UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)
Lions Gate Entertainment Corp.
(Name of Issuer)
Class A Voting Shares, no par value
(Title of Class of Securities)
535919401
(CUSIP Number)
Jonathan E. Levitsky
Debevoise & Plimpton LLP
919 Third Avenue
New York, NY 10022
212-909-6000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)
February 10, 2017
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. ☐
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Section 240.13d-7 for other parties to whom copies are to be sent.
| * | The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. |
The information required on the remainder of this cover page shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
| CUSIP NO. 535919401
|
| 1. | Name of Reporting Person
Discovery Communications, Inc. | |||||
| 2. | Check the Appropriate Box if a Member of a Group (a) ☐ (b) ☒
| |||||
| 3. | SEC Use Only
| |||||
| 4. | Source of Funds
WC | |||||
| 5. | Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e)
| |||||
| 6. | Citizenship or Place of Organization
U.S.A. | |||||
| Number of Shares Beneficially Owned By Each Reporting Person With |
7. | Sole Voting Power
0 | ||||
| 8. | Shared Voting Power
2,500,000 | |||||
| 9. | Sole Dispositive Power
0 | |||||
| 10. | Shared Dispositive Power
2,500,000 | |||||
| 11. |
Aggregate Amount Beneficially Owned by Each Reporting Person
2,500,000 | |||||
| 12. | Check if the Aggregate Amount in Row (11) Excludes Certain Shares
☒(1) | |||||
| 13. | Percent of Class Represented by Amount in Row (11)
3.08%(2) | |||||
| 14. | Type of Reporting Person
CO | |||||
(1). See the last paragraph of Item 5 below.
(2). All percentages are based on 81,056,905 Class A Voting Shares outstanding as of February 6, 2017, based on information contained in the Issuer’s Form 10-Q, as filed with the Securities and Exchange Commission (the “SEC”) on February 9, 2017.
Page 2 of 10
|
CUSIP NO. 535919401 |
| 1. | Name of Reporting Person
Discovery Lightning Investments Ltd. | |||||
| 2. | Check the Appropriate Box if a Member of a Group (a) ☐ (b) ☒
| |||||
| 3. | SEC Use Only
| |||||
| 4. | Source of Funds
WC | |||||
| 5. | Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e)
| |||||
| 6. | Citizenship or Place of Organization
United Kingdom | |||||
| Number of Shares Beneficially Owned By Each Reporting Person With |
7. | Sole Voting Power
0 | ||||
| 8. | Shared Voting Power
2,500,000 | |||||
| 9. | Sole Dispositive Power
0 | |||||
| 10. | Shared Dispositive Power
2,500,000 | |||||
| 11. |
Aggregate Amount Beneficially Owned by Each Reporting Person
2,500,000 | |||||
| 12. | Check if the Aggregate Amount in Row (11) Excludes Certain Shares
☒(1) | |||||
| 13. | Percent of Class Represented by Amount in Row (11)
3.08%(2) | |||||
| 14. | Type of Reporting Person
CO | |||||
(1). See the last paragraph of Item 5 below.
(2). All percentages are based on 81,056,905 Class A Voting Shares outstanding as of February 6, 2017, based on information contained in the Issuer’s Form 10-Q, as filed with the Securities and Exchange Commission (the “SEC”) on February 9, 2017.
Page 3 of 10
AMENDMENT NO. 2 TO SCHEDULE 13D
This Amendment to Schedule 13D is being filed jointly by Discovery Communications, Inc. (“DCI”) and Discovery Lightning Investments Ltd. (“DLI”) (collectively, the “Reporting Persons”, and each, a “Reporting Person”) to amend and supplement the Schedule 13D (the “Schedule”) filed by the original Reporting Persons on November 20, 2015, as amended by Amendment No. 1, filed on July 1, 2016, relating to the Common Shares, no par value, of the Issuer (the “Common Shares”). In connection with the consummation of the transactions contemplated by the Starz Merger Agreement (the “Merger Agreement”), each Common Share was reclassified (the “Reclassification”) into 0.5 Class A voting share, no par value (the “Class A Voting Shares”) and 0.5 Class B non-voting share, no par value (the “Class B Non-Voting Shares”). This Amendment to Schedule 13D is being filed to report the updated beneficial ownership of the Reporting Persons following the Reclassification and consummation of the transactions contemplated by the Merger Agreement.
| Item 2 | Identity and Background |
Item 2 is hereby amended by amending and restating Annex A to read in its entirety as set forth in the Annex A attached to this amendment.
| Item 5 | Interest in Securities of the Issuer |
Item 5 is hereby amended to read in its entirety as follows:
All references to percentage beneficial ownership in Item 1 and this Item 5 are calculated by reference only to the Class A Voting Shares and without reference to the Class B Non-Voting Shares. Reference to the Class B Non-Voting Shares in this Item 5 is made supplementally and for informational purposes only.
(a) and (b) The responses of each of the Reporting Persons with respect to Rows 11, 12, and 13 of the cover pages of this Amendment No. 2to Schedule 13D that relate to the aggregate number and percentage of Class A Voting Shares (including but not limited to footnotes to such information) are incorporated herein by reference.
The responses of each of the Reporting Persons with respect to Rows 7, 8, 9, and 10 of the cover pages of this Amendment No. 2 to Schedule 13D that relate to the number of Class A Voting Shares as to which each of the persons or entities referenced in Item 2 above has sole or shared power to vote or to direct the vote of and sole or shared power to dispose of or to direct the disposition of (including but not limited to footnotes to such information) are incorporated herein by reference.
