SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to
_______________
Commission File Number: 1-5979
ORION PICTURES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
13-1680528
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
identification no.)
1888 Century Park East, Los Angeles, California 90067
(Address of principal executive offices)
Registrant's telephone number, including area code:
(310) 282-0550
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 and 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes X No
Number of shares of Common Stock outstanding as of October 14,
1994: 20,000,000
<PAGE>
ORION PICTURES CORPORATION
INDEX TO
QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Page 2
PART II - OTHER INFORMATION
<PAGE>
PART I - FINANCIAL INFORMATION
ORION PICTURES CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per-share amounts)
(unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
------------------ ------------------
1994 1993 1994 1993
------ ----- ----- -----
Revenues $29,487 $ 30,632 $113,244 $ 70,223
Cost of rentals 32,844 46,548 114,935 87,942
------- -------- -------- --------
Gross profit (loss) (3,357) (15,916) (1,691) (17,719)
Other costs and expenses:
Selling, general and
administrative 5,134 5,367 11,183 10,555
Interest, net 7,266 8,231 14,421 16,567
------ ------ ------- -------
Loss before chapter 11
reorganization items
and provision for
income taxes (15,757) (29,514) (27,295) (44,841)
Chapter 11 reorganization
items 123 391 389 1,213
------- ------- ------- ------
Loss before provision
for income taxes (15,880) (29,905) (27,684) (46,054)
Provision for income
taxes 400 300 700 1,000
------- ------- ------ ------
Net loss $(16,280) $(30,205) $(28,384) $(47,054)
========= ========= ========= =========
Loss per common
share $( .81) $( 1.51) $ ( 1.42) $ ( 2.35)
========= ========= ========= =========
Number of common and
common equivalent
shares entering
into computation 20,000 20,000 20,000 20,000
========= ========== ========= ========
See accompanying Notes to Condensed Consolidated Financial
Statements
Page 3
<PAGE>
ORION PICTURES CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
August 31, February 28,
1994 1994
---------- ------------
ASSETS:
Cash and cash equivalents $21,580 $ 37,114
Accounts receivable, net 78,772 81,981
Film inventories 296,758 367,152
Other assets 19,000 21,767
------- --------
$416,110 $ 508,014
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 1,703 $ 1,681
Accrued expenses 36,558 40,906
Participations and residuals 46,402 50,595
Notes and subordinated debt 235,424 274,501
Deferred revenues 82,604 98,528
Shareholders' equity:
Common stock 5,000 5,000
Paid-in surplus 265,811 265,811
Accumulated deficit (257,392) (229,008)
--------- --------
Total shareholders' equity 13,419 41,803
-------- --------
$ 416,110 $ 508,014
========== ==========
See accompanying Notes to Condensed Consolidated Financial
Statements
Page 4
<PAGE>
ORION PICTURES CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
August 31,
-----------------
1994 1993
---- ----
Operations:
Loss before chapter 11 reorganization
items and provision for income taxes $ (27,295) $ (44,841)
Provision for income taxes (700) (1,000)
-------- --------
Loss exclusive of chapter 11 reorganization items (27,995) (45,841)
Adjustments to reconcile loss exclusive
of chapter 11 reorganization items
to cash provided by operations exclusive
of chapter 11 reorganization items:
Amortization of film costs 89,435 70,500
Decrease in accounts receivable 3,209 26,086
Decrease in accounts payable and
accrued expenses (3,801) ( 6,194)
Accrual of participations and residuals 14,855 4,714
Payments of participations and residuals (19,048) (17,909)
Decrease in deferred revenues (15,924) ( 6,850)
Other, net 8,664 10,020
------ ------
Cash provided by operations
exclusive of chapter 11 reorganization items 49,395 34,526
Payments of chapter 11 reorganization items (389) (1,674)
------ ------
Cash provided by operations 49,006 32,852
Investment activities:
Investment in film inventories (19,041) (34,029)
Other 67 4,062
------ ------
Cash used in investment activities (18,974) (29,967)
Financing activities:
Payments on notes and subordinated debt (45,566) (60,219)
------ ------
Cash used in financing activities (45,566) (60,219)
Increase (decrease) in cash (15,534) (57,334)
Cash and cash equivalents at beginning of period 37,114 77,539
------ ------
Cash and cash equivalents at end of period $ 21,580 $ 20,205
======== ========
See accompanying Notes to Condensed Consolidated Financial
Statements
Page 5
<PAGE>
ORION PICTURES CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Introduction
The accompanying interim condensed consolidated financial
statements of Orion Pictures Corporation and its subsidiaries (the
"Company") have been prepared without audit pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. These financial statements should be read in
conjunction with the consolidated financial statements and related
footnotes included in the Company's latest Annual Report on Form
10-K (the "1994 Form 10-K"). In the opinion of management, all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company
as of August 31, 1994, the results of its operations for the three
and six-month periods ended August 31, 1994 and 1993 and its cash
flows for the six-month periods ended August 31, 1994 and 1993 have
been included. The results of operations for interim periods are
not necessarily indicative of the results which may be realized for
the full year.
The Company's Modified Third Amended Joint Consolidated Plan of
Reorganization was confirmed by the United States Bankruptcy Court
for the Southern District of New York pursuant to an order issued
on October 20, 1992, and became effective on November 5, 1992. The
condensed consolidated financial statements and other disclosures
contained herein should be read in light of such effectiveness. In
particular, as described in "Liquidity and Capital Resources",
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 for
financial reporting purposes for the foreseeable future.
2. Basis of Presentation
On December 11 and 12, 1991 (the "Filing Date"), the Company and
substantially all of its subsidiaries filed petitions for relief
under chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the
Southern District of New York (the "Court"). During the period
from the Filing Date to November 5, 1992 (the "Bankruptcy Period"),
the Company operated under a series of court orders and actively
sought to obtain new equity capital and other forms of investment
in order to recapitalize. In this regard, the Company filed its
"Debtors' Joint Consolidated Plan of Reorganization" (the "Plan")
with the Court on July 13, 1992 (as amended on July 24, 1992,
August 7, 1992, September 3, 1992 and October 20, 1992) and the
related "Disclosure Statement for Debtors' Joint Consolidated Plan
of Reorganization" with the Court on July 21, 1992 (as amended on
July 24, 1992, August 7, 1992 and September 3, 1992). On October
20, 1992 (the "Confirmation Date"), the Court confirmed the Plan
which became effective on November 5, 1992 (the "Effective Date").
The Plan and the Company's reorganization activities are more fully
described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Certain claims have arisen after the Filing Date from rejection of
executory contracts and leases, and from the determination by the
Court (or agreed to by parties in interest) of allowed claims for
contingencies and other disputed amounts (Note 9). The Company's
consolidated financial statements
Page 6
<PAGE>
were prepared on a going concern basis during the Bankruptcy
Period, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business.
3. Chapter 11 Reorganization Costs
The Company has applied the provisions of Statement of Position 90-
7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", issued by the American Institute of Certified
Public Accountants ("SOP 90-7") to account for the effects of
operating in a chapter 11 environment during the bankruptcy period.
SOP 90-7 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
Condensed Consolidated Statements of Operations for the three and
six-month periods ended August 31, 1994 and 1993 is comprised
primarily of legal fees incurred during those periods. Direct
costs of administering the chapter 11 filing are expected to
continue until all claims and related litigation are resolved.
4. Film Inventories
The following is an analysis of film inventories (in thousands):
August 31, February 28,
1994 1994
Theatrical films:
Released $ 265,946 $ 305,560
Completed and unreleased 19,978 50,204
Television programs:
Released 10,834 11,388
$ 296,758 $ 367,152
In late December 1991, the Company received a notice from Showtime
Networks, Inc. ("Showtime") stating that Showtime believed that the
Company had not complied with the so-called "key man clause" in the
Company's exclusive film licensing agreement with Showtime and,
accordingly, that Showtime would not license the 16 pictures
theatrically released in the domestic marketplace during fiscal
1992, 1993 and 1994 and the first and third quarters of fiscal
1995, (the "Key Man Dispute"). License fees under the Showtime
agreement for these sixteen films were expected to aggregate
approximately $77,000,000. After a review of the underlying facts
and circumstances and consultation with counsel, the Company
advised Showtime that the Company had complied with the key man
clause in the Showtime agreement, that failure to accept delivery
of the product rejected by Showtime constituted Showtime's default
under the agreement and that the Company intended to pursue all
available remedies to realize the domestic pay television license
fees due under the Showtime agreement.
On March 20, 1992, the Company filed a proceeding in the Court
against Showtime seeking, among other things, an order permitting
the Company to exercise its power under the Bankruptcy Code to
assume, and therefore not reject, the Showtime agreement. As part
of its request to assume the agreement, the Company sought a
factual determination by the Court that it had complied with the
key man clause.
After a hearing and trial on these matters held on May 14 and 15,
1992, the Court issued an order dated June 3, 1992 (the "Showtime
Order"), authorizing the Company to assume the Showtime agreement
and finding that the Company had complied with the key man clause.
Showtime subsequently appealed the Showtime Order to the United
States District Court for the Southern District of New York (the
"District Court"). On December 8, 1992, the District Court
affirmed the decision of
Page 7
<PAGE>
the Court. On January 13, 1993, Showtime appealed the decision
of the District Court to the United States Court of Appeals
for the Second Circuit (the "Appeals Court"). Oral argument
was held on June 7, 1993. On September 17, 1993, the Appeals
Court vacated the grant of motion to assume and remanded
the motion to assume to the Court for further proceedings. On
January 31, 1994, the Company commenced an appeal of the Appeals
Court's decision to the Supreme Court of the United States by
petitioning for a writ of certiorari. If the Appeals Court's
decision was not reversed by the Supreme Court, the Appeals Court's
decision ultimately could have lead to a retrial of the issue of
the Company's compliance with the key man clause to a jury. In the
event of any such retrial, the Company intended to pursue the
matter vigorously although it could not predict how a jury would
determine the facts.
On May 6, 1993, the Company was served with a complaint from
Showtime alleging that Showtime should be permitted to offset
approximately $29,300,000 in fees plus interest against future
license fees due the Company under the Showtime agreement (the
"Qualification Dispute"). Showtime claimed that the Company did
not meet the qualification criteria on eight films, one of which is
already included in the disputed pictures under the Key Man Dispute
described above.
In order to avoid the uncertainty inherent in jury trials and the
continued delay and cost related to pursuing its rights, claims and
defenses in connection with these disputes, the Company determined
that it was prudent to commence settlement negotiations with
Showtime. On March 29, 1994, the Company and Showtime reached an
agreement (the "Showtime Settlement") settling the litigations and
disputes described above which was approved by the Court on such
date and became effective on March 29, 1994. The Showtime
Settlement continues to provide for the exclusive United States pay
television exhibition of the 16 pictures that were the subject of
the Key Man Dispute. For each motion picture meeting certain
requirements, the Showtime Settlement provides for a reduced
minimum license fee. The Showtime Settlement also reduced the
license fees related to the seven pictures included in the
Qualification Dispute described above that were not the subject of
the Key Man Dispute. License fees for the 23 pictures subject to
the Showtime Settlement were approximately $33,300,000 less than
the approximate $105,000,000 of such fees pursuant to the Showtime
agreement; accordingly, film inventories at February 28, 1994 were
adjusted to reflect this settlement.
Approximately three-quarters of the Company's film inventories at
August 31, 1994 and at February 28, 1994 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.
Since the date of the Company's quasi-reorganization (February 28,
1982), when the Company's inventories were restated to reflect
their then current market value, the Company has amortized 91% of
the gross cost of its film inventories, including those produced
subsequent to the quasi-reorganization. Approximately 96% of such
gross film inventory costs will have been amortized by August 31,
1997. Due to the restrictions of the Plan, the Company has not
produced significant incremental inventory. Therefore, as the
existing inventory moves into the ancillary markets and is not
replaced by significant recent inventory, a greater percentage of
the future revenue estimate will occur subsequent to the first
three years. Consequently, as of August 31, 1994, approximately
57% of the unamortized balance of film inventories currently in
release and to be released will be amortized within the next three-
year period based upon the Company's revenue estimates at that
date. However, such amortization is expected to exceed 60% within
one additional year (a four-year period).
Page 8
<PAGE>
5. Notes and Subordinated Debt
Notes and subordinated debt is comprised of the following (in
thousands):
August 31, February 28,
1994 1994
--------- -----------
Notes payable to banks pursuant to
the Third Amended and Restated
Credit Agreement ("Third Restated
Credit Agreement") $ 92,445 $ 122,862
Talent Notes due 1999, net
of unamortized discounts
of $9,359 and $9,995 26,875 29,349
Creditor Notes due 1999, net
of unamortized discounts
of $24,854 and $27,722 37,686 34,820
Non-interest bearing payment
obligation to Sony,
net of unamortized discounts
of $1,811 and $2,783 28,551 38,735
Other guarantees and contracts
payable, net of
unamortized discounts
of $3,286 and $3,634 8,763 9,297
------- -------
Total notes payable $ 194,320 $ 235,063
10% Subordinated Debentures
due 2001, net of unamortized
discounts of $9,342 and $10,483 41,104 39,438
-------- --------
Total notes and subordinated debt $ 235,424 $ 274,501
========= =========
Approximately $190,826,000 was outstanding under the Third Restated
Credit Agreement on the Effective Date of the Plan (Note 2). Such
amount has been reduced through repayments to approximately
$80,945,000 at September 30, 1994 which matures as follows (in
thousands):
October 20
----------
1994 $ 16,729
1995 64,216
--------
$ 80,945
========
Notwithstanding the above maturity schedule, and to the extent that
the Company generates positive net cash flow (as defined in the
Third Restated Credit Agreement) ("Net Cash Flow") for the
immediately preceding period, the Company is required to make
principal payments of amounts outstanding under the Third Restated
Credit Agreement at least quarterly during the period from the
Effective Date to October 20, 1995, in amounts approximating 62% of
the Company's Net Cash Flow. In addition, in connection with
consummation of the Plan, Metromedia Company ("Metromedia"), the
Company's principal shareholder, and an affiliate of Metromedia
(collectively, the "Guarantors") guaranteed the payment of
substantially all of the Company's payment obligations under the
Third
Page 9
<PAGE>
Restated Credit Agreement pursuant to a bank guarantee (the
"Bank Guarantee"). In the event the Guarantors make any payments
under the Bank Guarantee, the Company has agreed to reimburse such
party pursuant to a reimbursement agreement out of the portion of
Net Cash Flow allocated to the Banks (62%) and Sony (23%) following
payment in full of the Banks and Sony. The Company currently
anticipates that the Guarantors will be required to make a payment
under the Bank Guarantee on October 20, 1994.
