ITEM 1. BUSINESS
Introduction
LIVE Entertainment Inc., a Delaware corporation (the "Company" or "LIVE") was formed in 1988 and its largest ongoing businesses are LIVE Home Video Inc. ("LHV") and LIVE Entertainment International Inc. (formerly known as LEI-IVE Entertainment N.V.) ("LEII"), which acquire rights to theatrical motion pictures, children's films and special interest programs which they market and distribute in all media to wholesalers, retailers and consumers in the United States and internationally. The Company owns an 81% interest in VCL/Carolco Communications GmbH ("VCL"), a home video distribution and marketing company headquartered in Munich, Germany and as discussed below under "Recent Developments for the Company - Decision to Dispose of VCL," the Company has entered into a preliminary agreement to dispose of its interest in VCL. In August 1994, the Company sold its "Specialty Retail Division," consisting of its formerly wholly owned subsidiary, Strawberries Inc. ("Strawberries"), and Strawberries' wholly owned subsidiary, Waxie Maxie Quality Music Co. ("Waxie Maxie"). The Specialty Retail Division is engaged in the sale of audio records and tapes, compact discs and video products through retail stores in the Northeastern United States and the Baltimore/Washington D.C. metropolitan area. The Company's continuing operations are primarily in a single business segment, the distribution and sale of a broad variety of entertainment software products.
The Company's executive offices are located at 15400 Sherman Way, Suite 500, Van Nuys, California 91406 and its telephone number is (818) 988-5060.
Operating Structure
The following chart outlines the operating structure of the Company as of December 31, 1994. All except LIVE Home Video and LIVE Film and Mediaworks are unincorporated divisions of the Company's subsidiaries.
Recent Developments for the Company
Amendment of Restated Certificate of Incorporation to Effectuate One For Five Reverse Stock Split
On December 9, 1994, the Company filed with the Delaware Secretary of State a Certificate of Amendment (the "Certificate of Amendment") to the Company's Restated Certificate of Incorporation (the "Restated Certificate"), amending Article FOURTH of the Restated Certificate to reclassify every five outstanding shares of its common stock, par value $.01 per share ("Prior Common Stock"), as one share of the Company's common stock having the same par value and other powers, preferences and rights as the Prior Common Stock (such shares of reclassified Prior Common Stock are sometimes hereinafter referred to as shares of "Common Stock") (the "Reverse Stock Split").
The Reverse Stock Split was approved by the affirmative written consent of holders of over 64% of the Prior Common Stock and the Company's Series C Convertible Preferred Stock (the "Series C Preferred Stock"), voting together as a single class, pursuant to a Consent Solicitation Statement dated November 23, 1994. Only holders of record of the Prior Common Stock and Series C Preferred Stock at the close of business on October 31, 1994 were entitled to consent to the Reverse Stock Split.
Holders of Prior Common Stock as of December 9, 1994 who held a number of shares that was not evenly divisible by five will receive cash in lieu of fractional shares of Common Stock that arose as a result of the Reverse Stock Split valued at $3.8125 per share.
The Company has authorized American Stock Transfer & Trust Company to act as exchange agent (the "Exchange Agent") for purposes of effecting an exchange of stock certificates, and has sent letters of transmittal to holders of Prior Common Stock as of December 9, 1994 for use by stockholders in transmitting their stock certificates representing shares of Prior Common Stock to the Exchange Agent in exchange for new certificates representing the number of shares of Common Stock into which their shares of Prior Common Stock have been reclassified in the Reverse Stock Split, together with cash for any fractional shares. No cash payment or delivery of a certificate representing Common Stock will be made to a stockholder until the stockholder has surrendered his outstanding certificates representing Prior Common Stock together with the letter of transmittal to the Exchange Agent.
Until so surrendered, each stock certificate formerly representing shares of Prior Common Stock shall be deemed for all purposes to represent the number of whole shares of Common Stock to which the holder thereof is entitled, together with the amount of cash in lieu of fractional shares, if any, arising as a result of the Reverse Stock Split.
Listing of Common Stock on Nasdaq SmallCap Market
On October 11, 1994, the New York Stock Exchange ("NYSE") commenced de-listing proceedings for the Prior Common Stock (traded under the symbol "LVE") due to the Company's failure to meet the NYSE's listing criteria relating to net tangible assets available to common stock and three year average net income. The Company subsequently applied to have the Common Stock listed under the Nasdaq Stock Market's SmallCap Market (the "SmallCap Market"). That application was accepted and on January 17, 1995, the Common Stock was first listed on the SmallCap Market, under the symbol "LIVE".
Termination of Agreement on Business Combination with Carolco Pictures Inc. ("Carolco")
In March 1994, LIVE and Carolco reached agreement in principle on a business combination (the "Merger"), and executed a Merger Agreement with respect thereto on August 10, 1994 (the "Merger Agreement"). On October 13, 1994 LIVE and Carolco jointly announced that they had agreed to terminate the Merger Agreement between the two companies and to end all discussions regarding a possible business combination. In 1994, LIVE incurred approximately $1,000,000 in expenses in connection with the Merger. As a result of the December 1994 agreement discussed below under "Compensation Committee Interlocks and Insider Participation - Arrangements with Mr. Pierson or Affiliates - Carolco," which settled all open accounts between LIVE and Carolco, LIVE wrote off the remaining unpaid receivable amount of $6,211,000 that LIVE had recorded in its financial records as owing from Carolco, the entire amount of which previously had been reserved for.
Sale of Specialty Retail Division; Use of Proceeds
On August 31, 1994, LIVE sold its entire interest in its Specialty Retail Division to a group including Castle Harlan, Inc., Ivan R. Lipton, the President of the Specialty Retail Division, and other senior managers of the Specialty Retail Division. The purchaser group also included Jefferson Capital Group, Ltd. ("Jefferson Capital"); R. Timothy O'Donnell, the President of Jefferson Capital, is a Director of LIVE. The total purchase price paid to LIVE for the Specialty Retail Division was $35,000,000 in cash.
LIVE's Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") was mandatorily redeemable from the net proceeds of any sale of the Specialty Retail Division remaining after the payment of transaction costs and the payment of any debt secured by the Specialty Retail Division. LIVE's $37,000,000 of 12% Senior Secured Subordinated Notes (the "12% Notes") became due and payable in September and October 1994, and repayment of the 12% Notes was secured by the stock of the Specialty Retail Division. Due to the demand for payment made by the holders of all $37,000,000 in principal amount of the 12% Notes, LIVE used all of the net proceeds from the sale of the Specialty Retail Division to repay the 12% Notes, and no net proceeds remained from the sale to redeem any of the Series B Preferred Stock.