DLI holds 2,500,000 Class A Voting Shares of the Issuer directly. Because DLI is an indirect wholly-owned subsidiary of DCI, DCI may be deemed to beneficially own the 2,500,000 Class A Voting Shares held directly by DLI, and share voting and investment power over such shares. 1
DLI is required to vote the Class A Voting Shares beneficially owned by it in respect of certain matters in accordance with the Voting and Standstill Agreement. See the description of the Voting and Standstill Agreement in Item 6 of Amendment No. 1 to Schedule 13D, which is incorporated herein by
| 1 | In addition, DLI may be deemed the beneficial owner of 2,500,000 Class B Non-Voting Shares held directly. Because DLI is an indirect wholly-owned subsidiary of DCI, DCI may be deemed to beneficially own the 2,500,000 Class B Non-Voting Shares held directly by DLI. |
Page 4 of 10
reference. DLI is also subject to restrictions on the sale of its Class A Voting Shares pursuant to the Investor Rights Agreement and the Pledge Agreement (as defined in Item 6 of Amendment No. 1 to Schedule 13D). See the descriptions of the Investor Rights Agreement and the Pledge Agreement in Item 6 of Amendment No. 1 to Schedule 13D, which are incorporated herein by reference.
The beneficial ownership information set forth above does not include any securities of the Issuer beneficially owned by the Selling Shareholders or their affiliates, including Mark H. Rachesky, M.D., John C. Malone, Liberty Parent or Liberty. As a result of the agreements described in Item 6 of the Schedule, the Reporting Persons may be deemed to beneficially own and share voting power over the Class A Voting Shares owned by the Selling Shareholders, Liberty and John C. Malone and certain of their affiliates. Based on Amendment Number 23 to Schedule 13D, filed with the SEC on December 9, 2016, by MHR Institutional Partners III LP, MHR Institutional Advisors III LLC, MHR Fund Management, MHR Holdings LLC and Mark H. Rachesky, M.D., various funds affiliated with MHR Fund Management (including the Selling Shareholders) and Mark H. Rachesky, M.D. beneficially own an aggregate of 15,138,570 Class A Voting Shares of the Issuer (approximately 18.68% of the total number of Class A Voting Shares outstanding). Based on Amendment No. 2 to Schedule 13D, filed with the SEC on December 13, 2016, by Mr. Malone, Mr. Malone beneficially owns 6,394,477 Class A Voting Shares of the Issuer (including (1) 145,739 Class A Voting Shares held by his wife, Mrs. Leslie Malone, as to which shares Mr. Malone disclaims beneficial ownership, (2) 153,250 Class A Voting Shares held by the Malone Family Foundation (the “Family Foundation”) and 125,000 Class A Voting Shares held by the Malone Family Land Preservation Foundation (the “Land Foundation”), as to which shares Mr. Malone disclaims beneficial ownership, (3) 1,935,769 Class A Voting Shares held by the Malone Starz 2015 Charitable Remainder Trust (“2015 CRT”) and 269,829 Class A Voting Shares held by the John C. Malone June 2003 Charitable Remainder Trust (“2003 CRT”), with respect to each of which Mr. Malone is the sole trustee and, with his wife, retains a unitrust interest, and (4) 78,471 Class A Voting Shares held by two trusts (the “Trusts”) which are managed by an independent trustee and the beneficiaries of which are Mr. Malone’s adult children and as to which Mr. Malone disclaims beneficial ownership). These Class A Voting Shares represent approximately 7.89% of the outstanding Class A Voting Shares. Mr. Malone is also a director of DCI and, based on Forms 4 filed by Mr. Malone on May 13 and 23, 2016, beneficially owns shares representing approximately 21.5% of its votes. Based on Amendment No. 3 to Schedule 13D filed with the SEC on February 13, 2017 by Liberty and Liberty Parent, Liberty Parent owns an aggregate of 2,500,000 Class A Voting Shares of the Issuer. Liberty is a wholly owned subsidiary of Liberty Parent. Mr. John C. Malone is a director and chairman of the board of Liberty Parent. Based on Liberty Parent’s Schedule 14A filed with the SEC on December 6, 2016, Mr. Malone holds shares representing approximately 47.6% of the votes of Liberty Parent.
