-----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, ILCFR30V6qh00TKlNBIk8zi34pHGssBVZ4l3H3i/OaVLotZoOIblg6S8i/19elZa 2v5LHT81iFtwFFjVRMvC/w== 0000950112-96-000676.txt : 19960305 0000950112-96-000676.hdr.sgml : 19960305 ACCESSION NUMBER: 0000950112-96-000676 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960304 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROMEDIA INTERNATIONAL GROUP INC CENTRAL INDEX KEY: 0000039547 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 580971455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05706 FILM NUMBER: 96530574 BUSINESS ADDRESS: STREET 1: 945 E PACES FERRY RD STREET 2: STE 2210 CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4042616190 MAIL ADDRESS: STREET 1: 4900 GEORGIA PACIFIC CTR CITY: ATLANTA STATE: GA ZIP: 30303 FORMER COMPANY: FORMER CONFORMED NAME: ACTAVA GROUP INC DATE OF NAME CHANGE: 19930723 FORMER COMPANY: FORMER CONFORMED NAME: FUQUA INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19920703 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _____________ to _____________ Commission File Number 1-5706 METROMEDIA INTERNATIONAL GROUP, INC. (Exact name of registrant, as specified in its charter) DELAWARE 58-0971455 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 945 East Paces Ferry Road, Suite 2210, Atlanta, Georgia 30326 (Address and zip code of principal executive offices) (404) 261-6190 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1.00 par value American Stock Exchange Pacific Stock Exchange 9 1/2% Subordinated Debentures, due August 1, 1998 New York Stock Exchange 9 7/8% Senior Subordinated Debentures, due March 15, 1997 New York Stock Exchange 10% Subordinated Debentures, due October 1, 1999 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. The aggregate market value of voting stock of the registrant held by nonaffiliates of the registrant at February 27, 1996 computed by reference to the last reported sale price of the Common Stock on the composite tape on such date was $358,334,048. The number of shares of Common Stock outstanding as of February 27, 1996 was 44,509,622. Documents Incorporated by Reference Portions of the Definitive Proxy Statement to be used in connection with the registrant's 1996 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. PART I Item 1. Business Metromedia International Group, Inc. ("MIG" or the "Company") is a global entertainment, media and communications company with continuing operations in two business groups: the Entertainment Group, through Orion Pictures Corporation ("Orion"), which is engaged primarily in the development, production, acquisition, exploitation and worldwide distribution in all media of motion pictures, television programming and other filmed entertainment product; and the Communications Group, through Metromedia International Telecommunications, Inc. ("MITI"), which owns interests in and participates along with local partners in the management of joint ventures which operate wireless cable television systems, paging systems, an international toll call service, a trunk mobile radio service and radio stations in certain countries in Eastern Europe, the former Soviet Republics and other international markets. The Company also owns two non-strategic assets which, for accounting purposes, have been classified as an asset held for disposition: Snapper, Inc. ("Snapper"), which is engaged in the manufacture and sale of lawn and garden equipment and approximately 38% of the outstanding shares of Roadmaster Industries, Inc., a New York Stock Exchange ("NYSE") listed company which is a leading sporting goods manufacturer. MIG was organized in 1929 under Pennsylvania law and reincorporated in 1968 under Delaware law. On November 1, 1995, as a result of a series of mergers discussed below, MIG changed its name from The Actava Group Inc. to Metromedia International Group, Inc. MIG's principal executive offices are located at 945 East Paces Ferry Road, Suite 2210, Atlanta Georgia 30326, and its telephone number is (404) 261-6190. Developments During Fiscal 1995 The Company's operations substantially changed during fiscal 1995. These developments are described below. On November 1, 1995, the Company merged (the "November 1 Mergers") with Orion, MITI and MCEG Sterling Incorporated ("Sterling"), an independent film production and distribution company. In connection with the November 1 Mergers, Orion and MITI were merged with and into separate wholly-owned subsidiaries of the Company, Sterling merged with and into the Company, Sterling's operating assets were then contributed to Orion and the Company changed its name from The Actava Group Inc. to Metromedia International Group, Inc. The November 1 Mergers were the result of the Company's previously announced intention to maximize the value of its financial resources by redeploying them into entertainment, communications and media businesses, which the Company believes possess greater growth potential than the businesses in which it had previously been engaged. Upon consummation of the November 1 Mergers, all of the outstanding shares of the common stock, par value $.25 per share, of Orion (the "Orion Common Stock"), the common stock, par value $.001 per share, of MITI (the "MITI Common Stock") and the common stock, par value $.001 per share, of Sterling (the "Sterling Common Stock") were converted into shares of the common stock, par value $1.00 per share, of the Company (the "Common Stock") pursuant to formulas contained in the agreement relating to the November 1 Mergers. Pursuant to such formulas, holders of Orion Common Stock received .57143 shares of Common Stock for each share of Orion Common Stock 2 (resulting in the issuance of 11,428,600 shares of Common Stock to the holders of Orion Common Stock), holders of MITI Common Stock received 5.54937 shares of Common Stock for each share of MITI Common Stock (resulting in the issuance of 9,523,817 shares of Common Stock to the holders of MITI Common Stock) and holders of Sterling Common Stock received .04309 shares of Common Stock for each share of Sterling Common Stock (resulting in the issuance of 483,254 shares of Common Stock to the holders of Sterling Common Stock). Simultaneously with the consummation of the November 1 Mergers and pursuant to the terms of a Contribution Agreement dated as of November 1, 1995 (the "Contribution Agreement") among the Company and certain affiliates of the Company's largest stockholder, Metromedia Company ("Metromedia") and two of its affiliates contributed to the Company an aggregate of $37 million principal amount of indebtedness of Orion, MITI and certain of their affiliates which were owed to Metromedia's affiliates in exchange for an aggregate of 3,530,314 shares of Common Stock. Immediately prior to the consummation of the November 1 Mergers, there were approximately 17,490,901 shares of Common Stock outstanding. In connection with the November 1 Mergers and the transactions contemplated by the Contribution Agreement, the Company issued an aggregate of approximately 24,965,985 shares of Common Stock. Of such shares, Metromedia and its affiliates (collectively, the "Metromedia Holders") received an aggregate of approximately 15,252,128 shares of Common Stock (or approximately 35.9% of the issued and outstanding shares of Common Stock). A three person Office of the Chairman was created to manage the business and affairs of the Company following the consummation of the November 1 Mergers. The Office of the Chairman consists of the following persons: John W. Kluge, the Chairman of the Board of Orion and MITI prior to the November 1 Mergers, as Chairman of the Board of the Company; Stuart Subotnick, the Vice Chairman of Orion and MITI prior to the November 1 Mergers, as Vice Chairman of the Company; and John D. Phillips, the President and Chief Executive Officer of the Company prior to the November 1 Mergers, as President and Chief Executive Officer of the Company. Also in connection with the November 1 Mergers, the Board of Directors of the Company was divided into three classes. Pursuant to the terms of the merger agreement relating to the November 1 Mergers, Orion appointed six of ten members of the Company's Board of Directors and the Company appointed the remaining four directors. The Directors appointed by Orion are John W. Kluge, Stuart Subotnick, Silvia Kessel, Richard J. Sherwin, Arnold L. Wadler and Leonard White. The four members of the Company's Board of Directors appointed by the Company, John D. Phillips, John P. Imlay, Jr., Clark A. Johnson and Carl E. Sanders, were members of the Board of Directors of the Company prior to the November 1 Mergers. In connection with the November 1 Mergers, the Common Stock was delisted from the New York Stock Exchange and is now listed on the American Stock Exchange under the ticker symbol "MMG." Narrative Description of Business Groups The Entertainment Group General. The Entertainment Group, through Orion, is engaged primarily in the development, production, acquisition, exploitation and worldwide distribution in all media of motion pictures, television programming and other filmed entertainment product. The Entertainment Group distributes its product theatrically and in ancillary markets such as home video and pay and free television throughout the world. Orion also distributes product produced by third parties and acquired by Orion and provides distribution services for third parties. Orion's ability during the past three calendar years to produce or acquire new product has been limited due to certain contractual restrictions described below. As a result, Orion's operations during this period have been generally limited to distributing 3 certain completed but unreleased films and exploiting its existing film and television library. Orion has an extensive film library of over 1,000 titles, including Academy Award-winning films such as Dances with Wolves, and Silence of the Lambs, action films such as the three film RoboCop series and other recent films such as Blue Sky. Background. On December 11 and 12, 1991 (the "Filing Date"), due to financial pressure as a result of economically disappointing motion picture releases during 1990 and 1991 as well as the costs of an expanding television production division and increasing overhead and debt service costs, Orion and its subsidiaries filed for protection under chapter 11 of the United States Bankruptcy Code. Orion's Modified Third Amended Joint Consolidated Plan of Reorganization (the "Plan") was confirmed on October 20, 1992 and became effective on November 5, 1992. At the Filing Date, all new motion picture production was halted, leaving Orion with only 12 largely completed but unreleased motion pictures. Under certain agreements entered into in connection with the Plan, Orion's ability to produce or invest in new theatrical product was severely limited. Orion was permitted to invest in the production or acquisition of new theatrical product only if, among other things, non-recourse financing for such product could be obtained. Accordingly, acquisition of new product was limited and Orion released five, four and three of the remaining unreleased theatrical motion pictures in the domestic marketplace in each of its fiscal years ended February 28, 1995, 1994 and 1993, respectively. During calendar 1995, Orion did not release theatrically any motion pictures that were fully or substantially financed by Orion. In connection with the November 1 Mergers, the restrictions on Orion's ability to produce and acquire new motion picture product imposed by the agreements entered into in connection with the Plan were eliminated. Motion Picture Production and Theatrical Distribution. Freed from such restrictions, the Entertainment Group has adopted what it believes is a conservative theatrical production, acquisition and distribution strategy, consisting primarily of producing or acquiring commercial or specialized films with well-defined target audiences in which the Entertainment Group's portion of the production cost will be generally limited to between $5 million and $10 million per picture consistent with the covenants included in Orion's existing credit facility. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The Entertainment Group also intends to minimize its exposure to the performance of certain films by financing a significant portion of each film's budget by pre-licensing foreign distribution rights. MIG has recently announced two acquisitions aimed at augmenting the Entertainment Group's production capabilities. MIG has signed a letter of intent to acquire Motion Picture Corporation of America ("MPCA"), an independent film production company, whose management has successfully employed a low-budget strategy at MPCA, producing lower budget commercially successful films such as Dumb and Dumber and Threesome. MIG has also entered into an Agreement and Plan of Merger dated as of January 31, 1996 to acquire The Samuel Goldwyn Company ("Goldwyn"), a leader in the production, distribution and exhibition of specialized motion pictures and art films, which has released such films as Much Ado About Nothing, The Madness of King George and Eat Drink Man Woman. See "Recent Developments." The Entertainment Group has acquired certain rights to nine feature films as specified below which as of February 29, 1996, it plans to release in the domestic theatrical market during the year ended December 31, 1996: 4 Title Director Cast Description ----- -------- ---- ----------- Original Gangstas* Larry Cohen Jim Brown A contemporary Fred Williamson action-adventure Pam Grier set in Gary, Indiana Richard with a soundtrack to Roundtree include music from a Ron O'Neal number of popular Paul Winfield rap groups. Isabelle Sanford Maybe...Maybe Not** Sonke Wortmann Til Schweiger A hilarious look at Katja Reimann infidelity and Joachim Krol mistaken sexual Rufus Beck identity as an achingly handsome but skirt-chasing boyfriend gets entangled in a web of miscommunications and misinterpreted situations. Palookaville*** Alan Taylor William Forsythe Three unemployed Adam Trese auto workers decide Vincent Gallo to make a "momentary shift in lifestyles" by committing the perfect crime. Yet, as determined as they are, their good h e a r t s a n d problematic love lives keep getting in the way. Phat Beach** Doug Ellin Jermaine Hopkins An unprecedented hip Brian Hooks hop beach comedy Claudia Kalcem involving the c o m e d i c misadventures of two friends during their summer break. The Substitute** Robert Mandel Tom Berenger In this action Ernie Hudson driven film, a Diane Venora mercenary goes under Glenn Plummer c o v e r a s a Marc Anthony substitute teacher after his girlfriend is brutally attacked by a gang of students. In an effort to uncover her attackers, he soon discovers a city wide drug ring that has infiltrated the school and put the entire student body in jeopardy and in a war with the criminals. 5 Title Director Cast Description ----- -------- ---- ----------- The Arrival** David Twohy Charlie Sheen This sci-fi thriller Ron Silver revolves around an Lindsay Crouse unassuming scientist Teri Polo who becomes the only thing that stands between our civilization and certain destruction when he investigates an unusual shockwave from outer space and discovers a team of extraterrestrials poised to take over the world. Trees Lounge** Steve Buscemi Anthony LaPaglia This film revolves Chloe Savigny around Tommy Mimi Rogers Basilio, who loses Daniel Baldwin his job and his Carol Kane girlfriend to his best friend. But he manages to stumble across friendship, inspiration, and a strange kind of truth in the last place he expected, the local bar. Napoleon**** Mario Muffin/Napoleon In this live action Andreacchio adventure, an adorable puppy gets lost in the wild Australian outback. Befriended by exotic animals, Napoleon overcomes his fears and discovers the magic of nature. I Shot Andy Mary Harron Stephen Dorff A l e s b i a n Warhol*** Martha Plimpton revolutionary tries Michael to interest Andy Imperioli Warhol in producing Coco MacPherson a play featuring her Lili Taylor radical anti-male rhetoric. When he doesn't return her calls, she shoots him. - ------------------- * Domestic rights in all media. ** Domestic theatrical distribution rights. *** Worldwide rights in all media. ****Domestic rights in all media and certain foreign rights in all media. Home Video. Orion Home Video ("OHV") distributes the Entertainment Group's new product in the home video market and exploits titles from its existing library, including previously released rental titles, re-issued titles and initially released titles, in the sell-through and premium home video market 6 sectors and through arrangements with mail-order and other selected licensees. OHV also acquires product from independent producers for distribution on a fee basis with no investment other than recoupable distribution costs. OHV's acquisition program contemplates output arrangements with producers and the acquisition of existing catalogs, as well as film-by-film acquisitions. In addition to distribution in the traditional videocassette sector, OHV intends to aggressively pursue opportunities to distribute the Entertainment Group's library in other emerging multimedia formats, including DVD (as described below) (see "The United States Motion Picture Industry Overview--Emerging Technologies" below). OHV acts as exclusive U.S. distributor for Streamline Pictures, a leading supplier of the increasingly popular Japanese anime genre, ----- and provides exclusive distribution services for Major League Baseball home video product and the Fox-Lorber catalogue of foreign language and specialty films. Television. The Entertainment Group's television distribution activities involve licensing its film and television library to both domestic pay television services and the domestic free television market. OTE is currently selling various syndication packages to independent television stations and the non-traditional networks nationwide. Such syndication packages will be offered with "unpackaged" library titles, on a market-by-market basis. OTE also plans to continue to explore opportunities to produce original programming, including talk and game shows, for pay television, basic cable, first-run syndication and the non-traditional networks. Foreign Markets. Orion Pictures International ("OPI") distributes the Entertainment Group's existing library in traditional media and established markets outside of the United States and Canada, while actively pursuing new areas of exploitation. The Entertainment Group has historically relied upon subdistributors for the distribution of its product in the foreign theatrical marketplace. OPI licenses its product in the foreign pay and free television and home video markets directly to licensees for most major territories, and through a network of sales representatives in other territories. OPI also explores opportunities to acquire and distribute new product in overseas markets, adding freshness and value to the library. Other strategies include the acquisition of foreign language programming for foreign distribution in combination with the Entertainment Group's other library product. Competition and Seasonality. All aspects of the Entertainment Group's operations are conducted in a highly competitive environment. To the extent that the Entertainment Group seeks to distribute the films contained in its library or acquire or produce product, the Entertainment Group competes with many other motion picture distributors, including the "majors," most of which are larger and have substantially greater resources, film libraries and histories of obtaining film properties, as well as greater production capabilities and significantly broader access to distribution and exhibition opportunities. By reason of their resources, these competitors may have access to programming that would not generally be available to the Entertainment Group and may also have the ability to market programming more extensively than the Entertainment Group. Distributors of theatrical motion pictures compete with one another for access to desirable motion picture screens, especially during the summer, holiday and other peak movie-going seasons, and several of the Entertainment Group's competitors in the theatrical motion picture distribution business have become affiliated with owners of chains of motion picture theaters. The success of the Entertainment Group's product is also heavily dependent upon public taste, which is both unpredictable and susceptible to change without warning. The United States Motion Picture Industry Overview. The United States motion picture industry encompasses the production and theatrical exhibition of feature-length motion pictures and the subsequent distribution of such pictures in home video, television and other ancillary markets. The 7 industry is dominated by the major studios, including Universal Pictures, Warner Bros., Twentieth Century Fox, Sony Pictures Entertainment (including Columbia Pictures and Tri-Star Pictures), Paramount Pictures and The Walt Disney Company, which historically have produced and distributed the majority of theatrical motion pictures released annually in the United States. The major studios generally own their production studios and have national or worldwide distribution organizations. Major studios typically release films with production costs ranging from $20,000,000 to $50,000,000 or more and provide a continual source of motion pictures to the nation's theater exhibitors. In recent years, "independent" motion picture production companies have played a more important role in the production of motion pictures for the worldwide feature film market. The independents do not own production studios and have more limited distribution capabilities than the major studios, often distributing their product through the "majors." Independents typically produce fewer motion pictures at substantially lower average production costs than major studios. Several of the former more prominent independents, including Miramax and New Line, have been acquired by larger entertainment companies, giving them access to greater resources. There are also a large number of smaller production companies such as MPCA that produce theatrical motion pictures. Motion Picture Production and Financing. The production of a motion picture begins with the screenplay adaption of a popular novel or other literary work acquired by the producer or the development of an original screenplay having its genesis in a story line or scenario conceived of or acquired by the producer. In the development phase, the producer typically seeks production financing and tentative commitments from a director, the principal cast members and other creative personnel. A proposed production schedule and budget also are prepared during this phase. Upon completing the screenplay and arranging financial commitments, pre-production of the motion picture begins. In this phase, the producer engages creative personnel to the extent not previously committed; finalizes the filming schedule and production budget; obtains insurance and secures completion guarantees; if necessary, establishes filming locations and secures any necessary studio facilities and stages; and prepares for the start of actual filming. Principal photography, the actual filming of the screenplay, may extend from six to twelve weeks or more, depending upon such factors as budget, location, weather and complications inherent in the screenplay. Following completion of principal photography, the motion picture is edited; optical, dialogue, music and any special effects are added, and voice, effects, music sound tracks and picture are synchronized during post-production. This results in the production of the negative from which the release prints of the motion picture are made. The cost of a theatrical motion picture produced by an independent production company for limited distribution ranges from approximately $4,000,000 to $10,000,000 as compared with an average of approximately $30,000,000 for commercial films produced by major studios for wide release. Production costs consist of acquiring or developing the screenplay, film studio rental, cinematography, post-production costs and the compensation of creative and other production personnel. Distribution expenses, which consist primarily of the costs of advertising and release prints, are not included in direct production costs and vary widely depending on the extent of the release and nature of the promotional activities. Independent and smaller production companies generally avoid incurring substantial overhead costs by hiring creative and other production personnel and retaining the other elements required for pre-production, principal photography and post-production activities on a project-by-project basis. Unlike the major studios, the independents and smaller production companies also typically finance their 8 production activities from discrete sources. Such sources include bank loans, "pre-sales," co-productions, equity offerings and joint ventures. Independents generally attempt to complete their financing of a motion picture production prior to commencement of principal photography, at which point they begin to incur substantial production costs which must be paid. "Pre-sales" are used by independent film companies and smaller production companies to finance all or a portion of the direct production costs of a motion picture. Pre-sales consist of fees paid to the producer by third parties in return for the right to exhibit the motion picture when completed in theaters or to distribute it in home video, television, foreign or other ancillary markets. Producers with distribution capabilities may retain the right to distribute the completed motion picture either domestically or in one or more foreign markets. Other producers may separately license theatrical, home video, television, foreign and all other distribution rights among several licensees. Both major studios and independent film companies often acquire motion pictures for distribution through a customary industry arrangement known as a "negative pickup," under which the studio or independent film company agrees to acquire from an independent production company all rights to a film upon completion of production. The independent production company normally finances production of the motion picture pursuant to financing arrangements with banks or other lenders in which the lender is granted a security interest in the film and the independent production company's rights under its arrangement with the studio or independent. When the studio or independent "picks up" the completed motion picture, it assumes the production financing indebtedness incurred by the production company in connection with the film. In addition, the independent production company is paid a production fee and generally is granted a participation in the net profits from distribution of the motion picture. Motion Picture Distribution. Motion picture distribution encompasses the distribution of motion pictures in theaters and in ancillary markets such as home video, pay-per-view, pay television, broadcast television, foreign and other markets. The distributor typically acquires rights from the producer to distribute a motion picture in one or more markets. For its distribution rights, the distributor typically agrees to advance the producer a certain minimum royalty or guarantee, which is to be recouped by the distributor out of revenues generated from the distribution of the motion picture and is generally nonrefundable. The producer also is entitled to receive a royalty equal to an agreed-upon percentage of all revenues received from distribution of the motion picture in excess of revenues covered by the royalty advance. Theatrical Distribution. The theatrical distribution of a motion picture involves the manufacture of release prints, the promotion of the picture through advertising and publicity campaigns and the licensing of the motion picture to theatrical exhibitors. The size and success of the promotional advertising campaign can materially affect the revenues realized from the theatrical release of a motion picture. The costs incurred in connection with the distribution of a motion picture can vary significantly, depending on the number of screens on which the motion picture is to be exhibited and the ability to exhibit motion pictures during peak exhibition seasons. Competition among distributors for theaters during such peak seasons is great. Accordingly, the ability to exhibit motion pictures in the most popular theaters in each area can affect theatrical revenues. The distributor and theatrical exhibitor generally enter into a license agreement providing for the exhibitor's payment to the distributor of a percentage of the box office receipts for the exhibition period, in some cases after deduction of the theater's overhead, or a flat negotiated weekly amount. The distributor's percentage of box office receipts generally ranges from an effective rate of 35% to over 50%, depending upon the success of the motion picture at the box office and other factors. Distributors 9 carefully monitor the theaters which have licensed the picture to ensure that the exhibitor promptly pays all amounts due the distributor. Some delays in collections are not unusual. Motion pictures may continue to play in theaters for up to six months following their initial release. Concurrently with their release in the United States, motion pictures generally are released in Canada and may also be released in one or more other foreign markets. Typically, the motion picture then becomes available for distribution in other markets as follows: Months After Approximate Market Initial Release Release Period ------ --------------- -------------- Domestic home video 4-6 months -- Domestic pay-per-view 6-9 months 3 months Domestic pay television 10-18 months 12-21 months Domestic network 30-36 months 18-36 months Domestic syndication or 30-36 months 3-15 years basic cable Foreign home video 6-12 months -- Foreign television 18-24 months 3-12 years Home Video. Home video distribution consists of the promotion and sale of videocassettes and videodiscs to local, regional and national video retailers which rent or sell such products to consumers primarily for home viewing. Pay-Per-View. Pay-per-view television allows cable television subscribers to purchase individual programs, including recently released motion pictures and live sporting, music or other events, on a "per use" basis. The subscriber fees are typically divided among the program distributor, the pay-per-view operator and the cable system operator. Pay Television. Pay television allows cable television subscribers to view HBO, Cinemax, Showtime, The Movie Channel, Encore and other pay television network programming offered by cable system operators for a monthly subscription fee. The pay television networks acquire a substantial portion of their programming from motion picture distributors. Broadcast and Basic Cable Television. Broadcast television allows viewers to receive, without charge, programming broadcast over the air by affiliates of the major networks (ABC, CBS, NBC and Fox), independent television stations and cable and satellite networks and stations. In certain areas, viewers may receive the same programming via cable transmission for which subscribers pay a basic cable television fee. Broadcasters or cable systems operators pay fees to distributors for the right to air programming a specified number of times. Foreign Markets. In addition to their domestic distribution activities, motion picture distributors generate revenues from distribution of motion pictures in foreign theaters and in the foreign home video, pay and free television and other foreign markets. There has been a dramatic increase in recent years in the worldwide demand for filmed entertainment. This growth is largely due to the privatization of television stations, introduction of direct broadcast satellite services, growth of home video and increased cable penetration. Other Markets. Revenues also may be derived from the distribution of motion pictures to airlines, schools, libraries, hospitals and the military, licensing of rights to perform musical works and 10 sound recordings embodied in a motion picture, and rights to manufacture and distribute games, dolls, clothing and similar commercial articles derived from characters or other elements of a motion picture. Emerging Technologies. DBS. Direct Broadcast Satellite (DBS) technology also offers a new transmission technology. As the major delivery system for premium television services in Europe, particularly the U.K., DBS is expected to expand the pay television market in the United States. Video-On-Demand. An important advance in the last five years has been the development of the video-on-demand technology through the creation of digital video compression. Digital compression involves the conversion of the analog television signal into digital form and the compression of more than one video signal into one standard channel for delivery to customers. Compression technology will be applied not only to cable but to satellite and over-the-air broadcast transmission systems. This offers the opportunity to dramatically expand the capacity of current transmission systems. Several telecommunications companies are currently testing trial video-on-demand systems. These include Bell Atlantic, Time Warner, Telecommunications, Inc. and Pacific Telesis. DVD. Another new technology that has emerged is the video CD or "digital variable disc." Just as compact discs have become the dominant medium for prerecorded music, digital variable disc or "DVD" is expected to become a widely-accepted format for home video programming. The Communications Group General. Through its Communications Group, MIG owns interests in and participates along with local business and governmental partners in the management of Joint Ventures which operate a variety of communications services in certain countries in Eastern Europe and certain of the former Soviet Republics. MIG's licenses typically cover markets which have large populations and strong economic potential but lack reliable and efficient communications services. MIG also targets markets where systems can be constructed with relatively low capital investments and where multiple communications services can be offered to the population. MIG owns interests in and participates in the management of Joint Ventures which operate and/or are constructing: (i) 10 wireless cable television systems with combined households of approximately 8.8 million; (ii) 8 paging systems with aggregate target populations of approximately 55.9 million; (iii) an international toll calling service in the Republic of Georgia which covers a population of approximately 5.5 million; (iv) a Trunked Mobile Radio service in Romania with an aggregate target population of approximately 2.1 million; and (v) 5 radio stations in 7 cities reaching combined households of approximately 8.6 million in Hungary, Russia and Latvia. The Communications Group recently entered into a letter of intent to purchase 51% of a U.K. company that has ownership interests in 9 companies providing Trunked Mobile Radio services in Europe. MIG is also exploring a number of investment opportunities in wireless telephony systems in Eastern Europe and the former Soviet Republics. The Company is also pursuing licenses for similar services in other emerging markets, including the Pacific Rim. Markets. A summary of the Communications Group's markets and existing projects, their status, MIG's direct or indirect ownership interest in each such project, the year such projects became operational and the amounts of capital loaned and contributed to such projects by MIG is detailed in the chart which follows: 11
MITI Direct or Indirect Ownership Year Market and Projects Status Interest Operational Household/Population(1) ------------------- ------ --------- ----------- ----------------------- 1. Moscow, Russia Wireless Cable Television Operational 50.0% 1992 3.5 million FM Radio (2 Frequencies) Operational 51.0% 1994(3) 3.5 million 2. Tbilisi, Georgia Wireless Cable Television International Operational 49.0% 1993 .5 million Toll Calling (throughout the Republic Operational 30.0% 1994 5.5 million of Georgia) (4) Paging Operational 45.0% 1994 5.5 million (5) 3. Riga, Latvia Wireless Cable Television Operational 50.0% 1992 .4 million Paging (Nationwide) Operational 50.0% 1995(6) 2.8 million FM Radio Operational 55.0% 1995(7) .4 million 4. Tashkent, Uzbekistan Wireless Cable Television Operational 50.0% 1993 1.2 million Paging Operational 50.0% 1994 15.3 million (5) Wireless Local Loop Telephony License pending, 50.0% 2.1 million under construction 5. Estonia Paging Operational 39.1% 1993 1.5 million 6. Bucharest, Romania Wireless Cable Television Operational 99.0% 1996 .9 million Paging Operational 54.1% 1993 12.0 million (5) Trunked Mobile Radio Operational 54.1% 1995 2.1 million 7. Kishinev, Moldova Wireless Cable Television Operational 50.0% 1995 .3 million 8. Almaty, Kazakhstan Wireless Cable Television Operational 50.0% 1995 .8 million Paging Operational 50.0% 1995 12.5 million (5) 9. St. Petersburg, Russia AM Radio Operational 50.0% 1995(9) .9 million FM Radio Operational 50.0% 1995(9) .9 million Paging Operational 40.0% 1995(10) 3.5 million 10. Nizhny Novgorod, Russia Wireless Cable Television License pending, 50.0% .7 million under construction Paging Operational 45.0% 1994 2.8 million 11. Minsk, Republic of Belarus Wireless Cable Television Under 50.0% .3 million Construction 12. Budapest, Siofok, and Khebegy, Hungary (11) AM Radio Operational 100.0% 1994 3.5 million (12) FM Radio (2 Frequencies) Operational 100.0% 1994 13. Sochi, Russia FM Radio Operational 51.0% 1995 .3 million 14. Vilnius, Lithuania Wireless Cable Television Under 55.0% .2 million Construction Amount Amount Loaned Contributed To Project to Project Market and Projects (in thousands)(2) (in thousands)(2) ------------------- ------------------ -------------- 1. Moscow, Russia Wireless Cable Television 8,881 1,093 FM Radio (2 Frequencies) 1,838 823 2. Tbilisi, Georgia Wireless Cable Television International 3,520 779 Toll Calling (throughout the Republic -- 2,556 of Georgia) (4) Paging 475 250 3. Riga, Latvia Wireless Cable Television 8,184 819 Paging (Nationwide) 1,268 250 FM Radio 35 140 4. Tashkent, Uzbekistan Wireless Cable Television 3,360(8) 580(8) Paging Wireless Local Loop Telephony 5. Estonia Paging 2,535 396 6. Bucharest, Romania Wireless Cable Television 786 682 Paging 2,324 490 Trunked Mobile Radio 448 -- 7. Kishinev, Moldova Wireless Cable Television 1,346 400 8. Almaty, Kazakhstan Wireless Cable Television 1,016 222 Paging 247 -- 9. St. Petersburg, Russia AM Radio -- -- FM Radio 562 -- Paging -- 527 10. Nizhny Novgorod, Russia Wireless Cable Television 75 180 Paging 52 330 11. Minsk, Republic of Belarus Wireless Cable Television 518 400 12. Budapest, Siofok, and Khebegy, Hungary (11) AM Radio 948 8,107 FM Radio (2 Frequencies) 13. Sochi, Russia FM Radio 85 185 14. Vilnius, Lithuania Wireless Cable Television -- 81
12 (1) Covered population is provided for paging, telephony and Trunked Mobile Radio systems and covered households for wireless cable television and radio systems. (2) Represents amounts loaned and contributed as of December 31, 1995. (3) Purchased equity of existing operational company in 1994; the company was formed in 1991. (4) Provides international toll calling services between Georgia and the rest of the world and is the only Intelsat designated representative in Georgia to provide such services. (5) Indicates population MITI intends to cover by the end of 1996. In each of the foregoing markets, MITI covers the capital city and is currently expanding the services of such operations to cover additional cities. (6) Purchased equity of existing company in 1995; the company was formed in 1994. (7) Purchased equity of existing operational company in 1995; the company was formed in 1993. (8) Reflects amounts loaned and contributed to all projects in Tashkent, Uzbekistan. (9) Purchased equity of existing operational company in 1995; the company was formed in 1993. (10) Purchased equity of existing company in 1995; the company was formed in 1994. (11) Purchased equity of existing operational company in 1994; the company was formed in 1989. (12) Total household coverage of AM and FM radio. The markets which the Company targets for its services typically (i) have large populations; (ii) have strong economic potential; (iii) are usually the capital city of a country, republic or province; and (iv) are easily accessible to the Communications Group's central offices. The Company believes that most of its markets have a concentration of educated people who desire quality entertainment, sports and news as well as reliable and efficient communications services. As principal cities of their respective countries, republics or provinces, these markets are, in many cases, home to a significant number of foreign diplomats, businessmen and advisors who the Company anticipates will often become premium service customers. The Company believes that the vast majority of the political and economic leaders of these markets recognize the importance of communications as a means to modernizing their societies. In the Communications Group's markets, the breadth of television programming is somewhat limited and there exists a demand for quality entertainment and news programming. Additionally, the antiquated telephone systems in many of these markets do not have the capacity to adequately serve residents. The Company believes that its systems can provide a solution to these problems because (i) the Company's wireless cable television and AM and FM broadcast services will provide a wide selection of quality entertainment, sports broadcasting, educational programming and international news at an affordable rate to both local and foreign residents; (ii) the Company's wireless telephony services will be a comparatively low-cost means of quickly providing intra-country communications as well as telephone access to the rest of the world using international satellite links; and (iii) the Company's alphanumeric and digital display paging services will be a dependable and efficient means to communicate one-way without the need for a recipient to access a telephone network. The Company is not aware of any significant governmental restrictions with respect to broadcasting time or program content in its existing cable television and radio broadcasting markets which may have a material adverse effect on the Company and its operations in these markets. In most cities where the Company provides or expects to provide service, a substantial percentage of the population (approximately 90% in Moscow) lives in large apartment buildings. This lowers the cost of installation and eases penetration of wireless cable television and wireless telephony services into a city, because a single microwave receiving location can bring service to a large number of people. The Company currently is licensed to provide wireless cable television to markets which have in the aggregate approximately 8.8 million households, and paging services in markets with a population totaling approximately 55.9 million. The Company believes that the cost of constructing a coaxial cable television system covering the same number of households as are covered by each of the Company's 13 systems would be significantly more expensive than the costs incurred by the Company in constructing a wireless system. The Company has obtained political risk insurance from OPIC for its operating cable television systems in Moscow, Riga, Tbilisi and Tashkent, and may endeavor to obtain OPIC insurance for additional systems which are eligible for such insurance. OPIC is a United States governmental agency which provides to United States investors insurance against expropriation, political violence and loss of business income in more than 130 developing nations. The Company currently has expropriation and political violence insurance coverage with OPIC in the amount of (i) $2,800,000 with respect to its Moscow cable television system; (ii) $2,200,000 with respect to its Riga cable television system; (iii) $1,600,000 with respect to its Tbilisi cable television system; and (iv) $2,000,000 with respect to its Tashkent cable television system. The Company currently has loss of business income insurance with OPIC in the amount of (i) $1,500,000 with respect to its Moscow cable television system; (ii) $1,000,000 with respect to its Riga cable television system; and (iii) $550,000 with respect to its Tbilisi cable television system. The Company is also currently eligible to purchase additional expropriation and political violence insurance and loss of business income insurance from OPIC with respect to these systems. There can be no assurance that any insurance obtained by the Company from OPIC will adequately compensate the Company for any losses it may incur or that the Company will elect to obtain or be able to obtain OPIC insurance for any of its additional systems. Joint Ventures. After deciding to obtain an interest in a particular communication business, the Company generally enters into discussions with the appropriate Ministry of Communications or local parties which have interests in communications properties in a particular market. If the negotiations are successful, a joint venture agreement is entered into and is registered, and the right to use frequency licenses are contributed to the Joint Venture by the Company's local partner or are allocated by the appropriate governmental authority to the Joint Venture. In the case of the Company's radio station operations, the Company has, in many cases, directly purchased companies with an operating radio station or an ownership interest in a Joint Venture which operates a radio station. Generally, the Company owns approximately 50% of the equity in a Joint Venture with the balance of such equity being owned by a local entity, often a government-owned enterprise. In 1995, the Russian Federation legislature proposed, but did not enact, legislation which would limit the interest which a foreign person is permitted to own in entities holding broadcasting licenses. If legislation is enacted in Russia or any of the Company's other markets limiting foreign ownership of broadcasting licenses and the Company is required to reduce its interests in any of the ventures in which it owns an interest, it is unclear how such reduction would be effected. Each Joint Venture's day-to-day activities are managed by a local management team selected by its board of directors or its shareholders. The operating objectives, business plans and capital expenditures of a Joint Venture are approved by the Joint Venture's board of directors, or in certain cases, by its shareholders. In most cases, an equal number of directors or managers of the Joint Venture are selected by the Company and its local partner. In other cases, a differing number of directors or managers of the Joint Venture may be selected by the Company on the basis of the percentage ownership interest of the Company in the Joint Venture. In many cases, the credit agreement pursuant to which the Company loans funds to a Joint Venture provides the Company with the right to appoint the general manager of the Joint Venture and to approve unilaterally the annual business plan of the venture. These rights continue so long as amounts are outstanding under the credit agreement. In other cases, such rights may also exist by reason of the 14 Company's percentage