-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ML9yI8uW3yMAxTJD+I2wlUK6jOZ+R7BS72mhoSHWdHTxWk8xAnRYK9sAzFRPDI25 VrJqAqrpYLL/+bDNxu0nbg== 0000950148-96-001653.txt : 19960816 0000950148-96-001653.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950148-96-001653 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGI PICTURES ENTERTAINMENT INC CENTRAL INDEX KEY: 0000922519 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954247952 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23958 FILM NUMBER: 96611537 BUSINESS ADDRESS: STREET 1: 2308 BROADWAY CITY: SANTA MONICA STATE: CA ZIP: 90404 BUSINESS PHONE: 3103156000 MAIL ADDRESS: STREET 1: 2308 BROADWAY CITY: SANTA MONICA STATE: CA ZIP: 90404 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------- ------- Commission file number 0-23958 CINERGI PICTURES ENTERTAINMENT INC. (Exact name of registrant as specified in its charter) DELAWARE 95-4247952 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2308 BROADWAY SANTA MONICA, CALIFORNIA 90404 (Address of principal executive offices) (Zip Code) (310) 315-6000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of August 12, 1996, there were 14,191,556 shares of the registrant's Common Stock outstanding. 2 CINERGI PICTURES ENTERTAINMENT INC. INDEX PART I. FINANCIAL INFORMATION
Page No. -------- Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets -- December 31, 1995 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1995 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . 15 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 17 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30, 1995 1996 ------------ ------------- (unaudited) ASSETS Cash and cash equivalents $ 29,832,000 $ 12,676,000 Accounts receivable 7,494,000 4,313,000 Accounts receivable, related parties 682,000 811,000 Film costs, less accumulated amortization 160,756,000 164,547,000 Property and equipment, at cost, less accumulated depreciation 4,381,000 5,390,000 Other assets 3,112,000 2,738,000 ------------ ------------ TOTAL ASSETS $206,257,000 $190,475,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable $ 1,785,000 $ 1,334,000 Accrued interest 2,613,000 3,400,000 Accrued residuals & participations 8,781,000 9,332,000 Deferred revenue 68,791,000 54,333,000 Capital lease obligation -- 659,000 Loans payable 65,360,000 63,515,000 Notes and amounts payable to related parties 5,310,000 5,013,000 ------------ ------------ TOTAL LIABILITIES $152,640,000 $137,586,000
3. 4 CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, June 30, 1995 1996 ------------ ------------ (unaudited) Common Stock with certain redemption features, $.01 par value, 1,117,000 shares issued and outstanding less notes receivable from related parties amounting to $1,350,000 $1,900,000 $2,525,000 Commitments & Contingencies (Note 4) -- -- Stockholders' Equity Preferred Stock, $.01 par value, 5,000,000 shares authorized, no shares issued and outstanding -- -- Common Stock, $.01 par value, 20,000,000 shares authorized, 13,075,000 shares issued and outstanding 131,000 131,000 Additional Paid-in Capital 64,753,000 64,753,000 Retained Deficit (13,167,000) (14,520,000) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 51,717,000 50,364,000 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $206,257,000 $190,475,000 ============ ============
NOTE: The balance sheet at December 31, 1995 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principals for complete financial statements. See notes to condensed consolidated financial statements. 4. 5 CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 1995 1996 1995 1996 ----------- ----------- ----------- ----------- Revenues Feature films $50,844,000 $22,447,000 $63,478,000 $59,552,000 Fee income 116,000 20,000 188,000 31,000 ----------- ----------- ----------- ----------- 50,960,000 22,467,000 63,666,000 59,583,000 Cost and expenses: Amortization of film costs, residuals & participations 59,896,000 22,076,000 71,697,000 58,411,000 Selling, general & ad- ministrative expenses 820,000 1,403,000 1,389,000 2,879,000 ----------- ----------- ----------- ----------- Operating loss (9,756,000) (1,012,000) (9,420,000) (1,707,000) Interest expense -- -- -- (176,000) Interest income 179,000 296,000 218,000 530,000 ----------- ----------- ----------- ----------- Net loss before provision for income taxes (9,577,000) (716,000) (9,202,000) (1,353,000) Provision for income taxes 142,000 -- -- -- ----------- ----------- ----------- ----------- Net loss $(9,435,000) $ (716,000) $(9,202,000) $(1,353,000) =========== =========== =========== =========== Net loss per share $(0.76) $(0.05) $(0.78) $(0.10) =========== =========== =========== =========== Weighted average number of shares outstanding 12,478,000 14,192,000 11,838,000 14,192,000 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 5. 6 CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Six Months Ended June 30, 1995 1996 ------------ ------------ OPERATING ACTIVITIES Net loss $ (9,202,000) $ (1,353,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 185,000 641,000 Amortization of unearned compensation 25,000 625,000 Film cost amortization 67,400,000 53,481,000 Changes in operating assets and liabilities: Accounts receivable 9,731,000 3,181,000 Accounts receivable, related parties 340,000 (129,000) Film cost additions (80,899,000) (57,272,000) Other assets 360,000 374,000 Accounts payable & accrued interest (6,000) 336,000 Accrued residuals and participations payable 4,061,000 551,000 Deferred revenue 28,536,000 (14,458,000) ------------ ------------ Net cash provided by (used in) operating activities 20,531,000 (14,023,000) INVESTING ACTIVITIES Purchase of property and equipment (1,147,000) (70,000) ------------ ------------ Net cash used in investing activities $ (1,147,000) $ (70,000)
See notes to condensed consolidated financial statements. 6. 7 CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED) (UNAUDITED)
Six Months Ended June 30, 1995 1996 ------------ ------------- FINANCING ACTIVITIES Increase in loans payable $ 50,936,000 $ 29,483,000 Payments on loans payable (69,691,000) (31,328,000) Increase in notes and amounts payable to related parties 8,678,000 421,000 Payments on notes and amounts payable to related parties (8,566,000) (718,000) Payments on capital lease obligation -- (921,000) Issuance of common stock, net of expenses 23,450,000 0 ------------ ------------ Net cash provided by (used in) financing activities 4,807,000 (3,063,000) ------------ ------------ Increase (decrease) in cash 24,191,000 (17,156,000) Cash and cash equivalents at beginning of year 2,665,000 29,832,000 ------------ ------------ Cash and cash equivalents at end of period $ 26,856,000 $ 12,676,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes $ 153,000 $ 23,000
SIX MONTHS ENDING JUNE 30, 1996 Visual effects equipment amounting to $1,580,000 was purchased under a capital lease agreement. Accrued interest of $575,000 relating to production loans owed to a third party was offset against monies owed to the Company by such third party. SIX MONTHS ENDING JUNE 30, 1995 Film assets amounting to $1,221,000 were transferred from film inventory to fixed assets. See notes to condensed consolidated financial statements. 7. 8 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 1996 NOTE 1 -- PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements of Cinergi Pictures Entertainment Inc. (the "Company" or "CPEI") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in CPEI's Annual Report on Form 10-K ("Annual Report") filed with the Securities and Exchange Commission. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES Net Loss Per Common Share. The per share data for the three and six month periods ended June 30, 1995 and 1996 are based on the weighted average number of common and common share equivalents outstanding during the period. Common Stock with certain redemption features are considered common share equivalents. Stock options and warrants are considered common share equivalents if dilutive. Reclassification. Certain reclassifications were made to the 1995 balances to conform to the June 30, 1996 presentation primarily to not reflect Buena Vista Pictures Distribution, Inc. as a related party. NOTE 3 -- FILM COSTS Film costs consist of the following:
DECEMBER 31 JUNE 30 1995 1996 ------------ ------------ Released, less amortization . . . . . . . . $101,238,000 $ 51,237,000 In production . . . . . . . . . . . . . . . 53,545,000 106,332,000 Development . . . . . . . . . . . . . . . . 5,973,000 6,978,000 ------------ ------------ $160,756,000 $164,547,000 ============ ============
