0000801441-95-000013.txt : 19950821
0000801441-95-000013.hdr.sgml : 19950821
ACCESSION NUMBER: 0000801441-95-000013
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950818
SROS: NONE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CAROLCO PICTURES INC
CENTRAL INDEX KEY: 0000801441
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812]
IRS NUMBER: 954046437
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-09264
FILM NUMBER: 95565158
BUSINESS ADDRESS:
STREET 1: 8800 SUNSET BLVD
CITY: LOS ANGELES
STATE: CA
ZIP: 90069
BUSINESS PHONE: 3108598800
MAIL ADDRESS:
STREET 1: 8800 SUNSET BLVD
CITY: LOS ANGELES
STATE: CA
ZIP: 90069
10-Q
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
Commission File No. 1-9264
CAROLCO PICTURES INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4046437
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification
No.)
8800 Sunset Blvd., Los Angeles, CA 90069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 859-8800
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
The number of shares outstanding of registrant's Common Stock, $.01 par
value, at August
15, 1995 was 140,015,109 shares, including 2,373,756 shares of treasury
stock.
CAROLCO PICTURES INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1994 and June
30,
1995 (unaudited)
Condensed Consolidated Statements of Operations - Three and six
months
ended June 30, 1994
and 1995 (unaudited)
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 1994 and 1995 (unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
A S S E T S
December 31, June 30,
1994 1995
(Unaudited)
(In Thousands)
Cash and cash equivalents. . . . . . . $27,336 $15,052
Restricted cash. . . . . . . . . . . . . . . -- 303
Accounts receivable, net . . . . . . . . . . .13,835 5,414
Accounts receivable, related parties . . . . . 340 200
Film costs, less accumulated amortization
(Notes B and C). . . . . . . 89,145 119,136
Property and equipment, at cost, less
accumulated depreciation and amortization 17,413 5,056
Other assets . . . . . . . . . . . . . . . . 8,788 7,553
------ -------
TOTAL ASSETS. . . . . . . . . . . . . . $156,857 $152,714
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES:
Accounts payable and accrued liabilities . . $ 21,194 $ 10,040
Accrued residuals and participations . . . . . .34,315 12,484
Income taxes, current and deferred . . . . . . .15,000 15,472
Debt (Notes B and E) . . . . . . . . . . . . . .93,855 124,946
Advance collections on contracts . . . . . . . .15,047 13,534
Notes and amounts payable, related parties
(Note D) 41,967 44,900
------ ------
TOTAL LIABILITIES . . . . . . . . . . . . 221,378 221,376
COMMITMENTS AND CONTINGENCIES - (Note F)
STOCKHOLDERS' DEFICIENCY - (Notes F and G)
Preferred stock - $1.00 par value,
10,000,000 shares authorized:
Series A Convertible Preferred Stock,
120,000 shares authorized,
82,500 shares issued and
outstanding ($86,482,000 aggregate
liquidation preference in 1994 and
$88,658,000 aggregate liquidation
preference in 1995). . . . . . . 88 90
Common stock - $.01 par value, 650,000,000
shares authorized, 140,015,109 shares issued
and outstanding, including 2,373,756
shares in treasury . . . . . . . 1,400 1,400
Additional paid-in capital . . . . . . . . . .302,175 305,882
Treasury stock . . . . . . . . . . . . . . . (5,920) (5,920)
Accumulated deficit. . . . . . . . . . . . (362,264) (370,114)
-------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY. . . . . (64,521) (68,662)
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY. . . . $156,857 $152,714
======== ========
See notes to condensed consolidated financial statements.
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
Three Months ended Six Months Ended
June 30, June 30,
1994 1995 1994 1995
(Unaudited)
(In Thousands, Except per Share Data)
Revenues:
Feature films . . . . . . . . . . . . . $ 9,779 $ 7,287 $ 30,058 $ 13,065
Other income (Note H). . . . . . . . . . 1,255 956 3,979 1,700
--------- ---------- ---------- ----------
TOTAL REVENUES. . . . . . . . . . . . 11,034 8,243 34,037 14,765
Costs and expenses:
Amortization of film costs, residuals
and participations. . . . . . . 25,582 5,027 41,628 10,469
Selling, general and administrative. . . . . 4,223 3,369 9,024 6,886
Interest . . . . . . . . . . . . . . . . . 2,993 2,628 6,974 5,834
Other (Note I). . . . . . . . . . . . . . . . (620) 1,484 (161) 3,221
------ ----- ------- -------
TOTAL COSTS AND EXPENSES. . . . . . . . 32,178 12,508 57,465 26,410
------ ------ ------ ------
LOSS BEFORE BENEFIT FROM (PROVISION
FOR)INCOME TAXES . . . . . . . . . . . (21,144) (4,265) (23,428) (11,645)
Benefit from (provision for) income taxes. (47) (457) 206 (783)
------- ------- -------- -------
LOSS BEFORE EXTRAORDINARY ITEM . . . . . (21,191) (4,722) (23,222) (12,428)
Extraordinary gain on extinguishment of
debt (Notes B and D) . . . . . . . --- 4,642 --- 6,779
------ ------ -------- --------
NET LOSS . . . . . . . . . . . . . . . $(21,191) $ (80) $(23,222) (5,649)
======== ====== ========= ========
Per Common Share:
Loss before extraordinary item. . . $(0.16) $(0.04) $(0.18) $(0.11)
Income from extraordinary item. . . . . --- 0.03 --- 0.05
--------- ------- ------- -------
Net Loss. . . . . . . . . . . . . $(0.16) $( 0.01) $(0.18) $(0.06)
========= ======= ======= =======
Weighted average shares outstanding. . 137,687,728 137,687,728 137,687,728 137,687,728
See notes to condensed consolidated financial statements.
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1994 1995
(Unaudited)
(In Thousands)
Net cash flow from operating activities:
NET CASH USED IN OPERATIONS. . . . . . . . . . . $ (21,876) $ (56,148)
Cash flow from investing activities:
Purchase of property and equipment . . . . . . . (346) (34)
Proceeds from sale of aircraft, net of costs . . 1,775 ---
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES. . 1,429 (34)
Cash flow from financing activities:
Payments on debt . . . . . . . . . . . . . . . (1,543) (2,809)
Proceeds of Production Loan . . . . . . . . --- 44,938
Increase (decrease) in notes payable to related
parties . . . . (403) 1,933
Decrease in receivables from related parties . . 991 140
(Increase) decrease in restricted cash . . . . 1,255 (303)
Repurchase of Vista shares and Vista Partnership
Units . . . . . . (625) ---
Other. . . . . . . . . . . . . . . . . . . . . (2) (1)
------ -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES. . (327) 43,898
------ ---------
INCREASE (DECREASE) IN CASH . . . . . . . . . . (20,774) (12,284)
Cash and cash equivalents at beginning of period . . 56,697 27,336
------ -------
Cash and cash equivalents at end of period . . . . . $35,923 $ 15,052
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized in
1994 and 1995) . . . . . . $1,181 $4,305
======== =======
Income taxes . . . . . . . . . . . . . . . . . . . $154 $328
======== =======
See notes to condensed consolidated financial statements.
(continued)
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Prior to March 29, 1995, Carolco owned the building housing its corporate
headquarters in Los Angeles,
California. In March 1988, Carolco entered into a $12,000,000 mortgage
loan on its headquarters building with
Equitable Life Assurance Society of the United States ("Equitable"). The
mortgage provided for a balloon payment
of the outstanding principal amount (approximately $11,500,000) on March
1, 1995. The mortgage loan, which was
non-recourse to Carolco, was sold by Equitable to Dolphinshire, L.P.
("Dolphinshire"), an entity unaffiliated with
Carolco, on March 29, 1995. Immediately thereafter, Carolco transferred the
building to Dolphinshire in full
satisfaction of the mortgage loan outstanding. At December 31, 1994, the net
book value of the building and certain
leasehold improvements was reduced to approximate the amount of the
outstanding mortgage loan. In March 1995,
upon the close of the transactions described above, the balance of the
mortgage loan was offset against the carrying
value of the assets.
In May 1995, the Company and Le Studio Canal+ S.A. and its
subsidiaries or affiliates ("Le Studio")
entered into an agreement with Le Studio Canal+ (U.S.) ("Le Studio (U.S.)")
and Cinepole Productions B.V.
("Cinepole"), subject to certain conditions, to settle certain disputes. (See
Note D.) Pursuant to the settlement
agreement, the Company recognized a benefit of $442,000 which has been
recorded as additional paid-in capital.
This benefit reflects a $3,702,000 reduction in participations payable,
representing amounts due to Le Studio (U.S.)
pursuant to various co-production agreements, offset by a $3,260,000
reduction in trade and other accounts
receivable, representing amounts owed to the Company for, among other
things, the license fees for distribution
rights to certain of the Company's motion pictures and sales commissions for
the motion picture Stargate.
Note A - Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of
Carolco Pictures Inc. and its wholly-owned subsidiaries including Carolco
International Inc. ("CII"),
Carolco Television Inc. and The Vista Organization, Ltd. ("Vista"); The
Vista Organization Partnership,
L.P.; and Carolco Studios Inc. (Delaware) (collectively, the "Company" or
"Carolco"), after elimination
of material intercompany accounts and transactions. The Company is
engaged in a single business segment,
the entertainment industry, and its principal activities include the production
and distribution of feature
films.
The accompanying unaudited, condensed consolidated financial
statements 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 the
information and footnotes required by generally accepted accounting
principles for complete financial
statements. In the opinion of the Company's management, the accompanying
unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring accruals)
considered necessary to present fairly the Company's financial position as of
June 30, 1995 and the results
of its operations for the three and six months ended June 30, 1994 and 1995.
The Company's independent
auditors have included an explanatory paragraph in their report on the
Company's consolidated financial
statements for the year ended December 31, 1994 stating that such financial
statements have been prepared
assuming the Company will continue as a going concern and that the
Company's financial condition raises
substantial doubt about its ability to continue as a going concern. See Note
B.
The results of operations for the period ended June 30, 1995 are not
necessarily indicative of the
results to be expected for the year ending December 31, 1995. Certain
reclassifications have been made
in the amounts for 1994 to conform to 1995 presentation. For further
information, refer to the Consolidated
Financial Statements and Notes thereto included in the Company's Annual
Report on Form 10-K for the
year ended December 31, 1994.
At June 30, 1995, LDC Films, Inc. ("LDC"), an affiliate of Pioneer
Electronic Corporation
("Pioneer"), Cinepole, and RCS International Communications N.V. ("RCS
Communications"), owned
approximately 33.7%, 19.0% and 11.6%, respectively, of the issued and
outstanding Common Stock of
the Company (excluding the New CIBV Shares (as defined above)). Until
May 8, 1995, New Carolco
Investments B.V. ("New CIBV"), a corporation incorporated in The
Netherlands, owned approximately
5.8% of the issued and outstanding Common Stock of the Company (the
"New CIBV Shares"). On May
8, 1995, New CIBV notified each of Pioneer, Le Studio and RCS Video
International Services B.V.
("RCS"), an affiliate of RCS Communications, of the surrender of the New
CIBV Shares in fulfillment of
the obligations under promissory notes made by New CIBV in favor of such
companies, which were
secured by the New CIBV Shares. Mario F. Kassar, Chairman of the Board
of Directors and Chief
Executive Officer of the Company has informed the Company that he no
longer may be deemed to
beneficially own the New CIBV Shares. In addition, Pioneer, Cinepole and
MGM Holdings Corporation
("MGM Holdings") own 40,000, 12,500 and 30,000 shares, respectively, of
Series A Convertible
Preferred Stock, not including accrued "in-kind" dividends. MGM Holdings
also owns $32,299,000 in
aggregate principal amount of 5% Payment-In-Kind Convertible
Subordinated Notes due 2002 (the "5%
Notes"), not including accrued "in-kind" interest.
Significant Accounting Policies
Net Loss Per Common Share: Net loss per share is based on the weighted
average number of
common shares outstanding during the period, after appropriate inclusion in
net loss of payment-in-kind
dividends of $1,061,000 and $1,106,000 for the three months ended June 30,
1994 and 1995, respectively,
and payment-in-kind dividends of $2,106,000 and $2,201,000 for the six
months ended June 30, 1994 and
1995, respectively. Common equivalent shares, consisting of outstanding
stock options, warrants and the
Series A Convertible Preferred Stock, were excluded because the effect of
their inclusion would be
antidilutive. Other potentially dilutive securities, including the 5% Notes,
were excluded because the effect
of their inclusion would be antidilutive.