As of December 31, 1994, the aggregate redemption price for the Series B Preferred Stock was $50,400,000 ($9.00 per share) and that redemption price increases by an additional $560,000 per month through October 1995, when the redemption price reaches $56,000,000 ($10.00 per share) and remains at that price thereafter.
Purchase of Series B Preferred Stock
Although LIVE has no obligation to redeem any Series B Preferred Stock, subject to the availability of funds and the prior approval of its Board of Directors and its lenders, LIVE may acquire shares of its Series B Preferred from time to time, either through private purchases or through open market purchases. Through March 15, 1995, LIVE acquired, and subsequently retired, a total of 1,800,000 shares of the Series B Preferred Stock at an average price of under $4.00 per share.
Foothill Credit Facility
On November 16, 1994 LIVE replaced its prior credit facility from a group of banks headed by Chemical Bank (the "Previous Facility") with a three-year $30,000,000 revolving credit facility with Foothill Capital Corporation (the "Foothill Credit Facility"). Borrowings available under the Foothill Credit Facility are limited to $20,000,000 until additional participant lenders are added to the Facility, at which time the borrowings available will be increased to a maximum $30,000,000. Borrowings under the Foothill Credit Facility are secured by substantially all of the assets of LIVE and its subsidiaries. Outstanding borrowings under the Foothill Credit Facility bear interest at the rate of 2% per annum above the highest of the Bank of America, Mellon Bank or Citibank prime rate, payable monthly. In no event will interest under the Foothill Credit Facility be less than 7% per annum. The Foothill Credit Facility provides for a closing fee of $500,000, an annual facility fee of 1/4 of 1% and a commitment fee of 1/4 of 1% on any unused amount. The Foothill Credit Facility also requires LIVE to meet certain financial ratios, and as of December 31, 1994 the Company was in compliance with all such financial ratios.
Removal of Net Worth Covenant from Indenture
By late 1994, LIVE believed that at the end of 1994 it may have been in violation of the minimum consolidated net worth covenant contained in the Indenture (the "Indenture") governing its $40,000,000 of Increasing Rate Senior Subordinated Notes Due 1999 (the "LIVE Increasing Rate Notes"). Such default would have permitted the trustee thereunder or holders of 25% in aggregate principal amount of the LIVE Increasing Rate Notes to give notice and accelerate maturity of the indebtedness represented by the LIVE Increasing Rate Notes.
In November 1994, a majority of the holders of the LIVE Increasing Rate Notes agreed to amend the Indenture to eliminate the minimum net worth covenant contained in the Indenture, thereby removing the possibility that LIVE might have defaulted under that covenant in 1995. As part of the amendment of the Indenture, LIVE agreed to increase the interest rate on the LIVE Increasing Rate Notes from 10% per annum to 12% per annum effective October 18, 1994. The interest rate on the LIVE Increasing Rate Notes previously was scheduled to increase to 12% in March 1996.
Decision to Dispose of VCL
In March 1994, both as a result of a desire of the Company to focus its efforts on its core entertainment business and as a result of the agreement in principle on the Merger, the Board of Directors of the Company decided to dispose of the Company's interest in VCL. Accordingly, the Company's interest in VCL was recorded as "Assets Held For Sale" and "Liabilities Related To Assets Held For Sale" as of December 31, 1993 and 1994 and was written down to its estimated net realizable or liquidation value. The operating statements presented were restated to separately disclose the results of operations of VCL as a disposal of a portion of a line of business.
In February 1995, the Company and certain of its affiliates, on the one hand, and Datty Ruth, the owner of 19% of VCL, and Apricot Computer GmbH ("Apricot"), on the other, entered into a preliminary agreement whereby the Company's 81% interest in VCL, as well as all receivables owed by VCL to the Company or its affiliates, will be transferred to Ruth and Apricot. The total consideration to be received by the Company and its affiliates in connection with such transactions is approximately $7,900,000, of which approximately $3,100,000 was received in February 1995. The Company could receive additional amounts depending upon the post closing profits of VCL; furthermore, the Company will be entitled to share in the profits from future sales of VCL if, following closing but no later than December 31, 1996, greater than 19% of VCL is sold for greater than $4,800,000.
Consummation of the transactions contemplated by the preliminary agreement is subject to the execution and completion of definitive agreements. The parties expect the transactions contemplated by their preliminary agreement to be finalized during 1995.
Management Changes
Since the beginning of 1994, Satoshi Matsumoto, Mario Kassar, David Mount and Lynwood Spinks resigned from the Board of Directors, and Gregory R. Pierson, Roger A. Burlage, Ryuichi Noda and Michael J. White have been appointed as Directors. None of the departures from the Board of Directors was the result of any dispute with the Company.
Entertainment Marketing and Distribution Operations
General
Historically, the operations of LHV and VCL focused on the acquisition and distribution of home video programming in the United States and Canada (through LHV) and in German-speaking Europe (through VCL), by marketing and distributing videocassettes to wholesalers, retailers and consumers directly. In early 1994, the Company announced plans to expand its business activities into the theatrical release of a limited number of motion pictures and the direct licensing of international, television rights and other ancillary rights to third parties rather than through intermediaries. Further, in late 1994, LIVE released its first interactive product through its newly formed interactive division. This expansion is meant to enhance the core video business of LIVE without the addition of significant overhead costs. Examples of this activity include LIVE's acquisition of all rights to the film Wagons East (a Western comedy starring John Candy and Richard Lewis), as well as the Company's acquisition of various rights to the motion picture Top Dog, a Chuck Norris film that will be released theatrically in early 1995. International and television rights were among the rights acquired in both these productions. The theatrical success of a motion picture is a crucial factor in generating revenues in all media. Given shifting consumer tastes and the popularity and availability of other forms of entertainment, and given also that the Company often commits to acquire projects in the early stages of their development, it is impossible to predict the profitability of any particular motion picture.
LHV controls the United States and Canadian home video rights (hereinafter referred to as "domestic home video rights") to a catalog of approximately 2,000 titles, inclusive of approximately 1,000 titles acquired from Vestron Inc. in 1991. Vestron was an independent home video supplier with approximately 1,000 titles in its catalog, including such titles as Dirty Dancing, Platoon, Hoosiers, the Smithsonian Series, the National Audubon Series and others, including the rights to exploit all sequels to Dirty Dancing. Vestron is a label exclusively distributed by LHV.
