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: May 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number: 1-5979
ORION PICTURES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1680528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
1888 Century Park East, Los Angeles, California 90067
(Address of principal executive offices)
Registrant's telephone number, including area code:
(310) 282-0550
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under
a plan confirmed by a court. Yes X No
Number of shares of Common Stock outstanding as of July 7, 1994:
20,000,000
ORION PICTURES CORPORATION
INDEX TO
QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
<PAGE>
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
2
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PART I - FINANCIAL INFORMATION
ORION PICTURES CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per-share amounts)
(unaudited)
Three Months Ended
May 31,
___________________________
1994 1993
__________ __________
Revenues $ 83,757 $ 39,591
Cost of rentals 82,091 41,394
__________ __________
Gross profit (loss) 1,666 (1,803)
Other costs and expenses:
Selling, general and administrative 6,049 5,188
Interest, net 7,155 8,336
__________ __________
Loss before chapter 11 reorganization items
and provision for income taxes (11,538) (15,327)
Chapter 11 reorganization items 266 822
__________ __________
Loss before provision for income taxes (11,804) (16,149)
Provision for income taxes 300 700
__________ __________
Net loss $ (12,104) $ (16,849)
__________ __________
__________ __________
Loss per common share: $ (.61) $ ( .84)
__________ __________
__________ __________
Average shares outstanding 20,000 20,000
__________ __________
__________ __________
See accompanying Notes to Condensed Consolidated Financial Statements
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ORION PICTURES CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
May 31, February 28,
1994 1994
__________ __________
ASSETS:
Cash and cash equivalents $ 29,539 $ 37,114
Accounts receivable, net 90,263 81,981
Film inventories 313,807 367,152
Other assets 19,311 21,767
__________ __________
$ 452,920 $ 508,014
__________ __________
__________ __________
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 1,961 $ 1,681
Accrued expenses 35,129 40,906
Participations and residuals 51,050 50,595
Notes and subordinated debt 253,732 274,501
Deferred revenues 81,349 98,528
Shareholders' equity:
Common stock 5,000 5,000
Paid-in surplus 265,811 265,811
Accumulated deficit (241,112) (229,008)
__________ __________
Total shareholders' equity 29,699 41,803
__________ __________
$ 452,920 $ 508,014
__________ __________
__________ __________
See accompanying Notes to Condensed Consolidated Financial Statements
4
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ORION PICTURES CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
May 31,
________________________
1994 1993
__________ __________
Operations:
Loss before chapter 11 reorganization
items and provision for income taxes $ (11,538) $ (15,327)
Provision for income taxes 300 700
__________ __________
Loss exclusive of chapter 11 reorganization items (11,838) (16,027)
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 66,637 30,992
Decrease (increase) in accounts receivable (8,282) 14,859
Decrease in accounts payable and
accrued expenses (4,972) (5,163)
Accrual of participations and residuals 10,631 2,663
Payments of participations and residuals (10,176) (7,828)
Decrease in deferred revenues (17,179) (6,721)
Other, net 4,490 5,496
__________ __________
Cash provided by operations
exclusive of chapter 11 reorganization items 29,311 18,271
Payments of chapter 11 reorganization items (266) (873)
__________ __________
Cash provided by operations 29,045 17,398
Investment activities:
Investment in film inventories (13,292) (24,041)
Other 1,001 2,824
__________ __________
Cash used in investment activities (12,291) (21,217)
Financing activities:
Payments on notes and subordinated debt (24,329) (37,845)
__________ __________
Cash used in financing activities (24,329) (37,845)
Net decrease in cash (7,575) (41,664)
Cash and cash equivalents at beginning of period 37,114 77,539
__________ __________
Cash and cash equivalents at end of period $ 29,539 $ 35,875
__________ __________
__________ __________
See accompanying Notes to Condensed Consolidated Financial Statements
5
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ORION PICTURES CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Introduction
The accompanying interim condensed consolidated financial statements of
Orion Pictures Corporation and its subsidiaries (the "Company") have been
prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should
be read in conjunction with the consolidated financial statements and
related footnotes included in the Company's latest Annual Report on Form
10-K (the "1994 Form 10-K"). In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial position of the Company as of May 31, 1994,
the results of its operations for the three-month periods ended May 31,
1994 and 1993 and its cash flows for the three-month periods ended May 31,
1994 and 1993 have been included. The results of operations for interim
periods are not necessarily indicative of the results which may be
realized for the full year.
The Company's Modified Third Amended Joint Consolidated Plan of
Reorganization was confirmed by the United States Bankruptcy Court for the
Southern District of New York pursuant to an order issued on October 20,
1992, and became effective on November 5, 1992. The condensed
consolidated financial statements and other disclosures contained herein
should be read in light of such effectiveness. In particular, as
described in "Liquidity and Capital Resources", selling, general and
administrative costs and interest expense in future periods are likely to
exceed gross profit recognized in each period, which will result in the
reporting of net losses for financial reporting purposes for the
foreseeable future.
2. Basis of Presentation
On December 11 and 12, 1991 (the "Filing Date"), the Company and
substantially all of its subsidiaries filed petitions for relief under
chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code")
in the United States Bankruptcy Court for the Southern District of New
York (the "Court"). During the period from the Filing Date to November
5, 1992 (the "Bankruptcy Period"), the Company operated under a series of
court orders and actively sought to obtain new equity capital and other
forms of investment in order to recapitalize. In this regard, the Company
filed its "Debtors' Joint Consolidated Plan of Reorganization" (the
"Plan") with the Court on July 13, 1992 (as amended on July 24, 1992,
August 7, 1992, September 3, 1992 and October 20, 1992) and the related
"Disclosure Statement for Debtors' Joint Consolidated Plan of
Reorganization" with the Court on July 21, 1992 (as amended on July 24,
1992, August 7, 1992 and September 3, 1992). On October 20, 1992 (the
"Confirmation Date"), the Court confirmed the Plan which became effective
on November 5, 1992 (the "Effective Date"). The Plan and the Company's
reorganization activities are more fully described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Certain claims have arisen after the Filing Date from rejection of
executory contracts and leases, and from the determination by the Court
(or agreed to by parties in interest) of allowed claims for contingencies
and other disputed amounts (Note 9). The Company's consolidated financial
statements were prepared on a going concern basis during the Bankruptcy
Period, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
3. Chapter 11 Reorganization Costs
The provisions of Statement of Position 90-7, "Financial Reporting by
Entities in Reorganizations Under the Bankruptcy Code", issued by the
American Institute of Certified Public Accountants ("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 months ended May 31, 1994 and 1993 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 litigation are resolved.
4. Film Inventories
The following is an analysis of film inventories (in thousands):
May 31, February 28,
1994 1994
Theatrical films:
Released $ 283,015 $ 305,560
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Completed and unreleased 18,635 50,204
Television programs:
Released 12,157 11,388
_________ _________
$ 313,807 $ 367,152
_________ _________
_________ _________
In late December 1991, the Company received a notice from Showtime
Networks, Inc. ("Showtime") that Showtime believed that the Company had
not complied with the so-called "key man clause" in the Company's
exclusive film licensing agreement with Showtime and, accordingly, that
Showtime would not license the 14 pictures theatrically released in the
domestic marketplace during fiscal 1992, 1993 and 1994 and the first
quarter of fiscal 1995 and the Company's two remaining unreleased pictures
(the "Key Man Dispute"). License fees under the Showtime agreement for
these sixteen films were expected to aggregate approximately $77,000,000.
After a review of the underlying facts and circumstances and consultation
with counsel, the Company advised Showtime that the Company had complied
with the key man clause in the Showtime agreement, that failure to accept
delivery of the product rejected by Showtime constituted Showtime's
default under the agreement and that the Company intended to pursue all
available remedies to realize the domestic pay television license fees due
under the Showtime agreement.
On March 20, 1992, the Company filed a proceeding in the Court against
Showtime seeking, among other things, an order permitting the Company to
exercise its power under the Bankruptcy Code to assume, and therefore not
reject, the Showtime agreement. As part of its request to assume the
agreement, the Company sought a factual determination by the Court that
it had complied with the key man clause.
After a hearing and trial on these matters held on May 14 and 15, 1992,
the Court issued an order dated June 3, 1992 (the "Showtime Order"),
authorizing the Company to assume the Showtime agreement and finding that
the Company had complied with the key man clause. Showtime subsequently
appealed the Showtime Order to the United States District Court for the
Southern District of New York (the "District Court"). On December 8,
1992, the District Court affirmed the decision of the Court. On January
13, 1993, Showtime appealed the decision of the District Court to the
United States Court of Appeals for the Second Circuit (the "Appeals
Court"). Oral argument was held on June 7, 1993. On September 17, 1993,
the Appeals Court vacated the grant of motion to assume and remanded the
motion to assume to the Court for further proceedings. On January 31,
1994, the Company commenced an appeal of the Appeals Court's decision to
the Supreme Court of the United States by petitioning for a writ of
certiorari. If the Appeals Court's decision was not reversed by the
Supreme Court, the Appeals Court's decision ultimately could have lead to
a retrial of the issue of the Company's compliance with the key man clause
to a jury. In the event of any such retrial, the Company intended to
pursue the matter vigorously although it could not predict how a jury
would determine the facts.
On May 6, 1993, the Company was served with a complaint from Showtime
alleging that Showtime should be permitted to offset $29,300,000 in fees
plus interest against future license fees due the Company under the
Showtime agreement (the "Qualification Dispute"). Showtime claimed that
the Company did not meet the qualification criteria on eight films, one
of which is already included in the disputed pictures under the Key Man
Dispute described above.
In order to avoid the uncertainty inherent in jury trials and the
continued delay and cost related to pursuing its rights, claims and
defenses in connection with these disputes, the Company determined that
it was prudent to commence settlement negotiations with Showtime. On
March 29, 1994, the Company and Showtime reached an agreement (the
"Showtime Settlement") settling the litigations and disputes described
above which was approved by the Court on such date and became effective
on March 29, 1994. The Showtime Settlement continues to provide for the
exclusive United States pay television exhibition of the 16 pictures that
were the subject of the Key Man Dispute. For each motion picture meeting
certain requirements, the Showtime Settlement provides for a reduced
minimum license fee. The Showtime Settlement also reduced the license
fees related to the seven pictures included in the Qualification Dispute
described above that were not the subject of the Key Man Dispute. License
fees for the 23 pictures subject to the Showtime Settlement were
approximately $33,300,000 less than the approximate $105,000,000 of such
fees pursuant to the Showtime agreement; accordingly, film inventories at
February 28, 1994 were adjusted to reflect this settlement.