| Item 6 | Contracts, Arrangements, Understandings or Relationships with respect to Securities of the Issuer. |
The information under “Collar Transactions” in Item 6 is hereby amended to read in its entirety as follows:
Collar Transaction
On November 12, 2015, DLI entered into the Collar Transaction (the “Collar Transaction”) with Bank of America, N.A. (the “Bank”), pursuant to which DLI wrote covered call options and purchased put options over an aggregate of 2,500,000 Common Shares. In connection with the Reclassification, pursuant to a notice dated February 10, 2017 the terms of the Collar Transaction were adjusted to reflect the Reclassification with no change to the economic rights and obligations of either DLI or the Bank. As adjusted, the covered call options and purchased put options is over an aggregate of 2,500,000 units consisting of 0.5 Class A Voting Shares and 0.5 Class B Non-Voting Shares, for an aggregate of 1,250,000 Class A Voting A Shares and 1,250,000 Class B Non-Voting Shares. As adjusted, the Collar Transaction continues to be divided into three individual tranches (each a “Tranche”) with each Tranche divided into 25 individual components (each a “Component”); the expiration dates of the options included in the Components constituting Tranche 1 are the 25 trading days from July 25, 2019 through August 28, 2019, inclusive; the expiration dates of the options included in the Components constituting Tranche 2 are the 25 trading days from October 23, 2020 through November 30, 2020, inclusive; and the expiration dates of the Components constituting Tranche 3 are the 25 trading days from January 25, 2022 through March 1, 2022, inclusive. As adjusted, each Component relates to 16,667 Class A Voting Shares and 16,667 Class B Non-
Page 5 of 10
Voting Shares (or, in the case of the options included in the Components having the final expiration date for each Tranche, 16,658.5 Class A Voting Shares and 16,658.5 Class B Non-Voting Shares plus an amount of cash equal to the product of 0.5 and Settlement Price (as defined below) in the case of Tranche 1 and Tranche 2 and 16,659 Class A Voting Shares and 16,659 Class B-Non-Voting Shares in the case of Tranche 3). On the relevant expiration date for each Component:
a. the call option will automatically be exercised if the Settlement Price is greater than or equal to $52.677 (the “Call Strike Price”);
b. the put option will automatically be exercised if the Settlement Price is less than or equal to $33.167 (the “Put Strike Price”); and
c. the call right and the put right will expire unexercised if the Settlement Price is greater than the Put Strike Price but less than the Call Strike Price.
The “Settlement Price” means the sum of (i) the volume weighted average trading price of a Class A Voting Share multiplied by 0.5 and (ii) the volume weighted average trading price of a Class B Non-Voting Share multiplied by 0.5, in each case on the expiration date for the relevant Component. The options will be settled in cash unless DLI elects physical settlement. In exchange for the Bank’s entering into the Transaction, DLI paid the Bank a premium of $ 3,599,595.00 and pledged 2,500,000 Common Shares of the Issuer to the Bank to secure its obligations under the Collar Transaction. In connection with the Reclassification, such pledged shares were replaced by a pledge by DLI of 1,250,000 Class A Voting Shares and 1,250,000 Class B Non-Voting Shares (collectively, the “Pledged Shares”). In most circumstances, DLI retains voting rights in the Pledged Shares during the term of the pledge, but DLI is obligated to share with the Bank the economic benefit of any dividends paid during the term of the pledge based on a formula that takes into account a theoretical hedging position by the Bank.
The foregoing description of the Collar Transaction does not purport to be complete and is qualified in its entirety by reference to the full text of the Pledge Agreement, the Collar Confirmation and the Notification of Potential Adjustment Event, which are filed as Exhibits 99.5, 99.6 and 99.12 to the Schedule and incorporated herein by reference.
| Item 7 | Material to be Filed as an Exhibit. |
Item 7 is hereby amended by adding the following exhibits in appropriate numerical order.
| Exhibit | Description | |
| 99.1.2 | Joint Filing Agreement, dated as of February 13, 2017, by and between Discovery Communications, Inc. and Discovery Lightning Investments Ltd. | |
| 99.12 | Notification of Potential Adjustment Event, dated February 10, 2017. | |
Page 6 of 10
Signature.
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct.
Date: February 13, 2017
| DISCOVERY COMMUNICATIONS, INC. | ||
| By: | /s/ David M. Zaslav | |
| Name David M. Zaslav | ||
| Title: President and Chief Executive Officer | ||
| DISCOVERY LIGHTNING INVESTMENTS LTD. | ||
| By: | /s/ Roanne Weekes | |
| Name: Roanne Weekes | ||
| Title: Director | ||
Page 7 of 10
Annex A
Directors and Executive Officers of Discovery Communications, Inc.
| Name |
Address of Business/Principal Office |
Principal Business/Occupation |
Citizenship | |||
| David M. Zaslav | One Discovery Place Silver Spring, Maryland 20910 |
Director, President and Chief Executive Officer |
U.S.A | |||
| Andrew Warren | One Discovery Place Silver Spring, Maryland 20910 |
Senior Executive Vice President and Chief Financial Officer |
U.S.A | |||
| Kurt T. Wehner | One Discovery Place Silver Spring, Maryland 20910 |
Executive Vice President and Chief Accounting Officer |
U.S.A | |||
| Jean-Briac Perrette | One Discovery Place Silver Spring, Maryland 20910 |
President and Chief Executive Officer, Discovery Networks International |
U.S.A/France | |||
| Adria Alpert Romm | One Discovery Place Silver Spring, Maryland 20910 |
Chief Human Resources & Global Diversity Officer |
U.S.A | |||
| Bruce L. Campbell | One Discovery Place Silver Spring, Maryland 20910 |
Chief Development, Distribution & Legal Officer |
U.S.A | |||
| Paul Guagliardo | One Discovery Place Silver Spring, Maryland 20910 |
Chief Commercial Officer | U.S.A | |||
| David C. Leavy | One Discovery Place Silver Spring, Maryland 20910 |
Chief Corporate Operations and Communications Officer |
U.S.A | |||
| S. Decker Anstrom | One Discovery Place Silver Spring, Maryland 20910 |
Director | U.S.A | |||
| Robert R. Beck | One Discovery Place Silver Spring, Maryland 20910 |
Director; Independent Financial Consultant |
U.S.A | |||
| Robert R. Bennett | One Discovery Place Silver Spring, Maryland 20910 |
Director; Managing Director of Hilltop Investments |
U.S.A | |||
| Paul A. Gould | One Discovery Place Silver Spring, Maryland 20910 |
Director; Managing Director, Allen & Company, LLC |
U.S.A | |||
Page 8 of 10
| John C. Malone | One Discovery Place Silver Spring, Maryland 20910 |
Director; Chairman of Liberty Media Company, Liberty Interactive Corporation, Liberty Global, Inc., Expedia Holdings, Lions Gate Entertainment Corp.; Charter Communications, Inc.; and Liberty Broadband Corp. | U.S.A | |||
| Robert J. Miron | One Discovery Place Silver Spring, Maryland 20910 |
Director and Chairman | U.S.A | |||
| Steven A. Miron | One Discovery Place Silver Spring, Maryland 20910 |
Director; CEO of Advance/Newhouse Communications | U.S.A | |||
| M. LaVoy Robison | One Discovery Place Silver Spring, Maryland 20910 |
Director; Director, The Anschutz Foundation | U.S.A | |||
| J. David Wargo | One Discovery Place Silver Spring, Maryland 20910 |
Director; President, Wargo & Company, Inc. | U.S.A | |||
| Susan M. Swain | One Discovery Place Silver Spring, Maryland 20910 |
Director; Co-CEO and President, C-SPAN | U.S.A. | |||
Directors and Executive Officers of Discovery Lightning Investments Ltd.
