<PAGE> 1
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 JUNE 30, 1996
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission file number 0-23958
CINERGI PICTURES ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4247952
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2308 BROADWAY
SANTA MONICA, CALIFORNIA 90404
(Address of principal executive offices)
(Zip Code)
(310) 315-6000
(Registrant's telephone number, including area code)
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 August 12, 1996, there were 14,191,556 shares of the registrant's
Common Stock outstanding.
<PAGE> 2
CINERGI PICTURES ENTERTAINMENT INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
December 31, 1995 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1995 and
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1995 and
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 29,832,000 $ 12,676,000
Accounts receivable 7,494,000 4,313,000
Accounts receivable, related parties 682,000 811,000
Film costs, less accumulated amortization 160,756,000 164,547,000
Property and equipment, at cost,
less accumulated depreciation 4,381,000 5,390,000
Other assets 3,112,000 2,738,000
------------ ------------
TOTAL ASSETS $206,257,000 $190,475,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 1,785,000 $ 1,334,000
Accrued interest 2,613,000 3,400,000
Accrued residuals & participations 8,781,000 9,332,000
Deferred revenue 68,791,000 54,333,000
Capital lease obligation -- 659,000
Loans payable 65,360,000 63,515,000
Notes and amounts payable
to related parties 5,310,000 5,013,000
------------ ------------
TOTAL LIABILITIES $152,640,000 $137,586,000
</TABLE>
3.
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CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ ------------
(unaudited)
<S> <C> <C>
Common Stock with certain redemption
features, $.01 par value, 1,117,000
shares issued and outstanding less
notes receivable from related parties
amounting to $1,350,000 $1,900,000 $2,525,000
Commitments & Contingencies (Note 4) -- --
Stockholders' Equity
Preferred Stock, $.01 par value,
5,000,000 shares authorized, no shares
issued and outstanding -- --
Common Stock, $.01 par value,
20,000,000 shares authorized,
13,075,000 shares issued and outstanding 131,000 131,000
Additional Paid-in Capital 64,753,000 64,753,000
Retained Deficit (13,167,000) (14,520,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 51,717,000 50,364,000
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $206,257,000 $190,475,000
============ ============
</TABLE>
NOTE: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting principals
for complete financial statements.
See notes to condensed consolidated financial statements.
4.
<PAGE> 5
CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Feature films $50,844,000 $22,447,000 $63,478,000 $59,552,000
Fee income 116,000 20,000 188,000 31,000
----------- ----------- ----------- -----------
50,960,000 22,467,000 63,666,000 59,583,000
Cost and expenses:
Amortization of film
costs, residuals &
participations 59,896,000 22,076,000 71,697,000 58,411,000
Selling, general & ad-
ministrative expenses 820,000 1,403,000 1,389,000 2,879,000
----------- ----------- ----------- -----------
Operating loss (9,756,000) (1,012,000) (9,420,000) (1,707,000)
Interest expense -- -- -- (176,000)
Interest income 179,000 296,000 218,000 530,000
----------- ----------- ----------- -----------
Net loss
before provision for
income taxes (9,577,000) (716,000) (9,202,000) (1,353,000)
Provision for
income taxes 142,000 -- -- --
----------- ----------- ----------- -----------
Net loss $(9,435,000) $ (716,000) $(9,202,000) $(1,353,000)
=========== =========== =========== ===========
Net loss per share $(0.76) $(0.05) $(0.78) $(0.10)
=========== =========== =========== ===========
Weighted average number
of shares outstanding 12,478,000 14,192,000 11,838,000 14,192,000
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5.
<PAGE> 6
CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (9,202,000) $ (1,353,000)
Adjustments to reconcile net loss to net
cash provided by (used in)
operating activities:
Depreciation 185,000 641,000
Amortization of unearned compensation 25,000 625,000
Film cost amortization 67,400,000 53,481,000
Changes in operating assets and liabilities:
Accounts receivable 9,731,000 3,181,000
Accounts receivable, related parties 340,000 (129,000)
Film cost additions (80,899,000) (57,272,000)
Other assets 360,000 374,000
Accounts payable & accrued interest (6,000) 336,000
Accrued residuals and participations payable 4,061,000 551,000
Deferred revenue 28,536,000 (14,458,000)
------------ ------------
Net cash provided by (used in)
operating activities 20,531,000 (14,023,000)
INVESTING ACTIVITIES
Purchase of property and equipment (1,147,000) (70,000)
------------ ------------
Net cash used in investing activities $ (1,147,000) $ (70,000)
</TABLE>
See notes to condensed consolidated financial statements.
6.
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CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1996
------------ -------------
<S> <C> <C>
FINANCING ACTIVITIES
Increase in loans payable $ 50,936,000 $ 29,483,000
Payments on loans payable (69,691,000) (31,328,000)
Increase in notes and amounts payable to
related parties 8,678,000 421,000
Payments on notes and amounts payable to
related parties (8,566,000) (718,000)
Payments on capital lease obligation -- (921,000)
Issuance of common stock, net of expenses 23,450,000 0
------------ ------------
Net cash provided by (used in)
financing activities 4,807,000 (3,063,000)
------------ ------------
Increase (decrease) in cash 24,191,000 (17,156,000)
Cash and cash equivalents at beginning of year 2,665,000 29,832,000
------------ ------------
Cash and cash equivalents at end of period $ 26,856,000 $ 12,676,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 153,000 $ 23,000
</TABLE>
SIX MONTHS ENDING JUNE 30, 1996
Visual effects equipment amounting to $1,580,000 was purchased under a
capital lease agreement.
Accrued interest of $575,000 relating to production loans owed to a
third party was offset against monies owed to the Company by such third party.
SIX MONTHS ENDING JUNE 30, 1995
Film assets amounting to $1,221,000 were transferred from film
inventory to fixed assets.
See notes to condensed consolidated financial statements.
7.
<PAGE> 8
CINERGI PICTURES ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
NOTE 1 -- PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Cinergi Pictures Entertainment Inc. (the "Company" or "CPEI") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included in
CPEI's Annual Report on Form 10-K ("Annual Report") filed with the Securities
and Exchange Commission.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Net Loss Per Common Share. The per share data for the three and six
month periods ended June 30, 1995 and 1996 are based on the weighted average
number of common and common share equivalents outstanding during the period.
Common Stock with certain redemption features are considered common share
equivalents. Stock options and warrants are considered common share
equivalents if dilutive.
Reclassification. Certain reclassifications were made to the 1995
balances to conform to the June 30, 1996 presentation primarily to not reflect
Buena Vista Pictures Distribution, Inc. as a related party.
NOTE 3 -- FILM COSTS
Film costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1995 1996
------------ ------------
<S> <C> <C>
Released, less amortization . . . . . . . . $101,238,000 $ 51,237,000
In production . . . . . . . . . . . . . . . 53,545,000 106,332,000
Development . . . . . . . . . . . . . . . . 5,973,000 6,978,000
------------ ------------
$160,756,000 $164,547,000
============ ============
</TABLE>
8.
<PAGE> 9
CINERGI PICTURES ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
June 30, 1996
NOTE 4 -- COMMITTMENTS AND CONTINGENCIES
In December 1995, the U.S. Attorney for the Central District of
California served subpoenas ("Subpoenas") on the Company related to a grand
jury investigation of federal tax aspects of various transactions involving
Andrew G. Vajna, President, Chief Executive Officer and Chairman of the Board
of Directors of the Company, and certain other persons and entities (the
"Investigation"). The Company believes the Investigation is focusing primarily
on (i) the 1988 and 1989 personal tax returns of Mr. Vajna and the tax returns
of certain other persons and entities, and (ii) the ongoing audits of Mr.
Vajna's tax returns since 1990 by the Internal Revenue Service. The Company
has not been identified by the U.S. Attorney as being a target of the
Investigation; however, there can be no assurance that the Company's status
will not change in the future. The Board of Directors of the Company has
formed a committee of the three outside directors of the Company (the "Special
Committee") to monitor the Company's response to the Subpoenas, to consider the
Company's indemnification obligations with respect to its employees, officers
and directors and to otherwise evaluate and act upon matters related to the
Investigation. The Company has engaged counsel to represent it in connection
with the Investigation and is in the process of responding to the Subpoenas.