Income Taxes: Effective January 1, 1993, the Company adopted
Statement of Financial
Accounting Standard (SFAS) No. 109 "Accounting for Income Taxes".
Previously, the Company used
SFAS No. 96 "Accounting for Income Taxes". The adoption of SFAS No.
109 had no material effect on
the Company's financial position or results of operations for the year ended
December 31, 1993. Current
and deferred federal income taxes are provided based on the Company and
its U.S. subsidiaries owned
80% or more, filing a consolidated tax return.
Deferred taxes, relating to differences in accounting for film rights and
the related amortization
for financial statement and tax return purposes, as well as from financial
statement reserves not currently
deductible for tax purposes, have historically been determined by applying
the current tax rate to the
cumulative temporary differences between the recorded carrying amounts
and corresponding tax basis of
assets and liabilities at the respective dates. Due to the reversal of prior
book
and tax differences, as of
June 30, 1995, Carolco's deferred tax liability has been virtually eliminated.
However, due to the potential
liability arising form the ongoing examination of Carolco's 1988 through
1993 federal income tax returns
by the Internal Revenue Service ("IRS") and the 1988 and 1989 state income
tax returns by the California
Franchise Tax Board ("FTB"), Carolco has not reduced the amount of its
current and deferred income tax
liability. See Note F for a discussion of these examinations.
On October 18, 1993, the Company's wholly-owned subsidiary, Carolco
International N.V.
("CINV") was domesticated as a Delaware corporation and its name was
changed to CII. Due to the
domestication of CINV, in future periods, foreign source income of the
Company will be subject to United
States income taxation which could result in a significant increase in the
Company's effective tax rate.
Note B - Liquidity and Going Concern Issues
Carolco currently has one motion picture in production: Cutthroat Island
starring Geena Davis and
Matthew Modine and directed by Renny Harlin. Cutthroat Island completed
principal photography in
March 1995 and is scheduled to be completed and available for release in the
fourth quarter of 1995. The
direct negative cost of Cutthroat Island is expected to be in excess of
$80,000,000. Carolco has completed
certain financing arrangements in connection with Cutthroat Island. On
February 6, 1995, the limited
partnership formed by Carolco to produce and distribute Cutthroat Island
("Cutthroat Productions L.P.")
satisfied the conditions necessary for it to draw funds under a production
loan (the "Production Loan")
provided by a group of 5 banks led by Berliner Bank AG (London Branch)
and Credit Lyonnais Bank
Nederland N.V. ("CLBN"). The Production Loan provides for financing of
up to $60,238,000, of which
CLBN is obligated to provide up to $10,072,000, in direct negative costs,
including completion bond fees,
certain contingencies and other financing related expenses. Based on current
production cost estimates,
the Company believes it will borrow less than the amount provided by the
Production Loan. In February
and March 1995, Carolco received approximately $25,031,000 in proceeds
from the Production Loan,
representing reimbursement of a portion of the approximately $80,007,000,
including capitalized interest
and overhead, Carolco had spent in 1994 and 1995 to develop and begin
production of Cutthroat Island.
In addition, through June 1995, $18,171,000 in proceeds from the
Production Loan have been provided
directly to Cutthroat Productions L.P. The Production Loan is collateralized
by certain pre-sales of foreign
and domestic licensing rights of Cutthroat Island. Initial proceeds from the
distribution of Cutthroat Island
will be used exclusively to repay the Production Loan. In addition, in 1994
the Company received
$7,500,000 in co-production investments from Tele-Communications, Inc.
("TCI"), LSC+ Investments
Inc., a wholly owned subsidiary of Le Studio (U.S.), and RCS. These funds,
together with the proceeds
of the Production Loan, reduced Carolco's contribution to the negative cost
of the film to approximately
$47,500,000.
In August 1992, Carolco entered into an agreement with the Screen
Actors Guild, the Director's
Guild of America, the Writers' Guild of America and the Motion Picture
Industry Pension and Health Plan
(collectively, the "Guilds") with respect to amounts owed to the Guilds under
certain collective bargaining
agreements. As of June 30, 1995, the balance due the Guilds pursuant to a
promissory note made in favor
of the Guilds (the "Guild Note") was $7,610,000, including accrued interest
at 3-month LIBOR plus 1%
per annum. The balance of the Guild Note is due in two remaining
installments of $3,000,000 each, plus
interest, on October 1, 1995 and October 1, 1996, with an additional
$600,000 due on October 1, 1996.
The Guild Note is secured by a lien on substantially all of the Company's
assets, which lien is subordinated
to the Existing Carolco Credit Facility.
In addition to the Guild Note, the Company has on-going obligations to
the Guilds, the American
Federation of Musicians ("AFM") and the International Alliance of
Theatrical Stage Employees ("IATSE")
for amounts owed under similar collective bargaining agreements. In the
first six months of 1995, the
Company paid approximately $2,548,000 and $1,712,000 to the Guilds,
AFM and IATSE representing
residual obligations arising from cash received by the Company in the fourth
quarter of 1994 and the first
quarter of 1995, respectively. The Company estimates that its residual
obligations for the second quarter
of 1995 will be $683,000. The amount of residual obligations to be paid for
future periods will be
determined by the amount of cash receipts received by the Company. As
long as the Guild Note is
outstanding, the on-going obligations of Carolco under the collective
bargaining agreements with the Guilds
are secured by the same lien as the Guild Note.
In connection with the production of its motion pictures, the Company
entered into certain
contingent compensation agreements with entities from which the Company
acquired distribution rights in
various motion pictures, as well as agreements with motion picture talent
(actors, directors, producers,
writers) and co-production investors (collectively, the "Participants")
whereby the Company is obligated
to pay to the Participants a share of the Company's receipts from the
distribution of its released motion
pictures. At March 31, 1995, the Company had recorded a liability of
approximately $24,599,000 in
connection with various Participants' contingent compensation arrangements.
In April 1995, the Company
reached settlements with certain Participants, whereby each such Participant
agreed to accept a portion of
the amount due at December 31, 1994 in exchange for the release of all
claims against the Company for
current and future participation obligations, subject to certain adjustments
under certain circumstances.
As a result of these settlement agreements, the Company recorded an
extraordinary gain of $4,642,000 in
the second quarter of 1995. Additional contingent compensation obligations
due to other Participants will
be recorded in future periods based on the film revenues recognized by the
Company.
Semi-annual interest of approximately $3,261,000 on the 11.5%/10%
Reducing Rate Senior Notes
due 2000 (the "New Senior Notes") and the 13%/12% Reducing Rate Senior
Subordinated Notes due 1999
(the "New Senior Subordinated Notes") is due on April 15 and October 15 of
each year. On May 2, 1995,
the Company paid approximately $3,279,000 representing semi-annual
interest due on the New Senior
Notes and New Senior Subordinated Notes. Such interest payments were
made prior to the end of the 30-day grace period provided in the indentures
governing such issues of indebtedness. Semi-annual interest
of approximately $224,000 on the 13% Senior Subordinated Notes due 1996
is due on June 1 and
December 1 of each year. The Company paid such semi-annual interest on
May 31, 1995.
LDC, Cinepole and RCS own $10,000,000, $7,500,000 and $1,500,000 in
7% Convertible
Subordinated Notes due 2006 (the "7% Notes"), respectively. Interest on the
7% Notes is payable semi-annually on June 30 and December 30. On July
28, 1995, the holders of the 7% Notes agreed to defer the payment of the
June 30, 1995 interest payment to December 30, 1995.
Going Concern Issues
CII, with Carolco as principal guarantor, has $14,000,000 in principal
amount outstanding under
a credit facility with CLBN acting as agent and lender (the "Existing Carolco
Credit Facility") as of the
date hereof. The maturity date of the loan under the Existing Carolco Credit
Facility, which is secured
by substantially all of Carolco's assets, is September 29, 1995, provided
certain events of default do not
occur. CLBN has agreed to remit to CII all collections from accounts
receivable pledged to CLBN, so long
as certain defaults do not occur. No amounts are available for borrowing
under the Existing Carolco
Credit Facility. The Company has begun discussions with CLBN with
respect to a restructuring or
extension of all or a part of the Existing Carolco Credit Facility. There can
be no assurances, however,
that such a restructuring or extension will be successfully negotiated. In the
event the entire amount of the
Existing Carolco Credit Facility becomes due and payable on September 29,
1995, the Company may not
have sufficient resources to pay such obligation and may be unable to
continue as a going concern.
As a result of its reduced production schedule, Carolco did not generate
revenues from new
production in 1994 and anticipates that it will continue to experience losses
through the remainder of
1995. During the next 12 months, notwithstanding a restructuring or
extension of the Existing Carolco
Credit Facility, the Company will not have sufficient cash resources and
existing financing sources to meet
its operating expenses and scheduled debt service obligations, and to
continue to fund its principal business
activity -- the development, production and exploitation of motion pictures.
Therefore, the Company is
currently considering a plan which may allow it to continue to operate as a
going concern.
The plan being considered by the Company includes a combination of the
following: the sale of
certain assets; identifying and securing new equity investments and/or
sources of financing; negotiating
more advantageous distribution arrangements which would finance at least
100% of the development,
production and distribution of new films; and restructuring the Company's
outstanding obligations either
outside of a Chapter 11 Bankruptcy filing, or within a Chapter 11
Bankruptcy filing (including a possible
prenegotiated plan).
If the Company is unable to successfully accomplish the aforementioned
plan, or implement other
similar strategies, the Company will be unable to continue as a going
concern. The consolidated financial
statements as of and for the six months ended June 30, 1995 do not include
any adjustments to reflect the
possible future effects on the recoverability of assets or amounts of
liabilities
that may result from the
inability of the Company to continue as a going concern.
Note C - Film Costs
December 31, June 30,
1994 1995
(Unaudited)
(In Thousands)
Film costs are comprised of the
following:
Released, less amortization. . . . . . . . $ 20,925 $ 15,607
In process and development . . . . . . . . . . 68,220 103,529
---------- ---------
Total film costs . . . . . . . . . . $ 89,145 $119,136
========= =========
Interest and production overhead capitalized to film costs during the six
months ended June 30,
1995 totaled $971,000 and $1,616,000, respectively. Interest and production
overhead capitalized to film
costs during the six months ended June 30, 1994 totaled $612,000 and
$2,590,000 respectively.
Note D - Related Party Transactions
LDC, Cinepole and RCS own $10,000,000, $7,500,000 and $1,500,000 in
7% Notes,
respectively. Interest on the 7% Notes is payable semi-annually on June 30
and December 30. On July
28, 1995, the holders of the 7% Notes agreed to defer the payment of the
June 30, 1995 interest payment
to December 30, 1995.
MGM:
In 1993, MGM Holdings purchased from the Company $30,000,000 in
aggregate principal amount
of 5% Notes in exchange for $30,000,000. The $30,000,000 in principal
amount of 5% Notes will mature
in October 2002 and bears interest at 5% per annum, payable quarterly.
Consistent with the treatment of
MGM Holdings as a "principal shareholder," the Company recorded the 5%
Notes in Notes and Amounts
Payable, Related Parties, at its present value of $21,361,000 to yield a fair
market interest rate of 10%.
The discount of $8,639,000 was recorded as an increase to equity. The
Company will recognize additional
interest expense of approximately $960,000 per year related to the
amortization of this discount. Interest
accruing on or prior to the fifth anniversary of the date of issuance may be
paid in cash or by payment in-kind of additional 5% Notes with a principal
amount equal to the amount of such interest, or a combination
thereof, at the election of the Company. Thereafter, interest shall be paid in
cash. Through June 30, 1995,
interest of approximately $2,299,000 has been paid in additional 5% Notes
and interest of approximately
$336,000 has been accrued. The 5% Notes, and any accrued and unpaid
interest thereon, will
automatically be converted into Common Stock of the Company on the 20th
business day following the date
on which Metro-Goldwyn-Mayer Inc. ("MGM") shall have received an
aggregate of $100,000,000 in
distribution fees under MGM's distribution agreement with the Company
(the "MGM Distribution
Agreement"). This conversion rate will be equal to 1,667 shares of Common
Stock for each $1,000
principal amount of 5% Notes and each $1,000 of accrued and unpaid
interest, subject to certain
adjustments. Alternatively, the 5% Notes may be converted into Common
Stock of the Company at the
aforementioned conversion rate (subject to certain adjustments,) effective on
the maturity date (October
2002) or upon certain defaults under the indenture governing the 5% Notes;
or in the event that the
Company (i) declares a dividend on its Common Stock in excess of $.05 per
share, (ii) offers to redeem
or repurchase Common Stock, (iii) merges or consolidates, unless the
Company is the surviving
corporation, or (iv) undertakes to sell all or substantially all its assets.