As an independent distribution company, the Company acquires the rights to programming from a variety of sources, including production companies and independent producers. The Company often acquires the rights to completed motion pictures. However, in order to secure rights to motion pictures which might not otherwise be available to the Company (such as international, television and interactive), and to acquire a wider array of distribution rights on more favorable terms, the Company also secures the rights to motion pictures prior to or during production. Because of the significant financial commitment made by the Company to acquire distribution rights to its product, the Company frequently becomes involved with, and has active input on, projects at the earliest possible date, from development through physical production and completion of the finished film, and generally has control over all key production elements.
Distribution rights which the Company may acquire include (a) domestic: home video, free television, pay television (including cable and pay-per-view), theatrical and electronic publishing, and (b) international: all media.
The United States Motion Picture Industry
The United States motion picture industry encompasses the production and theatrical exhibition of feature-length motion pictures and the subsequent distribution of such pictures in home video, television and other ancillary markets. The industry is dominated by the major studios, including Universal Pictures, Warner Bros., Twentieth Century Fox, MGM, Sony Pictures Entertainment (including Columbia Pictures and Tri-Star Pictures), Paramount Pictures and Walt Disney Company, which historically have produced and distributed the majority of theatrical motion pictures released annually in the United States. In recent years, however, other motion picture production companies such as The Samuel Goldwyn Company, New Line Cinema Corporation, Republic Pictures, Castle Rock Entertainment and Morgan Creek Productions, Inc. have played an important role in the production of motion pictures for the worldwide feature film market. There are also a large number of smaller production companies that produce theatrical motion pictures.
The "majors" generally own their production studios and have national or worldwide distribution organizations. Major studios typically release films with direct production costs ranging from $10,000,000 to $50,000,000 or more and provide a continual source of motion pictures to the nation's theater exhibitors. The independents do not own production studios and, with certain exceptions, have more limited distribution capabilities than the major studios. Independents typically produce fewer motion pictures at substantially lower average production costs than major studios.
Motion Picture Production and Financing
The production of a motion picture begins with the screenplay adaptation of a popular novel or other literary work acquired by the producer or the development of an original screenplay having its genesis in a story line or scenario conceived of or acquired by the producer. In the development phase, the producer typically seeks production financing and tentative commitments from a director, principal cast members and other creative personnel. A proposed production schedule and budget are also prepared during this phase.
Upon completing the screenplay and arranging financing commitments, pre-production of the motion picture begins. In this phase, the producer engages creative personnel to the extent not previously committed; finalizes the filming schedule and production budget; obtains insurance and secures completion guarantees, if necessary or available (as recently the costs of securing such guarantees has increased and the number of companies providing such guarantees has decreased); establishes filming locations and secures any necessary studio facilities and stages; and prepares for the start of actual filming.
Principal photography, the actual filming of the screenplay, may extend from four to twelve weeks or more, depending upon such factors as budget, location, weather and complications inherent in the screenplay. Following completion of principal photography, the motion picture is edited, opticals, dialogue, music and any special effects are added, and voice, effects and music sound tracks and picture are synchronized during post-production. This results in the production of the negative from which the release prints of the motion picture are made.
The typical cost of a motion picture produced by an independent production company for limited distribution ranges from approximately $1,000,000 to $15,000,000 as compared with an average of more than $28,000,000 for commercial films produced by major studios for wide release. Production costs consist of acquiring or developing the screenplay, film studio rental, cinematography, post-production costs and the compensation of creative and other production personnel. Distribution expenses, which consist primarily of the costs of advertising and release prints, are not included in direct production costs.
The major studios generally fund production costs from cash flow from their motion picture and related activities, or in some cases from unrelated businesses. Substantial overhead costs, consisting largely of salaries and related costs of the production staff and physical facilities maintained by the major studios, also must be funded.
Independent production companies generally avoid incurring substantial overhead costs by hiring creative and other production personnel and retaining the other elements required for pre- production, principal photography and post-production activities on a project-by-project basis. Unlike the major studios, the independents also typically finance their production activities from discrete sources. Such sources include bank loans, "pre- sales," equity offerings and joint ventures. Independents generally attempt to complete their financing of a motion picture production prior to commencement of principal photography, at which point substantial production costs begin to be incurred and require payment.
"Pre-sales" and negative pickup financing are often used by independent film companies to finance all or a portion of the direct production costs of a motion picture. Pre-sales consist of fees paid to the producer by third parties in return for the right to exhibit the completed motion picture in theaters or to distribute it in home video, television, foreign or other ancillary markets. Producers with distribution capabilities may retain the right to distribute the completed motion picture either domestically or in one or more foreign markets. Other producers may separately license theatrical, home video, television, foreign and all other distribution rights among several licensees.
Both major studios and independent film companies often acquire motion pictures for distribution through a customary industry arrangement known as a "negative pickup," under which the studio or independent film company agrees to acquire from an independent production company all rights to a film upon completion of production. The independent production company normally finances production of the motion picture pursuant to financing arrangements with banks or other lenders in which the lender is granted a security interest in the film and the independent production company's rights under its arrangement with the studio or independent. When the studio or independent "picks up" the completed motion picture, it assumes (and in the case of the Company, most often simply pays) the production financing indebtedness incurred by the production company in connection with the film. In addition, the independent production company is paid a production fee and generally is granted a participation in the net profits from distribution of the motion picture.
Both major studios and independent film companies generally incur various third-party participations in connection with the distribution and production of a motion picture. These participations are contractual rights of actors, directors, screenwriters, owners of rights and other creative and financial contributors entitling them to share in revenues or net profits (as defined in the respective agreements) from a particular motion picture. Except for the most sought-after talent, participations are generally payable after all distribution and marketing fees and expenses, direct production costs and financing costs are paid in full.
Motion Picture Distribution
Motion picture distribution encompasses the distribution of motion pictures in theaters and in ancillary markets such as home video, pay-per-view, pay television, broadcast television, foreign and other markets. The distributor typically acquires rights from the producer to distribute a motion picture in one or more markets. For its distribution rights, the distributor typically agrees to advance the producer a certain minimum royalty or guarantee, which is to be recouped by the distributor out of revenues generated from the distribution of the motion picture and is generally non- refundable. Generally, the producer also is entitled to receive a participation equal to an agreed-upon percentage of all net revenues received from distribution of the motion picture over and above the advance.
Theatrical Distribution
The theatrical distribution of a motion picture involves the manufacture of release prints, the promotion of the picture through advertising and publicity campaigns and the licensing of the motion picture to theatrical exhibitors. The size and success of the promotional advertising campaign can materially affect the revenues realized from the theatrical release of a motion picture. The costs incurred in connection with the distribution of a motion picture can vary significantly, depending on the number of screens on which the motion picture is to be exhibited and the ability to exhibit motion pictures during peak exhibition seasons. Competition among distributors for theaters during such seasons is great. Similarly, the ability to exhibit motion pictures in the most popular theaters in each area can affect theatrical revenues.