Given the uncertainty of the Investigation, there is currently no basis upon
which to estimate the impact, if any, the Investigation may have on the
Company.
Pursuant to Article Tenth of the Company's Restated Certificate of
Incorporation, Article V of the Company's Restated Bylaws, indemnity agreements
entered into between the Company and certain of its officers and directors, and
the provisions of Section 145 of the Delaware General Corporation Law
(the "Indemnification Provisions"), the Company is advancing the expenses of
certain of its current and former employees, officers and directors other than
Mr. Vajna (the "Indemnitees") which they may incur in connection with the
Investigation. As of August 12, 1996, the Company had advanced an aggregate of
$92,000 on behalf of the Indemnitees. The Indemnitees have undertaken to
reimburse the Company for their expenses if it is ultimately determined by the
Special Committee that they are not entitled to be indemnified. In addition,
Mr. Vajna has undertaken to reimburse the Company under certain circumstances
with respect to the expenses of the Indemnitees. Given the current uncertainty
regarding the scope and duration of the Investigation and the amount of
expenses which may be incurred by the Indemnitees in connection with the
Investigation, there is no basis upon which to estimate the financial impact
which the foregoing may have on the Company.
On May 13, 1996, a purported class action lawsuit was filed in the
Superior Court of California for the County of Los Angeles by Aron Golds, an
alleged stockholder of the Company, against the Company and certain of its
current and former executive officers and
9.
<PAGE> 10
directors. The complaint alleges, among other things, that the defendants
negligently misrepresented (or omitted) material facts about the business,
financial condition, future growth and profitability of the Company in
documents and releases of the Company, including the prospectus for the
Company's 1995 Common Stock offering, and in alleged statements by certain of
the individual defendants. On the same date, a second purported class action
lawsuit was filed in the same court by Michael Shores, also an alleged
stockholder of the Company, against the same defendants as in the first lawsuit
alleging violations of Sections 11 and 15 of the Securities Act of 1933, as
amended, and otherwise making substantially the same allegations as in the
first lawsuit. Both lawsuits seek, among other things, an award of unspecified
monetary damages in favor of the plaintiffs and the other members of the
purported class for all losses and injuries allegedly suffered as a result of
the defendants' alleged conduct. On July 26, 1996, the court consolidated the
two cases and plaintiffs filed an amended consolidated complaint with virtually
identical allegations to those asserted in the original pleadings.
Management of the Company does not believe that these lawsuits have
merit and intends to defend them vigorously.
Pursuant to the Indemnification Provisions, the Company is advancing
the expenses of the current and former officers and directors named as
defendants in the Golds and Shores litigations (the "Indemnitees") which they
may incur in the defense of those litigations. The Indemnitees have undertaken
to reimburse the Company for their expenses if it is ultimately determined that
they are not entitled to be indemnified. Given the current uncertainty
regarding the scope and duration of these litigations and the amount of
expenses which may be incurred by the Indemnitees in connection with these
litigations, there is no basis upon which to estimate the financial impact
which the foregoing may have on the Company.
10.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as "may,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The reader is cautioned
that all forward-looking statements are necessarily speculative and there are
certain risks and uncertainties that could cause actual events or results to
differ materially from those referred to in such forward-looking statements.
These risks and uncertainties include, among other things, the highly
speculative and inherently risky and competitive nature of the motion picture
industry. There can be no assurance of the economic success of any motion
picture since the revenues derived from the production and distribution of a
motion picture (which do not necessarily bear a direct correlation to the
production or distribution costs incurred which can be substantial with respect
to the Company's films) depend primarily upon its acceptance by the public,
which cannot be predicted. The results for the six months ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
entire year. Due to the uncertainties of the release schedules of the
relatively limited number of motion pictures produced by the Company and the
audience responses thereto, the Company's revenues and earnings fluctuate
significantly from quarter to quarter and from year to year. In addition,
management of the Company is conducting an ongoing strategic review of the
Company's business strategies and goals and has retained the financial advisory
firm of Jefferson Capital Group, Ltd. (of which R. Timothy O'Donnell, a
director of the Company, is President), to assist it in such review. The
strategic review includes discussions with third parties regarding the sale of
a partial interest in the Company or the entire Company. As the Company has
not concluded its strategic review nor have any agreements been reached with
respect thereto, it is not possible to predict at this time what changes, if
any, may be made in the Company's business strategies and what effect any
changes may have on the Company's business, future results of operations and
financial condition. The risks highlighted above should not be assumed to be
the only things that could affect future performance of the Company. The
Company does not have a policy of updating or revising forward-looking
statements and thus it should not be assumed that silence by management of the
Company over time means that actual events are bearing out as estimated in such
forward-looking statements.
RESULTS OF OPERATIONS
Quarter Ended June 30, 1996 compared to Quarter Ended June 30, 1995
Feature film revenues decreased from $50,844,000 for the quarter ended
June 30, 1995 to $22,447,000 for the quarter ended June 30, 1996. Feature
film revenues for the quarter ended June 30, 1995 consisted mainly of revenues
generated from the domestic and international availability of Die Hard With A
Vengeance. Feature film revenues for the quarter ended June
11.
<PAGE> 12
30, 1996 consisted mainly of the domestic home video availability of The
Scarlet Letter and continuing domestic and foreign revenues from Tombstone and
Die Hard With a Vengeance.
Amortization of film costs, residuals and participations decreased
from $59,896,000 for the quarter ended June 30, 1995 to $22,076,000 for the
quarter ended June 30, 1996 primarily due to the decrease in feature film
revenue recognized in the quarter ended June 30, 1996 as compared to the
quarter ended June 30, 1995 and the write down to net realizable value in the
quarter ended June 30, 1995 of Judge Dredd, which was released on June 30, 1995
to less than expected box office results. The Company estimates the total
projected revenues to be received from the exploitation of a motion picture in
all territories and media. As the estimated revenues from a motion picture are
recognized, the percentage of revenues recognized to total projected revenues
is applied to film costs for such motion picture to record amortization. Where
applicable, unamortized film costs for a picture are written down to net
realizable value for such picture based upon the Company's appraisal of current
market conditions.
Selling, general and administrative ("SG&A") expenses (excluding
production overhead costs capitalized to film costs) increased from $820,000
for the quarter ended June 30, 1995 to $1,403,000 for the quarter ended June
30, 1996. The difference is primarily because indirect costs attributable to
the special effects facility were included in overhead in the quarter ended
June 30, 1996, because none of the Company's films in production during such
period utilized the facility, compared to the quarter ended June 30, 1995 when
substantially all of the indirect costs attributable to the special effects
facility were included in film costs, as the special effects for Judge Dredd,
which was in production during such period, were primarily created at the
facility. The increase in overhead during the quarter ended June 30, 1996 was
also due to legal expenses in connection with the Investigation and lawsuits
described in Note 4 of the Financial Statements. The Company capitalizes
production overhead incurred in connection with the production of a motion
picture by adding such costs to the capitalized film costs of the motion
picture. Production overhead being capitalized to films decreased from
$1,484,000 in the second quarter of 1995 as compared to $1,428,000 in the
second quarter of 1996, and the total of SG&A expenses and production overhead
costs capitalized to film costs increased from $2,304,000 for the quarter ended
June 30, 1995 to $2,831,000 for the quarter ended June 30, 1996.
All interest expense for the quarter ended June 30, 1995 and the
quarter ended June 30, 1996 was capitalized to film costs. The Company
capitalizes applicable interest expense incurred in connection with the
production of each motion picture. The Company determines the amount of
interest expense to be capitalized to each motion picture in production by
multiplying the average cumulative film cost of each motion picture in a given
period by the overall effective interest rate paid by the Company on the
aggregate amount of debt outstanding for such period. Interest expense,
including interest capitalized to film costs, decreased from $3,243,000 for the
quarter ended June 30, 1995 to $1,785,000 for the quarter ended June 30, 1996.
This decrease was due to the lower average outstanding balance of the Company's
production loans in the quarter ended June 30, 1996 as compared to the quarter
ended June 30, 1995. Three films were
12.
<PAGE> 13
in various stages of production during the second quarter of 1996 as compared
to six films during the second quarter of 1995.