| Name |
Address of Business/Principal Office |
Principal Business/Occupation |
Citizenship | |||
| Dominic Coles | 566 Chiswick High Road, Discovery House, Chiswick Park Building 2, London, United Kingdom W4 5YB |
Director and Officer; Senior Vice President, Chief Financial Officer and Chief Operating Officer, DCI, Northern Europe | U.K. | |||
| Nicolas Bonard | 566 Chiswick High Road, Discovery House, Chiswick Park Building 2, London, United Kingdom W4 5YB |
Director and Officer; Senior Vice President, Discovery Global Enterprises | Switzerland | |||
| Roanne Weekes | 566 Chiswick High Road, Discovery House, Chiswick Park Building 2, London, United Kingdom W4 5YB |
Director and Officer; Senior Vice President, DNI Controller | Australia | |||
Other than Mr. Malone (whose beneficial ownership is disclosed in item 5), to the knowledge of DCI and DLI, none of the foregoing directors or executive officers of DCI or DLI beneficially own any Issuer Common Shares. None of the directors or executive officers of DCI or DLI has, during the last five years: (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors); or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
Page 9 of 10
Exhibit 99.1.2
JOINT FILING AGREEMENT
Pursuant to Rule 13d-1(k)(1) promulgated under the Securities Exchange Act of 1934, as amended, the undersigned agree that the Statement on Schedule 13D to which this exhibit is attached is filed on behalf of each of them.
Date: February 13, 2017
| DISCOVERY COMMUNICATIONS, INC. | ||
| By: | /s/ David M. Zaslav | |
| Name: | David M. Zaslav | |
| Title: | President and Chief Executive Officer | |
| DISCOVERY LIGHTNING INVESTMENTS LTD. | ||
| By: | /s/ Roanne Weekes | |
| Name: | Roanne Weekes | |
| Title: | Director | |
Exhibit 99.12
Execution Version
February 10, 2017
Discovery Lightning Investments Limited
Discovery House, Chiswick Park Building 2
566 Chiswick High Road
London W4 5YB
Facsimile: +44 20 8811 3310
Attention: Roanne Weekes, SVP DNI Finance and Director
| Re: | The Collar Transaction Confirmation (the “Confirmation”) entered into between Bank of America, N.A. (“Bank”) and Discovery Lightning Investments Limited (“Counterparty”), dated November 12, 2015 and the related letter agreement between the Bank and Counterparty (the “Letter Agreement” and, together with the Confirmation, the “Collar Documents”). |
In our capacity as Calculation Agent under the Transaction governed by the Collar Documents, we hereby notify you of the occurrence of a Potential Adjustment Event under Section 11.2(e) of the Equity Definitions as a result of the reclassification of Issuer’s common shares, pursuant to which each common share has been converted into 0.5 shares of newly issued Class A Voting Shares of the Issuer and 0.5 shares of newly issued Class B Non-Voting Shares of the Issuer (such event, the “Reclassification”). Capitalized terms used but not defined herein have the meanings set forth in the Collar Documents.
Pursuant to the provisions of Section 11.2(c) of the Equity Definitions (as amended by the Confirmation), in our capacity as Calculation Agent, we have determined that it is appropriate to make the following adjustments, effective on December 8, 2016, to the terms of the Transaction to account for the material effect of the Reclassification. While the following adjustments reflect all the adjustments that we, in our capacity as Calculation Agent, have identified at this time, we may, if circumstances we did not anticipate arise, make further adjustments from time to time as appropriate to account for the material effect of the Reclassification pursuant to the provisions of Section 11.2(c) of the Equity Definitions (as amended by the Confirmation). For the avoidance of doubt, the immediately preceding sentence shall be subject to the “Adjustment and Termination Consultation” provision in the Collar Documents.
If you have any questions regarding this notice or the resulting adjustment, please contact Kevin O’Sullivan at Tel: +44 (0) 207-995-5313, [Redacted].
