interests therein to any third Person. 16.9.3. FBC has the right to freely assign to the Management Company all of FBC's right, title and interest in and to rights, businesses and assets of "Fox Kids Countdown". 16.9.4. FBC is not in breach or default of any of the agreements, written or oral, to which "Fox Kids Countdown" is a party or to which the businesses or assets of "Fox Kids Countdown" are subject. 16.9.5 The aggregate liabilities of "Fox Kids Countdown", both "on- balance sheet" and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000 and (ii) do not include any liabilities arising after June 1, 1995 except in the ordinary course of the business of "Fox Kids Countdown". 16.10. STORY MAKERS, INC.: ------------------ 16.10.1. Story Makers, Inc., a Delaware corporation ("Story"), is a first-tier wholly-owned direct subsidiary of FCP and a second-tier wholly-owned indirect subsidiary of FCNH Sub. 16.10.2. Schedule "16.10.2" attached hereto (and incorporated herein by this reference) sets forth a true and correct list of any and all agreements, written or oral, to which Story is a party or to which the business or assets of Story are subject which (i) creates any liability on the part of Story or which commits or obligates Story to incur any liability which is in excess of $200,000 and/or (ii) calls for the performance of services on the part of Story over a time period in excess of one year. 16.10.3. The aggregate liabilities of Story, both "on-balance sheet" and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000 and (ii) do not include any liabilities arising after June 1, 1995 except in the ordinary course of the business of Story. 16.10.4. The $124,000 indebtedness owed by Story to FBC as of November 1, 1995, has been irrevocably and unconditionally forgiven by FBC. 21 16.11. FOX CHILDREN'S PRODUCTIONS, INC.: -------------------------------- 16.11.1. Fox Children's Productions, Inc., a Delaware corporation ("FCP"), is a first-tier wholly-owned direct subsidiary of FCNH Sub. 16.11.2. Schedule "16.11.2" attached hereto (and incorporated herein by this reference) sets forth a true and correct list of any and all agreements, written or oral, to which FCP is a party or to which the business or assets of FCP are subject which (i) creates any liability on the part of FCP or which commits or obligates FCP to incur any liability which is in excess of $200,000 and/or (ii) calls for the performance of services on the part of FCP over a time period in excess of one year. 16.11.3. The aggregate liabilities of FCP, both "on-balance sheet" and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000 and (ii) do not include any liabilities arising after June 1, 1995 except in the ordinary course of the business of FCP. 16.12. FOX CHILDREN'S MUSIC, INC.: -------------------------- 16.12.1. Fox Children's Music, Inc., a Delaware corporation ("FC Music"), is a first-tier wholly-owned direct subsidiary of FCN and a second-tier wholly-owned indirect subsidiary of FCNH Sub. 16.12.2. Schedule "16.12.2" attached hereto (and incorporated herein by this reference) sets forth a true and correct list of any and all agreements, written or oral, to which FC Music is a party or to which the business or assets of FC Music are subject which (i) creates any liability on the part of FC Music or which commits or obligates FC Music to incur any liability which is in excess of $200,000 and/or (ii) calls for the performance of services on the part of FC Music over a time period in excess of one year. 16.12.3. The aggregate liabilities of FC Music, both "on-balance sheet" and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000 and (ii) do not include any liabilities arising after June 1 1995 except in the ordinary course of the business of FC Music. 16.13. FOX KID'S MUSIC, INC.: --------------------- 16.13.1. Fox Kid's Music, Inc., a Delaware corporation ("FK Music"), is a first-tier wholly-owned direct subsidiary of FCN and a second-tier wholly- owned indirect subsidiary of FCNH Sub. 22 16.13.2. Schedule "16.13.2" attached hereto (and incorporated herein by this reference) sets forth a true and correct list of any and all agreements, written or oral, to which FK Music is a party or to which the business or assets of FK Music are subject which (i) creates any liability on the part of FK Music or which commits or obligates FC Music to incur any liability which is in excess of $200,000 and/or (ii) calls for the performance of services on the part of FK Music over a time period in excess of one year. 16.13.3. The aggregate liabilities of FK Music, both "on-balance sheet" and "off-balance sheet", (i) do not exceed, in the aggregate, $1,000,000 and (ii) do not include any liabilities arising after June 1, 1995 except in the ordinary course of the business of FK Music. 16.14. Consents: Except as set forth on Schedule 16.14 attached hereto -------- (and incorporated herein by this reference), neither the execution and delivery of this Agreement by the Fox Parties nor the consummation of the transactions pursuant hereto will require any consent, approval, or authorization of, waiver by, notification to, or filing with, any court, governmental agency or regulatory or administrative authority (each, a "Governmental Entity") on the part of the Fox Group. 16.15. No Violation: The execution and delivery of this Agreement by ------------ the Fox Parties and the performance by the Fox Parties of their obligations hereunder do not and will not (i) violate, conflict with, or constitute or result in a breach of, any term, condition or provision of, or constitute a default (or an event which, with notice or the lapse of time, or both, would constitute a default) under (A) the constitutive documents of any of the Fox Parties, or (B) any mortgage, indenture, loan or credit agreement or any other agreement or instrument to which any of the Fox Parties is a party, or pursuant to which any of the Fox Parties is the direct or indirect obligor, or by which any of the Fox Parties or any of their Affiliates' properties are bound or affected, (ii) violate any law, regulation, judgment, injunction, order or decree binding upon any of the Fox Parties or any of their Affiliates, (iii) result in the loss of any license, franchise, permit, legal privilege or legal right enjoyed or possessed by any of the Fox Parties or any of their Affiliates, or (iv) require the consent of any third Person (including a Governmental Entity). None of the Fox Parties and none of their Affiliates are in violation of any statute, judgement, decree, order, rule or regulation applicable to it, which, singly or in the aggregate, has materially adversely affected or could reasonably be expected to materially adversely affect such Person's ability to perform its obligations hereunder. 23 16.16. FCN Affiliated Stations: Schedule 9.1.1 sets forth a true and ----------------------- correct list of all current FCN Affiliated Stations as of November 1, 1995. The Fox Parties have heretofore provided the Management Company with a true and correct copy of the Station Affiliation Agreement (together with any and all Exhibits, Schedules, amendments or supplements thereto) currently in effect for each current FCN Affiliated Station. 16.17. Undertaking re Warner Bros. Agreement: The Fox Parties shall ------------------------------------- indemnify and hold harmless the "Management Company Indemnified Parties" (as defined in Paragraph 18.1 below), as well as FCN and the Management Company's Operating Entities, from and against all loss, cost, liabilities and expenses (including, without limitation, reasonable attorneys' fees, court costs and any judgment and settlement payments) or claims suffered by, incurred by or imposed upon any of the foregoing Persons by reason of any penalties arising under and/or any breach, or alleged breach, by FCN pursuant to, the May 29, 1991 "blind programming" agreement between FCN and Warner Bros. Domestic Television. For purposes of the indemnification obligation undertaken by the Fox Parties in this Paragraph 16.17, the indemnification provisions of 18.4 below shall apply hereto, as if herein set forth in full and as if all of the Persons entitled to indemnification under this Paragraph 16.17 were included in the collective term "Management Company Indemnified Parties" (as used therein). 16.18. Designated Fox O&Os Waived Payments: The waiver by FTSI, on ----------------------------------- behalf of the Designated Fox O&Os, of the right to receive the Designated Fox O&Os Waived Payments pursuant to Paragraph 9.2.1: (i) will not result in the Designated Fox O&Os Waived Payments being made available, or deemed available, for distribution as FCN Net Profits to any other FCN Affiliated Station(s); and (ii) will not give rise, under any FCN Affiliated Station's Station Affiliation Agreement, to any FCN Affiliated Station having the right to challenge or claim an interest in the dividend(s) from FCN to FCNH Sub contemplated under Section 5.9 of the Operating Agreement. 17. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MANAGEMENT COMPANY: ------------------------------------------------------------------- The Management Company hereby represents, warrants and covenants, as follows: 17.1. Power as L.L.C.: The Management Company has the requisite power --------------- and authority as a limited liability company to enter into this Agreement and to perform it obligations hereunder. 17.2. Duly Authorized: The execution and delivery of this --------------- Agreement by the Management Company and the consummation by 24 the Management Company of the transactions contemplated hereby have been duly authorized and no other limited liability company proceeding or consent on the part of the Management Company is necessary to authorize this Agreement and the transactions contemplated hereby. 17.3. Consents: Except as set forth on Schedule 17.3 attached hereto -------- (and incorporated herein by this reference), neither the execution and delivery of this Agreement by the Management Company nor the consummation of the transactions pursuant hereto will require any consent, approval, or authorization of, waiver by, notification to, or filing with, any Governmental Entity on the part of the Management Company. 17.4. No Violation: The execution and delivery of this Agreement by ------------ the Management Company and the performance by the Management Company of its obligations hereunder do not and will not (i) violate, conflict with, or constitute or result in a breach of, any term, condition or provision of, or constitute a default (or an event which, with notice or the lapse of time, or both, would constitute a default) under (A) the constitutive documents of the Management Company, or (B) any mortgage, indenture, loan or credit agreement or any other agreement or instrument to which the Management Company is a party, or pursuant to which the Management Company is the direct or indirect obligor, or by which the Management Company's properties are bound or affected, (ii) violate any law, regulation, judgment, injunction, order or decree binding upon any of the Management Company, (iii) result in the loss of any license, franchise, permit, legal privilege or legal right enjoyed or possessed by any of the Management Company, or (iv) require the consent of any third Person (including a Governmental Entity). The Management Company is not in violation of any statute, judgement, decree, order, rule or regulation applicable to it, which, singly or in the aggregate, has materially adversely affected or could reasonably be expected to materially adversely affect the Management Company's ability to perform its obligations hereunder. 18. INDEMNIFICATION: --------------- 18.1. The Fox Parties Indemnification of the Management Company: The Fox --------------------------------------------------------- Parties shall indemnify and hold harmless the Management Company (and the Management Company's Affiliates, and its and their respective directors, officers, employees, agents, successors, assigns and licensees) (collectively, the "Management Company Indemnified Parties") from and against all loss, cost, liabilities and expenses (including, without limitation, reasonable attorneys' fees, court costs and any judgment and settlement payments) or claims suffered by, incurred by or imposed upon the Management Company Indemnified Parties by reason of any breach by 25 the Fox Parties of any of the Fox Parties' representations, warranties, undertakings and covenants hereunder. 18.2. The Management Company's Indemnification of the Fox Parties: The ----------------------------------------------------------- Management Company shall indemnify and hold harmless the Fox Parties (and the Fox Parties' Affiliates, and its and their respective directors, officers, employees, agents, successors, assigns and licensees) (collectively, the "Fox Indemnified Parties") from and against all loss, cost, liabilities and expenses (including, without limitation, reasonable attorneys' fees, court costs and any judgment and settlement payments) or claims suffered by, incurred by or imposed upon the Fox Indemnified Parties by reason of any breach by the Management Company of any of the Management Company's representations, warranties, undertakings and covenants hereunder. 