-----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, WeoA7jaMOKDlHnN084DzQVHE/o/rb5Rg9byEwQ6yo51Dtuzype+9nPf8NZD3dXLo 2ITSFlM01tMdVzop9X+OAQ== 0001047469-97-005401.txt : 19971120 0001047469-97-005401.hdr.sgml : 19971120 ACCESSION NUMBER: 0001047469-97-005401 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971119 SROS: NASD 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: SEC FILE NUMBER: 000-23958 FILM NUMBER: 97723849 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 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 SEPTEMBER 30, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ___________ COMMISSION FILE NUMBER 0-23958 -------------------------- 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) Registrant's telephone number, including area code: (310) 315-6000 -------------------------- 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. /X/ Yes / / No As of November 14, 1997, there were 13,446,874 shares of the Registrant's Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CINERGI PICTURES ENTERTAINMENT INC. INDEX PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets -- December 31, 1996 and September 30, 1997 (unaudited). . . . . . .3 Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 1996 and September 30, 1997 . . . . . . . . . . . . . . . . . . .5 Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 1996 and September 30, 1997. . . . . . . . . . . . . . . . . . . . . . . .6 Notes to Condensed Consolidated Financial Statements (unaudited). . . . . . . . . . . . . . . . .8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 24 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 24 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 24 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 24 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 24 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 26 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED BALANCE SHEETS December 31, September 30, 1996 1997 ------------ ------------ (unaudited) ASSETS Cash and cash equivalents $ 27,364,000 $ 26,073,000 Restricted cash 5,654,000 5,169,000 Accounts receivable 10,850,000 7,367,000 Accounts receivable, related parties 799,000 849,000 Film costs, less accumulated amortization 103,792,000 53,424,000 Property and equipment, at cost, less accumulated depreciation 4,819,000 427,000 Other assets 3,270,000 2,849,000 ------------ ------------ TOTAL ASSETS $156,548,000 $ 96,158,000 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable $2,141,000 $ 3,156,000 Accrued interest 23,000 0 Accrued residuals & participations 13,045,000 13,837,000 Deferred revenue 46,568,000 2,141,000 Capital lease obligation 291,000 -- Loans payable 6,026,000 7,753,000 Notes and amounts payable to related parties 49,747,000 53,350,000 ------------ ------------ TOTAL LIABILITIES $117,841,000 $ 80,237,000 3 CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, September 30, 1996 1997 ----------- ------------ (unaudited) Common Stock with certain redemption features, $.01 par value, 744,682 (1996) and 0 (1997) shares issued and outstanding less notes receivable from related parties amounting to $900,000 (1996) and $0 (1997) $2,100,000 $ -- 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, 13,074,533 (1996) and 13,446,874 (1997) shares issued and outstanding 131,000 135,000 Additional Paid-in Capital 65,548,000 68,095,000 Retained Deficit (29,072,000) (51,859,000) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 36,607,000 16,371,000 Receivable from shareholder -- (450,000) ------------ ------------ $36,607,000 $15,921,000 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $156,548,000 $96,158,000 ------------ ------------ ------------ ------------ NOTE: The balance sheet at December 31, 1996 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 CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1997 1996 1997 ----------- ----------- ----------- ----------- Revenues Feature films $30,160,000 $15,649,000 $89,712,000 $59,186,000 Fee income 29,000 0 60,000 23,000 ----------- ------------ ------------ ------------ 30,189,000 15,649,000 89,772,000 59,209,000 Cost and expenses: Amortization of film costs, residuals & participations 28,543,000 17,785,000 86,954,000 62,198,000 Selling, general & administrative expenses 2,111,000 6,210,000 4,990,000 14,071,000 Provision for impairment of long lived assets -- -- -- 2,665,000 ----------- ------------ ------------ ------------ Operating loss (465,000) (8,346,000) (2,172,000) (19,725,000) Interest expense -- (1,970,000) (176,000) (4,362,000) Interest income 171,000 483,000 701,000 1,300,000 ----------- ------------ ------------ ------------ Net loss $ (294,000) $ (9,833,000) $ (1,647,000) $(22,787,000) ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------ Net loss per share $(0.02) $ (0.73) $(0.12) $(1.69) ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------ Weighted average number of shares outstanding 14,192,000 13,447,000 14,192,000 13,448,000 ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------
See notes to condensed consolidated financial statements. 5 CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) Nine Months Ended September 30, 1996 1997 ------------- ------------- OPERATING ACTIVITIES Net loss $( 1,647,000) $(22,787,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 901,000 1,821,000 Provision for impairment of long-lived assets -- 2,665,000 Amortization of unearned compensation 938,000 -- Film cost amortization 81,317,000 54,502,000 Changes in operating assets and liabilities: Accounts receivable (3,786,000) 3,483,000 Accounts receivable, related parties (357,000) (50,000) Film cost additions (65,245,000) (4,134,000) Other assets (58,000) 421,000 Accounts payable & accrued expenses and interest 1,198,000 992,000 Accrued residuals and participations payable 1,212,000 792,000 Deferred revenue (21,753,000) (44,426,000) ------------- ------------- Net cash used in operating activities ( 7,280,000) (6,721,000) INVESTING ACTIVITIES Purchase of property and equipment (112,000) (110,000) Proceeds from the sale of property and equipment -- 16,000 ------------- ------------- Net cash used in investing activities (112,000) (94,000) See notes to condensed consolidated financial statements. 6 CINERGI PICTURES ENTERTAINMENT INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED) (UNAUDITED) Nine Months Ended September 30, 1996 1997 ------------- ------------- FINANCING ACTIVITIES Increase in loans payable $32,196,000 $ 20,124,000 Payments on loans payable (42,396,000) (18,397,000) Decrease in restricted cash -- 485,000 Increase in notes and amounts payable to related parties 615,000 4,089,000 Payments on notes and amounts payable to related parties (718,000) (486,000) Payments on capital lease obligation (1,105,000) (291,000) ------------- ------------- Net cash (used in) provided by financing activities (11,408,000) 5,524,000 ------------- ------------- (Decrease) increase in cash (18,800,000) (1,291,000) Cash and cash equivalents at beginning of year 29,832,000 27,364,000 ------------- ------------- Cash and cash equivalents at end of period $11,032,000 $ 26,073,000 ------------- ------------- ------------- ------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes $23,000 $ 18,400 NINE MONTHS ENDED SEPTEMBER 30, 1997 In January 1997, the Company repurchased 372,341 shares of Common Stock of the Company in exchange for the forgiveness of a note amounting to $450,000. NINE MONTHS ENDED SEPTEMBER 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. See notes to condensed consolidated financial statements. 7 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 1997 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 nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in CPEI's Annual Report on Form 10-K for the year ended December 31, 1996 ("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 nine month periods ended September 30, 1996 and 1997 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. RECENT DEVELOPMENTS. In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, Earnings Per Share, which is effective for annual and interim financial statements issued for periods ending after December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share ("EPS"). SFAS No. 128 was issued to simplify the standards for calculating EPS previously found in APB No. 15, Earnings Per Share. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS. The new rules also require dual presentation of basic and diluted EPS on the face of the statement of operations for companies with a complex capital structure. For the Company, basic EPS will exclude the dilutive effects of stock options and warrants. Diluted EPS for the Company will reflect all potential dilutive securities. Under the provisions of SFAS No. 128, basic and diluted EPS would have been the same as the reported amounts. In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income. The statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The statement applies to all enterprises that provide a full set of general-purpose financial statements. The statement becomes effective for all financial statements for fiscal years beginning after December 15, 1997, with earlier application permitted. Further, in June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The statement changes the way public companies report segment information in annual financial statements and also requires those companies to report selected segment information in inteirm financial reports to shareholders. The proposal supersedes FASB Statement No. 14 on segments and does not apply to nonpublic enterprises or to not-for-profit organizations. The statement becomes effective for all financial statements for fiscal years beginning after December 15, 1997, with earlier adoption permitted. The Company does not believe the adoption of SFAS No. 130 and SFAS No. 131 will have a material effect on the Company's financial statements. NOTE 3 -- FILM COSTS Film costs consist of the following: DECEMBER 31, SEPTEMBER 30, 1996 1997 ------------ ------------ Released, less amortization . . . . . $52,077,000 $36,827,000 Completed, not released . . . . . . . 37,025,000 11,529,000 In production . . . . . . . . . . . . 9,373,000 -- Development . . . . . . . . . . . . . 5,317,000 5,068,000 ------------ ------------ $103,792,000 $53,424,000 ------------ ------------ ------------ ------------ 8 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 1997 NOTE 4 -- COMMITMENTS AND CONTINGENCIES In December 1995, the U.S. Attorney for the Central District of California served subpoenas ("Subpoenas") on the Company relating 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 Company 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 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 Company is advancing the expenses of certain of its employees, officers and directors other than Mr. Vajna ("Indemnitees") which they may incur in connection with the Investigation. As of November 10, 1997, the Company had advanced an aggregate of $294,000 on behalf of the Indemnitees. The Indemnitees have undertaken to reimburse the Company for their expenses if it is ultimately determined 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 August 25, 1997, the Company settled legal proceedings brought by Laurence Fishburne and The LOA Productions, Inc., Mr. Fishburne's loan-out corporation ("LOA"), against the Company, a subsidiary of the Company and Randolph M. Paul, former Senior Vice President, Business Affairs and a former Director of the Company (the "Fishburne Litigation"). The action, for breach of oral contract, fraud and deceit, and civil conspiracy, was originally filed on July 11, 1994. The plaintiffs had claimed that the Company entered into an oral contract for Mr. Fishburne to appear in the motion picture, DIE HARD WITH A VENGEANCE, but repudiated the contract the following day. Plaintiffs claimed damages for $1,750,000, representing the fixed compensation to which they allege they were entitled, additional compensatory damages of up to $350,000 and general and punitive damages. Pursuant to the terms of the settlement, the Company paid LOA $750,000 and entered into certain agreements with plaintiffs and an entity controlled by Mr. Fishburne which provide the Company with 9 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 1997 a non-exclusive option (the "Option") to acquire certain rights ("Rights") to a play and related screenplay both written by Mr. Fishburne. The Company also established a letter of credit in the amount of $600,000, the amount which must be paid to the entity controlled by Mr. Fishburne if the Company does not exercise the Option, if the Company does not meet certain other time deadlines, or if the Company fails to match any bona fide third party offers for the Rights. If, during the term of the Option, the Company takes certain actions which will result in the Option becoming exclusive, exercises the Option, or successfully matches any bona fide third party offers for the Rights, then the Company will also incur additional obligations such as those with respect to the financing and developing of the Rights. The Company is a party to various other legal proceedings arising in the ordinary course of its business. The Company does not currently believe that any such proceedings will have a material adverse effect on the Company's operations or financial condition. On April 3, 1997, the Company entered into a Purchase and Sale Agreement (as it has been amended, the "Library Sale Agreement") with Walt Disney Pictures and Television, a subsidiary of The Walt Disney Company, to sell to Walt Disney Pictures and Television substantially all of the films in the Company's motion picture library and certain other assets (referred to herein as the "Film Library Sale";"Disney" is used herein to refer to Walt Disney Pictures and Television and/or its affiliates, including The Walt Disney Company, as applicable). In exchange for the assets being sold to Disney, Disney has agreed to relinquish its equity interest in the Company (555,556 shares of the Company's Common Stock and a warrant to purchase 150,000 shares of the Company's Common Stock at an exercise price of $9.00 per share) and cancel its outstanding loans to the Company (approximately $39,995,000 as of September 30, 1997). In addition, Disney has agreed to assume with respect to the films and rights therein being sold to Disney all residuals and participation obligations, as well as all scheduled obligations relating to the Company's existing exploitation agreements. Pursuant to the Library Sale Agreement, Disney will pay $3,725,000 to the Company upon delivery of AN ALAN SMITHEE FILM to Disney (a reduction of $1,275,000 from Disney's original payment obligation pursuant to existing agreements between the Company and Disney). To the extent that the Company receives any fixed cash minimum guarantees with respect to AN ALAN SMITHEE FILM ("Excess Minimum Guarantees") other than those minimum guarantees the Company has scheduled under existing exploitation agreements with parties other than Disney, then the Company, at the closing of the Film Library Sale, must account for and remit such Excess Minimum Guarantees to Disney. The Company does not currently anticipate that there will be any significant Excess Minimum Guarantees. The film library being sold to Disney includes primarily all of the Company's rights (except minimum guarantee payments) to the following eleven motion pictures: MEDICINE MAN, TOMBSTONE, RENAISSANCE MAN, COLOR OF NIGHT, JUDGE DREDD, THE SCARLET LETTER, NIXON, EVITA (excluding soundtrack rights), AMANDA, THE SHADOW CONSPIRACY, and AN ALAN SMITHEE FILM. Disney will also retain overages otherwise payable to the Company by Disney after January 1, 1997 with respect to certain distribution rights to DIE HARD WITH A VENGEANCE previously licensed to Disney. In addition, upon consummation of 10 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 1997 the Film Library Sale, the Company's twenty-five film domestic distribution arrangement with Disney, under which nine films have been delivered, will be terminated. The Film Library Sale is subject to numerous conditions, including, among other things, the approval of the Company's stockholders. The Library Sale Agreement and related Film Library Sale may also be terminated by the Company or Disney in certain circumstances, including, among other things, upon failure to consummate the Film Library Sale by December 24, 1997. Members of the Company's Board of Directors who are also stockholders in the Company have agreed to vote their shares in favor of the transaction in accordance with the terms of the Library Sale Agreement. On April 3, 1997, the Company also announced that it did not presently intend to commence production on any additional motion pictures (although the Library Sale Agreement does not preclude the Company, pending consummation of the Film Library Sale, from commencing production on films that would not be distributed by Disney) and that it was in the process of considering its alternatives assuming consummation of the Film Library Sale to Disney. On July 15, 1997, the Company entered into an Assignment Agreement (as it has been amended, the "Assignment Agreement") with Twentieth Century Fox Film Corporation ("Fox") to sell to Fox, subject to certain conditions, the Company's rights in DIE HARD WITH A VENGEANCE in exchange for $11,250,000 in cash. The Company owns DIE HARD WITH A VENGEANCE with Fox. Fox controls all sequel rights to the film, as well as distribution rights to the film in the United States, Canada and Japan (and certain additional minor territories), and worldwide in certain ancillary media. Pursuant to the Assignment Agreement, the Company will relinquish the right to receive overages from those territories and media for which Fox controls distribution rights. Fox will receive the Company's rights in DIE HARD WITH A VENGEANCE subject to the terms of the Company's existing exploitation agreements relating to such rights, including the Company's agreements with Disney. The Company, which controlled distribution rights to DIE HARD WITH A VENGEANCE in international territories other than those for which Fox controls distribution rights, has previously granted Disney distribution rights to the film in a portion of those international territories. Pursuant to the Library Sale Agreement, the Company has agreed, upon consummation of the Film Library Sale, to relinquish overages payable by Disney after January 1, 1997 with respect to DIE HARD WITH A VENGEANCE. Pursuant to the Assignment Agreement, the Company was still entitled to receive any overages under its existing exploitation agreements which relate to DIE HARD WITH A VENGEANCE and are with parties other than Disney and Fox. However, as indicated below, the Company subsequently sold substantially all of such remaining rights to receive DIE HARD WITH A VENGEANCE overages. Pursuant to the Assignment Agreement, Fox will continue to be responsible for the payment of residuals relating to distribution of the film in those territories for which Fox currently controls distribution rights, and, as the Company's existing exploitation agreements expire (including the Company's agreements with Disney) and the distribution rights in those territories revert to Fox, Fox will become responsible for the payment of residuals in the applicable territories covered by any exploitation 11 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 1997 agreements. The Company, however, will continue to be responsible for all participations due to profit participants in the film (other than those associated with distribution of the film in the territories licensed to Disney, for which Disney is responsible). The Company currently anticipates, subject to, among other things, actual future revenues generated by the film, that the Company's residuals and participation obligations with respect to such film will not exceed approximately $812,000. The sale of the Company's rights in DIE HARD WITH A VENGEANCE to Fox is subject to several conditions including, among other things, consummation of the Film Library Sale to Disney and applicable approval of the Company's stockholders. If the Library Sale Agreement terminates, the Assignment Agreement will automatically also terminate. In June 1997, the Company instructed its financial advisor, Jefferson Capital Group, Ltd., to solicit cash bids from qualified buyers for the purchase of the Company's slate of twenty-one wholly-owned development projects. The Company received an initial bid for the development projects of $4,750,000 (plus the reimbursement of certain of the Company's costs related to such projects) from Mr. Vajna. Additional qualified bids were required to be at least fifteen percent higher than the initial bid and submitted to the Company by noon, eastern time, on August 19, 1997. As no additional qualified bids were received by the bidding deadline, Mr. Vajna was the prevailing bidder. The sale of such development projects to Mr. Vajna is subject to consummation of the Film Library Sale and the transactions contemplated by the Assignment Agreement. As the parties to the Merger (described below) negotiated the merger consideration on the basis of a value for such development projects equal to Mr. Vajna's bid, such development projects will merely be part of the assets of the Company at the time of the Merger and no separate cash consideration will be paid to the Company for such projects. In September 1997, Mr. Vajna, Valdina Corporation N.V. ("Valdina"), CPEI Acquisition, Inc. ("Buyer"), a Delaware corporation wholly owned by Mr. Vajna and Valdina, and the Company entered into an Agreement of Merger (the "Merger Agreement") pursuant to which Buyer will be merged with and into the Company and the Company will become wholly owned by Mr. Vajna and Valdina (the "Merger"). Valdina, a corporation organized under the laws of The Netherlands Antilles is indirectly beneficially owned 99.8% by Mr. Vajna and 0.2% by a trust which benefits certain persons including the son of Mr. Vajna. Pursuant to the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share ("Share") of Company Common Stock (other than Shares owned by Mr. Vajna or Valdina, treasury Shares, or Shares as to which statutory dissenters' rights are perfected) will be converted into the right to receive $2.41 in cash (the "Purchase Price"). The Purchase Price has been adjusted upwards from an original price of $2.30 (the "Original Purchase Price") and is subject to potential further upward adjustment as provided in the Merger Agreement. The Merger is subject to the satisfaction or waiver of numerous conditions, and the Merger Agreement may be terminated and the Merger abandoned in certain circumstances. 12 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 1997 The Company had a "first-look" arrangement with Oliver Stone and certain of his affiliated entities ("Stone") pursuant to which Stone submitted the Company all theatrical motion picture projects owned or controlled by Stone for the Company's development and consideration of possible production and, as consideration for Stone's submitting such projects to the Company, the Company paid certain amounts annually to Stone for overhead and development. Disney reimbursed the Company for all amounts payable to Stone through February 10, 1997. In September 1997, the Company entered into a Termination Agreement (the "Termination Agreement") with Stone in order to terminate the "first-look" arrangement between the Company and Stone and their respective obligations thereunder. Pursuant to such agreement, the Company (i) transferred to Stone all but one of the nineteen development projects funded by the Company under the "first look" arrangement with Stone and (ii) made certain payments to, or for the benefit of Stone. As a result of the Termination Agreement, the Company was relieved of $961,000 in obligations the Company otherwise would have had with respect to the "first-look" arrangement. In the event the Film Library Sale is not consummated, Disney would be obligated to reimburse the Company for all amounts paid to Stone after February 10, 1997 in connection with the "first-look" arrangement (approximately $992,000). In 1996, the Company and Disney entered into a Financing and Distribution Agreement whereby the Company is financially obligated to pay to Disney the lesser of 50% of the cost of the motion picture tentatively entitled "DEEP RISING" or $22,500,000 (the "Cost Amount"), in exchange for (i) a 50% equity participation in such motion picture and (ii) a sales fee for international distribution of such motion picture. Pursuant to the Library Sale Agreement, upon consummation of the Film Library Sale, the Company (a) will no longer have any interest in the film as it will no longer serve as sales agent with respect to the film, (b) will relinquish its equity participation in the film and sales fee, (c) will remit to Disney all minimum guarantees received by the Company with respect to DEEP RISING while it served as sales agent with respect to the film and which were not previously remitted to Disney, and (d) will no longer be obligated to pay the Cost Amount. The Company and Summit Entertainment N.V. ("Summit N.V.") and Summit Entertainment L.P. ("Summit L.P.") (collectively with their affiliates, "Summit"), international sales agents unaffiliated with the Company, have entered into agreements dated as of September 10, 1997 (the "Summit Agreements") which primarily provide for (i) the purchase by Summit N.V., in exchange for the payment of $400,000 to the Company, of the Company's rights to receive any overages from international subdistributors (other than Disney and Fox) pursuant to the Company's existing exploitation agreements with respect to DIE HARD WITH A VENGEANCE (other than those overages relating to exploitation agreements with respect to the territories of Italy and Hungary), (ii) the purchase by Summit N.V., in exchange for the payment of an additional $400,000 to the Company, of approximately $760,000 in miscellaneous receivables outstanding as of September 30, 1997 (not including any receivables relating to AN ALAN SMITHEE FILM), and (iii) the termination of Summit's sales agency relationships with the Company and the settlement of the Company's obligations in connection therewith in exchange for an aggregate payment by the Company to Summit (which, pursuant to an additional agreement with Summit, includes certain amounts payable to Summit with respect to a past Company production) of approximately $827,000. The foregoing transactions with Summit were consummated in November 1997. 13 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 1997 In September 1997, Cinergi Productions Inc. (California) ("CPI"), the wholly owned subsidiary of the Company which operated the Company's visual effects facility, shut down the operations of such facility and, subsequent thereto, transferred the assets thereof to an unaffiliated third party (the "Purchaser") in consideration of the assumption by the Purchaser of approximately $900,000 in obligations and liabilities of CPI, including certain payroll and related obligations, the agreement of the Purchaser to manage, on behalf of CPI, the resolution of certain other CPI liabilities and obligations, and the contribution by the Purchaser of $200,000 thereto. In connection with this transaction, CPI also assigned to the Purchaser all of CPI's rights, duties and obligations under a production services agreement relating to a motion picture for which CPI had been engaged to create visual effects. In consideration of such assignment, the Purchaser agreed to indemnify CPI in connection with any claims or actions initiated by any third party with respect to the production services agreement. 14 CINERGI PICTURES ENTERTAINMENT INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 1997 NOTE 5 -- PROVISION FOR IMPAIRMENT OF LONG-LIVED ASSETS During 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). In April 1997, the Company announced that (i) the Company had entered into the Library Sale Agreement with Disney to sell to Disney substantially all of the films in the Company's motion picture library and certain other assets, (ii) the Company did not presently intend to commence production of any additional motion pictures, and (iii) the Company was considering its alternatives assuming consummation of the Film Library Sale. The Company's visual effects assets are not included in the Film Library Sale. In light of the foregoing and due to operating losses of the visual effects facility, the Company determined that a write-down to net realizable value of the visual effects assets was required under SFAS No. 121. Accordingly, the Company recognized a non-cash charge of $2,665,000 at June 30, 1997 for the impairment of the visual effects long-lived assets. The provision for impairment was calculated based upon the excess of the carrying amount of the visual effects assets over the estimated fair value of the visual effects assets. NOTE 6 -- SUBSEQUENT EVENTS AND OTHER MATTERS On November 14, 1997, the Company paid off the outstanding balance under its revolving credit facility (approximately $5,639,000 in principal and accrued interest on such date). The commitment to lend under the credit facility had previously expired in August 1997. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS" INCLUDING THOSE WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS MAY 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. THE COMPANY (i) HAS ENTERED INTO AN AGREEMENT TO SELL SUBSTANTIALLY ALL OF THE FILMS IN THE COMPANY'S MOTION PICTURE LIBRARY AND CERTAIN OTHER ASSETS TO WALT DISNEY PICTURES AND TELEVISION, (ii) HAS ENTERED INTO AN AGREEMENT TO SELL THE COMPANY'S RIGHTS IN DIE HARD WITH A VENGEANCE TO TWENTIETH CENTURY FOX FILM CORPORATION, (iii) HAS CONCLUDED VARIOUS ARRANGEMENTS REGARDING CERTAIN OF THE COMPANY'S ASSETS NOT INCLUDED IN THE TRANSACTIONS WITH DISNEY AND FOX, AND (iv) HAS ENTERED INTO AN AGREEMENT WITH, AMONG OTHERS, ANDREW G. VAJNA, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS OF THE COMPANY, REGARDING THE TERMS OF A MERGER THAT WOULD FOLLOW CONSUMMATION OF THE TRANSACTIONS WITH DISNEY AND FOX. IN ADDITION, THE COMPANY ALSO HAS ANNOUNCED THAT IT DOES NOT PRESENTLY INTEND TO COMMENCE PRODUCTION ON ANY ADDITIONAL MOTION PICTURES. AS A RESULT, THE COMPANY'S RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED IN FUTURE PERIODS (INCLUDING FOR THE YEAR ENDING DECEMBER 31, 1997). THE MERGER AGREEMENT AND THE AGREEMENTS TO SELL SUBSTANTIALLY ALL OF THE FILMS IN THE COMPANY'S MOTION PICTURE LIBRARY AND THE COMPANY'S RIGHTS IN DIE HARD WITH A VENGEANCE ARE SUBJECT TO NUMEROUS CONDITIONS AND MAY ALSO BE TERMINATED IN CERTAIN CIRCUMSTANCES. THE MERGER IS SUBJECT TO CONSUMMATION OF THE TRANSACTIONS WITH DISNEY AND FOX. NO ASSURANCE CAN BE GIVEN THAT THE MERGER OR THE SALES OF ASSETS TO DISNEY AND FOX WILL BE CONSUMMATED. ADDITIONAL RISKS AND UNCERTAINTIES ARE DISCUSSED ELSEWHERE IN APPROPRIATE SECTIONS OF THIS REPORT AND IN OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING, WITHOUT LIMITATION, THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1996, THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED APRIL 3, 1997, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1997, THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED JULY 9, 1997, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1997, THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED AUGUST 25, 1997, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 1997, AND THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED OCTOBER 2, 1997, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1997. THE RISKS HIGHLIGHTED ABOVE AND ELSEWHERE IN THIS REPORT 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. GENERAL As indicated under Note 4 to "Notes to Condensed Consolidated Financial Statements (unaudited)" under Item 1 above, in April 1997, the Company entered into the Library Sale Agreement with Disney, to sell to Disney substantially all of the films in the Company's motion picture library and certain other assets, subject to certain conditions (including the approval of the Company's stockholders) and termination in certain circumstances, including upon failure to consummate the Film Library Sale by December 24, 1997. Upon consummation of the Film Library Sale, the Company's twenty-five film domestic distribution arrangement with Disney, under which nine films have been delivered, will be terminated. As also indicated under Note 4 to "Notes to Condensed Consolidated 16 Financial Statements (unaudited)" under Item 1 above, in July 1997, the Company entered into the Assignment Agreement with Fox, to sell to Fox the Company's rights in DIE HARD WITH A VENGEANCE in exchange for $11,250,000 in cash. Such transaction is subject to several conditions including consummation of the Film Library Sale and applicable approval of the Company's stockholders. The Company has also announced that it does not presently intend to commence production on any additional motion pictures. In addition to Note 4 to "Notes to Condensed Consolidated Financial Statements (unaudited)" under Item 1 above, see the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1996, its Current Report on Form 8-K dated April 3, 1997 filed by the Company with the Securities and Exchange Commission on April 4, 1997, its Current Report on Form 8-K dated July 9, 1997 filed by the Company with the Securities and Exchange Commission on July 17, 1997, the Library Sale Agreement (Exhibit 2.2 hereto), two amendments to the Library Sale Agreement (Exhibits 2.3 and 2.4 hereto), the Assignment Agreement (Exhibit 2.5 hereto) and the amendment to the Assignment Agreement (Exhibit 2.6 hereto), for additional information regarding the Library Sale Agreement and the Assignment Agreement and the transactions contemplated thereby (the "Asset Sales"). Following execution of the Library Sale Agreement and the Assignment Agreement, the Company concluded a number of arrangements with respect to assets which were not included as part of the Asset Sales, including: (i) nineteen development projects (the "Stone Projects") funded by the Company under its "first look" arrangement with Oliver Stone and certain of his affiliates ("Stone"); (ii) visual effects equipment which was part of the Company's visual effects facility located in Lenox, Massachusetts (the "Visual Effects Facility"); (iii) the right to receive any overages from international subdistributors (other than Disney and Fox) pursuant to the Company's existing exploitation agreements with respect to DIE HARD WITH A VENGEANCE (the "International DHWV Overages"); and (iv) approximately $760,000 in miscellaneous receivables outstanding as of September 30, 1997 (the "Miscellaneous Receivables") (not including payments to be received with respect to AN ALAN SMITHEE FILM. In addition, the Company solicited bids for the purchase of the Company's slate of twenty-one wholly-owned development projects for which Mr. Vajna's bid of $4,750,000 (plus the reimbursement of certain of the Company's costs related to such projects) was the prevailing bid. The sale of such development projects to Mr. Vajna is subject to consummation of the Film Library Sale and the transactions contemplated by the Assignment Agreement. As the parties to the Merger (described below) negotiated the merger consideration on the basis of a value for such development projects equal to Mr. Vajna's bid, such development projects will merely be part of the assets of the Company at the time of the Merger and no separate cash consideration will be paid to the Company for such projects. As indicated under Note 4 to "Notes to Condensed Consolidated Financial Statements (unaudited)" under Item 1 above, in September 1997, Mr. Vajna, Valdina, CPEI Acquisition, Inc. ("Buyer"), a Delaware corporation wholly owned by Mr. Vajna and Valdina, and the Company entered into the Merger Agreement which provides for the Merger of Buyer with and into the Company. As a result of the Merger, the Company will become wholly owned by Mr. Vajna and Valdina. Valdina, a corporation organized under the laws of The Netherlands Antilles is indirectly beneficially owned 99.8% by Mr. Vajna and 0.2% by a trust which benefits certain persons including the son of Mr. Vajna. Pursuant to the Merger Agreement, at the Effective Time of the Merger, each Share of Company Common Stock (other than Shares owned by Mr. Vajna or Valdina, treasury Shares, or Shares as to which statutory dissenters' rights are perfected) will be converted into the right to receive the Purchase Price of $2.41 in cash. The Purchase Price has been adjusted upwards from an Original Purchase Price of $2.30 per Share and is subject to potential further upward adjustment as provided in the Merger 17 Agreement. See "Item 5: Other Information" under Part II of this Report. The Merger is subject to the satisfaction or waiver of numerous conditions, including, among others, approval of the Merger Agreement by the affirmative vote of a majority of the Shares voted (including abstentions but excluding broker non-votes) on a proposal to approve the Merger Agreement at a special meeting of the Company's stockholders to be held in connection with the Merger and the Asset Sales, without taking into account those Shares owned by Mr. Vajna, Valdina, or any affiliate of Mr. Vajna or Valdina. The Merger is also subject to several other conditions, including, among others, that the transactions contemplated by both the Library Sale Agreement and the Assignment Agreement are consummated in all material respects, and that the percentage of Shares demanding appraisal does not exceed 15% of the Shares outstanding at the Effective Time of the Merger. The Merger Agreement may also be terminated and the Merger abandoned in certain circumstances including, among others, if the parties to the Merger Agreement mutually agree, if the Company's agreement with Disney regarding the Film Library Sale is terminated, or if the Merger is not consummated by December 31, 1997. The Company has filed with the Securities and Exchange Commission preliminary proxy materials relating to the special meeting of the Company's stockholders to be held in connection with the Merger and the Asset Sales. Assuming all conditions to the Merger are satisfied, the Company currently anticipates that the Merger will not be consummated until at least mid-December 1997. However, the Merger could be delayed beyond such time as a result of a variety of factors including the time required to obtain necessary approvals. Any delay of the Merger beyond December 31, 1997 would require the consent of all parties to the Merger Agreement. See the Merger Agreement (Exhibit 2.1 hereto) for additional information regarding the Merger Agreement and the transactions contemplated thereby. RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996 Feature film revenues decreased from $30,160,000 for the quarter ended September 30, 1996 to $15,649,000 for the quarter ended September 30, 1997. Feature film revenues for the quarter ended September 30, 1996 consisted mainly of the domestic home video availability of NIXON, domestic and international availability of AMANDA, and continuing domestic and foreign revenues from TOMBSTONE and DIE HARD WITH A VENGEANCE. Feature film revenues for the quarter ended September 30, 1997 resulted mainly from the domestic home video availability of THE SHADOW CONSPIRACY and the receipt of overages with respect to the soundtrack for EVITA (the "EVITA Soundtrack"). Amortization of film costs, residuals and participations decreased from $28,543,000 for the quarter ended September 30, 1996 to $17,785,000 for the quarter ended September 30, 1997 primarily due to the decrease in feature film revenue recognized in the quarter ended September 30, 1997 as compared to the quarter ended September 30, 1996. This amortization decrease was reduced due to the transfer of all but one of the Stone Projects to Stone in September 1997 as part of the settlement of the Company's "first look" arrangement with Stone. See "Liquidity and Capital Resources." The Company estimates the total projected revenues to be received from the exploitation of a motion picture in all territories and media. As 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 $2,111,000 for the quarter ended September 30, 1996 to $6,210,000 for the quarter ended September 30, 1997. The increase is due primarily to (i) no production overhead being capitalized into film costs in the third quarter of 1997 in light of the Company's agreements to sell the films in its motion picture library and the Company's current intention not to 18 commence production on additional motion pictures, (ii) severance payments to certain executive officers and other employees, (iii) payments made by the Company to terminate certain sales agency relationships (see "Liquidity and Capital Resources") and (iv) costs and expenses incurred by the Company in connection with negotiation of the Asset Sales and the Merger and the preparation of related proxy materials. In 1996 and prior periods, the Company capitalized 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 film costs was $1,179,000 for the third quarter of 1996. The total of SG&A expenses and production overhead costs capitalized to film costs increased from $3,290,000 for the quarter ended September 30, 1996 to $6,210,000 for the quarter ended September 30, 1997. Interest expense increased from $0 for the quarter ended September 30, 1996 to $1,970,000 for the quarter ended September 30, 1997 primarily because (i) no interest expense for the quarter ended September 30, 1997 was capitalized to film costs in light of the Company's agreements to sell the films in its motion picture library and the Company's current intention not to commence production on additional motion pictures and (ii) the write off of deferred expenses in connection with the August 31, 1997 expiration of the commitment to lend under the Company's revolving credit facility. In 1996 and prior periods, the Company capitalized applicable interest expense incurred in connection with the production of each motion picture. The Company determined 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, increased from $1,678,000 for the quarter ended September 30, 1996 to $1,970,000 for the quarter ended September 30, 1997 primarily because of the write off of deferred expenses in connection with the August 31, 1997 expiration of the commitment to lend under the Company's revolving credit facility. Interest income increased from $171,000 for the quarter ended September 30, 1996 to $483,000 for the quarter ended September 30, 1997 primarily due to higher cash balances during the third quarter of 1997 compared to the third quarter of 1996. As a result of the above, the Company incurred a net loss for the quarter ended September 30, 1997 of $9,833,000 as compared to a net loss of $294,000 for the quarter ended September 30, 1996. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 Feature film revenues decreased from $89,712,000 for the nine months ended September 30, 1996 to $59,186,000 for the nine months ended September 30, 1997. Feature film revenues for the nine months ended September 30, 1996 consisted mainly of the domestic home video availability of THE SCARLET LETTER and NIXON, international availability of NIXON, domestic and international availability of AMANDA, and continuing domestic and international revenues from TOMBSTONE and DIE HARD WITH A VENGEANCE. Feature film revenues for the nine months ended September 30, 1997 resulted mainly from 19 revenues from the theatrical release of THE SHADOW CONSPIRACY and the domestic home video availability of EVITA and THE SHADOW CONSPIRACY and the receipt of overages with respect to the EVITA Soundtrack. Amortization of film costs, residuals and participations decreased from $86,954,000 for the nine months ended September 30, 1996 to $62,198,000 for the nine months ended September 30, 1997 primarily due to the decrease in feature film revenue recognized for the nine months ended September 30, 1997 as compared to the nine months ended September 30, 1996. This amortization decrease was reduced due to the transfer of all but one of the Stone Projects to Stone in September 1997 as part of the settlement of the Company's "first look" arrangement with Stone. See "Liquidity and Capital Resources." SG&A expenses (excluding production overhead costs capitalized to film costs) increased from $4,990,000 for the nine months ended September 30, 1996 to $14,071,000 for the nine months ended September 30, 1997. The increase is due primarily to (i) no production overhead being capitalized into film costs in the nine months ended September 30, 1997 in light of the Company's agreements to sell the films in its motion picture library and the Company's current intention not to commence production on additional motion pictures, (ii) severance payments to certain executive officers and other employees, (iii) payments made by the Company to terminate certain sales agency relationships (see "Liquidity and Capital Resources"), (iv) costs and expenses incurred by the Company in connection with negotiation of the Asset Sales and the Merger and the preparation of related proxy materials, and (v) payments made in connection with the settlement of certain litigation (see "Item 1: Legal Proceedings under Part II of this Report). The total of SG&A expenses and production overhead costs capitalized to film costs increased from $9,261,000 for the nine months ended September 30, 1996 to $14,071,000 for the nine months ended September 30, 1997. The provision for impairment of long-lived assets reflects a write down of the Company's visual effects equipment under provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). In April 1997, the Company announced that (i) the Company had entered into the Library Sale Agreement with Disney to sell to Disney substantially all of the films in the Company's motion picture library and certain other assets, (ii) the Company did not presently intend to commence production of any additional motion pictures and (iii) the Company was considering its alternatives assuming consummation of the Film Library Sale. The Company's visual effects assets are not included in the Film Library Sale. In light of the foregoing and due to operating losses of the Visual Effects Facility, the Company determined that a write-down to net realizable value of the visual effects assets was required under SFAS No. 121. Accordingly, the Company recognized a non-cash charge of $2,665,000 at June 30, 1997 for the impairment of the visual effects long-lived assets. The provision for impairment was calculated based upon the excess of the carrying amount of the visual effects assets over the estimated fair value of the visual effects assets. In September 1997, the visual effects assets were sold for aggregate consideration approximating the book value of such assets. Interest expense increased from $176,000 for the nine months ended September 30, 1996 to $4,362,000 for the nine months ended September 30, 1997 primarily because no interest expense for the nine months ended September 30, 1997 was capitalized to film costs in light of the Company's agreements to sell the films in its motion picture library and the Company's current intention not to commence production on additional motion pictures. Interest expense, including interest capitalized to film costs, decreased from $5,015,000 for the nine months ended September 30, 1996 to $4,362,000 for the nine months ended September 30, 1997 as a result of lower average outstanding production loan balances during the nine months ended September 30, 1997 compared to the comparable period in 1996. Interest income increased from $701,000 for the nine months ended September 30, 1996 to $1,300,000 for the nine months ended September 30, 1997 primarily due to higher cash balances during the nine months ended September 30, 1997 compared to the nine months ended September 30, 1996. As a result of the above, the Company incurred a net loss for the nine months ended September 30, 1997 of $22,787,000 as compared to a net loss of $1,647,000 for the nine months ended September 30, 1996. LIQUIDITY AND CAPITAL RESOURCES The Company had a $50,000,000 revolving credit facility with The Chase Manhattan Bank and a syndicate of lenders, under which the commitment to lend expired August 31, 1997. In light of the Company's intention not to commence production on any additional motion pictures, the Company did not seek to extend the commitment to lend prior to its expiration, nor has the Company sought to obtain a new credit facility either before or after expiration of the commitment to lend under the Credit Facility. As 20 of September 30, 1997, approximately $7,753,000 in borrowings were outstanding under the Credit Facility, net of cash retained from the collection of deposits of minimum guarantees. On November 14, 1997, the Company paid off the outstanding balance under the Credit Facility (approximately $5,639,000 in principal and accrued interest on such date). The Company previously entered into term loan agreements with Disney 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. Each of these loans are secured by rights to distribute the respective motion picture in the Americas and, except for the term loan with respect to COLOR OF NIGHT which is personally guaranteed by Mr. Vajna, certain other distribution rights related to other motion pictures financed by Disney. The COLOR OF NIGHT term loan with a balance of $4,510,000 at September 30, 1997 was scheduled to mature in May 1997, however, Disney has agreed pursuant to the Library Sale Agreement that no repayment of such loan or any other term loan is required unless the Library Sale Agreement is terminated. None of the remaining currently outstanding term loans with Disney mature in the ordinary course in the next twelve months. At September 30, 1997, the aggregate amount outstanding under all term loans from Disney plus accrued interest was approximately $39,995,000. The Company also has an outstanding promissory note in favor of Valdina which is currently due and payable and under which an aggregate of $3,511,000 in principal and accrued interest was outstanding at September 30, 1997. The Company and Disney have an arrangement whereby the Company is financially obligated to pay Disney the lesser of 50% of the cost of the motion picture currently entitled DEEP RISING or $22,500,000 (the "Cost Amount"), in exchange for (i) a 50% equity participation in DEEP RISING, and (ii) a sales fee for international distribution of such motion picture. Pursuant to the Library Sale Agreement, upon consummation of the Film Library Sale, the Company (a) will no longer have any interest in the film as it will no longer serve as sales agent with respect to the film, (b) will relinquish its equity participation in the film and sales fee, (c) will remit to Disney all minimum guarantees received by the Company with respect to DEEP RISING while it served as sales agent with respect to the film and which were not previously remitted to Disney, and (d) will no longer be obligated to pay the Cost Amount. In the event the Film Library Sale is not consummated, the Company currently anticipates that 21 it will have obtained sufficient advances and minimum guarantees with respect to its interest in the film to satisfy the Cost Amount. The Company had a "first-look" arrangement with Stone pursuant to which Stone submitted to the Company all theatrical motion picture projects owned or controlled by Stone for the Company's development and consideration of possible production. As consideration for Stone's submitting such projects to the Company, the Company paid certain amounts annually to Stone for overhead and development. Disney reimbursed the Company for all amounts payable to Stone through February 10, 1997. In September 1997, the Company entered into a Termination Agreement (the "Termination Agreement") with Stone in order to terminate the "first-look" arrangement between the Company and Stone and their respective obligations thereunder. Pursuant to such agreement, the Company (i) transferred to Stone all but one of the Stone Projects and (ii) made certain payments to, or for the benefit of Stone. As a result of the Termination Agreement, the Company was relieved of $961,000 in obligations the Company otherwise would have had with respect to the "first-look" arrangement. In the event the Film Library Sale is not consummated, Disney would be obligated to reimburse the Company for all amounts paid to Stone after February 10, 1997 in connection with the "first-look" arrangement (approximately $992,000). The Company and Summit Entertainment N.V. ("Summit N.V.") and Summit Entertainment L.P. ("Summit L.P.") (collectively with their affiliates, "Summit"), international sales agents unaffiliated with the Company, have entered into agreements dated as of September 10, 1997 (the "Summit Agreements") which primarily provide for (i) the purchase by Summit N.V., in exchange for the payment of $400,000 to the Company, of the Company's rights in the International DHWV Overages (other than those relating to exploitation agreements with respect to the territories of Italy and Hungary), (ii) the purchase by Summit N.V., in exchange for the payment of an additional $400,000 to the Company, of the Miscellaneous Receivables, and (iii) the termination of Summit's sales agency relationships with the Company and the settlement of the Company's obligations in connection therewith in exchange for an aggregate payment by the Company to Summit (which, pursuant to an additional agreement with Summit, includes certain amounts payable to Summit with respect to a past Company production) of approximately $827,000 (collectively, the "Summit Transactions"). The Summit Transactions were consummated in November 1997. At September 30, 1997, the Company had cash on hand of approximately $26,073,000 (exclusive of restricted cash of approximately $5,169,000 consisting primarily of amounts due to Disney from deposits received in connection with the international distribution of DEEP RISING pursuant to the arrangement between the Company and Disney described above). As the Company does not presently intend to commence production on any additional motion pictures, management of the Company has been implementing reductions in personnel to achieve staff size commensurate with the Company's current level of activity. The Company has reduced the number of its full time employees by approximately 63% (to eleven employees) since the beginning of 1997. The Company also reduced the amount of space it leases in its corporate headquarters building by approximately sixty percent beginning October 1, 1997. In addition, in September 1997, Cinergi Productions Inc. (California) ("CPI"), the wholly owned subsidiary of the Company which operated the Company's Visual Effects Facility, shut down the operations of such facility and, subsequent thereto, transferred the assets thereof and certain liabilities associated therewith to an unaffiliated third party, Mass.Illusions LLC (the "Purchaser"). CPI transferred the assets of the Visual Effects Facility to the Purchaser in consideration of the assumption by the Purchaser of approximately $900,000 in obligations and liabilities of CPI, including certain payroll and related obligations, the agreement of the Purchaser to manage, on behalf of CPI, the resolution of certain other CPI liabilities and obligations, and the contribution by the Purchaser of $200,000 thereto. In connection with this transaction, CPI also assigned to the Purchaser all of CPI's rights, duties and 22 obligations under a production services agreement relating to a motion picture for which CPI had been engaged to create visual effects. In consideration of such assignment, the Purchaser agreed to indemnify CPI in connection with any claims or actions initiated by any third party with respect to the production services agreement. The Company believes that its existing capital, funds from operations and other available sources of capital (including cash on hand), will be sufficient to enable the Company to fund its overhead related expenditures and reduced level of activities pending consummation of the Asset Sales and the Merger. Except for preparing for the special meeting of stockholders to be held in connection with the proposed Asset Sales and Merger, and preparing for the potential closings of the Asset Sales and the Merger, the Company does not currently intend to engage in any significant business operations pending consummation of the Asset Sales and the Merger. No determination has been made by the Company as to its course of conduct in the event that the Asset Sales and/or the Merger are not consummated, as the Company would consider all strategic alternatives reasonably available to it at the time. However, the Company anticipates that it is likely that significant consideration would be given at any such time to a dissolution and winding up of the Company pursuant to Delaware law. The Company might need to seek additional sources of capital following the Merger or in the event the Asset Sales and/or the Merger are not consummated, depending on the course of action chosen to be taken, and the business operations, if any, chosen to be conducted by the Company at such time. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable, as the Securities and Exchange Commission phase-in date for this Item with respect to the Company has not yet occurred. 23 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On August 25, 1997, the Company settled legal proceedings brought by Laurence Fishburne and The LOA Productions, Inc., Mr. Fishburne's loan-out corporation ("LOA"), against the Company, a subsidiary of the Company and Randolph M. Paul, former Senior Vice President, Business Affairs and a former Director of the Company (the "Fishburne Litigation"). The action, for breach of oral contract, fraud and deceit, and civil conspiracy, was originally filed on July 11, 1994. The plaintiffs had claimed that the Company entered into an oral contract for Mr. Fishburne to appear in the motion picture, DIE HARD WITH A VENGEANCE, but repudiated the contract the following day. Plaintiffs claimed damages of $1,750,000, representing the fixed compensation to which they allege they were entitled, additional compensatory damages of up to $350,000 and general and punitive damages. Trial had been scheduled for August 25, 1997 in Los Angeles Superior Court. Pursuant to the terms of the settlement, the Company paid LOA $750,000 and entered into certain agreements with plaintiffs and an entity controlled by Mr. Fishburne which provide the Company with a non-exclusive option (the "Option") to acquire certain rights ("Rights") to a play and related screenplay both written by Mr. Fishburne. The Company also established a letter of credit in the amount of $600,000, the amount which must be paid to the entity controlled by Mr. Fishburne if the Company does not exercise the Option, if the Company does not meet certain other time deadlines, or if the Company fails to match any bona fide third party offers for the Rights. If, during the term of the Option, the Company takes certain actions which will result in the Option becoming exclusive, exercises the Option, or successfully matches any bona fide third party offers for the Rights, then the Company will also incur additional obligations such as those with respect to the financing and developing of the Rights. 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. Not applicable. ITEM 5. OTHER INFORMATION. ADJUSTMENT OF MERGER CONSIDERATION TO $2.41 PER SHARE. As indicated above under "Management's Discussion and Analysis of Financial Condition and Results of Operations - General," certain events (described below) have occurred between the date of the Merger Agreement and the date of the filing of this Report which have resulted in an aggregate of $0.11 of adjustments to the Original Purchase Price of $2.30 per Share, i.e., a Purchase Price, as of the date of the filing of this Report, of 24 $2.41 per Share. The Merger Agreement provides that in the event the Company enters into an agreement (the "Stone Agreement") prior to the Adjustment Date (A) to sell five specified Stone Projects or (B) to settle its obligations pursuant to its first look arrangement with Stone, there will be a positive adjustment (a "Gross Adjustment") equal to the sum of (X) the aggregate purchase price, if any, payable to the Company pursuant to the Stone Agreement, and (Y) the aggregate amount of liabilities and other obligations assumed or forgiven by the purchaser (or party or parties with which the Company settles its obligations) pursuant to the Stone Agreement. The Adjustment Date is generally the date which is ten business days prior to the special meeting of stockholders to be held in connection with the Asset Sales and the Merger. As a result of the settlement of the Company's "first look" arrangement with Stone pursuant to the Termination Agreement, the Company has been relieved of $961,000 in obligations it would otherwise have had to Stone under such arrangement. This has resulted in a Gross Adjustment pursuant to the Stone Agreement of $961,000, or approximately $.0745 per Share. The Merger Agreement also provides that in the event the sum of (A) the aggregate amount of all monies received by the Company (as royalties or otherwise) in respect of the EVITA Soundtrack from September 2, 1997 through the Adjustment Date and (B) the aggregate purchase price payable to the Company pursuant to any agreement for the sale of the EVITA Soundtrack (an "Evita Agreement") entered into by the Company prior to the Adjustment Date, exceeds $1,500,000 (such excess being referred to herein as the "Soundtrack Amount"), there will be a Gross Adjustment equal to the Soundtrack Amount. After September 2, 1997, the Company received $1,760,000 in overages with respect to the EVITA Soundtrack, resulting in a Gross Adjustment of $260,000 or approximately $.0201 per Share. The Company is currently in discussions regarding the sale of the EVITA Soundtrack, however, no assurances can be given that any such sale, or any Purchase Price adjustment resulting therefrom, will occur. In addition, the Merger Agreement provides that in the event the aggregate amount of monies collected by the Company in connection with certain outstanding accounts receivable (the "Non-Alan Smithee Receivables") from July 1, 1997 through the Adjustment Date (the "Measurement Period") is in excess of $1,573,000 (such excess amount being referred to as the "Non-Alan Smithee Receivables Amount"), there will be a Gross Adjustment equal to the Non-Alan Smithee Receivables Amount. The Non-Alan Smithee Receivables do not include any receivables relating to AN ALAN SMITHEE FILM, for which there is a different potential adjustment. As all of the Non-Alan Smithee Receivables which have not previously been collected (i.e., the Miscellaneous Receivables) were transferred to Summit as part of the Summit Transactions, the aggregate amount of Non-Alan Smithee Receivables collected by the Company during the Measurement Period and the Non-Alan Smithee Receivables Amount have become fixed (and not subject to further adjustment) at $1,743,000 and $170,000, respectively, resulting in an additional Gross Adjustment of $170,000 or approximately $.0132 per Share. When considered with adjustments (discussed above) resulting from the settlement of the "first look" arrangement with Stone and the receipt by the Company of $1,760,000 in overages with respect to the EVITA Soundtrack and taking into account the parties' agreement as to rounding, the total adjustment to the Original Purchase Price was $0.11 resulting in the adjusted Purchase Price of $2.41 per Share. The $2.41 Purchase Price is subject to potential further upward adjustment in certain events specified in the Merger Agreement, including in the event additional monies are collected with respect to the EVITA Soundtrack or if the EVITA Soundtrack is sold. The Purchase Price will also be adjusted upwards in the event the sum of certain prescribed adjustments pertaining to the (i) the Company's selling, general and administrative expenses from July 1, 1997 through the Adjustment Date, (ii) the Company's ability to collect certain receivables relating to AN ALAN SMITHEE FILM from July 1, 1997 through the Adjustment Date, and (iii) the amount of monies contributed by the Company to, or the amount of expenses incurred by the Company on behalf of, CPI, or the Visual Effects Facility which was 25 operated by such subsidiary, from July 1, 1997 through the Adjustment Date, in each case measured against certain specified amounts, results in a net positive dollar amount. Upon the occurrence of any subsequent event resulting in a Purchase Price adjustment, the aggregate per share adjustment to the Purchase Price will, in general terms, be calculated by dividing the aggregate dollar amount of the adjustments by the total number of issued and outstanding Shares as of the Adjustment Date (including Shares held by Mr. Vajna or Valdina, but excluding the 555,556 Shares held by Disney which will be transferred to the Company as part of the contemplated sale of substantially all of the films in the Company's motion picture library to Disney), rounded off to the nearest whole penny. Except for the adjustments set forth in the Merger Agreement, there are no other possible positive adjustments to the Purchase Price. The Merger Agreement does not provide for any downward adjustments to the Purchase Price. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. Exhibit No. Description of Exhibit ----------- ---------------------- 2.1 Agreement of Merger, dated as of September 2, 1997, by and among Andrew G. Vajna, Valdina Corporation N.V., CPEI Acquisition Inc. and the Company. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated August 25, 1997, filed with the Securities and Exchange Commission on September 5, 1997. 2.2 Purchase and Sale Agreement, dated April 3, 1997, by and between the Company and Cinergi Productions N.V. Inc. and Walt Disney Pictures and Television Incorporated. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated April 3, 1997, filed with the Securities and Exchange Commission on April 4, 1997. 2.3 First Amendment to Purchase and Sale Agreement, dated as of August 26, 1997, by and between the Company and Cinergi Productions N.V. Inc. and Walt Disney Pictures and Television Incorporated. Incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K, dated August 25, 1997, filed with the Securities and Exchange Commission on September 5, 1997. 2.4 Second Amendment to Purchase and Sale Agreement, dated as of November 10, 1997, by and between the Company and Cinergi Productions N.V. Inc. and Walt Disney Pictures and Television Incorporated. Filed herewith. 2.5 Assignment Agreement, dated as of July 14, 1997, between Twentieth Century Fox Film Corporation and the Company and Cinergi Productions N.V. Inc. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated July 9, 1997, filed with the Securities and Exchange Commission on July 17, 1997. 2.6 Amendment to Assignment Agreement, dated August 26, 1997, between Twentieth Century Fox Film Corporation, the Company and Cinergi Productions N.V. Inc. Incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 26 8-K, dated August 25, 1997, filed with the Securities and Exchange Commission on September 5, 1997. 10.1 Termination Agreement, dated as of September 10, 1997, between the Company and Cinergi Productions N.V. Inc., on the one hand, and Ixtlan Corporation, Illusion Entertainment Group, Quetzalcoatl, Inc. and Oliver Stone, on the other hand. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, dated October 2, 1997, filed with the Securities and Exchange Commission on October 9, 1997. 10.2 Severance Agreement, dated as of September 1, 1997, between Warren Braverman, the Company, and Andrew G. Vajna. Filed herewith. 10.3 Summit Agreements between, as applicable, the Company, Cinergi Productions N.V. Inc., Cinergi Productions KFT, Summit Export (UK) Ltd., Summit Entertainment N.V., and Summit Entertainment L.P. Filed herewith. 10.4 Manex/Mass.Illusion Business Acquisition Agreement, dated as of September 15, 1997, between Cinergi Productions Inc. (California) and Mass.Illusions, LLC. Filed herewith. 27 Financial Date Schedule (filed electronically only). Filed herewith. b) Reports on Form 8-K. The following reports on Form 8-K were filed by the Company during the quarter ended September 30, 1997: Current Report on Form 8-K, dated July 9, 1997, filed by the Company with the Securities and Exchange Commission on July 17, 1997 reporting under "Item 5 - Other Events": (i) execution of the Assignment Agreement, and (ii) a change in the beneficial ownership of the Company by Andrew G. Vajna. Current Report on Form 8-K, dated August 25, 1997, filed by the Company with the Securities and Exchange Commission on September 5, 1997 reporting under "Item 5 -- Other Events": (i) execution of the Merger Agreement, (ii) execution of an amendment to the Library Sale Agreement, (iii) settlement of the Company's litigation with Laurence Fishburne and certain of his affiliates, (iv) execution of an amendment to the Assignment Agreement, and (v) the reaching of an agreement in principle with Summit regarding the sale to Summit of the International DHWV Overages. 27 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. November 18, 1997 By: /s/ Warren Braverman ------------------------------------- Warren Braverman, Executive Vice President, Chief Operating Officer and Chief Financial Officer, signing both in his capacity as Executive Vice President on behalf of Registrant and as Chief Financial Officer of Registrant 28 EXHIBIT INDEX Exhibit No. Description of Exhibit ----------- ---------------------- 2.1 Agreement of Merger, dated as of September 2, 1997, by and among Andrew G. Vajna, Valdina Corporation N.V., CPEI Acquisition Inc. and the Company. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated August 25, 1997, filed with the Securities and Exchange Commission on September 5, 1997. 2.2 Purchase and Sale Agreement, dated April 3, 1997, by and between the Company and Cinergi Productions N.V. Inc. and Walt Disney Pictures and Television Incorporated. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated April 3, 1997, filed with the Securities and Exchange Commission on April 4, 1997. 2.3 First Amendment to Purchase and Sale Agreement, dated as of August 26, 1997, by and between the Company and Cinergi Productions N.V. Inc. and Walt Disney Pictures and Television Incorporated. Incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K, dated August 25, 1997, filed with the Securities and Exchange Commission on September 5, 1997. 2.4 Second Amendment to Purchase and Sale Agreement, dated as of November 10, 1997, by and between the Company and Cinergi Productions N.V. Inc. and Walt Disney Pictures and Television Incorporated. Filed herewith. 2.5 Assignment Agreement, dated as of July 14, 1997, between Twentieth Century Fox Film Corporation and the Company and Cinergi Productions N.V. Inc. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated July 9, 1997, filed with the Securities and Exchange Commission on July 17, 1997. 2.6 Amendment to Assignment Agreement, dated August 26, 1997, between Twentieth Century Fox Film Corporation, the Company and Cinergi Productions N.V. Inc. Incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K, dated August 25, 1997, filed with the Securities and Exchange Commission on September 5, 1997. 29 10.1 Termination Agreement, dated as of September 10, 1997, between the Company and Cinergi Productions N.V. Inc., on the one hand, and Ixtlan Corporation, Illusion Entertainment Group, Quetzalcoatl, Inc. and Oliver Stone, on the other hand. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, dated October 2, 1997, filed with the Securities and Exchange Commission on October 9, 1997. 10.2 Severance Agreement, dated as of September 1, 1997, between Warren Braverman, the Company, and Andrew G. Vajna. Filed herewith. 10.3 Summit Agreements between, as applicable, the Company, Cinergi Productions N.V. Inc., Cinergi Productions KFT, Summit Export (UK) Ltd., Summit Entertainment N.V., and Summit Entertainment L.P. Filed herewith. 10.4 Manex/Mass.Illusion Business Acquisition Agreement, dated as of September 15, 1997, between Cinergi Productions Inc. (California) and Mass.Illusions, LLC. Filed herewith. 27 Financial Date Schedule (filed electronically only). Filed herewith. 30 EX-2.4 2 EXHIBIT 2.4 2ND AMEND. SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT This SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "AMENDMENT") is dated as of this 10th day of November, 1997, by and between Cinergi Pictures Entertainment Inc., a Delaware corporation, f/k/a/ Cinergi Productions, Inc., Cinergi Productions N.V. Inc., a Delaware corporation (collectively, "SELLER") and Walt Disney Pictures and Television, a California corporation ("Buyer"). W I T N E S S E T H: WHEREAS, Seller and Buyer entered into a Purchase and Sale Agreement dated as of April 3, 1997 and that certain First Amendment to the Purchase and Sale Agreement dated as of August 26, 1997 (the "FIRST AMENDMENT") (the Purchase and Sale Agreement, as amended by the First Amendment, shall be referred to as the "PURCHASE AGREEMENT"; capitalized terms used, but not otherwise defined herein, shall have the meaning given to such terms in the Purchase Agreement); and WHEREAS, Seller and Buyer each desire to amend certain terms of the Purchase Agreement as set forth herein. NOW, THEREFORE, based on the above premises and in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: I. Amendment to Section 1.2(a). Section 1.2(a) is hereby amended by deleting the phrase "November 22, 1997" appearing in the sixth (6th) line and replacing it with the phrase "December 24, 1997". II. Amendment to Section 2.4. Section 2.4(ii) is hereby amended by deleting the reference to "An Alan Smithee Film". III. Amendment with respect to "An Alan Smithee Film". Section 2.15 is hereby amended in its entirety to read as follows: "2.15 "AN ALAN SMITHEE FILM". Seller shall complete the motion picture entitled "An Alan Smithee Film" and fully deliver said motion picture prior to Closing to Buyer in accordance with the terms of the Alan Smithee Distribution Agreement and to each of the foreign distributors who have entered into an Exploitation Agreement including, without limitation, Existing Exploitation Agreements with respect to said motion picture. As provided in that certain Amendment to the Alan Smithee Distribution Agreement dated as of September 17, 1997, as the same shall be amended to reflect the provisions of this Section 2.15, upon delivery of "An Alan Smithee Film" in compliance with the terms of the Alan Smithee Distribution Agreement, as amended, Buyer shall pay to Seller a sum of Three Million Seven Hundred Twenty Five Thousand Dollars ($3,725,000), which payment (along with other minimum guarantee payments received by Seller with respect to such motion picture) shall be used by Seller to pay off the outstanding principal and interest owing by Seller under the Credit, Security, Pledge and Guaranty Agreement dated as of August 16, 1994, between Cinergi Productions N.V. Inc. and The Chase Manhattan Bank, as Agent ("CHASE") (the "CHASE CREDIT AGREEMENT"). Buyer agrees that Seller may retain (subject to repayment in full of the Chase Credit Agreement) all fixed cash minimum guarantees payable to Seller under Existing Exploitation Agreements only for "An Alan Smithee Film" listed on Schedule 2.15 hereof. To the extent that Seller receives any fixed cash minimum guarantees with respect to "An Alan Smithee Film" other than those minimum guarantees listed on Schedule 2.15, then Seller shall account for and remit such additional amounts to Buyer on the Closing Date and thereafter in accordance with Section 2.11 of this Agreement. Seller agrees that Seller will not amend any of the terms or provisions of any of such Existing Exploitation Agreements in any way that would decrease, delay or otherwise adversely affect payment of any amounts (other than the minimum guarantees provided for in such Existing Exploitation Agreements as specified in Schedule 2.15 hereof) otherwise payable pursuant to such Existing Exploitation Agreements." IV. Amendment Regarding Participation Settlement Negotiations. A new Section 2.17 shall be added as follows: "2.17 PARTICIPATION SETTLEMENT NEGOTIATIONS. Seller has notified Buyer that Seller is presently in settlement discussions with certain third parties regarding participation claims asserted by the third parties against Seller. Seller agrees to (1) notify Buyer of any participation claims which may be asserted by any third parties against Seller and (2) keep Buyer advised as to the status of all such negotiations, discussions and claims, including any legal proceedings, and will not object to Buyer's attendance at or other participation in any such discussions, negotiations or proceedings. Seller agrees that any payment made by Seller or any agreement entered into by Seller to pay or settle any amounts or claims which could be an assumed liability of Buyer under the terms of Section 2.2 of this Agreement, including without limitation, participation obligations, shall require the prior written consent of the Buyer. If notwithstanding the foregoing, Seller makes any payments, takes, or omits to take, any action with respect to any legal proceedings, or enters into a settlement agreement with respect to any amounts or claims which could be an assumed liability and which is not approved by Buyer, Seller's obligations with respect to such payments or under any such agreement shall be Excluded Liabilities for purposes of Section 2.2." V. Amendment to Schedule A. The definition of "Accounts Receivable" in Schedule A is hereby amended by deleting the third (3rd) sentence in its entirety and replacing it with the following: "Notwithstanding the foregoing, the term "Accounts Receivable" shall expressly exclude (a) with respect to the motion picture entitled "An Alan Smithee Film" all contractual minimum guarantees payable pursuant to the Existing Exploitation Agreements in the amounts specified on Schedule 2.15 hereof, and (b) with respect to all other Pictures all contractual minimum guarantees payable pursuant to a contract in existence as of January 1, 1997 (the "EXCLUDED RECEIVABLES"); provided, however, notwithstanding the foregoing, the term "Accounts Receivable" shall include (x) the contractual minimum guarantees due with respect to the motion pictures presently entitled, "Up Close and Personal", "Deep Rising" a/k/a "Tentacles", and (y) the contractual minimum guarantees due with respect to the motion picture entitled "An Alan Smithee Film" payable pursuant to any contract other than the Existing Exploitation Agreements listed on Schedule 2.15 hereof." VI. Amendment to Schedule A. The definition of "Smithee Amount" is hereby deleted in its entirety. VII. Counterparts. This Amendment may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. VIII. No Other Changes. Except as expressly modified by the provisions of this Amendment, the Purchase Agreement shall remain unchanged in all respects and in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. CINERGI PICTURES ENTERTAINMENT INC., f/k/a CINERGI PRODUCTIONS, INC. By: /s/ Warren Braverman ---------------------------------- Name: Warren Braverman -------------------------------- Title: Executive Vice President ------------------------------- CINERGI PRODUCTIONS N.V. INC. By: /s/ Erick J. Feitshans ---------------------------------- Name: Erick J. Feitshans -------------------------------- Title: Senior Vice President ------------------------------- WALT DISNEY PICTURES AND TELEVISION By: /s/ Robert Moore ---------------------------------- Name: Robert Moore -------------------------------- Title: EVP, CFO ------------------------------- To the extent that the rights of either of the undersigned are affected by this Agreement, each of the undersigned acknowledges and consents to any such modifications. BUENA VISTA INTERNATIONAL, INC. By: /s/ Jere R. Hausfater ---------------------------------- Name: Jere R. Hausfater -------------------------------- Title: Sr. VP ------------------------------- BUENA VISTA PICTURES DISTRIBUTION, a division of ABC, INC. By: /s/ Jere R. Hausfater ---------------------------------- Name: Jere R. Hausfater -------------------------------- Title: Sr. VP ------------------------------- SCHEDULE 2.15 EXISTING EXPLOITATION AGREEMENTS FOR "AN ALAN SMITHEE FILM"
- ------------------------------------------------------------------------------------- DATE OF MINIMUM AGREEMENT LICENSOR LICENSEE TERRITORY MEDIA GUARANTEE - --------- ------------- ------------------ ----------------- --------- --------- 10/14/96 CPNVI Roadshow Australia TH/V/TV 350,000 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI Belga Belgium TH/V/TV 90,000 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI UCD Croatia TH/V 30,000 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI Intersonic Czech TH/V 25,000 - ------------------------------------------------------------------------------------- 10/29/96 CPNVI UGC - PH France/Switzerland TH/V/TV 500,000 - ------------------------------------------------------------------------------------- 11/17/96 CPNVI Tobis Germany TH/V/TV 1,000,000 - ------------------------------------------------------------------------------------- Summit UK Roadshow Greece TH/V/TV 50,000 - ------------------------------------------------------------------------------------- 10/29/96 CPNVI Okura Enterp. Hong Kong TH/V/TV 110,000 - ------------------------------------------------------------------------------------- 10/30/96 CPKFT Medusa Italy TH/V/TV 1,000,000 - ------------------------------------------------------------------------------------- 10/23/96 CPNVI Gaga Japan TH/V/TV 1,111,111 - ------------------------------------------------------------------------------------- 10/28/96 CPKFT Digital Media Korea (South) TH/V/TV 600,000 Corp. - ------------------------------------------------------------------------------------- 10/2/96 CPEI/CPNVI Buena Vista Latin America TH/V/TV 0 - ------------------------------------------------------------------------------------- 10/29/96 CPNVI Picture Image Malaysia TH/V/TV 45,000 - ------------------------------------------------------------------------------------- 10/27/96 CPNVI Jaguar Film Middle East TH/V 70,000 - ------------------------------------------------------------------------------------- 1/23/97 CPNVI Solar Films Philippines TH/V/TV 50,000 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI Best Film Poland TH/V 46,500 - ------------------------------------------------------------------------------------- 1/22/97 Summit UK Prisvideo Portugal TH/V/TV 20,000 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI West Video Russia (C.I.S.) TH/V 35,000 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI Scenecast Serbia TH/V 14,400 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI Overseas Singapore TH/V 45,000 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI Vesna Dist. Slovenia TH/V 15,000 - ------------------------------------------------------------------------------------- 10/28/96 Summit UK Ster-Kinekor So. Africa TH/V/TV 100,000 - ------------------------------------------------------------------------------------- 10/28/96 CPKFT Sogepaq S.A. Spain TH/V/TV 625,000 - ------------------------------------------------------------------------------------- 10/23/96 CPNVI Big Film Taiwan TH/V/TV 450,000 - ------------------------------------------------------------------------------------- 10/30/96 CPNVI Entertain Pictures Thailand TH/V/TV 60,000 - ------------------------------------------------------------------------------------- 11/25/96 Summit UK Ozen Film Turkey TH/V/TV 50,000 - ------------------------------------------------------------------------------------- 1/14/97 CPNVI EFD U.K. TH/V/TV 500,000 - ------------------------------------------------------------------------------------- 10/2/96 CPEI/CPNVI Buena Vista United States TH/V/TV 3,725,000 - -------------------------------------------------------------------------------------
