As filed with the Securities and Exchange Commission on October 2, 2006
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 28, 2006
METROMEDIA INTERNATIONAL GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-5706 58-0971455
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8000 Tower Point Drive, Charlotte, NC 28227
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 321-7380
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(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry Into Material Definitive Agreements
Lock-Up and Voting Agreements
In connection with the proposed strategic transaction described under Item
8.01 of this Current Report on Form 8-K, beginning on September 29, 2006 and
finalized on October 2, 2006, Metromedia International Group, Inc. (the
"Company" or "MIG"), the owner of interests in communications businesses in the
country of Georgia, entered into separate lock-up, support and voting agreements
(the "Lock-Up and Voting Agreements") with representatives (the "Preferred
Representatives") of holders of approximately 80 % of its 4.1 million
outstanding shares of preferred stock, par value $1.00 per share (the "Preferred
Stock"). In connection with the proposed strategic transaction described under
Item 8.01 of this Current Report on Form 8-K, the Preferred Representatives have
agreed to support a chapter 11 plan in the Wind-Up (as defined in Item 8.01 of
this Current Report on Form 8-K) pursuant to which holders of the Company's
Preferred Stock would receive $68 per share from Net Distributable Cash
(hereinafter defined) of $420 million or less and one-half of any Net
Distributable Cash in excess of $420 million, allocated equally among the shares
of Preferred Stock. The balance of Net Distributable Cash would be allocated
equally among the outstanding common shares. Since the Preferred Representatives
represent holders of more than two-thirds of the presently outstanding Preferred
Stock, if such a plan is approved by the Court, the plan would be binding on all
preferred stockholders. "Net Distributable Cash" will consist of the cash
proceeds of the intended sale of the Company's business interests in Georgia
plus the Company's portion of dividends received from its subsidiary Magticom
Ltd. prior to the sale and all headquarters cash on hand in the Company at sale
closing less: (i) any taxes arising out of the sale of assets; (ii) payments of
all allowed claims in the Wind-Up; (iii) necessary reserves for the final
liquidation of the Company and its subsidiaries; (iv) professional fees
connected with the proposed sale transaction and pursuit of the Wind-Up; and (v)
Board-approved bonuses or similar payments to Company directors, management and
employees which in an aggregate amount are estimated to equal approximately 5%
of the proposed sale transaction proceeds. The Company presently estimates that
Net Distributable Cash following consummation of a $480 million sale in first
quarter 2007 and essential conclusion of the Wind-Up by end of first half 2007
will range from $440-450 million. Pursuant to the plan of distribution agreed
with the Preferred Representatives, this would result in distribution of $70.42
to $71.62 to each share of Preferred Stock and $1.58 to $1.63 to each common
share. By end of first half 2007, the combined face value plus accumulated
unpaid dividends that would otherwise be due to the preferred stockholders would
be in aggregate approximately $325 million or $78.50 per share of Preferred
Stock outstanding.
The form of the Lock-Up and Voting Agreements with the Preferred
Representatives is attached hereto as Exhibit 10.1 and is incorporated herein by
reference.
Incentive Bonus Arrangements
On August 22, 2006, the compensation committee of the board of directors of
the Company determined that it is in the best interests of the Company and its
stockholders to provide incentive bonuses to certain directors, management and
employees of the Company in the amounts set forth below in connection with a
sale of all or substantially all of the Company's assets. These incentive
bonuses were subsequently ratified by the full board of directors at a meeting
on August 29, 2006. In connection with this decision of our board of directors,
on October 1, 2006, the Company entered into agreements with two of our named
executive officers pursuant to which we agreed to pay the executives incentive
bonuses if the Company successfully closes the transaction described herein
under Item 8.01 and certain other performance measures are attained, or if the
Company is sold or sells all or substantially all of its assets. Also on October
1, 2006, the Company agreed to pay bonuses to certain members of our board of
directors, and certain employees in the Company's office in Charlotte, North
Carolina, including our Vice President of Finance and Chief Accounting Officer
and Vice President, General Counsel and Secretary (who both are named executive
officers), in each case, subject to the occurrence of the same aforementioned
events. The incentive bonus agreements entered into with each of Messrs. Hauf,
and Pyle and the incentive bonus arrangements for certain members of board of
directors are attached hereto as Exhibits 10.2, 10.3, and 10.4 respectively, and
are incorporated herein by reference. The following summary of such incentive
bonus agreements and arrangements is qualified in its entirety by reference to
the applicable incentive bonus agreement or arrangement.
