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: November 30, 1993
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 January 7, 1994:
20,000,000
<PAGE>
2
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
PART II - OTHER INFORMATION
<PAGE>
3
PART I - FINANCIAL INFORMATION
ORION PICTURES CORPORATION
(Debtor-in-Possession from December 11, 1991 to November 5, 1992)
Condensed Consolidated Statements of Operations
(in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ ------------------
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Revenues $ 70,729 $ 53,726 $140,952 $169,611
Cost of rentals 62,320 39,454 150,262 139,748
------- ------- ------- -------
Gross profit (loss) 8,409 14,272 (9,310) 29,863
Other costs and expenses:
Selling, general and administrative 5,250 8,398 15,805 25,784
Interest, net (contractual interest $14,200
and $44,574 for the three and nine
months ended November 30, 1992) 8,107 6,520 24,674 15,155
------- ------ ------- -------
Loss before chapter 11 reorganization items
and provision for income taxes (4,948) (646) (49,789) (11,076)
Chapter 11 reorganization items 193 6,208 1,406 15,740
------- ------ ------ ------
Loss before provision for income taxes (5,141) (6,854) (51,195) (26,816)
Provision for income taxes 300 2,300 1,300 4,500
------- ------ ------ ------
Loss before extraordinary gains recognized
upon emergence from chapter 11 (5,441) (9,154) (52,495) (31,316)
Extraordinary gains recognized upon emergence
from chapter 11, net of income tax ---- 312,592 ---- 312,592
------- -------- ------ -------
Net income (loss) $ (5,441) $303,438 $(52,495) $281,276
------- -------- ------ -------
Income (loss) per common share:
Loss before extraordinary gains $ (.27) $ ( 1.57) $ (2.62) $( 15.39)
------- -------- ------ -------
Net income (loss) $ (.27) $ 52.06 $ (2.62) $ 138.16
------- -------- ------ -------
Number of common and common equivalent
shares entering into computation 20,000 5,829 20,000 2,036
------- -------- ------ -------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
4
ORION PICTURES CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
November 30, February 28,
1993 1993
----------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 23,370 $ 77,539
Accounts receivable, net 92,105 97,699
Film inventories 432,570 498,890
Other assets 21,648 30,228
----------- -----------
$ 569,693 $ 704,356
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 2,064 $ 2,634
Accrued expenses 39,030 41,948
Participations and residuals 50,929 66,613
Notes and subordinated debt 274,829 325,158
Deferred revenues 88,337 101,004
Shareholders' equity:
Common stock 5,000 5,000
Paid-in surplus 265,811 265,811
Accumulated deficit (156,307) (103,812)
----------- -----------
Total shareholders' equity 114,504 166,999
----------- -----------
$ 569,693 $ 704,356
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
5
ORION PICTURES CORPORATION
(Debtor-in-Possession from December 11, 1991 to November 5, 1992)
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
November, 30
-------------------------------
1993 1992
------ ------
<S> <C> <C>
Operations:
Loss before chapter 11 reorganization
items and provision for income taxes $ (49,789) $ (11,076)
Provision for income taxes (1,300) ( 4,500)
Loss exclusive of chapter 11 reorganization items (51,089) (15,576)
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 115,452 100,599
Decrease in accounts receivable 5,594 24,918
Decrease in accounts payable and
accrued expenses (9,528) (20,459)
Accrual of participations and residuals 12,183 17,439
Payments of participations and residuals (21,763) ---
Increase (decrease) in deferred revenues (12,667) 2,556
Other, net 13,975 15,866
Cash provided by operations --------- ----------
exclusive of chapter 11 reorganization items 52,157 125,343
Payments of chapter 11 reorganization items (1,406) (9,374)
--------- ----------
Cash provided by operations 50,751 115,969
Investment activities:
Investment in film inventories (49,132) (7,238)
Other 5,194 1,706
--------- ----------
Cash used in investment activities (43,938) (5,532)
Financing activities:
Sale of common stock to majority shareholder --- 15,000
Payments on notes and subordinated debt (60,982) (83,649)
--------- ----------
Cash used in financing activities (60,982) (68,649)
Increase (decrease) in cash (54,169) 41,788
Cash and cash equivalents at beginning of period 77,539 21,560
--------- ----------
Cash and cash equivalents at end of period $ 23,370 $ 63,348
--------- ----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
6
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 "1993 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 November 30, 1993, the results of its operations for the
three- and nine-month periods ended November 30, 1993 and 1992 and
its cash flows for the nine-month periods ended November 30, 1993
and 1992 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 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.
<PAGE>
7
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
nine-month periods ended November 30, 1993 and 1992 are 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):
<TABLE>
<CAPTION>
November 30, February 28,
1993 1993
--------- --------
<S> <C> <C>
Theatrical films:
Released $ 345,501 $ 343,011
Completed and unreleased 72,917 140,567
Television programs:
Released 14,152 15,312
--------- --------
$ 432,570 $ 498,890
--------- --------
</TABLE>
In late December 1991, the Company received a notice from Showtime
Networks, Inc. ("Showtime") that Showtime believes 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 will not license the ten pictures
theatrically released in the domestic marketplace during fiscal
1992 and 1993 and the first three quarters of fiscal 1994 and the
Company's six remaining unreleased pictures (the "Key Man
Dispute"). License fees under the Showtime agreement for these
sixteen films are 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 has 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 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.
The Company currently intends to commence an appeal of the Appeals
Court's decision to the Supreme Court of the United States by
petitioning the Supreme Court for a writ of certiorari and will
pursue the appeal vigorously if certiorari is granted. The
Company's time to appeal the decision of the Appeals Court has been
<PAGE>
8
extended up to and including January 31, 1994. If the Appeals
Court's decision is not reversed by the Supreme Court, the Appeals
Court's decision ultimately could lead to a retrial of the issue of
Orion's compliance with the key man clause to a jury. In the event
of any such retrial, the Company intends to pursue the matter
vigorously although it cannot be predicted 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 $29,400,000 in fees plus interest already paid by
Showtime to the Company against future license fees due the Company
under the Showtime agreement (the "Qualification Dispute").
Showtime claims that eight of the Company's films did not meet
certain contractual qualification criteria including one of which
is already included in the disputed pictures under the Key Man
Dispute described above. On June 18, 1993, the Company commenced
an adversary proceeding in the Court against Showtime seeking the
declaratory judgement that the claims asserted in the Qualification
Dispute are barred by, inter alia, operation of the Plan and
Confirmation Order.
On September 7, 1993, the Court granted the Company's request for
a preliminary injunction temporarily barring Showtime from
prosecuting the claims asserted in the Qualification Dispute until
the Court can decide the claims asserted by the Company in its
adversary proceeding against Showtime. The date of the hearing on
the Company's claims asserted in the adversary proceeding
including, inter alia, the Company's request for an injunction
permanently barring Showtime from prosecuting the claims asserted
in the Qualification Dispute has been adjourned to February 8,
1994.
The Company and Showtime are currently engaged in settlement
negotiations aimed at resolving all disputes between the Company
and Showtime, including, without limitation, the litigations
regarding the Key Man Dispute and the Qualification Dispute. Any
such settlement would require approval of the Bankruptcy Court.
There can be no assurance that Showtime and the Company will reach
an agreement settling all disputes between the parties, that such
settlement will be concluded on a timely basis, or such settlement
will not have a material adverse effect upon the Company's
financial position, results of operations and ability to meet the
cash flow projections included in the Disclosure Statement.
Film inventories at November 30, 1993 and February 28, 1993 shown
above are stated based upon the assumption that all license fees
due under the Showtime agreement will eventually be realized;
however, no assurance can be given that the Company will be
successful in its efforts to realize all such fees. If the Company
is unable to fully recover such fees, there would be a material
adverse effect upon the consolidated financial position and results
of operations of the Company, as well as the Company's ability to
achieve the cash flow projections included in the Disclosure
Statement. No revenues have been recorded related to the licensing
to Showtime of the pictures subject to the Key Man Dispute
mentioned above. Approximately $27,100,000 of revenues has been
recognized related to seven of the eight titles subject to the
Qualification Dispute.
Approximately two-thirds of the Company's film inventories at
November 30, 1993 and at February 28, 1993 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 86% of
the gross cost of its film inventories, including those produced
subsequent to the quasi-reorganization. Approximately 95% of such
gross film inventory costs will have been amortized by November 30,
1996. As of November 30, 1993, approximately 63% 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.
<PAGE>
9
5. Notes and Subordinated Debt
Notes and subordinated debt is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
November 30, February 28,
1993 1993
----------- ------------
<S> <C> <C>
Notes payable to banks pursuant to the Third Amended
and Restated Credit Agreement ("Third Restated
Credit Agreement") $125,350 $162,207
Talent Notes, net of unamortized discounts of $10,425
and $9,037 28,457 28,786
Creditor Notes, net of unamortized discounts of $29,072
and $33,931 33,468 30,494
Non-interest bearing payment obligation to Sony,
net of unamortized discounts of $3,362 and $5,435 39,069 54,068
Other guarantees and contracts payable, net of
unamortized discounts of $3,809 and $4,958 9,561 12,955
----------- ------------
Total notes payable 235,905 288,510
10% Subordinated Debentures due 2001,
net of unamortized discounts of $10,997 and $12,375 38,924 36,648
----------- ------------
Total notes and subordinated debt $274,829 $325,158
----------- ------------
</TABLE>
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
$125,350,000 at November 30, 1993 which matures as follows (in
thousands):
October 20
----------
1994 $ 61,134
1995 64,216
--------
$125,350
--------
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
guaranteed the payment of substantially all of the Company's
payment obligations under the Third Restated Credit Agreement
pursuant to a bank guarantee (the "Bank Guarantee"). In the event
the guarantor or its affiliate makes any payments under the Bank
Guarantee, the Company has agreed to reimburse such party pursuant
<PAGE>
10
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.