8. 9 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) June 30, 1996 NOTE 4 -- COMMITTMENTS AND CONTINGENCIES In December 1995, the U.S. Attorney for the Central District of California served subpoenas ("Subpoenas") on the Company related to a grand jury investigation of federal tax aspects of various transactions involving Andrew G. Vajna, President, Chief Executive Officer and Chairman of the Board of Directors of the Company, and certain other persons and entities (the "Investigation"). The Company believes the Investigation is focusing primarily on (i) the 1988 and 1989 personal tax returns of Mr. Vajna and the tax returns of certain other persons and entities, and (ii) the ongoing audits of Mr. Vajna's tax returns since 1990 by the Internal Revenue Service. The Company has not been identified by the U.S. Attorney as being a target of the Investigation; however, there can be no assurance that the Company's status will not change in the future. The Board of Directors of the Company has formed a committee of the three outside directors of the Company (the "Special Committee") to monitor the Company's response to the Subpoenas, to consider the Company's indemnification obligations with respect to its employees, officers and directors and to otherwise evaluate and act upon matters related to the Investigation. The Company has engaged counsel to represent it in connection with the Investigation and is in the process of responding to the Subpoenas. Given the uncertainty of the Investigation, there is currently no basis upon which to estimate the impact, if any, the Investigation may have on the Company. Pursuant to Article Tenth of the Company's Restated Certificate of Incorporation, Article V of the Company's Restated Bylaws, indemnity agreements entered into between the Company and certain of its officers and directors, and the provisions of Section 145 of the Delaware General Corporation Law (the "Indemnification Provisions"), the Company is advancing the expenses of certain of its current and former employees, officers and directors other than Mr. Vajna (the "Indemnitees") which they may incur in connection with the Investigation. As of August 12, 1996, the Company had advanced an aggregate of $92,000 on behalf of the Indemnitees. The Indemnitees have undertaken to reimburse the Company for their expenses if it is ultimately determined by the Special Committee that they are not entitled to be indemnified. In addition, Mr. Vajna has undertaken to reimburse the Company under certain circumstances with respect to the expenses of the Indemnitees. Given the current uncertainty regarding the scope and duration of the Investigation and the amount of expenses which may be incurred by the Indemnitees in connection with the Investigation, there is no basis upon which to estimate the financial impact which the foregoing may have on the Company. On May 13, 1996, a purported class action lawsuit was filed in the Superior Court of California for the County of Los Angeles by Aron Golds, an alleged stockholder of the Company, against the Company and certain of its current and former executive officers and 9. 10 directors. The complaint alleges, among other things, that the defendants negligently misrepresented (or omitted) material facts about the business, financial condition, future growth and profitability of the Company in documents and releases of the Company, including the prospectus for the Company's 1995 Common Stock offering, and in alleged statements by certain of the individual defendants. On the same date, a second purported class action lawsuit was filed in the same court by Michael Shores, also an alleged stockholder of the Company, against the same defendants as in the first lawsuit alleging violations of Sections 11 and 15 of the Securities Act of 1933, as amended, and otherwise making substantially the same allegations as in the first lawsuit. Both lawsuits seek, among other things, an award of unspecified monetary damages in favor of the plaintiffs and the other members of the purported class for all losses and injuries allegedly suffered as a result of the defendants' alleged conduct. On July 26, 1996, the court consolidated the two cases and plaintiffs filed an amended consolidated complaint with virtually identical allegations to those asserted in the original pleadings. Management of the Company does not believe that these lawsuits have merit and intends to defend them vigorously. Pursuant to the Indemnification Provisions, the Company is advancing the expenses of the current and former officers and directors named as defendants in the Golds and Shores litigations (the "Indemnitees") which they may incur in the defense of those litigations. The Indemnitees have undertaken to reimburse the Company for their expenses if it is ultimately determined that they are not entitled to be indemnified. Given the current uncertainty regarding the scope and duration of these litigations and the amount of expenses which may be incurred by the Indemnitees in connection with these litigations, there is no basis upon which to estimate the financial impact which the foregoing may have on the Company. 10. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as "may," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. The reader is cautioned that all forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. These risks and uncertainties include, among other things, the highly speculative and inherently risky and competitive nature of the motion picture industry. There can be no assurance of the economic success of any motion picture since the revenues derived from the production and distribution of a motion picture (which do not necessarily bear a direct correlation to the production or distribution costs incurred which can be substantial with respect to the Company's films) depend primarily upon its acceptance by the public, which cannot be predicted. The results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the entire year. Due to the uncertainties of the release schedules of the relatively limited number of motion pictures produced by the Company and the audience responses thereto, the Company's revenues and earnings fluctuate significantly from quarter to quarter and from year to year. In addition, management of the Company is conducting an ongoing strategic review of the Company's business strategies and goals and has retained the financial advisory firm of Jefferson Capital Group, Ltd. (of which R. Timothy O'Donnell, a director of the Company, is President), to assist it in such review. The strategic review includes discussions with third parties regarding the sale of a partial interest in the Company or the entire Company. As the Company has not concluded its strategic review nor have any agreements been reached with respect thereto, it is not possible to predict at this time what changes, if any, may be made in the Company's business strategies and what effect any changes may have on the Company's business, future results of operations and financial condition. The risks highlighted above should not be assumed to be the only things that could affect future performance of the Company. The Company does not have a policy of updating or revising forward-looking statements and thus it should not be assumed that silence by management of the Company over time means that actual events are bearing out as estimated in such forward-looking statements. RESULTS OF OPERATIONS Quarter Ended June 30, 1996 compared to Quarter Ended June 30, 1995 Feature film revenues decreased from $50,844,000 for the quarter ended June 30, 1995 to $22,447,000 for the quarter ended June 30, 1996. Feature film revenues for the quarter ended June 30, 1995 consisted mainly of revenues generated from the domestic and international availability of Die Hard With A Vengeance. Feature film revenues for the quarter ended June 11. 