SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1997
Commission File No. 0-17342
LIVE ENTERTAINMENT INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4178252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15400 Sherman Way, Van Nuys, California 91406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 988-5060
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 whether the Registrant has filed all
documents and reports required to be filed by Section 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
As of April 23, 1997, there were 2,450,467 shares of the
Registrant's Common Stock, 3,819,802 shares of the Registrant's Series
B Cumulative Convertible Preferred Stock and 15,000 shares of the
Registrant's Series C Convertible Preferred Stock outstanding.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 . . . . . . . 1
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1997 and 1996. . . . . . . . . . . . . . 2
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1997 and 1996. . . . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . 4-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. . . . . . . . . . . . . . . . . . . 7-11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . 11-12
ITEM 3(b). DEFAULTS UPON SENIOR SECURITIES - DIVIDEND
ARREARAGE ON PREFERRED STOCK . . . . . . . . . . . . 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . 12
<PAGE>
PART I - FINANCIAL INFORMATION
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
March 31, December 31,
1997 1996
ASSETS
Cash and cash equivalents, including restricted
cash of $1,109 and $668 . . . . . . . . . . . . . . . $48,412 $ 41,992
Accounts receivable, less allowances of
$20,879 in 1996. . . . . . . . . . . . . . . . . . . . -- 7,906
Inventories. . . . . . . . . . . . . . . . . . . . . . 8,335 6,206
Property and equipment, net. . . . . . . . . . . . . . 1,335 1,058
Film costs, net of accumulated amortization
of $622,305 and $610,067. . . . . . . . . . . . . . . 59,869 62,633
Other assets . . . . . . . . . . . . . . . . . . . . . 1,942 1,940
Goodwill, net of accumulated amortization of
$44,948 and $43,967 . . . . . . . . . . . . . . . . . 21,041 22,022
$140,934 $ 143,757
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . $ 6,538 $ 5,177
Accrual for returns and advertising net of accounts
receivable of $14,984 in 1997 . . . . . . . . . . . . 6,515 --
Accrued expenses . . . . . . . . . . . . . . . . . . . 3,513 3,918
Deferred revenue . . . . . . . . . . . . . . . . . . . 8,109 8,492
Notes payable. . . . . . . . . . . . . . . . . . . . . 11,310 13,571
Increasing Rate Senior Subordinated Notes due
1999, including capitalized interest of
$6,963 and $9,176 . . . . . . . . . . . . . . . . . . 46,963 49,176
Film obligations . . . . . . . . . . . . . . . . . . . 12,148 14,577
Dividends payable. . . . . . . . . . . . . . . . . . . 4,220 4,033
Income taxes payable and deferred income taxes . . . . 16,741 16,346
Total liabilities . . . . . . . . . . . . . . . . . . 116,057 115,290
Stockholders' Equity:
Series B Cumulative Convertible Preferred Stock--
authorized 9,000,000 shares; $1.00 par value;
$38,198,020 liquidation preference; 3,819,802
shares outstanding. . . . . . . . . . . . . . . . . . 3,819 3,819
Series C Convertible Preferred Stock--15,000 shares
authorized and outstanding; $1.00 par value;
$15,000,000 liquidation preference. . . . . . . . . . 15 15
Common Stock--authorized 24,000,000 shares;
$0.01 par value; 2,448,193 and 2,448,267
shares outstanding. . . . . . . . . . . . . . . . . . 24 24
Additional paid-in capital . . . . . . . . . . . . . . 122,787 123,930
Retained deficit . . . . . . . . . . . . . . . . . . . (101,768) (99,321)
24,877 28,467
$140,934 $143,757
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
Three Months Ended
March 31,
1997 1996
Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 26,662 $ 22,553
Cost of goods sold . . . . . . . . . . . . . . . . . . 22,965 16,713
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . 3,697 5,840
Operating Expenses:
Selling, general and administrative expenses. . . . . 5,149 3,862
Amortization of goodwill. . . . . . . . . . . . . . . 981 981
. . . . . . . . . . . . . . . . . . . . . . . . . . 6,130 4,843
OPERATING (LOSS) PROFIT . . . . . . . . . . . . . . (2,433) 997
Interest and other income. . . . . . . . . . . . . . . 678 789
Interest expense . . . . . . . . . . . . . . . . . . . (392) (497)
(LOSS) INCOME BEFORE INCOME TAXES . . . . . . . . . (2,147) 1,289
Income tax expense. . . . . . . . . . . . . . . . . . 300 322
NET (LOSS) INCOME . . . . . . . . . . . . . . . . . $ (2,447) $ 967
Net (loss) income per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . $ (1.47) $ .10
Fully diluted . . . . . . . . . . . . . . . . . . . . $ (1.47) $ .08