Approximately three-quarters of the Company's film inventories at May 31,
1994 and at February 28, 1994 are stated at amounts approximating their
estimated net realizable value and will not result in the recording of
gross profit upon the recognition of related revenues in future periods.
Since the date of the Company's quasi-reorganization (February 28, 1982),
when the Company's inventories were restated to reflect their then current
market value, the Company has amortized 90% of the gross cost of its film
inventories, including those produced subsequent to the quasi-
reorganization. Approximately 96% of such gross film inventory costs will
have been amortized by May 31, 1997. Due to the restrictions of
the Plan, the Company has not produced significant incremental inventory.
Therefore, as the existing inventory moves into its ancillary markets and is
not replaced by significant recent inventory, a greater percentage of the
future revenue estimate will occur subsequent to the first three years.
Consequently, as of May 31, 1994, approximately 57% of the unamortized
balance of film inventories currently in release and to be released will be
amortized within the next three-year period based upon the Company's
revenue estimates at that date. However, such amortization is expected
to exceed 60% within one additional year (a four-year period).
7
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5. Notes and Subordinated Debt
Notes and subordinated debt is comprised of the following (in thousands):
May 31, February 28,
1994 1994
_________ _________
Notes payable to banks pursuant to the Third Amended
and Restated Credit Agreement ("Third Restated
Credit Agreement") $ 106,633 $ 122,862
Talent Notes due 1999, net of unamortized discounts
of $9,618 and $9,995 28,020 29,349
Creditor Notes due 1999, net of unamortized discounts
of $26,317 and $27,722 36,223 34,820
Non-interest bearing payment obligation to Sony,
net of unamortized discounts of $2,260 and $2,783 33,306 38,735
Other guarantees and contracts payable, net of
unamortized discounts of $3,460 and $3,634 9,031 9,297
_________ _________
Total notes payable $ 213,213 $ 235,063
10% Subordinated Debentures due 2001,
net of unamortized discounts of $9,927 and $10,483 40,519 39,438
_________ _________
Total notes and subordinated debt $ 253,732 $ 274,501
_________ _________
_________ _________
Approximately $190,826,000 was outstanding under the Company's Third
Restated Credit Agreement on the Effective Date of the Plan. Such amount
has been reduced through repayments to approximately $106,633,000 at May
31, 1994 which matures as follows (in thousands):
October 20
__________
1994 $ 42,417
1995 64,216
________
$106,633
________
________
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 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 $35,566,000 at May 31, 1994 which matures as
follows (in thousands):
November 5
__________
1994 $ 15,566
1995 20,000
________
$ 35,566
________
________
8
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Notwithstanding the above maturity schedule and to the extent that the
Company generates positive Net Cash Flow for the immediately preceding
period, the Company is required to make principal payments of amounts
outstanding for the obligation to Sony at least quarterly during the
period from the Effective Date to November 5, 1995 in an amount
approximating 23% of the Company's Net Cash Flow. To the extent the
Company fails to repay such amounts on a timely basis, Sony may draw under
the letter of credit issued in its favor after giving notice and an
opportunity to cure to the guarantors under the Bank Guarantee. In the
event Sony does draw under the letter of credit issued in its favor, such
amount would become an obligation of the Company under the Third Restated
Credit Agreement and guaranteed pursuant to the Bank Guarantee.
In accordance with the provisions of the Plan and the agreements entered
into in connection with the Plan, the Company must make certain cumulative
minimum aggregate Net Cash Flow payments ("Mandatory Minimum") to the
holders of the Talent Notes, the Creditors Notes and the 10% Subordinated
Debentures (the "Plan Debt") in payment of their respective principal and
interest. As is more fully described in the 1994 Form 10-K, the Indentures
pursuant to which the Talent Notes and the Creditor Notes were issued (the
"Indentures") provide for only a single Mandatory Minimum threshold that
must be received by the holders of the Plan Debt in payment of their
respective principal and interest for each fiscal quarter through the
fiscal year ended February 28, 1999, rather than separate quarterly
thresholds for each fiscal quarter. The Company believes the language set
forth in the Indentures does not reflect the agreement between the Company
and its principal creditors who negotiated and agreed upon the provisions
based upon the Company's review of the agreement in principle agreed to
by such parties. Notwithstanding the literal language of the Indentures,
it is the Company's intention to follow what it believes is the intention
of the agreeing parties. Therefore, the following summarizes both the
anticipated Mandatory Minimum amounts contained in the Indentures and the
interpretation of the Company ("Interpretation"). Under the terms of the
Indentures, these Mandatory Minimum amounts are to be reduced by 15% of
the portion of amounts due under the Showtime agreement to the extent that
the amounts are not received by the Company ("Showtime
9
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Shortfall") until such time as the Banks and/or Sony and, if applicable,
the guarantor under the Bank Guarantee are paid in full. Thereafter, the
Mandatory Minimums will be reduced by 100% of the Showtime Shortfall.
Per Indentures
Estimated Adjusted Cumulative Minimum Amounts
_____________________________________________
(in thousands)
Fiscal Year Ended
February 28(29) May August November February
1995 $ ---- $ ---- $ ---- $ 27,596
1996 $ 61,948 $ 61,948 $ 61,948 $ 61,948
1997 $ 97,802 $ 97,802 $ 97,802 $ 97,802
1998 $161,140 $161,140 $161,140 $161,140
1999 $204,741 $204,741 $204,741 $204,741
Per Interpretation
Estimated Adjusted Cumulative Minimum Amounts
(in thousands)
_____________________________________________
Fiscal Year Ended
February 28(29) May August November February
1995 $ ---- $ ---- $ ---- $ 27,596
1996 $ 36,184 $ 44,772 $ 53,360 $ 61,948
1997 $ 70,911 $ 79,874 $ 88,838 $ 97,802
1998 $113,636 $129,470 $145,304 $161,140
1999 $172,040 $182,940 $193,840 $204,741
The Company has made six Net Cash Flow distributions in accordance with
the Plan. The distributions were made in November 1992, March 1993, June
1993, December 1993, March 1994, and June 1994, respectively. In
accordance with the provisions of the Plan and the agreements entered into
in connection with the Plan, a Net Cash Flow distribution was not made for
the quarter ended August 31, 1993 because the Company did not generate Net
Cash Flow. Because distributions of Net Cash Flow are dependent upon the
Company's ability to generate Net Cash Flow and are determined for
specified periods in accordance with the Plan and the agreements entered
into in connection with the Plan, no assurance can be made as to the
amount, if any, of each future distribution. The following table
summarizes and describes the allocation of these distributions in
accordance with the Plan (in thousands):
<TABLE>
June March Fiscal 11/5/92
1994 1994 1994 to 2/28/93 Total
________ ________ ________ __________ ________
<S> <C> <C> <C> <C> <C>
Third Restated Credit Agreement $ 14,188 $ 16,229 $ 39,345 $ 28,619 $ 98,381
Sony Obligation 5,204 5,952 17,984 10,497 39,637
Talent Notes (principal and interest) 1,939 2,218 5,733 3,910 13,800
Creditor Notes --- --- 1,046 1,498 2,544
10% Subordinated Debentures due 2001 --- --- --- 977 977
Interest on 10% Subordinated
Debentures due 2001 1,483 1,697 3,339 519 7,038
________ ________ ________ __________ ________
$ 22,814 $ 26,096 $ 67,447 $ 46,020 $162,377
________ ________ ________ __________ ________
________ ________ ________ __________ ________
</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, all or
part of the portion of Net Cash Flow which would otherwise be payable to
holders of Creditor Notes for the June 1994, March 1994, December 1993,
June 1993 and March 1993 distributions were used to satisfy, in whole or
in part, the interest obligation on the 10% Subordinated Debentures. In
addition, in accordance with the indenture for the 10% Subordinated
Debentures, approximately $898,000 and $525,000, respectively, of the
interest due October 1, 1993 and April 1, 1994 related to the 10%
Subordinated Debentures was paid by the issuance of additional debentures.
Also, in accordance with the Talent Note indenture, all of the interest
due for the three-month periods ended August 31, 1993 and November 30,
1993 on the Talent Notes was paid by the issuance of additional notes
(approximately $405,000 and $426,000, respectively). The payments on the
Sony Obligation have reduced the outstanding amount on the letter of
credit supporting such obligation to $40,566,000 at May 31, 1994.
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All descriptions of securities above refer to securities issued and in
certain cases, estimated amounts of such securities that are yet to be
issued, because certain bankruptcy claims have not been resolved.
6. Income Taxes
The provision for income taxes for the three months ended May 31, 1994 and
1993 consists of the following
(in thousands):
Three Months Ended
May 31,
_________________________
1994 1993
__________ ___________
Federal $ ---- $ ----
State and local 100 100
Foreign 200 600
__________ ___________
$ 300 $ 700
__________ ___________
__________ ___________
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").
SFAS 109 requires a change to the "assets and liability method" of
accounting for income taxes from the "deferred method" of accounting for
income taxes which was required under Accounting Principles Board Opinion
No. 11. 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 in the quarter ended May 31, 1993.
7. Income (Loss) per Common Share
Per-share amounts presented on the Company's condensed consolidated
statements of operations for periods ended after the Effective Date are
computed by dividing Net income (loss) by the weighted average number of
common shares outstanding during each period.
8. Revenue Information
The sources of the Company's revenues from operations by market for the
three months ended May 31, 1994 and 1993 are set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company derives significant revenues from the foreign distribution of
its theatrical motion pictures and television programming. During the
three months ended May 31, 1994 and 1993, the Company generated revenues
of $15,421,000 and $22,257,000, respectively, from foreign distribution
of such product.
9. Contingent Liabilities
The Company and its subsidiaries are contingently liable with respect to
various matters, including litigation in the ordinary course of business
and otherwise. Some of the pleadings in various litigation matters
contain prayers for material awards including claims arising after the
Filing Date from the determination by the Court (or agreement by parties
in interest) to allow claims for certain contingencies and other disputed
amounts. Based upon management's review of the underlying facts and
circumstances and consultation with counsel, management believes such
matters will not result in the allowance by the Court of significant
additional liabilities which would have a material adverse effect upon the
consolidated financial position or results of operations of the Company
with the possible exception of the matter described below.