Fee income decreased from $116,000 for the quarter ended June 30, 1995
to $20,000 for the quarter ended June 30, 1996. Fee income represents fees
earned in connection with an arrangement to collect accounts receivable on
behalf of and to distribute motion pictures produced by an unrelated third
party.
Interest income increased from $179,000 for the quarter ended June 30,
1995 to $296,000 for the quarter ended June 30, 1996 due to higher cash
balances during the second quarter of 1996 compared to the second quarter of
1995.
The Company had a tax benefit of $142,000 for the quarter ended June
30, 1995 as a result of reversing a tax provision accrued at March 31, 1995
because of the loss for the six month period ended June 30, 1995.
As a result of the above, the Company incurred a net loss for the
quarter ended June 30, 1996 of $716,000 as compared to a net loss of $9,435,000
for the quarter ended June 30, 1995.
Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995
Feature film revenues decreased from $63,478,000 for the six months
ended June 30, 1995 to $59,552,000 for the six months ended June 30, 1996.
Feature film revenues for the six months ended June 30, 1995 consisted of
domestic home video and pay television revenues for Tombstone, domestic home
video revenues for Color of Night, and international revenues from the release
of Die Hard With A Vengeance. Feature film revenues for the six months ended
June 30, 1996 consisted mainly of the domestic home video availability of The
Scarlet Letter, international availability of Nixon, continuing domestic home
video revenue from Tombstone and continuing domestic and international revenues
from Die Hard With a Vengeance.
Amortization of film costs, residuals and participations decreased
from $71,697,000 for the six months ended June 30, 1995 to $58,411,000 for the
six months ended June 30, 1996 primarily due to the decrease in feature film
revenue recognized for the six months ended June 30, 1996 as compared to the
six months ended June 30, 1995 and the write down to net realizable value of
Judge Dredd during the six months ended June 30, 1995 as described above.
SG&A expenses (excluding production overhead costs capitalized to film
costs) increased from $1,389,000 for the six months ended June 30, 1995 to
$2,879,000 for the six months ended June 30, 1996. The difference is primarily
because indirect costs attributable to the special effects facility were
included in overhead in the six months ended June 30, 1996, because none of the
Company's films in production during such period utilized the facility,
compared to the six months ended June 30, 1995 when substantially all of the
indirect costs attributable to the special effects facility were
13.
<PAGE> 14
included in film costs, as the special effects for Judge Dredd, which was in
production during such period, were primarily created at the facility. The
increase in overhead during the six months ended June 30, 1996 was also due to
legal expenses in connection with the Investigation and lawsuits described in
Note 4 of the Financial Statements. The total of SG&A expenses and production
overhead costs capitalized to film costs increased from $4,411,000 for the six
months ended June 30, 1995 to $5,971,000 for the six months ended June 30, 1996
primarily due to the Company's special effects facility and legal expenses in
connection with the Investigation and lawsuits as previously noted.
Interest expense increased from none for the six months ended June 30,
1995 to $176,000 for the six months ended June 30, 1996. All interest expense
for the six months ended June 30, 1995 was capitalized to film costs. Interest
expense, including interest capitalized to film costs, decreased from
$6,219,000 for the six months ended June 30, 1995 to $3,337,000 for the six
months ended June 30, 1996 due to the lower average outstanding balance of the
Company's production loans in the six months ended June 30, 1996 as compared to
the six months ended June 30, 1995. The Company had a lower average
outstanding balance of production loans for the six months ended June 30, 1996
because three films were in production in such period as compared to six films
in production in the corresponding period in 1995.
Fee income decreased from $188,000 for the six months ended June 30,
1995 to $31,000 for the six months ended June 30, 1996. Fee income represents
fees earned in connection with an arrangement to collect accounts receivable on
behalf of and to distribute motion pictures produced by an unrelated third
party.
Interest income increased from $218,000 for the six months ended June
30, 1995 to $530,000 for the six months ended June 30, 1996 due primarily to
higher cash balances during the six months ended June 30, 1996.
As a result of the above, the Company incurred a net loss for the six
months ended June 30, 1996 of $1,353,000 as compared to a net loss of
$9,202,000 for the six months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a Credit, Security, Pledge and Guaranty Agreement
dated as of August 16, 1994 with Chase Manhattan Bank and a syndicate of
lenders (collectively, the "Lenders") which provides the Company with a
revolving credit facility of $150,000,000 (the "Credit Facility"). Under the
Credit Facility, the Lenders have committed to make loans available until
August 31, 1997, although the Lenders will continue to make loans to finance
any motion picture in which principal photography has commenced or that has
otherwise satisfied certain conditions prior to such date. The Credit Facility
is secured by substantially all of the assets of the Company, including
$5,000,000 in "key man" life insurance on Mr. Vajna. The Credit Facility
matures on February 28, 1999. As of June 30, 1996, approximately $33,021,000
in borrowings were outstanding under the Credit Facility. As of June 30, 1996,
the interest rate on the
14.
<PAGE> 15
amounts outstanding under the Credit Facility was approximately 7% per annum.
The commitment fee on the average daily unused portion of the commitment is 3/8
of one percent per annum.
The Company previously entered into term loan agreements with Buena
Vista Pictures Distribution, Inc. ("BVPD") to finance a portion of the costs of
Color of Night, The Scarlet Letter, Nixon, The Shadow Conspiracy and Evita.
Each loan must be repaid with accrued interest on or before the earlier of (i)
four years after the loan proceeds are first made available to the Company or
(ii) three years after the initial domestic theatrical release of the
applicable picture. The first of these loans will become due in May 1997 for
Color of Night. Each of these loans are secured by rights to distribute the
respective motion picture in the Americas and, except for one term loan
personally guaranteed by Mr. Vajna, certain other distribution rights related
to other motion pictures financed by BVPD. At June 30, 1996, the aggregate
principal loan balances were approximately $30,494,000.
The Company has a one year capital lease for certain visual effects
equipment. The total capital lease obligation at June 30, 1996 was $659,000.
The Company currently is in post-production of Evita and The Shadow
Conspiracy. Subsequent to the quarter ended June 30, 1996, the Company
completed delivery of Amanda to Family Channel Pictures Inc. for domestic
distribution and is in the process of delivering the picture for international
distribution. Through June 30, 1996, the Company incurred approximately
$95,345,000 in direct negative costs in connection with the motion pictures The
Shadow Conspiracy, Amanda and Evita. The Company currently expects, subject to
changes in existing budgets, that an additional approximately $11,790,000 in
direct negative costs will be incurred in connection with such motion pictures.
The Company and Hollywood Pictures Company ("HPC") have agreed in
principle to enter into a Financing and Distribution Agreement (the "Agreement")
whereby the Company will acquire a 50% interest in the picture owned by HPC
tentatively entitled Deep Rising (the "Picture"), an action, adventure, horror,
thriller starring Treat Williams that takes place on the high seas. Production
on the Picture commenced on June 12, 1996 and pursuant to the terms of the
Agreement, in exchange for a 50% equity participation interest in the Picture
and a sales fee for international distribution, the Company is financially
obligated to pay to HPC the lesser of 50% of the cost of the Picture and
$22,500,000.
The Company believes that its existing capital, funds from operations,
borrowings under the Credit Facility, advances and production loans from BVPD
and other available sources of capital, will be sufficient to enable the
Company to fund its planned development, production and overhead expenditures
for the next 12 months.
15.
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 4 to Condensed Consolidated Financial Statements set forth
herein.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's 1996 Annual Meeting of Stockholders was held on May 29,
1996. At the Annual Meeting, R. Timothy O'Donnell and Randolph M. Paul were
re-elected to serve as directors of the Company until the 1999 Annual Meeting
of Stockholders and until their successors are elected and have qualified, in
each case by a vote of 13,920,963 votes in favor of such person's reelection,
25,764 votes against such person's reelection and with no votes withheld.
At the 1996 Annual Meeting of Stockholders, the Company's stockholders
also approved a proposal to ratify the Company's selection of Ernst & Young LLP
as the Company's independent auditors for the fiscal year ending December 31,
1996. The number of votes cast with respect to such proposal were 13,914,596
votes in favor and 10,731 votes against, with 21,400 abstentions and no broker
non-votes.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
10. Equipment Lease dated February 8, 1996 between
Cinergi Pictures Entertainment Inc. and Brentwood
Credit Corporation
27. Financial Data Schedule
16.