18.3. Limitations: ----------- (i) The parties' rights to indemnification under this Paragraph 18. shall be available only if the party entitled to indemnification pursuant to this Paragraph 18 delivers written notice to the party or parties required to provide indemnification, setting forth in detail the factual basis for indemnification and the amount thereof, or a good faith estimate thereof, sought to be indemnified (the "Indemnification Notice"). The indemnified party or parties shall use its or their best efforts to provide in its or their Indemnification Notice sufficient detail to enable the indemnifying party or parties to evaluate the claim. Except with respect to Indemnification Claims covered by Paragraph 18.4 (which relates to third party claims), within 30 days (the "Objection Period") of the date such Indemnification Notice is given, the indemnifying party shall respond to the Indemnification Notice. The indemnifying party shall be entitled to cure any default which is capable of cure during the Objection Period, and the amount of the claim for indemnification contained in the Indemnification Notice shall be reduced by the amount of the damages mitigated by cure. If the indemnifying party or parties agree in writing during the Objection Period to accept any of the claims included in the Indemnification Notice, such party shall promptly pay the amounts so agreed upon. In all other cases, the indemnified party or parties and the indemnifying party or parties shall use their respective good faith reasonable efforts to resolve the dispute within 60 days of the date such Indemnification Notice is given (the "Settlement Period"). If the dispute is not resolved within the Settlement Period, the parties shall be free to commence litigation to enforce their rights to indemnification under this Paragraph 18; provided, however, that if such -------- ------- litigation has not been commenced on or prior to twelve months following the date such Indemnification Notice is given, all rights of the indemnified party or parties to indemnification with respect to the matters set 26 forth in that Indemnification Notice shall be deemed to have been irrevocably waived and released by the indemnified party or parties, and shall terminate and expire. (ii) Notwithstanding any provisions of this Section 18. to the contrary, the Management Company's right to indemnification for breaches of the representations, warranties and covenants contained in Section 16 (other than Sections 16.17 and 16.18) shall be available only if the Management Company delivers an Indemnification Notice with respect to such claim prior to the date which is 24 months after the date of this Agreement (the "Section 18.3.(ii) Indemnification Period"). The rights of the Management Company to indemnification under this Section 18 relating to any other representation, warranty or covenant of the Fox Parties shall not be subject to the Section 18.3.(ii) Indemnification Period. (iii) Notwithstanding any provisions of this Section 18. to the contrary, the Fox Parties' rights to indemnification for breaches of the representations, warranties and covenants contained in Section 17 shall be available only if the Fox Parties deliver an Indemnification Notice with respect to such claim prior to the date which is 24 months after the date of this Agreement (the "Section 18.3.(iii) Indemnification Period"). The rights of the Fox Parties to indemnification under this Section 18 relating to any other representation, warranty or covenant of the Management Company shall not be subject to the Section 18.3.(iii) Indemnification Period. 18.4. Defense: If any of the indemnified parties is made or threatened ------- to be made a defendant in or party to any action or proceeding, judicial or administrative, instituted by any third Person for the liability under which or the costs or expenses of which any of the indemnified parties is entitled to be indemnified pursuant to Paragraph 18 (any such third party action or proceeding being referred to as an "Indemnification Claim"), the indemnified party or parties shall give prompt notice thereof to the indemnifying party; provided -------- that the failure to give such notice shall not affect the indemnified party or parties' ability to seek indemnification hereunder unless such failure has materially and adversely affected the indemnifying party or parties' ability to prosecute successfully an Indemnification Claim. Each indemnified party shall permit the indemnifying party, at its own expense, to assume the defense of any such claim or any litigation to which this Paragraph 18.4 may be applicable, by counsel reasonably satisfactory to the indemnified party or parties; provided, -------- that the indemnified party or parties shall be entitled at any time, at its or their own cost and expense (which expense shall not be recoverable from the indemnifying party unless the indemnifying party is not adequately representing or, because of a conflict of interest, may not adequately represent, the indemnified party or 27 parties' interests), to participate in such claim, action or proceeding and to be represented by attorneys of its or their own choosing. If the indemnified party or parties elects to participate in such defense, such party or parties will cooperate with the indemnifying party in the conduct of such defense. The indemnified party or parties may not concede, settle or compromise any Indemnification Claim without the consent of the indemnifying party. The indemnifying party, in the defense of any such claim or litigation, shall not, except with the approval of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party or parties of a full and complete release from all liability in respect to such claim or litigation. 19. MISCELLANEOUS: ------------- 19.1. Assignment: Neither this Agreement nor either party's rights and ---------- obligations hereunder may be assigned or otherwise transferred by the Fox Parties or the Management Company, either voluntarily or by operation of law, without the prior written consent of the other. Notwithstanding the foregoing either the Fox Parties or the Management Company may assign this Agreement or such party's rights and obligations hereunder, with or without the other's consent, to any Person with which it may be merged or consolidated or which acquires all or substantially all of its assets, provided that such assignee or transferee agrees in writing to assume all of the Fox Parties' or the Management Company's (as applicable) obligations hereunder; provided, that without the prior written consent of the non-assigning party, the assignor shall remain liable for its obligations hereunder. Any purported assignment or transfer by either party of any of its rights or obligations under this Agreement other than in accordance with the provisions of this Agreement shall be invalid and void and shall be of no force or effect whatsoever. 19.2. References, Etc.: In this Agreement, headings are for ---------------- convenience only and shall not affect interpretation, and except to the extent that the context otherwise requires: (i) references to any legislation or to any provision of any legislation include any modification or re-enactment of, or any legislative provision substituted for, and all statutory instruments issued under, such legislation or such provision; (ii) words denoting the singular include the plural and vice versa; (iii) words denoting individuals include corporations and other Persons and vice versa; (iv) words denoting any gender include all genders; (v) references to any document, agreement or other instrument (including this Agreement) include references to such document, agreement or other instrument as amended, novated, supplemented or replaced from time to time; (vi) "or" is not 28 exclusive; (vii) references to any party to this Agreement or any other document, agreement or other instrument referred to herein includes its permitted successors and assigns; and (vii) "writing" and cognate expressions include all means of reproducing words in a tangible and permanently visible form. 19.3. Confidentiality: All information submitted or disclosed by the Fox --------------- Parties or the Management Company to the other (the "Recipient") in accordance with the terms of this Agreement shall be deemed confidential, shall not be disclosed to any third Person, and shall be protected with the same degree of care as the Recipient uses for the protection of its own confidential and proprietary information. Such confidentiality obligations shall not apply to information which (i) has become available to the general public without breach of this Agreement by the Recipient; (ii) is disclosed to the Recipient by a third Person, without a similar restriction on such third Person's rights; (iii) is disclosed to the Recipient's bank or other financing institution provided that such Person agrees to keep the information confidential; (iv) is disclosed pursuant to judicial or administrative process, or in the opinion of Recipient's counsel, by the requirements of Law (state or federal) including, without limitation, a filing required under the Securities Act of 1933, the Securities Exchange Act of 1934 or any state securities law; (v) is disclosed to the Recipient's auditors or other advisers or (vi) is disclosed, to the limited extent required, to a third Person entitled to a profit participation in connection with an Existing Television Series, provided that such third Person to whom it is disclosed agrees to keep such information confidential. 19.4. Governing Law: THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY ------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. 19.5. No Adverse Construction: The rule that a contract is to be ----------------------- construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. 19.6. Counterparts: This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 29 19.7. Costs and Attorneys' Fees: In the event that any action, suit, ------------------------- or other proceeding is instituted concerning or arising out of this Agreement, the prevailing party shall recover all of such party's costs and attorneys' fees incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall mean the full and actual costs of any legal services actually rendered in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services, and shall not be limited to "reasonable attorneys' fees" as defined by any statute or rule of court. 19.8. Successors and Assigns: Except as otherwise provided in this ---------------------- Agreement, all rights, covenants and agreements of the parties contained in this Agreement shall be binding upon and inure to the benefit of their respective permitted successors and assigns. 19.9. Amendments and Waivers: Neither this Agreement nor any term ---------------------- hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of all of the parties hereto; provided, however, that no such amendment or waiver shall -------- ------- extend to or affect any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder. 19.10. Consent to Jurisdiction; Forum Selection: Any actions, suits or ---------------------------------------- proceedings instituted in connection with this Agreement or the performance by the parties of their obligations hereunder shall be instituted and maintained exclusively in the Superior Court for the State of California, County of Los Angeles or in the United States District Court for the Central District of California. By execution and delivery hereof, each party hereto hereby consents, for itself and in respect of its property, to the jurisdiction of the aforesaid courts solely for the purpose of adjudicating its rights or obligations under, or any disputes involving, this Agreement or any document related hereto. Each party hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, without limitation, any objection that the other corporate party or parties lack the capacity to sue or defend based upon its or their lack of a certificate of qualification to conduct intrastate business in California, and any objection to the laying of venue or based on 30 the grounds of forum non conveniens, which it may now or hereafter have ----- --- ---------- to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related hereto. 19.11. Capital Contribution: For purposes of this Agreement, all -------------------- rights, assets, monies and obligations transferred, assigned or delegated to the Management Company under or pursuant to this Agreement by any party hereto other than FBC shall constitute part of the capital contribution obligation of FBC under and pursuant to Section 1.2 of the LLC Formation Agreement, and, as between the Fox Parties, shall constitute a direct or indirect contribution to the capital of FBC. 19.12. Notice: Any notice or demand which either the Management Company ------ or the Fox Parties is required, or may desire, to give to the other shall be in writing and shall be given by addressing the same to the other at the address hereinafter set forth, or at such other address as may be designated in writing by any such party by notice given to the other in the manner prescribed in this Paragraph 19.12 and shall be deemed given by being so addressed and (i) delivered personally, (ii) deposited postage prepaid in the United States mail, (iii) delivered to a telegraph or cable company toll prepaid or (iv) sent by telecopy (or telefax), and the date of said personal delivery, deposit, telegraphing or the sending of such telecopy shall be the date of the giving of such notice; provided, however, that any notice alleging a default must be given by the means set forth in (i), (iii) or (iv) above. Any notice or demand to the Management Company shall be addressed as follows: Fox Kids Worldwide, L.L.C. c/o Fox Children's Network, Inc. 10201 W. Pico Boulevard Los Angeles, California 90035 Attn: Margaret Loesch and Fox Kids Worldwide, L.L.C. c/o Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, California 90024 Attn: Haim Saban 31 With a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard Suite 800 Los Angeles, California 90024 Attention: Richard E. Troop, Esq. Fax: (310) 443-8503 Any notice or demand to the Fox Parties shall be addressed as follows: c/o Fox, Inc. 10201 W. Pico Boulevard Los Angeles, CA 90035 SVP Legal Affairs Fox Television Group Attention: Jay Itzkowitz, Esq. Fax: (310) 369-2572 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Attention: Harvey Horowitz, Esq. Fax: (212) 697-6686 19.13. Severability: If any provision of this Agreement shall, for any ------------ reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any restriction or other provision of this Agreement shall for any reason be held to be too broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing such provision or restriction so as to be enforceable to the extent compatible with applicable law, the parties hereby agreeing that said restrictions and other provisions of this Agreement are fair and reasonable as at the date hereof. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 19.14. No Third Party Beneficiaries: Except as expressly otherwise ---------------------------- provided to the contrary in Paragraph 18.1 for the benefit of the Management Company Indemnified Parties and the Fox Indemnified Parties, as applicable, this Agreement is not for the 32 benefit of any third party and shall not be deemed to give any right or remedy to any such party whether referred to herein or not. 19.15. Audit Rights: The Management Company shall have the right, upon ------------ reasonable advance notice during normal business hours, to audit the books and records of the Fox Parties for the limited purpose of ensuring the Fox Parties compliance with their obligations hereunder. 19.16. Further Assurances: Each party to this Agreement agrees to ------------------ execute, acknowledge, deliver, file and record such further certificates, amendments, instruments, agreements and documents, and to do all such other acts and things, as may be required by Law or as may reasonably be necessary or advisable to carry out the intent and purposes of this Agreement. 19.17. Entire Agreement: This Agreement, the attached Exhibits and ---------------- Schedules, together contain the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof unless expressly referred to herein. No party to this Agreement makes any representation or warranty except as expressly set forth herein. 33 IN WITNESS WHEREOF, the Management Company and the Fox Parties have executed this Agreement as of the date first above written. FOX KIDS WORLDWIDE, L.L.C. By: /s/ Haim Saban ---------------------------------- Its: Senior Executive - Saban Entertainment FOX BROADCASTING COMPANY By: /s/ Jay Itzkowitz ---------------------------------- Its: Senior Vice President TWENTIETH CENTURY FOX FILM CORPORATION By: /s/ Jay Itzkowitz ---------------------------------- Its: Secretary FOX TELEVISION STATIONS, INC. By: /s/ Jay Itzkowitz ---------------------------------- Its: Senior Vice President FOX, INC. By: /s/ Jay Itzkowitz ---------------------------------- Its: Senior Vice President FCN HOLDING, INC. By: /s/ Jay Itzkowitz ---------------------------------- Its: Senior Vice President 34 EXHIBIT "A" DEFINITIONS As used in the Asset Assignment Agreement (and the other Exhibits and Schedules thereto) to which this Exhibit "A" is attached, the following terms shall have the following meanings: (a) "Administration Agreement" shall have the meaning ascribed thereto in -------------------------- Paragraph 10.1 of the Agreement. (b) "Affiliate" means, when used with reference to a specified Person, any ----------- Person that directly or indirectly through one or more intermediaries controls or is controlled by, or is under common control with, the specified Person. (c) "Affiliate Board" shall mean the Fox Broadcasting Company Affiliates' ----------------- Association Board of Governors. (d) "Affiliate Time" shall mean any commercial time occurring during FCN ---------------- Programming which has been allocated by FCN to the FCN Affiliated Stations, but for which FCN has been appointed, by the Affiliate Board, to administer the sale thereof on a national basis. (e) "Affiliated Station" shall mean a Station which is party to a Station -------------------- Affiliation Agreement with FBC. (f) "Agreement" shall mean the Asset Assignment Agreement to which this ----------- Exhibit "A" is attached, including all Exhibits thereto. (g) "Business Acquisition" shall have the meaning ascribed thereto in ---------------------- Paragraph 12.2.(a) of the Agreement. (h) "Control" (including as used in the terms "controlling", "controlled --------- by" and "under common control with") shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract (whether written or oral) or otherwise. (i) "Designated Fox O&Os" shall mean and refer to the following Stations --------------------- which are currently owned and operated by FTSI: WNYW (New York), KTTV (Los Angeles), WFLD (Chicago), KRIV (Houston), WTTG (Washington, D.C.), KSTU (Salt Lake City), WTXF (Philadelphia) and WFXT (Boston). 1 (j) "Designated Fox O&Os Waived Payments" shall have the meaning ascribed ------------------------------------- thereto in Paragraph 9.2.1 of the Agreement. (k) "Distribution Agreement" shall have the meaning ascribed thereto in ------------------------ Paragraph 3.1 of the Agreement. (l) "Excepted Liens", with respect to any particular asset(s), business(es) ---------------- or interest(s), shall mean liens which do not materially impair or diminish the value of the particular asset(s), business(es) or interest(s) at issue. (m) "Excluded Fox O&Os" shall have the meaning ascribed thereto in ------------------- Paragraph 9.4.4 of the Agreement. (n) "Exhibition" shall mean distribution, transmission, display, ------------ exhibition or performance and "Exhibit" shall mean to cause the Exhibition. -------- (o) "Existing Distribution Licenses" shall have the meaning ascribed -------------------------------- thereto in Paragraph 16.5.2 of the Agreement. (p) "Existing Merchandising Licenses" shall have the meaning ascribed --------------------------------- thereto in Paragraph 16.4.2 of the Agreement. (q) "Existing Series Properties" shall have the meaning ascribed thereto in ---------------------------- Paragraph 4.1 of the Agreement. (r) "Exploitation" shall include, without limitation, Exhibition, -------------- dissemination, publication, promotion, publicizing, advertising, reproduction, rental, lease, license, sublicense, transfer, disposing of, commercializing, merchandising, marketing, usage, trading in, turning to account, dealing with and in and otherwise exploiting by all means, methods, modes, processes, media devices and delivery systems of every kind and character (whether now known or hereafter created), and "Exploit" shall mean to cause the Exploitation. -------- (s) "FBC" shall mean Fox Broadcasting Company, a Delaware corporation. ----- (t) "FCN" shall mean Fox Children's Network, Inc., a Delaware corporation. ----- (u) "FCN Affiliated Station" shall mean an Affiliated Station which ------------------------ carries the FCN Programming. (v) "FCN Net Profits" shall mean the compensation paid by FBC to its ----------------- Affiliated Stations with respect to the "Net Profits" of FCN programming, as determined in accordance with FBC's current, standard, performance-based station compensation formula (as 2 modified to reflect a ratings base of kids) (or such other methodology as FBC, FCN and the Management Company shall hereafter mutually determine). (w) "FCN Programming" shall mean the programming made available by FCN to ----------------- FCN Affiliated Stations for broadcasting in the United States. (x) "FCNH" shall mean FCN Holdings, Inc., a Delaware corporation. ------ (y) "FCNH Sub" shall mean FCNH Sub, Inc., a Delaware corporation and a ---------- wholly-owned subsidiary of FCNH. (z) "First Run Exhibition Offer" shall have the meaning ascribed thereto ---------------------------- in Paragraph 12.3.(a) of the Agreement. (aa) "Fox" shall mean Fox, Inc., a Colorado corporation. ----- (ab) "Fox Group" shall mean, collectively, the Fox Parties and any and all ----------- Affiliates of the Fox Parties; provided, that for purposes of this Agreement, the "Fox Group" shall not include FCN (or any division or wholly-owned subsidiary of FCN); provided further, that the parties expressly acknowledge and agree that, for purposes of this Agreement, the Management Company shall not be included in the Fox Group. (ac) "Fox Indemnified Parties" shall have the meaning ascribed thereto in ------------------------- Paragraph 18.2 of the Agreement. (ad) "Fox Licensing" shall mean Fox Licensing and Merchandising, an --------------- unincorporated unit of Fox. (ae) "Fox O&O" shall mean the Stations in the United States which are, from --------- time to time, owned and operated by the Fox Group. (af) "Fox Partner" shall mean the member of the Fox Group which, from ------------- time-to-time, holds the Fox Group's interest in the Management Company; currently, FCNH is the Fox Partner. (ag) "FTSI" shall mean Fox Television Stations, Inc., a Delaware ------ corporation. (ah) "Governmental Entity" shall have the meaning ascribed thereto in --------------------- Paragraph 16.14 of the Agreement. (ai) "Indemnification Claim" shall have the meaning ascribed thereto in ----------------------- Paragraph 18.4 of the Agreement. 3 (aj) "Indemnification Notice" shall have the meaning ascribed thereto in ------------------------ Paragraph 18.3 of the Agreement. (ak) "Kids Service" shall have the meaning ascribed thereto in Paragraph -------------- 11. of the Agreement. (al) "Laws" shall mean any present or future statute or ordinance, whether ------ municipal, county, state, national or territorial; any executive, administrative or judicial regulation, order, judgment or decree; any treaty or international convention; any rule or principle of common law or equity, or any requirement with force of law. (am) "Lien" means, with respect to any asset, any mortgage, lien, pledge, ------ charge, security interest or encumbrance of any kind in respect to such asset. For purposes of the Agreement, any Person shall be deemed to own, subject to a Lien, any asset which it has acquired or holds, subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. (an) "LLC Formation Agreement" shall mean the LLC Formation Agreement dated ------------------------- as of November 1, 1995 among SEI, FBC and FCNH. (ao) "Management Company" shall mean Fox Kids Worldwide L.L.C., a Delaware -------------------- limited liability company. (ap) "Management Company Indemnified Parties" shall have the meaning ---------------------------------------- ascribed thereto in Paragraph 18.2 of the Agreement. (aq) "MC Programming" shall have the meaning ascribed thereto in Paragraph ---------------- 13.1 of the Agreement. (ar) "Merchandising Agreement" shall have the meaning ascribed thereto in ------------------------- Paragraph 2.1 of the Agreement. (as) "New Kids Programming" shall have the meaning ascribed thereto in ---------------------- Paragraph 12.3.(a) of the Agreement. (at) "Non-Standard Television" shall mean and refer to any and all means of ------------------------- television Exhibition, other than Standard Broadcast Television, whether now known or hereafter derived and regardless of the mode or method of delivery; without limiting the generality of the foregoing, "Non-Standard Television" shall include pay cable, basic cable, pay-per-view, satellite delivered, DBS, STV, MDS, MMDS, SMATV and so-called "on demand" television. (au) "Offered Programming Service" shall have the meaning ascribed thereto ----------------------------- in Paragraph 12.1.(a) of the Agreement. 4 (av) "Operating Agreement" shall mean the Operating Agreement dated --------------------- concurrently herewith among SEI, FBC and FCNH Sub. (aw) "Operating Entities", when used with reference to the Management -------------------- Company, shall have the meaning ascribed thereto in the LLC Formation Agreement. (ax) "Person" includes an individual, partnership, trust, corporation, -------- joint venture, limited liability company, association, government bureau or agency or other entity of whatsoever kind or nature. (ay) "Programming Service Offer" shall have the meaning ascribed thereto in --------------------------- Paragraph 12.1.(a) of the Agreement. (az) "Proportionate Price" shall have the meaning ascribed thereto in --------------------- Paragraph 12.2.(a) of the Agreement. (ba) "Required Third Party Services" shall have the meaning ascribed ------------------------------- thereto in Paragraph 13.2 of the Agreement . (bb) "Required Third Party Services Offer" shall have the meaning ascribed ------------------------------------- thereto in Paragraph 13.2.(a) of the Agreement. (bc) "Revised First Run Exhibition Offer" shall have the meaning ascribed ------------------------------------ thereto in Paragraph 12.3.(d) of the Agreement. (bd) "Revised Programming Service Offer" shall have the meaning ascribed ----------------------------------- thereto in Paragraph 12.1.(c) of the Agreement. (be) "Revised Required Third Party Services Offer" shall have the meaning --------------------------------------------- ascribed thereto in Paragraph 13.2.(c) of the Agreement. (bf) "Revised Service Acquisition Offer" shall have the meaning ascribed ----------------------------------- thereto in Paragraph 12.2.