SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended February 28, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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) (Zip Code)
Registrant's telephone number, including area code: (310) 282-0550
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock -
$.25 Par Value
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
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
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
The aggregate market value of the voting stock held by
non-affiliates of the registrant, computed on the basis of the closing
transaction price of such stock as reported by NASDAQ/NMS on June 7, 1994
was approximately $31,844,447. All officers, directors, and holders of
more than 5% of the registrant's voting stock are deemed "affiliates" of
the registrant for the purpose of calculating such aggregate market value.
However, no representation is made that such persons, or any of them,
would be deemed "affiliates" of the registrant for any other purpose under
the Securities Exchange Act of 1934 or the Securities Act of 1933.
Number of shares of Common Stock outstanding at June 7, 1994: 20,000,000.
Documents Incorporated by Reference
Portions of the Definitive Proxy Statement to be used in connection
with the registrant's 1994 Annual Meeting of Stockholders are incorporated
by reference into Part III of this Annual Report on Form 10-K.
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PART I
Item 1. Business
General
Orion Pictures Corporation (the "Company"), which was incorporated in
Delaware in 1968 and is the successor to a New York corporation
incorporated in 1952, changed its name from Filmways, Inc. to Orion
Pictures Corporation in 1982. The Company's mailing address and the
address of its principal executive offices is 1888 Century Park East, Los
Angeles, California 90067. The telephone number at such offices is (310)
282-0550. Except where the context otherwise indicates, references herein
to the "Company" include Orion Pictures Corporation and its subsidiaries
at February 28, 1994.
On December 11 and 12, 1991 (the "Filing Date"), the Company filed for
protection under chapter 11 of Title 11 of the United States Code
("chapter 11") with the United States Bankruptcy Court for the Southern
District of New York (the "Court"). The Court confirmed the Company's
Modified Third Amended Joint Consolidated Plan of Reorganization (the
"Plan") on October 20, 1992 and the Plan became effective on November 5,
1992 (the "Effective Date"). For a brief summary of the Plan, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations".
Historical Business
Before the Filing Date, the Company was engaged primarily in the
financing, production and distribution of motion pictures for the
worldwide theatrical market, including distribution of motion pictures
financed and produced by others. In addition, the Company distributed
motion pictures to the worldwide home video, free television, cable and
pay television markets. The Company also developed, financed, produced
and distributed newly created made-for-television product, which has
included, in the past, series and related pilots, motion pictures and
mini-series produced for exhibition on the major networks in the United
States as well as first-run programming produced for syndication in the
domestic television marketplace. Such television production operations
were discontinued effective May 31, 1991. Before the Filing Date, the
Company's operating plan had been to release approximately 12 to 15
theatrical motion pictures each year.
Business of the Company following Plan Consummation
Since the Effective Date, the Company has exploited its existing film
library and other assets. The Company intends to continue doing so, in
existing and new markets and through emerging technologies, as they
develop. The Company's expansive film library includes in excess of 750
previously released theatrical and television motion pictures, television
series and other television programs. Some of the noteworthy titles in
the Company's film library include "PLATOON", "DANCES WITH WOLVES" and
"THE SILENCE OF THE LAMBS", each of which won the Academy Award for best
picture. At the Effective Date, the Company had ten completed, unreleased
theatrical motion pictures, (the "Unreleased Films"). Eight of the films,
"LOVE FIELD", "MARRIED TO IT", "THE DARK HALF", "ROBOCOP 3", "CAR 54,
WHERE ARE YOU?", "CHINA MOON", "CLIFFORD", and "THE FAVOR", have been
released theatrically by the Company in the United States and Canada. The
Company intends to release the two motion pictures listed below during
fiscal 1995:
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Principal Cast
Picture Producers Director Members
Blue Sky Robert H. Solo Tony Richardson Jessica Lange
Lynn Arost Tommy Lee Jones
Powers Boothe
There Goes My Baby Robert Shapiro Floyd Mutrux Dermot Mulroney
Kelli Williams
Jill Schoelen
Kristin Minter
Rick Schroder
Other than these two remaining unreleased films, the Company has not
fully or substantially financed the production of any new film product for
release in the theatrical marketplace. While the Company also intends to
continue exploring ways in which it can exploit its existing projects in
development, scripts and other properties, and to seek out and pursue
business opportunities with parties who may be interested in exploiting
its assets, its ability to engage in the development and production of new
product is strictly limited by the plan.
The Plan permits the Company to engage in development, production and
theatrical distribution activities as long as such activities are financed
on a 100% nonrecourse basis to the Company, and to purchase additional
entertainment assets with the purchase price secured solely by the assets
so purchased. The Company intends to pursue financing as permitted by the
Plan to enable it to acquire completed motion pictures and other
entertainment assets. The Company has been able to acquire, with
nonrecourse financing, rights to distribute films from other film
producers in specified media and territories for varying periods of time.
Under such arrangements, the Company receives a distribution fee. Such
arrangements, to date, have not contributed substantially to the Company's
results of operations. Further, there can be no assurance that the
Company will be able to continue to obtain additional nonrecourse debt
financing or acquire substantial entertainment assets. See Notes 1,
3 and 12 of Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
The Company's distribution organization distributes its library, its
unreleased motion pictures and any acquired entertainment assets as
described above, in the worldwide market. More specifically, Orion Home
Entertainment Corporation ("OHEC"), a wholly owned subsidiary of the
Company, distributes the Company's home video product in the United States
and Canada. Orion Pictures Distribution Corporation ("OPDC"), another
wholly owned subsidiary of the Company, directly licenses the Company's
motion pictures to theaters throughout the United States, among other
things. The Company's motion pictures are licensed to theaters throughout
Canada by a subdistributor.
The Company distributes motion pictures to theaters in foreign countries
(other than Canada) pursuant to an agreement the Company entered into in
February 1990 (the "Sony Theatrical Agreement") with Sony Pictures
Entertainment, Inc. ("Sony"), under which the Company agreed to distribute
50 then current and future motion pictures in markets other than the
United States and Canada exclusively through the use of theatrical
distribution facilities of Sony for a specified period of time. The Sony
Theatrical Agreement was amended in connection with the Plan to include
only 23 motion pictures ending with the Unreleased Films. The Company
retained full rights of approval and control of the distribution of the
theatrical product under the Sony Theatrical Agreement.
In February 1990, the Company also entered into an exclusive film
licensing agreement (the "Sony Video Agreement") with Sony. The Sony
Video Agreement provides for exclusive distribution for a specified
license period by Sony to the home video marketplace throughout the world
(except for the United States and Canada) of 50 of the Company's current
and future motion pictures meeting certain qualifying criteria. This
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agreement was also amended in connection with the Plan to include only 23
pictures, concluding with the Unreleased Films.
In recent years, the Company had licensed motion pictures for United
States pay television exhibition pursuant to an exclusive film licensing
agreement dated as of August 1, 1986, which was subsequently amended by
various letter agreements (the "Showtime Agreement"), with Showtime / The
Movie Channel Inc., now known as Showtime Networks Inc. ("Showtime"), at
that time an affiliate of the Company. The Showtime Agreement provided
that Showtime's obligations were conditioned upon the continued employment
of certain key executives of the Company (or their approved successors)
in their then current or substantially similar management positions with
the Company and their continued responsibility for certain operations of
the Company through July 31, 1991. Showtime alleged that changes occurred
in the roles of the Company's top management positions as of April 1, 1991
that affected its agreement with the Company (the "Key Man Dispute"). In
addition, Showtime filed a separate complaint against the Company alleging
that Showtime overpaid the Company at least approximately $29,400,000
under the Showtime Agreement (the "Qualification Dispute").
On March 29, 1994, the Company announced that it had reached an
agreement with Showtime settling all litigations and disputes arising out
of the Showtime Agreement (the "Showtime Settlement"). See "Legal
Proceedings-Showtime Litigations", Note 6 of Notes to Consolidated
Financial Statements and "Management's Discussion and Analysis". The
Showtime Settlement provides for the exclusive United States pay
television exhibition by Showtime of the 16 pictures subject to the Key
Man Dispute, concluding with the last Unreleased Film, at reduced license
fees. The Showtime Settlement also reduces the license fees related to
the seven pictures included in the Qualification Dispute that were not in
dispute under the key man clause described above. In addition, under the
Showtime Settlement, the Company has entered into a new exclusive output
agreement dated as of March 10, 1994 with Showtime, commencing with
qualifying pictures initially theatrically released between January 1,
1994 and December 31, 1996 or thirty qualifying pictures (including seven
of the Unreleased Films), whichever comes first. For each motion picture,
other than the seven Unreleased Films, meeting certain requirements, the
Company will receive a license fee based on a formula related to the
aggregate United States theatrical film rentals of that picture. The new
output agreement also provides for the licensing by Showtime of certain
product in the Company's film library on a non-exclusive basis for a fixed
sum payable over seven years.
Competition and Seasonality
All aspects of the Company's operations are conducted in a highly
competitive environment. To the extent that the Company seeks to
distribute the films contained in its library and the remaining unreleased
motion pictures, or acquire product, the Company will need to compete with
many other motion picture distributors, including the "majors", most of
which are larger and have substantially greater resources, film libraries
and histories of obtaining film properties, as well as production
capabilities and significantly broader access to distribution
opportunities. Many of the Company's competitors have substantially
greater assets and resources, and, unlike the Company, will not be
restricted to nonrecourse debt financing to acquire product. By reason
of their resources, these competitors may have access to programming that
would not generally be available to the Company and may also have the
ability to market programming more extensively than the Company.
Distributors of theatrical motion pictures compete with one another for
access to desirable motion picture screens, especially during the summer,
holiday and other peak movie-going seasons, and several of the Company's
competitors in the theatrical motion picture distribution business have
become affiliated with owners of chains of motion picture theaters. The
success of all the Company's product is heavily dependent upon public
taste, which is both unpredictable and susceptible to change without
warning.
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Employees
As of February 28, 1994, the Company had approximately 165 regular
employees, of whom less than 1% were represented by labor unions. This
represents a substantial reduction in the number of employees from the
level prior to the advent of the Company's financial difficulties
primarily as a result of the Company's efforts to reduce overhead and
conserve resources.
Certain of the Company's subsidiaries are signatories to various
agreements with unions that operate in the entertainment industry. In
addition, a substantial number of the artists and talent and crafts people
involved in the motion picture and television industry are represented by
trade unions with industry-wide collective bargaining agreements.
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Executive Officers of the Company
Set forth below is information regarding the executive officers of the
Company as of June 7, 1994. The terms of office of the executive officers
who remain employed by the Company expire at the next annual meeting of
the Company's Board of Directors.
Corporate Officers
Offices Held and Principal
Name Age Occupations for Past Five Years
Susan Blodgett 45 Senior Vice President, Marketing, Orion
Pictures Distribution Corporation,
January 1993 to present. Senior Vice
President, Marketing, Orion Home
Entertainment Corporation ("OHEC"),
January 1993 to present. Senior Vice
President, Corporate Marketing, Orion
Home Video, a division of OHEC, May
1992 to January 1993. Vice President,
Marketing, Orion Home Video, April 1987
to May 1992.
Cynthia A. Friedman 35 Senior Vice President and Chief
Financial Officer of the Company since
November 1992. Vice President of
Finance and Chief Accounting Officer of
the Company from August 1991 to
November 1992. Vice President of the
Company from May 1990 to July 1991.
Controller of the Company, November
1987 to November 1992.
Herbert Dorfman 51 Senior Vice President, Orion Home
Video, a division of OHEC, December
1992 to present. Vice President,
National Sales, P.P.I. Entertainment,
July 1992 to December 1992. Vice
President of Sales, Eastern Zone, Orion
Home Video, July 1991 to July 1992.
Vice President, Sales, Orion Home
Video, February 1990 to July 1991.
Director, Sales - Eastern Division,
Orion Home Video, February 1989 to
February 1990. Regional Sales Manager,
Orion Home Video, August 1987 to
February 1989.
John W. Hester 47 Executive Vice President, General
Counsel and Secretary of the Company
since November 1992. Senior Vice
President, General Counsel and
Secretary of the Company in November
1992. Senior Vice President, Legal
Affairs and Corporate Operations of the
Company from March 1992 to November
1992. Acting General Counsel of the
Company from November 1991 to November
1992. Vice President and Assistant
Secretary of the Company from March
1989 to March 1992. Vice President and
Assistant Secretary of OPDC since
December 1988. Company Counsel and
Assistant Secretary for more than 2
years prior thereto.
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Offices Held and Principal
Name Age Occupations for Past Five Years
Joseph D. Indelli 54 Executive Vice President, Domestic
Television Distribution, Orion
Television Entertainment, a division of
the Company, September 1989 to present.
President, MTM Distribution Group, MTM
Entertainment, June 1986 to September
1989.
Diane Keating 41 President, Orion Pictures
International, a division of the
Company, July 1992 to present. Senior
Vice President, International Home
Video and Administration, Orion
Pictures International, June 1990 to
July 1992. Senior Vice President,
International Home Video, Orion
Pictures International, March 1989 to
June 1990. Vice President,
International Home Video, Orion
Pictures International, February 1987
to March 1989.
Kimberle A. Lynch 38 Senior Vice President, Business Affairs
for Worldwide Distribution, of the
Company, June 1993 to present. Senior
Vice President, Business Affairs for
Home Entertainment of the Company,
March 1988 to June 1993. Director of
Business Affairs for Ancillary Rights
of the Company, 1985 to 1986. Senior
Vice President, Business Affairs of
OHEC, March 1994 to present. Vice
President, Business Affairs of OHEC,
1986 to 1994. Senior Vice President,
Business Affairs, Orion Pictures
International, a division of the
Company, February 1993 to present.
John (Jay) Peckos 44 Senior Vice President, Distribution,
Orion Pictures Distribution
Corporation, July 1991 to present.
Senior Vice President, Distribution,
Orion Classics, a divison of the
Company, April 1994 to present. Senior
Vice President, Motion Pictures
Theatrical Distribution, MGM/UA
Distribution Corporation, August 1984
to June 1991.
Silvia Kessel 43 Executive Vice President of the Company
since January 1993. Senior Vice
President of the Company from June 1991
to November 1992. President of Kluge &
Company from January 1994 to the
present. Managing Director of Kluge &
Company from April 1990 to January
1994. Senior Vice President of
Metromedia Company from February 1994
to present. Vice President of
Metromedia Company from 1988 to April
1990. Assistant Vice President of
Metromedia Company from 1985 to 1988.
Leonard White 54 President and Chief Executive Officer
of the Company since November 1992.
Interim President and Chief Executive
Officer of the Company from March 1992
to November 1992. Chairman of the
Board and Chief Executive Officer of
OHEC since March 1991. President and
Chief Operating Officer of Orion Home
Video, a division of OHEC, from March
1987 to March 1991.
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There are no family relationships between or among any of the executive
officers of the Company. Several of the Company's executive officers also
serve as officers and/or directors of one or more subsidiaries of the
Company.
Item 2. Properties
During fiscal 1993, the Company relocated its headquarters from New York
City to Los Angeles, where it currently leases approximately 42,614 square
feet of office space at 1888 Century Park East under a lease expiring
November 30, 1996. The annual base rental for such office space is
approximately $732,000 during the term. This facility houses the
executive offices of the Company, OPDC and OHEC, as well as the Company's
Orion Television Entertainment and Orion Classics divisions and OPDC's Los
Angeles sales office.
Also during fiscal 1993, the Company relocated its principal
international operations and OPDC's New York sales office to 304 Park
Avenue South, New York, New York, where it leases approximately 7,315
square feet of office space under a lease expiring December 31, 1997, at
a current annual base rental of approximately $122,000. In addition to
the sales office facilities in New York City and Los Angeles, OPDC
currently leases sales offices in Dallas, Texas.
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Item 3. Legal Proceedings
1. The Chapter 11 Cases
As noted above, on December 11 and 12, 1991, the Company and 37 of its
subsidiaries filed petitions for relief under chapter 11 in the Court.
The cases were referred to the Honorable Burton R. Lifland, Chief United
States Bankruptcy Judge of the Court. Pursuant to the Bankruptcy Code,
the Company was authorized to operate its business and manage its
properties as a debtor-in-possession.
The Company filed its schedules of assets and liabilities and statement
of financial affairs with the Court. The bar date for filing proofs of
claim in the Company's chapter 11 case was May 29, 1992. The bar date for
the filing of administrative claims was September 3, 1992.
The Company filed its "Debtors' Joint Consolidated Plan of
Reorganization" with the Court on July 13, 1992 (as amended on July 24,
1992, August 7, 1992, September 3, 1992 and October 20, 1992) (the "Plan")
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 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). On
November 5, 1985, the Company and one of its television production
subsidiaries were served with the complaint in a lawsuit filed in the
United States District Court for the Central District of California
against certain individuals and entities involved in the production and
financing of the Company's television series "CAGNEY & LACEY". On August
29, 1990, after trial in the Superior Court, a jury found in favor of the
plaintiffs on the contract claims, awarding damages against the Company
in the amount of $758,978 (plus interest at 7% per annum). The trial
judge had dismissed all of plaintiffs' other claims prior to submission
of the case to the jury. The Court entered judgment on the jury's verdict
on October 30, 1990, after a hearing on defendants' post-trial motions for
judgment notwithstanding the verdict or for a new trial.
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On December 28, 1990, the Company appealed. Plaintiffs had previously
noticed an appeal from the trial court's judgment. No briefs were filed
in the appeals, which were stayed by the Company's bankruptcy. A claim
has been filed in the amount of $932,599.10, which amount included
interest on the judgment through the Petition Date. The proof of claim
has been "amended" to seek $3,932,569.20. The original claim was filed
on June 2, 1993, four days after the claim bar in bankruptcy. Thereafter,
the matter was scheduled for estimation before the Honorable Burton R.
Lifland, Chief Judge, and limited discovery including deposition discovery
has been conducted.
Chief Judge Lifland 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 adjourned claim estimation
hearing date is scheduled for June 22, 1994. Settlement negotiations are
ongoing.
Hemdale Film Corporation v. Orion Pictures Corporation, (Los Angeles
County Superior Court, Case No. RCO12594). On October 12, 1990, plaintiff
Hemdale Film Corporation ("Hemdale") filed this action against the Company
in Superior Court for Los Angeles County, alleging various breaches of the
agreements between plaintiff and the Company for distribution of the
motion pictures "PLATOON," "HOOSIERS," and "THE TERMINATOR." 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. The Company also asserted various affirmative defenses, and
filed a cross-complaint for certain declaratory relief. The action was
in the discovery stage on the Petition Date. 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 has
been adjourned in the Court until July 7, 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). Plaintiffs in this action against the Company
are the service companies for the producer, the writer and director, a
principal cast member, and the special effects coordinator of the motion
picture "THE TERMINATOR." In a complaint filed in Superior Court for Los
Angeles County on October 16, 1990, plaintiffs alleged claims for breach
of contract, breach of fiduciary duty, and fraud against co-defendant
Hemdale (but not the Company) arising out of certain agreements for the
production of "THE TERMINATOR." In a count against the Company,
plaintiffs alleged that they were third-party beneficiaries of certain
agreements between Hemdale and the Company. Plaintiffs seek an accounting
from the Company under the previously mentioned agreements as well as
compensatory, exemplary and punitive damages in unspecified amounts
against both defendants. A claim has been filed in the amount of
$249,835.00, to which the Company has objected. Plaintiffs have served
the Company with a response to its objection to their proof of claim, and
an estimation hearing is currently scheduled for July 7, 1994.
Paradise Films, Inc. v. Orion Pictures Corporation and Orion Pictures
Distribution Corporation, (Los Angeles County Superior Court, Case No. BC
038330). On September 25, 1991, Paradise Films ("Paradise"), previously
known as Dino De Laurentiis Corporation ("DDLC") brought suit against the
Company alleging that the Company had breached an Agreement it had entered
into with DDLC concerning the production, financing and distribution of
the motion picture "AMITYVILLE II: THE POSSESSION." Paradise alleged
that the Company had failed to distribute and failed to make any efforts
to distribute the subject film in syndicated television, failed to account
properly for syndication revenue and caused Paradise not to receive its
portion of Gross Receipts from the film. Paradise sought rescission, or
alternatively, damages in an amount to be proved at trial. The Company
denied the Paradise allegations in its Answer, arguing that the Company's
actions were fully in accordance with the agreement that the Company had
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with Paradise, and that the remedies sought by Paradise were not available
pursuant to the agreement that it had with the Company. Paradise filed
a proof of claim for an unliquidated amount based on its allegation in its
complaint. The Company has objected to Paradise Films' proofs of claim
and an estimation hearing has been scheduled for July 7, 1994. Settlement
discussions are ongoing.
Sharon Badal v. Orion Pictures Corporation, (United States District
Court, Southern District Court, Southern District of New York, Case No.
91 Civ. 4288). On June 24, 1991, plaintiff brought an action against the
Company under Title VII of the Civil Rights Act, alleging that she was
constructively discharged from her employment with the Company due to
sexual discrimination on the part of certain other Company employees, and
requested damages in the amount of $300,000.00. On July 9, 1991, the
Company answered, denying all charges. Plaintiff has filed a proof of
claim based on her Title VII action in the amount of $300,000.00. The
Company has objected to these proofs of claim, and the estimation hearing
has been scheduled for July 7, 1994.
James L. Sharmat v. Orion Pictures Corporation, et al.0, (Los Angeles
County Superior Court, Case No. SC 009599). On June 21, 1991, plaintiff
brought an action against the Company alleging, inter alia, that he had
not received monies due under a contract between plaintiff and the
Company, pursuant to which plaintiff allegedly provided certain bridge
financing to the Company for the production of the motion picture, "THE
EARTHLING." Among other relief, he claimed damages in the amount of
$286,209.84, plus interest. In its answer, filed on or about August 19,
1991, the Company denied the plaintiff's claims, arguing inter alia, that
there was no evidence that the subject contract existed, or that
plaintiff's alleged investment was ever made. Plaintiff has filed a proof
of claim in the amount of $286,209.84 plus interest based on his alleged
participation in the subject film.
On October 9, 1992, the Company objected to the related proofs of claim
filed by James L. Sharmat, Stephen W. Sharmat and Westchester Productions,
Inc. and indicated that the date of the claims estimation hearing was to
be announced by a subsequent notice. An estimation hearing is currently
scheduled for July 7, 1994. Settlement discussions are ongoing.
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 Damon claim is a personal injury
claim that is the subject of the Damon Action. Damon served his complaint
(the "Damon Complaint") on or about October 9, 1991. On November 14,
1991, Defendants Orion Pictures Corporation and A.G.S. Realty Holding
Corporation were granted an extension of their time to answer, move
against or otherwise respond to the complaint, until December 16, 1992.
The Company's December 11, 1991 reorganization intervened, and no answer
was filed on behalf of Orion Pictures Corporation. However, an answer was
filed on behalf of AGS Realty Holding Corporation.
The claimed injury underlying the Damon Complaint allegedly occurred
during the filming of the motion picture "CADILLAC MAN." According to the
Damon Complaint, Damon, who was working on the set, was injured when a
sign allegedly fell on him after being dislodged by a helicopter that was
being used in the production. The Damon Complaint asserts that the
alleged injury was caused by the negligent, and/or willful conduct of the
defendants. The Company has objected to the Damon Claim and an estimation
hearing is scheduled for July 7, 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. On or about March 15, 1991, Bayer Cadillac served
the Company with a complaint alleging that "defendant(s), their agents,
servants, employees and representatives" breached a purported Location
Contract dated April 20, 1989 between Bayer Cadillac and defendant Cad Co.
Productions, Inc. ("Cad Co.") which allegedly provided for access to Bayer
Cadillac's premises for the filming of the movie "CADILLAC MAN."
Plaintiff further alleged that it was a holder in due course of checks
drawn on the account of Defendant Cad Co., but that payments made in
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connection with the Location Contract were stopped on said checks without
justification. Plaintiff asserted four causes of action for damages and
attorneys' fees totalling $318,330, plus interest, costs and
disbursements. On or about August 1, 1991, the Company and Cad Co
Productions, Inc. answered Bayer Cadillac's complaint, denying the
substantive allegations of the complaint pertaining to their alleged
liability. The proof of claim filed by Bayer Cadillac has since been
expunged on the basis that it was filed late.
Martha Reeves Enterprises, Inc., et al. v. Touchstone Pictures Music and
Songs, Inc., et al., (Wayne County Circuit Court, Michigan, Case No. 92-
217939). On or about June 26, 1992, plaintiffs brought an action against
a number of film production and distribution entities, including the
Company, alleging that each had used plaintiffs' name, voice and songs in
various films without permission, and without payment of fees or royalties
to plaintiffs. The proof of claim has since been expunged from the Court
on the grounds that it was a residual claim.