ownership interest in the joint venture or under the terms of the Voint Venture's governing instruments. The Company's Joint Ventures are limited liability entities which are permitted to enter into contracts, acquire property and assume and undertake obligations in their own names. Under the joint venture agreements, each of the Company and the local Joint Venture partner is obligated to make initial capital contributions to the Joint Venture. In general, a local joint venture partner does not have the resources to make cash contributions to the Joint Venture. In such cases, the Company has established or plans to establish an agreement with the Joint Venture whereby, in addition to cash contributions by the Company, each of the Company and the local partner makes in-kind contributions (usually communications equipment in the case of the Company and frequencies, space on transmitting towers and office space in the case of the local partner), and the Joint Venture signs a credit agreement with the Company pursuant to which the Company loans the venture certain funds. Typically, such credit agreements provide for interest payments to the Company at the Company's current cost of borrowing in the United States and for payment of principal and interest from 90% of the Joint Venture's available cash flow prior to any pro rata distributions to the Company and the local partner. After the full repayment of the loan owed by the Joint Venture to the Company, the distributions from the Joint Venture to the Company and the local partner are made on a pro rata basis in accordance with their respective ownership interests. In addition to loaning funds to the Joint Ventures, the Company often provides certain services to each of the Joint Ventures. The Company currently charges certain Joint Ventures for services provided by MITI. Under existing legislation in certain of the Company's markets, distributions from a Joint Venture to its partners will be subject to taxation. The laws in the Company's markets vary markedly with respect to the tax treatment of distributions to joint venture partners and such laws have also recently been revised significantly in many of the Company's markets. There can be no assurance that such laws will not continue to undergo major changes in the future which could have a significant negative impact on the Company and its operations. Marketing. The Company targets its wireless cable television service toward foreign national households, embassies, foreign commercial establishments, international and local hotels, local households and local commercial establishments. Paging services are targeted toward people who spend a significant amount of time outside of offices, have a need for mobility and/or are business people without ready access to telephones. Paging market segments include the local police, the military, foreign and local business people and embassy personnel. Radio station programming is targeted toward 25 to 55 year-old consumers, who are believed by management of the Company to be the most affluent in the emerging societies of Eastern Europe and the former Soviet Republics. Each station's format is intended to appeal to the particular listening interests of this consumer group in its market. This is intended to enable the commercial sales departments of each joint venture to present to advertisers the most desirable market for their products and services, thereby heightening the value of the station's commercial advertising time. Advertising on these stations is sold to local and international advertisers. Development of Communications Systems Wireless Cable Television. Wireless cable television is a technology experiencing rapid growth worldwide. In the United States, wireless cable television, also referred to as MMDS (multichannel, 15 multi-point distribution service), is gaining acceptance as a competitor to coaxial cable service. In addition, the service has low installation and maintenance costs relative to coaxial cable services. Each of the Company's wireless cable television systems is expected to operate in a similar manner. Various programs, transmitted to satellite transponders, will be received by the joint venture's satellite dishes located in a central facility. The signal will then be transmitted to a video switching system located in the joint venture's facilities, generally near the city's main transmission tower. Other programs, such as movies, will be combined into a predetermined set of channels and fed to solid state, self-diagnostic transmitters and antennae located on the transmission tower. Encrypted multichannel signals will then be broadcast as far as 50 kilometers in all directions. The specialized compact receiving antenna systems, installed on building rooftops as part of the system, will receive the multichannel signals transmitted by the transmission tower antennae and convert and route the signals to a set-top converter and a television receiver via a coaxial cabling system within the building. The set-top converter descrambles the signal and is also used as a channel selector to augment televisions having a limited number of channels. The Company currently offers English, French, German and Russian programming, with plans to expand into other languages as demand increases. Some of the Company's channels are dubbed and others are subtitled into the local language. Generally, the Company's "basic" service provides programming of local off-air channels and an additional five to six channels with a varied mixture of distant off-air channels, European or American sports, music, international news and general entertainment. The Company's "premium" service generally includes the channels which make up its "basic" service as well as an additional number of satellite channels and a movie channel that offers recent and classic movies featuring such actors as Robert De Niro, Candice Bergen, Charles Bronson and Sean Connery. The Company's programming options currently include news channels such as BBC World, CNN International, Sky News and Euronews, music, sports and entertainment channels such as BBC Prime, MTV Europe, Eurosport, TNT/Cartoon Network, NBC Super Channel and Discovery Channel Europe and movie channels. The Company currently offers "Pay Per View" movies on its Baltcom cable television system which operates in Riga, Latvia and is planning in the future to add such service to its program lineups in certain of its other markets. The subscriber pays for "Pay Per View" services in advance, and the intelligent decoders that the Company uses automatically deduct the purchase of a particular service from the amount paid in advance. Paging. The Company's paging systems represent a moderately priced service which is complementary to telephony. Alphanumeric and digital display paging systems are useful in Eastern European countries, the former Soviet Republics and other emerging markets for sending information one-way without the need for a recipient to access a telephone network, which in many of these markets are often overloaded or unavailable. The Company offers service with three types of pagers: (i) tone only, which upon encoded signaling produces several different tones depending on the code transmitted; (ii) digital display, which emits a variety of tones and permits the display of up to 16 digits; and (iii) alphanumeric, which emits a variety of tones and displays as many as 63 characters. Subscribers may also purchase additional services, such as paging priority, group calls and other options. 16 As an adjunct to paging services, the joint ventures operate 24-hour service bureaus to receive calls and record and transmit messages. In addition, automatic paging messages are accepted from personal computers, telex machines and cellular telephones. AM and FM Radio. Programming in each of the Company's AM and FM markets is designed to appeal to the particular interests of a specific demographic group in such markets. Although the Company's radio programming formats are constantly changing, programming generally consists of popular music from the United States, Western Europe, and the local area. News is delivered by local announcers in the language appropriate to the region, and announcements and commercials are locally produced. By developing a strong listenership base comprised of a specific demographic group in each of its markets, the Company believes it will be able to attract advertisers seeking to reach these listeners. The Company believes that the technical programming and marketing expertise that it provides to its joint ventures enhances the performance of the joint ventures' radio stations. International Toll Calling. The Company owns approximately 30% of Telecom Georgia. Telecom Georgia handles all international calls inbound to and outbound from the Republic of Georgia to the rest of the world. Telecom Georgia is currently making interconnect arrangements with several international long distance carriers such as Sprint and Telespazio of Italy. For every international call made to the Republic of Georgia, a payment will be due to Telecom Georgia by the interconnect carrier and for every call made from the Republic of Georgia to another country, Telecom Georgia will bill its subscribers and pay a destination fee to the interconnect carrier. Trunked Mobile Radio. The Company's Romanian joint venture provides Trunked Mobile Radio ("TMR") services in certain areas in Romania. The Company also recently signed a letter of intent to purchase a 51% interest in Protocall Ventures, Ltd., a U.K. company with ownership interests in 9 Trunked Mobile Radio systems operating in Portugal, Spain, Germany and Belgium. TMR systems are primarily designed to provide mobile voice communications among members of user groups and interconnection to the public switched telephone network. TMR systems are commonly used by taxi companies, construction teams, security services and other groups with need for significant internal communications. Wireless Telephony. MIG is currently exploring a number of investment opportunities in wireless telephony systems and has installed test systems in a number of countries in Eastern Europe, the former Soviet Republics, including Uzbekistan and Georgia, and the emerging markets in the Pacific Rim. The Company believes that its proposed wireless telephony systems are a time and cost effective means of improving the communications infrastructure in these markets. The current telephone systems in these markets are antiquated and overloaded, and consumers in these markets typically must wait several years to obtain telephone service. The Company's proposed fixed wireless local loop telephony offers the current telephone service provider a rapid and cost effective method to expand their service base. The system eliminates the need to build additional fixed wire line infrastructure by utilizing a microwave connection directly to the subscriber. Competition Wireless Cable. Most of the Company's current cable television competitors in its markets are undercapitalized, small, local companies that are providing limited programming to their subscribers. The Company does not, however, have or expect to have exclusive franchises with respect to its cable television operations and may therefore face more significant competition in the future from highly 17 capitalized entities seeking to provide services similar to the Company's in its markets. The Company also encounters competition in some markets from unlicensed competitors which may have lower operating expenses and may be able to provide cable television service at lower prices than the Company. The Company currently competes in all of its markets with over-the-air broadcast television stations. The Company is also aware that equipment is being manufactured for the purpose of unlawfully receiving and decoding encrypted signals transmitted by wireless cable television ventures. The Company believes that it has thus far only experienced unlawful receipt of its signal on a limited basis with respect to certain of its wireless cable television services. In addition, another possible source of competition for the Company are videotape cassettes. The Company's wireless cable also competes with individual satellite dishes. Paging. In some of the Company's paging markets, the Company has experienced and can expect to continue to experience competition from existing small, local, paging operators who have limited areas of coverage and as well as competition by, in some cases, paging operators established by Western European and U.S. investors with substantial experience in paging. The Company also faces competition from a segment of radio paging operations utilizing FM Subcarrier Frequency transmissions. The local phone systems are also considered to be a significant competitor to the Company's paging operations. The Company does not have or expect to have exclusive franchises with respect to its paging operations and may therefore face more significant competition in the future from highly capitalized entities seeking to provide services similar to the Company's in its markets. Wireless Telephony. While the existing wireline telephone systems in Eastern Europe and the former Soviet Republics are often antiquated, the fact that these systems are already well-established and operated by governmental authorities means that they are a source of competition for the Company's proposed wireless telephony operations. In addition, one-way paging service may be a competitive alternative which is adequate for those who do not need a two-way service, or it may be a service that reduces wireless telephony usage among wireless telephony subscribers. The Company does not have or expect to have exclusive franchises with respect to its wireless telephony operations and may therefore face more significant competition in the future from highly capitalized entities seeking to provide services similar to or competitive with the Company's in its markets. In certain markets, cellular telephone operators exist and represent a competitive alternative to the Company's proposed wireless telephony. A cellular telephone can be operated in the same manner as a wireless loop telephone in that either type of service can simulate the conventional telephone service by providing local and international calling from a fixed position in its service area. Both services are connected directly to a telephony switch operated by the local telephone company and therefore can initiate calls to or receive calls from anywhere in the world currently served by the international telephone network. Cellular telephony and wireless loop telephony eliminate the need for trenching and laying of wires for telephone services and thus deploy telephone service quickly and cost effectively. Wireless loop technology utilizes radio frequencies, instead of copper or fiber optic cable, to transmit between a central telephone and a subscriber's building. Cellular telephony enables a subscriber to move from one place in a city to another while using the service while wireless loop telephony is intended to provide fixed telephone services which can be deployed as rapidly as cellular telephony and at a significantly lower cost. FM and AM Radio. In each of the Company's existing markets, there are either a number of stations in operation already or plans for competitive stations to be in service shortly. As additional stations are constructed and commence operations, the Company expects to face significantly increased competition for listeners and advertising revenues from parties with programming, engineering and marketing expertise comparable to the Company's. Other media businesses, including broadcast television, cable television, newspapers, magazines and billboard advertising also compete with the Company's radio stations for advertising revenues. 18 Snapper and Roadmaster The Company currently engages in two non-strategic businesses. The Company is involved in the lawn and garden equipment industry through its Snapper subsidiary which does business under the name "Snapper Power Equipment Company." In addition, the Company is indirectly engaged in the sporting good business through its ownership interest in Roadmaster. Snapper. Snapper manufactures Snapper(R) brand power lawnmowers, lawn tractors, garden tillers, snow throwers and related parts and accessories, and distributes blowers, string trimmers and edgers. The lawnmowers include rear engine riding mowers, front engine riding mowers or lawn tractors, and self-propelled and push-type walk-behind mowers. Snapper also manufactures a line of commercial lawn and turf equipment and a Blackhawk(TM) line of mowers and markets a fertilizer line under the Snapper(R) brand. On February 29, 1996, Snapper sold its European subsidiaries to an employee of such subsidiaries. The purchase price consisted of the payment of a promissory note of one of Snapper's European subsidiaries in the amount of $8,621,027, which represents a portion of the intercompany indebtedness ($10,703,718 at December 31, 1995) owed to Snapper by its European subsidiaries. Principal payments under the promissory note shall be made as follows: (i) $3,000,000 on May 31, 1996; (ii) $2,524,310 on July 31, 1996; (iii) 2,500,000 on September 30, 1996 and (iv) the remainder on December 31, 1996. The promissory note is secured by a standby letter of credit. For accounting purposes, Snapper has been classified as an asset held for disposition. The Company has adopted a plan to dispose of Snapper during 1996 and is actively exploring a sale of Snapper. Although the Company has received several proposals regarding a sale of Snapper, it has not reached an agreement in principle or entered into a definitive agreement providing for the disposition of Snapper. No assurances can be given that the Company in the future will engage in such a transaction or effect such a plan. Investment in Roadmaster Industries, Inc. In December 1994, the Company acquired 19,169,000 shares of Roadmaster common stock, or approximately 38% of the outstanding Roadmaster common stock, in exchange for all of the issued and outstanding capital stock of four of its wholly-owned subsidiaries (the "Exchange Transaction"). Roadmaster, through its operating subsidiaries, is one of the largest manufacturers of bicycles and a leading manufacturer of fitness equipment and toy products in the United States. Its common stock is listed on the New York Stock Exchange. As of December 31, 1995, the closing price per share of Roadmaster common stock was $2.375 and the quoted market value of the Company's investment in Roadmaster was $45,526,375. As disclosed in Amendment No. 1 to its Schedule 13D relating to Roadmaster, filed with the SEC on March 1, 1996, MIG intends to dispose of its investment in Roadmaster during 1996. In connection with the Exchange Transaction, the Company, Roadmaster and certain officers of Roadmaster entered into a Shareholders Agreement (the "Shareholders Agreement") pursuant to which, among other things, the Company obtained the right to designate four individuals to serve on Roadmaster's nine-member Board of Directors (the "MIG Designated Directors"), subject to certain reductions. In addition, the Shareholders Agreement generally grants Roadmaster a right of first refusal with respect to any proposed sale by the Company of any shares of Roadmaster common stock received by the Company in the Exchange Transaction for as long as the MIG Designated Directors have been nominated and elected to the Board of Directors of Roadmaster. Such right of first refusal will not, 19 however, apply to any proposed sale, transfer or assignment of such shares to any persons who would, after consummation of such transaction, own less than 10% of the outstanding shares of Roadmaster common stock or to any sale of such shares pursuant to a registration statement filed under the Securities Act, provided the Company has used its reasonable best efforts not to make any sale pursuant to such registration statement to any single purchaser or "Acquiring Person" who would own 10% or more of the outstanding shares of Roadmaster common stock after the consummation of such transaction. "Acquiring Person" generally is defined in the Shareholders Agreement to mean any person or group which together with all affiliates is the beneficial owner of 5% or more of the outstanding shares of Roadmaster common stock. Also in connection with the Exchange Transaction, the Company and Roadmaster entered into a Registration Rights Agreement (the "Registration Rights Agreement") under which Roadmaster agreed to register such shares ("Registrable Stock") at the request of the Company or its affiliates or any transferee who acquires at least 1,000,000 shares of the Roadmaster common stock issued to the Company in the Exchange Transaction. Under the Registration Rights Agreement, registration may be required at any time during a ten-year period beginning as of the closing date of the Exchange Transaction (the "Registration Period") by the holders of at least 50% of the Registrable Stock if a "long-form" registration statement (i.e., a registration statement on Form S-1, S-2 or other similar form) is requested or by the holders of Registrable Stock with a value of at least $500,000 if a "short-form "registration statement (i.e., a registration statement on Form S-3 or other similar form) is requested. Roadmaster is required to pay all expenses incurred (other than the expenses of counsel, if any, for the holders of Registrable Stock, the expenses of underwriter's counsel, and underwriting fees) for any two registrations requested by the holders of Registrable Stock during the Registration Period. Roadmaster will become obligated to pay the expenses of up to two additional registrations if Roadmaster is not eligible to use a short-form registration statement to register the Registrable Stock at any time during the Registration Period. All other registrations will be at the expense of the holders of the Registrable Stock. Roadmaster will have the right at least once during each twelve-month period to defer the filing of a demand registration statement for a period of up to 90 days after request for registration by the holders of the requisite number of shares of Registrable Stock. In connection with entering into the MIG Revolver (as defined below), MIG requested that Roadmaster register its shares of Roadmaster common stock. Environmental Protection Snapper's manufacturing plant is subject to federal, state and local environmental laws and regulations. Compliance with such laws and regulations has not, and is not expected to, materially affect Snapper's competitive position. Snapper's capital expenditures for environmental control facilities, its incremental operating costs in connection therewith and Snapper's environmental compliance costs were not material in 1995 and are not expected to be material in future years. The Company has agreed to indemnify a former subsidiary of the Company for certain obligations, liabilities and costs incurred by the subsidiary arising out of environmental conditions existing on or prior to the date on which the subsidiary was sold by the Company. The Company sold the subsidiary in 1987. Since that time, the Company has been involved in various environmental matters involving property owned and operated by the subsidiary, including clean-up efforts at landfill sites and the remediation of groundwater contamination. The costs incurred by the Company with respect to these matters have not been material during any year through and including the fiscal year ended December 31, 1995. As of December 31, 1995, the Company had a remaining reserve of approximately $1,250,000 to cover its obligations to its former subsidiary. During 1995, the Company was notified by certain potentially responsible parties at a superfund site in Michigan that the former subsidiary may also be a 20 potentially responsible party at the superfund site. The former subsidiary's liability, if any, has not been determined but the Company believes that such liability will not be material. The Company, through a wholly-owned subsidiary, owns approximately 17 acres of real property located in Opelika, Alabama (the "Opelika Property"). The Opelika Property was formerly owned by Diversified Products Corporation, a former subsidiary of the Company ("DP"), and was transferred to a wholly -owned subsidiary of the Company in connection with the Exchange Transaction. DP previously used the Opelika Property as a storage area for stockpiling cement, sand, and mill scale materials needed for or resulting from the manufacture of exercise weights. In June 1994, DP discontinued the manufacture of exercise weights and no longer needed to use the Opelika Property as a storage area. In connection with the Exchange Transaction, Roadmaster and the Company agreed that the Company, through a wholly-owned subsidiary, would acquire the Opelika Property, together with any related permits, licenses, and other authorizations under federal, state and local laws governing pollution or protection of the environment. In connection with the closing of the Exchange Transaction, the Company and Roadmaster entered into an Environmental Indemnity Agreement (the "Indemnity Agreement") under which the Company agreed to indemnify Roadmaster for costs and liabilities resulting from the presence on or migration of regulated materials from the Opelika Property. The Company's obligations under the Indemnity Agreement with respect to the Opelika Property are not limited. The Indemnity Agreement does not cover environmental liabilities relating to any property now or previously owned by DP except for the Opelika Property. On January 22, 1996, the Alabama Department of Environmental Management ("ADEM") wrote a letter to the Company stating that the Opelika Property contains an "unauthorized dump" in violation of Alabama environmental regulations. The letter from ADEM requires the Company to present for ADEM's approval a written environmental remediation plan for the Opelika Property. The Company has retained an environmental consulting firm to develop an environmental remediation plan for the Opelika Property. The consulting firm is currently conducting soil samples and other tests on the Opelika Property. Although the Company has not received the results of these tests, the Company believes that the reserves of approximately $1,800,000 previously established by the Company for the Opelika Property will be adequate to cover the cost of the remediation plan that is currently being developed. Employees As of February 29, 1996, the Company had approximately 289 regular employees, of whom less than 1% were members of labor unions. Certain of the Entertainment Group's subsidiaries are signatories to various agreements with unions that operate in the entertainment industry. In addition, a substantial number of the artists and talent and crafts people involved in the motion picture and television industry are represented by trade unions with industry-wide collective bargaining agreements. Recent Developments At the time the November 1 Mergers were consummated, the Company disclosed that one of the benefits of such mergers was that they would enhance the Company's ability to make strategic acquisitions of other companies whose businesses and/or assets complement the Company's entertainment, media and communications assets. As noted above, the Company has entered into a merger agreement to acquire Goldwyn and a letter of intent to acquire MPCA. In addition, the Company has entered into an Agreement and Plan of Merger to acquire Alliance Entertainment Company ("Alliance"), which is the largest full-service distributor of pre-recorded music in the United States and 21 which also is engaged in the exploitation of proprietary music product. The acquisition of Alliance will enable the Company to expand its entertainment related business by entering the music distribution business in the United States and certain international markets and provide the Company with a growing library of artists and previously released music catalogs. In connection with the proposed mergers, the Company intends to refinance substantially all of its indebtedness and that of its subsidiaries, as well as substantially all of the indebtedness of Alliance and Goldwyn. Merger Agreement with Alliance On December 20, 1995, the Company and Alliance entered into an Agreement and Plan of Merger (the "Alliance Merger Agreement") pursuant to which a newly-formed, wholly-owned subsidiary of the Company ("Alliance Mergerco") will merge with and into Alliance (the "Alliance Merger"). Alliance is the largest full-service distributor of pre-recorded music and music related products in the United States and is also actively engaged in the exploitation of proprietary rights with respect to recorded music, video and video CDs. Alliance has expanded rapidly over the past several years through strategic acquisitions and the internal growth of its operations and has built a distribution infrastructure which it believes provides it with competitive advantages in purchasing and distributing inventory and servicing its customers. Alliance believes it is currently among the top five purchasers of pre-recorded music in the United States and that it is four times the size of its largest direct competitor in terms of annual revenues. Pursuant to the Alliance Merger Agreement, upon consummation of the Alliance Merger, Alliance stockholders will exchange each of their shares of Alliance common stock for (i) .7 shares of Common Stock, and (ii) a ten-year warrant to purchase .285 shares of Common Stock at an exercise price of $20.00 per share. Also in connection with the Alliance Merger, Metromedia has entered into Stock Purchase Agreements (the "Stock Purchase Agreements") with Joseph J. Bianco, the Chairman and Chief Executive Officer of Alliance, and Anil K. Narang, the Vice Chairman and President of Alliance, providing for the sale by Messrs. Bianco and Narang to Metromedia of (i) 2,100,000 and 420,000 shares of Common Stock, respectively, and 886,920 and 171,000 Warrants, respectively, to be received by Messrs. Bianco and Narang in the Alliance Merger and (ii) all Warrants received by Messrs. Bianco and Narang upon the exercise of certain options or warrants to purchase Alliance common stock held by them (expected to be 829,350 Warrants for Mr. Bianco and 177,816 Warrants for Mr. Narang), for a cash purchase price of $36,000,000 and $7,200,000 to Messrs. Bianco and Narang, respectively. These purchases will take place immediately following the effective time of the Alliance Merger and will enable the Metromedia Holders, who currently collectively control approximately 35.9% of the outstanding Common Stock, to reduce the substantial dilution to their interests which would otherwise result from the issuance of Common Stock to Alliance Stockholders in the Alliance Merger. Consummation of the Alliance Merger is subject to various conditions, including (i) the receipt of approval of the stockholders of each of MIG and Alliance; (ii) the receipt of certain opinions of counsel with respect to certain legal matters and as to the qualification of the Alliance Merger as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); (iii) that since September 30, 1995, no change or event shall have occurred which has or could reasonably be expected to have a material adverse effect with respect to MIG or Alliance; (iv) the receipt of certain fairness opinions by the Board of Directors of each of MIG and Alliance; (v) that the Stock Purchase Agreements shall have been executed by the parties thereto; (vi) that Metromedia Company or an affiliate shall purchase all of Alliance's $125,000,000 11 1/4% Senior Subordinated Notes due 2005 (the "Existing Alliance Notes") which may be tendered pursuant to the change of control provisions contained in the indenture governing the Existing Alliance Notes or Metromedia Company or an affiliate shall otherwise take action to ensure that there will not be a default under MIG's or 22 Alliance's existing indebtedness as a result of Existing Alliance Notes being tendered by their holders; (vii) that the shares of Common Stock and the Warrants to be issued in the Alliance Merger shall have been authorized for listing on the AMEX or any other national securities exchange or automated quotation system approved by MIG and Alliance, in each case, subject to official notice of issuance; and (viii) that Alliance Stockholders holding, in the aggregate, fewer than 10% of the shares of Alliance Common Stock shall have perfected their dissenters' rights of appraisal. The Alliance Merger Agreement provides that Alliance has the right to terminate the Alliance Merger Agreement in the event that the average closing price for the Common Stock is below $14.50 per share for the 20 consecutive trading days ending six calendar days prior to the date of the stockholder meetings held to consider the proposed Alliance Merger (the "Minimum Price Condition"). In addition, The Alliance Merger Agreement may be terminated at any time prior to the effective time of the Alliance Merger, whether before or after approval thereof by the stockholders of MIG and/or Alliance: (i) by the mutual written consent of MIG and Alliance, (ii) unilaterally, by the Board of Directors of MIG or Alliance if the Alliance Merger has not been consummated on or before September 30, 1996, (iii) by the non-breaching party in case of certain material breaches by the other party or (iv) by the Board of Directors of MIG or Alliance if a court of competent jurisdiction or any other governmental entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the consummation of the Alliance Merger and such order, decree, ruling or other action shall have become final and non-appealable. The Alliance Merger Agreement may also be terminated by MIG or Alliance if the Alliance Board of Directors recommends a competing offer or otherwise modifies or changes, in a manner adverse to MIG, its recommendation that its stockholders approve the Alliance Merger Agreement. Upon any termination resulting from circumstances contemplated by the preceding sentence, the Alliance Merger Agreement provides that Alliance will pay MIG a termination fee of $18 million plus the reimbursement of certain expenses. In addition, if the Alliance Merger is not consummated by Alliance because the Minimum Price Condition is not satisfied, MIG has agreed to reimburse certain of Alliance's expenses up to $1,250,000. Subsequent to the execution of the Alliance Merger Agreement, in response to certain comments to such agreement received from the Special Committee of the Board of Directors of Alliance formed to consider the proposed merger and for certain other considerations, MIG and Alliance have agreed in principle to amend and restate the Alliance Merger Agreement to clarify the intent of the parties with respect to certain matters, including the parties' agreement that (i) the date for determining whether the Minimum Price Condition has been satisfied will be six calendar days prior to the effective time of the Alliance Merger rather than six calendar days prior to the day of the stockholder meetings to be held to consider the merger, as is currently contemplated by the Alliance Merger Agreement, (ii) the inability to consummate the refinancing of substantially all of MIG's and Alliance's outstanding indebtedness on commercially reasonable terms will not in itself constitute a material adverse effect with respect to MIG or Alliance that would permit either MIG or Alliance to not consummate the Alliance Merger and (iii) Alliance will be merged into Alliance Mergerco rather than merging Alliance Mergerco into Alliance, as is provided for in the Alliance Merger Agreement. Merger Agreement with The Samuel Goldwyn Company On January 31, 1996, the Company and Goldwyn entered into an Agreement and Plan of Merger (the "Goldwyn Merger Agreement") pursuant to which Goldwyn will merge with a newly-formed, wholly-owned subsidiary of the Company (the "Goldwyn Merger") and, in connection therewith, will be re-named "Goldwyn Entertainment Company". 23 Goldwyn is a diversified independent entertainment company engaged in the production and worldwide distribution of motion pictures and television programming and in theatrical exhibition. Goldwyn's Film Division is a producer and leading distributor of specialized motion pictures and art films, which are substantially less expensive to produce and distribute than films produced by major studios for wide release. Specialized films also are characterized by underlying literary and artistic elements intended to appeal primarily to sophisticated audiences. Certain specialized motion pictures, such as the recent independently produced films, The Remains of the Day, In the Name of the Father and The Piano have "crossover" commercial potential as well, that is, artistic and creative elements, such as an exceptional cast, critically acclaimed performances or a timely or compelling storyline, which appeal to a broader audience. Specialized films released by Goldwyn in recent years include the Academy Award-winning The Madness of King George, the crossover commercial success Much Ado About Nothing, and Academy Award-nominated films Eat, Drink, Man, Woman, The Wedding Banquet, Longtime Companion and Henry V. Goldwyn's Television Division (the "Television Division") produces original programming for the first-run syndication market and distributes feature films and other television programming worldwide. The Television Division produces and syndicates the athletic competition series American Gladiators, which is currently in its sixth season. American Gladiators is syndicated in over 90% of the United States television markets and over 40 foreign markets. In the fall of 1995, the Television Division introduced a remake of its original television series Flipper for broadcast in the 1995-1996 season. In addition, the Television Division syndicates movie packages from Goldwyn's library of over 850 feature films. Goldwyn believes that its Samuel Goldwyn Theatre Group (the "Theatre Group"), with 140 screens in 52 theaters, is the largest exhibitor of specialized motion pictures and art films in the United States. The operation of the Theatre Group allows Goldwyn to participate in revenues from the exhibition of films distributed by Goldwyn as well as films produced and distributed by others. The Theatre Group fulfills a key element of Goldwyn's strategy by broadening Goldwyn's presence in the market for specialized motion pictures and art films and providing a source of relatively stable revenues and cash flow to Goldwyn. The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn Merger, Goldwyn stockholders will receive $5.00 worth of Common Stock for each share of Goldwyn common stock, provided that the average closing price of the Common Stock over the 20 consecutive trading days ending five days prior to the meeting of the Company's stockholders held to vote upon the Goldwyn Merger is between $12.50 and $16.50. If the average closing price of Common Stock over such period is less than $12.50 it will be deemed to be $12.50 and Goldwyn stockholders will receive .4 shares of Common Stock for each share of Goldwyn common stock, and if the average closing price of the Common Stock over such period is greater than $16.50, it will be deemed to be $16.50 and Goldwyn stockholders will receive .3030 shares of Common Stock for each share of Goldwyn common stock. Consummation of the Goldwyn Merger is subject to various conditions, including, but not limited to: (i) the receipt of approval of the stockholders of each of MIG and Goldwyn (though under certain circumstances the Company may unilaterally waive the condition of approval of its stockholders); (ii) the receipt of certain opinions of counsel with respect to certain legal matters and as to the qualification of the Goldwyn Merger as a reorganization within the meaning of Section 368(a) of the Code; (iii) that since December 31, 1995, no change or event shall have occurred which has had or could reasonably be expected to have a material adverse effect with respect to MIG or Goldwyn; (iv) the receipt of certain fairness opinions by the Board of Directors of each of MIG and Goldwyn; (v) that the Samuel Goldwyn Family Trust (the "Goldwyn Family Trust"), of which Samuel Goldwyn, Jr., Chairman 24 and Chief Executive Officer of Goldwyn, is trustee, and the surviving corporation of the Goldwyn Merger shall have entered into a distribution agreement pursuant to which such corporation will acquire distribution rights to the Samuel Goldwyn Classics Library for a term which extends until the year 2020; (vi) that Samuel Goldwyn, Jr., Chairman and Chief Executive Officer of Goldwyn, and Meyer Gottlieb, President of Goldwyn, shall each have entered into employment agreements with the surviving corporation of the Goldwyn Merger on terms satisfactory to the parties; (vii) that Goldwyn's indebtedness shall have been refinanced or repaid in full or extended beyond the effective time of the Goldwyn Merger; (viii) that Orion shall have provided to Goldwyn up to $5.5 million of interim financing as an advance for certain distribution rights in six feature films; (ix) that the surviving corporation of the Goldwyn Merger and Mr. Goldwyn shall have entered into an agreement pursuant to which such corporation will acquire a license to use the trademark "Samuel Goldwyn" in perpetuity royalty-free with regard to existing product and a license to use the name "Goldwyn" in perpetuity royalty-free in connection with its film and television business; (x) that an Option Agreement among Goldwyn, Mr. Goldwyn and the Goldwyn Family Trust shall be amended and restated to clarify that the option granted to Goldwyn under the existing agreement, which option entitles Goldwyn to "put" shares of Goldwyn common stock to the Goldwyn Family Trust under certain circumstances, may be exercised utilizing the Common Stock instead of Goldwyn common stock; and (xi) that the shares of Common Stock to be issued in the Goldwyn Merger shall have been authorized for listing on the AMEX or any other national securities exchange or automated quotation system approved by MIG and Goldwyn, in each case, subject to official notice of issuance. The Goldwyn Merger Agreement may be terminated at any time prior to the effective time of the Goldwyn Merger, whether before or after approval thereof by the stockholders of MIG and/or Goldwyn: (i) by the mutual written consent of MIG and Goldwyn, (ii) unilaterally, by the Board of Directors of MIG or Goldwyn if the Goldwyn Merger has not been consummated on or before September 30, 1996, (iii) by the non-breaching party in case of certain material breaches by the other party or (iv) by the Board of Directors of MIG or Goldwyn if a court of competent jurisdiction or any other governmental entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the consummation of the Goldwyn Merger and such order, decree, ruling or other action shall have become final and non-appealable. The Goldwyn Merger Agreement may also be terminated by MIG or Goldwyn if the Goldwyn Board of Directors recommends a competing offer or otherwise modifies or changes, in a manner adverse to MIG, its recommendation that its stockholders approve the Goldwyn Merger Agreement. Upon any termination resulting from circumstances contemplated by the preceding sentence and under certain other circumstances, the Goldwyn Merger Agreement provides that Goldwyn will pay MIG a termination fee of $3 million and reimburse MIG for certain of its expenses. Pursuant to the terms of a voting agreement entered into simultaneously with the execution of the Goldwyn Merger Agreement, the Samuel Goldwyn, Jr. Family Trust, beneficial owner of approximately 64% of the outstanding common stock of Goldwyn, has agreed to vote its shares in favor of the Goldwyn Merger. Accordingly, the vote of the Goldwyn Family Trust in accordance with the Voting Agreement will be sufficient to approve the Goldwyn Merger Agreement without any action on the part of any other stockholders of Goldwyn. MPCA Acquisition On November 17, 1995, the Company entered into a letter of intent to acquire MPCA and its affiliated companies for $32.5 million in Common Stock and cash in repayment of stockholder loans to MPCA. MPCA is an independent film production company which focuses on producing and acquiring commercially marketable films featuring popular actors at substantially less than average industry cost. 25 MPCA is headed by Bradley Krevoy and Steven Stabler, who have produced low budget, profitable movies like Threesome, released in 1993, which cost $3.5 million to produce and grossed a reported total of $60 million. A more recent success produced by Krevoy and Stabler MPCA was the film Dumb and Dumber, which cost $16 million to produce and grossed a reported total of approximately $250 million. Consummation of the proposed MPCA acquisition is subject to the execution of definitive documentation, approval of the transaction by the Board of Directors of the Company, satisfactory completion by the Company of its legal and financial due diligence with respect to MPCA, the execution by Messrs. Krevoy and Stabler of employment agreements with the Company, the execution of certain ancillary agreements and receipt of all requisite regulatory approvals, including the termination or expiration of the requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Following the consummation of the MPCA acquisition, it is anticipated that MPCA will merge into a wholly-owned subsidiary of the Company and that Krevoy and Stabler will join the Entertainment Group's management team. Segment and Geographic Data Business segment data and information regarding the Company's foreign revenues by geographic area are included in Notes 7 and 12 of the "Notes to Consolidated Financial Statements" included in Item 8 hereof. Item 2. Properties The following table contains a list of the Company's principal properties. Number ----------------- Description Owned Leased Location - ----------------- -------- -------- --------------- Orion: Office space -- 1 Los Angeles, Sales office -- 1 California Sales office -- 1 New York, New York Dallas, Texas MITI: Executive 1 Stamford, offices -- 1 Connecticut Office space -- 1 Moscow, Russia Office space Vienna, Austria General Corporate: -- 1 Atlanta, Georgia Office space The Company's management believes that the facilities listed above are generally adequate and satisfactory for their present usage and are generally well utilized. Item 3. Legal Proceedings Fuqua Industries, Inc. Shareholder Litigation - --------------------------------------------- Between February 25, 1991 and March 4, 1991, three lawsuits were filed against the Company (formerly named Fuqua Industries, Inc.) in the Delaware Chancery Court. On May 1, 1991, these three 26 lawsuits were consolidated by the Delaware Chancery Court in In re Fuqua ----------- Industries, Inc. Shareholders Litigation, Civil Action No. 11974. The named - ---------------------------------------- defendants are certain current and former members of the Company's Board of Directors and certain former members of the Board of Directors of Intermark, Inc. ("Intermark"). Intermark is a predecessor to Triton Group Ltd., which at one time owned approximately 25% of the outstanding shares of the Company's Common Stock. The Company was named as a nominal defendant in this lawsuit. The action was brought derivatively in the right of and on behalf of the Company and purportedly was filed as a class action lawsuit on behalf of all holders of the Company's Common Stock other than the defendants. The complaint alleges, among other things, a long-standing pattern and practice by the defendants of misusing and abusing their power as directors and insiders of the Company by manipulating the affairs of the Company to the detriment of the Company's past and present stockholders. The complaint seeks (i) monetary damages from the director defendants, including a joint and several judgment for $15,700,000 for alleged improper profits obtained by Mr. J.B. Fuqua in connection with the sale of his shares in the Company to Intermark; (ii) injunctive relief against the Company, Intermark and its former directors, including a prohibition against approving or entering into any business combination with Intermark without specified approval; and (iii) costs of suit and attorneys' fees. On December 28, 1995, plaintiffs filed a consolidated second amended derivative and class action complaint, purporting to assert additional facts in support of their claim regarding an alleged plan, but deleting their prior request for injunctive relief. On January 31, 1996, all defendants moved to dismiss the second amended complaint and filed a brief in support of that motion. The motion to dismiss is still pending. Litigation Relating to the November 1 Mergers - --------------------------------------------- Three stockholder suits relating to the November 1 Mergers were filed in the Delaware Chancery Court prior to the consummation of such mergers. Set forth below is a brief description of the status of such litigations. Jerry Krim v. John W. Kluge, Silvia Kessel, Joel R. Packer, Michael I. Sovern, Raymond L. Steele, Stuart Subotnick, Arnold L. Wadler, Stephen Wertheimer, Leonard White and Orion Pictures Corporation (Delaware Chancery Court, C.A. No. 13721); complaint filed September 2, 1994. Orion and each of its directors were named as defendants in this purported class action lawsuit, which alleged that Orion's Board of Directors failed to use the required care and diligence in considering the November 1 Mergers and sought to enjoin the consummation of such mergers. The lawsuit further alleged that as a result of the actions of Orion's directors, Orion's stockholders would not receive the fair value of Orion's assets and business in exchange for their Orion Common Stock in the November 1 Mergers. Harry Lewis v. John W. Kluge, Leonard White, Stuart Subotnick, Silvia Kessel, Joel R. Packer, Michael I. Sovern, Raymond L. Steele, Arnold L. Wadler, Stephen Wertheimer, The Actava Group, Inc. and Orion Pictures Corp. (Delaware Chancery Court, C.A. No. 14234); complaint filed April 17, 1995. Orion, each of its directors and Actava were named in this purported class action lawsuit which was filed after the execution of the initial merger agreement relating to the November 1 Mergers. The complaint contained similar allegations and sought similar relief to the Krim case described above. On January 22, 1996, the parties to these two lawsuits executed a Memorandum of Understanding embodying a tentative settlement agreement. In the tentative settlement agreement, the plaintiffs accept the September 27, 1995 amended and restated merger agreement relating to the November 1 Mergers as full settlement of all claims that were asserted or could have been asserted in such litigations. 