<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended DECEMBER 31, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
Commission file number: 0-18613
TRIMARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4272695
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2644 30TH STREET
SANTA MONICA, CALIFORNIA 90405
(Address of principal executive offices) (Zip code)
(310) 314-2000
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
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
---- ----
As of February 9, 1999, 4,169,412 shares of Trimark Holdings, Inc. common stock
were outstanding, excluding shares held by Trimark Holdings, Inc. as treasury
stock.
1
<PAGE>
TRIMARK HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and June 30, 1998 3
Consolidated Statements of Operations - Six months and three months ended 4
December 31, 1998 and 1997
Consolidated Statements of Cash Flows - Six months ended December 31, 1998 5
and 1997
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and 8-16
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18-19
</TABLE>
2
<PAGE>
TRIMARK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1998 1998
----------------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 239 $ 1,159
Accounts receivable, less allowances of
$6,243 and $6,005, respectively 24,937 16,568
Film costs, net (Note 2) 63,526 65,064
Deferred marketing costs 1,113 1,963
Inventories, net 279 1,190
Property and equipment at cost, less accumulated
depreciation of $2,646 and $2,433 respectively 648 741
Due from officers 780 780
Other assets 1,697 1,755
----------------- ------------
$ 93,219 $ 89,220
----------------- ------------
----------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving line of credit $ 59,690 $ 57,250
Accounts payable and accrued expenses 6,295 8,060
Minimum guarantees and royalties payable 10,531 7,623
Deferred income 464 1,100
Income taxes payable 49 43
----------------- ------------
Total liabilities 77,029 74,076
----------------- ------------
Commitments and contingencies (Note 3) -- --
----------------- ------------
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares; 5,134,827 shares issued
at December 31, 1998 and June 30, 1998 5 5
Additional paid in capital 15,588 15,588
Preferred stock, $.01 par value. Authorized
2,000,000 shares; no shares issued and
outstanding -- --
Retained earnings 5,060 3,981
Less treasury shares, at cost - 965,415 shares
and 952,200 shares (4,463) (4,430)
----------------- ------------
Stockholders' equity 16,190 15,144
----------------- ------------
$ 93,219 $ 89,220
----------------- ------------
----------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except earnings (loss) Per Share)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
------------------------- -------------------------
1998 1997 1998 1997
---------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 46,281 $ 37,545 $ 26,902 $ 22,986
Film costs and distribution expenses 37,288 33,916 22,045 22,944
--------- ----------- --------- -----------
Gross Profit 8,993 3,629 4,857 42
--------- ----------- --------- -----------
Operating expenses:
Selling 3,688 3,531 1,805 1,803
General and administrative 2,672 2,467 1,503 1,261
Bad debt (341) 148 143 22
--------- ----------- --------- -----------
6,019 6,146 3,451 3,086
--------- ----------- --------- -----------
Operating earnings 2,974 (2,517) 1,406 (3,044)
Other (income) expenses:
Interest expense 2,152 2,091 1,042 1,149
Interest and investment income (17) (80) (2) (34)
--------- ----------- --------- -----------
2,135 2,011 1,040 1,115
--------- ----------- --------- -----------
Earnings (loss) before income taxes 839 (4,528) 366 (4,159)
Income taxes (Note 5) (240) -- --
--------- ----------- --------- -----------
Net earnings (loss) $ 1,079 $ (4,528) $ 366 $ (4,159)
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Weighted average number of common shares
basic and fully diluted (Note 6) 4,169 4,183 4,169 4,183
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Net earnings (loss) per common share
basic and fully diluted (Note 6) $ 0.26 $ (1.08) $ 0.09 $ (0.99)
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1998 1997
--------- -----------
(Unaudited)
<S> <C> <C>
Operating activities:
Net earnings (loss) $ 1,079 $ (4,528)
Adjustments to reconcile net earnings (loss) to
Net cash used by operating activities:
Film amortization 22,696 24,328
Depreciation and other amortization 213 169
Provision for returns and bad debt 238 379
Provision for inventory obsolescence -- 51
Change in operating assets and liabilities:
Increase in accounts receivable (8,607) (565)
Additions to film costs (21,158) (24,417)
Decrease in deferred marketing costs 850 110
Decrease (increase) in inventories 911 (127)
Increase in notes receivable from officers -- (377)
Decrease (increase) in other assets 58 (264)
(Decrease) increase in accounts payable and
accrued expenses (1,765) 64
Increase in minimum guarantees and
royalties payable 2,908 1,814
Increase (decrease) in income taxes payable 6 (9)
Decrease in deferred income (636) (211)
------------- -------------
Net cash used by operating activities (3,207) (3,583)
------------- -------------
Investing activities:
Acquisition of property and equipment (120) (180)
------------- -------------
Net cash used by investing activities (120) (180)
------------- -------------
Financing activities:
Net increase in revolving line of credit 2,440 --
Exercise of stock options -- 114
Purchase of treasury stock (33) --
------------- -------------
Net cash provided by financing activities 2,407 114
------------- -------------
Decrease in cash and cash equivalents (920) (3,649)
Cash and cash equivalents at beginning of period 1,159 3,665
------------- -------------
Cash and cash equivalents at end of period $ 239 $ 16
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
TRIMARK HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY:
The consolidated financial statements of Trimark Holdings, Inc. and its
subsidiaries (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The accompanying financial statements should be read in
conjunction with the more detailed financial statements and related footnotes
filed with the Form 10-K for the year ended June 30, 1998. Significant
accounting policies used by the Company are summarized in Note 2 to the June
30, 1998 financial statements.
In the opinion of management, all adjustments required for a fair
presentation of the financial position as of December 31, 1998 and the
results of operations and cash flows for the periods ended December 31, 1998
and December 31, 1997 have been made and all adjustments were of a normal and
recurring nature. Operating results for the six and three month periods are
not necessarily indicative of the operating results for a full year.
NOTE 2 - FILM COSTS:
Film costs, net of amortization, consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------------------- -------------------------
(in thousands)
<S> <C> <C>
Released $ 45,963 $ 50,541
Completed not released 2,563 3,419
In process and development 15,000 11,104
------------------------- -------------------------
$ 63,526 $ 65,064
------------------------- -------------------------
</TABLE>
6
<PAGE>
NOTE 3 - COMMITMENTS & CONTINGENCIES:
The Company has entered into certain agreements which provide for royalty
advances and promotional and advertising commitments totaling $3.2 million. If
the conditions to these agreements are not met by the licensors, the Company may
withdraw from the arrangements. These commitments extend to June 1999.