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
$42,431,000 at November 30, 1993 which matures as follows (in
thousands):
November 5
----------
1994 $ 22,431
1995 20,000
--------
$ 42,431
--------
To the extent the Company fails to repay such amounts on a timely
basis, Sony may, after giving notice and an opportunity to cure to
the guarantors under the Bank Guarantee, draw under the letter of
credit issued in its favor. In such event, such amount would
become an obligation of the Company under the Third Restated Credit
Agreement and guaranteed pursuant to the Bank Guarantee.
Notwithstanding the above maturity schedule and to the extent that
the Company generates 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.
The following is a summary of the cumulative minimum aggregate Net
Cash Flow that must be received by the holders of the Talent Notes,
the Creditor Notes and the 10% Subordinated Debentures in payment
of their respective principal and interest in accordance with the
terms of the Plan. These mandatory minimum amounts may be reduced
by the portion of amounts due under the Showtime agreement
allocated to the holders of Talent Notes, Creditor Notes and 10%
Subordinated Debentures, to the extent that the amounts are not
received by the Company (in thousands):
Cumulative
Quarters Ending Minimum
During Period From Amounts
------------------ ----------
December 1, 1994 to February 28, 1995. . . . . . . . . . . .$27,596
March 1, 1995 to February 29, 1996 . . . . . . . . . . . . . 61,948
March 1, 1996 to February 28, 1997 . . . . . . . . . . . . . 97,802
March 1, 1997 to February 28, 1998 . . . . . . . . . . . . .161,140
March 1, 1998 to February 28, 1999 . . . . . . . . . . . . .204,741
<PAGE>
11
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 Company has made
four Net Cash Flow distributions in accordance with the Plan. The
distributions were made in November 1992, March 1993, June 1993,
and December 1993, respectively. The following table describes the
allocation of these distributions in accordance with the Plan (in
thousands):
<TABLE>
<CAPTION>
December August June March November
1993 1993 1993 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Third Restated Credit Agreement $ 2,488 $ --- $ 12,166 $ 24,691 $ 28,619
Sony Obligation 912 --- 8,016 9,056 10,497
Talent Notes (principal and interest) 340 --- 2,018 3,375 3,910
Creditor Notes --- --- --- 1,046 1,498
10% Debentures due 2001 --- --- --- --- 977
Interest on 10% Debentures due 2001 260 --- 1,544 1,535 519
------ ------ ------ ------ ------
$ 4,000 $ 0 $ 23,744 $ 39,703 $ 46,020
------ ------ ------ ------ ------
</TABLE>
Pursuant to the Waiver and Consent dated as of June 30, 1993 under
the Third Restated Credit 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, the portion of Net Cash Flow which would
otherwise be payable to holders of Creditor Notes for the 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, a portion
of the interest due October 1, 1993 on the 10%
Subordinated Debentures, was paid with cash and a portion,
approximately $898,000, 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 $47,431,000, at November 30,1993.
All descriptions of securities above refer to securities issued and
in certain cases, estimated amounts of such securities that are yet
to be issued. Accordingly during the three-month period ended
November 30, 1993, approximately $6,000,000 was reclassified from
Participations and residuals payable to Talent Notes as an estimate
of the resolution of certain claims.
<PAGE>
12
6. Income Taxes
The provision for income taxes for the three months ended November
30, 1993 consists of the following (in thousands):
<TABLE>
<CAPTION>
State
and
Federal Local Foreign Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Loss before provision for income taxes $ --- $ --- $ 300 $ 300
Extraordinary gains --- --- --- ----
------- ------- ------- -------
$ --- $ --- $ 300 $ 300
------- ------- ------- -------
</TABLE>
The provision for income taxes for the three months ended November 30, 1992
consists of the following (in thousands):
<TABLE>
<CAPTION>
State
and
Federal Local Foreign Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Loss before provision for income taxes $ --- $ (100) $ 2,400 $ 2,300
Extraordinary gains --- 100 --- 100
------- ------- ------- -------
$ --- $ --- $ 2,400 $ 2,400
------- ------- ------- -------
</TABLE>
The provision for income taxes for the nine months ended November 30, 1993
consists of the following (in thousands):
<TABLE>
<CAPTION>
State
and
Federal Local Foreign Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Loss before provision for income taxes $ --- $ 100 $ 1,200 $ 1,300
Extraordinary gains --- --- --- ----
------- ------- ------- -------
$ --- $ 100 $1,200 $ 1,300
------- ------- ------- -------
</TABLE>
The provision for income taxes for the nine months ended November 30, 1992
consists of the following (in thousands):
<TABLE>
<CAPTION>
State
and
Federal Local Foreign Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Loss before provision for income taxes $ --- $ 200 $4,300 $4,500
Extraordinary gains --- 100 --- 100
------- ------- ------- -------
$ ----- $ 300 $4,300 $ 4,600
------- ------- ------- -------
</TABLE>
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.
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes" ("SFAS
109"). The Company's results of operations were not impacted by
the change in method of accounting for income taxes resulting from
the adoption of SFAS 109.
<PAGE>
13
7. Loss Per Common Share
Pursuant to the Plan, all 22,508,600 shares of the Company's
previously outstanding common stock and 7,237 shares of the
Company's previously outstanding preferred stock were canceled at
the Effective Date and the holders of such stock received 160,000
and 20,000 shares (0.8% and 0.1%), respectively, of the reorganized
Company's 20,000,000 newly issued common shares. All outstanding
options to purchase common stock pursuant to the Company's stock
option plans were also canceled.
Per-share amounts presented on the Company's Condensed Consolidated
Statements of Operations for periods ended after the Effective Date
are computed by dividing Loss before extraordinary gains and Net
income (loss) by the weighted average number of issued common
shares outstanding during each period.
Per-share amounts presented for periods ended before the Effective
Date were computed by dividing Loss before extraordinary gains and
Net income (loss) reduced by preferred and preference dividends
and, when applicable, increased by pro-forma reductions in interest
expense (net of tax) resulting from the assumed exercise of stock
options and the resulting assumed reduction of outstanding
indebtedness, by the weighted average number of common and dilutive
common equivalent shares outstanding during the period.
8. Revenue Information
The sources of the Company's revenues from operations by market for
the three- and nine-month periods ended November 30, 1993 and 1992
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 November 30, 1993 and
1992, the Company generated revenues of $23,280,000 and
$19,525,000, respectively, from foreign distribution of such
product. During the nine-month periods ended November 30, 1993 and
1992, the Company generated foreign distribution revenues of
$64,412,000 and $85,660,000, 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. As
described in Note 2, claims have arisen after the Filing Date from
the determination by the Court (or agreement by parties in
interest) to allow claims for certain of these 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 subject to
compromise which would have a material adverse effect upon the
consolidated financial position or results of operations of the
Company with the possible exceptions of the Showtime disputes
described in Note 4 and the matter described below.
As previously disclosed in the Registrant's Annual Reports on Form
10-K for the fiscal years ended February 29, 1992 and February 28,
1993, 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,
<PAGE>
14
denying the material allegations of the complaint, asserting that
its accounting practices were accurate in all respects. Following
the filing of the Company's bankruptcy petition, Hemdale 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 February 8, 1994. The parties have been engaged in
discussions regarding the use of a mediator to mediate the claims.
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,
if the case is not otherwise resolved, it is expected that this
case will be tried before the Court.
<PAGE>
15
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, 1993 (the "1993 Annual M,D & A") for a
further discussion of the Company's Plan of Reorganization and the
implications thereof.
RESULTS OF OPERATIONS
During the third quarter of the fiscal year ending February 28,
1994 ("fiscal 1994"), the Company recorded a net loss of $5,441,000
on revenues of $70,729,000. During the third quarter of the
preceding year ("fiscal 1993"), the Company recorded a loss before
extraordinary items of $9,154,000 and extraordinary gains
aggregating $312,592,000 resulting in net income for the quarter of
$303,438,000 on revenues of $53,726,000.
For the first nine months of fiscal 1994, the Company reported a
net loss of $52,495,000 on revenues of $140,952,000. For the first
nine months of fiscal 1993, the Company reported a loss before
extraordinary items of $31,316,000 and extraordinary gains of
$312,592,000 resulting in net income of $281,276,000 on revenues of
$169,611,000.
Certain factors discussed more fully below, adversely affected the
Company's operations in the third quarter of fiscal 1994. First,
as previously disclosed in the Company's 1992 and 1993 Forms 10-K,
approximately two-thirds of the Company's film inventory is 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 large portion of recorded revenues in the
third quarter of fiscal 1994 related to this product. The Company
recorded $5,400,000 of writedowns on this product in the third
quarter of fiscal 1994 which included a writedown of $4,400,000 on
"ROBOCOP 3" based on the disappointing results of the domestic
theatrical release of this picture. Accordingly, gross profit from
profitable pictures (before the effect of the writedowns in the
fiscal 1994 third quarter described above), was insufficient to
offset the aggregate effect of such losses and the Company's
selling, general and administrative costs and interest costs
recognized during the quarter.
Certain events discussed more fully below, significantly affected
the Company's results of operations in the third quarter of fiscal
year 1993. The Company successfully emerged from its chapter 11
bankruptcy proceedings on the Effective Date. Several significant
adjustments were recorded during the third quarter of fiscal 1993
to reflect this event in the Company's consolidated financial
statements, which resulted in the recognition of an aggregate of
$312,692,000 of extraordinary gains, before the effect of income
taxes. Furthermore, the Company incurred approximately $6,200,000
of costs directly related to the chapter 11 proceedings during the
quarter, as described below, that adversely affected results of
operations.