1. The “General Terms” section of the Confirmation is hereby adjusted as follows:
| (a) The definition of “Shares” shall be replaced in its entirety as follows: | ||
| Shares: | A unit, consisting of 0.5 shares of the Class A voting shares, without par value, of Lions Gate Entertainment Corporation (the “Issuer”) (Bloomberg Code: BBG000K1TOM8) or security entitlements in respect thereof (the “Class A Shares”) and 0.5 shares of the Class B non-voting shares, without par value, of the Issuer (Bloomberg Code: BBG000K1TOM8) or security entitlements in respect thereof (the “Class B Shares”); provided that references to “Shares” in the Confirmation and the Equity Definitions shall refer to either Class A Shares or Class B Shares or both, as the Calculation Agent reasonably determines appropriate in the context, subject to the “Adjustment and Termination Consultation” provision below (as if such determination were an adjustment); provided, however, that the immediately preceding proviso shall not apply with respect to (a) the reference to “Shares” when determining the Option | |
| Entitlement for purposes of calculating the Option Cash Settlement Amount and (b) Section 9.5(a) of the Equity Definitions. |
(b) The following definitions shall be added after the definition of “Shares”:
| Number of Class A Shares: | In relation to each Component, the number of Class A Shares equal to the product of the Number of Options, the Option Entitlement and 0.5. | |
| Number of Class B Shares: | In relation to each Component, the number of Class B Shares equal to the product of the Number of Options, the Option Entitlement and 0.5. | |
| Total Number of Class A Shares: | 1,250,000 | |
| Total Number of Class B Shares: | 1,250,000 | |
2. The “Procedures for Exercise” section of the Confirmation is hereby adjusted by replacing the definition of “Expiration Date” in its entirety with the following provisions:
| Expiration Date: | For each Component, as set out in Annex 1 hereto (or, if such date is not a Scheduled Trading Day, the next following Scheduled Trading Day that is not already an Expiration Date for another Component); provided that, (i) if that date is a Disrupted Day in respect of both Class A Shares and Class B Shares, the Expiration Date for such Component shall be the first succeeding Scheduled Trading Day that is not a Disrupted Day and that is not or is not deemed to be an Expiration Date in respect of any other Component under the Transaction and (ii) if that date is a Disrupted Day in respect of either Class A Shares or Class B Shares (but not both) or for different durations in respect of any such Shares, in lieu of or in addition to the adjustment described in the following sentence, the Calculation Agent shall value Class A Shares and/or Class B Shares on such date with respect to all or a portion of the applicable Component and shall designate the first succeeding Scheduled Trading Day that is not a Disrupted Day and that is not or is not deemed to be an Expiration Date in respect of any other Component under the Transaction for the portion of the applicable Component not valued on such date (in which case, the applicable Reference Price or Settlement Price, as applicable, shall be an appropriately weighted average and the Settlement Date or Cash Settlement Payment Date shall be postponed for such Component until such time as the entire Share for such Component has been valued); provided, further, that if the Expiration Date for any Component has not occurred pursuant to the preceding proviso as of the eighth Scheduled Trading Day following the originally scheduled Expiration Date for the last Component of the applicable Tranche under the Transaction, such eighth Scheduled Trading Day shall be the Expiration Date for such Component (irrespective of whether such day is an Expiration Date in respect of any other Component) and, if that eighth Scheduled Trading Day is a Disrupted Day or an Expiration Date for more than one Component, the Calculation Agent shall |
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| determine the Reference Price or Settlement Price, as applicable (or portion thereof) based on its commercially reasonable and good faith estimate of the value for the applicable Shares as of the Valuation Time on that eighth Scheduled Trading Day. | ||
| Notwithstanding the foregoing and anything to the contrary in the Equity Definitions, if a Market Disruption Event occurs on any Expiration Date, the Calculation Agent may determine that such Expiration Date is a Disrupted Day only in part, in which case (i) the Calculation Agent shall make adjustments to the number of Shares (or portion thereof) for the relevant Component for which such day shall be the Expiration Date and shall designate the Scheduled Trading Day determined in the manner described in the immediately preceding sentence as the Expiration Date for the remaining Shares (or portion thereof) for such Component and (ii) the Settlement Price for such Disrupted Day shall be determined by the Calculation Agent based on transactions in the Shares (or portion thereof) on such Disrupted Day, taking into account the nature and duration of such Market Disruption Event on such day. | ||
| Section 6.6 of the Equity Definitions shall not apply to any Valuation Date and the final sentence of Section 3.1(f) of the Equity Definitions shall not apply to any Expiration Date. | ||
3. The “Settlement Terms” section of the Confirmation is hereby adjusted by deleting the definition of “Settlement Price” in its entirety and replacing it with the following definition:
| Settlement Price: | If Cash Settlement is applicable, the sum of (i) the volume weighted average trading price per Class A Share during the regular trading session on the Exchange multiplied by 0.50 and (ii) the volume weighted average trading price per Class B Share during the regular trading session on the Exchange multiplied by 0.50, in each case as determined by the Calculation Agent as of the Valuation Time on the relevant Valuation Date for the period of time from 9:30 a.m. New York City time on such Valuation Date to 4:00 p.m. New York City time on such Valuation Date, with respect to Class A Shares, with reference to Bloomberg page “LGF.A <Equity> AQR” (or any successor thereto), and with respect to Class B Shares, “LGF.B <Equity> AQR” (or any successor thereto), or if any such price is not so reported for any reason on such Valuation Date, such Settlement Price will be as reasonably determined by the Calculation Agent. |
4. The “Distributions” section of the Confirmation is hereby adjusted as follows:
(a) The first paragraph of “Cash Distributions” shall be replaced in its entirety with the following paragraph:
“In respect of any Component, if any cash distribution per Class A Share and/or Class B Share is declared by the Issuer for which the ex-dividend date falls during the period from and including the Trade Date to and including the Valuation Date or Expiration Date for that Component, as determined by the Calculation Agent, then on the relevant cash distribution payment date, even if that date falls after the Valuation Date or Expiration Date, Counterparty shall pay to Bank a cash amount in the Settlement Currency equal to the
3
product of (i) the Number of Class A Shares or the Number of Class B Shares, as applicable, for that Component, (ii) the gross amount per Class A Share or Class B Share, as applicable, of any cash distribution and (iii) the Delta for the relevant class of Shares.”