12 30, 1996 consisted mainly of the domestic home video availability of The Scarlet Letter and continuing domestic and foreign revenues from Tombstone and Die Hard With a Vengeance. Amortization of film costs, residuals and participations decreased from $59,896,000 for the quarter ended June 30, 1995 to $22,076,000 for the quarter ended June 30, 1996 primarily due to the decrease in feature film revenue recognized in the quarter ended June 30, 1996 as compared to the quarter ended June 30, 1995 and the write down to net realizable value in the quarter ended June 30, 1995 of Judge Dredd, which was released on June 30, 1995 to less than expected box office results. The Company estimates the total projected revenues to be received from the exploitation of a motion picture in all territories and media. As the estimated revenues from a motion picture are recognized, the percentage of revenues recognized to total projected revenues is applied to film costs for such motion picture to record amortization. Where applicable, unamortized film costs for a picture are written down to net realizable value for such picture based upon the Company's appraisal of current market conditions. Selling, general and administrative ("SG&A") expenses (excluding production overhead costs capitalized to film costs) increased from $820,000 for the quarter ended June 30, 1995 to $1,403,000 for the quarter ended June 30, 1996. The difference is primarily because indirect costs attributable to the special effects facility were included in overhead in the quarter ended June 30, 1996, because none of the Company's films in production during such period utilized the facility, compared to the quarter ended June 30, 1995 when substantially all of the indirect costs attributable to the special effects facility were included in film costs, as the special effects for Judge Dredd, which was in production during such period, were primarily created at the facility. The increase in overhead during the quarter ended June 30, 1996 was also due to legal expenses in connection with the Investigation and lawsuits described in Note 4 of the Financial Statements. The Company capitalizes production overhead incurred in connection with the production of a motion picture by adding such costs to the capitalized film costs of the motion picture. Production overhead being capitalized to films decreased from $1,484,000 in the second quarter of 1995 as compared to $1,428,000 in the second quarter of 1996, and the total of SG&A expenses and production overhead costs capitalized to film costs increased from $2,304,000 for the quarter ended June 30, 1995 to $2,831,000 for the quarter ended June 30, 1996. All interest expense for the quarter ended June 30, 1995 and the quarter ended June 30, 1996 was capitalized to film costs. The Company capitalizes applicable interest expense incurred in connection with the production of each motion picture. The Company determines the amount of interest expense to be capitalized to each motion picture in production by multiplying the average cumulative film cost of each motion picture in a given period by the overall effective interest rate paid by the Company on the aggregate amount of debt outstanding for such period. Interest expense, including interest capitalized to film costs, decreased from $3,243,000 for the quarter ended June 30, 1995 to $1,785,000 for the quarter ended June 30, 1996. This decrease was due to the lower average outstanding balance of the Company's production loans in the quarter ended June 30, 1996 as compared to the quarter ended June 30, 1995. Three films were 12. 13 in various stages of production during the second quarter of 1996 as compared to six films during the second quarter of 1995. Fee income decreased from $116,000 for the quarter ended June 30, 1995 to $20,000 for the quarter ended June 30, 1996. Fee income represents fees earned in connection with an arrangement to collect accounts receivable on behalf of and to distribute motion pictures produced by an unrelated third party. Interest income increased from $179,000 for the quarter ended June 30, 1995 to $296,000 for the quarter ended June 30, 1996 due to higher cash balances during the second quarter of 1996 compared to the second quarter of 1995. The Company had a tax benefit of $142,000 for the quarter ended June 30, 1995 as a result of reversing a tax provision accrued at March 31, 1995 because of the loss for the six month period ended June 30, 1995. As a result of the above, the Company incurred a net loss for the quarter ended June 30, 1996 of $716,000 as compared to a net loss of $9,435,000 for the quarter ended June 30, 1995. Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995 Feature film revenues decreased from $63,478,000 for the six months ended June 30, 1995 to $59,552,000 for the six months ended June 30, 1996. Feature film revenues for the six months ended June 30, 1995 consisted of domestic home video and pay television revenues for Tombstone, domestic home video revenues for Color of Night, and international revenues from the release of Die Hard With A Vengeance. Feature film revenues for the six months ended June 30, 1996 consisted mainly of the domestic home video availability of The Scarlet Letter, international availability of Nixon, continuing domestic home video revenue from Tombstone and continuing domestic and international revenues from Die Hard With a Vengeance. Amortization of film costs, residuals and participations decreased from $71,697,000 for the six months ended June 30, 1995 to $58,411,000 for the six months ended June 30, 1996 primarily due to the decrease in feature film revenue recognized for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995 and the write down to net realizable value of Judge Dredd during the six months ended June 30, 1995 as described above. SG&A expenses (excluding production overhead costs capitalized to film costs) increased from $1,389,000 for the six months ended June 30, 1995 to $2,879,000 for the six months ended June 30, 1996. The difference is primarily because indirect costs attributable to the special effects facility were included in overhead in the six months ended June 30, 1996, because none of the Company's films in production during such period utilized the facility, compared to the six months ended June 30, 1995 when substantially all of the indirect costs attributable to the special effects facility were 13. 14 included in film costs, as the special effects for Judge Dredd, which was in production during such period, were primarily created at the facility. The increase in overhead during the six months ended June 30, 1996 was also due to legal expenses in connection with the Investigation and lawsuits described in Note 4 of the Financial Statements. The total of SG&A expenses and production overhead costs capitalized to film costs increased from $4,411,000 for the six months ended June 30, 1995 to $5,971,000 for the six months ended June 30, 1996 primarily due to the Company's special effects facility and legal expenses in connection with the Investigation and lawsuits as previously noted. Interest expense increased from none for the six months ended June 30, 1995 to $176,000 for the six months ended June 30, 1996. All interest expense for the six months ended June 30, 1995 was capitalized to film costs. Interest expense, including interest capitalized to film costs, decreased from $6,219,000 for the six months ended June 30, 1995 to $3,337,000 for the six months ended June 30, 1996 due to the lower average outstanding balance of the Company's production loans in the six months ended June 30, 1996 as compared to the six months ended June 30, 1995. The Company had a lower average outstanding balance of production loans for the six months ended June 30, 1996 because three films were in production in such period as compared to six films in production in the corresponding period in 1995. Fee income decreased from $188,000 for the six months ended June 30, 1995 to $31,000 for the six months ended June 30, 1996. Fee income represents fees earned in connection with an arrangement to collect accounts receivable on behalf of and to distribute motion pictures produced by an unrelated third party. Interest income increased from $218,000 for the six months ended June 30, 1995 to $530,000 for the six months ended June 30, 1996 due primarily to higher cash balances during the six months ended June 30, 1996. As a result of the above, the Company incurred a net loss for the six months ended June 30, 1996 of $1,353,000 as compared to a net loss of $9,202,000 for the six months ended June 30, 1995. LIQUIDITY AND CAPITAL RESOURCES The Company has a Credit, Security, Pledge and Guaranty Agreement dated as of August 16, 1994 with Chase Manhattan Bank and a syndicate of lenders (collectively, the "Lenders") which provides the Company with a revolving credit facility of $150,000,000 (the "Credit Facility"). Under the Credit Facility, the Lenders have committed to make loans available until August 31, 1997, although the Lenders will continue to make loans to finance any motion picture in which principal photography has commenced or that has otherwise satisfied certain conditions prior to such date. The Credit Facility is secured by substantially all of the assets of the Company, including $5,000,000 in "key man" life insurance on Mr. Vajna. The Credit Facility matures on February 28, 1999. As of June 30, 1996, approximately $33,021,000 in borrowings were outstanding under the Credit Facility. As of June 30, 1996, the interest rate on the 14. 