CPEI = Cinergi Pictures Entertainment Inc. CPNVI = Cinergi Productions N.V. Inc./Cinergi Productions N.V. CPKFT = Cinergi Productions Kft. Summit UK = Summit Export (UK Ltd.) EX-10.2 3 EXHIBIT 10.2 SEVERANCE AGREEMENT This Severance Agreement (the "Agreement") is entered into as of September 1, 1997, by and between Warren Braverman, an individual (the "Executive"), Cinergi Pictures Entertainment Inc., a Delaware corporation (the "Company"), and Andrew G. Vajna, an individual ("Vajna"). WHEREAS, Executive has been Chief Operating Officer, Executive Vice President and Chief Financial Officer of the Company since March 1990; WHEREAS, Executive and the Company formalized their relationship by entering into that certain Restated Employment Agreement between the Company (then known as "Cinergi Productions Inc.") and Executive, dated as of January 1, 1994, as amended by that certain letter agreement, dated as of December 16, 1994, by and between the Company and Executive, and by that certain Amendment to Restated Employment Agreement, dated as of January 1, 1997, between the Company and Executive (as amended, the Restated Employment Agreement is referred to herein as the "Employment Agreement"); WHEREAS, the term of the Employment Agreement expires December 31, 1999; WHEREAS, pursuant to that certain Stock Sale and Repurchase Agreement dated as of January 1, 1994 by and between Executive and the Company, Executive acquired six shares of the Company's common stock, which pursuant to a subsequent stock split were converted into 372,341 shares of the Company's common stock (the "Shares"); WHEREAS, Executive paid for such shares by paying an amount in cash equal to the aggregate par value of such shares and by issuing to the Company a Secured Recourse Promissory Note (the "Promissory Note") in the principal amount of $450,000, bearing interest at the rate of 6% per annum and secured in accordance with that certain Security and Stock Pledge Agreement, dated as of January 1, 1994, by and between the Company and Executive (the "Security Agreement"); WHEREAS, the Company has entered into an Agreement of Merger, dated as of September 1, 1997, by and among Vajna, Valdina Corporation N.V., a Netherlands Antilles corporation ("Valdina"), CPEI Acquisition Inc., a Delaware corporation ("Newco"), and the Company (the "Merger Agreement"); WHEREAS, pursuant to the terms of the Merger Agreement, Newco will be merged (the "Merger") with and into the Company, with the Company surviving the merger (the "Surviving Corporation"); WHEREAS, the Company and Executive mutually desire to terminate the Employment Agreement and Executive's employment with the Company at the Effective Time of the Merger (with the term "Effective Time," as used herein, having the meaning given to such term in the Merger Agreement); and WHEREAS, the parties hereto desire to set forth the terms of the termination of the Employment Agreement and to make such other provisions as may be appropriate with respect to the termination of Executive's employment in connection with the consummation of the Merger. NOW, THEREFORE, in consideration of the mutual benefits to be derived from this agreement and the representations, conditions and promises hereinafter contained, the parties hereto hereby agree as follows: -1- 1. DEFINITIONS. Capitalized terms used herein without definition shall have the respective meanings assigned to such terms in the Employment Agreement. 2. TERMINATION OF EMPLOYMENT AGREEMENT. The Company and Executive mutually agree to terminate the Employment Agreement and Executive's employment with the Company effective, automatically and without any further action on the part of the parties hereto, as of the Effective Time. The time of such termination is referred to herein as the "Termination Date." Notwithstanding anything in the Employment Agreement to the contrary, all of the terms and provisions of the Employment Agreement (including, without limitation, all provisions regarding termination and compensation upon termination) shall terminate as of the Termination Date and neither the Company nor Executive will have any further obligation to the other with respect to the Employment Agreement or Executive's employment with the Company, except as hereinafter expressly set forth in this Agreement. Notwithstanding anything to the contrary contained in this Agreement, the provisions of Section 1.3 of the Employment Agreement (Ownership of Properties) and Executive's rights under both that certain Deferred Compensation Plan dated June 20, 1990 and that certain Irrevocable Trust Under the Cinergi Pictures Entertainment Inc. Deferred Compensation Plan, dated June 6, 1997, by and between the Company and City National Bank (the "Rabbi Trust") shall survive the termination of the Employment Agreement and the execution of the Release (as defined in Section 5 hereof). 3. CANCELLATION OF PROMISSORY NOTE. At the Termination Date, the Company shall forgive and cancel the Promissory Note (including all principal and accrued interest thereunder). Effective as of the Termination Date, pursuant to Section 10.1 of the Security Agreement, the Obligations (as such term is defined in the Security Agreement) shall be deemed terminated, the Security Agreement shall terminate and the Shares shall be owned by Executive free and clear of all liens, claims or encumbrances (other than restrictions imposed by federal or state securities laws and other than that certain proxy granted to Vajna pursuant to that certain letter agreement dated April 27, 1994 between the Company and Executive (the "1994 Letter Agreement") and pursuant to Paragraph 7 of that certain Stock Sale and Repurchase Agreement dated January 1, 1994 between the Company and Executive) and shall be fully paid and non-assessable. In connection with the forgiveness and cancellation of the Promissory Note, the Company shall execute and deliver to the Executive all necessary and appropriate documentation, including without limitation, the original Promissory Note marked canceled and all certificates evidencing the Shares. 4. PAYMENTS TO THE EXECUTIVE. Upon termination of the Employment Agreement at the Termination Date, Executive shall be paid by wire transfer as instructed by Executive, subject to applicable legal wage withholdings and deductions, an amount equal to (i) one hundred percent of the Fixed Annual Compensation that would otherwise have been payable to Executive in the ordinary course from the Termination Date through December 31, 1997 had the Employment Agreement not been terminated at the Termination Date, plus (ii) $598,500 (representing fifty percent of the Fixed Annual Compensation that would otherwise have been payable to Executive in the ordinary course from January 1, 1998 through December 31, 1999 had the Employment Agreement not been terminated at the Termination Date), plus (iii) $24,000 (representing Automobile Benefits that would otherwise have been payable to Executive in the ordinary course from January 1, 1998 through December 31, 1999 had the Employment Agreement not been terminated at the Termination Date), plus (iv) $24,000 (representing Health Insurance Benefits that would otherwise have been payable to Executive in the ordinary course from January 1, 1998 through December 31, 1999 had the Employment Agreement not been terminated at the Termination Date), plus (v) an amount equal to the product of (x) Executive's average daily Fixed Annual Compensation for the year ending December 31, 1997, multiplied by (y) the aggregate number of Executive's accrued (but unpaid) vacation days as of the Termination Date, less (vi) $18,000 -2- (representing the principal amount of a non-interest bearing loan previously extended by the Company to the Executive and which shall be deemed repaid at the Termination Date as a result of such offset). 5. INDEMNIFICATION. 5.1 Vajna and the Company hereby jointly and severally agree that all rights to indemnification now existing in favor of the Executive as provided in the Company's Certificate of Incorporation and Bylaws, or in the certificate or articles of incorporation, bylaws or similar documents of any subsidiaries of the Company, in effect as of the date hereof shall, with respect to matters occurring prior to the Effective Time, survive the Merger and continue in full force and effect, and Vajna shall be obligated on a joint and several basis with the Company with respect thereto. Vajna and the Company further agree that all rights to indemnification in favor of Executive presently contained in any indemnification agreement between Executive and the Company or any subsidiary of the Company, as the case may be, shall also survive the Merger and continue in full force and effect in accordance with the terms of such agreements, and may be enforced by Executive against the Company or Vajna on a joint and several basis. 5.2 In accordance with the earlier determination of Company's Board of Directors and the opinion of Company's counsel, Company will continue to advance and/or reimburse legal fees incurred by Executive in connection with the investigations and/or litigation arising out of his work for Company and/or Vajna and/or companies affiliated with Vajna to the extent permitted by law. Vajna personally guarantees Company's payment of such fees. It is agreed that fees incurred in connection with the current investigation and civil tax court proceedings relating to Vajna's tax returns and/or Executive's deferred compensation account at Company will be advanced and/or reimbursed pursuant to the terms of this Agreement. Company will not be required to advance or reimburse fees incurred by Executive in connection with personal legal issues, if any, unrelated to Executive's work for Company and/or Vajna. The obligations imposed by this paragraph shall be subject to the terms of the undertaking attached hereto as Exhibit B and executed by Executive. 5.3 The Company agrees to maintain director and officer liability insurance in effect covering Executive for a period of not less than three years from the Effective Time. 6. RELEASES. At the Termination Date, the Company and Executive shall enter into a Mutual Release containing the terms set forth in Exhibit "A" hereto, in addition to other customary terms and conditions (the "Release"). The execution and delivery of the Release by each of the Company and Executive shall be a condition precedent to the forgiveness and cancellation of the Promissory Note as set forth in Section 3 hereof, the payment to Executive of the aggregate amount set forth in Section 4 hereof, and the agreement of Executive to the termination of the Company's obligations under the Employment Agreement. 7. WAIVER OF RIGHT OF FIRST REFUSAL. Vajna hereby waives any rights which he may have to purchase the Shares pursuant to the terms of the 1994 Letter Agreement and which might otherwise arise from the Merger. 8. REPRESENTATIONS AND WARRANTIES 8.1 The Company represents and warrants that this Agreement has been duly authorized, executed and delivered by it and constitutes its legally valid and binding obligation enforceable against the Company in accordance with its terms, except (i) as its obligations may be affected by bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws, or by -3- equitable principles relating to or limiting creditors' rights or remedies generally, and (ii) that the remedies of specific performance, injunction, and other forms of equitable relief are subject to certain tests of equity jurisdiction, equitable defenses and the discretion of the court before which any proceeding therefor may be brought. The Company further represents and warrants that neither the execution and delivery, nor the performance of this Agreement, by the Company, will conflict with, violate, or cause a default under, the Company's Restated Certificate of Incorporation (as currently existing and as it shall be amended and restated at the Effective Time) or By-laws, any order, decree, judgment or award of any court or other tribunal applicable to the Company, or any material mortgage, security agreement, indenture, contract or other agreement to which the Company is a party or by which it or its assets or properties may be bound or affected. 8.2 Each of Vajna and Executive represent and warrant to the other and to the Company that this Agreement constitutes his legally valid and binding obligation, enforceable in accordance with its terms except (i) as his obligations may be affected by bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws, or by equitable principles relating to or limiting creditors' rights or remedies generally, and (ii) that the remedies of specific performance, injunction, and other forms of equitable relief are subject to certain tests of equity jurisdiction, equitable defenses and the discretion of the court before which any proceeding therefor may be brought. Each of Vajna and Executive further represent and warrant to the other and to the Company that neither the execution and delivery, nor the performance of this Agreement by him, will conflict with, violate or cause a default under, any order, decree, judgment or award of any court or other tribunal applicable to him, or any material mortgage, security agreement, indenture, contract or other agreement to which he is a party, or by which he or his assets are bound or affected. 9. MISCELLANEOUS. 9.1 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and shall be binding upon the successors, heirs, trustees, executors, administrators and assigns of the parties to this Agreement, and each of them. 9.2 SEVERABILITY. Subject to the following sentence, should any one or more of the terms, provisions, covenants or restrictions of this Agreement be determined to be illegal or unenforceable, (i) the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any section of this Agreement containing such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. It is expressly understood and agreed that the provisions of Sections 2, 3 and 4 hereof are fully integrated and constitute an indivisible single agreement. 9.3 INDEPENDENT ADVICE FROM COUNSEL. Each of the parties has had the opportunity to receive prior independent legal advice from legal counsel of his or its choice with respect to the advisability of executing this Agreement. Executive acknowledges that he has obtained legal counsel to advise him of his rights under this Agreement, he has read and understands the terms of this Agreement, and that he enters into this Agreement knowingly and intelligently of his own free will, free of any undue influence. -4- 9.4 EXPENSES. All expenses incurred in connection with this Agreement shall be paid by the party incurring such expense; provided, however, that the Company shall reimburse the Executive for legal fees incurred in connection with the termination of Executive's employment with the Company, up to a maximum aggregate amount of $4,000; and provided further, that in the event that any action, suit, or other proceeding is instituted to remedy, prevent, or obtain relief from a breach of this Agreement, or arising out of a breach of this Agreement, the prevailing party shall recover from the other party all of such prevailing party's reasonable attorneys' fees and costs incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions, or enforcement of any judgment hereunder. 9.5 ASSIGNMENT. The respective rights and obligations of the parties under this Agreement shall not be assignable without the prior written consent of the other parties. This Agreement shall inure solely to the benefit of, and be binding upon, the parties hereto. 9.6 ENTIRE AGREEMENT. This Agreement and the other agreements and documents referred to herein set forth the entire understanding of the parties relating to the subject matter hereof and supersede all prior agreements and understandings, whether oral or written. Notwithstanding the foregoing, unless and until the Termination Date, the Employment Agreement shall continue in full force and effect. In the event of the death of Executive prior to the Termination Date, this Agreement shall automatically terminate and become null and void. 9.7 AMENDMENT; WAIVER. No attempted amendment, modification, termination, discharge or change of this Agreement shall be valid and effective, unless the parties shall unanimously agree in writing to such amendment. No waiver of any provision of this Agreement shall be effective unless it is in writing and signed by the party against whom it is asserted, and any such written waiver shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver. 9.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and, taken together, shall constitute one and the same Agreement, which shall be binding and effective as to the parties to this Agreement. 9.9 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California applicable to agreements made and to be performed entirely in California without regard to the principles of choice of law or conflicts of law of that State or of any other jurisdiction. 9.10 PUBLICITY. The Company, Vajna and Executive shall mutually agree on the text of any press release issued by the Company in connection with this Agreement. -5- IN WITNESS WHEREOF, the parties hereto have approved and executed this Agreement as of the date first above written. /s/ WARREN BRAVERMAN -------------------------------------------- Warren Braverman /s/ ANDREW G. VAJNA -------------------------------------------- Andrew G. Vajna CINERGI PICTURES ENTERTAINMENT INC. By: /s/ ANDREW G. VAJNA ------------------------------------------ Name: Andrew G. Vajna Title: President and Chief Executive Officer -6- EXHIBIT "A" 1. Mutual Releases and Waivers. 1.1 In consideration of the terms and provisions of this Agreement, including, without limitation the general releases and waivers given by the Company herein, the Executive, on behalf of himself and his related individuals and entities, if any, including, but not limited to, any successors, heirs, assignees, affiliates and partners, and any and all other related individuals and entities, if any, and each of them, shall and does hereby forever relieve, release and discharge the Company, and its respective predecessors, successors, heirs, assignees, owners, shareholders, representatives, affiliates, parent corporations, subsidiaries (whether or not wholly owned), divisions and partners, and their respective officers, directors, agents, employees, servants, executors, administrators, accountants, insurers, attorneys, and any and all other related individuals and entities, if any (the "Cinergi Parties"), from any and all claims, debts, liabilities, demands, obligations, liens, promises, acts, agreements, costs and expenses (including, but not limited to, attorneys' fees), damages, actions and causes of action, of whatever kind or nature, including, without limitation, any statutory, civil or administrative claim, or any claim, arising out of acts, whether known or unknown, suspected or unsuspected, fixed or contingent, apparent or concealed, based on, arising out of, related to or connected with the Employment Agreement, the employment of the Executive on behalf of the Company and its subsidiaries, the termination of such employment and any other dealings of any kind between the Executive and the Company and/or its subsidiaries occurring on or prior to the date hereof (collectively referred to herein as the "Claims") and any and all facts in any manner arising out of, related or pertaining to or connected with those Claims, including, but not limited to, any claims arising from rights under federal, state, and local laws relating to the regulation of federal or state tax payments or accounting, federal or state laws which prohibit discrimination on the basis of race, national origin, religion, sex, age, marital status, handicap, perceived handicap, ancestry, sexual orientation, or any other form of discrimination, or laws such as workers' compensation laws, which provide rights and remedies for injuries sustained in the workplace or any common law claims of any kind, including, but not limited to, contract, tort, and property rights including, but not limited to, breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract or current or prospective economic advantage, fraud, deceit, breach of privacy, misrepresentation, defamation, wrongful termination, tortious infliction of emotional distress, loss of consortium, breach of fiduciary duty, violation of public policy and any other common law claim of any kind whatever, any claims for severance pay, sick leave, family leave, liability pay, vacation, life insurance, bonuses, health insurance, disability or medical insurance or any other fringe benefit or compensation, and all rights or claims arising under the Employee Retirement Income Security Act of 1974 ("ERISA"), or pertaining to ERISA regulated benefits. 1.2 In consideration of the terms and provisions of this Agreement, including, without limitation, the general releases and waivers given by the Executive herein, the Company, on behalf of itself and its related individuals and entities, if any, including, but not limited to, any predecessors, successors, heirs, assignees, owners, shareholders, representatives, affiliates, parent corporations, subsidiaries (whether or not wholly owned), divisions and partners, and their respective officers, directors, agents, employees, servants, executors, administrators, accountants, insurers, attorneys and any and all other related individuals and entities, if any, and each of them, shall and does hereby forever relieve, release and discharge the Executive, and his respective A-1 successors, heirs, assignees, affiliates, and partners, and any and all other related individuals and entities, if any, from (i) any and all Claims, (ii) any and all facts in any manner arising out of, related or pertaining to or connected with those Claims, and (iii) any and all claims arising from or relating to Executive's actions or omissions while, and in his capacity, as an officer and/or director of Company and each subsidiary of Company; provided, however, that such release of Executive shall not extend to any claims (or Claims), known or unknown, suspected or unsuspected, against Executive which arise out of facts which are finally adjudged by a court of competent jurisdiction to be a willful breach of fiduciary duty (and for which the personal liability of Executive is not otherwise eliminated in accordance with Section 102(b)(7) of the Delaware General Corporation Law) or a crime under any federal or state law or regulation. 2. The Executive has not filed, and will not file at any time in the future, any statutory, civil or administrative claim, complaint or charge of any kind whatsoever with any state or federal court, administrative agency or tribunal of any kind whatsoever concerning any subject matter connected with or pertaining or relating to the Claims. The parties agree that the consideration exchanged for the execution and delivery of this Agreement is contingent upon this promise by Executive not to file any such claim, complaint or charge of any kind whatsoever. 3. Nothing contained herein shall be deemed to effect Executive's rights under the Rabbi Trust or release the Company from its obligations thereunder prior to satisfaction in full by the Company of such obligations. 4. It is expressly understood that Section 1542 of the California Civil Code provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 5. The parties expressly waive any and all rights under Section 1542 of the Civil Code of the State of California, and any other federal or state statutory rights or rules, or principles of common law or equity, or those of any jurisdiction, government, or political subdivision, similar to Section 1542 ("similar provision"), and acknowledge and agree that this waiver is an essential and material term of this Agreement without which the consideration given by the parties would not have been given. The parties may not invoke the benefits of Section 1542 or any similar provision in order to prosecute or assert in any manner any claims that are released hereunder. 6. Each of the parties has had the opportunity to obtain the advice of legal counsel and is entering into this Agreement with knowledge and acceptance of the effect of Section 1542 of the California Civil Code, which is the extinction of any and all Claims of whatever nature, whether known or unknown. 7. Each of the parties represents and warrants that it is the owner of the claims released hereunder, that it has not assigned or transferred any portion of the claims released hereunder to any other individual, firm, corporation or other entity, and that no other individual, firm, corporation or other entity has any lien, claim or interest in any such claims. Each party shall indemnify and defend and hold the other party harmless from and against any claims arising out of, related to, or in connection with any A-2 such prior assignment or transfer, or any such purported assignment or transfer, or any claims or other matters released or assigned in this Agreement. 8. In the event that any action, suit, or other proceeding is instituted to remedy, prevent, or obtain relief from a breach of this Agreement, or arising out of a breach of this Agreement, the prevailing party shall recover from the other party all of such prevailing party's reasonable attorneys' fees and costs incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions, or enforcement of any judgment hereunder. A-3 EXHIBIT "B" UNDERTAKING FOR ADVANCEMENT OF EXPENSES --------------------------------------- To the Board of Directors of Cinergi Pictures Entertainment Inc.: Cinergi Pictures Entertainment Inc. (the "Corporation"), of which I am Chief Operating Officer, Chief Executive Officer, Executive Vice President and a Director, has been served with a subpoena (the "Subpoena") issued in connection with a grand jury investigation (the "Investigation"). I understand that the subject matter of the Investigation may relate to certain federal and state tax aspects of various transactions involving the Corporation and other entities. In connection with the Investigation, I expect to incur certain costs and expenses, including attorneys' fees ("Costs"), by reason of the fact that I was an officer, director, employee or agent of the Corporation at the time of the events underlying the Investigation. I have previously requested such advancement as provided in the Corporation's Bylaws. In accordance with Section 145(e) of the General Corporation Law of the State of Delaware, I hereby undertake to repay to the Corporation any Costs paid by it in advance of the final disposition of the above-described matters, if it shall ultimately be determined that I am not entitled to be indemnified by the Corporation as authorized by Section 145 of the General Corporation Law of the State of Delaware. Sincerely, /s/ WARREN BRAVERMAN ----------------------------- Warren Braverman B-1 EX-10.3 4 EXHIBIT 10.3 SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual General Release is made as of the 17th day of June 1997, by and among Cinergi Pictures Entertainment Inc., a corporation orgranized and existing under the laws of Delaware, and Cinergi Productions N.V. Inc., a corporation organized and operating under the laws of Delaware, and all of their respective affiliates (collectively "Cinergi") , on the one hand, and Summit Entertainment N.V., a corporation organized and exisiting under the laws of the Netherland Antilles, and Summit Entertainment L.P., a California Limited Partnership (collectively "Summit"), on the other, relating to the motion picture "Broadway Brawler" (the "Picture"). RECITALS A. Cinergi and Summit previously made and entered into that certain Sales Agency Agreement dated as of 1 December 1993 ("Agreement") relating to various motion pictures Cinergi produces for worldwide exploitation which Summit provided foreign sales agency services to Cinergi. B. Cinergi began principal photography on the Picture on 1 February 1997. The Picture was shutdown on 27 February 1997 as a result of factors beyond Cinergi's control. Cinergi transferred its rights to the Picture to a third party and has no further right, title or interest in or to the Picture. C. Cinergi and Summit wish to settle any disputes or claims which may have arisen as a result of the shutdown of the Picture and from their business dealings and relationships arising between them with respect thereto as set forth in Summit's letter to Cinergi dated 29 May 1997 (the "Letter"). D. Each of the Parties to this Settlement Agreement desires to settle and resolve any and all claims, disputes, issues or matters that exist between them arising from the Picture as of the date of this Settlement Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, and subject to the terms and conditions set forth below, the Parties desire to, and hereby do, resolve their differences and agree as follows: 1. RELEASE 1.1 RELEASED CLAIMS. 1.1.1 Upon receipt of the sums set forth in paragraph 2 hereof, Summit hereby releases and forever discharges Cinergi, and all of Cinergi's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from 1. any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Picture, including without limitation any claim which Summit now has or claims to have or at any time heretofore had, or which at any time hereafter may have or claim to have against Cinergi relating to or concerning the subject matters referred to in the Letter (the "Released Claims"). 1.1.2 Cinergi hereby releases and forever discharges Summit, and all of Summit's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Picture, including without limitation any claim which Cinergi now has or claims to have or at any time heretofore had, or which at any time hereafter may have or claim to have against Summit relating to or concerning the subject matters referred to in the Letter. 