Weighted average number of shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . . 2,448 2,681
Fully diluted . . . . . . . . . . . . . . . . . . . . 2,448 11,860
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Three Months Ended
March 31,
1997 1996
OPERATING ACTIVITIES:
Net (loss) income . . . . . . . . . . . . . . . . . . $ (2,447) $ 967
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization of property
and equipment. . . . . . . . . . . . . . . . . . . . 143 172
Amortization of goodwill. . . . . . . . . . . . . . . 981 981
Amortization of and adjustments to film costs . . . . 12,238 11,521
Income taxes payable and deferred income taxes. . . . 395 322
(Increase) decrease in operating assets:
Accounts receivable . . . . . . . . . . . . . . . . 7,906 --
Inventories . . . . . . . . . . . . . . . . . . . . (2,129) (968)
Other assets. . . . . . . . . . . . . . . . . . . . (2) (258)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses
and deferred revenue. . . . . . . . . . . . . . . . 573 2,089
Accrual for returns and advertising . . . . . . . . 6,515 6,145
Film cost additions . . . . . . . . . . . . . . . . (9,475) (15,145)
Payments on film obligations. . . . . . . . . . . . (2,429) (5,167)
Cash provided by operating activities . . . . . . 12,269 659
INVESTING ACTIVITIES:
Acquisition of property and equipment . . . . . . . . (420) (63)
Cash (used for) investing activities. . . . . . . (420) (63)
FINANCING ACTIVITIES:
Payments on long-term obligations . . . . . . . . . . (4,474) (2,677)
Repurchase of Series B Cumulative Convertible
Preferred Stock . . . . . . . . . . . . . . . . . . -- (2,332)
Dividends paid on Series B Cumulative Convertible
Preferred Stock . . . . . . . . . . . . . . . . . . (955) (477)
Issuance of Common Stock. . . . . . . . . . . . . . . -- 53
Cash (used for) financing activities. . . . . . . (5,429) (5,433)
Increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . 6,420 (4,837)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . . . . 41,992 49,487
Cash and cash equivalents at end of period. . . . $ 48,412 $ 44,650
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
Note 1 - Summary of Significant Accounting Policies
Background and Operations: LIVE Entertainment Inc. ("LIVE" or
the "Company") was formed in 1988 and its largest ongoing
businesses are LIVE Film and Mediaworks Inc.("LFM") (formerly LIVE
Home Video Inc.), LIVE Theatrical Distribution Inc. ("LTD") and
LIVE International ("LI"), which primarily acquires rights to
produce and distribute theatrical motion pictures, children's films
and special interest programs (including CD-ROM) which they market
and distribute in all media to wholesalers, retailers and consumers
in the United States and Canada (LFM and LTD) and internationally
(LI). The Company's continuing operations are principally in a
single business segment, the production, distribution and retail
sale of a broad variety of film related entertainment software
products.
Basis of Presentation: The accompanying consolidated financial
statements and footnotes are unaudited and are condensed, as
contemplated by the Securities and Exchange Commission under Rule
10-01 of Regulation S-X. Accordingly, they do not contain all
disclosures required by generally accepted accounting principles,
but in the opinion of management of LIVE include all adjustments
(consisting only of normal recurring accruals) necessary to fairly
state the financial position and results of operations of LIVE.
The financial statements include the accounts of LIVE and its
subsidiaries. All significant intercompany balances and
transactions have been eliminated.
LIVE suggests that these condensed consolidated financial
statements be read in conjunction with its consolidated financial
statements for the year ended December 31, 1996 and related notes
thereto included on Form 10-K filed with the Securities and
Exchange Commission.
Certain reclassifications of 1996 amounts have been made in
order to conform with the 1997 financial statement presentation.
Net (Loss) Income Per Common Share:
Primary:
Per share information has been determined on the basis of
2,448,193 and 2,681,137 weighted average number of shares
outstanding for the three months ended March 31, 1997 and 1996,
respectively. Common equivalent shares, consisting of outstanding
stock options and warrants, and convertible preferred stock are not
included in the March 31, 1997 calculations as they are
antidilutive. The net (loss) income per common share for the three
months ended March 31, 1997 and 1996 gives effect to dividends of
$1,142,000 and $699,000, respectively, on both the Series B
Cumulative Convertible Preferred Stock ("Series B Preferred Stock")
and the Series C Convertible Preferred Stock ("Series C Preferred
Stock").