(b) The following shall be inserted at the end of the second paragraph of “Cash Distributions”:
“For purposes of the foregoing, (i) the gross amount of the cash distribution per Share shall be determined by aggregating the distribution per Class A Share and the distribution per Class B Share (each weighted by the number of Class A Shares or Class B Shares, as applicable, constituting a Share) and (ii) the closing price per Share shall be determined by aggregating the closing price per Class A Share and the closing price per Class B Share (each weighted by the number of Class A Shares or Class B Shares, as applicable, constituting a Share).”
(c) The words “With respect to a class of Shares,” shall be inserted in front of the first sentence in “Delta” and the words “in respect of such class of Shares” shall be inserted after the words “theoretically would be short”.
(d) Clause (A) of the first paragraph of “Non-cash Distributions” shall be replaced in its entirety with the following clause:
“(A) on the relevant distribution date, even if that date falls after the Valuation Date or Expiration Date, Counterparty shall physically deliver to Bank an amount of such non-cash distribution equal to the product of (i) the Number of Class A Shares or the Number of Class B Shares, as applicable, for that Component, (ii) the gross amount per Class A Share or Class B Share, as applicable, of such non-cash distribution and (iii) the Delta for the relevant class of Shares and”.
(e) The definition of “Cash Collateral” shall be adjusted as follows:
(i) The words “with respect to a class of Shares” shall be inserted after “Delta”;
(ii) The words “Number of Options multiplied by the Option Entitlement” shall be replaced with the words “the Number of Class A Shares or the Number of Class B Shares or both, as applicable,”; and
(iii) The word “applicable” shall be inserted before the words “Delta Announcement” in clause (B).
5. The “Additional Disruption Events” section of the Confirmation is hereby adjusted as follows:
(a) The provisions opposite “Increased Cost of Stock Borrow” shall be replaced in their entirety as follows:
| Increased Cost of Stock Borrow: |
Applicable; provided that: | |
| (1) Section 12.9(a)(viii) is hereby amended and restated as follows: | ||
| ““Increased Cost of Stock Borrow” means that the Hedging Party would incur a weighted average rate to borrow Class A Shares (not to exceed the number of Class A Shares underlying the Transaction) and Class B Shares (not to exceed the number of Class B Shares underlying the Transaction) in respect of such Transaction that is greater than the Initial Stock Loan Rate.”; and | ||
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| (2) Section 12.9(b)(v) is hereby amended and restated as follows: | ||
| “On or promptly following the first Exchange Business Day following the Trade Date or effective delivery of a Borrow Condition Termination Notice on which (x) an Increased Cost of Stock Borrow exists (an “Increased Cost Condition”) or (y) the Hedging Party is unable, after using commercially reasonable efforts, to borrow (or maintain a borrowing of) Class A Shares or Class B Shares in an amount equal to the Hedging Shares with respect to Class A Shares (not to exceed the number of Class A Shares underlying the Transaction) or the Hedging Shares with respect to Class B Shares (not to exceed the number of Class B Shares underlying the Transaction), as applicable (a “Non-availability Condition”), the Hedging Party will notify the Non-Hedging Party by e-mail at the following e-mail address(es) (collectively, the “Counterparty Designees”): stephanie_marks@discovery.com, fraser_woodford@discovery.com, roanne_weekes@discovery.com (such notice, a “Borrow Condition Notice”) (which the Non-Hedging Party shall confirm by return e-mail, it being understood that any failure to so confirm shall not affect the remainder of this provision) of (i) the number of Class A Shares and/or Class B Shares for which the Increased Cost Condition or Non-availability Condition, as applicable, exists (any such Class A Shares, from time to time, “Affected Class A Shares” and any such Class B Shares, from time to time, “Affected Class B Shares” and, collectively, the “Affected Shares”) and (ii) in the case of an Increased Cost Condition only, (A) the weighted average rate that the Hedging Party would incur (or has incurred) to borrow a number of Class A Shares and Class B Shares equal to the number of Affected Class A Shares and Affected Class B Shares in respect of the Transaction (such rate from time to time, the “Stock Loan Rate”) and (B) the amount by which the costs that would be incurred (or have been incurred) by the Hedging Party to borrow or maintain a borrowing of Class A Shares and/or Class B Shares at the Stock Loan Rate exceed such costs that would have been incurred had the Stock Loan Rate been equal to the Initial Stock Loan Rate (such costs in respect of the number of Affected Shares from time to time, “Stock Loan Excess Costs”). In the event that an Increased Cost Condition or Non-availability Condition, as applicable, described in a Borrow Condition Notice ceases to exist, the Hedging Party will promptly notify the Non-Hedging Party by e-mail to the Counterparty Designees (such notice, a “Borrow Condition Termination Notice”) (which the Non-Hedging Party shall confirm by return e-mail, it being understood that any failure to so confirm shall not affect the remainder of this provision) of such cessation. | ||
| In addition, the Hedging Party will notify the Non-Hedging Party by e-mail to the Counterparty Designees (such notice, a “Borrow Condition Update Notice”) (which the Non-Hedging Party shall confirm by return e-mail, it being | ||
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| understood that any failure to so confirm shall not affect the remainder of this provision) in the event of: (i) any increase or decrease in the Stock Loan Rate since the most recent effectively delivered Borrow Condition Update Notice or Borrow Condition Notice that results in the Stock Loan Rate exceeding (or ceasing to exceed) the Maximum Stock Loan Rate, (ii) any increase in the number of Affected Shares since the most recent effectively delivered Borrow Condition Update Notice or Borrow Condition Notice in excess of 50,000 Shares and (iii) any increase or decrease in the expected Monthly Payable Stock Loan Excess Costs (as defined below), as reasonably determined by the Hedging Party, since the most recent effectively delivered Borrow Condition Update Notice or Borrow Condition Notice in excess of $1,000. Each Borrow Condition Update Notice shall specify (i) the then-current number of Affected Class A Shares and Affected Class B Shares and (ii) the then-current Stock Loan Rate. | ||