As of
June 30, 1995, approximately
53,842,000 shares of Common Stock of the Company would be issued upon
conversion of the 5% Notes.
In connection with the production of Cutthroat Island, CLBN, an affiliate
of MGM, was one of
the lead lenders providing the Production Loan. See Note B. In addition,
MGM has agreed to distribute
Cutthroat Island domestically and internationally pursuant to the MGM
Distribution Agreement.
RCS:
In March 1992, CINV sold 50% ownership in one of its principal
development projects to RCS
in return for RCS's commitment to pay, subject to certain conditions, 50% of
the costs of development and
production of the project. Through March 31, 1995, RCS had advanced
approximately $7,000,000,
representing certain development and production commitments due pursuant
to this agreement.
In June 1990, the Company, through a nominee of CINV, and Le Studio
Canal+ S.A. ("Le
Studio"), formed a partnership (the "Carolco/Le Studio Partnership"). In
January 1992, the Carolco/Le
Studio Partnership entered into a co-financing arrangement with Le Studio
and RCS pursuant to which
CINV, Le Studio and RCS each made co-financing payments equal to
one-third of the total production cost
of the motion picture, Chaplin. In exchange for their co-financing payments,
Le Studio and RCS are each
entitled to one-third of the net receipts from Chaplin, reduced to one-sixth of
the net receipts after they
have each recouped their initial co-financing payments, plus interest. RCS
asserted a claim of
approximately $5,000,000 against Carolco alleging that Carolco guaranteed
certain levels of performance
and agreed to reimburse a portion of RCS's unrecouped investment in the
motion picture Chaplin.
Pursuant to an agreement between Carolco and RCS, in April 1995
Carolco paid RCS $4,000,000
and RCS quitclaimed to Carolco all of its ownership and other interest in the
motion picture development
project discussed above and also waived all claims relating to Chaplin. As a
result, in the second quarter
of 1995, the Company recorded a benefit of $1,065,000 relating to the
Chaplin claims. This amount has
been recorded as a capital contribution.
Le Studio:
Over a period of years, Le Studio (and its affiliates and subsidiaries) and
the Company have entered
into various arrangements with respect to the production, distribution and
exploitation of motion pictures
and other matters. Certain claims and disputes arose with respect to these
arrangements. Among other
things, the Company claimed that license fees for the distribution rights to
certain of the Company's films
in French-speaking territories, as well as sales commissions for the motion
picture Stargate, were owed
by Le Studio to the Company. Le Studio claimed that amounts were owed
by the Company to Le Studio
relating to, among other things, (i) Le Studio's participating investments in
certain of the Company's
motion pictures (the "Co-Production Agreements"), (ii) alleged performance
guarantees with respect to
the motion picture Chaplin, (iii) the obligation to reimburse legal fees
incurred in connection with the 1992
financial restructuring of the Company, and (iv) the participation of Le
Studio in the film project
Spiderman. In May 1995, the Company and Le Studio entered into an
agreement, subject to certain
conditions, to settle these disputes. Pursuant to the settlement agreement, the
Company recognized a
benefit of $442,000, which has been included in additional paid-in capital.
This benefit resulted from a
reduction in participations payable of $3,702,000, representing amounts due
to Le Studio pursuant to the
Co-Production Agreements, offset by a reduction in trade and other accounts
receivable of $3,260,000
representing amounts owed to the Company by Le Studio for, among other
things, the license fees for
distribution rights to certain of the Company's motion pictures and sales
commissions for the motion
picture Stargate. In addition, Le Studio has released the Company from any
future obligations arising from
the Co-Production Agreements and Le Studio has agreed to pay Carolco
$600,000 in commissions to the
motion picture Stargate.
Other:
Pursuant to a series of agreements (collectively, the "Domestic Video
Output Agreement"), the
Company granted to LIVE Home Video Inc. ("LHV"), a subsidiary of LIVE
Entertainment Inc. ("LIVE"),
a former subsidiary of the Company, domestic home video rights to the
Company's feature films (except
Cliffhanger and Iron Eagle III) on which principal photography commenced
prior to July 31, 1995 or for
which LHV has paid an advance to the Company prior to such date.
Canadian home video rights were not
granted to LHV in the case of several films produced by the Company. In
consideration for the rights
granted by the Company, LHV agreed to pay the Company certain advances
for each picture.
CINV entered into an agreement with an affiliate of LIVE pursuant to
which LIVE's affiliates
acquire home video rights in the German-speaking European markets for
most of the Company's films for
which principal photography has commenced or for which LHV paid an
advance prior to July 31, 1995
(the "German Output Agreement"). In consideration for the rights granted
by the Company, the LIVE
affiliate agreed to pay CINV certain advances for each picture.
In January 1995, in order to settle disputes between them with respect to
the United States and
Canadian video distribution rights to the film Cutthroat Island, LIVE and the
Company agreed that
Cutthroat Island would not be subject to the Domestic Video Output
Agreement or the German Output
Agreement. Pursuant to a separate agreement, LIVE obtained the video
distribution rights to Cutthroat
Island in the United States and Canada for a video advance to be paid by
LIVE. In addition, LIVE agreed
to certain amendments to the Domestic Video Output Agreement, whereby
LIVE would no longer have
certain rights of offset between prior films distributed pursuant to such
agreement. In exchange for the
aforementioned arrangements and resolution, the Company paid $3,500,000
to LIVE against accrued
liabilities of approximately $5,600,000 and recognized an extraordinary gain
of approximately $2,137,000.
On January 1, 1995, the Company retained Daniels & Associates
("Daniels") and Jefferson Capital
Group ("Jefferson") to act as the Company's non-exclusive financial advisors
and agents of the Company
to assist the Company in locating capital sources, to market for sale
substantially all of the Company's film
library rights, to make recommendations with respect to any transactions
which may result and to consider
a possible restructuring of the Company's capital structure. Michael E.
Garstin, a principal in Daniels,
is a member of Carolco's Board of Directors. In consideration of the services
to be provided by Daniels
and Jefferson, Carolco agreed to pay $1,800,000 payable over twelve months
at the rate of $150,000 per
month. Carolco is required to make a minimum of six monthly payments
under the agreement, with 60%
of all fees paid to Daniels and 40% paid to Jefferson. In addition, Carolco
agreed to pay all reasonable out-of-pocket expenses incurred by Daniels and
Jefferson up to $100,000. During the six months ended June
30, 1995, the Company paid $550,000 to Daniels and $384,000 to Jefferson.
Note E - Debt
Prior to March 29, 1995, Carolco owned the building housing its corporate
headquarters in Los
Angeles, California. In March 1988, Carolco entered into a $12,000,000
mortgage loan on its
headquarters building with Equitable. The mortgage provided for a balloon
payment of the outstanding
principal amount (approximately $11,500,000) on March 1, 1995. The
mortgage loan, which was non-recourse to Carolco, was sold by Equitable to
Dolphinshire on March 29, 1995. Immediately thereafter,
Carolco transferred the building to Dolphinshire in full satisfaction of the
mortgage loan outstanding. At
December 31, 1994, the net book value of the building and certain leasehold
improvements was reduced
to approximate the amount of the outstanding mortgage loan. In March
1995, upon the close of the
transactions described above, the balance of the mortgage loan was offset
against the carrying value of the
assets.
In connection with the motion picture Cutthroat Island, through June 30,
1995, the Production
Loan provided motion picture financing of approximately $44,938,000,
including approximately
$1,736,000 in loan costs and fees. The Production Loan provides for
financing of up to $60,238,000 in
direct negative costs, including completion bond fees, certain contingencies
and other financing related
expenses. Based on current production cost estimates, the Company believes
it will borrow less than the
amount provided by the Production Loan. The Production Loan bears
interest at LIBOR, plus 2 % per
annum and is payable on the earlier of (i) March 1, 1997 or (ii) fifteen
months following the initial United
States theatrical release of Cutthroat Island. Initial proceeds from the
distribution of Cutthroat Island will
be used exclusively to repay the Production Loan.
CII, with Carolco as principal guarantor, has $14,000,000 in principal
amount outstanding under
the Existing Carolco Credit Facility as of the date hereof. The maturity date
of the loan under the Existing
Carolco Credit Facility, which is secured by substantially all of Carolco's
assets, is September 29, 1995,
provided certain events of default do not occur. CLBN has agreed to remit
to CII all collections from
accounts receivable pledged to CLBN, so long as certain defaults do not
occur. No amounts are available
for borrowing under the Existing Carolco Credit Facility. The Company has
begun discussions with CLBN
with respect to a restructuring or extension of all or a part of the Existing
Carolco Credit Facility. There
can be no assurances, however, that such a restructuring or extension will be
successfully negotiated. In
the event the entire amount of the Existing Carolco Credit Facility becomes
due and payable on September
29, 1995, the Company may not have sufficient resources to pay such
obligation and may be unable to
continue to operate as a going concern.
Note F - Commitments and Contingencies
As of June 30, 1995, the Company has received approximately $937,000
in deposits on canceled
licensing agreements and on certain films which the Company may not
produce. Historically, the Company
has been able to allocate advances of this nature to other pictures being
produced by the Company which
contain elements similar to the original film. However as a result of reduced
production commitments, the
Company may be required to return these deposits.
In June 1993, the Company entered into a non-exclusive consulting
agreement with Anthony J.
Scotti, Chairman of the Company's former subsidiary/affiliate, LIVE, and
Chairman and Chief Executive
Officer of All American Communications, an unaffiliated company, for the
period commencing
immediately after the Company's October 1993 restructuring and ending
twelve months thereafter. This
agreement was extended to June 30, 1995 under the same terms and
conditions as the original consulting
agreement. Pursuant to the agreement, Mr. Scotti consulted with
management of the Company with
respect to the operation of the Company's business and such other matters as
may have been agreed upon
between the Company and Mr. Scotti. In consideration for the services
provided by Mr. Scotti, the
Company paid Mr. Scotti $40,000 per month plus reimbursement of all
expenses incurred by Mr. Scotti
in connection with the services provided by him under the agreement. Mr.
Scotti was entitled to participate
in any and all of the Company's employee stock option plans during the term
of the agreement, and was
granted options to purchase shares of the Company's Common Stock (the
terms and number of options to
be negotiated in the future) at an exercise price per share equal to 1.25 times
the market value of the
Common Stock at the date of commencement of the consulting period. In
addition, Mr. Scotti was
indemnified from certain liabilities in connection with the performance of his
duties under the agreement.
During the six months ended June 30, 1995, the Company paid $240,000 to
Mr. Scotti for his services
under this agreement. This agreement was not renewed at June 30, 1995.
Spiderman Litigation:
On April 20, 1993, 21st-Century Film Corporation ("21st") and
Menahem Golan ("Golan") filed
an action against Carolco, CINV and Spiderman Productions Ltd. ("SPL") in
Los Angeles County Superior
Court alleging claims for breach of contract, anticipatory breach of contract
and fraud relating to the
motion picture project Spiderman. Plaintiffs allege that on or about May 19,
1990, 21st entered into an
agreement with Carolco (the "Carolco/21st Agreement") whereby 21st
transferred to Carolco rights
relating to the comic book character Spiderman, and Carolco agreed, among
other things, to accord credit
to Golan as a producer of the motion picture to be produced by defendants.
Plaintiffs further allege that
on or about June 19, 1992, the parties entered into a second agreement
settling certain other litigation and
wherein it was agreed that Carolco and CII could assign the Carolco/21st
Agreement to RCS Video Service
Antilles N.V. ("RCS NV") and provided that Carolco and CII remain jointly
and severally liable with RCS
NV under the Carolco/21st Agreement. Plaintiffs alleged that Carolco and
the other defendants breached
the foregoing agreements by denying any obligation to accord producer
credit to Golan, by assigning the
Carolco/21st Agreement to a party other than RCS NV, and by failing to
provide plaintiffs with a written
document showing that Carolco and the other defendants have assumed the
obligations of the Carolco/21st
Agreement. Finally, plaintiffs alleged that Carolco and the other defendants
entered into the foregoing
agreements fraudulently in that they did not intend to perform their alleged
promises at the time they
entered into the agreements.