NOTE 4 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the six month period for:
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------- --------------------
(in thousands)
<S> <C> <C>
Interest $2,421 $2,424
Income taxes 131 158
</TABLE>
NOTE 5 - INCOME TAXES
The $240,000 tax benefit represents a tax receivable from a prior year return
recognized in the six month period ended December 31, 1998.
NOTE 6 - NET EARNINGS (LOSS) PER COMMON SHARE:
Basic earnings (loss) per common share amounts are based on the weighted
average number of common shares outstanding during the respective periods.
Fully diluted earnings per common share amounts are based on the weighted
average common shares outstanding during the period and shares assumed issued
upon conversion of stock options when the effect of such conversions would
have been dilutive to net earnings (loss) per share.
Prior period amounts have been restated to conform to SFAS No. 128. The table
below presents a reconciliation of weighted average shares used in the
calculation of basic and fully diluted net earnings (loss) per common share:
<TABLE>
<CAPTION>
Six months ended
December 31,
1998 1997
------------------------- -------------------------
(in thousands)
<S> <C> <C>
Basic shares weighted average of common shares
outstanding 4,169 4,183
Additional shares assuming conversions of stock
options -- --
------------------------- -------------------------
Fully diluted shares 4,169 4,183
------------------------- -------------------------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUES:
<TABLE>
<CAPTION>
Six months ended Three months ended
December 31, December 31,
----------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- --------------- ---------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Domestic:
Home video distribution $29,024 $21,847 $15,380 $13,030
Theatrical distribution 721 5,023 180 4,999
Television distribution 6,732 4,521 5,460 3,248
Foreign:
All media 9,804 6,154 5,882 1,709
--------------- --------------- ---------------- ---------------
$46,281 $37,545 $26,902 $22,986
--------------- --------------- ---------------- ---------------
</TABLE>
Net revenues for the six months ended December 31, 1998 and for the quarter
ended December 31, 1998 increased $8.7 million or 23% and $3.9 million or
17%, respectively, compared with the same periods in fiscal year 1998. The
increase for the six month period was due to increases in net revenue from
the home video, television and foreign markets of $7.2 million, $2.2 million,
and $3.7 million, respectively, partially offset by a decrease in theatrical
revenue of $4.3 million. The increase in domestic home video revenue was
primarily due to increased distribution and emphasis on sell-through titles
and DVD titles. Sell-through revenue increased due to the straight to video
title "A Kid in Aladdin's Palace" without any comparable straight to
sell-through release in the six months ended December 31, 1997. The Company
also released twenty-seven (27) DVD titles during the six months ended
December 31, 1998 without any DVD titles released in the same period in
fiscal year 1998. Gross rental revenue also increased slightly, coupled with
a decrease in video returns as a percentage of gross revenue from the
previous year which contributed in the overall increase in net home video
revenue. The increase in television revenue was primarily due to the
availability of "Star Kid," "Eve's Bayou" and "Dentist 2" in the cable market
during the six month period ended December 31, 1998. In contrast only the
made for pay television film "Trucks" was released during the same period in
fiscal year 1998. The increase in foreign distribution revenue was primarily
due to the release of six (6) films in the foreign market for the six months
ended December 31, 1998; in contrast, only three (3) films were released in
the same period for fiscal year 1998. The decrease in theatrical distribution
was due to the release of "Eve's Bayou" during the six month period ended
December 31, 1997. No comparable title was released in the same period for
fiscal year 1999.
8
<PAGE>
ITEM 2: (CONTINUED)
The increase in net revenues for the quarter ended December 31, 1998 was due
to increases in home video, television and foreign distribution of $2.3
million, $2.2 million and $4.2 million, respectively, partially offset by a
$4.8 million decrease in theatrical revenue. The increase in home video
revenue was primarily due to the release of fifteen (15) DVD titles in the
second quarter of fiscal year 1999 as compared to no DVD titles during the
same period in fiscal year 1998. The increase in television revenue was due
to the aforementioned release of three (3) titles into the cable market in
the second quarter as compared to only one title, "Trucks," based upon the
short story by Stephen King, in the same period of fiscal year 1998. The
increase in foreign revenue was primarily due to the release of three (3)
titles in the foreign market during the second quarter of fiscal 1999 as
compared to only one (1) during the same period in fiscal year 1998. The
decrease in theatrical distribution of $4.8 million was due to the release of
the film "Eve's Bayou" during the second quarter of fiscal year 1998 without
any comparable release in the same period in fiscal year 1999.
The Company continues to focus its resources on producing and acquiring films
with specialized theatrical potential and those that are made for initial
release on network and cable television. See "Liquidity and Capital
Resources."
The Company anticipates that the domestic home video market will continue to
be extremely competitive.
GROSS PROFIT: Gross profit as a percentage of net revenues for the six month
periods ended December 31, 1998 and 1997 was 20% and 10%, respectively, and
for the quarters ended December 31, 1998 and 1997 was 18% and 0.2%,
respectively.
The Company's gross profit for the six months ended December 31, 1998
increased $5.4 million or 148% compared with the same period in fiscal year
1998. The Company's gross profit for the quarter ended December 31, 1998
increased $4.8 million from the same quarter in fiscal 1998. The gross profit
for the quarter ended December 31, 1997 included approximately $4.2 million
in write downs to net realizable value of film inventory. These write downs
primarily related to a charge associated with the lower than anticipated
theatrical performance of "Star Kid" and a write down associated with
management's decision to limit the theatrical release of "Chairman of the
Board". There were no comparable write downs during the quarter ended
December 31, 1998.
9
<PAGE>
ITEM 2: (CONTINUED)
SELLING EXPENSES: For the six months ended December 31, 1998 selling expenses
increased $157,000 or 4.4% compared with the same period in fiscal 1998. For
the three months ended December 31, 1998 selling expenses increased $2,000 or
0.1%. The small increase reflects the sales of DVD titles released in fiscal
year 1999 as compared to no releases in the same period in fiscal year 1998,
offset by the theatrical wide release operations in fiscal year 1998, which
did not exist in fiscal 1999.
GENERAL AND ADMINISTRATIVE EXPENSES: For the six months ended December 31,
1998 general and administrative expenses increased $205,000 or 8.0% compared
with the same period in fiscal 1998. For the three months ended December 31,
1998, general and administrative expenses increased $242,000 or 19.0%
compared with the same period in fiscal year 1998. The six month and three
month period increase in general and administrative expenses in fiscal 1999
as compared to fiscal 1998 resulted from an increase in consulting and
accounting fees.