| On or promptly following the final Exchange Business Day of each calendar month, the Hedging Party will notify the Non-Hedging Party by e-mail to the Counterparty Designees (which the Non-Hedging Party shall confirm by return e-mail, it being understood that any failure to so confirm shall not affect the remainder of this provision) of the aggregate Stock Loan Excess Costs during such calendar month the incurrence of which has not been avoided through a rehypothecation in accordance with the second succeeding paragraph of this Section 12.9(b)(v) (such non-avoided Stock Loan Excess Costs, “Monthly Payable Stock Loan Excess Costs”) and of a proposed Price Adjustment to account for such Stock Loan Excess Costs which proposed Price Adjustment may, for the avoidance of doubt, include requiring a payment by Counterparty (such notice, the “Monthly Borrow Cost Notice”). The Non-Hedging Party shall, within two Scheduled Trading Days of effective delivery of the Monthly Borrow Cost Notice, notify the Hedging Party that it elects to (A) agree to amend the relevant Transaction per the proposed Price Adjustment, (B) pay the Hedging Party such Stock Loan Excess Costs, or (C) terminate the Transaction as of that second Scheduled Trading Day with respect to a number of Shares (the “Terminable Shares”) equal to (1) the product of (x) two and (y) the greater of then-current number of Affected Class A Shares and the then-current number of Affected Class B Shares or (2) if the Hedging Party determines appropriate, the then-current number of Affected Class A Shares and the then-current number of Affected Class B Shares, and, in the case of (A) or (B), the Non-Hedging Party shall make any related payment within one Scheduled Trading Day of effective delivery of notice of its election. If such notice is not given by the end of that second Scheduled Trading Day, then the Hedging Party may give notice that it elects to terminate the Transaction with respect to the then-current number of Terminable Shares, specifying the date of such termination, which may be the same day that the notice of termination is effective. If either party elects to terminate the Transaction | ||
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| with respect to the then-current number of Terminable Shares, the Determining Party will determine the Cancellation Amount payable by one party to the other, which Cancellation Amount shall include the Stock Loan Excess Costs incurred through the date the Transaction is terminated with respect to the then-current number of Terminable Shares and that have not previously been paid or resulted in a Price Adjustment, and if the Terminable Shares are determined pursuant to clause (C)(2) above, the Calculation Agent will adjust the terms of the Transaction as it determines appropriate to account for the economic effect of the Terminable Shares constituting a disproportionate number of one class of Shares. | ||
| In addition, the Non-Hedging Party shall, within two Scheduled Trading Days of effective delivery of a Borrow Condition Notice indicating the existence of a Non-availability Condition, notify the Hedging Party that it elects to (A) permit the Hedging Party to rehypothecate Shares in accordance with the next succeeding paragraph of this Section 12.9(b)(v) or (B) terminate the Transaction as of that second Scheduled Trading Day with respect to the then-current number of Terminable Shares (determined as provided under clause (C) in the preceding paragraph). If such notice is not given by the end of that second Scheduled Trading Day, then the Hedging Party may give notice that it elects to terminate the Transaction with respect to the then-current number of Terminable Shares, specifying the date of such termination, which may be the same day that the notice of termination is effective. If either party elects to terminate the Transaction with respect to the then-current number of Terminable Shares, the Determining Party will determine the Cancellation Amount payable by one party to the other, which Cancellation Amount shall include any Stock Loan Excess Costs not previously paid by Counterparty nor previously resulting in a Price Adjustment, and if the Terminable Shares are determined pursuant to clause (C)(2) in the preceding paragraph, the Calculation Agent will adjust the terms of the Transaction as it determines appropriate to account for the economic effect of the Terminable Shares constituting a disproportionate number of one class of Shares. | ||
| Notwithstanding anything to the contrary in this Confirmation, if the most recent Borrow Condition Notice or Borrow Condition Update Notice (x) specifies a Stock Loan Rate that is greater than the Maximum Stock Loan Rate or (y) indicates the occurrence of a Non-availability Condition, the Non-Hedging Party may, in order to avoid paying related Stock Loan Excess Costs or a related Price Adjustment (in the case of clause (x)) or termination of the Transaction with respect to the then-current number of Terminable Shares (in the case of clause (x) or (y)), elect to permit the Hedging Party, as the Hedging Party’s sole remedy, to take by rehypothecation Affected Shares then held in the Secured Custody Account in an amount equal to the then-current number of Affected Shares; provided that (i) such Class A Shares and Class B Shares shall be in book-entry form and freely tradable without | ||
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| any restrictions under applicable law (other than Excluded Transfer Restrictions, as defined in the Pledge Agreement) and (ii) the Calculation Agent shall compensate the Non-Hedging Party by adjusting the terms of the Transaction to reflect the economic effect of the Hedging Party not incurring costs (based on a stock loan rate no greater than the Initial Stock Loan Rate) related to a market borrow of Class A Shares and/or Class B Shares, as applicable, as a result of such rehypothecation including for the avoidance of doubt any funding benefit received by Hedging Party in respect of collateral that would have otherwise been pledged to a stock lender. | ||
| If any termination pursuant to this provision is for a number of Shares less than the full Number of Shares for all outstanding Components, such partial termination shall be allocated pro rata to such outstanding Components.” | ||
| If an event or circumstance that would otherwise constitute or give rise to a Hedging Disruption also constitutes an Increased Cost of Stock Borrow, it will be treated as an Increased Cost of Stock Borrow and will not constitute a Hedging Disruption. Section 12.9(b)(viii) of the Equity Definitions is hereby deleted.” | ||
6. The “Other Provisions” section of the Confirmation is hereby adjusted as follows:
(a) The reference to “Shares” in subsection (d)(i) shall from and after the effective date of these adjustments, be deemed to refer to Class A Shares or Class B Shares.