27 James F. Sweeney, Trustee of Frank Sweeney Defined Benefit Plan Trust v. John D. Phillips, Frederick B. Beilstein, III, John E. Aderhold, Michael B. Cahr, J.M. Darden, III, John P. Imlay, Jr., Clark A. Johnson, Anthony F. Kopp, Richard Nevins, Carl E. Sanders, Orion Picture Corporation, International Telcell, Inc., Metromedia International, Inc. and MCEG Sterling Inc. (Delaware Chancery Court, C.A. No. 13765); complaint filed September 23, 1994. This class action lawsuit was filed by stockholders of the Company (then known as The Actava Group Inc.) against the Company and its directors, and against each of Orion, MITI and Sterling, the other parties to the November 1 Mergers. The complaint alleges that the terms of the November 1 Mergers constitute an overpayment by the Company for the assets of Orion and, accordingly, would result in a waste of the Company's assets. The complaint further alleges that Orion, MITI and Sterling each knowingly aided, abetted and materially assisted the Company's directors in breach of their fiduciary duties to the Company's stockholders. On November 23, 1994, the Company and its directors filed a motion to dismiss the complaint. The plaintiff never responded to the motion to dismiss. On February 22, 1996, however, the plaintiff filed a status report with the Court of Chancery in Delaware indicating that the case is moot but that the plaintiff intends to pursue an application for fees and expenses. The Company believes such application to be without merit. Item 4. Submission of Matters to a Vote of Security Holders A special meeting of stockholders of the Company was held on November 1, 1995 for the purpose of enabling stockholders to consider and vote on the Amended and Restated Agreement and Plan of Merger relating to the November 1 Mergers and the transactions contemplated thereby. At such meeting, a majority of the Company's stockholders voted to approve such mergers and certain amendments to the Company's Restated Certificate of Incorporation and By-Laws effected by virtue of the approval of such merger agreement, including amendments to the Company's Restated Certificate of Incorporation increasing the number of authorized number of shares of Common Stock, dividing the Company's Board of Directors into three classes, and renaming the Company "Metromedia International Group, Inc.," and amendments to the Company's By-laws prohibiting stockholder action by written consent, limiting the right to call special meetings of the Company's stockholders to the Chairman or Vice Chairman of the Board of Directors and authorizing the Board of Directors to issue preferred stock in one or more classes or series without any action on the part of stockholders. The following is a summary of the voting results with respect to the Amended and Restated Merger Agreement from the November 1, 1995 special meeting: For Against Abstain --- ------- ------- 10,911,937 297,685 95,385 No other matters were submitted to a vote of the Company's stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 1995. Executive Officers of the Company Each of the executive officers of the Company (other than Messrs. Phillips and Chmar) have served in their respective capacities since the consummation of the November 1 Mergers. Each executive officer shall, except as otherwise provided in MIG's By-Laws, hold office until his or her successor shall have been chosen and qualify. 28 Position Name Age Office Held Since ---- --- ------ ---------- John W. Kluge . . . 81 Chairman November 1995 Stuart Subotnick . 54 Vice Chairman November 1995 John D. Phillips . 53 President and Chief April 1994 Executive Officer Silvia Kessel . . . 45 Senior Vice November 1995 President, Chief Financial Officer and Treasurer Arnold L. Wadler . 52 Senior Vice November 1995 President, General Counsel and Secretary W. Tod Chmar . . . 42 Senior Vice President June 1994 Robert A. Maresca . 61 Senior Vice President November 1995 (Chief Accounting Officer) Mr. Kluge has served as Chairman of the Board of Directors of MIG since the consummation of the November 1 Mergers and as Chairman of the Board of Orion since 1992. In addition, Mr. Kluge has served as Chairman and President of Metromedia and its predecessor-in-interest, Metromedia, Inc. for over five years. Mr. Kluge is also a director of The Bear Stearns Companies, Inc., WorldCom, Inc. (formerly LDDS Communications, Inc.), Occidental Petroleum Corporation and Conair Corporation. Mr. Kluge is Chairman of MIG's Executive Committee. Mr. Subotnick has served as Vice Chairman of the Board of Directors of MIG since the consummation of the November 1 Mergers and as Vice Chairman of the Board of Orion since November 1992. In addition, Mr. Subotnick has served as Executive Vice President of Metromedia and its predecessor-in-interest, Metromedia, Inc., for over five years. Mr. Subotnick is also a director of Carnival Cruise Lines, Inc. and WorldCom, Inc. Mr. Subotnick is Chairman of the Audit Committee and a member of the Executive and Nominating Committees of MIG. Mr. Phillips has served as President and Chief Executive Officer of MIG since April 19, 1994 and was elected to the Board of Directors of MIG and to the Executive Committee on the same date. Mr. Phillips served as Chief Executive Officer of Resurgens Communications Group, Inc. from May 1989 until Resurgens was merged with Metromedia Communications Corporation and WorldCom, Inc. in September 1993. Mr. Phillips also serves as a director of Restor Industries, Inc. and Roadmaster Industries, Inc. Ms. Kessel has served as Senior Vice President, Chief Financial Officer and Treasurer of MIG since the consummation of the November 1 Mergers, as Executive Vice President of Orion since January 1993, Senior Vice President of Metromedia since 1994 and President of Kluge & Company since January 1994. Prior to that time, Ms. Kessel served as Senior Vice President of Orion from June 1991 to November 1992 and Managing Director of Kluge & Company (and its predecessor) from April 1990 to January 1994. Ms. Kessel also serves as a director of WorldCom, Inc. Ms. Kessel is a member of the Nominating Committee of MIG. Mr. Wadler has served as Senior Vice President, General Counsel and Secretary of MIG since the consummation of the November 1 Mergers, as a Director of Orion since 1991 and as Senior Vice President, Secretary and General Counsel of Metromedia and its predecessor-in-interest, Metromedia, Inc., for over five years. Mr. Wadler is Chairman of the Nominating Committee of MIG. 29 Mr. Chmar was elected to the position of Senior Vice President of the Company on June 10, 1994. Mr. Chmar served as a partner in the law firm of Long, Aldridge & Norman from January 1985 until September 1993. Mr. Maresca has served as a Senior Vice President of MIG since November 1, 1995. Mr. Maresca has served as a Senior Vice President -- Finance of Metromedia for the prior five years. PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters. Since November 2, 1995, the Common Stock has been listed and traded on the American and the Pacific Stock Exchanges under the symbol "MMG." Prior to November 2, 1995, the Common Stock was listed and traded on both the New York and the Pacific Stock Exchanges under the symbol "ACT." The following table sets forth the quarterly high and low closing sales prices per share for the Common Stock according to the New York Stock Exchange Composite Tape for the period from January 1, 1994 through November 1, 1995 and the quarterly high and low closing sales prices per share for Common Stock as reported by the American Stock Exchange from November 2, 1995 through the present. Market Price of Common Stock ---------------------------- 1995 1994 ---------------- ----------------- Quarters Ended High Low High Low -------------- ---------------- ----------------- March 31 . . . . . . . . . . $ 11 8 3/4 $ 9 1/4 $ 5 7/8 June 30 . . . . . . . . . . . 13 3/8 8 5/8 9 3/8 5 3/4 September 30 . . . . . . . . 19 1/8 13 1/4 13 3/4 8 1/4 December 31 . . . . . . . . . 18 7/8 13 3/4 10 3/8 8 3/8 Holders of Common Stock are entitled to such dividends as may be declared by the Board of Directors and paid out of funds legally available for the payment of dividends. On March 2, 1994, the Company announced that its Board of Directors had suspended the dividends on Common Stock. The Company intends to retain earnings to finance the development and expansion of its businesses and does not anticipate paying cash dividends in the foreseeable future. The decision of the Board of Directors as to whether or not to pay cash dividends in the future will depend upon a number of factors, including the Company's future earnings, capital requirements, financial condition, and the existence or absence of any contractual limitations on the payment of dividends. The Company is currently a party to a credit agreement with Chemical Bank which restricts the payment of dividends. The Company's ability to pay dividends is further limited because, as a result of the November 1 Mergers, the Company operates as a holding company, conducting its operations solely through its subsidiaries. Certain of the Company's subsidiaries' existing credit arrangements contain, and it is expected that their future arrangements will similarly contain, substantial restrictions on dividend payments to the Company by such subsidiaries. See Item 7 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations." As of February 27, 1996, there were approximately 7,873 record holders of Common Stock. The last reported sales price for the Common Stock on such date was $13.75 per share as reported by the American Stock Exchange. 30 Item 6. Selected Financial Data
SELECTED FINANCIAL DATA (in thousands, except per share data) Year Ended December 31, Years Ended February 28/29 ------------------------------------------------------------------ 1995 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA Revenues $138,871 $ 194,789 $ 175,713 $ 222,318 $ 491,117 Equity in losses of Joint Ventures (7,981) (2,257) (777) - - Loss from continuing operations before extraordinary item (87,024) (69,411) (132,530) (72,973) (280,832) Loss from discontinued operations (293,570) - - - (31,239) Loss before extraordinary item (380,594) (69,411) (132,530) (72,973) (312,071) Net Profit (Loss) (412,976) (69,411) (132,530) 250,240 (312,071) Loss from continuing operations before extraordinary item per common share (3.54) (3.43) (7.71) (19.75) (3,052.52) Loss before extraordinary item per common share (15.51) (3.43) (7.71) (19.75) (3,392.08) Net profit (loss) per common share (16.83) (3.43) (7.71) 67.74 (3,392.08) Common and common equivalent shares entering into computation of per-share amounts 24,541 20,246 17,188 3,694 92 Dividends per common share - - - - - BALANCE SHEET DATA Total Assets 599,638 391,870 520,651 704,356 856,950 Notes and subordinated debt 304,643 237,027 284,500 325,158 521,968
See accompanying notes to Consolidated Financial Statements. 31 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes thereto and the "Business" section included as Item 1 herein. General On November 1, 1995, (the "Merger Date"), Orion, MITI, the Company and MCEG Sterling Incorporated ("Sterling") consummated the November 1 Mergers. In connection with the November 1 Mergers, the Company changed its name from "The Actava Group Inc." ("Actava") to "Metromedia International Group, Inc." For accounting purposes only, Orion and MITI have been deemed to be the joint acquirors of Actava and Sterling. The acquisition of Actava and Sterling has been accounted for as a reverse acquisition. As a result of the reverse acquisition, the historical financial statements of the Company for periods prior to the November 1 Mergers are the combined financial statements of Orion and MITI, rather than Actava's. The operations of Actava and Sterling have been included in the accompanying consolidated financial statements from November 1, 1995, the date of acquisition. During December 1995, the Company adopted a formal plan to dispose of Snapper. In addition, the Company's investment in Roadmaster has been deemed to be a non-strategic asset. The Company intends to dispose its investment in Roadmaster during 1996. Snapper and Roadmaster are included in the consolidated financial statements of the Company as assets held for sale. The Company is presently evaluating new opportunities and strategies for enhancing stockholder value. As discussed above, the Company has entered into definitive agreements to acquire Alliance and Goldwyn and has signed a letter of intent to acquire MPCA. See "Item 1. Business--Recent Developments." The acquisition of Alliance will enable MIG to expand its Entertainment Group by entering the music distribution business and providing MIG with proprietary music product which it owns or otherwise controls through license or distribution agreements. The acquisition of Goldwyn will provide MIG with a valuable library of over 850 film and television titles, including numerous Hollywood classics and more critically acclaimed recent films. Goldwyn also owns a leading specialized theatre circuit of 52 theatres with 140 screens. The acquisition of MPCA will enhance the Entertainment Group's ability to produce and acquire new film product. The acquisitions of Alliance, Goldwyn and MPCA are important steps in MIG's plan to enhance its role as a leading global entertainment, media and communications company. Consummation of the Alliance and Goldwyn mergers and the MPCA acquisition are each subject to various conditions described above in "Item 1. Business--Recent Developments." In addition, the Company intends to pursue a strategy of making selective acquisitions of attractive entertainment and communications assets that complement its existing business groups. In particular, the Company is interested in expanding its library of proprietary motion picture and music rights and in expanding the network through which it distributes various entertainment and communication products and services. The business activities of the Company consist of two business segments: (i) filmed entertainment, which includes the development, production, acquisition, exploitation and worldwide distribution in all media of motion pictures, television programming and other filmed entertainment 32 product, and (ii) communications, which includes wireless cable television, paging services, radio broadcasting, and various types of telephone services. Filmed Entertainment The Company operates its filmed entertainment operations through Orion. Until November 1, 1995, Orion operated under the terms of the Plan, which severely limited Orion's ability to finance and produce additional theatrical motion pictures. See Notes 2 and 3 to the "Notes to the Consolidated Financial Statements" included in Item 8. Therefore, Orion's primary activity prior to the November 1 Mergers was the ongoing distribution of its library of theatrical motion pictures and television programming. Orion believes the lack of a continuing flow of newly produced theatrical product while operating under the Plan adversely affected its results of operations. Theatrical motion pictures are produced initially for exhibition in theatres. Initial theatrical release generally occurs in the United States and Canada. Foreign theatrical exhibition generally begins within the first year after initial release. Home video distribution in all territories usually begins six to twelve months after theatrical release in that territory, with pay television exploitation beginning generally six months after initial home video release. Exhibition of the Company's product on network and on other free television outlets begins generally three to five years from the initial theatrical release date in each territory. Communications The Company, through MITI and its subsidiaries, is the owner of various interests in Joint Ventures that are currently in operation or planning to commence operations in certain republics of the former Soviet Union and in certain other Eastern European countries. During 1995, the Company began to pursue opportunities to extend its communications businesses into emerging markets in the Pacific Rim. The Joint Ventures currently offer wireless cable television, radio paging systems, radio broadcasting, trunked mobile radio services and various types of telephone services. Joint Ventures are principally entered into with governmental agencies or ministries under the existing laws of the respective countries. The consolidated financial statements include the accounts and results of operations of MITI, its majority owned and controlled Joint Ventures, CNM Paging and Radio Juventas, and their subsidiaries. Investments in other companies and Joint Ventures which are not majority owned, or in which the Company does not control, but exercises significant influence, have been accounted for using the equity method. The following table sets forth the operating results and financial condition of the Company's filmed entertainment and communications segments. Financial information summarizing the results of operations of Snapper, which is classified as a discontinued operation, is presented in Note 2 of the "Notes to the Consolidated Financial Statements." 33 METROMEDIA INTERNATIONAL GROUP Segment Information Management's Discussion & Analysis Table December 31, 1995 Calendar Fiscal Fiscal Year Year Year 1995 1995 1994 ----------- ---------- ---------- (Note 1) Revenues Filmed Entertainment 133,812 191,244 175,662 Communications 5,158 3,545 51 Other (99) -- -- ---------- -------- -------- Total 138,871 194,789 175,713 Cost of Rentals and Operating Expenses (132,950) (187,477) (243,030) Filmed Entertainment 188 221 34 ---------- --------- --------- Other Total (132,762) (187,256) (242,996) Selling, General & Administrative Filmed Entertainment (22,695) (21,278) (20,931) Communication (26,422) (18,892) (6,011) ---------- -------- -------- Other Total (912) (221) (34) ---------- -------- -------- (50,029) (40,391) (26,976) Management Fees (742) (175) (75) Depreciation & Amortization Filmed Entertainment (694) (767) (708) Communication (2,101) (1,149) (174) Other -- -- -- ---------- -------- -------- Total (2,795) (1,916) (882) Operating Loss Filmed Entertainment (22,602) (18,278) (89,007) Communications (23,880) (16,671) (6,209) Other (975) -- -- --------- ------- -------- (47,457) (34,949) (95,216) Interest Expense Filmed Entertainment (27,179) (31,280) (33,067) Communications (3,727) (1,109) (348) Other (2,208) -- -- ---------- -------- -------- (33,114) (32,389) (33,415) Interest Income Filmed Entertainment 1,069 2,198 771 Communications 2,506 896 -- ---------- --------- --------- 3,575 3,094 771 Chapter 11 (1,280) (1,610) (1,793) Reorganization Items (767) (1,300) (2,100) Provision for Income Taxes Equity in Joint Ventures (7,981) (2,257) (777) Discontinued Operations (293,570) -- -- Early Extinguishment of (32,382) -- -- ---------- -------- -------- Debt Net Loss (412,976) (69,411) (132,530) ========= ======== ========= 34 Filmed Entertainment --Results of Operations Calendar year ended December 31, 1995 versus fiscal year ended February 28, 1995 Revenues Total revenues for the calendar year ended December 31, 1995 ("calendar 1995") were $133,812,000, a decrease of $57,432,000 or 30% from the fiscal year ended February 28, 1995 ("fiscal 1995"). Theatrical revenues for calendar 1995 were $4,710,000, a decrease of $4,259,000 or 47% from the previous year. While operating under the Plan, Orion's ability to produce or acquire additional theatrical product was limited. This lack of product has negatively impacted theatrical revenues and will continue to do so until Orion produces or acquires significant new product for theatrical distribution. Domestic home video revenues for calendar 1995 were $39,982,000, a decrease of $11,923,000 or 23% from the previous year. The decrease in domestic home video revenue was due primarily to Orion's reduced theatrical release schedule in calendar 1995. Orion had available only one of its theatrical releases for sale to the domestic home video rental market in calendar 1995 compared to six such titles in fiscal 1995. Orion's reduced theatrical release schedule in both calendar 1995 and fiscal 1995 have had and will continue to have an adverse effect on home video annual revenues until new product is available for distribution. Home video subdistribution revenues for calendar 1995 were $3,935,000, a decrease of $2,814,000 or 42% from fiscal 1995. These revenues are primarily generated in the foreign marketplace through a subdistribution agreement with Sony Pictures Entertainment, Inc. All 23 pictures covered by this agreement have been released theatrically. Orion's reduced theatrical release schedule in calendar 1995 and fiscal 1995 has negatively impacted home video subdistribution revenues and will continue to do so in the future until Orion produces or acquires significant new product for theatrical distribution. Pay television revenues were $31,567,000 in calendar 1995, a decrease of $29,333,000 or 48% from the previous year. The decrease in pay television revenues was due to the availability of six titles during calendar 1995 in the pay cable market compared to eleven titles during fiscal 1995. Orion's reduced theatrical release schedule in calendar 1995 and fiscal 1995 will continue to have an adverse effect on future pay television revenues. Free television revenues for calendar 1995 were $53,618,000, a decrease of $9,103,000 or 15% from the previous year. In both the domestic and international marketplaces, Orion derives significant revenue from the licensing of free television rights. Major international contracts in calendar 1995 that contributed to revenues were with TV de Catalunya for rights in Spain, RTL Plus for rights in Germany and Principal Network for rights in Italy. In fiscal 1995, the most significant licensees were TV de Catalunya, Principal Network and Mitsubishi for rights in Japan. Orion's reduced theatrical release schedule while operating under the Plan has had and will continue to have an adverse effect on free television revenues. Selling, General & Administrative Expenses Selling, general and administrative expenses increased $1,417,000 to $22,695,000 during calendar 1995 from $21,278,000 during fiscal 1995. 35 Operating Loss Operating loss increased $4,324,000 in calendar 1995 to ($22,602,000) from an operating loss of ($18,278,000) in fiscal 1995. The most significant contributions to Orion's fiscal 1995 operating results, which was absent in calendar 1995, came from the recognition of significant domestic pay television license fees pursuant to a settlement of certain litigation with Orion's pay television licensee, Showtime Networks, Inc. (the "Showtime Settlement"). The calendar 1995 and fiscal 1995 results were adversely affected by writedowns to estimated net realizable value of the carrying amounts on certain film product totaling approximately $13,400,000 for calendar 1995 compared to writedowns for fiscal 1995 totaling approximately $17,100,000. In addition, approximately two-thirds of Orion's film inventories are stated at estimated realizable value and do not generate gross profit upon recognition of revenues. Interest Expense Interest expense decreased by $4,101,000 or 13% to $27,179,000 for calendar 1995, primarily due to a decrease in the average amount of debt outstanding. Extraordinary Loss The extraordinary loss on early extinguishment of debt in calendar 1995 resulted from the repayment and termination of substantially all of Orion's indebtedness outstanding prior to the November 1 Mergers (the "Plan Debt"), which indebtedness was refinanced with the proceeds of the Orion Credit Facility (as defined below) and with an interest bearing promissory note from MIG, together with the charge off of the unamortized discount associated with such obligations. Fiscal year ended February 28, 1995 versus fiscal year ended February 28, 1994 Revenues Total revenues for fiscal 1995 were $191,244,000, an increase of $15,582,000 or 9% from the fiscal year ended February 28, 1994 ("fiscal 1994"). Theatrical revenues for fiscal 1995 were $8,969,000, a decrease of $24,350,000 or 73% from the previous year. The decrease was due to the poor performance of the five theatrical feature films released in the domestic marketplace in fiscal 1995. While operating under the Plan, the Company's ability to produce or acquire additional theatrical product was limited. Therefore, the Company released in the domestic theatrical marketplace only those pictures that were fully or substantially financed by the Company prior to the Filing Date. This lack of product has negatively impacted theatrical revenues and will continue to do so until the Company produces or acquires new product for theatrical distribution. Domestic home video revenues for fiscal 1995 were $51,905,000, an increase of $14,487,000 or 39% over the previous year. The increase in domestic home video revenue was due primarily to the availability of six of the Company's theatrical releases in the domestic home video rental market in fiscal 1995 compared to only three releases in fiscal 1994. The Company's reduced theatrical release schedule in fiscal 1995 and fiscal 1994 is likely to have an adverse effect on future home video annual revenues. Home video subdistribution revenues for fiscal 1995 were $6,749,000, a decrease of $5,496,000 or 45% from the previous year. These revenues were primarily generated in the foreign marketplace through a subdistribution agreement with Sony Pictures Entertainment, Inc. All 23 pictures covered by 36 this agreement have been released theatrically. The Company's reduced theatrical release schedule in fiscal 1995 and 1994 have begun to have and will continue to have an adverse effect on future home video subdistribution revenues. Pay television revenues were $60,900,000 in fiscal 1995, an increase of $48,570,000 from the previous year due to the availability of eleven titles in the pay cable market pursuant to the Showtime Settlement during fiscal 1995. Pay television revenues for fiscal 1995 included approximately $46,000,000 from the recognition of revenues relating to these eleven titles, including license fees on seven titles that had been deferred from prior years. Revenues expected to be recognized in future periods for the last five released titles under the Showtime Settlement approximate $13,500,000. Free television revenues for fiscal 1995 were $62,721,000, a decrease of $27,629,000 or 31% from the previous year. The decrease was primarily due to significant license fees from major networks in the United States that were recognized in fiscal 1994 upon the availability of Dances With Wolves and Silence of the Lambs and, to a lesser extent, two other pictures. No network license fees were recognized in fiscal 1995 and it is anticipated that little or no additional network license fees will be generated until new product is produced or acquired. In both the domestic and international marketplaces the Company derives significant revenues from the licensing of free television rights. Major international contracts in fiscal 1995 that contributed to revenues were with TV de Catalunya for rights in Spain, Mitsubishi for rights in Japan and Principal Network for rights in Italy. In fiscal 1994, the most significant licensees were TV de Catalunya, Principal Network and TRL Plus for rights in Germany. Selling, General and Administrative Expenses Selling, general and administrative expenses were $21,278,000 during fiscal 1995, an increase of $347,000 from fiscal 1994. Operating Loss Operating loss decreased $70,729,000 in fiscal 1995 to $(18,278,000) from an operating loss of ($89,007,000) in fiscal 1994. The most significant contributions to the Company's fiscal 1995 operating results came from the recognition of significant domestic pay television license fees pursuant to the Showtime Settlement. The Company's fiscal 1995 and fiscal 1994 results were both adversely affected by writedowns to estimated net realizable value of the carrying amounts on certain film product. Such writedowns totaled approximately $17,100,000 for fiscal 1995 compared to approximately $94,600,000 for fiscal 1994. For fiscal 1994, the writedowns included an aggregate $76,000,000 attributed to reduced license fees as a result of the Showtime Settlement, disappointing results of four pictures released that year, and additional provisions on the five then unreleased pictures. In addition, approximately two-thirds of the Company's film inventories are stated at estimated realizable value and do not generate gross profit upon recognition of revenues. Interest Expense Interest expense fell by $1,787,000 or 5% to $31,280,000 for fiscal 1995, primarily due to a decrease in the average amount of debt outstanding, though this decrease was partially offset by increased interest rates. 37 Communications Segment -- Results of Operations Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 and to Year Ended December 31, 1993 Separate comparisons of the results of operations of the Communications segment (i) for the year ended December 31, 1995 compared to the year ended December 31, 1994 and (ii) for the year ended December 31, 1994 compared to the year ended December 31, 1993 are not included as MITI's results of operations during the year ended December 31, 1993 were not material. Revenues Revenues increased to $5,158,000 in 1995 from $3,545,000 in 1994 and $51,000 in 1993. This growth in revenue from 1994 to 1995 resulted primarily from an increase in radio operations in Hungary and paging operations in Romania. However, in 1995 the Company changed its policy of consolidating these operations by recording the related accounts and results of operations based on a three month lag. As a result, the December 31, 1995 Consolidated Balance Sheet includes the accounts for these operations at September 30, 1995 as compared to the December 31, 1994 balances included in 1994, and the 1995 Statement of Operations reflects nine months of these operations as compared to twelve months for 1994. Had the Company applied this method from October 1, 1994, revenues would have increased over the revenues reported but the net effect on the results of operations would not have been material. Future years will reflect twelve months of operations based upon a September 30th year end for operations that are consolidated. The increase in revenues from 1993 to 1994 was generated primarily from the acquisition of MITI's radio operations in Hungary and the commencement of operations of radio paging services in Romania in 1994. Revenue from radio operations during 1995 was $3,878,000 as compared to $2,862,000 in 1994. Radio paging services during 1995 generated revenues amounting to $690,000 as compared to $266,000 in 1994. MITI did not generate significant revenue during 1993 since none of the Joint Ventures or subsidiaries which are consolidated had then commenced operations. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $7,530,000 or 40% in fiscal 1995 as compared to fiscal 1994 and by $12,881,000 or 214% in fiscal 1994 as compared to fiscal 1993. The increases relate principally to the hiring of additional staff and expenses associated with the increase in the number of Joint Ventures and the need for MITI to support and assist the operations of the Joint Ventures. During 1995, MITI completed the staffing of its Vienna office and opened an office in Hong Kong. During 1994, MITI completed the staffing of its Moscow office and opened its Vienna office. Furthermore, the commencement of radio paging services in Romania and the acquisition of radio station operations in Hungary accounted for $3,800,000 of the 1994 increase. In addition, included in selling, general and administrative expenses for 1994 is $3,600,000 of non-cash compensation expense relating to the granting of stock options to MITI's Chief Executive Officer. Interest Income In 1994, MITI began to charge interest to the Joint Ventures for credit facilities granted by MITI. The interest was charged at rates ranging from the prime rate to the prime rate plus four percent. As a result of increasing advances to the Joint Ventures for their operating and investing cash 38 requirements, interest income earned under credit lines increased to $2,506,000 for 1995 as compared to $896,000 for 1994. No interest was charged to the Joint Ventures in 1993. Interest Expense Interest expense increased to $3,727,000 in 1995 from $1,109,000 in 1994 and $348,000 in 1993, largely due to increased borrowings from affiliates and others in order to finance the operations and investment activities of MITI during these periods. Equity in Losses of Affiliated Joint Ventures MITI accounts for the majority of its Joint Ventures under the equity method of accounting since it generally does not exercise control of these ventures. Under the equity method of accounting, MITI reflects the cost of its investments, adjusted for its share of the income or losses of the Joint Ventures, on its balance sheet and reflects only its proportionate share of income or losses of the Joint Ventures in its statement of operations. Additionally, MITI changed its policy of accounting for the Joint Ventures in 1994 by recording the results of operations based on a three month lag. As a result, the 1994 Consolidated Statement of Operations reflects nine months of operations for the Joint Ventures compared to twelve months for 1993. The 1995 statement of operations for the Joint Ventures includes a full twelve months of activity based on a September 30 reporting period, as will all future years. MITI recognized equity in losses of its Joint Ventures of approximately $7,981,000 in 1995, $2,257,000 in 1994 and $777,000 for 1993. Equity in the losses of the Joint Ventures are generally reflected according to the level of ownership of the Joint Venture by MITI until such Joint Venture's contributed capital has been fully depleted. Subsequently, MITI recognizes the full amount of losses generated by the Joint Venture since MITI is generally the sole funding source of the Joint Ventures. The increase in losses of the Joint Ventures of $5,724,000 from 1994 to 1995 is primarily attributable to losses of $4,047,000 incurred as part of the expansion of its cable TV operations, and the opening of a radio station in Moscow which resulted in a loss of $1,289,000. As of September 30, 1995 there were six cable TV Joint Ventures in operation as compared to four in the prior year. MITI's cable TV Joint Ventures in Moscow and Riga were responsible for $2,075,000 and $1,303,000, respectively, of this increased loss. These losses were due to one-time write downs of older equipment and additional expenses incurred for programming and marketing related to expanding the services provided and ultimately increasing the number of subscribers. All other cable TV operations, including two new ventures and the expansion of two others that were in their second year of operations, increased losses by $668,000. The increased loss experienced by the radio station in Moscow was attributable to a substantial revision in its programming format and the establishment of sales and related support staff needed to effectively compete in the Moscow market. Losses from MITI's other operations, including five paging entities, three of which were started up in 1995, and one telephony operation, increased by $388,000 in 1995. The increase in losses of its Joint Ventures of $1,480,000 from 1993 to 1994 was principally due to increased losses from cable TV operations of $1,086,000 and of $394,000 from all other operations. The cable TV losses were primarily attributable to $884,000 in additional losses in Moscow, and $202,000 as a result of the first full year of operations of two other Joint Ventures. The remainder of $394,000 from all other entities is related to the first year of operations for new entities, including the start up of one paging entity, one telephony operation and the Moscow radio station. 39 As a result of the start up nature of many of the Joint Ventures, additional losses are expected. The losses recorded for 1995 represent MITI's equity in the losses of the Joint Ventures for the twelve months ended September 30, 1995. On January 1, 1994, MITI changed its policy of accounting for the Joint Ventures by recording its equity in their losses based upon a three month lag. Accordingly, results of operations for the year ended December 31, 1995 reflect equity in losses of the joint ventures for the period from October 1, 1994 to September 30, 1995. Results of operations for the year ended December 31, 1994 reflect equity in losses of the Joint Ventures for the period from January 1, 1994 to September 30, 1994. Had MITI applied this method from October 1, 1993, the effect on reported operating results for the year ended December 31, 1994 would not have been material. Foreign Currency MITI presently has limited foreign currency exposure as virtually all revenues are billed and collected in United States dollars or an equivalent local currency amount adjusted on a monthly basis for currency fluctuation. MITI's Joint Ventures are generally permitted to maintain US dollar accounts to service their dollar denominated credit lines, thereby significantly reducing foreign currency exposure. As MITI and its Joint Ventures grow and become more dependent on transactions based in local currencies, MITI expects its foreign currency risk and exposure to increase. MITI currently does not hedge against foreign currency exchange rate risks. MIG Consolidated--Results of Operations During calendar 1995, the Company reported a loss from continuing operations of $87,024,000, a loss from discontinued operations of $293,570,000 and a loss on extinguishment of debt of $32,382,000, resulting in a net loss of $412,976,000. This compares to a net loss of $69,411,000 for fiscal 1995, all of which came from continuing operations. The loss from continuing operations increased by $17,613,000 from calendar 1995 as compared to fiscal 1995, primarily a result of an increase in MITI's operating loss in calendar 1995. See "Communications Group -- Results of Operations." The fiscal 1994 net loss of $132,530,000 was from continuing operations. The calendar 1995 loss from discontinued operations represents the writedown of the portion of the purchase price of the Company allocated to the Snapper Power Equipment Company on the Merger Date to its net realizable value. The extraordinary loss on early extinguishment of debt in calendar 1995 was due to the repayment and termination of the Plan Debt, which was refinanced with funds provided under the Orion Credit Facility and a noninterest bearing promissory note from MIG, and to the charge-off of the unamortized discount associated with such obligations. Liquidity and Capital Resources Orion The financing, production and distribution of motion pictures requires the expenditure of significant amounts of capital. Prior to the consummation of the November 1 Mergers, Orion's ability to produce or acquire new theatrical product was severely limited by the agreements entered into in connection with the Plan. At the Filing Date, all new motion picture production was halted, leaving Orion with only 12 largely completed but unreleased motion pictures. Accordingly, Orion released five, four and three theatrical motion pictures in the domestic marketplace in fiscal 1995, 1994, and 1993, 40 respectively. In calendar 1995, there were no theatrical releases that were fully or substantially financed by Orion. This reduced release schedule has had and will continue to have an adverse impact on results of operations for the immediately foreseeable future. Furthermore, as described in Note 5 to the "Notes to the Consolidated Financial Statements" included in Item 8, approximately two-thirds of Orion's film inventories at December 31, 1995 are stated at amounts approximating their estimated net realizable value and will not result in the recording of gross profit upon the recognition of related revenues in future periods. Accordingly, selling, general and administrative costs and interest expense in future periods are likely to exceed gross profit recognized in each period, which will result in the reporting of net losses by Orion for financial reporting purposes for the foreseeable future. In connection with the consummation of the November 1 Mergers, the restrictions imposed by the agreements entered into in connection with the Plan on Orion's ability to produce and acquire new motion picture product were eliminated. As a result, Orion has begun the process of producing, acquiring and financing theatrical films consistent with the covenants set forth in the Orion Credit Agreement. The principal sources of funds for Orion's motion picture production, acquisition and distribution activities will be cash generated from operations, proceeds from the presale of subdistribution and exhibition rights, primarily in foreign markets, and borrowings under Orion's revolving credit agreement. Orion's operating plan involves the production or acquisition and release of lower budget films, the distribution of films for third parties and the continued distribution of its film library. Orion generally plans to release approximately 8 to 10 films per year, including two or three films to be produced by Orion or in conjunction with others. The cost of producing a theatrical film varies depending on the type of film produced, casting of stars or established actors, and many other factors. The industry-wide trend over recent years has been an increase in the average cost of producing and releasing films. The revenues derived from the production and distribution of a motion picture depend primarily upon its acceptance by the public, which cannot be predicted and does not necessarily bear a direct correlation to the production or distribution costs incurred. The Company will attempt to reduce the risks inherent in its motion picture production activities by closely monitoring the production and distribution costs of individual films and limiting Orion's investment in any single film. On November 1, 1995, in connection with the consummation of the November 1 Mergers, Orion received contributions of approximately $19.4 million of new assets from MIG. Orion also issued a non interest bearing promissory note of approximately $72.9 million to MIG. The proceeds from the promissory note as well as the Orion Term Loan described below were used directly or indirectly to repay and terminate the Plan Debt. On November 1, 1995, Orion entered into a credit agreement with a syndicate of lenders led by Chemical Bank, as agent (the "Orion Credit Agreement"). The Orion Credit Agreement consists of a $135 million term loan ("Orion Term Loan") with quarterly payments of $6.75 million commencing March 1996 and a maturity date of December 31, 2000; and a $50 million revolver ("Orion Revolver") with a final maturity of December 31, 2000. The amount outstanding under the Orion Term Loan as of February 19, 1996 was $106.8 million. The amount available under the Orion Revolver as of February 19, 1996 was $27.7 million (of which $4 million is reserved for an outstanding letter of credit). Interest is charged on the Orion Term Loan at the agent bank's prime rate plus 2% or at 3% above the LIBOR rate, at Orion's option; and for the Orion Revolver at the agent bank's prime rate plus 1/2% or at 1-1/2% above the LIBOR rate, also at Orion's option. Indebtedness under the Orion Credit Agreement is secured by all of Orion's assets, including the common stock of Orion and its subsidiaries. In addition to the quarterly amortization schedule, the Orion Credit Agreement provides that in the event that the ratio of the value of the eligible accounts receivable in Orion's borrowing base to the amount outstanding under 41 the Orion Term Loan (the "Borrowing Base Ratio") does not exceed a designated threshold, all cash received by Orion must be used to prepay principal and interest on the Orion Term Loan until such Borrowing Base Ratio exceeds such designated threshold. All prepayments may be applied against scheduled quarterly repayments. As a result of prepayments, Orion has satisfied its scheduled amortization payments through December 31, 1996. To the extent the Borrowing Base Ratio exceeds the threshold set forth in the Orion Credit Agreement, and is not needed to amortize the Orion Term Loan, Orion may use any excess cash to pay its operating expenses, including the costs of acquiring new film product or new production. The Borrowing Base Ratio currently exceeds the designated threshold. In addition, Orion has established a system of lockbox accounts and collection accounts to maintain Chemical's security interest in the cash proceeds of Orion's accounts receivable. Amounts outstanding under the Orion Revolver are guaranteed jointly and severally by Metromedia and by John W. Kluge. The Orion Credit Agreement also contains customary covenants, including limitations on the incurrence of additional indebtedness and guarantees, the creation of new liens and on the number of films Orion may produce, restrictions on the development costs and budgets for such films, limitations on the aggregate amount of unrecouped print and advertising costs Orion may incur, limitations on the amount of Orion's leases, capital and overhead expenses, prohibitions on the declaration of dividends or distributions by Orion to MIG, limitations on the merger or consolidation of Orion or the sale by Orion of any substantial portion of its assets or stock and restrictions on Orion's line of business, other than activities relating to the production and distribution of entertainment product. The Orion Credit Agreement also contains several financial covenants, including the requirement that Orion maintain the ratio of Orion's Free Cash Flow (as defined in the Orion Credit Agreement) to its cumulative investment in film product above certain specified levels at the end of each fiscal quarter, and that Orion's cumulative investment in film product not exceed Free Cash Flow by more than $50,000,000. In addition, the Orion Credit Agreement contains a covenant which would be triggered if the amount of Orion's net losses exceeds certain levels for each fiscal year beginning with the fiscal year ended December 31, 1996. The Orion Revolver contains the following events of default: nonpayment of principal or interest on the facility, the occurrence of a "change of control" (as defined below) and an assertion by the guarantors of such facility that the guarantee of such facility is unenforceable. The Term Loan portion of the Orion Credit Agreement also contains a number of customary events of default, including the non-payment of principal or interest, the occurrence of a "change of control" of MIG (defined to include a reduction in the stock ownership of the Metromedia Holders below 25% of the outstanding Common Stock or if a third party controls more Common Stock than the Metromedia Holders or if a third party is entitled to designate a majority of the members of MIG's Board of Directors), the termination of employment of Orion's chief executive officer, head of production or other specified officers and the objection to such person's replacement by the required lenders within a designated period, the violation of covenants, falsity of representations and warranties in any material respect, certain cross-default and cross-acceleration provisions, and bankruptcy or insolvency of Orion or MIG. Management believes that the Orion Revolver together with cash generated from operations will provide Orion with sufficient resources to finance anticipated levels of production and distribution activities and to meet debt obligations as they become due during calendar 1996. 