Bonny Dore v. Orion Pictures Corporation, et al., Case No. BC 023 709
(Super. Ct. of Cal., Los Angeles Co., complaint filed March 14, 1991)(the
"Dore Action"). Plaintiff brought the Dore Action against, inter alia,
Orion Pictures Corporation and Orion Television, Inc. Dore alleges that
she is entitled to a 16.25% participation of the net profits earned from
the sale and distribution of the mini-series "Glory! Glory!". In addition,
Dore alleges that she is entitled to a share of advances against net profits
earned, totaling $65,000.
Orion contends that no amounts are due under the relevant agreement (as
modified) or, alternatively, if any amounts are due, they are far less
than the amounts claimed by Dore given the modifications to the contract.
The Company has objected to Bonny Dore's proofs of claim. The parties have
signed and the Court has approved a Stipulation and Order of settlement which
provides, inter alia, that Bonny Dore shall receive an allowed claim in
Class 6 of the Plan in the amount of $65,000.
Antitrust and Similar Proceedings. OPDC is involved, together with
other theatrical distribution and/or exhibition companies, in four
proceedings in which it is alleged that OPDC has violated state and/or
federal antitrust laws (one of which was commenced post-petition). These
proceedings arise primarily as a result of conflicting interests between
distributors and exhibitors of theatrical motion pictures and have
occurred frequently in the motion picture industry for many years. These
proceedings seek compensatory and treble damages in large amounts, as well
as injunctive relief in certain instances. The aggregate actual damages
claimed against OPDC and other named defendants in these proceedings
exceed $5,000,000. In addition, one exhibitor has claimed punitive
damages. The Company believes that OPDC's actual liability, if any, would
be considerably less than the amounts claimed and would generally be
shared by other defendants.
11
<PAGE>
At least three proofs of claims were filed on behalf of parties alleging
that OPDC has violated state and/or federal antitrust laws. The proofs
of claim arise from allegations asserted in the following two lawsuits:
(i) 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); and (ii) 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 Company has objected
to the proofs of claim filed on behalf of The Movie and Joseph Soffer.
Counsel for the Company have been informed that the underlying litigation
has been settled. The Company's objection to the Soffer claim indicated
that the date of the claims estimation hearing is to be announced by a
subsequent notice. That hearing is presently scheduled for July 7, 1994.
David J. Corkill d/b/a Tiburon Playhouse, Plaintiff, v. Columbia
Pictures Entertainment, Inc. d/b/a/ Columbia Pictures, a California
Corporation, Tri-Star Pictures, Inc., a California Corporation, Paramount
Pictures Corporation, Paramount Pictures Corporation, a California
Corporation, New Line Cinema, a California Corporation, Pacific Theatres
Corporation, a California Corporation, Mann Theaters, a California
Corporation, and Does 1 through 30, inclusive, Defendants, Case No. 154330
(Super. Ct. of Cal.)(the "Corkill Action"). On or about August 6, 1992,
plaintiff David J. Corkill filed a "Complaint for Antitrust Damages and
Injunctive Relief" in the Superior Court for the State of California for
the County of Marin. In the complaint, Plaintiff alleges, inter alia,
that he exhibits movie films through Tiburon Playhouse. He further
contends that defendants have restrained trade in the distribution and
exhibition of industry anticipated top-grossing movie films in Marin
County, California and throughout the State of California. Plaintiff
further alleges that the defendants have entered into contracts in
restraint of trade as prohibited by Section 16600 of the California
Business and Professional Code (the "Code") and have engaged in the
operation of a Trust as defined in Section 16720 of the Code, in violation
of Sections 16722 and 16726 of the Code. The Company's counsel have
informed Plaintiff's counsel that commencement of the Corkill Action
against Orion violated, inter alia, the automatic stay provided in Section
362 of the Bankruptcy Code as well as a restraining order entered by the
Court. The Company's counsel have further informed Plaintiff's counsel
of the Company's position that the Confirmation Order, together with the
Reorganization Plan, permanently enjoin the pursuit of the Corkill Action
as against Orion and that any effort to proceed in any fashion against the
Company or its affiliates in the Corkill Action or otherwise will
constitute a violation of the Confirmation Order and will subject
Plaintiff and his representatives to the risk of contempt, damages and
sanctions for said violation.
3. Showtime Litigation
In September, 1986, the Company entered into an agreement with
Showtime/The Movie Channel, Inc. ("Showtime") which was subsequently
amended by various letter agreements (the "Showtime Agreement"). Pursuant
to the Showtime Agreement, Showtime was granted certain rights to exhibit
motion pictures and became obligated to tender substantial license fees
to the Company. On December 24, 1991, Showtime notified the Company that,
in its view, the April 1, 1991 changes in the Company's top management
positions resulted in a failure to comply with the key man provisions
contained in the Showtime Agreement and, therefore, Showtime was not
obligated to license certain motion pictures and pay license fees
therefor. On March 20, 1992, the Company filed a motion to assume the
Showtime Agreement (the "Motion to Assume"). In conjunction with the
Motion to Assume, the Company filed a complaint commencing an adversary
proceeding (the "Adversary Proceeding") seeking certain relief specifying
the parties' rights and obligations and seeking specific performance of
Showtime's obligations under the Showtime Agreement. Subsequent to the
hearing and trial on the Motion to Assume and on the Adversary Proceeding
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, inter alia, that the Company had complied with the
key man clause. The Court then dismissed the Adversary Proceeding, at the
Company's request, as moot.
12
<PAGE>
Showtime appealed the Showtime Order to the District Court, Honorable
John S. Martin, Jr., presiding. On December 8, 1992, the District Court
affirmed the decision of the Bankruptcy Court. Showtime appealed to the
United States Court of Appeals for the Second Circuit.
On April 30, 1993, Showtime commenced an action in California against
the Company (the "California Action") seeking a declaratory judgment that,
inter alia, Showtime had the right to offset up to $29,350,893 against any
future payments to Orion on the ground that Orion had certified that
certain films "qualified" as "Exclusive Pay Pictures" within the meaning
of the Agreement when the films did not, according to Showtime, so qualify
(the "Qualification Dispute"). The Company thereafter obtained a
preliminary injunction temporarily restraining Showtime's prosecution of
the California Action.
On September 17, 1993, the United States Court of Appeals for the Second
Circuit vacated the district court's judgment and remanded the matters for
further proceedings. On January 31, 1994, the Company filed a Petition
for Writ of Certiorari with the Supreme Court of the United States.
Before Showtime's opposition to the petition was due, the parties entered
into a settlement agreement (the "Settlement Agreement") which was
approved by the bankruptcy court on March 17, 1994 and which became
effective on March 29, 1994.
Pursuant to the Settlement Agreement, 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 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, vs. 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 27, 1992,
Plaintiff filed a verified complaint purporting to assert claims against
Metromedia Company and others derivatively on the Company's behalf.
Plaintiff did not serve the Company with the summons and complaint until
more than one year later on April 28, 1993. Plaintiff alleges that the
defendants together owned 70% of the Company's outstanding common stock
and that, during the relevant time period, defendants Kluge and Subotnick
were directors and officers of the Company. Plaintiff alleges that, as
majority shareholders and, in the case of defendants Kluge and Subotnick,
as officers and directors of the Company, defendants caused the Company
to sell film assets at a substantial loss in or about March, 1991.
Plaintiff seeks declaratory relief and damages for alleged intentional and
negligent breaches of fiduciary duties. Plaintiff also asserts claims for
abuse of control and waste of corporate assets. The Company timely
removed the Cooper Action to the United States Bankruptcy Court for the
Central District of California and promptly gained transfer of the action
to the United States Bankruptcy Court for the Southern District of New
York where its bankruptcy cases are being heard.
13
<PAGE>
On June 23, 1993, shortly before transfer of the Cooper Action to New
York, the Company commenced an adversary proceeding against Harvey Cooper,
individually, entitled Orion Pictures Corporation, et al., Plaintiff,
against Harvey Cooper, Defendant, Bankr. Adversary Proceeding No. 93-9188A
(Bankr. S.D.N.Y.) (the "Adversary Proceeding"). In that Adversary
Proceeding, the Company sought a declaratory judgment that Cooper is
barred from prosecuting the claims asserted in the Cooper Action by
operation of the Company's bankruptcy reorganization plan, the Court's
order confirming that plan, and the Bankruptcy Code. The Company
requested preliminary and permanent injunctive relief barring the pursuit
of the claims asserted in the Cooper Action.
On July 21, 1993, Cooper filed motions in the Adversary Proceeding
seeking: (a) dismissal of the proceeding; (b) certification of a
"defendant class" of holders of Old Orion common stock in the proceeding;
(c) disqualification of the Company's counsel; (d) disqualification of the
bankruptcy judge hearing the matter; (e) judgment on the pleadings against
the Company; and (f) post-confirmation "dismissal" of the Company's
petition for reorganization filed nearly two years earlier on December 11,
1991. On September 3, 1993, the Company sought summary judgment
dismissing the Cooper Action with prejudice on the ground that the claims
Cooper purports to assert on the Company's behalf were released by the
bankruptcy reorganization plan and the bankruptcy court order confirming
that plan. On September 13, 1993, the bankruptcy court released a
memorandum decision which denied the motions filed by Cooper in the
Adversary Proceeding, granted the Company's motion for summary judgment
dismissing the Cooper Action with prejudice, and directed the Company to
dismiss the Adversary Proceeding against Cooper as moot. Cooper appealed
the bankruptcy court determination to the United States District Court for
the Southern District of New York. Briefing before the district court
closed on February 15, 1994. The Company opposed Cooper's appeal and
moved to dismiss the appeal on the grounds that the substantial
consummation of the Plan rendered the matter moot and that Cooper lacks
standing to pursue the matter.
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. The time for Cooper
to appeal to the United States Court of Appeals for the Second Circuit has
not yet expired.
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 the
disputed claims will not have a material adverse effect on its
consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year
ended February 28, 1994 to a vote of the holders of the Company's Common
Stock, through the solicitation of proxies or otherwise. The Company
intends to file with the SEC not later than 120 days after the end of the
fiscal year ended February 28, 1994, the Proxy Statement for the 1994
Annual Meeting of Stockholders.
14
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Stock Prices and Dividends
Since the Effective Date, the Company's Common Stock, $.25 par value
(the "Common Stock"), has been traded in the over-the-counter market
and its quotations are reported in the National Market System ("NMS")
of the National Association of Securities Dealers, Inc. Automated
Quotation system ("NASDAQ") under the symbol ORPC. Prior to the
Effective Date, the Company's old Common Stock, $.25 par value (the "Old
Common Stock"), which has been exchanged for shares of Common Stock
pursuant to the Plan was traded on the New York, Pacific and Philadelphia
Stock Exchanges under the symbol OPC. As of June 7, 1994, there were 478
record holders of the Common Stock. The table below reflects the high and
low sales prices for the Old Common Stock as reported on the New York
Stock Exchange Composite Tape from March 1, 1992 through October 21, 1992
and the quarterly high and low transaction prices per share of the Common
Stock in the over-the-counter market from November 9, 1992 through June
7, 1994 as reported by NASDAQ/NMS. Prices for the Common Stock reflect
interdealer transactions without markup, markdown or commission.
High Low
Fiscal Year Ended February 28, 1993
First Quarter $ 3.25 $ 1.25
Second Quarter 2.22 1.00
Third Quarter (through October 21, 1992) 1.75 .31
Third Quarter (October 22, 1992 - November 8, 1992
traded only on a when issued basis) NA NA
Third Quarter (November 9, 1992 - November 30, 1992) 3.00 1.81
Fourth Quarter 3.63 2.00
Fiscal Year Ended February 28, 1994
First Quarter $ 3.25 $ 2.38
Second Quarter 7.88 2.06
Third Quarter 9.50 5.50
Fourth Quarter 7.13 5.25
Fiscal Year Ending February 28, 1995
First Quarter $ 7.00 $ 5.00
Second Quarter (through June 7, 1994) $ 5.00 $ 3.38
The Company historically has not paid any dividends on its Old Common
Stock or the Common Stock. See Note 7 of Notes to Consolidated Financial
Statements for a description of restrictions on the payment of dividends
on the Common Stock.
15
<PAGE>
Item 6. Selected Financial Data
The following table presents selected financial information for the
Company for each of the five fiscal years ended, and as of, February 28
(29), 1994, 1993, 1992, 1991, and 1990. The selected financial data for
each of the five fiscal years ended, and as of, February 28 (29), 1994,
1993, 1992, 1991, and 1990 are derived from and qualified in their
entirety by reference to the audited consolidated financial statements,
the most recent three years of which are included elsewhere herein, and
should be read in conjunction with such financial statements. Per share
amounts for the fiscal years ended in February, 1992, 1991, and 1990
reflect the impact of the recapitalization in fiscal 1993.
Selected Financial Data
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended in February, 1994 1993 1992 1991 1990
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $ 175,662 $ 222,318 $ 491,117 $ 507,304 $ 427,500
Income (loss) from continuing operations $ (125,196) $ (72,973) $ (280,832) $ (60,648) $ 6,884
Income (loss) from discontinued
television operations $ ---- $ ---- $ (31,239) $ (2,337) $ 8,172
Income (loss) before extraordinary gains $ (125,196) $ (72,973) $ (312,071) $ (62,985) $ 15,056
Net income (loss) $ (125,196) $ 250,240 $ (312,071) $ (62,985) $ 15,056
Income (loss) from continuing operations per share:
Primary $ (6.26) $ (11.29) $ (1,744.47) $ (409.97) $ 42.45
Fully diluted $ (6.26) $ (11.26) $ (1,755.38) $ (427.30) $ 42.26
Income (loss) before extraordinary gains per share:
Primary $ (6.26) $ (11.29) $ (1,938.50) $ (425.76) $ 93.84
Fully diluted $ (6.26) $ (11.26) $ (1,950.62) $ (443.75) $ 93.28
Net income (loss) per common share:
Primary $ (6.26) $ 38.70 $ (1,938.50) $ (425.76) $ 93.84
Fully diluted $ (6.26) $ 38.62 $ (1,950.62) $ (443.75) $ 93.28
Common and common equivalent shares entering
into computation of per-share amounts:
Primary 20,000 6,465 161 148 159
Fully diluted 20,000 6,479 160 142 160
Cash dividends per common share $ --- $ --- $ --- $ --- $ ---
BALANCE SHEET DATA
Total assets $ 508,014 $ 704,356 $ 856,950 $1,058,673 $ 984,806
Notes and subordinated debt $ 274,501 $ 325,158 $ 521,968 $ 510,894 $ 351,504
</TABLE>
See accompanying consolidated financial statements and notes thereto.
16
<PAGE>
Item 7. 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," (the "Plan")
with the Court on July 13, 1992 (as amended July 24, August 7, September
3 and October 20, 1992) and the related "Disclosure Statement for Debtors'
Joint Consolidated Plan of Reorganization" (the "Disclosure Statement")
with the Court on July 21, 1992 (as amended on July 24, August 7, 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 "Liquidity and Capital Resources" below.
For the year ended February 28, 1994 ("fiscal 1994"), the Company
recorded a net loss of $125,196,000 on revenues from continuing operations
of $175,662,000. During the years ended February 28, 1993 and February
29, 1992 ("fiscal 1993" and "fiscal 1992", respectively), the Company
recorded extraordinary gains of $323,213,000 resulting in net income of
$250,240,000 for fiscal 1993, and a net loss of $312,071,000 for fiscal
1992, on revenues from continuing operations of $222,318,000 and
$491,117,000, respectively. Losses from continuing operations during
fiscal 1994, 1993 and 1992 were $125,196,000, $72,973,000 and
$280,832,000, respectively.
The Company's results of continuing operations from year to year have
been substantially dependent on both the number of films released and on
the acceptance of the Company's current product by general audiences. The
Company released four films in fiscal 1992, three films in fiscal 1993,
and four films in fiscal 1994. These pictures performed poorly in the
domestic theatrical marketplace and did not generate sufficient gross
profit to maintain a profitable level of operations during those years.
The success of "DANCES WITH WOLVES" and "THE SILENCE OF THE LAMBS" during
fiscal 1992 and 1993 only partially mitigated these results. The
following paragraphs describe the most significant factors affecting the
company's results during this three year period.
During fiscal 1994, the Company wrote off additional amounts on a large
number of its previously released theatrical and television library titles
due to certain events that occurred during that year. Such writedowns,
which aggregated approximately $37,400,000 included certain amounts due
to: 1) the Showtime Settlement (which is more fully described in Note 6
of Notes to Consolidated Financial Statements in this Annual Report on
Form 10-K ("Note 6")) and 2) current market conditions that affected
management's estimates in the fourth quarter of fiscal 1994 of the future
revenue-generating potential of certain of the Company's theatrical and
television library product in the domestic free television market places.
In addition, including the effect of the Showtime Settlement described
above the Company recorded approximately $30,400,000 of writedowns to the
estimated net realizable value related to the four theatrical titles
released domestically during that year, "MARRIED TO IT", "THE DARK HALF",
"ROBOCOP 3" and "CAR 54, WHERE ARE YOU?" and approximately $26,800,000 of
additional provisions for losses on the five titles that remained
unreleased at February 28, 1994. These fiscal 1994 losses, approximately
$94,600,000 in total, had a significant effect upon the Company's reported
gross profit (loss) in fiscal 1994.
During fiscal 1993, the Company successfully emerged from its chapter
11 bankruptcy proceedings. Several significant adjustments were recorded
during that fiscal year to reflect this event in the Company's
consolidated financial statements, which resulted in the recognition of
an aggregate of $323,313,000 of extraordinary gains, before the effect of
income taxes. The Company recorded these adjustments and did not adopt
fresh-start reporting in accordance with the provisions of Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code," issued by the American Institute of Certified Public
17
<PAGE>
Accountants ("SOP 90-7"), as is more fully described in Note 2 of Notes
to Consolidated Financial Statements in this Annual Report on Form 10-K
("Note 2").
In addition, the Company realized a benefit of approximately $28,477,000
upon the contribution by the Company's majority shareholder and its
affiliate of a guarantee of bank borrowings, the contribution of the
majority shareholder and its affiliate of an interest in "MERMAIDS" and
the contribution by the majority shareholder and an affiliate of
$15,000,000 in cash for an aggregate of 50.1% of the equity interest in
the Company. As described in Note 2, the majority shareholder and its
affiliate owned in excess of 50% of the Company's common stock both before
and after the Effective Date of the Plan and, accordingly, this benefit
was credited directly to Paid-in surplus as a contribution to capital.
Furthermore, the Company incurred approximately $20,792,000 of costs
directly related to the chapter 11 proceedings during the year that
adversely affected results from continuing operations.
Also during fiscal 1993, the Company wrote off additional amounts on a
large number of its previously released theatrical and television library
titles due to certain events that occurred during that year. Such
writedowns, which aggregated approximately $18,000,000, included certain
amounts recorded due to: 1) the disappointing domestic video results in
fiscal 1993 for "SHADOWS AND FOG"; 2) the further recognition of the
impact of the lack of future production on the marketability of the
Company's library; and 3) current market conditions, that significantly
affected management's estimates in the fourth quarter of 1993 of the
future revenue-generating potential of certain of the Company's theatrical
and television library in the foreign pay and free television
marketplaces. In addition, the Company recorded approximately $8,100,000
of writedowns to estimated net realizable value during fiscal 1993 related
to the two theatrical titles initially released during that year, "ARTICLE
99" and "LOVE FIELD", and approximately $9,700,000 of additional
provisions for losses on the nine titles that remained unreleased at
February 28, 1993. These fiscal 1993 losses, $35,800,000 in total,
significantly impacted the amount of reported gross profit in fiscal 1993.
The Company's results of operations in fiscal 1992 reflect a series of
events that occurred during that year which were designed to restructure,
reorganize and recapitalize the Company in preparation for its continued
operation in the future. Three of these events had significant impacts
on the magnitude of the reported net loss in that year.
First, the Company determined at the close of the first quarter of
fiscal 1992 that it had insufficient capital to continue its television
production operations. The decision was made to discontinue the
development, financing, production and distribution of newly created made-
for-television product as of May 31, 1991. The Company recognized an
estimated loss on discontinuance of $18,917,000, at May 31, 1991 which
included the estimated loss from the abandonment of certain projects that
were in development at May 31, 1991, an adjustment at that date to reflect
certain inventory of released television programs at its estimated net
realizable value as a result of discontinuing the television operation and
a provision for expected operating losses during the phase-out period from
May 31, 1991 to approximately August 31, 1991.
In May 1991, the Company sought to restructure certain of its
outstanding indebtedness pursuant to certain offers (the "Exchange
Offers") which were made by the Company to all holders of its then
outstanding Subordinated Debentures. In August 1991, the Company
terminated the Exchange Offers and announced that it had reached a
tentative agreement in principle with a steering committee representing
certain of the Company's subordinated debtholders (the "Steering
Committee") and its majority stockholder with respect to a consensual
restructuring of the Company's capitalization. Such tentative agreement
in principle was subject to a number of conditions. On December 10, 1991,
continuing negotiations with the Steering Committee concerning the
resolution of certain of those conditions were terminated and, on December
11 and 12, 1991, the Company and certain of its subsidiaries filed
petitions for relief under the Bankruptcy Code in the Court. During the
period from March 1, 1991 to December 10, 1991, the Company incurred
approximately $6,629,000 of costs which were directly attributable to the
Exchange Offers and the subsequent tentative agreement in principle. In
connection with the development of the consensual restructuring negotiated
18
<PAGE>
with the Steering Committee, the Company decided during the quarter ended
August 31, 1991, to reorganize certain of its operating departments and
to relocate certain operating personnel from New York to Los Angeles.
Accordingly, a provision of $14,000,000 was recorded during that quarter
for related costs. See Note 3 of Notes to Consolidated Financial
Statements in this Annual Report on Form 10-K ("Note 3") for more
information about this provision.
The Company applied the provisions of SOP 90-7 to account for the
effects of operating in a chapter 11 environment beginning on the Filing
Date and the effects of redefining the business of the Company in
preparation for its emergence from chapter 11 upon consummation of the
Plan. Accordingly, the Company charged approximately $192,562,000 to
operations during the quarter ended February 29, 1992 as chapter 11
reorganization items. See Note 3 for further information concerning the
items comprising this charge to operations.
A significant number of the Company's titles released during the
previous nine-year period had been written down to estimated net
realizable value by February 28, 1991. The Company wrote off additional
amounts on a large number of these titles during fiscal 1992 due to
certain events that occurred during that year. Such writedowns, which
aggregated approximately $28,700,000, included certain amounts recorded
due to: 1) the disappointing foreign theatrical results in fiscal 1992 of
certain titles; 2) the completion in October 1991 of a renegotiation with
British Sky Broadcasting ("BSkyB") of the terms of the Company's
agreements with Sky Television plc and British Satellite Broadcasting; 3)
the disappointing domestic home video distribution in fiscal 1992 of
"ALICE"; 4) the recognition of current market conditions in France, which
conditions were brought to light by the negotiation of a pay television
licensing agreement in that territory; and 5) the continued re-evaluation
of the impact of current adverse market factors in the free television
marketplace in the United States. In addition, the Company recorded
approximately $20,000,000 of writedowns to estimated net realizable value
during fiscal 1992 related to theatrical titles initially released during
that year and approximately $17,000,000 of provisions for losses on its
then remaining unreleased titles. The above writedowns, $65,700,000 in
total, are exclusive of writedowns described above as Chapter 11
reorganization items and in Note 3.
19
<PAGE>
CONTINUING OPERATIONS
Revenues
The following table sets forth the sources of the Company's revenues
from continuing operations by market for each of the last three fiscal
years and serves as a basis for the analysis of fluctuations in revenues
that follows (in thousands):
Fiscal Years Ended in February, 1994 1993 1992
Theatrical Distribution $38,211 $48,598 $220,506
Television and Video Distribution:
Home video direct distribution 37,418 52,468 117,721
Home video subdistribution 12,245 12,192 20,604
Pay television 2,330 41,007 87,943
Free television and other 85,458 68,053 44,343
_______ _______ _______
Total television
and video distribution 137,451 173,720 270,611
_______ _______ _______
$175,662 $222,318 $491,117
________ ________ ________
________ ________ ________
Theatrical Revenues
The Company released four, three and four theatrical feature films in
the domestic market place in fiscal 1994, 1993 and 1992, respectively.
None of the films released in fiscal 1994 or 1993 were as successful as
"THE SILENCE OF THE LAMBS" or "DANCES WITH WOLVES" had been in earlier
periods including fiscal 1992 and, thus, theatrical revenues were
dramatically reduced in fiscal 1994 and 1993 when compared to amounts
recognized in fiscal 1992.
Only two of the Company's pictures, "ROBOCOP 3", and "THE DARK HALF"
exceeded $2,000,000 in theatrical revenues during fiscal 1994. Only one
of the Company's pictures, "THE ADDAMS FAMILY", exceeded $9,000,000 in
theatrical revenues during fiscal 1993. Revenues from "THE ADDAMS
FAMILY" were earned solely outside the United States and Canada.