1.2 With respect to the Released Claims, all rights under California Civil Code Section 1542, are hereby expressly waived by the Parties, and each of them notwithstanding any provision to the contrary. Section 1542 provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the Release, which if known by him must have materially affected his settlement with the debtor." The Parties, and each of them, and their representatives, heirs and assigns expressly waive and release any right or benefit which they have or may have under Section 1542 of the Civil Code of the State of California, to the fullest extent that they may waive all such rights and benefits pertaining to the matters relating to the Picture which are released herein. It is the intention of the Parties, and each of them, through this Settlement Agreement, and with the advice of counsel, to fully, finally and forever settle and release all such matters, and all claims relative thereto, in furtherance of such intention. 2. SETTLEMENT TERMS 2.1 PAYMENT. Cinergi shall cause to be paid to Summit the sum of One Hundred Thousand Dollars ($100,000) promptly upon Summit's execution of this Settlement Agreement. 3. CONFIDENTIALITY 3.1 The Parties hereto, and their officers, directors, representatives, agents, employees, and attorneys shall not disclose, directly or indirectly, any of the financial terms of the Settlement 2. agreement, which are confidential. Notwithstanding the foregoing, the Parties shall be able to disclose the terms of the Settlement Agreement as necessary with respect to their legal and financial affairs. In such instance, the Parties shall inform any recipients of such information that the financial terms of the settlement must remain confidential. 4. MISCELLANEOUS PROVISIONS 4.1 In order to carry out the terms and conditions of this Settlement Agreement, the Parties agree to promptly execute upon reasonable request any and all documents and instruments necessary to effectuate the terms of this Settlement Agreement. 4.2 The Parties agree and acknowledge that this Settlement Agreement represents a settlement of disputed claims and that, by entering into this Settlement Agreement no Party admits or acknowledges that they committed any wrongdoing on their part. 4.3 This Settlement Agreement is the entire agreement between the Parties with respect to the Released Claims and supersedes all prior and contemporaneous oral and written agreements and discussions pertaining to the Released Claims. This Settlement agreement may be amended only by an agreement in writing. 4.4 This Settlement Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors, trustees in bankruptcy, and assigns and each and every entity which now or ever was a division, parent, successor, predecessor or subsidiary for each Party and its respective legal successors and assigns. 4.5 The Parties represent and warrant that each of them have not assigned all or any portion of any claim pertaining to the Released Claims to any person or entity. In the event any claims are made by any third persons or entities based upon any purported assignment or any such liens or claims are asserted in connection with the Released Claims or proceeds of the Settlement Agreement, then the Party who has breached his representation or warranty contained herein agrees to indemnify and hold harmless the other Party from any said claims being made. 4.6 In the event that any covenant, condition or other provision herein contained is held to be invalid, void or illegal by any Court of competent jurisdiction, the same shall be deemed severable from the remainder of this Settlement Agreement and shall in no way affect, impair or invalidate any other covenant, condition or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provision shall be deemed valid to the extent of the scope or breadth permitted by law. 4.7 No breach of any provision hereof can be waived unless in writing. Waiver of any one breach of any provision hereof shall not be deemed to be a waiver of any other breach of the 3. same or any other provision hereof. This Settlement Agreement may be amended only by a written agreement executed by each of the Parties hereto. 4.8 The Parties hereto, and each of them, represent and declare that in executing this Settlement Agreement, they rely solely upon their own judgement, belief and knowledge, and on the advice and recommendations of their own independently selected counsel, concerning the nature, extent and duration of their rights and claims and that they have not been influenced to any extent whatsoever in executing the same by any representations or statements covering any matters made by any of the Parties hereto or by any person representing them or any of them. The Parties acknowledge that no Party hereto nor any of their representatives have made any promise, representation or warranty whatsoever, written or oral, as any inducement to enter into this Settlement Agreement, except as expressly set forth in this Settlement Agreement. 4.9 The Parties hereto or responsible officer or representative thereof, and each of them, further represent and warrant that they have carefully read this Settlement Agreement and know and understand the contents thereof, and that they signed this Settlement Agreement freely and voluntarily. Each of the representatives executing this Settlement Agreement on behalf of their respective corporations or partnerships is empowered to do so and thereby binds his respective corporation or partnership. 4.10 No party (nor any officer, agent, employee, representative, or attorney of or for any party) has made any statement or representation to any other party regarding any fact relied upon in entering into this Settlement Agreement, and each party does not rely upon any statement, representation or promise of any other party (or any officer, agent, employee, representative, or attorney of or for any other party) in executing this Settlement Agreement, or in making the settlement provided for herein, except as expressly stated int his Settlement Agreement. 4.11 Each party to this Settlement Agreement has made such investigation of the facts pertaining to this settlement and this Settlement Agreement and of all matters pertaining thereto as he or it deems necessary. 4.12 In entering into this Settlement Agreement and the settlement provided for herein, each party assumes the risk of any misrepresentation, concealment or mistake. If any party should subsequently discover that any fact relied upon by him or it in entering into this Settlement Agreement is untrue, or that any fact was concealed from him or it, or that his/its understanding of the facts or of the law was incorrect, such party shall not be entitled to any relief in such connection or otherwise, including, without limiting the generality of the foregoing, any alleged right or claim to set aside or rescind this Settlement Agreement. This Settlement Agreement is intended to be and is final and binding between the Parties hereto with respect to the Released Claims, regardless of any claims of misrepresentation, promise made without the intention of performing, concealment of fact, mistake of fact or law, or of any other circumstance whatsoever. 4. 4.13 Each of the Parties is aware that he/it my hereafter discover claims or facts in addition to or different from those he or it now knows or believes to be true with respect to the Released Claims. Nevertheless, it is the intention of the parties to fully, finally and forever settle and release the Released Claims, which do now exist, may exist, or heretofore have existed between them. 4.14 Each term of this Settlement Agreement is contractual and is not merely a recital. 4.15 Whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. 4.16 The subject headings of the sections, paragraphs and subparagraphs of this Settlement Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions. 4.17 This Settlement Agreement has been jointly prepared and negotiated by counsel for each of the Parties, and the Parties agree that this Settlement Agreement shall be construed as a whole according to its fair meaning and is not to be strictly construed for or against either of the Parties hereto. 4.18 The Parties acknowledge and agree that they each have been represented by separate and independent legal counsel and have relied on counsel of their own choosing at all stages of the negotiation, preparation and drafting of this Settlement Agreement. 4.19 Each Party further acknowledges that this Settlement Agreement, has been explained to each by their respective counsel, and that each Party fully understands the contents and legal effect of said documents. The Parties further acknowledge and agree that they enter into this Settlement Agreement free from duress, fraud, undue influence, coercion, or oppression of any kind. 5. NOTICES 5.1 Any written notice, demand, request or communication that any Party desires or is required to give to or serve on the other Party or any other person pursuant to the Settlement Agreement shall be in writing and either: 5.1.1 Sent by prepaid first-class mail; or 5.1.2 Sent by prepaid one-day early morning Express Mail, Federal Express, or similar next day morning delivery service. 5.2 Notices, demands, requests, consents, approvals, or other such written communications are conclusively deemed received: 5. 5.2.1 Five (5) business days after they are mailed if service or delivery is made pursuant to subpart 5.1.1 above; or 5.2.2 Two (2) business days after transmitted if they are served or delivered pursuant to subpart 5.1.2 above. 5.3 The date on which the last addressee is deemed to have received the notice, demand, request, consent, approval or communications shall be deemed the date of receipt by the Party to whom it is given to or served. 5.4 Any notice, demand, request, consent, approval, or communication that either Party desires or is required to give to the other Party is ordered to be addressed and served on or delivered to the other Party at the addresses set forth below. Any Party may change his or her address by notifying the other Parties of their change of address(es). The address for Cinergi is as follows: Cinergi Pictures Entertainment Inc. and Cinergi Productions N.V. Inc. 2308 Broadway Santa Monica, California 90404 Attn: Erick J. Feitshans, Esq. Facsimile: (310)828-3861 With a copy to: Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars, 32nd Fl. Los Angeles, California 90067 Attn: Skip Brittenham, Esq. Facsimile: (310)553-7068 The address for Summit is as follows: Summit Entertainment L.P. 2308 Broadway Santa Monica, California 90404 Attn: Andrew Matosich, Esq. Facsimile: (310)828-4132 With a copy to: 6. Proskauer Rose Goetz & Mendelsohn LLP 2121 Avenue of the Stars, Suite 2700 Los Angeles, California 90067 Attn: Scott P. Cooper, Esq. 6. CHOICE OF LAW/ATTORNEY'S FEES 6.1 This Settlement Agreement and any controversy which might arise therefrom shall in all respects be interpreted, enforced and governed by the laws of the State of California. Subsequent changes in California law and federal law through legislation or judicial interpretation that creates or finds additional or different rights and obligations of the Parties shall not affect this Settlement Agreement. 6.2 This Settlement Agreement and its validity, construction and effect shall be governed by the laws of the State of California applicable to contracts wholly to be performed therein. In the event one of the Parties hereto institutes any proceeding in connection with or concerning the interpretation or enforcement of this Settlement Agreement, the prevailing Party shall be entitled to recover all reasonable outside attorney's fees, costs and expenses actually incurred in connection with such proceedings. 7. SEVERABILITY 7.1 Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any of the provisions contained herein and any present or future statue, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but the provision of this Settlement Agreement which is affected shall be curtailed and limited to the extent necessary to bring it within the requirements of the law. All of the provisions of this Settlement Agreement are intended to be distinct and severable. 8. EXECUTION 8.1 This Settlement Agreement may be executed in counterparts and when each Party has signed and delivered at least one such counterpart to each of the other Parties, each counterpart shall be deemed an original, and all counterparts taken together shall constitute one and the same 7. agreement, which shall be binding and effective as to all Parties. This Settlement Agreement may be executed via facsimile signatures, which shall have the same force and effect as if they were original signatures. IN WITNESS WHEREOF, the Parties hereto have executed this Settlement Agreement on the date(s) written beside its or his name, respectively and each warrants they have the authority to sign in their representative capacity. CINERGI PICTURES ENTERTAINMENT INC. Dated: 7/24/97 By: /s/ ERICK J. FEITSHANS --------------- --------------------------------- Erick J. Feitshans Its: Vice President ------------------------------- CINERGI PRODUCTIONS N.V. INC. Dated: 7/24/97 By: /s/ ERICK J. FEITSHANS --------------- --------------------------------- Erick J. Feitshans Its: Vice President ------------------------------- SUMMIT ENTERTAINMENT N.V. Dated: 7/29/97 By: /s/ LOURDES GIRIGORI-PENZO --------------- --------------------------------- Lourdes Girigori-Penzo Its: Managing Director -------------------------------- SUMMIT ENTERTAINMENT L.P. Dated: 7/23/97 By: /s/ R. HAYWARD --------------- --------------------------------- R. Hayward Its: Executive Vice President -------------------------------- 8. SETTLEMENT, MUTUAL RELEASE, AND TERMINATION AGREEMENT This Settlement Agreement and Mutual General Release is made as of the 10th day of September, 1997, by and among Cinergi Pictures Entertainment Inc., a corporation orgranized and existing under the laws of Delaware, and Cinergi Productions N.V. Inc., a corporation organized and operating under the laws of Delaware, and all of their respective affiliates (collectively "Cinergi") , on the one hand, and Summit Entertainment N.V., a corporation organized and exisiting under the laws of the Netherland Antilles, and Summit Entertainment L.P., a California Limited Partnership (collectively "Summit"), on the other, relating to the sales agency between Summit and Cinergi (the "Services"). RECITALS A. Cinergi and Summit previously made and entered into that certain Sales Agency Agreement dated as of 1 December 1993 and amended from time-to-time ("Agreement") relating to various motion pictures Cinergi produces for worldwide exploitation which Summit provided foreign sales agency services to Cinergi. B. Cinergi has decided to wind up its production and worldwide exploitation of theatrical motion pictures, and has entered enter an agreement in principle with the Walt Disney Company ("Disney") to acquire virtually all of Cinergi's library of motion pictures. C. Cinergi and Summit wish to terminate the Agreement and to settle any disputes or claims which may have arisen or exist between them arising from the Agreement and the Services as of the date of this Settlement Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, and subject to the terms and conditions set forth below, the Parties desire to, and hereby do, resolve their differences and agree as follows: 1. RELEASE 1.1 RELEASED CLAIMS. 1.1.1 Upon its receipt of the sums set forth in paragraph 2 hereof, Summit hereby releases and forever discharges Cinergi, and all of Cinergi's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Agreement, including without limitation any claim which Summit now has or claims to have or at any time heretofore had, or which at any time hereafter may have or claim to have against Cinergi relating to or Cinergi's performance arising out of or related to the Agreement ("Summit's Claims"). 1. 1.1.2 Cinergi hereby releases and forever discharges Summit, and all of Summit's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Agreement, including without limitation any claim which Cinergi now has or claims to have or at any time heretofore had, or which at any time hereafter may have or claim to have against Summit relating to or concerning Summit's performance arising out of or related to the Agreement, including the Services ("Cinergi's Claims"). (Summit's Claims and Cinergi's Claims are subsequent referred to as the "Released Claims".) 1.2 With respect to the Released Claims, all rights under California Civil Code Section 1542, are hereby expressly waived by the Parties, and each of them notwithstanding any provision to the contrary. Section 1542 provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the Release, which if known by him must have materially affected his settlement with the debtor." The Parties, and each of them, and their representatives, heirs and assigns expressly waive and release any right or benefit which they have or may have under Section 1542 of the Civil Code of the State of California, to the fullest extent that they may waive all such rights and benefits pertaining to the Released Claims. It is the intention of the Parties, and each of them, through this Settlement Agreement, and with the advice of counsel, to fully, finally and forever settle and release all such matters, and all claims relative thereto, in furtherance of such intention. 2. SETTLEMENT TERMS 2.1 PAYMENT IN LIEU OF FEES. Within five (5) business days of Summit's the execution of this Settlement Agreement, Cinergi shall cause to be paid to Summit the sum of nine hundred twenty-six two hundred seventy-nine United States dollars (US$926,279), upon Summit's receipt of which the Agreement is deemed terminated. 2.2 PAYMENT OF CONTINUING EXPENSES. Within fifteen (15) days of its receipt of Summit's customary claim for reimbursement of distribution expenses, Cinergi shall cause to be paid to Summit all distribution expenses claimed thereon which Cinergi is required to reimburse Summit pursuant to the terms of the Agreement. Cinergi is not obligated to pay any such distribution expenses incurred after the date that Disney assumes the liability for the same, and Summit shall thereafter claim reimbursement from, and Cinergi shall ensure that reimbursement is paid by, Disney. 2. 3. CONFIDENTIALITY 3.1 The Parties hereto, and their officers, directors, representatives, agents, employees, and attorneys shall not disclose, directly or indirectly, any of the financial terms of the Settlement agreement, which are confidential. Notwithstanding the foregoing, the Parties shall be able to disclose the terms of the Settlement Agreement as necessary with respect to their legal and financial affairs. In such instance, the Parties shall inform any recipients of such information that the financial terms of the settlement must remain confidential. 4. MISCELLANEOUS PROVISIONS 4.1 In order to carry out the terms and conditions of this Settlement Agreement, the Parties agree to promptly execute upon reasonable request any and all documents and instruments necessary to effectuate the terms of this Settlement Agreement. 4.2 The Parties agree and acknowledge that this Settlement Agreement represents a settlement of disputed claims and that, by entering into this Settlement Agreement no Party admits or acknowledges that they committed any wrongdoing on their part. 4.3 This Settlement Agreement is the entire agreement between the Parties with respect to the Released Claims and supersedes all prior and contemporaneous oral and written agreements and discussions pertaining to the Released Claims. This Settlement agreement may be amended only by an agreement in writing. 4.4 This Settlement Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors, trustees in bankruptcy, and assigns and each and every entity which now or ever was a division, parent, successor, predecessor or subsidiary for each Party and its respective legal successors and assigns. 4.5 The Parties represent and warrant that each of them have not assigned all or any portion of any claim pertaining to the Released Claims to any person or entity. In the event any claims are made by any third persons or entities based upon any purported assignment or any such liens or claims are asserted in connection with the Released Claims or proceeds of the Settlement Agreement, then the Party who has breached his representation or warranty contained herein agrees to indemnify and hold harmless the other Party from any said claims being made. 4.6 In the event that any covenant, condition or other provision herein contained is held to be invalid, void or illegal by any Court of competent jurisdiction, the same shall be deemed severable from the remainder of this Settlement Agreement and shall in no way affect, impair or invalidate any other covenant, condition or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provision shall be deemed valid to the extent of the scope or breadth permitted by law. 3. 4.7 No breach of any provision hereof can be waived unless in writing. Waiver of any one breach of any provision hereof shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. This Settlement Agreement may be amended only by a written agreement executed by each of the Parties hereto. 4.8 The Parties hereto, and each of them, represent and declare that in executing this Settlement Agreement, they rely solely upon their own judgement, belief and knowledge, and on the advice and recommendations of their own independently selected counsel, concerning the nature, extent and duration of their rights and claims and that they have not been influenced to any extent whatsoever in executing the same by any representations or statements covering any matters made by any of the Parties hereto or by any person representing them or any of them. The Parties acknowledge that no Party hereto nor any of their representatives have made any promise, representation or warranty whatsoever, written or oral, as any inducement to enter into this Settlement Agreement, except as expressly set forth in this Settlement Agreement. 4.9 The Parties hereto or responsible officer or representative thereof, and each of them, further represent and warrant that they have carefully read this Settlement Agreement and know and understand the contents thereof, and that they signed this Settlement Agreement freely and voluntarily. Each of the representatives executing this Settlement Agreement on behalf of their respective corporations or partnerships is empowered to do so and thereby binds his respective corporation or partnership. 4.10 No party (nor any officer, agent, employee, representative, or attorney of or for any party) has made any statement or representation to any other party regarding any fact relied upon in entering into this Settlement Agreement, and each party does not rely upon any statement, representation or promise of any other party (or any officer, agent, employee, representative, or attorney of or for any other party) in executing this Settlement Agreement, or in making the settlement provided for herein, except as expressly stated int his Settlement Agreement. 4.11 Each party to this Settlement Agreement has made such investigation of the facts pertaining to this settlement and this Settlement Agreement and of all matters pertaining thereto as he or it deems necessary. 4.12 In entering into this Settlement Agreement and the settlement provided for herein, each party assumes the risk of any misrepresentation, concealment or mistake. If any party should subsequently discover that any fact relied upon by him or it in entering into this Settlement Agreement is untrue, or that any fact was concealed from him or it, or that his/its understanding of the facts or of the law was incorrect, such party shall not be entitled to any relief in such connection or otherwise, including, without limiting the generality of the foregoing, any alleged right or claim to set aside or rescind this Settlement Agreement. This Settlement Agreement is intended to be and is final and binding between the Parties hereto with respect to the Released Claims, regardless of any claims of misrepresentation, promise made without the intention of performing, concealment of fact, mistake of fact or law, or of any other circumstance whatsoever. 4. 4.13 Each of the Parties is aware that he/it my hereafter discover claims or facts in addition to or different from those he or it now knows or believes to be true with respect to the Released Claims. Nevertheless, it is the intention of the parties to fully, finally and forever settle and release the Released Claims, which do now exist, may exist, or heretofore have existed between them. 4.14 Each term of this Settlement Agreement is contractual and is not merely a recital. 4.15 Whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. 4.16 The subject headings of the sections, paragraphs and subparagraphs of this Settlement Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions. 4.17 This Settlement Agreement has been jointly prepared and negotiated by counsel for each of the Parties, and the Parties agree that this Settlement Agreement shall be construed as a whole according to its fair meaning and is not to be strictly construed for or against either of the Parties hereto. 4.18 The Parties acknowledge and agree that they each have been represented by separate and independent legal counsel and have relied on counsel of their own choosing at all stages of the negotiation, preparation and drafting of this Settlement Agreement. 4.19 Each Party further acknowledges that this Settlement Agreement, has been explained to each by their respective counsel, and that each Party fully understands the contents and legal effect of said documents. The Parties further acknowledge and agree that they enter into this Settlement Agreement free from duress, fraud, undue influence, coercion, or oppression of any kind. 5. NOTICES 5.1 Any written notice, demand, request or communication that any Party desires or is required to give to or serve on the other Party or any other person pursuant to the Settlement Agreement shall be in writing and either: 5.1.1 Sent by prepaid first-class mail; or 5.1.2 Sent by prepaid one-day early morning Express Mail, Federal Express, or similar next day morning delivery service. 5.2 Notices, demands, requests, consents, approvals, or other such written communications are conclusively deemed received: 5. 5.2.1 Five (5) business days after they are mailed if service or delivery is made pursuant to subpart 5.1.1 above; or 5.2.2 Two (2) business days after transmitted if they are served or delivered pursuant to subpart 5.1.2 above. 5.3 The date on which the last addressee is deemed to have received the notice, demand, request, consent, approval or communications shall be deemed the date of receipt by the Party to whom it is given to or served. 5.4 Any notice, demand, request, consent, approval, or communication that either Party desires or is required to give to the other Party is ordered to be addressed and served on or delivered to the other Party at the addresses set forth below. Any Party may change his or her address by notifying the other Parties of their change of address(es). The address for Cinergi is as follows: Cinergi Pictures Entertainment Inc. and Cinergi Productions N.V. Inc. 2308 Broadway Santa Monica, California 90404 Attn: Erick J. Feitshans, Esq. Facsimile: (310)828-3861 With a copy to: Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars, 32nd Fl. Los Angeles, California 90067 Attn: Skip Brittenham, Esq. Facsimile: (310)553-7068 The address for Summit is as follows: Summit Entertainment N.V. Castorweg 22-24 P.O. Box 155 Curacao, Netherlands Antilles Attn: Lourdes Girigori-Penzo With a copy to 6. Summit Entertainment L.P. 2308 Broadway Santa Monica, California 90404 Attn: Andrew Matosich, Esq. Facsimile: (310)828-4132 With a copy to: Proskauer Rose Goetz & Mendelsohn LLP 2121 Avenue of the Stars, Suite 2700 Los Angeles, California 90067 Attn: Scott P. Cooper, Esq. 6. CHOICE OF LAW/ATTORNEY'S FEES 6.1 This Settlement Agreement and any controversy which might arise therefrom shall in all respects be interpreted, enforced and governed by the laws of the State of California. Subsequent changes in California law and federal law through legislation or judicial interpretation that creates or finds additional or different rights and obligations of the Parties shall not affect this Settlement Agreement. 