In accordance with the terms of the Plan, the Company had a
$70,000,000 non-interest bearing payment obligation to Sony at the
Effective Date (the "Sony Obligation"). The Sony Obligation is
payable pari passu with amounts payable under the Third Restated
Credit Agreement described above, and is backed up by a letter of
credit issued pursuant to the Third Restated Credit Agreement.
Such amount has been reduced through repayments to approximately
$26,144,000 at September 30, 1994 which matures as follows (in
thousands):
November 5
----------
1994 $ 6,144
1995 20,000
------
$ 26,144
======
Notwithstanding the above maturity schedule and to the extent that
the Company generates positive Net Cash Flow for the immediately
preceding period, the Company is required to make principal
payments of amounts outstanding for the obligation to Sony at least
quarterly during the period from the Effective Date to November 5,
1995 in an amount approximating 23% of the Company's Net Cash Flow.
To the extent the Company fails to repay such amounts on a timely
basis, Sony may draw under the letter of credit issued in its favor
after giving notice and an opportunity to cure to the Guarantors
under the Bank Guarantee. In the event Sony does draw under the
letter of credit issued in its favor, such amount would become an
obligation of the Company under the Third Restated Credit Agreement
and guaranteed pursuant to the Bank Guarantee. The Company
currently anticipates that the Guarantors under the Bank Guarantee
will be required to make a payment to Sony on or about November 5,
1994.
In accordance with the provisions of the Plan and the agreements
entered into in connection with the Plan, the Company must make
certain cumulative minimum aggregate Net Cash Flow payments
("Mandatory Minimum") to the holders of the Talent Notes, the
Creditors Notes and the 10% Subordinated Debentures (the "Plan
Debt") in payment of their respective principal and interest. As is
more fully described in the 1994 Form 10-K, the Indentures pursuant
to which the Talent Notes and the Creditor Notes were issued (the
"Indentures") provide for only a single Mandatory Minimum threshold
that must be received by the holders of the Plan Debt in payment of
their respective principal and interest for each fiscal quarter
through the fiscal year ended February 28, 1999, rather than
separate quarterly thresholds for each fiscal quarter. The Company
believes the language set forth in the Indentures does not reflect
the agreement between the Company and its principal creditors who
negotiated and agreed upon the provisions based upon the Company's
review of the agreement in principle agreed to by such parties.
Notwithstanding the literal language of the Indentures, it is the
Company's intention to follow what it believes is the intention of
the agreeing parties. Therefore, the following summarizes both the
anticipated Mandatory Minimum amounts contained in the Indentures
and the interpretation of the Company ("Interpretation"). Under
the terms of the Indentures, these Mandatory Minimum amounts are to
be reduced by 15% of the portion of amounts due under the Showtime
agreement to the extent that the amounts are not received by the
Company ("Showtime
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shortfall") until such time as the Banks and/or Sony and, if
applicable, the guarantor under the Bank Guarantee are paid in
full. Thereafter, the Mandatory Minimums will be reduced by 100%
of the Showtime Shortfall.
Per Indentures
- - - --------------
Estimated Adjusted Cumulative Minimum Amounts
---------------------------------------------
(in thousands)
Fiscal Year Ended
February 28(29) May August November February
- - - ----------------- --- ------ -------- --------
1995 $ ---- $ ---- $ ---- $ 27,596
1996 $ 61,948 $ 61,948 $ 61,948 $ 61,948
1997 $ 97,802 $ 97,802 $ 97,802 $ 97,802
1998 $161,140 $161,140 $161,140 $161,140
1999 $204,741 $204,741 $204,741 $204,741
Per Interpretation
Estimated Adjusted Cumulative Minimum Amounts
---------------------------------------------
(in thousands)
Fiscal Year Ended
February 28(29) May August November February
- - - ----------------- --- ------ -------- --------
1995 $ ---- $ ---- $ ---- $ 27,596
1996 $ 36,184 $ 44,772 $ 53,360 $ 61,948
1997 $ 70,911 $ 79,874 $ 88,838 $ 97,802
1998 $113,636 $129,470 $145,304 $161,140
1999 $172,040 $182,940 $193,840 $204,741
The Company has made seven Net Cash Flow distributions in
accordance with the Plan. The distributions were made in November
1992, March 1993, June 1993, December 1993, March 1994, June 1994,
and September 1994, respectively. In accordance with the
provisions of the Plan and the agreements entered into in
connection with the Plan, a Net Cash Flow distribution was not made
for the quarter ended August 31, 1993 because the Company did not
generate Net Cash Flow. Because distributions of Net Cash Flow are
dependent upon the Company's ability to generate Net Cash Flow and
are determined for specified periods in accordance with the Plan
and the agreements entered into in connection with the Plan, no
assurance can be made as to the amount, if any, of each future
distribution. The following table summarizes and describes the
allocation of these distributions in accordance with the Plan (in
thousands):
<TABLE>
<CAPTION>
September June March Fiscal 11/5/92
1994 1994 1994 1994 to 2/28/93 Total
-------- ---- ----- ------ -------- -----
<C> <C> <C> <C> <C> <C>
Third Restated Credit Agreement $ 11,500 $ 14,188 $ 16,229 $ 39,345 $ 28,619 $109,881
Sony Obligation 4,218 5,204 5,952 17,984 10,497 43,855
Talent Notes (principal and interest) 1,572 1,939 2,218 5,733 3,910 15,372
Creditor Notes 164 --- --- 1,046 1,498 2,708
10% Subordinated Debentures due 2001 --- --- --- --- 977 977
Interest on 10% Subordinated
Debentures due 2001 1,037 1,483 1,697 3,339 519 8,075
------- ------ ------ -----
$ 18,491 $ 22,814 $ 26,096 $ 67,447 $ 46,020 $180,868
</TABLE>
Pursuant to the Waiver and Consent dated as of June 30, 1993 under
the Third Restated Credit
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Agreement, $2,600,000 of the portion of the June 1993
distribution payable pursuant to the Plan to the
Company's banks was instead paid to Sony. In accordance with the
terms of the Plan, all or part of the portion of Net Cash Flow
which would otherwise be payable to holders of Creditor Notes for
the September 1994, June 1994, March 1994, December 1993, June 1993
and March 1993 distributions were used to satisfy, in whole or in
part, the interest obligation on the 10% Subordinated Debentures.
In addition, in accordance with the indenture for the 10%
Subordinated Debentures, approximately $898,000 and $525,000,
respectively, of the interest due October 1, 1993 and April 1, 1994
related to the 10% Subordinated Debentures was paid by the issuance
of additional debentures. Also, in accordance with the Talent Note
indenture, all of the interest due for the three-month periods
ended August 31, 1993 and November 30, 1993 on the Talent Notes was
paid by the issuance of additional notes (approximately $405,000
and $426,000, respectively). The payments on the Sony Obligation
have reduced the outstanding amount on the letter of credit
supporting such obligation to $31,144,000 at September 30, 1994.
All descriptions of securities above refer to securities issued and
in certain cases, estimated amounts of such securities that are yet
to be issued, because certain bankruptcy claims have not been
resolved.
6. Income Taxes
The provision for income taxes for the three and six months ended
August 31, 1994 and 1993 consists of the following (in thousands):
Three Months Ended Six Months Ended
August 31 August 31
------------------ ----------------
1994 1993 1994 1993
----- ----- ---- ----
Federal $ - $ - $ - $ -
State and local - - 100 100
Foreign 400 300 600 900
--- --- --- ---
$ 400 $ 300 $ 700 $1,000
====== ====== ====== ======
These provisions are based, in part, upon estimates of the
Company's effective tax rate for the entire year. Only a portion
of such provisions are offset by losses from operations, because of
certain foreign and state taxes which cannot be mitigated by such
losses. In addition, foreign taxes are provided for certain
transactions in the period in which they occur.
7. Loss Per Common Share
Per-share amounts presented on the Company's condensed consolidated
statements of operations for periods ended after the Effective Date
are computed by dividing Net income (loss) by the weighted average
number of common shares outstanding during each period.
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8. Revenue Information
The sources of the Company's revenues from operations by market for
the three and six-month periods ended August 31, 1994 and 1993 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. During the three months ended August 31, 1994 and
1993, the Company generated revenues of $11,898,000 and
$18,875,000, respectively, from foreign distribution of such
product. During the six-month period ended August 31, 1994 and
1993, the Company generated foreign distribution revenues of
$27,319,000 and $41,132,000, respectively.
9. Contingent Liabilities
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 various
litigation matters contain prayers for material awards including
claims arising after the Filing Date from the determination by the
Court (or agreement by parties in interest) to allow claims for
certain contingencies and other disputed amounts. Based upon
management's review of the underlying facts and circumstances and
consultation with counsel, management believes such matters will
not result in the allowance by the Court of significant additional
liabilities which would have a material adverse effect upon the
consolidated financial position or results of operations of the
Company with the possible exception of the matter described below.
As previously disclosed in the registrant's prior filings including
the Annual Report on Form 10-K for the fiscal year ended February
28, 1994, on October 12, 1990, Hemdale Film Corporation ("Hemdale")
filed an action against the Company in the Superior Court for Los
Angeles alleging various breaches of the agreements between Hemdale
and the Company for distribution of the motion pictures "PLATOON",
"HOOSIERS" and "THE TERMINATOR". The plaintiff produced these
pictures which the Company released. The complaint seeks an
accounting and damages purportedly in excess of $30,000,000 and is
based on the allegation that the Company paid Hemdale less than it
was due under the agreements, used improper accounting practices,
refused to permit Hemdale's representatives to conduct appropriate
examinations of the Company's books and records and provided
Hemdale with allegedly inaccurate and inadequate settlement
statements. On December 10, 1990, the Company filed its answer,
denying the material allegations of the complaint, asserting that
its accounting practices were accurate in all respects. Hemdale
has filed a proof of claim substantially based on the allegations
in its complaint. The Company has objected to Hemdale's claim and
the estimation hearing on Hemdale's claim has been further
adjourned in the Court until November 14, 1994. Therefore, no
assurance can be given at this time concerning the ultimate outcome
of the Hemdale litigation or the effect thereof, if adverse to the
Company. As a result of the Company's chapter 11 filings, it is
expected that this case will be tried before the Court.
10. Proposed Transaction
On August 31, 1994, the Company, the Actava Group Inc. ("Actava"),
MCEG Sterling Incorporated ("Sterling"), International Telcell,
Inc. ("ITI") and Metromedia International Inc. ("MII"; and together
with ITI, "Metromedia International Telecommunications, Inc." or
"MITI") signed letters of intent to combine the foregoing companies
(the "Proposed Transaction") into a new company to be called
"Metromedia International Group, Inc." MITI is an affiliate of
Metromedia, the Company's principal shareholder.
Under the terms of the Proposed Transaction, as set forth in the
nonbinding letters of intent, each
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share of the Company's common stock would be exchanged for
0.57143 shares of Actava common stock or its
equivalent, each share of Sterling common stock will be
converted into Actava common stock or its equivalent at the same
0.57143 exchange ratio and each share of MITI common stock would be
converted into 5.5614 shares of Actava common stock or its
equivalent. The foregoing exchange ratios will be subject to
certain adjustments depending on the trading range of Actava common
stock. As a result of the Proposed Transaction, it is currently
anticipated that Actava (based upon market prices on the dates the
letters of intent were executed, and assuming Actava is the
surviving entity in the Proposed Transaction) would issue an
additional approximately 21,500,000 shares of common stock. Actava
currently has approximately 18,335,186 shares of common stock
outstanding. The Actava common stock to be issued to the
Company's, Sterling's and MITI's shareholders in connection with
the Proposed Transaction will be identical to the shares of Actava
common stock currently outstanding, except that the shares of
common stock issued to Metromedia and its affiliates will be
entitled to three votes per share. It is currently anticipated
that Metromedia and its affiliates would control in excess of 50%
of the voting power of the surviving entity as a result of the
stock exchanges contemplated by the Proposed Transaction.
Metromedia International Group, Inc. will be managed by a three
person Office of the Chairman consisting of John W. Kluge, the
Company's current Chairman of the Board as Chairman, Stuart
Subotnick, the Company's current Vice Chairman as Vice Chairman and
John D. Phillips, President and Chief Executive Officer of Actava,
as President.