(d) of the Agreement. (bg) "Saban" shall have the meaning ascribed to such term in the Operating ------- Agreement. (bh) "Saban Group" shall mean, collectively, SEI and any and all Affiliates ------------- of SEI; provided, that for purposes of this Agreement, the "Saban Group" shall not include FCN (or any division or wholly-owned subsidiary of FCN); provided further, that the parties expressly acknowledge and agree that, for purposes of this Agreement, the Management Company shall not be included in the Saban Group. (bi) "SEI" shall mean Saban Entertainment, Inc., a Delaware corporation. ----- 5 (bj) "Settlement Period" shall have the meaning ascribed thereto in ------------------- Paragraph 18.3 of the Agreement. (bk) "Standard Broadcast Television" shall mean television Exhibition over ------------------------------- standard VHF and/or UHF frequencies, the video and audio portions of which are intelligibly receivable without charge for such reception by means of a standard home television set. (bl) "Station" shall mean an over-the-air television station broadcasting --------- over standard VHF and/or UHF frequencies. (bm) "Station Affiliation Agreement" shall refer to an agreement between ------------------------------- FBC (on its own behalf and/or on behalf of FCN) and the Station which is other party thereto for the carriage of FBC programming (and/or FCN Programming) over the facilities of such Station. (bn) "Twentieth" shall mean Twentieth Century Fox Film Corporation, a ----------- Delaware corporation. END OF EXHIBIT "A" 6 LIST OF EXHIBITS/SCHEDULES TO ASSET ASSIGNMENT AGREEMENT EXHIBIT "A" -- DEFINITIONS EXHIBIT "B" -- FOX LICENSE AGREEMENT EXHIBIT "C-1" -- FORM OF FBC STATION AFFILIATION AGREEMENT EXHIBIT "D" -- INDEMNIFICATION AGREEMENT EXHIBIT "E" -- MERCHANDISING AGREEMENT EXHIBIT "F" -- DISTRIBUTION AGREEMENT EXHIBIT "G" -- ADMINISTRATION AGREEMENT SCHEDULE 4.1 -- EXISTING SERIES PROPERTIES SCHEDULE 9.1.1 -- CURRENT CLEARANCE ARRANGEMENTS SCHEDULE 9.2.1 -- AMENDMENTS TO STATION AFFILIATION AGREEMENTS SCHEDULE 9.2.3 -- DROPPED STATION PERCENTAGES SCHEDULE 13.2 -- FOX DISTRIBUTION SERVICES SCHEDULE 16.4.2 - EXISTING MERCHANDISING LICENSES SCHEDULE 16.5.2 - EXISTING DISTRIBUTION LICENSES SCHEDULE 16.8.1 - FOX KIDS CLUB SCHEDULE 16.9.1 - FOX KIDS COUNTDOWN SCHEDULE 16.10.2 - STORY MAKERS, INC. SCHEDULE 16.11.2 - FOX CHILDREN'S PRODUCTIONS, INC. SCHEDULE 16.12.2 - FOX CHILDREN'S MUSIC, INC. SCHEDULE 16.13.2 - FOX KIDS MUSIC, INC. SCHEDULE 16.14 -- CONSENTS SCHEDULE 17.3 -- CONSENTS 1 EX-10.16 19 MANAGEMENT AGREEMENT DATED 12/22/95 EXHIBIT 10.16 MANAGEMENT AGREEMENT This Management Agreement (the "Agreement") is made and entered into as of December 22, 1995, by and among FOX KIDS WORLDWIDE, L.L.C., a Delaware limited liability company (the "Management Company"), Saban Entertainment, Inc., a Delaware corporation ("SEI"), and FCNH Sub, Inc., a Delaware corporation ("FCNH Sub"). R E C I T A L S - - - - - - - - A. The stockholders of SEI and the parent corporation of FCNH Sub, in order to maximize the long-term strategic values of their respective corporations, have determined that it would be in their respective best interests to achieve this objective by entering into a strategic alliance for the purpose of sharing with each other their respective strengths, to the mutual benefit of all of them, and, in connection therewith, SEI, FCN Holding, Inc., a Delaware corporation ("FCNH") and Fox Broadcasting Company, Inc., a Delaware corporation ("FBC"), have formed the Management Company. B. SEI desires to appoint and retain the Management Company to provide advice, assistance and services to SEI in the manner and on the terms hereinafter set forth. C. FCNH Sub desires to appoint and retain the Management Company to provide advice, assistance and services to FCNH Sub in the manner and on the terms hereinafter set forth. D. The Management Company desires to perform such services in the manner and on the terms and conditions hereinafter set forth. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing facts and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Irrevocable Engagement of Management Company. -------------------------------------------- (a) By SEI. SEI irrevocably appoints, employs and retains the ------ Management Company to manage, control and supervise, in all respects and particulars, SEI, and, acting through the Board of Directors, officers and employees of SEI, the current and future Subsidiaries of SEI, and the business, activities, operations, assets, obligations and liabilities of SEI and such Subsidiaries. The rights, powers and duties of the Management Company hereunder shall, to the maximum extent permitted by law, and subject to any contractual obligations of SEI, include any and all rights, powers and obligations with respect to SEI which, under Delaware law, are granted to the shareholders, board of directors and/or executive officers of SEI; and SEI hereby assigns and delegates to the Management Company all of such rights, powers and obligations. The Management Company accepts such appointment, and agrees to faithfully perform and render the services and assume the obligations assigned and delegated to it as hereinabove and elsewhere herein provided. (b) By FCNH Sub. FCNH Sub irrevocably appoints, employs and retains ----------- the Management Company to manage, control and supervise, in all respects and particulars, FCNH Sub and, acting through the Board of Directors, officers and employees of FCNH Sub, the current and future Subsidiaries of FCNH Sub, and the business, activities, operations, assets, obligations and liabilities of FCNH Sub and such Subsidiaries. The rights, powers and duties of the Management Company shall, to the maximum extent permitted by law, and subject to any contractual obligations of FCNH Sub or its Subsidiaries, include any and all rights, powers and obligations with respect to FCNH Sub or its Subsidiaries which, under Delaware law, are granted to the shareholders, board of directors and/or executive officers of FCNH Sub and its Subsidiaries; and FCNH Sub and its Subsidiaries hereby assigns and delegates to the Management Company all of such rights, powers and obligations. The Management Company accepts such appointment, and agrees to faithfully perform and render the services and assume the obligations assigned and delegated to it as hereinabove and elsewhere herein provided. (c) SEI and FCNH; Third Party Beneficiary. SEI and FCNH, the parent ------------------------------------- of FCNH Sub, are Class B Members of the Management Company, and each has a significant and substantial interest in assuring the continued validity and operation of this Agreement. Accordingly, no provision of this Agreement may be amended or modified in any degree or particular, without the prior written approval of both SEI and FCNH. (d) Strategic Stockholders Agreement. In furtherance of the -------------------------------- assignment and delegation of management rights, powers and obligations pursuant to this Agreement, the stockholders of SEI, FCNH, FCNH Sub and FBC (which is the sole stockholder of FCNH) have entered into a Strategic Stockholders Agreement of even date herewith, providing, inter alia, for such stockholders to take any ----- ---- and all actions necessary as stockholders of SEI and FCNH Sub to cause this Agreement to be fully performed. 2. Services to be Performed. The Management Company shall from time to ------------------------ time perform, and undertake to perform, such of the rights, powers and obligations of SEI and FCNH Sub as are from time 2 to time determined to be necessary, appropriate or proper pursuant to the provisions of the Operating Agreement of the Management Company dated as of the date hereof, as the same may from time to time be amended (the "Operating Agreement"). Notwithstanding anything to the contrary contained in this Section 2 or in any other provision of this Agreement, the Management Company shall have no right or authority to exercise any of the rights of SEI, FCNH or FBC under the Operating Agreement in their capacity as Members of the Management Company. 3. Compensation. For the services to be rendered by the Management ------------ Company. SEI and FCNH Sub shall pay to the Management Company compensation at the annual rate from time to time agreed to by SEI and FCNH Sub, on the one hand, and the Management Company, on the other hand. 4. Term. This Agreement shall remain in effect until the date of ---- termination of the Management Company pursuant to the Operating Agreement. 5. Services of Management Company Not Exclusive. The services of the -------------------------------------------- Management Company to SEI and FCNH Sub are not to be deemed exclusive, and the Management Company shall, subject to the terms and provisions of the Operating Agreement, be free to engage in any other business or to render similar services to others so long as its services hereunder are not impaired thereby. The Management Company assumes no responsibility under this Agreement other than to render the services and undertake the obligations and duties called for hereunder in good faith. 6. Miscellaneous Provisions. ------------------------ (a) Notices. All notices, demands or other communications hereunder ------- shall be in writing and shall be deemed to have been duly given (i) if delivered in person, upon delivery thereof, or (ii) if mailed, certified first class mail, postage pre-paid, with return receipt requested, on the fifth day after the mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed on the same day in the manner provided in (ii) above, when transmitted and receipt is confirmed by telephone or telex or facsimile response, or (iv) if otherwise actually delivered, when delivered: 3 i) if to FCNH Sub: FCNH Sub, Inc. 10201 West Pico Boulevard SVP Legal Affairs Fox Television Group Los Angeles, CA 90035 Attention: Jay Itzkowitz, Esq. Fax: (310) 369-2572 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Attention: Harry Horowitz, Esq. Fax: (212) 697-6686 ii) If to SEI: Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, CA 90024 Attention: Haim Saban, Chief Executive Officer Fax: (310) 235-5108 With a copy to: Matthew G. Krane, Esq. 2051 Hercules Drive Los Angeles, CA 90046 Fax: (213) 851-1178 and with a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard, Suite 800 Los Angeles, California 90024 Attention: Richard E. Troop, Esq. Fax: (310) 443-8503 iii) if to the Management Company, to the registered agent in the State of Delaware and with a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard, Suite 800 Los Angeles, California 90024 Attention: Richard E. Troop, Esq. Fax: (310) 443-8503 4 With a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Attention: Harry Horowitz, Esq. Fax: (212) 697-6686 (b) Governing Law. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY ------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. (c) No Adverse Construction. The rule that a contract is to be ----------------------- construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. (d) Costs and Attorneys' Fees. In the event that any action, suit, or ------------------------- other proceeding is instituted concerning or arising out of this Agreement, the prevailing party shall recover all of such party's costs, and attorneys' fees incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall mean the full and actual costs of any legal services actually rendered in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services, and shall not be limited to "reasonable attorneys' fees" as defined by any statute or rule of court. (e) Amendments and Waivers. Neither this Agreement nor any term ---------------------- hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of all parties hereto; provided, however, that no such amendment or waiver shall extend to or affect any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder. (f) Definitions. As used in this Agreement, "Person" includes an ----------- individual, partnership, trust, corporation, joint venture, limited liability company, association, government bureau or agency or other entity of whatsoever kind or nature; and "Subsidiary" of a Person means (i) any corporation of which equity 5 securities possessing a majority of the ordinary voting power in electing the Board of Directors are, at the time as of which such determination is being made, owned by such Person either directly or through one or more Subsidiaries, and (ii) any Person (other than a corporation) in which such Person, or any Subsidiary or Subsidiaries, directly or indirectly, has more than a 50% ownership interest. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. FOX KIDS WORLDWIDE, L.L.C. By: /s/ Haim Saban ------------------------------ Its: _________________________ 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SABAN ENTERTAINMENT, INC. By: /s/ Haim Saban ------------------------------ Haim Saban Its: Chief Executive Officer 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. FCNH Sub, Inc. By: /s/ Jay Itzkowitz ------------------------------ Its: Senior Vice President FCN Holding, Inc. By: /s/ Jay Itzkowitz ------------------------------ Its: Senior Vice President 8 CONSENT OF STOCKHOLDERS OF SEI AND FCNH SUB. -------------------------------------------- The undersigned, constituting all of the stockholders of SEI, do hereby consent to the execution and delivery of the foregoing Management Agreement, and confirm that such Agreement is, pursuant to the provisions of Subchapter XIV of the Delaware General Corporation Law, a valid and fully enforceable agreement. DATED: _______________ /s/ Haim Saban ----------------------------------- Haim Saban QUARTZ ENTERPRISES, L.P. By: /s/ Stan Golden ------------------------------ ______________________________ MERLOT INVESTMENTS By: /s/ Bill Josey ------------------------------ ______________________________ SILVERLIGHT ENTERPRISES, L.P. By: /s/ Mel Woods ------------------------------ ______________________________ 9 CELIA ENTERPRISES, L.P. By: /s/ Matthew Krane ------------------------------ ______________________________ 10 EX-10.17 20 STOCK OWNERSHIP AGREEMENT DATED 12/22/95 Exhibit 10.17 Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "X" indicating deleted information. EXHIBIT 10.17 STOCK OWNERSHIP AGREEMENT THIS STOCK OWNERSHIP AGREEMENT (the "Agreement") is made and entered into as of December 22, 1995 by and among Haim Saban ("Saban"), each of the entities listed on Schedule 1.1(a) hereto (the "SEI Entities" and, with Saban, the "SEI Stockholders") and FOX KIDS WORLDWIDE, L.L.C., a Delaware limited liability company (the "Management Company"). R E C I T A L S - - - - - - - - A. Concurrent with the execution of this Agreement, the parties have entered into that certain Strategic Stockholders Agreement, which agreement is intended, among other things, to enable the SEI Stockholders and FBC to maximize the long-term strategic values of their respective corporations. Such agreement, as the same may be amended from time to time, is referred to herein as the "Strategic Stockholders Agreement." Terms defined in the Strategic Stockholders Agreement which are not defined herein shall have the same meanings when used herein. B. Under the provisions of Section 6 of the Strategic Stockholders Agreement, the parties have agreed, on the terms and conditions therein set forth, to form a Successor Entity (herein, regardless of the form of such Successor Entity, the "Corporation") in connection with the Initial Public Offering. C. The Management Company desires to acquire, and the SEI Stockholders desire to sell, an option to acquire all of the SEI Option Shares (as defined below), all on the terms and conditions contained herein. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of foregoing premises and of the mutual covenants and agreements contained in this Agreement, and subject to the terms and conditions set forth herein, the parties to this Agreement hereby agree as follows: 1. Call Option. ----------- 1.1 Call Option. ----------- (a) (i) In consideration for the payment in full to the SEI Stockholders of the "Call Option Payment," as provided in Section 1.1(a)(ii) hereof, the SEI Stockholders hereby severally grant to the Management Company the right and option (the "Call Option") to purchase, upon the occurrence of any of the "Call Triggering Events" described below, (x) with respect to any Call Triggering Event which occurs prior to the Initial Public Offering, all, and not less than all, of the SEI Common Stock owned by the SEI Stockholders or any of their transferees (other than FBC); and (y) with respect to any Call Triggering Event which occurs thereafter, all Shares of the Successor Entity which, pursuant to Section 6(b) of the Strategic Stockholders Agreement, are deemed to be shares of SEI Common Stock and which are owned by the SEI Stockholders or any of their transferees (other than FBC and excluding Shares transferred pursuant to Section 3(a)(i) or 3(a)(ii) of the Strategic Stockholders Agreement); (the Shares subject to the Call Option are referred to herein as the "SEI Option Shares"). (ii) Concurrently with the execution and delivery of this Agreement, the Management Company has paid to the SEI Stockholders an aggregate of SIXTY- FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($64,500,000), in amounts set forth on Schedule 1.1(a) hereof, by wire transfer of immediately available funds to the bank accounts designated by the SEI Stockholders on Schedule 1.1(a) hereto (the "Initial Payment"). The Management Company agrees to pay, without offset, to the order of the SEI Stockholders, on or prior to June 30, 1996, an aggregate of an additional FIFTEEN MILLION SIX HUNDRED THOUSAND DOLLARS ($15,600,000) (the "Additional Payment"), together with interest on the unpaid balance thereof from February 20, 1996, to the extent that such amount has not been paid in full on or prior to February 20, 1996, at the rate of 7% per annum; any amounts paid by the Management Company pursuant to this sentence shall be applied first to any accrued but unpaid interest, with the balance applied against the unpaid amount of the Additional Payment. All payments with respect to the Additional Payment shall be made by wire transfer of immediately available funds to the bank accounts designated by the SEI Stockholders on Schedule 1.1(a) hereto, and shall be allocated among the SEI Stockholders pro rata in the same percentages as the --- ---- percentage of the Initial Payment allocated to each SEI Stockholder in Schedule 1.1(a) hereto bears to the total aggregate Initial Payment. The sum of the Initial Payment, the Additional Payment, and interest, if any, payable thereon is referred to in this Agreement as the "Call Option Payment." (b) The "Call Triggering Events," and the time periods for delivery of election notices with respect thereto, shall be as follows: (x) death of Saban prior to the 17th anniversary of the date of this Agreement -- 12 calendar months following death; (y) upon delivery of written notice by the Management Company of exercise of the Call Option at any time on or after the seventh anniversary of the date of this Agreement and on or prior to the seventeenth anniversary of the date of this Agreement -- notice may be given at any time during the period; or 2 (z) upon receipt by FBC of written notice from Saban of his election pursuant to Section 7(a)(i) of the Strategic Stockholders Agreement to cause a Call Triggering Event hereunder -- notice must be given within 20 business days after receipt of Saban's notice. The date of the Call Triggering Event to which the exercise of the Call Option relates shall be the "Effective Date" of the Call Option; provided, -------- that the Effective Date of a Call Triggering Event under (z), above, shall be the Effective Date of the option under Section 7(a) of the Strategic Stockholders Agreement to which the notice effecting such Call Triggering Event relates. The failure or decision not to exercise the Call Option upon the occurrence of any Call Triggering Event shall not affect FBC's right to exercise the Call Option on any subsequent Call Triggering Event. (c) The Call Option Payment is payment in consideration for the grant of the Call Option, and shall not be a credit against, or a deduction from, the purchase price payable to the SEI Stockholders upon the sale of Shares pursuant to the exercise of the Call Option. 1.2 [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] (i) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXX] (ii) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 3 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] (iii) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] (iv) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] 1.3 Option Closing. The closing of the purchase and sale of the SEI -------------- Option Shares pursuant to this Section 1 shall take place at such time and place as Saban and the Management Company shall mutually agree upon; provided, that -------- the date of closing shall be five business days following the later of (i) the date of final determination of Fair Market Value; and (ii) if the purchase and sale of such Shares requires the obtaining of any material regulatory approvals or compliance with any other material laws or regulations, the date upon which all such approvals shall have been obtained, and such compliance effected; provided further, however, that if through no fault of the SEI Stockholders, - -------- ------- the Management Company is unable fully to satisfy all conditions of clause (ii) within 3 calendar months of the date of final determination of Fair Market Value, then the Management Company shall on the first business day following the end of such 3-month period pay and deliver to the holders of the SEI Option Shares an amount equal to the per share purchase price for such Shares, and the holders of the SEI Option Shares shall enter into such agreements with respect to the subsequent voting and transfer of such Shares as the Management Company shall reasonably request, including the agreement at any time thereafter to transfer such Shares, without receipt of further consideration, to such Person or Persons as may be designated by the Management Company. At the closing, each of the holders of the SEI Option Shares shall deliver to the Management Company documents of transfer in form and substance reasonably acceptable to the Management Company and its counsel, necessary to vest in the Management Company good and marketable title to the SEI Option Shares so sold by the holder thereof, free and clear of any and all Liens, other than those imposed under or pursuant to this Agreement, against delivery by the Management Company to such holder of the purchase price therefor, payable, at the election of Saban, by either (x) bank cashiers' checks in immediately available funds payable to the order of the selling holders, or (y) wire transfer of immediately available funds to an account or accounts designated by Saban. 2. Miscellaneous Provisions. ------------------------ 4 (a) In this Agreement, headings are for convenience only and shall not affect interpretation, and except to the extent that the context otherwise requires: (a) references to any legislation or to any provision of any legislation include any modification or re-enactment of, or any legislative provision substituted for, and all statutory instruments issued under, such legislation or such provision; (b) words denoting the singular include the plural and vice versa; (c) words denoting individuals include corporations and other Persons and vice versa; (d) words denoting any gender include all genders; (e) references to any document, agreement or other instrument (including this Agreement) include references to such document, agreement or other instrument as amended, novated, supplemented or replaced from time to time; (f) references to clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits are to clauses, sub-clauses, sections, sub-sections, Schedules and Exhibits of this Agreement; (g) "or" is not exclusive; (h) "$", and all other references to dollar amounts, are in U. S. currency; (i) references to any party to this Agreement or any other document, agreement or other instrument includes its successors or permitted assigns; and (j) "writing" and cognate expressions include all means of reproducing words in a tangible and permanently visible form. (b) Rights Personal to Saban. Each and every right and obligation ------------------------ which refers to "Saban" or the "Management Company" is personal to Saban and the Management Company and shall not attach to, or be deemed to relate to or concern the Shares held by Saban; and thus, without the prior written consent of Saban and the Management Company, other than as provided in the Strategic Stockholders Agreement, none of such rights or obligations may be assigned, delegated or transferred to any other Person; provided, however, this Stock Ownership Agreement may be assigned to FBC; provided, further, that in the event of the -------- ------- incompetency or death of Saban, all rights granted to Saban hereunder shall be exercisable by his conservator, executor or administrator, or by a single Person from time to time designated by SEI Stockholders then holding a majority of the then outstanding Shares of SEI Common Stock held by all SEI Stockholders. (c) Notices. All notices, demands or other communications hereunder ------- shall be in writing and shall be deemed to have been duly given (i) if delivered in person, upon delivery thereof, or (ii) if mailed, certified first class mail, postage pre-paid, with return receipt requested, on the fifth day after the mailing, or (iii) if sent by telex or facsimile transmission, with a copy mailed on the same day in the manner provided in (ii) above, when transmitted and receipt is confirmed by telephone or telex or facsimile response, or (iv) if otherwise actually delivered, when delivered: 5 (i) If to Saban or any of the Other SEI Stockholders: Haim Saban Saban Entertainment, Inc. 10960 Wilshire Boulevard Los Angeles, CA 90024 Fax: (310) 235-5108 With a copy to: Matthew G. Krane, Esq. 2051 Hercules Drive Los Angeles, CA 90046 Fax: (213) 851-1178 and with a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard, Suite 800 Los Angeles, California 90024 Attention: Richard E. Troop, Esq. Fax: (310) 443-8503 (ii) if to the Management Company, the registered agent in the State of Delaware. and with a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Fax: (212) 697-6686 Attn: Harvey Horowitz, Esq. or at such other address or addresses as may have been furnished by such Person in like manner to the other parties. (d) Severability. Should any Section or any part of a Section within ------------ this Agreement be rendered void, invalid or unenforceable by any court of law for any reason, such invalidity or unenforceability shall not void or render invalid or unenforceable any other Section or part of a Section in this Agreement. (e) Governing Law. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY ------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE WITHIN, AND TO BE PERFORMED WITHIN, SUCH STATE, EXCLUDING CHOICE OF LAW PRINCIPLES OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. 