As previously disclosed in the registrant's prior filings including the
Annual Report on Form 10-K for the fiscal year ended February 28, 1994,
on October 12, 1990, Hemdale Film Corporation ("Hemdale") filed an action
against the Company in the Superior Court for Los Angeles alleging various
breaches of the agreements between Hemdale and the Company for
distribution of the motion pictures "PLATOON", "HOOSIERS" and "THE
TERMINATOR". The plaintiff produced these pictures which the Company
released. The complaint seeks an accounting and damages purportedly in
excess of $30,000,000 and is based on the allegation that the Company paid
Hemdale less than it was due under the agreements, used improper
accounting practices, refused to permit Hemdale's representatives to
conduct appropriate examinations of the Company's books and records and
provided Hemdale with allegedly inaccurate and inadequate settlement
statements. On December 10, 1990, the Company filed its answer, denying
the material allegations of the complaint, asserting that its accounting
practices were accurate in all respects. Hemdale has filed a proof of
claim substantially based on the allegations in its complaint. The
Company has objected to Hemdale's claim and the estimation hearing on
Hemdale's claim has been further adjourned in the Court until September
13, 1994. Therefore, no assurance can be given at this time concerning
the ultimate outcome of the Hemdale litigation or the effect thereof, if
adverse to the Company. As a result of the Company's chapter 11 filings,
it is expected that this case will be tried before the Court.
11
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10. Liquidity
As described in Note 5 the Company has significant obligations under the
Plan. To the extent that the Company generates Net Cash Flow, the Company
is required to make principal payments with respect to the Banks and Sony
and to holders of its Talent Notes, Creditor Notes and 10% Subordinated
Debentures at least quarterly out of Net Cash Flow. Net Cash Flow as
defined in the Plan generally provides for the payment of operating costs
as incurred. Because distributions are dependent upon the Company's
ability to generate Net Cash Flow and are determined for specified periods
in accordance with the Plan, no assurance can be made as to the amount,
if any, of each future distribution. See Note 5 for a schedule of the
Company's Net Cash Flow payments since the Effective Date.
The Company has to date generated sufficient Net Cash Flow to meet its
operating and Plan obligations. However, the poor performance of the
Company's pictures released after the Effective Date and the reduction
pursuant to the Showtime Settlement from the contractual amounts which
otherwise would be payable by Showtime under the Showtime Agreement, have
had an adverse affect on the liquidity of the Company. The Company
anticipates that such events will in turn have an adverse effect on the
Company's ability to meet its obligations under the Third Restated Credit
Agreement and to Sony discussed below in the fiscal year ended February
28, 1995 ("fiscal 1995") and the other Plan obligations discussed below
in the fiscal year ended February 29, 1996 ("fiscal 1996").
As described in Note 5, the Company must make certain principal payments
to its bank lenders under the terms of the Third Restated Credit Agreement
and to Sony pursuant to the Sony Obligation in October and November 1994,
respectively, and October and November 1995, respectively. The Company
does not currently believe that it will generate sufficient Net Cash Flow
during the remainder of fiscal 1995 to make the scheduled payment to the
Banks and Sony in October and November 1994, respectively. In addition,
based upon current estimates of Net Cash Flow, the Company does not
currently believe it will generate sufficient Net Cash Flow to make the
scheduled final maturity payments to the Banks and Sony, in October and
November 1995, respectively. In such events, the Banks may demand payment
from the guarantors under the Bank Guarantee and Sony may draw under its
letter of credit (if Metromedia does not first cure such payment default),
in which case the amount drawn by Sony would become a guaranteed
obligation of the guarantors under the Bank Guarantee. Any such payments
made by the guarantors under the Bank Guarantee on behalf of the Company
to the Banks and/or to Sony would result in such guarantors becoming
subrogated to the Banks' and Sony's portion of the Company's Net Cash Flow
following payment in full of the Company's obligations to the Banks and
Sony. The Company would be obligated to reimburse the amounts paid by the
guarantors under the Bank Guarantee on the Company's behalf, plus
interest, out of the portion of the Company's Net Cash Flow previously
allocable to the Banks and Sony until such guarantors are reimbursed in
full.
In addition, as described in Note 5, the Indentures pursuant to which the
Talent Notes and Creditor Notes were issued (the "Indentures") provide
that an Event of Default will occur under such Indentures if the aggregate
amount of Net Cash Flow paid by the Company to the holders of Talent
Notes, Creditor Notes and 10% Subordinated Debentures (the "Plan Debt")
does not exceed the mandatory minimum amounts (the "Mandatory Minimums")
specified in the Indentures. The Indentures also provide, however, that
the Mandatory Minimums will be reduced by certain net amounts due under
the Showtime Agreement which are not received by the Company because of
the Showtime Settlement.
The Indentures provide that the first Mandatory Minimum threshold must be
met by the Company by the last quarter of fiscal 1995. Thereafter,
although the Indentures provide that the Company must make payments to the
holders of the Plan Debt in the amounts specified in the Indentures (less
the reduction for the Showtime Settlement discussed above) for each
fiscal quarter through the fiscal year ended February 28, 1999, the
Indentures only set forth a single Mandatory Minimum threshold for each
such fiscal year, rather than separate quarterly thresholds for each
fiscal quarter. Accordingly, a literal reading of the Indentures would
mean that by the end of each of the Company's four fiscal quarters in each
fiscal year beginning with the fiscal quarter ended May 31, 1995, the
Company would have had to pay to the holders of the Plan Debt the same
Mandatory Minimum amount. The Company believes that the language set
forth in the Indentures does not reflect the agreement between the Company
and its principal creditors who negotiated and agreed upon the provisions
based upon the Company's review of the agreement in principle agreed to
by such parties. The Company believes that the Mandatory Minimums
specified in the Indentures were intended to be the required Mandatory
Minimum thresholds for only the last fiscal quarter of each fiscal year
beginning with the fiscal year ended February 29, 1996 and that lower
quarterly Mandatory Minimum amounts should have been calculated and set
forth in the Indentures for each fiscal quarter of each fiscal year
beginning with the quarter ended May 31, 1995. Notwithstanding the
literal language of the Indentures, it is the Company's intention to
follow what it believes to be the intention of the agreeing parties.
Utilizing the Mandatory Minimums contained in the Indentures rather than
the interpretation the Company believes reflects the agreement of the
parties, the Company, based upon current cash flow projections (which are
subject to change), currently anticipates that it would not generate
sufficient Net Cash Flow to satisfy the Mandatory Minimum threshold under
the Indentures beginning with the quarter ended May 31, 1995 and that
accordingly, an Event of Default would occur under each such Indenture on
such date. Upon the occurrence and continuation of an Event of Default,
the Trustee under each of the Indentures or 40% in aggregate principal
amount of either the Talent Notes or the Creditor Notes could cause an
immediate acceleration of the entire principal amount of such Notes.
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Should such acceleration under the Indentures occur, the Company, absent
other financing arrangements, may be forced to seek protection under
chapter 11 of the United States Bankruptcy Code. Notwithstanding the
literal language of the Indentures, the Company believes, however, that
no such Event of Default should occur because the language set forth in
the Indentures does not reflect the intention of the Company and the
representatives of the Plan Debt who negotiated such provisions and
accordingly that no acceleration of the Notes should occur on such
quarterly date. Utilizing the Company's view that the agreement of the
parties is not reflected in the language of the Indentures and that the
Indentures should be reformed to set forth quarterly Mandatory Minimum
thresholds for each fiscal quarter, the Company nevertheless currently
believes, based upon current cash flow projections (which are subject to
change), that it will not generate sufficient Net Cash Flow to satisfy
such reformed quarterly Mandatory Minimums at the quarter ended August 31,
1995. In order to meet the Company's anticipated shortfall, the Company
must obtain a waiver, refinance its existing Plan Debt, or obtain
additional sources of financing including those described below. If the
Company cannot satisfy the Mandatory Minimum thresholds at the quarter
ended August 31, 1995, on such date an Event of Default would occur under
the Indentures, which in turn could cause an acceleration of such Notes
as described above. Should such acceleration under the Indentures occur,
the Company, absent other financing arrangements, may be forced to seek
protection under chapter 11 of the United States Bankruptcy Code.
As previously discussed herein, the Company anticipates net losses for
financial reporting purposes for fiscal 1995, however, the Company
believes it will have sufficient liquidity to meet its obligations through
fiscal 1995 except for its obligations to the Banks and Sony, which
obligations become guaranteed obligations under the Bank Guarantee as
described above.
The Company intends to release its two remaining unreleased films and to
exploit its existing library of product in order to generate Net Cash
Flow. The Company is also actively pursuing a number of steps aimed at
improving its operating results to date and increasing its Net Cash Flow
by acquiring or producing new product. Since the Effective Date, the
Company has been able to acquire some new product with nonrecourse
financing. In order to further exploit its existing distribution
apparatus, the Company will continue to actively seek to attract the
requisite nonrecourse financing to fund the acquisition and distribution
costs of new theatrical and home video product, which would be distributed
by the Company through its distribution system. In addition, the Company
will pursue additional nonrecourse financing for the production of new
product, which the Company is also permitted to engage in under the Plan
on a nonrecourse basis or through certain unrestricted subsidiaries. If
the Company is successful in obtaining such nonrecourse financing as
described above, the contribution to the Company's liquidity will
generally be in the form of a distribution fee. The Company is also
currently considering its alternatives in connection with the anticipated
payment shortfall to the holders of the Plan Debt including restructuring
or refinancing such Plan Debt. Despite these intentions, there can be no
assurance that the Company will be able to generate sufficient Net Cash
Flow to avoid an Event of Default under its Indentures in fiscal 1996.
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ORION PICTURES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On December 11 and 12, 1991 (the "Filing Date"), the Company and
certain of its subsidiaries filed petitions for relief under chapter 11
of Title 11 of the United States Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the Southern District of New York (the
"Court"). During the period from the filing date to November 5, 1992 (the
"Bankruptcy Period"), the Company operated under a series of Court orders
and actively sought to obtain new equity capital and other forms of
investment in order to recapitalize. In this regard, the Company filed
its "Debtors' Joint Consolidated Plan of Reorganization" as amended July
24, August 7, September 3 and October 20, 1992 (the "Plan") with the Court
on July 13, 1992. On October 20, 1992 (the "Confirmation Date"), the
Court confirmed the Plan which became effective on November 5, 1992 (the
"Effective Date"). The Plan and the Company's reorganization activities
are more fully described in "Liquidity and Capital Resources" below. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" in the Company's Annual Report on Form 10-K for the year
ended February 28, 1994 (the "1994 Annual M,D & A") for a further
discussion of the Company's Plan of Reorganization and the implications
thereof.
RESULTS OF OPERATIONS
During the first quarter of the fiscal year ending February 28, 1995
("fiscal 1995"), the Company recorded a net loss of $12,104,000 on
revenues of $83,757,000. During the first quarter of the preceding year
("fiscal 1994"), the Company recorded a net loss of $16,849,000 on
revenues of $39,591,000.