42 MITI MITI has invested significantly (through capital contributions, loans and management assistance and training) in its Joint Ventures. MITI has also incurred significant expenses in identifying, negotiating and pursuing new wireless telecommunications opportunities in emerging markets. MITI and primarily all of its Joint Ventures are experiencing continuing losses and negative operating cash flow since the businesses are in the development and start up phase of operations. The wireless cable television, paging, fixed wireless loop telephony, and international toll calling businesses can be capital intensive. MITI generally provides the primary source of funding for its Joint Ventures, both for working capital and capital expenditures. MITI's Joint Venture agreements generally provide for an initial contribution of assets and/or cash by the Joint Venture partners, and for the provision of a line of credit from MITI to the Joint Venture. Under a typical arrangement, MITI's joint venture partner contributes the necessary licenses or permits under which the Joint Venture will conduct its business, studio or office space, transmitting tower rights and other equipment. MITI's contribution is generally cash and equipment, but may consist of other specific assets as required by the joint venture agreement. MITI's credit agreements with the Joint Ventures are intended to provide the Joint Ventures with sufficient funds for operations and equipment purchases. The credit agreements generally provide for interest to be accrued at MITI's current cost of borrowing in the United States and for payment of principal and interest from 90% of the Joint Venture's available cash flow, as defined in the credit agreement, prior to any distributions of dividends to MITI or its partners. The credit agreements also often give MITI the right to appoint the general director of the Joint Venture and the right to approve the annual business plan of the Joint Venture. Advances under the credit agreements are made to the Joint Ventures in the form of cash or equipment purchases. Cash advances are used for working capital purposes or as direct payment of expenses or expenditures. If advances are in the form of equipment purchases, the Joint Venture is charged under its line of credit, at the cost of the equipment plus cost of shipping. As of December 31, 1995, and December 31, 1994, MITI was committed to provide funding under the various credit lines in an aggregate amount of approximately $46,825,000 and $43,000,000, respectively, of which $16,883,000 and $24,044,000 remains unfunded, respectively. MITI's funding commitments under a credit agreement are contingent upon its approval of the Joint Venture's business plan and the attainment of certain benchmarks set forth in such business plans. MITI reviews the actual results compared to the approved business plan on a periodic basis. If the review indicates a material variance from the approved business plan, MITI may terminate or revise its commitment to fund the Joint Venture under its credit agreement. MITI's consolidated and unconsolidated Joint Ventures' ability to generate positive operating results is dependent upon the ability to attract subscribers to their systems, their ability to control operating expenses and the sale of commercial advertising time. Management's current plans with respect to the Joint Ventures are to increase subscribers and advertisers and thereby their operating revenues by developing a broader band of programming packages for wireless cable and radio broadcasting and offering additional services and options for paging and telephony services. By offering the large local populations of the countries in which the Joint Ventures operate desired services at attractive prices, management believes that the Joint Ventures can increase their subscriber and advertiser bases and generate positive operating cash flow, reducing their dependence on MITI for funding of working capital. Additionally, advances in wireless subscriber equipment technology are expected to reduce capital requirements per subscriber. Further initiatives to develop and establish 43 profitable operations include reducing operating costs as a percentage of revenue and developing management information systems and automated customer care and service systems. MITI's investments in the Joint Ventures are not expected to become profitable or generate significant cash flow in the near future. Even if the Joint Ventures do become profitable and generate sufficient cash flows in the future, there can be no assurances that the Joint Ventures will pay dividends or return capital and pay advances under credit agreements at any time. The ability of MITI and its consolidated and unconsolidated Joint Ventures to establish profitable operations is also subject to political, economic and social risks inherent in doing business in emerging markets such as Eastern Europe, the former Soviet Republics and the Pacific Rim. These include matters arising out of government policies, economic conditions, imposition of, or changes to, taxes or other similar charges by governmental bodies, foreign exchange fluctuations and controls, civil disturbances, deprivation or unenforceability of contractual rights, and taking of property without fair compensation. Prior to the November 1 Mergers, MITI had relied on certain shareholders for capital, in the form of both debt and equity, to fund its operating and capital requirements. During 1995 and 1994, MITI's primary sources of funds were from the issuance of notes payable and from equity contributions. During 1995, MITI received equity contributions of approximately $62,000,000 from MIG or its affiliates, representing notes payable to Metromedia or its affiliates that were converted into equity of MITI at the time of the November 1 Mergers. During 1994, MITI received equity contributions of approximately $24,200,000. Approximately $22,800,000 of this amount was a result of common stock issued to certain related parties, affiliates and others in a private offering. As part of this issuance, $6,500,000 of notes payable were converted to common stock. The remaining $1,400,000 of equity contributions was the result of the issuance of common stock to an affiliate. During 1994, MITI received financing of $20,105,000 through the issuance of notes payable. Proceeds of MITI's borrowings and equity issuance were used, in part, to purchase and provide equipment to its Joint Ventures under credit lines, to fund initial equity contributions to its Joint Ventures and for MITI's operating activities. Cash utilized by operating activities during the twelve months ended December 31, 1995 and 1994 was primarily for selling, general and administrative expenses. Cash used for investing activities in 1994 includes $7,033,000 paid to complete MITI's acquisition of East News Channel Trading and Service (Radio Juventas), KFT, in addition to the approximately $1,055,000 paid in 1993. The remaining funds invested in Joint Ventures during 1995 and 1994 were capital contributions required by the respective joint venture agreements and to provide equipment and working capital under lines of credit. These capital requirements amounted to approximately $21,165,000 and $16,409,000 for 1995 and 1994, respectively. Capital expenditures in 1995 and 1994 were primarily the result of expanding MITI's operations and establishing offices in Moscow, Russia; Vienna, Austria; Budapest, Hungary and Hong Kong. MITI's capital commitments for calendar year 1995 were comprised of four primary categories: (i) subscriber equipment, (ii) working capital advances, (iii) expansion of existing facilities and (iv) new construction. Most of MITI's Joint Ventures, once operational, require subscriber equipment and working capital infusions for a significant period until funds generated by operations are sufficient to 44 cover operating expenses and capital expenditure requirements. In some cases, the Joint Venture and MITI agree to expand the existing facilities to increase or enhance existing services. In those cases, when the Joint Venture cannot provide these funds from operations, MITI provides the funding. During the construction phase of the Joint Venture, MITI normally provides the funds required to build out the project. During 1995, MITI expended $13,515,000 for capital expenditures on behalf of its Joint Ventures, including $9,501,000 for cable TV, $2,058,000 for paging, $38,000 for radio and $1,917,000 for all others. MITI also provided $2,446,000 of initial capital contributions to its Joint Ventures, consisting of $53,000 for cable TV, $630,000 for paging operations, $432,000 for radio, $893,000 for telephony and $438,000 for all other. In addition, MITI supported certain Joint Ventures with working capital funds against the Joint Venture's credit lines totaling $2,504,000, of which $798,000 was for cable TV operations, $303,000 for paging, $1,396,000 for radio operations and $7,000 for all other. During 1996, MITI will continue to fund its Joint Ventures in a similar manner. MITI anticipates funding $20,786,000 in capital requirements for its Joint Ventures, consisting of $14,732,000 for cable TV, $4,846,000 for paging Joint Ventures, $883,000 for telephony and $325,000 for radio. In addition, MITI anticipates approximately $2,293,000 in working capital funding requirements for Joint Ventures, consisting of $836,000 for cable TV, $598,000 for paging, $323,000 for telephony and $536,000 for radio. In addition to the foregoing, MITI anticipates that it will require approximately an additional $18,000,000 in financing to fund its corporate operations during 1996. MITI continues to seek out and enter into arrangements whereby it can offer communications services through joint venture arrangements. Additional Joint Ventures are being planned in countries in which MITI currently has investments, as well as in emerging markets in the Pacific Rim. In December 1995, MITI and Protocall Ventures Ltd. ("Protocall") executed a letter of intent together with a loan agreement. The letter of intent calls for MITI to loan up to $1,500,000 to Protocall and to purchase 51% of Protocall for $2,600,000. As of December 31, $915,000 had been loaned to Protocall against the $1,500,000 loan. Upon closing of the purchase agreement, any principal and accrued interest outstanding under the loan will be offset against the purchase price otherwise payable to Protocall. The parties have until March 31, 1996 to negotiate, execute and close a definitive purchase agreement and shareholders agreement. If the parties are unable to reach a definitive agreement, the terms of the loan call for an annual interest rate of the Chemical Bank prime rate plus 2% and the repayment of the loan on December 12, 1996. MITI requires significant capital to fund its operations and to make capital contributions and loans to its Joint Ventures. MITI relies on MIG to provide the financing for these activities. In addition, Metromedia Company has made available to MITI up to $15 million of revolving credit in order to satisfy its commitments and working capital requirements pursuant to a Bridge Loan Agreement dated as of February 29, 1996, (the "MITI Bridge Loan"). MITI may use the proceeds of loans under such agreement for general corporate and working capital purposes. As of March 1, 1996 MITI had not borrowed any monies under the MITI Bridge Loan Agreement. Interest is payable on all loans made pursuant to the MITI Bridge Loan Agreement at a rate equal to Chemical Bank's prime rate plus 2%. All loans thereunder are due and payable on the earlier to occur of (i) the consummation of the refinancing of substantially all of MIG's indebtedness in connection with the Alliance Merger and the Goldwyn Merger and (ii) January 15, 1997. MIG believes that as more of MITI's Joint Ventures commence operations and reduce their dependence on MITI for funding, MITI will be able to finance its own operations and commitments from its operating cash flow and MITI will be able to attract its own financing from third parties. There can, however, be no assurance that additional capital in the form of debt or equity will be available to MITI at all or on terms and conditions that are acceptable to MIG. 45 MIG MIG is a holding company and, accordingly, does not generate cash flows. Orion, the Company's filmed entertainment subsidiary, is restricted under covenants contained in the Orion Credit Agreement from making dividend payments or advances to MIG. As discussed above, MITI, the Company's communications subsidiary, is dependent on MIG for significant capital infusions to fund its operations, as well as its commitments to make capital contributions and loans to its Joint Ventures. MIG anticipates that MITI's funding requirements for 1996 will be approximately $40.0 million based in part on the anticipated funding needs of the Joint Ventures. Future capital requirements of MITI will depend on the ability of MITI's Joint Ventures to generate positive cash flows. MIG is obligated to make principal and interest payments under its own various debt agreements (see Note 8 to "Notes to the Consolidated Financial Statements"), in addition to funding its working capital needs, which consist principally of corporate overhead and payments on self insurance claims (see Note 1 to the "Notes to the Consolidated Financial Statements.") MIG is currently a party to a $35 million credit agreement with Chemical Bank (the "MIG Revolver"). MIG is required under the MIG Revolver to repay all amounts outstanding on October 30, 1996. At December 31, 1995, approximately $28.8 million was outstanding under the MIG Revolver. Under the terms of the MIG Revolver, the Company may borrow up to $35 million as long as all outstanding loans do not exceed 65% of the market value of its holdings of Roadmaster common stock. Based upon the current market price of Roadmaster, MIG may not borrow any additional amounts under the MIG Revolver. The MIG Revolver is secured by all of the stock of Roadmaster owned by the Company and a subordinated lien on the assets of Snapper. The loan is guaranteed by MITI. MIG's 9 7/8% Senior Subordinated Debentures due 1997 require it to make annual sinking fund payments in March of each year of $3,000,000 (which the Company may increase to $6,000,000.) At December 31, 1995, $18 million remained outstanding under the 9 7/8% Senior Subordinated Debentures. MIG's 9 1/2% Subordinated Debentures are due in 1998 and approximately $59 million remained outstanding at December 31, 1995. These debentures do not require annual principal payments. MIG's $75 million face value 6 1/2% Convertible Subordinated Debentures are due in 2002. The debentures are convertible into common stock at a conversion price of $41 5/8 per share at the holder's option and do not require annual principal payments. Interest on MIG's outstanding indebtedness approximates $14 million for 1996. In the short term, MIG intends to satisfy its current obligations and commitments with available cash on hand and the proceeds from the sale of certain assets. At December 31, 1995, MIG had approximately $11 million of available cash on hand. During December 1995, the Company adopted a formal plan to dispose of Snapper. At December 31, 1995 the carrying value of Snapper was approximately $79 million. The Snapper carrying value represents the Company's estimated proceeds from the sale of Snapper and the cash flows from the operations of Snapper, principally repayment of intercompany loans, through the date of sale. Management believes that Snapper will be disposed of by October 1996. In addition, the Company anticipates disposing of its investment in Roadmaster during 1996. The carrying value of the Company's investment in Roadmaster at December 31, 1995 was approximately $47 million. 46 Management believes that its available cash on hand, proceeds from the disposition of Snapper and its investment in Roadmaster, borrowings under the MITI Bridge Loan and collections of intercompany receivables from Snapper will provide sufficient funds for the Company to meet its obligations, including MITI's funding requirements, in the short term. However, no assurances can be given that the Company will be able to dispose of such assets in a timely fashion and on favorable terms. Any delay in the sale of assets or reductions in the proceeds anticipated to be received upon this disposition of assets may result in the Company's inability to satisfy its obligations during the year ended December 31, 1996. Delays in funding the Company's MITI capital requirements may have a materially adverse impact on the results of operations of MITI's Joint Ventures. In connection with the consummation of the Alliance Merger and the Goldwyn Merger, MIG intends to refinance substantially all of its indebtedness and the indebtedness of Orion. MIG intends to use the proceeds of this refinancing to repay substantially all of such indebtedness and to provide itself and MITI with liquidity to finance its existing commitments and current business strategies. In addition to the refinancing, management believes that its long term liquidity needs will be satisfied through a combination of (i) MIG's successful implementation and execution of its growth strategy to become a global entertainment, media and communications company, including the integration of Alliance, Goldwyn and MPCA, (ii) MITI's Joint Ventures achieving positive operating results and cash flows through revenue and subscriber growth and control of operating expenses, and (iii) Orion's ability to continue to generate positive cash flows sufficient to meet its planned film production release schedule and service its existing debt. There can be no assurance that the Company will be successful in refinancing its indebtedness or that such refinancing can be accomplished on favorable terms. In the event the Company is unable to successfully complete such a refinancing, the Company, in addition to disposing of Snapper and its investment in Roadmaster, may be required to (i) attempt to obtain additional financing through public or private sale of debt or equity securities of the Company or one of its subsidiaries, (ii) otherwise restructure its capitalization or (iii) seek a waiver or waivers under one or more of its subsidiaries' credit facilities to permit the payment of dividends to the Company. There can be no assurance that any of the foregoing can be accomplished by the Company on reasonably acceptable terms, if at all. The Company believes that it will report significant operating losses for the fiscal year ended December 31, 1996. In addition, because its Communications Group is in the early stages of development, the Company expects this group to generate significant net losses as it continues to build out and market its services. Accordingly, the Company expects to generate consolidated net losses for the foreseeable future. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data required under this item are included in Item 14 of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The information required under this item is included in the Company's Current Report on Form 8-K dated November 1, 1995. 47 PART III The information called for by this PART III (Items 10, 11, 12 and 13) is not set forth herein because the Company intends to file with the SEC not later than 120 days after the end of the fiscal year ended December 31, 1995 the Joint Proxy Statement/Prospectus for the 1996 Annual Meeting of Stockholders, except that certain of the information regarding the Company's executive officers called for by Item 10 has been included in Part I of this Annual Report on Form 10-K under the caption "Executive Officers of the Company." Such information to be included in the Joint Proxy Statement/Prospectus is hereby incorporated into these Items 10, 11, 12 and 13 by this reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) and (a)(2) Financial Statements and Schedules The financial statements and schedules listed in the accompanying Index to Financial Statements are filed as part of this Annual Report on Form 10-K. (a)(3) Exhibits The exhibits listed in the accompanying Exhibit Index are filed as part of this Annual Report on Form 10-K. (b) Current Reports on Form 8-K 4 Current Reports on Form 8-K were filed during the fourth quarter of 1995: (i) On November 1, 1995, a Form 8-K was filed to report the consummation of the November 1 Mergers involving the Company (formerly known as The Actava Group Inc.), Metromedia International Telecommunications, Inc., MCEG Sterling Incorporated, Orion Pictures Corporation, OPC Merger Corp. and MITI Merger Corp., and the hiring of KPMG Peat Marwick LLP as the Company's independent certified public accountants for 1995. (ii) On November 28, 1995, a Form 8-K was filed to report the execution of a letter of intent by and among the Company, Motion Picture Corporation of America, Bradley R. Krevoy and Steven Stabler. (iii) On November 30, 1995, a Form 8-K was filed to report the execution of a letter of intent by and among the Company and Alliance Entertainment Corp. (iv) On December 20, 1995, a Form 8-K was filed to report the execution of an Agreement and Plan of Merger, dated December 20, 1995, by and among the Company, Alliance Merger Corp. and Alliance Entertainment Corp. 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. METROMEDIA INTERNATIONAL GROUP, INC. By: /s/ JOHN D. PHILLIPS -------------------------------------------- John D. Phillips President and Chief Executive Officer Dated: March 1, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 49 Signature Title Date --------- ----- ---- /s/ JOHN W. KLUGE Chairman of the Board March 1, 1996 ------------------------------ John W. Kluge /s/ STUART SUBOTNICK Vice Chairman of the Board March 1, 1996 ------------------------------ Stuart Subotnick /s/ JOHN D. PHILLIPS President and Chief March 1, 1996 ------------------------------ John D. Phillips Executive Officer and Director (Principal Executive Officer) /s/ SILVIA KESSEL Senior Vice President -- March 1, 1996 ------------------------------ Silvia Kessel Chief Financial Officer and Director (Principal Financial Officer) /s/ ARNOLD L. WADLER Senior Vice President, March 1, 1996 ------------------------------ Arnold L. Wadler General Counsel and Director /s/ ROBERT A. MARESCA Senior Vice President March 1, 1996 ------------------------------ Robert A. Maresca (Principal Accounting Officer) /s/ JOHN P. IMLAY, JR. Director March 1, 1996 ------------------------------ John P. Imlay, Jr. /s/ CLARK A. JOHNSON Director March 1, 1996 ------------------------------ Clark A. Johnson /s/ RICHARD J. SHERWIN Director March 1, 1996 ------------------------------ Richard J. Sherwin /s/ LEONARD WHITE Director March 1, 1996 ------------------------------ Leonard White /s/ CARL E. SANDERS Director March 1, 1996 ------------------------------ Carl E. Sanders 50 EXHIBIT INDEX Exhibits Incorporated Herein by Reference --------------------------------- Designation Document with Designation of of Exhibit Which Exhibit Was Such Exhibit in This Previously Filed in That Form 10-K Description of Exhibits with Commission Document --------- ----------------------- ----------------- -------- 2.1 Stock Purchase Agreement by Current Report on Exhibit 2(a) and among JCJ, Inc., Eastman Form 8-K filed on Kodak Company and The Actava August 25, 1994 Group Inc. dated August 12, 1994. Also filed as exhibits thereto are: Exhibit A - Promissory Note; Exhibit B - Seller Release; and Exhibit C - Noncompetition Agreement. The following is a list of omitted schedules (or similar attachments) which The Actava Group Inc. as registrant agrees to furnish supplementally to the Commission upon request: Exhibit D - Certificate of Incorporation of Qualex Inc.; Exhibit E - By-Laws of Qualex Inc.; Exhibit F - Buyer Release; Schedule 1- Shares Owned by Seller; Schedule 2.02 - Capitalization of Qualex Inc.; and Schedule 2.06 - Agreements between The Actava Group Inc. and Qualex Inc. 2.2 Agreement and Plan of Quarterly Report Exhibit 2 Reorganization dated as of on Form 10-Q for July 20, 1994 by and among, the three months The Actava Group Inc., ended Diversified Products June 30, 1994 Corporation, Hutch Sports USA Inc., Nelson/Weather-Rite, Inc., Willow Hosiery Company, Inc. and Roadmaster Industries, Inc. 2.3 Amended and Restated Current Report on Exhibit 99(a) Agreement and Plan of Merger Form 8-K for dated as of September 27, event occurring 1995 by and among The Actava on September 27, Group Inc., Orion Pictures 1995 Corporation, MCEG Sterling Incorporated, Metromedia International Telecommunications, Inc., OPG Merger Corp. and MITI Merger Corp. and exhibits thereto. The Registrant agrees to furnish copies of the schedules supplementally to the Commission on request. 2.4 Agreement and Plan of Merger Current Report on Exhibit 99.1 dated as of December 20, 1995 Form 8-K dated by and among Metromedia December 20, 1995 International Group, Inc., Alliance Entertainment Corp. and Alliance Merger Corp. and exhibits thereto. The Registrant agrees to furnish copies of the schedules supplementally to the Commission on request. 51 Exhibits Incorporated Herein by Reference --------------------------------- Designation Document with Designation of of Exhibit Which Exhibit Was Such Exhibit in This Previously Filed in That Form 10-K Description of Exhibits with Commission Document --------- ----------------------- ----------------- -------- 2.5 Agreement and Plan of Merger Current Report on Exhibit 99.1 dated as of January 31, 1996 Form 8-K dated by and among Metromedia January 31, 1996 International Group, Inc., The Samuel Goldwyn Company and SGC Merger Corp. and exhibits thereto. The registrant agrees to furnish copies of the schedules to the Commission upon request. 3.1 Restated Certificate of Registration Exhibit 3(a) Incorporation of Metromedia Statement on Form International Group, Inc. S-3 (Registration No. 33-63853) 3.2 Restated By-laws of Registration Exhibit 3(b) Metromedia International Statement on Form Group, Inc. S-3 (Registration No. 33-6353) 4.1 Indenture dated as of Application of Exhibit T3C August 1, 1973, with respect Form T-3 for to 9 1/2% Subordinated Qualification of Debentures due August 1, Indenture under 1998, between The Actava the Trust Group Inc. and Chemical Bank, Indenture Act of as Trustee. 1939 (File No. 22-7615) 4.2 Agreement among The Actava Registration Exhibit 4(d)(ii) Group, Inc., Chemical Bank Statement on and Manufacturers Hanover Form S-14 Trust Company, dated as of (Registration September 26, 1980, with No. 2-81094) respect to successor trusteeship of the 9 1/2% Subordinated Debentures due August 1, 1998. 4.3 Instrument of registration, Annual Report on Exhibit 4(d)(iii) appointment and acceptance Form 10-K for the dated as of June 9, 1986 year ended among The Actava Group Inc., December 31, 1986 Manufacturers Hanover Trust Company and Irving Trust Company, with respect to successor trusteeship of the 9 1/2% Subordinated Debentures due August 1, 1998. 4.4 Indenture dated as of Registration Exhibit 2(d) March 15, 1977, with respect Statement on to 9 7/8% Senior Subordinated Form S-7 Debentures due March 15, (Registration 1997, between The Actava No. 2-58317) Group Inc. and The Chase Manhattan Bank, N.A., as Trustee. 4.5 Agreement among The Actava Registration Exhibit 4(e)(ii) Group Inc., The Chase Statement on Manhattan Bank, N.A. and Form S-14 United States Trust Company (Registration of New York, dated as of No. 2-281094) June 14, 1982, with respect to successor trusteeship of the 9 7/8% Senior Subordinated Debentures due March 15, 1997. 52 Exhibits Incorporated Herein by Reference ---------------------------------
Designation Document with Designation of of Exhibit Which Exhibit Was Such Exhibit in This Previously Filed in That Form 10-K Description of Exhibits with Commission Document --------- ----------------------- ----------------- -------- 4.6 Indenture between National Post-Effective Exhibit T3C Industries, Inc. and First Amendment No. 1 National City Bank, dated to Application on October 1, 1974, with respect Form T-3 for to the 10% Subordinated Qualification of Debentures, due October 1, Indenture Under 1999. The Trust Indenture Act of 1939 (File No. 22-8076) 4.7 Agreement among National Registration Exhibit 4(f)(ii) Industries, Inc., The Actava Statement on Group Inc., Citibank, N.A., Form S-14 and Marine Midland Bank, (Registration dated as of December 20, No. 2-81094) 1977, with respect to successor trusteeship of the 10% Subordinated Debentures due October 1, 1999. 4.8 First Supplemental Indenture Registration Exhibit 2(q) among The Actava Group Inc., Statement on National Industries, Inc. and Form S-7 Marine Midland Bank, dated (Registration January 3, 1978, supplemental No. 2-60566) to the Indenture dated October 1, 1974 between National and First National City Bank for the 10% Subordinated Debentures due October 1, 1999. 4.9 Indenture dated as of Annual Report on Exhibit 4(i) August 1, 1987 with respect Form 10-K for the to 6 1/2% Convertible year ended Subordinated Debentures due December 31, 1987 August 4, 2002, between The Actava Group Inc. and Chemical Bank, as Trustee. 10.1 1982 Stock Option Plan of The Proxy Statement Exhibit A Actava Group Inc. dated March 31, 1982 10.2 1989 Stock Option Plan of The Proxy Statement Exhibit A Actava Group Inc. dated March 31, 1989 10.3 1969 Restricted Stock Plan of Annual Report on Exhibit 10(a)(iii) The Actava Group Inc. Form 10-K for the year ended December 31, 1990 10.4 1991 Non-Employee Director Annual Report on Exhibit 10(a)(iv) Stock Option Plan. Form 10-K for the year ended December 31, 1991 10.5 Amendment to 1991 Annual Report on Exhibit 10(a)(v) Non-Employee Director Stock Form 10-K for the Option Plan. year ended December 31, 1992
53 Exhibits Incorporated Herein by Reference ---------------------------------
Designation Document with Designation of of Exhibit Which Exhibit Was Such Exhibit in This Previously Filed in That Form 10-K Description of Exhibits with Commission Document --------- ----------------------- ----------------- -------- 10.6 Snapper Power Equipment Annual Report on Exhibit 10(c) Profit Sharing Plan. Form 10-K for the year ended December 31, 1987 10.7 Retirement Plan executed Annual Report on Exhibit 10(h)(i) November 1, 1990, as amended Form 10-K for the effective January 1, 1989. year ended December 31, 1990 10.8 Supplemental Retirement Plan Annual Report on Exhibit 10(j) of The Actava Group Inc. Form 10-K for the year ended December 31, 1983 10.9 Supplemental Executive Annual Report on Exhibit 10(h)(iii) Medical Reimbursement Plan. Form 10-K for the year ended December 31, 1990 10.10 Amendment to Supplemental Annual Report on Exhibit 10(h)(iv) Retirement Plan of The Actava Form 10-K for the Group Inc., effective year ended April 1, 1992. December 31, 1991 10.11 1992 Officer and Director Annual Report on Exhibit 10(l) Stock Purchase Plan. Form 10-K for the year ended December 31, 1991 10.12 Form of Restricted Purchase Annual Report on Exhibit 10(n) Agreement between certain Form 10-K for the officers of The Actava Group year ended Inc. and The Actava Group December 31, 1991 Inc. 10.13 Agreement between The Actava Annual Report on Exhibit 10(q) Group Inc. and J.B. Fuqua Form 10-K for the regarding sale by Actava of year ended rights in the name "Actava." December 31, 1992 10.14 Form of Indemnification Annual Report on Exhibit 10(u) Agreement between Actava and Form 10-K for the certain of its directors and year ended executive officers. December 31, 1993 10.15 Employment Agreement between Current Report on Exhibit 99(a) The Actava Group Inc. and Form 8-K dated John D. Phillips dated April 19, 1994 April 19, 1994. 10.16* First Amendment to Employment Annual Report on Agreement dated November 1, Form 10-K for the 1995 between Metromedia year ended International Group and John December 31, D. Phillips. 1995.
54 Exhibits Incorporated Herein by Reference ---------------------------------
Designation Document with Designation of of Exhibit Which Exhibit Was Such Exhibit in This Previously Filed in That Form 10-K Description of Exhibits with Commission Document --------- ----------------------- ----------------- -------- 10.17 Option Agreement between The Current Report on Exhibit 99(b) Actava Group Inc. and John D. Form 8-K dated Phillips dated April 19, April 19, 1994 1994. 10.18 Registration Rights Agreement Current Report on Exhibit 99(c) among The Actava Group Inc., Form 8-K dated Renaissance Partners and April 19, 1994 John D. Phillips dated April 19, 1994. 10.19 Shareholders Agreement dated Annual Report on Exhibit 10(r)(i) as of December 6, 1994 among Form 10-K for the The Actava Group Inc., year ended Roadmaster, Henry Fong and December 31, 1994 Edward Shake. 10.20 Registration Rights Agreement Annual Report on Exhibit 10(r)(ii) dated as of December 6, 1994 Form 10-K for the between The Actava Group Inc. year ended and Roadmaster. December 31, 1994 10.21 Environmental Indemnity Annual Report on Exhibit 10(r)(iii) Agreement dated as of Form 10-K for the December 6, 1994 between The year ended Actava Group Inc. and December 31, 1994 Roadmaster. 10.22 Lease Agreement dated Annual Report on Exhibit 10(s) October 21, 1994 between JDP Form 10-K for the Aircraft II, Inc. and The year ended Actava Group Inc. December 31, 1994 10.23 Lease Agreement dated as of Quarterly Report Exhibit 10 October 4, 1995 between JDP on Form 10-Q for Aircraft II, Inc. and The the quarter ended Actava Group Inc. September 30, 1995 10.24 Finance and Security Annual Report on Exhibit 4(g)(i) Agreement dated as of Form 10-K for the October 23, 1992 with respect year ended to a revolving credit December 31, 1994 facility of up to $100 million, between The Actava Group Inc. and ITT Commercial Finance Corp. 10.25 Amendment dated as of Annual Report on Exhibit 4(g)(ii) September 27, 1993 to Finance Form 10-K for the and Security Agreement dated year ended as of October 23, 1992 with December 31, 1994 respect to a revolving credit facility of up to $100 million between The Actava Group Inc. and ITT Commercial Finance Corp. 10.26 Amendment dated as of Annual Report on Exhibit 4(g)(iii) March 29, 1994 to Finance and Form 10-K for the Security Agreement dated as year ended of October 23, 1992, as December 31, 1994 amended, with respect to a revolving credit facility of up to $100 million between The Actava Group Inc. and ITT Commercial Finance Corp.
55 Exhibits Incorporated Herein by Reference ---------------------------------
Designation Document with Designation of of Exhibit Which Exhibit Was Such Exhibit in This Previously Filed in That Form 10-K Description of Exhibits with Commission Document --------- ----------------------- ----------------- -------- 10.27 Amendment dated as of Annual Report on Exhibit 4(g)(iv) April 15, 1994 to Finance and Form 10-K for the Security Agreement dated as year ended of October 23, 1992, as December 31, 1994 amended, with respect to a revolving credit facility of up to $100 million between The Actava Group Inc. and ITT Commercial Finance Corp. 10.28 Amendment dated as of Annual Report on Exhibit 4(g)(v) September 23, 1994 to Finance Form 10-K for the and Security Agreement dated year ended as of October 23, 1992, as December 31, 1994 amended, with respect to a revolving credit facility of up to $100 million between The Actava Group Inc. and ITT Commercial Finance Corp. 10.29 Amendment dated as of Quarterly Report Exhibit 4 March 3, 1995 to Finance and on Form 10-Q for Security Agreement, dated as the quarter ended of October 23, 1992, as June 30, 1995 amended, with respect to a revolving credit facility of up to $100 million, between The Actava Group Inc. and ITT Commercial Finance Corp. 10.30 Amendment dated as of Registration Exhibit 10(a)(vii) November 1, 1995, to Finance Statement on Form Security Agreement dated as S-3 (Registration of October 23, 1992, as No. 33-63853) amended, with respect to a revolving credit facility of up to $45 million, between Snapper, Inc. and Deutsche Financial Services Corporation (formerly ITT Commercial Finance Corp.). 10.31 Letter Agreement dated Registration Exhibit 4(d)(i) October 12, 1995 between Statement on Form Triton Group Ltd. and The S-3 (Registration Actava Group Inc. No. 33-63401) 10.33 Registration Rights Agreement Current Report on Exhibit 99(b) dated as of September 27, Form 8-K dated 1995 among The Actava Group September 27, Inc. and the Metromedia 1995 Holders named therein. 10.34 Contribution Agreement dated Registration Exhibit 10(f) as of November 1, 1995 among Statement on Form Met International, Inc., S-3 (Registration MetProductions, Inc. and The No. 33-63853) Actava Group Inc.
56 Exhibits Incorporated Herein by Reference --------------------------------- Designation Document with Designation of of Exhibit Which Exhibit Was Such Exhibit in This Previously Filed in That Form 10-K Description of Exhibits with Commission Document --------- ----------------------- ----------------- -------- 10.35 Credit, Security and Guaranty Registration Exhibit 10(g) Agreement dated as of Statement on Form November 1, 1995 among Orion S-3 (Registration Pictures Corporation, the No. 33-63853) Corporation Guarantors referred to therein, the Lenders referred to therein and Chemical Bank. 10.36 Credit Agreement dated as of Registration Exhibit 10(h) November 1, 1995 between Statement on Form Metromedia International S-3 (Registration Group, Inc. and Chemical No. 33-63853) Bank. 10.37* Management Agreement dated November 1, 1995 between Metromedia Company and Metromedia International Group, Inc. 10.38* The Metromedia International Group, Inc. 1996 Incentive Stock Plan. 10.39* License Agreement dated November 1, 1995 between Metromedia Company and Metromedia International Group, Inc. 10.40* MITI Bridge Loan Agreement, dated February 29, 1996, among Metromedia Company and MITI relating to a $15 million bridge loan from Metromedia Company to MITI. 11* Statement of computation of earnings per share. 16 Letter from Ernst & Young to Current Report on Exhibit 99.1 the Securities and Exchange Form 8-K dated Commission. November 1, 1995 21* List of subsidiaries of Metromedia International Group, Inc. 23.1* Consent of KPMG Peat Marwick LLP regarding Metromedia International Group, Inc. 27* Financial Data Schedule _______________________ *Filed herewith. METROMEDIA INTERNATIONAL GROUP, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Auditors . . . . . . . . . . F-1 Consolidated Statements of Operations for the years ended December 31, 1995, February 28, 1995 and February 28, 1994 . . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets as of December 31, 1995 and February 28, 1995 . . . . . . . . . . . . . F-3 Consolidated Statements of Cash Flows for the years ended December 31, 1995, February 28, 1995 and February 28, 1994 . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Common Stock, Paid-in Surplus and Accumulated Deficit for the years ended December 31, 1995, February 28, 1995 and February 28, 1994 . . . . . . . . . . . . . . . . F-5 Notes to Consolidated Financial Statements . . . . F-6 Consolidated Financial Statement Schedules I. Condensed Financial Information of Registrant . . . . . . . . . . . . . . . . . . . . S-1 II. Valuation and Qualifying Accounts . . . S-5 All other schedules have been omitted either as inapplicable or not required under the Instructions contained in Regulation S-X or because the information is included in the Consolidated Financial Statements or the Notes thereto listed above. Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders Metromedia International Group, Inc.: We have audited the accompanying consolidated financial statements of Metromedia International Group, Inc. and subsidiaries listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and the consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedules 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 incudes 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 financial position of Metromedia International Group, Inc. and its subsidiaries as of December 31, 1995 and February 28, 1995, and the results of their operations and their cash flows for the year ended December 31, 1995 and for each of the years in the two year period ended February 28, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP New York, New York February 29, 1996 F-1 METROMEDIA INTERNATIONAL GROUP, INC. Consolidated Statements of Operations (in thousands, except per share amounts)
Years Ended December 31, February 28, February 28, 1995 1995 1994 (Note 1) Revenues $ 138,871 $ 194,789 $ 175,713 Costs and expenses: Cost of rentals and operating expenses 132,762 187,256 242,996 Selling, general and administrative 50,029 40,391 26,976 Management fee 742 175 75 Depreciation and amortization 2,795 1,916 882 ---------- --------- ---------- Operating loss (47,457) (34,949) (95,216) Interest expense, including amortization of debt discount of $10,436 at December 31, 1995, $12,153 at February 28, 1995, and $12,314 at February 28, 1994 33,114 32,389 33,415 Interest income 3,575 3,094 771 ---------- --------- ---------- Interest expense, net 29,539 29,295 32,644 Chapter 11 reorganization items 1,280 1,610 1,793 ---------- --------- --------- Loss before provision for income taxes, equity in losses of joint ventures, discontinued operations, and extraordinary item (78,276) (65,854) (129,653) Provision for income taxes 767 1,300 2,100 Equity in losses of Joint Ventures 7,981 2,257 777 ---------- --------- --------- Loss from continuing operations and before extraordinary item (87,024) (69,411) (132,530) Discontinued operations: Loss on disposal (293,570) - - ----------- --------- ---------- Loss before extraordinary item (380,594) (69,411) (132,530) Extraordinary item: Early extinguishment of debt, net of tax (32,382) - - ---------- --------- ---------- Net loss $ (412,976) $ (69,411) $ (132,530) ========== ========== =========== Loss per common share: Primary: Continuing Operations $ (3.54) $ (3.43) $ (7.71) ========== ========== =========== Discontinued Operation $ (11.97) $ - $ - ========== ========== =========== Extraordinary Item $ (1.32) $ - $ - ========== ========== ========== Net loss $ (16.83) $ (3.43) $ (7.71) ========== ========== ===========
See accompanying notes to consolidated financial statements. F-2 METROMEDIA INTERNATIONAL GROUP, INC. Consolidated Balance Sheets (in thousands except per share amounts) December February 31, 28, 1995 1995 --------- --------- ASSETS: Current Assets: Cash and cash equivalents $ 26,889 $ 27,422 Short-term investments 5,366 - Accounts receivable, net: Film 27,306 35,402 Other 2,146 1,073 Film inventories 59,430 69,867 Other assets 6,314 4,763 --------- --------- Total current assets 127,451 138,527 Investments in and advances to joint ventures 36,934 24,311 Asset held for sale - Roadmaster 47,455 - Industries, Inc. Asset held for sale - Snapper Inc. 79,200 - Property, plant and equipment, net 6,021 4,577 Film inventories 137,233 179,807 Long term film accounts receivable 31,308 24,308 Intangible assets, less accumulated 119,485 9,697 amortization Other assets 14,551 10,643 -------- --------- Total assets $ 599,638 $391,870 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities: Accounts payable $ 4,695 $ 3,633 Accrued expenses 96,696 36,385 Participation and residuals 19,143 21,902 Current portion of long-term debt 40,597 96,177 Due to Metromedia Company - 37,738 Deferred revenues 15,097 36,026 --------- -------- Total current liabilities 176,228 231,861 Long-term debt 264,046 103,112 Participations and residuals 28,465 24,025 Deferred revenues 47,249 32,461 Other long-term liabilities 395 201 ------- -------- Total liabilities 516,383 391,660 ------- -------- Commitments and contingencies Shareholders' equity Preferred Stock, authorized 70,000,000 shares, none issued Common Stock, $1.00 par value, authorized 110,000,000 shares, issued and - - outstanding 42,613,738 shares at December 31, 1995 42,614 20,935 Paid-in surplus 728,747 289,413 Accumulated deficit (688,106) (310,138) --------- --------- Total shareholders' equity 83,255 210 -------- -------- Total liabilities and $ 599,638 $ 391,870 shareholders' equity ======== ======== See accompanying notes to consolidated financial statements. F-3 METROMEDIA INTERNATIONAL GROUP, INC. Consolidated Statements of Cash Flows (in thousands except per share amounts) See accompanying notes to consolidated financial statements.
