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Deal Structure Analysis for Smooth EBIT Impact and Incentives

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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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