The distributor and theatrical exhibitor generally enter into an arrangement providing for the exhibitor's payment to the distributor of a percentage of the box office receipts for the exhibition period, in some cases after deduction of the theater's overhead, or a flat negotiated weekly amount. The distributor's percentage of box office receipts generally ranges from an effective rate of 35% to over 50%, depending upon the success of the motion picture at the box office. Distributors carefully monitor the theaters which have licensed the picture for exhibition to ensure that the exhibitor promptly pays all amounts due the distributor. Substantial delays in collection are not unusual.
Motion pictures may continue to play in theaters for up to six months following their initial release. Concurrently with their release in the United States, motion pictures generally are released in Canada and may also be released in one or more other foreign markets. The motion picture then becomes available for distribution in other markets as follows:
Months After Approximate Initial Release Release Period
Domestic home video 4-6 months ---- Domestic pay-per-view 6-9 months 3 months Domestic pay television 10-18 months 12-21 months Domestic network/basic cable 30-36 months 18-36 months Domestic syndication 30-36 months 3-15 years Foreign home video 6-12 months ---- Foreign television 18-24 months 18-30 months
Home Video
The home video distribution business involves the promotion and sale of videocassettes and videodiscs to distributors as well as local, regional and national video retailers (e.g., video specialty stores, convenience stores, record stores and other outlets), which then rent or sell such videocassettes and videodiscs to consumers primarily for private viewing.
Major feature films are usually scheduled for release in the home video market within four to six months after theatrical release to capitalize on the theatrical advertising and publicity for the film. Promotion of new releases is generally undertaken during the nine to twelve weeks before the release date. Videocassettes of feature films are generally sold to domestic wholesalers at approximately $50 to $60 per unit and generally are rented by consumers for fees ranging from $1 to $5 per day. Wholesalers who meet certain sales and performance objectives may earn rebates, return credits and cooperative advertising allowances. Selected titles, including certain made-for-video programs, are priced significantly lower (at a wholesale price ranging from $5 to $19 per unit) to encourage direct purchase by consumers. Direct sale to consumers is referred to as the "priced- for-sale" or "sell-through" market.
Overall growth in the domestic home video market has slowed as growth in the number of new outlets and new VCR homes has moderated. The growth in outlets designed to serve the rental market has remained essentially flat for the past several years, while the number of new outlets which offer videocassettes and videodiscs for sale has increased. The sell-through market continues to be a seasonal business, except for feature films initially released at prices generally below $30. Furthermore, technological developments which regional telephone companies and others are developing could make competing delivery systems economically viable and could alter the home video marketplace.
Pay-per-view
Pay-per-view television allows cable television subscribers to purchase individual programs, including recently released motion pictures and live sporting, music or other events, on a "per use" basis. The subscriber fees are typically divided among the program distributor, the pay-per-view operator and the cable system operator.
Pay Television
Pay television allows cable television subscribers to view HBO, Cinemax, Showtime, The Movie Channel, Encore and other pay television network programming offered by cable system operators for a monthly subscription fee. The pay television networks acquire a substantial portion of their programming from motion picture distributors.
Broadcast and Basic Cable Television
Broadcast television allows viewers to receive, without charge, programming broadcast over the air by affiliates of the major networks (ABC, CBS, NBC and Fox), independent television stations and cable and satellite networks and stations. In certain areas, viewers may receive the same programming via cable transmission for which subscribers pay a basic cable television fee. Broadcasters or cable systems operations pay fees to distributors for the right to air programming a specified number of times.
Foreign Markets
In addition to their domestic distribution activities, some motion picture distributors generate revenues from distribution of motion pictures in foreign theaters, home video, television and other foreign markets. There has been a dramatic increase in recent years in the worldwide demand for filmed entertainment. This growth is largely due to the privatization of television stations, introduction of direct broadcast satellite services, growth of home video and increased cable penetration.
Other Markets
Revenues also may be derived from the distribution of motion pictures to airlines, schools, libraries, hospitals and the military, licensing of rights to perform musical works and sound recordings embodied in a motion picture, and rights to manufacture and distribute games, dolls, clothing and similar commercial articles derived from characters or other elements of a motion picture.
Acquisition of Motion Picture Distribution Rights by the Company
General
Distribution rights to motion pictures can encompass various media (e.g., theatrical, home video, free or pay television, electronic publishing, CD-ROM, interactive) and various markets or territories (e.g., the United States and Canada, Great Britain and Japan). The Company prefers to acquire worldwide distribution rights to a motion picture in all media wherever feasible, although historically the Company has focused its activities in the domestic video market.
Domestic Home Video Distribution Rights
LHV has developed operating strategies which it believes enhance sales and profit growth potential by focusing on securing long-term access to commercially viable motion pictures primarily for video release. It categorizes the feature films it releases in video by reference to relative acquisition costs and expected unit sales. "A+" titles generally are those films with some combination of significant box office revenues, established stars, wide theatrical distribution and/or large budgets. "A" titles usually are feature films with cast or other elements which give them a defined audience appeal and which also receive wide theatrical distribution. Those films categorized as "B" titles generally include a variety of more modestly budgeted films which, if released theatrically, are done so on a limited or regional basis. In addition to motion picture product, LHV also acquires non- theatrical programming such as sports and fitness programming, children's programming, special interest products and interactive programs.
As a result of its agreement with Carolco, LHV has in the past secured access to broadly distributed theatrical motion pictures. Carolco has granted to LHV domestic home video rights to motion pictures produced or controlled by Carolco on which principal photography has commenced prior to July 31, 1995 or for which LHV has paid an advance to Carolco prior to such date. Canadian home video rights have not been granted to LHV in the case of several films produced by Carolco. In consideration for the rights granted by Carolco, LHV has agreed to pay Carolco certain advances for each picture. These advances are recoupable from LHV's net receipts from video distribution of the pictures. This agreement guarantees that LHV will receive a certain minimum distribution fee; there is a corresponding upper limit on the total gross distribution fee that LHV can earn. In December 1994, as part of an agreement settling all open accounts between them, LIVE and Carolco agreed that for purposes of their settlement only, all films previously produced under this agreement would be deemed to have earned the minimum distribution fee. See "Compensation Committee Interlocks and Insider Participation - Arrangements with Mr. Pierson or Affiliates - Carolco," below. "Net receipts" generally are LHV's wholesale receipts less certain expenses such as marketing and costs of manufacturing. These agreements have been (or will be in the case of any future amendments or pictures) approved by the independent committees of LIVE's Board of Directors (including members elected by holders of the Series B Preferred Stock) and Carolco's Board of Directors. During 1994, LHV released no Carolco titles under this arrangement. Because the Company has entered into a separate distribution agreement with the distributor of the film Cutthroat Island outside of the terms of the LIVE/Carolco output agreement (See "Compensation Committee Interlocks and Insider Participation - Arrangements with Mr. Pierson or Affiliates - - Carolco," below), the Company does not anticipate releasing any additional video titles under this arrangement, if any, until 1996.