Years Ended December 31, February 28, February 28, 1995 1995 1994 ------------------ ------------------- -------------- Operations: Net loss $ (412,976) $ (69,411) $ (132,530) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on discontinued operations 293,570 - - Equity in losses of joint ventures 7,981 2,257 777 Amortization of film costs 91,466 140,318 199,219 Amortization of bank guarantee 2,956 4,951 5,625 Amortization of debt discounts 10,436 12,153 12,314 Depreciation and amortization 2,795 1,916 882 Loss on early extinguishment of debt 32,382 - - Decrease in accounts receivable 15,114 21,575 15,647 Decrease in accounts payable and accrued expenses (4,723) (3,160) (6,579) Accruals of participation and residuals 18,464 25,628 17,392 Payments of participation and residuals (20,737) (32,353) (27,306) Increase (decrease) in deferred revenues (12,269) (30,041) (2,476) Other operating activities, net (2,125) 3,112 (47) ----------- ---------- ----------- Cash provided by operations (22,334) 76,945 82,918 -------- -------- -------- Investing activities: Proceeds from Metromedia Company notes receivable 45,320 - - Investments in and advances to Joint Ventures (21,165) (16,409) (4,715) Advances to Snapper (4,230) - - Investment in film inventories (4,684) (22,840) (67,481) Cash paid for East News Channel Trading and Services, Kft. - (7,033) (1,055) Cash acquired, net in Merger 72,068 - - Additions to property, plant and equipment (3,699) (4,808) (2,208) Other, net (2,321) 1,233 4,263 ----------- --------- --------- Cash provided by (used in) investment 81,319 (49,857) (71,196) --------- ---------- ---------- activities Financing Activities: Proceeds from issuance of long-term debt 176,938 40,278 4,732 Proceeds from issuance of stock 2,282 17,690 7,604 Payments on notes and subordinated debt (264,856) (95,037) (64,711) Other 399 184 - --------- ---------- ----------- Cash used in financing activities (85,237) (36,885) (52,375) ---------- ---------- ---------- Net increase (decrease) in cash 18,416 (9,797) (40,653) Effect of change in fiscal year (13,583) - - Cash and cash equivalents at beginning of year 27,422 37,219 77,872 --------- --------- -------- Cash and cash equivalents at end of year $ 32,255 $ 27,422 $ 37,219 ======== ======== ========
See accompanying notes to consolidated financial statements. F-4 METROMEDIA INTERNATIONAL GROUP, INC. Consolidated Statements of Common Stock, Paid-in Surplus and Accumulated Deficit (in thousands, except share amounts)
Three Years Ended December 31, 1995 -------------------------------------------------------------------------------------- Common Stock ---------------------------------- Number of Paid-in Accumulated Shares Amount Surplus Deficit Total ------------ ------ -------- ------------- ----------- Balances, February 28, 1993 $ 17,188,408 $ 17,189 $ 265,156 $ (108,197) $ 174,148 Net Loss - - - (132,530) (132,530) ------------- ----------- --------- ----------- ----------- Balances, February 28, 1994 17,188,408 17,189 265,156 (240,727) 41,618 Shares issued 3,746,490 3,746 24,257 - 28,003 Net Loss - - - (69,411) (69,411) ------------- ----------- --------- ---------- ---------- Balances, February 28, 1995 20,934,898 20,935 289,413 (310,138) 210 Shares issued to acquire Actava and Sterling 17,974,155 17,974 316,791 - 334,765 Shares issued - MetProductions and Met International 3,530,314 3,530 33,538 - 37,068 Valuation of Actava and MITI options in Mergers - - 25,677 - 25,677 Revaluation of MITI minority interest - - 60,923 23,608 84,531 Adjustment for change in fiscal year - - - 11,400 11,400 Common stock issued - other 174,371 175 2,405 - 2,580 Net Loss - - - (412,976) (412,976) ------------- ----------- ----------- ----------- ----------- Balances, December 31, 1995 42,613,738 $ 42,614 $ 728,747 $ (688,106) $ 83,255 ========== ======= ======== =========== =========
See accompanying notes to consolidated financial statements. F-5 Metromedia International Group, Inc. Notes to Consolidated Financial Statements 1. Basis of Presentation, Liquidity and Summary of Significant Accounting Policies Basis of Presentation (see Note 2) The accompanying consolidated financial statements include the accounts of Metromedia International Group, Inc. ("MIG" or the "Company") and its wholly- owned subsidiaries, Orion Pictures Corporation ("Orion") and Metromedia International Telecommunications, Inc. ("MITI"). MITI was formed in August 1994 as part of a corporate reorganization and common control merger of International Telcell, Inc. and Metromedia International, Inc. Snapper, Inc. ("Snapper"), also a wholly-owned subsidiary, is included in the accompanying consolidated financial statements as a discontinued operation and asset held for sale. All significant intercompany transactions and accounts have been eliminated. Investments in other companies and Joint Ventures ("Joint Ventures") which are not majority owned, or in which the Company does not control but exercises significant influence are accounted for using the equity method. The Company reflects its net investments in Joint Ventures under the caption "Investments in and advances to Joint Ventures". Generally, under the equity method of accounting, original investments are recorded at cost and adjusted by the Company's share of undistributed earnings or losses of the investee company. Equity in the losses of the Joint Ventures are recognized according to the percentage ownership in each Joint Venture until the Company's Joint Venture partner's contributed capital has been fully depleted. Subsequently, the Company recognizes the full amount of losses generated by the Joint Venture if it is the principal funding source for the Joint Ventures. During the year ended February 28, 1995 ("fiscal 1995"), the Company changed its policy of accounting for the Joint Ventures by recording its equity in their earnings and losses based upon a three month lag. As a result, the December 31, 1995 Consolidated Statement of Operations reflects twelve months of operations through September 30, 1995 for the Joint Ventures, the February 28, 1995 Consolidated Statement of Operations reflects nine months of operations through September 30, 1994 for the Joint Ventures, and the February 28, 1994 Consolidated Statement of Operations reflects twelve months of operations through December 31, 1993 for the Joint Ventures. During the year ended December 31, 1995 ("calendar 1995"), the Company changed its policy of consolidating two indirectly owned subsidiaries by recording the related assets and liabilities and results of operations based on a three-month lag. As a result, the December 31, 1995 balance sheet includes the accounts of these subsidiaries at September 30, 1995, and the calendar 1995 Statement of Operations reflects the results of operations of these subsidiaries for the nine months ended September 30, 1995. Had the Company applied this method from October 1, 1994, the effect on reported December 31, 1995 results would not have been material. Future years will reflect twelve months of activity based upon a September 30 fiscal year end for these subsidiaries. Liquidity MIG is a holding company and, accordingly, does not generate cash flows. Orion, the Company's filmed entertainment subsidiary, is restricted under covenants contained in the Orion Credit Agreement from making dividend payments or advances to MIG. MITI, the Company's communications subsidiary, is dependent on MIG for significant capital infusions to fund its operations, as well as its commitments to make capital contributions and loans to its Joint Ventures. MIG F-6 Metromedia International Group, Inc. anticipates that MITI's funding requirements for 1996 will be approximately $40.0 million based in part on the anticipated funding needs of the Joint Ventures. Future capital requirements of MITI will depend on the ability of MITI's Joint Ventures to generate positive cash flows. MIG is obligated to make principal and interest payments under its own various debt agreements (see note 8), in addition to funding its working capital needs, which consist principally of corporate overhead and payments on self insurance claims (see note 1). In the short term, MIG intends to satisfy its current obligations and commitments with available cash on hand and the proceeds from the sale of certain assets. At December 31, 1995, MIG had approximately $11 million of available cash on hand. During December 1995, the Company adopted a formal plan to dispose of Snapper. At December 31, 1995 the carrying value of Snapper was approximately $79 million. The Snapper carrying value represents the Company's estimated proceeds from the sale of Snapper and the cash flows from the operations of Snapper, principally repayment of intercompany loans, through the date of sale. Management believes that Snapper will be disposed of by October 1996. In addition, the Company anticipates disposing of its investment in Roadmaster during 1996. The carrying value of the Company's investment in Roadmaster at December 31, 1995 was approximately $47 million. Management believes that its available cash on hand, proceeds from the disposition of Snapper and its investment in Roadmaster, borrowings under the MITI Bridge Loan and collections of intercompany receivables from Snapper will provide sufficient funds for the Company to meet its obligations, including MITI's funding requirements, in the short term. However, no assurances can be given that the Company will be able to dispose of such assets in a timely fashion and on favorable terms. Any delay in the sale of assets or reductions in the proceeds anticipated to be received upon this disposition of assets may result in the Company's inability to satisfy its obligations during the year ended December 31, 1996. Delays in funding the Company's MITI capital requirements may have a materially adverse impact on the results of operations of MITI's Joint Ventures. In connection with the consummation of the Alliance Merger and the Goldwyn Merger, MIG intends to refinance substantially all of its indebtedness and the indebtedness of Orion. MIG intends to use the proceeds of this refinancing to repay substantially all of such indebtedness and to provide itself and MITI with liquidity to finance its existing commitments and current business strategies. In addition to the refinancing, management believes that its long term liquidity needs will be satisfied through a combination of (i) MIG's successful implementation and execution of its growth strategy to become a global entertainment, media and communications company, including the integration of Alliance, Goldwyn and MPCA, (ii) MITI's Joint Ventures achieving positive operating results and cash flows through revenue and subscriber growth and control of operating expenses, and (iii) Orion's ability to continue to generate positive cash flows sufficient to meet its planned film production release schedule and service its existing debt. There can be no assurance that the Company will be successful in refinancing its indebtedness or that such refinancing can be accomplished on favorable terms. In the event the Company is unable to successfully complete such a refinancing, the Company, in addition to disposing of Snapper and its investment in Roadmaster, may be required to (i) attempt to obtain additional financing through public or private sale of debt or equity securities of the Company or one of its subsidiaries, (ii) otherwise restructure its capitalization or (iii) seek a waiver or waivers under one or more of its subsidiaries' credit facilities to permit the payment of dividends to the Company. There can be no assurance that any of the foregoing can be accomplished by the Company on reasonably acceptable terms, if at all. F-7 Metromedia International Group, Inc. Different Fiscal Year Ends The Company reports on the basis of a December 31 year end. In connection with the mergers discussed in Note 2, Orion and MITI, for accounting purposes only, were deemed to be the joint acquirors of the Actava Group Inc. ("Actava") in a reverse acquisition. As a result, the historical financial statements of the Company for periods prior to the merger are the combined financial statements of Orion and MITI. Orion historically reported on the basis of a February 28 year end. The consolidated financial statements for the twelve months ended December 31, 1995 include two months for Orion (January and February 1995) that were included in the February 28, 1995 consolidated financial statements. The revenues and net loss for the two month duplicate period are $22.5 and $11.4 million, respectively. The December 31, 1995 accumulated deficit has been adjusted to eliminate the duplication of the January and February 1995 net losses. The consolidated financial statements for the years ended February 28, 1995 and February 28, 1994 ("fiscal 1994"), contain certain reclassifications to conform to the presentation for the year ended December 31, 1995 ("calendar 1995"). Summary of Significant Accounting Policies Investments The Company invests in various debt and equity securities. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires certain debt securities to be reported at amortized cost, certain debt and equity securities to be reported at market with current recognition of unrealized gains and losses, and certain debt and equity securities to be reported at market with unrealized gains and losses as a separate component of shareholders' equity. Management determines the appropriate classification of investments as held-to- maturity or available-for-sale at the time of purchase and reevaluates such designation as of each balance sheet date. The Company has classified all investments as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in shareholders' equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities, are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. F-8 Metromedia International Group, Inc. Revenue Recognition Revenue from the theatrical distribution of films is recognized as the films are exhibited. Distribution of the Company's films to the home video market in the United States and Canada is effected through Orion Home Video ("OHV"), a division of Orion Home Entertainment Corporation, a wholly-owned subsidiary of Orion. OHV's home video revenue, less a provision for returns, is recognized when the video cassettes are shipped. Distribution of the Company's films to the home video markets in foreign countries is generally effected through subdistributors who control various aspects of distribution. When the terms of sale to such subdistributors include the receipt of nonrefundable guaranteed amounts by the Company, revenue is recognized when the film is available to the subdistributors for exhibition or exploitation and other conditions of sale are met. When the arrangements with such subdistributors call for distribution of the Company's product without a minimum amount guaranteed to the Company, such sales are recognized when the Company's share of the income from exhibition or exploitation is earned. Revenue from the licensing of the Company's film product to networks, basic and pay cable companies and television stations or groups of stations in the United States and Canada, as well as in foreign territories, is recognized when the license period begins and when certain other conditions are met. Such conditions include the availability of such product for exhibition by the licensee. The Company's and its Joint Ventures' cable, paging and telephony operations recognize revenues in the period the service is provided. Installation fees are recognized as revenues upon subscriber hook-up to the extent installation costs are incurred. Installation fees in excess of installation costs are deferred and recognized over the length of the related individual contract. The Company's and its Joint Ventures' radio operations recognize advertising revenue when commercials are broadcast. Film Inventories and Cost of Rentals Theatrical and television program inventories consist of direct production costs, production overhead and capitalized interest, print and exploitation costs, less accumulated amortization. Film inventories are stated at the lower of unamortized cost or estimated net realizable value. Selling costs and other distribution costs are charged to expense as incurred. Film inventories and estimated total costs of participations and residuals are charged to cost of rentals under the individual film forecast method in the ratio that current period revenue recognized bears to management's estimate of total gross revenue to be realized. Such estimates are re-evaluated quarterly in connection with a comprehensive review of the Company's inventory of film product, and estimated losses, if any, are provided for in full. Such losses include provisions for estimated future distribution costs and fees, as well as participation and residual costs expected to be incurred. F-9 Metromedia International Group, Inc. Property Plant and Equipment Property, plant and equipment, net consists of the following (in thousands): December 31, February 28, 1995 1995 ---- ---- Office furniture and equipment $ 7,855 $ 5,338 Automobile 133 95 Leasehold improvements 419 173 -------- -------- 8,407 5,606 Less: Accumulated depreciation and amortization (2,386) (1,029) -------- -------- $ 6,021 $ 4,577 ======== ======== Property, plant and equipment are recorded at cost and are depreciated over their expected useful lives. Generally, depreciation is provided on the straight-line method for financial reporting purposes. Leasehold improvements are amortized using the straight-line method over the life of the improvements or the life of the lease, whichever is shorter. Intangible Assets Intangible assets are stated at historical cost, net of accumulated amortization. Intangibles such as broadcasting licenses and frequency rights are amortized over periods of 20-25 years. Goodwill has been recognized for the excess of the purchase price over the value of the identifiable net assets acquired. Such amount is amortized over 25 years using the straight-line method. Until the Merger Date (see Note 2), a guarantee of Orion's bank borrowings was stated at its estimated fair value at the Effective Date (see Note 3), less accumulated amortization. Amortization of the guarantee was being calculated utilizing the effective interest method over certain related cash flows estimated in the Plan. Management continuously monitors and evaluates the realizability of recorded intangibles to determine whether their carrying values have been impaired. In evaluating the value and future benefits of the intangible assets, their carrying value would be reduced by the excess, if any, of their carrying value over management's best estimate of undiscounted future cash flows over the remaining amortization period. The Company believes that the carrying value of recorded intangibles is not impaired. Earnings Per Share of Common Stock Primary earnings per share are computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares include shares issuable upon the assumed exercise of stock options using the treasury stock method when dilutive. Computations of common equivalent shares are based upon average prices during each period. Fully diluted earnings per share are computed using such average shares adjusted for any additional shares which would result from using end-of-year prices in the above computations, plus the additional shares that would result from the conversion of the 6-1/2% Convertible Subordinated Debentures (see Note 8). Net income (loss) is adjusted by interest (net of income taxes) on the 6-1/2% Convertible Subordinated Debentures. The computation of fully diluted earnings per share is used only when it results in an earnings per share number which is lower than primary earnings per share. F-10 Metromedia International Group, Inc. The loss per share amounts for fiscal 1995 and fiscal 1994 represent combined Orion and MITI's common shares converted at the exchange ratios used in the Merger (see Note 2). Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on settlements using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value to the Company. The following methods and assumptions were used in estimating the fair value disclosures for financial instruments: Cash and Cash Equivalents, Receivables, Notes Receivable and Accounts --------------------------------------------------------------------- Payable ------- The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, current receivables, notes receivable and accounts payable approximate fair values. The carrying value of receivables with maturities greater than one year have been discounted, and if such receivables were discounted based on current market rates, the fair value of these receivables would not be materially different than their carrying values. Short-term Investments ---------------------- For short-term investments, fair values are based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or dealer quotes. See Note 4 for fair values on investment securities. Long-term Debt -------------- For long-term and subordinated debt, fair values are based on quoted market prices, if available. If the debt is not traded, fair value is estimated based on the present value of expected cash flows. See Note 8 for fair values of long-term debt. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109 requires the use of the liability method of accounting for deferred taxes. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using rates expected to be in effect when those assets and liabilities are recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-11 Metromedia International Group, Inc. Barter Transactions The Company trades commercial air time for goods and services used principally for promotional, sales and other business activities. An asset and a liability are recorded at the fair market value of the goods or services received. Barter revenue is recorded and the liability is relieved when commercials are broadcast, and barter expense is recorded and the assets are relieved when the goods or services are received or used. Foreign Currency Translation The statutory accounts of the Company's consolidated foreign subsidiaries and Joint Ventures are maintained in accordance with local accounting regulations and are stated in local currencies. Local statements are translated into U.S. generally accepted accounting principles and U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52 ("SFAS 52"), "Accounting for Foreign Currency Translation". Under SFAS 52, foreign currency assets and liabilities are generally translated using the exchange rates in effect at the balance sheet date. Results of operations are generally translated using the average exchange rates prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as part of the foreign currency translation adjustment in shareholders' equity. Gains and losses from foreign currency transactions are included in net income in the period in which they occur. Under SFAS 52, the financial statements of foreign entities in highly inflationary economies are remeasured, in all cases using the U.S. dollar as the functional currency. U.S. dollar transactions are shown at their historical value. Monetary assets and liabilities denominated in local currencies are translated into U.S. dollars at the prevailing period-end exchange rate. All other assets and liabilities are translated at historical exchange rates. Results of operations have been translated using the monthly average exchange rates. Translation differences resulting from the use of these different rates are included in the accompanying consolidated statements of operations. Accrued Expenses Accrued expenses consists of the following (in thousands): December 31, February 28, 1995 1995 ---- ---- Accrued salaries and wages $ 9,627 $10,850 Accrued taxes 11,000 - Accrued interest 9,822 3,104 Self-insurance claims payable 31,549 - Other 34,698 22,431 -------- ------- $ 96,696 $ 36,385 ======== ======== Self-Insurance The Company is self-insured for workers' compensation, health, automobile, product and general liability costs of certain discontinued businesses. The self-insurance claim liability is determined based on claims filed and an estimate of claims incurred but not yet reported. The Company is not self- insured in connection with any continuing operations. F-12 Metromedia International Group, Inc. Cash and Cash Equivalents Cash equivalents consists of highly liquid instruments with maturities of three months or less at the time of purchase. Included in cash at December 31, 1995, is approximately $10 million of restricted cash which represents amounts required to be held in the Company's captive insurance company. Supplemental Disclosure of Cash Flow Information Supplemental disclosure of cash flow information (in thousands): Calendar Fiscal Fiscal 1995 1995 1994 ---- ---- ---- Cash paid during the year for: Interest $ 12,270 $ 13,108 $ 14,907 ======== ======== ======== Taxes $ 996 $ 1,804 $ 2,934 ======== ======== ======== Supplemental schedule of non-cash investing and financing activities (in thousands): Calendar Fiscal Fiscal 1995 1995 1994 ---- ---- ---- Acquisition of business: Fair value of assets acquired $290,456 $ - $ - Fair value of liabilities assumed 239,109 - - -------- -------- -------- Net value $ 51,347 $ - $ - ======== ======== ======== F-13 Metromedia International Group, Inc. 2. The Mergers On November 1, 1995, (the "Merger Date") Orion, MITI, the Company and MCEG Sterling Incorporated ("Sterling"), consummated the mergers contemplated by the Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") dated as of September 27, 1995 among Orion, the Company, MITI and Sterling. The Merger Agreement provided for, among other things, the simultaneous mergers of each of Orion and MITI with and into the Company's recently-formed subsidiaries, OPC Mergerco and MITI Mergerco, and the merger of Sterling with and into theCompany (the "Mergers"). In connection with the Mergers, the Company changed its name from The Actava Group Inc. to Metromedia International Group, Inc. Upon consummation of the Mergers, all of the outstanding shares of the common stock, par value $.25 per share of Orion (the "Orion Common Stock"), the common stock, par value $.001 per share, of MITI (the "MITI Common Stock") and the common stock, par value $.001 per share, of Sterling (the "Sterling Common Stock") were exchanged for shares of the Company's common stock, par value $1.00 per share, pursuant to exchange ratios contained in the Merger Agreement. Pursuant to such ratios, holders of Orion Common Stock received .57143 shares of the Company's common stock for each share of Orion Common Stock (resulting in the issuance of 11,428,600 shares of common stock to the holders of Orion Common Stock), holders of MITI Common Stock received 5.54937 shares of the Company's common stock for each share of MITI Common Stock (resulting in the issuance of 9,523,817 shares of the Company's common stock to the holders of MITI Common Stock) and holders of Sterling Common Stock received .04309 shares of the Company's common stock for each share of Sterling Common Stock (resulting in the issuance of 483,254 shares of the Company's common stock to the holders of Sterling Common Stock). In addition, pursuant to the terms of a contribution agreement dated as of November 1, 1995 among the Company and two affiliates of Metromedia Company ("Metromedia"), MetProductions, Inc. ("MetProductions") and Met International, Inc. ("Met International"), MetProductions and Met International contributed to the Company an aggregate of $37,068,303 of interests in a partnership and principal amount of indebtedness of Orion and its affiliate, and indebtedness of an affiliate of MITI, owed to MetProductions and Met International respectively, in exchange for an aggregate of 3,530,314 shares of the Company's common stock. Immediately prior to the consummation of the Mergers, there were 17,490,901 shares of the Company's common stock outstanding. As a result of the consummation of the Mergers and the transactions contemplated by the contribution agreement, the Company issued an aggregate of 24,965,985 shares of common stock. Following consummation of the Mergers and the transactions contemplated by the contribution agreement, Metromedia Company (an affiliate of the Company) and its affiliates (the "Metromedia Holders") collectively received an aggregate of 15,252,128 shares of common stock (or 35.9% of the issued and outstanding shares of common stock). Due to the existence of Metromedia Holders' common control of Orion and MITI prior to consummation of the Mergers, their combination pursuant to the Mergers was accounted for as a combination of entities under common control. Orion was deemed to be the acquiror in the common control Merger. As a result, the combination of Orion and MITI was effected utilizing historical costs for the ownership interests of the Metromedia Holders in MITI. The remaining ownership F-14 Metromedia International Group, Inc. interests of MITI, were accounted for in accordance with the purchase method of accounting based on the fair value of such ownership interests, as determined by the value of the shares received by the holders of such interests at the effective time of the Mergers. For accounting purposes only, Orion and MITI have been deemed to be the joint acquirors of Actava and Sterling. The acquisition of Actava and Sterling has been accounted for as a reverse acquisition. As a result of the reverse acquisition, the historical financial statements of the Company for periods prior to the Mergers are those of Orion and MITI, rather than Actava. The operations of Actava and Sterling have been included in the accompanying consolidated financial statements from November 1, 1995, the date of acquisition. During December 1995, the Company adopted a formal plan to dispose of Snapper, a wholly-owned subsidiary of Actava. In addition, the Company's investment in Roadmaster was deemed to be a non-strategic asset and the Company plans to dispose of its investment during 1996. (see Note 4B. below). Snapper is included in the accompanying consolidated balance sheet in an amount equal to the sum of the estimated cash flows from the operations of Snapper from November 1, 1995 to October 15, 1996, the expected date of sale (the "Holding Period") plus the anticipated proceeds from the sale of Snapper. At November 1, 1995, such estimated cash flows and proceeds from sale are expected to amount to $79.2 million. The earnings and losses of Snapper during the Holding Period will be excluded from the results of operations of the Company. The excess of the allocated purchase price to Snapper in the Actava acquisition over the estimated cash flows from the operations and sale of Snapper in the amount of $294 million has been reflected in the accompanying consolidated statement of operations as a loss on disposal of a discontinued operation. No income tax benefits were recognized in connection with this loss on disposal because of the Company's losses from continuing operations and net operating loss carryforwards. The results of Snapper for the period November 1, 1995 through December 31, 1995, which are excluded from the accompanying consolidated statement of operations, are as follows (in thousands): Net Sales $ 14,385 Operating expenses 23,784 -------- Operating loss (9,399) Interest expense (1,213) Other expenses (259) -------- Loss before taxes (10,871) Income taxes - -------- Net loss $(10,871) ======== The Company has advanced $4.2 million to Snapper during the period from November 1, 1995 to December 31, 1995 and has not received any repayments of cash. Accordingly, $4.2 million has been added to the carrying value of Snapper at December 31, 1995. F-15 Metromedia International Group, Inc. The purchase price of Actava, Sterling and MITI minority interests, exclusive of transaction costs, amounted to $438.9 million at November 1, 1995 as follows (in thousands): Actava shares outstanding 17,491 Common stock to MITI minority shareholders 4,211 Common stock to Sterling stockholders 483 --------- Number of shares issued to acquire Actava, MITI minority and Sterling 22,185 Merger Date stock price 18.625 --------- Value of stock $413,207 Value of Actava options 8,780 Value of MITI options 16,897 --------- Total purchase price $438,884 ========= The excess purchase price over the net fair value of assets acquired amounted to $404 million at November 1, 1995 before writeoff of Snapper goodwill of $294 million. The following unaudited proforma consolidated results of operations illustrate the effect of the Mergers, the deconsolidation of Snapper and the associated refinancing of Orion's indebtedness (see Note 8) and assumes that the transactions occurred at the beginning of each of the periods presented (in thousands): Calendar Fiscal 1995 1995 ---- ---- Revenues $ 145,150 $ 203,232 Loss from continuing operations and before loss on early extinguishment of debt and extraordinary item (89,946) (88,717) Loss per share (2.11) (2.18) Orion, MITI and Sterling were parties to a number of material contracts and other arrangements under which Metromedia Company and certain of its affiliates had, among other things, made loans or provided financing to, or paid obligations on behalf of, each of Orion, MITI and Sterling. On November 1, 1995 such indebtedness, financing and other obligations of Orion, MITI and Sterling to Metromedia and its affiliates were refinanced, repaid or converted into equity of MIG. Certain of the amounts owed by Orion ($20.4 million), MITI ($34.1 million) and Sterling ($524,000) to Metromedia were financed by Metromedia through borrowings under a $55 million credit agreement between the Company and Metromedia (the "Actava-Metromedia Credit Agreement"). Orion, MITI and Sterling repaid such amounts to Metromedia, and Metromedia repaid the Company the amounts owed by Metromedia to the Company under the Actava-Metromedia Credit Agreement. In addition, certain amounts owed by Orion to Metromedia under the Reimbursement Agreement (see Note 8) were repaid on November 1, 1995. F-16 Metromedia International Group, Inc. 3. Chapter 11 Reorganization Costs On December 11 and 12, 1991, Orion Pictures Corporation and substantially all of its subsidiaries filed petitions for relief under chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the "Court"). In this regard, the Court confirmed the "Debtors' Joint Consolidated Plan of Reorganization" (the "Plan") on October 20, 1992, which became effective on November 5, 1992 (the "Effective Date"). Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", issued by the American Institute of Certified Public Accountants requires direct costs of administering the chapter 11 filing, particularly professional fees, to be expensed as incurred. Accordingly, Chapter 11 reorganization items presented on the Consolidated Statements of Operations for calendar 1995, fiscal 1995 and 1994 are comprised primarily of legal fees incurred during those periods. 4. Investments A. Short-Term Investments - ------------------------- All of the Company's short-term investments are classified as available-for-sale and are summarized as follows (in thousands): Available-for-Sale Securities ---------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. securities $ 5,319 $ 47 $ - $ 5,366 The net adjustment to unrealized holding gains on available-for-sale securities is immaterial in 1995. The amortized cost and estimated fair value of debt and marketable equity securities at December 31, 1995, are shown below (in thousands), by contractual maturity. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Estimated Amortized Fair Available-for-Sale Cost Value ---- ----- Due in one year or less $ 2,001 $ 2,008 Due after one year through three years 2,008 2,034 Due after three years 1,310 1,324 ------ ------ Total $ 5,319 $ 5,366 ====== ====== All available-for-sale securities are classified as current since they are available for use in the Company's current operations. F-17 Metromedia International Group, Inc. B. Roadmaster Industries, Inc. - ------------------------------ On December 6, 1994, Actava transferred ownership of its four sporting goods subsidiaries to Roadmaster Industries, Inc. ("Roadmaster") in exchange for 19,169,000 shares of Roadmaster's Common Stock. The Company intends to dispose of its Roadmaster stock during 1996. The equity in earnings and losses of Roadmaster will be excluded from the Company's results of operations through the date of sale. As of November 1, 1995, the Company's investment in Roadmaster was adjusted to the anticipated proceeds from its sale under the purchase method of accounting and included in the accompanying consolidated balance sheet as an asset held for sale. As of December 31, 1995, the Company owned 38% of the issued and outstanding shares of Roadmaster Common Stock based on approximately 48,600,000 shares of Roadmaster Common Stock outstanding. Summarized financial information for Roadmaster is shown below (in thousands): Nine Months Ended Year Ended September 30, December 31, 1995 1994 ---- ---- (Unaudited) Net sales $ 523,480 $ 455,661 Gross profit 68,111 66,790 Net income (loss) (9,259) 5,000 Current assets 391,003 358,169 Non-current assets 188,954 158,478 Current liabilities 250,673 181,778 Non-current liabilities 233,062 231,772 Minority interest - - Redeemable common stock 2,000 2,000 Total shareholders' equity 94,222 101,097 5. Film Accounts Receivable and Deferred Revenues Film accounts receivable consists primarily of trade receivables due from film distribution, including theatrical, home video, basic cable and pay television, network, television syndication, and other licensing sources which have payment terms generally covered under contractual arrangements. Film accounts receivable is stated net of an allowance for doubtful accounts of $11.6 million at December 31, 1995 and of $14.0 million at February 28, 1995. The Company has entered into contracts for licensing of theatrical and television product to the pay cable, home video and free television markets, for which the revenue and the related accounts receivable will be recorded in future periods when the films are available for broadcast or exploitation. These contracts, net of advance payments received and recorded in deferred revenues as described below, aggregated approximately $157.0 million at December 31, 1995. Included in this amount is $62.0 million of license fees for which the revenue and the related accounts receivable will be recorded only when the Company produces or acquires new products. Deferred revenues consist principally of advance payments received on pay cable, home video and other television contracts for which the films are not yet available for broadcast or exploitation. F-18 Metromedia International Group, Inc. 6. Film Inventories The following is an analysis of film inventories (in thousands): December 31, February 28, 1995 1995 ---- ---- Current: Theatrical films released, less amortization $ 53,813 $ 67,051 Television programs released, less amortization 5,617 2,816 --------- -------- 59,430 69,867 --------- -------- Non current: Theatrical films released, less amortization 132,870 173,279 Television programs released, less amortization 4,363 6,528 --------- -------- 137,233 179,807 --------- -------- $ 196,663 $249,674 ========= ======== Orion had in prior years made substantial writeoffs to its released and unreleased product. As a result, approximately two-thirds of the film inventories are stated at estimated net realizable value and will not result in the recording of gross profit upon the recognition of related revenues in future periods. Since the date of Orion's quasi-reorganization (February 28, 1982), when the Company's inventories were restated to reflect their then current market value, the Company has amortized 94% of the gross cost of its film inventories, including those produced or acquired subsequent to the quasi-reorganization. Approximately 98% of such gross film inventory costs will have been amortized by December 31, 1998. As of December 31, 1995, approximately 61% of the unamortized balance of film inventories will be amortized within the next three- year period based upon the Company's revenue estimates at year end. 7. Investments in and Advances to Joint Ventures MITI has recorded its investments in Joint Ventures at cost, net of its share of losses. Advances to the Joint Ventures under line of credit agreements are reflected based on amounts recoverable under the credit agreements, plus accrued interest. Advances are made to Joint Ventures in the form of cash for working capital purposes and capital expenditures, or in the form of equipment purchased or payment of expenses on behalf of the Joint Venture. Interest rates charged to the Joint Ventures range from prime rate to prime rate plus 4%. The credit agreements generally provide for the payment of principal and interest from 90% of the Joint Ventures' available cash flow, as defined, prior to any substantial distributions of dividends to the Joint Venture partners. As of December 31, 1995, MITI has entered into credit agreements with its Joint Ventures to provide up to $46.8 million in funding, of which $16.9 million remains available. MITI funding commitments are contingent on its approval of the Joint Ventures' business plans. F-19 Metromedia International Group, Inc. As of December 31, 1995 and 1994, MITI's investments in and advances to Joint Ventures were as follows (in thousands):
Investments in and Advances to Year Joint Ventures Ownership Venture Date Operations -------------- Name 1995 1994 % Formed Commenced ---- ---- ---- - ------ --------- Kosmos TV, Moscow, Russia $ 4,317 $ 5,822 50% 1991 May, 1992 Baltcom TV, Riga Latvia 6,983 4,741 50% 1991 June, 1992 Ayety TV, Tbilisi, Georgia 3,630 1,935 49% 1991 September, 1993 Kamalak, Tashkent, Uzbekistan 3,731 1,535 50% 1992 September, 1993 Baltcom Paging, Tallin, Estonia 2,585 1,829 39% 1992 December, 1993 SAC-Radio 7, Moscow, Russia 1,174 1,256 51% 1991 January, 1994 Sun TV, Kishinev, Moldova 1,613 690 50% 1993 October, 1994 Raduga Paging, Nizhny Novgorod 364 450 45% 1993 October, 1994 Alma-TV, Almaty, Kazakstan 1,318 774 50% 1994 June, 1995 Telecom Georgia, Tbilisi, Georgia 2,078 1,485 30% 1994 September, 1994 Raduga TV, Nizhny Novgorod 254 222 50% 1994 Pre-Operational Baltcom Plus, Riga, Latvia 1,412 331 50% 1994 April, 1995 Minsk Cable, Minsk, Belarus 918 733 50% 1993 Pre-Operational Tbilisi Paging, Tbilisi, Georgia 619 342 45% 1993 November, 1994 St. Petersburg Paging, St. Petersburg, Russia 527 - 40% 1994 October, 1995 Radio Katusha, St. Petersburg, Russia 561 - 50% 1993 May, 1995 Other 4,850 2,166 ------ ----- $ 36,934 $24,311 ====== ======
The ability of MITI and its Joint Ventures to establish profitable operations is subject to (among other things) special political, economic and social risks inherent in doing business in Eastern Europe and the former Soviet Republics. These include matters arising out of government policies, economic conditions, imposition of or changes to taxes or other similar charges by governmental bodies, foreign exchange fluctuations and controls, civil disturbances, deprivation or unenforceability of contractual rights, and taking of property without fair compensation. MITI has obtained political risk insurance policies from the Overseas Private Investment Corporation ("OPIC") for certain of its Joint Ventures. The policies cover loss of investment and losses due to business interruption caused by political violence or expropriation. F-20 Metromedia International Group, Inc. Summarized combined financial information of Joint Ventures accounted for under the equity method, that have commenced operations as of the dates indicated above is as follows (in thousands): Combined Balance Sheets September 30, September 30, December 31, 1995 1994 1993 ---- ---- ---- Assets Current assets $ 6,937 $ 1,588 $ 841 Investments in wireless systems and equipment, net 31,349 17,040 10,758 Other assets 2,940 895 28 ------- ------- ------- Total Assets $ 41,226 $ 19,523 $ 11,627 ======= ======= ======= Liabilities and Joint Ventures' Equity (Deficit) Current liabilities $ 10,954 $ 2,637 $ 1,022 Amount payable under MITI credit facility 33,699 11,327 6,635 Other long-term liabilities - 1,513 74 ------- ------- ------- Total Liabilities 44,653 15,477 7,731 ------- ------- ------- Joint Ventures' Equity (Deficit) (3,427) 4,046 3,896 ------- ------- ------- Total Liabilities and Joint Ventures' Equity (Deficit) $ 41,226 $ 19,523 $ 11,627 ======= ======= ======= Combined Statements of Operations Nine months Year ended ended Year ended September 30, September 30, December 31, 1995 1994 1993 ---- ---- ---- Revenues $ 19,344 $ 3,280 $ 1,452 ------- ------- ------- Expenses: Cost of service 9,993 2,026 969 Selling, general and administrative 11,746 2,411 973 Depreciation and amortization 3,917 1,684 911 Other - 203 67 ------- ------- ------- Total Expenses 25,656 6,324 2,920 ------- ------- ------- Operating Loss (6,312) (3,044) (1,468) Interest Expense (1,960) (632) (64) Other Income (Expense) (1,920) 47 2 Foreign Currency Translation Gain (Loss) (203) 15 (91) ------- ------- ------- Net Loss $(10,395) $ (3,614) $ (1,621) ======= ======= ======= Financial information for Joint Ventures which are not yet operational as of September 30, 1995 is not included in the above summary. MITI's investment in and advances to those Joint Ventures at December 31, 1995, 1994 and 1993 amounted to approximately $7.1 million, $5.7 million and $89,000, respectively. The Company and its consolidated and unconsolidated Joint Ventures operate four types of services in their communications segment: wireless cable television, paging, radio broadcasting and telephony. F-21 Metromedia International Group, Inc. The following tables represent summary financial information for consolidated subsidiaries and Joint Ventures, unconsolidated equity method joint ventures and combined consolidated and unconsolidated subsidiaries and joint ventures by type of service for all operations in the Company's Communications segment (excluding MITI's headquarter's operations - see Note 12), as of and for the years ended December 31, 1995, February 28, 1995 and February 28, 1994 (in thousands): Wireless Radio Calendar 1995 Cable TV Paging Broadcasting Telephony Total - ------------- -------- ------ ------------ --------- ----- Consolidated Subsidiaries and Joint Ventures Revenues $ - $ 690 $ 3,879 $ - $ 4,569 Depreciation and amortization - 132 366 - 498 Operating income (loss) before taxes - (23) (237) - (260) Assets - 2,398 7,999 - 10,397 Capital expenditures - 40 172 - 212 ======== ======== ======== ======== ========= Unconsolidated Equity Joint Ventures Revenues $ 8,809 $ 2,427 $ 918 $ 7,190 $ 19,344 Depreciation and amortization 3,071 345 36 465 3,917 Operating income (loss) before taxes (4,152) (613) (1,255) (292) (6,312) Assets 22,727 3,495 247 14,757 41,226 Capital expenditures 9,727 1,933 46 9,740 21,446 ======== ======== ======== ======== ========= Net investment in Joint Ventures $21,592 $ 4,980 $ 1,174 $ 2,078 $29,824 MITI equity in losses of unconsolidated investees (5,885) (403) (1,388) (305) (7,981) ======== ======== ======== ======== ======== Combined Revenues $ 8,809 $ 3,117 $ 4,797 $ 7,190 $ 23,913 Depreciation and amortization 3,071 477 402 465 4,415 Operating income (loss) before taxes (4,152) (636) (1,492) (292) (6,572) Assets 22,727 5,893 8,246 14,757 51,623 Capital expenditures 9,727 1,973 218 9,740 21,658 ======== ======== ======== ======== ========= F-22 Metromedia International Group, Inc. Wireless Radio Fiscal 1995 Cable TV Paging Broadcasting Telephony Total - ----------- -------- ------ ------------ --------- ----- Consolidated Subsidiaries and Joint Ventures Revenues $ 416 $ 266 $ 2,863 $ - $ 3,545 Depreciation and amortization 320 101 214 - 635 Operating income (loss) before taxes (359) (331) (795) - (1,485) Assets 704 1,956 10,135 - 12 795 Capital expenditures - 49 97 - 146 ======== ======== ======== ======== ======== Unconsolidated Equity Joint Ventures Revenues $ 2,672 $ 180 $ 373 $ 55 $ 3,280 Depreciation and amortization 1,655 - 20 9 1,684 Operating income (loss) before taxes (2,026) (425) (15) (578) (3,044) Assets 15,090 1,030 856 2,547 19,523 Capital expenditures 5,072 766 8 2,487 8,333 ======== ======== ======== ======== ========= Net investment in Joint Ventures $14,033 $ 1,829 $ 1,256 $ 1,485 $18,603 MITI equity in losses of unconsolidated investees (1,838) (147) (99) (173) (2,257) ======== ======== ======== ======== ======== Combined Revenues $ 3,088 $ 446 $ 3,236 $ 55 $ 6,825 Depreciation and amortization 1,975 101 234 9 2,319 Operating income (loss) before taxes (2,385) (756) (810) (578) (4,529) Assets 15,794 2,986 10,991 2,547 32,318 Capital expenditures 5,072 815 105 2,487 8,479 ======== ======== ======== ======== ========= F-23 Metromedia International Group, Inc. Wireless Radio Fiscal 1994 Cable TV Paging Broadcasting Telephony Total - ----------- -------- ------ ------------ --------- ----- Consolidated Subsidiaries and Joint Ventures Revenues $ 51 $ - $ - $ - $ 51 Depreciation and amortization 110 - - - 110 Operating income (loss) before taxes (303) (55) - - (358) Assets 256 1,069 - - 1,325 Capital expenditures - 34 - - 34 ======== ======== ======== ======== ======== Unconsolidated Equity Joint Ventures Revenues $ 1,452 $ - $ - $ - $ 1,452 Depreciation and amortization 909 2 - - 911 Operating income (loss) before taxes (1,400) (68) - - (1,468) Assets 10,520 1,107 - - 11,627 Capital expenditures 3,411 764 - - 4,175 ======== ======== ======== ======== ======== Net investment in Joint Ventures $ 7,123 $ 1,445 $ 1,055 $ - $ 9,623 MITI equity in losses of unconsolidated investees (752) (25) - - (777) ======== ======== ======== ======== ======== Combined Revenues $ 1,503 $ - $ - $ - $ 1,503 Depreciation and amortization 1,019 2 - - 1,021 Operating income (loss) before taxes (1,703) (123) - - (1,826) Assets 10,776 2,176 - - 12,952 Capital expenditures 3,411 798 - - 4,209 ======== ======== ========= ========= ========= More than 90% of the Company's assets are located in, and substantially all of the Company's operations are derived from, Republics in the Commonwealth of Independent States or Eastern Europe. F-24 Metromedia International Group, Inc. 8. Long-term Debt Long-term debt at December 31, 1995 and February 28, 1995 consisted of the following (in thousands): December 31, February 28, 1995 1995 ---- ---- MIG (excluding Orion and MITI) - ------------------------------ MIG Revolver $ 28,754 $ - 6 1/2% Convertible Debentures due 2002, net of unamortized discount of $17,994 57,006 - 9 1/2% Debentures due 1998, net of unamortized discount of $140 59,344 - 9 7/8% Senior Debentures due 1997, net of unamortized premium of $217 18,217 - 10% Debentures due 1999 6,075 - Other long-term debt: Secured 6.25% due 1998 1,020 - ------- ------- 170,416 - ------- ------- Orion - ----- Notes payable to banks under Credit, Security & Guaranty Agreements 123,700 - Notes payable to banks under the Third Restated Credit Agreement - 58,619 Obligation to Metromedia Company under Reimbursement Agreement - 19,544 Talent Notes due 1999, net of unamortized discount of $8,488 - 26,057 Creditor Notes due 1999, net of unamortized discount of $21,745 - 40,630 Non-interest bearing payment obligation to Sony, net of unamortized discount of $1,191 - 16,756 Other guarantees and contracts payable, net of unamortized discounts of $2,402 and $2,943 9,939 8,124 10% Subordinated Debentures due 2001, net of unamortized discount of $8,097 - 42,349 ------- ------- 133,639 212,079 ------- ------- MITI - ---- Hungarian Foreign Trade Bank 588 1,057 Other - 168 Demand Notes payable - 5,529 Notes payable to Metromedia Company - 18,194 ------- ------- 588 24,948 ------- ------- Less: current portion - Metromedia Company - 37,738 - Other 40,597 96,177 ------- ------- Long-term debt, net of current portion $264,046 $103,112 ======= ======= F-25 Metromedia International Group, Inc. Aggregate annual repayments of long-term debt over the next five years and thereafter are as follows (in thousands): 1996 $ 40,597 1997 44,548 1998 88,714 1999 31,923 2000 39,453 Thereafter 77,325 MIG (excluding Orion and MITI) On November 1, 1995, the Company entered into a $35 million revolving credit agreement ("MIG Revolver") with Chemical Bank. On December 31, 1995, the Company had utilized $28.8 million. At the borrower's option, the MIG Revolver bears interest at a rate of LIBOR plus 2%, or Chemical Bank's alternative base rate plus 1%. The MIG Revolver terminates October 30, 1996. Under terms of the MIG Revolver, the aggregate amount of all outstanding loans cannot exceed 65% of the market value of Roadmaster stock (see Note 4). Borrowings under the MIG Revolver are secured by all of the stock of Roadmaster owned by the Company, and a subordinated lien of the assets of Snapper, Inc. The loan is guaranteed by MITI. It is assumed that the carrying value of the MIG Revolver approximates its fair value because of its floating interest rate feature. In 1987 the Company issued $75.0 million of 6 1/2% Convertible Subordinated Debentures due in 2002 in the Euro-dollar market. The Debentures are convertible into common stock at a conversion price of $41-5/8 per share. At the Company's option, the Debentures may be redeemed at 100% plus accrued interest until maturity. The 9 7/8% Senior Subordinated Debentures are redeemable at the option of the Company, in whole or in part, at 100% of the principal amount plus accrued interest. Mandatory sinking fund payments of $3.0 million (which the Company may increase to $6.0 million annually) began in 1982 and are intended to retire, at par plus accrued interest, 75% of the issue prior to maturity. At the option of the Company, the 10% Subordinated Debentures are redeemable, in whole or in part, at the principal amount plus accrued interest. Sinking fund payments of 10% of the outstanding principal amount commenced in 1989, however, the Company receives credit for Debentures redeemed or otherwise acquired in excess of sinking fund payments. The carrying value of the Company's long-term and subordinated debt, including the current portion at December 31, 1995, approximates fair value. The estimate is based on a discounted cash flow analysis using current incremental borrowing rates for similar types of agreements and quoted market prices for issues which are traded. Orion Debt On November 1, 1995 Orion entered into a credit agreement with Chemical Bank, as agent, and a syndicate of lenders (the "Orion Credit Agreement") The Orion Credit Agreement consists of a $135 million term loan ("Orion Term Loan") with quarterly repayments of $6.75 million commencing March 1996 with a final payment due December 31, 2000; and a $50 million revolver ("Orion Revolver") with a final maturity of December 31, 2000. The amount available under the Orion Revolver as of December 31, 1995 was $38 million (of which $9 million is reserved for an outstanding letter of credit). F-26 Metromedia International Group, Inc. Interest is charged on the Orion Term Loan at the agent bank's prime rate plus 2% or at 3% above the LIBOR rate, at Orion's option; and for the Orion Revolver at the agent bank's prime rate plus 1/2% or at 1-1/2% above the LIBOR rate, also at Orion's option. Indebtedness under the Orion Credit Agreement is secured by all of Orion's assets, including the common stock of Orion and its subsidiaries. In addition to the quarterly amortization schedule, the Orion Credit Agreement provides that in the event that the ratio of the value of the eligible accounts receivable in Orion's borrowing base to the amount outstanding under the Orion Term Loan (the "Borrowing Base Ratio") does not exceed a designated threshold, all cash received by Orion must be used to prepay principal and interest on the Orion Term Loan until such Borrowing Base Ratio exceeds such designated threshold. All prepayments may be applied against scheduled quarterly repayments. As a result of prepayments, Orion has satisfied its scheduled amortization payments through December 31, 1996. To the extent the Borrowing Base Ratio exceeds the threshold set forth in the Orion Credit Agreement, and is not needed to amortize the Orion Term Loan, Orion may use excess cash to pay its operating expenses, including the costs of acquiring new film product or new production. The Borrowing Base Ratio currently exceeds the designated threshold. In addition, Orion has established a system of lockbox accounts and collection accounts to maintain Chemical's security interest in the cash proceeds of Orion's accounts receivable. Amounts outstanding under the Orion Revolver are guaranteed jointly and severally by Metromedia and by John W. Kluge. The Orion Credit Agreement also contains customary covenants, including limitations on the incurrence of additional indebtedness and guarantees, the creation of new liens and on the number of films Orion may produce, restrictions on the development costs and budgets for such films, limitations on the aggregate amount of unrecouped print and advertising costs Orion may incur, limitations on the amount of Orion's leases, capital and overhead expenses, prohibitions on the declaration of dividends or distributions by Orion to MIG, limitations on the merger or consolidation of Orion or the sale by Orion of any substantial portion of its assets or stock and restrictions on Orion's line of business, other than activities relating to the production and distribution of entertainment product. The Orion Credit Agreement also contains several financial covenants, including the requirement that Orion maintain the ratio of Orion's Free Cash Flow (as defined in the Orion Credit Agreement) to its cumulative investment in film product above certain specified levels at the end of each fiscal quarter, and that Orion's cumulative investment in film product not exceed Free Cash Flow by more than $50,000,000. In addition, the Orion Credit Agreement contains a covenant which would be triggered if the amount of Orion's net losses exceeds certain levels for each fiscal year beginning with the fiscal year ended December 31, 1996 or in the event of a change in control of MIG. It is assumed that the carrying value of Orion's bank debt approximates its face value because it is a floating rate instrument. F-27 Metromedia International Group, Inc. As a result of the Plan (see Note 3), Orion had certain obligations outstanding, including: Notes payable to the banks under the Third Restated Credit Agreement, obligations to Metromedia and its affiliate under a Reimbursement Agreement, Talent Notes, Creditor Notes, obligations to Sony Entertainment Inc. ("Sony") and 10% Subordinated Debentures ("Plan Debt"). Notwithstanding mandatory minimum payments and maturity dates, while operating under the Plan, and to the extent Orion generated positive net cash flow, interest and principal payments were made to the individual obligations included in Plan Debt based upon certain formulas. At August 31, 1995 Orion had not generated sufficient net cash flow to satisfy certain mandatory minimum payments and an event of default could have been asserted by the Trustees or holders of certain obligations of the Plan Debt. However, at the Merger Date (see Note 2), proceeds from the Orion Term Loan, as well as amounts advanced from MIG under a subordinated promissory note, were used directly or indirectly to repay and terminate all outstanding Plan Debt obligations ($210.7 million) and to pay certain transaction costs. To record the repayment and termination of the Plan Debt, Orion removed certain unamortized discounts associated with such obligations from its accounts and recognized an extraordinary loss of $32.4 million on the extinguishment of debt. MITI Debt A loan from a Hungarian Foreign Trade Bank is due on September 14, 1997 and is repayable in three annual installments with an interest rate of 34.5%. The loan is a Hungarian Forint based loan and is secured by a letter of credit issued by Metromedia International, Inc. in the amount of $1.2 million. On November 1, 1995, MIG issued 2,537,309 shares of common stock in repayment of $26.6 million of MITI notes payable. Included in interest expense for calendar 1995 and fiscal 1995 are $3.8 million and $430,000, respectively, of interest on amounts due to Metromedia Company, an affiliate of MIG. No such amounts were included in fiscal 1994 interest expense. 