BAD DEBT EXPENSE: Bad debt expense for the six months ended December 31, 1998
decreased $489,000 or 330.0% compared with the same period in fiscal 1998.
For the three months ended December 31, 1998, bad debt expense increased
$121,000 or 550.0% compared to the same period in fiscal year 1998. Bad debt
expense primarily represents reserves taken against domestic video and
foreign sales. The decrease was primarily due to $355,000 in collections on
past due video receipts and the remaining balance in collections on
international receipts which were all previously reserved for.
INTEREST EXPENSE: Interest expense for the six month period ended December
31, 1998 increased $61,000 or 2.9% compared with the same period in fiscal
year 1998. Interest expense for the quarter ended December 31, 1998 decreased
$107,000 or 9.3% compared with the same period in fiscal 1998. The decrease
in interest expense in the second quarter was primarily due to lower interest
rates as the average borrowing level was the same from the prior year. As of
December 31, 1998, there was $59.7 million outstanding under the credit
facility. The Company expects to use excess cash flow generated by theatrical
and library product to decrease current debt levels. See "Liquidity and
Capital Resources."
10
<PAGE>
ITEM 2: (CONTINUED)
NET EARNINGS (LOSS): The Company's net earnings for the six and three months
ended December 31, 1998 increased $5.6 million and $4.5 million respectively
compared with the same periods in fiscal 1998. The increase in earnings
during fiscal year 1999 as compared to the prior year is primarily due to the
$4.2 million write down in net realizable value of film inventory during the
six and three month periods ended December 31, 1997. In contrast, no
comparable write downs were taken in the same period in fiscal 1999. Other
factors include the decrease in bad debt expense and the income tax refund
from a prior year partially offset by the increase in interest, selling and
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on cash generated by operations and borrowings under its
credit facility to finance its operations. The Company's cash flows from
operating, investing and financing activities for the six months ended December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------------------------
1998 1997
------------------ -------------------
(in thousands)
<S> <C> <C>
Net cash used by operating activities ($ 3,207) ($ 3,583)
Net cash used by investing activities (120) (180)
Net cash provided by financing activities 2,407 114
</TABLE>
Cash used by operations decreased by $376,000 for the six month period ended
December 31, 1998 compared to the same period in fiscal 1998. The only
significant changes from the prior period were the increase in net earnings
of $5.6 million offset by the increase in the change of accounts receivable
by $8.1 million and the decrease in the change of additions to film costs of
$3.3 million. The $21.2 million addition to film costs was primarily used for
the production and acquisition of new product with approximately $4.4 million
used for prints and advertising costs on the specialized theatrical releases
of "Billy's Hollywood Screen Kiss," "Cube," "Slam" and "Another Day in
Paradise."
11
<PAGE>
ITEM 2: (CONTINUED)
Two principal factors have increased the length of time from investment in
film costs to recoupment, which generally has increased the Company's cash
requirements. The first factor is the terms of the Company's current credit
facility entered into in December 1996, as amended December 31, 1998. Under
the current credit facility, described below, the Company directly pays
production costs that generally were previously paid by off balance sheet
production company financing. This change in financing has accelerated
certain film acquisition payments that were previously made at the time of
film delivery and are now made periodically throughout the production
process. The production process often takes from nine months to a year or
more. Commitments to purchase films from production companies upon delivery
are included in contingent contractual obligations. The second factor that
has increased the length of time from investment in film costs to recoupment
is increased theatrical distribution activity. Theatrical films generally
require significant marketing expenditures for prints and advertising which
are capitalized as film costs. Theatrical marketing campaigns begin well in
advance of the theatrical release to generate the maximum level of awareness
for the film. The opening date must be carefully selected and is often
changed to address competition, screen availability and other factors. In
addition, the decision to release a film theatrically is often not made until
a theatrical test is conducted which can take several months. The home video
release and other ancillary market revenues are also not realized for several
months to years after the theatrical release. For further information see
"Results of Operations."
Investing activities for the six months ended December 31, 1998 and 1997 have
primarily consisted of expenditures on production equipment improvements.
Financing activities, consisting primarily of borrowings under the Company's
credit facility, were greater in the six months ended December 31, 1998 than
for the six months ended December 31, 1997, primarily as the result of motion
picture production, acquisition and distribution expenditures exceeding
operating cash inflows. The Company's cash requirements vary in part with the
size and timing of production advances and minimum guarantee payments along
with the timing of its theatrical, home video, television and international
releases. In the six months ended December 31, 1998 and 1997, the principal
sources of funds have been provided by the Company's credit facility and
available cash.
12
<PAGE>
ITEM 2: (CONTINUED)
On December 20, 1996, the Company's principal operating subsidiaries, Trimark
Pictures, Inc. and Trimark Television, Inc., entered into a $75 million
revolving credit facility with a consortium of banks agented and arranged by
The Chase Manhattan Bank which replaced a $25 million revolving credit
facility with Bank of America NT & SA and Westdeustche Landesbank. The credit
facility expires December 19, 2000. Under the credit agreement, the Company
may borrow for various corporate purposes provided that the aggregate
borrowings do not exceed the Borrowing Base which is derived from specified
percentages of approved accounts receivable and film library. The credit
agreement is guaranteed by the Company and certain of its subsidiaries and is
secured by substantially all of the assets of the Company and its significant
subsidiaries. Loans outstanding under the credit facility bear interest at
the rate of 1.25% above Chase Manhattan's prime rate or 2.25% above Chase
Manhattan's London Interbank Market for Eurodollars for the loan term
specified. An unused commitment fee is payable on the average unused
availability under the credit facility, at the rate of 0.375% per annum. As
of December 31, 1998 there was $59.7 million outstanding under the credit
facility. The Company expects to use excess cash flow generated by theatrical
and library product to decrease current borrowing levels. The credit
agreement contains various financial and other covenants to which the Company
must adhere. These covenants, among other things, require the maintenance of
minimum net worth and various financial ratios which are reported to the bank
on a quarterly basis and include limitations on additional indebtedness,
liens, investments, disposition of assets, guarantees, affiliate transactions
and the use of proceeds. In relation to management's strategic review and
release schedule described below, the Company amended the current credit
agreement as of December 31, 1998. The amended agreement provides for less
stringent minimum net worth ratios. In consideration for the adjustment of
these ratios, the amended credit facility reduces the borrowing limits over
the remaining life of the credit facility. For the quarter ending March 31,
1999, the amended borrowing limit will be $60 million. By January 31, 2000,
the borrowing limit is reduced to $50 million and by June 30, 2000 is reduced
to $40 million. The amendments to the debt covenants and borrowing limits
were structured to incorporate the Company's overall strategy and presently
planned productions, acquisitions, distribution, and overhead expenditures.