<PAGE>
16
THREE MONTHS ENDED NOVEMBER 30 (1993 vs 1992)
Revenues
The following table sets forth the sources of the Company's
revenues from operations by market during the third quarter of
fiscal 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
November 30,
----------------------
1993 1992
------ ------
<S> <C> <C>
Theatrical distribution $ 12,755 $ 4,590
Television and video distribution:
Home video direct distribution 15,093 26,299
Home video subdistribution 3,401 6,188
Pay television 3,220 6,596
Free television and other 36,260 10,053
------ ------
Total television and video distribution 57,974 49,136
------ ------
$ 70,729 $ 53,726
------ ------
</TABLE>
Theatrical Revenues
The majority of the Company's theatrical revenues in the quarter
ended November 30, 1993 were generated by the domestic and foreign
theatrical distribution of "ROBOCOP 3". There was no domestic
theatrical release in the previous year's third quarter.
Home Video Revenues
The distribution of two of the Company's theatrical releases, "THE
DARK HALF" and "MARRIED TO IT", in the domestic home video rental
market through Orion Home Video ("OHV") accounted for over three-
quarters of the Company's home video direct distribution revenues
during the current year's third quarter. The remaining revenues
were derived from "sell-thru" (i.e. lower priced) sales of various
titles. A significant portion of the Company's home video direct
distribution revenues in the previous year's third quarter was
derived from "sell-thru" sales of certain titles, including
approximately $13,800,000 attributable to "DANCES WITH WOLVES".
The Company does not expect the "sell-thru" distribution of any of
its remaining titles to be as successful as the distribution of
"DANCES WITH WOLVES" was in that quarter. In the previous year's
third quarter, the Company also distributed two of its theatrical
releases in the domestic home video rental market through OHV
including "ARTICLE 99" which generated approximately $5,900,000 in
revenues.
The Company's home video subdistribution revenues in the current
and previous year's third quarter were mostly generated by sales in
a number of foreign territories of titles under the Company's
subdistribution agreement with Sony which is described below,
including approximately $1,200,000 which was recognized based upon
sales of "ROBOCOP 3" in the current quarter and including
approximately $2,500,000 which was recognized based upon sales of
"THE SILENCE OF THE LAMBS" in the previous year's third quarter.
<PAGE>
17
Pay Television Revenues
One title first became available during the third quarter of fiscal
1993 under the Company's exclusive long-term film licensing
agreement with Showtime Networks, Inc. ("Showtime"). Recognition
of approximately $3,100,000 of revenues on this title was deferred
for the reason described below in the section entitled "Pay
Television Revenues" for the nine-month periods ended November 30,
1993 and 1992. The remainder of the Company's revenues in this
market in each quarter was recorded upon the availability of
various titles under certain foreign pay television agreements.
Free Television Revenues
During the current year's quarter approximately $19,500,000 of free
television revenue was recorded upon the availability of "DANCES
WITH WOLVES" to ABC and "THE SILENCE OF THE LAMBS" to CBS. The
Company does not expect the network license fees of any of its
remaining titles to be comparable to the amount generated by these
two titles. The Company's free television revenues in the three-
month periods ended November 30, 1993 and 1992, also included
approximately $9,200,000 and $6,100,000, respectively, of license
fees recognized under certain foreign free television agreements.
Free television revenues in the current and previous quarters each
include fees from the availability to Lifetime of three pictures
under the Company's October 1989 agreement with that basic cable
network.
Gross Profit
Gross profit in the current year's third quarter was most favorably
affected by the network availability of "DANCES WITH WOLVES" and
"THE SILENCE OF THE LAMBS". Together, these two titles contributed
approximately $13,300,000 to the Company's fiscal 1994 third
quarter gross profit.
Gross profit in the previous year's third quarter was most
favorably affected by the domestic home video "sell-thru" sales of
"DANCES WITH WOLVES" and, to a lesser extent, by "sell-thru" sales
and the foreign home video and certain foreign pay cable
availabilities of "THE SILENCE OF THE LAMBS". Together, these two
titles contributed approximately $13,000,000 to the Company's
previous year's third quarter gross profit.
As previously disclosed in the Company's 1992 and 1993 Forms 10-K,
approximately two-thirds 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 third quarter of fiscal
1994 related to this product. In addition, the current quarter was
adversely affected by the recording of a $4,400,000 writedown to
"ROBOCOP 3" based upon its less-than-previously-expected domestic
theatrical performance.
As previously disclosed, since the beginning of fiscal 1992, the
Company has released in the domestic market place only ten
pictures, which it has produced, compared to an annual average of
14 releases in each of the previous 3 years. This reduced release
schedule has had an adverse effect on amounts and comparisons of
revenues and, consequently, gross profit and is expected in the
future, to continue to have an adverse effect on comparisons with
earlier periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended
November 30, 1993 decreased $3,148,000 (37%) from $8,398,000 in the
preceding year's third quarter to $5,250,000 in the current year's
third quarter. Approximately 57% of the decrease in selling,
general and administrative costs was attributable to reduced
personnel costs as a result of extensive layoffs and voluntary
terminations that ended in fiscal 1993, as well as from rejections
and renegotiations of various operating leases.
<PAGE>
18
Chapter 11 Reorganization Items
The Company charged approximately $193,000 and $6,208,000 of direct
expenses of administering the chapter 11 filing, consisting
primarily of professional fees, to operations during the quarters
ended November 30, 1993 and 1992, respectively.
Interest Expense
Interest expense for the three months ended November 30, 1993
increased $1,587,000 (24%) from the previous year's quarter from
$6,520,000 to $8,107,000. Such increase is largely due to the
impact of applying SOP 90-7 to accounting for interest related to
the Company's previously outstanding subordinated notes and
debentures during the prior year's third quarter. In accordance
with the requirements of SOP 90-7, the Company ceased accruing
interest on these securities during the Bankruptcy Period. Thus,
the third quarter of the previous year had the capital structure
following the Bankruptcy Period outstanding for only a portion of
the three-month period compared to the third quarter of fiscal 1994
which included three months of interest charges for the new capital
structure.
Provision for Income Taxes
The provision for income taxes for the three months ended November
30, 1993 consists primarily of taxes attributable to certain
foreign remittances. For the three months ended November 30, 1992,
the provision for income taxes included foreign remittance taxes
primarily attributable to certain transactions and minimum state
taxes which could not be mitigated by operating losses.
<PAGE>
19
NINE MONTHS ENDED NOVEMBER 30 (1993 vs.1992)
Revenues
The following table sets forth the sources of the Company's
revenues from operations by market during the first nine months of
fiscal 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
--------------------
1993 1992
------ ------
<S> <C> <C>
Theatrical distribution $ 33,779 $ 51,583
Television and video distribution:
Home video direct distribution 27,492 48,573
Home video subdistribution 5,845 9,887
Pay television 14,319 25,093
Free television and other 59,517 34,475
------- -------
Total television and video distribution 107,173 118,028
------- -------
$140,952 $169,611
------- -------
</TABLE>
Theatrical Revenues
Approximately 73% of the Company's theatrical revenues in the first
three quarters of fiscal 1994 were derived from the distribution of
"ROBOCOP 3" and of "THE DARK HALF" in the domestic and foreign
theatrical marketplaces. These films produced approximately
$18,000,000 and $6,400,000 of film rentals, respectively, during
the period.
Approximately 83% of the Company's theatrical revenues during the
first three quarters of fiscal 1993 were derived from the
distribution of five films, including "THE ADDAMS FAMILY" and "THE
SILENCE OF THE LAMBS", both of which were distributed in the
foreign theatrical marketplace. These two films generated
approximately $20,200,000 and $9,600,000, respectively, of revenues
during the period.
Of the films unreleased at the Effective Date, the Company has six
remaining unreleased titles. To maximize their potential, the
Company has established a release schedule that contemplates the
release of the films during the remainder of fiscal 1994 and the
first half of the fiscal year ending February 28, 1995 ("fiscal
1995"). 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, it is
anticipated that revenues from theatrical distribution of the
Company's remaining unreleased films will be substantially earned
during the fourth quarter of fiscal 1994 and in fiscal 1995. The
Company's revenues after this period will depend entirely on the
Company's ability to produce or acquire additional product.
Home Video Revenues
The distribution of "THE DARK HALF", "MARRIED TO IT" and "LOVE
FIELD" 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 76% of the Company's home video direct
distribution revenues during the nine months ended November 30,
1993. The distribution of "LITTLE MAN TATE" and "ARTICLE 99" in
the domestic home video rental market and of "DANCES WITH WOLVES"
and "SILENCE OF THE LAMBS" in the domestic home video "sell-thru"
market through OHV accounted for approximately 86% of the Company's
home video direct distribution revenues during the previous nine-
month period. No picture generated significant home video
subdistribution revenues during the first three quarters of fiscal
1994 or 1993.
<PAGE>
20
The Company's home video subdistribution revenue is primarily
generated in the foreign market place. 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 1993 Annual Report on Form 10-K for the year ended
February 28, 1993. Under the terms of this 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.
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 production or acquisition of new theatrical product, are
likely to have an adverse effect on quarterly home video revenues
for the foreseeable future.
Pay Television Revenues
Two titles first became available during the first nine months of
fiscal 1994 compared to five in the preceding year's first nine
months under the Company's Showtime agreement. Recognition of
revenues on both of the fiscal 1994 titles and on four of the
fiscal 1993 titles were deferred for the reason described below.