Based on the foregoing allegations, plaintiffs sought compensatory
damages in excess of
$5,000,000, unspecified punitive damages, attorneys' fees, rescission of the
Carolco/21st Agreement, a
declaration as to the plaintiffs' alleged rights and a preliminary and
permanent injunction preventing
Carolco and the other defendants from distributing Spiderman upon
completion without according producer
screen credit to Golan and from issuing press releases or other information to
the media without according
producer credit to Golan.
On October 22, 1993, the plaintiffs, following several successful
demurrers by the defendants to
the plaintiffs' previous complaints, filed a Third Amended Complaint against
Carolco, CII, SPL and RCS
NV. On November 19, 1993, all four defendants filed an answer to the Third
Amended Complaint in
which they agreed that the Carolco/21st Agreement had been rescinded,
thereby accepting the demand and
offer of rescission contained in the Third Amended Complaint. The
defendants also filed a cross-complaint
seeking restitution of the more than $5,000,000 that plaintiffs were paid
under the rescinded agreement.
The plaintiffs contend that assuming they make such restitution to Carolco
and its co-defendants and
co-cross-complainants, the plaintiffs would be entitled to recover the rights,
or the monetary value of the
rights, that were transferred under the Carolco/21st Agreement.
On December 14, 1993, 21st became a debtor under Chapter 7 of the
United States Bankruptcy
Code as a result of petitions for involuntary bankruptcy that were filed by
various creditors of 21st (other
than the parties to the above-described litigation). On December 15, 1993,
such bankruptcy proceedings
were converted to voluntary reorganization proceedings under Chapter 11 of
the Bankruptcy Code. These
bankruptcy filings resulted in an automatic stay of the Los Angeles Superior
Court litigation. On July 21,
1994, the Chapter 11 Trustee for 21st and the defendants in this action
stipulated to relief from the
automatic stay as a result of which the litigation resumed.
On February 3, 1994, Carolco, CII, SPL and RCS NV filed declaratory
relief actions against
Viacom International Inc., its division, Viacom Enterprises, and various Doe
defendants (collectively
"Viacom"), and against CPT Holdings, Inc. and Columbia Pictures Home
Video, Inc. jointly doing
business as Columbia Tri-Star Home Video, and various Doe defendants
(collectively "Columbia
Tri-Star"), seeking declarations that such defendants do not have certain
motion picture distribution rights
in Spiderman. Both Viacom and Columbia Tri-Star contend that they
acquired certain distribution rights
from 21st prior to Carolco's and 21st's entering into the Carolco/21st
Agreement, and allegedly continue
to hold such rights.
Viacom and Columbia Tri-Star each have answered Carolco's complaints
against them, denying
the material allegations of the complaints. In addition, on April 8, 1994,
Columbia Tri-Star served a
cross-complaint on Carolco and its co-plaintiffs for anticipatory repudiation
of contract, specific
performance, breach of the implied covenant of good faith and fair dealing,
and declaratory relief.
Columbia Tri-Star is seeking a judicial declaration that Carolco and its
co-plaintiffs are contractually
obligated to accord to Columbia Tri-Star the home video distribution rights
in Spiderman that Columbia
Tri-Star alleges it has, an order commanding the performance of those
alleged obligations, and,
alternatively, damages "in a sum not less than $5,000,000" if those alleged
obligations are not performed.
On May 18, 1994, Viacom filed an action in the Superior Court of the
State of California for the
County of Los Angeles against Carolco, CII, SPL and RCS NV alleging,
among other things, that Viacom
is contractually entitled to all rights to produce and exploit the motion
picture Spiderman. Based on this
claim, Viacom is seeking damages for breach of contract, specific
performance, declaratory relief,
interference with contractual relations and interference with prospective
economic advantage. The Court
has ordered this action consolidated with the action brought by 21st and
Golan and with the actions brought
by Carolco, CII, SPL and RCS NV against Viacom and Columbia Tri-Star.
Carolco is unable to place a
monetary value on the rights claimed by Viacom. Viacom asserts that the
distribution rights in Spiderman
could potentially generate distribution fees to Viacom in excess of
$2,000,000. Discovery has commenced
in all related cases.
On March 6, 1995, the court granted the motion of Carolco, CII, SPL and
RCS NV for summary
adjudication on 21st's and Golan's cause of action for an injunction, thereby
dismissing those parties'
claims for an injunction. The time for 21st and Golan to seek review of that
order by the Court of Appeal
has not yet expired.
MGM, an indirect subsidiary of MGM Holdings, has filed a declaratory
relief action seeking
declarations that certain named defendants do not have rights in Spiderman.
The named defendants do not
include Carolco.
A hearing originally set for May 25, 1995, in the U.S. Bankruptcy Court,
Central District of
California, has been continued from time to time and is now scheduled for
August 17, 1995, to consider
the motion of the Chapter 11 Trustee for 21st to sell all of the rights and
interest of 21st in the Spiderman
motion picture project to a designee of CLBN for $2,000,000 plus 10% of all
proceeds realized by CLBN
or its designee from the sale of such rights in excess of $2,000,000.
According to the Notice of Hearing
filed with the Bankruptcy Court by the Chapter 11 Trustee for 21st, CLBN
has a secured claim in the 21st
bankruptcy estate estimated to be $18,000,000.
Class Action Litigation:
On January 9, 1992, a purported class action lawsuit was filed in the U.S.
District Court, Central
District of California, by alleged stockholders of LIVE against Carolco,
LIVE and certain of Carolco's and
LIVE's past and present executive officers and directors. The complaint
alleges, among other things, that
the defendants violated Section 10(b) of the Securities and Exchange Act of
1934 (the "Exchange Act") and
Rule 10b-5 promulgated thereunder (i) by concealing the true value of
certain of Carolco's and LIVE's
assets, and overstating goodwill, stockholders' equity, operating profits and
net income in Carolco's and
LIVE's Forms 10-K for the year ended December 31, 1990, in their 1990
Annual Reports and in their
Forms 10-Q for the quarters ended March 31, 1991 and June 30, 1991, and
(ii) by materially understating
the true extent of the write-off of goodwill in connection with the sale of
Lieberman Enterprises
Incorporated to Handleman Company in July 1991. In addition, the
complaint alleges that certain of the
defendants are liable as controlling persons under Section 20 of the
Exchange Act and alleges that certain
other defendants are liable for aiding and abetting the primary violations.
Subsequently, two additional
lawsuits were filed in the U.S. District Court, Central District of California,
by alleged stockholders of
LIVE against the same persons and entities who were defendants in the
original action, making substantially
the same allegations as were made in the first lawsuit. On March 30, 1992,
these lawsuits were
consolidated. Further in April 1992, an amended complaint was filed in the
consolidated action, (the
"Amended Complaint"). The Amended Complaint contains substantially the
same allegations as the three
original complaints. In addition, the Amended Complaint lengthened the
alleged class period and added
as defendants certain substantial shareholders (New CIBV, Pioneer LDCA,
Inc., an affiliate of Pioneer,
and Le Studio), directors and former directors of Carolco (Messrs. Frans
Afman, Rene Bonnell, Satoshi
Matsumoto, and Ryuichi Noda) and a lender to Carolco. In addition to the
claims asserted in the individual
actions, a claim for respondeat superior liability was added. On June 17,
1992, the U.S. District Court,
Central District of California, entered an order conditionally certifying the
class, subject to possible
decertification after discovery is completed. On or about January 27, 1993, a
second amended complaint
was filed in the consolidated action expanding the allegations against certain
directors, CLBN and Pioneer
LDCA, Inc. On April 19, 1993, the Court granted Pioneer's Motion to
Dismiss the second amended
complaint as against Pioneer.
In February 1992, a purported class action lawsuit was filed in the U.S.
District Court, District
of Delaware, by an alleged holder of Carolco's public debt, against Carolco,
LIVE and certain executive
officers and directors of Carolco and LIVE. The Delaware complaint alleges,
among other things, that the
defendants violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder by
concealing the true value of certain of LIVE's assets, and overstating
goodwill, stockholders' equity,
operating profits and net income in LIVE's Form 10-K for the year ended
December 31, 1990 and in its
Forms 10-Q for the quarters ended March 31, 1991 and June 30, 1991. In
April 1992, this lawsuit was
transferred to the U.S. District Court, Central District of California. The
proceedings are being coordinated
with the consolidated action described in the preceding paragraph. On June
17, 1992, the U.S. District
Court, Central District of California, entered an order conditionally
certifying the class, subject to possible
decertification after discovery is completed. The purported class action
complaints do not contain a damage
claim of any specific dollar amount. Discovery has commenced, including
the taking of depositions.
Cliffhanger Litigation:
On October 27, 1993, Gene P. Hines and James R. Zatolokin filed an
action in Los Angeles
Superior Court against Michael Anthony France, Jr. ("France"), one of the
writers for the motion picture
Cliffhanger. The plaintiffs alleged various causes of action against France
based on the theory that the
plaintiffs have legal rights in some of the literary material contributed by
France to the Cliffhanger
screenplay.
On September 9, 1994, the plaintiffs filed a first amended complaint
whereby they added claims
against, among other defendants, Carolco, CII (erroneously sued as its
predecessor, CINV), and
Cliffhanger B.V. (collectively, the "Carolco Entities"). The claims against
the Carolco Entities are based
upon the theory that the Carolco Entities breached certain alleged obligations
to the plaintiffs under an
agreement whereby the Carolco Entities settled claims by the plaintiffs
arising out of the plaintiffs'
contention that the Cliffhanger screenplay contained material in which the
plaintiffs had legal rights. The
plaintiffs alleged that under that settlement agreement, the Carolco Entities
were obligated and failed to pay
the plaintiffs certain contingent compensation from the proceeds of
Cliffhanger, to cooperate with the
plaintiffs in attempting to obtain for plaintiff Hines a screen credit on the
picture, to provide the plaintiffs
with certain sequel rights, to cause various assignees of the Carolco Entities
to assume the obligations of
the Carolco Entities, to act in the plaintiffs' best interests, not to enter
into
agreements with individuals
having interest adverse to the plaintiffs, and to disclose to the plaintiffs the
fact that the Carolco Entities
entered into agreements with individuals having interests adverse to the
plaintiffs.
The plaintiffs do not allege any specific monetary amount by which they
allegedly were damaged,
except that they alleged in their cause of action against France for breach of
oral contract that France
should have known that his actions would damage the plaintiffs' reputation,
career and future earning
capacity in a sum not less that $1,000,000. The plaintiffs have not alleged
any specific amount of damage
against the Carolco Entities. However, the Carolco Entities have agreed to
indemnify France in connection
with any judgement that might be entered against him in the action.
On December 9, 1994, the trial court sustained without leave to amend the
demurrers of France
and the Carolco Entities to all of the plaintiffs' causes of action. On January
19, 1995, the court denied
plaintiffs' motion for reconsideration of that order. The plaintiffs have not
appealed from these rulings but
their time to do so has not yet expired.
On December 29, 1994, the plaintiffs filed an action in the United States
District Court for the
Central District of California that is virtually identical to their state court
action. The named defendants
are identical, as are the claims alleged, with the exception that the federal
action includes a federal
copyright infringement claim and an accompanying accounting claim, and
does not include a purported
common law copyright infringement claim. The complaint in that case was
served on Carolco and France
on April 22, 1995. The complaint was served on Cliffhanger B.V. on or
about June 4, 1995. On July 31,
1995, the Carolco Entities and France filed a motion to dismiss all claims set
forth in the complaint other
than the contract claims. The motion is scheduled to be heard by the Court
on September 11, 1995. An
early meeting of counsel was held on August 11, 1995, at which time the
parties engaged in a preliminary
exchange of documents and discussed a tentative discovery schedule. A trial
date will be set by the court
on or about August 28, 1995.
TriStar Arbitration:
On March 22, 1995 Carolco delivered a demand to TriStar Pictures, Inc.