The Company is in compliance with all debt covenants as of December 31, 1998.
13
<PAGE>
ITEM 2: (CONTINUED)
Management of the Company conducted a strategic review of the Company's
theatrical operations in fiscal 1998. This strategic review focused on the
increase in the theatrical exhibition of specialized films, with which the
Company has demonstrated past successes including "Eve's Bayou" and "Kama
Sutra: A Tale of Love," and a reduction in the distribution of wide
mainstream features with wide releases to greater than 1,000 screens and
which require substantial print and advertising commitments. The Company does
not plan to release any wide theatrical releases in fiscal 1999.
In the domestic specialized theatrical market the Company plans to release
five (5) to seven (7) motion pictures in fiscal 1999(of which four (4) were
released in the first six months of fiscal 1999). Furthermore, the Company
plans to release approximately thirty-five (35) motion pictures into the
domestic home video rental market (of which twenty (20) were released in the
first six months of fiscal 1999) and to continue to expand distribution in
the sell-through market. The Company intends to distribute four (4) to six
(6) films and "movies of the week" which will premier on major cable networks
or broadcast stations. Also in fiscal 1999 the Company plans to release
approximately seven (7) to nine (9) motion pictures initially into
international distribution (of which three (3) were released in the first six
months of the fiscal year).
Technicolor Videocassette, Inc. currently serves as the Company's video
cassette duplicator and fulfillment contractor. Technicolor Videocassette,
Inc. has a general lien on all of the Company's materials and products in its
possession.
The Company is currently authorized to spend up to $150,000 in fiscal 1999 to
purchase shares of its outstanding common stock in the open market or
otherwise. The amended debt covenant at December 31, 1998 limits the purchase
of outstanding common stock to $50,000 per fiscal year. During the first quarter
of the fiscal year, the Company purchased 13,215 shares at an average price of
$2.39 per share. No shares were purchased during the second quarter of the
fiscal year.
As previously announced by the Company, a hearing was held on October 16,
1998 with a panel authorized by the National Association of Securities
Dealers Inc. Board of Governors regarding the public float requirements of
the Company's common stock and its continued listing on the NASDAQ National
Market. On November 16, 1998, the panel determined to move the listing of the
Company's common stock from the NASDAQ National Market to the NASDAQ Small
Cap Market.
14
<PAGE>
ITEM 2: (CONTINUED)
IMPACT OF YEAR 2000. The Company is currently working to resolve the
potential impact of the year 2000 on the processing of time-sensitive
information by computerized information systems. Year 2000 issues may arise
if computer programs have been written using two digits (rather than four) to
define the applicable year. In such case, programs that have time-sensitive
logic may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Management
completed a review of all significant software and equipment used in the
Company's operations and, to the extent practical, in the operations of its
key business partners, in order to determine if any year 2000 risks exist
that may be material to the Company as a whole. The Company estimates that
repairing all time sensitive hardware and software will cost the Company
approximately $240,000. As of the six months ending December 31, 1998, the
Company has purchased approximately $85,000 in new computer hardware through
its normal upgrading of old computer hardware as well as a direct result of
year 2000 issues. The Company also entered into a licensing agreement on
February 6, 1999 for the implementation of a new general ledger software
system. The Company anticipates the system to be fully operational by July 1,
1999. If the Company, its customers or vendors are unable to resolve the year
2000 processing issues in a timely manner, it could result in a material
financial risk. Accordingly, management plans to devote the resources it
concludes are appropriate to resolve all significant year 2000 issues in a
timely manner; and as such, the Company has not developed a year 2000
contingency plan.
15
<PAGE>
ITEM 2: (CONTINUED)
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters discussed
in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievement of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: Changes in public tastes, industry trends and demographic changes,
which may influence the distribution and exhibition of films in certain
areas; public reaction to and acceptance of the Company's video, theatrical
and television product, which will impact the Company's revenues;
competition, including competition from major motion picture studios, which
may affect the Company's ability to generate revenues; reliance on management
and key personnel; consolidation in the retail video industry; whether the
Company's current strategy which includes theatrical releases of only
specialized films and production and acquisition of made for television
product is successful; new methods of distributing motion pictures; the costs
and risks associated with the year 2000 issue; and other factors referenced
in this Form 10-Q and the Company's other filings with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company does not consider that the potential loss of future earnings
which could be caused by interest rate volatility would have a material
impact on its financial position.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 annual meeting of stockholders of the Company occurred on November 19,
1998. The following matters were voted upon at the meeting: the election as
directors of the Company of each of Mark Amin, Gordon Stulberg, Matthew H.
Saver, Tofigh Shirazi and Roger A. Burlage; and the ratification of the
appointment of PricewaterhouseCoopers LLP as independent accountants of the
Company. The results of the voting were as follows:
<TABLE>
<CAPTION>
MATTER VOTED VOTES FOR VOTES AGAINST ABSTAINED BROKER
- ------------ --------- ------------- --------- ------
<S> <C> <C> <C> <C>
Election of Mark Amin 2,164,424 2,000 -- --
Election of Gordon Stulberg 2,164,424 2,000 -- --
Election of Matthew H. Saver 2,164,424 2,000 -- --
Election of Tofigh Shirazi 2,164,424 2,000 -- --
Election of Roger A. Burlage 2,164,424 2,000 -- --
Ratification of 2,164,424 1,450 6 --
PricewaterhouseCoopers LLP
</TABLE>
17
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No Description
- ---------- --------------------------------------------------------------------------------------------
<S> <C>
10.87 Amendment dated November 20, 1998 to August 8, 1992 Non-Qualified Stock Option Agreement
between the Company and Tim Swain
10.88 Amendment dated November 20, 1998 to January 14, 1992 Non-Qualified Stock Option Agreement
between the Company and Tim Swain
10.89 Amendment dated November 20, 1998 to March 31, 1994 Non-Qualified Stock Option Agreement
between the Company and Tim Swain
10.90 Amendment dated November 20, 1998 to July 2, 1996 Non-Qualified Stock Option Agreement
between the Company and Tim Swain
10.91 Amendment dated November 20, 1998 to July 2, 1996 Non-Qualified Stock Option Agreement
between the Company and Tim Swain
10.92 Amendment dated November 20, 1998 to January 20, 1993 Non-Qualified Stock Option Agreement
between the Company and Cami Winikoff
10.93 Amendment dated November 20, 1998 to January 30, 1996 Non-Qualified Stock Option Agreement
between the Company and Cami Winikoff
10.94 Amendment dated November 20, 1998 to January 30, 1996 Non-Qualified Stock Option Agreement
between the Company and Cami Winikoff
10.95 Amendment dated November 20, 1998 to February 27, 1997 Non-Qualified Stock Option
Agreement between the Company and Cami Winikoff
10.96 Letter Amendment dated August 14, 1998 and November 27, 1998 between the Company and Sam
Pirnazar
10.97 Amendment dated December 31, 1998 to the Credit, Security, Guaranty and Pledge Agreement
between the Company and The Chase Manhattan Bank, as Administrative Agent and Fronting Bank