9. Stockholders' Equity Preferred Stock There are 70,000,000 shares of Preferred Stock authorized, none of which were outstanding or designated as to a particular series at December 31, 1995. Common Stock There are 110,000,000 authorized shares of Common Stock, $1 par value. At December 31, 1995, February 28, 1995 and February 28, 1994 there were 42,613,738, 20,934,898 and 17,188,408 shares issued and outstanding, respectively. After giving effect to the Merger, the Company has reserved the shares of Common Stock listed below for possible future issuance: December 31, 1995 ---- Stock options 2,014,258 6 1/2% Convertible Subordinated Debentures (see Note 8) 1,801,802 Restricted stock plan 132,800 --------- 3,948,860 ========= F-28 Metromedia International Group, Inc. Stock Plans The Company's stock option plans provide for the issuance of incentive stock options and nonqualified stock options. Incentive stock options may be issued at a per share price not less than the market value at the date of grant. Nonqualified options may be issued generally at prices and on terms determined in the case of each stock option. Following the Merger (see Note 2), options granted pursuant to the MITI stock option plan and the Actava stock option plans, became exercisable for stock of MIG in accordance with the respective exchange ratios. After giving effect to the Merger, the following table reflects changes in the stock options issued under these plans: Shares Average Subject to Option Price Option Per Share ------ --------- Incentive Stock Options - ----------------------- Balance at December 31, 1993 - ------- Options granted - Options exercised - Options canceled - ------- Balance at December 31, 1994 - ------- Transfer of Actava options in Merger 203,000 $ 8.00 - $12.00 Options granted - Options exercised (19,000) $ 8.00 - $ 9.00 Options canceled - ------- Balance at December 31, 1995 184,000 $ 8.00 - $ 9.00 ======= Options exercisable at end of year 78,000 $ 8.00 - $12.00 ======= Nonqualified Stock Options - -------------------------- Balance at December 31, 1993 - ------- Options granted 283,000 $ 5.41 Options exercised - Options canceled - ------- Balance at December 31, 1994 283,000 $ 5.41 ------- Transfer of Actava options in Merger 234,000 $ 8.00 - $14.50 Options granted 366,000 $ 5.41 Options exercised (74,000) $ 8.00 - $14.50 Options canceled (89,000) $ 5.41 -------- Balance at December 31, 1995 720,000 $ 5.41 - $14.50 ======= Options exercisable at end of year 178,000 $ 5.41 - $14.50 ======= There were 153,000 shares under the stock option plans at December 31, 1995 which were available for the granting of additional stock options. F-29 Metromedia International Group, Inc. During 1994, an officer of MITI was granted an option, not pursuant to any plan, to purchase 657,908 shares of common stock (the "MITI Options") at a purchase price of $1.08 per share. The MITI Options expire on September 30, 2004, or earlier if the officer's employment is terminated. Included in 1994 expenses is $3.6 million of compensation expense in connection with these options. Prior to the Merger, an officer of Actava was granted an option, not pursuant to any plan, to purchase 300,000 shares of common stock (the "Actava Options") at a purchase price of $6.375 per share. The Actava Options expire on April 18, 2001. On December 13, 1995, the Board of Directors of the Company terminated the Actava 1991 Non-Employee Director Stock Option Plan. The Company had previously reserved 150,000 shares for issuance upon the exercise of options granted under this plan and had granted 20,000 options thereunder. Also on January 31, 1996, the Board of Directors adopted the 1996 Incentive Stock Option Plan, subject to shareholder approval. Assuming adoption of the 1996 Incentive Stock Option Plan by shareholders, it is the intention of the Board of Directors not to grant any additional options under the MITI and Actava stock option plans. No shares have been granted under the Company's restricted stock plan during 1995 and 102,800 shares of common stock remain available under this plan. 10. Income Taxes The provision for income taxes for calendar 1995, fiscal 1995 and 1994, all of which is current, consists of the following (in thousands): Calendar Fiscal Fiscal 1995 1995 1994 ---- ---- ---- Federal $ - $ - $ - State and local 167 100 100 Foreign 600 1,200 2,000 -------- -------- ------- Current 767 1,300 2,100 Deferred - - - -------- -------- ------- Total $ 767 $ 1,300 $ 2,100 ======== ======== ======= Such provision has been allocated to continuing operations before extraordinary items, discontinued operations and extraordinary items as follows (in thousands): Calendar Fiscal Fiscal 1995 1995 1994 ---- ---- ---- Operations before extraordinary items $ 767 $ 1,300 $ 2,100 Discontinued operations - - - Extraordinary items - - - ------- ------ ------ $ 767 $ 1,300 $ 2,100 ======= ====== ====== The federal income tax portion of the provision for income taxes includes the benefit of state income taxes provided. The Company recognizes investment tax credits on the flow-through method. F-30 Metromedia International Group, Inc. State and local income tax expense in calendar 1995, fiscal 1995 and 1994 includes an estimate for franchise and other state tax levies required in jurisdictions which do not permit the utilization of the Company's calendar 1995, fiscal 1995 and 1994 operating losses to mitigate such taxes. Foreign tax expense in calendar 1995, fiscal 1995 and 1994 reflects estimates of withholding and remittance taxes. Cash utilized for the payment of income taxes during calendar 1995, fiscal 1995 and 1994 was $1.0 million, $1.8 million and $2.9 million, respectively. The temporary differences and carryforwards which give rise to deferred tax assets and (liabilities) for calendar 1995 and fiscal 1995 are as follows (in thousands): December 31, February 28, 1995 1995 ---- ---- Net Operating loss carryforward $241,877 $177,846 Deferred income 22,196 24,245 Investment credit carryforward 28,000 28,000 Allowance for doubtful accounts 4,395 5,346 Capital loss carryforward 3,850 - Film costs (1,832) (15,077) Shares payable 15,670 14,986 Reserves for self-insurance 10,970 - State tax accruals 3,811 - Investment in equity investee 22,146 - Purchase of safe harbor lease investment (9,115) - Minimum tax credit (ATM) carryforward 8,805 - Other reserves 6,331 6,958 Other 3,843 (1,285) --------- --------- Subtotal before valuation allowance 360,947 241,019 Valuation allowance (360,947) (241,019) --------- --------- Deferred taxes $ - $ - ========= ========= The valuation allowance for deferred assets as of February 28, 1995 was $241.0 million. The net change in the total valuation allowance for the year ended December 31, 1995 was an increase in the allowance of $119.9 million. F-31 Metromedia International Group, Inc. The Company's provision for income taxes for calendar 1995, fiscal 1995 and 1994, differs from the provision that would have resulted from applying the federal statutory rates during those periods to income (loss) before provision for income taxes. The reasons for these differences are explained in the following table (in thousands): Calendar Fiscal Fiscal 1995 1995 1994 ---- ---- ---- Provision (benefit) based upon federal statutory rate of 35% $(132,138) $(23,839) $(43,084) State taxes, net of federal benefit 109 65 65 Foreign taxes in excess of federal credit 600 1,200 2,000 Non-deductible direct expenses of chapter 11 filing 448 214 596 Current year operating loss not benefitted 26,943 22,832 42,201 Equity in losses of Joint Ventures 2,778 790 272 Extraordinary loss on early extinguishment of debt (11,344) - - Reduction of extraordinary loss not benefitted 11,344 - - Discontinued operations, not tax benefitted 101,999 - - Other, net 28 38 50 --------- --------- --------- Provision for income taxes $ 767 $ 1,300 $ 2,100 ========= ========= ========= At December 31, 1995, the Company had available net operating loss carryforwards, capital loss carryforwards, unused alternative tax credits and unused investment tax credits of approximately $631 million, $11 million, $9 million and $28 million, respectively, which can reduce future federal income taxes. If not utilized, these carryforwards and credits will begin to expire in 1996. The alternative tax credit may be carried forward indefinitely, to offset regular tax in certain circumstances. The use by the Company of any net operating loss carryforwards reported or which will be reported by Orion, Actava, MITI and Sterling and the subsidiaries included in their respective affiliated groups of corporations which filed consolidated Federal income tax returns with Orion, Actava, MITI and Sterling as the parent corporations (such Orion, Actava, MITI and Sterling affiliated groups hereinafter being referred to as the "Orion Group," the "Actava Group," the "MITI Group" and the "Sterling Group," respectively, and individually as a "Former Group" and collectively as the "Former Groups") for taxable years ending on or before November 1, 1995 (such Pre-November 1, 1995 net operating loss carryforwards hereinafter referred to collectively as the "Pre-November 1 Losses") will be subject to certain limitations as a result of the Mergers. Under Section 382 of the Internal Revenue Code, annual limitations will generally apply to the use of the Pre-November 1 Losses of the Former Groups by the Company. The amount of the annual limitation with respect to a Former Group will depend upon the application of certain principles contained in Section 382 of the Internal Revenue Code relating to the valuation of such Former Group immediately prior to the November 1 Mergers and an interest factor published by the Internal Revenue Service on a monthly basis. Based on the market price of the Company's stock at the effective time of the Mergers, the exchange ratios with respect to the shares of Orion, MITI and Sterling, and the published interest factor of 5.75 percent (applicable to transactions that occurred in November 1995), the annual limitations on the use of the Pre-November 1 Losses of the Orion Group, Actava Group, the MITI Group and the Sterling Group, respectively, by the MIG Group would currently be approximately $11.9 million, $18.3 million, $10.0 million and F-32 Metromedia International Group, Inc. $510,000 per year, respectively. To the extent Pre-November 1 Losses equal to the annual limitation with respect to any of the Former Groups are not used in any year, the unused amount would generally be available to be carried forward and used to increase the limitation with respect to such Former Group in the succeeding year. The use of Pre-November 1 Losses of the Orion Group, the MITI Group and the Sterling Group will also be separately limited by the income and gains recognized by the corporations that were members of each of the Orion Group, the MITI Group and the Sterling Group, respectively, including corporations such as the Company (in the case of Sterling) that are successors by merger to any of such members. Under proposed Treasury regulations, such Pre-November 1 Losses of any such former members of any such Former Group, or successors thereof, would be usable on an aggregate basis to the extent of the income and gains of such former members of such Former Group, or successors thereof on an aggregate basis. As a result of the Merger, the Company succeeded to approximately $92.2 million of Pre-November 1 Losses of the Actava Group. SFAS 109 requires assets acquired and liabilities assumed to be recorded at their "gross" fair value. Differences between the assigned values and tax bases of assets acquired and liabilities assumed in purchase business combinations are temporary differences under the provisions of SFAS 109. However, since all of the Actava intangibles have been eliminated, when the Pre-November 1 Losses are utilized they will reduce income tax expense. 11. Employee Benefit Plans Actava had a noncontributory defined benefit plan which is "qualified" under Federal tax law and covered substantially all Actava's employees. In addition, Actava had a "nonqualified" supplemental retirement plan which provided for the payment of benefits to certain employees in excess of those payable by the qualified plans. Following the Mergers (see Note 2), the Company froze the Actava noncontributory defined benefit plan and "nonqualified" supplemental retirement plan effective as of December 31, 1995. Employees will no longer accumulate benefits under these plans. In connection with the Merger, the projected benefit obligation and fair value of plan assets were remeasured considering the Company's freezing of the plan. The excess of the projected benefit obligations over the fair value of plan assets in the amount of $4.9 million was recorded in the allocation of purchase price. The recognition of the net pension liability in the allocation of the purchase price eliminated any previously existing unrecognized gain or loss, prior service cost, and transition asset or obligation related to the acquired enterprise's pension plan. Some of the Company's subsidiaries also have defined contribution plans which provide for discretionary annual contributions covering substantially all of their employees. Effective January 1, 1993, MITI established a 401(k) Salary Deferral Plan ("401(k) Plan") on behalf of its employees. Under the 401(k) Plan participating employees can defer receipt of up to 15% of their compensation, subject to certain limitations. MITI has the discretion to match amounts contributed by the employee up to 3% of their compensation. The Company contributed $60,000 for the year ended December 31, 1995. F-33 Metromedia International Group, Inc. Orion has a 401(k) defined contribution retirement and savings plan covering all eligible employees who prior to March 1 or September 1, have completed 1,000 hours of service, as defined in the plan. Participants may make pretax contributions to the plan of up to 15% of their compensation, as defined, subject to certain limitations as prescribed by the Internal Revenue Code. Orion matches 50 % of amounts contributed up to $500 per participant per plan year. Orion may make discretionary contributions on an annual basis to the plan. The exact amount of discretionary contributions is decided each year by the Board of Directors. There have been no discretionary contributions since the inception of the plan. Total employer contribution expense for calendar 1995, fiscal 1995 and fiscal 1994 was approximately $64,000 each year. 12. Business Segment Data The business activities of the Company constitute two business segments, (i) filmed entertainment, which includes the financing and production of theatrical motion pictures as well as the distribution of theatrical motion pictures and television programming, and (ii) communications, which includes wireless cable television, paging services, radio broadcasting, and telephony. Filmed Entertainment The Company operates its filmed entertainment operations through Orion. Until the Merger Date (see Note 2), Orion operated under the terms of the Plan (see Note 3) which severely limited Orion's ability to finance and produce additional theatrical motion pictures. Therefore, Orion's primary activity prior to the Merger was the ongoing distribution of its present library of theatrical motion pictures and television programming. Orion believes the lack of a continuing flow of newly produced theatrical product while operating under the Plan adversely affected the marketability of its library. Theatrical motion pictures are produced initially for exhibition in theaters. Initial theatrical release generally occurs in the United States and Canada. Foreign theatrical exhibition generally begins within the first year after initial release. Home video distribution in all territories usually begins six to twelve months after theatrical release in that territory, with pay television exploitation beginning generally six months after initial home video release. Exhibition of the Company's product on network and on other free television outlets begins generally three to five years from the initial theatrical release date in each territory. F-34 Metromedia International Group, Inc. Communications The Company, through MITI and subsidiaries, owns various interests in Joint Ventures that are currently in operation or planning to commence operations in certain republics of the Commonwealth of Independent States ("CIS") (formerly the Union of Soviet Socialist Republics) and other Eastern European countries. During 1995, the Company began to pursue opportunities to extend its communications businesses into other emerging markets in the Pacific Rim. The Joint Ventures currently offer wireless cable television, radio paging systems, radio broadcasting, trunked mobile radio services and various types of telephone services. Joint Ventures are principally entered into with governmental agencies or ministries under the existing laws of the respective countries. The Joint Venture agreements generally provide for the initial contribution of assets or cash, and for the creation of a line of credit agreement to be entered into between the Joint Venture and MITI. Under a typical arrangement, MITI's venture partner contributes the necessary license or permits under which the Joint Venture will conduct its business, studio or office space, transmitting tower rights and other equipment. MITI's contribution is generally cash and equipment but may consist of other specific assets as required by the Joint Venture agreement. The line of credit agreement generally specifies a commitment amount, interest rates and repayment terms. The consolidated financial statements include the accounts and results of operations of MITI and its majority owned and controlled Joint Venture, CNM Paging, and its subsidiaries. Investments in other companies and Joint Ventures which are not majority owned, or in which the Company does not control but exercises significant influence are accounted for using the equity method (see Notes 1 and 7). F-35 Metromedia International Group, Inc. BUSINESS SEGMENT DATA (in thousands) Calendar Fiscal Fiscal 1995 1995 1995 ---- ---- ---- Filmed Entertainment: Net revenues $133,812 $191,244 $175,662 Direct operating costs (155,720) (208,755) (263,961) Depreciation and (694) (767) (708) amortization --------- --------- --------- Loss from operations (22,602) (18,278) (89,007) ========= ========= ========= Assets at year end 283,093 351,588 508,014 Capital expenditures 1,151 1,198 (785) ======== ======== ========= Communications: Net revenues 5,158 3,545 51 Direct operating costs (26,937) (19,067) (6,086) Depreciation and (2,101) (1,149) (174) amortization --------- --------- --------- Loss from operations (23,880) (16,671) (6,209) ========= ========= ========= Equity in losses of Joint 7,981 2,257 777 ======== ======== ======== Ventures Assets at year end 161,089 40,282 12,637 Capital expenditures 2,548 3,610 (1,423) ======== ======== ========= Headquarters and Eliminations: Net revenues (99) - - Direct operating costs (876) - - Depreciation and - - - amortization -------- -------- -------- Income from operations (975) - - ========= ======== ======== Assets at year end including discounted operations and eliminations 155,456 - - ======== ======== ======== Consolidated - Continuing Operations: Net revenues 138,871 194,789 175,713 Direct operating costs (183,533) (227,822) (270,047) Depreciation and (2,795) (1,916) (882) amortization --------- --------- --------- Loss from operations (47,457) (34,949) (95,216) ========= ========= ========= Equity in losses of joint 7,981 2,257 777 ventures ======== ======== ======== Assets at year end 599,638 391,870 520,651 Capital expenditures $ 3,699 $ 4,808 $ 2,208 ======== ======== ======== Management fees of $100,000 charged to operations are eliminated from the business segment data. F-36 Metromedia International Group, Inc. The sources of the Company's revenues from continuing operations by market for each of the last three fiscal years are set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company derives significant revenues from the foreign distribution of its theatrical motion pictures and television programming. The following table sets forth Orion's export sales from continuing operations (excluding Canada) by major geographic area for each of the last three fiscal years (in thousands): Calendar Fiscal Fiscal 1995 1995 1994 ---- ---- ---- Europe $ 32,126 $ 36,532 $ 62,107 Mexico and South America 2,454 4,586 5,782 Asia and Australia 8,841 13,820 23,876 --------- --------- --------- $ 43,421 $ 54,938 $ 91,765 ========= ========= ========= Revenues, operating losses and assets of MITI's foreign operations are disclosed in Note 7. Showtime Networks, Inc. ("Showtime") and Lifetime Television ("Lifetime") have been significant customers of the Company. During calendar 1995 and fiscal 1995, the Company recorded approximately $15.4 million and $45.5 million, respectively, of revenues under its pay cable agreement with Showtime, and during calendar 1995, fiscal 1995 and fiscal 1994, the Company recorded approximately $15.0 million, $12.5 million and $15.1 million of revenues, respectively, under its basic cable agreement with Lifetime. 13. Commitments and Contingent Liabilities Commitments The Company is obligated under various operating leases. Total rent expense amounted to $2.6 million, $2.3 million, and $2.2 million, in calendar 1995, fiscal 1995 and fiscal 1994, respectively. Minimum rental commitments under noncancellable operating leases are set forth in the following table (in thousands): Year Amount ---- ------ 1996 $ 1,911 1997 954 1998 832 1999 519 2000 252 Thereafter 526 ------- Total minimum rental commitments $ 4,994 ======= The Company and certain of its subsidiaries have employment contracts with various officers, with remaining terms of less than one year, at amounts approximating their current levels of compensation. The Company's remaining aggregate commitment at December 31, 1995 under such contracts is approximately $8.1 million. F-37 Metromedia International Group, Inc. In addition, the Company and certain of its subsidiaries have postemployment contracts with various officers. The Company's remaining aggregate commitment at December 31, 1995 under such contracts is approximately $1.1 million. Acquisition Commitments During December 1995, MITI, Protocall Ventures Ltd. ("Protocall"), and the shareholders of Protocall, executed a letter of intent together with a loan agreement relating to the purchase of Protocall. The letter of intent states that pending the consummation of purchase, MITI will loan up to $1.5 million to Protocall and negotiate definitive documentation relating to the purchase of 51% of Protocall for $2.6 million. Principal and accrued interest under the loan will be applied to the purchase price at the time the transactions contemplated by the purchase agreement are consummated, which is expected to be on or before March 31, 1996. The letter of intent provides that the shareholders of Protocall have the right to purchase $250,000 of MIG's common stock during the five year period after closing of the purchase agreement and further provides the right to purchase an additional $250,000 of MIG's common stock one year after closing if Protocall achieves certain budgeted objectives. The purchase price will be the trading price of MIG stock at the time of the closing of the purchase agreement. However, the entire purchase price for all the shares will be forgiven and, as such, these amounts will be considered part of the acquisition cost. The agreements also provide that MITI will arrange for or make direct loans to Protocall relating to existing joint venture commitments of [up to] $3.4 million, plus any additional amounts agreed to by the parties. In connection with MITI's activities directed at entering into Joint Venture agreements in the Pacific Rim, MITI's 90% subsidiary, Metromedia Asia Limited ("MAL") has entered into certain agreements with Communications Technology International, Inc., ("CTI"), which owns 7% of the equity of MAL. Under these agreements, MAL has agreed, to loan up to $2.5 million to CTI, and permit CTI to purchase up to an additional 7% of the equity of MAL, provided that CTI is successful in obtaining rights to operate certain services, as defined, and MAL is provided with the right to participate in the operation of such services. MAL has also agreed to loan a portion of the funds required to purchase the equity interests in MAL to CTI. Contingencies The Company is contingently liable under various guarantees of debt totaling approximately $1.6 million. The debt is primarily Industrial Revenue Bonds which were issued to finance manufacturing facilities and equipment of certain of the Company's former subsidiaries which were disposed of prior to 1995. The Bonds are secured by the facilities and equipment. In addition, upon the sale of the subsidiaries, the Company received lending institution guarantees or bank letters of credit to support the Company's contingent obligations. There are no material defaults on the debt agreements. The Company is contingently liable under various real estate leases of certain of its former subsidiaries which were sold prior to 1995. The total future payments under these leases, including real estate taxes, is estimated to be approximately $2.4 million. The leased properties generally have financially sound subleases. F-38 Metromedia International Group, Inc. In 1975, the Russian Federation legislature proposed legislation that would limit to 35%, the interest which a foreign person is permitted to own in entities holding broadcast licenses. While such proposed legislation was not enacted, it is possible that such legislation could be reintroduced and enacted in Russia. Further, even if enacted, such law may be challenged on constitutional grounds and may be inconsistent with Russian Federation treaty obligations. In addition, it is unclear how Russian Federation regulators would interpret and apply the law to existing license holders. However, if the legislature passes a law restricting foreign ownership of broadcast license holding entities and such a law is found to be constitutional and fails to contain a grandfathering clause to protect existing companies, it could require MITI to reduce its ownership interests in its Russian Joint Ventures. It is unclear how such reductions would be effected. The Republic of Latvia passed legislation in September, 1995 which purports to limit to 20% the interest which a foreign person is permitted to own in entities engaged in certain communications businesses such as radio, cable television and other systems of broadcasting. This legislation will require MITI to reduce to 20% its existing ownership interest in joint ventures which operate a wireless cable television system and an FM radio station in Riga, Latvia. Metromedia International, Inc., a subsidiary of MITI, is contingently liable for an outstanding letter of credit amounting to $1.2 million. Litigation Fuqua Industries, Inc. Shareholder Litigation - --------------------------------------------- Between February 25, 1991 and March 4, 1991, three lawsuits were filed against the Company (formerly named Fuqua Industries, Inc.) in the Delaware Chancery Court. On May 1, 1991, these three lawsuits were consolidated by the Delaware Chancery Court in In re Fuqua Industries, Inc. Shareholders ----------------------------------------- Litigation, Civil Action No. 11974. The named defendants are certain current - ---------- and former members of the Company's Board of Directors and certain former members of the Board of Directors of Intermark, Inc. ("Intermark"). Intermark is a predecessor to Triton Group Ltd., which formerly owned approximately 25% of the outstanding shares of the Company's Common Stock. The Company was named as a nominal defendant in this lawsuit. The action was brought derivatively on behalf of the Company and purportedly was filed as a class action lawsuit on behalf of all holders of the Company's Common Stock, other than the defendants. The complaint alleges, among other things, a long-standing pattern and practice by the defendants of misusing and abusing their power as directors and insiders of the Company by manipulating the affairs of the Company to the detriment of the Company's past and present stockholders. The complaint seeks (i) monetary damages from the director defendants, including a joint and several judgment for $15,700,000 for alleged improper profits obtained by Mr. J.B. Fuqua in connection with the sale of his shares in the Company to Intermark; (ii) injunctive relief against the Company, Intermark and its former directors, including a prohibi- tion against approving or entering into any business combination with Intermark without specified approval; and (iii) costs of suit and attorneys' fees. On December 28, 1995, plaintiffs filed a consolidated second amended derivative and class action complaint, purporting to assert additional facts in support of their claim regarding an alleged plan, but deleting their prior request for injunctive relief. On January 31, 1996, all defendants moved to dismiss the second amended complaint and filed a brief in support of that motion. The motion to dismiss is still pending. The Company and its subsidiaries are contingently liable with respect to various matters, including litigation in the ordinary course of business and otherwise. Some of the pleadings in the various litigation matters contain prayers for material awards. Based upon management's review of the underlying facts and circumstances and consultation with counsel, management believes such matters will not result in significant additional liabilities which would have a material adverse effect upon the consolidated financial position or results of operations of the Company. F-39 Metromedia International Group, Inc. Environmental Protection Snapper's manufacturing plant is subject to federal, state and local environmental laws and regulations. Compliance with such laws and regulations has not, and is not expected to, materially affect Snapper's competitive position. Snapper's capital expenditures for environmental control facilities, its incremental operating costs in connection therewith and Snapper's environmental compliance costs were not material in 1995 and are not expected to be material in future years. The Company has agreed to indemnify the purchaser of a former subsidiary of the Company for certain obligations, liabilities and costs incurred by such subsidiary arising out of environmental conditions existing on or prior to the date on which the subsidiary was sold by the Company. The Company sold the subsidiary in 1987. Since that time, the Company has been involved in various environmental matters involving property owned and operated by the subsidiary, including clean-up efforts at landfill sites and the remediation of groundwater contamination. The costs incurred by the Company with respect to these matters have not been material during any year through and including the fiscal year ended December 31, 1995. As of December 31, 1995, the Company had a remaining reserve of approximately $1,250,000 to cover its obligations to its former subsidiary. During 1995, the Company was notified by certain potentially responsible parties at a superfund site in Michigan that the former subsidiary may be a potentially responsible party at such site. The former subsidiary's liability, if any, has not been determined but the Company believes that such liability will not be material. The Company, through a wholly-owned subsidiary, owns approximately 17 acres of real property located in Opelika, Alabama (the "Opelika Property"). The Opelika Property was formerly owned by Diversified Products Corporation, a former subsidiary of the Company ("DP"), and was transferred to a wholly owned subsidiary of the Company in connection with the Exchange Transaction. DP previously used the Opelika Property as a storage area for stockpiling cement, sand, and mill scale materials needed for or resulting from the manufacture of exercise weights. In June 1994, DP discontinued the manufacture of exercise weights and no longer needed to use the Opelika Property as a storage area. In connection with the Exchange Transaction, Roadmaster and the Company agreed that the Company, through a wholly-owned subsidiary, would acquire the Opelika Property, together with any related permits, licenses, and other authorizations under federal, state and local laws governing pollution or protection of the environment. In connection with the closing of the Exchange Transaction, the Company and Roadmaster entered into an Environmental Indemnity Agreement (the "Indemnity Agreement") under which the Company agreed to indemnify Roadmaster for costs and liabilities resulting from the presence on or migration of regulated materials from the Opelika Property. The Company's obligations under the Indemnity Agreement with respect to the Opelika Property are not limited. The Indemnity Agreement does not cover environmental liabilities relating to any property now or previously owned by DP except for the Opelika Property. On January 22, 1996, the Alabama Department of Environmental Management ("ADEM") wrote a letter to the Company stating that the Opelika Property contains an "unauthorized dump" in violation of Alabama environmental regulations. The letter from ADEM requires the Company to present for ADEM's approval a written environmental remediation plan for the Opelika Property. The Company has retained an environmental consulting firm to develop an environmental remediation plan for the Opelika Property. The consulting firm is currently conducting soil samples and other tests on the Opelika Property. Although the Company has not received the results of these tests, the Company believes that the reserves of approximately $1,800,000 previously established by the Company for the Opelika Property will be adequate to cover the cost of the remediation plan that is currently being developed. F-40 Metromedia International Group, Inc. 14. Selected Quarterly Financial Data (unaudited) Selected financial information for the quarterly periods in calendar 1995 and fiscal 1995 is presented below (in thousands, except per-share amounts):
First Quarter of Second Quarter of - -------------------------------------------------------------------------------------------------------------------------- Calendar Fiscal Calendar Fiscal 1995 1995 1995 1995 - -------------------------------------------------------------------------------------------------------------------------- Revenues $ 37,678 $ 84,345 (b) $ 40,755 $ 30,394 Operating loss (10,692)(a) (6,750) (7,460) (11,079)(c) Interest expense, net 8,119 7,137 7,353 7,123 Equity interest in losses of Joint Ventures (588) - (1,633) (362) Net loss (20,366) (14,453) (16,714) (19,087) - -------------------------------------------------------------------------------------------------------------------------- Loss per common share: Primary: Net loss $ (.97) $ (.79) $ (.80) $ (.92) - -------------------------------------------------------------------------------------------------------------------------- Third Quarter of Fourth Quarter of - -------------------------------------------------------------------------------------------------------------------------- Calendar Fiscal Calendar Fiscal 1995 1995 1995 1995 - -------------------------------------------------------------------------------------------------------------------------- Revenues $ 35,468 $ 45,187 $ 24,970 $ 34,863 Operating loss (6,762) (3,939) (22,543)(d) (13,181)(e) Interest expense, net 7,574 6,374 6,493 8,661 Equity interest in losses of Joint Ventures (1,568) (777) (4,192) (1,118) Net loss before discontinued operations and extraordinary item (16,146) (11,425) (33,798) 24,446) Loss on disposal of discontinued operations - - (293,570)(f) - Loss on early extinguishment of debt - - (32,382)(g) - Net loss (16,146) (11,425) (359,750) (24,446) - -------------------------------------------------------------------------------------------------------------------------- Loss per common share: Primary: Continuing operations $ (.77) $ (.55) $ (.96) $ (1.17) Discontinued operations $ - $ - $ (8.30) $ - Extraordinary item $ - $ - $ (.92) $ - Net loss $ (.77) $ (.55) $ (10.18) $ (1.17) - --------------------------------------------------------------------------------------------------------------------------
(a) Operating loss for the first of calendar 1995 includes $5.4 million of writedowns to previously released film product. (b) As more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" significant revenues ($40.0 million) were recognized in conjunction with the Showtime Settlement in the first quarter of fiscal 1995. (c) Operating loss for the second quarter of fiscal 1995 includes writedowns to estimated net realizable value of an aggregate of $2.6 million of writedowns of theatrical product unreleased at that time and $5.3 million of writedowns to previously released product. (d) Operating loss for the fourth quarter of calendar 1995 includes writedowns to estimated realizable value of $3.0 million for unreleased theatrical product and $4.8 million for writedowns to previously released product. (e) Operating loss for the fourth quarter of fiscal 1995 includes $8.1 million of writedowns to previously released product. F-41 Metromedia International Group, Inc. (f) As more fully discussed in Note 2, the excess of the allocated purchase price attributed to Snapper in the Actava acquisition, over the estimated cash flows from the operations and the anticipated sale of Snapper, amounted to $293.6 million. (g) As more fully discussed in Note 8, Orion removed certain unamortized discounts associated with such obligations from the accounts and recognized an extraordinary loss of $32.4 million on the extinguishment of debt. The quarterly financial data presented above differs from amounts previously reported in Orion's 10 Q's due to the restatement of historical financial statements to account for the common control merger with MITI (see Note 2). In addition, Orion's previously filed fiscal 1996 quarters have been restated and presented on a calendar year basis in calendar 1995. 15. Subsequent Developments Subsequent to year-end, the Company entered into an Agreement and Plan of Merger to acquire The Samuel Goldwyn Company ("Goldwyn") and entered into a letter of intent to acquire Motion Picture Corporation of America ("MPCA"). In addition, the Company has entered into an Agreement and Plan of Merger to acquire Alliance Entertainment Company ("Alliance"). In connection with the proposed acquisition of Alliance and Goldwyn, the Company intends to refinance substantially all of its indebtedness and that of its subsidiaries, as well as substantially all of the indebtedness of Alliance and Goldwyn. On December 20, 1995, the Company and Alliance entered into an Agreement and Plan of Merger (the "Alliance Merger Agreement") pursuant to which a newly-formed, wholly-owned subsidiary of the Company ("Alliance Mergerco") will merge with and into Alliance (the "Alliance Merger"). Pursuant to the Alliance Merger Agreement, upon consummation of the Alliance Merger, Alliance stockholders will exchange each of their shares of Alliance common stock for (i) .7 shares of Common Stock, and (ii) a ten-year warrant to purchase .285 shares of Common Stock at an exercise price of $20.00 per share. In connection with the Alliance Merger, Metromedia has entered into Stock Purchase Agreements (the "Stock Purchase Agreements") with the Chairman and Chief Executive Officer of Alliance, and the Vice Chairman and President of Alliance. The Stock Purchase Agreements provide for the sale by such officers to Metromedia of (i) 2,520,000 shares of Common Stock and 1,026,000 Warrants to be received by such officers in the Alliance Merger and (ii) any additional Warrants received by such officers as consideration in the Alliance Merger (anticipated to be 31,920 Warrants) and (iii) all Warrants received by such officers upon the exercise of certain options or warrants to purchase Alliance common stock held by them (expected to be 1,007,166 Warrants) for a cash purchase price of $43,200,000. These purchases will take place immediately following the effective time of the Alliance Merger and will enable the Metromedia Holders, who currently collectively control approximately 35.9% of the outstanding Common Stock, to reduce the substantial dilution to their interests which would otherwise result from the issuance of Common Stock to Alliance Stockholders in the Alliance Merger. On January 31, 1996, the Company and Goldwyn entered into an Agreement and Plan of Merger (the "Goldwyn Merger Agreement") pursuant to which Goldwyn will merge with a newly-formed, wholly-owned subsidiary of the Company (the "Goldwyn Merger") and, in connection therewith, will be re-named "Goldwyn Entertainment Company." F-42 Metromedia International Group, Inc. The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn Merger, Goldwyn stockholders will receive $5.00 worth of Common Stock for each share of Goldwyn common stock, provided that the average closing price of the Common Stock over the 20 consecutive trading days ending five days prior to the meeting of the Company's stockholders held to vote upon the Goldwyn Merger is between $12.50 and $16.50. If the average closing price of Common Stock over such period is less than $12.50 it will be deemed to be $12.50 and Goldwyn stockholders will receive .4 shares of Common Stock for each share of Goldwyn common stock, and if the average closing price of the Common Stock over such period is greater than $16.50, it will be deemed to be $16.50 and Goldwyn stockholders will receive .3030 shares of Common Stock for each share of Goldwyn common stock. F-43 Metromedia International Group, Inc. METROMEDIA INTERNATIONAL GROUP, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT METROMEDIA INTERNATIONAL GROUP, INC. Statement of Operations (Registrant only in thousands, except per share amounts) Period Ended December 31, 1995 ----------- Revenues $ - Cost and expenses: Selling, general and administrative 1,109 ------------ Operating loss (1,109) Interest expense, net 2,208 Equity in losses of subsidiaries 83,707 ------------ Loss from continuing operations (87,204) before extraordinary item Discontinued Operations - loss on disposal (293,570) Equity in extraordinary item - early extinguishment of debt (32,382) ------------ Net Loss $ (412,976) =========== Loss per common share: Primary: Continuing Operations: $ (3.54) =========== Discontinued Operation $ (11.97) =========== Extraordinary Item $ (1.32) =========== Net Loss $ (16.83) =========== The accompanying notes are an integral part of the condensed financial information. See Notes to Condensed Financial Information on page S-4. S-1 Metromedia International Group, Inc. METROMEDIA INTERNATIONAL GROUP, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - continued METROMEDIA INTERNATIONAL GROUP, INC. Balance Sheet (Registrant only in thousands) December 31, 1995 ----------- Current Assets: Cash and cash equivalents $ 21,848 Other assets 3,010 ------------ Total current assets 24,858 Investment in Roadmaster Industries, Inc. 47,455 Investment in Snapper, Inc. 79,200 Investment in subsidiaries 81,565 Intercompany accounts 86,102 Other assets 2,566 ----------- Total assets $ 321,746 =========== Current Liabilities: Accounts payable $ 943 Accrued expenses 66,750 Current portion of long term debt 32,682 ----------- Total current liabilities 100,375 Long term debt 137,734 Other long term liabilities 382 ------------ Total liabilities 238,491 Stockholders' equity Common stock 42,614 Paid-in surplus 728,747 Accumulated deficit (688,106) ------------ Total stockholders' equity 83,255 ------------ Total liabilities and stockholder equity $ 321,746 ----------- The accompanying notes are an integral part of the condensed financial information. See Notes to Condensed Financial Information on page S-4. S-2 Metromedia International Group, Inc. METROMEDIA INTERNATIONAL GROUP, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - continued METROMEDIA INTERNATIONAL GROUP, INC. Statement of Cash Flows (Registrant only in thousands) Period Ended December 31, 1995 ---------- Net loss $ (412,976) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Loss on discontinued operations 293,570 Equity in losses of investees 116,089 Amortization of debt discounts and costs 434 (Increase) decrease in prepaid expenses (5,567) (Increase) decrease in other current assets 5,434 (Increase) decrease in other assets 1,769 ---------- Cash provided by (used in) operations (1,247) ---------- Investment activities: Proceeds from notes receivable 45,320 Investment in subsidiaries (4,230) Cash acquired, net in merger 72,068 ---------- Cash provided by (used in) investment 113,158 ---------- activities Financing Activities: Proceeds from revolving term loan 28,754 Payments on notes and subordinated debt (48,222) Proceeds from issuance of stock 2,282 Due from subsidiary (72,877) ---------- Cash provided by (used in) financing (90,063) ---------- activities Net increase (decrease) in cash: 21,848 Cash and cash equivalents at beginning of year - ---------- Cash and cash equivalents at end of year $ 21,848 ========= The accompanying notes are an integral part of the condensed financial information. See Notes to Condensed Financial Information on page S-4. S-3 Metromedia International Group, Inc. NOTES TO CONDENSED FINANCIAL INFORMATION (A) Prior to the merger discussed in Note 2 to the Consolidated Financial Statements, there was no parent company. The accompanying parent company only financial statements reflect the operations of MIG from November 1, 1995 to December 31, 1995 and the equity in losses of subsidiaries for the year ended December 31, 1995. The Calendar 1995, Fiscal 1995 and 1994 amounts shown in the historical consolidated financial statements represent the combined financial statements of Orion and MITI prior to the merger and formation of MIG. (B) Principal repayments of the Registrant's borrowings under debt agreements and other debt outstanding at December 31, 1995 are expected to be required no earlier than as follows: Actava ------ FY 1996 32,682 FY 1997 15,887 FY 1998 60,336 FY 1999 4,428 FY 2000 - After FY 2000 75,000 For additional information regarding the Registrant's borrowings under debt agreements and other debt, see Note 8 to the Consolidated Financial Statements. S-4 Metromedia International Group, Inc.