In February 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, Earnings Per Share, which is
effective for annual and interim financial statements issued for
periods ending December 15, 1997 and early adoption is not
permitted. When adopted, the statement will require restatement of
prior years' earnings per share ("EPS"). SFAS No. 128 was issued
to simplify the standards for calculating EPS previously found in
APB No. 15, Earnings Per Share. SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. The new rules
also require dual presentation of basic and diluted EPS on the face
of the statement of operations for companies with a complex capital
structure. For the Company, basic EPS will exclude the dilutive
effects of stock options and warrants. Diluted EPS for the Company
will reflect all potential dilutive securities. Under the
provisions of SFAS 128, basic EPS would have been $0.01 higher than
the amount reported in the first quarter of 1996 and have no impact
on the amount reported for the first quarter of 1997. Diluted EPS
would have been the same as the reported amounts.
Fully Diluted:
Common equivalent shares, consisting of outstanding stock
options and warrants, and convertible preferred stock are not
included in the March 31, 1997 calculations as they are
antidilutive. Per share information has been determined on the
basis of 11,860,005 weighted average number of shares outstanding
for the three months ended March 31, 1996, assuming conversion of
the Series B Preferred Stock and the Series C Preferred Stock.
Note 2 - Recent Developments
On April 17, 1997, LIVE entered into a definitive merger
agreement with an investor group. Pursuant to the terms of the
merger agreement, holders of LIVE's Series B Preferred Stock will
receive $10.00 per share in cash, plus accrued dividends, holders
of Series C Preferred Stock will receive $944.8624 per share in
cash, and holders of LIVE's Common Stock will receive $6.00 per
share in cash. LIVE's outstanding indebtedness under its $40
million Increasing Rate Senior Subordinated Notes due 1999 (the
"LIVE Increasing Rate Notes") will also be redeemed at par plus
accrued interest. The transaction is subject to customary terms
and conditions, including closing of the necessary financing under
commitment letters aggregating $150 million delivered by the
investor group. The transaction is also subject to approval by
holders of a majority of LIVE's outstanding Common and Series C
Preferred Stock at a special meeting which is expected to be held
in June or July.
In connection with the merger agreement, on May 1, 1997, the
Company filed a Confidential Preliminary Merger Proxy Statement
pursuant to Section 14(a) of the Securities Exchange Act of 1934
describing certain details of the merger agreement.
Note 3 - Litigation
In May 1994, a breach of contract claim was filed against a
subsidiary of the Company by certain Plaintiffs, on their own
behalf and on behalf of all persons similarly situated, claiming
nonpayment of royalties from licensing of films in foreign
territories and deprivation of royalty payments as a result of
misallocation of certain values asserted with licensed film
properties. Films subject to the complaint were contained in the
assets of Vestron, Inc. purchased by the Company in July 1991, and
the period covered included the license periods both prior to, and
subsequent to, the acquisition date by the Company. The Company
filed a reply brief (including a Motion to Dismiss) on October 5,
1994, and such Motion to Dismiss was granted on the grounds of
forum non conviens. Plaintiff filed a complaint with the New York
Supreme Court, Erie County, on March 22, 1995. The Company filed
its answer, affirmative defenses and counterclaim on April 20,
1995. Plaintiffs filed a motion for class certification on
September 8, 1995 to which the Company filed its opposition to the
motion on November 6, 1995. After limited pre-trial discovery, a
motion for class certification was argued on December 6, 1995. By
order dated June 21, 1996 and filed on June 25, 1996, the Supreme
Court in this action determined that the action could be maintained
as a class action under the provisions of Section 901(a) of the New
York Civil Practice Law and Rules. The Company filed an appeal
from the Order granting class certification on July 19, 1996 and
filed a Motion for Decertification of the class on July 24, 1996.
A hearing on the motion was heard on September 4, 1996 and on
December 24, 1996 the Supreme Court denied the Company's Motion for
Decertification. On February 7, 1997 the company filed a combined
appeal from the order granting a class certification and the
dismissal of the Motion for Decertification, which was considered
by the New York State Appellate Division in April 1997. By its
decision of April 25, 1997, the New York State Appellate Division
affirmed the decision of the Supreme Court.
Management and counsel to LIVE are unable to predict the
ultimate outcome of the above-described action at this time.
However, LIVE and the other defendants believe that this lawsuit is
without merit and intend to defend it vigorously. Accordingly, no
provision for any liability which may result has been made in
LIVE's condensed consolidated financial statements. In the opinion
of management, this action, when finally concluded and determined,
will not have a material adverse effect upon LIVE's financial
position or results of operations.