27 Financial Data Schedule.
</TABLE>
18
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
(b) Reports on form 8-K:
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRIMARK HOLDINGS, INC.
By: /s/ Jeff Gonzalez
-----------------------------------
Jeff Gonzalez
Chief Financial Officer
(Principal Financial
Officer and authorized to sign
on behalf of the Registrant)
Date: February 16, 1999
-------------------
20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No Description Method of Filing
- ---------- -------------------------------------------------------- -----------------------------
<S> <C> <C>
10.87 Amendment dated November 20, 1998 to August 8, 1992 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Tim Swain
10.88 Amendment dated November 20, 1998 to January 14, 1992 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Tim Swain
10.89 Amendment dated November 20, 1998 to March 31, 1994 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Tim Swain
10.90 Amendment dated November 20, 1998 to July 2, 1996 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Tim Swain
10.91 Amendment dated November 20, 1998 to July 2, 1996 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Tim Swain
10.92 Amendment dated November 20, 1998 to January 20, 1993 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Cami Winikoff
10.93 Amendment dated November 20, 1998 to January 30, 1996 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Cami Winikoff
10.94 Amendment dated November 20, 1998 to January 30, 1996 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Cami Winikoff
10.95 Amendment dated November 20, 1998 to February 27, 1997 filed herewith electronically
Non-Qualified Stock Option Agreement between the Company
and Cami Winikoff
10.96 Letter Amendment dated August 14, 1998 and November 27, filed herewith electronically
1998 between the Company and Sam Pirnazar
</TABLE>
21
<PAGE>
IDEX TO EXHBITS (CONTINUED)
<TABLE>
<CAPTION>
Exhibit No Description Method of Filing
- ---------- -------------------------------------------------------- -----------------------------
<S> <C> <C>
10.97 Amendment dated December 31, 1998 to the Credit, Security, filed herewith electronically
Guaranty and Pledge Agreement between the Company and The
Chase Manhattan Bank, as Administrative Agent and Fronting
Bank
27 Financial Data Schedule. filed herewith electronically
</TABLE>
22
<PAGE>
EXHIBIT 10.87
AMENDMENT TO AUGUST 8, 1992 NON-QUALIFIED
STOCK OPTION AGREEMENT FOR TIM SWAIN
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as of August 8, 1992, which provided for
the granting of non-qualified options by Trimark Holdings, Inc., a Delaware
corporation (the "Company"), to Tim Swain, an employee of the Company or of a
subsidiary (the "Employee"). Capitalized terms used herein without definition
shall have the meaning defined in the Option Agreement. The parties hereby
agree to amend the Option Price for the Options Shares as follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
TIM SWAIN
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
23
<PAGE>
EXHIBIT 10.88
AMENDMENT TO JANUARY 14, 1992 NON-QUALIFIED
STOCK OPTION AGREEMENT FOR TIM SWAIN
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as of January 14, 1992, as amended on
January 20, 1993, which provided for the granting of non-qualified options by
Trimark Holdings, Inc., a Delaware corporation (the "Company"), to Tim Swain,
an employee of the Company or of a subsidiary (the "Employee"). Capitalized
terms used herein without definition shall have the meaning defined in the
Option Agreement. The parties hereby agree to amend the Option Price for the
Options Shares as follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
TIM SWAIN
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
24
<PAGE>
EXHIBIT 10.89
AMENDMENT TO MARCH 31, 1994 NON-QUALIFIED
STOCK OPTION AGREEMENT FOR TIM SWAIN
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as of March 31, 1994, as amended on
January 30, 1996, which provided for the granting of non-qualified options by
Trimark Holdings, Inc., a Delaware corporation (the "Company"), to Tim Swain,
an employee of the Company or of a subsidiary (the "Employee"). Capitalized
terms used herein without definition shall have the meaning defined in the
Option Agreement. The parties hereby agree to amend the Option Price for the
Options Shares as follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
TIM SWAIN
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
25
<PAGE>
EXHIBIT 10.90
AMENDMENT TO JULY 2, 1996 NON-QUALIFIED STOCK OPTION
AGREEMENT FOR 24,000 SHARES FOR TIM SWAIN
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as of July 2, 1996, which provided for
the granting of non-qualified options by Trimark Holdings, Inc., a Delaware
corporation (the "Company"), to Tim Swain, an employee of the Company or of a
subsidiary (the "Employee"). Capitalized terms used herein without definition
shall have the meaning defined in the Option Agreement. The parties hereby
agree to amend the Option Price for the Options Shares as follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
TIM SWAIN
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
26
<PAGE>
EXHIBIT 10.91
AMENDMENT TO JULY 2, 1996 NON-QUALIFIED STOCK OPTION
AGREEMENT FOR 18,000 SHARES FOR TIM SWAIN
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as of July 2, 1996, which provided for
the granting of non-qualified options by Trimark Holdings, Inc., a Delaware
corporation (the "Company"), to Tim Swain, an employee of the Company or of a
subsidiary (the "Employee"). Capitalized terms used herein without definition
shall have the meaning defined in the Option Agreement. The parties hereby
agree to amend the Option Price for the Options Shares as follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
TIM SWAIN
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
27
<PAGE>
EXHIBIT 10.92
AMENDMENT TO JANUARY 20, 1993 NON-QUALIFIED STOCK OPTION
AGREEMENT FOR CAMI WINIKOFF
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as of January 20, 1993, which provided
for the granting of non-qualified options by Trimark Holdings, Inc., a
Delaware corporation (the "Company"), to Cami Winikoff, an employee of the
Company or of a subsidiary (the "Employee"). Capitalized terms used herein
without definition shall have the meaning defined in the Option Agreement.