As described more fully under the heading "Part II - Other
Information - Item 1- Legal Proceedings" and in Note 4 of Notes to
Condensed Consolidated Financial Statements, the Company and
Showtime are currently involved in litigation concerning an alleged
breach by the Company of a "key man provision" of a pay television
output contract between the Company and Showtime (the "Key Man
Dispute"). As a result of the Key Man Dispute, Showtime has
refused to accept for licensing the ten pictures theatrically
released in the domestic marketplace by the Company in fiscal 1992
and 1993 and in the first three quarters of fiscal 1994, and the
Company's six remaining unreleased pictures. Accordingly, no
revenues related to the licensing to Showtime of these disputed
pictures have been or will be recorded until such dispute has been
resolved. Such deferral began to have an adverse effect on Pay
Television Revenues in the first quarter of fiscal 1993.
Pay television revenues for each fiscal quarter would have included
the following license fees due under the Showtime agreement, (the
recognition of which has been deferred until the dispute is
resolved) and the following additional amounts which will be
deferred in future quarters (as long as the dispute remains
unresolved) (in thousands):
<TABLE>
<CAPTION>
Number of License Fees License Fees
Three Months Ended Pictures Deferred to be Deferred
------------------ --------- ------------ --------------
<S> <C> <C> <C>
May 31, 1992 1 $ 5,300 $ ----
August 31, 1992 2 9,000 ----
November 30, 1992 1 3,100 ----
May 31, 1993 2 11,700 ----
February 28, 1994 1 ---- 5,900
May 31, 1994 2 ---- 9,700
November 30, 1994 1 ---- 6,000
After May 31, 1994 6 ---- 26,300
-------- -------- --------
16 $ 29,100 $ 47,900
-------- -------- --------
</TABLE>
In addition, as more fully described under the heading "Part II -
Other Information - Item 1- Legal Proceedings" and in the Note 4 of
Notes to Condensed Consolidated Financial Statements, Showtime has
also filed a complaint in California State Court (the
"Qualification Dispute") alleging that Showtime should be permitted
to offset approximately $29,400,000 in fees already paid by it to
the Company under the output agreement, plus interest, against
<PAGE>
21
future license fees due the Company. Revenues aggregating
$27,100,000 were recorded upon the availability to Showtime of
seven of the eight pictures mentioned in the Qualification Dispute
in fiscal 1992 and prior periods. The eighth picture is also
subject to the Key Man Dispute.
The Company and Showtime are currently engaged in settlement
negotiations aimed at resolving all disputes between the Company
and Showtime, including, without limitation, the litigations
regarding the Key Man Dispute and the Qualification Dispute. Any
such settlement would require approval of the Bankruptcy Court.
There can be no assurance that Showtime and the Company will reach
an agreement settling all disputes between the parties, that such
settlement will be concluded on a timely basis, or such settlement
will not have a material adverse effect upon the Company's
financial position, results of operations and ability to meet the
cash flow projections included in the Disclosure Statement.
The continued delay or unsuccessful resolution of the Showtime
disputes described above would also have a material adverse effect
upon the Company's financial position, results of operations, and
its ability to meet its cash flow projections included in the
Disclosure Statement.
The remainder of the Company's revenue in this market for the first
nine months of each fiscal year was recorded upon the availability
of various titles under certain foreign pay television agreements.
Free Television Revenues
The Company's free television revenues in each of the fiscal 1994
and 1993 nine-month periods included approximately $23,400,000 and
$22,600,000, 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 1994 nine-month period also includes approximately
$6,200,000 of license fees from the availability to Lifetime of
five pictures under the Company's October 1989 agreement with that
basic cable network, which compares to $8,900,000 of license fees
for eight titles in the previous nine-month period. During the
first nine months of fiscal 1994, approximately $23,200,000 of
revenues were recorded upon the availability of five films to the
major networks.
Gross Profit (Loss)
The Company's gross profit (loss) from operations for the nine
months ended November 30, 1993 decreased $39,173,000 from the
previous year's nine-month period from $29,863,000 to $(9,310,000).
Gross profit in the previous year's first three quarters was most
favorably affected by the foreign theatrical and domestic home
video "sell-thru" distribution and domestic pay cable availability
to Showtime of "THE SILENCE OF THE LAMBS", and by the domestic home
video "sell-thru" distribution of "DANCES WITH WOLVES". These two
pictures accounted for approximately $23,100,000 of gross profit
during the period. Also contributing to gross profit was the
foreign theatrical distribution of "THE ADDAMS FAMILY" and the
foreign theatrical and domestic home video distribution of "LITTLE
MAN TATE". No film generated comparable gross profit in the
current year's first nine months, however, "DANCES WITH WOLVES"
and "THE SILENCE OF THE LAMBS" together generated approximately
$13,300,000 of gross profit mostly from the availability of both
titles to certain major networks. See the section above entitled
"Gross Profit" for the three months ended November 30, 1993 and
1992 for a discussion of certain factors that adversely affected
gross profit in the fiscal 1994 nine-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. Such writedowns for the nine months ended November 30,
1993, aggregated approximately $20,400,000 including a $14,100,000
writedown on three of the Company's domestic theatrical releases
during the current nine-month period, "ROBOCOP 3", "THE DARK HALF"
and "MARRIED TO IT". In addition, the Company took further
<PAGE>
22
writedowns aggregating approximately $6,900,000 to its completed
unreleased product based upon further evaluations of their
potential performance.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine-month
period ended November 30, 1993 decreased $9,979,000 (39%) from
$25,784,000 in the preceding year's nine-month period to
$15,805,000 in the current year's nine-month period. Approximately
65% of the decrease in selling, general and administrative costs
was attributable to reduced personnel costs as a result of
extensive layoffs and voluntary terminations that ended in fiscal
1993, as well as from rejections and renegotiations of various
operating leases.
Chapter 11 Reorganization Items
The Company charged approximately $1,406,000 and $15,740,000 of
direct expenses of administering the chapter 11 filing, consisting
primarily of professional fees, to operations during the nine-month
periods ended November 30, 1993 and 1992, respectively.
Interest Expense
Interest expense for the nine months ended November 30, 1993
increased $9,519,000 (63%) from the previous year's period. Such
increase is largely due to the impact of applying SOP 90-7 to
accounting for interest related to the Company's previously
outstanding subordinated notes and debentures during the prior
year's first nine months. In accordance with the requirements of
SOP 90-7, the Company ceased accruing interest on these securities
on the Filing Date. Thus, the first nine months of the previous
year had approximately one month of interest charges for the
Company's capital structure following the Bankruptcy Period
compared to the first nine months of fiscal 1994, which included
nine months of interest charges for the new capital structure.
Provision for Income Taxes
The provision for income taxes for the first nine months of both
fiscal 1993 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.
Effective March 1, 1993, the Company adopted the Statement of
Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). Under this method, deferred tax assets and
liabilities are recognized with respect to the tax consequences
attributable to the differences between the financial statement
carrying values and tax bases of existing assets and liabilities.
There was no cumulative effect of this change in method of
accounting for income taxes for periods prior to March 1, 1993.
The provision for income taxes for the nine months ended November
31, 1993 and 1992 are attributable to foreign remittance taxes and
minimum state taxes.
<PAGE>
23
LIQUIDITY AND CAPITAL RESOURCES
In accordance with the provisions of the Plan and related
agreements, the Company will continue to concentrate its efforts on
the licensing and distribution of its library, including the six
remaining unreleased pictures, the production of which was complete
at the Filing Date. 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 terms of the Plan,
the Company is permitted to expend certain amounts to release the
six remaining unreleased titles in the domestic theatrical
marketplace. 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 on a nonrecourse basis
to the Company and its restricted subsidiaries and if such
financing is secured only by the assets acquired.
Since the beginning of fiscal 1992, the Company has released in the
domestic market place only ten pictures, which it has produced.
For the three fiscal years prior to fiscal 1992, the Company
released an average of 14 films per year. This reduced fiscal
release schedule has had and will continue to have an adverse
impact on results of operations for the foreseeable future.
Furthermore, as described in Note 4 of Notes to Condensed
Consolidated Financial Statements, approximately two-thirds of the
Company's film inventories at November 30, 1993 and February 28,
1993 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.
Current Financial Outlook and Plan of Reorganization
The Company is operating under the terms and requirements of the
Plan and the agreements entered into in connection with the
consummation of the Plan. The Plan is extremely complex and the
summary presented below contains only a brief synopsis of the
compromises reached 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 new 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 Sony (and Metromedia and its affiliate, if they become
subrogees under the Bank Guarantee), 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 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
other Unsecured Claims, except for those making an election
described below, have or will receive Creditor Notes, which are
also payable currently out of a portion of Net Cash Flow not
<PAGE>
24
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. The holders of allowed
Unsecured Claims of $5,000 or less who so elected have received
cash in an amount equal to 70% of their Allowed Claim and the
holders of Unsecured Claims of more than $5,000 who elected to
reduce their claims to $5,000 pursuant to the Plan have received
cash in an amount equal to 70% of the reduced amount of their
claims.
In addition, 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 received an
aggregate of 50.1% of the common stock of the reorganized Company
in exchange for $15,000,000, the Bank Guarantee and a contribution
of the MetMermaids Rights.
For a period of five years from the Effective Date, the Company's
By-laws provide that the Company must cause the three 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, including the remaining unreleased
pictures. Expenditures for selling, general and administrative
costs will be 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
debt financing or acquiring additional entertainment assets.