The closing of each transaction included in the Proposed
Transaction is contingent upon the closing of each other
transaction included in the Proposed Transaction. The consummation
of the Proposed Transaction is subject, among other things, to the
successful negotiation and execution of definitive agreements,
approval of the Proposed Transaction by the Boards of Directors and
shareholders of Actava, the Company, Sterling, and MITI, the
completion of satisfactory due diligence investigations by each of
the parties to the Proposed Transaction, the receipt of all
required lender consents, the successful refinancing of the
currently outstanding amounts owed to the Company's debtholders
(the Banks, Sony, Holders of Talent Notes, Creditor Notes and 10%
Subordinated Debentures), and the receipt of all required
regulatory approvals, including approval with respect to the Hart-
Scott-Rodino Antitrust Improvement Act of 1976, as amended.
The Company has been named a defendant in two separate lawsuits
regarding the Proposed Transaction. See "Part II - Other
Information - Item 1 - Legal Proceedings"
11. Liquidity
As described in Note 5 the Company has significant obligations
under the Plan. To the extent that the Company generates Net Cash
Flow, the Company is required to make principal payments with
respect to the Banks and Sony and to holders of its Talent Notes,
Creditor Notes and 10% Subordinated Debentures at least quarterly
out of Net Cash Flow. Net Cash Flow as defined in the Plan
generally provides for the payment of operating costs as incurred.
Because distributions are dependent upon the Company's ability to
generate Net Cash Flow and are determined for specified periods in
accordance with the Plan, no assurance can be made as to the
amount, if any, of each future distribution. See Note 5 for a
schedule of the Company's Net Cash Flow payments since the
Effective Date.
The Company has to date generated sufficient Net Cash Flow to meet
its operating and Plan obligations. However, the poor performance
of the Company's pictures released after the Effective Date and the
reduction pursuant to the Showtime Settlement from the contractual
amounts which otherwise would be payable by Showtime under the
Showtime Agreement, have had an adverse effect on the liquidity of
the Company. The Company anticipates that such events will in turn
have an
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adverse effect on the Company's ability to meet its obligations
under the Third Restated Credit Agreement and to Sony
discussed below in the fiscal year ended February 28, 1995 ("fiscal
1995") and the other Plan obligations discussed below in the fiscal
year ended February 29, 1996 ("fiscal 1996").
As described in Note 5, the Company must make certain principal
payments to its bank lenders under the terms of the Third Restated
Credit Agreement and to Sony pursuant to the Sony Obligation in
October and November 1994, respectively, and October and November
1995, respectively. The Company will not generate sufficient Net
Cash Flow to make the scheduled payments to the Banks and Sony in
October and November 1994, respectively, and accordingly, it
anticipates that the Guarantors under the Bank Guarantee will be
obligated to make certain payments to such parties. In addition,
based upon current estimates of Net Cash Flow, the Company does not
currently believe it will generate sufficient Net Cash Flow to make
the scheduled final maturity payments to the Banks and Sony, in
October and November 1995, respectively. In such events, the Banks
may demand payment from the Guarantors under the Bank Guarantee and
Sony may draw under its letter of credit (if Metromedia does not
first cure such payment default), in which case the amount drawn by
Sony would become a guaranteed obligation of the Guarantors under
the Bank Guarantee. Any such payments made by the Guarantors under
the Bank Guarantee on behalf of the Company to the Bank and/or to
Sony would result in such Guarantors becoming subrogated to the
Banks' and Sony's portion of the Company's Net Cash Flow following
payment in full of the Company's obligations to the Banks and Sony.
The Company would be obligated to reimburse the amounts paid by the
Guarantors under the Bank Guarantee on the Company's behalf, plus
interest, out of the portion of the Company's Net Cash Flow
previously allocable to the Banks and Sony until such Guarantors
are reimbursed in full.
In addition, as described in Note 5, the Indentures pursuant to
which the Talent Notes and Creditor Notes were issued (the
"Indentures") provide that an event of default ("Event of Default")
will occur under such Indentures if the aggregate amount of Net
Cash Flow paid by the Company to the holders of Talent Notes,
Creditor Notes and 10% Subordinated Debentures (the "Plan Debt")
does not exceed the mandatory minimum amounts (the "Mandatory
Minimums") specified in the Indentures. The Indentures also
provide, however, that the Mandatory Minimums will be reduced by
certain net amounts due under the Showtime Agreement which are not
received by the Company because of the Showtime Settlement.
The Indentures provide that the first Mandatory Minimum threshold
must be met by the Company by the last quarter of fiscal 1995.
Thereafter, although the Indentures provide that the Company must
make payments to the holders of the Plan Debt in the amounts
specified in the Indentures (less the reduction for the Showtime
Settlement discussed above) for each fiscal quarter through the
fiscal year ended February 28, 1999, the Indentures only set forth
a single Mandatory Minimum threshold for each such fiscal year,
rather than separate quarterly thresholds for each fiscal quarter.
Accordingly, a literal reading of the Indentures would mean that by
the end of each of the Company's four fiscal quarters in each
fiscal year beginning with the fiscal quarter ended May 31, 1995,
the Company would have had to pay to the holders of the Plan Debt
the same Mandatory Minimum amount. The Company believes that the
language set forth in the Indentures does not reflect the agreement
between the Company and its principal creditors who negotiated and
agreed upon the provisions based upon the Company's review of the
agreement in principle agreed to by such parties. The Company
believes that the Mandatory Minimums specified in the Indentures
were intended to be the required Mandatory Minimum thresholds for
only the last fiscal quarter of each fiscal year beginning with the
fiscal year ended February 29, 1996 and that lower quarterly
Mandatory Minimum amounts should have been calculated and set forth
in the Indentures for each fiscal quarter of each fiscal year
beginning with the quarter ended May 31, 1995. Notwithstanding the
literal language of the Indentures, it is the Company's intention
to follow what it believes to be the intention of the agreeing
parties.
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Utilizing the Mandatory Minimums contained in the Indentures rather
than the interpretation the Company believes reflects the agreement
of the parties, the Company, based upon current cash flow
projections (which are subject to change), currently anticipates
that it would not generate sufficient Net Cash Flow to satisfy the
Mandatory Minimum threshold under the Indentures beginning with the
quarter ended May 31, 1995 and that accordingly, an Event of
Default would occur under each such Indenture on such date. Upon
the occurrence and continuation of an Event of Default, the Trustee
under each of the Indentures or 40% in aggregate principal amount
of either the Talent Notes or the Creditor Notes could cause an
immediate acceleration of the entire principal amount of such
Notes. Should such acceleration under the Indentures occur, the
Company, absent other financing arrangements, may be forced to seek
protection under chapter 11 of the United States Bankruptcy Code.
Notwithstanding the literal language of the Indentures, the Company
believes, however, that no such Event of Default should occur
because the language set forth in the Indentures does not reflect
the intention of the Company and the representatives of the Plan
Debt who negotiated such provisions and accordingly that no
acceleration of the Notes should occur on such quarterly date.
Utilizing the Company's view that the agreement of the parties is
not reflected in the language of the Indentures and that the
Indentures should be reformed to set forth quarterly Mandatory
Minimum thresholds for each fiscal quarter, the Company
nevertheless currently believes, based upon current cash flow
projections (which are subject to change), that it will not
generate sufficient Net Cash Flow to satisfy such reformed
quarterly Mandatory Minimums at the quarter ended August 31, 1995.
In order to meet the Company's anticipated shortfall, the Company
must obtain a waiver, refinance its existing Plan Debt, or obtain
additional sources of financing including those described below.
If the Company cannot satisfy the Mandatory Minimum thresholds at
the quarter ended August 31, 1995, on such date an Event of Default
would occur under the Indentures, which in turn could cause an
acceleration of such Notes as described above. Should such
acceleration under the Indentures occur, the Company, absent other
financing arrangements, may be forced to seek protection under
chapter 11 of the United States Bankruptcy Code. As more fully
described in Note 10, the Company has entered into letters of
intent to combine the Company with The Actava Group Inc., MCEG
Sterling Inc., and Metromedia International Telecommunications,
Inc. A condition to consummation of the Proposed Transaction is
the refinancing of all the Company's Plan Debt and its remaining
obligations to the Banks and to Sony, so as to ease the cash flow
burden on the surviving company of the proposed merger and avoid an
Event of Default and possible acceleration of the Notes pursuant to
the Indentures. There can be no assurance that this proposed
refinancing or the Proposed Transaction will be consummated.
As previously discussed herein, the Company anticipates net losses
for financial reporting purposes for fiscal 1995, however, the
Company believes it will have sufficient liquidity to meet its
obligations through fiscal 1995 except for its obligations to the
Banks and Sony, which obligations become guaranteed obligations
under the Bank Guarantee as described above.
The Company continues to exploit its existing library of product in
order to generate Net Cash Flow. The Company is also actively
pursuing a number of steps aimed at improving its operating results
to date and increasing its Net Cash Flow by acquiring or producing
new product on a nonrecourse basis as permitted under the Plan.
Since the Effective Date, the Company has been able to acquire some
new product with nonrecourse financing. In order to further
exploit its existing distribution apparatus, the Company will
continue to actively seek to attract the requisite nonrecourse
financing to fund the acquisition and distribution costs of new
theatrical and home video product, which would be distributed by
the Company through its distribution system. In addition, the
Company will pursue additional nonrecourse financing for the
production of new product, which the Company is also permitted to
engage in under the Plan on a nonrecourse basis or through certain
unrestricted subsidiaries. If the Company is successful in
obtaining nonrecourse financing as described above, the
contribution to the Company's liquidity will generally be in the
form of a distribution fee. In addition to the Proposed
Transaction described above, the Company continues to consider its
alternatives in connection with the anticipated payment shortfall
to the holders of the Plan Debt including other restructuring or
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refinancing of such Plan Debt. Despite these intentions, there can
be no assurance that any transaction, restructuring or refinancing
will be consummated or that the Company will be able to generate
sufficient Net Cash Flow to avoid an Event of Default under its
Indentures in fiscal 1996.
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ORION PICTURES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On December 11 and 12, 1991 (the "Filing Date"), the Company and
certain of its subsidiaries filed petitions for relief under
chapter 11 of Title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Southern
District of New York (the "Court"). During the period from the
filing date to November 5, 1992 (the "Bankruptcy Period"), the
Company operated under a series of Court orders and actively sought
to obtain new equity capital and other forms of investment in order
to recapitalize. In this regard, the Company filed its "Debtors'
Joint Consolidated Plan of Reorganization" as amended July 24,
August 7, September 3 and October 20, 1992 (the "Plan") with the
Court on July 13, 1992. On October 20, 1992 (the "Confirmation
Date"), the Court confirmed the Plan which became effective on
November 5, 1992 (the "Effective Date"). The Plan and the
Company's reorganization activities are more fully described in
"Liquidity and Capital Resources" below. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the
year ended February 28, 1994 (the "1994 Annual M,D & A") for a
further discussion of the Company's Plan of Reorganization and the
implications thereof.
On August 31, 1994, the Company, the Actava Group Inc. ("Actava"),
MCEG Sterling Incorporated ("Sterling"), International Telcell,
Inc. ("ITI") and Metromedia International Inc. ("MII"; and together
with ITI, "MITI") signed letters of intent to combine the foregoing
companies (the "Proposed Transaction") into a new company to be
called "Metromedia International Group, Inc.", as is more fully
described in Note 10 of Notes to Condensed Consolidated Financial
Statement ("Note 10").
RESULTS OF OPERATIONS
During the second quarter of the fiscal year ending February 28,
1995 ("fiscal 1995"), the Company recorded a net loss of
$16,280,000 on revenues of $29,487,000. During the second quarter
of the preceding year ("fiscal 1994"), the Company recorded a net
loss of $30,205,000 on revenues of $30,632,000.
For the first six months of fiscal 1995, the Company reported a net
loss of $28,384,000 on revenues of $113,244,000. For the first six
months of fiscal 1994 the Company reported a net loss of
$47,054,000 on revenue of $70,223,000.
Certain factors should be considered when evaluating the Company's
results of operations in the second quarter of both fiscal 1995 and
fiscal 1994. First, as previously disclosed in the Company's 1994
Form 10-K, approximately three-quarters, of the Company's film
inventories are stated at amounts approximating their estimated net
realizable value and do not result in the recording of gross profit
upon recognition of related revenues. A significant portion of
recorded revenues in the second quarter of both fiscal 1995 and
fiscal 1994 related to such inventory product. In addition, the
Company recorded $7,900,000 and $17,600,000, respectively, of
writedowns on this product in the second quarter of fiscal 1995 and
1994 including $2,600,000 and $6,900,000, respectively, of
writedowns to net realizable value on certain unreleased product.
Thus, gross profit from profitable pictures (before the effect of
the writedowns in the first quarter of both fiscal 1995 and 1994
described above), was insufficient to cover selling, general and
administrative and interest costs recognized during each quarter.
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THREE MONTHS ENDED AUGUST 31 (1994 vs 1993)
- - - -------------------------------------------
Revenues
The following table sets forth the sources of the Company's
revenues from operations by market during the second quarter of
fiscal 1995 and 1994 (in thousands):
Three Months Ended
August 31,
------------------
1994 1993
---- ----
Theatrical distribution $ 2,277 $ 7,650
Television and video distribution:
Home video direct distribution 7,838 7,821
Home video subdistribution 1,785 100
Pay television 2,394 5,190
Free television and other 15,193 9,871
------- ------
Total television and video distribution 27,210 22,982
------- ------
$ 29,487 $ 30,632
======== ========
Theatrical Revenues
There were no domestic theatrical releases in the second quarter of
fiscal 1995 or 1994. The majority of the Company's theatrical
revenues in the quarter ended August 31, 1993 were generated by the
foreign distribution of "ROBOCOP 3".