("TriStar") under the
Commercial Arbitration Rules of the American Arbitration Association for
arbitration of various claims
by Carolco against TriStar arising out of TriStar's distribution of certain of
Carolco's motion pictures in
various territories and media. The motion pictures include Basic Instinct,
Cliffhanger, Terminator 2:
Judgment Day, Total Recall and Universal Soldier and certain other titles. In
general, Carolco has claimed
that TriStar has not paid all of the amounts due to Carolco pursuant to those
agreements under which
TriStar distributed these films theatrically in the United States and Canada
and in various media in certain
foreign territories. Because TriStar has not permitted Carolco's auditors to
complete the audit of TriStar's
books and records as they relate to the Carolco films distributed by TriStar,
Carolco is not able to specify
the amount of these claims.
On April 17, 1995, TriStar filed with the American Arbitration
Association its Answering
Statement and Counterclaim which, in general, denied all of Carolco's claims
and made certain
counterclaims against Carolco. In its counterclaim, TriStar alleged that by
entering into a new foreign
distribution agreement with MGM, Carolco breached a May 1990 agreement
between Carolco and TriStar
under which Carolco granted to TriStar a right of first negotiation/first
refusal for Carolco's future films
in certain territories. TriStar's counterclaim seeks substantial lost profits,
which are to be proved at the
arbitration proceeding, or in the alternative an order (i) directing that
Carolco specifically perform its
obligations under the May 1990 Agreement, (ii) enjoining any performance
by Carolco of the purported
MGM Agreement and (iii) imposing a constructive trust upon and requiring
Carolco to account for and pay
to TriStar the amounts by which Carolco and MGM have been unjustly
enriched by virtue of Carolco's
breach of the May 1990 agreement. Carolco believes that TriStar's
counterclaim is without merit.
Discovery has commenced in the action, but the date for the formal
arbitration has not been set.
Management and counsel to the Company are unable to predict the
ultimate outcome of these
actions at this time. However, the Company and the other defendants believe
that these lawsuits are without
merit and are defending them vigorously. Accordingly, no provision for any
liability which may result has
been made in the Company's consolidated financial statements. In the
opinion of management, these
actions, when finally concluded and determined, will not have a material
adverse effect upon the
Company's financial position or results of operations.
Tax Matters:
The Company's tax position for prior taxable years may be adversely
affected by an audit presently
being conducted by the Internal Revenue Service ("IRS") for the Company's
1988 through 1993 federal
income tax returns. In addition, the California Franchise Tax Board ("FTB")
is conducting an examination
of the Company's 1988 and 1989 State income tax returns. The Company
has received notices from the
IRS regarding proposed adjustments ("Proposed Adjustments") to the
Company's income tax returns for
the 1988, 1989 and 1990 taxable years. As of June 30, 1995, the Company
has responded or is in the
process of preparing responses to all of the Proposed Adjustments by
supplying the IRS with additional
facts and technical analyses which will be considered by the IRS before it
makes a decision whether to
propose to assess deficiencies attributable to the Proposed Adjustments. It is
anticipated that the IRS will
issue additional proposed adjustments.
Several of the Proposed Adjustments would disallow deductions or
increase income for certain of
the Company's taxable years. Many of these Proposed Adjustments affect
the timing of income and
deductions, i.e., the Company would be required to include income in an
earlier taxable year than
originally reported or take deductions in a later taxable year than originally
reported. Other Proposed
Adjustments would reallocate various items of income and deductions
between Carolco and CINV (which
the Company believes is not subject to federal income taxation), and would
include in Carolco's income
certain deemed dividends from CINV (the "Carolco/CINV Adjustments").
One of the Proposed Adjustments would subject CINV's income to United
States federal income
taxation on the basis that Carolco and CINV were engaged in a partnership
for income tax purposes and
CINV's share of the "partnership" income was foreign source income that
was effectively connected with
a trade or business conducted in the United States and therefore subject to
United States federal income
taxation. If the IRS were successful in asserting this theory, most of the
Proposed Adjustments relating
to the Carolco/CINV Adjustments would be duplicative, and therefore could
not be asserted.
The Company believes that a number of the Proposed Adjustments are
without merit. Because the
examination is at an early stage, and because many of the issues dealt with in
the Proposed Adjustments
are highly complex and unresolved under the current state of the law, the
Company cannot predict with
any reasonable degree of accuracy the actual tax liabilities that may result
from the IRS and FTB
examinations. The Company believes its current and non-current deferred
income tax liability as of June
30, 1995 is adequate to cover any potential tax liability from such
examinations. However, the ultimate
tax liability may be substantially higher or lower.
Note G - Stockholders' Deficiency
In October 1993, Pioneer, Cinepole and MGM Holdings purchased from
the Company 40,000,
12,500 and 30,000 shares, respectively, of Series A Convertible Preferred
Stock ("New Preferred"), in
exchange for cash payments of $40,000,000, $12,500,000 and $30,000,000,
respectively. The New
Preferred bears an annual dividend rate of 5%. Cumulative dividends are
payable when and if declared by
the Company's Board of Directors, either (a) out of any funds legally
available therefore, or (b) for the first
five years after issuance, to the extent legally available therefore, in
additional shares of New Preferred
equal to 1.25% multiplied by the liquidation preference of the New Preferred
on the first day of the next
succeeding quarterly dividend period. Through June 30, 1995,
approximately $6,158,000 in dividends had
been accrued, thereby increasing the aggregate liquidation preference of the
New Preferred to
$88,658,000. In addition, dividends of $1,106,000 payable on July 1, 1995
were accrued. However, since
the Company did not have sufficient "surplus" as defined in the provisions of
the General Corporation Law
of the State of Delaware, the Company was unable to pay such dividends.
Each share of New Preferred
is convertible at the option of the holder into Common Stock of the
Company at $.60 per share. As of June
30, 1995, 147,763,000 shares of Common Stock of the Company would be
issuable upon conversion of
the New Preferred. Holders of the New Preferred are entitled to the same
voting rights as such holders
would be entitled to if they had converted their New Preferred to Common
Stock. The holders of the New
Preferred are also be entitled to vote as a class on certain matters.
During the three months ended June 30, 1995, additional paid-in capital
was increased by
$1,507,000. This amount consists of $1,065,000 relating to a settlement
agreement with RCS and
$442,000 relating to a settlement agreement with Le Studio. See Note D for
further discussions of these
settlement agreements.
Note H - Other Income
Other income in 1994 includes revenues from the operations of the
Company's film studio in
North Carolina ("Carolco Studios"), interest income, rental income and a
gain of $1,275,000 recognized
upon the sale of the Company's aircraft. Other income in 1994 also includes
producers fees of
approximately $500,000 related to the motion picture Stargate, paid to the
Company pursuant to an
agreement entered into with Hexagon Films (U.S.), an indirect,
wholly-owned subsidiary of Le Studio.
Other income for the first six months of 1995 includes interest income, rental
income and producers fees
related to the motion picture Last of the Dogmen, paid to the Company
pursuant to an agreement entered
into with Last of the Dogmen, Inc.
Note I - Other Expenses
Other expenses for the three and six months ended June 30, 1995 consist
primarily of costs
incurred by the Company in connection with the proposed plan for a
financial restructuring discussed in
Note B, including fees paid to financial advisors, legal fees, severance
payments and other costs. Other
expenses for the three and six months ended June 30, 1994 consist of costs
incurred by the Company in
connection with the financial restructuring that was consummated in October
1993, offset by the reversal
of certain expenses accrued in 1993 in excess of the actual expenses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Carolco is an entertainment company which finances, produces and leases
motion pictures for
exhibition in domestic and foreign theatrical markets and for later worldwide
release in other media
including home video and pay and free television. In 1994 and through June
30, 1995, Carolco had no
theatrical releases. Feature film revenues are derived primarily from the
distribution of feature films in
both domestic and foreign markets. The Company recognizes minimum
guaranteed amounts from theatrical
exhibition and revenues from home video and pay television license
agreements when the license period
begins for each motion picture and such motion pictures are available
pursuant to the terms of the license
agreement. Revenues from theatrical exhibition in excess of minimum
guaranteed amounts ("overages")
are recognized as they are reported by the distributor.
Results of Operation
Six Months Ended June 30, 1994 as Compared to Six Months Ended June
30, 1995
Feature film revenues decreased from $30,058,000 for the six months
ended June 30, 1994 to
$13,065,000 for the six months ended June 30, 1995. This represents a
decrease of $16,993,000, or
approximately 56.5%. The Company had no theatrical releases during the
first six months of 1995 or the
first six months of 1994. Therefore, revenues for both periods principally
represent license fees from
theatrical overages and exploitation in secondary markets (i.e. pay television,
video, free television, etc.)
of films released theatrically in prior years. Feature film revenues for the six
months ended June 30, 1995
include approximately $1,457,000 in foreign theatrical and video overages
related to the 1992 theatrical
release of Basic Instinct; approximately $1,750,000 from the foreign free
television availability of Chaplin
released theatrically in 1992; approximately $2,327,000 in foreign theatrical
and video overages related
to the 1991 theatrical release of Terminator 2: Judgment Day; and
approximately $2,003,000 in foreign
theatrical and video overages related to the 1992 theatrical release of
Universal Soldier. Feature film
revenues for the six months ended June 30, 1994 include approximately
$8,250,000 from the domestic
network television availability and $5,233,000 from foreign theatrical and
video overages of Terminator
2: Judgment Day; $2,984,000 from the domestic syndication television
availability of Rambo III, released
theatrically in 1988; $1,274,000 from the domestic and foreign pay
television availability of Chaplin;
$901,000 from the foreign free television availability of Total Recall,
released theatrically in 1990; and
$512,000 and $930,000, respectively, from the foreign pay television
availability and foreign theatrical
overages related to the motion picture Universal Soldier.
Amortization of film costs, residuals and participations decreased by
$31,159,000, or 74.9%, from
$41,628,000 for the six months ended June 30, 1994 to $10,469,000 for the
comparable period in 1995.
Amortization of film costs, residuals and participations, as a percentage of
the Company's feature film
revenues, decreased to 80.1% for the six months ended June 30, 1995 from
138.5% for the six months
ended June 30, 1994. This decrease is due principally to the fact that in 1994
the Company recorded
additional amortization of film costs of $13,000,000 related to the
abandonment of the motion picture
project Crusade. In 1995, the Company recorded additional amortization of
$2,181,000 as a result of the
abandonment of certain development projects.
Selling general and administrative ("SG&A") expenses (which caption
also includes production
overhead costs), before capitalization of production overhead to film costs,
decreased by $2,138,000 during
the six months ended June 30, 1995 as compared to the six months ended
June 30, 1994. In 1995, the
Company capitalized approximately $1,616,000 of production overhead to
film costs and in 1994, the
Company capitalized $2,590,000 of production overhead to film costs. The
amounts for 1995 represent
a reduction in SG&A expenses of $3,112,000 as a result of reductions in the
Company's work force and
the downsizing of the operations of the Company.
Interest expense decreased by $1,140,000, or 16.4%, from $6,974,000
during the six months
ended June 30, 1994 to $5,834,000 during the six months ended June 30,
1995. This decrease is the result
of lower debt levels in 1995, combined with the capitalization of $971,000
of interest expense to film costs
in the six months ended June 30, 1995, as compared to $612,000 in the six
months ended June 30, 1994.
Other expenses for the six months ended June 30, 1995 consist primarily
of costs incurred by the
Company in connection with the proposed plan for a financial restructuring
discussed in Note B, including
fees paid to financial advisors, legal fees, severance payments and other
costs. Other expenses for the six
months ended June 30, 1994 consist of costs incurred by the Company in
connection with the financial
restructuring that was consummated in October 1993, offset by the reversal
of certain expenses accrued
in 1993 in excess of the actual expenses.
On February 3, 1994, the Company sold its aircraft for $1,925,000 and the
remaining loan balance
of $900,000, including accrued interest, was paid in full. The Company
recognized a gain, which is
included in other income, of $1,275,000 as a result of the sale of the aircraft.
The Company incurred a consolidated net loss for the six months ended
June 30, 1994 of
$23,222,000. The Company incurred a consolidated net loss for the six
months ended June 30, 1995 of
$5,649,000. This amount includes an extraordinary gain of $4,642,000
relating to settlement agreements
entered into with certain Participants (see Note B) and $2,137,000 relating to
certain agreements entered
into with LIVE (see Note D). At June 30, 1995, the Company had a
deficiency in assets of $68,662,000.