"THE SILENCE OF THE LAMBS", which was released in fiscal 1991,
generated domestic and foreign theatrical revenues during fiscal 1992 in
excess of $92,700,000. "DANCES WITH WOLVES", which was also released in
fiscal 1991, contributed an additional $27,000,000 from theatrical
revenues earned in the United States and Canada (the Company acquired only
domestic rights in all media to this film) during that year. Four other
pictures earned from $12,000,000 to $21,000,000 in worldwide theatrical
revenues in fiscal 1992.
The Company released three pictures in the domestic theatrical
marketplace in March and April of 1994. The remaining two unreleased
pictures will be released during the second and third quarters of the
fiscal year ending February 28, 1995 ("fiscal 1995"). None of these five
pictures are expected to be as successful as "THE SILENCE OF THE LAMBS"
or "DANCES WITH WOLVES" had been in the theatrical marketplace in earlier
periods, as described above. Furthermore, as described above, the
Company's ability to produce or acquire additional product for theatrical
distribution is limited by the Plan. Accordingly, it is anticipated that
revenues from theatrical distribution of the Company's two remaining
unreleased films will be substantially earned during fiscal 1995 and the
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Company's theatrical revenues after this period will depend entirely on the
Company's ability to produce or to acquire additional product in
accordance with the provisions of the Plan.
Home Video Direct Distribution Revenues
All of the Company's home video direct distribution revenues are
contributed by Orion Home Video ("OHV"). Due partly to the decrease in
the number of theatrical releases in fiscal 1994, 1993 and 1992 from the
number of releases in earlier years, revenues from OHV in fiscal 1994 and
fiscal 1993 have been significantly reduced from fiscal 1992.
OHV distributed three of the Company's theatrical releases in the
domestic home video rental market in both fiscal 1994 and 1993 compared
to eight releases in fiscal 1992. In addition, OHV distributed two titles
from its Classics division in fiscal 1994, six Classics titles in fiscal
1993 and nine Classics titles in fiscal 1992. The distribution of certain
of the Company's theatrical titles in the domestic home video "sell-thru"
(i.e., lower priced) market through OHV accounted for a significant
portion of the Company's home video direct distribution revenues during
fiscal 1993, including approximately $13,500,000 attributable to "DANCES
WITH WOLVES."
Over 65% of the Company's fiscal 1994 OHV revenues were generated by
five titles in that year, including "THE DARK HALF" and "DANCES WITH
WOLVES", which produced revenues in excess of $8,000,000 and $6,200,000,
respectively. Over 80% of the Company's fiscal 1993 OHV revenues were
generated by four titles in that year, including $16,200,000, $10,300,000
and $9,500,000 which were generated by "DANCES WITH WOLVES," "LITTLE MAN
TATE" and "THE SILENCE OF THE LAMBS," respectively. Over 80% of the
Company's fiscal 1992 OHV revenues were generated by five releases in that
year, including "DANCES WITH WOLVES" and "THE SILENCE OF THE LAMBS" which
generated approximately $33,000,000 and $26,000,000, respectively.
The revenues earned by "DANCES WITH WOLVES" and "THE SILENCE OF THE
LAMBS" since they were first released in the domestic home video rental
market are among the largest generated in this market in the history of
the industry. The Company does not expect any of the titles that remain
to be released in this market to approach the success of these two titles.
Furthermore, the Company's reduced theatrical release schedule in fiscal
1992, 1993 and 1994 and limitations of the Plan with regard to the
investment in the production of new theatrical product, as described
elsewhere in this Annual Report on Form 10-K, are likely to continue to
have an adverse effect on future home video annual revenues.
Home Video Subdistribution Revenues
The Company's home video subdistribution revenue is primarily generated
in the foreign marketplace. Beginning in fiscal 1992, the Company's
foreign home video releases began to be distributed under the
subdistribution agreement with Sony Pictures Entertainment, Inc. ("Sony")
described below and in Notes 2 of Notes to Consolidated Financial
Statements. 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 agreement. Revenues recorded in fiscal
1994, 1993 and 1992 (approximately $8,000,000, $9,100,000 and $2,000,000,
respectively) 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.
Most of the Company's foreign home video revenues in fiscal 1992 were
recorded upon the initial availability in a number of foreign territories
of certain titles for which the Company received a substantial minimum
guaranteed fee in advance under three regional agreements entered into in
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March 1989. Revenues recorded under these types of agreements in fiscal
1992 included $5,000,000 which was contributed by "ROBOCOP 2."
Pay Television Revenues
During fiscal 1994, 1993, and 1992, three, five, and 11 titles,
respectively, first became available for exclusive exhibition in the pay
cable market under the Company's film licensing agreement, (the "Showtime
Agreement") with Showtime Networks Inc. ("Showtime"). Recognition of
revenues on all three fiscal 1994 titles and four of the five fiscal 1993
titles were deferred for the reason described below. The Company recorded
approximately $5,900,000, and $55,400,000 of license fees related to the
Showtime Agreement in fiscal 1993 and 1992, respectively.
Note 6 describes the terms of the settlement (the "Showtime
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. Revenues will begin to be recorded in the first quarter of
fiscal 1995 in accordance with the terms and conditions of the Showtime
Agreement. Note 6 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 6.
Pay television revenues in fiscal 1994 and 1993 would have included
approximately $17,600,000 and $17,400,000, respectively, of license fees
due under the Showtime Agreement, the recognition of which was deferred
until the dispute was resolved. The Showtime Settlement provides for
reduced license fees for the 16 pictures subject to the Key Man Dispute,
including an approximate $3,900,000 reduction to approximately $35,000,000
of the license fees that would have been recorded during fiscal 1994 and
1993 for the seven otherwise available pictures. In addition, the license
fees for the nine remaining pictures subject to the Key Man Dispute have
been reduced approximately $14,400,000 to approximately $28,200,000.
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. As a result of the Showtime
Settlement, the Company expects to record approximately $40,000,000 of
license fees in the quarter ending May 31, 1994.
During December 1988, the Company entered into an agreement with Sky
Television plc ("Sky Movies"), an affiliate of 20th Century Fox Film
Corporation which has merged with British Satellite Broadcasting ("BSB")
to form BSkyB, to license the pay television rights in the United Kingdom
to many of the Company's recent and current theatrical titles as well as
to over 150 of its library titles. During fiscal 1994, 1993, and 1992,
approximately $3,600,000, $9,500,000, and $10,600,000 respectively, of
revenues were recorded upon the initial availability to Sky Movies and BSB
of certain titles under these contracts. In addition, in November 1992,
the Company entered into an agreement with Mitsubishi Corporation
("Mitsubishi") to license the pay and free television rights in Japan to
many of the Company's recent and current theatrical titles as well as to
40 of its library titles. Approximately $5,000,000 of pay television
revenues were recorded under this contract during fiscal 1993.
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Free Television Revenues
A major source of the Company's revenues from syndication in the free
television market has been derived from the licensing in certain foreign
territories of free television rights to the Company's newer theatrical
titles. Revenues from this source, which generally begin to be recognized
two to four years after the initial domestic theatrical release of each
picture, were approximately $37,000,000, $34,200,000, and $30,900,000, in
fiscal 1994, 1993 and 1992, respectively. Major contracts in fiscal 1994
that contributed to revenues were with TV de Catalunya for rights in
Spain, Principal Network for rights in Italy and RTL Plus for rights in
Germany. In fiscal 1993, the most significant licensees were Mitsubishi
for rights in Japan, BBC for rights in the United Kingdom, and Cecchi Gori
for rights in Italy, Germany and Spain. In fiscal 1992, the most
significant licensees were the BBC for rights in the United Kingdom and
Cecchi Gori for rights in Italy, Germany and Spain.
Another major source of revenues in the free television market has been
derived from the licensing for a period of years in certain foreign
territories of free television rights to certain of the Company's pre-1982
library titles. Revenues from this source were approximately $2,200,000
in fiscal 1994, approximately $6,000,000 in fiscal 1993 and approximately
$1,000,000 in fiscal 1992.
Revenues from syndication in the free television market in the United
States and Canada increased from approximately $5,000,000 in fiscal 1992
to approximately $18,000,000 in fiscal 1993, and to approximately
$21,000,000 in fiscal 1994, including approximately $12,000,000 and
$15,000,000, in fiscal 1993 and 1994, respectively, of basic cable
revenues. The increase in fiscal 1993 and 1994 revenues can be attributed
to the initial availability of ten titles in fiscal 1993 and 12 titles in
fiscal 1994, licensed under the Company's 1989 agreement with Lifetime.
The Company periodically licenses its more successful theatrical titles
to the major networks in the United States. Revenues from this source
were approximately $23,200,000, $1,500,000, and $7,200,000, in fiscal
1994, 1993 and 1992, respectively. Significant revenues were recognized
during fiscal 1994 upon the availabilities of "DANCES WITH WOLVES" and
"THE SILENCE OF THE LAMBS" and, to a lesser extent, two other pictures.
Revenues were recorded upon the availabilities of "DIRTY ROTTEN
SCOUNDRELS", "MISSISSIPPI BURNING" and "BILL & TED'S EXCELLENT ADVENTURE"
in fiscal 1992. None of the Company's pictures first released after the
pictures mentioned above are expected to generate significant network
license fees.
Gross Profit (Loss)
The Company had gross profit (loss) (revenues less cost of rentals) of
($67,368,000) in fiscal 1994 compared to $7,506,000 in fiscal 1993 and
$45,472,000 in fiscal 1992. As in fiscal 1993, as described above, the
most significant contributions to the Company's fiscal 1994 gross profit
were derived from the continued distribution to the worldwide home video,
and foreign television marketplaces as well as the network availability
of "THE SILENCE OF THE LAMBS" and to a lesser extent, by the domestic home
video sell-thru distribution and the network availability of "DANCES WITH
WOLVES". Together these two pictures contributed approximately
$15,600,000 to fiscal 1994 gross profit. The contributions to gross
profit described above were more than offset by the effects of certain
adverse factors described below.
The most significant contributions to the Company's fiscal 1993 gross
profit were derived from the continued distribution to the foreign
theatrical, worldwide home video and the domestic pay cable marketplaces
of "THE SILENCE OF THE LAMBS" and, to a lesser extent, by the domestic
home video sell-thru distribution of "DANCES WITH WOLVES." Together,
these two pictures contributed approximately $23,100,000 to fiscal 1993
gross profit. The foreign theatrical and home video distribution of "THE
ADDAMS FAMILY", the domestic home video rental distribution of "LITTLE MAN
TATE", the domestic home video sell-thru distribution of "DIRTY ROTTEN
SCOUNDRELS" and the licensing in a number of foreign territories, as
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described above, of the television rights to certain of the Company's
older theatrical titles also contributed to gross profit in fiscal 1993.
The contributions to gross profit described above were offset, almost
entirely, by the effects of certain adverse factors described below.
The most significant contributions to the Company's fiscal 1992 gross
profit were earned by the distribution to the worldwide theatrical and
domestic home video marketplaces of "THE SILENCE OF THE LAMBS" and by the
distribution to the domestic theatrical, home video and pay cable markets
of "DANCES WITH WOLVES". Together, these two pictures contributed
approximately $86,000,000 to fiscal 1992 gross profit. Lesser
contributions were derived from the foreign home video and domestic pay
cable distribution of "ROBOCOP 2", the domestic theatrical distribution
of "LITTLE MAN TATE" and the foreign theatrical distribution of "THE
ADDAMS FAMILY." These contributions to fiscal 1992 gross profit were also
offset, in part, by the effects of certain adverse factors described
below.
The fiscal 1994 results included writedowns to estimated net realizable
value of the carrying amounts of "MARRIED TO IT", "THE DARK HALF",
"ROBOCOP 3", and "CAR 54, WHERE ARE YOU?", all of which were released in
the domestic marketplace during that year as well as increases to previous
provisions for losses on the Company's remaining unreleased titles. In
addition, the fiscal 1994 results were adversely affected by the
writedowns due to the Showtime Settlement more fully described above and
in Note 6. Furthermore, as a result of the Company's quarterly inventory
reviews, described below, current market conditions in the domestic free
television market affected management's estimate of the future revenue-
generating potential of the Company's product in this market.
The fiscal 1993 results included writedowns to estimated net realizable
value of the carrying amounts of "ARTICLE 99" and "LOVE FIELD", both of
which were released during that year, as well as increases to previous
provisions for losses on certain of the Company's then unreleased titles.
The fiscal 1993 results were also adversely affected by further writedowns
to estimated net realizable value of "SHADOWS AND FOG", as described
below. In addition, as a result of the Company's quarterly inventory
reviews, described below, changed market conditions, as well as the
restrictions within the Plan concerning the production of new product,
significantly affected management's estimate of the future revenue
generating potential of the Company's product in the foreign pay and free
television marketplaces. During fiscal 1993, the Company concluded
negotiations with several customers which demonstrated the reduced demand,
and consequently, reduced pricing for the Company's product in these
markets.
The fiscal 1992 results included writedowns to estimated net realizable
value of the carrying amounts of "SHADOWS AND FOG," "MYSTERY DATE," "F/X
2" and "BILL & TED'S BOGUS JOURNEY," all of which were released during
that year, as well as writedowns on certain of the company's then
unreleased titles.
The Company performs quarterly comprehensive reviews of its inventory
of film product. In the process of performing these reviews, the Company,
where appropriate, has written down the carrying amount of certain
released titles to estimated net realizable value and recorded provisions
for losses on unreleased titles. Such writedowns, in fiscal 1994 totalled
approximately $94,600,000 compared to $35,800,000 in fiscal 1993 and
approximately $65,700,000 in fiscal 1992. Such writedowns for fiscal 1994
included an aggregate of $76,000,000 attributed to the effect of the
Showtime Settlement described above, the disappointing release of four
pictures during the current fiscal year, and additional provisions on the
five pictures to be released after February 28, 1994. See the
introductory section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" above. In addition, for reasons
described above and in previous publicly-filed documents, approximately
three-quarters of the Company's film inventories are stated at estimated
net realizable value and do not generate gross profit upon the recognition
of revenues. This has adversely affected gross profit recognized
beginning in fiscal 1992 and continues to adversely affect reported
amounts of gross profit when compared to previous periods.
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Selling, General and Administrative Expense
The Company's selling, general and administrative expense decreased 29%
(approximately $8,815,000) from fiscal 1993 to fiscal 1994, and decreased
51% (approximately $31,900,000) from fiscal 1992 to fiscal 1993.
Approximately $5,800,000 of the decrease in fiscal 1994 is attributed to
reduced personnel costs, as well as from rejections and renegotiations of
various operating leases. Approximately $19,000,000 of the decrease in
fiscal 1993 is attributable to reduced personnel costs, as a result of
continued extensive layoffs and voluntary terminations during that year,
as the Company reorganized under the Plan.
Interest Expense
Interest expense increased from approximately $23,500,000 in fiscal
1993 to approximately $32,300,000 in fiscal 1994. Interest expense (net
of capitalized interest) decreased from approximately $46,300,000 in
fiscal 1992 to approximately $23,500,000 in fiscal 1993. Such increases
and decreases are largely due to the impact of applying SOP 90-7 to
accounting for interest related to the Company's subordinated notes and
debentures. In accordance with the requirements of SOP 90-7, the Company
did not accrue interest on these securities during the Bankruptcy Period.
Interest expense for fiscal year 1994 includes 12 months or approximately
$24,300,000 of expenses recognized related to the Company's 10%
Subordinated Debentures, Talent Notes, Creditor Notes, the payment
obligation to Sony and the guarantee of bank borrowings (collectively,
"the New Debt Structure"). Whereas fiscal 1993 included only four months
or approximately $8,600,000 of New Debt Structure interest. Approximately
$17,300,000 and $6,100,000 of the above amounts in fiscal 1994 and 1993,
respectively, resulted from the amortization of discounts and the carrying
amount of the guarantee of bank borrowings described in Note 2. Annual
interest expense is expected to decrease as the Company makes payments
with respect to amounts outstanding under its various securities.
There was no interest capitalized to inventory in fiscal 1994 and 1993,
as there was no production. Interest capitalized to inventory in fiscal
1992 was approximately $6,600,000. The weighted average per annum cost
of funds borrowed under the bank credit agreement was approximately 5% in
fiscal 1994, 6 3/4% in fiscal 1993, and 8 1/2% in fiscal 1992. The cost
of funds in fiscal 1994 is attributed to the Company's usage of its
Eurodollar Rate option under the Third Amended and Restated Credit
Agreement dated as of October 20, 1992.
Provision for Income Taxes
The provisions for income taxes for fiscal 1994, 1993, and 1992 are
comprised primary of provisions for foreign withholding and remittance
taxes incurred. The provision for income taxes for fiscal 1992 reflects
a reduction of reserves established in previous periods for certain state
taxes resulting from an assessment by the State of California Franchise
Tax Board, based upon a settlement of such assessment for an amount less
than previously estimated. Additional information regarding the Company's
income tax accounts can be found in Note 9 of Notes to Consolidated
Financial Statements.
Effective March 1, 1993, the Company adopted the Statement of
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.
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DISCONTINUED OPERATIONS
Revenues of the Company's discontinued television operations for fiscal
1992 were $38,562,000. Losses aggregating approximately $10,600,000 were
recorded in fiscal 1992 from the production and delivery of four episodes
of "EQUAL JUSTICE" to ABC, three episodes of "W.I.O.U." to CBS and four
episodes of "AMERICAN DETECTIVES" to ABC, and from the production of three
pilots for the 1991-1992 network television season.
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 March and April 1994, 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 6, 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.
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The Plan is extremely complex and the summary presented below contains
only a brief synopsis of the compromises and benefits granted pursuant to
the Plan and is qualified in its entirety by reference to the Plan. The
reader should refer to the Plan to obtain a more thorough understanding
of the provisions of the Plan and for precise definitions of capitalized
terms in the summary presented below. The Plan represents a compromise
and settlement reached among the Company's principal creditor
constituencies, most of which relinquished, upon confirmation of the Plan,
potential legal and equitable arguments in exchange for the treatment and
certainty provided by the Plan.
Under the Plan, the Company's senior secured creditors (the Banks and
Sony) are sharing 85% of the reorganized Company's Net Cash Flow. The
Plan permits certain unsecured creditors (including holders of certain 10%
Subordinated Debentures that were issued pursuant to the Plan as described
below) to receive, on a pari passu basis with the senior secured
creditors, the remaining 15% of Net Cash Flow. After payment in full of
the Allowed Claims of the Banks (and Metromedia and its Affiliate, if they
shall become subrogees under the Bank Guarantee) and Sony, 100% of Net
Cash Flow will be paid to the holders of such unsecured Allowed Claims.
After payment of the Talent Notes, holders of the Creditor Notes and the
10% Subordinated Debentures issued pursuant to the Plan, as described
below, will share 100% of Net Cash Flow.
Under the Plan, the holders of Guild Claims and Participation Claims
reduced by 17% their Allowed Prepetition Residual Claims and Allowed
Preconfirmation Participation Claims, respectively, in exchange for Talent
Notes, which are payable currently out of a portion of Net Cash Flow not
required to be paid to the Banks and Sony; holders of Allowed Postpetition
Residual Claims will be or have been paid in full with respect to such
Claims. The holders of most of the other Unsecured Claims, have or will
receive Creditor Notes, which are also payable currently out of a portion
of Net Cash Flow not required to be paid to the Banks and Sony.
Additional Creditor Notes will be issued in accordance with the Plan as
and when Disputed Unsecured Claims become allowed.
Under the Plan, the holders of the Company's subordinated notes and
debentures outstanding at the Filing Date received an aggregate of
$50,000,000 initial principal amount of 10% Subordinated Debentures due
October 31, 2001 of the reorganized Company, payable out of the portion
of Net Cash Flow not otherwise payable to the Banks and Sony as described
above, as well as 49% of the equity of the reorganized Company. The
holders of the Company's previously outstanding Series B Preferred Stock
and common stock received, in the aggregate, 0.1% and 0.8%, respectively,
of the common stock of the reorganized Company. Metromedia and its
affiliate have received an aggregate of 50.1% of the common stock of the
reorganized Company in exchange for $15,000,000, a guarantee of the bank
borrowings of the reorganized Company and a contribution of all rights in
respect of a letter agreement dated November 28, 1990 between the Company
and an affiliate of Metromedia (the "MetMermaids Rights").
For a period of five years from the Effective Date, the Company's By-
laws provide that the Company 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
27
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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 (the "Plan Debt") 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 7 of
Notes to Consolidated Financial Statements ("Note 7"), 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 Plan obligations discussed below
in the fiscal year ended February 29, 1996 ("fiscal 1996").
As described in Note 7, 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
payments 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 7, 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 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
28
<PAGE>
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 contain 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.
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 non-recourse
financing. In order to further exploit its existing distribution apparatus,
the Company will continue to actively seek to attract the requisite
non-recourse 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 non-recourse financing for the production of new product,
which the Company is also permitted to engage in under the Plan on a
non-recourse basis or through certain unrestricted subsidiaries. If the
Company is successful in obtaining such nonrecourse financing as describe
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.
29
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item
are included in Item 14 of this Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
30
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
See statement below.
Item 11. Executive Compensation
See statement below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See statement below.
Item 13. Certain Relationships and Related Transactions
See statement below.
Statement
The information called for by this PART III (Items 10, 11, 12 and 13)
is not set forth herein because the Company intends to file with the SEC
not later than 120 days after the end of the fiscal year ended February
28, 1994, the Proxy Statement for the 1994 Annual Meeting of Stockholders,
except that the information regarding the Company's executive officers
called for by Item 10 has been included in Part I of this Annual Report
on Form 10-K under the caption "Executive Officers of the Company". Such
information to be included in the Proxy Statement is hereby incorporated
into these Items 10, 11, 12 and 13 by this reference.
31
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) and (a)(2) Financial Statements and Schedules
The financial statements and schedules listed in the accompanying Index
to Financial Statements are filed as a part of this Annual Report on Form
10-K.
(a)(3) Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as a
part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on March 29, 1994
reporting that it had reached an agreement on the terms of a Stipulation
and Order Settling Litigations and Disputes and certain related agreements
with Showtime Networks Inc. to settle the litigation between the parties
arising out of their 1986 exclusive pay television output agreement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Leonard White
Name: Leonard White
Title: President and
Chief Executive Officer
Dated: June 15, 1994
32
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Leonard White President and Chief June 15, 1994
Leonard White Executive Officer
(Principal Executive
Officer) and Director
/s/ Cynthia A. Friedman Senior Vice President June 15, 1994
Cynthia A. Friedman and Chief Financial
Officer (Principal
Financial and
Accounting Officer)
/s/ John W. Kluge Director June 15, 1994
John W. Kluge
/s/ Silvia Kessel Director June 15, 1994
Silvia Kessel
/s/ Joel R. Packer Director June 15, 1994
Joel R. Packer
/s/ Michael I. Sovern Director June 15, 1994
Michael I. Sovern
/s/ Raymond L. Steele Director June 15, 1994
Raymond L. Steele
/s/ Stuart Subotnick Director June 15, 1994
Stuart Subotnick
/s/ Arnold L. Wadler Director June 15, 1994
Arnold L. Wadler
/s/ Stephen Wertheimer Director June 15, 1994
Stephen Wertheimer
33
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.1+ - Debtors' Third Amended Joint Plan of Reorganization filed
with the United States Bankruptcy Court for the Southern
District of New York on September 3, 1992 (filed by
incorporation by reference to Exhibit ___ to the Company's
Current Report on Form 8-K dated November 5, 1993
3.1(a)+ - Restated Certificate of Incorporation of Orion Pictures
Corporation filed with the State of Delaware on November
5, 1992 (filed by incorporation by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 1993 (the "November 30,
1992 Form 10-Q")
3.2+ - Amended and Restated By-Laws of the Company (filed by
incorporation by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
May 31, 1993 (the "May 31, 1993 Form 10-Q")).