Other than as described above, there are no legal proceedings to
which LIVE or any of its subsidiaries are a party other than
ordinary routine litigation in the course of business. In the
opinion of management (which is based in part on the advice of
outside counsel), resolution of these matters will not have a
material adverse impact on LIVE's financial position or results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months
Ended March 31, 1996
Continuing Operations
Net sales of LIVE increased to $26,662,000 during 1997 compared
to $22,553,000 during 1996. The increase of $4,109,000, or 18.2%,
is primarily attributable to increased television, video rental and
sell-through sales including the video rental release of Tree's
Lounge in the first quarter of 1997 for which there was no
comparable title released in the first quarter of 1996. The
increase was partially offset by a decrease in international
revenue.
Gross profits of LIVE decreased $2,143,000, or 36.7%, to
$3,697,000 during 1997 compared to $5,840,000 during 1996. As a
percentage of sales, gross profit decreased to 13.9% during 1997
from 25.9% during 1996. The decrease in both the gross profit
dollars and as a percentage of sales is primarily due to higher
costs associated with the Company's theatrical releases, including
increased amortization of film costs related to adjustments in
projected value of certain film properties, in the first quarter of
1997 and lower gross margins generated by the increase in sell-through
video sales.
Selling, general and administrative expenses of LIVE increased
$1,287,000, or 33.3%, to $5,149,000 during 1997 compared to
$3,862,000 during 1996. As a percentage of sales, the amount
increased to 19.3% during 1997 from 17.1% during 1996. The dollar
increase and percentage increase is primarily a result of higher
overhead costs associated with expansion of the Company's business
into theatrical, international and television operations.
Interest and other income decreased $111,000 or 14.1% to
$678,000 during 1997 compared to $789,000 during 1996, which was
primarily the result of lower interest earned on cash balances in
the first quarter of 1997 compared to the first quarter of 1996.
Interest expense of LIVE decreased $105,000, or 21.1%, to
$392,000 during 1997 compared to $497,000 during 1996. Included in
interest expense for the three months ended March 31, 1996 is
$170,021 related to the increase in the interest rate on the LIVE
Increasing Rate Notes from 10% to 12% per annum, which was provided
for in an amendment to the Indenture governing the LIVE Increasing
Rate Notes. The interest rate increase on the LIVE Increasing Rate
Notes was to occur in March 1996, and such interest from and after
that date is included in the carrying value of the LIVE Increasing
Rate Notes in accordance with Financial Accounting Standards Board
Statement No. 15, Accounting for Debtors and Creditors for Troubled
Debt Restructuring and therefore not included in interest expense.
The decrease was partially offset by interest incurred on amounts
outstanding under the WEA distribution agreement.
Preferred dividends of $1,142,000 in 1997 and $699,000 in 1996
represents the cash dividend accrued on both the Series B Preferred
Stock (5% to May 1, 1996 and 10% thereafter) and the Series C
Preferred Stock (5%), as well as, in the case of the Series C
Preferred Stock, additional 5% dividends on accrued but unpaid
dividends.
Liquidity and Capital Resources
Historically, the Company has funded its operations through a
combination of cash generated from operations, bank borrowings,
advances from distributors under distribution agreements and the
proceeds from the issuance of debt instruments. For the three
months ending March 31, 1997, the Company generated positive cash
flow from operations of $12,269,000, primarily due to collections
of accounts receivables.
On May 27, 1995, LIVE entered into a three year extension of its
distribution agreement with Warner-Elektra-Atlantic Corporation
("WEA"). Under the terms of the agreement, WEA advanced
$10,000,000 to LIVE, recoupable from distribution revenues during
the three year term of the agreement at $277,778 per month, plus
interest at LIBOR plus 0.2%. On October 21, 1996 LIVE amended the
distribution agreement, effective as of May 7, 1996, whereby LIVE
assumed responsibility of all sales and sales solicitation services
which were previously the responsibility of WEA. The amendment
also included a reduction in certain distribution fees charged by
WEA, as a result of the shift in sales and sales solicitation
responsibility, and an additional advance to LIVE of $10,000,000.
The additional advance is recoupable from distribution revenues
during the remaining term of the agreement at $476,190 per month
plus interest at LIBOR + 0.2%. In order to obtain the advances,
LIVE granted WEA a second priority security interest in
substantially all of LIVE's assets. As of March 31, 1997, there
was $11,310,000 outstanding under the advance, and the interest
rate on the advance at March 31, 1997 was 5.7%.
Investing activities generated a negative cash flow of $420,000,
primarily as a result of the acquisition of property and equipment
at LIVE.