Payment of the bonuses to our executives and employees described above is
contingent on (1) the Company's entering into a definitive agreement to
consummate the transaction described herein, or any other sale of the Company or
transaction pursuant to which the Company sells all or substantially all of its
assets, by January 31, 2007, (2) such transaction subsequently closing, (3) the
holders of shares of Preferred Stock receiving an amount equal to $68.00 per
share of Preferred Stock, and (4) continued employment or service with the
Company through the date of the last payment to the holders of Preferred Stock
that results in such holders receiving at least $68.00 per share (the "Payment
Date"). Notwithstanding the requirement in clause (4) of the preceding sentence,
under certain circumstances, described below, any of the named executive
officers or employees may be entitled to receive an incentive bonus even if such
officer's or employee's employment is terminated before the Payment Date.
However, in any such circumstance, the incentive bonus will not be paid until
the Payment Date, if it occurs. The incentive bonuses are not payable upon any
earlier termination of employment.
The incentive bonus for our President and Chief Executive Officer, Mark
Stephan Hauf, is 3.2% of the gross proceeds received by the Company or its
shareholders in the applicable sale transaction. If Mr. Hauf's employment is
terminated by the Company without "Cause" or by him for "Good Reason" (as
defined in the employment agreement between Mr. Hauf and the Company) at any
time before the Payment Date, he will receive his incentive bonus on the Payment
Date, if it occurs. To the extent that any amounts payable to Mr. Hauf, whether
under the bonus agreement described here or otherwise, are subject to any excise
taxes, the Company has agreed to "gross up" all such amounts in an amount equal
to the excise taxes imposed, including any excise taxes imposed on the "gross
up" payments, and any interests and penalties associated with such excise taxes.
The incentive bonus for our Chief Financial Officer, Harold F. Pyle, III,
will be $1,000,000. If Mr. Pyle's employment is terminated by the Company
without "Cause" (as defined in the employment agreement between Mr. Pyle and the
Company) at any time before the Payment Date, he will receive his incentive
bonus on the Payment Date, if it occurs. If Mr. Pyle becomes entitled to the
bonus described herein, he will forfeit his right to his existing performance
bonus described in his bonus agreement.
The Company's board of directors has approved an incentive bonus for our
Vice President of Finance and Chief Accounting Officer, Bryce Dean Elledge,
which will be $233,000 plus one half of his annual base salary in effect
immediately preceding the sale transaction. If Mr. Elledge's employment is
terminated by the Company without "Cause" (as defined in the employment
agreement between Mr. Elledge and the Company) at any time before the Payment
Date, he will be entitled to receive $233,000 on the Payment Date if it occurs;
provided, that, if such termination occurs after closing of the sale
transaction, he will be entitled to receive the full amount of his incentive
bonus on the Payment Date, if it occurs. If Mr. Elledge becomes entitled to the
bonus described herein, he will forfeit his right to his existing performance
bonus described in his bonus agreement.
The Company's board of directors has approved an incentive bonus for our
Vice President, General Counsel and Secretary, Natalia Alexeeva, which is one
half of Ms. Alexeeva's annual base salary in effect immediately preceding the
transaction. If Ms. Alexeeva's employment is terminated by the Company without
"Cause" (as defined in the employment agreement between Ms. Alexeeva and the
Company) at any time after closing of the sale transaction and before the
Payment Date, she is entitled to receive the incentive bonus on the Payment
Date, if it occurs.
The Company has agreed to pay incentive bonuses of $100,000 to the
following non-management directors to reward them for their time consuming and
extraordinary services to the Company and their continued leadership toward
achieving the execution of a definitive share purchase agreement and the
effectuation of the strategic transaction described under Item 8.01 herein: John
Chalsty, Alan Greene, Leonard White, Clark Johnson, David Gale, and Wayne
Henderson. Payment of the bonuses is contingent on the directors continuing to
provide services as members of our board of directors through the execution of
the definitive share purchase agreement in connection with the sale transaction
described herein provided such execution occurs no later than January 31, 2007.