Of the films unreleased at the Effective Date, the Company released
the last two in the domestic theatrical marketplace during the
third quarter of fiscal 1995. The Company's ability to produce or
acquire additional product for distribution is limited, therefore,
revenues from theatrical distribution after the third quarter of
fiscal 1995 will depend entirely on the Company's ability to
produce or acquire additional product.
Home Video Revenues
The distribution of one of the Company's theatrical releases in the
domestic home video rental market through Orion Home Video ("OHV")
accounted for approximately one quarter of the Company's home video
direct distribution revenues during the current year's second
quarter. A substantial portion of the remaining revenues were
derived from "sell-thru" (i.e. lower priced) sales of various
titles. Approximately half of the Company's home video direct
distribution revenues in the previous year's second quarter was
derived from the release of one title in the domestic home video
rental market. No individual picture generated significant home
video subdistribution revenues during the first quarter of fiscal
1995 or 1994.
Furthermore, the Company's reduced theatrical release schedule
beginning in fiscal 1992, and the limitations of the Plan with
regard to the investment in the production of new theatrical
product, are likely to continue to have an adverse effect on
quarterly revenues in both the home video direct distribution and
subdistribution market for the foreseeable future.
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Pay Television Revenues
During the second quarter of fiscal 1995, no titles became
available for exclusive exhibition in the pay cable market pursuant
to a settlement (the "Showtime Settlement") reached with Showtime
Networks Inc. ("Showtime") as described in Note 4 of Notes to
Condensed Consolidated Financial Statements ("Note 4").
The majority of the remainder of the Company's revenue in this
market in each quarter was recorded upon the availability of
various titles under certain foreign pay television agreements.
Furthermore, the reduced license fees under the Showtime
Settlement, as described in Note 4, the Company's reduced
theatrical release schedule beginning in fiscal 1992, and the
limitations of the Plan with regard to the investment in the
production of new theatrical product, are likely to have an adverse
effect on quarterly revenues in this market for the foreseeable
future.
Free Television Revenues
The Company's free television revenues in the three months ended
August 31, 1994 and 1993 included approximately $7,200,000 and
$6,400,000, respectively, of license fees recognized from the
availability in a number of foreign territories of certain of the
Company's theatrical titles. Free television revenues in the
current quarter also include fees from the availability to Lifetime
of seven pictures under the Company's two major agreements with
that basic cable network compared to only one picture in the prior
year's second quarter.
Gross Profit (Loss)
No film generated significant gross profit in either the current or
prior year's second quarter. Furthermore, as previously disclosed
in the Company's 1993 and 1994 Forms 10-K, approximately three-
quarters of the Company's film inventories are stated at estimated
net realizable value and do not result in the recording of gross
profit upon the recognition of related revenues. A large portion
of recorded revenues in the second quarter of fiscal 1995 and 1994
are related to this product. In addition, the current quarter was
adversely affected by $2,600,000 of writedowns to net realizable
value, based upon preliminary results, of the last two of the
Unreleased Films that were released in September 1994. In
addition, the prior year's second quarter was adversely affected by
the recording of further writedowns of inventory, including
writedowns of the carrying amounts of its completed but unreleased
films at that time based upon further evaluation of their potential
performance. These writedowns aggregated approximately $6,900,000.
In addition, as is done every quarter, the Company performed a
review of its inventory of film product and, where appropriate,
adjusted values of films in release to reflect current estimates of
net realizable value. Such writedowns aggregated approximately
$5,300,000 and $10,700,000 in the second quarter of fiscal 1995 and
1994, respectively, including $5,100,000 in the second quarter of
fiscal 1994 which was recorded largely due to the disappointing
domestic home video distribution of "MARRIED TO IT", "LOVE FIELD"
and "THE DARK HALF".
As previously disclosed, the Company has released only 16
theatrical films that were substantially financed by the Company in
the domestic theatrical marketplace since the beginning of fiscal
1992 compared to an annual average of 14 releases in each of the
previous three years. This reduced release schedule has had an
adverse effect on amounts and comparisons of revenues and,
consequently, gross profit and is expected to continue to have an
adverse effect on comparisons with earlier periods in the future.
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Chapter 11 Reorganization Items
The Company charged approximately $123,000 and $391,000 of direct
expenses of administering the chapter 11 filing, particularly
professional fees, to operations during the quarters ended August
31, 1994 and 1993, respectively.
Interest Expense
Interest expense for the three months ended August 31, 1994
decreased $965,000 (12%) from the previous year's quarter from
$8,231,000 to $7,266,000. This decrease, which primarily reflects
reduced interest charges on lower outstanding debt balances as
principal payments continue to reduce the Company's debt, was
partially offset by increased interest rates.
Provision for Income Taxes
The provision for income taxes on operations in the second quarter
of both fiscal 1994 and fiscal 1995 are partially based on an
estimate of the effective tax rate for the entire year. Only a
portion of the provisions are offset by losses from operations
because of certain foreign and state taxes which cannot be
mitigated by such losses. In addition, foreign taxes are provided
for certain transactions in the period in which they occur. The
provision for income taxes for the three months ended August 31,
1994 and 1993 are attributable to foreign remittance taxes.
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SIX MONTHS ENDED AUGUST 31 (1994 vs.1993)
Revenues
The following table sets forth the sources of the Company's
revenues from operations by market during the first six months of
fiscal 1995 and 1994 (in thousands):
Six Months Ended
August 31,
-----------------------
1994 1993
---- ----
Theatrical distribution $ 8,624 $21,024
Television and video distribution:
Home video direct distribution 22,740 12,399
Home video subdistribution 4,401 2,444
Pay television 46,345 11,099
Free television and other 31,134 23,257
------ ------
Total television and video distribution 104,620 49,199
------- ------
$113,244 $ 70,223
======== ========
Theatrical Revenues
Approximately 61% of the Company's theatrical revenues during the
first two quarters of fiscal 1995 were derived from the
distribution of three films in the domestic theatrical market
place, however, no individual film generated greater than
$3,000,000 in theatrical revenues.
Approximately 68% of the Company's theatrical revenues in the first
two quarters of fiscal 1994 were derived from the distribution of
"ROBOCOP 3" in the foreign theatrical marketplace and of "THE DARK
HALF" in the domestic and foreign theatrical marketplaces. These
films produced over $9,500,000 and $4,800,000 of film rentals,
respectively, during the period.
Of the films unreleased at the Effective Date, the Company released
the last two in the domestic theatrical marketplace during the
third quarter of fiscal 1995 to less then expected results.
Pursuant to the terms of the Plan and the related Plan documents,
the Company's ability to produce or acquire additional product for
distribution is limited. Accordingly, revenues from theatrical
distribution after the third quarter of fiscal 1995 will depend
entirely on the Company's ability to produce or acquire additional
product.
Home Video Revenues
The distribution of "ROBOCOP 3" and " CAR 54, WHERE ARE YOU?" in
the domestic home video rental market and of "DANCES WITH WOLVES"
in the domestic home video "sell-thru" market through OHV accounted
for approximately 54% of the Company's home video direct
distribution revenues during the six months ended August 31, 1994.
The distribution of "LOVE FIELD" in the domestic home video rental
market and of "DANCES WITH WOLVES" in the domestic home video
"sell-thru" market accounted for approximately 70% of the Company's
home video direct distribution revenues during the previous six-
month period. No picture generated significant home video
subdistribution revenues during the first two quarters of fiscal
1995 or 1994. Furthermore, the Company's reduced theatrical
release schedule beginning in fiscal 1992, and the limitations of
the Plan and the related Plan documents with regard to the ability
of the Company to invest in the production of new theatrical
product, are likely to have an adverse effect on quarterly revenue
in this market for the foreseeable future.
The Company's home video subdistribution revenue is primarily
generated in the foreign market place.
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Beginning in fiscal 1992, the Company's foreign home video
releases began to be distributed under the subdistribution
agreement with Sony described in the Company's 1994
Form 10-K. Under the terms of such agreement, which
was entered into in February 1990, and amended and restated as of
October 20, 1992, the Company received a substantial advance
against the performance of the 23 pictures (amended from 50
pictures) covered by the agreement. Revenues recorded to date and
to be recorded under this agreement in future periods will be less
than amounts that would have been recorded under previous
performance-based subdistribution agreements due to the receipt of
the substantial advance.
Pay Television Revenues
During the first six months of fiscal 1995, nine titles became
available for exclusive exhibition in the pay cable market pursuant
to the Showtime Settlement reached with Showtime, as described
below. Pay television revenues for the current six month period
included approximately $40,000,000 from the recognition of license
fees on these titles. As described below, pay television revenues
of $11,700,000 for two titles were deferred during the first six
months of fiscal 1994.
Note 4 of Notes to Condensed Consolidated Financial Statements
("Note 4") describes the terms of the settlement reached on March
29, 1994 regarding, inter alia, a dispute (defined therein as the
"Key Man Dispute") that existed between the Company and Showtime
regarding the licensing by Showtime of the 16 pictures theatrically
released in the domestic marketplace by the Company in fiscal 1992,
1993 and 1994, and in the first and third quarter of fiscal 1995.
No revenues related to the licensing to Showtime of these disputed
pictures had been recorded pending resolution of this dispute.
Such deferral began to have an adverse effect on pay television
revenues in the first quarter of fiscal 1993. Note 4 also
describes a complaint (defined therein as the "Qualification
Dispute") filed by Showtime alleging that Showtime should be
permitted to offset approximately $29,300,000 in fees already paid
against future license fees due the Company. This matter was also
settled under the Showtime Settlement, as described in Note 4.
The Showtime Settlement provides for reduced license fees for the
16 pictures subject to the Key Man Dispute, including an
approximate $4,700,000 reduction to approximately $44,700,000 of
the license fees that would have been recorded during the first
quarter of fiscal 1995 and during fiscal 1994 and 1993 for the nine
otherwise available pictures. In addition, the license fees for the
seven remaining pictures subject to the Key Man Dispute have been
reduced approximately $13,600,000 to approximately $19,300,000.
Also, the Showtime Settlement provided for a reduction of
$15,000,000 in license fees recorded as revenues in previous
periods related to the pictures subject to the Qualification
Dispute, which amount was reversed in the fourth quarter of fiscal
1994.
The majority of the remainder of the Company's revenue in this
market for the first six months of each fiscal year was recorded
upon the availability of various titles under certain foreign pay
television agreements.
Furthermore, as described above, the current six month period
included a one time recognition of significant domestic pay
revenues due to the Showtime Settlement. The reduced license fees
under the Showtime Settlement, the Company's reduced theatrical
release schedule beginning in fiscal 1992, and the limitations of
the Plan with regard to the investment in the production of new
theatrical product, are likely to have an adverse effect on
quarterly revenues in this market for the foreseeable future.
Free Television Revenues
The Company's free television revenues in each of the fiscal 1995
and 1994 six-month periods
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<PAGE>
included approximately $16,700,000 and $14,000,000,
respectively, of license fees recorded upon the
availability in a number of foreign territories of certain of the
Company's theatrical titles. Free television revenues in the
fiscal 1995 six-month period also includes approximately $9,300,000
of license fees from the availability to Lifetime of 12 pictures
under the Company's two major agreements with that basic cable
network, which compares to two titles in the previous six-month
period. During the first six months of fiscal 1994, approximately
$3,725,000 of revenues were recorded upon the availability of three
films to the major networks.
Gross Profit (Loss)
The Company's gross profit (loss) from operations for the six
months ended August 31, 1994 decreased $16,028,000 from the
previous year's six-month period from ($17,719,000) to
($1,691,000).
Gross profit in the first six months of fiscal 1995 was most
favorably affected by the recognition of approximately $40,000,000
of domestic pay television license fees on nine titles pursuant to
the Showtime Settlement as described above and in Note 4. These
nine titles accounted for approximately $6,600,000 in gross profit
during the period. No film generated comparable gross profit in
the previous year's first six month period.
As is done every quarter, the Company performed a review of its
inventory of film product and, where appropriate, adjusted values
of films in release to reflect current estimates of net realizable
value.
The current six-month period was most adversely affected by the
recording of writedowns to the estimated net realizable value of
the carrying amounts of the three first quarter domestic theatrical
releases. These writedowns aggregated approximately $6,500,000. In
addition, a writedown to estimated net realizable value of
approximately $2,600,000 was recorded due to the preliminary
results of the last two previously unreleased titles that were
released in September 1994. The previous six month period ended
August 31, 1993 was adversely affected by the recording of
approximately $15,000,000 of writedowns including $3,000,000 to the
estimated net realizable value of the carrying amounts of the two
first quarter fiscal 1994 domestic theatrical releases, and a
$5,100,000 writedown recorded largely due to the disappointing
domestic home video distribution of "MARRIED TO IT", "LOVE FIELD"
and "THE DARK HALF" during this period. In addition, during the
six-month period ended August 31, 1993, the Company took further
writedowns aggregating approximately $6,900,000 to its completed
unreleased product based upon further evaluations of their
potential performance at that time.
As stated in previous publicly-filed reports, the Company has
released only 16 theatrical films that were substantially financed
by the company in the domestic theatrical marketplace since the
beginning of fiscal 1992, compared to an annual average of 14
releases in each of the previous three years. This reduced release
schedule has had an adverse effect on amounts and comparisons of
revenues and, consequently, gross profit and is expected to
continue to have an adverse effect on such comparisons in future
periods. Furthermore, as previously disclosed in the Company's
1993 and 1994 Forms 10-K, approximately two-thirds and three-
quarters of the Company's film inventories are stated at estimated
net realizable value and do not result in the recording of gross
profit upon the recognition of related revenues.