<PAGE> 17
b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three-month
period ended June 30, 1996.
17.
<PAGE> 18
SIGNATURE
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.
CINERGI PICTURES ENTERTAINMENT INC.
August 13, 1996 By: /s/ Warren Braverman
------------------------------------------
Warren Braverman, Executive Vice President,
Chief Financial Officer and Treasurer,
signing both in his capacity as Executive
Vice President on behalf of Registrant and
as Chief Financial Officer of Registrant
18.
<PAGE> 1
BRENTWOOD CREDIT CORPORATION
SCHEDULE NO. 01
TO EQUIPMENT LEASE NO. CPE-1000-100
DATED FEBRUARY 8, 1996
LESSEE CINERGI PICTURES ENTERTAINMENT, INC.
LEASED EQUIPMENT COST $1,103,258.16
Equipment Data:
QUANTITY TYPE MODEL DESCRIPTION
SEE ATTACHED FOR BREAKDOWN OF EQUIPMENT
Location of Equipment: MASS.ILLUSION
30 RIVERVIEW ROAD
LENOX, MA 01240
Term of Schedule: 12 months commencing on April 1, 1996 and continuing to
March 31, 1997.
Purchase Option: Upon expiration of the initial term, provided Lessee has
given 60 days prior written notice and provided Lessee is not in default of
this agreement, Lessee shall have a one time purchase option equal to 5% of the
Equipment cost.
Rental Payments: $97,960.00 per month in advance. (Lessee is tax exempt).
Brentwood Credit Corporation, (Lessor) hereby agrees to lease to the
Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the
equipment listed above, for the term and rental payments specified, all subject
to the terms and conditions set forth in such equipment lease.
Lessor: BRENTWOOD CREDIT Lessee: CINERGI PICTURES
CORPORATION ENTERTAINMENT INC.
By: [SIG] By: [SIG]
------------------------- -------------------------
Erick J. Feitshans
Title: /s/ Title: Vice President
---------------------- ----------------------
Date: Date: 19 March 1996
----------------------- -----------------------
1620 26th Street 2308 Broadway
Suite #290-S Santa Monica, CA 90404-2916
Santa Monica, CA 90404
<PAGE> 2
[COMPANY LOGO]
Brentwood Credit
CINERGI PICTURES ENTERTAINMENT, INC.
SCHEDULE 01 TO MASTER LEASE CPE-1000-100
EQUIPMENT ATTACHMENT
PAGE 1
QTY EQUIPMENT DESCRIPTION
- --- ---------------------
ATTILA (EASTMAN KODAK INVOICE #012062521)
1 5.12/4.29GB SEAGATE DISK
1 EXTERNAL 4.0GB 4MM DIGITAL AUDIO SCSI TAPE
GHENGIS (EASTMAN KODAK INVOICE #012062521)
1 64MB FOR CRIMSON
ASPEN (EASTMAN KODAK INVOICE #012062521)
1 VAULT XL SCSI 4.3 FWD DISKS
1 256MB RAM
1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD
HARLEM (EASTMAN KODAK INVOICE #012062521)
2 VAULT XL SCSI 4.3 FWD DISKS
1 256MB RAM
JANUS (EASTMAN KODAK INVOICE #012062521)
1 VAULT XL SCSI 4.3 FWD DISKS
1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD
LIBERTY (EASTMAN KODAK INVOICE #012062521)
1 VAULT XL SCSI 4.3 FWD DISKS
1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD
4 VAULT XL SCSI 4.3 FWD DISKS
SPHINX (EASTMAN KODAK INVOICE #012062521)
1 EXTERNAL 4.0GB 4MM DIGITAL AUDIO SCSI TAPE
NEW MACH 1 (EASTMAN KODAK INVOICE #012062521)
1 INDIGO2 EXTREME GEN. 250 128MB 4GB
1 5.12/4.29GB SEAGATE DISK
1 128MB MEMORY UPGRADE
Brentwood Credit Corporation
1620 26th Street, Suite 290-S, Santa Monica, California 90404
310-828-1199 fax: 310-828-7781
<PAGE> 3
CINERGI PICTURES ENTERTAINMENT, INC.
SCHEDULE 01 TO MASTER LEASE CPE-1000-100
EQUIPMENT ATTACHMENT
PAGE 2
NEW MACH 2 (EASTMAN KODAK INVOICE #012062521)
1 INDIGO2 HIGH IMPACT 250 128MB 4 GB
1 128MB MEMORY UPGRADE
1 5.12/4.29GB SEAGATE DISK
NEW MACH 3 (EASTMAN KODAK INVOICE #012062521)
1 INDY 200 64M RAM 2 GB SYS
1 UPGRADE MONITOR TO 20"
1 5.12/4.29GB SEAGATE DISK
NEW MACH 4 (EASTMAN KODAK INVOICE #012062521)
1 INDIG02 EXTREME GEN.250 128MB 4GB
1 54.0/45.5GB SINGLE ENDED EXTERNAL SEAGATE HD
2 128MB MEMORY UPGRADE
NEW MACH 5 (EASTMAN KODAK INVOICE #012062521)
1 INDY 200 64M RAM 2 GB SYS
2 128MB MEMORY UPGRADE
1 EXB8505XK EXABYTE
1 5.12/4.29GB SEAGATE DISK
1 UPGRADE MONITOR TO 20"
NEW MACH 6 (EASTMAN KODAK INVOICE #012062521)
1 REFURB. CHALLENGE L 8X150 64M
1 5.12/4.29GB SEAGATE DISK
1 FIRST 1GB SUPER DENSITY MEMORY
1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD
1 SCSI-2 10MHZ/16-BIT DIFFERENTIAL MEZZ CARD
1 UPGRADE 2 TO 4.3GB SCSI-2 FAST,W, DIFF SYS DISK
NEW MACH 7 (EASTMAN KODAK INVOICE #012062521)
1 INDIGO2 HIGH IMPACT 250 128MB 4 GB
2 128MB MEMORY UPGRADE
1 EXB8505XL EXABYTE
<PAGE> 4
CINERGI PICTURES ENTERTAINMENT, INC.
SCHEDULE 01 TO MASTER LEASE CPE-1000-100
EQUIPMENT ATTACHMENT
PAGE 3
2 5.12/4.29GB SEAGATE DISK
NEW MACH 8 (EASTMAN KODAK INVOICE #012062521)
1 INDIGO2 HIGH IMPACT 250 128MB 4 GB
1 128MB MEMORY UPGRADE
1 EXB8505XL EXABYTE
2 5.12/4.29GB SEAGATE DISK
NEW MACH 9 (EASTMAN KODAK INVOICE #012062521)
1 INDIGO2 HIGH IMPACT 250 128MB 4 GB
1 128MB MEMORY UPGRADE
1 EXB8505XL EXABYTE
2 5.12/4.29GB SEAGATE DISK
NEW MACH 10 (EASTMAN KODAK INVOICE #012062521)
1 REFURB. CHALLENGE L 8X150 64M
1 5.12/4.29GB SEAGATE DISK
1 FIRST 1GB SUPER DENSITY MEMORY
1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD
1 SCSI-2 10MHZ/16-BIT DIFFERENTIAL MEZZ CARD
1 UPGRADE 2 TO 4.3GB SCSI-2 FAST, W, DIFF SYS DISK
ADDITIONAL KODAK (EASTMAN KODAK INVOICE #012062521)
1 CHALLENGE VAULT XL SCSI EXPANSION RACK
1 MODEM FOR IMAGE STATION
1 110 VAC PROGRAMMING TERMINAL
3 CINEON CALIBRATED 20" MONITOR
1 MONITOR CALIBRATION KIT
1 ASX-200 BACKBONE SWITCH
4 OC-3C/STM 1 NETMOD COPPER
6 EISA ATM COMPUTER INTERFACE COPPER
1 GIO ATM COMPUTER INTERFACE COPPER
7 VME ATM COMPUTER INTERFACE COPPER
<PAGE> 5
CINERGI PICTURES ENTERTAINMENT, INC.