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 with respect 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 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, no assurance can be made as to
the amount, if any, of each future distribution. In addition, as
noted above in Note 5 of Notes to Condensed Consolidated Financial
Statements, commencing with the last quarter of fiscal 1995, the
holders of Talent Notes, Credit Notes and 10% Subordinated
Debentures must have received certain mandatory minimum amounts of
Net Cash Flow from the Company in accordance with the terms of the
indentures pursuant to which such securities were issued. The
indentures provide, however, that such mandatory minimum amounts
would be reduced by the portion of amounts due under an agreement
between the Company and Showtime allocated to the holders of such
securities which are not received by the Company because of the
disputes between the Company and Showtime.
Although the Company's recently released pictures have performed
below management's expectations and below levels premised in the
Plan, and despite the fact that the disputes with Showtime
described in Note 4 of Notes to Condensed Consolidated Financial
Statements remain unresolved, the Company has to date been able to
meet its operating and Plan obligations. Based upon the
assumptions contained in the Plan (as modified by changes to the
release schedule set forth in the Plan of the six remaining
<PAGE>
25
unreleased pictures), the Company believes that it will be able to
meet its operating and Plan obligations as they become due for the
remainder of fiscal 1994. No assurance can be given as to the
performance of the Company's six unreleased films. The poor
performance of such pictures, both released and unreleased will
have an adverse effect on the liquidity of the Company and, in
turn, on its ability to meet its operating obligations under the
Plan after fiscal 1994. Further, the continued delay or
unsuccessful resolution of the disputes with Showtime would also
adversely affect the Company's ability to meet its operating and
Plan obligations after fiscal 1994.
As noted above in Note 5 of Notes to Condensed Consolidated
Financial Statements, the Company must make certain principal
payments to its bank lenders under the terms of the Credit
Agreement and to Sony pursuant to the Sony Obligation during fiscal
1995. In the event the Company is unable to make such payments to
the banks, such parties may demand payment from the guarantors
under the Bank Guarantee. If the Company is unable to make the
scheduled payments to Sony pursuant to the Sony Obligation, 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. If any such payments are made by the guarantors
under the Bank Guarantee, Metromedia or its affiliate would become
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
such parties and accordingly would be reimbursed in full by the
Company out of such Net Cash Flow.
<PAGE>
26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
1. The Chapter 11 Cases
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.
2. 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). Counsel for the Company has been
informed that the bankruptcy judge hearing the Company's bankruptcy
claims has transferred the estimation hearing on the Mace Neufeld
proofs of claim to a newly-appointed bankruptcy judge in the United
States Bankruptcy Court for the Southern District of New York. The
estimation hearing on the Mace Neufeld claim, including the
Company's objection that the claim was filed late, has been further
adjourned to February 17, 1994.
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 February
8, 1994.
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 February
8, 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 February 8, 1994.
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 February 8, 1994.
<PAGE>
27
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 hearing
for the Damon claim has been further adjourned to February 8, 1994
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 estimation hearing for
the Bayer Cadillac claim has been adjourned without date. Counsel
for the Company have been notified that Bayer Cadillac has filed
for bankruptcy.
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 adjourned without
date. 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 adjourned to February 8, 1994.
3. Showtime Litigation.
Key Man Dispute - The Company's time to seek a writ of certiorari
from the Supreme Court of the United States for permission to
appeal the decision of the Second Circuit has been extended up to
and including January 31, 1994. The Company intends to commence an
appeal to the Supreme Court of the United States by petitioning the
Supreme Court for a writ of certiorari and will pursue the appeal
vigorously if certiorari is granted. The Second Circuit's decision
ultimately could 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 intends to pursue the matter vigorously
although it cannot be predicted how a jury would determine the
facts. A determination that the key man clause was not complied
with would have a material adverse effect on the Company and the
Company's ability to achieve the Cash Flow projections included in
the Disclosure Statement. See Note 4 of Notes to Condensed
Consolidated Financial Statements.
Showtime Networks, Inc. a Delaware Corporation, Plaintiff, v.
Orion Pictures Corporation, a Delaware Corporation, and Does 1
through 10, Inclusive, Defendants. Case No. BC080150 (Super. Ct.
of Cal., Los Angeles Co.) (complaint filed April 30, 1993) (the
"Showtime Complaint"). The date for the hearing on the Company's
claims asserted in the adversary proceeding that the Company has
commenced against Showtime including, inter alia, the Company's
request for a permanent injunction permanently barring Showtime
from prosecuting the claims asserted in the Showtime Complaint has
been adjourned to February 8, 1994. The Company has served notices
to obtain document and deposition discovery from Showtime and
various of its affiliates. Due to the preliminary stage of the
proceedings and the fact that discovery has only recently commenced
and is still in its early stages, it is not possible to evaluate at
this time the likely outcome or the probability or amount of
potential loss. If Showtime were permitted to pursue its claims in
California and ultimately were to obtain the declaratory judgment
that it seeks to permit to offset $29,350,893 against any future
payments due to the Company's, plus any other amounts allegedly
overpaid, said judgment would have a material adverse effect on the
Company and the Company's ability to meet the cash flow projections
included in the Disclosure Statement. See Note 4 of Notes to
Condensed Consolidated Financial Statements.
The Company and Showtime are currently engaged in settlement
negotiations aimed at resolving all disputes between the Company
and Showtime, including, without limitation, the litigations
regarding the Key Man Dispute and the Qualification Dispute. Any
such settlement would require approval of the Bankruptcy Court.
There can be no assurance that Showtime and the Company will reach
an agreement settling all disputes between the parties, that such
settlement will be concluded on a timely basis, or such settlement
will not have a material adverse effect upon the Company's
financial position, results of operations and ability to meet the
cash flow projections included in the Disclosure Statement.
<PAGE>
28
4. 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 October 20, 1993, the
bankruptcy court entered its order granting the Company's motion
for summary judgment dismissing the Cooper Action with prejudice
and denying Cooper's motions filed in the adversary proceeding
commenced against him by the Company. The bankruptcy court's order
further directed the Company to withdraw its adversary proceeding
against Cooper on the ground that it is now moot. Cooper filed a
notice of appeal to the United States District Court for the
Southern District of New York (Owen, J., presiding) (the "District
Court"). On appeal, Cooper alleges that the release and injunction
provisions of the Plan that relate to release of the derivative
claims Cooper purports to assert against Metromedia Company, John
Kluge and Stuart Subotnick on the Company's behalf are ineffectual
and do not bar him from prosecuting the Cooper Action purportedly
on the Company's behalf. The appeal is scheduled to be heard by
the District Court on February 18, 1994.
5. 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 the disposition of these disputed claims will not
have a material adverse effect on its consolidated financial
position or results of operations.
<PAGE>
29
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the third quarter of the fiscal
year ended February 28, 1994 to a vote of the holders of the
Company's Common Stock, through the solicitation of proxies or
otherwise.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.18 - Employment agreement dated as of July 1, 1993 between the
Company and Diane Keating.
10.19 - Loan Agreement dated as of November 12, 1993 between the Orion
Home Entertainment Corporation and MetProduction, Inc.
("Metproductions")
11 - Statement Re: computation of per-share earnings
(b) Reports on Form 8-K
The Registrant filed no Current Reports on Form 8-K, during the
fiscal quarter for which this Quarterly Report on Form 10-Q is
filed.
<PAGE>
30
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: January 13, 1994 /s/ Cynthia A. Friedman
Cynthia A. Friedman
Senior Vice President and
Chief Financial Officer
1
Exhibit 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of July 1, 1993,
and is entered into between Orion Pictures Corporation,
a Delaware corporation (the "Company") and Diane Keating
("Executive").
WHEREAS, the Company desires to continue to employ
Executive and Executive desires to continue to be employed by
the Company, and Executive and the Company desire to embody in
this Agreement the terms and conditions under which Executive
shall be employed.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
1.01. Employment. Executive shall serve as President
of the Company's Orion Pictures International division.
Executive hereby accepts such employment. Executive agrees to
devote her full time and efforts to promote the interests of the
Company.
1.02. Duties and Responsibilities. Executive shall
have such duties and responsibilities as are consistent with her
position. Executive shall report to the President of the
Company. In addition, Executive shall report to such
individuals, and shall render other executive and administrative
services in connection with the business of the Company and its
affiliates as may be required from time to time by the President
or Board of Directors of the Company.
1.03. Base of Operation. Executive's principal base
of operation for the performance of her duties and
responsibilities under this Agreement shall be the offices of
the Company in New York, New York; provided, however, that
Executive shall perform such duties and responsibilities not
involving a permanent transfer of her base of operation outside
of the greater New York metropolitan area at such other places
as shall from time to time be reasonably necessary to fulfill
her obligations hereunder.
<PAGE>
2
ARTICLE II
Term
2.01. Term. The term of this Agreement (the "Term")
shall commence on July 1, 1993 and shall continue for a period
of one year and eight months, terminating on February 28, 1995,
unless terminated earlier as provided in Article V.
ARTICLE III
Compensation and Expenses
3.01. Salary, Bonuses and Benefits. As full
compensation and consideration for the performance by Executive
of her obligations under this Agreement, Executive shall be
entitled to the following (subject, in each case, to the
provisions of ARTICLE V hereof):
(a) Salary. The Company shall pay Executive a
base salary during the Term, payable in accordance with the
normal payment procedures of the Company and subject to such
withholding and other normal employee deductions as may be
required by law, at the rate of $195,000 per year.
(b) Bonus. During the Term, Executive shall
participate in the Orion Pictures Corporation Annual Bonus Plan
(the "Bonus Plan") and shall be eligible to receive a bonus for
each fiscal year of the Company in accordance with, and subject
to the terms of, the Bonus Plan, and any agreement executed by
Executive in connection with such plan (the "Bonus Agreement").
Executive shall have no right to receive bonus compensation
other than as specifically set forth in the Bonus Plan and the
Bonus Agreement.