Chapter 11 Reorganization Items
The Company charged approximately $389,000 and $1,213,000 of direct
expenses of administering the chapter 11 filing, consisting
primarily of professional fees, to operations during the six-month
periods ended August 31, 1994 and 1993, respectively.
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Interest Expense
Interest expense for the six months ended August 31, 1994 decreased
$2,146,000 (13%) from the prior year's six-month period from
$16,567,000 to $14,421,000. This decrease which primarily reflects
reduced interest charges on lower outstanding debt balances as
principal payments continue to reduce the Company's debt was
partially offset by increased interest rates.
Provision for Income Taxes
The provision for income taxes for the first six months of both
fiscal 1995 and 1994 are partially based upon an estimate of the
effective rate for the entire year. Only a portion of the
provisions are offset by losses from operations because of certain
foreign and state taxes which cannot be mitigated by such losses.
In addition, foreign taxes are provided for certain transactions in
the period in which they occur.
The provision for income taxes for the six months ended August 31,
1994 and 1993 are attributable to foreign remittance taxes and
minimum state taxes.
LIQUIDITY AND CAPITAL RESOURCES
On the Filing Date, as described above, the Company and certain of
its subsidiaries filed petitions for relief under the Bankruptcy
Code in the Court. Under the Plan, the Company will continue to
concentrate its efforts on the licensing and distribution of its
library, including the two remaining unreleased pictures.
Currently, the principal sources of the funds required for the
Company's motion picture distribution activities are proceeds from
the licensing of exhibition and ancillary rights to the Company's
library. In accordance with the terms of the Plan, the Company was
permitted to expend certain amounts to release the remaining
unreleased titles; however, the Company will be permitted to invest
in the production of new theatrical product, only if, among other
things, financing for such product can be obtained, which is
secured only by the film being produced or acquired and is thus
nonrecourse to the other assets of the Company.
Before the filing of the Company's petitions under chapter 11, the
Company had as an operating plan to release each year approximately
12 to 15 theatrical motion pictures which the Company fully or
substantially financed. Prior to the filing, all new production
was halted leaving the Company with only 12 largely completed but
unreleased motion pictures ("Unreleased Films") at the Filing Date.
In addition, under the Plan, the Company's ability to produce or
invest in new theatrical product is severely limited as described
above. As a result, the Company released four, three, and four
theatrical motion pictures in the domestic marketplace in fiscal
1994, 1993, and 1992, respectively. Three motion pictures were
released domestically in the first quarter of fiscal 1995, and the
last two unreleased films were released in September 1994. This
reduced release schedule described above is likely to have an
adverse impact on results of operations for the foreseeable future.
Furthermore, as described in Note 4, approximately three-quarters
of the Company's film inventories at February 28, 1994 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 for
financial reporting purposes for the foreseeable future.
Under the Bankruptcy Code, the Company remained in possession of
its property and, as such, was operating its business as a debtor-
in-possession subject to the supervision of the Court. The Company
also developed a plan of reorganization which is described below.
The plan of reorganization satisfied the provisions of the
Bankruptcy Code (including acceptance by certain required votes of
creditors) and
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was confirmed by the Court.
During the Bankruptcy Period, the Company's financial and other
resources continued to decline. Production operations were
suspended because of the Company's inability to finance production
of new films. New product for distribution was limited to the
Unreleased Films. To conserve resources, the Company confined its
use of cash collateral to those operating, post-production, and
distribution and marketing costs that were necessary to preserve
and maintain going-concern value.
The Company filed a proposed plan of reorganization and the related
disclosure statement as described above. The Court approved the
Disclosure Statement on September 8, 1992 and confirmed the Plan on
October 20, 1992. On November 5, 1992, the Effective Date, the
Company emerged from the chapter 11 proceedings.
The Plan is extremely complex and the summary presented below
contains only a brief synopsis of the compromises and benefits
granted pursuant to the Plan and is qualified in its entirety by
reference to the Plan. The reader should refer to the Plan to
obtain a more thorough understanding of the provisions of the Plan
and for precise definitions of capitalized terms in the summary
presented below. The Plan represents a compromise and settlement
reached among the Company's principal creditor constituencies, most
of which relinquished, upon confirmation of the Plan, potential
legal and equitable arguments in exchange for the treatment and
certainty provided by the Plan.
Under the Plan, the Company's senior secured creditors (the Banks
and Sony) are sharing 85% of the reorganized Company's Net Cash
Flow. The Plan permits certain unsecured creditors (including
holders of certain 10% Subordinated Debentures that were issued
pursuant to the Plan as described below) to receive, on a pari
passu basis with the senior secured creditors, the remaining 15% of
Net Cash Flow. After payment in full of the Allowed Claims of the
Banks (and Metromedia and its Affiliate, if they shall become
subrogees under the Bank Guarantee) and Sony, 100% of Net Cash Flow
will be paid to the holders of such unsecured Allowed Claims.
After payment of the Talent Notes, holders of the Creditor Notes
and the 10% Subordinated Debentures issued pursuant to the Plan, as
described below, will share 100% of Net Cash Flow.
Under the Plan, the holders of Guild Claims and Participation
Claims reduced by 17% their Allowed Prepetition Residual Claims and
Allowed Preconfirmation Participation Claims, respectively, in
exchange for Talent Notes, which are payable currently out of a
portion of Net Cash Flow not required to be paid to the Banks and
Sony; holders of Allowed Postpetition Residual Claims will be or
have been paid in full with respect to such Claims. The holders of
most of the other Unsecured Claims, have or will receive Creditor
Notes, which are also payable currently out of a portion of Net
Cash Flow not required to be paid to the Banks and Sony.
Additional Creditor Notes will be issued in accordance with the
Plan as and when Disputed Unsecured Claims become allowed.
Under the Plan, the holders of the Company's subordinated notes and
debentures outstanding at the Filing Date received an aggregate of
$50,000,000 initial principal amount of 10% Subordinated Debentures
due October 31, 2001 of the reorganized Company, payable out of the
portion of Net Cash Flow not otherwise payable to the Banks and
Sony as described above, as well as 49% of the equity of the
reorganized Company. The holders of the Company's previously
outstanding Series B Preferred Stock and common stock received, in
the aggregate, 0.1% and 0.8%, respectively, of the common stock of
the reorganized Company. Metromedia and its affiliate have
received an aggregate of 50.1% of the common stock of the
reorganized Company in exchange for $15,000,000, a guarantee of the
bank borrowings of the reorganized Company and a contribution of
all rights in respect of a letter agreement dated November 28, 1990
between the Company and an affiliate of Metromedia (the
"MetMermaids Rights").
For a period of five years from the Effective Date, the Company's
By-laws provide that the Company
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must cause certain Directors not affiliated with
Metromedia to be included in the Company's slate of
directors nominated for election by the Company's stockholders.
One of such nominees is to be a member of the Executive Committee
of the Board of Directors of the reorganized Company.
Pursuant to the terms of the Plan, the Company is licensing and
distributing its library. Expenditures for selling, general and
administrative costs are substantially less than the levels of such
expenditures that were incurred prior to the Filing Date. Further,
the Plan limits the Company's ability to produce or acquire new
motion pictures or other product. Such product may be produced or
acquired only if, among other things, any financing of such
purchase or acquisition is secured, if necessary, only by the
assets being produced or acquired. With respect to acquired assets
only, the Company is nevertheless allowed, without any restriction,
to pay related debt service out of operating cash flow. While the
Company has been able to acquire certain distribution rights to
certain new product with nonrecourse financing, no assurance can be
given that the Company will be successful in obtaining additional
nonrecourse debt financing or acquiring additional substantial
entertainment assets. Furthermore, to date, such arrangements have
not contributed substantially to the Company's results of
operations.
To the extent that the Company generates Net Cash Flow, the Company
is required to make principal payments with respect to the Banks
and Sony and to its holders of its Talent Notes, Creditor Notes and
10% Subordinated Debentures at least quarterly out of Net Cash
Flow. Net Cash Flow as defined in the Plan generally provides for
the payment of operating costs as incurred. Because distributions
are dependent upon the Company's ability to generate Net Cash Flow
and are determined for specified periods in accordance with the
Plan, no assurance can be made as to the amount, if any, of each
future distribution. See Note 5 of Notes to Condensed Consolidated
Financial Statements ("Note 5"), for a schedule of the Company's
Net Cash Flow payments since the Effective Date.
The Company has to date generated sufficient Net Cash Flow to meet
its operating and Plan obligations. However, the poor performance
of the Company's pictures released after the Effective date and the
reduction pursuant to the Showtime Settlement from the contractual
amounts which otherwise would be payable by Showtime under the
Showtime Agreement, have had an adverse effect on the liquidity of
the Company. The Company anticipates that such events will in turn
have an adverse effect on the Company's ability to meet its
obligations under the Third Restated Credit Agreement and to Sony
discussed below in the fiscal year ended February 28, 1995 ("fiscal
1995") and the other Plan obligations discussed below in the fiscal
year ended February 29, 1996 ("fiscal 1996").
As described in Note 5, the Company must make certain principal
payments to its bank lenders under the terms of the Third Restated
Credit Agreement and to Sony pursuant to the Sony Obligation in
October and November 1994, respectively, and October and November
1995, respectively. The Company will not generate sufficient Net
Cash Flow during the remainder of fiscal 1995 to make the scheduled
payment to the Banks and Sony in October and November 1994,
respectively, and accordingly, it anticipates that the Guarantors
under the Bank Guarantee will be obligated to make certain payments
to such parties. In addition, based upon current estimates of Net
Cash Flow, the Company does not currently believe it will generate
sufficient Net Cash Flow to make the scheduled final maturity
payments to the Banks and Sony, in October and November 1995,
respectively. In such events, the Banks may demand payment from
the guarantors under the Bank Guarantee and Sony may draw under its
letter of credit (if Metromedia does not first cure such payment
default), in which case the amount drawn by Sony would become a
guaranteed obligation of the guarantors under the Bank Guarantee.
Any such payments made by the guarantors under the Bank Guarantee
on behalf of the Company to the Banks and/or to Sony would result
in such guarantors becoming subrogated to the Banks' and Sony's
portion of the Company's Net Cash Flow following payment in full of
the Company's obligations to the Banks and Sony. The Company would
be obligated to reimburse the amounts paid by the guarantors under
the Bank Guarantee on the Company's behalf, plus interest, out
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of the portion of the Company's Net Cash Flow previously allocable to
the Banks and Sony until such guarantors are reimbursed in full.
In addition, as described in Note 5, the Indentures pursuant to
which the Talent Notes and Creditor Notes were issued (the
"Indentures") provide that an event of default ("Event of Default")
will occur under such Indentures if the aggregate amount of Net
Cash Flow paid by the Company to the holders of Talent Notes,
Creditor Notes and 10% Subordinated Debentures (the "Plan Debt")
does not exceed the mandatory minimum amounts (the "Mandatory
Minimums") specified in the Indentures. The Indentures also
provide, however, that the Mandatory Minimums will be reduced by
certain net amounts due under the Showtime Agreement which are not
received by the Company because of the Showtime Settlement.
The Indentures provide that the first Mandatory Minimum threshold
must be met by the Company by the last quarter of fiscal 1995.
Thereafter, although the Indentures provide that the Company must
make payments to the holders of the Plan Debt in the amounts
specified in the Indentures (less the reduction for the Showtime
Settlement discussed above) for each fiscal quarter through the
fiscal year ended February 28, 1999, the Indentures only set forth
a single Mandatory Minimum threshold for each such fiscal year,
rather than separate quarterly thresholds for each fiscal quarter.
Accordingly, a literal reading of the Indentures would mean that by
the end of each of the Company's four fiscal quarters in each
fiscal year beginning with the fiscal quarter ended May 31, 1995,
the Company would have had to pay to the holders of the Plan Debt
the same Mandatory Minimum amount. The Company believes that the
language set forth in the Indentures does not reflect the agreement
between the Company and its principal creditors who negotiated and
agreed upon the provisions based upon the Company's review of the
agreement in principle agreed to by such parties. The Company
believes that the Mandatory Minimums specified in the Indentures
were intended to be the required Mandatory Minimum thresholds for
only the last fiscal quarter of each fiscal year beginning with the
fiscal year ended February 29, 1996 and that lower quarterly
Mandatory Minimum amounts should have been calculated and set forth
in the Indentures for each fiscal quarter of each fiscal year
beginning with the quarter ended May 31, 1995. Notwithstanding the
literal language of the Indentures, it is the Company's intention
to follow what it believes to be the intention of the agreeing
parties.
Utilizing the Mandatory Minimums contained in the Indentures rather
than the interpretation the Company believes reflects the agreement
of the parties, the Company, based upon current cash flow
projections (which are subject to change), currently anticipates
that it would not generate sufficient Net Cash Flow to satisfy the
Mandatory Minimum threshold under the Indentures beginning with the
quarter ended May 31, 1995 and that accordingly, an Event of
Default would occur under each such Indenture on such date. Upon
the occurrence and continuation of an Event of Default, the Trustee
under each of the Indentures or 40% in aggregate principal amount
of either the Talent Notes or the Creditor Notes could cause an
immediate acceleration of the entire principal amount of such
Notes. Should such acceleration under the Indentures occur, the
Company, absent other financing arrangements, may be forced to seek
protection under chapter 11 of the United States Bankruptcy Code.
Notwithstanding the literal language of the Indentures, the Company
believes, however, that no such Event of Default should occur
because the language set forth in the Indentures does not reflect
the intention of the Company and the representatives of the Plan
Debt who negotiated such provisions and accordingly that no
acceleration of the Notes should occur on such quarterly date.