In March 1993, a subsidiary of LHV entered into a distribution agreement with Miramax Film Corp. ("Miramax") for the video release by LHV of a number of motion pictures, some of which have been theatrically released by Miramax domestically, including The Crying Game, The Piano, House of the Spirits and Fortress. The Piano won three Academy Awards, including Best Actress, out of eight nominations. LHV released The Crying Game, along with ten other titles, during 1993, five titles under such distribution agreement, including The Piano, during 1994, and one title will be released in 1995.
Pursuant to various other agreements with independent motion picture producers, exclusive of Carolco and Miramax, LHV released eighteen other feature film titles during 1994. LHV anticipates releasing on home video a total of between 50 to 75 feature films in 1995 through 1996. Management believes that, under current market conditions, "B" titles generally will be available at favorable prices on a title by title basis, either in the pre- production stage or as finished product. LHV also intends to continue to pursue opportunities to acquire video rights in children's, budget line and special interest programming.
Domestic home video rights, when acquired under exclusive licenses without other rights, are typically acquired for a term of 15 years or more, in return for non-refundable advances against future royalties which are generally based on either a percentage of LHV's wholesale selling price or a percentage of profit contribution derived from the sale of videocassettes. In most instances, the advance is paid on or after the delivery of the applicable picture to the Company, which typically occurs six to twelve months prior to video release. Furthermore, the licenses may require the film's producer or distributor to make certain minimum print and advertising expenditures toward the theatrical release of the motion picture. In those instances where LHV pays a substantial portion of the royalty advance prior to completion, a completion bond in favor of LHV guaranteeing that a movie will be finished is almost always required, or the funds are escrowed or secured by a letter of credit. Acquisition costs vary substantially from title to title, depending on LHV's assessment of the projected demand for the program.
LHV, under its children's programming label, Family Home Entertainment ("FHE"), has over the years built a substantial library of children's titles. In 1988, FHE secured worldwide rights to release videocassettes of the Teenage Mutant Ninja Turtles animated television series. LHV also has an agreement with Broadway Video Entertainment granting it home video rights to programs including Rudolph the Red Nosed Reindeer, Frosty the Snowman, Santa Claus is Coming to Town, The Little Drummer Boy, Here Comes Peter Cottontail and Frosty Returns. In addition, license agreements have been secured for programming featuring the products of major toy manufacturers including such licensed characters as Robotech, Pound Puppies, G.I. Joe, Transformers, JEM, Mapletown, Velveteen Rabbit, Strawberry Shortcake, The Mad Scientist, Babar, Care Bears, Bucky O'Hare, Hello Kitty and Friends, The New Adventures of Gigantor, Phantom 2040, Papa Beaver, The Highlander (animation), Enchanted Camelot, Skysurfer Strike Force, The Bears Who Saved Christmas, Santa's Christmas Crash and Santa's Christmas Snooze. Management of LHV intends to continue LHV's emphasis on building and exploiting its FHE library.
LHV also distributes non-theatrical products such as the Smithsonian Series and the Audubon Series. LHV distributes music videos, including those by Michael Jackson, the Rolling Stones and the Doobie Brothers. Sports and fitness titles include the PGA Tour, a Jose Canseco instructional tape and Paula Abdul and Marla Maples fitness tapes.
LHV maintains its own sales organization which prepares sales and marketing plans for new release and catalog promotions, and, in conjunction with the sales force of WEA Corp. ("WEA"), works closely with wholesale distributors, rackjobbers and key retailers in the United States. Pursuant to an agreement expiring in May 1995, WEA handles all physical aspects of United States sales, distribution, billing and collections for LHV. LHV and WEA are currently negotiating the terms of an extension of this agreement, although there can be no assurance such an extension will be agreed upon, or if so, what the terms of such extension will be. LHV, through its wholly owned subsidiary LIVE America Inc., has a similar arrangement with MCA Canada Ltd., with respect to LHV's Canadian sales, marketing and distribution activities under an agreement that expires in 1997, subject to a three year option to extend in favor of LIVE America Inc.
In the past, LIVE generally acquired only home video rights and not the rights to broadcast or cablecast programs or to exhibit programs on pay-per-view television or in movie theaters or similar locations. Historically, where these other rights were acquired, LIVE exploited them by sublicensing the rights to third parties whose principal businesses included exploitation of such rights. In early 1994, LIVE expanded its business activities into the theatrical distribution of a limited number of motion pictures and the direct licensing of international and television rights to third parties rather than through intermediaries. LIVE is acquiring, and will continue to acquire, more of these titles with worldwide or North American rights in all media.
In the second quarter of 1994, management of LHV decided to begin releasing fewer rental titles per month than in prior years for a number of reasons, among them being: (a) fewer titles being purchased by LIVE since late 1991 due to the liquidity problems encountered by LIVE since that time, (b) a shift in rental market tastes, with a much greater portion of video store purchases being devoted to theatrically released "A" titles than direct-to-video or direct-to-television "B" titles that have been the predominant titles released by LHV since 1992 and (c) an increase in the absolute number of "B" titles in the marketplace, resulting in increased competition for decreasing retailer purchase funds. Management of LIVE has addressed these issues by (i) reducing its number of rental titles released per month, particularly the direct-to-video "B" titles, allowing LHV's marketing and sales forces to place increased emphasis on a smaller number of titles, (ii) acquiring more rights to films than only domestic video rights (including theatrical, television, international and CD-ROM) and diversifying its business to license such additional rights directly rather than through intermediaries, (iii) continuing LHV's focus on the sell-through business, exploiting LHV's library of over 2,000 titles including children's and special interest programs and (iv) attempting to release a higher percentage of "A" titles by increasing its efforts to acquire films with greater theatrical release potential.
Management of LIVE believes that the decrease in revenues due to fewer rental releases per month will eventually be compensated for through a combination of increased ancillary revenues (such as theatrical, television, international and CD-ROM) and higher revenues per rental release due to a combination of increased focus on fewer titles and a higher percentage of "A" title acquisitions. There is no assurance that this will be the case, however.