LIVE and its affiliates are a party to a three-year $30,000,000
revolving credit facility with Foothill Capital Corporation (the
"Foothill Credit Facility") that expires in November 1997. In
March 1997, an amendment was entered into that extended the
expiration date of the Foothill Credit Facility, under the existing
terms, to March 1, 1998. Borrowings available under the Foothill
Credit Facility are limited to $27,500,000 until additional
participant lenders are added to the Facility, at which time the
borrowings available will be increased to a maximum $30,000,000.
Borrowings under the Foothill Credit Facility are secured by
substantially all of the assets of LIVE and its affiliates.
Outstanding borrowings under the Foothill Credit Facility bear
interest at the rate of 2% per annum above the highest of the Bank
of America, Mellon Bank or Citibank prime rate, payable monthly.
In no event will interest under the Foothill Credit Facility be
less than 7% per annum. The Foothill Credit Facility provided for
a closing fee of $500,000, an annual facility fee of 1/4 of 1% and
a commitment fee of 1/4 of 1% on any unused amount. The Foothill
Credit Facility also requires LIVE to meet certain financial
ratios, and as of March 31, 1997 the Company was in compliance with
all such financial ratios. There were no amounts outstanding under
the Foothill Credit Facility as of March 31, 1997.
Dividends on the Series C Preferred Stock, at the rate of 5% per
annum on the unreturned $15,000,000 liquidation value of the Series
C Preferred Stock, are due on June 30 and December 31 of each year.
Although the dividends scheduled to be paid on June 30 and December
31 of 1993, 1994, 1995 and 1996 were accrued by LIVE, those
dividends were not paid due to restrictions imposed on LIVE by the
terms of the Series B Preferred Stock, which prohibit the payment
of dividends on the Series C Preferred Stock unless the aggregate
amount of such dividends, together with all cash dividends paid on
the Series B Preferred Stock, does not exceed the net income of
LIVE (adding back specified net worth exclusions) since the March
23, 1993 date of issuance of the Series B Preferred Stock and
Series C Preferred Stock. LIVE has had a cumulative consolidated
net loss for the period subsequent to March 23, 1993. Thus,
pursuant to the terms of the Series B Preferred Stock, LIVE was
prohibited from paying the June 30 and December 31, 1993, 1994,
1995 and 1996 cash dividends on the Series C Preferred Stock which,
together with accrued and unpaid dividends thereon, totaled
approximately $3,078,000 as of March 31, 1997.
The unpaid Series C Preferred Stock dividend itself bears a
dividend of 5% per annum, and is due on the next regularly
scheduled dividend payment date for the Series C Preferred Stock.
LIVE intends to pay the June 30 and December 31, 1993, 1994, 1995
and 1996 dividends, plus the additional dividends thereon, as soon
as it has sufficient net income to permit such payment to occur or
as soon as the Series B Preferred Stock has been redeemed, provided
that such payment does not impair the capital of LIVE and is
permitted under the Delaware General Corporation Law ("DGCL").
LIVE experienced negative cash flows from financing activities
of $5,429,000 during the three months ended March 31, 1997
primarily due to interest and principal payments on long term
obligations and payment of dividends on the Series B Preferred
Stock.
As of March 31, 1997, the aggregate redemption price for the
Series B Preferred Stock was $38,198,000 ($10.00 per share).
Although LIVE has no obligation to redeem any Series B Preferred
Stock, subject to the availability of funds and the prior approval
of its Board of Directors and its lenders, LIVE may acquire shares
of its Series B Preferred Stock from time to time, either through
private purchases or through open market purchases. Through March
31, 1997, LIVE acquired, and subsequently retired, a total of
2,177,500 shares of the Series B Preferred Stock at an average
price of $4.27 per share.
On April 17, 1997, LIVE entered into a definitive merger
agreement with an investor group. Pursuant to the terms of the
merger agreement, holders of LIVE's Series B Preferred Stock will
receive $10.00 per share in cash, plus accrued dividends, holders
of Series C Preferred Stock will receive $944.8624 per share in
cash, and holders of LIVE's Common Stock will receive $6.00 per
share in cash. LIVE's outstanding indebtedness will also be
redeemed at par plus accrued interest. The transaction is subject
to customary terms and conditions, including closing the necessary
financing under commitment letters aggregating $150 million
delivered by the investor group. The transaction is also subject
to approval by holders of a majority of LIVE's outstanding Common
and Series C Preferred Stock at a special meeting which is expected
to be held in June or July.