Utilizing the Company's view that the agreement of the parties is
not reflected in the language of the Indentures and that the
Indentures should be reformed to set forth quarterly Mandatory
Minimum thresholds for each fiscal quarter, the Company
nevertheless currently believes, based upon current cash flow
projections (which are subject to change), that it will not
generate sufficient Net Cash Flow to satisfy such reformed
quarterly Mandatory Minimums at the quarter ended August 31, 1995.
In order to meet the Company's anticipated shortfall, the Company
must obtain a waiver, refinance its existing Plan Debt, or obtain
additional sources of financing including those described below.
If the Company
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cannot satisfy the Mandatory Minimum thresholds at the
quarter ended August 31, 1995, on such date an Event of Default
would occur under the Indentures, which in turn could cause an
acceleration of such Notes as described above. Should such
acceleration under the Indentures occur, the Company, absent other
financing arrangements, may be forced to seek protection under
chapter 11 of the United States Bankruptcy Code. As more fully
described in Note 10, the Company has entered into letters of
intent to combine the Company with The Actava Group Inc., MCEG
Sterling Inc., and Metromedia International Telecommunications,
Inc. A condition to consummation of the Proposed Transaction is
the refinancing of all the Company's Plan Debt and its remaining
obligations to the Banks and to Sony, so as to ease the cash flow
burden on the surviving company of the proposed merger and avoid an
Event of Default and possible acceleration of the Notes pursuant to
the Indentures. There can be no assurance that this proposed
refinancing or the Proposed Transaction will be consummated.
As previously discussed herein, the Company anticipates net losses
for financial reporting purposes for fiscal 1995, however, the
Company believes it will have sufficient liquidity to meet its
obligations through fiscal 1995 except for its obligations to the
Banks and Sony, which obligations become guaranteed obligations
under the Bank Guarantee as described above.
The Company continues to exploit its existing library of product in
order to generate Net Cash Flow. The Company is also actively
pursuing a number of steps aimed at improving its operating results
to date and increasing its Net Cash Flow by acquiring or producing
new product. Since the Effective Date, the Company has been able
to acquire some new product with nonrecourse financing. In order
to further exploit its existing distribution apparatus, the Company
will continue to actively seek to attract the requisite nonrecourse
financing to fund the acquisition and distribution costs of new
theatrical and home video product, which would be distributed by
the Company through its distribution system. In addition, the
Company will pursue additional nonrecourse financing for the
production of new product, which the Company is also permitted to
engage in under the Plan on a nonrecourse basis or through certain
unrestricted subsidiaries. If the Company is successful in
obtaining nonrecourse financing as described above, the
contribution to the Company's liquidity will generally be in the
form of a distribution fee. In addition to the Proposed
Transaction described above, the Company continues to consider its
alternatives in connection with the anticipated payment shortfall
to the holders of the Plan Debt including other restructuring or
refinancing of such Plan Debt. Despite these intentions, there can
be no assurance that any transaction, restructure or refinance is
consummated or that the Company will be able to generate sufficient
Net Cash Flow to avoid an Event of Default under its Indentures in
fiscal 1996.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
1. The Chapter 11 Cases and Related Proceedings
The Company is, and will continue to be, a party to numerous
contested matters and adversary proceedings pending against it in
the Bankruptcy Court seeking a variety of forms of relief,
including, without limitation, motions (a) to determine
classification and treatment of certain tax shelter claims, (b) to
approve settlements and compromises, and (c) to allow or disallow
claims. Other matters and claims may be referenced in the
Disclosure Statement filed by Debtors with the Bankruptcy Court on
July 24, 1992, as amended, and approved by such Court by order
dated September 8, 1992. The Company also has the right to file
such motions or actions as may be necessary to implement and
enforce the terms of the Plan.
Pursuant to section 362 of the Bankruptcy Code an automatic stay
went into effect when the Debtors commenced their chapter 11 cases.
The automatic stay halts, among other things, all pending
litigation and prevents the commencement of all judicial,
administrative or other proceedings against the debtor that were or
could have been commenced before the commencement of the bankruptcy
case. Pursuant to paragraph 35 of the Confirmation Order, any
action which had been stayed by operation of section 362(a) of the
Bankruptcy Code continues to be stayed pursuant to sections 1141(d)
and 105(2) of the Bankruptcy Code.
The Litigation-Based Claims
Mace Neufeld Productions, Inc. and Mace Neufeld v. Orion Pictures
Corporation, et al., (United States District Court, Central
District of California, Civ. Action No. CV-85-7149-ER (Bx)); Mace
Neufeld Productions, Inc. and Mace Neufeld v. Orion Pictures
Corporation, et al., (Los Angeles County Superior Court, Western
District, Case No. WEC 100794). The Bankruptcy Court has adjourned
the claim estimation hearing without date. Settlement negotiations
are ongoing.
Hemdale Film Corporation v. Orion Pictures Corporation, (Los
Angeles County Superior Court, Case No. RCO12594). The estimation
hearing on the Hemdale claim has been further adjourned to November
14, 1994. Settlement negotiations are ongoing.
Pacific Western Productions, Inc., et al. v. Hemdale Film
Corporation and Orion Pictures Corporation, et al., (Los Angeles
County Superior Court, Case No. RCO12873). The estimation hearing
on the Pacific Western claim has been further adjourned to November
14, 1994.
Paradise Films, Inc. v. Orion Pictures Corporation and Orion
Pictures Distribution Corporation, (Los Angeles County Superior
Court, Case No. BC 038330). The estimation hearing on the
Paradise claim has been further adjourned to November 14, 1994.
Settlement discussions are ongoing.
Sharon Badal v. Orion Pictures Corporation, (United States
District Court, Southern District Court, Southern District of New
York, Case No. 91 Civ. 4288). The estimation hearing on the Badal
claim has been set for November 14, 1994.
Bruno Damon v. Orion Pictures Corporation, Island Helicopter
Leasing Corporation and A.G.S. Realty Holding Corp., (N.Y. Sup. Ct.
Index No. 34167/91) (the "Damon Action"). The estimation
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hearing for the Damon claim has been further adjourned to November 14,
1994. Settlement negotiations are ongoing.
Bayer Cadillac, Inc., Plaintiff, v. Cad Co. Productions, Inc.,
Orion Pictures Corporation and Ted Kurdyla, Supreme Court of the
State of New York, County of Queens. The Bankruptcy Court has
expunged Bayer Cadillac, Inc.'s proof of claim as a late filed
claim.
James L. Sharmat v. Orion Pictures Corporation, et al (Los
Angeles County Superior Court, Case No. SC 009599). On September
19, 1994, the Bankruptcy Court entered an order approving a
settlement of the proofs of claim filed by James L. Sharmat,
Stephen W. Sharmat and Westchester Productions, Inc. (the "Sharmat
Claimants"). The settlement included, inter alia, the Company's
allowance of a single general unsecured claim within Class 7 of the
Plan in the amount of $12,000 in full satisfaction of any and all
claims that were asserted or could have been asserted by the
Sharmat Claimants and an exchange of releases.
Martha Reeves Enterprises, Inc., et al. v. Touchstone Pictures
Music and Songs, Inc., et al. (Wayne County Circuit Court,
Michigan, Case No. 92-217939). The Bankruptcy Court has expunged
Martha Reeves' proof of claim on grounds including, inter alia, the
ground that the claim was duplicative in that it was encompassed
within certain Guild claim(s).
Bonny Dore v. Orion Pictures Corporation, et al., Case No. BC 023
709 (Super. Ct. of Cal. Los Angeles Co., complaint filed March 14,
1991) (the "Dore Action"). On May 13, 1994, the Bankruptcy Court
entered an order approving settlement of the proofs of claim files
by Bonny Dore in exchange for, inter alia, the Company's allowance
of a claim in Class 6 of the Plan in the amount of $65,000 and an
exchange of releases.
Antitrust and Similar Proceedings - Joseph Soffer d/b/a Cine
1-2-3-4 v. Orion Pictures Distribution Corporation, et al., (United
States District Court for the District of Connecticut). The
estimation hearing for the Soffer claim has been further adjourned
to November 14, 1994. The Movie v. Orion Pictures Distribution
Corporation, Orion Classics, et al., (United States District Court
for the Northern District of California, Case No. C86-203-90RPA).
The estimation hearing for The Movie Claim has been further
adjourned to November 14, 1994. Settlement negotiations are
ongoing.
The Derivative Action
Harvey Cooper, Derivatively on behalf of Orion Pictures
Corporation, Plaintiff, v. John W. Kluge, Stuart Subotnick,
Metromedia Company, a Partnership, and Does 1 through 100
Inclusive, Defendants, and Orion Pictures Corporation, Nominal
Defendant, Case No. SC016674 (Super. Ct. of Cal., L.A. Co.) (filed
April 27, 1993) (the "Cooper Action"). On or about May 31, 1994,
Cooper filed a Notice of Appeal to the United States Court of
Appeals for the Second Circuit (the "Court of Appeals"). On or
about July 26, 1994, the Company moved to dismiss Cooper's in
propia persona appeal upon the grounds that: (i) pursuant to the
Court of Appeals' prior rulings, Cooper, as a disbarred California
attorney, is disqualified from pursuing the appeal; and (ii)
Cooper was not represented by a member of the Bar of the Court of
Appeals. On September 7, 1994, the Court of Appeals granted the
Company's motion and dismissed Cooper's appeal. Mandate issued on
September 8, 1994.
Other Claims Issues
The Company filed numerous claims objections with the Bankruptcy
Court, both prior to and after the Effective Date of the Plan.
Most of those objections have been granted by the Bankruptcy Court
or consensually resolved, but certain disputes remain outstanding
and ultimately will be disposed of through negotiations or
contested hearings before the Bankruptcy Court. The Company
believes that
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the disposition of the disputed claims will not have
a material adverse effect on its consolidated financial position or
results of operations.
2. Shareholder Actions Arising Out of Proposed Transaction
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). The Company
and each of its directors has been named as a defendant in a
purported class action lawsuit which alleges that although the
Company's Board of Directors have not yet considered the Proposed
Transaction, that the directors have failed to use the required
care and diligence in considering the Proposed Transaction, and
seeks to enjoin the Proposed Transaction. The lawsuit further
alleges that as a result of the actions of the Company's directors,
the Company's shareholders will not receive the fair value of the
Company's assets and business in exchange for their Orion stock, in
the Proposed Transaction. The Company and its directors have
obtained an extension of time to answer the complaint. The answer
is currently due on November 18, 1994.
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. Inlay, 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). The Company is a defendant in this class
action lawsuit which was filed by shareholders of The Actava Group
Inc. against Actava and its directors as well as the Company. The complaint
alleges that the terms of the Proposed Transaction constitute an
overpayment by Actava for the assets of the Company and it seeks to
enjoin the Proposed Transaction. The complaint further alleges
that the Company knowingly aided, abetted and materially assisted
Actava's directors in breach of their fiduciary duties to Actava's
shareholders. The Company has obtained an extension of the time to
answer the complaint. The answer is currently due on November 17,
1994.
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Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on July 26,
1994, the Company's stockholders elected nine directors
(constituting the entire Board of Directors) for a one year term to
the Company's Board of Directors and approved the Board's
appointment of KPMG Peat Marwick as the Company's independent
certified public accountants for the fiscal year ended February
28, 1995. The following is a summary of the voting at the Annual
Meeting:
1. Election of nine directors:
Withhold Broker
For Authority Non-Votes
------- --------- ---------
John W. Kluge 18,280,445 310,223 0
Silvia K. Merkle 18,277,623 313,045 0
Joel R. Packer 18,282,067 308,601 0
Michael I. Sovern 18,279,583 311,085 0
Raymond L. Steele 18,281,566 309,102 0
Stuart Subotnick 18,282,125 308,543 0
Arnold L. Wadler 18,279,797 310,871 0
Stephen Wertheimer 18,251,567 339,101 0
Leonard White 18,277,863 312,805 0
2. Ratification of Auditors:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
18,503,060 63,924 23,684 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.25 - Loan Agreement dated as of July 18, 1994 between the
Company and Metproductions, Inc.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K on September 2,
1994, describing the Proposed Transaction and reporting that the
Company had entered into letters of intent to combine the Company
with The Actava Group Inc., MCEG Sterling Inc., International
Telcell Inc., and Metromedia International Inc.
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SIGNATURES
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 thereunto duly authorized.
ORION PICTURES CORPORATION
(Registrant)
Dated: October 17, 1994 \s\Cynthia A. Friedman
Cynthia A. Friedman
Senior Vice President and
Chief Financial Officer
Page 34
<PAGE>
<TABLE>
EXHIBIT 11
ORION PICTURES CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per-share amounts)
<CAPTION>
Three Months Ended August 31, Six Months Ended August 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net loss $ (16,280) $ (30,205) $ (28,384) $ (47,054)
Weighted average number
of shares outstanding 20,000 20,000 20,000 20,000
Loss per common share $ (0.81) $ (1.51) $ (1.42) $ (2.35)
</TABLE>
Page 35
LOAN AGREEMENT Exhibit 10.25
THIS LOAN AGREEMENT (this "Loan Agreement") dated as of July
18, 1994 between Orion Pictures Corporation, a Delaware corporation
(hereinafter referred to as "Orion") and MetProductions, Inc., a
Delaware corporation (hereinafter referred to as "MetProductions").
W I T N E S S E T H:
WHEREAS, Orion and Dan Kurzman have entered into that certain
Option Extension Agreement attached hereto as Exhibit A (the
"Agreement") dated as of January 19, 1994 in connection with the
Literary Purchase Agreement dated as of January 18, 1991 (the
"Literary/Purchase Agreement") between Owner and Clinica Estetico
Ltd. (the "Producer") regarding the rights to the film "Fatal
Voyage" (the "Film"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned thereto in the
Option Extension Agreement and the Literary/Purchase Agreement.