SCHEDULE 01 TO MASTER LEASE CPE-1000-100
EQUIPMENT ATTACHMENT
PAGE 4
CABLETRON (INVOICES 813737A & 814555A)
2 FPIM-02, FDDI PRT INT MOD CAT5 UTP
1 EXS-1320-F600, ESX - 1320 BRIM-F6 COMB
TECHNICHE (INVOICE 2265)
2 POWERMAC 8500 WORKSTATION 16/1GB
7 APPLE 17" MULTISYNC MONITOR 1705
7 APPLE EXTENDED KEYBOARD
8 MEMORY UPGRADE 32MB DIMM
2 MEMORY UPGRADE 16MB DIMM
5 POWERMAC 7500 WORKSTATION CD16/1G
5 POWERMAC POWERBOOK 5300CS 16/750
5 GLOBAL VILLAGE PLATINUM PRO MODEMS FOR
POWERBOOKS
5 TARGUS ENCORE, PB CASE, NYLON
1 DIGITAL CAMERA KODAK 50C
1 HP 5MP PRINTER
3 US ROBOTICS, EXT MODEMS (28.8)
1 16MB MEMORY UPGRADE FOR 5300CS POWERBOOK
1 FARGO 310E 12X20 DYE SUBLIMATION PRINTER W/PS LEV2,
AUTOSWCHNG
1 FARGO 310E CONSUMABLES: FOR PRINTS, VARIOUS
1 NIKON SUPER COOLSCAN, MAC
1 NIKON COOLSCAN, MAC
1 ZIP DRIVE, 1OMEGA 100 MB BACKUP DEVICE W/10 DISKS
2 JAZ DRIVE, MICRONET, 1GB BACKUP W/EXTRA DISKS
2 75MHZ PENTIUM BASED CLONES, 16RAM/850HD, FLOPPY, PCI
VIDEO, 4XCD, 16 BIT ETHERNET, 14" VGA MONITOR, KB,
MOUSE, WIN 95
2 POWERMAC 8100/100 24MB
2 RADIUS VIDEO VISION
2 APPLE 15" MSCAN MONITORS
2 RADIUS VIDEO VISION STUDIO, 4G AV RAID ARRAY,
EXTERNAL, W/FWB JACKHAMMER SCSI ACCELLERATOR BD
<PAGE> 6
CINERGI PICTURES ENTERTAINMENT, INC.
SCHEDULE 01 TO MASTER LEASE CPE-1000-100
EQUIPMENT ATTACHMENT
PAGE 5
2 ADTRAN EXPRESS 128 ISDN TERMINAL & TRANS TALK LT ROUTER
ANIXTER (INVOICE 352-052126)
1 LOT VARIOUS CABLES AND CONNECTOR
ALT SYSTEMS (INVOICE 39603)
1 PARITY UPGRADE FOR ALT SYSTEMS DRIVER
SONY (INVOICE MASS9501)
1 BVW-75 BETACAM SP STUDIO RECORDER/PLAYER W/DT
1 DCR-VX1000 CONSUMER DIGITAL CAMERA
AVID TECHNOLOGY, INC. (INVOICE M1417)
2 9GB RMAG DRIVE (SN-AR14162, AR14172)
1 24 FPS/30FPS EDIT OPTION
1 UPG,MSP TO MC4000 (SN-1245)
1 CPU,AMP,48MB
KINGSTON (INVOICE LG3602)
2 DS500-SR
8 DC500-DCW2
16 DX100-35/KIT
16 ST1515OWD
<PAGE> 7
[BRENTWOOD CREDIT CORPORATION LOGO] BRENTWOOD CREDIT CORPORATION
MASTER EQUIPMENT LEASE NO. CPE-1000-100
------------
This Master equipment Lease dated FEBRUARY 8, 1996 (the "Master Equipment
Lease"), is entered into between Brentwood Credit Corporation ("Lessor"),
1620 26th Street, Suite 290-S, Santa Monica, California 90404 and
CINERGI PICTURES ENTERTAINMENT, INC. ("Lessee"),
- --------------------------------------------------------------------
2308 BROADWAY
- -----------------------------------------------------------------------------
SANTA MONICA, CA 90404-2916
- -----------------------------------------------------------------------------
In consideration of the mutual agreements hereinafter set forth and the
payment of rent as hereinafter provided, Lessor hereby leases to Lessee, and
Lessee hereby leases from Lessor, all of the tangible or intangible personal
property which may include such items as general equipment, computer hardware,
software, and services, described in each Schedule ("Schedule") executed from
time to time pursuant to this Master Equipment Lease (with respect to any
Schedule, herein called "Equipment") subject to the terms and conditions set
forth below. Each Schedule shall constitute a separate "Lease" incorporating
by reference this Master Equipment Lease, and any amendments, addenda,
supplements or riders hereto.
1. TERM, RENTAL AND NOTICE (a) The term of this Master Equipment Lease
shall commence on the date set forth above and shall continue in effect
thereafter so long as any Schedule entered into hereunder remains in effect.
The lease term for any Schedule shall commence on the date on which Equipment
is accepted for delivery by Lessee ("Commencement Date"), and shall remain in
force until the Initial Expiration Date set forth in such Schedule ("Initial
term"), unless extended pursuant to the terms hereof. This lease shall be
automatically extended for consecutive terms of one (1) calendar quarter on the
Initial Expiration Date, unless either party give written notice of its
intention to terminate this Lease to the other party not less than 90 days nor
more than 180 days prior to the Initial expiration Date or successive periods,
as the case may be.
(b) Lessee agrees to pay the total rental for the entire lease term,
including all extensions hereof, plus such additional amounts as may arise
pursuant to the terms and conditions of this Lease. During the term of this
Lease, the payments of rental for each item of Equipment, as set forth in the
applicable Schedule, shall be due and payable monthly in advance on the
Commencement Date and on the same day of each month thereafter to the address of
Lessor specified in this Lease. If any payment to be made by Lessee hereunder
is due on a day on which banks are not open for the transaction of business,
Lessee shall make such payment to Lessor on the first preceding day on which
such banks are open. If Lessee defaults in the payment of any amount due under
this Lease, Lessee shall pay interest thereon from the date due until the date
of payment at the lower of 18% per annum and the highest rate permitted by law.
(c) Notices shall be deemed given on the earlier of receipt, or three
(3) days after mailing, if mailed by certified mail, postage prepaid, to an
officer of each party at the address or addresses of such party specified in
this Lease, with the right of either party to change, by notice to the other,
its address for the foregoing purposes.
2. PURCHASE, DELIVERY AND ACCEPTANCE, AND LESSOR'S WARRANTIES
(a) Lessee acknowledges, warrants and represents that it has selected
the equipment based on its own judgment, has requested Lessor to purchase same
from the manufacturer/licensor or other "supplier" thereof and expressly
disclaims any reliance made upon prior statements made by Lessor. Lessee
acknowledges and agrees that neither the manufacturer, supplier, nor any
salesman, representative or other agent of the manufacturer or supplier, is an
agent of Lessor nor are any of the above authorized to waive or alter any term
or condition of this lease. No representation by the manufacturer or supplier
shall in any way affect Lessee's duty to pay rent and perform its other
obligations as set forth in this lease.
(b) Delivery of equipment under this lease shall be deemed complete and
such equipment shall be deemed unconditionally accepted by Lessee for all
purposes of this lease upon the earlier of the execution by Lessee of the
delivery certificate, or seven (7) days after delivery of Equipment by supplier
which shall be conclusive proof that Lessee has examined such equipment and
Lessee is fully satisfied therewith.