The parties hereby agree to amend the Option Price for the Options Shares as
follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
CAMI WINIKOFF
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
28
<PAGE>
EXHIBIT 10.93
AMENDMENT TO JANUARY 30, 1996 NON-QUALIFIED STOCK OPTION
AGREEMENT FOR 15,000 SHARES FOR CAMI WINIKOFF
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as January 30, 1996, which provided for
the granting of non-qualified options by Trimark Holdings, Inc., a Delaware
corporation (the "Company"), to Cami Winikoff, an employee of the Company or
of a subsidiary (the "Employee"). Capitalized terms used herein without
definition shall have the meaning defined in the Option Agreement. The
parties hereby agree to amend the Option Price for the Options Shares as
follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
CAMI WINIKOFF
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
29
<PAGE>
EXHIBIT 10.94
AMENDMENT TO JANUARY 30, 1996 NON-QUALIFIED STOCK OPTION
AGREEMENT FOR 3,000 SHARES FOR CAMI WINIKOFF
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as of January 30, 1996, which provided
for the granting of non-qualified options by Trimark Holdings, Inc., a
Delaware corporation (the "Company"), to Cami Winikoff, an employee of the
Company or of a subsidiary (the "Employee"). Capitalized terms used herein
without definition shall have the meaning defined in the Option Agreement.
The parties hereby agree to amend the Option Price for the Options Shares as
follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
CAMI WINIKOFF
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
30
<PAGE>
EXHIBIT 10.95
AMENDMENT TO FEBRUARY 27, 1997 NON-QUALIFIED
STOCK OPTION AGREEMENT FOR CAMI WINIKOFF
AMENDMENT DATED NOVEMBER 20, 1998 TO NON-QUALIFIED STOCK OPTION
AGREEMENT ("Option Agreement") dated as of February 27, 1997, which provided
for the granting of non-qualified options by Trimark Holdings, Inc., a
Delaware corporation (the "Company"), to Cami Winikoff, an employee of the
Company or of a subsidiary (the "Employee"). Capitalized terms used herein
without definition shall have the meaning defined in the Option Agreement.
The parties hereby agree to amend the Option Price for the Options Shares as
follows:
1. OPTION PRICE. Effective immediately, the Option Price for the
Option Shares shall be at a price per Share of $3.00 on the terms and subject
to the conditions set forth in the Option Agreement. In all other respects,
the Option Agreement shall continue in full force and effect without change.
IN WITNESS WHEREOF, the Company has executed this Amendment to
Option Agreement in duplicate on the day and year first above written.
TRIMARK HOLDINGS, INC.
BY: /s/
-----------------------------------
TITLE
The undersigned hereby accepts, and agrees to, all terms and provisions of
the foregoing Amendment to Option Agreement.
/s/
-----------------------------------
CAMI WINIKOFF
-----------------------------------
-----------------------------------
-----------------------------------
[ADDRESS]
31
<PAGE>
EXHIBIT 10.96
TRIMARK PICTURES
2644 30th Street
Santa Monica, CA 90405-3009
August 14, 1998
Sam Pirnazar
c/o TDC Interactive
Post Office Box 219
Manhattan Beach, CA 90267
RE: AMENDMENT TO STOCK OPTION AGREEMENT
Dear Sam:
This letter constitutes an amendment to the Stock Purchase and
Option Agreement dated as of September 1, 1989, as previously amended (the
"Option Agreement") between you and Trimark Holdings, Inc. (the successor in
interest to Vidmark, Inc.) as follows:
In consideration of your willingness to provide consulting services
from time to time in the future to Trimark Holdings, Inc., the parties hereto
acknowledge and agree that the expiration date of the "Option" (as that term
is defined in the Option Agreement) as provided in Paragraph 1(b) thereof is
extended from September 1, 1998 to September 1, 2000.
Except as expressly set forth herein, the Option Agreement shall
remain in full force and effect.
Please sign and date below in the space provided to signify your
consent to the foregoing amendment, at which point such amendment shall
become effective.
Very truly yours,
TRIMARK HOLDINGS, INC.
a Delaware corporation and
successor in interest to Vidmark, Inc.
to the Option Agreement
By: /s/
----------------------------------
Mark Amin
Chairman of the Board
I hereby acknowledge and agree to the foregoing amendment.
/s/ 11/27/98
- --------------------------------- -----------------------
Said (Sam) Pirnazar Date
32
<PAGE>
EXHIBIT 10.97
AMENDMENT NO. 3 (the "Amendment") dated as of December 31, 1998 to
the CREDIT, SECURITY, GUARANTY AND PLEDGE AGREEMENT, dated as of December 20,
1996 (as amended by Amendment No.1 dated as of June 30, 1997, Amendment No. 2
dated as of March 31, 1998 and the Waiver and Amendment dated as of February
20, 1997, and as further amended, supplemented or otherwise modified, renewed
or replaced from time to time, the "Credit Agreement"), among TRIMARK
PICTURES, INC., a California corporation, and TRIMARK TELEVISION, INC., a
Delaware corporation (each a "Borrower" and together, the "Borrowers"), the
Guarantors named herein, the Lenders referred to herein, THE CHASE MANHATTAN
BANK, a New York banking corporation, as Agent (the "Administrative Agent")
for the Lenders and THE CHASE MANHATTAN BANK as Fronting Bank (the "Fronting
Bank").
INTRODUCTORY STATEMENT
Pursuant to Section 2.6 of the Credit Agreement the
Borrower previously reduced the Total Commitments from $75,000,000 to
$65,000,000 effective as of January 12, 1999.
The Borrowers and the Guarantors have now requested that
the Lenders amend certain provisions of the Credit Agreement. The Lenders are
willing to comply with such request on the terms and subject to the
conditions hereinafter set forth.
Accordingly, the parties hereto hereby agree as follows:
Section 1. DEFINED TERMS. All capitalized terms not
otherwise defined in this Amendment are used herein as defined in the Credit
Agreement.