Certain factors should be considered when evaluating the Company's results
of operations in the first quarter of both fiscal 1995 and fiscal 1994.
First, the Company released three films in the domestic theatrical
marketplace in the current quarter, all generating disappointing results.
Approximately $5,500,000 of writedowns to estimated net realizable value
were required during the current quarter on two of the releases, "THE
FAVOR" and "CHINA MOON". The Company released two films in the domestic
theatrical marketplace during the first quarter of fiscal 1994. One such
title, "MARRIED TO IT" required a writedown to estimated net realizable
value of $2,900,000. Second, as previously disclosed in the Company's
1993 and 1994 Forms 10-K, approximately two-thirds and three-quarters,
respectively, of the Company's film inventories are stated at amounts
approximating their estimated net realizable value and do not result in
the recording of gross profit upon recognition of related revenues. A
significant portion of recorded revenues in the first quarter of both
fiscal 1995 and fiscal 1994 related to such inventory product. Thus,
gross profit from profitable pictures (before the effect of the writedowns
in the first quarter of both fiscal 1995 and 1994 described above), was
insufficient to cover selling, general and administrative and interest
costs recognized during each quarter. Finally, the Company incurred
approximately $266,000 and $822,000 of costs directly related to the
chapter 11 proceedings during the first quarter of fiscal 1995 and fiscal
1994, respectively, that adversely affected results from operations of
each quarter.
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Revenues
The following table sets forth the sources of the Company's revenues from
operations by market during the first quarter of fiscal 1995 and 1994 (in
thousands):
Three Months Ended
May 31,
____________________
1994 1993
________ ________
Theatrical distribution $ 6,347 $ 13,374
Television and video distribution:
Home video direct distribution 14,902 4,578
Home video subdistribution 2,616 2,344
Pay television 43,951 5,909
Free television and other 15,941 13,386
________ ________
Total television and video distribution 77,410 26,217
________ ________
$ 83,757 $ 39,591
________ ________
________ ________
Theatrical Revenues
Theatrical revenues in the first quarter of fiscal 1995 reflects the poor
performance of the three films released in the domestic theatrical market
place in this quarter. Together, these films generated approximately
$5,000,000 in domestic theatrical revenues. Over 70% of the Company's
theatrical revenues in the first quarter of the prior year were derived
from the distribution of two films, including "THE DARK HALF" in the
domestic theatrical marketplace and "ROBOCOP 3" in the foreign theatrical
marketplace. Together, these two films generated approximately
$10,000,000 in worldwide theatrical revenues during that quarter.
Of the films unreleased at the Effective Date, the Company has two
remaining unreleased in the domestic theatrical marketplace which it plans
to release during the third quarter of the fiscal year ending February 28,
1995. The Company's ability to produce or acquire additional product for
distribution is limited, therefore, it is anticipated that revenues from
theatrical distribution of the Company's two remaining unreleased films
will be earned during fiscal 1995 and 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 "ROBOCOP 3" in the domestic home video rental market
through Orion Home Video ("OHV") accounted for the majority of the
Company's home video direct distribution revenues during the current
quarter. The distribution of "DANCES WITH WOLVES" in the domestic home
video "sell thru" (i.e. lower priced) market through OHV accounted for the
majority of the Company's home video direct distribution revenues during
the previous year's first quarter. No individual picture generated
significant home video subdistribution revenues during the first quarter
of fiscal 1995 or 1994.
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 1994 Annual
Report on Form 10-K for the year ended February 28, 1994. Under the terms
of such agreement, which was entered into in February 1990, and amended
on November 5, 1992, the Company received a substantial advance against
the performance of the 23 pictures (amended from 50 pictures) covered by
the agreements. 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 with regard to the
investment in the production of new theatrical product, are likely to
continue to have an adverse effect on quarterly revenues in this market
for the foreseeable future.
Pay Television Revenues
During the first quarter of fiscal 1995, nine titles became available for
exclusive exhibition in the pay cable market pursuant to a settlement (the
"Showtime Settlement") reached with Showtime Networks Inc. ("Showtime")
during the quarter as described below. Pay television revenues for the
current quarter included approximately $40,000,000 from the recognition
of license fees on these titles. As described below, pay television
revenues of $11,700,000 for two titles were deferred during the first
quarter of fiscal 1994 and $9,700,000 of pay television revenues on two
additional titles would have been deferred in the current first quarter
if such settlement had not been reached with Showtime.
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Note 4 of Notes to Condensed Consolidated Financial Statements ("Note 4")
describes the terms of the settlement reached on March 29, 1994 regarding,
inter alia, a dispute (defined therein as the "Key Man Dispute") that
existed between the Company and Showtime regarding the licensing by
Showtime of the 14 pictures theatrically released in the domestic
marketplace by the Company in fiscal 1992, 1993 and 1994, and in the first
quarter of fiscal 1995, as well as the Company's two remaining unreleased
pictures. No revenues related to the licensing to Showtime of these
disputed pictures had been recorded pending resolution of this dispute.
Such deferral began to have an adverse effect on pay television revenues
in the first quarter of fiscal 1993. Note 4 also describes a complaint
(defined therein as the "Qualification Dispute") filed by Showtime
alleging that Showtime should be permitted to offset approximately
$29,300,000 in fees already paid against future license fees due the
Company. This matter was also settled under the Showtime Settlement, as
described in Note 4.
The Showtime Settlement provides for reduced license fees for the 16
pictures subject to the Key Man Dispute, including an approximate
$4,700,000 reduction to approximately $44,700,000 of the license fees that
would have been recorded during the first quarter of fiscal 1995 and
during fiscal 1994 and 1993 for the nine otherwise available pictures. In
addition, the license fees for the seven remaining pictures subject to the
Key Man Dispute have been reduced approximately $13,600,000 to
approximately $19,300,000. Also, the Showtime Settlement provided for a
reduction of $15,000,000 in license fees recorded as revenues in previous
periods related to the pictures subject to the Qualification Dispute,
which amount was reversed in the fourth quarter of fiscal 1994.
The remainder of the Company's revenue in this market for the first three
months of each fiscal year was recorded upon the availability of various
titles under certain foreign pay television agreements.
Furthermore, as described above, the current quarter included a one time
recognition of significant domestic pay revenues due to the Showtime
Settlement. The reduced license fees under the Showtime Settlement, the
Company's reduced theatrical release schedule beginning in fiscal 1992,
and the limitations of the Plan with regard to the investment in the
production of new theatrical product, are likely to have an adverse effect
on quarterly revenues in this market for the foreseeable future.
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Free Television Revenues
The Company's free television revenues in the first quarters of both
fiscal 1995 and 1994 were derived primarily from the availability in a
number of foreign territories of certain of the Company's theatrical
titles. Free television revenues in the fiscal 1995 first quarter also
includes fees from the availability to Lifetime of five pictures under the
Company's two major agreements with that basic cable network compared to
one picture in the previous first quarter. During the first quarter of
fiscal 1994, approximately $3,000,000 of revenues were recorded upon the
availability of two films to the major networks.
Gross Profit (Loss)
Gross profit in the first quarter of fiscal 1995 was most favorably
affected by the recognition of approximately $40,000,000 of domestic pay
television license fees on nine titles pursuant to the Showtime Settlement
as described above and in Note 4. These nine titles accounted for
approximately $7,000,000 in gross profit during the quarter. Gross profit
in the previous year's first quarter was most favorably affected by the
recording of revenues upon the availability of "MERMAIDS" and "CADILLAC
MAN" to the major networks. These two titles accounted for approximately
$1,900,000 in gross profit during that quarter.
The current quarter was most adversely affected by the recording of
writedowns to the estimated net realizable value of the carrying amounts
of the three first quarter domestic theatrical releases. These writedowns
aggregated approximately $6,100,000. In addition, a writedown to
estimated net realizable value of approximately $1,000,000 was recorded
due to the less-than-previously-expected domestic home video distribution
of "ROBOCOP 3". The previous quarter was adversely affected by the
recording of approximately $3,000,000 of writedowns to the estimated net
realizable value of the carrying amounts of the two domestic theatrical
releases during that quarter.
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.
As stated in previous publicly-filed reports, the Company has released
only 14 theatrical films in the domestic theatrical marketplace since the
beginning of fiscal 1992. This reduced release schedule has had an
adverse effect on amounts and comparisons of revenues and, consequently,
gross profit and is expected to continue to have an adverse effect on such
comparisons in future periods. Furthermore, as previously disclosed in
the Company's 1993 and 1994 Form 10-K's, approximately two-thirds and
three-quarters of the Company's film inventories are stated at estimated
net realizable value and do not result in the recording of gross profit
upon the recognition of related revenues.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended May 31,
1994 increased $861,000 (17%) from $5,188,000 in the preceding year's
first quarter to $6,049,000 in the current year's first quarter. This
increase is largely attributed to increased costs in the current effort
to downsize and streamline the Company's management information systems
and such costs are expected to decrease with the completion of such
projects.
Chapter 11 Reorganization Items
The Company charged approximately $266,000 and $822,000 of direct expenses
of administering the chapter 11 filing, particularly professional fees,
to operations during the quarters ended May 31, 1994 and 1993,
respectively.
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Interest Expense
Interest expense for the three months ended May 31, 1994 decreased
$1,181,000 (14%) from the previous year's quarter from $8,336,000 to
$7,155,000. Such decrease primarily reflects reduced interest charges on
lower outstanding debt balances as principal payments continue to reduce
the Company's debt. In addition, interest expense for the current quarter
includes a nonrecurring credit of approximately $526,000 representing
interest earned by the Company on escrowed funds received in connection
with the Showtime Settlement described above.
Provision for Income Taxes
The provision for income taxes on operations in the first quarter of both
fiscal 1994 and fiscal 1995 are partially based on an estimate of the
effective tax rate for the entire year. Only a portion of the provisions
are offset by losses from operations because of certain foreign and state
taxes which cannot be mitigated by such losses. In addition, foreign
taxes are provided for certain transactions in the period in which they
occur. The provision for income taxes for the three months ended May 31,
1994 and 1993 are attributable to foreign remittance taxes and minimum
state taxes.
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.