WHEREAS, pursuant to the terms of the Option Extension
Agreement, Orion agreed to pay to Owner an option extension payment
of Thirty-Three Thousand Three Hundred Thirty-Three and 00/100
Dollars ($33,333.00).
WHEREAS, in connection with the Option Extension Agreement,
Orion has requested and MetProductions has agreed to loan to Orion
the sum of Thirty-Three Thousand Three Hundred Thirty-Three and
00/100 Dollars ($33,333.00).
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, the parties
hereto agree as follows:
1. THE LOAN.
1.1 Loan. Subject to the terms and conditions set forth herein,
upon the execution hereof, MetProductions shall loan to Orion the principal
sum of Thirty-Three Thousand Three Hundred Thirty-Three and 00/100
Dollars ($33,333.00) (the "Loan").
1.2 Note. The Loan shall be evidenced by a promissory note of
Orion in the principal amount of Thirty-Three Thousand Three Hundred Thirty-
Three and 00/100 Dollars ($33,333.00) and in the form attached
hereto as Exhibit B.
1.3 Payments Generally. All payments of principal and interest,
or any other amount payable
Page 1
<PAGE>
hereunder, shall be made to MetProductions at its
address set forth under its name on the signature page hereof in
immediately available funds by wire transfer in accordance with the
instructions set forth on the signature page hereto. Upon payment
in full of the Loan hereunder, MetProductions will surrender to
Orion such Note duly marked cancelled and terminate any security
interest. Orion may prepay, in whole or in part, without premium
or penalty the principal amount of the Loan and any accrued
interest on the Loan at any time notwithstanding the accounting
terms set forth in Section 1.5 below.
1.4 Interest. Orion will pay interest on the principal amount of
the Loan from the date of such loan until the Loan is paid in full
hereunder, at a rate per annum equal to Ten Percent (10%).
Interest shall be calculated on the basis of a 360-day year for the
actual number of days elapsed.
1.5 Repayment of Loan. The Loan and all accrued interest thereon
shall be payable upon commencement of principal photography of the Film
or upon the sale of the Film project to a third party.
2. SECURITY.
2.1 Security. As security for the punctual payment in full of the
Loan and all accrued interest thereon, and other amounts payable hereunder
or any other agreement or by operation of law or otherwise,
relating to the transactions described herein, Orion hereby grants
to Metproductions a first priority lien on and security interest in
all of Orion's right, title and interest in the Film pursuant to
the terms of the Option Extension Agreement and the
Literary/Production Agreement but only to the extent necessary to
secure MetProductions' right to receive payments under this Loan
Agreement (the "Collateral"). The security interest hereby created
shall attach immediately on the execution of this Loan Agreement by
MetProductions and Orion. Concurrently with the execution of this
Loan Agreement (or within a reasonable time thereafter), the
parties hereto shall execute and file the Mortgage of Copyright and
Security Agreement (the "Security Agreement") attached hereto as
Exhibit C and any UCC Financing Statement(s) required to perfect
the security interest created by this Loan Agreement and the
Security Agreement.
3. EVENTS OF DEFAULT.
3.1 Each of the following shall constitute an Event of Default:
Page 2
<PAGE>
(a) the failure of Orion to pay MetProductions in accordance with
hereof within three (3) business days after notice from
MetProductions that such amount is due.
(b) the filing by Orion of a voluntary petition for relief under a
or state bankruptcy or insolvency law, or the commencement by Orion
of any other voluntary proceeding or other action, proceeding or
other action in bankruptcy, or the filing of any involuntary
petition against Orion under any federal or state bankruptcy law.
3.2 If any Event of Default shall occur, MetProductions may, at its
sole option and without notice, declare the entire principal amount
loaned to Orion in accordance with this Loan Agreement and the Note
to be due and payable in accordance with the terms and conditions
of this Loan Agreement and the Note.
3.3 If any Event of Default shall occur, MetProductions shall be
entitled to exercise all of the rights, powers and remedies permitted by law,
including without limitation, all rights and remedies of a secured
party of a debtor in default under the Uniform Commercial Code in
effect in the State of New York for the protection and enforcement
of its rights in respect of the Collateral.
4. REPRESENTATIONS AND WARRANTIES OF ORION.
Orion hereby represents and warrants to Metproductions that:
4.1 Orion has the right to enter into this Loan Agreement and to grant
and assign to MetProductions the interest in the Film herein granted.
4.2 The execution, delivery and performance of this Loan Agreement
have been duly authorized by all necessary action of Orion
and do not and will not contravene or conflict
with any corporate or fiduciary obligation Orion has to
its shareholders, including but not limited to, the terms or
provisions of Orion Pictures Corporation's By-Laws or Orion
Pictures Corporation's Restated Certificate of Incorporation. This
Loan Agreement constitutes the legally valid and binding
obligations of Orion and is enforceable against Orion in accordance
with its terms.
4.3 The execution, delivery and performance of this Loan Agreement
will not result in a breach of or constitute (with due notice or lapse
of time or both) a default under any agreement, undertaking or other
instrument
Page 3
<PAGE>
to which Orion is a party or by which it may be bound or affected.
4.4 To the best of Orion's knowledge and except as disclosed in Orion
Pictures Corporation's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994, and those quarterly reports on Form 10-Q filed
up to and including the date hereof, there is no action, suit or
proceeding pending or threatened against or affecting Orion, or the
Film which, if adversely determined, would materially affect
Orion's ability to perform this Loan Agreement.
4.5 Orion agrees to use its reasonable commercial efforts, consistent
with good business practices, in arranging for the production,
distribution and exploitation and/or causing the distribution
and/or exploitation of the Film as herein provided.
4.6 Orion agrees to provide MetProductions with statements of the
production and distribution costs and expenses in connection with the Film,
if any, on a reasonable basis but not less than semi-annually.
4.7 Orion agrees to maintain records pertaining to the production
and distribution of the Film. MetProductions shall have the right upon
reasonable notice to Orion to inspect such records until repayment of
the Note in full.
5. ACKNOWLEDGMENT OF METPRODUCTIONS.
5.1 MetProductions acknowledges and agrees that Orion makes no
representation, warranty, guarantee or agreement as to the amount of any
proceeds of the Film which may be derived from the production, distribution,
exhibition or other exploitation thereof, nor does Orion guarantee
the performance by any distributor, sub-distributor, sub-licensee
and/or agent of the Film.
5.2 Orion shall have the right to select distributors, sub-distributors,
sub-licensees, and/or agents upon such terms and conditions as Orion
may determine, consistent with its past business practices and with
the customs and practices of the motion picture industry in
general, in connection with the distribution, exhibition or other
exploitation of the Film.
6. INDEMNIFICATION.
6.1 Orion agrees, at its own expense, to defend,
indemnify and hold MetProductions, its affiliates, its assignees and
licensees, harmless from and against any
Page 4
<PAGE>
and all loss, damage, liability and expense (including
without limitation, reasonable attorneys' fees and costs)
which may be suffered or incurred by MetProductions, its assignees or
licensees, as the result of (i) any material breach or default of any of the
representations, warranties, covenants or agreements made by Orion
hereunder, (ii) any material breach or default of any agreement
whatsoever entered into by Orion in connection with the Film or
(iii) any claim arising out of, or related to, the production,
distribution, or other exploitation of the Film.
7. MISCELLANEOUS.
7.1 This Loan Agreement shall be construed in accordance with and
interpreted under the laws of the State of New York governing agreements
which are wholly executed and performed therein.
7.2 Wherever provision is made in this Loan Agreement for the giving of
any notice, such notice shall be in writing and shall be deemed to have
been duly given if mailed by first class United States mail,
postage prepaid, addressed to the party entitled to receive the
same or delivered personally to such party at the address specified
below or by facsimile (receipt confirmed) to such party:
If to MetProductions to:
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Telecopy No.: (201) 531-2803
If to Orion:
Orion Pictures Corporation
1888 Century Park East
Los Angeles, California 90067
Attention: General Counsel
Telecopy No.: (310) 282-9902
or to such other address as either party hereto shall have last
designated by notice to the other party. Notice shall be deemed to
have been given three days following the date on which such notice
was so mailed or on the date such notice was delivered personally
or by facsimile.
7.3 This Loan Agreement may be executed by one or more of the parties to
this Loan Agreement on any number of separate counterparts and all of
said counterparts
Page 5
<PAGE>
taken together shall be deemed to constitute one and the same instrument.
7.4 Each party shall execute and deliver to the other party from time to
time all such other agreements, instruments and other documents
(including without limitation all requested financing and
continuation statements) and do all such other and further acts and
things as the requesting party may reasonably request in order
further to evidence or carry out the intent of this Loan Agreement.
7.5 This Loan Agreement represents the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all
previous representations, understandings or agreements, oral or
written, between the parties, with respect to the subject matter
hereof.
7.6 If any inconsistencies between the terms and conditions of this Loan
Agreement and the Option Extension Agreement or Literary/Production
Agreement are deemed to exist, the terms and conditions of the
latter agreements shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this Loan
Agreement as of the date and year first above written.
METPRODUCTIONS, INC.
By: /s/Arnold L. Wadler
_______________________________
Arnold L. Wadler,
Senior Vice President
ORION PICTURES CORPORATION
By: /s/Leonard White
_______________________________
Leonard White, President
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$33,333.00 New York, New York
July 18, 1994
FOR VALUE RECEIVED, Orion Pictures Corporation, a Delaware corporation
("Borrower"), promises to pay to the order of MetProductions,
Inc. ("Lender") or its assigns, up to the principal sum
of $33,333.00 in accordance with the terms of the Loan
Agreement between Borrower and Lender of even date herewith (the
"Loan Agreement"); together with accrued interest on the unpaid
principal balance from the date herewith at the annual rate of Ten
(10%) percent. All payments of principal and interest shall be made
at Lender's offices located at One Meadowlands Plaza, East
Rutherford, New Jersey 07073-2137, Attention: Accounting
Department, or at such other address provided to Borrower, in
writing, from time to time by the holder of this Note.
All capitalized terms used herein and not otherwise defined
shall have the meanings assigned thereto in the Loan Agreement.
If any Event of Default specified in the Loan Agreement shall
occur, then the holder of this Note can declare the entire unpaid
principal amount of this Note, together with interest accrued
thereon, to be immediately due and payable and such holder will
have all of the rights and remedies set forth in the Loan
Agreement.
Borrower hereby waives presentment, demand for payment, notice
of default, dishonor or nonpayment, protest and notice of protest
and all other demands and notices in connection with the delivery,
acceptance, performance or enforcement of this Note.
This Note shall be governed by and construed in accordance
with the laws of the State of New York, without reference to the
conflict of laws principles thereof.
IN WITNESS WHEREOF, Borrower has executed and delivered this
Note on the ______ day of July, 1994.
ATTEST: Orion Pictures Corporation
By: /s/ Leonard White
_____________________ ______________________________
Secretary Leonard White, President
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made
and entered into as of July 18, 1994 between Orion Pictures
Corporation, a Delaware corporation (the "Debtor") with offices
located at 1888 Century Park East, Los Angeles, California 90067
and MetProductions, Inc., a Delaware corporation (the "Secured
Party") with offices of c/o Metromedia Company, One Meadowlands
Plaza, East Rutherford, New Jersey 07073.
R E C I T A L S:
WHEREAS, pursuant to that certain Option Extension Agreement
dated as of January 19, 1994 between Debtor and Dan Kurzman
("Owner") and that Literary/Purchase Agreement dated as of January
18, 1991 between Owner and Clinica Estetico Ltd. ("Clinica") (such
agreements as they may be amended, modified, supplemented,
replaced, renewed or superseded from time to time, are herein
referred to as the "Agreements"), Debtor (as assignee to Clinica)
acquired certain rights respecting the literary work written by
Owner entitled "Fatal Voyage" (the "Work"). In connection with the
Agreements, Clinica assigned to Orion its rights under the
Agreements including its rights under that certain Security
Agreement (the "Kurzman Security Agreement") executed by Owner and
attached hereto as Exhibit D.
WHEREAS, Owner assigned to Orion all of its rights, title and
interest in and to, among other things, the Work and any and all
motion pictures which may be produced based on the Work.
Capitalized terms used herein and not otherwise defined shall have
the meanings assigned thereto in the Agreements.
WHEREAS, the Debtor and Secured Party have entered into that
certain Loan Agreement of even date herewith (the "Loan
Agreement"). Pursuant to the Loan Agreement, Secured Party has
agreed to loan (the "Loan") to Debtor the sum of Thirty-Three
Thousand Three Hundred Thirty-Three and 00/100 Dollars ($33,333.00)
in connection with the Option Extension Agreement.
In consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration the receipt
of which is hereby acknowledged, and in order to induce the Secured
Party to enter into the Loan Agreement, the parties hereto hereby
agree as follows:
<PAGE>
1. GRANT OF SECURITY INTEREST.
(a) Grant. Debtor hereby mortgages, hypothecates, grants and assigns
to Secured Party as security for the Secured Obligations and Rights
(as such term is defined in subparagraph 1(b) below) a continuing
first priority security interest in and to all of Debtor's right,
title, and interest of every kind and nature in and to (but none of
Debtor's obligations with respect to) all of the items listed in
subparagraph 1(c) below, which items are hereinafter collectively
referred to as the "Collateral". Notwithstanding anything to the
contrary contained herein, except for the security interest granted
hereby and pursuant to the Copyright Mortgages and Assignments
referred to in subparagraph 1(f) below and the Secured Party's
rights and remedies with respect to such security interests, this
Security Agreement is not intended to and does not grant to Secured
Party any greater rights in the Work than granted to Debtor
pursuant to the Agreements.