Section 2. AMENDMENT TO THE CREDIT AGREEMENT. Subject to
the satisfaction of the conditions in Section 3 hereof, the Credit Agreement
is hereby amended effective as of the date hereof (except that the amendments
set forth in paragraphs (a), (b), and (c) shall not take effect until
delivery of the Borrowing Base Certificate for March 31, 1999), as follows:
(a) Clause (v) of the "Borrowing Base" appearing in Article
1 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"(v) Eligible Library Percentage of the Eligible
Library Amount; PLUS"
(b) The definition of "Eligible Library Amount" appearing
in Article 1 of the Credit Agreement is hereby amended in its entirety to
read as follows:
33
<PAGE>
EXHIBIT 10.97 (CONTINUED)
"ELIGIBLE LIBRARY AMOUNT" shall be equal to the sum of (i) the fair market
value of the library as determined by Ernst & Young in their report dated
December 14, 1998, as reduced from time to time to reflect decreases, if any,
in the remaining value of unsold library rights resulting from major library
deals during such interim period (e.g., any single agreement or series of
related agreements pertaining to the licensing, distribution or sale of
library product providing for aggregate payments (including reasonably
estimated contingent payments) to the Borrower or a Subsidiary in excess of
$3,000,000), plus (ii) with respect to each individual item of Product that
is not included in the Ernst & Young report which has a book value in excess
of $3,000,000, the inventory value of such item of Product (determined in
accordance with GAAP) net of Off Balance Sheet Receivables and deferred
revenue items relating to such picture; provided however that the Total
Eligible Library amount shall never be more than $ 48,500,000.
(c) Article 1 of the Credit Agreement is hereby amended
to insert the following definition in its proper
alphabetical location:
"ELIGIBLE LIBRARY PERCENTAGE." shall mean the percentages set forth below for
Borrowing Bases calculated as of the dates indicated.
<TABLE>
<CAPTION>
(a) (b)
Date Eligible Library Percentage
----- ---------------------------
<S> <C>
March 31, 1999 through September 29, 1999 50%
September 30, 1999 through March 30, 2000 40%
March 31, 2000 through September 29, 2000 30%
September 30, 2000 and thereafter 20%
</TABLE>
(d) Section 2.6. of the Credit Agreement is hereby amended
to redesignate existing paragraph (b) as (c), and to insert a new paragraph
(b):(b) The Total Commitment shall be automatically and permanently reduced
on each of the dates set forth in column (a) below, to the amount set forth
in column (b) below:
<TABLE>
<CAPTION>
(a) (b)
Date Total Commitment is Reduced To:
--------- -------------------------------
<S> <C>
March 31, 1999 $ 60,000,000
January 31, 2000 $ 50,000,000
June 30, 2000 $ 40,000,000
</TABLE>
(e) Section 3.6 (a) of the Credit Agreement is hereby amended to insert
September 30, 1998 in place of September 30, 1996.
(f) Section 6.5 of the Credit Agreement is hereby amended to insert
$50,000 for $750,000 in each place it appears.
(g) Section 6.15 of the Credit Agreement is hereby amended and restated
to read as follows:
34
<PAGE>
EXHIBIT 10.97 (CONTINUED)
"Section 6.15 UNRECOUPED PRINT AND ADVERTISING EXPENSES.
Permit Unrecouped Print and Advertising Expenses for any individual item of
Product to exceed $5,000,000 or permit the sum of Unrecouped Print and
Advertising Expenses, computed for each individual item of Product, to exceed
$15,000,000 in the aggregate at any time.
(h) Section 6.18 of the Credit Agreement is hereby amended and
restated to read as follows:
Section 6.18 CONSOLIDATED TANGIBLE NET WORTH RATIO Permit the ratio
of (i) the aggregate amount of all Indebtedness of the Parent and its
Consolidated Subsidiaries, consolidated in accordance with GAAP, plus 100% of
Product Acquisition Commitments of the Parent and its Consolidated
Subsidiaries, less the present value of related Off-Balance Sheet Receivables
(but not more than the related portion of Product Acquisition Commitments),
to (ii) Consolidated Tangible Net Worth to be greater than the ratio set
forth below during the period corresponding thereto:
<TABLE>
<CAPTION>
Ratio Period
----- -------
<S> <C>
4.75:1 December 31, 1998 to March 30, 1999
4.50:1 March 31, 1999 to June 29, 1999
4.25:1 June 30, 1999 to September 29, 1999
3.75:1 September 30, 1999 and thereafter
</TABLE>
(i) Section 6.22(b) of the Credit Agreement is hereby amended and
restated to read as follows: (b) Produce or acquire any item of Product with
a Production Exposure in excess of (i) $10,000,000 per picture or (ii)
$3,000,000 net of related Off Balance Sheet Receivables relating to such item
of Product and that portion of production costs which third parties have
committed to fund on a cash flow basis.
(j) Section 6.22(d) of the Credit Agreement is hereby amended by
deleting the figure "$6,000,000" and inserting the figure "$5,000,000" in its
place.
(k) Schedule 2 to the Credit Agreement is hereby amended by adding
the following Acceptable Obligors and their respective Allowable Amounts:
35
<PAGE>
EXHIBIT 10.97 (CONTINUED)
<TABLE>
<CAPTION>
Debtor Category Name of Approved Allowable Amount
--------------- Account Debtor ----------------
----------------
<S> <C> <C>
ACCEPTABLE MAJOR DOMESTIC
ACCOUNT DEBTORS
Acceptable Major Domestic NBC $5,000,000
Account Debtor (95%)
ACCEPTABLE FOREIGN ACCOUNT
DEBTORS
Acceptable Foreign Account Advance GMBH $600,000
Debtor (75%)
Acceptable Foreign Account BSKYB TV $1,000,000
Debtor (75%)
Acceptable Foreign Account Coyaba Corp. $ 300,000
Debtor (75%)
Acceptable Foreign Account Gala Films $800,000
Debtor (75%)
Acceptable Foreign Account Kassna Intl.Ltd. $600,000
Debtor (75%)
</TABLE>
(l) Schedule 2 to the Credit Agreement is hereby further amended by increasing
the Allowable Amount for each Acceptable Obligor listed below to the amount
opposite its name set forth below:
<TABLE>
<CAPTION>
Debtor Category Name of Approved Allowable Amount
--------------- Account Debtor ----------------
----------------
<S> <C> <C>
ACCEPTABLE MAJOR
DOMESTIC ACCOUNT DEBTORS
Acceptable Major Domestic Disney $5,000,000
Account Debtor (95%) (Including Affiliates)
Acceptable Major Domestic CBS $5,000,000
Account Debtor (95%)
ACCEPTABLE FOREIGN ACCOUNT
DEBTORS
Acceptable Foreign Account Andrea Leone $700,000
Debtor (75%)
Acceptable Foreign Account BMG $500,000
Debtor (75%)
Acceptable Foreign Account Foxton Entertainment $1,500,000
Debtor (75%)
Acceptable Foreign Account Pony Canyon $1,000,000
Debtor (75%)
Acceptable Foreign Account Taurus Film $2,000,000
Debtor
</TABLE>
36
<PAGE>
EXHIBIT 10.97 (CONTINUED)
(m) Schedule 2 to the Credit Agreement is hereby further amended to
increase the Acceptable Foreign Basket Limit from $5,000,000 to $7,500,000.