Three Months Ended June 30, 1994 as Compared to Three Months Ended
June 30,1995
Feature film revenues decreased from $9,779,000 for the three months
ended June 30, 1994 to
$7,287,000 for the three months ended June 30, 1995. This represents a
decrease of $2,492,000, or
approximately 25.5%. The Company had no theatrical releases during the
three months ended June 30,
1995 or 1994. Therefore, revenues for both periods principally represent
license fees from theatrical
overages and exploitation in secondary markets (i.e. pay television, video,
free television, etc.) of films
released theatrically in prior years. Feature film revenues for the three
months ended June 30, 1995 include
approximately $366,000 in foreign theatrical and video overages related to
the 1992 theatrical release of
Basic Instinct; approximately $1,750,000 from the foreign free television
availability of Chaplin; and
approximately $1,605,000 in foreign theatrical and video overages related to
Terminator 2: Judgment Day.
Feature film revenues for the three months ended June 30, 1994 include
approximately $5,233,000 from
foreign theatrical and video overages of Terminator 2: Judgment Day;
$607,000 from the domestic and
foreign pay television availability of Chaplin; $726,000 from the foreign free
television availability of Total
Recall, released theatrically in 1990; and $736,000 from the foreign pay
television availability and foreign
theatrical overages related to the motion picture Universal Soldier.
Amortization of film costs, residuals and participations decreased by
$20,555,000, or 80.3%, from
$25,582,000 for the three months ended June 30, 1994 to $5,027,000 for the
comparable period in 1995.
Amortization of film costs, residuals and participations, as a percentage of
the Company's feature film
revenues, decreased to 69.0% for the three months ended June 30, 1995 from
261.6% for the three months
ended June 30, 1994. This decrease is due principally to the fact that in 1994
the Company recorded
additional amortization of film costs of $13,000,000 related to the
abandonment of the motion picture
project Crusade. In 1995, the Company recorded additional amortization of
$889,000 as a result of the
abandonment of certain development projects.
Selling general and administrative ("SG&A") expenses (which caption
also includes production
overhead costs), before capitalization of production overhead to film costs,
decreased by $854,000 during
the three months ended June 30, 1995 as compared to the three months
ended June 30, 1994. In 1995, the
Company capitalized approximately $704,000 of production overhead to
film costs and in 1994, the
Company capitalized $1,757,000 of production overhead to film costs. The
amounts for 1995 represent
a reduction in SG&A expenses of $1,907,000 as a result of reductions in the
Company's work force and
the downsizing of the operations of the Company.
Other expenses for the three months ended June 30, 1995 consist primarily
of costs incurred by
the Company in connection with the proposed plan for a financial
restructuring discussed in Note B,
including fees paid to financial advisors, legal fees, severance payments and
other costs. Other expenses
for the three months ended June 30, 1994 consist of costs incurred by the
Company in connection with the
financial restructuring that was consummated in October 1993, offset by the
reversal of certain expenses
accrued in 1993 in excess of the actual expenses.
Interest expense decreased by $365,000, or 12.2%, from $2,993,000
during the three months
ended June 30, 1994 to $2,628,000 during the three months ended June 30,
1995. This decrease is the
result of lower debt levels in 1995, combined with the capitalization of
$674,000 of interest expense to film
costs in the three months ended June 30, 1995, as compared to $456,000 in
the three months ended June
30, 1994.
The Company incurred a consolidated net loss for the three months ended
June 30, 1994 of
$21,191,000. The Company incurred a consolidated net loss for the three
months ended June 30, 1995 of
$80,000. This amount includes an extraordinary gain of $4,642,000 relating
to settlement agreements
entered into with certain Participants (see Note B). At June 30, 1995, the
Company had a deficiency in
assets of $68,662,000.
Liquidity and Capital Resources
Carolco currently has one motion picture in production: Cutthroat Island
starring Geena Davis and
Matthew Modine and directed by Renny Harlin. Cutthroat Island completed
principal photography in
March 1995 and is scheduled to be completed and available for release in the
fourth quarter of 1995. The
direct negative cost of Cutthroat Island is expected to be in excess of
$80,000,000. Carolco has completed
certain financing arrangements in connection with Cutthroat Island. On
February 6, 1995, Cutthroat
Productions L.P. satisfied the conditions necessary for it to draw funds under
the Production Loan. The
Production Loan provides for financing of up to $60,238,000 in direct
negative costs, including completion
bond fees, certain contingencies and other financing related expenses. Based
on current production cost
estimates, the Company believes it will borrow less than the amount
provided by the Production Loan.
In February and March 1995, Carolco received approximately $25,031,000
in proceeds from the
Production Loan, representing reimbursement of a portion of the
approximately $80,007,000, including
capitalized interest and overhead, Carolco had spent in 1994 and 1995 to
develop and begin production of
Cutthroat Island. In addition, through June 1995, $18,171,000 in proceeds
from the Production Loan have
been provided directly to Cutthroat Productions L.P. The Production Loan
is collateralized by certain pre-sales of foreign and domestic licensing rights
of Cutthroat Island. Initial proceeds from the distribution
of Cutthroat Island will be used exclusively to repay the Production Loan.
In addition, in 1994 the
Company received $7,500,000 in co-production investments from TCI,
LSC+ Investments Inc., and RCS.
These funds, together with the proceeds of the Production Loan, reduced
Carolco's contribution to the
negative cost of the film to approximately $47,500,000.
In August 1992, Carolco entered into an agreement with the Guilds with
respect to amounts owed
to the Guilds under certain collective bargaining agreements. As of June 30,
1995, the balance due the
Guilds pursuant to the Guild Note was $7,610,000, including accrued
interest at 3-month LIBOR plus 1%
per annum. The balance of the Guild Note is due in two remaining
installments of $3,000,000 each, plus
interest, on October 1, 1995 and October 1, 1996, with an additional
$600,000 due on October 1, 1996.
The Guild Note is secured by a lien on substantially all of the Company's
assets, which lien is subordinated
to the Existing Carolco Credit Facility.
In addition to the Guild Note, the Company has on-going obligations to
the Guilds, the AFM and
IATSE for amounts owed under similar collective bargaining agreements. In
the first six months of 1995,
the Company paid approximately $2,548,000 and $1,712,000 to the Guilds,
AFM and IATSE representing
residual obligations arising from cash received by the Company in the fourth
quarter of 1994 and the first
quarter of 1995, respectively. The Company estimates that its residual
obligations for the second quarter
of 1995 will be $683,000. The amount of residual obligations to be paid for
future periods will be
determined by the amount of cash receipts received by the Company. As
long as the Guild Note is
outstanding, the on-going obligations of Carolco under collective bargaining
agreements with the Guilds
are secured by the same lien as the Guild Note.
In connection with the production of its motion pictures, the Company
entered into certain
contingent compensation agreements with Participants whereby the
Company is obligated to pay to the
Participants a share of the Company's receipts from the distribution of its
released motion pictures. At
March 31, 1995, the Company had recorded a liability of approximately
$24,599,000 in connection with
various Participants' contingent compensation arrangements. In April 1995,
the Company reached
settlements with certain Participants, whereby each such Participant agreed
to accept a portion of the
amount due at December 31, 1994 in exchange for the release of all claims
against the Company for
current and future participation obligations, subject to certain adjustments
under certain circumstances.
As a result of these settlement agreements, the Company recorded an
extraordinary gain of $4,642,000 in
the second quarter of 1995. Additional contingent compensation obligations
due to other Participants will
be recorded in future periods based on the film revenues recognized by the
Company.
Semi-annual interest of approximately $3,261,000 on the New Senior
Notes and the New Senior
Subordinated Notes is due on April 15 and October 15 of each year. On May
2, 1995, the Company paid
approximately $3,279,000 representing the semi-annual interest due on the
New Senior Notes and New
Senior Subordinated Notes. Such interest payments were made prior to the
end of the 30-day grace period
provided in the indentures governing such issues of indebtedness.
Semi-annual interest of approximately
$224,000 on the 13% Notes is due on June 1 and December 1 of each year.
The Company paid such semi-annual interest on May 31, 1995.
LDC, Cinepole and RCS own $10,000,000, $7,500,000 and $1,500,000 in
7% Notes, respectively.
Interest on the 7% Notes is payable semi-annually on June 30 and December
30. On July 28, 1995, the
holders of the 7% Notes agreed to defer the payment of the June 30, 1995
interest payment to December
30, 1995.
Pursuant to certain distribution agreements with TriStar, certain payments
were due to the
Company or its affiliates from TriStar at December 31, 1994. In February
and March of 1995, TriStar
paid approximately $14,147,000 pursuant to these distribution agreements.
See Note F regarding pending
litigation with TriStar.
A portion of the amounts paid by TriStar related to the distribution of
Cliffhanger, which was
produced through a less-than-50%-owned joint venture with Pioneer,
Cinepole and RCS. Pursuant to the
terms of the agreements between the Company, Pioneer, Cinepole and RCS,
the Company is entitled to
receive a portion of the funds related to the distribution of Cliffhanger. As
of August 15, 1995, the
Company had received $2,415,000 pursuant to these agreements.
Pursuant to the Domestic Video Output Agreement, the Company granted
to LHV, domestic home
video rights to the Company's feature films (except Cliffhanger and Iron
Eagle III) on which principal
photography commenced prior to July 31, 1995 or for which LHV has paid
an advance to the Company
prior to such date. Canadian home video rights were not granted to LHV in
the case of several films
produced by the Company. In consideration for the rights granted by the
Company, LHV agreed to pay
the Company certain advances for each picture.
CINV entered into the German Output Agreement pursuant to which
LIVE's affiliates acquire
home video rights in the German-speaking European markets for most of the
Company's films for which
principal photography has commenced or for which LHV paid an advance
prior to July 31, 1995. In
consideration for the rights granted by the Company, the LIVE affiliate
agreed to pay CINV certain
advances for each picture.
In January 1995, in order to settle disputes between them with respect to
the United States and
Canadian video distribution rights to the film Cutthroat Island, LIVE and the
Company agreed that
Cutthroat Island would not be subject to the Domestic Video Output
Agreement or the German Output
Agreement. Pursuant to a separate agreement, LIVE obtained the video
distribution rights to Cutthroat
Island in the United States and Canada for a video advance to be paid by
LIVE. In addition, LIVE agreed
to certain amendments to the Domestic Video Output Agreement, whereby
LIVE would no longer have
certain rights of offset between prior films distributed pursuant to such
agreement. In exchange for the
aforementioned arrangements and resolution, the Company paid $3,500,000
to LIVE against accrued
liabilities of approximately $5,600,000 and recognized an extraordinary gain
of approximately $2,137,000.
Going Concern Issues
CII, with Carolco as principal guarantor, has $14,000,000 in principal
amount outstanding under
the Existing Carolco Credit Facility as of the date hereof. The maturity date
of the loan under the Existing
Carolco Credit Facility, which is secured by substantially all of Carolco's
assets, is September 29, 1995,
provided certain events of default do not occur. CLBN has agreed to remit
to CII all collections from
accounts receivable pledged to CLBN, so long as certain defaults do not
occur. No amounts are available
for borrowing under the Existing Carolco Credit Facility. The Company has
begun discussions with CLBN
with respect to a restructuring or extension of all or a part of the Existing
Carolco Credit Facility. There
can be no assurances, however, that such a restructuring or extension will be
successfully negotiated. In
the event the entire amount of the Existing Carolco Credit Facility becomes
due and payable on September
29, 1995, the Company may not have sufficient resources to pay such
obligation and may be unable to
continue as a going concern.
As a result of its reduced production schedule, Carolco did not generate
revenues from new
production in 1994 and anticipates that it will continue to experience losses
through the remainder of 1995.
During the next 12 months, notwithstanding a restructuring or extension of
the Existing Carolco Credit
Facility, the Company will not have sufficient cash resources and existing
financing sources to meet its
operating expenses and scheduled debt service obligations, and to continue
to fund its principal business
activity -- the development, production and exploitation of motion pictures.
Therefore, the Company is
currently considering a plan which may allow it to continue to operate as a
going concern.
The plan being considered by the Company includes a combination of the
following: the sale of
certain assets; identifying and securing new equity investments and/or
sources of financing; negotiating
more advantageous distribution arrangements which would finance at least
100% of the development,
production and distribution of new films; and restructuring the Company's
outstanding obligations either
outside of a Chapter 11 Bankruptcy filing, or within a Chapter 11
Bankruptcy filing (including a possible
prenegotiated plan).