6.2 This Settlement Agreement and its validity, construction and effect shall be governed by the laws of the State of California applicable to contracts wholly to be performed therein. In the event one of the Parties hereto institutes any proceeding in connection with or concerning the interpretation or enforcement of this Settlement Agreement, the prevailing Party shall be entitled to recover all reasonable outside attorney's fees, costs and expenses actually incurred in connection with such proceedings. 7. SEVERABILITY 7.1 Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any of the provisions contained herein and any present or future statue, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but the provision of this Settlement Agreement which is affected shall be curtailed and limited to the extent necessary to bring it within the requirements of the law. All of the provisions of this Settlement Agreement are intended to be distinct and severable. 8. EXECUTION 8.1 This Settlement Agreement may be executed in counterparts and when each Party has signed and delivered at least one such counterpart to each of the other Parties, each counterpart shall be deemed an original, and all counterparts taken together shall constitute one and the same 7. agreement, which shall be binding and effective as to all Parties. This Settlement Agreement may be executed via facsimile signatures, which shall have the same force and effect as if they were original signatures. IN WITNESS WHEREOF, the Parties hereto have executed this Settlement Agreement on the date(s) written beside its or his name, respectively and each warrants they have the authority to sign in their representative capacity. CINERGI PICTURES ENTERTAINMENT INC. Dated: September 10, 1997 By: /s/ Erick J. Feitshans ------------------------------------ Its: Vice President ------------------------------------ CINERGI PRODUCTIONS N.V. INC. Dated: September 10, 1997 By: /s/ Erick J. Feitshans ------------------------------------ Its: Vice President ------------------------------------ SUMMIT ENTERTAINMENT N.V. Dated: September 10, 1997 By: /s/ Lourdes Girigori-Penzo ------------------------------------ Its: Managing Director ------------------------------------ SUMMIT ENTERTAINMENT L.P. Dated: September 10, 1997 By: /s/ Andrew J. Matosich ------------------------------------ Its: Vice President ------------------------------------ 8. SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual General Release is made as of the 10th day of September, 1997, by and among Cinergi Pictures Entertainment Inc., a corporation organized and existing under the laws of Delaware, and Cinergi Productions N.V. Inc., a corporation organized and operating under the laws of Delaware, and all of their respective affiliates (collectively "Cinergi"), on the one hand, and Summit Entertainment N.V., a corporation organized and existing under the laws of the Netherland Antilles ("Summit"), on the other, relating to that certain dispute between Film Office and Cinergi concerning the motion picture "Shadow Conspiracy" (the "Picture"). RECITALS A. Cinergi and Summit previously made and entered into that certain Sales Agency Agreement dated as of 1 December 1993 and amended from time-to-time ("Agreement") relating to various motion pictures Cinergi produces for worldwide exploitation which Summit provided foreign sales agency services to Cinergi. B. Cinergi Productions N.V. Inc., Summit Entertainment L.P., and Chemical Bank were named defendants in a civil action before the Superior Court of the State of California for the County of Los Angeles (case number BC 156333), filed on or about August 28, 1996, by Film Office, a French Societe (the "State Action"). C. Cinergi Productions N.V. Inc. and Summit Entertainment L.P. were named defendants in a special proceeding before the honorable M. Gauthier, President, Tribunal de Commerce de Paris (the "French Action"), which resulted in an order dated September 25, 1996, enjoining Cinergi Productions, N.V. Inc., Summit Entertainment L.P., Inc. and ABN-AMRO Bank from negotiating a certain letter of credit. D. Cinergi Productions N.V. Inc. was the claimant in an arbitral proceeding against Film Office filed on or about October 22, 1996 with the American Film Marketing Association (the "Arbitration"). E. Chase Manhattan Bank (formerly known as Chemical Bank) was the petitioner and appellant in an appeal of a ruling in the State Action, which was filed before the Court of Appeal of the State of California, Second Appellate District, Division 7 (case number B105694) (the "Appeal"). F. Cinergi and Summit wish to settle any disputes or claims arising out of or related to the State Action, the French Action, the Appeal, and the Arbitration and the subject matter thereof (collecting the "Actions") as of the date of this Settlement Agreement. G. Cinergi and Summit Entertainment L.P. have entered into a settlement agreement dated as of the 1st day of July, 1997, relating to the Actions (the "L.P. Settlement"). 1. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, and subject to the terms and conditions set forth below, the Parties desire to, and hereby do, resolve their differences and agree as follows: 1. RELEASE 1.1 RELEASED CLAIMS. 1.1.1 Summit hereby releases and forever discharges Cinergi, and all of Cinergi's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Actions. 1.1.2 In consideration for, and upon performance of, the L.P. Settlement, Cinergi hereby releases and forever discharges Summit, and all of Summit's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Actions. 1.2 With respect to the Released Claims, all rights under California Civil Code Section 1542, are hereby expressly waived by the Parties, and each of them notwithstanding any provision to the contrary. Section 1542 provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the Release, which if known by him must have materially affected his settlement with the debtor." The Parties, and each of them, and their representatives, heirs and assigns expressly waive and release any right or benefit which they have or may have under Section 1542 of the Civil Code of the State of California, to the fullest extent that they may waive all such rights and benefits pertaining to the Actions. It is the intention of the Parties, and each of them, through this Settlement Agreement, and with the advice of counsel, to fully, finally and forever settle and release all such matters, and all claims relative thereto, in furtherance of such intention. 2. CONFIDENTIALITY 2.1 The Parties hereto, and their officers, directors, representatives, agents, employees, and attorneys shall not disclose, directly or indirectly, any of the financial terms of the Settlement agreement, which are confidential. Notwithstanding the foregoing, the Parties shall be able to 2. disclose the terms of the Settlement Agreement as necessary with respect to their legal and financial affairs. In such instance, the Parties shall inform any recipients of such information that the financial terms of the settlement must remain confidential. 3. MISCELLANEOUS PROVISIONS 3.1 In order to carry out the terms and conditions of this Settlement Agreement, the Parties agree to promptly execute upon reasonable request any and all documents and instruments necessary to effectuate the terms of this Settlement Agreement. 3.2 The Parties agree and acknowledge that this Settlement Agreement represents a settlement of disputed claims and that, by entering into this Settlement Agreement no Party admits or acknowledges that they committed any wrongdoing on their part. 3.3 This Settlement Agreement is the entire agreement between the Parties with respect to the Released Claims and supersedes all prior and contemporaneous oral and written agreements and discussions pertaining to the Released Claims. This Settlement agreement may be amended only by an agreement in writing. 3.4 This Settlement Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors, trustees in bankruptcy, and assigns and each and every entity which now or ever was a division, parent, successor, predecessor or subsidiary for each Party and its respective legal successors and assigns. 3.5 The Parties represent and warrant that each of them have not assigned all or any portion of any claim pertaining to the Released Claims to any person or entity. In the event any claims are made by any third persons or entities based upon any purported assignment or any such liens or claims are asserted in connection with the Released Claims or proceeds of the Settlement Agreement, then the Party who has breached his representation or warranty contained herein agrees to indemnify and hold harmless the other Party from any said claims being made. 3.6 In the event that any covenant, condition or other provision herein contained is held to be invalid, void or illegal by any Court of competent jurisdiction, the same shall be deemed severable from the remainder of this Settlement Agreement and shall in no way affect, impair or invalidate any other covenant, condition or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provision shall be deemed valid to the extent of the scope or breadth permitted by law. 3.7 No breach of any provision hereof can be waived unless in writing. Waiver of any one breach of any provision hereof shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. This Settlement Agreement may be amended only by a written agreement executed by each of the Parties hereto. 3. 3.8 The Parties hereto, and each of them, represent and declare that in executing this Settlement Agreement, they rely solely upon their own judgement, belief and knowledge, and on the advice and recommendations of their own independently selected counsel, concerning the nature, extent and duration of their rights and claims and that they have not been influenced to any extent whatsoever in executing the same by any representations or statements covering any matters made by any of the Parties hereto or by any person representing them or any of them. The Parties acknowledge that no Party hereto nor any of their representatives have made any promise, representation or warranty whatsoever, written or oral, as any inducement to enter into this Settlement Agreement, except as expressly set forth in this Settlement Agreement. 3.9 The Parties hereto or responsible officer or representative thereof, and each of them, further represent and warrant that they have carefully read this Settlement Agreement and know and understand the contents thereof, and that they signed this Settlement Agreement freely and voluntarily. Each of the representatives executing this Settlement Agreement on behalf of their respective corporations or partnerships is empowered to do so and thereby binds his respective corporation or partnership. 3.10 No party (nor any officer, agent, employee, representative, or attorney of or for any party) has made any statement or representation to any other party regarding any fact relied upon in entering into this Settlement Agreement, and each party does not rely upon any statement, representation or promise of any other party (or any officer, agent, employee, representative, or attorney of or for any other party) in executing this Settlement Agreement, or in making the settlement provided for herein, except as expressly stated int his Settlement Agreement. 3.11 Each party to this Settlement Agreement has made such investigation of the facts pertaining to this settlement and this Settlement Agreement and of all matters pertaining thereto as he or it deems necessary. 3.12 In entering into this Settlement Agreement and the settlement provided for herein, each party assumes the risk of any misrepresentation, concealment or mistake. If any party should subsequently discover that any fact relied upon by him or it in entering into this Settlement Agreement is untrue, or that any fact was concealed from him or it, or that his/its understanding of the facts or of the law was incorrect, such party shall not be entitled to any relief in such connection or otherwise, including, without limiting the generality of the foregoing, any alleged right or claim to set aside or rescind this Settlement Agreement. This Settlement Agreement is intended to be and is final and binding between the Parties hereto with respect to the Released Claims, regardless of any claims of misrepresentation, promise made without the intention of performing, concealment of fact, mistake of fact or law, or of any other circumstance whatsoever. 3.13 Each of the Parties is aware that he/it my hereafter discover claims or facts in addition to or different from those he or it now knows or believes to be true with respect to the Released Claims. Nevertheless, it is the intention of the parties to fully, finally and forever settle and release the Released Claims, which do now exist, may exist, or heretofore have existed between them. 4. 3.14 Each term of this Settlement Agreement is contractual and is not merely a recital. 3.15 Whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. 3.16 The subject headings of the sections, paragraphs and subparagraphs of this Settlement Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions. 3.17 This Settlement Agreement has been jointly prepared and negotiated by counsel for each of the Parties, and the Parties agree that this Settlement Agreement shall be construed as a whole according to its fair meaning and is not to be strictly construed for or against either of the Parties hereto. 3.18 The Parties acknowledge and agree that they each have been represented by separate and independent legal counsel and have relied on counsel of their own choosing at all stages of the negotiation, preparation and drafting of this Settlement Agreement. 3.19 Each Party further acknowledges that this Settlement Agreement, has been explained to each by their respective counsel, and that each Party fully understands the contents and legal effect of said documents. The Parties further acknowledge and agree that they enter into this Settlement Agreement free from duress, fraud, undue influence, coercion, or oppression of any kind. 4. NOTICES 4.1 Any written notice, demand, request or communication that any Party desires or is required to give to or serve on the other Party or any other person pursuant to the Settlement Agreement shall be in writing and either: 4.1.1 Sent by prepaid first-class mail; or 4.1.2 Sent by prepaid one-day early morning Express Mail, Federal Express, or similar next day morning delivery service. 4.2 Notices, demands, requests, consents, approvals, or other such written communications are conclusively deemed received: 4.2.1 Five (5) business days after they are mailed if service or delivery is made pursuant to subpart 4.1.1 above; or 4.2.2 Two (2) business days after transmitted if they are served or delivered pursuant to subpart 4.1.2 above. 5. 4.3 The date on which the last addressee is deemed to have received the notice, demand, request, consent, approval or communications shall be deemed the date of receipt by the Party to whom it is given to or served. 4.4 Any notice, demand, request, consent, approval, or communication that either Party desires or is required to give to the other Party is ordered to be addressed and served on or delivered to the other Party at the addresses set forth below. Any Party may change his or her address by notifying the other Parties of their change of address(es). The address for Cinergi is as follows: Cinergi Pictures Entertainment Inc. and Cinergi Productions N.V. Inc. 2308 Broadway Santa Monica, California 90404 Attn: Erick J. Feitshans, Esq. Facsimile: (310) 828-3861 With a copy to: Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars, 32nd Fl. Los Angeles, California 90067 Attn: Skip Brittenham, Esq. Facsimile: (310) 553-7068 The address for Summit is as follows: Summit Entertainment N.V. Castorweg 22-24 P.O. Box 155 Curacao, Netherlands Antilles Attn: Lourdes Girigori-Penzo With copies to Summit Entertainment L.P. 2308 Broadway Santa Monica, California 90404 Attn: Andrew Matosich, Esq. Facsimile: (310)828-4132 6. and to: Proskauer Rose Goetz & Mendelsohn LLP 2121 Avenue of the Stars, Suite 2700 Los Angeles, California 90067 Attn: Scott P. Cooper, Esq. 5. CHOICE OF LAW/ATTORNEY'S FEES 5.1 This Settlement Agreement and any controversy which might arise therefrom shall in all respects be interpreted, enforced and governed by the laws of the State of California. Subsequent changes in California law and federal law through legislation or judicial interpretation that creates or finds additional or different rights and obligations of the Parties shall not affect this Settlement Agreement. 5.2 This Settlement Agreement and its validity, construction and effect shall be governed by the laws of the State of California applicable to contracts wholly to be performed therein. In the event one of the Parties hereto institutes any proceeding in connection with or concerning the interpretation or enforcement of this Settlement Agreement, the prevailing Party shall be entitled to recover all reasonable outside attorney's fees, costs and expenses actually incurred in connection with such proceedings. 6. SEVERABILITY 6.1 Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any of the provisions contained herein and any present or future statue, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but the provision of this Settlement Agreement which is affected shall be curtailed and limited to the extent necessary to bring it within the requirements of the law. All of the provisions of this Settlement Agreement are intended to be distinct and severable. 7. EXECUTION 7.1 This Settlement Agreement may be executed in counterparts and when each Party has signed and delivered at least one such counterpart to each of the other Parties, each counterpart shall be deemed an original, and all counterparts taken together shall constitute one and the same 7. agreement, which shall be binding and effective as to all Parties. This Settlement Agreement may be executed via facsimile signatures, which shall have the same force and effect as if they were original signatures. IN WITNESS WHEREOF, the Parties hereto have executed this Settlement Agreement on the date(s) written beside its or his name, respectively and each warrants they have the authority to sign in their representative capacity. CINERGI PICTURES ENTERTAINMENT INC. Dated: September 10, 1997 By: /s/ Erick J. Feitshans -------------------------- Its: Vice President -------------------------- CINERGI PRODUCTIONS N.V. INC. Dated: September 10, 1997 By: /s/ Erick J. Feitshans -------------------------- Its: Vice President -------------------------- SUMMIT ENTERTAINMENT N.V. Dated: September 10, 1997 By: /s/ Lourdes Girigori-Penzo -------------------------- Its: Managing Director -------------------------- 8. SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual General Release is made as of the 10th day of September 1997, by and among Cinergi Pictures Entertainment Inc., a corporation organized and existing under the laws of Delaware, and Cinergi Productions N.V. Inc., a corporation organized and operating under the laws of Delaware, and all of their respective affiliates (collectively "Cinergi"), on the one hand, and Summit Entertainment L.P., a California Limited Partnership ("Summit"), on the other, relating to that certain dispute between Film Office and Cinergi concerning the motion picture "Shadow Conspiracy" (the "Picture"). RECITALS A. Cinergi and Summit previously made and entered into that certain Sales Agency Agreement dated as of 1 December 1993 and amended from time-to-time ("Agreement") relating to various motion pictures Cinergi produces for worldwide exploitation which Summit provided foreign sales agency services to Cinergi. B. Cinergi Productions N.V. Inc., Summit Entertainment L.P., and Chemical Bank were named defendants in a civil action before the Superior Court of the State of California for the County of Los Angeles (case number BC 156333), filed on or about August 28, 1996, by Film Office, a French Societe (the "State Action"). C. Cinergi Productions N.V. Inc. and Summit Entertainment L.P. were named defendants in a special proceeding before the honorable M. Gauthier, President, Tribunal de Commerce de Paris (the "French Action"), which resulted in an order dated September 25, 1996, enjoining Cinergi Productions, N.V. Inc., Summit Entertainment L.P., Inc. and ABN-AMRO Bank from negotiating a certain letter of credit. D. Cinergi Productions N.V. Inc. was the claimant in an arbitral proceeding against Film Office filed on or about October 22, 1996 with the American Film Marketing Association (the "Arbitration"). E. Chase Manhattan Bank (formerly known as Chemical Bank) was the petitioner and appellant in an appeal of a ruling in the State Action, which was filed before the Court of Appeal of the State of California, Second Appellate District, Division 7 (case number B105694) (the "Appeal"). F. Cinergi and Summit wish to settle any disputes or claims arising out of or related to the State Action, the French Action, the Appeal, and the Arbitration and the subject matter thereof (collecting the "Actions") as of the date of this Settlement Agreement. 1. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, and subject to the terms and conditions set forth below, the Parties desire to, and hereby do, resolve their differences and agree as follows: 1. RELEASE 1.1 RELEASED CLAIMS. 1.1.1 Summit hereby releases and forever discharges Cinergi, and all of Cinergi's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Actions. 1.1.2 Upon its receipt of the sum set forth in paragraph 2 hereof, Cinergi hereby releases and forever discharges Summit, and all of Summit's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Actions. 1.2 With respect to the Released Claims, all rights under California Civil Code Section 1542, are hereby expressly waived by the Parties, and each of them notwithstanding any provision to the contrary. Section 1542 provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the Release, which if known by him must have materially affected his settlement with the debtor." The Parties, and each of them, and their representatives, heirs and assigns expressly waive and release any right or benefit which they have or may have under Section 1542 of the Civil Code of the State of California, to the fullest extent that they may waive all such rights and benefits pertaining to the Actions. It is the intention of the Parties, and each of them, through this Settlement Agreement, and with the advice of counsel, to fully, finally and forever settle and release all such matters, and all claims relative thereto, in furtherance of such intention. 2. SETTLEMENT TERMS 2.1 PAYMENT. Within five (5) business days of the execution of this Settlement Agreement, Summit shall cause to be paid to Cinergi the sum of four hundred and twenty five thousand United States dollars (US$425,000). 2. 3. CONFIDENTIALITY 3.1 The Parties hereto, and their officers, directors, representatives, agents, employees, and attorneys shall not disclose, directly or indirectly, any of the financial terms of the Settlement agreement, which are confidential. Notwithstanding the foregoing, the Parties shall be able to disclose the terms of the Settlement Agreement as necessary with respect to their legal and financial affairs. In such instance, the Parties shall inform any recipients of such information that the financial terms of the settlement must remain confidential. 4. MISCELLANEOUS PROVISIONS 4.1 In order to carry out the terms and conditions of this Settlement Agreement, the Parties agree to promptly execute upon reasonable request any and all documents and instruments necessary to effectuate the terms of this Settlement Agreement. 4.2 The Parties agree and acknowledge that this Settlement Agreement represents a settlement of disputed claims and that, by entering into this Settlement Agreement no Party admits or acknowledges that they committed any wrongdoing on their part. 4.3 This Settlement Agreement is the entire agreement between the Parties with respect to the Released Claims and supersedes all prior and contemporaneous oral and written agreements and discussions pertaining to the Released Claims. This Settlement agreement may be amended only by an agreement in writing. 4.4 This Settlement Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors, trustees in bankruptcy, and assigns and each and every entity which now or ever was a division, parent, successor, predecessor or subsidiary for each Party and its respective legal successors and assigns. 4.5 The Parties represent and warrant that each of them have not assigned all or any portion of any claim pertaining to the Released Claims to any person or entity. In the event any claims are made by any third persons or entities based upon any purported assignment or any such liens or claims are asserted in connection with the Released Claims or proceeds of the Settlement Agreement, then the Party who has breached his representation or warranty contained herein agrees to indemnify and hold harmless the other Party from any said claims being made. 4.6 In the event that any covenant, condition or other provision herein contained is held to be invalid, void or illegal by any Court of competent jurisdiction, the same shall be deemed severable from the remainder of this Settlement Agreement and shall in no way affect, impair or invalidate any other covenant, condition or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provision shall be deemed valid to the extent of the scope or breadth permitted by law. 3. 4.7 No breach of any provision hereof can be waived unless in writing. Waiver of any one breach of any provision hereof shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. This Settlement Agreement may be amended only by a written agreement executed by each of the Parties hereto. 4.8 The Parties hereto, and each of them, represent and declare that in executing this Settlement Agreement, they rely solely upon their own judgement, belief and knowledge, and on the advice and recommendations of their own independently selected counsel, concerning the nature, extent and duration of their rights and claims and that they have not been influenced to any extent whatsoever in executing the same by any representations or statements covering any matters made by any of the Parties hereto or by any person representing them or any of them. The Parties acknowledge that no Party hereto nor any of their representatives have made any promise, representation or warranty whatsoever, written or oral, as any inducement to enter into this Settlement Agreement, except as expressly set forth in this Settlement Agreement. 4.9 The Parties hereto or responsible officer or representative thereof, and each of them, further represent and warrant that they have carefully read this Settlement Agreement and know and understand the contents thereof, and that they signed this Settlement Agreement freely and voluntarily. Each of the representatives executing this Settlement Agreement on behalf of their respective corporations or partnerships is empowered to do so and thereby binds his respective corporation or partnership. 4.10 No party (nor any officer, agent, employee, representative, or attorney of or for any party) has made any statement or representation to any other party regarding any fact relied upon in entering into this Settlement Agreement, and each party does not rely upon any statement, representation or promise of any other party (or any officer, agent, employee, representative, or attorney of or for any other party) in executing this Settlement Agreement, or in making the settlement provided for herein, except as expressly stated int his Settlement Agreement. 4.11 Each party to this Settlement Agreement has made such investigation of the facts pertaining to this settlement and this Settlement Agreement and of all matters pertaining thereto as he or it deems necessary. 4.12 In entering into this Settlement Agreement and the settlement provided for herein, each party assumes the risk of any misrepresentation, concealment or mistake. If any party should subsequently discover that any fact relied upon by him or it in entering into this Settlement Agreement is untrue, or that any fact was concealed from him or it, or that his/its understanding of the facts or of the law was incorrect, such party shall not be entitled to any relief in such connection or otherwise, including, without limiting the generality of the foregoing, any alleged right or claim to set aside or rescind this Settlement Agreement. This Settlement Agreement is intended to be and is final and binding between the Parties hereto with respect to the Released Claims, regardless of any claims of misrepresentation, promise made without the intention of performing, concealment of fact, mistake of fact or law, or of any other circumstance whatsoever. 