15 amounts outstanding under the Credit Facility was approximately 7% per annum. The commitment fee on the average daily unused portion of the commitment is 3/8 of one percent per annum. The Company previously entered into term loan agreements with Buena Vista Pictures Distribution, Inc. ("BVPD") to finance a portion of the costs of Color of Night, The Scarlet Letter, Nixon, The Shadow Conspiracy and Evita. Each loan must be repaid with accrued interest on or before the earlier of (i) four years after the loan proceeds are first made available to the Company or (ii) three years after the initial domestic theatrical release of the applicable picture. The first of these loans will become due in May 1997 for Color of Night. Each of these loans are secured by rights to distribute the respective motion picture in the Americas and, except for one term loan personally guaranteed by Mr. Vajna, certain other distribution rights related to other motion pictures financed by BVPD. At June 30, 1996, the aggregate principal loan balances were approximately $30,494,000. The Company has a one year capital lease for certain visual effects equipment. The total capital lease obligation at June 30, 1996 was $659,000. The Company currently is in post-production of Evita and The Shadow Conspiracy. Subsequent to the quarter ended June 30, 1996, the Company completed delivery of Amanda to Family Channel Pictures Inc. for domestic distribution and is in the process of delivering the picture for international distribution. Through June 30, 1996, the Company incurred approximately $95,345,000 in direct negative costs in connection with the motion pictures The Shadow Conspiracy, Amanda and Evita. The Company currently expects, subject to changes in existing budgets, that an additional approximately $11,790,000 in direct negative costs will be incurred in connection with such motion pictures. The Company and Hollywood Pictures Company ("HPC") have agreed in principle to enter into a Financing and Distribution Agreement (the "Agreement") whereby the Company will acquire a 50% interest in the picture owned by HPC tentatively entitled Deep Rising (the "Picture"), an action, adventure, horror, thriller starring Treat Williams that takes place on the high seas. Production on the Picture commenced on June 12, 1996 and pursuant to the terms of the Agreement, in exchange for a 50% equity participation interest in the Picture and a sales fee for international distribution, the Company is financially obligated to pay to HPC the lesser of 50% of the cost of the Picture and $22,500,000. The Company believes that its existing capital, funds from operations, borrowings under the Credit Facility, advances and production loans from BVPD and other available sources of capital, will be sufficient to enable the Company to fund its planned development, production and overhead expenditures for the next 12 months. 15. 16 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. See Note 4 to Condensed Consolidated Financial Statements set forth herein. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company's 1996 Annual Meeting of Stockholders was held on May 29, 1996. At the Annual Meeting, R. Timothy O'Donnell and Randolph M. Paul were re-elected to serve as directors of the Company until the 1999 Annual Meeting of Stockholders and until their successors are elected and have qualified, in each case by a vote of 13,920,963 votes in favor of such person's reelection, 25,764 votes against such person's reelection and with no votes withheld. At the 1996 Annual Meeting of Stockholders, the Company's stockholders also approved a proposal to ratify the Company's selection of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 1996. The number of votes cast with respect to such proposal were 13,914,596 votes in favor and 10,731 votes against, with 21,400 abstentions and no broker non-votes. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits. 10. Equipment Lease dated February 8, 1996 between Cinergi Pictures Entertainment Inc. and Brentwood Credit Corporation 27. Financial Data Schedule 16. 17 b) Reports on Form 8-K. No reports on Form 8-K were filed during the three-month period ended June 30, 1996. 17. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CINERGI PICTURES ENTERTAINMENT INC. August 13, 1996 By: /s/ Warren Braverman ------------------------------------------ Warren Braverman, Executive Vice President, Chief Financial Officer and Treasurer, signing both in his capacity as Executive Vice President on behalf of Registrant and as Chief Financial Officer of Registrant 18. EX-10 2 EXHIBIT 10 1 BRENTWOOD CREDIT CORPORATION SCHEDULE NO. 01 TO EQUIPMENT LEASE NO. CPE-1000-100 DATED FEBRUARY 8, 1996 LESSEE CINERGI PICTURES ENTERTAINMENT, INC. LEASED EQUIPMENT COST $1,103,258.16 Equipment Data: QUANTITY TYPE MODEL DESCRIPTION SEE ATTACHED FOR BREAKDOWN OF EQUIPMENT Location of Equipment: MASS.ILLUSION 30 RIVERVIEW ROAD LENOX, MA 01240 Term of Schedule: 12 months commencing on April 1, 1996 and continuing to March 31, 1997. Purchase Option: Upon expiration of the initial term, provided Lessee has given 60 days prior written notice and provided Lessee is not in default of this agreement, Lessee shall have a one time purchase option equal to 5% of the Equipment cost. Rental Payments: $97,960.00 per month in advance. (Lessee is tax exempt). Brentwood Credit Corporation, (Lessor) hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the equipment listed above, for the term and rental payments specified, all subject to the terms and conditions set forth in such equipment lease. Lessor: BRENTWOOD CREDIT Lessee: CINERGI PICTURES CORPORATION ENTERTAINMENT INC. By: [SIG] By: [SIG] ------------------------- ------------------------- Erick J. Feitshans Title: /s/ Title: Vice President ---------------------- ---------------------- Date: Date: 19 March 1996 ----------------------- ----------------------- 1620 26th Street 2308 Broadway Suite #290-S Santa Monica, CA 90404-2916 Santa Monica, CA 90404 2 [COMPANY LOGO] Brentwood Credit CINERGI PICTURES ENTERTAINMENT, INC. SCHEDULE 01 TO MASTER LEASE CPE-1000-100 EQUIPMENT ATTACHMENT PAGE 1 QTY EQUIPMENT DESCRIPTION - --- --------------------- ATTILA (EASTMAN KODAK INVOICE #012062521) 1 5.12/4.29GB SEAGATE DISK 1 EXTERNAL 4.0GB 4MM DIGITAL AUDIO SCSI TAPE GHENGIS (EASTMAN KODAK INVOICE #012062521) 1 64MB FOR CRIMSON ASPEN (EASTMAN KODAK INVOICE #012062521) 1 VAULT XL SCSI 4.3 FWD DISKS 1 256MB RAM 1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD HARLEM (EASTMAN KODAK INVOICE #012062521) 2 VAULT XL SCSI 4.3 FWD DISKS 1 256MB RAM JANUS (EASTMAN KODAK INVOICE #012062521) 1 VAULT XL SCSI 4.3 FWD DISKS 1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD LIBERTY (EASTMAN KODAK INVOICE #012062521) 1 VAULT XL SCSI 4.3 FWD DISKS 1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD 4 VAULT XL SCSI 4.3 FWD DISKS SPHINX (EASTMAN KODAK INVOICE #012062521) 1 EXTERNAL 4.0GB 4MM DIGITAL AUDIO SCSI TAPE NEW MACH 1 (EASTMAN KODAK INVOICE #012062521) 1 INDIGO2 EXTREME GEN. 250 128MB 4GB 1 5.12/4.29GB SEAGATE DISK 1 128MB MEMORY UPGRADE Brentwood Credit Corporation 1620 26th Street, Suite 290-S, Santa Monica, California 90404 310-828-1199 fax: 310-828-7781 3 CINERGI PICTURES ENTERTAINMENT, INC. SCHEDULE 01 TO MASTER LEASE CPE-1000-100 EQUIPMENT ATTACHMENT PAGE 2 NEW MACH 2 (EASTMAN KODAK INVOICE #012062521) 1 INDIGO2 HIGH IMPACT 250 128MB 4 GB 1 128MB MEMORY UPGRADE 1 5.12/4.29GB SEAGATE DISK NEW MACH 3 (EASTMAN KODAK INVOICE #012062521) 1 INDY 200 64M RAM 2 GB SYS 1 UPGRADE MONITOR TO 20" 1 5.12/4.29GB SEAGATE DISK NEW MACH 4 (EASTMAN KODAK INVOICE #012062521) 1 INDIG02 EXTREME GEN.250 128MB 4GB 1 54.0/45.5GB SINGLE ENDED EXTERNAL SEAGATE HD 2 128MB MEMORY UPGRADE NEW MACH 5 (EASTMAN KODAK INVOICE #012062521) 1 INDY 200 64M RAM 2 GB SYS 2 128MB MEMORY UPGRADE 1 EXB8505XK EXABYTE 1 5.12/4.29GB SEAGATE DISK 1 UPGRADE MONITOR TO 20" NEW MACH 6 (EASTMAN KODAK INVOICE #012062521) 1 REFURB. CHALLENGE L 8X150 64M 1 5.12/4.29GB SEAGATE DISK 1 FIRST 1GB SUPER DENSITY MEMORY 1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD 1 SCSI-2 10MHZ/16-BIT DIFFERENTIAL MEZZ CARD 1 UPGRADE 2 TO 4.3GB SCSI-2 FAST,W, DIFF SYS DISK NEW MACH 7 (EASTMAN KODAK INVOICE #012062521) 1 INDIGO2 HIGH IMPACT 250 128MB 4 GB 2 128MB MEMORY UPGRADE 