SCHEDULE II METROMEDIA INTERNATIONAL GROUP, INC. Combined Financial Statement Schedules Valuation and Qualifying Accounts December 31, 1995 (in thousands) Balance at Charged Balance at Beginning to Costs Other Deductions/ End of Period and Expenses Charges Write-offs of Period --------- ------------ ------- ---------- --------- Allowances for doubtful accounts, etc. (deducted from current receivables): Year ended December 31, 1995 $ 14,223 $ 90 $ - $ (2,400) $ 11,913 ========= ========= ========== =========== ========= Year ended February 28, 1995 $ 14,800 $ 2,064 $ 159 $ (2,800) $ 14,223 ========= ========= ========= =========== ========= Year ended February 28, 1994 $ 26,000 $ 900 $ - $ (12,100) $ 14,800 ========= ========= ========== ========== =========
S-5 EX-10.16 2 Exhibit 10.16 ------------- FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement (the "First Amendment") is made and entered into as of the 1st day of November 1995, by and between Metromedia International Group, Inc., a Delaware corporation formerly known as The Actava Group, Inc. (the "Company"), and John D. Phillips, an employee of the Company who is currently serving as President and Chief Executive Officer of the Company (the "Employee"). Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Employment Agreement. WHEREAS, the Company and the Employee are parties to an Employment Agreement dated as of April 19, 1994 (the "Employment Agreement") under which the Employee has served and is continuing to serve as President and Chief Executive Officer of the Company; and WHEREAS, the Company and the Employee desire to amend the Employment Agreement as provided in this First Amendment. NOW, THEREFORE, for and in consideration of the premises, terms, and conditions set forth herein and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows: 1. Section 1 of the Employment Agreement is hereby deleted and the following is substituted in lieu thereof: "1. Term. The term of this Agreement shall begin on the date ---- hereof and shall continue until this Agreement is terminated by the Company or the Employee as provided in Section 13 hereof." 2. Section 2 of the Employment agreement is hereby amended by deleting the last sentence thereof and replacing it as follows: "The Employee shall report directly to the Vice Chairman of the Company." 3. Section 13(a) of the Employment Agreement is hereby amended by adding thereto the following new subsections (iv) and (v): 2 "(iv) The term "Requested Resignation" shall mean a request by the Chairman or the Vice Chairman of the Company for the Employee to tender his resignation as President and Chief Executive Officer of the Company." "(v) The term "Good Reason" shall mean: (a) the assignment to the Employee of (1) any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2 of this Agreement, or (2) any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, other than an insubstantial and inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (b) any failure by the Company to comply with any of the provisions of Section 3 of this Agreement, other than an insubstantial and inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Employee; or (c) any purported termination by the Company of the Employee's employment otherwise than as permitted by this Agreement." 4. Section 13 is hereby amended by adding to Section 13 the following new subsections (g) and (h) and substituting subsection (c) below for subsection (c): "(g) Termination upon Requested Resignation -------------------------------------- The Employee's employment may be terminated by the Company upon the acceptance of a Requested Resignation pursuant to paragraph 13(a)(iv) hereof. In the event of the termination of the Employee's employment under this paragraph 13(g), the Employee shall be entitled to (i) 3 continue to receive his Base Salary for one year following the date of such termination; (ii) the other benefits provided for in Paragraph 6 hereof (unless such benefits are not available after termination of employment under the terms of such benefit plans), all at the then-effective rates, in accordance with the Company's then-effective payroll payment practices, minus payroll deductions and costs of group insurance for one year following the date of such termination; and (iii) an office and a secretary designated by the Company for one year following the date of such termination." "(h) Termination for Good Reason --------------------------- The Employee's employment may be terminated by the Employee for Good Reason pursuant to paragraph 13(a)(v) hereof. In the event of the termination of the Employee's employment under this paragraph 13(h), the Employee shall be entitled to (i) continue to receive his Base Salary for one year following the date of such termination; (ii) the other benefits provided for in Paragraph 6 hereof (unless such benefits are not available after termination of employment under the terms of such benefit plans), all at the then-effective rates, in accordance with the Company's then-effective payroll payment practices, minus payroll deductions and costs of group insurance for one year following the effective date of such termination and (iii) an office and a secretary designated by the Company for one year following the effective date of such termination." "(c) Termination Without Cause ------------------------- The Employee's employment may be terminated by the Company Without Cause pursuant to paragraph 13(a)(ii) hereof. In the event of the termination of the Employee's employment under this paragraph 13(i), the Employee shall be entitled to (i) continue to receive his Base Salary for one year following the date of such termination; (ii) the other benefits provided for in Paragraph 6 hereof (unless such benefits are not available after termination of employment under the terms of such benefit plans), all at the then-effective rates, in accordance with the Company's then-effective payroll payment practices, minus payroll deductions and costs of group insurance for one year following the effective date of such termination and (iii) an office and a secretary designated by the Company for one year following the effective date of such termination." 4 4. No Other Change --------------- Except as specifically set forth herein, the Employment Agreement shall continue in full force and effect in accordance with the provisions thereof as in existence on the date hereof. Any reference to the Employment Agreement shall mean the Employment Agreement as amended hereby. 5. Governing Law ------------- This First Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. IN WITNESS WHEREOF, the Company and the Employee have executed this First Amendment as of the day and year first above written. METROMEDIA INTERNATIONAL GROUP, INC. (formerly known as The Actava Group, Inc.) By: /s/ Stuart Subotnick -------------------------------------- Stuart Subotnick Vice Chairman /s/ John D. Phillips ----------------------------------------- John D. Phillips EX-10.37 3 Exhibit 10.37 ------------- THIS MANAGEMENT AGREEMENT (this "Agreement") is made as of November 1, 1995, between METROMEDIA COMPANY, a Delaware general partnership ("Metromedia"), and METROMEDIA INTERNATIONAL GROUP, INC., a Delaware corporation ("MIG") and an affiliate of Metromedia. WHEREAS, Metromedia and MIG have agreed that Metromedia will provide to MIG and MIG will procure from Metromedia the services described herein on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the Premises, terms and conditions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 --------- MANAGEMENT ---------- 1.1 Appointment of Metromedia; Acceptance of Appointment. ----------------------------------------------------- 1.1.1 MIG hereby appoints Metromedia to provide to MIG such services of Metromedia's officers and other persons employed or retained by Metromedia as are more particularly provided for below in this Section 1.1 and Metromedia hereby accepts such appointment and agrees to provide services to MIG in accordance with the terms of this Section 1.. Metromedia and MIG anticipate that the specific needs of MIG may change in accordance with, among other things, changes in the business of MIG. MIG hereby grants to Metromedia complete access to its operating assets, wherever located, and, to the extent necessary or desirable, to its employees, books and records in order to permit Metromedia to perform its duties hereunder. 1.1.2 Metromedia will, to the extent requested by MIG or its subsidiaries, or to the extent MIG or it deems necessary or appropriate: (a) consult with and/or advise MIG concerning legal matters in general and provide, or arrange (at the expense of MIG) for the provision of, legal advice and services concerning the business and operations of MIG and all requirements of law, including without limitation 2 and if appropriate, the rules and regulations of all applicable federal, state and local regulatory authorities; (b) at the request and expense of MIG, arrange for, procure and cause to be maintained such insurance as may be obtained on reasonable terms and as appropriate to insure against risks and liabilities relating to the operations and assets of MIG and all aspects of the performance by Metromedia of its duties hereunder, which insurance will (i) name MIG or Metromedia or both of them as the insured party or parties, (ii) provide coverage to MIG as is customary and commercially reasonable, and {(iii) to the extent practicable, obtain a waiver of subrogation by the insurer in favor of any of such parties as may be appropriate.} If Metromedia receives any proceeds from anyinsurance claims based upon damage or injury to any assets or loss of business of MIG, then Metromedia will credit such proceeds to MIG; (c) consult with MIG regarding the establishment of personnel and other corporate policies; (d) subject to the provisions of Section 3.2 hereof, if and when Metromedia deems it appropriate, on behalf of and in the name of Metromedia and/or MIG, prosecute or defend, as the case may be, all suits, actions, arbitrations or other proceedings brought by or through MIG, and otherwise deal with and, if appropriate, settle any claims against or disputes involving MIG; (e) consult with MIG regarding payroll and financial accounting systems and cash management functions and provide to MIG the services of Metromedia's internal audit and finance department; (f) prepare or coordinate the preparation of federal, state and any local tax returns, handle or supervise any audits of such returns of MIG and its subsidiaries by tax authorities, and provide to MIG any tax information and any other tax services as may be requested by MIG, including tax planning or tax advisory services; (g) in consultation with the officers of MIG, establish and maintain at MIG's expense such benefit plans for the employees of MIG as are deemed appropriate, and provide such services as are necessary in order to ensure that such benefit plans are in compliance with the applicable provisions of ERISA; and 3 (h) at the request and expense of MIG, provide any other services as may reasonably be requested by MIG. 1.1.3 Notwithstanding any other provision of this Agreement, in the performance of its duties hereunder, Metromedia will not have any obligation to incur any cost or expense or to advance any funds which constitute a Reimbursable Expense (as hereinafter defined) unless, in the reasonable opinion of Metromedia, sufficient funds of MIG will be available, from operating revenues or otherwise, to pay for or reimburse Metromedia promptly for such cost, expense or advance as incurred. 1.1.4 The Management Fee referred to in Section 1.4 hereof and the other transactions provided for in this Agreement, and all other transactions negotiated, arranged, undertaken or entered into between MIG and Metromedia or any affiliate of Metromedia or any partner, officer, or employee of Metromedia or any of its affiliates will be negotiated on an arms-length basis. 1.2 Limited Duties and Responsibilities. Metromedia will not have ------------------------------------ any duty or responsibility to provide any services or to take or refrain from taking any actions except as provided in this Agreement. Nothing in this Agreement will be construed to provide for any compensation for services rendered or acts performed by Metromedia or its partners, officers or employees as a shareholder or director of MIG. 1.3 Reimbursable Expenses. ---------------------- 1.3.1 Except as provided in Section 1.3.2 hereof, MIG will be responsible for, and Metromedia will be entitled to apply any revenues or other available funds of MIG in its possession to, out-of-pocket costs and expenses incurred by Metromedia and advances paid by Metromedia in connection with the performance by Metromedia of its obligations hereunder with respect to MIG (such costs, expenses and advances being herein collectively referred to as "Reimbursable Expenses") including but not limited to (i) such costs, expenses and advances that have been incurred by Metromedia on behalf of MIG and charged to MIG including, without limitation, the costs of insurance, employment agency fees, postage, telephone usage and internal and outside counsel and auditors and tax advisors, and (ii) such other costs, expenses and advances as are properly allocable 4 to MIG; provided, however, that nothing in this Agreement will be construed to authorize or permit Metromedia to charge to MIG any expense incurred by Metromedia if and to the extent that such expense is, in light of all relevant facts and circumstances, properly viewed as arising from or properly allocable to the activities, actions, or functions undertaken by Metromedia solely for its own benefit and unrelated to the performance by Metromedia of its obligations hereunder. All Reimbursable Expenses will be paid to Metromedia, in cash, quarterly. 1.3.2 There will be excluded from Reimbursable Expenses the following costs, expenses and advances of Metromedia that are attributable to the management of its day-to-day business and operations and those of its affiliates, including: (a) salaries and operating expenses of Metromedia personnel that provide services to MIG, and (b) costs, depreciation and/or rent of headquarters facilities owned or leased by Metromedia and not directly allocable to the business of MIG. 1.4 Management Fee. --------------- 1.4.1 In order to compensate Metromedia for its services hereunder and for certain overhead and other costs incurred by it for which MIG is not directly responsible pursuant to Section 1.3 hereof, MIG will pay to Metromedia a management fee (the "Management Fee") at the annual rate of $1,500,000.00. MIG will pay the Management Fee to Metromedia in twelve equal monthly installments of $125,000.00 each no later than 15 days after the end of each of its twelve monthly accounting periods. The Management Fee may be adjusted to the extent necessary to compensate Metromedia for services rendered or costs incurred not originally contemplated hereunder. ARTICLE 2 --------- TERM AND TERMINATION -------------------- 2.1 Term. This Agreement will become effective as of November 1, ----- 1995 and will terminate on October 31, 1996 and will be automatically renewed unless either party provides to the other 60 days' notice. In the event of termination of this Agreement, MIG will remain liable to Metromedia, and Metromedia will remain 5 liable to MIG, for any amounts and obligations owing to or accrued in favor of Metromedia or MIG, as the case may be, prior to the effective date of such termination. ARTICLE 3 --------- LIABILITY AND INDEMNIFICATION ----------------------------- 3.1 Limitations on Liability. Notwithstanding anything to the ------------------------- contrary in this Agreement, Metromedia will not be liable to MIG for any loss or damage of any nature incurred or suffered by MIG in any way relating to or arising out of the act or default of Metromedia or any of its employees or agents in the performance or the non-performance of this Agreement or any part hereof, except loss or damage to MIG caused by Metromedia's gross negligence or willful misconduct, to the extent to which the same is not covered by insurance. In no event will Metromedia be liable for MIG's loss of profits and/or other consequential loss or damage nor will Metromedia be in any way liable for any act, default or negligence, willful or otherwise, of any independent contractor retained by Metromedia for the purpose of providing services to MIG. Nothing contained in this Section or elsewhere in this Agreement will be construed as conferring any benefit whatsoever upon any person or entity other than MIG. 3.2 Indemnification. Except as otherwise set forth in the first ---------------- sentence of Section 3.1 hereof, Metromedia will not be liable for, and MIG will indemnify and save and hold Metromedia harmless from and against, any and all damages, liabilities, losses, claims, actions, suits, proceedings, fees, costs or expenses (including, but not limited to, reasonable attorneys' fees and other costs and expenses incident to any suit, proceeding or investigation of any claim) of whatsoever kind and nature (all of the foregoing hereinafter collectively referred to as "Expenses") imposed on, incurred by or asserted against Metromedia at any time during or after the term of this Agreement (whether because of an act or omission by Metromedia or otherwise unless such act or omission is determined to be a result of the gross negligence or willful misconduct of Metromedia) in any way relating to or arising out of the performance by Metromedia of its duties hereunder. 6 ARTICLE 4 --------- MISCELLANEOUS ------------- 4.1 Notices. Any notice, request, demand, waiver or consent required -------- or permitted hereunder will be deemed to have been given or made only if in writing and either delivered or sent by prepaid telegram or prepaid registered or certified mail, return receipt requested or by courier service or by facsimile transmission with confirmation of receipt, addressed as follows: If to MIG: Metromedia International Group, Inc. 945 East Paces Ferry Road Suite 2210 Atlanta, Georgia 30326 Attention: General Counsel FAX: (404)233-6865 If to Metromedia, to: Metromedia Company One Meadowlands Plaza East Rutherford, New Jersey 07073 Attention: General Counsel FAX: (201) 531-2803 The date of personal delivery, or the date of mailing of any such notice, request, demand, waiver or consent, will be deemed to be three (3) business days following the date of deposit with the U.S. Postal Service or one (1) business day following the date of personal delivery or deposit with a courier or facsimile transmission. Any party may change its address for the purpose of notice by giving like notice in accordance with the provisions of this Section 4.1. 4.2 Conflict with Other Agreements. If any provision of this ------------------------------- Agreement conflicts with the provisions of any material agreement by which either Metromedia or MIG is bound which conflict constitutes a material breach of such other material agreement, then the parties will modify the agreement so as to eliminate such breach or cause such breach to be not material. 4.3 Assignment. This Agreement may not be assigned by MIG. ---------- 7 4.4 Binding Effect. This Agreement will be binding on and inure -------------- solely to the benefit of the parties hereto. 4.5 Survival. The termination of this Agreement will not extinguish -------- any covenant contained in this Agreement which by its terms survives the termination of this Agreement or continues for a specific period of time thereafter. 4.6 Separability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. 4.7 Further Assurances. From time to time after the signing hereof, ------------------ each of the parties will, at the request of the other party, and without further consideration, execute, acknowledge and deliver to the other party any and all instruments and other writings and do all other acts or things reasonably requested by the other party in order to evidence and effectuate the consummation of any of the transactions contemplated by this Agreement. 4.8 No Joint Venture. Nothing in this Agreement will be construed ---------------- or inferred to imply that Metromedia is a partner or joint venturer with MIG. All employees, agents or representatives employed by or used by Metromedia in its performance of this Agreement will be the employees, agents and representatives of Metromedia and not of MIG. MIG will not represent to others nor take any action from which others could infer it is a partner of or joint venturer with Metromedia. 4.9 Power of Attorney. MIG hereby appoints Metromedia its attorney- ----------------- in-fact for MIG during the term of this Agreement and authorizes Metromedia, in the name or on behalf of MIG, to make, execute, deliver, acknowledge, swear to, file and record all documents as may be necessary in the discretion of Metromedia, in the performance by Metromedia of its duties and services hereunder. 4.10 Entire Agreement, etc. This Agreement and the documents and ---------------------- instruments delivered pursuant hereto 8 contain the entire agreement between the parties with respect to the subject hereof and supersede any and all prior agreements, arrangements or understandings relating to the subject matter hereof. No representations, warranties, covenants or conditions, express or implied, other than as set forth herein, have been made by any party. No waiver or extension of time for performance of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances will be deemed to be construed as a further or continuing waiver or extension of any such term, provision or condition of this Agreement. This Agreement cannot be changed or terminated orally, and no waiver, extension or consent will be effective unless evidenced by an instrument in writing duly executed by the party who is sought to be charged with having granted the same. The Article and Section headings of this Agreement are for convenience of reference only and do not form a part hereof and do not in any way modify, interpret or construe the intentions of the parties. This Agreement will be governed by and construed and enforced in accordance with, and subject to, the laws of the State of New York applicable to agreements made and to be performed entirely within the State of New York without regard to the conflict of law principles thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date and year first written above. Metromedia Company Metromedia International Group, Inc. By: /s/ Arnold L. Wadler By: /s/ Stuart Subotnick -------------------------- ---------------------- Name: Arnold L. Wadler Name: Stuart Subotnick ------------------------ -------------------- Title: Senior Vice President Title: Vice Chairman ----------------------- ------------------- EX-10.38 4 Exhibit 10.38 ------------- METROMEDIA INTERNATIONAL GROUP, INC. 1996 INCENTIVE STOCK PLAN --------------------------------- 1. Purpose. The purposes of the Metromedia International Group, Inc. ------- 1996 Incentive Stock Plan are, in general, to give the Company a significant advantage in retaining employees, officers and directors, and to provide an incentive to selected key employees, officers and directors of the Company and its subsidiaries, within the meaning of Code Section 424(f), who have substantial responsibility in the direction of the Company and its subsidiaries, and others whom the Committee determines provide substantial and important services to the Company, to acquire a proprietary interest in the Company, to continue as employees, officers and directors or in their other capacities, and to increase their efforts on behalf of the Company. 2. Definitions. Unless the context clearly indicates to the contrary, ----------- the following terms, when used in the Plan, shall have the meanings set forth in this Section 2. "Act" shall mean the Securities Act of 1933, as amended. "Award" means any stock option or stock appreciation right. "Base Price" means the price to be used as the basis for determining the Spread upon the exercise of a SAR, as hereinafter defined in Section 7. "Board" means the Board of Directors of the Company. -1- "Change in Control" shall be deemed to have occurred as of the first day any one or more of the following have been satisfied: any event whereby a Person (other than (i) the Company or an affiliate, as defined in the Exchange Act, (ii) any employee benefit plan or trust sponsored or maintained by the Company or an affiliate, as defined in the Exchange Act, or (iii) either John W. Kluge or Stuart Subotnick) (x) acquires 35% or more of the Company's outstanding voting securities, or (y) acquires securities of the Company bearing a majority of voting power with respect to election of directors of the Company, or (z) acquires all or substantially all of the Company's assets, whether by sale, lease, exchange or other transfer (in one transaction or in a series of related transactions). a change in the composition of the Board such that at any time a majority of the Board shall not have been members of the Board for twenty-four (24) months; provided, however, that directors who were appointed or -2- nominated for election by at least two-thirds of the directors who were directors at the beginning of such twenty-four (24) month period (or deemed to be such directors under this subparagraph (b)) shall be deemed to be directors at the beginning of such twenty-four (24) month period for the purposes of this subparagraph; the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; any consolidation or merger of the Company, other than a merger or consolidation of the Company in which the voting securities of the Company outstanding immediately prior thereto continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. "Person" shall have the same meaning as ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Section 13(d) thereof; "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Committee described in Section 12 of the Plan. -3- "Common Stock" means $.01 par value common stock of the Company. "Company" shall mean the Metromedia International Group, Inc. or any successor company thereto. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" shall mean the closing price of publicly traded Common Stock on the national securities exchange on which the Common Stock is listed (if the Common Stock is so listed) or on the NASDAQ National Market System (if the Common Stock is regularly quoted on the NASDAQ National Market System), or, if not so listed or regularly quoted, the mean between the closing bid and asked prices of publicly traded Common Stock in the over-the-counter market, or, if such bid and asked prices shall not be available, as reported by any nationally recognized quotation service selected by the Company, or as determined by the Committee in a manner consistent with the provisions of the Code. "Grantee" shall mean any key employee, officer and director of the Company and its subsidiaries, within the meaning of Code Section 424(f), as determined by the Committee, who have substantial responsibility in the direction of the Company and its subsidiaries, and anyone else whom the Committee determines provides substantial and important services to the Company who is granted an Award under the Plan. "Incentive Stock Option" or "ISO" shall mean any stock option as defined in Code Section 422. -4- "Non-Qualified Stock Option" or "NQSO" shall mean an option other than an Incentive Stock Option. "Option" shall mean ISOs and NQSOs, collectively. "Plan" shall mean the Metromedia International Group, Inc. 1996 Incentive Stock Plan. "Reporting Person" shall mean any person subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to equity securities of the Company. "Rule 16b-3" means Rule 16b-3 of the Exchange Act, or any successor thereto, that excepts transactions under employee benefit plans, as in effect from time to time. "Spread" shall mean the amount by which the Fair Market Value per share of Common Stock on the date when the SAR is exercised exceeds the option price for the related Option. "Stock Appreciation Right" or "SAR" shall mean the right of the holder thereof to receive, pursuant to the terms of the SAR, either cash or stock, at the discretion of the Company, based on the increase in the value of the number of shares specified in the SAR. 3. Types of Awards. The Plan provides for incentive stock options, non- --------------- qualified stock options, and stock appreciations rights. Except as provided herein, a particular form of Award may be granted either alone or in addition to other grants -5- hereunder. The provisions of the particular forms of grants need not be the same with respect to each recipient. ISOs may be awarded to employees of the Company and its subsidiaries, within the meaning of Code Section 424(f), including employees who are officers and directors, but shall not be issued to directors or others who are not employees. NQSOs may be awarded to employees and directors, including directors who are not employees of the Company and its subsidiaries, within the meaning of Code Section 424(f), and anyone whom the Committee administering the Plan pursuant to Section 12 determines provides substantial and important services to the Company. To the extent that any Option is not designated as an ISO, or if so designated it does not qualify as an ISO, it shall be treated as a NQSO. SARs in tandem with Options may be awarded to employees and directors, including directors who are not employees of the Company and its subsidiaries and anyone whom the Committee administering the Plan pursuant to Section 12 determines provides substantial and important services to the Company. 4. Term of Plan. ------------ (a) Effective Date. This Plan shall become effective as of the date -------------- of adoption thereof by the Board; provided, however, that the Plan shall be submitted for approval by the stockholders of the Company no earlier than twelve (12) months prior to, and no later than twelve (12) months after, the date of adoption of the Plan by the Board. -6- (b) Termination Date. This Plan shall terminate on the earliest of: ---------------- (i) The tenth anniversary of the effective date as determined under this Section 4; (ii) The date when all shares of the Common Stock reserved for issuance under the Plan, shall have been acquired through exercise of any Awards granted under the Plan; or (iii) Such earlier date as the Board may determine. Any Award outstanding under the Plan at the time of its termination shall remain in effect in accordance with its terms and conditions and those of the Plan. 5. The Stock. Subject to adjustment as provided in Section 10, the --------- aggregate number of shares of Common Stock which may be issued under the Plan shall be 4,000,000 shares; provided, however, that the maximum number of shares of Common Stock available with respect to the Awards granted by the Committee to any one Grantee under the Plan, in the aggregate, shall not exceed 250,000. Such number of shares of Common Stock may be set aside out of the authorized but unissued shares of Common Stock not reserved for any other purpose or out of shares of Common Stock held in or acquired for the treasury of the Company. All or any shares of Common Stock subjected under this Plan to an Award which, for any reason, terminates unexercised as to such shares, may again be subjected to an Award under the Plan. In addition to the foregoing, shares surrendered to the Company by, or on behalf of a non-Reporting Person in payment of the exercise price or applicable -7- taxes upon exercise or settlement of an Award may also be used thereafter for additional awards to non-Reporting Persons. 6. Stock Options. ------------- (a) Grants. Options may be granted by the Committee at any time and ------ from time to time prior to the termination of the Plan. Each Option granted under the Plan shall be evidenced by an agreement in a form approved by the Committee. The terms and conditions of such Option agreement need not be identical with respect to each Grantee, but each Option agreement will evidence on its face whether it is an ISO, a NQSO, or both. For purposes of this Section, an Option shall be deemed granted on the date the Committee selects an individual to be a Grantee, determines the number of shares to be issued pursuant to such Option and specifies the terms and conditions of the Option. Except as hereinafter provided, Options granted pursuant to the Plan shall be subject to the following terms and conditions set forth in this Section 6. Notwithstanding the foregoing, Independent Directors who serve on the Board on the date the Plan is adopted shall be entitled to receive Options under the Plan with respect to 50,000 shares of Common Stock of the Company, each having an exercise price equal to the Fair Market Value of a share of Common Stock of the Company on the date of grant. Any other Independent Director who first serves on the Board subsequent to the date the Plan is adopted shall be entitled to receive Options under the Plan with respect to 50,000 shares of Common Stock of the Company, each having an exercise price equal to the Fair Market Value of a share of Common Stock of the Company on the date of grant. For -8- purposes hereof, "Independent Directors" shall mean any member of the Board who during his entire term as a director was not employed by the Company and its subsidiaries, within the meaning of Code Section 424(f). (b) Price and Exercise. The purchase price of the shares of Common ------------------ Stock upon exercise of an ISO or a SAR granted in tandem with an ISO shall be no less than the Fair Market Value of the shares of Common Stock at the time of grant of an ISO; provided, however, if an ISO is granted to a person owning either directly (or through application of the attribution rules under Code Section 318) shares of Common Stock of the Company possessing more than 10% of the total combined voting power of all classes of shares of Common Stock of the Company as defined in Code Section 422 ("10% Stockholder"), the purchase price shall be equal to 110% of the Fair Market Value of the shares of Common Stock. The purchase price of the shares of Common Stock upon exercise of a NQSO may be any price set by the Committee. The purchase price shall be paid in United States dollars in cash or by certified or cashier's check payable to the order of the Company at the time of purchase. At the discretion of the Committee, the purchase price may be paid with: (i) shares of Common Stock already owned by, and in the possession of, the Grantee; or (ii) any combination of United States dollars or shares of Common Stock of the Company. Any required withholding tax shall be paid by the Grantee in full in accordance with the provisions of Section 13. Shares of Common Stock of the Company used to satisfy the purchase price -9- of an Option shall be valued at their Fair Market Value. The purchase price shall be subject to adjustment, but only as provided in Section 10 hereof. Any vested Option may be exercised in full at one time by giving written notice to the Company exercising the Option, which notice shall be signed and dated by the Grantee and shall state the number of shares of Common Stock with respect to which the Option is being exercised. The notice of the exercise of any Option shall be accompanied by payment in full of the Option price. If required by the Company, such notice of exercise of an Option shall be accompanied by the Grantee's written representation in accordance with Section 22. Upon such demand, delivery of such representation prior to the delivery of any stock issued upon exercise of an Option shall be a condition precedent to the right of the Grantee or such other person to purchase any shares of Common Stock. (c) Vesting. Options shall vest in accordance with the schedule ------- established for each Grantee; provided, however, that all Options awarded to a Grantee shall vest immediately upon said Grantee's death or retirement as defined herein or upon any Change in Control as defined herein. (d) Additional Restrictions on Exercise of an ISO. The aggregate --------------------------------------------- Fair Market Value of Common Stock (determined at the time an ISO is granted) for which an ISO is exercisable for the first time by a Grantee during any calendar year (under all plans of the Company and its subsidiaries or parent) shall not exceed $100,000. To the extent that the aggregate Fair Market Value of Common Stock (determined at the time an ISO is granted) with respect to Options designated as ISOs exercisable for the first time by a Grantee during -10- any calendar year (under all plans of the Company and its subsidiaries or parent) exceeds $100,000, such Options shall be treated as NQSOs. The foregoing shall be applied by taking Options into account in the order in which they were granted. (e) Duration of Options. Options may be granted for terms of up to ------------------- but not exceeding ten (10) years from the effective date the particular Option is granted; provided, however, that an ISO granted to a 10% Stockholder may be granted for a term not exceeding five (5) years from the effective date the particular ISO is granted. If the stockholders of the Company have not approved the adoption of the Plan prior to the end of one (1) year from the date the Plan is approved by the Board, any Option granted under the Plan prior to such date shall be null and void and the Company shall rescind the issuance of any shares of Common Stock issued upon the exercise of such Options by a Grantee prior to such date. In the event of such rescission, the Company shall refund the price paid per share of Common Stock by the Grantee upon exercise of the Options upon receipt of the certificate representing such shares. (f) Modification, Extension and Renewal of Options. Subject to the ---------------------------------------------- terms and conditions and within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options granted under the Plan, or accept the surrender of outstanding Options (up to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (up to the extent not theretofore exercised). In addition to the limitations set forth in Section 16, the Committee shall not, however, with respect to ISOs, modify any outstanding Award so as to specify a lower Award price or accept the -11- surrender of outstanding Awards and authorize the granting of new Awards in substitution therefor specifying a lower price. Notwithstanding the foregoing or anything herein, no modification of an Award shall, without the consent of the Grantee, alter or impair any rights or obligations under any Award theretofore granted under the Plan nor shall any modification be made which shall adversely affect the status of an ISO under Code Section 422; provided, however, that any such provision shall remain in effect with respect to other Awards, and there shall be no further effect on the Plan. (g) Other Terms and Conditions. Awards may contain such other -------------------------- provisions, which shall not be inconsistent with any of the foregoing terms, as the Committee shall deem appropriate. 7. Stock Appreciation Rights. ------------------------- (a) The Committee may grant SARs in tandem with Options. If a SAR is granted in tandem with an Option, the SAR may be exercised whenever the related Option may be exercised. A tandem SAR must also meet the following requirements: (A) the SAR must expire no later than the expiration of the underlying Option; (B) the SAR may be for no more than 100% of the difference between the exercise price of the Option and the market price of the stock subject to the Option at the time the SAR is exercised; -12- (C) the SAR may only be transferred when the underlying Option is transferable and subject to the same conditions; (D) the SAR may only be exercised when the underlying Option may be exercised; (E) the SAR may only be exercised when the market price of the stock exceeds the exercise price of the Option. (b) A SAR shall be a right of a Grantee to receive from the Company an amount, which shall be determined by the Committee and shall be expressed as a percentage (not exceeding 100%) of the Spread at the time of the exercise of the SAR. (c) To the extent the tandem SAR is exercised, a corresponding number of shares of Common Stock subject to the related Option will be canceled. To the extent the related Option is exercised, a corresponding number of tandem SARs will be canceled. (d) The form of settlement of a SAR shall be in cash or stock, or any combination thereof, at the Company's discretion. (e) If the stockholders of the Company have not approved the adoption of the Plan prior to the end of one (1) year from the date the Plan is approved by the Board, any SAR granted under the Plan prior to such date shall be null and void. (f) Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend or renew outstanding SARs granted under the Plan, or authorize the granting of new SARs in substitution therefor. -13- (g) Any grant of a SAR may specify (i) a waiting period or periods before SARs shall become exercisable and (ii) the permissible dates or periods on or during which SARs shall be exercisable. 8. Termination of Employment. ------------------------- Upon the termination of a Grantee's employment with the Company, his or her right to exercise an Award then held by such Grantee or Grantee's estate shall be only as follows: (i) Retirement. If the Grantee's employment is ---------- terminated because he or she has attained the age which the Company may from time to time establish as the retirement age for any class of its employees, or in accordance with the age specified in an employment agreement with a Grantee, he or she may within three (3) months following such termination, exercise the Award to the extent such Award is otherwise exercisable. However, in the event of his or her death prior to the end of the three (3) month period after the aforesaid termination of his or her employment, his or her estate shall have the right to exercise the Award within one (1) year (but in no event after the scheduled expiration of the term of the Award) following such termination with respect to all or any part of the stock subject thereto, to the extent such Award is exercisable. (ii) Death. If the Grantee's employment with the Company ----- is terminated by death, his or her estate shall have the right to exercise the -14- Award within one (1) year (but in no event after the scheduled expiration of the term of the Award) following such termination with respect to all or any part of the stock subject thereto, to the extent such Award is exercisable. (iii) Disability. If the Grantee's employment with the ---------- Company is terminated by disability, as defined in Code Section 22(e)(3), he or she shall have the right for a period of one (1) year (but in no event after the scheduled expiration of the term of the Award) following the date of such termination of employment to exercise any Award, to the extent such Award is exercisable. (iv) Other Reasons. If the Grantee's employment with the ------------- Company is terminated for any reason other than those provided above under "Retirement", "Death" or "Disability", the Grantee or Grantee's estate in the event of his or her death shall have the right for a period of ninety (90) days (but in no event after the scheduled expiration of the term of the Award) following the date of such termination of employment to exercise any Award, to the extent such Award is exercisable. All other Awards may be exercised within such other period of time as determined by the Committee in its sole discretion. For purposes of this Section 8, "termination of employment" shall mean the termination of a Grantee's employment with the Company or a subsidiary or a parent within the meaning of Code Section 424, provided, however, that solely for purposes of this -15- Section, "30%" shall be substituted for "50%" in Code Section 424(f). A Grantee employed by a subsidiary shall also be deemed to have a termination of employment if the subsidiary ceases to be a subsidiary of the Company, and the Grantee does not immediately thereafter become an employee of the Company or of a subsidiary or of a parent. A Grantee who is a member of the Board but who is also not an employee of the Company shall be considered to have terminated his or her employment at such time as he or she is no longer a member of the Board. Any other Grantee who is not otherwise an employee of the Company shall be considered to have terminated employment when substantial services, as determined by the Committee, are no longer provided to the Company by the Grantee. Also for purposes of this Section 8, a Grantee's "estate" shall mean his or her legal representatives upon his or her death or any person who acquires the right to exercise an Award by reason of the Grantee's death. The Committee may in its discretion require the transferee of a Grantee to supply it with written notice of the Grantee's death or disability and to supply it with a copy of the will (in the case of the Grantee's death) or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Option. If a Grantee's employment with the Company is terminated after a Change in Control, the provisions of Section 9 shall supersede the provisions of this Section 8. 9. Change in Control. In the event of a Change in Control: ----------------- (a) Each Grantee with an outstanding Option (i) shall have the right at any time thereafter to exercise the Option in full notwithstanding any waiting period, installment -16- period or other limitation or restriction in any Option certificate or in the Plan, and (ii) shall have the right, exercisable by written notice to the Company within sixty (60) days after the Change in Control, to receive, in exchange for the surrender of the Option or any portion thereof to the extent the Option is then exercisable in accordance with clause (i), an amount of cash equal to the difference between the Fair Market Value on the date of exercise of the Common Stock covered by the Option or portion thereof which is so surrendered and the purchase price of such Common Stock under the Option, provided that the right described in this clause (ii) shall be exercisable only if a positive amount would be payable to the Grantee pursuant to the formula specified in this clause (ii). (b) Each Grantee with an outstanding SAR shall have the right to the Spread as soon as practicable, without regard to any limitations or restrictions thereon. 10. Adjustment of the Changes in the Stock. -------------------------------------- (a) In the event the shares of Common Stock, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split, reverse split, combination of shares, or otherwise) or if the number of such shares of Common Stock shall be increased through the payment of a stock dividend, then there shall be substituted for or added to each share of Common Stock theretofore appropriated or thereafter subject or which may become subject to an Award under this Plan, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed, or for which each such -17- share of Common Stock shall be exchanged, or to which each such share shall be entitled, as the case may be. Moreover, in accordance with Section 9, the Committee may on or after the date of grant provide in the agreement evidencing any Award that the holder of the Award may elect to receive an equivalent Award in respect of securities of the surviving entity of any merger, consolidation or other transaction or event having a similar effect, or the Committee may provide that the holder will automatically be entitled to receive such an equivalent Award. Outstanding Awards shall also be appropriately amended as to price and other terms as may be necessary to reflect the foregoing events. In the event there shall be any other change in the number or kind of the outstanding shares of the Common Stock, or of any stock or other securities into which such shares of Common Stock shall have been changed, or for which it shall have been exchanged, then, if the Board shall, in its sole discretion, determine that such change equitably requires an adjustment in any Award theretofore granted or which may be granted under the Plan, such adjustments shall be made in accordance with such determination. (b) The Company shall not be required to issue any fractional shares of Common Stock pursuant to the Plan. Fractional shares resulting from any adjustment in Awards pursuant to this Section 10 may be settled in cash or otherwise as the Committee shall determine. (c) Notice of any adjustment shall be given by the Company to each holder of an Award which shall have been so adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan. -18- (d) If another corporation is merged into the Company or the Company otherwise acquires another corporation, the Committee may elect to assume under the Plan any or all outstanding stock options or other awards granted by such corporation under any stock option or other plan adopted by it prior to such acquisition. Such assumptions shall be on such terms and conditions as the Committee may determine; provided, however, that the awards as so assumed do not contain any terms, conditions or rights that are inconsistent with the terms of this Plan. Unless otherwise determined by the Committee, such awards shall not be taken into account for purposes of the limitations contained in Section 5 of the Plan. 11. Transferability of Awards. An Award shall be transferable only by ------------------------- will or the laws of descent and distribution and shall be exercisable during the Grantee's lifetime only by the Grantee or by the guardian or legal representative of the Grantee acting in a fiduciary capacity on behalf of the Grantee under state law and court supervision. An Award is not subject, in whole or in part, to attachment, execution or levy of any kind. 12. Administration. -------------- (a) The Plan shall be administered by the Committee appointed by the Board which shall be composed of not less than two (2) members of the Board, each of whom shall be a "disinterested person" within the meaning of Rule 16b-3 and an "outside director" within the meaning of Proposed Treasury Regulation Section 1.162-27(e)(3) or such other regulations as may be issued in proposed, temporary or final form under Code Section 162(m). -19- (b) The Committee shall act by a majority of its members at the time in office and eligible to vote on any particular matter, and such action may be taken either by a vote at a meeting or in writing without a meeting. (c) Subject to the provisions of the Plan, the Committee shall from time to time and at its discretion take the following actions: (i) grant Awards; (ii) determine which employees, officers, directors and other individuals performing substantial and important services may be granted Awards under the Plan; (iii) determine whether any Option shall be an ISO or NQSO; (iv) determine the number of shares subject to each Award; (v) determine the term of each Award granted under the Plan; (vi) determine the date or dates on which the Award granted shall be exercisable; (vii) determine the exercise price of any Award granted; (viii) determine the Fair Market Value of the Common Stock subject to the Awards granted; (ix) determine the terms of any agreement pursuant to which Awards are granted; (x) amend any such agreement with the consent of the Grantee; -20- (xi) establish performance-based goals within the meaning of Code Section 162(m); (xii) establish such procedures as it deems appropriate for a recipient of an Award hereunder to designate a beneficiary to whom any benefits payable in the event of his or her death are to be made; and (xiii) determine any other matters specifically delegated to it under the Plan or necessary for the proper administration of the Plan. The Committee shall also have the final authority and discretion to interpret and construe the terms of the Plan and of any Award granted and such interpretation and construction by the Committee shall be final, binding and conclusive upon all persons including, without limitation, the Company, stockholders of the Company or any subsidiary, the Plan, and all persons claiming an interest in the Plan. Notwithstanding anything contained in this Section to the contrary, no term of the Plan relating to ISOs shall be interpreted, nor shall any discretion or authority of the Committee be exercised, so as to disqualify the Plan under Code Section 422 or, without the consent of the Grantee, to disqualify any ISO under Code Section 422 or in a manner inconsistent with Rule 16b-3. (d) No member of the Committee or director shall be liable for any action, interpretation or construction made in good faith with respect to the Plan or any Award granted hereunder. 13. Tax Withholding. The Company shall have the right to deduct from any --------------- cash payment made under the Plan any federal, state or local income or other taxes required by -21- law to be withheld with respect to such payment. It shall be a condition to the obligation of the Company to deliver shares or securities of the Company upon exercise of an Award, that the Grantee of such Award pay to the Company such amount as may be requested by the Company for the purpose of satisfying any liability for such withholding taxes. Any grant issued under the Plan may provide by the grant that the Grantee of such Award may elect, in accordance with any applicable regulations of the authority issuing such regulations, to pay a portion or all of the amount of such minimum required or additional permitted withholding taxes in shares. The Grantee shall authorize the Company to withhold, or shall agree to surrender back to the Company, on or about the date such withholding tax liability is determinable, shares previously owned by such Grantee or a portion of the shares that were or otherwise would be distributed to such Grantee pursuant to such Award having a Fair Market Value equal to the amount of such required or permitted withholding taxes to be paid in shares. 14. Securities Law Requirements. --------------------------- (a) No Award granted pursuant to this Plan shall be exercisable in whole or in part, nor shall the Company be obligated to sell any shares of Common Stock subject to any such Option or pay any shares of Common Stock in settlement of a SAR, if such exercise and sale would, in the opinion of counsel for the Company, violate the Act (or other federal or state statutes having similar requirements), as it may be in effect at that time. In this regard, the Committee may demand the representations described in Sections 6(b) and 22. -22- (b) Each Award shall be subject to the further requirement that, if at any time the Committee shall determine in its discretion that the listing or qualification of the shares of Common Stock subject to such Award under any securities exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the granting of such Award or the issue of shares thereunder, such Award may not be exercised in whole or in part, unless such listing, qualification, consent or approval shall have been affected or obtained free of any conditions not acceptable to the Board. (c) No person who acquires shares of Common Stock under the Plan may, during any period of time that such person is an affiliate of the Company within the meaning of the rules and regulations of the Securities and Exchange Commission under the Act, sell such shares of Common Stock, unless such offer and sale is made (i) pursuant to an effective registration statement under the Act, which is current and includes the shares to be sold, or (ii) pursuant to an appropriate exemption from the registration requirement of the Act, such as that set forth in Rule 144 promulgated under the Act. (d) With respect to any Reporting Person, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of the Plan or any action by an authority under the Plan fails to so comply, such provision or action shall, without further action by any person, be deemed to be automatically amended to the extent necessary to effect compliance with Rule 16b-3, provided that if such provision or action cannot be amended to effect such compliance, such provision or action shall be -23- deemed null and void, to the extent permitted by law and deemed advisable by the appropriate authority. Each Award to a Reporting Person under the Plan shall be deemed issued subject to the foregoing qualification. 