The Company's board of directors intends to provide incentive bonuses and
enter into agreements with other employees in our Charlotte, North Carolina
office. The respective bonus agreements will state that if the employee's
employment is terminated by the Company without "Cause" (as defined in the bonus
letter sent by the Company to the employee) at any time after closing of the
sale transaction and before the Payment Date, the employee is entitled to
receive the incentive bonus on the Payment Date, if it occurs.
Item 8.01. Other Events
On October 2, 2006, the Company announced the execution of a letter of
intent (the "Offer Agreement") in respect of an offer it received to acquire all
of the Company's business interests in Georgia for a cash price of $480 million
from a group of investors comprised of Istithmar PJSC, a privately incorporated
investment company based in Dubai, United Arab Emirates ("Istithmar"), Salford
Georgia, the Georgian office of Salford Capital Partners Inc. a private equity
and investment management company based in London ("Salford"), and Emergent
Telecom Ventures Limited, a communications merchant bank registered in Geneva,
Switzerland ("Emergent" and together with Istithmar and Salford, the "Offering
Group"). If a binding sale and purchase agreement were to be executed with the
Offering Group, the Company intends to undertake the sale to the Offering Group
through a court supervised auction conducted in accordance with section 363 of
11 U.S.C. ss.ss. 101 et seq (the "Code") in a case to be filed in the United
States Court for the District of Delaware (the "Wind-Up").
The Company entered into the Offering Agreement on September 28, 2006 with
the Offering Group providing for exclusivity in negotiations during a sixty-day
due diligence period and setting forth intended terms of a binding share
purchase agreement which they presently expect to execute within the exclusivity
period and upon conclusion of the Offering Group's due diligence. The Offer
Agreement was executed on September 28, 2006 but did not become effective until
October 1, 2006, the date at which the Company had entered into the separate
Lock-Up and Voting Agreements with representatives of holders of more than two
thirds of its 4.1 million outstanding shares of Preferred Stock.
There can be no assurances that any transaction with the Offering Group or
any other party concerning the Company and/or any of its assets will take place
nor can any assurance be given with respect to the timing or terms of any such
transaction. Also, since the negotiations are ongoing between the parties, it is
possible that terms of any binding sale and purchase agreement ultimately
executed, may differ in certain material respects from terms described herein.
Details of the terms of a final agreement, if any, reached between the Company,
on the one hand, and the Offering Group or some third party, on the other hand,
will be disclosed upon the execution of the respective definitive agreements.
THIS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OF THE COMPANY, ISTHIMAR, SALFORD, EMERGENT OR ANY OF
THEIR RESPECTIVE AFFILIATES OR, IF FOR THE ADMINISTRATIVE CONVENIENCE OF THE
COURT SYSTEM, THE PROPOSED TRANSACTIONS ARE IMPLEMENTED THROUGH A VOLUNTARY
PRE-PACKAGED PLAN UNDER THE CODE, A SOLICITATION OF ACCEPTANCES OF THE CHAPTER
11 CASE UNDER THE CODE. ANY SUCH SOLICITATION WILL BE MADE IN COMPLIANCE WITH
THE APPLICABLE SECURITIES LAWS AND/OR PROVISIONS OF THE CODE.
The press release announcing this matter is attached hereto as Exhibit 99.1
and the Offer Agreement is attached hereto as Exhibit 99.2 and both documents
are incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
10.1 Form of lock-up and voting agreement with representatives of
holders of Metromedia International Group, Inc. 7.25% Cumulative
Convertible Preferred Stock.
10.2 Incentive Bonus Agreement, dated October 1, 2006, by and between
Metromedia International Group, Inc. and Mark Hauf.
10.3 Incentive Bonus Agreement, dated October 1, 2006, by and between
Metromedia International Group, Inc. and Harold F. Pyle, III
10.4 Metromedia International Group, Inc. Letter, dated October 1,
2006, re board of director incentive bonus arrangement.
99.1 Press release of Metromedia International Group, Inc. dated
October 2, 2006.
99.2 Offer Agreement by and between Istithmar PJSC, Salford Georgia,
Emergent Telecom Ventures Limited and Metromedia International
Group, Inc., dated September 28, 2006.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
METROMEDIA INTERNATIONAL GROUP, INC.
By: /S/ HAROLD F. PYLE, III
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Name: Harold F. Pyle, III
Title: Executive Vice President Finance,
Chief Financial Officer and Treasurer
Date: October 2, 2006
Charlotte, NC