Other Domestic Distribution Rights
Historically, LHV only occasionally acquired theatrical distribution rights to certain of its films. However, when those rights were acquired - for films such as Tom and Jerry - The Movie, Reservoir Dogs, Bad Lieutenant, American Heart, Light Sleeper and Bob Roberts, for example - LHV exploited the rights by sublicensing them to third parties whose principal businesses included exploitation of such rights. Management of LIVE considers the theatrical distribution of a film extremely important as a marketing tool which enhances video and international sales and thus LIVE intends to acquire theatrical distribution rights as part of the overall acquisition where possible, even if a film ultimately will not be released theatrically. While LIVE forecasts at best a break even position for its theatrical division due to the risks inherent in that business, management of LIVE believes that the theatrical market has significant upside potential should any particular film perform well. It is not uncommon for films with theatrical losses to have increased performance in video and other ancillary media that partially or totally offset such theatrical losses.
Of those films to which LIVE holds domestic theatrical distribution rights, LIVE intends to release some through its own distribution channels or distribute through third parties. LIVE will exploit Top Dog, a film staring Chuck Norris and for which the Company acquired all U.S. domestic and Japanese distribution rights, in the United States and Canada in early 1995 through the theatrical distribution division of MGM. In addition, LIVE is in various stages of development and pre-production on a number of projects, including Shockwave, directed by David Twohy (writer of The Fugitive and Waterworld), I, Assassin, executive produced by Mace Neufeld and Robert G. Rehme (producers of Beverly Hills Cop III, Patriot Games and Clear and Present Danger), and The Substitute, directed by Robert Mandel (director of School Ties, fx and Big Shots).
In addition, television distribution rights will be acquired where available. Television networks, independent television networks, television stations and cable system operators generally license television series, films and film packages (consisting of theatrically released feature films and made-for-television movies) pursuant to agreements with distributors or syndicators that allow a fixed number of telecasts over a prescribed period of time for a specified cash license fee or for barter of advertising time.
International Distribution Rights
International distribution rights include rights in various media (e.g., television, theatrical and home video) and to various territories (e.g., the United Kingdom, Japan and the Benelux nations). To acquire these rights, LIVE is required to pay a minimum guarantee. The minimum guarantee, along with specific recoupable marketing and other expenses, is recovered from the motion picture's gross revenues before the producer begins to participate in the net revenues. Historically, LIVE only occasionally acquired international distribution rights to certain of its films, mainly through the acquisition of the Vestron library. LIVE has for some time maintained a small in-house international sales staff and utilized outside sales agents to exploit those rights. However, often when international rights were acquired (e.g., for films such as Light Sleeper), LIVE exploited the rights by sublicensing them to third parties such as Carolco whose principal businesses included the further sublicensing of such rights, and LIVE paid a fee for such sublicensing activities. In 1994, LIVE expanded its sales force to manage international sales and to more aggressively promote its motion pictures at foreign film markets, including the Cannes Film Festival in France, the American Film Market in Los Angeles and MIFED in Italy.
Other International Activities
In addition to LIVE's enhanced international sales division, the Company conducts its foreign home video operations through a series of domestic and foreign subsidiaries, including LIVE Film and Mediaworks Inc. ("LFM") and VCL. The activities of VCL are in the German-speaking market in Europe. In March 1994, primarily as a result of a desire of LIVE to focus its efforts on its core domestic entertainment business, the Board of Directors of the Company decided to seek to sell LIVE's interest in VCL.
In February 1995, the Company and certain of its affiliates, on the one hand, and Datty Ruth, the owner of 19% of VCL, and Apricot Computer GmbH ("Apricot"), on the other, entered into a preliminary agreement whereby the Company's 81% interest in VCL, as well as all receivables owed by VCL to the Company or its affiliates, will be transferred to Ruth and Apricot. The total consideration to be received by the Company and its affiliates in connection with such transactions is approximately $7,900,000, of which approximately $3,100,000 was received in February 1995. The Company could receive additional amounts depending upon the post closing profits of VCL; furthermore, the Company will be entitled to share in the profits from future sales of VCL if, following closing but no later than December 31, 1996, greater than 19% of VCL is sold for greater than $4,800,000.
Consummation of the transactions contemplated by the preliminary agreement is subject to the execution and completion of definitive agreements. The parties expect the transactions contemplated by their preliminary agreement to be finalized during 1995.
Sale of Specialty Retail Division
As described above under "Recent Developments - Sale of Specialty Retail Division; Use of Proceeds," LIVE sold its entire interest in the Specialty Retail Division in August 1994. The Company acquired Strawberries in June 1989 and Strawberries acquired Waxie Maxie in March 1990. The Specialty Retail Division engaged in the sale of audio records and tapes, compact discs and video products through retail stores in the Northeastern United States and the Baltimore/Washington D.C. metropolitan area.
Competition
Success in the entertainment marketplace is largely dependent on a company's ability to acquire rights to programming at attractive prices and upon the subsequent performance of this programming in the marketplace. With the exception of the Carolco and Miramax output agreements described above under "Acquisition of Motion Picture Distribution Rights by the Company; Domestic Home Video Distribution Rights," the Company generally acquires distribution rights on a film-by-film basis. The Company faces significant competition both in obtaining distribution rights and in selling products. The Company's competitors for product acquisitions are companies such as New Line, HBO and Trimark, and it competes with these companies as well as major studios in the marketing of its product. Certain of the Company's competitors, particularly those affiliated with major studios or pay television broadcasters, have significantly greater financial resources than the Company. Competition for distribution rights is based primarily on the amount of the advances which companies are willing to offer to producers as well as on the producer's perception of the company's marketing capabilities and its commitment to marketing the release of a film.
Regulation Affecting the Company
Distribution rights to motion pictures are granted legal protection under the copyright law of the United States and most foreign countries, which provide substantial civil and criminal sanctions for unauthorized duplication and exhibition of motion pictures. The Company endeavors to maintain copyright protection for all its films under the laws of all applicable jurisdictions.
United States television stations and networks as well as foreign governments impose restrictions on the content of motion pictures which may restrict in whole or in part exhibition on television or in a particular territory. There can be no assurance, therefore, that current or future restrictions on the content of Company films may not limit or affect the Company's ability to exhibit certain of such motion pictures in such media or markets.
Major Customers
During the year ended December 31, 1992, one customer accounted for approximately 16.6% of the combined net sales of LHV and VCL. During the years ended December 31, 1993 and 1994, no one customer accounted for more than 10% of the combined net sales of LHV and VCL.
Employees
As of February 28, 1995, LHV had 106 full-time regular employees and 1 part-time employee and VCL had 69 full-time employees and 18 part-time employees. None of the Company's employees are covered by a collective bargaining agreement and the Company believes that its employee relations are good.
ITEM 2.