LIQUIDITY AND CAPITAL RESOURCES
On the Filing Date, as described above, the Company and certain of its
subsidiaries filed petitions for relief under the Bankruptcy Code in the
Court. Under the Plan, the Company will continue to concentrate its
efforts on the licensing and distribution of its library, including the
two remaining unreleased pictures. Currently, the principal sources of the
funds required for the Company's motion picture distribution activities
are proceeds from the licensing of exhibition and ancillary rights to the
Company's library. In accordance with the terms of the Plan, the Company
is permitted to expend certain amounts to release the remaining unreleased
titles; however, the Company will be permitted to invest in the production
of new theatrical product, only if, among other things, financing for such
product can be obtained, which is secured only by the film being produced
or acquired and is thus nonrecourse to the other assets of the Company.
Before the filing of the Company's petitions under chapter 11, the Company
had as an operating plan to release each year approximately 12 to 15
theatrical motion pictures which the Company fully or substantially
financed. Prior to the filing, all new production was halted leaving the
Company with only 12 largely completed but unreleased motion pictures at
the Filing Date. In addition, under the Plan, the Company's ability to
produce or invest in new theatrical product is severely limited as
described above. Accordingly the Company released four, three, and four
theatrical motion pictures in the domestic marketplace in fiscal 1994,
1993, and 1992, respectively. Three motion pictures were released
domestically in the first quarter of fiscal 1995, and the two remaining
unreleased pictures will be released later in fiscal 1995. This reduced
release schedule described above is likely to have an adverse impact on
results of operations for the foreseeable future. Furthermore, as
described in Note 4, approximately three-quarters of the Company's film
inventories at February 28, 1994 are stated at amounts approximating their
estimated net realizable value and will not result in the recording of
gross profit upon the recognition of related revenues in future periods.
Accordingly, selling, general and administrative costs and interest
expense in future periods are likely to exceed gross profit recognized in
each period, which will result in the reporting of net losses for
financial reporting purposes for the foreseeable future.
Under the Bankruptcy Code, the Company remained in possession of its
property and, as such, was operating its business as a debtor-in-
possession subject to the supervision of the Court. The Company also
developed a plan of reorganization which is described below. The plan of
reorganization satisfied the provisions of the Bankruptcy Code (including
acceptance by certain required votes of creditors) and was confirmed by
the Court.
During the Bankruptcy Period, the Company's financial and other resources
continued to decline. Production operations were suspended because of the
Company's inability to finance production of new films. New product for
distribution was limited to the Unreleased Films. To conserve resources,
the Company confined its use of cash collateral to those operating, post-
production, and distribution and marketing costs that were necessary to
preserve and maintain going-concern value.
The Company filed a proposed plan of reorganization and the related
disclosure statement as described above. The Court approved the
Disclosure Statement on September 8, 1992 and confirmed the Plan on
October 20, 1992. On November 5, 1992, the Effective Date, the Company
emerged from the chapter 11 proceedings.
The Plan is extremely complex and the summary presented below contains
only a brief synopsis of the compromises and benefits granted pursuant to
the Plan and is qualified in its entirety by reference to the Plan. The
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reader should refer to the Plan to obtain a more thorough understanding
of the provisions of the Plan and for precise definitions of capitalized
terms in the summary presented below. The Plan represents a compromise
and settlement reached among the Company's principal creditor
constituencies, most of which relinquished, upon confirmation of the Plan,
potential legal and equitable arguments in exchange for the treatment and
certainty provided by the Plan.
Under the Plan, the Company's senior secured creditors (the Banks and
Sony) are sharing 85% of the reorganized Company's Net Cash Flow. The
Plan permits certain unsecured creditors (including holders of certain 10%
Subordinated Debentures that were issued pursuant to the Plan as described
below) to receive, on a pari passu basis with the senior secured
creditors, the remaining 15% of Net Cash Flow. After payment in full of
the Allowed Claims of the Banks (and Metromedia and its Affiliate, if they
shall become subrogees under the Bank Guarantee) and Sony, 100% of Net
Cash Flow will be paid to the holders of such unsecured Allowed Claims.
After payment of the Talent Notes, holders of the Creditor Notes and the
10% Subordinated Debentures issued pursuant to the Plan, as described
below, will share 100% of Net Cash Flow.
Under the Plan, the holders of Guild Claims and Participation Claims
reduced by 17% their Allowed Prepetition Residual Claims and Allowed
Preconfirmation Participation Claims, respectively, in exchange for Talent
Notes, which are payable currently out of a portion of Net Cash Flow not
required to be paid to the Banks and Sony; holders of Allowed Postpetition
Residual Claims will be or have been paid in full with respect to such
Claims. The holders of most of the other Unsecured Claims, have or will
receive Creditor Notes, which are also payable currently out of a portion
of Net Cash Flow not required to be paid to the Banks and Sony.
Additional Creditor Notes will be issued in accordance with the Plan as
and when Disputed Unsecured Claims become allowed.
Under the Plan, the holders of the Company's subordinated notes and
debentures outstanding at the Filing Date received an aggregate of
$50,000,000 initial principal amount of 10% Subordinated Debentures due
October 31, 2001 of the reorganized Company, payable out of the portion
of Net Cash Flow not otherwise payable to the Banks and Sony as described
above, as well as 49% of the equity of the reorganized Company. The
holders of the Company's previously outstanding Series B Preferred Stock
and common stock received, in the aggregate, 0.1% and 0.8%, respectively,
of the common stock of the reorganized Company. Metromedia and its
affiliate have received an aggregate of 50.1% of the common stock of the
reorganized Company in exchange for $15,000,000, a guarantee of the bank
borrowings of the reorganized Company and a contribution of all rights in
respect of a letter agreement dated November 28, 1990 between the Company
and an affiliate of Metromedia (the "MetMermaids Rights").
For a period of five years from the Effective Date, the Company's By-laws
provide that the Company must cause certain Directors not affiliated with
Metromedia to be included in the Company's slate of directors nominated
for election by the Company's stockholders. One of such nominees is to
be a member of the Executive Committee of the Board of Directors of the
reorganized Company.
Pursuant to the terms of the Plan, the Company is licensing and
distributing its library, including the remaining unreleased pictures.
Expenditures for selling, general and administrative costs are
substantially less than the levels of such expenditures that were incurred
prior to the Filing Date. Further, the Plan limits the Company's ability
to produce or acquire new motion pictures or other product. Such product
may be produced or acquired only if, among other things, any financing of
such purchase or acquisition is secured, if necessary, only by the assets
being produced or acquired. With respect to acquired assets only, the
Company is nevertheless allowed, without any restriction, to pay related
debt service out of operating cash flow. While the Company has been able
to acquire certain distribution rights to certain new product with
nonrecourse financing, no assurance can be given that the Company will be
successful in obtaining additional nonrecourse debt financing or acquiring
additional substantial entertainment assets. Furthermore, to date, such
arrangements have not contributed substantially to the Company's results
of operations.
To the extent that the Company generates Net Cash Flow, the Company is
required to make principal payments with respect to the Banks and Sony and
to its holders of its Talent Notes, Creditor Notes and 10% Subordinated
Debentures at least quarterly out of Net Cash Flow. Net Cash Flow as
defined in the Plan generally provides for the payment of operating costs
as incurred. Because distributions are dependent upon the Company's
ability to generate Net Cash Flow and are determined for specified periods
in accordance with the Plan, no assurance can be made as to the amount,
if any, of each future distribution. See Note 5 of Notes to Condensed
Consolidated Financial Statements ("Note 5"), for a schedule of the
Company's Net Cash Flow payments since the Effective Date.
The Company has to date generated sufficient Net Cash Flow to meet its
operating and Plan obligations. However, the poor performance of the
Company's pictures released after the Effective date and the reduction
pursuant to the Showtime Settlement from the contractual amounts which
otherwise would be payable by Showtime under the Showtime Agreement, have
had an adverse affect on the liquidity of the Company. The Company
anticipates that such events will in turn have an adverse effect on the
Company's ability to meet its obligations under the Third Restated Credit
Agreement and to Sony discussed below in the fiscal year ended February
28, 1995 ("fiscal 1995") and the other Plan obligations discussed below
in the fiscal year ended February 29, 1996 ("fiscal 1996").
As described in Note 5, the Company must make certain principal payments
to its bank lenders under the terms of the Third Restated Credit Agreement
and to Sony pursuant to the Sony Obligation in October and November 1994,
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respectively, and October and November 1995, respectively. The Company
does not currently believe that it will generate sufficient Net Cash Flow
during the remainder of fiscal 1995 to make the scheduled payment to the
Banks and Sony in October and November 1994, respectively. In addition,
based upon current estimates of Net Cash Flow, the Company does not
currently believe it will generate sufficient Net Cash Flow to make the
scheduled final maturity payments to the Banks and Sony, in October and
November 1995, respectively. In such events, the Banks may demand payment
from the guarantors under the Bank Guarantee and Sony may draw under its
letter of credit (if Metromedia does not first cure such payment default),
in which case the amount drawn by Sony would become a guaranteed
obligation of the guarantors under the Bank Guarantee. Any such payments
made by the guarantors under the Bank Guarantee on behalf of the Company
to the Banks and/or to Sony would result in such guarantors becoming
subrogated to the Banks' and Sony's portion of the Company's Net Cash Flow
following payment in full of the Company's obligations to the Banks and
Sony. The Company would be obligated to reimburse the amounts paid by the
guarantors under the Bank Guarantee on the Company's behalf, plus
interest, out of the portion of the Company's Net Cash Flow previously
allocable to the Banks and Sony until such guarantors are reimbursed in
full.
In addition, as described in Note 5, the Indentures pursuant to which the
Talent Notes and Creditor Notes were issued (the "Indentures") provide
that an Event of Default will occur under such Indentures if the aggregate
amount of Net Cash Flow paid by the Company to the holders of Talent
Notes, Creditors Notes and 10% Subordinated Debentures (the "Plan Debt")
does not exceed the mandatory minimum amounts (the "Mandatory Minimums")
specified in the Indentures. The Indentures also provide, however, that
the Mandatory Minimums will be reduced by certain net amounts due under
the Showtime Agreement which are not received by the Company because of
the Showtime Settlement.
The Indentures provide that the first Mandatory Minimum threshold must be
met by the Company by the last quarter of fiscal 1995. Thereafter,
although the Indentures provide that the Company must make payments to the
holders of the Plan Debt in the amounts specified in the Indentures (less
the reduction for the Showtime Settlement discussed above) for each
fiscal quarter through the fiscal year ended February 28, 1999, the
Indentures only set forth a single Mandatory Minimum threshold for each
such fiscal year, rather than separate quarterly thresholds for each
fiscal quarter. Accordingly, a literal reading of the Indentures would
mean that by the end of each of the Company's four fiscal quarters in each
fiscal year beginning with the fiscal quarter ended May 31, 1995, the
Company would have had to pay to the holders of the Plan Debt the same
Mandatory Minimum amount. The Company believes that the language set
forth in the Indentures does not reflect the agreement between the Company
and its principal creditors who negotiated and agreed upon the provisions
based upon the Company's review of the agreement in principle agreed to
by such parties. The Company believes that the Mandatory Minimums
specified in the Indentures were intended to be the required Mandatory
Minimum thresholds for only the last fiscal quarter of each fiscal year
beginning with the fiscal year ended February 29, 1996 and that lower
quarterly Mandatory Minimum amounts should have been calculated and set
forth in the Indentures for each fiscal quarter of each fiscal year
beginning with the quarter ended May 31, 1995. Notwithstanding the
literal language of the Indentures, it is the Company's intention to
follow what it believes to be the intention of the agreeing parties.