4.1(a)+ - Indenture with respect to the Company's Talent Notes due
1999 (filed by incorporation by reference to Exhibit 4.1(a)
to the November 30, 1992 Form 10-Q)
4.1(b)+ - Indenture with respect to the Company's Creditor Notes due
1999 (filed by reference to Exhibit 4.1(b) to the November
30, 1992 Form 10-Q)
4.1(c)+ - Indenture with respect to the Company's 10% Subordinated
Debentures due 2001 (filed by incorporation by reference
to Exhibit 4.1(c) to the November 30, 1992 Form 10-Q)
10.1(a)+ - Collateral Trust Agreement, dated as of October 20, 1992,
among the Company, Bankers Trust Company, the Collateral
Trustees, Chemical Bank, United States Trust Company of New
York, Sony Pictures Entertainment, Inc. and Metromedia
Company (the "Collateral Trust Agreement") (filed by
incorporation by reference to Exhibit 10.1 to the November
30, 1992 Form 10-Q)
10.1(b)+ - Amendment No. 1 to the Collateral Trust Agreement dated as
of December 4, 1992
10.2+ - Lease dated December 1, 1992 between JMB/1888 Partners and
the Company with respect to space at 1888 Century Park
East, Los Angeles, CA 90067
10.3+ - Reimbursement Agreement, dated as of October 20, 1992,
among the Company, Metromedia Company and John Kluge (filed
by incorporation by reference to Exhibit 10.3 to the
November 30, 1992 Form 10-Q)
34
<PAGE>
Exhibit
Number Description
10.4(a)+ - Stock Purchase Agreement, dated as of September 18, 1992,
among the Company, Metromedia Company and John W. Kluge
(filed by incorporation by reference to Exhibit 10.4(a) to
the November 30, 1992 Form 10-Q)
10.4(b)+ - Amendment No. 1 to the Stock Purchase Agreement dated as
of September 18, 1992, dated as of October 15, 1992, by the
Company, Metromedia Company and John W. Kluge (filed by
incorporation by reference to Exhibit 10.4(b) of the
November 30, 1992 Form 10-Q)
10.4(c)+ - Employment Agreement dated as of July 1, 1987 between the
Company and Rochel S. Blachman (filed by incorporation by
reference to Exhibit 10.4(l) to the 1988 10-K)
10.4(d)(1)+ - Employment Agreement dated as of March 1, 1988 between the
Company and Wendy Smith Stover (filed by incorporation by
reference to Exhibit 10.4(j) to the 1988 10-K)
10.4(d)(2)+ - Amendment dated as of March 1, 1990 to Employment Agreement
between the Company and Wendy Stover (filed by
incorporation by reference to Exhibit 19.6 to the Company's
Quarterly Report on form 10-Q for the quarter ended May 31,
1990, Commission File No. 1-8979 (the "May 1990 10-Q"))
10.4(e)+ - Heads of Agreement relating to the employment by the
Company of Gary Nardino (filed by incorporation by
reference to Exhibit 10.4(l) to the 1989 10-K)
10.4(f)+ - Amendment dated as of March 1, 1990 to Employment
Agreement between the Company and Arthur B. Krim (filed by
incorporation by reference to Exhibit 19.1 to the May 1990
10-Q)
10.4(g)+ - Amendment dated as of March 1, 1990 to Employment Agreement
between the Company and Eric Pleskow (filed by
incorporation by reference to Exhibit 19.2 to the May 1990
10-Q)
10.4(h)+ - Amendment dated as of March 1, 1990 to Employment
Agreement between the Company and William Bernstein (filed
by incorporation by reference to Exhibit 19.3 to the May
1990 10-Q)
10.4(i)+ - Amendment dated as of March 1, 1990 to Employment
Agreement between the Company and Marc E. Platt dated as
of November 4, 1988 (filed by incorporation by reference
to Exhibit 19.4 to the May 1990 10-Q)
10.4(j)+ - Amendment dated as of March 1, 1990 to Employment
Agreement between the Company and John Laing dated as of
February 6, 1989 (filed by incorporation by reference to
Exhibit 19.5 to the May 1990 10-Q)
10.4(k)+ - Amendment dated as of June 1, 1990 to Employment Agreement
between the Company and Lawrence Bernstein dated as of
February 1, 1988 (incorporated by reference to Exhibit
19.7 to the May 1990 10-Q)
35
<PAGE>
Exhibit
Number Description
10.4(l)+ - Employment Agreement between the Company and David M.
Forbes dated as of February 26, 1990 (filed by
incorporation by reference to Exhibit 19.8 to the May 1990
10-Q)
10.4(m)+ - Employment Agreement between the Company and Neil R.
McCarthy dated as of April 20, 1990 (filed by
incorporation by reference to Exhibit 19.9 to the May 1990
10-Q)
10.4(n)+ - Agreement dated as of February 21, 1992, by and between
the Company and William Bernstein
10.4(o)+ - Restated Employment Agreement dated as of March 1, 1992,
between the Company and Leonard White
10.4(p)+ - Agreement dated as of April 27, 1992, by and between the
Company and Arthur B. Krim
10.4(q)+ - Agreement dated as of April 27, 1992, by and between the
Company and Eric Pleskow
10.4(r)+ - Agreement dated as of December 1992, by and between the
Company and Leonard White
10.4(s)+ - Agreement dated as of December 1992, by and between the
Company and John W. Hester
10.4(t)+ - Termination Agreement dated as of December 1992, by and
between the Company and Rochel S. Blachman
10.5(a)+ - Credit Agreement dated as of December 17, 1987 (the
"Credit Agreement") among Orion Pictures Corporation and
Manufacturers Hanover Trust Company, as agent and as a
Bank, the Bank of Nova Scotia, Chemical Bank, Security
Pacific National Bank, Continental Illinois National Bank
and Trust Company of Chicago, First National Bank of
Minneapolis, and National Bank of Canada (filed by
incorporation by reference to Exhibit 19.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1987)
10.5(b)+ - Amendment No. 1 dated as of June 1, 1988 to the Credit
Agreement (filed by incorporation by reference to Exhibit
19.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1988)
36
<PAGE>
Exhibit
Number Description
10.5(c)+ - Amendment No. 2 dated as of August 17, 1988 to the Credit
Agreement (filed by incorporation by reference to Exhibit
19.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1988)
10.5(d)+ - Amendment No. 3 dated as of October 17, 1988 to the Credit
Agreement (filed by incorporation by reference to Exhibit
19.1 to the November 1988 10-Q)
10.5(e)+ - Amendment No. 4 dated as of March 10, 1989 to the Credit
Agreement (filed by incorporation by reference to Exhibit
10.5(e) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1989, Commission File
No. 1-5979)
10.5(f)+ - Amendment No. 5 dated as of May 31, 1989 to the Credit
Agreement (filed by incorporation by reference to Exhibit
19.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 31, 1989, Commission File No.
1-5979)
10.5(g)+ - Waiver dated as of August 18, 1989 to the Credit Agreement
(filed by incorporation by reference to Exhibit 19.1 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1989, Commission File No. 1-5979)
10.5(h)+ - Amended and Restated Credit Agreement dated as of
September 27, 1989 among the Company, Manufacturers
Hanover Trust Company, as Agent and as a Bank and the Bank
of Nova Scotia; Chemical Bank, Security Pacific National
Bank; Continental Bank, N.A.; First Bank, National
Association; and National Bank of Canada (the "Amended and
Restated Credit Agreement") (filed by incorporation by
reference to Exhibit 19.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August
31, 1989, Commission File No. 1-5979)
10.5(i)+ - First Amendment and Waiver dated as of November 15, 1989
to the Amended and Restated Credit Agreement (filed by
incorporation by reference to Exhibit 19.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1989, Commission File No.
1-5979)
10.5(j)+ - Second Amendment and Restated Credit Agreement dated as of
July 27, 1990, among the Company, Manufacturers Hanover
Trust Company, as Agent and as a Bank, and Chemical Bank;
the Bank of Nova Scotia; Security Pacific National Bank;
Continental Bank, N.A.; National Bank of Canada; Bank of
America National Trust and Savings Association; the Bank
of California; and Union Bank (the "Second Amended and
Restated Credit Agreement") (filed by incorporation by
reference to Exhibit 19.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August
31, 1990, Commission File No. 1-5979 (the "August 1990
10-Q"))
10.5(k)+ - First Amendment dated as of September 20, 1990 to the
Second Amended and Restated Credit Agreement (filed by
incorporation by reference to Exhibit 19.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1990, Commission File No.
1-5979 (the "November 1990 10-Q"))
37
<PAGE>
Exhibit
Number Description
10.5(l)+ - Waiver dated as of December 11, 1990 to the Second Amended
and Restated Credit Agreement (incorporated by reference
to Exhibit 19.2 to the November 1990 10-Q)
10.5(m)+ - Third Amended and Restated Credit Agreement dated as of
October 20, 1992 (incorporated by reference to November
30, 1992 10-Q)
10.5(n)+ - Third Amended and Restated Credit Agreement, dated as of
October 20, 1992, among the Company, Chemical Bank, as
Agent and the financial institutions from time to time
parties to the Agreement (filed by incorporation by
reference to Exhibit 10.2 to the November 30, 1992 Form
10-Q)
10.5(o)+ - Bank Waiver and Consent dated June 30, 1993 between the
Company, Chemical Bank and the Banks party to the Third
Amended and Restated Credit Agreement (filed by
incorporation to Exhibit 10.5(o) to the May 31, 1993 Form
10-Q).
10.6(a)#+ - Agreement dated as of February 8, 1985 between the Company
and Home Box Office, Inc. (the "1985 HBO Agreement")
(filed by incorporation by reference to Exhibit 10.8 to
the 1985 10-K)
10.6(b)#+ - Amendment Number One dated as of June 6, 1985 to the 1985
HBO Agreement (filed by incorporation by reference to
Exhibit 10.9(b) to the 1986 10-K)
10.7#+ - Letter Agreement, Home Video License Agreement, Pay Cable
License Agreement and Additional Letter, each dated as of
November 7, 1985, between the Company and Home Box Office,
Inc. (filed by incorporation by reference to Exhibit 19.4
to the August 1986 10-Q)
10.8#+ - Exclusive Output Agreement dated as of August 1, 1986
between Showtime/The Movie Channel Inc. and the Company
(the "Showtime Agreement") (filed by incorporation by
reference to Exhibit 19.4 to the August 1986 10-Q)
10.9+ - Engagement Letter between Salomon Brothers Inc and the
Company dated November 16, 1990
10.10+ - Agreement dated as of November 28, 1990 (and executed on
December 12, 1990) between MetMermaids, a Joint Venture
between John W. Kluge, as Trustee, and Stuart Subotnick,
and the Company (filed by incorporation by reference to
Exhibit 28.1 to the November 1990 10-Q)
10.11+ - Engagement Letter between Donaldson, Lufkin & Jenrette and
the Company dated April 22, 1991
10.12+ - Engagement Letter between Donaldson, Lufkin & Jenrette and
the Company dated January 17, 1992 (incorporated by
reference to Exhibit Number 10.12 of the 1992 10-K)
10.13+ - Annual Bonus Plan (filed by incorporation by reference to
Exhibit 10.13 to the May 31, 1993 Form 10-Q)
10.14+ - Loan Agreement dated as of July 29, 1993 between the
Company and MetProduction, Inc ("Metproductions") (filed
by incorporation by reference to Exhibit 10.14 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1993 (the "August 31, 1993 Form
10-Q")).
38
<PAGE>
10.15+ - Loan Agreement dated as of August 2, 1993 between the
Company and MetProductions (filed by incorporation by
reference to Exhibit 10.15 to the August 31, 1993
Form 10-Q)
10.16+ - Employment Agreement dated as of December, 1992 between
Orion Home Entertainment Corporation and Herbert Dorfman
(filed by incorporation by reference to Exhibit 10.16 to
the August 31, 1993 Form 10-Q)
10.17+ - Employment agreement dated as of July 1, 1993 between the
Company and Cynthia Friedman (filed by incorporation by
reference to Exhibit 10.17 to the August 31, 1993
Form 10-Q)
10.18+ - Employment agreement dated as of July 1, 1993 between the
Company and Diane Keating (filed by incorporation by
reference to Exhibit 10.18 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November
31, 1993 (the "November 30, 1993 Form 10-Q"))
10.19+ - Loan Agreement dated as of November 12, 1993 between the
Orion Home Entertainment Corporation and MetProduction,
Inc. ("Metproductions") (filed by incorporation by
reference to Exhibit 10.17 to the November 30, 1993 Form
10-Q)
10.20+ - Stipulation and Order Settling Litigations and Disputes
between Reorganized Debtors and Showtime Networks Inc.
(the "Showtime Settlement"). (filed by incorporation by
reference to Exhibit 99.1 to the Company's form 8-K dated
March 29, 1994)
10.21* - Loan Agreement dated as of January 10, 1994 between the
Company and MetProductions.
10.22* - Loan Agreement dated as of January 27, 1994 between Orion
Home Entertainment Corporation and MetProductions.
11* - Statement re: computation of per share earnings
16+ - Letter from Ernst & Young dated March 10, 1993 to the
Securities and Exchange Commission (filed by incorporation
by reference to Exhibit C to the Company's Current Report
Form 8-K dated March 10, 1993)
21* - List of subsidiaries of the Company as of February 28,
1994
_______________
* Filed herewith.
# Certain portions of these Exhibits have been deleted pursuant to
requests for confidential treatment pursuant to the Securities Act
of 1933 and the Securities Exchange Act of 1934.
+ Previously filed with Securities and Exchange Commission.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Operations for the fiscal years ended in
February 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets at February 28, 1994 and February 28, 1993 . F-4
Consolidated Statements of Cash Flows for the fiscal years ended in
February 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Common Stock,
Paid-in Surplus and Accumulated Deficit for the fiscal years ended in
February 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . F-7
Consolidated Financial Statement Schedules for the fiscal years ended in
February 1994, 1993 and 1992:
VIII. Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . F-31
X. Supplementary Income Statement Information . . . . . . . . . . . F-32
All other schedules have been omitted either as inapplicable or not
required under the instructions contained in Regulation S-X or because the
information is included in the Consolidated Financial Statements or the
Notes thereto listed above.
40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Orion Pictures Corporation:
We have audited the consolidated financial statements of Orion Pictures
Corporation and subsidiaries as of and for the years ended February 28,
1994 and 1993, as listed in the accompanying index. In connection with
our audit of the consolidated financial statements, we also have audited
the financial statement schedules as of and for the years ended February
28, 1994 and 1993, as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and
financial statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orion
Pictures Corporation and subsidiaries as of February 28, 1994 and 1993,
and the results of their operations and their cash flows for the years
ended February 28, 1994 and 1993, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial
statement schedules as of and for the years ended February 28, 1994 and
1993, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 11 of notes to consolidated financial statements, the
Company is a defendant in litigation with a producer who alleges various
breaches of agreements by the Company in its distribution of certain
motion pictures which the plaintiff produced. The complaint seeks an
accounting and damages for alleged improper accounting practices resulting
in an underpayment of substantial amounts to the producer. It is not
possible to assess the ultimate damages, if any, at this time.
As discussed in Note 9 of notes to the consolidated financial statements,
the Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standard No.109. "Accounting for
Income Taxes" in fiscal 1994.
KPMG PEAT MARWICK
Los Angeles, CA
June 10, 1994
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Orion Pictures Corporation
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Orion Pictures Corporation for the
year ended February 29, 1992, as listed in the accompanying index
to financial statements (Item 14(a)). Our audits also included the
financial statement schedules as of and for the year ended February 29,
1992, as listed in the accompanying index to financial statements (Item
14(a)). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of the
operations and cash flows of Orion Pictures Corporation for the year ended
February 29, 1992, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As more fully described in Note 11, the Company is a defendant in
litigation with a producer who alleges various breaches of agreements by
the Company in its distribution of certain motion pictures which the
plaintiff produced. The complaint seeks an accounting and damages for
alleged improper accounting practices resulting in an underpayment of
substantial amounts to the producer. The ultimate outcome of this matter
cannot be determined at this time.
ERNST & YOUNG
Los Angeles, California
September 11, 1992, except for Notes 6 and 11
as to which the date is June 10, 1994
F-2
<PAGE>
Orion Pictures Corporation
(Debtor-in-Possession from December 11, 1991 to November 5, 1992 - Note 1)
Consolidated Statements of Operations
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended in February, 1994 1993 1992
<S> <C> <C> <C>
Continuing operations:
Revenues $175,662 $222,318 $491,117
Cost of rentals 243,030 214,812 445,645
Gross profit (loss) (67,368) 7,506 45,472
Other costs and expenses:
Selling, general and administrative 21,639 30,454 62,364
Prepetition provision for relocation and reorganization costs ---- ---- 14,000
Prepetition financial restructuring costs ---- ---- 6,629
Interest expense, net (contractual interest of $52,952 and $55,824 for
the fiscal years ended in February 1993 and 1992) 32,296 23,533 46,254
Loss from continuing operations before chapter 11
reorganization items and provision for income taxes (121,303) (46,481) (83,775)
Chapter 11 reorganization items 1,793 20,792 192,562
Loss before provision for income taxes (123,096) (67,273) (276,337)
Provision for income taxes 2,100 5,700 4,495
Loss from continuing operations (125,196) (72,973) (280,832)
Discontinued television operations:
Loss from operations, net of income taxes ---- ---- (12,322)
Estimated loss on discontinuance, net of income taxes ---- ---- (18,917)
Loss from discontinued television operations ---- ---- (31,239)
Loss before extraordinary gains recognized
upon emergence from chapter 11 (125,196) (72,973) (312,071)
Extraordinary gains recognized upon emergence
from chapter 11, net of income taxes ---- 323,213 -----
Net income (loss) $(125,196) $250,240 $(312,071)
Income (loss) per common share:
Loss from continuing operations $ (6.26) $ (11.29) $(1,744.47)
________ _________ ___________
________ _________ ___________
Loss before extraordinary gains $ (6.26) $ (11.29) $(1,938.50)
________ _________ ___________
________ _________ ___________
Net income (loss) $ (6.26) $ 38.70 $(1,938.50)
________ _________ ___________
________ _________ ___________
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
Orion Pictures Corporation
(Debtor-in-Possession from December 11, 1991 to November 5, 1992 - Note 1)
Consolidated Balance Sheets
(in thousands)
February 28, February 28,
1994 1993
ASSETS:
Cash and cash equivalents (Notes 2 and 7) $37,114 $ 77,539
Accounts receivable, net 81,981 97,699
Film inventories 367,152 498,890
Other assets 21,767 30,228
$ 508,014 $ 704,356
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 1,681 $ 2,634
Accrued expenses 40,906 41,948
Participations and residuals 50,595 66,613
Notes and subordinated debt 274,501 325,158
Deferred revenues 98,528 101,004
Commitments and contingencies (Note 11)
Liquidity (Note 12)
Shareholders' equity:
Common Stock, $.25 par value, authorized
100,000,000 shares, issued and outstanding
20,000,000 shares 5,000 5,000
Paid-in surplus 265,811 265,811
Accumulated deficit (229,008) (103,812)
Total shareholders' equity 41,803 166,999
$ 508,014 $ 704,356
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Orion Pictures Corporation
(Debtor-in-Possession from December 11, 1991 to November 5, 1992 - Note 1)
Consolidated Statements of
Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended in February, 1994 1993 1992
<S> <C> <C> <C>
Operations:
Loss from continuing operations before
chapter 11 reorganization items and provision for income taxes $ (121,303) $ (46,481) $ (83,775)
Provision for income taxes 2,100 5,700 4,495
Loss from continuing operations
exclusive of chapter 11 reorganization items (123,403) (52,181) (88,270)
Adjustments to reconcile loss from continuing
operations exclusive of chapter 11 reorganization items
to cash provided by continuing operations exclusive of
chapter 11 reorganization items:
Amortization of film costs 199,219 161,173 319,253
Amortization of bank guarantee 5,625 2,243 -----
Amortization of debt discounts and costs 12,314 7,345 6,287
Depreciation and amortization 708 1,511 3,619
Decrease in accounts receivable 15,718 49,796 42,700
Increase (decrease) in accounts payable (2,418) (2,168) 27,633
Increase (decrease) in accrued expenses (5,291) (23,115) 37,272
Accrual of participations and residuals 17,392 28,871 62,403
Payments of participations and residuals (27,306) (14,340) (28,054)
Decrease in deferred revenues (2,476) (6,551) (13,918)
Cash provided by continuing operations
exclusive of chapter 11 reorganization items 90,082 152,584 368,925
Payments of chapter 11 reorganization items (1,793) (23,438) -----
Cash provided by continuing operations 88,289 129,146 368,925
Cash provided by discontinued operations ----- ----- 24,993
Cash provided by operations 88,289 129,146 393,918
Investment activities:
Investment in film inventories:
Continuing operations (67,481) (7,348) (378,204)
Discontinued operations ----- ----- (14,722)
Additions to property and equipment (785) (177) (396)
Receipt of proceeds from sale of feature film ----- ----- 14,600
Decrease (increase) in other assets 4,263 3,046 (163)
Cash used in investment activities (64,003) (4,479) (378,885)
Financing activities:
Payments on notes and subordinated debt (64,711) (83,688) (4,480)
Sale of common stock by majority shareholder ----- 15,000 -----
Other, net ----- ----- 52
Cash used in financing activities (64,711) (68,688) (4,428)
Net increase (decrease) in cash (40,425) 55,979 10,605
Cash and cash equivalents at beginning of year 77,539 21,560 10,955
Cash and cash equivalents at end of year $ 37,114 $ 77,539 $ 21,560
See accompanying notes to consolidated financial statementsOrion Pictures Corporation
</TABLE>
F-5
<PAGE>
(Debtor-in-Possession from December 11, 1991 to November 5, 1992 - Note 1)
Consolidated Statements of
Common Stock, Paid-in Surplus
and Accumulated Deficit
(in thousands)
<TABLE>
<CAPTION>
Three Years Ended February 28, 1994
Common Stock
Number of Paid-in Accumulated
Shares Amount Surplus Deficit
<S> <C> <C> <C> <C>
Balances, February 28, 1991 22,502,100 $ 5,625 $ 185,044 $ (41,974)
Net loss ---- ---- ---- (312,071)
Cash dividends on preferred stock ---- ---- ---- (7)
Exercise of stock options 6,500 2 57 ----
Balances, February 29, 1992 22,508,600 5,627 185,101 (354,052)
Net income ---- ---- ---- 250,240
Emergence from chapter 11:
Redemption of previously outstanding Common Stock (22,508,600) (5,627) ---- ----
Issuances of Common Stock:
To holders of previously outstanding preferred
and Common Stock 180,000 45 5,656 ----
To holders of previously outstanding
subordinated debt 9,800,000 2,450 23,030 ----
To majority shareholder 10,020,000 2,505 23,547 ----
Benefit of exchange with majority shareholder ---- ---- 28,477 ----
Balances, February 28, 1993 20,000,000 5,000 265,811 (103,812)
Net loss ---- ---- ---- (125,196)
Balances, February 28, 1994 20,000,000 $ 5,000 $ 265,811 $(229,008)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Orion Pictures Corporation
Notes to Consolidated
Financial Statements
1. Basis of Presentation, Description of the Business and Summary of
Significant Accounting Policies
Basis of Presentation
On December 11 and 12, 1991 (the "Filing Date"), Orion Pictures
Corporation 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."
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. See Note 2 for a description of significant
adjustments that were recorded during the year ended February 28, 1993 to
reflect the Company's emergence from chapter 11 in accordance with the
terms of the Plan.
Description of the Business
The business activities of the Company constitute a single business
segment, filmed entertainment, which, until May 31, 1991, included the
financing, production and distribution of theatrical motion pictures and
television programming. Effective May 31, 1991, the Company discontinued
the development, financing, production and distribution of newly created
made-for-television product (Note 4). At February 28, 1994, the Company
had five completed and unreleased theatrical motion pictures, three of
which were domestically released in March and April 1994. The terms of
the Plan severely limit the Company's ability to finance and produce
additional theatrical motion pictures (Note 3). Therefore, the Company's
primary activity is the ongoing distribution of its present library of
theatrical motion pictures and television programming. As described in
Note 3, the Company believes the lack of a continuing flow of newly
produced theatrical product has adversely affected the marketability of
this library.
Theatrical motion pictures were produced initially for exhibition in
theaters. Initial theatrical release generally occurs in the United
States and Canada. Foreign theatrical exhibition generally begins within
the first year after initial release. Home video distribution in all
territories usually begins six to twelve months after theatrical release
in that territory, with pay television exploitation beginning generally
six months after initial home video release. Exhibition of the Company's
product on network and on other free television outlets begins generally
three to five years from the initial theatrical release date in each
territory.
F-7
<PAGE>
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its domestic and foreign subsidiaries, most of which are
wholly owned. All significant intercompany transactions and accounts have
been eliminated. The consolidated financial statements for the years
ended February 28, 1993 and February 29, 1992 ("fiscal 1993" and "fiscal
1992", respectively), contain certain reclassifications to conform to the
presentation for the year ended February 28, 1994 ("fiscal 1994").
Cash and Cash Equivalents
Cash equivalents consists of highly liquid instruments with original
maturities of one month or less.
Revenue Recognition
Revenue from the theatrical distribution of films is recognized as the
films are exhibited. Distribution of the Company's films to the home
video market in the United States and Canada is effected through Orion
Home Video ("OHV"), a division of Orion Home Entertainment Corporation,
a wholly-owned subsidiary. OHV's home video revenue, less a provision for
returns, is recognized when the video cassettes are shipped. Distribution
of the Company's films to the home video markets in foreign countries is
generally effected through subdistributors who control various aspects of
distribution. When the terms of sale to such subdistributors include the
receipt of nonrefundable guaranteed amounts by the Company, revenue is
recognized when the film is available to the subdistributors for
exhibition or exploitation and other conditions of sale are met. When the
arrangements with such subdistributors call for distribution of the
Company's product without a minimum amount guaranteed to the Company, such
sales are recognized when the Company's share of the income from
exhibition or exploitation is earned.