ITEM 2. PROPERTIES
The Company's executive offices, which include the offices of LHV, are leased in Van Nuys, California. VCL leases its offices and distribution center, which are all located in Munich, Germany. The Company believes that its office and warehouse facilities described above are adequate to meet its current and anticipated future needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On January 9, 1992, a purported class action lawsuit was filed in the U.S. District Court, Central District of California, by alleged stockholders of LIVE against LIVE, Carolco and certain of LIVE's past and present directors and executive officers. The complaint alleges, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder (a) by concealing the true value of certain of LIVE's assets, and overstating goodwill, stockholders' equity, operating profits and net income in LIVE's Form 10-K for the year ended December 31, 1990, in its 1990 Annual Report and in its Forms 10-Q for the quarters ended March 31, 1991 and June 30, 1991, and (b) by materially understating the true extent of the write off of goodwill in connection with the sale of substantially all of the assets of LIVE's wholly owned subsidiary, Lieberman Enterprises Incorporated ("Lieberman"), to Handleman Company ("Handleman") in July 1991. In addition, the complaint alleges that certain of the defendants are liable as controlling persons under Section 20 of the Exchange Act and alleges that certain other defendants are liable for aiding and abetting the primary violations. Subsequently, two additional lawsuits were filed in the U.S. District Court, Central District of California, by alleged stockholders of LIVE against the same persons and entities who were defendants in the original actions, making substantially the same allegations as were made in the first lawsuit. On March 30, 1992, these lawsuits were consolidated. Further, in April 1992, an amended complaint was filed in the consolidated action, lengthening the alleged class period and adding as defendants certain additional officers, directors and affiliates of LIVE and Carolco, including Pioneer LDCA, Inc. ("Pioneer"), as well as a lender to LHV and Carolco. On June 17, 1992, the U.S. District Court, Central District of California, entered an order conditionally certifying the class, subject to possible decertification after discovery is completed. On January 27, 1993, a second amended complaint was filed in the consolidated class action making additional and modified allegations against certain of the defendants claiming they are liable as controlling persons under Section 20 of the Exchange Act and claiming that certain other defendants are liable for aiding and abetting the primary violations. On April 19, 1993, the court issued a ruling dismissing defendant Pioneer from this lawsuit.
In February 1992, a purported class action lawsuit was filed in the U.S. District Court, District of Delaware, by an alleged holder of Carolco's public debt, against LIVE, Carolco and certain directors and executive officers of Carolco. The Delaware complaint alleges, among other things, that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by concealing the true value of certain of LIVE's assets, and overstating goodwill, stockholders' equity, operating profits and net income in LIVE's Form 10-K for the year ended December 31, 1990 and in its Forms 10-Q for the quarters ended March 31, 1991 and June 30, 1991. In April of 1992 this lawsuit was transferred to the U.S. District Court, Central District of California. The proceedings are being coordinated with the consolidated action described in the preceding paragraph. On July 17, 1992, the U.S. District Court, Central District of California, entered an order conditionally certifying the class, subject to possible decertification after discovery is completed.
Discovery is currently taking place in both lawsuits.
Management and counsel to LIVE are unable to predict the ultimate outcome of the above-described actions at this time. However, LIVE and the other defendants believe that all these lawsuits are without merit and intend to defend them vigorously. Accordingly, no provision for any liability which may result has been made in LIVE's consolidated financial statements. In the opinion of management, these actions, when finally concluded and determined, will not have a material adverse effect upon LIVE's financial position or results of operations.
On March 24, 1994, the same day that the signing of a letter of intent with respect to the Merger was announced, a purported class action lawsuit was filed in the Court of Chancery of the State of Delaware in and for New Castle County by an alleged stockholder of LIVE against LIVE, Carolco, certain of Carolco's and LIVE's past and present executive officers and directors, Pioneer and Cinepole Productions B.V., a stockholder of both LIVE and Carolco ("Cinepole"). The complaint alleged, among other things, that the defendants violated their fiduciary duties owed to LIVE's stockholders in connection with the Merger. The plaintiff sought a preliminary and permanent injunction enjoining the Merger under its announced financial terms; an open market auction of LIVE; to the extent the Merger was consummated prior to the entry of a final judgment in the action, rescission of the Merger; repayment of profits and benefits obtained as a result of the defendants' alleged conduct; and attorneys fees and expenses. As a result of the termination of the Merger Agreement, the plaintiff agreed to voluntarily dismiss this lawsuit, without prejudice, in November 1994.
Other than as described above, there are no material legal proceedings to which LIVE or any of its subsidiaries are a party other than ordinary routine litigation in the ordinary course of business. In the opinion of management (which is based in part on the advice of outside counsel), resolution of these matters will not have a material adverse impact on LIVE's financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As described above under "Recent Developments for the Company - - Amendment of Restated Certificate of Incorporation to Effectuate One For Five Reverse Stock Split," the Company filed a Certificate of Amendment with the Delaware Secretary of State on December 9, 1994 in order to effectuate the Reverse Stock Split. The Reverse Stock Split was approved by the affirmative written consent of holders of the Prior Common Stock and the Series C Preferred Stock, voting together as a single class, pursuant to a Consent Solicitation Statement dated November 23, 1994. Only holders of record of the Prior Common Stock and Series C Preferred Stock at the close of business on October 31, 1994 were entitled to consent to the Reverse Stock Split. The results of the voting were as follows:
In Favor Opposed Abstaining Type of Votes Shares Shares Shares
Prior Common Stock 5,859,498 451 60 Prior Common Stock into which Series C Preferred Stock was convertible 5,247,417 0 0
TOTAL VOTES 11,106,915 451 60
Percentage of eligible votes (out of total 17,341,027 votes) 64% 0% 0%
As described above under "Recent Developments for the Company - - Removal of Net Worth Covenant from Indenture," in November 1994, a majority of the holders of the LIVE Increasing Rate Notes agreed to eliminate the minimum net worth covenant contained in the Indenture pursuant to a Consent Solicitation Statement dated as of October 12, 1994. Only holders of record of the LIVE Increasing Rate Notes at the close of business on September 12, 1994 were entitled to consent to the amendments to the Indenture. The results of the voting were as follows:
In Favor Opposed Abstaining
Prinicpal Amount $33,408,000 $0 $100 Percentage of Total 83.5% 0% 0%
No other matters were submitted to a vote of the Company's security holders during the fourth quarter of the Company's fiscal year ended December 31, 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Prices
On October 11, 1994, the NYSE commenced de-listing proceedings for the Prior Common Stock (traded under the symbol "LVE") due to the Company's failure to meet the NYSE's listing criteria relating to net tangible assets available to common stock and three year average net income. The Company subsequently applied to have the Common Stock listed under the Nasdaq Stock Market's SmallCap Market (the "SmallCap Market"). That application was accepted and on January 17, 1995, the Common Stock was first listed on the SmallCap Market, under the symbol "LIVE". As of February 28, 1995, there were 1,262 holders of record of the Company's Common Stock. As of the same date, 2,418,700 shares of the Company's Common Stock were outstanding out of 24,000,000 shares authorized. On December 9, 1994 the Company effected the Reverse Stock Split. All amounts indicated reflect the retroactive application of such reverse split.