1 EXB8505XL EXABYTE 4 CINERGI PICTURES ENTERTAINMENT, INC. SCHEDULE 01 TO MASTER LEASE CPE-1000-100 EQUIPMENT ATTACHMENT PAGE 3 2 5.12/4.29GB SEAGATE DISK NEW MACH 8 (EASTMAN KODAK INVOICE #012062521) 1 INDIGO2 HIGH IMPACT 250 128MB 4 GB 1 128MB MEMORY UPGRADE 1 EXB8505XL EXABYTE 2 5.12/4.29GB SEAGATE DISK NEW MACH 9 (EASTMAN KODAK INVOICE #012062521) 1 INDIGO2 HIGH IMPACT 250 128MB 4 GB 1 128MB MEMORY UPGRADE 1 EXB8505XL EXABYTE 2 5.12/4.29GB SEAGATE DISK NEW MACH 10 (EASTMAN KODAK INVOICE #012062521) 1 REFURB. CHALLENGE L 8X150 64M 1 5.12/4.29GB SEAGATE DISK 1 FIRST 1GB SUPER DENSITY MEMORY 1 VAULT XL SCSI BOX WITH EIGHT 4.3GB FWD 1 SCSI-2 10MHZ/16-BIT DIFFERENTIAL MEZZ CARD 1 UPGRADE 2 TO 4.3GB SCSI-2 FAST, W, DIFF SYS DISK ADDITIONAL KODAK (EASTMAN KODAK INVOICE #012062521) 1 CHALLENGE VAULT XL SCSI EXPANSION RACK 1 MODEM FOR IMAGE STATION 1 110 VAC PROGRAMMING TERMINAL 3 CINEON CALIBRATED 20" MONITOR 1 MONITOR CALIBRATION KIT 1 ASX-200 BACKBONE SWITCH 4 OC-3C/STM 1 NETMOD COPPER 6 EISA ATM COMPUTER INTERFACE COPPER 1 GIO ATM COMPUTER INTERFACE COPPER 7 VME ATM COMPUTER INTERFACE COPPER 5 CINERGI PICTURES ENTERTAINMENT, INC. SCHEDULE 01 TO MASTER LEASE CPE-1000-100 EQUIPMENT ATTACHMENT PAGE 4 CABLETRON (INVOICES 813737A & 814555A) 2 FPIM-02, FDDI PRT INT MOD CAT5 UTP 1 EXS-1320-F600, ESX - 1320 BRIM-F6 COMB TECHNICHE (INVOICE 2265) 2 POWERMAC 8500 WORKSTATION 16/1GB 7 APPLE 17" MULTISYNC MONITOR 1705 7 APPLE EXTENDED KEYBOARD 8 MEMORY UPGRADE 32MB DIMM 2 MEMORY UPGRADE 16MB DIMM 5 POWERMAC 7500 WORKSTATION CD16/1G 5 POWERMAC POWERBOOK 5300CS 16/750 5 GLOBAL VILLAGE PLATINUM PRO MODEMS FOR POWERBOOKS 5 TARGUS ENCORE, PB CASE, NYLON 1 DIGITAL CAMERA KODAK 50C 1 HP 5MP PRINTER 3 US ROBOTICS, EXT MODEMS (28.8) 1 16MB MEMORY UPGRADE FOR 5300CS POWERBOOK 1 FARGO 310E 12X20 DYE SUBLIMATION PRINTER W/PS LEV2, AUTOSWCHNG 1 FARGO 310E CONSUMABLES: FOR PRINTS, VARIOUS 1 NIKON SUPER COOLSCAN, MAC 1 NIKON COOLSCAN, MAC 1 ZIP DRIVE, 1OMEGA 100 MB BACKUP DEVICE W/10 DISKS 2 JAZ DRIVE, MICRONET, 1GB BACKUP W/EXTRA DISKS 2 75MHZ PENTIUM BASED CLONES, 16RAM/850HD, FLOPPY, PCI VIDEO, 4XCD, 16 BIT ETHERNET, 14" VGA MONITOR, KB, MOUSE, WIN 95 2 POWERMAC 8100/100 24MB 2 RADIUS VIDEO VISION 2 APPLE 15" MSCAN MONITORS 2 RADIUS VIDEO VISION STUDIO, 4G AV RAID ARRAY, EXTERNAL, W/FWB JACKHAMMER SCSI ACCELLERATOR BD 6 CINERGI PICTURES ENTERTAINMENT, INC. SCHEDULE 01 TO MASTER LEASE CPE-1000-100 EQUIPMENT ATTACHMENT PAGE 5 2 ADTRAN EXPRESS 128 ISDN TERMINAL & TRANS TALK LT ROUTER ANIXTER (INVOICE 352-052126) 1 LOT VARIOUS CABLES AND CONNECTOR ALT SYSTEMS (INVOICE 39603) 1 PARITY UPGRADE FOR ALT SYSTEMS DRIVER SONY (INVOICE MASS9501) 1 BVW-75 BETACAM SP STUDIO RECORDER/PLAYER W/DT 1 DCR-VX1000 CONSUMER DIGITAL CAMERA AVID TECHNOLOGY, INC. (INVOICE M1417) 2 9GB RMAG DRIVE (SN-AR14162, AR14172) 1 24 FPS/30FPS EDIT OPTION 1 UPG,MSP TO MC4000 (SN-1245) 1 CPU,AMP,48MB KINGSTON (INVOICE LG3602) 2 DS500-SR 8 DC500-DCW2 16 DX100-35/KIT 16 ST1515OWD 7 [BRENTWOOD CREDIT CORPORATION LOGO] BRENTWOOD CREDIT CORPORATION MASTER EQUIPMENT LEASE NO. CPE-1000-100 ------------ This Master equipment Lease dated FEBRUARY 8, 1996 (the "Master Equipment Lease"), is entered into between Brentwood Credit Corporation ("Lessor"), 1620 26th Street, Suite 290-S, Santa Monica, California 90404 and CINERGI PICTURES ENTERTAINMENT, INC. ("Lessee"), - -------------------------------------------------------------------- 2308 BROADWAY - ----------------------------------------------------------------------------- SANTA MONICA, CA 90404-2916 - ----------------------------------------------------------------------------- In consideration of the mutual agreements hereinafter set forth and the payment of rent as hereinafter provided, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, all of the tangible or intangible personal property which may include such items as general equipment, computer hardware, software, and services, described in each Schedule ("Schedule") executed from time to time pursuant to this Master Equipment Lease (with respect to any Schedule, herein called "Equipment") subject to the terms and conditions set forth below. Each Schedule shall constitute a separate "Lease" incorporating by reference this Master Equipment Lease, and any amendments, addenda, supplements or riders hereto. 1. TERM, RENTAL AND NOTICE (a) The term of this Master Equipment Lease shall commence on the date set forth above and shall continue in effect thereafter so long as any Schedule entered into hereunder remains in effect. The lease term for any Schedule shall commence on the date on which Equipment is accepted for delivery by Lessee ("Commencement Date"), and shall remain in force until the Initial Expiration Date set forth in such Schedule ("Initial term"), unless extended pursuant to the terms hereof. This lease shall be automatically extended for consecutive terms of one (1) calendar quarter on the Initial Expiration Date, unless either party give written notice of its intention to terminate this Lease to the other party not less than 90 days nor more than 180 days prior to the Initial expiration Date or successive periods, as the case may be. (b) Lessee agrees to pay the total rental for the entire lease term, including all extensions hereof, plus such additional amounts as may arise pursuant to the terms and conditions of this Lease. During the term of this Lease, the payments of rental for each item of Equipment, as set forth in the applicable Schedule, shall be due and payable monthly in advance on the Commencement Date and on the same day of each month thereafter to the address of Lessor specified in this Lease. If any payment to be made by Lessee hereunder is due on a day on which banks are not open for the transaction of business, Lessee shall make such payment to Lessor on the first preceding day on which such banks are open. If Lessee defaults in the payment of any amount due under this Lease, Lessee shall pay interest thereon from the date due until the date of payment at the lower of 18% per annum and the highest rate permitted by law. (c) Notices shall be deemed given on the earlier of receipt, or three (3) days after mailing, if mailed by certified mail, postage prepaid, to an officer of each party at the address or addresses of such party specified in this Lease, with the right of either party to change, by notice to the other, its address for the foregoing purposes. 2. PURCHASE, DELIVERY AND ACCEPTANCE, AND LESSOR'S WARRANTIES (a) Lessee acknowledges, warrants and represents that it has selected the equipment based on its own judgment, has requested Lessor to purchase same from the manufacturer/licensor or other "supplier" thereof and expressly disclaims any reliance made upon prior statements made by Lessor. Lessee acknowledges and agrees that neither the manufacturer, supplier, nor any salesman, representative or other agent of the manufacturer or supplier, is an agent of Lessor nor are any of the above authorized to waive or alter any term or condition of this lease. No representation by the manufacturer or supplier shall in any way affect Lessee's duty to pay rent and perform its other obligations as set forth in this lease. (b) Delivery of equipment under this lease shall be deemed complete and such equipment shall be deemed unconditionally accepted by Lessee for all purposes of this lease upon the earlier of the execution by Lessee of the delivery certificate, or seven (7) days after delivery of Equipment by supplier which shall be conclusive proof that Lessee has examined such equipment and Lessee is fully satisfied therewith. (c) EXCEPT AS EXPRESSLY SET FORTH HEREIN, LESSOR MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, WITH RESPECT TO THIS LEASE OR THE EQUIPMENT, AND EXPRESSLY DISCLAIMS AND LESSEE EXPRESSLY WAIVES, RELEASES AND RENOUNCES ALL OTHER WARRANTIES (WHETHER STATUTORY OR OTHERWISE), EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, (i) ANY IMPLIED WARRANTY OF MERCHANTABILITY; (ii) ANY IMPLIED WARRANTY THAT THE EQUIPMENT IS FIT FOR ANY PARTICULAR PURPOSE; (iii) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE; (iv) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, EXCLUDING THOSE ARISING FROM LESSOR'S GROSS NEGLIGENCE IN ACTUALLY OPERATING ANY EQUIPMENT; AND (v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING STRICT OR ABSOLUTE LIABILITY IN TORT. LESSEE LEASES THE EQUIPMENT "AS-IS, WHERE-IS" AND LESSOR SPECIFICALLY MAKES NO WARRANTIES AS TO THE QUALITY OF MATERIALS OR WORKMANSHIP OR THE CONFORMITY THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER OR AGREEMENT RELATING THERETO. Lessor hereby assigns to Lessee all assignable warranties of the manufacturer/licensor during the lease term. Lessee shall, at its expense, take all reasonable action to enforce such warranties. Lessor, at Lessee's expense, shall provide reasonable assistance to Lessee in enforcing such warranties. 