(c) Benefits. Executive shall be eligible to
participate during the Term in such life insurance, health,
disability and major medical insurance benefits, and in such
other employee benefit plans and programs for the benefit of the
employees of the Company, as may be maintained from time to time
during the Term, in each case to the extent and in the manner
generally available to other officers of the Company and subject
to the terms and provisions of such plan or program, except that
Executive shall be entitled to severance under the Company's
severance policy only if and to the extent provided under
Section 5.04 of this Agreement.
(d) Vacation. Executive shall be entitled to
paid vacation during the Term in accordance with Company policy.
3.02. Expenses. The Company will reimburse Executive
for reasonable business-related expenses incurred by her in
<PAGE>
3
connection with the performance of her duties hereunder during
the Term, subject, however, to the Company's policies relating
to business-related expenses as in effect from time to time
during the Term.
ARTICLE IV
Exclusivity, Etc.
4.01. Exclusivity; Non-Competition. Executive agrees
to perform her duties, responsibilities and obligations
hereunder efficiently and to the best of her ability. Executive
agrees that she will devote her entire working time, care and
attention and best efforts to such duties, responsibilities and
obligations throughout the Term. Executive also agrees that
during the Term she will not engage in any business activities
that are competitive with the business activities of the Company
or any of its divisions, subsidiaries or affiliates. Executive
agrees that all of her activities as an employee of the Company
shall be in conformity with all present and future policies,
rules, regulations and directions of the Company not
inconsistent with this Agreement.
4.02. Other Business Ventures. Executive agrees that
during the Term she will not own, directly or indirectly, any
controlling or substantial stock or other beneficial interest in
any business enterprise which is engaged in business activities
that are competitive with the business activities of the Company
or any of its divisions, subsidiaries or affiliates.
Notwithstanding the foregoing, Executive may own, directly or
indirectly, up to 5% of the outstanding capital stock of any
business having a class of capital stock which is traded on any
major stock exchange or in the over-the-counter market.
4.03. Properties; Business Secrets; and
Non-Solicitation. (a) All right, title and interest of every
kind and nature whatsoever, in and to inventions, patents,
trademarks, copyrights, films, scripts, ideas, literary works,
creations and properties furnished to the Company or any of its
divisions, subsidiaries or affiliates, or used in or in
connection with any of the productions or other activities of
any of such companies with which Executive is in any way
connected in the performance of her duties and obligations
hereunder, whether the same were invented, created, written,
developed, furnished, produced or disclosed by Executive or by
any other party since the inception of Executive's employment
with the Company, shall, as between the parties hereto, be,
become and remain the sole exclusive property of the Company or
such division, subsidiary or affiliate (as the case may be) for
any and all purposes and uses whatsoever, and Executive shall
have no right, title or interest of any kind or nature therein.
Executive hereby fully releases and discharges the Company and
<PAGE>
4
all of its divisions, subsidiaries, affiliates, successors,
licensees and assigns (if any), and their respective officers,
directors and employees, from and against any and all claims,
demands, damages, liabilities, costs and expenses arising out of
or relating to any such inventions, patents, trademarks,
copyrights, films, scripts, ideas, literary works, creations and
properties furnished to or used by any of such companies with
which Executive may be connected in the performance of
Executive's duties and obligations hereunder.
(b) Executive agrees that she will not, at any
time during or after the Term, make use of or divulge to any
other person, firm or corporation any trade or business secret,
process, method or means, or any other confidential information
concerning the business or policies of the Company or any of its
divisions, subsidiaries or affiliates, which she may have
learned in connection with her employment by the Company. For
purposes of this Agreement, a "trade or business secret,
process, method or means, or any other confidential information"
shall mean and include written information treated as
confidential or as a trade secret by the Company. Executive's
obligation under this Section 4.03(b) shall not apply to any
information which (i) is known publicly; (ii) is in the public
domain or hereafter enters the public domain without the fault
of Executive; (iii) is known to Executive prior to her receipt
of such information from the Company, as evidenced by written
records of Executive or (iv) is hereafter disclosed to Executive
by a third party not under an obligation of confidence to the
Company. Executive agrees not to remove from the premises of
the Company, except as an employee of the Company in pursuit of
the business of the Company or except as specifically permitted
in writing by the Company, any document or other object
containing or reflecting any such confidential information.
Executive recognizes that all such documents and objects,
whether developed by her or by someone else, will be the sole
exclusive property of the Company. Upon termination of her
employment hereunder, Executive shall forthwith deliver to the
Company all such confidential information, including without
limitation all lists of customers, correspondence, accounts,
records and any other documents or property made or held by her
or under her control in relation to the business or affairs of
the Company or its subsidiaries or affiliates, and no copy of
any such confidential information shall be retained by her.
(c) Executive agrees that, at any time and from
time-to-time during and after the Term, she will execute any and
all documents which the Company may deem necessary or
appropriate to effectuate the provisions of this Section 4.03.
It is also agreed that the provisions of this Section 4.03 shall
survive the termination, for any reason, of this Agreement or
Executive's employment.
<PAGE>
5
ARTICLE V
Termination
5.01. Termination by the Company. The Company shall
have the right to terminate Executive's employment at any time
for "Cause". For purposes of this Agreement, "Cause" shall mean
(a) Executive's failure, neglect or refusal to fully perform her
duties under this Agreement, (b) Executive's willful and
continued failure or refusal to follow directions from her
superiors or any other act of insubordination on the part of
Executive, (c) the engaging by Executive in willful misconduct
which is injurious to the Company or any of its divisions,
subsidiaries or affiliates, monetarily or otherwise, (d) the
commission by Executive of an act of fraud or embezzlement
against the Company or any of its divisions, subsidiaries or
affiliates, (e) the conviction of Executive of a felony, or (f)
Executive's breach of the provisions of any of Sections 4.01,
4.02 or any other material provision of this Agreement;
provided, however, that except in the case of acts described in
clauses (d) and (e) of this sentence, Executive shall have a
period of 10 days to cure any acts which would otherwise give
the Company the right to terminate her employment for Cause.
Such 10-day period shall commence as of the date of receipt by
Executive of written notice from the Company of its intention to
terminate Executive's employment for Cause, which notice shall
state in reasonable detail the acts which the Company considers
to be grounds for such termination. The Company shall
thereafter have the right to terminate Executive's employment
for Cause only if such acts have not been substantially cured
prior to the end of such 10-day period.
5.02. Death. In the event Executive dies during the
Term, this Agreement shall automatically terminate, such
termination to be effective on the date of Executive's death.
5.03. Disability. In the event that Executive suffers
a disability which prevents her from substantially performing
her duties under this Agreement for a period of at least 60
consecutive days, or 90 non-consecutive days within any 365-day
period, the Company shall have the right to terminate this
Agreement, such termination to be effective upon the giving of
notice to Executive in accordance with Section 6.03 of this
Agreement.
5.04. Termination by Executive for Good Reason.
Executive may terminate her employment with the Company for
"Good Reason" by giving 30 days advance written notice to the
Company of her intent to so terminate. For purposes of this
Agreement, the following circumstances shall constitute "Good
Reason":
<PAGE>
6
(a) the assignment to Executive of any duties
materially inconsistent with her authority, duties or
responsibilities, or any other action by the Company which
results in a material diminution or material adverse change in
such authority, duties or responsibilities, excluding for this
purpose an isolated action not taken in bad faith and which is
remedied promptly after receipt of notice thereof given by
Executive;
(b) any material breach of this Agreement by the
Company, other than an isolated failure not occurring in bad
faith and which is remedied promptly after receipt of written
notice thereof given by Executive;
(c) any failure by the Company to require any succesor
to be bound by the terms of this Agreement as required by
Section 6.02(b) of this Agreement;
(d) any action by the Company requiring Executive to
be based at any office or location outside the greater New York
metropolitan area.
5.05. Effect of Termination. (a) For Cause; Without
Good Reason; Death; Disability. In the event of termination of
this Agreement (i) by the Company for Cause, (ii) by Executive
without Good Reason, or (iii) by reason of Executive's death or
disability, the Company's sole obligation under this Agreement,
except as set forth in Sections 5.05(b) and (c) of this
Agreement, shall be to pay to Executive (or her beneficiary in
the event of her death) any base salary earned but not paid to
Executive prior to the effective date of such termination.
(b) Without Cause; For Good Reason. In the event of
termination of this Agreement (i) by the Company other than for
Cause or disability; or (ii) by Executive for Good Reason, the
Company shall pay Executive the greater of (A) continuation of
her salary for the number of months remaining in the Term
immediately prior to such termination, taking into account
scheduled salary increases, or (B) the amount of severance to
which Executive would be entitled under the Company's severance
policies in effect as of July 1, 1993, determined at the salary
level in effect as of the date of her termination.
(c) Expiration Without Renewal. In the event this
Agreement expires on February 28, 1995 and the Company elects to
terminate Executive's employment thereupon, the Company shall
pay Executive the amount described in clause (B) of Section
5.05(b) of this Agreement.
(d) Right to Bonus Compensation. Executive's right to
receive bonus compensation upon any termination of her
<PAGE>
7
employment with the Company shall be governed exclusively by the
terms and conditions of the Bonus Plan and the Bonus Agreement.
ARTICLE VI
Miscellaneous
6.01. Life Insurance. Executive agrees that the
Company or any of its divisions, subsidiaries or affiliates may
apply for and secure and own insurance on Executive's life (in
amounts determined by the Company). Executive agrees to
cooperate fully in the application for and securing of such
insurance, including the submission by Executive to such
physical and other examinations, and the answering of such
questions and furnishing of such information by Executive, as
may be required by the carrier(s) of such insurance.