15. Foreign Participants. In order to facilitate the making of an Award -------------------- and to foster and promote achievement of the purposes of the Plan, the Committee may provide for such special terms for Awards to Grantees who are foreign nationals, or who are employed by the Company outside of the United States of America, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as the Plan; provided, however, that no such supplements, amendments, restatements or alternative versions shall include any provisions that are inconsistent with the terms of the Plan, as then in effect, unless the Plan could have been amended to eliminate the inconsistency without further approval by the shareholders of the Company. 16. Amendment or Termination of the Plan. ------------------------------------ The Board may amend or terminate the Plan at any time, except that approval of the holders of a majority of the outstanding voting stock of the Company is required for amendments which: (i) decrease the minimum exercise price for ISOs or tandem SARs; -24- (ii) extend the term of the Plan beyond ten (10) years; (iii) extend the maximum terms of the Awards granted hereunder beyond (10) ten years; (iv) withdraw the administration of the Plan from the Committee appointed pursuant to Section 12; (v) change the class of eligible employees, officers, directors and other Grantees; (vi) increase the aggregate number of shares of Common Stock which may be issued pursuant to the provisions of the Plan; (vii) otherwise require stockholder approval to comply with Rule 16b-3 or any other applicable law, regulation, or listing requirement or to qualify for an exemption or characterization that is deemed desirable by the Board. Notwithstanding the foregoing, the Board may, without the need for stockholders' approval, amend the Plan in any respect to qualify ISOs as incentive stock options under Code Section 422. Any Award that may be made pursuant to an amendment to the Plan that shall have been adopted without the approval of the stockholders of the Company shall be null and void as to persons subject to Section 16(a) of the Act if it is subsequently determined that such approval was required in order for the Plan to continue to satisfy the applicable conditions of Rule 16b-3. Furthermore, technical or clarifying amendments shall be made by the Committee, not the Board. -25- 17. No Obligation to Exercise Option or SAR. The granting of an Award --------------------------------------- shall impose no obligation upon the Grantee (or upon a transferee of a Grantee) to exercise such Award. 18. No Limitation on Rights of the Company. The grant of any Award shall -------------------------------------- not in any way affect the right or power of the Company to make adjustments, reclassification, or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 19. Plan Not a Contract of Employment. The Plan is not a contract of --------------------------------- employment, and the terms of employment of any recipient of any Award hereunder shall not be affected in any way by the Plan or related instruments except as specifically provided therein. The establishment of the Plan shall not be construed as conferring any legal rights upon any recipient of any Award hereunder for a continuation of employment, nor shall it interfere with the right of the Company or any subsidiary to discharge any recipient of any Award hereunder and to treat him or her without regard to the effect which such treatment might have upon him or her as the recipient of any Award hereunder. 20. Expenses of the Plan. All of the expenses of the Plan shall be paid -------------------- by the Company. 21. Funding. The Plan shall be unfunded and shall not create (or be ------- construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any Grantee or other person. To the extent any -26- person holds any rights by virtue of an Award granted under the Plan, such rights shall be no greater than the rights of an unsecured general creditor of the Company. 22. Compliance with Applicable Law. Notwithstanding anything herein to ------------------------------ the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates for shares of Common Stock pursuant to the exercise of an Option, unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any exchange upon which shares of Common Stock are traded. The Company shall in no event be obligated to register any securities pursuant to the Act (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement. The Committee may require, as a condition of the issuance and delivery of such certificates and in order to ensure compliance with such laws, regulations and requirements, that the recipient of any Award hereunder make such covenants, agreements and representations as the Committee, in its sole discretion, deems necessary or desirable, including, without limitation, a written representation from a stockholder that the stock is being purchased for investment and not for distribution, acknowledging that such shares have not been registered under the Act, as amended and agreeing that such shares may not be sold or transferred unless there is an effective Registration Statement for them under the Act, or, in the opinion of counsel to the Company, that such sale or transfer is not in violation of the Act. -27- 23. Effect Upon Other Compensation. Nothing contained herein shall ------------------------------ prevent the Company or any subsidiary from adopting other or additional compensation arrangements for its employees or directors. The effect under any other benefit plan of the Company of an inclusion in income by virtue of an Award hereunder shall be determined under such other plan. 24. Grantee to Have No Rights as a Stockholder. No Grantee of any Option ------------------------------------------ shall have any rights as a stockholder with respect to any shares subject to his or her Option prior to the date on which he or she is recorded as the holder of such shares on the records of the Company. No Grantee of any Option shall have the rights of a stockholder until he or she has paid in full the Option price. 25. Notice. Notice to the Committee shall be deemed given if in writing ------ and mailed to Arnold L. Wadler, Esq., c/o Metromedia Company, One Meadowlands Plaza, East Rutherford, New Jersey 07073-2137 by first class, certified mail. Notice to the Grantee or the Grantee's estate, if applicable, shall be given by registered mail to such person's last known address. 26. Governing Law. Except to the extent preempted by federal law, this ------------- Plan and all Option agreements and SAR agreements entered into pursuant thereto shall be construed and enforced in accordance with, and governed by, the laws of the State of New York, determined without regard to its conflict of law rules. EX-10.39 5 Exhibit 10.39 ------------- LICENSE AGREEMENT ----------------- THIS AGREEMENT is made as of the 1st day of November, 1995 by and between Metromedia Company, a Delaware general partnership, (hereinafter referred to as the "Licensor") and Metromedia International Group, Inc., a Delaware corporation (hereinafter referred to as the "Licensee"). W I T N E S S E T H: -------------------- WHEREAS, Licensor has extensively used "Metromedia" as its company and trade name and as it principal trademark and Licensor is the owner of numerous registrations for such trademark in the United States and in various countries throughout the world; WHEREAS, pursuant to that certain Amended and Restated Agreement and Plan of Merger dated as of September 27, 1995 (the "Merger Agreement") by and among The Actava Group, Inc., Orion Pictures Corporation ("OPC"), Metromedia International Telecommunications, Inc. ("MITI"), MCEG Sterling Incorporated, OPC Merger Corp. and MITI Merger Corp., OPC and MITI merged into OPC Merger Corp. and MITI Merger Corp. respectively, which are wholly-owned subsidiaries of Actava (n/k/a Metromedia International Group, Inc.); WHEREAS, Licensee desires to use the trade name and trademark "Metromedia" in a manner approved by Licensor during the term hereof in connection with, among other things, its communications and media businesses (the "Licensed Services"); WHEREAS, Licensor is willing to grant Licensee the right to use the trade name and trademark "Metromedia" during the Term (as hereinafter defined) in the United States and, in connection with MITI, also worldwide; and WHEREAS, Licensor is willing to grant the aforementioned right to use the trade name and trademark "Metromedia" upon the terms and conditions hereinafter set forth; NOW, THEREFORE, for and in consideration of the premises and mutual covenants of the parties contained herein, and of other good and valuable consideration, it is agreed as follows: 2 1. Licensor hereby grants to Licensee, a non-exclusive, non- transferable, non-assignable right and license, without the right to grant sublicenses, to use the trade name and trademark and corporate name "Metromedia" (the "Licensed Name") in the United States and with respect to MITI, worldwide in respect of Licensed Services subject to the terms, obligations, conditions and limitations of this Agreement. It shall be Licensee's obligation to appropriately carry out fully any and all trade name filings and recordings that may be required of Licensee anywhere by virtue of this Agreement. 2. This Agreement and the rights and licenses granted under Paragraph 1 shall be for a period of ten (10) years from the date of this Agreement, except as provided below (the "Term"). 3. Nothing in this Agreement or in any instructions given by Licensor to Licensee is intended to authorize or permit use by Licensee of the Licensed Name in combination with any other name, word or symbol so as to constitute a new combination name without Licensor's prior written approval of any proposed combination name. 4. Licensee agrees that every use of the Licensed Name made by it on or in connection with the offering, sale, furnishing, performing, advertising and/or promotion of, and/or any other activity relating to, Licensed Services shall inure to the benefit of Licensor. 5. Licensee agrees that in using the Licensed Name it will not represent in any way that it has any right, title, or interest in or to said Licensed Name or any registration thereof which may be granted, or in any word or name similar thereto, whether registered or not, other than the permission granted to it under this Agreement. Licensee will not register or attempt to register said Licensed Name either alone or in combination with any other name in any country in the world or aid or abet anyone else in doing so; and Licensee agrees that any use, application or registration in breach of this covenant will inure to the benefit of Licensor, and agrees to assign and does hereby assign all legal and equitable rights, title and interest in and to any such name and/or applications and/or registrations to Licensor. 3 6. (a) Licensee shall meet all of Licensor's standards for the Licensed Services prescribed by law or prescribed by governmental agencies in connection with the offering, sale, furnishing, performing, advertising and/or promotion of, and/or any other activity relating to, such Licensed Services. (b) In order to assure that Licensee maintains the standards of quality set forth above, Licensee shall submit written reports, sans financial data, as to the status of the conduct of Licensee's operations relating to the provision of Licensed Services under the Licensed Name to Licensor on at least a semi-annual basis to the extent any previously unreported event referenced in this clause (b) has occurred during the preceding period. Such status reports shall contain a listing of all complaints, if any, relating to the quality of the Licensed Services bearing the Licensed Name received by Licensee during the period to which each report pertains, and a listing of all interruptions in service of Licensed Services, if any, that differ from those complaints and interruptions in service customarily and routinely experienced with respect to the Licensed Services, as well as contain information explaining Licensee's handling and resolution of such complaints and of such interruptions in service. Such reports shall further advise of any instances where the total number of complaints experienced or the total number of interruptions in service, both customary and routine and those not so, exceeds the average normally anticipated for any of the Licensed Services during the period to which each report pertains, as well as contain information explaining Licensee's handling and resolution of such situations. (c) Licensor, through its representatives, shall also have the right at reasonable intervals to inspect Licensee's premises or premises under the Licensee's control or to which the Licensee has access where Licensed Services in connection with which the Licensed Name is used originate, or are furnished, performed, maintained, monitored, administered or controlled, during reasonable business hours and upon reasonable notice to Licensee. 7. Licensee shall observe Licensor's reasonable standards for the application, printed, visual or otherwise, of the Licensed Name to or in connection with Licensed Services, whether labeling, advertising, promotional or other materials are involved or whether printed, visual, audio or other media are concerned. Licensee shall use the 4 R registered trademark symbol " " following the name Metromedia in or on all printed and visual material relating to Licensed Services bearing the Licensed Name. 8. (a) Licensee agrees to indemnify and hold harmless Licensor against and in respect of any and all losses, claims, suits, actions, proceedings (formal or informal), investigations, judgments, deficiencies, damages, settlements, liabilities, and reasonable legal and other expenses related thereto, arising out of the conduct by Licensee of Licensed Services. (b) Licensor shall give Licensee prompt notice of any claim asserted or threatened against Licensor on the basis of which Licensor intends to seek indemnification from Licensee as herein provided (but the obligations of Licensee under this Paragraph 8 shall not be conditioned upon receipt of the same except to the extent Licensee is actually prejudiced by such failure to give notice). Licensee shall promptly assume the defense of Licensor with counsel reasonable satisfactory to Licensor, and the fees and expenses of such counsel shall be at the sole cost and expense of Licensee, all to the extent Licensor is entitled to indemnification hereunder. Notwithstanding the foregoing, Licensor shall be entitled to employ counsel separate from counsel for Licensee and from any other party in such action, proceeding, or investigation, if the interest of Licensor may be prejudiced without such separate counsel (including, without limitation, if one or more legal defenses may be inconsistent or in conflict with the legal defenses available to the other parties), and Licensee shall entirely and solely bear the reasonable fees and expenses of such separate counsel (as and when incurred), all to the extent Licensor is entitled to indemnification hereunder. Licensor may not agree to a settlement of any such claim without the prior written approval of Licensee, which approval shall not be unreasonably withheld. Licensee may not agree to a settlement of any such claim without the prior written approval of Licensor, which approval shall not be unreasonably withheld. 9. Licensor may terminate this Agreement upon one month's prior written notice to License in the event that, and at any time after, (i) Licensor and its affiliates own less than 20% of the stock of Licensee; or (ii) upon a Change of Control (as hereinafter defined) of Licensee; or (iii) if any of the stock or all or substantially all of the 5 assets of any of the subsidiaries of the Licensee are sold or transferred. In the event of (iii) above, this License Agrement shall terminate with respect to such subsidiary. A "Change of Control" is defined to include the following transactions: (a) a person or "group" (within the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934, as amended) not in existence on the date hereof becomes the beneficial owner of stock entitling such person or group to exercise 50% or more of the combined voting power of all classes of stock of Licensee; (b) a change occurs in the composition of Licensee's Board of Directors such that a majority of the members thereof are not "Continuing Directors" (defined as directors serving on the date hereof and any person who succeeds any such director and who is recommended or elected by a majority of Continuing Directors); (c) upon the occurrence of a reorganization, merger or consolidation where following consummation thereof, Licensor and its affiliates hold less than 20% stock of the combined voting power of all classes of Licensee's stock; (d) upon the occurrence of a sale or other disposition of all or substantially all of the assets of Licensee; (e) upon the occurrence of any transaction the result of which would be that Licensee's common stock would not be required to be registered under the Securities Exchange Act of 1934, as amended, and the holders of Licensee's common stock would not receive common stock of the survivor to the transaction which is required to be registered under the Exchange Act. 10. This Agreement shall terminate without notice upon the occurrence of any of the following events: (a) Licensee or any of its subsidiaries commences use of the Licensed Name other than in connection with Licensed Services; or (b) Insolvency or bankruptcy of Licensee or its subsidiaries, or appointment of a receiver, trustee, liquidator or sequestrator of the Licensee or its subsidiaries for any reason; or 6 (c) Licensee or any of its subsidiaries shall fail to comply with or observe any provision of this Agreement for a period of thirty (30) days after written notice has been given to Licensee specifying such failure and requesting that it be remedied, unless (i) Licensor shall agree in writing to an extension of such time period prior to its expiration, or (ii) the failure be such that it cannot be corrected within the applicable period and appropriate action is instituted by Licensee within the applicable period and is being diligently pursued to prompt correction; or (d) Except as permitted under this Agreement, any attempt by Licensee to assign or transfer this Agreement or any of Licensee's rights or obligations hereunder without Licensor's prior written consent; or 11. Licensor further reserves the right to terminate this Agreement in its entirety, including all rights and licenses under Paragraph 1, immediately upon written notice to Licensee if, in Licensor's sole judgment, Licensee's continued use of "Metromedia" as a trade name would jeopardize or be detrimental to the valuable good will and reputation which Licensor enjoys worldwide in its name "Metromedia". 12. In the event of any expiration or termination of this Agreement, all rights exercised by Licensee by reason thereof shall automatically, without the need for any further act or deed, vest in Licensor. Any expiration or termination of this Agreement shall not, however, terminate any obligation of Licensee except as expressly provided herein. Upon any such expiration or termination, Licensee agrees to discontinue immediately all use of the Licensed Name, and further agrees that thereafter it will not make any use whatsoever of the Licensed Name in any manner or of any name or name which in Licensor's sole judgment, which shall not be unreasonably exercised, is confusingly similar thereto. Also, during the term of this Agreement, Licensee shall not use any name or term which in Licensor's sole judgment, which shall not be unreasonably exercised, is confusingly similar to the Licensed Name. 13. Other than in connection with a claim pursuant to Section 8(a) above, Licensee agrees not to raise or cause to be raised any questions concerning or objections 7 to the validity of the Licensed Name or to the sole and exclusive ownership by, and right thereto, of the Licensor, on any grounds whatsoever. 14. Licensee and Licensor each agree to promptly notify the other of any adverse uses of which it becomes aware of the Licensed Name or of names, names or terms identical with or confusingly similar to the Licensed Name. Licensor may then take such action, in its sole discretion and control, as it deems fit. Licensee, upon the request of Licensor, shall provide Licensor with all reasonable assistance in connection with such action. 15. Nothing herein contained shall be construed as preventing Licensor, its subsidiaries, affiliates, licensees and assigns, whether current or future, from using the Licensed Name in any manner which Licensor desires not inconsistent with Licensee's rights hereunder. 16. The provisions of this Agreement shall be construed and its performance governed in accordance with the laws of the State of New York. 17. Any notice, request or other communication to be given under this Agreement to any party shall be in writing and either delivered to it by hand, certified mail (return receipt requested), sent by facsimile (receipt confirmed), in each case addressed as follows: if to Licensor: Metromedia Company One Meadowlands Plaza East Rutherford, New Jersey 07073 Attention: General Counsel Telecopy No.: (201) 804-6685 if to Licensee: Metromedia International Group, Inc. 945 East Paces Ferry Road Suite 2210 Atlanta, Georgia 30326 Attention: General Counsel Telecopy No.: (404) 233-2280 8 18. This Agreement may be transferred or assigned in whole or in part by the Licensor without the consent of the Licensee and will inure to the benefit of Licensor's successors or assigns. IN WITNESS WHEREOF, the parties have executed this Agreement as set forth below effective as of the date first hereinabove written. LICENSOR: Metromedia Company By: /s/ Arnold L. Wadler -------------------------------- Senior Vice President LICENSEE: Metromedia International Group, Inc. By: /s/ Stuart Subotnick ------------------------------- Name: Stuart Subotnick ----------------------------- Title: Vice Chairman ---------------------------- EX-10.40 6 Exhibit 10.40 ------------- ================================================================================ BRIDGE LOAN AGREEMENT between METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC., as Borrower and METROMEDIA COMPANY, as Lender Dated as of February 29, 1996 ================================================================================ TABLE OF CONTENTS ----------------- Page ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . 7 SECTION 2. AMOUNT AND TERMS OF COMMITMENT . . . . . . . . . . . . . . . . . 8 2.1 Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.3 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . 9 2.4 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . 9 2.5 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . 10 2.6 Computation of Interest . . . . . . . . . . . . . . . . . . . . . 11 2.7 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.8 Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 12 3.1 Existence; Compliance with Law . . . . . . . . . . . . . . . . . 12 3.2 Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.3 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.4 No Material Litigation . . . . . . . . . . . . . . . . . . . . . 14 3.5 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.7 No Untrue Statement . . . . . . . . . . . . . . . . . . . . . . . 15 3.8 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . . 15 3.9 Investment Company Act . . . . . . . . . . . . . . . . . . . . . 16 SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 16 4.1 Conditions to Initial Loans . . . . . . . . . . . . . . . . . . . 16 4.2 Conditions to Each Loan . . . . . . . . . . . . . . . . . . . . . 17 SECTION 5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.1 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . 18 5.2 Compliance of Laws . . . . . . . . . . . . . . . . . . . . . . . 19 5.3 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . 19 5.4 Maintenance of Property; Insurance . . . . . . . . . . . . . . . 19 5.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 6. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 21 i Page ---- SECTION 7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 25 7.2 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . 25 7.3 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . 26 7.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 26 7.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.6 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . 27 7.7 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 28 7.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.11 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 7.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . 29 7.13 Interest Rate Limitation . . . . . . . . . . . . . . . . . . . . 29 ii BRIDGE LOAN AGREEMENT, dated as of February 29, 1996, between METROMEDIA COMPANY, a Delaware general partnership (the "Lender"), and ------ METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC., a Delaware corporation (the "Borrower"). -------- The parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms ------------- shall have the following meanings: "Agreement": this Bridge Loan Agreement, as amended, supplemented --------- or otherwise modified from time to time. "Alliance": Alliance Entertainment Corp., a Delaware corporation. -------- "Alliance Merger": means the merger contemplated by the Agreement --------------- and Plan of Merger dated as of December 20, 1995, by and among MIG, Alliance and Alliance Mergerco (as such agreement may be amended). "Alliance Mergerco": Alliance Merger Corp., a Delaware corporation. ----------------- "Available Commitment": at any time, an amount equal to the excess, -------------------- if any, of (a) the amount of the 2 Lender's Commitment over (b) the aggregate principal amount of all Loans made by the Lender during the Commitment Period. "Borrowing Date": any Business Day specified in a notice pursuant -------------- to subsection 2.3 as a date on which the Borrower requests the Lender to make Loans hereunder. "Business Day": a day other than a Saturday, Sunday or other day on ------------ which commercial banks in New York City are authorized or required by law to close. "Closing Date": the date on which the conditions precedent set ------------ forth in subsection 4.1 shall be satisfied. "Code": the Internal Revenue Code of 1986, as amended from time to ---- time. "Commitment": the obligation of the Lender to make Loans to the ---------- Borrower hereunder in an aggregate principal amount at any one time outstanding not to exceed $15,000,000, as such amount is reduced by the amount of any Loans made hereunder. "Commitment Period": the period from and including the date hereof ----------------- to but not including the Termination Date or such earlier date on which the Commitment shall terminate as provided herein. 3 "Contractual Obligation": as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Default": any of the events specified in Section 7, whether or not ------- any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Dollars" and "$": dollars in lawful currency of the United States ------- - of America. "Equity Interest": any and all shares, interests, participations or --------------- other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, all partnership interests in any Person, and any and all warrants or options to purchase any of the foregoing. "Event of Default": any of the events specified in Section 6, ---------------- provided that any requirement for the giving of notice, the lapse of time, or - -------- both, or any other condition, has been satisfied. 4 "GAAP": generally accepted accounting principles in the United ---- States of America in effect from time to time. "Goldwyn Merger": means the merger contemplated by the Agreement and -------------- Plan of Merger dated January 31, 1996 by and among MIG, Goldwyn and SGC Mergerco (as such agreement may be amended). "Goldwyn": The Samuel Goldwyn Company, a Delaware corporation. ------- "Governmental Authority": any nation or government, any state or ---------------------- other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Interest Payment Date": (i) the date which is three months from --------------------- the date of the first borrowing hereunder and (ii) the Termination Date. "Lien": any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement of any kind or nature whatsoever. "Loan": as defined in subsection 2.1. ---- 5 "Loan Documents": this Agreement and the Note. -------------- "Material Adverse Effect": a material adverse effect on (a) the ----------------------- business, operations, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement the Note or the rights or remedies of the Lender hereunder or thereunder. "Mergers": means, collectively, the Alliance Merger and the Goldwyn ------- Merger. "MIG": means Metromedia International Group, Inc., a Delaware --- corporation, which owns all of the outstanding shares of stock of Metromedia International Telecommunications, Inc. "Note": as defined in subsection 2.2. ---- "Person": an individual, partnership, corporation, business trust, ------ joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Prime Rate": shall mean the rate of interest per annum publicly ---------- announced from time to time by Chemical Bank as its prime rate in effect at its principal office in New York City. 6 "Refinancings": means the proposed refinancing by MIG of ------------ substantially all of its indebtedness and the indebtedness of its subsidiaries, Goldwyn and Alliance contemplated to occur concurrently with the consummation of the Mergers. "Regulation U": Regulation U of the Board of Governors of the ------------ Federal Reserve System as in effect from time to time. "Requirement of Law": as to any Person, the Certificate of ------------------ Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer and the ------------------- president or executive vice president of the Borrower or, with respect to financial matters, the chief financial officer of the Borrower. "SGC Mergerco": SGC Merger Corp., a Delaware corporation. ------------ 7 "Subsidiary": as to any Person, a corporation, partnership or other ---------- entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Termination Date": the earlier to occur of (i) the consummation of ---------------- the Refinancings or (ii) January 15, 1997. 1.2 Other Definitional Provisions. (a) The words "hereof," ----------------------------- "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, 8 Exhibit references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF COMMITMENT 2.1 Commitment. Subject to the terms and conditions hereof, the ---------- Lender agrees to make loans ("Loans") to the Borrower from time to time during ----- the Commitment Period during which period the Borrower may borrow, prepay and reborrow in accordance with the provisions hereof, provided, that immediately -------- after making each Loan and after giving effect to all Loans repaid concurrently with the making of any Loans, the aggregate principal amount of the Loans outstanding at any one time would not exceed the amount of the Lender's Commitment. 2.2 Note. The Loans made by the Lender shall be evidenced by a ---- promissory note of the Borrower, substantially in the form of Exhibit A (the "Note"), payable to the order of the Lender and in a principal amount equal to ---- the lesser of (a) the amount of the initial Commitment of the 9 Lender and (b) the aggregate unpaid principal amount of all Loans made by the Lender. 2.3 Procedure for Borrowing. The Borrower may borrow under the ----------------------- Commitment during the Commitment Period on any Business Day, provided, that the -------- Borrower shall give the Lender irrevocable notice (which notice must be received by the Lender prior to 1:00 P.M., New York City time, one Business Day prior to the requested Borrowing Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date. Each borrowing under the Commitment shall be in an amount equal to $500,000 or a whole multiple of $50,000 in excess thereof (or, if the then Available Commitment is less than $50,000, such lesser amount). The Lender will make the amount of each borrowing available to the Borrower by 11:00 A.M. New York City time by wire transfer of immediately available funds to an account maintained by the Borrower and specified in writing to the Lender. 2.4 Optional Prepayments. The Borrower may at any time and from -------------------- time to time upon three (3) days advance notice to the Lender, prepay the Loans, in whole or in part, without premium or penalty. Such prepayment shall be 10 applied first to interest and then to principal. Prior to the Termination Date, the Borrower may reborrow amounts prepaid pursuant to this Section 2.4 up to the amount of the Commitment. 2.5 Interest Rates and Payment Dates. -------------------------------- (a) Each Loan shall bear interest at a rate per annum equal to the Prime Rate plus 2%. (b) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of overdue interest, the Prime Rate plus 2%, in each case from the date of such non-payment until such amount is paid in full. (c) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (b) of this -------- subsection shall be payable from time to time on demand. 11 2.6 Computation of Interest. Interest shall be calculated on the ----------------------- basis of a 360-day year for the actual days elapsed. Any change in the interest rate on a Loan resulting from a change in the Prime Rate shall become effective as of the opening of business on the day on which such change becomes effective. The Lender shall as soon as practicable notify the Borrower of the effective date and the amount of each such change in interest rate. 2.7 Payments. All payments (including prepayments) to be made by -------- the Borrower hereunder and under the Note, whether on account of principal, interest, or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Lender in immediately available funds. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. 2.8 Payment Date. All principal and any unpaid interest ------------ outstanding hereunder shall be due and payable in full on the Termination Date. 12 SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Lender that: 3.1 Existence; Compliance with Law. The Borrower (a) is duly ------------------------------ organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, and (c) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.2 Power; Authorization; Enforceable Obligations. The Borrower --------------------------------------------- has the corporate power and authority, and the legal right, to make, deliver and perform each of the Loan Documents and to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions each of the Loan Documents. Except as set forth on Schedule 3.2, no consent or authorization 13 of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of either of the Loan Documents. Each Loan Document has been duly executed and delivered on behalf of the Borrower. Each Loan Document constitutes a legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.3 No Legal Bar. The execution, delivery and performance of ------------ either of the Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Borrower and will not result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any such Requirement of Law or Contractual Obligation, except to the extent such violations 14 could not, in the aggregate, be reasonably expected to have a Material Adverse Effect. 3.4 No Material Litigation. No litigation, investigation or ---------------------- proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or against any of its properties or revenues (a) with respect to either of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 3.5 No Default. The Borrower is not in default under or with ---------- respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 3.6 Taxes. The Borrower has filed or caused to be filed all tax ----- returns or applied for extensions which, to the knowledge of the Borrower, are required to be filed and has paid all taxes that are due and payable, and has paid any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than 15 any taxes, assessments, fees or other charges the amount of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower). 3.7 No Untrue Statement. No statement contained in this ------------------- Agreement, nor in any certificate or other document delivered to the Lender by the Borrower (or its representatives) in connection with this Agreement or the transactions contemplated hereby, contains any untrue statement of a material fact, or omits to state a material fact necessary in order to make the statements contained therein or herein not misleading. 3.8 Federal Regulations. No part of the proceeds of any Loans will ------------------- be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G or Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors. 16 3.9 Investment Company Act. The Borrower is not an "investment ---------------------- company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Initial Loans. The agreement of the Lender to --------------------------- make the initial Loan requested to be made by it is subject to the satisfaction, immediately prior to or concurrently with the making of such Loan on the Closing Date, of the following conditions precedent: (a) Loan Documents. The Lender shall have received (i) this -------------- Agreement, executed and delivered by a duly authorized officer of the Borrower and (ii) the Note, executed and delivered by a duly authorized officer of the Borrower. (b) Corporate Proceedings of the Borrower. The Lender shall ------------------------------------- have received a copy of the resolutions, in form and substance satisfactory to the Lender, of the Borrower authorizing (i) the execution, delivery and perfor- mance of this Agreement and the Note and (ii) the borrowings 17 contemplated hereunder, certified by the Secretary or an Assistant Secretary of the Borrower as of the Closing Date, which certificate shall be in form and substance satisfactory to the Lender and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (c) Borrower Incumbency Certificate. The Lender shall have ------------------------------- received a Certificate of the Borrower, dated the Closing Date, as to the incumbency and signature of the officers of the Borrower executing either of the Loan Documents satisfactory in form and substance to the Lender, executed by the President or any Vice President and the Secretary or any Assistant Secretary of the Borrower. 4.2 Conditions to Each Loan. The agreement of the Lender to make ----------------------- any Loan requested to be made by it on any date (including, without limitation, its initial Loan) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations ------------------------------ and warranties made by the Borrower in or pursuant to either of the Loan Documents shall be true 18 and correct in all material respects on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have ---------- occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such Loan that the conditions contained in this subsection 4.2 have been satisfied. SECTION 5. COVENANTS The Borrower hereby agrees that, so long as the Commitment remains in effect, the Note remains outstanding and unpaid or any other amount is owing to the Lender hereunder, the Borrower shall: 5.1 Payment of Obligations. Pay, discharge or otherwise satisfy at ---------------------- or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP 19 with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 5.2 Compliance of Laws. Comply with all applicable laws ------------------ regulations, orders of Governmental Authorities and obtain and comply in all material respects with, and maintain any and all licenses, approvals, notifications, registrations or permits required by applicable laws, regulations or orders, except in each such case to the extent that failure to do so could not be reasonably expected to have a Material Adverse Effect. 5.3 Maintenance of Existence. Preserve, renew and keep in full ------------------------ force and effect its existence and take all reasonable action to maintain all its rights, privileges and franchises as necessary and desirable in the normal conduct of its business; provided, that the Borrower may merge or consolidate -------- with or transfer or assign all or substantially all of its property, business or assets to another Person as long as such Person assumes all of the Borrower's obligations under this Agreement. 5.4 Maintenance of Property; Insurance. Keep all property ---------------------------------- necessary in its business in good working order and condition; maintain with financially sound and reputable 20 insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Lender, upon written request, full information as to the insurance carried. 5.5 Notices. Promptly give notice to the Lender of: ------- (a) the occurrence of any Default or Event of Default; and (b) the occurrence of any event which causes any representation or warranty of the Borrower to be untrue or a breach of any covenant of the Borrower set forth in this Agreement; and (c) any material adverse change in the business, operations, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole or any development or event which could reasonably be expected to have a Material Adverse Effect. 21 SECTION 6. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of the Note when due in accordance with the terms thereof or hereof; or the Borrower shall fail to pay any interest on the Note, or any other amount payable hereunder, within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by the Borrower herein or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Borrower shall default in the observance or performance of any other agreement contained in this Agreement, and such default shall continue unremedied for a period of 30 days; or (d) (i) The Borrower shall commence any case, proceeding or other action (A) under any existing or 22 future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 90 days; or (iii) there shall be commenced against the Borrower any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or 23 stayed or bonded pending appeal within 90 days from the entry thereof; or (iv) the Borrower shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (e) One or more judgments or decrees shall be entered against the Borrower involving in the aggregate liability (not paid or fully covered by insurance) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or. (f) Any warrant of attachment, levy or execution involving an amount in excess of $10,000,000 shall be issued or levied against any of the Borrower and such warrant of attachment, levy or execution shall not be released, vacated, stayed or bonded within 60 days of its issue or levy; or (g) A material adverse change in the business, operations, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries 24 taken as a whole shall have occurred since the date of the first borrowing under this Agreement; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (d) above with respect to the Borrower, automatically the Commitment shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Note shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken, in the Lender's discretion: the Lender may by notice to the Borrower declare the Commitment to be terminated forthwith, whereupon the Commitment shall immediately terminate; and the Lender may by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Note to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. 25 SECTION 7. MISCELLANEOUS 7.1 Amendments and Waivers. Neither this Agreement, the Note, nor ---------------------- any terms hereof or thereof may be amended, supplemented or modified except in an instrument executed by the Lender and the Borrower in accordance with the provisions of this subsection. The Lender may, from time to time, waive, on such terms and conditions as the Lender may specify in such instrument, any of the requirements of this Agreement or the Note or any Default or Event of Default and its consequences. Any such wavier and any such amendment, supplement or modification shall be binding upon the Borrower and the Lender. In the case of any waiver, the Borrower and the Lender shall be restored to their former position and rights hereunder and under the Note, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 7.2 Costs and Expenses. Each of the Lender and the Borrower ------------------ shall pay their own costs and expenses incurred in connection with the negotiation, execution and delivery of this Agreement and the Note. 26 7.3 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY -------------------- IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTE OR FOR ANY COUNTERCLAIM THEREIN. 7.4 Further Assurances. From and after the date hereof, upon the ------------------ reasonable request of any party to this Agreement, the other party shall execute, acknowledge and deliver, all such further agreements, instruments and assurances as may be necessary and appropriate to carry out the transactions contemplated by this Agreement and the Note. 7.5 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Note: 27 The Lender: Metromedia Company Metropolitan Executive Tower One Meadowlands Plaza East Rutherford, New Jersey 07073 Attention: General Counsel Telecopy: (201) 531-2803 The Borrower: Metromedia International Telecommunications, Inc. 333 Ludlow Street Stamford, CT 06902 Attention: President Telecopy: (203) 316-4599 7.6 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Lender, any right, remedy, power or privilege hereunder or under the Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 7.7 Survival of Representations and Warranties. All ------------------------------------------ representations and warranties made hereunder, in the Note, and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall 28 survive the execution and delivery of this Agreement and the Note and the making of the Loans hereunder. 7.8 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, provided, that the Borrower may not assign or transfer -------- any of its rights or obligations under this Agreement without the prior written consent of the Lender; provided further, that the Lender may assign its rights -------- ------- to any entity controlling, controlled by or under common control with the Lender. 7.9 Counterparts. This Agreement may be executed by one or more of ------------ the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 7.10 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction 29 shall not invalidate or render unenforceable such provision in any other jurisdiction. 7.11 Integration. This Agreement and the Note represent the ----------- agreement of the Borrower and the Lender with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the Note. 7.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTE AND THE RIGHTS AND ------------- OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 7.13 Interest Rate Limitation. Notwithstanding anything herein ------------------------ or in the Note to the contrary, if at anytime the applicable interest rate, together with all fees and charges that are treated as interest under applicable law (collectively, the "Charges"), as provided for herein, or otherwise contracted for charged, received, taken or reserved by the Lender shall exceed the maximum lawful rate (the "Maximum Rate") that may be contracted for, charged, taken, received or reserved by the Lender in accordance with 30 applicable law, the rate of interest payable under the Note, together with all Charges payable to the Lender shall be limited to the Maximum Rate. 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. METROMEDIA COMPANY By:/s/ Arnold L. Wadler ---------------------------------------------------- Name: Arnold L. Wadler Title: Senior Vice President METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC. By:/s/ Richard J. Sherwin ---------------------------------------------------- Name: Richard J. Sherwin Title: President Schedule 3.2 1. Filings under the Securities Exchange Act of 1934, as amended from time to time. 2. Compliance with the Securities Act of 1933, as amended from time to time. EXHIBIT A --------- REVOLVING CREDIT NOTE $15,000,000 New York, New York February 29, 1996 FOR VALUE RECEIVED, the undersigned, METROMEDIA INTERNATIONAL TELECOMMUNICATIONS INC., a Delaware corporation (together with its successors and assigns, the "Borrower"), hereby unconditionally promises to pay to the -------- order of METROMEDIA COMPANY, a Delaware general partnership (the "Lender"), in ------ lawful money of the United States of America and in immediately available funds, on the Termination Date, or such earlier date as payments shall be due, whether by acceleration or otherwise in accordance with the Bridge Loan Agreement (as defined below), at such office as the Lender may designate in writing, from time to time, the principal amount of (a) FIFTEEN MILLION DOLLARS ($15,000,000), or, if less, (b) the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to subsection 2.1 of the Bridge Loan Agreement. The Borrower further agrees to pay interest in like money on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in subsection 2.5 of the Bridge Loan Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date and amount of each Loan made pursuant to the Bridge Loan Agreement and the date and amount of each payment or prepayment of principal thereof; provided, however, that the failure to so -------- ------- endorse the schedules annexed hereto shall not affect the validity of the Borrower's obligation to repay amounts due hereunder. This Note (a) is the Note referred to in the Bridge Loan Agreement dated as of February 29, 1996 (as amended, supplemented or otherwise modified from time to time, the "Bridge Loan Agreement"), between the Borrower and the --------------------- Lender, (b) is entitled to the benefits of and is subject to the provisions of the Bridge Loan Agreement and (C) is subject to optional and mandatory prepayment in whole or in part as provided in the Bridge Loan Agreement. Upon the occurrence of any one or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Bridge Loan Agreement. No delay or omission on the part of the Lender or any holder hereof in exercising its rights under this Note, or delay or omission on the part of the Lender in exercising its rights under the Bridge Loan Agreement, or course of conduct relating thereto, shall operate as a waiver of such rights or any other right of the Lender or any holder hereof, nor shall any waiver by the Lender of any such right or rights on any one occasion be deemed a bar to, or waiver of, the same right or rights on any future occasion. The Borrower agrees to pay or reimburse the Lender for all of its reasonable, direct, actual out-of-pocket costs and expenses incurred in connection with the collection of the principal amount of this Note, including reasonable outside attorneys' fees, if this Note is collected by or through an attorney-at-law or under advice therefrom. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Bridge Loan Agreement and used herein shall have the meanings given to them in the Bridge Loan Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC. By: /s/ Richard J. Sherwin ----------------------------- Name: Richard J. Sherwin --------------------------- Title: President -------------------------- EX-11 7 EXHIBIT 11 METROMEDIA INTERNATIONAL GROUP, INC. Computation of Earnings Per Share (in thousands, except per share amounts)
Years Ended ------------------------------------------------------------- December 31, 1995 February 28, 1995 February 28, 1994 ------------------------------------------------------------- Loss Per Share - Primary Loss from continuing operations and before extraordinary item $ (87,024) $ (69,411) $ (132,530) Loss on disposal (293,570) - - Loss on early extinguishment of debt (32,382) - - Net loss available for Common Stock and ----------- ---------- ----------- Common Stock equivalents (412,976) (69,411) (132,530) =========== =========== ============ Common Stock and Common Stock Equivalents (A) Weighted average common shares outstanding during the period 24,541 20,246 17,188 ========== =========== =========== Loss Per Share - Primary Continuing Operations (3.55) (3.43) (7.71) Discontinued Operations (11.96) - - Extraordinary Item (1.32) - - Net Loss (16.83) (3.43) (7.71) ========== =========== ============= Loss Per Share - Assuming Full Dilution (B) (A) Common stock equivalents are not included in primary loss per share in Calendar 1995, Fiscal 1995 and Fiscal 1994 because they would be anti-dilutive. (B) Fully diluted loss per share is not used in Calendar 1995, Fiscal 1995 and Fiscal 1994 because it is less than primary loss per share.
EX-21 8 Exhibit 21 ---------- LIST OF SUBSIDIARIES OF METROMEDIA INTERNATIONAL GROUP, INC. ------------------------------------ (f/k/a The Actava Group, Inc.) Snapper, Inc. Snapper Lawn Equipment (UK) Northeast Snapper Distributing, Inc. Actava Financial Ltd. Aliso Management Co., Inc. Actava SHL, Inc. Metromedia International Telecommunications, Inc. (f/k/a MITI Merger Corp.) International Telcell, Inc. Digital Dubbing Services, Inc. International Telcell Services, Inc. International Telcell Services, GmbH Paging One Services, GmbH International Telcell SPS, Inc. Metromedia International Programming Services, Inc. International Telcell Telephony, Inc. MITI Holdings, Inc. Metromedia International Inc. Metromedia International Marketing, Inc. MII Services, Inc. Metromedia Katusha, Inc. Metromedia Asia, Ltd. Metromedia Asia Paging Limited Metromedia Asia Telephony Limited Tag Holdings, Inc. American Seating Credit Corporation Actava Risk Retention Group (Captive Insurance Co. of Georgia, Inc.) Aliso Meadows Ltd. (limited partnership) Sienna Plantation Ltd. (limited partnership) Orion Pictures Corp. (f/k/a OPC Merger Corp.) Musicways, Inc. Orion Home Entertainment Corporation Orion Music Publishing, Inc. Orion Pictures Distribution Corporation OPC Music Publishing Donna Music Publishing FP Productions Buckminster Music Brighton Productions, Inc. Orion Pictures Development (Canada) Orion Productions, Inc. MCEG Sterling Administrations Orion TV Productions, Inc. MCEG Sterling Entertainment, Inc. Hollytubs Company (limited partnership) MCEG Sterling Computer Services MCEG Sterling Productions MCEG Sterling Development SID Productions, Inc. American International Pictures, Inc. Mintaka Films, B.V. Actava Insurance Co., Ltd. (Bermuda) Sterling Entertainment 11 Media Resources Credit Corporation Manson Sub Virgin Vision, Inc. EX-23.1 9 Exhibit 23.1 ------------ The Board of Directors and Stockholders Metromedia International Group, Inc.: We consent to incorporation by reference in the registration statements (Nos. 33-63853 and 33-63867) on Form S-3 of Metromedia International Group, Inc. of our report dated February 29, 1996, relating to the consolidated balance sheets of Metromedia International Group, Inc. and subsidiaries as of December 31, 1995, and February 28, 1995, and the related consolidated statements of operations, common stock, paid-in surplus and accumulated deficit, and cash flows for the year ended December 31, 1995 and each of the years in the two-year period ended February 28, 1995, and the related schedules, which report appears in the December 31, 1995, annual report on Form 10-K of Metromedia International Group, Inc. KPMG Peat Marwick LLP New York, New York February 29, 1996 EX-27 10
5 METROMEDIA INTERNATIONAL GROUP, INC. YEAR YEAR YEAR DEC-31-1995 FEB-28-1995 FEB-28-1994 DEC-31-1995 FEB-28-1995 FEB-28-1994 26,889 27,422 0 5,366 0 0 41,365 50,698 0 (11,913) (14,223) 0 59,430 69,867 0 127,451 138,527 0 8,407 5,606 0 (2,386) (1,029) 0 599,638 391,870 0 176,228 231,861 0 304,643 237,027 0 0 0 0 0 0 0 42,614 20,935 0 40,641 (20,725) 0 599,638 391,870 0 138,871 194,789 175,713 138,871 194,789 175,713 132,762 187,256 242,996 186,328 229,738 270,929 0 0 0 0 0 0 33,114 32,389 33,415 (78,276) (65,854) (129,653) 767 1,300 2,100 (87,024) (69,411) (132,530) 293,570 0 0 32,382 0 0 0 0 0 (412,976) (69,411) (132,530) 16.83 3.43 7.71 16.83 3.43 7.71
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