8 3. TITLE Lessor or its assigns warrant that it will have, at the time of delivery hereunder of each item of Equipment, title or rights to title thereto, and to the extent that any software license conveys title or use to licensee said title or use shall be conveyed to lessor. Lessee will, upon request of Lessor from time to time, affix to the Equipment, in a prominent place, tags, plates, decals or labels supplied by Lessor indicating the ownership of, and other interests in, the Equipment. From time to time, upon request of Lessor, Lessee shall file, record, re-file and re-record this Lease and/or any applicable Uniform Commercial Code financing statement or similar instrument in respect of this Lease evidencing the respective interests of Lessor and its successors and assigns in the Equipment, the rentals and any other sums to be paid by Lessee hereunder. Lessee, at its expense, shall keep the Equipment and this Lease free and clear, and indemnify and hold Lessor harmless from, all levies, liens and encumbrances whatsoever, except any thereof caused by Lessor and/or its successors and assigns, and shall give Lessor immediate written notice thereof. Lessee agrees that this Lease constitutes a lease of the Equipment and the Software only and nothing contained herein shall give or convey to Lessee any right, title or interest in or to the Equipment and software except as a Lessee herein. 4. CARE AND USE OF EQUIPMENT Lessee shall maintain the Equipment in fit and merchantable condition, working order, repair and appearance, shall not make modification, alteration or addition to the equipment (other than normal operating accessories or controls) without the consent of Lessor, which shall not be unreasonably withheld, shall not so affix the Equipment to realty so as to change its nature to real property and agrees that the Equipment shall remain tangible personal property at all times regardless of how attached or installed. Lessee shall keep the Equipment at the location shown on the applicable Schedule, and shall not remove the Equipment from such location without the consent of Lessor, which shall not be unreasonably withheld. All modifications, repairs, alterations, additions, operating accessories and controls (except those purchased by Lessee which can be removed from the Equipment without causing material damage or impairment of the value or intended function or use of the Equipment) shall accrue to the Equipment and become the property (Lien free) of Lessor. Lessor and its agents or representatives may inspect the Equipment, Lessee's equipment log and maintenance records upon prior notice during normal business hours, subject to Lessee's reasonable security requirements. Lessee agrees to enter into a prime shift standard maintenance contract with the manufacturer/licensor or any other provider approved by Lessor. 5. NET LEASE AND TAXES (a) This Lease constitutes a net lease and Lessee agrees that its obligations under this Lease are absolute and unconditional, and are not subject to any abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged to be due, by reason of any past, present or future claim which Lessee may have against Lessor, its successors or assigns, the manufacturer or other supplier of the Equipment or any person whatsoever. (b) During the term of this Lease, Lessee shall pay Lessor, and agrees to indemnify and hold Lessor harmless from and against, any and all sales, use personal property, gross income, gross receipts, leasing, stamp or other taxes, levies, imposts, duties, charges or withholdings of any nature when they become due (excluding Federal or State net income taxes), together with any penalties, fines or interest thereon not arising from negligence on the part of Lessor or anyone claiming by or through Lessor, license and registration fees, and similar charges imposed against Lessor or Lessee, or upon the Equipment, by any Federal, State or local government or taxing authority upon the ownership, delivery, lease, possession, rental, use, operation, return, sale or other disposition thereof hereunder or in connection herewith, or upon the rentals, receipts or earnings arising therefrom, or with respect to any Schedule. To the extent lawfully permitted, Lessee agrees to promptly file or cause to be filed all personal property tax returns with respect to any Schedule. To the extent lawfully permitted, Lessee agrees to promptly file or cause to be filed all personal property tax returns with respect to the Equipment and to promptly provide the lessor with copies of any such filings. In the event that Lessor is required to file any such returns, Lessee shall promptly advise Lessor thereof and cooperate with and provide such assistance to Lessor in connection therewith as Lessor may require. 6. INDEMNITY Lessee shall and does hereby agree to indemnify and save Lessor and its successors and assigns harmless from and against any and all loss (including any loss of tax benefits), claims, expenses, damages or liabilities, (including negligence, tort and strict liability), including attorneys' fees, arising out of or pertaining to this Lease or any item of equipment, including, without limitation, the ownership, selection, possession, leasing, renting, operation, control, use, storage, maintenance, delivery and return of the Equipment, and claims for property damage or personal injury arising in strict liability or negligence. The indemnities and covenants contained in this Lease shall survive the termination of any Schedule under this Lease. 7. INSURANCE At its expense, Lessee shall keep the Equipment insured against all risks of loss or damage from every cause whatsoever in an amount ("Stipulated Loss Value") not less than the greater of replacement value of the Equipment of 120% of the aggregate remaining rental payments of the Equipment as of the relevant date of determination, provided that the amount of such insurance shall be sufficient so that neither Lessor, its successors or assigns, nor Lessee will be a co-insurer. With Lessor's consent Lessee may self-insure software and bear all risks of loss. Lessee also shall carry general comprehensive liability insurance in an amount not less than $1,000,000 covering the Equipment. All such insurance shall be in form and with companies satisfactory to Lessor. All insurance for loss or damage shall provide that losses, if any, shall be payable to Lessor, its successors and assigns, and Lessee, as their respective interests may appear, and all such liability insurance shall provide that Lessor and its successors and assigns shall be named as additional insureds. Lessee shall pay the premiums for such insurance and deliver to Lessor evidence satisfactory to Lessor of the insurance coverage required hereunder. Each insurer shall agree, by endorsement upon the policy or policies issued by it or by independent instrument furnished to Lessor, that it will give Lessor and any other additional insured or loss payee at lease 30 days' prior written notice of the effective date of any alteration or cancellation of such policy. Lessee shall be responsible for promptly making claims for any loss or damage with respect to the Equipment and Lessee hereby irrevocably appoints Lessor as Lessee's attorney-in-fact to receive payment of and execute and endorse all documents, checks or drafts received in payment for any loss or damage under any insurance policy. 8. RISK OF LOSS From the date the Supplier ships the Equipment to Lessee or the date Lessor confirms Lessee's purchase order or contract to Supplier, Lessee, hereby assumes and shall bear the entire risk of loss for theft, damage, destruction or other injury to the Equipment from any and every cause whatsoever. NO SUCH LOSS OR DAMAGE SHALL IMPAIR ANY OBLIGATION OF LESSEE UNDER THIS LEASE WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT. In the event of damage or loss to the Equipment (or any part thereof) and irrespective of 9 payment from any insurance coverage maintained by Lessee, but applying full credit therefor, Lessee shall at the option of Lessor, (a) place the Equipment in good repair, condition, and working order, or (b) replace the Equipment (or any part thereof) with like equipment in good repair, condition and working order and transfer clear title to such replacement equipment to Lessor whereupon such replacement equipment shall be deemed the Equipment for all purposes; or (c) pay to Lessor the total aggregate remaining rentals discounted to its present value at a discount rate equal to the one year Treasury Bill at the date the Schedule was accepted by Lessor and any other amounts due and owing hereunder at the time of such casualty plus an amount calculated by Lessor which is equal to the Fair Market Value of the Equipment at the end of the lease term. 9. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS. In the case of the failure of Lessee to comply with any provision of this Lease, after giving Lessee ten (10) days' prior written notice to cure such noncompliance, Lessor shall have the right, but shall not be obligated, to cure such noncompliance. In such event, all monies spent by the expenses of Lessor in effecting such compliance, including interest accrued thereon, shall be deemed to be additional rental and shall be due and payable immediately. 10. OTHER COVENANTS AND WARRANTIES OF LESSEE (a) Lessee agrees that the application, statements and financial reports submitted by it to Lessor are material inducements to the execution by Lessor of this Lease, and Lessee warrants that such application, statements and reports are, and all information hereafter furnished by Lessee to Lessor will be, true and correct in all material respects as of the date submitted. Lessee agrees to furnish promptly to lessor the annual financial statements of Lessee, certified by independent certified public accountants. (b) Lessee warrants that (i) Lessee has full power to enter into and perform this Lease; (ii) this Lease has been duly authorized, executed and delivered by Lessee and constitutes the valid and binding agreement of Lessee enforceable against Lessee in accordance with its terms; and (iii) Lessee has obtained all necessary consents to enter into the Lease pursuant to the terms hereof. Lessee agrees to procure for Lessor such reasonable evidence of Lessee's authority, including without limitation, copies of necessary consents, as Lessor may request. (c) LESSEE AGREES NOT TO ASSIGN, SUBLET OR OTHERWISE TRANSFER ITS RIGHTS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD. (d) Lessee shall not change its name or address from that set forth above, unless it shall have given Lessor or its assigns no less than thirty (30) days' prior written notice; Lessee, if an organization, shall not merge or consolidate with any other person or entity or change its identity. 11. DEFAULT. If any one of the following events (each of which is herein called an "Event of Default") shall occur: (a) Lessee shall default in the payment of any rental or in making any other payment hereunder when due and such default shall continue for five (5) days; (b) Lessee shall beach any representation, warranty, or covenant hereunder; (c) Lessee shall default in the performance of any other agreement hereunder and such default shall continue for five (5) days after either written notice thereof to Lessee by Lessor or Lessee has actual knowledge of such default; (d) Lessee shall have engaged in the unauthorized reproduction, distribution, or disclosure of any software related trade secrets, methods of expression or other proprietary information related thereto; (e) Lessee becomes insolvent or makes an assignment for the benefit of creditors; (f) Lessee applies for or consents to the appointment of a receiver, trustee, conservator or liquidator of Lessee or of all or a substantial part of its assets, or such receiver, trustee, conservator or liquidator is appointed without the application or consent of Lessee; (g) a petition is filed by or against Lessee under the Bankruptcy Act or any amendment thereto (including, without limitation, a petition for reorganization, arrangement or extension) or under any other insolvency law or laws providing for the relief of debtors; (h) a substantial part of the Lessee's assets or any item of Equipment becomes subject to any levy, seizure, attachment, assignment of sale for or by any person or governmental agency; (i) Lessee creates, incurs, assumes or suffers to exist any mortgage, lien, pledge or other encumbrance or attachment of any kind whatsoever upon, affecting or with respect to the Equipment or this Lease or any of Lessor's interests thereunder; or (j) Lessee suffers an adverse material change in its financial condition from the date hereof and as a result thereof Lessor deems itself or any of its Equipment to be insecure. Then, if and to the extent permitted by the applicable law, Lessor shall have the right to exercise any one or more of the remedies hereinafter provided. 12. REMEDIES. Upon the occurrence of any Event of Default with respect to any item of Equipment under a Schedule and at any time thereafter, Lessor, may in its discretion, do one or more of the following: (a) terminate the applicable Schedule upon notice to Lessee; (b) declare all unaccrued monthly rental under such Schedule for the remainder of the Initial Term, or any extended term then in effect, immediately due and payable and Lessee shall pay same, discounted to its then present value (using an interest rate equal to that of a 1 year Treasury Bill at the date the Schedule was accepted by the Lessor) to the earlier of the date Lessor obtains possession of the Equipment and the date Lessee makes effective tender thereof to Lessor; (c) Lessor is entitled to immediate possession of all equipment and Lessee shall return all equipment to Lessor in accordance to Paragraph 14 thereof; and (d) exercise any other right or remedy which may be available to it under the California Uniform Commercial Code or other applicable law. In addition to the forgoing, Lessor shall be entitled to recover from Lessee: (i) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Equipment or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Equipment; (ii) any other losses (including lost profits), damage, expense, cost or liability which Lessor suffers or incurs as a result of an Event of Default and/or termination of the Lease including an amount sufficient to fully compensate Lessor for any loss of or damage to Lessor's residual interest in the Equipment caused by Lessee's default; and (iii) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to redeliver the Equipment in the condition required by this Lease. No remedy referred to in this Section 12 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at law or in equity. No express or implied waiver by Lessor of any default shall constitute a waiver of any other default by Lessee, or a waiver of any of Lessor's rights. 13. ASSIGNMENT. (a) Subject to Lessee's rights under this Lease, Lessor may at any time and without Lessee's consent (i) sell, assign or transfer this Lease, the Equipment and any rental and other sums due or to become due hereunder, or any rights to or interest in any part of the foregoing to a third party ("Lessor's Assignee") and/or (ii) grant security interests over the Equipment and over the benefit of this Lease to a lender ("Lessor's Lender") as security for Lessor's 10 obligations to Lessor's Lender. Lessee acknowledges that neither any such assignment of Lessor's interest, nor any such granting of security interests and the enforcement by Lessor's Lender of its rights of foreclosure or otherwise will materially change Lessees duties of will materially increase the risk or burden imposed on Lessee by this Lease. (b) Lessee agrees to promptly execute all acknowledgments, consents, agreements and other instruments, and deliver legal opinions, as Lessor may require to effect such assignments and/or grants of security interests and to confirm Lessee's obligation under the Lease, at Lessee's expense. (c) Lessor's Assignee and/or Lessor Lender shall have, to the extent transferred or assigned to it, all rights, powers, privileges and remedies of Lessor hereunder. Lessee agrees that no such Lessor's Assignee and/or Lessor's Lender shall assume any obligation of Lessor hereunder (except for the application pursuant hereto of any insurance or other proceeds) and the obligations of Lessee hereunder shall not be subject, as against any such person, to any defense, set-off or counterclaim available to Lessee against Lessor, and that the same may be asserted only against Lessor. Lessee hereby expressly acknowledges that its rights in and to the Equipment are expressly subject and subordinate to the rights of Lessor, Lessor's Assignee and/or Lessor's Lender. (d) Any such assignment of grant of security interest by Lessor shall be made subject to the rights of Lessee under this Lease. Subject to the full, complete and timely performance and observance of each and every obligation on the part of Lessee under this Lease, Lessor warrants that no person holds a claim to or interest in the Equipment that arises from an act or omission of Lessor which will interfere with Lessee's enjoyment of its leasehold interest in the Equipment. 