Failure of the Company to consummate the transactions covered
under the merger agreement or otherwise recapitalize the Company at
this time would have a number of adverse effects on the Company's
business and operations. The Company will have insufficient
working capital to execute its business plan as now contemplated
and will likely have to cut back on the number of theatrical
acquisitions and productions it undertakes. The Company will have
to reconsider whether it can continue to pay cash dividends on the
Series B Preferred Stock. The Company will have to devote a
substantial portion of its cash flow to create a fund to repay the
LIVE Increasing Rate Notes, of which $20 million are due in 1998
and the remaining $20 million in 1999. Finally, the Company will
have to replace its existing credit facility with Foothill Capital
Corporation which is due in 1998 and which may be difficult to
accomplish in view of the need to retire the LIVE Increasing Rate
Notes and the uncertainty of the future composition of the
Company's equity structure.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1994, a breach of contract claim was filed against a
subsidiary of the Company by certain Plaintiffs, on their own
behalf and on behalf of all persons similarly situated, claiming
nonpayment of royalties from licensing of films in foreign
territories and deprivation of royalty payments as a result of
misallocation of certain values asserted with licensed film
properties. Films subject to the complaint were contained in the
assets of Vestron, Inc. purchased by the Company in July 1991, and
the period covered included the license periods both prior to, and
subsequent to, the acquisition date by the Company. The Company
filed a reply brief (including a Motion to Dismiss) on October 5,
1994, and such Motion to Dismiss was granted on the grounds of
forum non conviens. Plaintiff filed a complaint with the New York
Supreme Court, Erie County, on March 22, 1995. The Company filed
its answer, affirmative defenses and counterclaim on April 20,
1995. Plaintiffs filed a motion for class certification on
September 8, 1995 to which the Company filed its opposition to the
motion on November 6, 1995. After limited pre-trial discovery, a
motion for class certification was argued on December 6, 1995. By
order dated June 21, 1996 and filed on June 25, 1996, the Supreme
Court in this action determined that the action could be maintained
as a class action under the provisions of Section 901(a) of the New
York Civil Practice Law and Rules. The Company filed an appeal
from the Order granting class certification on July 19, 1996 and
filed a Motion for Decertification of the class on July 24, 1996.
A hearing on the motion was heard on September 4, 1996 and on
December 24, 1996 the Supreme Court denied the Company's Motion for
Decertification. On February 7, 1997 the company filed a combined
appeal from the order granting a class certification and the
dismissal of the Motion for Decertification, which was considered
by the New York State Appellate Division in April 1997. By its
decision of April 25, 1997, the New York State Appellate Division
affirmed the decision of the Supreme Court.
Management and counsel to LIVE are unable to predict the
ultimate outcome of the above-described action at this time.
However, LIVE and the other defendants believe that this lawsuit is
without merit and intend to defend it vigorously. Accordingly, no
provision for any liability which may result has been made in
LIVE's condensed consolidated financial statements. In the opinion
of management, this action, when finally concluded and determined,
will not have a material adverse effect upon LIVE's financial
position or results of operations.
Other than as described above, there are no legal proceedings to
which LIVE or any of its subsidiaries are a party other than
ordinary routine litigation in the course of business. In the
opinion of management (which is based in part on the advice of
outside counsel), resolution of these matters will not have a
material adverse impact on LIVE's financial position or results of
operations.
ITEM 3(b). DEFAULTS UPON SENIOR SECURITIES - DIVIDEND ARREARAGE
ON PREFERRED STOCK
Dividends on the Series C Preferred Stock, at the rate of 5% per
annum on the unreturned $15,000,000 liquidation value of the Series
C Preferred Stock, are due on June 30 and December 31 of each year.
Although the dividends scheduled to be paid on June 30 and December
31 of 1993, 1994, 1995 and 1996 were accrued by LIVE, those
dividends were not paid due to restrictions imposed on LIVE by the
terms of the Series B Preferred Stock, which prohibit the payment
of dividends on the Series C Preferred Stock unless the aggregate
amount of such dividends, together with all cash dividends paid on
the Series B Preferred Stock, does not exceed the net income of
LIVE (adding back specified net worth exclusions) since the March
23, 1993 date of issuance of the Series B Preferred Stock and
Series C Preferred Stock. LIVE has had a cumulative consolidated
net loss for the period subsequent to March 23, 1993. Thus,
pursuant to the terms of the Series B Preferred Stock, LIVE was
prohibited from paying the June 30 and December 31, 1993, 1994,
1995 and 1996 cash dividends on the Series C Preferred Stock which,
together with accrued and unpaid dividends thereon, totaled
approximately $3,078,000 as of March 31, 1997.