Section 3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction in full of the following conditions
precedent.
1.The Administrative Agent shall have received executed counterparts of
this Amendment, which, when taken together, bear the signatures of each party
hereto;
(b) The Agent shall have received the library valuation report of Ernst
& Young referred to in the definition of Eligible Library Amount.
(c) All legal matters in connection with this Amendment shall be
reasonably satisfactory to Morgan, Lewis & Bockius LLP, counsel for the
Administrative Agent.
Section 4. REPRESENTATIONS AND WARRANTIES. Each of the Credit Parties
hereby represents, warrants and acknowledges to the Administrative Agent (on
behalf of itself, Fronting Bank and the Lenders) that:
1.Their respective obligations to the Lenders under the Credit Agreement
remain in full force and effect.
1.The representations and warranties contained in the Credit Agreement
and in the other Fundamental Documents are true and correct in all material
respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent
such representations and warranties expressly relate to an earlier date).
2.After giving effect hereto, each of the Credit Parties is in
compliance with all the terms and provisions set forth in the Credit
Agreement and the other Fundamental Documents and no Default or Event of
Default has occurred or is continuing under the Credit Agreement or any other
Fundamental Document.
3.The acknowledgments, representations and warranties in this Section 4
have been a material inducement for the Lenders to agree to enter into this
Amendment, (ii) the Lenders are relying on such acknowledgments,
representations and warranties, and (iii) the Lenders would not have entered
into this Amendment without such acknowledgments, representations and
warranties.
37
<PAGE>
EXHIBIT 10.97 (CONTINUED)
Section 5. FULL FORCE AND EFFECT. Except as expressly set forth
herein, this Amendment does not constitute a waiver or modification of any
provision of the Credit Agreement or a waiver of any Default or Event of
Default under the Credit Agreement, in either case whether or not known to
the Lenders. Except as expressly amended hereby, the Credit Agreement shall
continue in full force and effect in accordance with the provisions thereof
on the date hereof. As used herein, the terms "Credit Agreement", "this
Agreement", "herein", "hereafter", "hereto", "hereof", and words of similar
import, shall, unless the context otherwise requires, mean the Credit
Agreement as amended by this Amendment. References to the terms "Agreement"
or "Credit Agreement" appearing in the Exhibits or Schedules hereto or to the
Credit Agreement, shall, unless the context otherwise requires, mean the
Credit Agreement as amended by this Amendment.
SECTION 6. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WHICH ARE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF
NEW YORK.
Section 7. COUNTERPARTS. This Amendment may be executed in two or
more counterparts, each of which shall constitute as an original, but all of
which when taken together shall constitute but one instrument.
Section 8. EXPENSES. The Borrowers agree to pay all reasonable
out-of-pocket expenses incurred by the Administrative Agent in connection
with the preparation, execution, delivery, performance or enforcement of this
Amendment, the Credit Agreement or the other Fundamental Documents and any
other documentation contemplated hereby or thereby, including, but not
limited to, the reasonable fees and disbursements of external legal counsel
for the Administrative Agent and the allocated costs and charges of its
internal legal counsel.
Section 9. HEADINGS. The headings of this Amendment are for the
purposes of reference only and shall not affect the construction of, or be
taken into consideration in interpreting, this Amendment.
38
<PAGE>
EXHIBIT 10.97 (CONTINUED)
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and
year first written above.
TRIMARK PICTURES, INC.
TRIMARK TELEVISION, INC.
TRIMARK HOLDINGS, INC.
TRIMARK MUSIC
CHEAP DATE, INC.
WRITERS ON THE WAVE
PURPLE TREE PRODUCTIONS, INC.
LOVING GUN PRODUCTIONS, INC.
TRIMARK INTERACTIVE
By /s/
-----------------------------------
Name:
Title: Authorized Signatory for
each of the foregoing
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By: /s/
-----------------------------------
Name:
Title:
CITY NATIONAL BANK
By: /s/
-----------------------------------
Name:
Title:
COMERICA BANK-CALIFORNIA
By: /s/
-----------------------------------
Name:
Title:
FIRST HAWAIIAN BANK
By: /s/
-----------------------------------
Name:
Title:
39
<PAGE>
EXHIBIT 10.97 (CONTINUED)
IMPERIAL BANK
By: /s/
-----------------------------------
Name:
Title:
SILICON VALLEY BANK
By: /s/
-----------------------------------
Name:
Title:
THE SUMITOMO TRUST & BANKING CO.,LTD.,
NEW YORK BRANCH
By: /s/
-----------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA
By: /s/
-----------------------------------
Name:
Title:
DE NATIONALE INVESTERINGSBANK N.V.
By: /s/
-----------------------------------
Name:
Title:
40
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 239
<SECURITIES> 0
<RECEIVABLES> 31,180
<ALLOWANCES> 6,243
<INVENTORY> 279
<CURRENT-ASSETS> 0<F1>
<PP&E> 3,294
<DEPRECIATION> 2,646
<TOTAL-ASSETS> 93,219
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 59,690
0
0
<COMMON> 5
<OTHER-SE> 16,185
<TOTAL-LIABILITY-AND-EQUITY> 93,219
<SALES> 46,281
<TOTAL-REVENUES> 46,281
<CGS> 37,288
<TOTAL-COSTS> 37,288
<OTHER-EXPENSES> 6,360
<LOSS-PROVISION> (341)
<INTEREST-EXPENSE> 2,152
<INCOME-PRETAX> 839
<INCOME-TAX> (240)
<INCOME-CONTINUING> 1,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,079
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<FN>
<F1>IN ACCORDANCE WITH INDUSTRY PRACTICE THE COMPANY PREPARES AN UNCLASSIFIED
BALANCE SHEET.
</FN>
</TABLE>