6 (f) No Adverse Construction. The rule that a contract is to be ----------------------- construed against the party drafting the contract is hereby waived, and shall have no applicability in construing this Agreement or the terms of this Agreement. (g) Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. (h) Costs and Attorneys' Fees. In the event that any action, suit, or ------------------------- other proceeding is instituted concerning or arising out of this Agreement, the prevailing party shall recover all of such party's costs, and attorneys' fees incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall mean the full and actual costs of any legal services actually rendered in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services, and shall not be limited to "reasonable attorneys' fees" as defined by any statute or rule of court. (i) Successors and Assigns. Except as otherwise provided in this ---------------------- Agreement, all rights, covenants and agreements of the parties contained in this Agreement shall be binding upon and inure to the benefit of their respective successors and permitted assigns. Except as otherwise specifically set forth herein, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. (j) Amendments and Waivers. Neither this Agreement nor any term ---------------------- hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of Saban and FBC; provided, however, that no such amendment or waiver shall extend -------- ------- to or affect any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder. (k) Entire Agreement. This Agreement, the attached Exhibits and ---------------- Schedules and the Alliance Agreements, and the agreements referred to herein and therein, together contain the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof unless 7 expressly referred to herein. No party to this Agreement makes any representation or warranty except as expressly set forth herein. (l) Specific Performance and Other Remedies. The parties hereto --------------------------------------- acknowledge and agree that the Shares (including the SEI Common Stock, the FCNH Common Stock and the Successor Entity Equity Securities) are unique, and that the parties will have no adequate remedy at law should any party hereto breach the provisions of Sections 2 through 8 hereof. In the event of the refusal or failure of any party hereto fully to comply with any of those provisions, the other parties, and each of them, shall have the right, in addition to any other rights and remedies which it or they may have hereunder, to specific performance, and other appropriate injunctive relief with respect thereto. In no event shall any party to any such proceeding urge or raise as a defense in any such action that an adequate remedy at law exists. (m) Agreement to Perform Required Acts. Each party hereto agrees to ---------------------------------- perform any further acts and to execute and deliver any further documents that may be reasonably necessary to carry out the provisions hereof, that may be required to secure performance of any party's duties hereunder or that may be required to assure the legal and binding effect of the provisions hereof. (n) Consent to Jurisdiction; Forum Selection. Any actions, suits or ---------------------------------------- proceedings instituted in connection with this Agreement or the performance by the parties of their obligations hereunder shall be instituted and maintained exclusively in the Superior Court for the State of California, County of Los Angeles or in the United States District Court for the Central District of California. By execution and delivery hereof, each party hereto hereby consents, for itself and in respect of its property, to the jurisdiction of the aforesaid courts solely for the purpose of adjudicating its rights or obligations under, or any disputes involving, this Agreement or any document related hereto. Each party hereto hereby irrevocably waives, to the extent permitted by applicable law, any objection, including, without limitation, any objection that the other corporate party or parties lack the capacity to sue or defend based upon its or their lack of a certificate of qualification to conduct intrastate business in California, and any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have ----- --- ---------- to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related hereto. (o) Legends. Each of the SEI Stockholders hereby agree that each ------- certificate or other writing evidencing any of the SEI Option Shares, shall be stamped or otherwise imprinted with a legend, either on the face of such certificate, or on the reverse of such certificate, with reference thereto appearing on the face of such certificate, in substantially the following form: 8 [DESCRIBE THE SHARES] REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTIONS TO PURCHASE UNDER THAT CERTAIN STOCK OWNERSHIP AGREEMENT DATED AS OF DECEMBER 22, 1995, BY AND AMONG THE RECORD HOLDER OF THE SECURITIES SUBJECT TO THIS CERTIFICATE AND FOX KIDS WORLDWIDE, L.L.C. A COPY OF THE STOCK OWNERSHIP AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE ISSUER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE TO THE HOLDER HEREOF UPON SUCH HOLDER'S WRITTEN REQUEST. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. FOX KIDS WORLDWIDE, L.L.C., a Delaware limited liability company By: /s/ Haim Saban ------------------------------ Its: ------------------------- 9 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. /s/ Haim Saban -------------------------------- HAIM SABAN 10 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. QUARTZ ENTERPRISES, L.P. By: /s/ Stan Golden ------------------------- ------------------------- MERLOT INVESTMENTS By: /s/ Bill Josey --------------------------- --------------------------- SILVERLIGHT ENTERPRISES, L.P. By: /s/ Mel Woods --------------------------- --------------------------- CELIA ENTERPRISES, L.P. By: /s/ Matthew Krane --------------------------- --------------------------- 11 EX-10.18 21 AMEND NO. 1 TO STOCK OWNERSHIP AGREEMENT 9/26/96 Exhibit 10.18 Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "X" indicating deleted information. Exhibit 10.18 AMENDMENT NO. 1 TO STOCK OWNERSHIP AGREEMENT This Amendment No. 1 to Stock Ownership Agreement (the "Amendment") is made and entered into as of September 26, 1996, by and among Haim Saban ("Saban"), each of the entities listed on Schedule "A" hereto (the "SEI Entities" and, with Saban, the "SEI Stockholders") and Fox Broadcasting Sub, Inc., a Delaware close corporation ("Fox Broadcasting Sub"), and Fox Broadcasting Company, a Delaware corporation, has concurrently herewith consented to this Amendment. R E C I T A L S - - - - - - - - A. The SEI Shareholders and the Management Company are parties to that certain Stock Ownership Agreement, dated as of December 22, 1995 (as amended by this Amendment, the "Agreement"). On September 26, 1996, Fox Kids Worldwide, L.L.C. (the "LLC") assigned its rights thereunder to FCN Holding, Inc. which assigned them to Fox Broadcasting Sub. All terms defined in the Agreement which are not defined in this Amendment shall have the same meanings when used in this Amendment. B. Pursuant to a letter agreement, dated as of September 26, 1996, but effective as of April 3, 1996 (the "Allen Agreement") between FCN Holding, Inc., a Delaware close corporation ("FCNH") and Allen, FCNH has, concurrently with the execution and delivery of this Amendment, issued and sold to Allen 16 16/99 shares (the "Allen Shares") of the Common Stock, without par value, of FCNH. C. The parties desire to amend the Agreement in order, inter alia, to ----- ---- clarify the effect of the issue and sale of the Allen Shares on the provisions of the Agreement. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing facts, and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Calculation of Purchase Price. Section 1.2(i) of the Agreement is ----------------------------- amended to read in full as follows: EXHIBIT C --------- "(i) [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]" 2. Miscellaneous Provisions. Section 2(j) of the Agreement is amended to ------------------------ read in full as follows: "(j) Amendments and Waivers. Neither this Agreement nor any term ---------------------- hereof may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) by (and only by) a written document executed by Saban and Fox Broadcasting Sub; and any such amendment or waiver executed by both Saban and Fox Broadcasting Sub shall be binding upon all of the parties to this Agreement, including each and every Person who has agreed to be bound by provisions of this Agreement relating to the Shares which it holds; provided, however, that no such amendment or waiver shall extend to or -------- ------- affect any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder." 3. Change of Name. All references in the Agreement to Fox Kids -------------- Worldwide, L.L.C. or to the Management Company shall hereafter be references to Fox Broadcasting Sub. 4. Effective Date of Amendment. While this Amendment has been executed --------------------------- as of its date, it shall be deemed to be effective as of April 3, 1996. 5. Effect of Amendment. Except as expressly modified herein, all terms ------------------- of the Agreement remain in full force and effect. 2 IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. FOX BROADCASTING SUB, INC. as assignee of Fox Kids Worldwide, L.L.C. By: /s/ Larry Jacobson -------------------- /s/ Haim Saban ------------------------- Its: Executive Vice President HAIM SABAN ------------------------ QUARTZ ENTERPRISES, L.P. By: /s/ Stan Golden -------------------- Its: -------------------- MERLOT INVESTMENTS By: /s/ Bill Josey -------------------- Its: -------------------- SILVERLIGHT ENTERPRISES, L.P. By: /s/ Mel Woods ------------------- Its: -------------------- 3 CELIA ENTERPRISES, L.P. By: /s/ Matthew Krane -------------------- Its: -------------------- Each of the Undersigned hereby consents and agrees to the foregoing Amendment, as of the date first above written. FOX BROADCASTING COMPANY By: /s/ Larry Jacobson -------------------- Its: Executive Vice President ------------------------ /s/ Haim Saban ------------------------- HAIM SABAN 4 SCHEDULE "A" SEI STOCKHOLDERS ---------------- Haim Saban Quartz Enterprises, L.P. Merlot Investments Silverlight Enterprises, L.P. Celia Enterprises, L.P. 5 EX-10.20 22 FORM OF FOX BROADCASTING STATION AFFILIATE AGRMNT EXHIBIT 10.20 FOX BROADCASTING COMPANY STATION AFFILIATION AGREEMENT Date Licensee Call letters-TV Station Address City, State & Zip Attention: Addressee, Title This sets forth the terms and conditions of the agreement between Fox Broadcasting Company ("Fox") , on behalf of itself and its wholly-owned subsidiary, the Fox Children's Network, Inc. ("FCN"), and _________________ ("Licensee") for the carriage of programming over the facilities of Licensee's television station ______ ("Station"). As used in this Agreement, the terms "program," "programming" and "Fox programming" and any derivations thereof shall mean, unless specifically indicated otherwise, the programming of Fox and the programming of FCN, and all terms of this Agreement shall apply to both. 1. Fox Programming: Fox will deliver to the Station for free over-the-air --------------- television broadcasting, programming which Fox and FCN make available for broadcasting in the community to which Station is presently licensed by the FCC, which is ____________, __. The selection, scheduling, substitution and withdrawal of any program or portion thereof shall at all times remain within Fox's sole discretion and control. Licensee shall not and shall not authorize others to broadcast or otherwise use any program (or part thereof) or other material supplied by Fox except as specified in this Agreement, and without limiting the foregoing, Station may broadcast Fox programming only: (i) as scheduled by Fox, (ii) over Station's facilities in the Community specified above in this Paragraph 1 ("Station's Community"), and (iii) by free over-the- air television broadcasting. 2. Delivery: Fox will transmit the programming hereunder by satellite and -------- shall keep Licensee apprised of both the satellite and transponder being used for that transmission. Any and all costs of whatever kind that Station incurs to pickup the programming from the satellite and rebroadcast it shall be the sole responsibility of Licensee. 3. Carriage & Preemption: --------------------- (a) Licensee agrees to broadcast over Station's facilities all Fox programs in their entirety, including, but not limited to, all commercial announcements, Fox i.d.'s, Fox promos and credits, without interruption, deletion, addition, squeezing, alteration, or other changes (except for adding Licensee's commercial announcements as provided in this Agreement) on the dates and at the times the programs are scheduled by Fox. (b) Fox commits to supply sufficient programming throughout the term of this Agreement for the hours presently programmed by it (the "Programmed Time Periods"), which Programmed Time Periods are as follows (for programming other than FCN programming, the specified rites apply for the Eastern or Pacific Time Zones, and the Mountain and Central Time Zones are one hour earlier; for FCN programming, the specified times apply to all Time Zones, unless Fox agrees otherwise): Prime Time: 7-10 P.M. Sunday 8-10 P.M. Monday thru Saturday Late Night: 11 P.M.-12:00 A.M. Monday thru Saturday FCN: 7:30 A.M.-8:30 A.M. Monday thru Friday 3:00 P.M.-5:00 P.M. Monday thru Friday 8:00 A.M.-12:00 Noon Saturday Weekend Sports: As scheduled by Fox, including pre-game and post-game shows. Subject only to the preemption rights in Paragraph 11 below, Licensee shall broadcast over Station for the term of this Agreement, during the Programmed Time Periods, all Fox programming specified by Fox, except to the extent that Licensee is broadcasting programming pursuant to (and within the specific limits of) a commitment expressly set forth on Exhibit A (for non-sports programming) or Exhibit B (for sports programming) to this Agreement (but not including any extension or renewal of such commitment by option extension or otherwise). If any Fox programming is not broadcast in its Programmed Time Period due to any such commitment, Licensee shall broadcast that Fox programming in the "make good" time period specified in Exhibit A or B, as applicable. (c) Without limiting subparagraph (b) above, each time that Licensee for any reason fails to (or advises Fox it will not) telecast any Fox programming as provided for in this Agreement, then upon Fox's request, Licensee shall telecast that programming (or replacement programming selected by Fox) and the commercial announcements contained in it, in a substitute time period that is within the same A.C. Nielsen broadcast ratings week as, and that is of a quality and rating value as nearly as possible equal to that of, the time period during which the programming was not telecast. Licensee shall give Fox at least 72 hours advance notice that it intends not to broadcast any Fox programming and in such notice shall identify the substitute time period that License selects, which time period shall be subject to Fox's prior approval. If Licensee does not fully comply with the foregoing, then, without limitation to any other rights of Fox under this Agreement or otherwise, Fox shall have the right to license the broadcast rights to the applicable omitted programming (or replacement programming) to another television station located in Station's Community. In addition to the foregoing, 2 with respect to programming for broadcast within the New Programmed Time Periods (as defined in subparagraph 3(e) below), Fox will provide Licensee with a minimum of six months