Utilizing the Mandatory Minimums contained in the Indentures rather than
the interpretation the Company believes reflects the agreement of the
parties, the Company, based upon current cash flow projections (which are
subject to change), currently anticipates that it would not generate
sufficient Net Cash Flow to satisfy the Mandatory Minimum threshold under
the Indentures beginning with the quarter ended May 31, 1995 and that
accordingly an Event of Default would occur under each such Indenture on
such date. Upon the occurrence and continuation of an Event of Default,
the Trustee under each of the Indentures or 40% in aggregate principal
amount of either the Talent Notes or the Creditor Notes could cause an
immediate acceleration of the entire principal amount of such Notes.
Should such acceleration under the Indentures occur, the Company, absent
other financing arrangements, may be forced to seek protection under
chapter 11 of the United States Bankruptcy Code. Notwithstanding the
literal language of the Indentures, the Company believes, however, that
no such Event of Default should occur because the language set forth in
the Indentures does not reflect the intention of the Company and the
representatives of the Plan Debt who negotiated such provisions and
accordingly that no acceleration of the Notes should occur on such
quarterly date. Utilizing the Company's view that the agreement of the
parties is not reflected in the language of the Indentures and that the
Indentures should be reformed to set forth quarterly Mandatory Minimum
thresholds for each fiscal quarter, the Company nevertheless currently
believes, based upon current cash flow projections (which are subject to
change), that it will not generate sufficient Net Cash Flow to satisfy
such reformed quarterly Mandatory Minimums at the quarter ended August 31,
1995. In order to meet the Company's anticipated shortfall, the Company
must obtain a waiver, refinance its existing Plan Debt, or obtain
additional sources of financing including those described below. If the
Company cannot satisfy the Mandatory Minimum thresholds at the quarter
ended August 31, 1995, on such date an Event of Default would occur under
the Indentures, which in turn could cause an acceleration of such Notes
as described above. Should such acceleration under the Indentures occur,
the Company, absent other financing arrangements, may be forced to seek
protection under chapter 11 of the United States Bankruptcy Code.
As previously discussed herein, the Company anticipates net losses for
financial reporting purposes for fiscal 1995, however, the Company
believes it will have sufficient liquidity to meet its obligations through
fiscal 1995 except for its obligations to the Banks and Sony, which
obligations become guaranteed obligations under the Bank Guarantee as
described above.
20
<PAGE>
The Company intends to release its two remaining unreleased films and to
exploit its existing library of product in order to generate Net Cash
Flow. The Company is also actively pursuing a number of steps aimed at
improving its operating results to date and increasing its Net Cash Flow
by acquiring or producing new product. Since the Effective Date, the
Company has been able to acquire some new product with nonrecourse
financing. In order to further exploit its existing distribution
apparatus, the Company will continue to actively seek to attract the
requisite nonrecourse financing to fund the acquisition and distribution
costs of new theatrical and home video product, which would be distributed
by the Company through its distribution system. In addition, the Company
will pursue additional nonrecourse financing for the production of new
product, which the Company is also permitted to engage in under the Plan
on a nonrecourse basis or through certain unrestricted subsidiaries. If
the Company is successful in obtaining nonrecourse financing as described
above, the contribution to the Company's liquidity will generally be in
the form of a distribution fee. The Company is also currently considering
its alternatives in connection with the anticipated payment shortfall to
the holders of the Plan Debt including restructuring or refinancing such
Plan Debt. Despite these intentions, there can be no assurance that the
Company will be able to generate sufficient Net Cash Flow to avoid an
Event of Default under its Indentures in fiscal 1996.
21
<PAGE>
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
Court seeking a variety of forms of relief, including, without limitation,
motions (a) to approve settlements and compromises, and (b) to allow or
disallow claims. Other matters and claims may be referenced in the
Disclosure Statement filed by Debtors with the 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 halted, among other things, all pending litigation and
prevented 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, absent special
relief which the Court could grant.
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). The
Honorable Burton R. Lifland, Chief Bankruptcy Judge of the United States
District Court for the Southern District of New York, has transferred the
Mace Neufeld estimation proceedings to the Honorable Stuart Bernstein of
the United States Bankruptcy Court for the Southern District of New York.
The estimation hearing on the Mace Neufeld claims has been adjourned to
July 28, 1994. Settlement negotiations are ongoing.
Hemdale Film Corporation v. Orion Pictures Corporation, (Los Angeles
County Superior Court, Case No. RCO12594). The estimation hearing on the
Hemdale claim has been further adjourned to September 13, 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 September 13, 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 September 13, 1994. Settlement negotiations are ongoing.
Sharon Badal v. Orion Pictures Corporation, (United States District
Court, Southern District Court, Southern District of New York, Case No.
91 Civ. 4288). The estimation hearing on the Badal claim has been further
adjourned to September 13, 1994.
22
<PAGE>
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 September 13, 1994. Settlement
negotiations are ongoing.
Bayer Cadillac, Inc., Plaintiff, v. Cad Co. Productions, Inc., Orion
Pictures Corporation and Ted Kurdyla, Supreme Court of the State of New
York, County of Queens. The Bayer Cadillac claim has been expunged by the
United States Bankruptcy Court for the Southern District of New York on
the basis that the claim was filed late, after the May 29, 1992 bar date.
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). Counsel for the Company have been informed that the underlying
litigation involving The Movie has been settled. The estimation hearing
for The Movie Claim has been further adjourned to September 13, 1994.
3. Showtime Litigation.
As described in Note 4 of Notes to Condensed Consolidated Financial
Statements, the Company and Showtime were parties to several litigations.
The parties entered into a settlement agreement (the "Showtime
Settlement") which was approved by the bankruptcy court on March 17, 1994
and which became effective on March 29, 1994.
Pursuant to the Showtime Settlement, the Company and Showtime agreed
inter alia to the following: (i) upon entry of the Bankruptcy Court's
order approving settlement and the lapse of the relevant appeal period,
they would dismiss with prejudice the Key Man Dispute from all courts
where such litigations are currently pending; (ii) to amend the existing
agreement ("Old Agreement") to reflect the settlement reached by the
parties; and (iii) to enter into a new exclusive output agreement to cover
certain qualifying new product produced or acquired by the Company and
certain of its affiliates and certain existing product in the Company's
film library (the "New Agreement"). Such amendment to the Old Agreement
and the New Agreement became effective on March 29, 1994. As contemplated
by the amendment to the Old Agreement (the "Amendment") and the New
Agreement, Showtime will pay the Company, subject to all of the terms and
conditions of the Amendment and the New Agreement and after giving effect
to the settlement of the Qualification Dispute, the aggregate amount of
approximately $56,000,000 (the "Settlement Amount"), which amount
represents: (i) final payments for films previously exhibited by Showtime;
(ii) adjusted payments for the 16 films that were the subject of the Key
Man Dispute (provided that the yet unreleased films of such 16 films
qualify under the terms of the Old Agreement, as amended); and (iii) under
the New Agreement, license fees for library product.
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, Bankr. Adversary Proceeding No.
93-9592A (Bankr. S.D.N.Y.) (the "Cooper Action"). On April 29, 1994, the
United States District Court for the Southern District of New York (Owen,
J., presiding) entered its decision granting the Company's motion and
dismissing Cooper's appeal. On or about May 31, 1994, Cooper filed notice
to appeal to the United States Court of Appeals for the Second Circuit.
The Court has set a briefing schedule and argument of the appeal may be
heard by a panel of the Second Circuit as early as the week of September
12, 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.
23
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the first quarter of the fiscal year
ended May 31, 1994 to a vote of the holders of the Company's Common Stock,
through the solicitation of proxies or otherwise. The Company filed with
the SEC on June 27, 1994 the Proxy Statement for its 1994 Annual Meeting
of Stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.23 - Loan agreement dated as of June 20, 1994 between the Company
and Metproductions, Inc.
10.24 - Employment agreement dated as of December 1992, between the
Company and Susan Blodgett
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.
24
<PAGE>
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: July 15, 1994 \s\ Cynthia A. Friedman
Cynthia A. Friedman
Senior Vice President and
Chief Financial Officer
25
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Loan Agreement") dated
as of June 20, 1994 between Orion Pictures Corporation, a
Delaware corporation (hereinafter referred to as "Orion")
and MetProductions, Inc., a Delaware corporation (herein-
after referred to as "MetProductions").
W I T N E S S E T H:
WHEREAS, Orion and Nostradamus Enterprises Limited
have entered into that certain Distribution Agreement (the
"Distribution Agreement") dated as of April 27, 1994 with
respect to the distribution of the completed motion picture
entitled "Nostradamus" (the "Film") in all media, including
without limitation, theatrical, non-theatrical, all forms of
pay, cable and free television and home video cassette and
disc throughout the Licensee Territory. Capitalized terms
used herein and not otherwise defined shall have the
meanings assigned thereto in the Distribution Agreement;
WHEREAS, pursuant to the terms of the Distribution
Agreement, Orion agreed to expend a minimum of Two Hundred
Fifty Thousand and 00/100 ($250,000.00) but no more than
Seven Hundred Fifty Thousand and 00/100 ($750,000.00) for
Print and Advertising expenses;
WHEREAS, in connection with the Distribution
Agreement, Orion has requested and MetProductions has agreed
to loan to Orion the minimum sum of Two Hundred and Fifty
Thousand and 00/100 Dollars ($250,000.00) but no more than
Seven Hundred Fifty Thousand and 00/100 ($750,000.00).
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 condi-
tions set forth herein, upon the execution hereof,
MetProductions shall loan to Orion the principal sum of up
to Seven Hundred Fifty Thousand and 00/100 Dollars
($750,000.00) (the "Loan"). The Loan shall be made as
directed by Orion in accordance with the Distribution
Agreement.
1.2 Note. The Loan shall be evidenced by a
promissory note of Orion in the principal amount of Seven
Hundred Fifty Thousand and 00/100 Dollars ($750,000.00) and
<PAGE>
2
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 notwithstanding the accounting terms set
forth in Section 1.5 below.