Notwithstanding anything to the contrary contained herein,
neither the Company nor any of its divisions, subsidiaries or
affiliates shall be required to obtain any insurance for or on
behalf of Executive, except as provided in Section 3.01(c) of
this Agreement.
6.02. Benefit of Agreement; Assignment; Beneficiary.
(a) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns, including,
without limitation, any corporation or person which may acquire
all or substantially all of the Company's assets or business, or
with or into which the Company may be consolidated or merged.
This Agreement shall also inure to the benefit of, and be
enforceable by, Executive and her personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die
while any amount would still be payable to Executive hereunder
if she had continued to live, all such amounts shall be paid in
accordance with the terms of this Agreement to Executive's
beneficiary, devisee, legatee or other designee, or if there is
no such designee, to Executive's estate.
(b) The Company shall require any successor
(whether direct or indirect, by operation of law, by purchase,
merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it
if no such succession had taken place.
6.03. Notices. Any notice required or permitted
hereunder shall be in writing and shall be sufficiently given if
personally delivered or if sent by telegram or telex or by
registered or certified mail, postage prepaid, with return
receipt requested, addressed: (a) in the case of the Company to
Orion Pictures Corporation, 1888 Century Park East, Los Angeles,
<PAGE>
8
CA, 90067, Attention: General Counsel, or to such other address
and/or to the attention of such other person as the Company
shall designate by written notice to Executive; and (b) in the
case of Executive, to Diane Keating, 304 Park Avenue South, New
York, New York 10010, or to such other address as Executive
shall designate by written notice to the Company. Any notice
given hereunder shall be deemed to have been given at the time
of receipt thereof by the person to whom such notice is given.
6.04. Entire Agreement; Amendment. This Agreement
contains the entire agreement of the parties hereto with respect
to the terms and conditions of Executive's employment during the
term and supersedes any and all prior agreements and
understandings, whether written or oral, between the parties
hereto with respect to compensation due for services rendered
hereunder. This Agreement may not be changed or modified except
by an instrument in writing signed by all of the parties hereto.
6.05. Waiver. The waiver by either party of a breach
of any provision of this Agreement shall not operate or be
construed as a continuing waiver or as a consent to or waiver of
any subsequent breach hereof.
6.06. Headings. The Article and Section headings
herein are for convenience of reference only, do not constitute
a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
6.07. Enforcement. If any action at law or in equity
is brought by either party hereto to enforce or interpret any of
the terms of this Agreement, the prevailing party shall be
entitled to reimbursement by the other party of the reasonable
costs and expenses incurred in connection with such action
(including reasonable attorneys' fees), in addition to any other
relief to which such party may be entitled. Executive shall
have no right to enforce any of her rights hereunder by seeking
or obtaining injunctive or other equitable relief and
acknowledges that damages are an adequate remedy for any breach
by the Company of this Agreement.
6.08. Governing Law. This Agreement shall be governed
by, and construed and interpreted in accordance with, the
internal laws of the State of California without reference to
the principles of conflict of laws.
6.09. Agreement to Take Actions. Each party to this
Agreement shall execute and deliver such documents,
certificates, agreements and other instruments, and shall take
such other actions, as may be reasonably necessary or desirable
in order to perform her or its obligations under this Agreement
or to effectuate the purposes hereof.
<PAGE>
9
6.10. Attorneys' Fees. Each party to this Agreement
will bear its own expenses in connection with any dispute or
legal proceeding between the parties arising out of the subject
matter of this Agreement, including any proceeding to enforce
any right or provision under this Agreement.
6.11. Survivorship. The respective rights and
obligations of the parties under this Agreement shall survive
any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
6.12. Validity. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect
the validity or enforceability of any other provision or
provisions of this Agreement, which shall remain in full force
and effect.
6.13. Other Agreements. Executive represents and
warrants to the Company that to the best of her knowledge,
neither the execution and delivery of this Agreement nor the
performance of her duties hereunder violates or will violate the
provisions of any other agreement to which she is a party or by
which she is bound.
6.14. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
IN WITNESS WHEREOF, the Company and Executive have duly
executed this Agreement as of the date first above written.
ORION PICTURES CORPORATION
By:
Name:
Title:
Diane Keating
1
Exhibit 10.19
LOAN AGREEMENT
LOAN AGREEMENT dated as of November 12, 1993 between Orion Home
Entertainment 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 Castle Communications PLC ("Castle") have
entered into that certain Agreement (the "Acquisition Agreement") dated as
of June 4, 1993 with respect to the distribution of five children's
classical music programs in home video and disc in the United States and
Canada (the "Licensed Programs"), which is attached hereto as Exhibit A.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned thereto in the Acquisition Agreement.
WHEREAS, in connection with the license and distribution of the
Licensed Programs, Orion has requested and MetProductions has agreed to
lend to Orion the Advance (as defined in the Acquisition Agreement) in the
sum of Five Hundred Thousand and 00/100 Dollars ($500,000.00).
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 up to Five Hundred Thousand and 00/100 ($500,000.00) Dollars (the
"Loan"). Such Loan shall be made in several payments as directed by Orion
in accordance with the Acquisition Agreement.
1.2 Note. The Loan shall be evidenced by a promissory note of
Orion in the principal amount of Five Hundred Thousand and 00/100
($500,000.00) Dollars and in the form attached hereto as Exhibit B. Each
payment made by MetProductions pursuant to section 1.1 hereof shall be
reflected in Exhibit 1 to the Promissory Note.
1.3 Payments Generally. All payments of principal and interest,
or any other amount payable 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
<PAGE>
2
notwithstanding the accounting terms set forth in Section 1.5.3 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 365-day year for the actual number of days
elapsed.
1.5 Repayment of Loan. The Loan and all accrued interest thereon
shall be payable first from the Gross Proceeds of the Licensed Programs to
which Orion is entitled pursuant to the terms of the Acquisition Agreement,
less any distribution expenses incurred by Orion in connection with
distributing the Film (e.g. residuals, duplication costs, marketing costs,
shipping costs). Orion shall remit to MetProductions all Gross Proceeds to
which Orion is entitled pursuant to the terms of the Acquisition Agreement
(less the costs and expenses set forth in the preceding sentence) until the
full amount of the Loan and all accrued interest thereunder been repaid in
accordance with the terms of this Loan Agreement.
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 Acquisition Agreement but only to the extent necessary
to secure MetProductions' right to receive payments under this Agreement
(the "Collateral"). The security interest hereby created shall attach
immediately on the execution of this Agreement by MetProductions and Orion.
Concurrently with the execution of this 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 Agreement and the Security Agreement.
3. EVENTS OF DEFAULT.
3.1 Each of the following shall constitute an Event of Default:
(a) the failure of Orion to pay MetProductions in accordance
with Section 1.5 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 any federal 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
<PAGE>
3
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 Agreement and the Note to be due
and payable in accordance with the terms and conditions of this 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 Agreement and to grant
and assign to MetProductions the interest in the Licensed Programs herein
granted.
4.2 The execution, delivery and performance of this 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 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 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 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, 1992, and those quarterly reports on From 10-Q filed up
to and including the date hereof, there is no action, suit or proceeding
pending or threatened against or affecting Orion, Orion Pictures
Corporation or the Licensed Programs subject to this Agreement which, if
adversely determined, would materially affect Orion's ability to perform
this Agreement.
4.5 Orion agrees to use its reasonable commercial efforts,
consistent with good business practices, in distributing and exploiting and
causing the distribution and/or exploitation of the Licensed Programs as
herein provided.
<PAGE>
4
4.6 Orion agrees to provide MetProductions with statements of the
distribution costs and expenses in connection with its distribution of the
Licensed Programs on a reasonable basis.
4.7 Orion agrees to maintain records pertaining to the license
and distribution of the Licensed Programs. 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 the
Gross Proceeds of the Licensed Programs which may be derived from the
distribution, exhibition or other exploitation thereof, nor does Orion
guarantee the performance by any distributor, sub-distributor, sub-
licensee and/or agent of the Licensed Programs.
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 home video industry in general, in
connection with the distribution, exhibition or other exploitation of the
Licensed Programs.
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 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 Licensed Programs or (iii) any claim arising
out of, or related to, the production, distribution, or other exploitation
of the Licensed Programs.
7. MISCELLANEOUS
7.1 This 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 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
<PAGE>
5
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) 804-6685
If to Orion:
c/o 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 Agreement may be executed by one or more of the parties
to this Agreement on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
7.4 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 Agreement.
7.5 This Agreement represents the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
previous representations, understandings or agreement, 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 Agreement and the Acquisition Agreement, the terms and conditions of
the Acquisition Agreement shall govern.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
MetProductions, Inc.
By: /s/ Arnold L. Wadler
Arnold L. Wadler,
Senior Vice President
Orion Home Entertainment Corporation
By: /s/ Leonard H. White
Leonard H. White, President
<PAGE>
7
Exhibit B
PROMISSORY NOTE
$500,000.00 New York, New York
November 12, 1993
FOR VALUE RECEIVED, Orion Home Entertainment Corporation, a
Delaware corporation ("Borrower"), promises to pay to the order of
MetProductions, Inc. ("Lender") or its assigns, up to the principal sum of
$500,000.00 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 assignment 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 12th day of November, 1993.
ATTEST: Orion Home Entertainment
Corporation, a Delaware corporation
____________________________ By:______________________________
Leonard H. White, President
Secretary
<PAGE>
8
Exhibit C
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made and
entered into as of November 12, 1993 between Orion Home Entertainment
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 Agreement dated June 4, 1993
between Debtor and Castle Communications, PLC ("Castle") (such agreement as
it may be amended, modified, supplemented, replaced, renewed or superseded
from time to time, is herein referred to as the "Acquisition Agreement")
Debtor acquired the right to distribute Licensed Video Devices (as defined
in the Acquisition Agreement) (the "Videogram rights") in and to five (5)
children's classical music programs entitled PETER AND THE WOLF, THE
NUTCRACKER, THE TOY SYMPHONY, SWAN LAKE and SLEEPING BEAUTY (the "Licensed
Programs").