notice for each program addition, and Licensee shall be required to advise Fox within ten days of receiving notification if Licensee does not wish to televise said programming as scheduled by Fox. If Licensee refuses to broadcast any program within a New Programmed Time Period for any reason other than (i) a program conflict specified in subparagraph 3(e) below, or (ii) those specified in Paragraph 11 below, then either Licensee or Fox shall have the right to terminate this Agreement upon six months prior notice to the other party. (d) Under this Agreement, an "Approved Preemption" shall mean: any failure to broadcast due to force majeure under Paragraph 7 below, any preemption permitted by Exhibit A or B hereto that is "made good" in accordance therewith and any preemption permitted by Paragraph 11 below. Any other preemption or failure to broadcast any Fox programming is an"Unauthorized Preemption" and without limiting any other rights of Fox under this Agreement or otherwise, if within any 12-month period during the term of this Agreement, Station makes three (3) or more Unauthorized Preemptions of any Fox programming (or Licensee or Station states, either in general or specific terms, that Station intends to make such Unauthorized Preemptions or Fox reasonably concludes, based upon Licensee's or Station's actions or otherwise, that such Unauthorized Preemptions will occur), Fox may, upon 30 days prior written notice to Licensee, elect to either: (1) terminate Station's right to broadcast any one or more series or other Fox programs, as Fox shall elect, and, to the extent and for the period(s) that Fox elects, thereafter license the broadcast rights to the applicable series or other Fox programs to any other television station or stations located in Station's Community, or (2) terminate this Agreement. (e) Licensee shall broadcast over Station's facilities all Fox programming to be offered during time periods not presently programmed by Fox ("New Programmed Time Periods"), subject to Fox providing to Licensee at least six months notice prior to delivering any additional programming within these time periods. Furthermore, if Licensee has entered into any agreement(s) prior to an announcement by Fox to program a specific time period and the agreement(s) is (are) for barter programming that Licensee is required by the terms of the agreement(s) to broadcast during a New Programmed Time Period, then Licensee shall not be required to broadcast the new Fox programming within the same time period, and the provisions of subparagraph 3(c) of this Agreement shall govern; provided, however, in any such instance(s) Licensee agrees not to renew or otherwise extend its rights to broadcast such conflicting programming within a New Programmed Time Period. 3 4. Promotion: --------- (a) Fox will provide Licensee with on-air promotional announcements, which may be for any Fox programming ("Fox Promos"), including without limitation, any FCN programming, for broadcast in Station's non-Fox programming. Licensee shall use its good faith, best efforts to provide an on-air promotional schedule consistent with Fox's recommendations and in coordination with Fox, and to budget Station's annual advertising funds so as to enable Station to participate, on a year-round basis, in Fox's "co-op" advertising plan. Without limitation to the foregoing, in each instance, if any, that Fox determines that Station's "Sweeps Rating" (as defined below) is below the average Sweeps Rating for all Fox affiliated stations, then Station shall be deemed to be "Performing Below Average" and shall, within 15 days of Fox giving Licensee written notice thereof, commence full compliance with the following: (1) Station shall not broadcast, during each one-half hour of all periods that Station is not broadcasting Fox programming (the "Non-Fox Time Periods"), less than one (1) thirty (30) second promotional announcement (or promotional announcements aggregating 30 seconds, to the extent Fox so elects) for Station's local, syndicated or Fox programming, and (2) during all Non-Fox Time Periods, Licensee shall broadcast Fox Promos for not less than 45% of 100% (the "Applicable Percentage") of the total, aggregate "gross ratings points" for all the promotional announcements broadcast by Licensee ("Aggregate Promotional GRP's") within the Non-Fox Time Periods (the specific Fox Promos broadcast by Licensee and number of broadcasts of each Fox Promo shall be, to the extent Fox elects, as specified by Fox, and the broadcasts of the Fox Promos shall be made so that the GRP's allocated thereto are distributed fairly and reasonably across the Non-Fox Time Periods); provided, however, that if Station's Sweeps Rating ranks Station within the bottom 50% (ranked highest to lowest) of those Fox affiliated stations that are Performing Below Average, then the Applicable Percentage for Station shall be not less than 55% of 100% of said Aggregate Promotional GRP's. Licensee's full compliance with the immediately foregoing sentence shall continue until Licensee is no longer Performing Below Average, as determined by the most recent Sweeps Rating. For purposes hereof, the "Sweeps Rating" shall mean for each station the average A.C. Nielsen rating for the most current completed "sweeps" period for Adults 18-49 for all prime time hours programmed by Fox. Licensee agrees to maintain complete and accurate records of all promotional announcements broadcast as provided herein. Within two (2) weeks following each request by Fox therefor, Licensee will submit copies of all such records to Fox. (b) In addition to providing the promotion announcements referred to above, Fox shall make available to Licensee, at reasonable costs, such other promotional and sales materials as Fox and Licensee may mutually consider appropriate. Licensee shall not delete any copyright, trademark, logo or other notice, or any credit, included in any materials delivered pursuant to this paragraph or otherwise, and Licensee shall not exhibit, display, distribute or otherwise use any trademark, 4 logo or other material or item delivered pursuant to this paragraph or otherwise, except as instructed by Fox at the time. 5. Commercial Announcements: ------------------------ (a) Licensee may include in each individual Fox program the same number and length of commercial announcements (including station breaks) as Fox provides generally in that program for its affiliates on a national basis, which is currently that set forth on Exhibit D attached to this Agreement. (b) Fox shall determine the placement, timing and format of Fox's and Licensee's commercial announcements. Fox shall have the right to include commercial announcements in all of the commercial time available in each hour of the programming other than that expressly allocated to Licensee in this Agreement. (c) Licensee's broadcast over the Station of all commercial announcements included by Fox in Fox programming is of the essence of this Agreement, and nothing contained in Paragraph 3 above or elsewhere in this Agreement (other than Paragraph 11 below) shall limit Fox's rights or remedies at law or otherwise relating to failure to so broadcast said commercial announcements. Licensee agrees to maintain complete and accurate records of all commercial announcements broadcast as provided in this Agreement. Within two (2) weeks following each request by Fox therefor, Licensee will submit copies of all such records to Fox. 6. Station Compensation: Subject to the terms and conditions of this -------------------- Agreement and to the condition that Licensee is not in breach of this Agreement, FCN shall pay Licensee a share of FCN's programming Net Profits. That share shall be the amount obtained by multiplying Net Profits by a fraction, the numerator of which is Station's cumulative, aggregate audience delivery for FCN Programming from the commencement of the term of this Agreement under Paragraph 10 below, and the denominator of which is the cumulative, aggregate audience delivery for FCN Programming for all FCN affiliates, past and present, from the inception of FCN, and audience delivery shall be determined in accordance with the method utilized as of September 3, 1990 by Fox with respect to Fox programming (other than FCN programming) in its formula for distribution of station compensation to its affiliates (except that the rating base shall be kids, ages 2 to 11); provided, however, that said formula for dividing Net Profits may be changed or modified to contain in whole or in part such other factors as FCN shall determine from time to time. For purposes hereof, the term "Net Profits" shall be defined, computed, accounted for and paid in accordance with Exhibit C attached hereto and incorporated herein by this reference. If this Agreement is terminated or otherwise expires, the provisions of Paragraph 6 of said Exhibit C shall apply. Notwithstanding anything to the contrary in this Agreement or in Exhibit C hereto, in no event shall the provisions of Exhibit C hereto or of this subparagraph (b) apply to any Fox programming other than the FCN programming specifically covered by Paragraph 2 of Exhibit C hereto. 5 7. Force Majeure: Neither Fox nor FCN shall be liable to Licensee for failure ------------- to supply any programming or any part thereof, nor shall Licensee be liable to Fox or FCN for failure to broadcast any such programming or any part thereof, by reason of any act of God, labor dispute, non-delivery by program suppliers or others, failure or breakdown of satellite or other facilities, legal enactment, governmental order or regulation or any other similar or dissimilar cause beyond their respective control ("force majeure event"). If, due to any force majeure event(s), Fox substantially fails to provide the programming to be delivered to Licensee under Paragraph 1 above, or Licensee substantially fails to broadcast such programming as scheduled by Fox, for 4 consecutive weeks, or for 6 weeks in the aggregate during any 12-month period, then the other party hereto (the "unaffected party") may terminate this Agreement upon thirty (30) days prior written notice to the party so failing, which notice may be given at any time prior to the expiration of 7 days after the unaffected party's receipt of actual notice that the force majeure event(s) has ended. 8. Assignment: This Agreement shall not be assigned by Licensee without the ---------- prior written consent of Fox, and any permitted assignment shall not relieve Licensee of its obligations hereunder. Any purported assignment by Licensee without such consent shall be null and void and not enforceable against Fox. Licensee also agrees that if any application is made to the Federal Communications Commission pertaining to an assignment or a transfer of control of Licensee's license for the Station, or any interest therein, Licensee shall immediately notify Fox in writing of the filing of such application. Except as to "short form" assignments or transfers of control made pursuant to Section 73.3540(f) of the Rules and Regulations of the Federal Communications Commission, Fox shall have the right to terminate this Agreement, effective upon thirty (30) days notice to Licensee and the transferee or assignee of such termination, which notice may be given at any time within ninety (90) days after the later occurring of: (a) the date on which Fox learns that such assignment or transfer has become effective, or (b) the date on which Fox receives written notice of such assignment or transfer, or (c) the effective date of this Agreement (the foregoing termination provision shall apply to any assignments or transfers of control that become effective at any time on or after the beginning of the sixth month prior to the effective date of this Agreement). Licensee agrees, that upon Fox's request, Licensee shall procure and deliver to Fox, in form satisfactory to Fox, the agreement of the proposed assignee or transferee that, upon consummation of the assignment or transfer of control of the Station's authorization, the assignee or transferee will assume and perform this Agreement in its entirety without limitation of any kind. If Licensee fails to notify Fox of the proposed assignment or transfer of control of said Station's authorization, or fails to procure the agreement of the proposed assignee or transferee in accordance with this Paragraph, then such failure shall be deemed a material breach of this Agreement. 9. Unauthorized Copying: Licensee shall not, and shall not authorize others -------------------- to, record, copy or duplicate any programming or other material furnished by Fox hereunder, in whole or in part, and shall take all reasonable precautions to prevent any such recordings, copying or duplicating. Notwithstanding the foregoing, if Station is located in the Mountain Time Zone, Licensee may pre- record programming from the satellite feed for later telecast at the times scheduled by Fox. Licensee shall erase all such pre-recorded programming promptly after its scheduled telecast. 