14. REDELIVERY Upon termination of this lease, Lessee shall, at its expense, deinstall, pack in accordance with manufacturer's specifications using such manufacturer's packing materials and deliver the Equipment, in whole and not in part, at an address specified by Lessor, in the same condition as received, ordinary wear and tear from proper use excepted, including eligibility for manufacturer's then-current prime shift standard maintenance contract. If the equipment manufacturer is IBM and unless IBM Equipment is designated herein as "unbanded", Lessee agrees that such Equipment which is subject to IBM Invisible Transit Damage policy shall be "banded" in that untampered IBM transit seals shall be present thereon upon delivery. Failure to deliver banded Equipment shall constitute a failure to deliver hereunder, unless the Equipment is inspected and recertified for Maintenance Service Qualifications by IBM at the delivery location on or prior to the delivery date. Lessee shall pay all costs associated with the foregoing. 15. COUNTERPARTS Each executed copy of the Master Equipment Lease shall be an original. There shall be two (2) signed and consecutively numbered counterparts of each Schedule. To the extent that any Schedule constitutes chattel paper (as that term is defined by the California Uniform Commercial Code), a security interest only may be created in "Counterpart No. 1". 16. MISCELLANEOUS THIS MASTER EQUIPMENT LEASE AND EACH SCHEDULE ISSUED HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Lessor and Lessee intend this Master Equipment Lease and each Schedule issued hereunder to be valid and subsisting legal instruments, and no provision of this Master Equipment Lease or any Schedule issued hereunder which may be deemed unenforceable shall in any way invalidate any other provision or provisions of this Master Equipment Lease or any Schedule issued hereunder shall be binding upon and inure to the benefit of the parties, their successors and assigns. ATTORNEYS' FEES Lessee shall reimburse Lessor for all charges, costs, expenses and attorneys' fees, incurred by Lessor; (a) in defending or protecting its interests in the Equipment; (b) in the execution, delivery, administration, amendment and enforcement of this Lease or the collection of any installment of Rent under this Lease, and; (c) in any lawsuit or other legal proceeding to which this Lease gives rise, including, but not limited to, actions in tort. 17. ENTIRE AGREEMENT AND AMENDMENT This Master Equipment Lease and any Schedule issued hereunder contains the entire agreement between the parties with respect to the Equipment, and may not be altered, modified, terminated or discharged except by a writing signed by the party against whom such alteration, modification, termination or discharge is sought. LESSEE'S INITIALS_______________. BRENTWOOD CREDIT CORPORATION, Lessor By: /S/ (SIG) ------------------------------ Title: CFO ------------------------------ CINERGI PICTURES ENTERTAINMENT Inc., Lessee ______________________________________ By: /s/ Erick J. Feitshans ----------------------------------- Erick J. Feitshans Title: Vice President ----------------------------------- Lessee's Address: 2308 Broadway ------------------------------------ SANTA MONICA, CA 90404-2916 ------------------------------------ 11 Exhibit __________ Addendum No.: 01 To: Schedule No.: 01 To Equipment Lease No.: USC-1000-100 LESSEE: CINERGI PICTURES ENTERTAINMENT, INC. ADDENDUM The following changes reference Master equipment Lease No. CPE-1000-100: Section 1. Term, Rental and Notice In line five (5), delete the sentence beginning with the words "This Lease shall be automatically extended", and replace the sentence with "This Lease will terminate at expiration, unless notice is received to the contrary by Lessor not less than 60 days nor more than 180 days prior to the initial Expiration Date". Section 4. Care and Use of Equipment In line twelve (12), delete the words "prime shift". In line thirteen (13), add to the end of the paragraph a sentence that reads: "Provided no default or breech of any contractual commitments has occurred, Lessee has the right to peaceful and quit enjoyment of Equipment through the term of the Lease". Section 5. Net Lease and Taxes In line twelve (12), after the sentence ending "respect to any Schedule.", add the following words: "If applicable,". Section 6. Indemnity In line six (6), after the word "negligence" add the words "with the exception of Lessor's gross negligence". Section 7. Insurance In line sixteen (16), after the words "insurance policy" add the words "during the term of the lease". Section 8. Risk of Loss In line six (6), delete the words "Lessee shall at the option of Lessor", and replace with "Lessee in consultation with Lessor" Section 11. Default In line sixteen (16), delete sentence (j) starting with the words "Lessee suffers an adverse material change". 12 Section 13. Assignment In the ten (10) delete the words "at Lessee's expense. Section 14. Redelivery In line four (4), delete the remaining paragraph beginning with "If the equipment". Section 16. Miscellaneous In line nine (9) the words "Attorney's Fees" add the words "Assuming Lessor prevails", and after the words "expenses and" add the word "reasonable". Dated: March 5, 1996 By: /s/ [SIG] --------------- --------------- Title: CFO --------------- Cinergi Pictures Entertainment, Inc. Dated: 4 March, 1996 By: /s/ [SIG] --------------- --------------------- Title: Erick J. Feitshana Vice President --------------------- 13 Addendum No.: 02 To: Schedule No.: 01 To Equipment Lease No.: CPE-1000-100 Lessee: Cinergi Pictures Entertainment, Inc. ADDENDUM The following additions and changes reference Equipment Lease Schedule 1: 1) Assuming receipt of signed, mutually agreeable documentation, Lessor acknowledges as contractual consideration to make all required vendor payments associated with this lease; 2) Provided Lessee is not in default, and assuming timely receipt of written notice to exercise the Purchase Option as outlined in this Schedule, Lessor agrees to file within 30 days from receipt of payment a UUC3 statement. Lessor then reconveys to Lessee any and all rights, title and interest in and to every aspect of the equipment; 3) Lessor agrees paragraph 14 to the Master Equipment Lease (Redelivery) becomes null & void in the event Lessee provides notice and exercises the Purchase Option; 4) At the sole discretion of Lessor and/or its Assigns, Lessee may assign its interest in the Lease to a third (3rd) party. Lessee shall remain primarily liable unless said third party assumes such obligation in writing, is a financially responsible party, and Lessor and/or it Assigns agree in writing. Brentwood Credit Corporation Dated: March 5, 1996 By: /S/ [SIG] --------------- --------------- Title: CFO --------------- Cinergi Pictures Entertainment, Inc. Dated: 4 March 1996 By: --------------- --------------- Title: Erick J. Feitshans Vice President ---------------- 14 Exhibit 10 [BRENTWOOD CREDIT LOGO] DELIVERY AND ACCEPTANCE CERTIFICATE LESSEE: CINERGI PICTURES ENTERTAINMENT, INC. ADDRESS: 2308 BROADWAY SANTA MONICA, CA 90404-2916 LEASE AGREEMENT DATE: FEBRUARY 8, 1996 LEASE SCHEDULE NO: 01 RENTAL PAYMENT: $97,960.00 Lessee certifies that effective 19 March 1996, the leased property as set forth on the above referenced lease agreement has been received and accepted by us and is installed, tested and ready for use, and that billing to the lease per the terms and conditions of this lease agreement is appropriate and acceptable. Interim rent will not be charged. E.J.F. BY: /S/ [SIG] ----------------------------- ERICK J. FELTSHANS TITLE: VICE PRESIDENT -------------------------- DATE: 19 MARCH 1996 -------------------------- Brentwood Credit Corporation 1620 26th Street, Suite 290-S, Santa Monica, California 90404 310-828-1199 fax: 310-828-7781 EX-27 3 FINACIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3 THROUGH 5 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JUN-30-1996 12,676 0 5,124 0 164,547 175,369 7,664 2,274 190,475 84,045 0 0 50,233 131 50,233 190,475 59,583 60,113 58,411 61,290 0 0 176 (1,353) 0 (1,353) 0 0 0 (1,353) (.10) (.10)
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