(b) The references to “Shares” (in each place where they appear) in subsection (e)(i) shall from and after the effective date of these adjustments, be deemed to refer to the Class A Shares and the Class B Shares.
(c) The reference to “Shares” in subsection (e)(ii) and (iii) shall be deemed to refer to Class A Shares or Class B Shares.
(d) Section (j) shall be replaced in its entirety as follows:
“(j) Beneficial Ownership. Notwithstanding anything to the contrary in the Agreement or this Confirmation, in no event shall Bank be entitled to receive or be deemed to receive, any Class A Shares and/or Class B Shares if, upon such receipt of such Class A Shares and/or Class B Shares by Bank, (x) Bank, its affiliates and each person subject to aggregation with Bank or its affiliates (collectively, and together with any group referenced in clause (y) below, a “Bank Person”) under Section 13 or 16 of the Exchange Act and rules promulgated thereunder or under any other federal, state or local (including non-U.S.) laws, regulations, regulatory orders or organizational documents or contracts of the Issuer that are, in each case, applicable to ownership of Class A Shares and/or Class B Shares (“Relevant Provisions”) or (y) any “group” (in each case, within the meaning of Section 13 and 16 of the Exchange Act and the rules promulgated thereunder) or persons acting jointly or in concert (within the meaning of Section 91 of the Securities Act (Ontario) or corresponding provisions of the securities laws of other Canadian jurisdictions) that includes (or may be deemed to include) Bank or its affiliates, would own, “beneficially own” (within the meaning of Section 13 of the Exchange Act and the rules promulgated thereunder), acquire beneficial ownership (within the meaning of Section 90 of the Securities Act (Ontario) or corresponding provisions of the securities laws of other Canadian jurisdictions), constructively own, control, hold the power to vote, or otherwise meet a relevant definition of ownership with respect to (A) a number of Class A Shares, Class B Shares or Shares in excess of 9.0% of the outstanding Class A Shares, outstanding Class B Shares or outstanding Shares, as applicable, in the case of Section 13 or 16 of the Exchange Act or (B) a number of
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Class A Shares, Class B Shares or Shares that would give rise to reporting or registration obligations or other requirements (including obtaining prior approval by a local, state, federal or non-U.S. regulator) of a Bank Person, or could result in an adverse effect on a Bank Person, as determined by Bank in its reasonable discretion (in each case, an “Excess Ownership Position”); provided, however, that this sentence shall apply only with respect to Class B Shares to the extent, if any, Relevant Provisions take into account ownership of Class B Shares for the purposes of determining the existence of an Excess Ownership Position. If any delivery owed to Bank hereunder is not made, in whole or in part, as a result of this provision, Counterparty’s obligation or election to effect such delivery shall not be extinguished and Counterparty shall effect such delivery as promptly as practicable after, but in no event later than one Clearance System Business Day after, Bank gives notice to Counterparty that such delivery would not result in an Excess Ownership Position. The inability of Bank to receive or be deemed to receive Shares shall not result in Bank having a termination right pursuant to Hedging Disruption, Increased Cost of Stock Borrow or otherwise.”
[Signature Page Follows]
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| Yours sincerely, | ||
| BANK OF AMERICA, N.A. as Calculation Agent | ||
| By: | /s/ Yury Mulman | |
| Name: Yury Mulman | ||
| Title: Director | ||
| cc: | Discovery Communications, LLC |
| 850 Third Avenue |
| New York, NY 10022 |
| Facsimile: 212-548-5848 |
| Attention: Bruce Campbell, Chief Development, Distribution and Legal Officer |
| Shearman & Sterling LLP |
| 599 Lexington Avenue, |
| New York, NY 10022 |
| Facsimile: 646-848-7367 |
| Attention: Patrick Clancy, Donna Parisi, Harald Halbhuber |
With an e-mail to all of the following addresses:
E-mail: [Redacted]
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