(c) EXCEPT AS EXPRESSLY SET FORTH HEREIN, LESSOR MAKES NO WARRANTIES,
EXPRESSED OR IMPLIED, WITH RESPECT TO THIS LEASE OR THE EQUIPMENT,
AND EXPRESSLY DISCLAIMS AND LESSEE EXPRESSLY WAIVES, RELEASES AND RENOUNCES ALL
OTHER WARRANTIES (WHETHER STATUTORY OR OTHERWISE), EXPRESS OR IMPLIED, AS TO
ANY MATTER WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, (i) ANY IMPLIED WARRANTY
OF MERCHANTABILITY; (ii) ANY IMPLIED WARRANTY THAT THE EQUIPMENT IS FIT FOR ANY
PARTICULAR PURPOSE; (iii) ANY IMPLIED WARRANTY ARISING FROM COURSE OF
PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE; (iv) ANY OBLIGATION,
LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, EXCLUDING THOSE ARISING FROM
LESSOR'S GROSS NEGLIGENCE IN ACTUALLY OPERATING ANY EQUIPMENT; AND (v) ANY
OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING STRICT OR ABSOLUTE
LIABILITY IN TORT. LESSEE LEASES THE EQUIPMENT "AS-IS, WHERE-IS" AND LESSOR
SPECIFICALLY MAKES NO WARRANTIES AS TO THE QUALITY OF MATERIALS OR WORKMANSHIP
OR THE CONFORMITY THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER OR AGREEMENT RELATING THERETO. Lessor hereby assigns to Lessee all
assignable warranties of the manufacturer/licensor during the lease term.
Lessee shall, at its expense, take all reasonable action to enforce such
warranties. Lessor, at Lessee's expense, shall provide reasonable assistance
to Lessee in enforcing such warranties.
<PAGE> 8
3. TITLE Lessor or its assigns warrant that it will have, at the time of
delivery hereunder of each item of Equipment, title or rights to title thereto,
and to the extent that any software license conveys title or use to licensee
said title or use shall be conveyed to lessor. Lessee will, upon request of
Lessor from time to time, affix to the Equipment, in a prominent place, tags,
plates, decals or labels supplied by Lessor indicating the ownership of, and
other interests in, the Equipment. From time to time, upon request of Lessor,
Lessee shall file, record, re-file and re-record this Lease and/or any
applicable Uniform Commercial Code financing statement or similar instrument in
respect of this Lease evidencing the respective interests of Lessor and its
successors and assigns in the Equipment, the rentals and any other sums to be
paid by Lessee hereunder. Lessee, at its expense, shall keep the Equipment and
this Lease free and clear, and indemnify and hold Lessor harmless from, all
levies, liens and encumbrances whatsoever, except any thereof caused by Lessor
and/or its successors and assigns, and shall give Lessor immediate written
notice thereof. Lessee agrees that this Lease constitutes a lease of the
Equipment and the Software only and nothing contained herein shall give or
convey to Lessee any right, title or interest in or to the Equipment and
software except as a Lessee herein.
4. CARE AND USE OF EQUIPMENT Lessee shall maintain the Equipment in fit
and merchantable condition, working order, repair and appearance, shall not make
modification, alteration or addition to the equipment (other than normal
operating accessories or controls) without the consent of Lessor, which shall
not be unreasonably withheld, shall not so affix the Equipment to realty so as
to change its nature to real property and agrees that the Equipment shall remain
tangible personal property at all times regardless of how attached or installed.
Lessee shall keep the Equipment at the location shown on the applicable
Schedule, and shall not remove the Equipment from such location without the
consent of Lessor, which shall not be unreasonably withheld. All modifications,
repairs, alterations, additions, operating accessories and controls (except
those purchased by Lessee which can be removed from the Equipment without
causing material damage or impairment of the value or intended function or use
of the Equipment) shall accrue to the Equipment and become the property (Lien
free) of Lessor. Lessor and its agents or representatives may inspect the
Equipment, Lessee's equipment log and maintenance records upon prior notice
during normal business hours, subject to Lessee's reasonable security
requirements. Lessee agrees to enter into a prime shift standard maintenance
contract with the manufacturer/licensor or any other provider approved by
Lessor.
5. NET LEASE AND TAXES (a) This Lease constitutes a net lease and Lessee
agrees that its obligations under this Lease are absolute and unconditional,
and are not subject to any abatement, reduction, setoff, defense, counterclaim
or recoupment due or alleged to be due, by reason of any past, present or
future claim which Lessee may have against Lessor, its successors or assigns,
the manufacturer or other supplier of the Equipment or any person whatsoever.
(b) During the term of this Lease, Lessee shall pay Lessor, and agrees to
indemnify and hold Lessor harmless from and against, any and all sales, use
personal property, gross income, gross receipts, leasing, stamp or other taxes,
levies, imposts, duties, charges or withholdings of any nature when they become
due (excluding Federal or State net income taxes), together with any penalties,
fines or interest thereon not arising from negligence on the part of Lessor or
anyone claiming by or through Lessor, license and registration fees, and
similar charges imposed against Lessor or Lessee, or upon the Equipment, by
any Federal, State or local government or taxing authority upon the ownership,
delivery, lease, possession, rental, use, operation, return, sale or other
disposition thereof hereunder or in connection herewith, or upon the rentals,
receipts or earnings arising therefrom, or with respect to any Schedule. To
the extent lawfully permitted, Lessee agrees to promptly file or cause to be
filed all personal property tax returns with respect to any Schedule. To the
extent lawfully permitted, Lessee agrees to promptly file or cause to be filed
all personal property tax returns with respect to the Equipment and to promptly
provide the lessor with copies of any such filings. In the event that Lessor
is required to file any such returns, Lessee shall promptly advise Lessor
thereof and cooperate with and provide such assistance to Lessor in connection
therewith as Lessor may require.
6. INDEMNITY Lessee shall and does hereby agree to indemnify and save
Lessor and its successors and assigns harmless from and against any and all
loss (including any loss of tax benefits), claims, expenses, damages or
liabilities, (including negligence, tort and strict liability), including
attorneys' fees, arising out of or pertaining to this Lease or any item of
equipment, including, without limitation, the ownership, selection,
possession, leasing, renting, operation, control, use, storage, maintenance,
delivery and return of the Equipment, and claims for property damage or
personal injury arising in strict liability or negligence. The indemnities and
covenants contained in this Lease shall survive the termination of any Schedule
under this Lease.
7. INSURANCE At its expense, Lessee shall keep the Equipment insured
against all risks of loss or damage from every cause whatsoever in an amount
("Stipulated Loss Value") not less than the greater of replacement value of the
Equipment of 120% of the aggregate remaining rental payments of the Equipment
as of the relevant date of determination, provided that the amount of such
insurance shall be sufficient so that neither Lessor, its successors or
assigns, nor Lessee will be a co-insurer. With Lessor's consent Lessee may
self-insure software and bear all risks of loss. Lessee also shall carry
general comprehensive liability insurance in an amount not less than $1,000,000
covering the Equipment. All such insurance shall be in form and with companies
satisfactory to Lessor. All insurance for loss or damage shall provide that
losses, if any, shall be payable to Lessor, its successors and assigns, and
Lessee, as their respective interests may appear, and all such liability
insurance shall provide that Lessor and its successors and assigns shall be
named as additional insureds. Lessee shall pay the premiums for such insurance
and deliver to Lessor evidence satisfactory to Lessor of the insurance coverage
required hereunder. Each insurer shall agree, by endorsement upon the policy
or policies issued by it or by independent instrument furnished to Lessor, that
it will give Lessor and any other additional insured or loss payee at lease 30
days' prior written notice of the effective date of any alteration or
cancellation of such policy. Lessee shall be responsible for promptly making
claims for any loss or damage with respect to the Equipment and Lessee hereby
irrevocably appoints Lessor as Lessee's attorney-in-fact to receive payment of
and execute and endorse all documents, checks or drafts received in payment for
any loss or damage under any insurance policy.
8. RISK OF LOSS From the date the Supplier ships the Equipment to Lessee
or the date Lessor confirms Lessee's purchase order or contract to Supplier,
Lessee, hereby assumes and shall bear the entire risk of loss for theft, damage,
destruction or other injury to the Equipment from any and every cause
whatsoever. NO SUCH LOSS OR DAMAGE SHALL IMPAIR ANY OBLIGATION OF LESSEE UNDER
THIS LEASE WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT. In the event of
damage or loss to the Equipment (or any part thereof) and irrespective of
<PAGE> 9
payment from any insurance coverage maintained by Lessee, but applying full
credit therefor, Lessee shall at the option of Lessor, (a) place the Equipment
in good repair, condition, and working order, or (b) replace the Equipment (or
any part thereof) with like equipment in good repair, condition and working
order and transfer clear title to such replacement equipment to Lessor
whereupon such replacement equipment shall be deemed the Equipment for all
purposes; or (c) pay to Lessor the total aggregate remaining rentals discounted
to its present value at a discount rate equal to the one year Treasury Bill
at the date the Schedule was accepted by Lessor and any other amounts due and
owing hereunder at the time of such casualty plus an amount calculated by
Lessor which is equal to the Fair Market Value of the Equipment at the end of
the lease term.
9. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS. In the case of the
failure of Lessee to comply with any provision of this Lease, after giving
Lessee ten (10) days' prior written notice to cure such noncompliance, Lessor
shall have the right, but shall not be obligated, to cure such noncompliance.
In such event, all monies spent by the expenses of Lessor in effecting such
compliance, including interest accrued thereon, shall be deemed to be
additional rental and shall be due and payable immediately.
10. OTHER COVENANTS AND WARRANTIES OF LESSEE (a) Lessee agrees that the
application, statements and financial reports submitted by it to Lessor are
material inducements to the execution by Lessor of this Lease, and Lessee
warrants that such application, statements and reports are, and all information
hereafter furnished by Lessee to Lessor will be, true and correct in all
material respects as of the date submitted. Lessee agrees to furnish promptly
to lessor the annual financial statements of Lessee, certified by independent
certified public accountants.
(b) Lessee warrants that (i) Lessee has full power to enter into and
perform this Lease; (ii) this Lease has been duly authorized, executed and
delivered by Lessee and constitutes the valid and binding agreement of Lessee
enforceable against Lessee in accordance with its terms; and (iii) Lessee has
obtained all necessary consents to enter into the Lease pursuant to the terms
hereof. Lessee agrees to procure for Lessor such reasonable evidence of Lessee's
authority, including without limitation, copies of necessary consents, as Lessor
may request.
(c) LESSEE AGREES NOT TO ASSIGN, SUBLET OR OTHERWISE TRANSFER ITS RIGHTS
HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR, WHICH CONSENT SHALL
NOT BE UNREASONABLY WITHHELD.
(d) Lessee shall not change its name or address from that set forth
above, unless it shall have given Lessor or its assigns no less than thirty (30)
days' prior written notice; Lessee, if an organization, shall not merge or
consolidate with any other person or entity or change its identity.
11. DEFAULT. If any one of the following events (each of which is
herein called an "Event of Default") shall occur: (a) Lessee shall default in
the payment of any rental or in making any other payment hereunder when due and
such default shall continue for five (5) days; (b) Lessee shall beach any
representation, warranty, or covenant hereunder; (c) Lessee shall default in
the performance of any other agreement hereunder and such default shall
continue for five (5) days after either written notice thereof to Lessee by
Lessor or Lessee has actual knowledge of such default; (d) Lessee shall have
engaged in the unauthorized reproduction, distribution, or disclosure of any
software related trade secrets, methods of expression or other proprietary
information related thereto; (e) Lessee becomes insolvent or makes an
assignment for the benefit of creditors; (f) Lessee applies for or consents to
the appointment of a receiver, trustee, conservator or liquidator of Lessee or
of all or a substantial part of its assets, or such receiver, trustee,
conservator or liquidator is appointed without the application or consent of
Lessee; (g) a petition is filed by or against Lessee under the Bankruptcy Act
or any amendment thereto (including, without limitation, a petition for
reorganization, arrangement or extension) or under any other insolvency law or
laws providing for the relief of debtors; (h) a substantial part of the
Lessee's assets or any item of Equipment becomes subject to any levy, seizure,
attachment, assignment of sale for or by any person or governmental agency; (i)
Lessee creates, incurs, assumes or suffers to exist any mortgage, lien, pledge
or other encumbrance or attachment of any kind whatsoever upon, affecting or
with respect to the Equipment or this Lease or any of Lessor's interests
thereunder; or (j) Lessee suffers an adverse material change in its financial
condition from the date hereof and as a result thereof Lessor deems itself or
any of its Equipment to be insecure. Then, if and to the extent permitted by
the applicable law, Lessor shall have the right to exercise any one or more of
the remedies hereinafter provided.
12. REMEDIES. Upon the occurrence of any Event of Default with
respect to any item of Equipment under a Schedule and at any time thereafter,
Lessor, may in its discretion, do one or more of the following: (a) terminate
the applicable Schedule upon notice to Lessee; (b) declare all unaccrued
monthly rental under such Schedule for the remainder of the Initial Term, or
any extended term then in effect, immediately due and payable and Lessee shall
pay same, discounted to its then present value (using an interest rate equal to
that of a 1 year Treasury Bill at the date the Schedule was accepted by the
Lessor) to the earlier of the date Lessor obtains possession of the Equipment
and the date Lessee makes effective tender thereof to Lessor; (c) Lessor is
entitled to immediate possession of all equipment and Lessee shall return all
equipment to Lessor in accordance to Paragraph 14 thereof; and (d) exercise any
other right or remedy which may be available to it under the California Uniform
Commercial Code or other applicable law. In addition to the forgoing, Lessor
shall be entitled to recover from Lessee: (i) any loss, premium, penalty or
expense which may be incurred in repaying funds raised to finance the Equipment
or in unwinding any financial instrument relating in whole or in part to
Lessor's financing of the Equipment; (ii) any other losses (including lost
profits), damage, expense, cost or liability which Lessor suffers or incurs as
a result of an Event of Default and/or termination of the Lease including an
amount sufficient to fully compensate Lessor for any loss of or damage to
Lessor's residual interest in the Equipment caused by Lessee's default; and
(iii) any loss, cost, expense or liability sustained by Lessor due to Lessee's
failure to redeliver the Equipment in the condition required by this Lease. No
remedy referred to in this Section 12 is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity. No express or implied
waiver by Lessor of any default shall constitute a waiver of any other default
by Lessee, or a waiver of any of Lessor's rights.
13. ASSIGNMENT. (a) Subject to Lessee's rights under this Lease,
Lessor may at any time and without Lessee's consent (i) sell, assign or
transfer this Lease, the Equipment and any rental and other sums due or to
become due hereunder, or any rights to or interest in any part of the foregoing
to a third party ("Lessor's Assignee") and/or (ii) grant security interests over
the Equipment and over the benefit of this Lease to a lender ("Lessor's
Lender") as security for Lessor's
<PAGE> 10
obligations to Lessor's Lender. Lessee acknowledges that neither any such
assignment of Lessor's interest, nor any such granting of security interests and
the enforcement by Lessor's Lender of its rights of foreclosure or otherwise
will materially change Lessees duties of will materially increase the risk or
burden imposed on Lessee by this Lease.
(b) Lessee agrees to promptly execute all acknowledgments, consents,
agreements and other instruments, and deliver legal opinions, as Lessor may
require to effect such assignments and/or grants of security
interests and to confirm Lessee's obligation under the Lease, at Lessee's
expense.
(c) Lessor's Assignee and/or Lessor Lender shall have, to the extent
transferred or assigned to it, all rights, powers, privileges and remedies of
Lessor hereunder. Lessee agrees that no such Lessor's Assignee and/or Lessor's
Lender shall assume any obligation of Lessor hereunder (except for the
application pursuant hereto of any insurance or other proceeds) and the
obligations of Lessee hereunder shall not be subject, as against any such
person, to any defense, set-off or counterclaim available to Lessee against
Lessor, and that the same may be asserted only against Lessor. Lessee hereby
expressly acknowledges that its rights in and to the Equipment are expressly
subject and subordinate to the rights of Lessor, Lessor's Assignee and/or
Lessor's Lender.
(d) Any such assignment of grant of security interest by Lessor shall be
made subject to the rights of Lessee under this Lease. Subject to the full,
complete and timely performance and observance of each and every obligation on
the part of Lessee under this Lease, Lessor warrants that no person holds a
claim to or interest in the Equipment that arises from an act or omission of
Lessor which will interfere with Lessee's enjoyment of its leasehold interest in
the Equipment.