If the Company is unable to successfully accomplish the aforementioned
plan, or implement other
similar strategies, the Company will be unable to continue as a going
concern. The consolidated financial
statements as of and for the six months ended June 30, 1995 do not include
any adjustments to reflect the
possible future effects on the recoverability of assets or amounts of
liabilities
that may result from the
inability of the Company to continue as a going concern.
CAROLCO PICTURES INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to PART I - FINANCIAL INFORMATION, Item 1.
Financial Statements,
Note F - Commitments and Contingencies, which is incorporated herein by
reference.
Item 3. Defaults Upon Senior Securities
Because the Company did not have sufficient "surplus" as defined in and
computed in accordance
with the provisions of the General Corporation Law of the State of
Delaware, the Company was unable
to pay dividends in the amount of $818,000, $1,042,000, $1,061,000,
$1,061,000, $1,081,000, and
$1,095,000 due January 1, 1994, April 1, 1994, July 1, 1994, October 1,
1994, January 1, 1995 and April
1, 1995, respectively, on its Series A Convertible Preferred Stock. As a
result, as of June 30, 1995,
approximately $6,158,000 in unpaid dividends had been added to the
liquidation preference of the Series
A Convertible Preferred Stock. In addition, at June 30, 1995, $1,106,000 in
accrued dividends payable
had been recorded. On July 1, 1995, these unpaid dividends were also added
to the liquidation preference
of the Series A Convertible Preferred Stock.
Item 4. Submission of Matters to a Vote of Security Holders
LDC, Cinepole and RCS own $10,000,000, $7,500,000 and $1,500,000 in
7% Notes, respectively.
Interest on the 7% Notes is payable semi-annually on June 30 and December
30. On July 28, 1995, each
of the holders of the 7% Notes agreed to defer the payment of the June 30,
1995 interest payment to
December 30, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The Exhibits listed below are filed as part of this Report.
Sequentially
Exhibit No. Description of Exhibit Numbered Page
4.1 Supplemental Indenture and Waiver
dated as of July 28, 1995 between
Carolco Pictures Inc. and American
Stock Transfer & Trust Company
10.1 Memorandum of Le Studio Canal+/ _____
Carolco Settlement Agreement as of
May 31, 1995
CAROLCO PICTURES INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
(Continued)
11.1 Computation of Loss per ___
Common Share
27 Financial Data Schedule ___
(b) No Reports on Form 8-K were filed during the quarter ended June
30, 1995.
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.
CAROLCO PICTURES INC.
Registrant
Date: August 15, 1995 /s/ Karen A. Taylor
Karen A. Taylor,
Senior Vice President and
Acting Chief Financial Officer
EX-11.1
2
EXHIBIT
EXHIBIT 11.1
CAROLCO PICTURES INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended June 30, Six Months Ended June 30,
1994 1995 1994 1995
-------------------------- ------------------------
Weighted average shares outstanding 140,015,109 140,015,109 140,015,109 140,015,109
Less Treasury shares (2,327,381) (2,327,381) (2,327,381) (2,327,381)
------------ ------------ ------------ ------------
Total 137,687,728 137,687,728 137,687,728 137,687,728
============ ============ ============ ============
Loss before extraordinary item ($21,191,000) ($4,722,000) ($23,222,000) ($12,428,000)
Preferred Dividends (1,061,000) (1,106,000) (2,106,000) (2,201,000)
------------ ------------ ------------- ------------
Loss before extraordinary item
attributable to common shares ($22,252,000) ($5,828,000) ($25,328,000) ($14,629,000)
============= ============ ============= ============
Loss before extraordinary item
per common share $(0.16) ($0.04) ($0.18) ($0.11)
============= ============ ============= ============
Income from Extraordinary Gain $0 $4,642,000 $0 $6,779,000
============= ============ ============= ============
Income from Extraordinary Gain per
common share $0.00 $0.03 $0.00 $0.05
============ ============ ============= ============
Net loss ($21,191,000) ($80,000) ($23,222,000 ($5,649,000)
Preferred Dividends (1,061,000) (1,106,000) (2,106,000) (2,201,000)
------------- ------------ ------------- ------------
Net loss attributable to common shares ($22,252,000) ($1,186,000) ($25,328,000) ($7,850,000)
============= ============ ============= ============
Net loss per common share ($0.16) ($0.01) ($0.18) ($0.06)
============= ============ ============= ============
Page 32
EX-27
3
ART.5 FDS FOR 2ND QUARTER 10-Q
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5
1000
6-MOS
JAN-01-1995
JUN-30-1995
15,355
0
6,804
(1,390)
119,136
0
15,223
(10,167)
152,714
0
124,946
1,400
0
90
(70,152)
152,714
13,065
14,765
10,469
10,469
10,107
0
5,834
(11,645)
783
(12,428)
0
6,779
0
(5,649)
(.06)
(.06)
EX-10.1
4
MEMORANDUM OF LE STUDIO CANAL+/
CAROLCO SETTLEMENT AGREEMENT
This memorandum of agreement sets out the essential terms of the settlement
of
various claims and disputes between Carolco Pictures Inc. and its subsidiaries
and affiliates ("Carolco" or "the Carolco Group"), and Le Studio Canal+ and
its
subsidiaries and affiliates ("LSC+" or "Le Studio Group").
PRELIMINARY STATEMENT
A. Members of the Le Studio Group and members of the Carolco
Group have over a period of years entered into various contractual
and other legal relationships with respect to the production,
distribution and exploitation of motion pictures and other matters,
and certain claims and disputes have arisen with respect thereto
which the parties wish to resolve.
B. The Carolco Group claims that amounts aggregating
approximately USD 6,640,000 are owed as of the date hereof to
members of the Carolco Group by members of the Le Studio
Group arising out of such relationships, including: (i) license fees
owed to Carolco/Le Studio Canal+ V.O.F. for distribution rights
in French-speaking territories to the film "Chaplin"; (ii) license
fees owed for distribution rights in French-speaking territories to
the films "Career Opportunities", "Opportunity Knocks", "Dark
Wind" and "Peltier"; (iii) license fees under Atalanta Film
International B.V.'s Multiple Pictures Packages No. 2 and No. 3
with respect to certain disputed films thereunder; (iv) sales
commissions due on the film "Stargate", (v) reimbursement of
sales costs for the film "Murder in the First" and certain matters
relating to the foregoing. In addition the Carolco Group estimates
that it will be owed in the future further amounts in respect of
sales commissions on "Stargate". The foregoing claims and
estimated amounts are collectively referred to herein as the
"Carolco Claims". Le Studio Group disputes some or all of the
Carolco Claims.
C. The Le Studio Group claims that amounts aggregating
approximately USD
12, 618,000 are owed as of the date hereof to members of the Le
Studio Group by members of the Carolco Group arising out of
such relationships, including (i) the Le Studio Group's share of
revenues generated from participation interests in the films
"Terminator 2", "Basic Instinct", "Chaplin" and "Dark Wind"; (ii)
certain revenue and shortfall guarantees provided by members of
the Carolco Group with respect to the films "Chaplin" and "Dark
Wind"; (iii) the obligation to reimburse legal fees incurred in
connection with the 1992 financial restructuring of Carolco
Pictures Inc. ("CPI"), (iv) the participation of the Le Studio
Group in respect of the film project "Spiderman, " and certain
matters relating to the foregoing. In addition Le Studio Group
estimates that it will be owed in the future further amounts in
respect of participation interests in the films "Terminator 2",
"Basic Instinct", "Chaplin" and "Dark Wind". The foregoing
claims and estimated amounts are collectively referred to herein
as the "Le Studio Claims". The Carolco Group disputes some or
all of Le Studio Claims.
D. In the interest of resolving amicably and without litigation the
foregoing claims and disputes the parties wish to reach a
settlement on the terms and conditions set forth below.
1. Agreements by Carolco
Subject to Sections 4 and 5 below, in consideration of the agreements by
Le Studio Group set forth in this agreement, the Carolco Group agrees as
follows:
1.1 The Carolco Group approves the license by LSC+ of "Basic
Instinct" to TF-1. LSC+ will be entitled to retain 100% of the
first USD 700,000 otherwise payable to Carolco under the license
agreement known as "Atalanta Multiple-Picture Package No. 3"
in respect of any "Basic Instinct" revenues from any source.
Without limiting the extent of Carolco's obligations to pay
applicable residuals in respect of such film, Carolco confirms that
it will pay applicable residuals relating to such USD 700,000.
1.2 Carolco acknowledges that the agreements between Carolco and
LSC+ regarding French TV distribution rights as to the films
listed below are terminated and of no force and effect, and that
neither party has any obligation or liability to the other of any
kind thereunder, because the films were not released theatrically
in France as required under the applicable agreements. Without
limiting the generality of the foregoing, LSC+ has no obligation
to pay any license fees as to these "cancelled films" under the
applicable agreements. The films are:
- Confidence
- Long Walk Home
- Queen's Logic
- Rooftops
- Defenseless
- Collision Course
- Blood Moon
- Two Fisted Tales
1.3 Carolco agrees that LSC+ will have no obligation to pay any
minimum guarantees/advance rentals remaining unpaid pursuant
to the relevant agreements on "Chaplin", "Dark Wind",
"Opportunity Knocks", "Career Opportunities", and "Peltier", but
all such minimum guarantees/advance rentals will be deemed to
have been fully paid for purposes of recoupment by LSC+ under
the relevant license agreements. Carolco releases LSC+ from all
claims arising prior to the date hereof with respect to such films.
1.4 Carolco releases LSC+ from all claims for sales commissions on
"Stargate", whether arising before or after the date hereof in
excess of USD 600,000, which amount shall be payable by LSC+
as provided in Section 5.
1.5 Carolco releases any claim for any past or future commissions,
for reimbursement of expenses or for any other matter relating to
"Murder in the First".
1.6 Carolco agrees that LSC+ shall have no further obligations with
respect to the arrangements set forth in the TCI/Le Studio
Canal+/Carolco Film Fund facility for films produced after
"Cutthroat Island".
2. Agreement by LSC+
Subject to Sections 4 and 5 below in consideration of the agreements by
Carolco set forth in this agreement LSC+ agrees as follows:
2.1 Carolco will have no further obligations to LSC+ under any
output/right of first refusal agreement or co-production agreement
or otherwise with respect to any Carolco films produced after
"Cutthroat Island". LSC+ reconfirms that it has agreed that
"Showgirls" and "Lolita" were not subject to any such
agreements.
2.2 The Carolco Group will have no obligations under the revenue
and shortfall guarantees which LSC+ claims were provided by
members of the Carolco Group with respect to the films
"Chaplin" and "Dark Wind" and which LSC+ claims are currently
in effect.
2.3 The Carolco Group has no obligation to reimburse LSC+ for legal
fees incurred in connection with the various financial
restructurings of Carolco.
2.4 The Carolco Group has no obligations (including interest through
May 28, 1995) in respect of LSC+ participation in "Spiderman".
LSC+ hereby releases the security interest in "Spiderman"
securing such participation and will transfer to Carolco on a
quitclaim basis any and all right, title and interest LSC+ has or
may have relating to "Spiderman".
2.5 LSC+ releases Carolco from all obligations to pay to LSC+ its
share of revenues generated from LSC+'s its participation
interests in "Terminator 2," "Basic Instinct", "Chaplin" and "Dark
Wind". LSC+ transfers to Carolco on a quitclaim basis all of
LSC+'s right, title and interest in these films provided that LSC+
retains its rights in such films under the existing lease agreements
in respect thereof. LSC+ will release all security interests relating
to such pictures in the manner provided in Section 4.2.
2.6 The Carolco Group has no obligation or liability to LSC+ of any
kind under the agreements referred to in Section 1.2. or in respect
of "Murder in the First".
3. Existing Agreements
Except as specifically provided for herein all agreements between Le
Studio Group and the Carolco Group remain in full force and effect
including but not limited to the agreements relating to "Cutthroat Island"
and, subject to any other agreement of the parties. "Cliffhanger", and all
of Carolco's and LSC+'s respective claims, rights interests and defences
in respect thereof are preserved and reserved.
4. Conditionality; Restoration of Rights
4.1 It is of the essence of this settlement agreement that all of the
agreements set forth in Sections 1 and 2 are conditional on none
of such agreements being, or attempting to be, rescinded or
terminated by the parties or by any custodian for Carolco or any
member of the Carolco Group.