The unpaid Series C Preferred Stock dividend itself bears a
dividend of 5% per annum, and is due on the next regularly
scheduled dividend payment date for the Series C Preferred Stock.
LIVE intends to pay the June 30 and December 31, 1993, 1994, 1995
and 1996 dividends, plus the additional dividends thereon, as soon
as it has sufficient net income to permit such payment to occur or
as soon as the Series B Preferred Stock has been redeemed, provided
that such payment does not impair the capital of LIVE and is
permitted under the DGCL.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
10.100 Amendment No. Four to Amended and Restated Loan and
Security Agreement, dated as of March 20, 1997 among
Foothill Capital Corporation, and each of LIVE Film and
Mediaworks Inc., LIVE America Inc. and Vestron Inc.
10.101 Agreement and Plan of Merger By and Among LIVE
Entertainment Inc., Film Holding Co. and Film Acquisition
Co. dated April 17, 1997, (incorporated herein by reference
to Exhibit 10.1 on the registrant's Form 8-K filed with the
Securities and Exchange Commission on April 30, 1997).
11 Computation of (Loss) Income Per Common Share (Unaudited).
27 Financial Data Schedule (Electronic Filing Only).
<PAGE>
Reports on Form 8-K: On April 30, 1997, LIVE filed a Form 8-K
regarding the Agreement and Plan of Merger By and Among LIVE
Entertainment Inc., Film Holdings Co. and Film Acquisition Co.
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.
LIVE ENTERTAINMENT INC.
Dated: May 7, 1997 By: /s/ RONALD B. CUSHEY
Ronald B. Cushey
Chief Financial Officer
EXHIBIT INDEX
10.100 Amendment No. Four to Amended and Restated Loan and
Security Agreement, dated as of March 20, 1997 among
Foothill Capital Corporation, and each of LIVE Film and
Mediaworks Inc., LIVE America Inc. and Vestron Inc.
10.101 Agreement and Plan of Merger By and Among LIVE
Entertainment Inc., Film Holding Co. and Film Acquisition
Co. dated April 17, 1997, (incorporated herein by reference
to Exhibit 10.1 on the registrant's Form 8-K filed with the
Securities and Exchange Commission on April 30, 1997).
11 Computation of (Loss) Income Per Common Share (Unaudited).
27 Financial Data Schedule (Electronic Filing Only).
AMENDMENT NUMBER FOUR TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of March 20,
1997, is entered into by and among FOOTHILL CAPITAL CORPORATION, a
California corporation ("Foothill"), on the one hand, and LIVE FILM AND
MEDIAWORKS, INC., a Delaware corporation, LIVE AMERICA INC., a Delaware
corporation, and VESTRON INC., a Delaware corporation, (individually or
collectively, "Borrower"), on the other hand, with reference to the
following facts:
FACTS
FACT ONE: Foothill and Borrower have previously entered into
that certain Amended and Restated Loan and Security Agreement, dated as of
November 14, 1994, (as amended and restated, the "Agreement").
FACT TWO: Foothill and Borrower desire to further amend the
Agreement as provided herein. Terms defined in the Agreement which are used
herein shall have the same meanings as set forth in the Agreement, unless
otherwise specified.
NOW, THEREFORE, Foothill and Borrower hereby modify and amend the
Agreement as follows:
1. Notwithstanding anything to the contrary of Section 3.4 of
the Agreement, the Agreement shall continue in full force and effect for a
term ending on March 1, 1998.
2. Notwithstanding anything to the contrary of Section 2.8(d)
of the Agreement, Foothill has agreed to waive Foothill's financial
examination requirements for the next six months, however, Borrower agrees
to give Foothill thrity (30) days prior notice via telephonic of Borrowers
anticipated borrowings to allow Foothill ample time to perform and complete
its financial examination prior to any advances to Borrower.
3. In order to induce Foothill to enter into this Amendment,
Borrowers represent and warrant to Foothill that:
(a) as of the date hereof, after giving effect to this
Amendment, no Event of Default, or event or occurrence which, with the
passage of time or notice or both, would constitute an Event of Default,
is continuing;
(b) all of the representations and warranties set forth
in the Agreement are true, complete and accurate in all respects as of the
date hereof (except for representations and warranties which are expressly
stated to be true and correct as of the Closing Date); and
(c) this Amendment has been duly executed and delivered
by Borrowers, and after giving effect to this Amendment, the Agreement
continues to constitute the legal, valid and binding agreements and
obligations of each Borrower, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency, and
similar laws and equitable principles affecting the enforcement of creditors'
rights generally.