Revenue from the licensing of the Company's product to networks, basic
and pay cable companies and independent television stations or groups of
stations in the United States and Canada as well as in foreign territories
is recognized when the license period begins and when certain other
conditions are met. Such conditions include the availability of such
product for broadcast by the licensee.
Film Inventories and Cost of Rentals
Theatrical and television program inventories consist of direct
production costs, production overhead and capitalized interest, print and
exploitation costs, less accumulated amortization. Film inventories are
stated at the lower of unamortized cost or estimated net realizable value.
Selling costs and other distribution costs are charged to expense as
incurred.
Film inventories and estimated total costs of participations and
residuals are charged to Cost of rentals under the individual film
forecast method in the ratio that current period revenue recognized bears
to management's estimate of total gross revenue to be realized. Such
estimates are re-evaluated quarterly in connection with a comprehensive
review of the Company's inventory of film product, and estimated losses,
if any, are provided for in full. Such losses include provisions for
estimated future distribution costs and fees as well as participation and
residual costs expected to be incurred.
Depreciation and Amortization
Depreciation and amortization of property and equipment (primarily
equipment) is provided using the straight line method over the estimated
useful lives of the assets. The guarantee of the Company's bank
borrowings (Note 2) is stated at its estimated fair value at the Effective
Date, less accumulated amortization. Amortization is being calculated on
the effective interest method over certain related cash flows estimated
in the Plan.
F-8
<PAGE>
Income (Loss) per Common Share
Pursuant to the Plan (Note 2), all 22,508,600 shares of the Company's
previously outstanding common stock and 7,237 shares of the Company's
previously outstanding preferred stock were canceled at the Effective Date
and the holders of such stock received 160,000 and 20,000 shares (0.8% and
0.1%), respectively, of the reorganized Company's 20,000,000 newly issued
common shares. All outstanding options to purchase common stock pursuant
to the Company's stock option plans (Note 8) were also canceled.
Per-share amounts presented on the Company's consolidated statements
of operations are computed by dividing Loss from continuing operations,
Loss before extraordinary gains and Net income (loss) each as reduced by
preferred and preference dividends and, when applicable, increased by pro-
forma reductions in interest expense (net of tax) resulting from the
assumed exercise of stock options and warrants when such securities were
outstanding (Note 8) and the resulting assumed reduction of outstanding
indebtedness, by the weighted average number of common and dilutive common
equivalent shares outstanding during each period. Such amounts for fiscal
1992 reflect the impact of the recapitalization described above. Reported
per-share amounts are based on 20,000,000, 6,465,000, and 161,000 common
and common equivalent shares in fiscal 1994, 1993 and 1992, respectively.
Fully diluted per-share amounts are not presented because the dilutive
effect of the Company's other potentially dilutive securities (the Series
B Preferred Stock) was immaterial for all reported periods.
If the Plan had become effective on March 1, 1992, Loss from continuing
operations per share for the year ended February 28, 1993 would have been
$4.54 per share. Such pro-forma per-share amount is based on the
assumption that the 20,000,000 shares of the reorganized Company's common
shares that have been issued pursuant to the Plan, the 10% Subordinated
Debentures, the Talent Notes, the Creditor Notes, the payment obligation
to Sony and the guarantee of bank borrowings (Notes 2 and 7) had all been
outstanding during the entire period.
Financial Instruments
The estimated fair values of cash, accounts receivable, accounts
payable and accrued expenses approximate their carrying values because of
the short maturity of these instruments. The carrying value of
receivables with maturities greater than one year have been discounted and
if such receivables were discounted based on current market rates, the
fair value of these receivables would not be materially different than
their carrying value. Because the Company's bank debt is a floating
interest rate instrument, it is assumed that the carrying value would
approximate fair value. The remaining debt (i.e., 10% Subordinated
Debentures, Talent Notes, Creditor Notes and other obligations) does not
have a ready market. These debt instruments are shown on a discounted
basis (see Note 2) using market rates applicable at the Effective Date.
If such debt were discounted based on current market rates, the fair value
of this debt would not be materially different than their carrying value.
F-9
<PAGE>
2. Financial Reporting upon Emergence from Chapter 11
The Plan contains certain provisions that resulted in the recording of
significant adjustments to the Company's consolidated financial statements
upon the Company's emergence from chapter 11. In accordance with the
provisions of Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code", issued by the American
Institute of Certified Public Accountants ("SOP 90-7"), the Company did
not adopt fresh-start reporting upon consummation of the Plan. The
Company did not qualify for fresh-start reporting because even though the
majority shareholder's former ownership of approximately 68% of the
Company's common stock was reduced to under 1%, the majority shareholder
and its affiliate purchased a majority of the Company's common stock that
was issued pursuant to the Plan (as described below) and, thus, in excess
of 50% of the Company's common stock is owned by the majority shareholder
and its affiliate both before and after the consummation of the Plan.
The most significant adjustments that were recorded during the year
ended February 28, 1993 to reflect the Company's emergence from chapter
11 in accordance with the terms of the Plan were: 1) to account for the
exchange by the Company's subordinated debtholders of all previously
outstanding subordinated debt of the Company for a 49% equity interest in
the Company as well as new $50,000,000 initial principal amount of 10%
nine-year subordinated debentures ("10% Subordinated Debentures"); 2) to
account for the delivery by the Company's majority shareholder and its
affiliate of a guarantee of bank borrowings, a contribution of the
majority shareholder's interest in "MERMAIDS" described below to the
Company and the contribution by such affiliate of $15,000,000 in cash in
exchange for 50.1% of the equity interest in the Company; and 3) to
restate liabilities compromised by the Plan at the estimated present value
of amounts to be paid. These adjustments, which are described below, were
recorded based upon estimates of the fair values of: 1) the equity
interests in the Company distributed to the Company's majority shareholder
and its affiliate and holders of the Company's previously outstanding
subordinated notes and debentures and the holders of the previously
outstanding common and preferred stock; 2) the 10% Subordinated
Debentures being issued to holders of the Company's previously outstanding
subordinated notes and debentures; 3) the guarantee of bank borrowings
received from the Company's majority shareholder and its affiliate; 4)
a non-interest bearing payment obligation of the Company to a subsidiary
of Sony Pictures Entertainment, Inc. ("Sony") pursuant to revisions made
in the Company's foreign home video licensing agreement with Sony
described below; and 5) the Talent Notes and the Creditor Notes (both as
defined in the Plan) being issued to certain creditors of the Company.
The recorded fair values of the equity interests were based upon the
average "when distributed" trading price on NASDAQ of the new common stock
over a three-week period after the Effective Date. The recorded fair
value of the 10% Subordinated Debentures was derived using an effective
yield of 18% based on a survey of similar subordinated securities of other
companies. The recorded fair value of the guarantee of bank borrowings
was based upon a calculation of the estimated net present value of the
interest expected to be saved over the term of the bank borrowings due to
such guarantee and has been confirmed by an independent valuation. The
recorded fair value of the Sony payment obligation was based upon a
calculation of the estimated net present value of the payment obligation,
discounted at the rate of interest being paid on the Company's bank debt.
The recorded fair values of the Talent Notes and the Creditor Notes were
based upon a comparison of the characteristics of these securities with
those of the 10% Subordinated Debentures which resulted in the assumption
that their effective yields should be 14% and 16%, respectively.
The Company is in the process of exchanging securities with its various
security holders in accordance with the Plan and expects this process to
continue for an extended period of time. All descriptions of new
securities in this Annual Report on Form 10-K refer to securities issued
and, in certain cases, estimated amounts of such securities that are yet
to be issued, unless the context indicates otherwise.
F-10
<PAGE>
Subordinated Debt Exchange
On the Effective Date, the carrying amount for financial reporting
purposes of the Company's subordinated notes and debentures was
$280,714,000. The Company did not make any payments of principal or
interest on these subordinated notes and debentures during the Bankruptcy
Period. Accrued expenses on the Consolidated Balance Sheet at the
Effective Date included approximately $30,812,000 of accrued interest on
the Company's subordinated notes and debentures that was accrued to the
Filing Date.
The Company ceased accruing interest on its subordinated notes and
debentures on the Filing Date and adjusted all debt discounts related to
such securities at the Filing Date so that the carrying amount of each
security was equivalent to the related estimated allowable claim pursuant
to the Bankruptcy Code. Contractual interest shown on the Consolidated
Statements of Operations for the years ended February 28, 1993 and
February 29, 1992 ($52,952,000 and $55,824,000, respectively) includes
approximately $27,400,000 and $8,900,000, respectively, of interest that
would have been payable on the Company's subordinated notes and debentures
from March 1, 1992 until the Effective Date and from the Filing Date until
February 29, 1992.
In accordance with the terms of the Plan, all of the Company's
subordinated notes and debentures were canceled . In satisfaction of the
claims for such subordinated notes and debentures and the related accrued
and unaccrued unpaid interest, the Company distributed, pursuant to
allocations in the Plan, a 49% equity interest in the Company and new
$50,000,000 initial principal amount of 10% nine-year subordinated
debentures ("10% Subordinated Debentures") (Note 7) to holders of such
securities. To record this transaction, the Company removed the carrying
amount of the subordinated notes and debentures ($280,714,000) and related
accrued interest ($30,812,000) from the accounts, recorded the estimated
fair value of the 49% equity interest in the Company received by the
subordinated debtholders in the form of common stock ($25,480,000) and the
estimated fair value of the 10% Subordinated Debentures issued to those
debtholders ($37,051,000, which is the $50,000,000 initial principal
amount less a $12,949,000 discount recorded to increase the effective
interest rate on the securities to 18%) and recognized an extraordinary
gain of $248,995,000.
Metromedia Exchange
On December 12, 1990, the Company executed an agreement with
MetMermaids, a joint venture between John W. Kluge (as Trustee) and Stuart
Subotnick (the "Joint Venture") pursuant to which an interest was granted
in certain of the proceeds of "MERMAIDS", a feature length motion picture
released by the Company on December 14, 1990, in return for an investment
by the Joint Venture in the picture of approximately $23,000,000. Messrs.
Kluge and Subotnick, together and through Metromedia Company, own a
majority of the Common Stock of the Company. Participations and residuals
on the Consolidated Balance Sheet at the Effective Date included
approximately $20,800,000 of amounts due to MetMermaids that had been
accrued since "MERMAIDS" was released, including approximately $700,000
and $13,100,000 that was accrued during fiscal 1993 and 1992,
respectively.
Upon effectiveness of the Plan, the "MERMAIDS" obligation was
contributed to the Company by Metromedia along with $15,000,000 in cash
by John W. Kluge and a guarantee by Metromedia and Mr. Kluge of the
Company's bank borrowings (Note 7) in exchange for a 50.1% equity interest
in the Company. To record this transaction, the Company removed the
carrying amount of the MetMermaids liability ($20,824,000) and related
accrued interest ($705,000) from the accounts and recorded the receipt of
$15,000,000 in cash, the estimated fair value of the guarantee of bank
borrowings received ($18,000,000) and the estimated fair value of the
50.1% equity interest in the Company received by Metromedia and Mr. Kluge
in the form of common stock ($26,052,000). The Company realized a benefit
of $28,477,000 on the exchange which was credited directly to Paid-in
surplus as a contribution to capital. The estimated fair value of the
guarantee of bank borrowings, which is classified in Other assets on the
Consolidated Balance Sheets at February 28, 1994 and 1993, is being
amortized as interest expense during the period that such bank borrowings
are being repaid (Note 7).
F-11
<PAGE>
Adjustments of Compromised Liabilities - Sony Settlement
In February 1990, the Company entered into an agreement with Sony which
granted certain foreign home video distribution rights to 50 current and
future motion pictures to Sony. Under the terms of the Sony agreement,
the Company was required to meet certain minimum delivery requirements.
A letter of credit was issued to Sony for $70,000,000 which generally
secured a portion of Sony's interests in the Company's performance under
the agreement and which was supported by a portion of the amounts
otherwise available to the Company under the Company's Second Amended and
Restated Credit Agreement dated as of July 27, 1990 (the "Second Restated
Credit Agreement"), which, at the Effective Date of the Plan, was
superseded by the Third Amended and Restated Credit Agreement dated as of
October 20, 1992 (the "Third Restated Credit Agreement") (Note 7).
The Company's chapter 11 filings (Note 1) constituted an event of
default under the Sony agreement. In connection therewith, the Company
applied certain provisions in the Sony agreement at February 29, 1992,
resulting in the reclassification at that date of approximately
$110,000,000 of advance royalties from Deferred revenues to Accrued
expenses (liabilities subject to compromise) which significantly reduced
the remaining advance royalties available to be earned by the pictures
that have been or will be delivered under the agreement.
In accordance with the terms of the Plan, the Sony agreement was
amended as of the Effective Date. The most significant changes were:1)
to reduce the number of motion pictures licensed under the agreement from
50 to 23; 2) to convert the $70,000,000 letter of credit described above
to a $70,000,000 non-interest bearing payment obligation to Sony which is
supported by a new $70,000,000 letter of credit; 3) to limit to
$9,000,000 the additional amounts that may be due to Sony based upon the
performance of the 23 pictures covered by the amended agreement; and 4)
an amount equal to $5,000,000 will be secured by the above described
letter of credit for additional amounts that may be due Sony under the
Sony Theatrical Agreement.
To record this transaction, the Company removed the $110,288,000 Due to
Sony amount described above from the accounts, recorded the $70,000,000
non-interest bearing payment obligation at its estimated net present value
of $63,682,000, increased Deferred revenues related to the 23 pictures
that have been or will be delivered under the agreement by approximately
$31,743,000 and recognized an extraordinary gain on the transaction of
approximately $14,863,000. A portion of the extraordinary gain
($6,318,000) resulted from recording the non-interest bearing payment
obligation at its estimated net present value. The remainder of the
extraordinary gain ($8,545,000) represented the Company's estimate of the
benefit received by the Company in the settlement process by virtue of the
negotiation of such settlement in a chapter 11 environment. Such
settlement gain approximates the adverse impact recognized as a Chapter
11 reorganization item included in results of operations during the
quarter ended February 29, 1992 from the application of certain provisions
in the agreement at that time as described above.
F-12
<PAGE>
Adjustments of Compromised Liabilities - Other Creditors
Under the Plan, holders of claims for certain participations and
residuals aggregating approximately $55,000,000 reduced their claims by
17%, in exchange for approximately $46,400,000 aggregate principal amount
of Talent Notes. The Talent Notes, which are due March 1, 1999, bear
interest at the same rate as the Company pays under the Third Restated
Credit Agreement described in Note 7. The holders of other unsecured
claims against the Company currently aggregating approximately $65,000,000
received or will receive 100% of their claims in the form of non-interest
bearing Creditor Notes, which are due March 1, 1999, except for a portion
of such claimants who held claims under $5,000 and who elected to
receive a partial payment in cash in lieu of such Creditor Notes.
The Plan required the Company to issue Talent Notes and Creditor
Notes to the extent the amounts were not disputed. The Company recorded
estimates of amounts of Talent Notes and Creditor Notes to be issued upon
final resolution of the disputed claims. Accordingly, adjustments to the
amounts described above have been made and will continue to be required
until all disputed claims have been resolved. The Talent Notes and
Creditor Notes are both secured obligations of the Company.
To the extent that the Company generates positive Net Cash Flow (as
defined in the Third Restated Credit Agreement) (the "Net Cash Flow"), for
the immediate preceding period, the Company is required to make payments
with respect to amounts outstanding under the Talent Notes and Creditor
Notes, at least quarterly after the Effective Date, in amounts generally
approximating 8 1/2% and 3 1/4%, respectively, of the Company's Net Cash
Flow until all amounts due to Sony as described above and due under the
Third Restated Credit Agreement described in Note 7 have been paid.
Thereafter, amounts generally approximating 66 2/3% and 16 2/3% of the
Company's Net Cash Flow will be used to make payments with respect to the
Company's obligations under the Talent Notes and Creditor Notes,
respectively, until interest and principal under the Talent Notes are paid
in full. Subsequent to the satisfaction of the Company's obligations
under the Talent Notes, 50% of the Company's Net Cash Flow will be used
to retire the remaining obligations under the Creditor Notes.
The Company made certain accounting adjustments to reflect the above
settlements in its consolidated financial statements for the year ended
February 28, 1993. Participations and residuals, accounts payable and
accrued expenses were reduced by an aggregate of $127,153,000, the Company
recorded the Talent Notes and Creditor Notes at their estimated net
present values of $31,396,000 and $30,472,000 respectively, and an
extraordinary gain of $59,455,000 was recognized. The discounts recorded
on the Talent Notes and Creditor Notes result in effective interest rates
on these securities of 14% and 16%, respectively.
3. Relocation, Financial Restructuring and Chapter 11 Reorganization
Costs
Prepetition activities and costs
During the quarter ended August 31, 1991, the Company decided to
reorganize certain of its operating departments and to relocate certain
operating personnel from New York to Los Angeles and, accordingly, a
provision of $14,000,000 was recorded during that quarter for related
costs. Included in such amount was a provision of $5,600,000 for lease
settlement costs, $3,600,000 for anticipated losses upon the sale or
abandonment of equipment and leasehold improvements, and $2,800,000 for
severance obligations. During the period from March 1, 1991 until the
Filing Date, the Company sought to restructure certain of its outstanding
indebtedness, as is more fully described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations". The Company
incurred approximately $6,629,000 of costs during this period, consisting
primarily of legal and investment banking fees, which were directly
attributable to these efforts.
F-13
<PAGE>
Chapter 11 reorganization items
The Company applied the provisions of SOP 90-7 to account for the
effects of operating in a chapter 11 environment during the Bankruptcy
Period and the effects of redefining the business of the Company in
preparation for its emergence from chapter 11 upon consummation of the
Plan. Accordingly, the Company charged the following items to operations
during fiscal 1994, 1993 and 1992, which items comprise Chapter 11
reorganization items in the Consolidated Statements of Operations for
those periods (in thousands):
<TABLE>
<CAPTION>
Year Ended Year ended Year ended
February 28, 1994 February 28, 1993 February 29, 1992
<S> <C> <C> <C>
Adjustments to assets:
Writeoff of Film Distribution System $ --- $ --- $ 8,402
Writeoff of theatrical development costs related to
unproduced projects --- --- 15,302
Effect of reduction of revenue generating potential
of film library --- --- 104,356
Writedowns to estimated net realizable
value of certain unreleased theatrical films --- --- 11,300
Writeoff of deferred offering costs related to subordinated debentures --- --- 5,653
Provision for doubtful accounts --- --- 7,500
Other adjustments to assets --- 4,978
Adjustments of liabilities:
Provision for settlement of certain chapter 11 claims --- 4,000 10,000
Adjustment of provision for effect of rejection of certain operating leases --- --- 1,200
Adjustment of provision for loss on disposals of equipment and
leasehold improvements --- --- 6,900
Adjustment of prepetition provision for certain other
reorganization costs --- --- 3,200
Adjustment of discounts related to subordinated notes and debentures --- --- 11,149
Direct expenses of chapter 11 proceedings, primarily legal fees 1,793 16,792 2,622
_________ _________ __________
Total chapter 11 reorganization items $ 1,793 $ 20,792 $ 192,562
_________ _________ __________
_________ _________ __________
</TABLE>
During the first three quarters of fiscal 1992, the Company's efforts
toward a recapitalization of the Company contemplated the continued
production and distribution to the domestic theatrical market of
theatrical feature films. After the Filing Date, several plans of
reorganization were considered, most of which were proposed by independent
third parties. None of these plans, including the Plan, provided for the
maintenance of the Company's ability to theatrically distribute product
that may be produced or acquired in the future in the domestic
marketplace, other than the Company's remaining unreleased product.
Accordingly, the Company determined that the remaining unamortized portion
of its Film Distribution System asset at February 29, 1992 ($8,402,000)
was unrecoverable and should be charged to operations.
In accordance with the terms of the Plan, the Company is 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. However, the Company had no production
personnel and had not secured any such financing. Accordingly, the
Company felt it prudent to charge all remaining theatrical development
costs at February 29, 1992 ($15,302,000) to operations due to the
questionable continued benefit of such assets to the Company.
As described above, the Company, operating under the Plan, is
distributing product (other than its remaining unreleased product) to the
domestic theatrical marketplace on a very limited basis and also is
severely limited in its ability to produce or acquire new theatrical
product. The Company's remaining operating personnel are devoting their
efforts toward managing the domestic theatrical release of the Company's
remaining unreleased theatrical films and the exploitation of the
Company's theatrical and television library (including those as yet
unreleased titles) in the home video, pay television and free television
marketplaces domestically and in territories around the world. The
Company believed that there was an adverse effect on the marketability of
its product due to the chapter 11 filings and as a result of the
redefinition of the Company's business activities described above, due to
the Company's inability to assure its customers of an ongoing supply of
new product. Accordingly, the Company re-estimated the revenue generating
F-14
<PAGE>
potential of its film library of theatrical and television titles released
through February 29, 1992 and evaluated the estimated net realizable value
of its remaining unreleased theatrical titles, which resulted in the
$104,356,000 and $11,300,000 charges to operations in fiscal 1992 shown
above.
SOP 90-7 requires the carrying amount of debt to be adjusted to the
amount of the related estimated allowable claim pursuant to the Bankruptcy
Code. For this purpose, unamortized deferred offering costs and debt
discounts are viewed as components of the net carrying amount of the
related debt. Accordingly, the Company wrote off $5,653,000 of
unamortized deferred offering costs at February 28, 1992, related to its
subordinated debentures. In addition, the Company adjusted all debt
discounts related to its subordinated notes and debentures to amounts
required to comply with this requirement, which amounted to $11,149,000
of charges to operations in fiscal 1992.
During the administration of the chapter 11 proceeding, the Court fixed
May 28, 1992 as the last date to file prepetition claims against the
Company. The Company analyzed the claims received, including claims on
behalf of litigants in proceedings against the Company (Note 11), and
determined that several of these matters would be settled or tried before
the Court before or shortly after the Plan was consummated. The Company
charged $10,000,000 to operations in fiscal 1992 to cover the estimated
costs to resolve these matters. During fiscal 1993, the Company re-
evaluated this estimate and determined that an additional $4,000,000
provision was required.
In accordance with the provisions of the Bankruptcy Code, the Company
rejected all of its operating leases for the rental of office premises.
The Bankruptcy Code imposes certain limitations on allowed claims for rent
on unexpired leases that have been rejected. The total provision required
to cover the cost of rejecting the Company's leases was approximately
$6,800,000. During the quarter ended August 31, 1991, the Company
provided $5,600,000 for the settlement of leases in connection with the
contemplated relocation described above. Accordingly, the difference
between these two amounts, $1,200,000, is treated as a chapter 11
reorganization item in fiscal 1992. The Company also expected to lose
approximately $10,500,000 from the sale or abandonment of a large portion
of its equipment and leasehold improvements upon the rejection of its
leases. During the quarter ended August 31, 1991, the Company charged
approximately $3,600,000 to operations for such losses. Accordingly, the
difference between these two amounts, $6,900,000, is treated as a chapter
11 reorganization item during fiscal 1992.
SOP 90-7 requires direct costs of administering the chapter 11 filing,
particularly professional fees, to be expensed as incurred. Direct
expenses of approximately $1,793,000, $16,792,000, and $2,622,000 were
incurred during the years ended February 28, 1994 and 1993 and from the
Filing Date through February 29, 1992, respectively. Direct costs of
administering the chapter 11 filing are expected to continue until all
claims and litigation are resolved.
4. Discontinued Television Operations
Effective May 31, 1991, the Company discontinued the development,
financing, production and distribution of newly created made-for-
television product. Such product has included, in the past, series and
related pilots, motion pictures and mini-series produced for exhibition
on the major networks in the United States as well as first-run
programming produced for syndication in the domestic television
marketplace.
The estimated loss on discontinuance of $18,917,000, substantially all
of which was incurred through February 28, 1993, includes the estimated
loss from the abandonment of certain projects that were in development,
an adjustment to reflect certain inventory of released television programs
at its estimated net realizable value as a result of discontinuing the
television operations and a provision for operating losses during the
phase-out period from May 31, 1991 through approximately August 31, 1991.
F-15
<PAGE>
Revenues of the Company's television operations during fiscal 1992 were
$38,562,000. This amount is not included in Revenues presented in the
accompanying Consolidated Statements of Operations for that period.
The primary portion of the Company's remaining inventory of released
television programs shown in the table in Note 6 is stated at estimated
net realizable value. Such product has been retained by the Company and
is being licensed with the Company's theatrical library in the domestic
and foreign television marketplaces. There are no other material assets
or liabilities of the Company's discontinued television operations.