1.4 Interest. Orion will pay interest on
the principal amount of the Loan from the date of such Loan
until the Loan is paid in full hereunder, at a rate per
annum equal to Ten Percent (10%). Interest shall be
calculated on the basis of a 360-day year for the actual
number of days elapsed.
1.5 Repayment of Loan. The Loan and all
accrued interest thereon shall be payable first from the
Gross Receipts to which Orion is entitled pursuant to the
terms of the Distribution Agreement, less any distribution
expenses incurred by Orion in connection with distributing
the Film (e.g. residuals, marketing costs). Orion shall
remit to MetProductions all Gross Receipts to which Orion is
entitled pursuant to the terms of the Distribution Agreement
(less the costs and expenses set forth in the preceding
sentence) until the full amount of the Loan and all accrued
interest thereunder has 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
Film pursuant to the terms of the Distribution Agreement but
only to the extent necessary to secure MetProductions' right
to receive payments under this Loan Agreement (the
"Collateral"). The security interest hereby created shall
attach immediately on the execution of this Loan Agreement
by MetProductions and Orion. Concurrently with the
<PAGE>
3
execution of this Loan Agreement (or within a reasonable
time thereafter), the parties hereto shall execute and file
the Mortgage of Copyright and Security Agreement (the
"Security Agreement") attached hereto as Exhibit C and any
UCC Financing Statement(s) required to perfect the security
interest created by this Loan Agreement and the Security
Agreement.
3. EVENTS OF DEFAULT.
3.1 Each of the following shall constitute
an Event of Default:
(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
petition against Orion under any federal or state bankruptcy
law.
3.2 If any Event of Default shall occur,
MetProductions may, at its sole option and without notice,
declare the entire principal amount loaned to Orion in
accordance with this Loan Agreement and the Note to be due
and payable in accordance with the terms and conditions of
this Loan Agreement and the Note.
3.3 If any Event of Default shall occur,
MetProductions shall be entitled to exercise all of the
rights, powers and remedies permitted by law, including
without limitation, all rights and remedies of a secured
party of a debtor in default under the Uniform Commercial
Code in effect in the State of New York for the protection
and enforcement of its rights in respect of the Collateral.
4. REPRESENTATIONS AND WARRANTIES OF ORION.
Orion hereby represents and warrants to
MetProductions that:
4.1 Orion has the right to enter into this
Loan Agreement and to grant and assign to MetProductions the
interest in the Film herein granted.
4.2 The execution, delivery and performance
of this Loan Agreement have been duly authorized by all
necessary action of Orion and do not and will not contravene
<PAGE>
4
or conflict with any corporate or fiduciary obligation Orion
has to its shareholders, including but not limited to, the
terms or provisions of Orion Pictures Corporation's By-Laws
or Orion Pictures Corporation's Restated Certificate of
Incorporation. This Loan Agreement constitutes the legally
valid and binding obligations of Orion and is enforceable
against Orion in accordance with its terms.
4.3 The execution, delivery and performance
of this Loan Agreement will not result in a breach of or
constitute (with due notice or lapse of time or both) a
default under any agreement, undertaking or other instrument
to which Orion is a party or by which it may be bound or
affected.
4.4 To the best of Orion's knowledge and
except as disclosed in Orion Pictures Corporation's Annual
Report on Form 10-K for the fiscal year ended February 28,
1994, and those quarterly reports on Form 10-Q filed up to
and including the date hereof, there is no action, suit or
proceeding pending or threatened against or affecting Orion,
or the Film which, if adversely determined, would materially
affect Orion's ability to perform this Loan Agreement.
4.5 Orion agrees to use its reasonable
commercial efforts, consistent with good business practices,
in distributing and exploiting and causing the distribution
and/or exploitation of the Film as herein provided.
4.6 Orion agrees to provide MetProductions
with statements of the distribution costs and expenses in
connection with its distribution of the Film on a reasonable
basis but not less than semi-annually.
4.7 Orion agrees to maintain records
pertaining to the license and distribution of the Film.
MetProductions shall have the right upon reasonable notice
to Orion to inspect such records until repayment of the Note
in full.
5. ACKNOWLEDGMENT OF MetProductions.
5.1 MetProductions acknowledges and agrees
that Orion makes no representation, warranty, guarantee or
agreement as to the amount of the Gross Receipts of the Film
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 Film.
5.2 Orion shall have the right to select
distributors, sub-distributors, sub-licensees, and/or agents
upon such terms and conditions as Orion may determine,
<PAGE>
5
consistent with its past business practices and with the
customs and practices of the motion picture industry in
general, in connection with the distribution, exhibition or
other exploitation of the Film.
6. INDEMNIFICATION.
6.1 Orion agrees, at its own expense, to
defend, indemnify and hold MetProductions, its affiliates,
its assignees and licensees, harmless from and against any
and all loss, damage, liability and expense (including
without limitation, reasonable attorneys' fees and costs)
which may be suffered or incurred by MetProductions, its
assignees or licensees, as the result of (i) any material
breach or default of any of the representations, warranties,
covenants or agreements made by Orion hereunder, (ii) any
material breach or default of any agreement whatsoever
entered into by Orion in connection with the Film or (iii)
any claim arising out of, or related to, the production,
distribution, or other exploitation of the Film.
7. MISCELLANEOUS.
7.1 This Loan Agreement shall be construed
in accordance with and interpreted under the laws of the
State of New York governing agreements which are wholly
executed and performed therein.
7.2 Wherever provision is made in this Loan
Agreement for the giving of any notice, such notice shall be
in writing and shall be deemed to have been duly given if
mailed by first class United States mail, postage prepaid,
addressed to the party entitled to receive the same or
delivered personally to such party at the address specified
below or by facsimile (receipt confirmed) to such party:
If to MetProductions to:
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Telecopy No.: (201) 531-2803
If to Orion:
Orion Pictures Corporation
1888 Century Park East
Los Angeles, California 90067
Attention: General Counsel
Telecopy No.: (310) 282-9902
<PAGE>
6
or to such other address as either party hereto shall have
last designated by notice to the other party. Notice shall
be deemed to have been given three days following the date
on which such notice was so mailed or on the date such
notice was delivered personally or by facsimile.
7.3 This Loan Agreement may be executed by
one or more of the parties to this Loan Agreement on any
number of separate counterparts and all of said counterparts
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 limita-
tion all requested financing and continuation statements)
and do all such other and further acts and things as the
requesting party may reasonably request in order further to
evidence or carry out the intent of this Loan Agreement.
7.5 This Loan Agreement represents the
entire agreement between the parties hereto with respect to
the subject matter hereof and supersedes all previous
representations, understandings or 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 Loan Agreement and the Distribution
Agreement are deemed to exist, the terms and conditions of
the Distribution Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have
executed this Loan Agreement as of the date and year first
above written.
MetProductions, Inc.
By: /s/ Arnold L. Wadler
Arnold L. Wadler,
Senior Vice President
Orion Pictures Corporation
By: /s/ Leonard White
Leonard White, President
<PAGE>
Exhibit B
PROMISSORY NOTE
$750,000.00 New York, New York
June 20, 1994
FOR VALUE RECEIVED, Orion Pictures Corporation, a
Delaware corporation ("Borrower"), promises to pay to the
order of MetProductions, Inc. ("Lender") or its assigns, up
to the principal sum of $750,000.00 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 other-
wise defined shall have the meanings assigned thereto in the
Loan Agreement.
If any Event of Default specified in the Loan
Agreement shall occur, then the holder of this Note can
declare the entire unpaid principal amount of this Note,
together with interest accrued thereon, to be immediately
due and payable and such holder will have all of the rights
and remedies set forth in the Loan Agreement.
Borrower hereby waives presentment, demand for
payment, notice of default, dishonor or nonpayment, protest
and notice of protest and all other demands and notices in
connection with the delivery, acceptance, performance or
enforcement of this Note.
This Note shall be governed by and construed in
accordance with the laws of the State of New York, without
reference to the conflict of laws principles thereof.
IN WITNESS WHEREOF, Borrower has executed and
delivered this Note on the 20th day of June, 1994.
ATTEST: Orion Pictures Corporation
___________________ By: /s/ Leonard White
Leonard White, President
Secretary
<PAGE>
Exhibit C
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security
Agreement") is made and entered into as of June 20, 1994
between Orion Pictures Corporation, a Delaware corporation,
(the "Debtor") with offices located at 1888 Century Park
East, Los Angeles, California 90067 and MetProductions,
Inc., a Delaware corporation (the "Secured Party") with
offices of c/o Metromedia Company, One Meadowlands Plaza,
East Rutherford, New Jersey 07073.
R E C I T A L S:
WHEREAS, pursuant to that certain Distribution
Agreement dated as of April 27, 1994 between Debtor and
Nostradamus Enterprises Limited (such agreement as it may be
amended, modified, supplemented, replaced, renewed or
superseded from time to time, is herein referred to as the
"Distribution Agreement"), Debtor acquired the exclusive
right to distribute the motion picture entitled
"Nostradamus" (the "Film"). Capitalized terms used herein
and not otherwise defined shall have the meanings assigned
thereto in the Loan Agreement and the Distribution
Agreement.
WHEREAS, the Debtor and Secured Party have entered
into that certain Loan Agreement of even date herewith (the
"Loan Agreement"). Pursuant to the Loan Agreement, Secured
Party has agreed to loan (the "Loan") to Debtor the sum of
up to Seven Hundred Fifty Thousand and 00/100 Dollars
($750,000.00) to fund certain Print and Advertising Costs.
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, hypo-
thecates, grants and assigns to Secured Party as security
for the Secured Obligations and Rights (as such term is
defined in subparagraph 1(b) below) a continuing first
priority security interest in and to all of Debtor's right,
title, and interest of every kind and nature in and to (but
none of Debtor's obligations with respect to) all of the
items listed in subparagraph 1(c) below, which items are
hereinafter collectively referred to as the "Collateral".
Notwithstanding anything to the contrary contained herein,
except for the security interest granted hereby and pursuant
to the copyright Mortgages and Assignments referred to in
subparagraph 1(f) below and the Secured Party's rights and
remedies with respect to such security interests, this
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2
Security Agreement is not intended to and does not grant to
Secured Party any greater exploitation rights in the Film
than granted to Debtor pursuant to the Distribution
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 rights in the Film pursuant to the terms of
the Distribution Agreement, (ii) recoup all Print and
Advertising Costs as provided for in the Distribution
Agreement, (iii) receive, retain and own all Gross Receipts
or other sums derived from or in connection with the
exploitation of the distribution rights in and to the Film
subject to the terms and conditions of the Distribution
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 Film provided for in the
Distribution Agreement.