14. REDELIVERY Upon termination of this lease, Lessee shall, at its
expense, deinstall, pack in accordance with manufacturer's specifications using
such manufacturer's packing materials and deliver the Equipment, in whole and
not in part, at an address specified by Lessor, in the same condition as
received, ordinary wear and tear from proper use excepted, including eligibility
for manufacturer's then-current prime shift standard maintenance contract. If
the equipment manufacturer is IBM and unless IBM Equipment is designated herein
as "unbanded", Lessee agrees that such Equipment which is subject to IBM
Invisible Transit Damage policy shall be "banded" in that untampered IBM transit
seals shall be present thereon upon delivery. Failure to deliver banded
Equipment shall constitute a failure to deliver hereunder, unless the Equipment
is inspected and recertified for Maintenance Service Qualifications by IBM at
the delivery location on or prior to the delivery date. Lessee shall pay all
costs associated with the foregoing.
15. COUNTERPARTS Each executed copy of the Master Equipment Lease shall be
an original. There shall be two (2) signed and consecutively numbered
counterparts of each Schedule. To the extent that any Schedule constitutes
chattel paper (as that term is defined by the California Uniform Commercial
Code), a security interest only may be created in "Counterpart No. 1".
16. MISCELLANEOUS THIS MASTER EQUIPMENT LEASE AND EACH SCHEDULE ISSUED
HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA. Lessor and Lessee intend this Master Equipment Lease
and each Schedule issued hereunder to be valid and subsisting legal instruments,
and no provision of this Master Equipment Lease or any Schedule issued hereunder
which may be deemed unenforceable shall in any way invalidate any other
provision or provisions of this Master Equipment Lease or any Schedule issued
hereunder shall be binding upon and inure to the benefit of the parties, their
successors and assigns.
ATTORNEYS' FEES Lessee shall reimburse Lessor for all
charges, costs, expenses and attorneys' fees, incurred by Lessor; (a) in
defending or protecting its interests in the Equipment; (b) in the execution,
delivery, administration, amendment and enforcement of this Lease or the
collection of any installment of Rent under this Lease, and; (c) in any lawsuit
or other legal proceeding to which this Lease gives rise, including, but not
limited to, actions in tort.
17. ENTIRE AGREEMENT AND AMENDMENT This Master Equipment Lease and any
Schedule issued hereunder contains the entire agreement between the parties
with respect to the Equipment, and may not be altered, modified, terminated or
discharged except by a writing signed by the party against whom such alteration,
modification, termination or discharge is sought. LESSEE'S
INITIALS_______________.
BRENTWOOD CREDIT CORPORATION, Lessor
By: /S/ (SIG)
------------------------------
Title: CFO
------------------------------
CINERGI PICTURES ENTERTAINMENT Inc., Lessee
______________________________________
By: /s/ Erick J. Feitshans
-----------------------------------
Erick J. Feitshans
Title: Vice President
-----------------------------------
Lessee's Address: 2308 Broadway
------------------------------------
SANTA MONICA, CA 90404-2916
------------------------------------
<PAGE> 11
Exhibit __________
Addendum No.: 01
To: Schedule No.: 01
To Equipment Lease No.: USC-1000-100
LESSEE: CINERGI PICTURES ENTERTAINMENT, INC.
ADDENDUM
The following changes reference Master equipment Lease No. CPE-1000-100:
Section 1. Term, Rental and Notice
In line five (5), delete the sentence beginning with the words "This Lease shall
be automatically extended", and replace the sentence with "This Lease will
terminate at expiration, unless notice is received to the contrary by Lessor not
less than 60 days nor more than 180 days prior to the initial Expiration Date".
Section 4. Care and Use of Equipment
In line twelve (12), delete the words "prime shift".
In line thirteen (13), add to the end of the paragraph a sentence that reads:
"Provided no default or breech of any contractual commitments has occurred,
Lessee has the right to peaceful and quit enjoyment of Equipment through the
term of the Lease".
Section 5. Net Lease and Taxes
In line twelve (12), after the sentence ending "respect to any Schedule.", add
the following words: "If applicable,".
Section 6. Indemnity
In line six (6), after the word "negligence" add the words "with the exception
of Lessor's gross negligence".
Section 7. Insurance
In line sixteen (16), after the words "insurance policy" add the words "during
the term of the lease".
Section 8. Risk of Loss
In line six (6), delete the words "Lessee shall at the option of Lessor", and
replace with "Lessee in consultation with Lessor"
Section 11. Default
In line sixteen (16), delete sentence (j) starting with the words "Lessee
suffers an adverse material change".
<PAGE> 12
Section 13. Assignment
In the ten (10) delete the words "at Lessee's expense.
Section 14. Redelivery
In line four (4), delete the remaining paragraph beginning with "If the
equipment".
Section 16. Miscellaneous
In line nine (9) the words "Attorney's Fees" add the words "Assuming Lessor
prevails", and after the words "expenses and" add the word "reasonable".
Dated: March 5, 1996 By: /s/ [SIG]
--------------- ---------------
Title: CFO
---------------
Cinergi Pictures Entertainment, Inc.
Dated: 4 March, 1996 By: /s/ [SIG]
--------------- ---------------------
Title: Erick J. Feitshana
Vice President
---------------------
<PAGE> 13
Addendum No.: 02
To: Schedule No.: 01
To Equipment Lease No.: CPE-1000-100
Lessee: Cinergi Pictures Entertainment, Inc.
ADDENDUM
The following additions and changes reference Equipment Lease Schedule 1:
1) Assuming receipt of signed, mutually agreeable documentation,
Lessor acknowledges as contractual consideration to make all
required vendor payments associated with this lease;
2) Provided Lessee is not in default, and assuming timely receipt of
written notice to exercise the Purchase Option as outlined in this
Schedule, Lessor agrees to file within 30 days from receipt of
payment a UUC3 statement. Lessor then reconveys to Lessee any and
all rights, title and interest in and to every aspect of the
equipment;
3) Lessor agrees paragraph 14 to the Master Equipment Lease
(Redelivery) becomes null & void in the event Lessee provides notice
and exercises the Purchase Option;
4) At the sole discretion of Lessor and/or its Assigns, Lessee may
assign its interest in the Lease to a third (3rd) party. Lessee
shall remain primarily liable unless said third party assumes such
obligation in writing, is a financially responsible party, and
Lessor and/or it Assigns agree in writing.
Brentwood Credit Corporation
Dated: March 5, 1996 By: /S/ [SIG]
--------------- ---------------
Title: CFO
---------------
Cinergi Pictures Entertainment, Inc.
Dated: 4 March 1996 By:
--------------- ---------------
Title: Erick J. Feitshans
Vice President
----------------
<PAGE> 14
Exhibit 10
[BRENTWOOD CREDIT LOGO]
DELIVERY AND ACCEPTANCE CERTIFICATE
LESSEE: CINERGI PICTURES ENTERTAINMENT, INC.
ADDRESS: 2308 BROADWAY
SANTA MONICA, CA 90404-2916
LEASE AGREEMENT DATE: FEBRUARY 8, 1996
LEASE SCHEDULE NO: 01
RENTAL PAYMENT: $97,960.00
Lessee certifies that effective 19 March 1996, the leased property as set forth
on the above referenced lease agreement has been received and accepted by us and
is installed, tested and ready for use, and that billing to the lease per the
terms and conditions of this lease agreement is appropriate and acceptable.
Interim rent will not be charged. E.J.F.
BY: /S/ [SIG]
-----------------------------
ERICK J. FELTSHANS
TITLE: VICE PRESIDENT
--------------------------
DATE: 19 MARCH 1996
--------------------------
Brentwood Credit Corporation
1620 26th Street, Suite 290-S, Santa Monica, California 90404
310-828-1199 fax: 310-828-7781
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 THROUGH 5 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, 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> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 12,676
<SECURITIES> 0
<RECEIVABLES> 5,124
<ALLOWANCES> 0
<INVENTORY> 164,547
<CURRENT-ASSETS> 175,369
<PP&E> 7,664
<DEPRECIATION> 2,274
<TOTAL-ASSETS> 190,475
<CURRENT-LIABILITIES> 84,045
<BONDS> 0
0
50,233
<COMMON> 131
<OTHER-SE> 50,233
<TOTAL-LIABILITY-AND-EQUITY> 190,475
<SALES> 59,583
<TOTAL-REVENUES> 60,113
<CGS> 58,411
<TOTAL-COSTS> 61,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176
<INCOME-PRETAX> (1,353)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,353)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