5. Accounts Receivable and Deferred Revenues
Accounts receivable consists primarily of trade receivables due from
film distribution, including theatrical, home video, basic cable and pay
television, network, television syndication, and other licensing sources
which have payment terms generally covered under contractual arrangements.
The vast majority of outstanding accounts receivable at February 28, 1994
are expected to be collected within the year ending February 28, 1995
("fiscal 1995"). Accounts receivable is stated net of an allowance for
doubtful accounts of $14,800,000 and $26,000,000 at February 28, 1994 and
1993, respectively.
The Company has entered into contracts for licensing of both released
and unreleased films to the pay cable, home video and free television
markets, for which the revenue and the related accounts receivable will
be recorded in future periods when the films are available for broadcast
or exploitation. These contracts, net of advance payments received and
recorded in Deferred revenues as described below aggregated approximately
$245,000,000 at February 28, 1994. Included in this amount is $64,000,000
of license fees for which the revenue and the related accounts receivable
will be recorded only if the Company is able to successfully produce or
acquire product under the restrictions of the Plan.
Deferred revenues consists principally of advance payments received on
pay cable, home video and other television contracts for which the films
are not yet available for broadcast or exploitation.
6. Film Inventories
The following is an analysis of film inventories (in thousands):
February 28, February 28,
1994 1993
__________________________________________________________________________
Theatrical films:
Released $305,560 $343,011
Completed and unreleased 50,204 140,567
Television programs:
Released 11,388 15,312
__________________________________________________________________________
$367,152 $498,890
F-16
<PAGE>
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 11 pictures theatrically released in the domestic
marketplace during fiscal 1992, 1993 and 1994 and the Company's five
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 reduces 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 are expected
to be 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 shown above have been adjusted to reflect
this settlement.
The Company has made substantial writeoffs to its released and
unreleased product. As a result, approximately three-quarters of the film
inventories shown above at February 28, 1994, (two-thirds at February 28,
1993), are stated at 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 89% 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
F-17
<PAGE>
have been amortized by February 28, 1997. As of February 28, 1994,
approximately 60% 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.
7. Notes and Subordinated Debt
Notes and subordinated debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
February 28, February 28,
1994 1993
<S> <C> <C>
Notes payable to banks under the Third
Restated Credit Agreement $ 122,862 $ 162,207
Talent Notes due 1999, net of unamortized discount of $9,995 and $9,037 29,349 28,786
Creditor Notes due 1999, net of unamortized discount of $27,722 and $33,931 34,820 30,494
Non-interest bearing payment obligation to Sony,
net of unamortized discount of $2,783 and $5,435 38,735 54,068
Other guarantees and contracts payable, net of
unamortized discounts of $3,634 and $4,958 9,297 12,955
__________________________________________________________________________________________________________
Total notes payable 235,063 288,510
__________________________________________________________________________________________________________
10% Subordinated Debentures due 2001,
net of unamortized discount of $10,483 and $12,375 39,438 36,648
__________________________________________________________________________________________________________
Total notes and subordinated debt $ 274,501 $ 325,158
</TABLE>
The Company's Third Restated Credit Agreement became effective upon
the Effective Date of the Plan (Note 1). Approximately $190,826,000 was
outstanding under The Company's Third Restated Credit Agreement on the
Effective Date. Such amount has been reduced through repayments to
approximately $122,862,000 at February 28, 1994 which matures as follows
(in thousands):
October 20
1994 $ 58,646
1995 64,216
$122,862
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 until such
guarantors are reimbursed in full.
F-18
<PAGE>
Interest is charged under the terms of the Third Restated Credit
Agreement at the agent bank's fluctuating reference rate plus 3/4% or at
1 3/4% above the Eurodollar Rate, at the Company's option. The agent
bank's fluctuating reference rate at February 28, 1994 was 6%.
The Third Restated Credit Agreement contains various restrictive
covenants, including, among others, limitations on the incurrence of
additional indebtedness, limitations on the investment in or acquisition
of new product and a prohibition on the payment of dividends. Borrowings
under the Third Restated Credit Agreement are secured by all of the
Company's assets, including the common stock of the Company's
subsidiaries. No compensating balances are required to be maintained.
All amounts outstanding under the Third Restated Credit Agreement,
including amounts that may become outstanding under the letter of credit
described in Note 2, are unconditionally guaranteed by the Company's
majority shareholders, Metromedia and an affiliate thereof.
As described in Note 2, the Company issued $50,000,000 initial
principal amount of 10% subordinated debentures due 2001 (the "10%
Subordinated Debentures") to former holders of its subordinated notes and
debentures pursuant to the terms of the Plan. The 10% Subordinated
Debentures are subordinated to all Senior Indebtedness, as defined in the
indenture related to such 10% Subordinated Debentures (the "Bond
Indenture"), including all bank borrowings and amounts outstanding to
Sony, the Talent Notes and Creditor Notes described in Note 2, as well as
amounts that may become payable to Metromedia and its affiliate should
Metromedia and its affiliate be required to make payments pursuant to the
guarantee of bank borrowings.
Interest on the 10% Subordinated Debentures is payable semi-annually
and the debentures are due October 31, 2001. Payment of interest and
repayment of principal amounts outstanding under the 10% Subordinated
Debentures are payable out of Net Cash Flow. As provided in the Bond
Indenture, interest on the 10% Subordinated Debentures may be paid by
issuance of additional 10% Subordinated Debentures in certain
circumstances. The Bond Indenture contains various restrictive covenants
which are generally consistent with the covenants described above with
respect to the Third Restated Credit Agreement.
In accordance with the terms of the Plan, as more fully described in
Note 2, the Company had a $70,000,000 non-interest bearing payment
obligation to Sony at the Effective Date. The obligation to Sony is
payable pari passu with amounts payable under the Third Restated Credit
Agreement described above. Such amount has been reduced through
repayments to approximately $41,518,000 at February 28, 1994 which matures
as follows (in thousands):
November 5
1994 $ 21,518
1995 20,000
$ 41,518
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.
F-19
<PAGE>
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 Minimums")
to the holders of the Talent Notes (Note 2), the Creditors Notes (Note 2)
and the 10% Subordinated Debentures (the "Holders") in payment of their
respective principal and interest. As more fully described in Note 12 the
Indentures pursuant to which the Talent Notes and the Creditor Notes were
issued (the "Indentures") provide for only a single Mandatory Minimums
threshold that must be received by the holders 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 Minimums 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 (the "Showtime 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 are to 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 $ 44,742 $ 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
F-20
<PAGE>
In accordance with the provisions of the Plan and the agreements
entered into in connection with the Plan, a Net Cash Flow distribution was
not made for the quarter ended August 31, 1993 because the Company did not
generate Net Cash Flow. Because distributions of Net Cash Flow are
dependent upon the Company's ability to generate Net Cash Flow and are
determined for specified periods in accordance with the Plan and the
agreements entered into in connection with the Plan, no assurance can be
made as to the amount, if any, of each future distribution. The Company
has made five Net Cash Flow distributions in accordance with the Plan.
The distributions were made in November 1992, March 1993, June 1993,
December 1993, and March 1994, respectively. The following table
describes the allocation of these distributions in accordance with the
Plan (in thousands):
<TABLE>
<CAPTION>
March December August June March November
1994 1993 1993 1993 1993 1992 Total
<S> <C> <C> <C> <C> <C> <C> <C>
Third Restated Credit Agreement $16,229 $ 2,488 --- $ 12,166 $ 24,691 $ 28,619 $ 84,193
Sony Obligation 5,952 912 --- 8,016 9,056 10,497 34,433
Talent Notes (principal and interest) 2,218 340 --- 2,018 3,375 3,910 11,861
Creditor Notes --- --- --- --- 1,046 1,498 2,544
10% Subordinated Debentures due 2001 --- --- --- --- --- 977 977
Interest on 10% Subordinated
Debentures due 2001 1,697 260 --- 1,544 1,535 519 5,555
_______ ________ _____ ________ ________ ________ ________
$26,096 $ 4,000 $ 0 $ 23,744 $ 39,703 $ 46,020 $139,563
_______ ________ _____ ________ ________ ________ ________
_______ ________ _____ ________ ________ ________ ________
</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 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 $525,000 and $898,000, respectively, of the interest due
April 1, 1994 and October 1, 1993 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 $46,518,000 at February 28, 1994.
All descriptions of securities above refer to securities issued and in
certain cases, estimated amounts of such securities that are yet to be
issued. Accordingly, during the three-month period ended November 30,
1993, approximately $6,000,000 of Participations and residuals payable was
reclassified to Talent Notes payable, which amount is an estimate of the
amount of such securities that will be issued in connection with the
resolution of certain claims.
During fiscal 1994, 1993, and 1992, $33,067,000, $26,037,000, and
$56,436,000, respectively, of interest costs were incurred, exclusive of
contractual amounts unaccrued pursuant to SOP 90-7, of which $6,602,000
was capitalized to film inventories in fiscal 1992. Cash utilized for the
payment of interest during fiscal 1994, 1993 and 1992 was $14,585,000,
$12,813,000, and $22,465,000, respectively.
F-21
<PAGE>
8. Shareholders' Equity
Preferred Stock
On the Effective Date, in accordance with the Plan, the Company
authorized 10,000,000 shares of $1.00 par value preferred stock. No
shares of preferred stock have been issued.
Stock Option Plans
Under the Company's 1982 Incentive Stock Option Plan (the "ISO Plan"),
options could be granted to employees to purchase a maximum of 950,000
shares of Common Stock. Under the Company's 1975 Non-Qualified Stock
Option Plan (the "1975 Plan"), options could be granted to employees to
purchase a maximum of 557,920 shares of Common Stock. Under the Company's
1984 Non-Qualified Stock Option Plan (the "1984 Plan"), options could be
granted to employees to purchase a maximum of 900,000 shares of Common
Stock. During fiscal 1993 and 1992, no options were granted under any of
these plans. Pursuant to the Plan, all outstanding options to purchase
Common Stock under the Company's stock option plans were canceled.
Options granted under the three plans expired ten years from the date
of grant and became exercisable at such dates and prices as were
determined by the Stock Option Committee of the Company's Board of
Directors. Options were generally granted at market value on the date of
grant.
The following table summarizes the transactions pursuant to the
Company's stock option plans for the three-year period ended February 28,
1994:
Number of Option
Options Price
Unexercised options outstanding
at February 28, 1991 853,650 $6.75 - $21.75
Options granted --- ---
Options exercised (6,500) $8.75 - $ 9.63
Options terminated (335,650) $8.75 - $21.75
Unexercised options outstanding
at February 29, 1992 511,500 $6.75 - $21.75
Options canceled (511,500) $6.75 - $21.75
Unexercised options outstanding at
February 28, 1993 0 ---
Unexercised options outstanding at
February 28, 1994 0 ---
F-22
<PAGE>
Warrants
On February 8, 1992, warrants to purchase 1,575,000 shares of the
Company's Common Stock at $6.00 per share, expired. These warrants had
been issued in connection with a capital infusion transaction effected in
February 1982.
9. Income Taxes
The Provision for income taxes for fiscal 1994, 1993 and 1992, all of
which is current, consists of the following (in thousands):
Fiscal Years Ended in February, 1994 1993 1992
Federal $ ----- $ ----- $ -----
State and local 100 300 (1,200)
Foreign 2,000 5,500 6,500
Current $ 2,100 $ 5,800 $ 5,300
Deferred ----- ----- -----
Total $ 2,100 $ 5,800 $ 5,300
Such provision has been allocated to continuing operations, discontinued
operations and extraordinary items as follows (in thousands):
Fiscal Years Ended in February, 1994 1993 1992
Continuing operations $ 2,100 $ 5,700 $4,495
Discontinued operations:
Loss from operations ----- ----- 805
Estimated loss on discontinuance ----- ----- -----
Extraordinary items ----- 100 -----
$ 2,100 $ 5,800 $ 5,300
The federal income tax portion of the Provision for income taxes
includes the benefit of state income taxes provided. The Company
recognizes investment tax credits on the flow-through method.
State and local income tax expense in fiscal 1994, 1993 and 1992
includes an estimate for franchise and other state tax levies required in
jurisdictions which do not permit the utilization of the Company's fiscal
1994, 1993 and 1992 operating losses to mitigate such taxes. Foreign tax
expense in fiscal 1994, 1993 and 1992 reflects estimates of withholding
and remittance taxes. Cash utilized for the payment of income taxes
during fiscal 1994, 1993 and 1992 was $3,084,000, $6,127,000, and
$4,352,000, respectively.
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 ("APB 11"). Under SFAS 109, deferred tax assets and liabilities
are recognized with respect to the tax consequences attributable to
differences between the financial statement carrying values and the tax
bases of existing assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to the
taxable income in the years in which these temporary differences are
expected to be recovered or settled. Further, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Under the deferred
method, deferred taxes were not adjusted for subsequent changes in tax
rates.
F-23
<PAGE>
Pursuant to the deferred method of accounting for income taxes required
by APB 11, applicable in the years prior to the fiscal year ended February
28, 1994, deferred taxes were provided for timing differences between
financial statement and tax return recognition of income and expenses.
Although timing differences arose during periods prior to fiscal 1994, any
future taxes payable would have been offset by tax benefits resulting from
the use of losses from such years, and accordingly, no deferred taxes were
provided. The principal timing difference that arose during those periods
relates to the recognition of revenues from licensing agreements.
The Company's results of operations was not impacted by the change in
method of accounting for income taxes resulting from the adoption of SFAS
109 in the current year. Deferred income taxes at February 28, 1994 and
1993 reflect the impact of "temporary differences" between assets and
liabilities for financial reporting purposes and their carrying values as
measured by tax laws. These temporary differences are determined in
accordance with SFAS 109 and are more inclusive in nature than "timing
differences" as determined under previously applicable accounting
principles.
The temporary differences and carryforwards which give rise to deferred
tax assets and (liabilities) for fiscal 1994 and 1993 are as follows (in
thousand):
Fiscal Years Ended in February, 1994 1993
Net Operating loss carryforward $158,150 $95,287
Deferred income 30,853 76,387
Investment credit carryforward 30,000 31,000
Allowance for doubtful accounts 5,897 11,959
Reserves 5,232 6,312
Other deferred tax assets 25,866 21,846
Film costs (21,608) (23,917)
Shares payable (4,017) (18,860)
Other deferred tax liabilities (18,604) (13,718)
Notes and debentures (22,038) ---
______________________________________________________________________________
Subtotal before valuation allowance 189,731 186,296
Valuation allowance (189,731) (186,296)
______________________________________________________________________________
Deferred taxes $ 0 $ 0
The valuation allowance for deferred assets as of March 1, 1993 was
$186,296,000. The net change in the total valuation allowance for the
year ended February 28, 1994 was an increase in the allowance of
$3,435,000.
F-24
<PAGE>
The Company's Provision for income taxes for fiscal 1994, 1993, and
1992 differs from the provision that would have resulted from applying the
federal statutory rates during those periods to Income (loss) before
provision for income taxes. The reasons for these differences are
explained in the following table (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended in February, 1994 1993 1992
<S> <C> <C> <C>
Provision (benefit) based upon
federal statutory rate of 35%, 34% and 34% respectively ($43,084) $87,054 $(106,104)
State taxes, net of federal benefit 65 198 (792)
Foreign taxes in excess of federal credit 2,000 5,500 6,500
Film distribution system amortization and writeoff ----- ----- 3,047
Non-deductible direct expenses of chapter 11 filing 596 5,709 891
Current year operating loss not benefitted 42,473 8,844 101,621
Extraordinary gain recognized upon emergence from
chapter 11 ----- (108,877) ---
Reduction of operating loss from discharge of indebtedness ----- 7,314 ---
Other, net 50 58 137
_________________________________________________________________________________________________
Provision for income taxes $ 2,100 $5,800 $5,300
</TABLE>
At February 28, 1994, the Company had available net operating loss
carryforwards and unused investment tax credits of approximately
$395,000,000, and $30,000,000, respectively, which can reduce future
federal income taxes. If not utilized, these carryforwards and credits
will begin to expire in 1997 and 1995, respectively.
In accordance with certain provisions of the Tax Reform Act of 1986,
a change in ownership of greater than 50% of a corporation within a three-
year period will place an annual limitation on the corporation's ability
to utilize its then existing net operating loss carryforwards, investment
tax credit carryforwards and foreign tax credit carryforwards
(collectively "tax attributes"). Such a change in ownership occurred
early in 1988. The Company's utilization of its tax attributes is no
longer limited as a result of the 1988 change in ownership.
10. Revenue Data
The sources of the Company's revenues from continuing operations by
market for each of the last three fiscal years 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.
F-25
<PAGE>
The following table sets forth foreign revenues from continuing operations
(excluding Canada) by major geographic area for each of the last three
fiscal years (in thousands):
Fiscal Years Ended in February, 1994 1993 1992
Europe $ 62,107 $ 80,152 $ 111,100
Mexico and South America 5,782 8,108 14,966
Asia and Australia 23,876 37,522 39,325
_______________________________________________________________________________
$ 91,765 $125,782 $ 165,391
Showtime has been a significant customer of the Company. During fiscal
1992, the Company recorded $56,229,000 of revenues under its pay cable
agreement with Showtime. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 6 for descriptions
of certain disputes with Showtime that have affected the amount and timing
of revenues recognized under the Showtime agreement.
11. Commitments and Contingent Liabilities
The Company is obligated under various operating leases, including
leases for two office premises. Total rent expense amounted to
$1,489,000, $4,773,000, and $9,589,000 in fiscal 1994, 1993 and 1992,
respectively. Sublease income in fiscal 1992 was $984,000.
Minimum rental commitments under noncancellable operating leases is set
forth in the following table (in thousands):
Fiscal Year Amount
1995 $ 1,041
1996 926
1997 715
1998 142
Total minimum rental commitments $ 2,824
The Company and certain of its subsidiaries have employment contracts
with various officers with remaining terms of approximately two years at
amounts approximating their current levels of compensation. The Company's
remaining aggregate commitment at February 28, 1994 under such contracts
is approximately $3,000,000.
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 the 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.
F-26
<PAGE>
As previously disclosed in the Registrant's Annual Reports on Form 10-K
for the fiscal years ended February 28 (29), 1991, 1992, and 1993, on
October 12, 1990, the plaintiff, 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". 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 has
been adjourned in the Bankruptcy Court until July 7, 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.
12. Liquidity
As described in Note 7 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 its holders of its Talent Notes, Creditor Notes and 10%
Subordinated Debentures (the "Plan Debt") 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 7 of Notes to Consolidated Financial Statements ("Note 7"), 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 Plan obligations discussed below in the
fiscal years ended February 28, 1995 and February 29, 1996.
As described in Note 7, 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 7, 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 Plan Debt
F-27
<PAGE>
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 contain 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 could 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 non-recourse
financing. In order to further exploit its existing distribution
apparatus, the Company will continue to actively seek to attract the
requisite non-recourse 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 non-recourse financing for the production of new
product, which the Company is also permitted to engage in under the Plan
on a non-recourse 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.
F-28
<PAGE>
13. Selected Quarterly Financial Data (unaudited)
Selected financial information for the quarterly periods in fiscal 1994
and 1993 is presented below (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
First Quarter Second Quarter
of Fiscal year of Fiscal Year
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $ 39,591 $ 80,782 $ 30,632 $ 35,103
Gross profit (loss) $ (1,803) $ 9,701 $(15,916) (a) $ 5,890
Selling, general and administrative expenses $ 5,188 (e) $ 9,538 $ 5,367 (e) $ 7,848
Interest expense, net $ 8,336 $ 4,407 (b) $ 8,231 $ 4,228 (b)
Chapter 11 reorganization items $ 822 $ 5,091 $ 391 $ 4,441
Loss before provision for income taxes $(16,149) $ (9,335) $(29,905) $(10,627)
Loss before extraordinary gains recognized upon
emergence from chapter 11 $(16,849) $(10,735) $(30,205) $(11,427)
Extraordinary gains recognized upon emergence
from Chapter 11, net of income taxes ----- $ ----- ----- $ -----
Net income (loss) $(16,849) $(10,735) $(30,205) $(11,427)
Loss per common share:
Primary:
Before extraordinary gains $ ( .84) $(67.14) $ ( 1.51) $ (71.46)
Net income (loss) $ ( .84) $(67.14) $ ( 1.51) $ (71.46)
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
Third Quarter Fourth Quarter
of Fiscal year of Fiscal Year
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $ 70,729 $ 53,726 $ 34,710 $ 52,707
Gross profit (loss) $ 8,409 $ 14,272 $ (58,058) (d) $ (22,357) (c)
Selling, general and administrative expenses $ 5,250 (e) $ 8,398 $ 5,834 $ 4,670
Interest expense, net $ 8,107 $ 6,520 (b) $ 7,622 $ 8,378
Chapter 11 reorganization items (Note 3) $ 193 $ 6,208 $ 387 $ 5,052
Loss before provision for income taxes $ (5,141) $ (6,854) $ (71,901) $ (40,457)
Loss before extraordinary gains recognized upon
emergence from chapter 11 $ (5,441) $ (9,154) $ (72,701) $ (41,657)
Extraordinary gains recognized upon emergence
from chapter 11, net of income taxes ----- $312,592 ----- $ 10,621
Net income (loss) $ (5,441) $303,438 $ (72,701) $ (31,036)
Income (loss) per common share:
Primary:
Before extraordinary gains $ ( .27) $ (1.57) $ ( 3.64) $ (2.08)
Net income (loss) $ ( .27) $ 52.06 $ ( 3.64) $ (1.55)
</TABLE>
(a) Gross profit (loss) for the second quarter of fiscal 1994
includes an aggregate of $6,900,000 of writedowns to estimated
net realizable value of theatrical product unreleased at that
time and $5,100,000 of writedowns due to disappointing domestic
home video sales results.
(b) In accordance with the requirements of SOP 90-7, the Company
ceased accruing interest on its subordinated notes and
debentures on the Filing Date. The Company began accruing
interest on its new debt on the Effective Date (Notes 2 and 7).
(c) As is more fully described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations",
gross profit for the fourth quarter of fiscal 1993 was impacted
by writedowns to estimated net realizable value on certain
product and by reductions in gross profit rates on certain other
product due in part to adjustments made to the Company's
estimates of the future revenue-generating potential of that
product during that quarter. Gross profit for the fourth
quarter of fiscal 1993 was also impacted by a $15,100,000
additional writedown to estimated net realizable value of
theatrical product released in that quarter and unreleased at
that time.
(d) As is more fully described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations",
gross profit for the fourth quarter of fiscal 1994 was impacted
by writedowns to estimated net realizable value on certain
product and by reductions in gross profit rates on certain other
product due in part to adjustments made to the Company's
estimates of the future revenue-generating potential of that
product during that quarter including the impact of the Showtime
Settlement. Gross profit for the fourth quarter of fiscal 1994
was also impacted by a $27,000,000 additional writedown to
estimated net realizable value of theatrical product released in
that quarter and all unreleased titles at that time.
(e) Selling, general and administrative expenses beginning in the
fourth quarter of fiscal 1993 reflect the cost savings
associated with the relocation of the Company's corporate
offices from New York to Los Angeles.
F-30
<PAGE>
ORION PICTURES CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Accounts Balance
Beginning Costs and Written at End of
of Period Expenses Off Period
<S> <C> <C> <C> <C>
Year ended February 28, 1994
Allowance for doubtful accounts $ 26,000,000 $ 900,000 $ 12,100,000 $ 14,800,000
Year ended February 28, 1993
Allowance for doubtful accounts $ 26,000,000 $ 1,783,000 $ 1,783,000 $ 26,000,000
Year ended February 29, 1992
Allowance for doubtful accounts $ 14,500,000 $ 12,262,000 $ 762,000 $ 26,000,000
</TABLE>
F-31
<PAGE>
ORION PICTURES CORPORATION
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Fiscal Years Ended in February
Description 1994 1993 1992
Advertising Expense (1) $59,526,000 $44,586,000 $184,398,000
Royalty Expense (2) $17,392,000 $28,871,000 $ 51,176,000
(1) Advertising expense includes amounts spent for general corporate
advertising and to advertise the home video releases of Orion Home
Video in the United States and Canada which are charged directly
to operations as well as amounts amortized from film inventories,
a portion of which was capitalized in previous years.
(2) Royalty expense represents net amounts paid to or accrued for the
account of (a) producers of certain motion pictures distributed by
the Company, and (b) motion picture producers, directors, artists
and others, covering their shares of the proceeds derived from the
distribution of certain motion pictures in the production of which
they participated. Items of the foregoing nature are generally
referred to in the motion picture industry as "participations and
residuals."
F-32
<PAGE>
EXHIBIT 11 (page 1)
ORION PICTURES CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per-share amounts)
The following tables detail the calculation of the per-share amounts and
number of shares used in computing Loss from continuing operations, Loss
before extraordinary gains and Net income (loss) per common share, on a
primary and fully diluted basis.