4. This Amendment may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original, and all of which,
when taken together, shall constitute but one and the same Amendment.
Delivery of an executed counterpart of this Amendment telefacsimile shall be
equally as effective as delivery of an manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile also shall deliver a manually executed counterpart of this
Amendment but failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
5. Borrowers shall pay to Foothill a fee of 24, 300. Said fee
shall be fully-earned, non-refundable, and due and payable on the date of
signing and delivery of this Amendment by Borrowers to Foothill.
6. In the event of a conflict between the terms and provisions
of this Amendment and the terms and provisions of the Agreement, the terms
and provisions of this Amendment shall govern. In all other respects, the
Agreement, as supplemented, amended and modified, shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first hereinabove written.
FOOTHILL CAPITAL CORPORATION LIVE FILM AND MEDIAWORKS,
INC.
By:__________________________________ By______________________________
Kurt R. Marsden Ronald B. Cushey
Assistant Vice President Executive Vice President & CFO
LIVE AMERICA, INC. VESTRON INC.
By___________________________________ By______________________________
Ronald B. Cushey Ronald B. Cushey
Sr. Vice President & CFO Executive Vice President & CFO
REAFFIRMATION OF GUARANTORS
By its acceptance below as of this 20th day of March, 1997, the undersigned
guarantor hereby reaffirms its Continuing Guaranty dated November 16, 1994,
and consents to the above-stated terms.
LIVE ENTERTAINMENT INC.
By____________________________________
Ronald B. Cushey
Executive Vice President & CFO
- ---------------------------------------------------------------------------
By its acceptance below as of this 20th day of March, 1997, the undersigned
guarantor hereby reaffirms its Continuing Guaranty dated November 16, 1994,
and consents to the above-stated terms.
LIVE VENTURES INC.
By____________________________________
Ronald B. Cushey
Executive Vice President & CFO
Agreed and acknowledged this
day of April, 1997
IMERIAL BANK
By ________________________________
Print Name ________________________
Its _______________________________
LA100 2/26/97lmg
EXHIBIT 11
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
COMPUTATION OF (LOSS) INCOME PER COMMON SHARE
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
(Amounts in Thousands)
Three Months Ended
March 31,
1997 1996
PRIMARY:
Earnings:
Net (loss) income. . . . . . . . . . . . . . . . . . $ (2,447) $ 967
Less Preferred dividends . . . . . . . . . . . . . . 1,142 699
Net (loss) income attributable
to Common Stock. . . . . . . . . . . . . . . . . . $ (3,589) $ 268
Shares:
Weighted average number of common
shares outstanding . . . . . . . . . . . . . . . . 2,448 2,423
Net effect of dilutive stock options
based on the treasury stock method
using average market price . . . . . . . . . . . . -- 258
Total. . . . . . . . . . . . . . . . . . . . . . . . . 2,448 2,681
Net (loss) income per common share . . . . . . . . . . $ (1.47) $ .10
FULLY DILUTED
Earnings:
Net (loss) income. . . . . . . . . . . . . . . . . . $(2,447) $ 967
Less preferred dividends . . . . . . . . . . . . . . -- --
Net (loss) income attributable
to common stock. . . . . . . . . . . . . . . . . . $(2,447) $ 967
Shares:
Weighted average number of common
shares outstanding . . . . . . . . . . . . . . . . 2,448 2,423
Net effect of dilutive stock options -
based on the treasury stock method
using the period-end market price, if
higher than average market price . . . . . . . . . -- 114
Assuming conversion of Series B and
Series C Preferred Stock . . . . . . . . . . . . . -- 9,323
Total. . . . . . . . . . . . . . . . . . . . . . . . . 2,448 11,860
Net (loss) income per common share . . . . . . . . . . $(1.47) $ .08
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 48,412
<SECURITIES> 0
<RECEIVABLES> 8,469
<ALLOWANCES> (14,984)
<INVENTORY> 8,335
<CURRENT-ASSETS> 0
<PP&E> 7,964
<DEPRECIATION> (6,629)
<TOTAL-ASSETS> 140,934
<CURRENT-LIABILITIES> 0
<BONDS> 46,963
0
3,834
<COMMON> 24
<OTHER-SE> 21,019
<TOTAL-LIABILITY-AND-EQUITY> 140,934
<SALES> 26,662
<TOTAL-REVENUES> 27,340
<CGS> 22,965
<TOTAL-COSTS> 6,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392
<INCOME-PRETAX> (2,147)
<INCOME-TAX> 300
<INCOME-CONTINUING> (2,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,447)
<EPS-PRIMARY> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