4. 4.13 Each of the Parties is aware that he/it my hereafter discover claims or facts in addition to or different from those he or it now knows or believes to be true with respect to the Released Claims. Nevertheless, it is the intention of the parties to fully, finally and forever settle and release the Released Claims, which do now exist, may exist, or heretofore have existed between them. 4.14 Each term of this Settlement Agreement is contractual and is not merely a recital. 4.15 Whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. 4.16 The subject headings of the sections, paragraphs and subparagraphs of this Settlement Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions. 4.17 This Settlement Agreement has been jointly prepared and negotiated by counsel for each of the Parties, and the Parties agree that this Settlement Agreement shall be construed as a whole according to its fair meaning and is not to be strictly construed for or against either of the Parties hereto. 4.18 The Parties acknowledge and agree that they each have been represented by separate and independent legal counsel and have relied on counsel of their own choosing at all stages of the negotiation, preparation and drafting of this Settlement Agreement. 4.19 Each Party further acknowledges that this Settlement Agreement, has been explained to each by their respective counsel, and that each Party fully understands the contents and legal effect of said documents. The Parties further acknowledge and agree that they enter into this Settlement Agreement free from duress, fraud, undue influence, coercion, or oppression of any kind. 5. NOTICES 5.1 Any written notice, demand, request or communication that any Party desires or is required to give to or serve on the other Party or any other person pursuant to the Settlement Agreement shall be in writing and either: 5.1.1 Sent by prepaid first-class mail; or 5.1.2 Sent by prepaid one-day early morning Express Mail, Federal Express, or similar next day morning delivery service. 5.2 Notices, demands, requests, consents, approvals, or other such written communications are conclusively deemed received: 5. 5.2.1 Five (5) business days after they are mailed if service or delivery is made pursuant to subpart 5.1.1 above; or 5.2.2 Two (2) business days after transmitted if they are served or delivered pursuant to subpart 5.1.2 above. 5.3 The date on which the last addressee is deemed to have received the notice, demand, request, consent, approval or communications shall be deemed the date of receipt by the Party to whom it is given to or served. 5.4 Any notice, demand, request, consent, approval, or communication that either Party desires or is required to give to the other Party is ordered to be addressed and served on or delivered to the other Party at the addresses set forth below. Any Party may change his or her address by notifying the other Parties of their change of address(es). The address for Cinergi is as follows: Cinergi Pictures Entertainment Inc. and Cinergi Productions N.V. Inc. 2308 Broadway Santa Monica, California 90404 Attn: Erick J. Feitshans, Esq. Facsimile: (310) 828-3861 With a copy to: Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars, 32nd Fl. Los Angeles, California 90067 Attn: Skip Brittenham, Esq. Facsimile: (310) 553-7068 The address for Summit is as follows: Summit Entertainment L.P. 2308 Broadway Santa Monica, California 90404 Attn: Andrew Matosich, Esq. Facsimile: (310) 828-4132 With a copy to: 6. Proskauer Rose Goetz & Mendelsohn LLP 2121 Avenue of the Stars, Suite 2700 Los Angeles, California 90067 Attn: Scott P. Cooper, Esq. 6. CHOICE OF LAW/ATTORNEY'S FEES 6.1 This Settlement Agreement and any controversy which might arise therefrom shall in all respects be interpreted, enforced and governed by the laws of the State of California. Subsequent changes in California law and federal law through legislation or judicial interpretation that creates or finds additional or different rights and obligations of the Parties shall not affect this Settlement Agreement. 6.2 This Settlement Agreement and its validity, construction and effect shall be governed by the laws of the State of California applicable to contracts wholly to be performed therein. In the event one of the Parties hereto institutes any proceeding in connection with or concerning the interpretation or enforcement of this Settlement Agreement, the prevailing Party shall be entitled to recover all reasonable outside attorney's fees, costs and expenses actually incurred in connection with such proceedings. 7. SEVERABILITY 7.1 Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any of the provisions contained herein and any present or future statue, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but the provision of this Settlement Agreement which is affected shall be curtailed and limited to the extent necessary to bring it within the requirements of the law. All of the provisions of this Settlement Agreement are intended to be distinct and severable. 8. EXECUTION 8.1 This Settlement Agreement may be executed in counterparts and when each Party has signed and delivered at least one such counterpart to each of the other Parties, each counterpart shall be deemed an original, and all counterparts taken together shall constitute one and the same agreement, which shall be binding and effective as to all Parties. This Settlement Agreement may be 7. executed via facsimile signatures, which shall have the same force and effect as if they were original signatures. IN WITNESS WHEREOF, the Parties hereto have executed this Settlement Agreement on the date(s) written beside its or his name, respectively and each warrants they have the authority to sign in their representative capacity. CINERGI PICTURES ENTERTAINMENT INC. Dated: September 10, 1997 By: /s/ Erick J. Feitshans ----------------------------------- Its: Vice President ----------------------------------- CINERGI PRODUCTIONS N.V. INC. Dated: September 10, 1997 By: /s/ Erick J. Feitshans ----------------------------------- Its: Vice President ----------------------------------- SUMMIT ENTERTAINMENT L.P. Dated: September 10, 1997 By: /s/ Andrew J. Matosich ----------------------------------- Its: Vice President ----------------------------------- 8. SETTLEMENT, MUTUAL RELEASE, AND TERMINATION AGREEMENT This Settlement Agreement and Mutual General Release is made as of the 10th day of September, 1997 (the "EFFECTIVE DATE"), by and among Summit Export (UK) Ltd, a corporation organized and exisiting under the laws of the the United Kingdom ("SUK"), on the one hand, and Cinergi Productions, Kft., a corporation organized and existing under the laws of Hungary ("KFT"), on the other, relating to the rights to receive certain payments due pursuant to the terms of various motion picture lease agreements. RECITALS A. Prior to the Effective Date, KFT and SUK previously made and entered into various film lease agreements, which were amended from time-to-time relating to various motion pictures SUK leased from various producers (the "LEASE AGREEMENTS"). Pursuant to the Lease Agreements, KFT was entitled to receive payment of one percent (1%) of the amount of gross receipts received pursuant to all sublicenses effected by KFT. B. To date, SUK has not paid KFT, and KFT has not received, any funds due pursuant to the Lease Agreements. C. As of the Effective Date, SUK has entered into that certain settlement agreement with Cinergi Pictures Entertainment Inc. and Cinergi Productions N.V. Inc. (collectively "Cinergi") with respect to certain sums owed by Cinergi to SUK (the "CINERGI/SUK AGREEMENT"). D. SUK and KFT want to settle any disputes or claims which may have arisen or exist between them arising from the Lease Agreements as of the Effective Date.. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, and subject to the terms and conditions set forth below, the Parties desire to, and hereby do, resolve their differences and agree as follows: 1. RELEASE 1.1 RELEASED CLAIMS. 1.1.1 In consideration for, and upon receipt by KFT of a signed copy of the Cinergi/SUK Agreeement, KFT hereby releases and forever discharges SUK, and all of SUK's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Lease Agreements, including without limitation any claim which KFT now has or claims to have or at any time heretofore had, or which at any time hereafter may have or claim to have against SUK relating to or SUK's performance arising out of or related to the Lease Agreements ("KFT'S CLAIMS"). 1 1.1.2 SUK hereby releases and forever discharges KFT, and all of KFT's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Lease Agreements, including without limitation any claim which SUK now has or claims to have or at any time heretofore had, or which at any time hereafter may have or claim to have against KFT relating to or concerning KFT's performance arising out of or related to the Lease Agreements, including the Lease Agreements ("SUK'S CLAIMS"). (KFT's Claims and SUK's Claims are subsequently referred to as the "RELEASED CLAIMS".) 2. CONFIDENTIALITY 2.1 The Parties hereto, and their officers, directors, representatives, agents, employees, and attorneys shall not disclose, directly or indirectly, any of the financial terms of the Settlement Agreement, which are confidential. Notwithstanding the foregoing, the Parties shall be able to disclose the terms of the Settlement Agreement as necessary with respect to their legal and financial affairs. In such instance, the Parties shall inform any recipients of such information that the financial terms of the settlement must remain confidential. 3. MISCELLANEOUS PROVISIONS 3.1 In order to carry out the terms and conditions of this Settlement Agreement, the Parties agree to promptly execute upon reasonable request any and all documents and instruments necessary to effectuate the terms of this Settlement Agreement. 3.2 The Parties agree and acknowledge that this Settlement Agreement represents a settlement of disputed claims and that, by entering into this Settlement Agreement no Party admits or acknowledges that they committed any wrongdoing on their part. 3.3 This Settlement Agreement is the entire agreement between the Parties with respect to the Released Claims and supersedes all prior and contemporaneous oral and written agreements and discussions pertaining to the Released Claims. This Settlement agreement may be amended only by an agreement in writing. 3.4 This Settlement Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors, trustees in bankruptcy, and assigns and each and every entity which now or ever was a division, parent, successor, predecessor or subsidiary for each Party and its respective legal successors and assigns. 3.5 The Parties represent and warrant that each of them have not assigned all or any portion of any claim pertaining to the Released Claims to any person or entity. In the event any claims are made by any third persons or entities based upon any purported assignment or any such liens or claims are asserted in connection with the Released Claims or proceeds of the Settlement Agreement, then 2 the Party who has breached his representation or warranty contained herein agrees to indemnify and hold harmless the other Party from any said claims being made. 3.6 In the event that any covenant, condition or other provision herein contained is held to be invalid, void or illegal by any Court of competent jurisdiction, the same shall be deemed severable from the remainder of this Settlement Agreement and shall in no way affect, impair or invalidate any other covenant, condition or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provision shall be deemed valid to the extent of the scope or breadth permitted by law. 3.7 No breach of any provision hereof can be waived unless in writing. Waiver of any one breach of any provision hereof shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. 3.8 The Parties hereto, and each of them, represent and declare that in executing this Settlement Agreement, they rely solely upon their own judgement, belief and knowledge, and on the advice and recommendations of their own independently selected counsel, concerning the nature, extent and duration of their rights and claims and that they have not been influenced to any extent whatsoever in executing the same by any representations or statements covering any matters made by any of the Parties hereto or by any person representing them or any of them. The Parties acknowledge that no Party hereto nor any of their representatives have made any promise, representation or warranty whatsoever, written or oral, as any inducement to enter into this Settlement Agreement, except as expressly set forth in this Settlement Agreement. 3.9 The Parties hereto or responsible officer or representative thereof, and each of them, further represent and warrant that they have carefully read this Settlement Agreement and know and understand the contents thereof, and that they signed this Settlement Agreement freely and voluntarily. Each of the representatives executing this Settlement Agreement on behalf of their respective corporations or partnerships is empowered to do so and thereby binds his respective corporation or partnership. 3.10 No party (nor any officer, agent, employee, representative, or attorney of or for any party) has made any statement or representation to any other party regarding any fact relied upon in entering into this Settlement Agreement, and each party does not rely upon any statement, representation or promise of any other party (or any officer, agent, employee, representative, or attorney of or for any other party) in executing this Settlement Agreement, or in making the settlement provided for herein, except as expressly stated int his Settlement Agreement. 3.11 Each party to this Settlement Agreement has made such investigation of the facts pertaining to this settlement and this Settlement Agreement and of all matters pertaining thereto as he or it deems necessary. 3.12 In entering into this Settlement Agreement and the settlement provided for herein, each party assumes the risk of any misrepresentation, concealment or mistake. If any party should subsequently discover that any fact relied upon by him or it in entering into this Settlement Agreement 3 is untrue, or that any fact was concealed from him or it, or that his/its understanding of the facts or of the law was incorrect, such party shall not be entitled to any relief in such connection or otherwise, including, without limiting the generality of the foregoing, any alleged right or claim to set aside or rescind this Settlement Agreement. This Settlement Agreement is intended to be and is final and binding between the Parties hereto with respect to the Released Claims, regardless of any claims of misrepresentation, promise made without the intention of performing, concealment of fact, mistake of fact or law, or of any other circumstance whatsoever. 3.13 Each of the Parties is aware that he/it my hereafter discover claims or facts in addition to or different from those he or it now knows or believes to be true with respect to the Released Claims. Nevertheless, it is the intention of the parties to fully, finally and forever settle and release the Released Claims, which do now exist, may exist, or heretofore have existed between them. 3.14 Each term of this Settlement Agreement is contractual and is not merely a recital, although the recitals hereto shall be deemed preclusive as to the facts recited therein. 3.15 Whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. 3.16 The subject headings of the sections, paragraphs and subparagraphs of this Settlement Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions. 3.17 This Settlement Agreement has been jointly prepared and negotiated by counsel for each of the Parties, and the Parties agree that this Settlement Agreement shall be construed as a whole according to its fair meaning and is not to be strictly construed for or against either of the Parties hereto. 3.18 The Parties acknowledge and agree that they each have been represented by separate and independent legal counsel and have relied on counsel of their own choosing at all stages of the negotiation, preparation and drafting of this Settlement Agreement. 3.19 Each Party further acknowledges that this Settlement Agreement, has been explained to each by their respective counsel, and that each Party fully understands the contents and legal effect of said documents. The Parties further acknowledge and agree that they enter into this Settlement Agreement free from duress, fraud, undue influence, coercion, or oppression of any kind. 4. NOTICES 4.1 Any written notice, demand, request or communication that any Party desires or is required to give to or serve on the other Party or any other person pursuant to the Settlement Agreement shall be in writing and either: 4.1.1 Sent by prepaid first-class mail; or 4 4.1.2 Sent by prepaid one-day early morning Express Mail, Federal Express, or similar next day morning delivery service. 4.2 Notices, demands, requests, consents, approvals, or other such written communications are conclusively deemed received: 4.2.1 Five (5) business days after they are mailed if service or delivery is made pursuant to subpart 4.1.1 above; or 4.2.2 Two (2) business days after transmitted if they are served or delivered pursuant to subpart 4.1.2 above. 4.3 The date on which the last addressee is deemed to have received the notice, demand, request, consent, approval or communications shall be deemed the date of receipt by the Party to whom it is given to or served. 4.4 Any notice, demand, request, consent, approval, or communication that either Party desires or is required to give to the other Party is ordered to be addressed and served on or delivered to the other Party at the addresses set forth below. Any Party may change his or her address by notifying the other Parties of their change of address(es). The address for SUK is as follows: Summit Export (UK) Ltd. in care of: Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars, 32nd Fl. Los Angeles, California 90067 Attn: Skip Brittenham, Esq. Facsimile: (310) 553-7068 The address for KFT is as follows: Cinergi Productions Kft. Bacskai u. 28-36 1145 Budapest HUNGARY Facsimile: (361) 209.0930 5. CHOICE OF LAW/ATTORNEY'S FEES 5.1 This Settlement Agreement and any controversy which might arise therefrom shall in all respects be interpreted, enforced and governed by the laws of England, excluding England's choice of law provisions. Subsequent changes in English law through legislation or judicial interpretation 5 that creates or finds additional or different rights and obligations of the Parties shall not affect this Settlement Agreement. 5.2 In the event one of the Parties hereto institutes any proceeding in connection with or concerning the interpretation or enforcement of this Settlement Agreement, the prevailing Party shall be entitled to recover all reasonable outside attorney's fees, costs and expenses actually incurred in connection with such proceedings. 6. SEVERABILITY 6.1 Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any of the provisions contained herein and any present or future statue, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but the provision of this Settlement Agreement which is affected shall be curtailed and limited to the extent necessary to bring it within the requirements of the law. All of the provisions of this Settlement Agreement are intended to be distinct and severable. 7. EXECUTION 7.1 This Settlement Agreement may be executed in counterparts and when each Party has signed and delivered at least one such counterpart to each of the other Parties, each counterpart shall be deemed an original, and all counterparts taken together shall constitute one and the same agreement 6 which shall be binding and effective as to all Parties. This Settlement Agreement may be executed via facsimile signatures, which shall have the same force and effect as if they were original signatures. IN WITNESS WHEREOF, the Parties hereto have executed this Settlement Agreement on the date(s) written beside its or his name, respectively and each warrants they have the authority to sign in their representative capacity. SUMMIT EXPORT (UK) LTD. Dated: September 10, 1997 By: /s/ David Garrett ----------------------------------- Its: Managing Director ----------------------------------- CINERGI PRODUCTIONS KFT. Dated: September 10, 1997 By: /s/ Anna Bodrogi ----------------------------------- Its: Managing Director ----------------------------------- 7 SETTLEMENT, MUTUAL RELEASE, AND TERMINATION AGREEMENT This Settlement Agreement and Mutual General Release is made as of the 10th day of September, 1997 (the "EFFECTIVE DATE"), by and among Cinergi Pictures Entertainment Inc., a corporation orgranized and existing under the laws of Delaware ("CPEI"), and Cinergi Productions N.V. Inc., a corporation organized and operating under the laws of Delaware ("CPNVI"), and all of their respective affiliates (collectively "CINERGI") , on the one hand, and Summit Export (UK) Ltd., a corporation organized and exisiting under the laws of the the United Kingdom ("SUK"), on the other, relating to the various lease agreements between SUK and Cinergi for certain motion pictures. RECITALS A. Prior to the Effective Date, Cinergi and SUK previously made and entered into various film lease agreements, which were amended from time-to-time relating to various motion pictures Cinergi produces for worldwide exploitation (the "Lease Agreements"). Pursuant to the Lease Agreements, SUK was entitled to receive payment of one percent (1%) of the amount of gross receipts received pursuant to all sublicenses effected by SUK. B. To date, Cinergi has not paid SUK, and SUK has not received, any funds due pursuant to the Lease Agreements. B. Cinergi has decided to wind up its production and worldwide exploitation of theatrical motion pictures ("WINDUP"). On or about April 2, 1997, entered into an agreement in principle with Walt Disney Pictures and Television ("DISNEY") to acquire virtually all of Cinergi's library of motion pictures (the "DISNEY AGREEMENT"). On or about July 14, 1997 Cinergi entered into an agreement with Twentieth Century Fox Film Corporation ("FOX") (subsequently referred to as the "FOX AGREEMENT") in which, subject to the terms thereof, Cinergi essentially assigned to Fox all of Cinergi's right, title, and interest in the motion picture "Die Hard with a Vengeance". C. Cinergi and SUK now desire to settle any disputes or claims which may have arisen or exist between them arising from the Lease Agreements as of the Effective Date. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, and subject to the terms and conditions set forth below, the Parties desire to, and hereby do, resolve their differences and agree as follows: 1. RELEASE 1.1 RELEASED CLAIMS. 1.1.1 Upon its receipt of the sums set forth in paragraph 2 hereof, SUK hereby releases and forever discharges Cinergi, and all of Cinergi's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Lease Agreements, including without limitation any 1 claim which SUK now has or claims to have or at any time heretofore had, or which at any time hereafter may have or claim to have against Cinergi relating to or Cinergi's performance arising out of or related to the Lease Agreements ("SUK'S CLAIMS"). 1.1.2 Cinergi hereby releases and forever discharges SUK, and all of SUK's agents, predecessors, successors, attorneys, shareholders, officers, directors and all other representatives of any or all of them, from any and all claims, demands, actions, causes of action, controversies, losses and damages, suspected or unsuspected, whether known or not known, that exist as of the date of execution of this Settlement Agreement, relating to the subject matters of the Lease Agreements, including without limitation any claim which Cinergi now has or claims to have or at any time heretofore had, or which at any time hereafter may have or claim to have against SUK relating to or concerning SUK's performance arising out of or related to the Lease Agreements, including the Lease Agreements ("CINERGI'S CLAIMS"). (SUK's Claims and Cinergi's Claims are subsequently referred to as the "RELEASED CLAIMS".) 1.2 With respect to the Released Claims, all rights under California Civil Code Section 1542, are hereby expressly waived by the Parties, and each of them notwithstanding any provision to the contrary. Section 1542 provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the Release, which if known by him must have materially affected his settlement with the debtor." The Parties, and each of them, and their representatives, heirs and assigns expressly waive and release any right or benefit which they have or may have under Section 1542 of the Civil Code of the State of California, to the fullest extent that they may waive all such rights and benefits pertaining to the Released Claims. It is the intention of the Parties, and each of them, through this Settlement Agreement, and with the advice of counsel, to fully, finally and forever settle and release all such matters, and all claims relative thereto, in furtherance of such intention. 2. SETTLEMENT TERMS 2.1 PAYMENT IN LIEU OF LEASE FEES. Within five (5) business days of SUK's the execution of this Settlement Agreement, Cinergi shall cause to be paid to SUK the sum of three hundred twenty-six thousand seventy four United States dollars (US$326,074). 3. CONFIDENTIALITY 3.1 The Parties hereto, and their officers, directors, representatives, agents, employees, and attorneys shall not disclose, directly or indirectly, any of the financial terms of the Settlement Agreement, which are confidential. Notwithstanding the foregoing, the Parties shall be able to disclose the terms of the Settlement Agreement as necessary with respect to their legal and financial affairs. In such instance, the Parties shall inform any recipients of such information that the financial terms of the settlement must remain confidential. 2 4. MISCELLANEOUS PROVISIONS 4.1 In order to carry out the terms and conditions of this Settlement Agreement, the Parties agree to promptly execute upon reasonable request any and all documents and instruments necessary to effectuate the terms of this Settlement Agreement. 4.2 The Parties agree and acknowledge that this Settlement Agreement represents a settlement of disputed claims and that, by entering into this Settlement Agreement no Party admits or acknowledges that they committed any wrongdoing on their part. 4.3 This Settlement Agreement is the entire agreement between the Parties with respect to the Released Claims and supersedes all prior and contemporaneous oral and written agreements and discussions pertaining to the Released Claims. This Settlement agreement may be amended only by an agreement in writing. 4.4 This Settlement Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors, trustees in bankruptcy, and assigns and each and every entity which now or ever was a division, parent, successor, predecessor or subsidiary for each Party and its respective legal successors and assigns. 4.5 The Parties represent and warrant that each of them have not assigned all or any portion of any claim pertaining to the Released Claims to any person or entity. In the event any claims are made by any third persons or entities based upon any purported assignment or any such liens or claims are asserted in connection with the Released Claims or proceeds of the Settlement Agreement, then the Party who has breached his representation or warranty contained herein agrees to indemnify and hold harmless the other Party from any said claims being made. 4.6 In the event that any covenant, condition or other provision herein contained is held to be invalid, void or illegal by any Court of competent jurisdiction, the same shall be deemed severable from the remainder of this Settlement Agreement and shall in no way affect, impair or invalidate any other covenant, condition or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provision shall be deemed valid to the extent of the scope or breadth permitted by law. 4.7 No breach of any provision hereof can be waived unless in writing. Waiver of any one breach of any provision hereof shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. 