<TABLE>
<CAPTION>
Fiscal Years Ended in February
1994 1993 1992
<S> <C> <C> <C>
Primary:
Loss from continuing operations ($125,196) ($ 72,973) ($280,832)
Dividends on preferred and preference stock -- (19) (28)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and warrants and the resulting
assumed reduction of outstanding indebtedness (B)(C) -- (A) --
__________ __________ _________
Loss from continuing operations, as adjusted ($125,196) ($ 72,992) ($280,860)
__________ __________ _________
__________ __________ _________
Loss before extraordinary gains ($125,196) ($72,973) ($312,071)
Dividends on preferred and preference stock -- (19) (28)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and warrants and the resulting
assumed reduction of outstanding indebtedness (B)(C) -- (A) --
__________ __________ _________
Loss before extraordinary gains, as adjusted ($125,196) ($ 72,992) ($312,099)
__________ __________ _________
__________ __________ _________
Net income (loss) ($125,196) $250,240 ($312,071)
Dividends on preferred and preference stock -- (19) (28)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and the resulting assumed reduction
of outstanding indebtedness (B)(C) -- (A) --
__________ __________ _________
Net income (loss), as adjusted ($125,196) $250,221 ($312,099)
__________ __________ _________
__________ __________ _________
Weighted average number of shares outstanding,
reflects reverse stock split (E) 20,000 6,465 160
Equivalent shares applicable to stock
options and warrants outstanding (B)(C)(E) -- (A) 1
__________ __________ _________
Total common and common equivalent shares 20,000 6,465 161
__________ __________ _________
__________ __________ _________
Primary income (loss) per common share:
Loss from continuing operations ($ 6.26) ($ 11.29) ($1,744.47)
__________ __________ _________
__________ __________ _________
Loss before extraordinary gains ($ 6.26) ($ 11.29) ($1,938.50)
__________ __________ _________
__________ __________ _________
Net income (loss) ($ 6.26) $ 38.70 ($1,938.50)
__________ __________ _________
__________ __________ _________
</TABLE>
<PAGE>
EXHIBIT 11 (page 2)
ORION PICTURES CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended in February
1994 1993 1992
<S> <C> <C> <C>
Fully Diluted:
Loss from continuing operations ($125,196) ($ 72,973) ($280,832)
Dividends on preferred and preference stock -- -- (28)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and warrants and the resulting
assumed reduction of outstanding indebtedness (B)(C) -- (A) (A)
__________ __________ __________
Loss from continuing operations, as adjusted ($125,196) ($ 72,973) ($280,860)
__________ __________ __________
__________ __________ __________
Loss before extraordinary gains ($125,196) ($72,973) ($312,071)
Dividends on preferred and preference stock -- -- (28)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and warrants and the resulting
assumed reduction of outstanding indebtedness (B)(C) -- (A) (A)
__________ __________ __________
Loss before extraordinary gains, as adjusted ($125,196) ($ 72,973) ($312,099)
__________ __________ __________
__________ __________ __________
Net income (loss) ($125,196) $250,240 ($312,071)
Dividends on preferred and preference stock -- -- (28)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and the resulting assumed reduction
of outstanding indebtedness (B)(C) -- (A) (A)
__________ __________ __________
Net income (loss), as adjusted ($125,196) $250,240 ($312,099)
__________ __________ __________
__________ __________ __________
Weighted average number of shares outstanding,
reflects reverse stock split (E) 20,000 6,465 160
Equivalent shares applicable to:
Stock options and warrants outstanding (B)(C)(E) -- (A) (A)
Series B Preferred Stock (D) -- 14 (A)
__________ __________ __________
Total common and common equivalent shares (F) 20,000 6,479 160
__________ __________ __________
__________ __________ __________
Fully diluted income (loss) per common share:
Loss from continuing operations ($ 6.26) ($ 11.26) ($1,755.38)
__________ __________ __________
__________ __________ __________
Loss before extraordinary gains ($ 6.26) ($ 11.26) ($1,950.62)
__________ __________ __________
__________ __________ __________
Net income (loss) ($ 6.26) $ 38.62 ($1,950.62)
__________ __________ __________
__________ __________ __________
(A) Excluded from the computation due to antidilutive effect.
(B) All of the Company's warrants had been exercised and had expired by February 29, 1992.
(C) All of the Company's stock options were cancelled effective November 5, 1992.
(D) All of the Company's outstanding shares of preferred stock were converted to 20,000 shares of the
Company's common stock on November 5, 1992.
(E) All of the Company's outstanding shares of old common stock were converted to 160,000 shares of the
Company's new common stock on November 5, 1992.
(F) Additional common shares assumed to be issued for the fully diluted computation for all periods is less
than 3% of the weighted average common shares outstanding and, accordingly, fully diluted per-share
amounts have not been presented on the Consolidated Statements of Operations.
</TABLE>
LOAN AGREEMENT
LOAN AGREEMENT dated as of January 10, 1994
between Orion Pictures Corporation, a Delaware corporation
(hereinafter referred to as "Orion") and MetProductions,
Inc., a Delaware corporation (hereinafter referred to as
"MetProductions").
W I T N E S S E T H:
WHEREAS, Orion and Skyvision Entertainment, Inc.
("Skyvision") have entered into that certain Agreement (the
"Production Agreement") dated as of April 9, 1993 with
respect to the production of the television movie entitled
"ROBOCOP, The Fourth Directive" (the "Picture") and the
television series based thereon (the "Series"), which is
attached hereto as Exhibit A.
WHEREAS, on December 6, 1993 Orion and Skyvision
entered into an agreement with respect to the distribution
by Orion of the Picture and the Series on home video in the
United States and Canada (the "Distribution Agreement").
WHEREAS, in connection with the Distribution
Agreement, Orion has requested and MetProductions has agreed
to loan to Orion the Advance (as set forth in paragraph 4 of
the Distribution Agreement) in the sum of up to One Million
Five Hundred Thousand and 00/100 Dollars ($1,500,000.00).
NOW, THEREFORE, in consideration of the premises
and of the mutual covenants and agreements hereinafter set
forth, the parties hereto agree as follows:
1. THE LOAN.
1.1 Loan. Subject to the terms and
conditions set forth herein, upon the execution hereof,
MetProductions shall loan to Orion the principal sum of up
to One Million Five Hundred Thousand and 00/100
($1,500,000.00) Dollars (the "Loan"). Such Loan shall be
made in several payments 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 up to
One Million Five Hundred Thousand and 00/100 ($1,500,000.00)
Dollars and in the form attached hereto as Exhibit B. Each
payment made by MetProductions pursuant to section 1.1
hereof shall be reflected in Exhibit 1 to the Promissory
Note.
<PAGE>
2
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
canceled 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 1.5.3 below.
1.4 Interest. Orion will pay interest on
the principal amount of the Loan outstanding from the date
of such loan until the Loan is paid in full hereunder, at a
rate per annum equal to Ten Percent (10%). Interest shall
be calculated on the basis of a 365-day year for the actual
number of days elapsed.
1.5 Repayment of Loan. The Loan and all
accrued interest thereon shall be payable first from the
gross proceeds of the Picture and the Series 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 Picture and the Series
( e.g., residuals, duplication costs, marketing costs,
shipping costs). Orion shall remit to MetProductions all
gross proceeds to which Orion is entitled pursuant to the
terms of the 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
Distribution Agreement but only to the extent necessary to
secure MetProductions' right to receive payments under this
Agreement (the "Collateral"). The security interest hereby
created shall attach immediately on the execution of this
Agreement by MetProductions and Orion. Concurrently with
the execution of this Agreement (or within a reasonable time
thereafter), the parties hereto shall execute and file the
<PAGE>
3
Mortgage of Copyright and Security Agreement (the "Security
Agreement") attached hereto as Exhibit C and any UCC
Financing Statement(s) required to perfect the security
interest created by this Agreement and the Security
Agreement.
3. EVENTS OF DEFAULT.
3.1 Each of the following shall constitute
an Event of Default:
(a) the failure of Orion to pay
MetProductions in accordance with Section 1.5 hereof within
three (3) business days after notice from MetProductions
that such amount is due.
(b) the filing by Orion of a voluntary
petition for relief under any federal or state bankruptcy or
insolvency law, or the commencement by Orion of any other
voluntary proceeding or other action, proceeding or other
action in bankruptcy, or the filing of any involuntary
petition against Orion under any federal or state bankruptcy
law.
3.2 If any Event of Default shall occur,
MetProductions may, at its sole option and without notice,
declare the entire principal amount loaned to Orion in
accordance with this Agreement and the Note to be due and
payable in accordance with the terms and conditions of this
Agreement and the Note.
3.3 If any Event of Default shall occur,
MetProductions shall be entitled to exercise all of the
rights, powers and remedies permitted by law, including
without limitation, all rights and remedies of a secured
party of a debtor in default under the Uniform Commercial
Code in effect in the State of New York for the protection
and enforcement of its rights in respect of the Collateral.
4. REPRESENTATIONS AND WARRANTIES OF ORION.
Orion hereby represents and warrants to
MetProductions that:
4.1 Orion has the right to enter into this
Agreement and to grant and assign to MetProductions the
interest in the Picture and the Series herein granted.
4.2 The execution, delivery and performance
of this Agreement have been duly authorized by all necessary
action of Orion and do not and will not contravene or
<PAGE>
4
conflict with any corporate or fiduciary obligation Orion
has to its shareholders, including but not limited to, the
terms or provisions of Orion Pictures Corporation's By-Laws
or Orion Pictures Corporation's Restated Certificate of
incorporation. This Agreement constitutes the legally valid
and binding obligations of Orion and is enforceable against
Orion in accordance with its terms.
4.3 The execution, delivery and performance
of this Agreement will not result in a breach of or
constitute (with due notice or lapse of time or both) a
default under any agreement, undertaking or other instrument
to which Orion is a party or by which it may be bound or
affected.
4.4 To the best of Orion's knowledge and
except as disclosed in Orion Pictures Corporation's Annual
Report on Form 10-K for the fiscal year ended February 28,
1992, and those quarterly reports on 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,
Orion Pictures Corporation, the Picture or the Series
subject to this Agreement which, if adversely determined,
would materially affect Orion's ability to perform this
Agreement.
4.5 Orion agrees to use its reasonable
commercial efforts, consistent with good business practices,
in distributing and exploiting and causing the distribution
and/or exploitation of the Picture and the Series 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 Picture and the
Series on a reasonable basis.
4.7 Orion agrees to maintain records
pertaining to the license and distribution of the Picture
and the Series. MetProductions shall have the right upon
reasonable notice to Orion to inspect such records until
repayment of the Note in full.
5. ACKNOWLEDGMENT OF METPRODUCTIONS.
5.1 MetProductions acknowledges and agrees
that Orion makes no representation, warranty, guarantee or
agreement as to the amount of the gross proceeds of the
Picture and the Series which may be derived by Orion from
the distribution, exhibition or other exploitation thereof,
nor does Orion guarantee the performance by any distributor,
<PAGE>
5
sub-distributor, sub-licensee and/or agent of the Picture
and/or the Series.
5.2 Orion shall have the right to select
distributors, sub-distributors, sub-licensees, and/or agents
upon such terms and conditions as Orion may determine,
consistent with its past business practices and with the
customs and practices of the home video industry in general,
in connection with the distribution, exhibition or other
exploitation of the Picture and the Series.
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 Picture or the
Series; or (iii) any claim arising out of, or related to,
the production, distribution, or other exploitation of the
Picture or the Series.
7. MISCELLANEOUS.
7.1 This Agreement shall be construed in
accordance with and interpreted under the laws of the State
of New York governing agreements which are wholly executed
and performed therein.
7.2 Wherever provision is made in this
Agreement for the giving of any notice, such notice shall be
in writing and shall be deemed to have been duly given if
mailed by first class United States mail, postage prepaid,
addressed to the party entitled to receive the same or
delivered personally to such party at the address specified
below or by facsimile (receipt confirmed) to such party:
If to MetProductions to:
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Telecopy No.: (201) 804-6685
<PAGE>
6
If to Orion:
c/o Orion Pictures Corporation
1888 Century Park East
Los Angeles, California 90067
Attention: General Counsel
Telecopy No.: (310) 282-9902
or to such other address as either party hereto shall have
last designated by notice to the other party. Notice shall
be deemed to have been given three days following the date
on which such notice was so mailed or on the date such
notice was delivered personally or by facsimile.
7.3 This Agreement may be executed by one or
more of the parties to this Agreement on any number of
separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same
instrument.
7.4 Each party shall execute and deliver to
the other party from time to time all such other agreements,
instruments and other documents (including without
limitation all requested financing and continuation
statements) and do all such other and further acts and
things as the requesting party may reasonably request in
order further to evidence or carry out the intent of this
Agreement.
7.5 This Agreement represents the entire
agreement between the parties hereto with respect to the
subject matter hereof and supersedes all previous
representations, understandings or agreements, oral or
written, between the parties, with respect to the subject
matter hereof.
7.6 If any inconsistencies between the terms
and conditions of this Agreement and the Distribution
<PAGE>
7
Agreement are deemed to exist, the terms and conditions of
the Distribution Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date and year first above
written.
MetProductions, Inc.
By: /s/ Arnold L. Wadler
Arnold L. Wadler,
Senior Vice President
Orion Pictures Corporation
By: /s/ Leonard White
Leonard White, President
<PAGE>
Exhibit B
PROMISSORY NOTE
$1,500,0000.00 New York, New York
January 10, 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 $1,500,000.00 in accordance with the
terms of the Loan Agreement between Borrower and Lender of
even date herewith (the "Loan Agreement"); together with
accrued interest on the unpaid principal balance from the
date herewith at the annual rate of Ten (10%) percent. All
payments of principal and interest shall be made at Lender's
offices located at One Meadowlands Plaza, East Rutherford,
New Jersey 07073-2137, Attention: Accounting Department, or
at such other address provided to Borrower, in writing, from
time to time by the holder of this Note.
All capitalized terms used herein and not
otherwise defined shall have the meanings assignment thereto
in the Loan Agreement.
If any Event of Default specified in the Loan
Agreement shall occur, then the holder of this Note can
declare the entire unpaid principal amount of this Note,
together with interest accrued thereon, to be immediately
due and payable and such holder will have all of the rights
and remedies set forth in the Loan Agreement.
Borrower hereby waives presentment, demand for
payment, notice of default, dishonor or nonpayment, protest
and notice of protest and all other demands and notices in
connection with the delivery, acceptance, performance or
enforcement of this Note.
This Note shall be governed by and construed in
accordance with the laws of the State of New York, without
reference to the conflict of laws principles thereof.
IN WITNESS WHEREOF, Borrower has executed and
delivered this Note on the 10th day of January, 1994.
ATTEST: Orion Pictures Corporation
__________________ By:/s/ Leonard White
Secretary Leonard White, President
<PAGE>
9
Exhibit C
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security
Agreement") is made and entered into as of January 10, 1994
between Orion Pictures Corporation, a Delaware corporation,
("Orion" or the "Debtor") with offices located at 1888
Century Park East, Los Angeles, California 90067 and
MetProductions, Inc., a Delaware corporation
("MetProductions" or 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, Orion and Skyvision Entertainment, Inc.
("Skyvision") have entered into that certain Agreement (the
"Production Agreement") dated as of April 9, 1993 with
respect to the production of the television movie entitled
"ROBOCOP, The Fourth Directive" (the "Picture") and the
television series based thereon (the "Series"), which is
attached hereto as Exhibit A.
WHEREAS, on December 6, 1993 Orion and Skyvision
entered into an agreement with respect to the distribution
by Orion of the Picture and the Series on home video in the
United States and Canada (the "Distribution Agreement").
WHEREAS, MetProductions has agreed to lend to
Orion the Advance required under the Distribution Agreement
in the sum of up to One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00) pursuant to the terms of that
certain Loan Agreement (the "Loan Agreement") of even date
herewith between Orion and MetProductions.
NOW, THEREFORE, in consideration of the premises
and of the mutual covenants and agreements hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF SECURITY INTEREST.
(a) Grant. Debtor hereby mortgages,
hypothecates, grants and assigns to Secured Party as
security for the Secured Obligations and Rights (as such
term is defined in subparagraph 1(b) below) a continuing
first priority security interest in and to all of Debtor's
right, title, and interest of every kind and nature in and
to (but none of Debtor's obligations with respect to) all of
<PAGE>
10
the items listed in subparagraph 1(c) below, which items are
hereinafter collectively referred to as the "Collateral."
Notwithstanding anything to the contrary contained herein,
except for the security interest granted hereby and pursuant
to the Copyright Mortgages and Assignments referred to in
subparagraph 1(f) below and the Secured Party's rights and
remedies with respect to such security interests, this
Security Agreement is not intended to and does not grant to
Secured Party any greater exploitation rights in the Picture
and the Series than granted to Debtor by Skyvision 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 distribution rights in the Picture and the
Series pursuant to the terms of the Distribution Agreement,
(ii) recoup all sums paid or advanced by Debtor to Skyvision
in connection with the Picture and the Series, including,
without limitation, the Advance, to the extent and as
provided for in the Distribution Agreement, (iii) receive,
retain and own all gross proceeds or other sums derived from
or in connection with the exploitation of the distribution
rights in and to the Picture and the Series 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 Picture and the Series
provided for in the Distribution Agreement.
(c) Collateral. The term "Collateral," as
used herein shall mean all (except as otherwise provided in
subparagraphs (iv) through (vii) below where the Secured
Party's security interest in the applicable items of
Collateral is a non-exclusive interest in Debtor's interest
in the applicable items of Collateral) of Debtor's right,
title and interest of every kind and nature in and to the
following items, whether now owned or in existence or
<PAGE>
11
hereafter made, acquired or created and all product and
proceeds thereof:
(i) All of the Debtor's rights under
the Distribution Agreement including without limitation all
distribution rights in the Picture and the Series granted
pursuant to the Distribution Agreement;
(ii) All proceeds and product of the
rights (including without limitation all distribution rights
in the Picture and the Series) 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
(whether or not such claims to money have been earned by
performance) derived from or arising out of such rights;
(iii) All of Debtor's rights to receive
any sums of money under or in connection with the
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 1(d) shall become
operative, including the right to sell the Collateral or any
portion thereof, and, in addition thereto, to the rights and
remedies provided for herein and under the Loan Agreement
and to such other rights and remedies as may be provided by
law or in equity.
(e) Exercise of Rights. Secured Party shall
not exercise any of its rights hereunder in any manner that
would interfere with the production, completion, delivery or
exploitation of the Picture and the Series (so long as the
exploitation of the Picture and the Series 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
<PAGE>
12
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 maintenance,
preservation, and protection of any of the Collateral or its
security interest therein.
(f) Further Documents. Debtor hereby agrees
to execute and deliver to Secured Party all such financing
statements or similar documentation for all jurisdictions
designated by Secured Party (collectively, the "Financing
Statements"), one or more Copyright Mortgages and
Assignments in form and substance reasonably satisfactory to
Secured Party, and such other documents, agreements or
instruments as Secured Party shall reasonably request and
are reasonably required to better perfect, protect,
evidence, renew and/or continue the security interest in the
Collateral granted hereunder and/or to effectuate the
purposes and intents of this Security Agreement
(collectively, the "Security Documents"), to file, register
and/or record the same under (i) the Uniform Commercial
Code, and all other similar applicable laws of the States of
California and New York and under the laws of any other
jurisdiction where such filing, registration and/or
recordation may reasonably be required by Secured Party, and
(ii) the United States Copyright Act. If after the
occurrence and during the continuance of any of the events
specified in the second sentence of subparagraph 1(e) hereof
Debtor fails to execute and deliver to Secured Party any of
the Financing Statements, the Copyright Mortgages and
Assignments, or any other Security Documents on request of
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
<PAGE>
13
inaccuracy or failure to conform to this Agreement in any
Financing Statement, Copyright Mortgage and Assignment or
other Security Document so signed by Secured Party as
Debtor's attorney-in-fact. Debtor hereby authorizes the
Secured Party to file one or more financing or continuation
statements, and amendments thereto, relative to all or any
part of the Collateral without the signature of the Debtor
where permitted by law. A carbon, photographic or other
production of this Security Agreement or any part thereof
shall be sufficient as a financing statement where permitted
by law.
(g) Term of Security Interest. The security
interest created hereunder and under the Copyright Mortgages
and Assignments shall commence as of the date of this
Security Agreement and shall terminate upon the expiration
of the Term of Secured Party's rights under the Loan
Agreement, at which time Secured Party, on Debtor's request
and without further consideration, shall execute and deliver
to Debtor termination statements releasing and terminating
the Financing Statements, the Copyright Mortgages and
Assignments, and the other Security Documents, all without
recourse upon or warranty by Secured Party and with filing
thereof at the sole cost and expense of Debtor.
(h) Priority of Security Interest. The
security interest by Secured Party in and to the Collateral
shall be a first priority security interest.
(i) Continuing Security Interest. This
Security Agreement shall create a continuing security
interest in the Collateral and shall (a) be binding upon the
Debtor, its successors and assigns and (b) inure to the
benefit of the Secured Party and its successors, transferees
and assigns.
2. DEBTOR'S WARRANTIES AND REPRESENTATIONS AND
AGREEMENTS.
Debtor confirms, warrants and represents to
Secured Party as follows, which such confirmations,
representations and warranties shall be deemed to be
continuing until the termination of the Secured Party's
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
<PAGE>
14
may in any way conflict or interfere with or have priority
over the security interest herein granted by Debtor to
Secured Party; provided however that in no event may Debtor
grant or permit to exist on all or any portion of the
Collateral described in subparagraphs 1(c)(i) through (iii)
any lien, encumbrance or security interest, and (c) no
agreements, understandings or other arrangements have been
or will be made or entered into by Debtor which do or may in
any way conflict or interfere with the full, complete and
unfettered exercise by Secured Party of the Secured Party's
Rights or any other rights granted by Debtor to Secured
Party in this Security Agreement or any of the other
Security Documents or in the Loan Agreement. Debtor will
not sell, offer to sell, hypothecate or otherwise dispose of
any Collateral (including proceeds) subject hereto, or any
part thereof or interest therein, except subject to the
security interest granted to Secured Party hereunder.
3. EVENTS OF DEFAULT. The occurrence of any one
or more of the following events shall constitute a "Default"
hereunder.
(a) failure of Debtor to perform its
obligations under the Loan Agreement;
(b) any material default by Debtor under the
Loan Agreement or the Production 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 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
<PAGE>
15
suit, action or proceeding, and (c) irrevocably submit to
the non-exclusive jurisdiction of the United States District
Court for the Southern District of New York, or any court of
the State of New York located in the City of New York in any
such suit, action or proceeding and any summons, order to
show cause, writ, judgment, decree, or other process with
respect to any such suit, action or proceeding may be
delivered to Debtor personally outside the State of New
York, and when so delivered, Debtor shall be subject to the
jurisdiction of such court, and amenable to the process so
delivered as though the same had been served within the
State of New York, but outside the county in which such
suit, action or proceeding is pending.
6. NOTICES. All notices or other documents
which any party shall be required or shall desire to give to
the other hereunder shall be given in the manner provided
for in the Loan Agreement.
7. AMENDMENTS AND WAIVERS. No amendment or
waiver of any provision of this Agreement nor consent to any
departure by the Debtor herefrom shall in any event be
effective unless the same shall be in writing and signed by
the Secured Party, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
By signing in the spaces provided below, the
parties hereto have agreed to all of the terms and
conditions of this Security Agreement.
DEBTOR:
Orion Pictures Corporation
By: /s/ Leonard White
Leonard White, President
SECURED PARTY:
MetProductions, Inc.
By: /s/ Arnold L. Wadler
Arnold L. Wadler,
Senior Vice President
<PAGE>
16
State of California )
) ss:
County of Los Angles )
On ________, 1994, before me, a Notary Public and
in and for said State, personally appeared Leonard White
personally known to me or provided on the basis of
satisfactory evidence to be the person who executed the
within instrument as the President of Orion Pictures
Corporation, and acknowledged to me that such corporation
executed the within instrument to its powers to do so.
______________________________
Notary Public
LOAN AGREEMENT
LOAN AGREEMENT dated as of January 27, 1994
between Orion Home Entertainment Corporation, a Delaware
corporation (hereinafter referred to as "Orion") and
MetProductions, Inc., a Delaware corporation (hereinafter
referred to as "MetProductions").
W I T N E S S E T H :
WHEREAS, Orion and Fox Lorber Associates, Inc.
d/b/a Fox Lorber Home Video ("FLHV") have entered into that
certain Agreement (the "Fox Lorber Agreement") dated as of
November 1, 1993 with respect to provision of administrative
services in connection with FLHV product and the acquisition
of full length theatrical motion pictures ("Acquisition Fund
Product"). Capitalized terms used herein and not otherwise
defined shall have the meanings assigned thereto in the Fox
Lorber Agreement.
