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Deal Structure Analysis for Smooth EBIT Impact and Incentives

This confidential draft executive summary analyzes alternative deal structures to achieve goals such as smooth EBIT impact, tying incentives to profitability, retaining key personnel, capping earn-out exposure, and avoiding negative EBITDA payments. The recommended structure includes an upfront payment with earn-outs tied to EBITDA and a put/call option on 20% of the company.

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Deal Structure Analysis for Smooth EBIT Impact and Incentives

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  1. DRAFT AS OF: 11.26.07 Embassy Row: Deal Structure November 2007 Confidential Draft

  2. Executive Summary • We have analyzed alternative deal structures to meet the following goals • Smooth EBIT impact of earn-outs • Tie Michael Davies’ incentives to our profitability • Retain Michael Davies as long as possible • Cap total earn-out exposure • Avoid paying Davies on EBITDA if we would be EBIT negative after amortization and earn-out expense • Two primary structures were analyzed • Up-front payment plus earn-outs tied to EBITDA ranges • Acquire 80% of the company; structure put/call on 20% • We believe acquiring 80% of the company and structuring a put/call is the more attractive structure and recommend submitting an LOI on this basis

  3. Structuring Considerations Earn-outs Tied to EBITDA Ranges Acquire 80%; Put/Call on 20% • $20.0MM up-front payment • Up to $14.5MM in earn-outs tied to EBITDA on ER shows (Power of 10 and new shows) • 100% of earn-out paid if EBITDA target is met • 0% of earn-out paid if EBITDA is below a floor • Pro-rated if EBITDA is between floor and target • 5 year contract and an additional 2 year non-compete • $15.0MM up-front payment for 80% of business • 20% minority interest capped at $2.5MM per year • Put/call remaining 20% in year 5 based on: • 7x 20% of EBITDA (excluding Power of 10) • Capped at $18.0MM • Subject to Davies remaining with SPE until that time • 5 year contract and an additional 2 year non-compete Structure • Initial consideration largely attributed to contract/non-compete and expensed over 5 years • Earn-outs expensed • Initial consideration largely attributed to contract/non-compete and expensed over 5 years • When the additional 20% is purchased, this results in a new amortizable asset that could create up to $5MM of amortization in years 6 and beyond • Minority interest is before EBIT for ASPIRE calculations Accounting Considerations • Smooth earnings • Provides consistent annual incentives • Lower initial consideration • Minimizes near-term EBIT impact Pros • Higher initial consideration • Lower EBIT in early years • More complex structure and accounting • Could add amortization in late years Cons

  4. Comparable M&A Multiples: TV Production • Estimated consideration • Median of upfront and earn-out inclusive multiple • Includes maximum earn-out • Source: Offer Memorandum, LTM multiples to June 2007, Forecasts from ING research, 3 August 2007

  5. Impact of Earn-outs Tied to EBITDA Ranges P & L Cash Flow / Valuation Low Case Mid Case High Case

  6. Impact of Acquiring 80% with a Put/Call on 20% P & L Cash Flow / Valuation Low Case Mid Case High Case FY14 – 18 could include ~$4-5MM of amortization for the buyout of the additional 20%

  7. Appendix

  8. Earn-out Target Estimates (1) Based on Davies’ CY08-11 estimates with CY12-13 growth at 15%. (2) Based on SPT estimates

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