4.2 Until the earlier of such time as (i) all of the agreements set forth
above are specifically approved by a court of competent
jurisdiction and such approval becomes final and not subject to
appeal or (ii) the expiration of the longest applicable period
during which any person or entity is permitted to bring an action
(a "Challenge") to challenge, rescind, reject, annul or otherwise
terminate this agreement or any of the provisions hereof, provided
however no Challenge and no appeal of a court approval as set
forth in the foregoing clause (i) is then pending, neither of the
parties shall (A) take any action to enforce any rights or security
interests the release of which by such party is contemplated
hereby or (B) take any action which could adversely affect the
validity, enforceability or priority of the rights and security
interests of the other party, the release of which by such other
party is contemplated hereby, including but not limited to transfer
of rights or assets or the granting of security interests. Until the
occurrence of the events described in either clause (i) or (ii) above
(but in the case of clause (ii) subject to no Challenge and no
appeal of a court approval being pending) all of LSC+ security
interests relating to "Chaplin", "Basic Instinct" and "Dark Wind"
(but not the LSC+ security interest relating to "Spiderman", as to
which the irrevocable termination and release by LSC+ will be
effective upon satisfaction or waiver of the conditions precedent
under Section 5 hereof) will remain in full force and effect. Upon
the occurrence of the earlier of such events (in the case of clause
(ii) subject to no Challenge and no appeal of a court approval
being pending LSC+ shall sign and deliver to Carolco UCC-2
Termination Statement and Release of Copyright Mortgages and
assignments and such other document as may be necessary to
effectuate the releases and transfers referred to in Section 2.5.
4.3 In the event all or any portion of this agreement is rescinded,
invalidated or set aside by a court of competent jurisdiction,
including, without limitation, a bankruptcy court in the event any
of the members of the Carolco Group is subject to the jurisdiction
of such court, then the parties hereto shall each have the right to
be fully restored to their legal position prior to execution of this
agreement (except as to the LSC+ security interest relating to
"Spiderman") and shall have the right to reserve and pursue all
rights, remedies, defenses and interests available to them under
contract, at law or in equity, as if this agreement had never
existed (except as to the LSC+ security interest relating to
"Spiderman").
5. Conditions Precedent
5.1 Carolco's agreements set forth in Section 1 shall become effective
upon satisfaction of the following conditions precedent, all or any
of which conditions may be waived by Carolco in its sole
discretion:
(i) delivery to Carolco of signed UCC-2 Termination
Statements, a Quitclaim and Copyright Mortgage Release
relating to the security interests of LSC+ in "Spiderman"
and any instrument required under the laws of the British
Virgin Islands to release the security interest of LSC+ in
"Spiderman"; and
(ii) payment of USD 600,000 by LSC+ in respect of
commissions on "Stargate".
5.2 LSC+'s agreements set forth in Section 2 shall become effective
upon satisfaction of the following conditions precedent, all or any
of which conditions may be waived by LSC+ in its sole
discretion:
(i) delivery to LSC+ by Carolco of a version of the film
"Basic Instinct" authorized by Paul Verhoeven (such
authorization to be evidenced by an approval in
reasonably satisfactory form) and which TF-1 accepts to
broadcast in prime time together with the following film
materials with respect to such version having a quality
customarily required by TF1: Digital Video PALD1
Master, the U.S. English language version of the fully-mixed
magnetic stereo soundtrack, a separate music and
effects magnetic track and a spotting list corresponding to
the version delivered.
(ii) signature by Carolco and Credit Lyonnais Bank
Nederland of an Escrow Agreement and Instructions in
the form attached as Exhibit 1; and
(iii) the written confirmation of Atalanta Films International
B.V. ("Atalanta") addressed to LSC+ that Atalanta agrees
to be bound by the terms of this agreement which affect
Atalanta's rights and/or obligations or reasonably
satisfactory evidence that a member of the Carolco Group
is the assignee or successor in interest to Atalanta under
the license agreements referred to in Sections 1.1, 1.2 and
1.3.
6. General
6.1 Successors and Assigns: This Agreement shall be binding upon
and inure to the benefit of each party to this agreement, and to all
employees, agents, servants, insurers, attorneys, predecessors,
heirs, executors, administrators, successors, assigns, spouses,
partners, parents, subsidiaries, affiliates, officers, directors,
shareholders and joint venturers of each party to this agreement.
6.2 Arbitration: Except for the right of either party to apply to a court
of competent jurisdiction for a Temporary Restraining Order or
injunctive relief to enforce the confidentiality provisions of this
agreement, any dispute or controversy between the parties under
this agreement involving its interpretation or the obligations of a
party hereto, shall be determined by binding arbitration in
accordance with the commercial arbitration rules of the American
Arbitration Association, in the County of Los Angeles, State of
California. The resulting arbitration award may be enforced, or
injunctive relief may be sought, in any court of competent
jurisdiction. Any action arising out of or relating to this
Agreement may be filed only in the Superior Court of the County
of Los Angeles, California or the United States District Court for
the Central District of California.
6.3 Binding Agreement; Further Documents: LSC+ and Carolco will
promptly enter into one or more formal agreements to effectuate
the intent of this agreement in accordance with its terms. Unless
and until they do so, this agreement shall constitute a binding
agreement between the parties.
6.4 Attorney's Fees: Should any action, suit or proceeding
(including, but not limited to, arbitration pursuant to paragraph
6.2 herein) be commenced by any party to this agreement to
enforce any provision hereof, the prevailing party shall be entitled
to recover, in addition to any other relief, reasonable attorney's
fees and costs and expenses incurred in said action, suit or
proceeding.
6.5 Integration Clause: Each party warrants that no promise,
inducement, or agreement not expressed herein has been made to
it in connection with this agreement and that this agreement
constitutes the complete and exclusive statement of the entire
agreement between the parties and supersedes all prior or
contemporaneous written or oral communications, understandings
and agreements with respect to the subject matter hereof. It is
expressly understood and agreed that this agreement may not be
altered, amended, modified or otherwise changed in any respect
whatsoever except by a written agreement duly executed by
authorized representatives of each of the parties. Each party
hereby agrees that it will make no claim at any time or place that
this agreement has been orally altered or modified or otherwise
changed by oral communication of any kind or character.
6.6 No Admission of Liability: Each party acknowledges that
nothing in this agreement is intended to constitute an admission
or concession of liability, and that the agreements set forth herein
represent a compromise of asserted claims.
6.7 Confidentiality: The parties agree that neither they nor their
officers, directors, shareholders, partners, principals, agents,
representatives, assignees, affiliates or attorneys will disclose the
terms and conditions of this agreement, except (i) as required by
law or governmental regulations; (ii) to accountants, attorneys
and other professional advisers bound by obligations of
professional secrecy or (iii) to financial advisers and other
persons engaging in a review of the affairs of Carolco with
Carolco's consent provided that such persons have signed a
confidentiality agreements covering this agreement.
6.8 Counsel: Each party warrants that it has been represented and
advised by counsel or has had full opportunity to be represented
and advised by counsel with respect to this Agreement and all
matters covered by it.
6.9 California Law: This Agreement shall take effect under, and be
construed and enforced pursuant to, the laws of the State of
California.
6.10 Headings: The headings on this Agreement are for convenience
only and do not modify or affect the paragraph to which they
refer.
6.11 Counterparts: This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of May 31, 1995.
LE STUDIO CANAL+ S.A.
By: /s/ Pierre Lescure
Its: Chief Executive Officer/director
LE STUDIO CANAL+ (U.S.)
By: /s/ Pierre Lescure
Its: Chairman/Chief Executive
Officer
CINEPOLE PRODUCTIONS B.V.
By: /s/ Dominique Jeunot
Its: Co-Managing Director
CAROLCO PICTURES INC.
By: /s/ Lynwood Spinks
Its: Executive Vice
President/President of Production
CAROLCO INTERNATIONAL
INC.
By: /s/ Lynwood Spinks
Its: Executive Vice
President/President of Production
CAROLCO SERVICE INC.
By: /s/ Lynwood Spinks
Its: Executive Vice President/
Business and Production Affairs
CAROLCO / LE STUDIO
CANAL+ V.O.F.
By: /s/ Lynwood Spinks
Its: Managing Director
By: /s/ Dominique Jeunot
Its: Managing Director
SPIDERMAN PRODUCTIONS
LTD.
By: /s/ Lynwood Spinks
Its: Managing Director
EX-4.1
5
SUPPLEMENTAL INDENTURE AND WAIVER
This SUPPLEMENTAL INDENTURE AND WAIVER (the "Waiver")
is dated as of July 28, 1995 between CAROLCO PICTURES INC., a
Delaware
corporation (the "Company"), and AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Trustee (the "Trustee").
WITNESSETH:
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an Indenture dated as of October 14, 1994 (the "Indenture") providing
for the issuance of the Company's 7% Convertible Subordinated Notes due
2006 (the "Securities");
WHEREAS, Section 11.2 of the Indenture authorizes the Trustee, with
the written consent of the Holders of all of the then outstanding Securities, to
waive compliance by the Company with any provision of the Indenture
relating
to payment of interest;
WHEREAS, all acts and proceedings required by law, by the Indenture
and by the Certificate of Incorporation of the Company to constitute this
Waiver a valid and binding agreement for the uses and purposes herein set
forth, in accordance with its terms, have been done and taken, and the
execution and delivery of this Waiver have been in all respects duly
authorized
by the Company;
WHEREAS, the Company has obtained the unrevoked consent of the
Holders of all of the Securities outstanding as of the date hereof to the Waiver
provided for herein; and
WHEREAS, the foregoing recitals are made as representations or
statements of fact by the Company and not by the Trustee.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt of which is hereby
acknowledged,
the Company covenants and agrees with the Trustee, for the equal and
proportionate benefit of all present and future holders of Securities, as
follows:
SECTION 1. For all other purposes of this Waiver, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein," "hereof" and "hereby" and other words of similar import used in this
Waiver, refer to the amendment of the Indenture as a whole and not to any
particular Section hereof.
SECTION 2. Acting upon instruction of the Holders of all of the
Securities outstanding as of the date hereof, the Trustee hereby:
(a) waives any Default or Event of Default under the
Indenture occurring as a result of the Company's failure to pay the interest due
on the Securities on June 30, 1995 in the aggregate amount of $647,500 (the
"June Payment"); and
(b) agrees that, notwithstanding anything to the contrary
contained in the Indenture or the Securities, (i) the June Payment is hereby
deferred and is not payable until December 30, 1995, at which time it will be
paid with interest and (ii) for all other purposes other than as set forth in
clause
(i), the June Payment is and shall be treated as accrued but unpaid interest on
the Securities.
SECTION 3. The Trustee accepts the waiver and modification of
certain provisions of the Indenture effected by this Waiver and agrees to
execute the trust created by the Indenture as hereby waived and modified, but
only upon the terms and conditions set forth in the Indenture, including the
terms and provisions defining and limiting the liabilities and responsibilities
of
the Trustee, which terms and provisions shall in like manner define and limit
its liabilities and responsibilities in the performance of the trust created by
the
Indenture as hereby waived and modified, and, without limiting the generality
of the foregoing, the Trustee has no responsibility for the correctness of the
recitals of fact herein contained which shall be taken as the statements of the
Company, and makes no representations as to the validity or sufficiency of
this
Waiver and shall incur no liability or responsibility in respect of the validity
thereof.
SECTION 4. Except as hereby expressly waived and modified, the
Indenture and the Securities issued thereunder are in all respects ratified and
confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect.
SECTION 5. This Waiver shall form a part of the Indenture and the
Securities for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
SECTION 6. This Waiver may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original, and all of such counterparts shall together constitute one and the
same
instrument.
SECTION 7. The internal laws of the State of New York shall govern
this Waiver, without regard to the conflicts of laws rules thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
to be duly executed, and their respective seals to be hereunto affixed and
attested, all as of the day and year first above written.
CAROLCO PICTURES INC.
By:/s/ Robert W. Goldsmith
Attest:
/s/ Karen A. Taylor
AMERICAN STOCK
TRANSFER & TRUST
COMPANY, as Trustee
By: /s/ Herbert J. Lemmer
Attest:
/s/ Susan Silber
State of California )
)
County of Los Angeles )
On before me, (here insert name and title of the
officer), personally appeared
, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on
the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS by hand and official seal.
Signature (Seal)
State of California )
)
County of Los Angeles )
On before me,
_______________________________________, personally appeared
, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged
to
me that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS by hand and official seal.
Signature (Seal)