WHEREAS, as part of the consideration for the
provision of administrative services under the Fox Lorber
Agreement, Orion has agreed to provide to Fox Lorber the
amount of the Acquisition Fund and, Orion has requested and
MetProductions has agreed to lend to Orion the sum of up to
Eight Hundred Thousand and 00/100 ($800,000.00)
Dollars in order to provide to FLHV the Acquisition Fund.
NOW, THEREFORE, in consideration of the promises
and of the covenants and agreements hereinafter set forth,
the parties hereto agree as follows:
1. THE LOAN.
1.1 Loan. Subject to the terms and
conditions set forth herein, upon the execution hereof,
MetProductions shall loan to Orion up to the principal sum
of Eight Hundred Thousand and 00/100 ($800,000.00) Dollars
(the "Loan"). Such Loan shall be made in several payments
as directed by Orion.
1.2 Note. The Loan shall be evidenced by a
promissory note of Orion in the principal amount of
Eight Hundred Thousand and 00/100 ($800,000.00) Dollars
and in the form attached hereto as Exhibit B. Each
payment made by MetProductions pursuant to Section 1.1 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
<PAGE>
2
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 1.5.3 below.
1.4 Interest. Orion will pay interest on
the principal amount of the Loan from the date of such loan
until the Loan is paid in full hereunder, at a rate per
annum equal to Ten Percent (10%). Interest shall be
calculated on the basis of a 365-day year for the actual
number of days elapsed.
1.5 Repayment of Loan. The Loan and all
accrued interest thereon shall be payable as follows:
1.5.1 First, Orion shall remit to
MetProductions that portion of the Acquisition Fund actually
recouped by Orion pursuant to the terms of the Fox Lorber
Agreement until all accrued interest on the Loan has been
repaid. The Loan shall be nonrecourse to Orion and shall be
payable solely as set forth in this section 1.5.
1.5.2 Second, the Gross Receipts which
Orion is entitled to of the FLHV Product (less any expenses
incurred by Orion in connection with provision of
administrative services in connection with the FLHV Product]
shall be paid to MetProductions up to an amount equal to the
amount loaned to Orion pursuant to Section 1.1 hereof.
1.5.3 Orion shall furnish to
MetProductions quarterly accounting statements with respect
to each picture acquired by FLHV in connection with the
Acquisition Fund. Notwithstanding the foregoing, no
accountings shall be required after all amounts due
hereunder have been paid to MetProductions.
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
<PAGE>
3
Fox Lorber Agreement but only to the extent necessary to
secure MetProductions' right to receive payments under this
Agreement (the "Collateral"). The security interest hereby
created shall attach immediately on the execution of this
Agreement by MetProductions and Orion. Concurrently with
the execution of this Agreement (or within a reasonable time
thereafter), the parties hereto shall execute and file the
Mortgage of Copyright and Security Agreement (the "Security
Agreement") attached hereto as Exhibit C and any UCC
Financing Statement(s) required to perfect the security
interest created by this Agreement and the Security
Agreement.
3. EVENTS OF DEFAULT.
3.1 Each of the following shall constitute
an Event of Default:
(a) the failure of Orion to pay
MetProductions in accordance with Section 1.5 hereof within
three (3) business days after notice from MetProductions
that such amount is due.
(b) the filing by Orion of a voluntary
petition for relief under any federal or state bankruptcy or
insolvency law, or the commencement by Orion of any other
voluntary proceeding or other action, proceeding or other
action in bankruptcy, or the filing of any involuntary
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 of the loan to Orion to
be due and payable in accordance with the terms and
conditions of this Agreement and the Note.
3.3 If any Event of Default shall occur,
MetProductions shall be entitled to exercise all of the
rights, powers and remedies permitted by law, including
without limitation, all rights and remedies of a secured
party of a debtor in default under the Uniform Commercial
Code in effect in the State of New York for the protection
and enforcement of its rights in respect of the Collateral.
<PAGE>
4
4. REPRESENTATIONS AND WARRANTIES OF ORION.
Orion hereby represents and warrants to
MetProductions that:
4.1 Orion has the right to enter into this
Agreement and to grant and assign to MetProductions its
interest in the FLHV Acquisition Product and the Gross
Receipts.
4.2 The execution, delivery and performance
of this Agreement have been duly authorized by all necessary
action of Orion and do not and will not contravene or
conflict with any corporate or fiduciary obligation Orion
has to its shareholders, including but not limited to the
terms or provisions of Orion's By-Laws or Restated
Certificate of Incorporation. This Agreement constitutes
the legally valid and binding obligations of Orion and is
enforceable against Orion in accordance with its terms.
4.3 The execution, delivery and performance
of this Agreement will not result in a breach of or
constitute (with due notice or lapse of time or both) a
default under any agreement, undertaking or other instrument
to which Orion is a party or by which it may be bound or
affected.
4.4 To the best of Orion's knowledge and
except as disclosed in Orion's Annual Report on Form 10-K
for the fiscal year ended February 28, 1992, 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 motion
picture subject to this Agreement which, if adversely
determined, would materially affect Orion's ability to
perform this Agreement.
4.5 Orion agrees to use its reasonable
commercial efforts, consistent with good business practices,
in providing administrative services in connection with FLHV
Product and causing the sale of Acquisition Fund Product as
herein provided.
4.6 Orion agrees to provide MetProductions
with statements of the Gross Receipts and funds advanced to
FLHV in connection with the Acquisition Fund Product on a
reasonable basis.
4.7 Orion agrees to maintain records
pertaining to the provision of administrative services of
FLHV Product and the funds advanced to FLHV pursuant to the
Fox Lorber Agreement. MetProductions shall have the right
<PAGE>
5
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 FLHV
Product which may be derived from the exploitation thereof,
nor does Orion guarantee the performance by any distributor,
sub-distributor and/or agent of any contract for the
exhibition of the Acquisition Fund Product or the FLHV
Product.
5.2 Orion shall have the right to select
sub-distributors and/or agents upon such terms and
conditions as Orion may determine, consistent with its past
business practices and with the customs and practices of the
home video industry in general, in connection with the
exploitation of the FLHV Product and Acquisition Fund
Product.
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 provision of
administrative services and the advance of the Acquisition
Fund both pursuant to the terms of the Fox Lorber Agreement
or (iii) any claim arising out of, or related to, the
exploitation of the Acquisition Fund Product or the FLHV
Product.
7. MISCELLANEOUS
7.1 This Agreement shall be construed and
interpreted under the laws of the State of New York
governing agreements which are wholly executed and performed
therein.
7.2 Wherever provision is made in this
Agreement for the giving of any notice, such notice shall be
<PAGE>
6
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) 804-6685
If to Orion:
Orion Home Entertainment Corporation
c/o Orion Pictures Corporation
1888 Century Park East
Los Angeles, California 90067
Attention: General Counsel
Telecopy No.: (310) 282-9902
or to such other address as either party hereto shall have
last designated by notice to the other party. Notice shall
be deemed to have been given three days following the date
on which such notice was so mailed or on the date such
notice was delivered personally or by facsimile.
7.3 This Agreement may be executed by one or
more of the parties to this Agreement on any number of
separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same
instrument.
7.4 Each party shall execute and deliver to
the other party from time to time all such other agreements,
instruments and other documents (including without
limitation all requested financing and continuation
statements) and do all such other and further acts and
things as the requesting party may reasonably request in
order further to evidence or carry out the intent of this
Agreement.
7.5 This Agreement represents the entire
agreement between the parties hereto with respect to the
subject matter hereof and supersedes all previous
representations, understandings or agreement, oral or
written, between the parties, with respect to the subject
matter hereof.
7.6 If any inconsistencies between the terms
and conditions of this Agreement and the Fox Lorber
<PAGE>
7
Agreement, the terms and conditions of the Fox Lorber
Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date and year first above
written.
MetProductions, Inc.
By: /s/ Arnold L. Wadler
Arnold L. Wadler,
Senior Vice President
Orion Home Entertainment
Corporation
By: /s/ Leonard White
Leonard White, President
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$800,000.00 New York, New York
January 27, 1994
FOR VALUE RECEIVED, Orion Home Entertainment
Corporation, a Delaware corporation ("Borrower"), promises
to pay to the order of MetProductions, Inc. ("Lender") or
its assigns, up to the principal sum of $800,000.00 in
accordance with the terms of the Loan Agreement between
Borrower and Lender of even date herewith (the "Loan
Agreement"); together with accrued interest on the unpaid
principal balance from the date herewith at the annual rate
of Ten (10%) percent. All payments of principal and
interest shall be made at Lender's offices located at One
Meadowlands Plaza, East Rutherford, New Jersey 07073-2137,
Attention: Accounting Department, or at such other address
provided to Borrower, in writing, from time to time by the
holder of this Note.
All capitalized terms used herein and not
otherwise defined shall have the meanings 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 27th day of January, 1994.
ATTEST: Orion Home Entertainment
Corporation, a Delaware corporation
/s/ John W. Hester By: /s/ Leonard White
Secretary Leonard White, President
<PAGE>
EXHIBIT 1 TO
PROMISSORY NOTE
Date Amount Authorization
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security
Agreement") is made and entered into as of January 27, 1994
between Orion Home Entertainment Corporation, a Delaware
corporation, (the "Debtor") with offices located at 1888
Century Park East, Los Angeles, California 90067 and
MetProductions, Inc., a Delaware corporation (the "Secured
Party") with offices of c/o Metromedia Company, One
Meadowlands Plaza, East Rutherford, New Jersey 07073.
R E C I T A L S:
WHEREAS, pursuant to that certain Agreement dated
as of November 1, 1993 between Orion Home Entertainment
Corporation and Fox Lorber Associates, Inc. d/b/a Fox Lorber
Home Video ("FLHV") (the "Fox Lorber Agreement"), Debtor has
agreed to perform certain administrative services for FLHV
and has acquired certain rights in and to the Gross Receipts
of all FLHV Product (as defined in the Fox Lorber
Agreement).
WHEREAS, MetProductions and Debtor have entered
into a Loan Agreement of even date herewith (the "Loan
Agreement"). Pursuant to the Loan Agreement, MetProductions
has agreed to loan (the "Loan") to Debtor the amount of the
Acquisition Fund (as defined in the Fox Lorber Agreement) in
connection with the acquisition by FLHV of full-length
feature films ("Acquisition Fund Product") or other
programming to be mutually agreed to between Debtor and
FLHV; and
WHEREAS, Debtor has agreed to assign to
MetProductions its right, title and interest in and to the
Gross Receipts and the Acquisition Fund Product as security
for repayment of the Loan.
Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to them in the Fox
Lorber Agreement.
NOW, THEREFORE, in consideration of the premises
and of the mutual covenants and agreements hereinafter set
forth and other good and valuable consideration, the parties
hereto agree as follows:
<PAGE>
2
1. GRANT OF SECURITY INTEREST.
(a) Grant. Debtor hereby mortgages,
hypothecates, grants and assigns to Secured Party as
security for the Secured Obligations and Rights (as such
term is defined in subparagraph 1(b) below) a continuing
first priority security interest in and to all of Debtor's
right, title, and interest of every kind and nature in and
to (but none of Debtor's obligations with respect to) all of
the items listed in subparagraph 1(c) below, which items are
hereinafter collectively referred to as the "Collateral."
Notwithstanding anything to the contrary contained herein,
except for the security interest granted hereby and pursuant
to the Copyright Mortgages and Assignments referred to in
subparagraph 1(f) below and the Secured Party's rights and
remedies with respect to such security interests, this
Security Agreement is not intended to and does not grant to
Secured Party any greater exploitation rights in the
Acquisition Fund Product and the FLHV Product than granted
to Debtor by FLHV pursuant to the Fox Lorber 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 Acquisition Fund Product pursuant to the
terms of the Fox Lorber Agreement, (ii) recoup all sums
loaned by Debtor to Fox Lorber in connection with the
Acquisition Fund Product and the FLHV Product,
(iii) receive, retain and own all Gross Proceeds or other
sums derived from or in connection with the exploitation of
the Acquisition Fund Product and the FLHV Product, subject
to the terms and conditions of the Fox Lorber 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 Acquisition Fund Product and
the FLHV Product provided for in the Fox Lorber Agreement.
(c) Collateral. The term "Collateral," as
used herein shall mean all (except as otherwise provided in
subparagraphs (iv) through (vii) below where the Secured
<PAGE>
3
Party's security interest in the applicable items of
Collateral is a non-exclusive interest in Debtor's interest
in the applicable items of Collateral) of Debtor's right,
title and interest of every kind and nature in and to the
following items, whether now owned or in existence or
hereafter made, acquired or created and all product and
proceeds thereof:
(i) All of the Debtor's rights under
the Fox Lorber Agreement including without limitation all
rights in connection with the Acquisition Fund Product and
FLHV Product granted to Debtor pursuant to the Fox Lorber
Agreement;
(ii) All proceeds and product of the
rights (including without limitation all rights in the
Acquisition Fund Product and the FLHV Product) granted to
Debtor under the Fox Lorber Agreement, including without
limitation, all accounts, contract rights, chattel paper,
documents, general intangibles and instruments (as defined
under the California Uniform Commercial Code) and all money
and claims for money (whether or not such claims to money
have been earned by performance) derived from or arising out
of such rights;
(iii) All of Debtor's rights to receive
any sums of money under or in connection with the Fox Lorber
Agreement;
(iv) The nonexclusive right to all
common law and statutory domestic and foreign copyrights,
rights and interests in copyrights and renewals and
extensions of copyrights, in or relating to the Acquisition
Fund Product (collectively, the "Copyrights"), to the extent
that the Copyrights pertain to and are necessary for the
Secured Party's exploitation of the rights granted to Debtor
in the Fox Lorber Agreement; provided, that to the extent
applicable law recognizes the divisibility of copyright and
the Debtor's interests in the rights granted under the Fox
Lorber Agreement in and to the Acquisition Fund Product are
recognized as divisible parts of the copyrights of the
Acquisition Fund Product, then in such instances the Secured
Party's interest in such divisible parts of the copyrights
of the Acquisition Fund Product relating solely to such
rights shall be an exclusive security interest;
(v) The non-exclusive right to all
tangible personal property and physical properties of every
kind or nature whatsoever of or directly relating to the
Acquisition Fund Product (including without limitation all
exposed film, developed film, positives, negatives, prints,
answer prints, trailers, soundtracks, music and effects
tracks, video masters, video and audio recordings, copies of
<PAGE>
4
all (1) continuity lists, (2) dialogue lists, (3) spotting
lists, (4) synchronization licenses, (5) composers
agreements, (6) contracts relating to the acquisition and
production of the Licensed Programs, (7) cast lists,
(8) still photographs and artwork, (9) press books,
(10) story synopses, (11) credit requirements lists,
(12) posters, (13) advertising and (14) publicity materials)
and all versions thereof and all of Debtor's rights of
access to the foregoing (collectively, the "Physical
Properties");
(vi) The nonexclusive right to all
literary, dramatic, musical and other material created for
the Acquisition Fund Product or upon which the Acquisition
Fund Product is based or to be based, in whole or in part,
or which are used in connection with the Acquisition Fund
Product (including without limitation the screenplays and
the underlying materials upon which the screenplays are
based) and all common law and statutory domestic and foreign
copyrights, and rights and interests in copyrights and
renewals and extensions of copyrights, in and to said
literary, dramatic, musical and other written material (the
"Literary Properties");
(vii) The nonexclusive right to all
general intangibles and contract rights in or relating to
all agreements and understandings (whether or not evidenced
in writing) with third parties relating to the creation,
production and acquisition of the Acquisition Fund Product,
including without limitation all agreements and under-
standings with third parties producing the Acquisition Fund
Product or furnishing services and/or rights relating to the
development, production, completion, delivery and/or acqui-
sition of the Acquisition Fund Product or to any of the
Physical Properties, Literary Properties or Copyrights,
including, without limitation, all agreements and
understandings relating to Debtor's acquisition of the
Acquisition Fund Product from third parties.
Notwithstanding the foregoing, Secured Party's
security interest in the Collateral described in
subparagraphs (iii) through (vii) above (the "Secondary
Collateral") is a nonexclusive (except as provided for in
subparagraph (iv)) security interest and is limited to
Debtor's right, title and interest in and to such Collateral
solely to the extent necessary to assure the delivery of the
Acquisition Fund Product to Secured Party and Secured
Party's full and complete exercise of the Secured Party's
Rights subject to the terms and conditions of the Fox Lorber
Agreement.
(d) Rights of Secured Party. With respect
to the security interests hereby granted to Secured Party
<PAGE>
5
and granted to the Secured Party pursuant to the Copyright
Mortgages and Assignments, Secured Party and any of its
successors or assignees shall at all times be entitled to
exercise in respect of the Collateral all of the rights,
remedies, powers and privileges available to a secured party
under all applicable laws, including without limitation, the
United States Copyright Act, the New York Uniform Commercial
Code in effect at the time which shall be applicable for the
purpose of establishing the relative rights of Secured Party
and of Debtor, and to those procedures to be followed
thereunder in the event this subparagraph 1(d) shall become
operative, including the right to sell the Collateral or any
portion thereof, and, in addition thereto, to the rights and
remedies provided for herein and under the Loan Agreement
and to such other rights and remedies as may be provided by
law or in equity.
(e) Exercise of Rights. Secured Party shall
not exercise any of its rights hereunder in any manner that
would interfere with the production, completion, delivery or
exploitation of the FLHV Product or the Acquisition Fund
Product (so long as the exploitation of the FLHV Product or
the Acquisition Fund Product 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
Fox Lorber 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 Fox Lorber Agreement or this
Security Agreement, the Secured Party, after giving notice
of its intention to do so, may take any reasonable action
which it may deem necessary for the maintenance,
preservation, and protection of any of the Collateral or its
security interest therein.
(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
<PAGE>
6
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
(ii) the United States Copyright Act. If after the
occurrence and during the continuance of any of the events
specified in the second sentence of subparagraph 1(e) hereof
Debtor fails to execute and deliver to Secured Party any of
the Financing Statements, the Copyright Mortgages and
Assignments, or any other Security Documents on request of
Secured Party, Debtor hereby appoints Secured Party its
irrevocable attorney-in-fact to sign any such document for
Debtor, and agrees that such appointment constitutes a power
coupled with an interest and is irrevocable throughout the
Term of the Fox Lorber Agreement, the Loan Agreement and
this Security Agreement; provided, however, that Secured
Party shall be liable to Debtor and Debtor's successors,
licensees and assigns for any damages resulting from
inaccuracy or failure to conform to this Agreement in any
Financing Statement, Copyright Mortgage and Assignment or
other Security Document so signed by Secured Party as
Debtor's attorney-in-fact. Debtor hereby authorizes the
Secured Party to file one or more financing or continuation
statements, and amendments thereto, relative to all or any
part of the Collateral without the signature of the Debtor
where permitted by law. A carbon, photographic or other
reproduction of this Security Agreement or any part thereof
shall be sufficient as a financing statement where permitted
by law.
(g) Term of Security Interest. The security
interest created hereunder and under the Copyright Mortgages
and Assignments shall commence as of the date of this
Security Agreement and shall terminate upon the expiration
of the Term of Secured Party's rights under the Loan
Agreement, at which time Secured Party, on Debtor's request
and without further consideration, shall execute and deliver
to Debtor termination statements releasing and terminating
the Financing Statements, the Copyright Mortgages and
Assignments, and the other Security Documents, all without
recourse upon or warranty by Secured Party and with filing
thereof at the sole cost and expense of Debtor.
<PAGE>
7
(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.
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;
<PAGE>
8
(b) any material default by Debtor under the
Loan Agreement or the Fox Lorber 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 Agreement may be instituted in a
State or Federal court in the City of New York, State of New
York, (b) waive any objection which they may have now or
hereafter to the County of New York as the venue of any such
suit, action or proceeding, and (c) irrevocably submit to
the non-exclusive jurisdiction of the United States District
Court for the Southern District of New York, or any court of
the State of New York located in the City of New York in any
such suit, action or proceeding and any summons, order to
show cause, writ, judgment, decree, or other process with
respect to any such suit, action or proceeding may be
delivered to Debtor personally outside the State of New
York, and when so delivered, Debtor shall be subject to the
jurisdiction of such court, and amenable to the process so
delivered as though the same had been served within the
State of New York, but outside the county in which such
suit, action or proceeding is pending.
6. NOTICES. All notices or other documents
which any party shall be required or shall desire to give to
the other hereunder shall be given in the manner provided
for in the Loan Agreement.
7. AMENDMENTS AND WAIVERS. No amendment or
waiver of any provision of this Agreement nor consent to any
departure by the Debtor herefrom shall in any event be
effective unless the same shall be in writing and signed by
the Secured Party, and then such waiver or consent shall be
<PAGE>
9
effective only in the specific instance and for the specific
purpose for which given.
By signing in the spaces provided below, the
parties hereto have agreed to all of the terms and
conditions of this Security Agreement.
DEBTOR:
Orion Home Entertainment Corporation
By: /s/ Leonard White
Leonard White, President
SECURED PARTY:
MetProductions, Inc.
By: /s/ Arnold L. Wadler
Arnold L. Wadler,
Senior Vice President
<PAGE>
<TABLE>
<S> <C>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California ) --OPTIONAL SECTION--
) CAPACITY CLAIMED BY SIGNER
County of Los Angeles ) Though statute does not
require the Notary to fill
On 8/2/83 before me, Wanda Clark, Notary Public , in the date below, doing so
date Name, Title of Officer - may prove invaluable to
e.g., "Jane Doe, Notary Public" persons relying on the
document.
personally appeared Leonard White
Name(s) of Signer(s) __ Individual
__ Corporate Officer (s)
X personally known to me -- OR --
proved to me on the basis of satisfactory evidence Title (s)
to be the person whose name is subscribed to __ Partner(s) __ Limited
the within instrument and acknowledged to me __ General
that he executed the same in his authorized __ Attorney-in-Fact
capacity, and that by his signature on the __ Trustee(s)
instrument the person, or the entity upon __ Guardian/Conservator
behalf of which the person acted, executed the __ Other:
instrument.
WITNESS my hand and official seal.
SIGNER IS REPRESENTING:
Name of Person(s) or
Entity(ies)
Signature of Notary
THIS CERTIFICATE MUST BE ATTACHED TO TITLE OR TYPE OF DOCUMENT Security Agreement
THE DOCUMENT DESCRIBED AT RIGHT:
NUMBER OF PAGES 8 DATE OF DOCUMENT 1-93
Though the date requested here is not required
by law, it could prevent fraudulent reattachmentSIGNER(S) OTHER THAN NAMED ABOVE
of this form.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California ) --OPTIONAL SECTION--
) CAPACITY CLAIMED BY SIGNER
County of Los Angeles ) Though statute does not
require the Notary to fill
On 1/25/94 before me, Wanda Clark, Notary Public , in the date below, doing so
date Name, Title of Officer - may prove invaluable to
e.g., "Jane Doe, Notary Public" persons relying on the
document.
personally appeared Leonard White
Name(s) of Signer(s) __ Individual
__ Corporate Officer (s)
X personally known to me -- OR --
proved to me on the basis of satisfactory evidence Title (s)
to be the person whose name is subscribed to __ Partner(s) __ Limited
the within instrument and acknowledged to me __ General
that he executed the same in his authorized __ Attorney-in-Fact
capacity, and that by his signature on the __ Trustee(s)
instrument the person, or the entity upon __ Guardian/Conservator
behalf of which the person acted, executed the __ Other:
instrument.
WITNESS my hand and official seal.
SIGNER IS REPRESENTING:
Name of Person(s) or
Entity(ies)
Signature of Notary
THIS CERTIFICATE MUST BE ATTACHED TO TITLE OR TYPE OF DOCUMENT Security Agreement
THE DOCUMENT DESCRIBED AT RIGHT:
NUMBER OF PAGES 8 DATE OF DOCUMENT 1-93
Though the date requested here is not required
by law, it could prevent fraudulent reattachment SIGNER(S) OTHER THAN NAMED ABOVE
of this form.
</TABLE>
ORION PICTURES CORPORATION SUBSIDIARIES
at 2/28/94
American International Pictures, Inc. (DE)
Mintaka Films B.V. (Netherlands)
Musicways, Inc. (CA)
Orion Home Entertainment Corporation (DE)
Orion Music Publishing, Inc. (CA)
Orion Pictures Distribution Corporation (DE)
Buckminster Music Limited (England)
Donna Music Publications (CA)
F.P. Productions (CA)
Brighton Productions, Inc. (CA)
OPC Music Publishing, Inc. (CA)
Orion Pictures Distribution (Canada) Inc.
Distribution De Films Orion (Canada) Inc.
Orion Productions, Inc. (DE)
Orion TV Productions, Inc. (NY)