(b) Purpose of Grant. The security interest in the Collateral granted
to the Secured Party pursuant hereto and pursuant to the Copyright
Mortgages and Assignments is being granted to secure the Secured
Obligations and Rights. The term "Secured Obligations and Rights"
shall mean and include (i) the full and timely payment and
performance by Debtor when due of all of Debtor's agreements,
representa-tions, warranties and covenants, hereunder and under the
Loan Agreement (collectively, the "Debtor Obligations"), and (ii)
the continuing right of the Secured Party in accordance with all of
the terms of the Loan Agreement to exercise all of the rights of
the Secured Party under the Loan Agreement (collectively, the
"Secured Party's Rights") including, without limitation, the rights
of the Secured Party to (a) exploit the Work pursuant to the terms
of the Agreements (including the Kurzman Security Agreement), (b)
receive, retain and own any sums derived from or in connection with
the exploitation of the Work subject to the terms and conditions of
the Agreements, (c) exercise the Secured Party's right of access to
and use of all Physical Properties (as herein defined), and (e)
enjoy the full exercise and quiet enjoyment of all rights in
connection with the Work provided for in the Agreements.
(c) Collateral. The term "Collateral", as used herein shall mean all of
Debtor's right, title and interest of every kind and nature in and
to the following items, whether now owned or in existence or
hereafter made, acquired or created and all product and proceeds
thereof:
<PAGE>
(i) All of the Debtor's rights under the Agreements including rights under
the Kurzman Security Agreement and in all collateral with respect to
the foregoing;
(ii) All proceeds and product of the rights granted to Debtor under the
Agreements, including without limitation, any and all agreements, assignments,
licenses and other instruments or documents of whatsoever kind and nature
(the "Documents") heretofore or hereafter made or executed which
transfer rights in and to the Work or any and all motion pictures
which may hereafter be produced based upon the Work (collectively
the "Pictures") and any accounts, contract rights, chattel paper,
documents, general intangibles and instruments (as defined under
the Uniform Commercial Code of the States of California and New
York) and all money and claims for money (whether or not such
claims to money have been earned by performance) derived from or
arising out of such rights;
(iii) All of Debtor's rights to receive any sums of money under or in
connection with the Agreements;
(iv) The nonexclusive right to all common law and statutory domestic
and foreign copyrights, rights and interests in copyrights and
renewals and extensions of copyrights, in or relating to the Work
or the Pictures (collectively, the "Copyrights"), to the extent
that the same are acquired by Debtor pursuant to the Agreements;
(v) The nonexclusive right to all tangible personal property and physical
properties (the "Physical Properties") of every kind or nature
whatsoever of or directly relating to the Work or the Pictures to
the extent that the same are acquired by Debtor pursuant to the
Agreements (including all of Owner's right, title and interest of
whatsoever kind and nature, under copyright and extensions and
renewals thereof (including, but not limited to, motion pictures,
television and ancillary subsidiary and allied rights) whether
statutory or common law, and otherwise, in and to the Work, the
Pictures and the Documents);
(vi) The nonexclusive right to all literary, dramatic, musical and
other material created for the Work, the Pictures or upon which the
same are based or to be based, in whole or in part, or which are
used in connection with the Work or the Pictures to the extent the
same are acquired pursuant to the terms of the Agreements
<PAGE>
(including without limitation any screenplays and the underlying
materials upon which such screenplays are based) and all common law
and statutory domestic and foreign copyrights, and rights and
interests in copyrights and renewals and extensions of copyrights,
in and to said literary, dramatic, musical and other written material (the
"Literary Properties").
(vii) The nonexclusive right to all general intangibles and contract
rights in or relating to all agreements and understandings (whether
or not evidenced in writing) with third parties relating to the
creation, production and acquisition of the Work or the Pictures
to the extent the same are acquired by Debtor pursuant to the terms
of the Agreements, including without limitation all agreements and
understandings with third parties producing the Pictures or
furnishing services and/or rights relating to the development,
production, completion, delivery and/or acquisition of the Work,
the Pictures or to any of the Physical Properties, Literary
Properties or Copyrights.
Notwithstanding the foregoing, Secured Party's security interest in
the Collateral described in subparagraphs (ii) through (vii) above
(the "Secondary Collateral") is a nonexclusive (except as provided
for in subparagraph (iv)) security interest and is limited to
Debtor's right, title and interest in and to such Collateral solely
to the extent provided in the terms and conditions of the
Agreements.
(d) Rights of Secured Party. With respect to the security interests hereby
granted to Secured Party and granted to the Secured Party pursuant
to the Copyright Mortgages and Assignments, Secured Party and any
of its successors or assignees shall at all times be entitled to
exercise in respect of the Collateral all of the rights, remedies,
powers and privileges available to a secured party under all
applicable laws, including without limitation, the United States
Copyright Act, the Uniform Commercial Code of the States of
California and New York in effect at the time which shall be
applicable for the purpose of establishing the relative rights of
Secured Party and of Debtor, and to those procedures to be followed
thereunder in the event this subparagraph 1(d) shall become
operative, including the right to sell the Collateral or any
portion thereof, and, in addition thereto, to the rights and
remedies provided for herein and under the Loan Agreement and to
such other rights and remedies as may be provided by law or in
equity.
(e) Exercise of Rights. Secured Party shall not exercise any of its
rights hereunder in any manner that would interfere with the production,
completion, delivery or
<PAGE>
exploitation of the Work or the Pictures
(so long as the exploitation of the Work or Pictures does not
violate the Secured Party's rights). Subject to the immediately
preceding sentence, Secured Party or any of its successors or
assignees shall be entitled to exercise any or all of the rights
granted hereunder with respect to the Collateral in the event
Debtor (or any person or entity acting on Debtor's behalf or in its
place and stead) (i) rejects or attempts to reject or wrongfully
terminates or wrongfully disaffirms the Agreements, the Loan
Agreement or this Security Agreement or (ii) breaches or defaults,
in any respect that would substantially prevent, hinder, impair,
infringe or delay Secured Party's enjoyment of the Secured Party's
Rights, in the payment or performance of any of the Secured
Obligations and Rights and fails to remedy such breach or default
within 30 days after receipt of written notice thereof from Secured
Party if such breach or default is capable of being cured within
such time period. If the Debtor shall breach any of its material
obligations under the Loan Agreement, the Agreements or this
Security Agreement, the Secured Party, after giving notice of its
intention to do so, may take any reasonable action which it may
deem necessary for the maintenance, preservation, and protection of
any of the Collateral or its security interest therein.
(f) Further Documents. Debtor hereby agrees to execute and deliver
to Secured Party all such financing statements or similar documentation for
all jurisdictions designated by Secured Party (collectively, the
"Financing Statements"), one or more Copyright Mortgages and
Assignments in form and substance reasonably satisfactory to
Secured Party, and such other documents, agreements or instruments
as Secured Party shall reasonably request and are reasonably
required to better perfect, protect, evidence, renew and/or
continue the security interest in the Collateral granted hereunder
and/or to effectuate the purposes and intents of this Security
Agreement (collectively, the "Security Documents"), to file,
register and/or record the same under (i) the Uniform Commercial
Code, and all other similar applicable laws of the States of
California and New York and under the laws of any other
jurisdiction where such filing, registration and/or recordation may
reasonably be required by Secured Party, and (ii) the United States
Copyright Act. If after the occurrence and during the continuance
of any of the events specified in the second sentence of
subparagraph 1(e) hereof Debtor fails to execute and deliver to
Secured Party any of the Financing Statements, the Copyright
Mortgages and Assignments, or any other Security Documents on
request of
<PAGE>
Secured Party, Debtor hereby appoints Secured Party its
irrevocable attorney-in-fact to sign any such
document for Debtor, and agrees that such appointment constitutes
a power coupled with an interest and is irrevocable throughout the
Term of the Agreements, the Loan Agreement and this Security
Agreement; provided, however, that Secured Party shall be liable to
Debtor and Debtor's successors, licensees and assigns for any
damages resulting from inaccuracy or failure to conform to this
Security Agreement in any Financing Statement, Copyright Mortgage
and Assignment or other Security Document so signed by Secured
Party as Debtor's attorney-in-fact. Debtor hereby authorizes the
Secured Party to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of the Debtor where permitted
by law. A carbon, photographic or other reproduction of this
Security Agreement or any part thereof shall be sufficient as a
financing statement where permitted by law.
(g) Term of Security Interest. The security interest created hereunder
and under the Copyright Mortgages and Assignments shall commence as of
the date of this Security Agreement and shall terminate upon the
expiration of the Term of Secured Party's rights under the Loan
Agreement, at which time Secured Party, on Debtor's request and
without further consideration, shall execute and deliver to Debtor
termination statements releasing and terminating the Financing
Statements, the Copyright Mortgages and Assignments, and the other
Security Documents, all without recourse upon or warranty by
Secured Party and with filing thereof at the sole cost and expense
of Debtor.
(h) Priority of Security Interest. The security interest by Secured Party
in and to the Collateral shall be a first priority security interest.
(i) Continuing Security Interest. This Security Agreement shall create a
continuing security interest in the Collateral and shall (a) be
binding upon the Debtor, its successors and assigns and (b) inure
to the benefit of the Secured Party and its successors, transferees
and assigns.
2. DEBTOR'S WARRANTIES AND REPRESENTATIONS AND AGREEMENTS.
Debtor confirms, warrants and represents to Secured Party as
follows, which such confirmations, representations and warranties
shall be deemed to be continuing until the termination of the
Secured Party's
<PAGE>
security interest hereunder: (a) Debtor has the
right to enter into this Security Agreement and execute and deliver
to Secured Party the Financing Statements, the Copyright Mortgage
and Assignment, and the other Security Documents, and (b) Debtor
has not and will not grant or permit to exist on all or any portion
of the Collateral any lien, security interest or encumbrance (other
than the security interest granted by Debtor to Secured Party
hereunder), which does or may in any way conflict or interfere with
or have priority over the security interest herein granted by
Debtor to Secured Party; provided however that in no event may
Debtor grant or permit to exist on all or any portion of the
Collateral described in subparagraphs 1(c)(i) through (iii) any
lien, encumbrance or security interest, and (c) no agreements,
understandings or other arrangements have been or will be made or
entered into by Debtor which do or may in any way conflict or
interfere with the full, complete and unfettered exercise by
Secured Party of the secured Party's Rights or any other rights
granted by Debtor to Secured Party in this Security Agreement or
any of the other Security Documents or in the Loan Agreement.
Debtor will not sell, offer to sell, hypothecate or otherwise
dispose of any Collateral (including proceeds) subject hereto, or
any part thereof or interest therein, except subject to the
security interest granted to Secured Party hereunder.
3. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute a "Default" hereunder.
(a) failure of Debtor to perform its obligations under the
Loan Agreement;
(b) any material default by Debtor under the Loan Agreement or the
Agreements;
(c) any person shall levy on, seize, or attach the Collateral;
(d) any person, including without limitation, Debtor interferes with
Secured Party's quiet enjoyment of Secured Party's rights as a secured
party hereunder;
(e) bankruptcy.
4. GOVERNING LAW. This Security Agreement and the other Security
Documents shall be governed by the laws of the State of New York applicable
to agreements wholly executed and performed therein, and without
giving effect to the principles of conflict or choice of laws
thereof.
<PAGE>
5. ANY LEGAL ACTION. All of the parties hereto (a) agree that any legal
suit, action or proceeding arising out of or relating to this
Security Agreement may be instituted in a State or Federal court in
the City of New York, State of New York, (b) waive any objection
which they may have now or hereafter to the County of New York as
the venue of any such suit, action or proceeding, and
(c) irrevocably submit to the non-exclusive jurisdiction of the
United States District Court for the Southern District of New York,
or any court of the State of New York located in the City of New
York in any such suit, action or proceeding and any summons, order
to show cause, writ, judgment, decree, or other process with
respect to any such suit, action or proceeding may be delivered to
Debtor personally outside the State of New York, and when so
delivered, Debtor shall be subject to the jurisdiction of such
court, and amenable to the process so delivered as though the same
had been served within the State of New York, but outside the
county in which such suit, action or proceeding is pending.
6. NOTICES. All notices or other documents which any party shall be
required or shall desire to give to the other hereunder shall be given in
the manner provided for in the Loan Agreement.
7. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Security Agreement nor consent to any departure by the Debtor
herefrom shall in any event be effective unless the same shall be
in writing and signed by the Secured Party, and then such waiver or
consent shall be effective only in the specific instance and for
the specific purpose for which given.
By signing in the spaces provided below, the parties hereto
have agreed to all of the terms and conditions of this Security
Agreement.
DEBTOR:
ORION PICTURES CORPORATION
By: /s/ Leonard White
----------------------------
Leonard White, President
SECURED PARTY:
METPRODUCTIONS, INC.
By: /s/ Arnold L. Walder
-----------------------------
Arnold L. Wadler,
Senior Vice President
<PAGE>
State of California )
: ss:
County of Los Angeles)
On ________________, 1994, before me, a Notary Public and in
and for said State, personally appeared Leonard White personally
known to me or provided on the basis of satisfactory evidence to be
the person who executed the within instrument as the President of
Orion Pictures Corporation, and acknowledged to me that such
corporation executed the within instrument to its powers to do so.
_______________________________
Notary Public
LOAN AGREEMENT
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