(c) Collateral. The term "Collateral", as
used herein shall mean all of Debtor's right, title and
interest of every kind and nature in and to the following
items, whether now owned or in existence or hereafter made,
acquired or created and all product and proceeds thereof:
(i) All of the Debtor's rights under
the Distribution Agreement including all rights of the
Debtor in the Film and in all collateral with respect to the
Film including without limitation distribution rights in the
Film granted pursuant to the Distribution Agreement;
(ii) All proceeds and product of the
rights (including without limitation all distribution rights
in the Film) granted to Debtor under the Distribution
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
<PAGE>
3
(whether or not such claims to money have been earned by
performance) derived from or arising out of such rights; and
(iii) All of Debtor's rights to receive
any sums of money under or in connection with the
Distribution 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 l(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 Film (so long as the exploitation of the
Film 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 Distribution 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 Distribution
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
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4
maintenance, preservation and protection of any of the
Collateral or its security interest therein.
(f) Further Documents. Debtor hereby agrees
to execute and deliver to Secured Party all such financing
statements or similar documentation for all jurisdictions
designated by Secured Party (collectively, the "Financing
Statements"), one or more Copyright Mortgages and
Assignments in form and substance reasonably satisfactory to
Secured Party, and such other documents, agreements or
instruments as Secured Party shall reasonably request and
are reasonably required to better perfect, protect,
evidence, renew and/or continue the security interest in the
Collateral granted hereunder and/or to effectuate the
purposes and intents of this Security Agreement (collec-
tively, 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
(il) 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 Distribution 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 Security Agreement
in any Financing Statement, Copyright Mortgage and
Assignment or other Security Document so signed by Secured
Party as Debtor's attorney-in-fact. Debtor hereby
authorizes the Secured Party to file one or more financing
or continuation statements, and amendments thereto, relative
to all or any part of the Collateral without the signature
of the Debtor where permitted by law. A carbon, photogra-
phic 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
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5
Agreement, at which time Secured Party, on Debtor's request
and without further consideration, shall execute and deliver
to Debtor termination statements releasing and terminating
the Financing Statements, the Copyright Mortgages and
Assignments, and the other Security Documents, all without
recourse upon or warranty by Secured Party and with filing
thereof at the sole cost and expense of Debtor.
(h) Priority of Security Interest. The
security interest by Secured Party in and to the Collateral
shall be a first priority security interest.
(i) Continuing Security Interest. This
Security Agreement shall create a continuing security
interest in the Collateral and shall (a) be binding upon the
Debtor, its successors and assigns and (b) inure to the
benefit of the Secured Party and its successors, transferees
and assigns.
2. DEBTOR'S WARRANTIES AND REPRESENTATIONS AND
AGREEMENTS.
Debtor confirms, warrants and represents to
Secured Party as follows, which such confirmations,
representations and warranties shall be deemed to be
continuing until the termination of the Secured Party's
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.
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6
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 Distribution 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.
5. ANY LEGAL ACTION. All of the parties hereto
(a) agree that any legal suit, action or proceeding arising
out of or relating to this Security Agreement may be
instituted in a State or Federal court in the City of New
York, State of New York, (b) waive any objection which they
may have now or hereafter to the County of New York as the
venue of any such suit, action or proceeding, and (c) irre-
vocably 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.
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7
7. AMENDMENTS AND WAIVERS. No amendment or
waiver of any provision of this Security Agreement nor
consent to any departure by the Debtor herefrom shall in any
event be effective unless the same shall be in writing and
signed by the Secured Party, and then such waiver or consent
shall be effective only in the specific instance and for the
specific purpose for which given.
By signing in the spaces provided below, the
parties hereto have agreed to all of the terms and
conditions of this Security Agreement.
DEBTOR:
Orion Pictures Corporation
By: /s/ Leonard White
Leonard White, President
SECURED PARTY:
MetProductions, Inc.
By: /s/ Arnold L. Wadler
Arnold L. Wadler,
Senior Vice President
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of
December __, 1992, and is entered into between Orion
Pictures Corporation, a Delaware corporation (the
"Corporation"), Orion Home Entertainment Corporation, a
Delaware corporation ("OHEC"), Orion Pictures Distribution
Corporation, a Delaware corporation ("OPDC"), and Susan
Blodgett ("Executive"). References to the Company shall be
deemed to include OHEC and OPDC as the context requires.
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
1.1 Employment. Executive shall serve as Senior
Vice President -- Marketing, of OHEC, and Senior Vice
President -- Marketing, of OPDC, effective as of January 2,
1993. Executive hereby accepts such employment. Executive
agrees to devote her full time and efforts to promote the
interests of the Company.
1.2 Duties and Responsibilities. Executive shall
have such duties and responsibilities as are consistent with
her positions. Executive shall report to the Chief
<PAGE>
Executive Officer of OHEC in connection with duties per-
formed for OHEC, and to the President of the Company, or
such senior officer of OPDC as he may designate, in connec-
tion with duties performed for OPDC. 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.
1.3 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 Los Angeles, California; provided,
however, that Executive shall perform such duties and
responsibilities not involving a permanent transfer of her
base of operation outside of the greater Los Angeles
metropolitan area at such other places as shall form time to
time be reasonably necessary to fulfill her obligations
hereunder.
ARTICLE II
Term
2.1 Term. The term of this Agreement (the
"Term") shall commence on January 2, 1993 and shall continue
for a period of three years and two months, terminating on
February 29, 1996, unless terminated earlier as provided in
Article V.
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ARTICLE III
Compensation and Expenses
3.1 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 (i) $182,000 per
year from January 2, 1993 through February 28, 1994,
(ii) $192,000 per year from March 1, 1994 through
February 28, 1995, and (iii) $202,000 per year from March 1,
1995 through February 29, 1996, provided, however, that in
the event Executive's position with OPDC is terminated for
any reason, such annual salary rates shall be reduced
prospectively to $130,000, $140,000, and $150,000, as
applicable, effective as of the date of such termination.
(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
3
<PAGE>
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 main-
tained 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 5.5
of this Agreement.
(d) Vacation. Executive shall be entitled
to paid vacation during the Term in accordance with Company
policy.
3.2 Expenses.
(a) The Company shall reimburse Executive
for all reasonable expenses incurred in connection with
Executive's relocation to the greater Los Angeles metropoli-
tan area, including expenses incurred in connection with
Executive's purchase of a residence, in accordance with and
subject to the terms of the Company's relocation policy.
(b) The Company will reimburse Executive for
reasonable business-related expenses incurred by her in
connection with the performance of her duties hereunder
4
<PAGE>
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.
4.1 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.
4.2 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,
5
<PAGE>
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.
4.3 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 all of its divisions, subsidiaries, affiliates,
successors, licensees and assigns (if any), and their
respective officers, directors and employees, from and
6
<PAGE>
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 Sec-
tion 4.3(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
7
<PAGE>
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 4.3. It is also agreed that the provisions of
this Section 4.3 shall survive the termination, for any
reason, of this Agreement or Executive's employment.
ARTICLE V
Termination
5.1 Termination by the Company. The Company
shall have the right to terminate Executive's employment at
8
<PAGE>
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 4.1, 4.2 or any
other material provision of this Agreement.
5.2 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.
5.3 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 6.3 of this Agreement.
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<PAGE>
5.4 Effect of Termination.
(a) For Cause; Death; Disability. In the
event of termination of this Agreement by either party for
any reason, the Company's sole obligation under this
Agreement, except as set forth in Sections 5.4(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. In the event of termina-
tion of this Agreement by the Company other than for Cause,
the Company shall pay Executive the greater of (A) continua-
tion 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 January 2,
1993, determined at the salary level in effect as of the
date of her termination. Termination of Executive's
position with OPDC shall not entitle Executive to any pay-
ment pursuant to this Section 5.4(b) unless such termination
occurs in conjunction with a complete termination of this
Agreement.
(c) Expiration Without Renewal. In the
event this Agreement expires on February 29, 1996 and the
Company has not, prior to such expiration, made an offer in
good faith to extend Executive's employment on substantially
10
<PAGE>
similar terms, the Company shall pay Executive the amount
described in clause (B) of Section 5.4(b) of this Agreement.
(d) Right to Bonus Compensation. Execu-
tive's right to receive bonus compensation upon any termina-
tion of her employment with the Company shall be governed
exclusively by the terms and conditions of the Bonus Plan
and the Bonus Agreement.
ARTICLE VI
Miscellaneous
6.1 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 informa-
tion 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 3.1(c) of this Agreement.
11
<PAGE>
6.2 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 life, 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.
6.3 Notices. Any notice required or permitted
hereunder shall be in writing and shall be sufficiently
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<PAGE>
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, 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
Susan Blodgett, 1888 Century Park East, Los Angeles,
CA 90067, 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.
6.4 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 the parties hereto.
6.5 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.
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<PAGE>
6.6 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.
6.7 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.
6.8 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.
6.9 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.
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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 unenforce-
ability 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 Subsidiaries, etc.
(a) The Company, OHEC and OPDC shall be
jointly and severally liable to Executive for their
respective obligations under this Agreement. Such
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obligations may be satisfied by any of the Company, OHEC or
OPDC.
(b) The rights of the Company, OHEC and OPDC
under this Agreement may be enforced by any of the Company,
OHEC or OPDC.
(c) For purposes of this Agreement, a
termination of Executive's employment with OHEC shall be
considered a termination of her employment with the Company,
OHEC and OPDC.
6.15 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, OHEC, OPDC and
Executive have duly executed this Agreement as of the date
first above written.
ORION PICTURES CORPORATION
By: /s/ Leonard White
Name: Leonard White
Title: President
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ORION HOME ENTERTAINMENT CORPORATION
By: /s/ Leonard White
Name: Leonard White
Title: Chairman
ORION PICTURES DISTRIBUTION CORPORATION
By: /s/ John W. Hester
Name: John W. Hester
Title: Vice President
/s/ Susan Blodgett
Susan Blodgett
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EXHIBIT 11
ORION PICTURES CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per-share amounts)
__________________________________________________________________________
Three Months Ended May 31,
__________________________________________________________________________
1994 1993
__________________________________________________________________________
Net loss $ (12,104) $ (16,849)
__________ ___________
__________ ___________
Weighted average number of shares outstanding 20,000 20,000
______ ______
______ ______
Loss per common share $ (0.61) $ (0.84)
__________ ___________
__________ ___________