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 Advance (as defined in the Acquisition Agreement) in
connection with Debtor's distribution of the Licensed Programs.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned thereto in the Loan Agreement and the Acquisition
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:
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
<PAGE>
9
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 exploitation rights in the Licensed Programs than
granted to Debtor by Castle pursuant to the Acquisition Agreement.
(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, representations, 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 (i) exploit the Videogram rights in the Licensed
Programs pursuant to the terms of the Acquisition Agreement, (ii) recoup
all sums paid or advanced by Debtor to Castle in connection with the
Licensed Programs, including, without limitation, the Advance, to the
extent and as provided for in the Acquisition Agreement, (iii) receive,
retain and own all Gross Proceeds or other sums derived from or in
connection with the exploitation of the Videogram rights in and to the
Licensed Programs subject to the terms and conditions of the Acquisition
Agreement, (iv) exercise the Secured Party's right of access to and use of
all Physical Properties (as herein defined), and (v) enjoy the full
exercise and quiet enjoyment of all rights in connection with the Licensed
Programs provided for in the Acquisition Agreement.
(c) Collateral. The term "Collateral", as used herein shall mean
all (except as otherwise provided in subparagraphs (iv) through (vii) below
where the Secured Party's security interest in the applicable items of
Collateral is a non-exclusive interest in Debtor's interest in the
applicable items of Collateral) 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:
(i) All of the Debtor's rights under the Acquisition
Agreement including without limitation all Videogram rights in the Licensed
Programs granted pursuant to the Acquisition Agreement;
(ii) All proceeds and product of the rights (including
without limitation all Videogram rights in the Licensed Programs) granted
to Debtor under the Acquisition Agreement, including without limitation,
all accounts, contract rights, chattel paper, documents, general
intangibles and instruments (as defined under the California Uniform
Commercial Code) 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;
<PAGE>
10
(iii) All of Debtor's rights to receive any sums of
money under or in connection with the Acquisition Agreement;
(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
Licensed Programs (collectively, the "Copyrights"), to the extent that the
Copyrights pertain to and are necessary for the Secured Party's
exploitation of the Videogram rights granted to Debtor in the Acquisition
Agreement; provided, that to the extent applicable law recognizes the
divisibility of copyright and the Debtor's interests in the Videogram
rights in and to the Licensed Programs are recognized as divisible parts of
the copyrights of the Licensed Programs, then in such instances the Secured
Party's interest in such divisible parts of the copyrights of the Licensed
Programs relating solely to the Videogram rights shall be an exclusive
security interest;
(v) The non-exclusive right to all tangible personal
property and physical properties of every kind or nature whatsoever of or
directly relating to the Licensed Programs (including without limitation
all exposed film, developed film, positives, negatives, prints, answer
prints, trailers, soundtracks, music and effects tracks, video masters,
video and audio recordings, copies of all (1) continuity lists, (2)
dialogue lists, (3) spotting lists, (4) synchronization licenses, (5)
composers agreements, (6) contracts relating to the acquisition and
production of the Licensed Programs, (7) cast lists, (8) still photographs
and artwork, (9) press books, (10) story synopses, (11) credit requirements
lists, (12) posters, (13) advertising and (14) publicity materials) and all
versions thereof (including without limitation all French- and Spanish-
language versions) and all of Debtor's rights of access to the foregoing
(collectively, the "Physical Properties");
(vi) The nonexclusive right to all literary, dramatic,
musical and other material created for the Licensed Programs or upon which
the Licensed Programs are based or to be based, in whole or in part, or
which are used in connection with the Licensed Programs (including without
limitation the screenplays and the underlying materials upon which the
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 Licensed Programs, including
without limitation all agreements and understandings with third parties
producing the Licensed Programs or furnishing services and/or rights
relating to the development, production, completion, delivery and/or
acquisition of the Licensed Programs or to any of the Physical Properties,
Literary Properties or Copyrights, including, without limitation, all
<PAGE>
11
agreements and understandings relating to Debtor's acquisition of the
Licensed Programs from third parties.
Notwithstanding the foregoing, Secured Party's security interest
in the Collateral described in subparagraphs (iii) 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 necessary
to assure the delivery of the Licensed Programs to Secured Party and
Secured Party's full and complete exercise of the Secured Party's Rights
subject to the terms and conditions of the Acquisition Agreement.
(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 New York
Uniform Commercial Code 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 exploitation of the Licensed Programs
(so long as the exploitation of the Licensed Programs 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 Acquisition Agreement,
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 Acquisition
Agreement 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.
<PAGE>
12
(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 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 Acquisition Agreement, 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 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
<PAGE>
13
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
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
Acquisition Agreement;
(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>
14
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
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 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 Home Entertainment Corporation
By:______________________________
Leonard H. White, President
SECURED PARTY:
MetProductions, Inc.
By:______________________________
Arnold L. Wadler,
Senior Vice President
<PAGE>
15
State of California )
.SS:
County of Los Angeles )
On ___________, 1993, before me, a Notary Public and in and for
said State, personally appeared Leonard H. 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 Home Entertainment
Corporation, and acknowledged to me that such corporation executed the
within instrument to its powers to do so.
_________________________________
Notary Public
31
EXHIBIT 11 (page 1)
ORION PICTURES CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per-share amounts)
The following tables detail the calculation of the per-share amounts and
number of shares used in computing Loss before extraordinary gain and Net
income (loss) per common share, on a primary and fully diluted basis.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Three Months Nine Months
Ended November 30, Ended November 30,
- -----------------------------------------------------------------------------------------------
1993 1992 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary:
Loss before extraordinary gains ($5,441)($9,154) ($52,495)($31,316)
Dividends on preferred and preference stock -- (5) -- (19)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and the resulting assumed reduction
of outstanding indebtedness (B) -- (A) -- (A)
------ ------ ------ ------
Loss before extraordinary gains, as adjusted ($5,441)($9,159) ($52,495)($31,335)
------ ------ ------ ------
Net income (loss) ($5,441)$303,438 ($52,495)$281,276
Dividends on preferred and preference stock -- (5) -- (19)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and the resulting assumed reduction
of outstanding indebtedness (B) -- (A) -- (A)
------ ------- ------ -------
Net income (loss), as adjusted ($5,441)$303,433 ($52,495)$281,257
------ ------- ------ -------
Weighted average number of shares outstanding (D) 20,000 5,829 20,000 2,036
Equivalent shares applicable to
stock options outstanding (B)(D) -- (A) -- (A)
------- ------- ------ -------
Total common and common equivalent shares 20,000 5,829 20,000 2,036
------- ------- ------ -------
Primary income (loss) per common share:
Loss before extraordinary gains ($ .27) ($ 1.57) ($ 2.62)($15.39)
------ ------- ------ -------
Net income (loss) ($ .27) $52.06 ($ 2.62)$138.16
------ ------- ------ -------
</TABLE>
<PAGE>
32
EXHIBIT 11 (page 2)
ORION PICTURES CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per-share amounts)
The following tables detail the calculation of the per-share amounts and
number of shares used in computing Loss before extraordinary gain and Net
income (loss) per common share, on a primary and fully diluted basis.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Months Nine Months
Ended November 30, Ended November 30,
- ------------------------------------------------------------------------------------------------
1993 1992 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fully diluted:
Loss before extraordinary gains ($5,441)($ 9,154) ($52,495) ($31,316)
Dividends on preferred and preference stock -- (5) -- (19)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and the resulting assumed reduction
of outstanding indebtedness (B) -- (A) -- (A)
------- ------- ------ ---------
Loss before extraordinary gains, as adjusted ($5,441)($ 9,159) ($52,495) ($31,335)
------- ------- ------ ---------
Net income (loss) ($5,441)$303,438 ($52,495) $281,276
Dividends on preferred and preference stock -- (C) -- (C)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and the resulting assumed reduction
of outstanding indebtedness (B) -- (A) -- (A)
------- ------- ------ ---------
Net income (loss), as adjusted ($5,441)$303,438 ($52,495) $281,276
------- ------- ------ ---------
Weighted average number of shares outstanding, as
adjusted to reflect reverse stock split (D) 20,000 5,829 20,000 2,036
Equivalent shares applicable to:
Stock options outstanding (B)(D) -- (A) -- (A)
Series B Preferred Stock (C) -- 14 -- 18
------- ------- ------ ---------
Total common and common equivalent shares (E) 20,000 5,843 20,000 2,054
------- ------- ------ ---------
Fully diluted income (loss) per common share:
Loss before extraordinary gains ($ .27) ($ 1.57) ($ 2.62) ($15.26)
------- ------- ------ ---------
Net income (loss) ($ .27) $ 51.93 ($ 2.62) $136.95
------- ------- ------ ---------
</TABLE>
(A) Excluded from the computation due to antidilutive effect.
(B) All of the Company's stock options were canceled effective
November 5, 1992.
(C) All of the Company's outstanding shares of preferred stock were
converted to 20,000 shares of the Company's new common stock on
November 5, 1992.
(D) All of the Company's outstanding shares of old common stock
were converted to 160,000 shares of the Company's new common stock
on November 5, 1992.
(E) Additional common shares assumed to be issued for the fully
diluted computation for all periods is less than 3% of the weighted
average common shares outstanding and, accordingly, fully diluted
per-share amounts have not been presented on the Condensed
Consolidated Statements of Operations.