4.8 The Parties hereto, and each of them, represent and declare that in executing this Settlement Agreement, they rely solely upon their own judgement, belief and knowledge, and on the advice and recommendations of their own independently selected counsel, concerning the nature, extent and duration of their rights and claims and that they have not been influenced to any extent whatsoever in executing the same by any representations or statements covering any matters made by any of the Parties hereto or by any person representing them or any of them. The Parties acknowledge that no Party hereto nor any of their representatives have made any promise, representation or warranty 3 whatsoever, written or oral, as any inducement to enter into this Settlement Agreement, except as expressly set forth in this Settlement Agreement. 4.9 The Parties hereto or responsible officer or representative thereof, and each of them, further represent and warrant that they have carefully read this Settlement Agreement and know and understand the contents thereof, and that they signed this Settlement Agreement freely and voluntarily. Each of the representatives executing this Settlement Agreement on behalf of their respective corporations or partnerships is empowered to do so and thereby binds his respective corporation or partnership. 4.10 No party (nor any officer, agent, employee, representative, or attorney of or for any party) has made any statement or representation to any other party regarding any fact relied upon in entering into this Settlement Agreement, and each party does not rely upon any statement, representation or promise of any other party (or any officer, agent, employee, representative, or attorney of or for any other party) in executing this Settlement Agreement, or in making the settlement provided for herein, except as expressly stated int his Settlement Agreement. 4.11 Each party to this Settlement Agreement has made such investigation of the facts pertaining to this settlement and this Settlement Agreement and of all matters pertaining thereto as he or it deems necessary. 4.12 In entering into this Settlement Agreement and the settlement provided for herein, each party assumes the risk of any misrepresentation, concealment or mistake. If any party should subsequently discover that any fact relied upon by him or it in entering into this Settlement Agreement is untrue, or that any fact was concealed from him or it, or that his/its understanding of the facts or of the law was incorrect, such party shall not be entitled to any relief in such connection or otherwise, including, without limiting the generality of the foregoing, any alleged right or claim to set aside or rescind this Settlement Agreement. This Settlement Agreement is intended to be and is final and binding between the Parties hereto with respect to the Released Claims, regardless of any claims of misrepresentation, promise made without the intention of performing, concealment of fact, mistake of fact or law, or of any other circumstance whatsoever. 4.13 Each of the Parties is aware that he/it my hereafter discover claims or facts in addition to or different from those he or it now knows or believes to be true with respect to the Released Claims. Nevertheless, it is the intention of the parties to fully, finally and forever settle and release the Released Claims, which do now exist, may exist, or heretofore have existed between them. 4.14 Each term of this Settlement Agreement is contractual and is not merely a recital, although the recitals hereto shall be deemed preclusive as to the facts recited therein. 4.15 Whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. 4.16 The subject headings of the sections, paragraphs and subparagraphs of this Settlement Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions. 4 4.17 This Settlement Agreement has been jointly prepared and negotiated by counsel for each of the Parties, and the Parties agree that this Settlement Agreement shall be construed as a whole according to its fair meaning and is not to be strictly construed for or against either of the Parties hereto. 4.18 The Parties acknowledge and agree that they each have been represented by separate and independent legal counsel and have relied on counsel of their own choosing at all stages of the negotiation, preparation and drafting of this Settlement Agreement. 4.19 Each Party further acknowledges that this Settlement Agreement, has been explained to each by their respective counsel, and that each Party fully understands the contents and legal effect of said documents. The Parties further acknowledge and agree that they enter into this Settlement Agreement free from duress, fraud, undue influence, coercion, or oppression of any kind. 5. NOTICES 5.1 Any written notice, demand, request or communication that any Party desires or is required to give to or serve on the other Party or any other person pursuant to the Settlement Agreement shall be in writing and either: 5.1.1 Sent by prepaid first-class mail; or 5.1.2 Sent by prepaid one-day early morning Express Mail, Federal Express, or similar next day morning delivery service. 5.2 Notices, demands, requests, consents, approvals, or other such written communications are conclusively deemed received: 5.2.1 Five (5) business days after they are mailed if service or delivery is made pursuant to subpart 5.1.1 above; or 5.2.2 Two (2) business days after transmitted if they are served or delivered pursuant to subpart 5.1.2 above. 5.3 The date on which the last addressee is deemed to have received the notice, demand, request, consent, approval or communications shall be deemed the date of receipt by the Party to whom it is given to or served. 5.4 Any notice, demand, request, consent, approval, or communication that either Party desires or is required to give to the other Party is ordered to be addressed and served on or delivered to the other Party at the addresses set forth below. Any Party may change his or her address by notifying the other Parties of their change of address(es). The address for Cinergi is as follows: 5 Cinergi Pictures Entertainment Inc. and Cinergi Productions N.V. Inc. 2308 Broadway Santa Monica, California 90404 Attn: Erick J. Feitshans, Esq. Facsimile: (310)828-3861 With a copy to: Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars, 32nd Fl. Los Angeles, California 90067 Attn: Skip Brittenham, Esq. Facsimile: (310) 553-7068 The address for SUK is as follows: Summit Export (UK) Ltd. in care of: Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars, 32nd Fl. Los Angeles, California 90067 Attn: Skip Brittenham, Esq. Facsimile: (310) 553-7068 6. CHOICE OF LAW/ATTORNEY'S FEES 6.1 This Settlement Agreement and any controversy which might arise therefrom shall in all respects be interpreted, enforced and governed by the laws of the State of California, excluding California's choice of law provisions. Subsequent changes in California law and federal law through legislation or judicial interpretation that creates or finds additional or different rights and obligations of the Parties shall not affect this Settlement Agreement. 6.2 In the event one of the Parties hereto institutes any proceeding in connection with or concerning the interpretation or enforcement of this Settlement Agreement, the prevailing Party shall be entitled to recover all reasonable outside attorney's fees, costs and expenses actually incurred in connection with such proceedings. 7. SEVERABILITY 7.1 Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any of the provisions contained herein and any present or future statue, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but the provision of this Settlement Agreement which is 6 affected shall be curtailed and limited to the extent necessary to bring it within the requirements of the law. All of the provisions of this Settlement Agreement are intended to be distinct and severable. 8. EXECUTION 8.1 This Settlement Agreement may be executed in counterparts and when each Party has signed and delivered at least one such counterpart to each of the other Parties, each counterpart shall be deemed an original, and all counterparts taken together shall constitute one and the same agreement which shall be binding and effective as to all Parties. This Settlement Agreement may be executed via facsimile signatures, which shall have the same force and effect as if they were original signatures. IN WITNESS WHEREOF, the Parties hereto have executed this Settlement Agreement on the date(s) written beside its or his name, respectively and each warrants they have the authority to sign in their representative capacity. CINERGI PICTURES ENTERTAINMENT INC. Dated: September 10, 1997 By: /s/ Erick J. Feitshans ------------------------------- Its: Vice President ------------------------------- CINERGI PRODUCTIONS N.V. INC. Dated: September 10, 1997 By: /s/ Erick J. Feitshans ------------------------------- Its: Vice President ------------------------------- SUMMIT EXPORT (UK) LTD. Dated: September 10, 1997 By: /s/ David Garrett ------------------------------- Its: Managing Director ------------------------------- 7 EX-10.4 5 EXHIBIT 10.4 MANEX/MASS.ILLUSION BUSINESS ACQUISITION AGREEMENT THIS BUSINESS ACQUISITION AGREEMENT (the "Agreement") is entered into as of this 15th day of September 1997 by and between CINERGI PRODUCTIONS INC. (CALIFORNIA) doing business as MASS.ILLUSION, a California corporation ("Seller"), whose address is 2308 Broadway, Santa Monica, CA 90404 and MASS.ILLUSIONS, LLC a Massachusetts limited liability company ("Buyer"), whose principal place of business is 30 Riverview Road, Lenox, MA 01240 and sets forth the terms and conditions of Buyer's purchase of certain assets and agreement to perform certain obligations on behalf of Seller with respect to Seller's motion picture visual effects facility. WITNESSETH WHEREAS, subject to the terms and conditions hereof, Seller desires to sell certain of its properties and assets to Buyer as well as Seller desires to have certain obligations of Seller performed by Buyer, including without limitation, certain rights, duties and obligations in connection with the motion picture entitled "What Dreams May Come" (the "Picture"); WHEREAS, subject to the terms and conditions hereof, Buyer desires to purchase said properties and assets as well as assume certain specified obligations of Seller for the consideration specified herein; and WHEREAS, Buyer and Seller are simultaneously executing agreements with ATL Productions Inc. ("ATL") for the purpose of facilitating this Agreement. NOW, THEREFORE, in order to consummate the Agreement and in consideration of the mutual agreements set forth herein, the parties agree as follows: SECTION 1. PURCHASE AND SALE OF ASSETS 1.1 SALE AND DESCRIPTION OF ASSETS. Subject to the terms and conditions specified herein, Seller agrees to sell and Buyer agrees to purchase, at the Closing (as defined in Section 1.6 hereof), all of the assets set forth on SCHEDULE A hereto (the "Subject Assets"), "AS IS," and "WITH ALL FAULTS" without warranty or representation of any kind except as specifically set forth herein in the form of the quitclaim contained herein as SCHEDULE B, but specifically excluding any assets in which a party has a security interest therein (e.g. Sony and ATL) as well as any assets transferred to the Walt Disney Company relating to the motion picture library sale agreement entered into with Seller's parent corporation Cinergi Pictures Entertainment Inc. unless said party has consented to such a transfer in writing. At the Closing, Seller shall deliver or cause to be delivered to Buyer a Bill of Sale of the form of SCHEDULE C hereto, releasing to Buyer all of Seller's title to the Subject Assets subject only to any liens or encumbrances which are more fully set forth in SCHEDULE D. If Buyer elects to assume the existing lease of the Lenox Massachusetts Facility (the "Lease"), where certain of the Subject Assets are located (the "Lenox" Facility), and subject to the landlord's permission (which Seller warrants that it will use reasonable efforts to secure said permission), Seller shall cause 1 the Lease to be assigned to Buyer and Buyer shall assume the Lease by executing an Assignment and Assumption of Lease in the form of SCHEDULE E attached hereto. 1.2 PAYMENT OF PAYROLL. Concurrently upon execution hereof, and pursuant to the amounts specifically set forth in SCHEDULE F attached hereto, Buyer will pay all payroll and related obligations listed thereon by wire transfer or cashier's check. In furtherance thereof and upon execution of this Agreement, Buyer will cause the sum of TWO HUNDRED FORTY-ONE THOUSAND FOUR HUNDRED ELEVEN and 79/100 ($241,411.79) to be deposited into the Jeffer, Mangels, Butler & Marmaro LLP Trust Account ("Trust Account") from which Seller will cause forthwith all such sums to be disbursed according to the requirements of SCHEDULE F. Thereafter and on such dates as listed on SCHEDULE F, Buyer shall further pay into the Trust Account the sum of TWO HUNDRED AND TWENTY-FOUR THOUSANDS NINE HUNDRED TWENTY NINE AND 73/100 ($224,929.73) from which Seller will cause forthwith such sums to be disbursed according to the requirements of SCHEDULE F plus Buyer will be responsible for and pay all payroll of Seller's employees/subcontractors encompassed by SCHEDULE F for September 14 and 15, 1997. 1.3 ASSUMPTION OF LIABILITY OF CERTAIN TRADE CREDITORS. On or before September 23, 1997, Buyer covenants to notify all of Seller's creditors set forth on SCHEDULE G by way of the letter set forth in SCHEDULE H of Buyer's agreement to assume the management of Seller's accounts payable in accordance with paragraph 3.1(c) herein. Seller may also forward such letter to any such creditor and Seller remains at liberty to compromise any creditor claim on SCHEDULE G at its own expense. 1.4 Buyer covenants that simultaneous with the execution of this Agreement, it will cause ALT to enter into a binding agreement with Buyer which provides that Buyer will assume all of the obligations of Seller in connection with that certain Short-Form Agreement set forth in paragraph 2.1 hereinbelow. 1.5 CONSIDERATION. In consideration of the transfer by Seller to Buyer of the Subject Assets, Buyer agrees to perform all of the obligations set forth in this Agreement, including without limitations, those obligations set forth in this paragraph 1 and paragraph 3 hereinbelow. For purposes of the parties, Buyer shall be considered to have purchased the Subject Assets for the amount of TWO MILLION SIX HUNDRED THOUSAND DOLLAR ($2,600,000) (the "Purchase Price"). 1.6 CLOSING. The closing of this Agreement (herein called the "Closing") shall be held at the offices of Oberstein, Kibre and Horwitz LLP, 1999 Avenue of the Stars, Suite 1850, Los Angeles, CA 90067 on 15 September 1997 or at such other time or place as may be fixed by mutual agreement of Buyer and Seller. 2 SECTION 2. ASSIGNMENT 2.1 Seller hereby assigns, grants, sells and sets over to Buyer without any warranties expressed or implied all of its rights, duties, benefits and obligations (past, present and future) in and to that certain Short-Form Production Services Agreement dated as of 15 May 1997 ("Short-Form Agreement") between ATL Productions, Inc. (a subsidiary of Interscope Communications, Inc.) (collectively "Interscope") and Seller and all elements thereof relating to the Picture. Buyer does hereby accept such assignment and indemnifies and holds Seller harmless from any claims, losses, expenses, damages and costs, including attorneys fees resulting from Buyer's failure to perform Seller's obligations thereunder. Seller agrees to execute the Short Form Assignment Agreement attached hereto as SCHEDULE I. SECTION 3. CONDITIONS 3.1 CONDITIONS TO OBLIGATIONS OF SELLER. Seller's obligation to consummate this Agreement and the transactions contemplated hereby is subject, at the option of the Seller, to the fulfillment of the following conditions whether occurring before or after Closing: (a) Seller's receipt of a complete release from Interscope in a form satisfactory to Seller relating to among other things Seller's obligations to ATL pursuant to the Short-Form Agreement. Additionally, and as part of Buyer's agreement with ATL, Buyer covenants to secure a covenant from ATL to Buyer, by which Buyer hereby guarantees to Seller, that ATL will satisfy all of the financial obligations with respect to the Cineon license agreement (attached hereto as SCHEDULE J) entered into by Seller relating to equipment, software and services to be provided on the Picture without liability to Seller, and Buyer agrees to indemnify and hold Seller harmless from ATL's inability or refusal to perform those executory obligations remaining within the Cineon license agreement as they exist at the Closing, including all expenses, damages, claims, and costs, including attorneys fees. (b) Buyer's payment of all sums required to be paid pursuant to paragraphs 1.2 and 1.3 herein; and (c) As a pool of funds to be used to satisfy Seller's trade creditors, Buyer shall expend the sum of TWO HUNDRED THOUSAND DOLLARS ($200,000) (the "Creditor Fund") within ninety (90) days of 15 September 1997 (or earlier if Buyer so elects) for the benefit of such trade creditors set forth on SCHEDULE F subject to the following terms: (1) The maximum amount any single creditor shall receive from those funds set forth herein is an amount equal to a proration of those funds available to pay the creditors divided by the creditors Buyer agrees to manage less those creditors Buyer will not pay and which Buyer has notified Seller of in writing. Buyer must indicate to Seller within fifteen (15) days of Closing which trade creditors (and the respective amounts due such creditors) Buyer will not pay as part of Buyer's managing of Seller's trade creditor accounts payable. Prospectively, Buyer may continue to notify Seller of additional creditors Buyer will not pay hereunder. 3 Maximum settlement = Available Funds to Pay Creditors X 100 amount per creditor ----------------------------------------------- (expressed as cents Total Trade Creditors less Creditors Buyer on the dollar) will not pay Notwithstanding the foregoing, no payment to any one creditor shall exceed TWENTY THOUSAND DOLLARS ($20,000) unless Seller agrees to the same in writing. (2) No payment to any creditor hereunder shall be made on account of any open, prospective, or unmatured obligations of Seller up to and including 15 September 1997 or of any new obligation of Buyer. To the extent a dispute arises as to the validity of a particular obligation, the decision of Seller shall conclusively be deemed final. (3) REPORTING. Buyer shall deliver to Seller every fifteen days (calculated from 15 September 1997) a report of the current status of trade creditors paid to date and such report must indicate the creditor paid, the date paid, the amount paid and all remaining outstanding trade creditors as of the date of each report submitted to Seller. (4) RELEASE. Buyer covenants that it will secure an appropriate release from each creditor paid from the Creditor Fund indicating Buyer and Seller have made payment in full accord and satisfaction of all Seller's outstanding credit obligations with respect to said creditor and the form of said release must be approved by Seller in writing in advance. (5) Any unspent portion of the Creditor Fund on hand at the end of the ninety (90) day period must be returned to the Trust Account to be disbursed pursuant to Seller's instructions for the benefit of creditors. (6) Buyer shall only be entitled to apply TWENTY-EIGHT percent (28%) or FIFTY SIX THOUSAND DOLLARS ($56,000) of the Creditor Fund, to fund trade creditors relating to the Picture. (7) No part of the Creditor Fund shall be used to pay the Cineon license agreement which shall be assumed in full by ATL. SECTION 4. SECURITY INTEREST Buyer hereby agrees to grant to Seller a first priority security interest in certain of the Subject Assets in the amount of THREE HUNDRED SEVENTEEN THOUSAND DOLLARS ($317,000) as a security for Buyer's covenant to Seller to pay the requisite obligations of Buyer set forth in paragraph 1.2 and 3.1(c) herein as well as to secure Buyer's financial obligation to manage Seller's trade creditors accounts payable as set forth in paragraph 1.3 herein. Buyer agrees to execute the appropriate UCC-1's (for the states of California, New York, and Massachusetts) and the Security Agreement set forth in SCHEDULE K concurrently upon execution of this Agreement and Seller represents the Collateral (as that term is defined in SCHEDULE K) is not required equipment relating to the Picture. 4 Provided Buyer is not in default hereunder, and upon Buyer's payment of all sums set forth in SCHEDULE F herein and Buyer's satisfactory performance of all of its obligations contained in paragraphs 1.3 and 3.1(c) herein as well as Buyer's return of all unused Creditor Fund amounts to the Trust Account as set forth in paragraph 3.1(c)(4), Seller covenants to release and discharge the security interest granted to Seller herein within ten (10) days of Buyer's performance hereof and Seller agrees to execute the appropriate documentation to evidence such termination, including without limitation, UCC-3 financing statements. SECTION 5. INDEMNITY AND RELEASE Buyer does hereby agree and at all times indemnify and hold harmless Seller, its directors, officers, agents, attorneys, parent, subsidiaries and employees ("Indemnitees") from any claims, losses, expenses, damage and costs incurred in investigating any claim or defending any suit or action initiated by any third party, court costs and reasonable attorneys' fees and other limitation expenses, resulting to Indemnitees, or which Indemnitees, or any of them, may suffer, incur or sustain or for which any of them become liable in connection with or resulting from or by reason of any breach by Buyer of its obligations or covenants to Seller set forth hereunder. Buyer does hereby release and forever discharge Seller and its respective successors, predecessors, parents, subsidiaries and affiliated entities (including without limitation Cinergi Pictures Entertainment Inc.) together with their respective employees, officers, directors, shareholders, attorneys, and heirs, from any and all claims, debts, liabilities, demands, obligations, costs, expenses, actions and causes of action, of every nature, character and description, suspected or unsuspected, known or unknown, matured or unmatured, which Buyer and/or Manex Entertainment Ltd. now own or hold, or have at any time heretofore owned or held, or may at any time own or hold, by reason of any matter, cause or thing whatsoever occurred, done, omitted or suffered to be done in connection with, arising out of or relating directly or indirectly to this Agreement or the Picture or Seller's business as set forth in this Agreement. SECTION 6. REPRESENTATIONS AND WARRANTIES 6.1 Buyer warrants and represents: (a) Buyer is a duly organized limited liability company of Massachusetts which is properly constituted and capitalized; (b) Buyer has the full right, power and authority to enter into this Agreement; (c) Buyer has the financial capacity to enter into the transaction with Interscope and complete all of the obligations set forth therein; (d) Buyer will enter into the agreement with Interscope set forth in paragraph 1.4; and, 5 (e) Buyer has fully performed its due diligence with respect to the Subject Assets and accepts the same where is and as is. 6.2 Seller warrants and represents: (a) Seller has the full right, power and authority to enter into this Agreement. SECTION 7. MISCELLANEOUS 7.1 ENTRY UPON PREMISES. Buyer hereby agrees to provide Sony Pictures Imageworks ("SPI") access to Buyer's premises for purposes of SPI retrieving all materials SPI is entitled to under the Production Services Agreement dated 24 February 1997 with respect to the motion picture "Starship Troopers" and Buyer hereby grants to SPI a license to enter upon the premises for the purpose set forth herein. Buyer covenants that it (and all of its employees) will preserve the confidentiality of the Sony settlement agreement and any breach thereof will be deemed a material breach of this Agreement. Furthermore, Buyer covenants to make various of its employees available to Seller (at no cost to Seller) in order for Seller to consummate certain settlement transactions as more fully set forth in the attached ADDENDUM and its accompanying SCHEDULE Z-1 attached hereto and incorporated by this reference. 7.2 RETURN OF MATERIALS/PUBLICITY. All of the motion picture materials (broadly defined to include, without limitation, all elements, tapes, logos, digital assets, etc.) in the possession of Buyer must be returned forthwith to Seller at Seller's cost. Buyer acknowledges and agrees that it may not exploit any of these assets in any way, manner or form and that any breach of this paragraph by Buyer will be considered a material breach of this Agreement. Furthermore, Buyer shall have no right to publicize or utilize the aforementioned materials in publicity materials to solicit new business to prospective clients or otherwise. 7.3 ACCESS TO FINANCIAL RECORDS. Buyer covenants to allow Seller access to the financial records of Mass.Illusion after Buyer's purchase thereof for purposes of confirming Buyer's progress towards managing all Seller's accounts payable as more fully set forth in paragraph 1.3 and 3.1(c) herein. By way of example only, Seller will need access to Buyer's general ledger to confirm any settlement with a specific trade creditor and Seller may need to secure a copy of the general ledger of its own purposes. 7.4 FEES AND EXPENSES. Each of the parties will bear its own expenses in connection with the negotiation and the consummation of the transactions contemplated by this Agreement. 7.5 GOVERNING LAW/JURISDICTION. This Agreement shall be construed under and governed by the internal laws of the State of California. Both parties hereto consent to the exclusive jurisdiction of the state and federal courts within the County of Los Angeles in the State of California. 6 7.6 NOTICES. Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered or sent by facsimile transmission, upon receipt, or if sent by registered or certified mail, upon the sooner of the date on which receipt is acknowledged or the expiration of three days after deposit in United States post office facilities properly addressed with postage prepaid. All notices to a party will be sent to the following addresses: SELLER: Cinergi Productions Inc. (California) Jeffer, Mangels, Butler & Marmaro LLP dba Mass.Illusion 2121 Avenue of the Stars 2308 Broadway Century City, California 90067 Santa Monica, California Phone: (310) 203-8080 Phone: (310) 315-6000 Fax: (310) 203-0567 Fax: (310) 828-3861 Contact: Joe Eisenberg Contact: Erick Feitshans BUYER: Mass.Illusions, LLC 30 Riverview Road Lenox, MA 01240 Phone: (413) 637-4500 Fax: (413) 637-0054 Contact: George Q. Vaile 7.4 ENTIRE AGREEMENT. This Agreement, including the Addendum and any Schedules referred to herein, is complete, reflects the entire agreement of parties with respect to its subject matter, and supersedes all previous written or oral negotiations, commitments and writings. Notwithstanding the foregoing, this Agreement is contingent upon the simultaneous execution of that certain agreement between Seller and Interscope of even date with respect to the Short-Form Agreement and the Picture. 7.5 EXECUTION IN COUNTERPARTS. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. 7.6 AMENDMENTS. This Agreement may not be amended or modified, nor may compliance with any condition set forth herein be waived, except by a writing duly and validly executed by each party hereto, or in the case of a waiver, the party waiving compliance. 7.7 AGREEMENT NOT AN OFFER. Under no circumstances shall this Agreement be deemed to be an offer by Seller to Buyer or Buyer to Seller regarding the purchase and sale of the Subject Assets, and this Agreement shall only be binding upon Buyer or Seller if first executed by a duly authorized officer of Buyer and then counter-executed by an authorized officer of Seller. 7 IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date set forth above by their duly authorized representatives. CINERGI PRODUCTIONS INC. (CALIFORNIA) d.b.a. MASS.ILLUSION By: /s/ ERICK FEITSHANS ------------------------------------------- Erick Feitshans, Vice President MASS.ILLUSIONS, LLC By: /s/ GEORGE Q. VAILE, MGR ------------------------------------------- George Q. Vaile, Manager 8 EX-27 6 EXHIBIT 27 (FDS)
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 9-MOS DEC-31-1997 SEP-30-1997 26,073 0 8,216 0 53,424 87,814 2,359 1,932 96,158 27,584 0 0 0 135 15,786 96,158 59,209 60,509 62,198 78,934 0 0 4,362 (22,787) 0 (22,787) 0 0 0 (22,787) (1.69) (1.69)
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