6 10. Term: The term of this Agreement shall commence on ___________, 19___ and ---- shall continue until the expiration of _____________________, 19____ (the "initial period"). After the initial period, the term of this Agreement may be extended for additional successive periods of two (2) years each, by Fox, in its sole discretion, giving written notice of such extension (the "extension notice") to Licensee at least one hundred twenty (120) days prior to the expiration of the then-current period; provided, however, that if, within thirty (30) days of Licensee's receipt of the extension notice, Licensee, in its sole discretion, gives Fox written notice that Licensee rejects such extension, then the extension notice shall not be effective and this Agreement shall terminate upon expiration of the then current period. Any presently existing Station Affiliation Agreements between Fox and Licensee and FCN and Licensee shall be deemed terminated as of the commencement of this Agreement; provided, however, that the following, between Fox and Licensee, shall remain in full effect: (1) any presently existing Network Non-Duplication Amendment to any such existing Station Affiliation Agreement (which shall be deemed a part of this Agreement and is incorporated herein by this reference), (2) any existing Agreement and Amendment to Station Affiliation Agreement (the "Retransmission Agreement") and (3) the provisions of any existing NFL Amendment that relate to the Retransmission Agreement. Notwithstanding anything to the contrary contained in this Agreement, upon the termination or expiration of the term of this Agreement, all of Licensee's and Station's rights to broadcast or otherwise use any Fox program or any trademark, logo or other material or item hereunder shall immediately cease and neither Licensee nor Station shall have any further rights whatsoever with respect to any such program, material or item. 11. Applicable Law: The obligations of Licensee and Fox under this Agreement -------------- are subject to all applicable federal, state, and local laws, rules and regulations (including, but not limited to, the Communications Act of 1934, as amended, and the rules and regulations of the Federal Communications Commission) and this Agreement shall be deemed to have been negotiated and entered into, and this Agreement and all matters or issues collateral thereto shall be governed by, the law of the State of California applicable to contracts negotiated, executed and performed entirely within that state. With respect to programs offered or already contracted for pursuant to this Agreement, nothing in any other Paragraph hereof shall be construed to prevent or hinder Licensee from (a) rejecting or refusing Fox programs which Licensee reasonably believes to be unsatisfactory, unsuitable or contrary to the public interest, or (b) substituting a program which, in Licensee's opinion, is of greater local or national importance; provided, however, Licensee shall give Fox written notice of each such rejection or substitution and the justification therefor, at least 72 hours in advance of the scheduled broadcast, or as soon thereafter as possible (including an explanation of the cause for any lesser notice). Programming will be deemed to be unsatisfactory or unsuitable only if it (i) is delivered in a form which does not meet accepted standards of good engineering practice; (ii) does not comply with the rules and regulations of the FCC; or (iii) is programming which Licensee reasonably believes would not meet prevailing contemporary standards of good taste in its community of license. In view of the limited nature of the Fox programming within each day-part as specified in subparagraph 3(b) above, Licensee does not foresee any need to substitute programming of greater local or national importance for Fox programming, except to present locally originated, non-entertainment, non- religious timely public interest programming, such as election coverage, live coverage of fast-breaking news events, political debates, town hall-type meetings and telethons that serve the public interest and that are approved by Fox, which approval shall not be unreasonably withheld. Notwithstanding 7 anything to the contrary expressed or implied herein, the parties acknowledge that Station has the ultimate responsibility to determine the suitability of the subject matter of program content, including commercial, promotional or public service announcements. 12. Station Acquisition by Fox: If Fox or any of Fox's parent, affiliated, -------------------------- subsidiary or related companies or other entities enters into any agreement to acquire any significant ownership and/or controlling interest in any television broadcast station licensed to any community within Station's television market, then Fox shall have the right at any time after that agreement is made, to terminate this Agreement upon not less than sixty (60) days notice to Licensee. Said termination shall be effective as of such date as Fox shall designate in said notice. 13. Change in Operations: If at any time Station's transmitter location, -------------------- power, frequency, programming format, hours of operation, technical quality of transmissions or any other material aspect of Station's operations is such that Fox determines in its reasonable judgement that Station is of less value to Fox as a broadcaster of Fox programming than at the date of this Agreement, then Fox shall have the right to terminate this Agreement upon thirty (30) days prior written notice to Licensee. 14. Non-Liability of Board Members: To the extent the Board and its members ------------------------------ are acting in their capacity as such, then the Board and each such member so acting shall not have any obligation or legal or other liability whatsoever to Licensee in connection with this Agreement or Exhibit C hereto, including without limitation, with respect to the Board's or such member's approval or non-approval of any matter, exercise or non-exercise of any right or taking of or failing to take any other action in connection therewith. 15. Warranties and Indemnities: -------------------------- (a) Fox represents and warrants that Station's broadcast, in accordance with this Agreement, of any Fox programming provided by Fox to Station shall not violate or infringe upon the trade name, trademark, copyright, literary or dramatic right, or right of privacy or publicity of any party, or constitute a libel or slander of any party; provided, however, that the foregoing representations and warranties shall not apply: (1) to public performance rights in music, (2) to any material furnished or added by any party other than Fox after delivery of the programming to Station or (3) to the extent such programming is changed or otherwise affected by deletion of any material by any party other than Fox after delivery of the programming to Station. Fox agrees to indemnify and hold harmless Station and its parents, affiliates, subsidiaries, successors and assigns, and the respective owners, officers, directors, agents and employees of each, from and against all liability, actions, claims, demands, losses, damages or expenses (including reasonable attorneys' fees, but excluding Licensee's or Station's lost profits or consequential damages, if any) caused by or arising out of Fox's breach of the representations and warranties set forth in the foregoing sentence. Fox makes no representations, warranties or indemnities, express or implied, except as expressly set forth in this subparagraph (a). 8 (b) Without limitation to any of Licensee's other obligations and agreements under this Agreement, Licensee agrees to indemnify and hold harmless Fox and its parents, affiliates, subsidiaries, successors and assigns, and the respective owners, officers, directors, agents and employees of each, from and against all liability, actions, claims, demands, losses, damages or expenses (including reasonable attorneys' fees, but excluding Fox's lost profits or Fox's consequential damages, if any) caused by or arising out of any matters excluded from Fox's representations and warranties by subparagraphs (a)(1), (2) or (3) above, or any breach of any of Licensee's representations, warranties or agreements hereunder or any programming broadcast by Station other than that provided by Fox hereunder. (c) The indemnitor may assume, and if the indemnitee requests in writing shall assume, the defense of any claim, demand or action covered by indemnity hereunder, and upon the written request of the indemnitee, shall allow the indemnitee to cooperate in the defense at the indemnitee's sole cost and expense. The indemnitee shall give the indemnitor prompt written notice of any claim, demand or action covered by indemnity hereunder. If the indemnitee settles any claim, demand or action without the prior written consent of the indemnitor, the indemnitor shall be released from the indemnity in that instance. 16. Notices: All notices to each party required or permitted hereunder to be ------- in writing shall be deemed given when personally delivered (including, without limitation, upon delivery by overnight courier or other messenger or upon receipt of facsimile copy), upon the date of mailing postage prepaid or when delivered charges prepaid to the telegraph office for transmission, addressed as specified below, or addressed to such other address as such party may hereafter specify in a written notice given as provided herein. Such notices to Licensee shall be to the address set forth for Licensee on page 1 of this Agreement. Such notices to Fox shall be to: Fox Broadcasting Company, 10201 West Pico Boulevard, Los Angeles, CA 90035, Attn: Network Distributions; with a copy to: Fox Broadcasting Company, 10201 West Pico Boulevard, Los Angeles, CA 90035, Attn: Legal Affairs. 17. Retransmission Consent: Without Fox's prior written approval, Licensee ---------------------- shall not grant its consent to the transmission or retransmission, by any cable system, telephone system, microwave carrier, wireless cable system, satellite or other technology wherever located, of Stations broadcast of any Fox programming. 18. Change In Fox Operations: Notwithstanding anything to the contrary in this ------------------------ Agreement and without limitation to any of Fox's rights, Fox reserves the right to make changes in its operations (and/or terms of doing business) that will be applicable to its affiliates generally but that will conflict with the terms of this Agreement, and within 30 days after each instance that Fox notifies Licensee that Fox has made or intends to make any such change, Licensee shall notify Fox in writing (the "Response Notice") either that Licensee does or does not agree that this Agreement shall be amended to reflect such change (if Licensee fails to so notify Fox within said 30 days, then Licensee shall be deemed to have agreed to said amendment). If such change is or will be applicable to Fox affiliates representing in total at least 70% of U.S. Television 9 Households, then effective on such date, if any, as Fox shall elect after Fox's receipt of the Response Notice: (1) this Agreement will be deemed amended to reflect such change, if Licensee so agreed in the Response Notice (or is deemed to have so agreed), or (2) this Agreement shall terminate, if Licensee did not so agree. 19. Miscellaneous: ------------- (a) Nothing contained in this Agreement shall create any partnership, association, joint venture, fiduciary or agency relationship between Fox and Licensee. (b) No waiver of any failure of any condition or of the breach of any obligation hereunder shall be deemed to be a waiver of any preceding or succeeding failure of the same or any other condition, or a waiver of any preceding or succeeding breach of the same or any other obligation. (c) In connection with Fox programming, Station shall at all times permit Fox, without charge, to place, maintain and use on Station's premises, at Fox's expense, such reasonable amounts of devices and equipment as Fox shall require, in such location and manner, as to allow Fox to economically, efficiently and accurately achieve the purposes of such equipment. Station shall operate such equipment for Fox, to the extent Fox reasonably requests, and no fee shall be charged by Station therefor. (d) This Agreement constitutes the entire understanding between Fox and Licensee concerning the subject matter hereof and shall not be amended, modified, changed, renewed, extended or discharged except by an instrument in writing signed by Fox and Licensee or as otherwise expressly provided herein. Fox and Licensee each hereby acknowledges that neither is entering into this Agreement in reliance upon any term, condition, representation or warranty not stated herein, and that this Agreement replaces any and all prior and contemporaneous agreements, whether oral or written, pertaining to the subject matter hereof. All actions, proceedings or litigation brought against Fox by Licensee shall be instituted and prosecuted solely within the County of Los Angeles, California. Licensee hereby consents to the jurisdiction of the state courts of California and the federal courts located in the Central District of California as to any matter arising out of, or related to this Agreement. (e) Each and all of the several rights and remedies of each party hereto under or contained in or by reason of this Agreement shall be cumulative, and the exercise of one or more of said rights or remedies shall not preclude the exercise of any other right or remedy under this Agreement, at law, or in equity. Notwithstanding anything to the contrary contained in this Agreement, in no event shall either party hereto be entitled to or recover any lost profits or consequential damages because of a breach or failure by the other party, and except as expressly provided in this Agreement to the contrary, neither Fox nor Licensee 10 shall have any right against the other with respect to claims by any third person or other third entity. (f) It is understood that FCN is indemnifying Fox in connection with all costs, expenses, liabilities and other matters relating to the FCN programming covered hereunder. (g) Paragraph headings are inserted for convenience only and shall not be used to interpret this Agreement or any of the provisions hereof or given any legal or other effect whatsoever. (h) Licensee acknowledges that Station's rights contained in this Agreement are subject to and must be exercised consistent with the rights conveyed to Fox by the NFL, the NHL or any other licensor of programming delivered under this Agreement and any limitations and restrictions thereon. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Fox Broadcasting Company ___________________________________ ("Fox") ("Licensee") By:_____________________________ By:________________________________ Title:__________________________ Title:_____________________________ 11 -----END PRIVACY-ENHANCED MESSAGE-----