The following table sets forth for the periods indicated the high and low sales prices for the Company's Common Stock on the New York Stock Exchange and The Nasdaq Stock Market.
Year Ended December 31, 1993
Quarter Ended High Low
March 31, 1993 . . . . . . . . . . $14.375 $8.125 June 30, 1993. . . . . . . . . . . 11.875 8.125 September 30, 1993 . . . . . . . . 13.125 8.750 December 31, 1993. . . . . . . . . 14.375 8.750
Year Ended December 31, 1994
Quarter Ended High Low
March 31, 1994 . . . . . . . . . . $15.625 $11.875 June 30, 1994. . . . . . . . . . . 10.000 8.125 September 30, 1994 . . . . . . . . 8.125 6.250 December 31, 1994. . . . . . . . . 7.500 2.750
Cash Dividends
The Company has never paid cash dividends on its Common Stock, which in part has been due to restrictions imposed by debt instruments. The Board of Directors expects that it will continue to retain all earnings for use in the Company's business except as required to be paid on the Series B Preferred Stock and the Series C Preferred Stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected financial data and other operating information of LIVE and is derived from the audited consolidated financial statements of LIVE. The table does not include financial data of Waxie Maxie and VCL prior to their respective acquisition dates in 1990, or for Strawberries and Waxie Maxie subsequent to their sale in August 1994. The data should be read in conjunction with the consolidated financial statements, related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K. Certain re-classifications were made to the financial information from 1990 through 1993 to conform to the 1994 presentations.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Continuing Operations
Combined net sales of LHV and VCL decreased to $139,917,000 during 1994 compared to $172,246,000 during 1993. The decrease of $32,329,000, or 18.8%, is primarily attributable to a weaker release schedule at LHV in 1994 compared to 1993. LHV released twenty-three rental titles during 1994 compared to thirty-three rental titles during 1993. Results for 1994 included revenues from the initial rental release of the films Fortress, The Piano, Gunmen, The House of the Spirits, Beyond The Law and Wagons East. There was also a decrease in sell-through sales during 1994 compared to 1993, primarily due to the sell-through release of Tom & Jerry: The Movie in 1993. There was no comparable sell-through title released in 1994.
Combined gross profits of LHV and VCL decreased $6,291,000, or 27.2%, to $16,847,000 during 1994 compared to $23,138,000 during 1993. The decrease in gross profit dollars was primarily related to the decrease in sales and an increase in amortization of film rights costs related to adjustments in projected values of certain film properties. As a percentage of sales, gross profit decreased from 13.4% during 1993 to 12.0% during 1994. The decrease in gross profit as a percentage of sales is primarily due to the decrease in rental sales, which usually generate higher gross profits as a percentage of sales.
Combined selling, general and administrative expenses of LHV and VCL increased $369,000, or 1.6%, to $23,069,000 during 1994 compared to $22,700,000 during 1993. As a percentage of sales, the amount increased from 13.2% during 1993 to 16.5% during 1994. The dollar increase is primarily a result of the write-off of the entire $6,211,000 receivable owed to LIVE by Carolco (of which all but $2,177,000 was reserved for in prior years) and approximately $1,000,000 in expenses related to the proposed Merger, offset by reduced overhead expenses. The percentage increase is primarily due to the decrease in sales.
Combined interest income of LHV and VCL increased $1,256,000, or 93.4%, to $2,601,000 during 1994 compared to $1,345,000 during 1993. The increase is primarily due to increased cash on hand throughout 1994.
Combined interest expense of LHV and VCL decreased $1,708,000, or 22.4%, to $5,901,000 during 1994 compared to $7,609,000 during 1993. Interest to maturity on $36,872,000 of the Company's $40,000,000 of LIVE Increasing Rate Notes has been included in the carrying value of the LIVE Increasing Rate Notes and will not be recognized as interest expense in 1994 and future years. Interest expense recognized in 1993 and 1994 on the remaining $3,128,000 of LIVE Increasing Rate Notes was $312,000 and $476,000, respectively. The decrease in interest expense in 1994 was primarily due to reduced bank borrowings in 1994.
LHV and VCL had a combined operating loss of $6,174,000 during 1994 compared to a combined operating loss of $5,436,000 during 1993. Both LHV and VCL had operating losses for 1993 and LHV had an operating loss for 1994. The combined loss of LHV and VCL before income tax expense was $9,474,000 during 1994 compared to a combined loss of $27,441,000 during 1993. The decrease in the combined pre-tax loss of $17,967,000 was primarily due to the write down of the carrying value of VCL in 1993 in anticipation of the disposition thereof, offset by a reduction in interest expense in 1994.
Preferred dividends of $3,589,000 and $3,791,000 in 1993 and 1994 represents the 5% cash dividend accrued on both the Series B Preferred Stock and the Series C Preferred Stock as well as, in the case of the Series C Preferred Stock, additional 5% dividends on accrued but unpaid dividends.
The effective income tax (benefit) rate from continuing operations for 1994 was (2.1)%. The effective tax rate from continuing operations for 1993 was (2.8)%.
Revenues, operating profits/(losses) and identifiable assets of the Company's foreign operations were $26,629,000, $2,945,000 and $33,262,000, respectively, in 1994 compared to $34,009,000, ($3,289,000) and $28,871,000, respectively, in 1993.
Discontinued Operations
As a result of the Board of Directors' decision in early 1994 to dispose of LIVE's interests in the Specialty Retail Division and VCL, the Specialty Retail Division's results of operations for 1993 have been restated and accounted for as a discontinued operation. VCL's operating results for 1993 and 1994 have been restated and accounted for as a disposal of a portion of a line of business. Accordingly, the provision for losses during the phase-out period totaling $2,024,000 for the Specialty Retail Division and $3,885,000 for VCL have been accrued and accounted for at December 31, 1993 and are not included in the results of operations for 1994. Losses of $1,858,000 and $2,994,000 have been charged against the respective provisions during 1994.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Continuing Operations
Combined net sales of LHV and VCL decreased to $172,246,000 during 1993 compared to $192,513,000 during 1992. The decrease of $20,267,000, or 10.53%, is primarily attributable to a decrease in sales at LHV, resulting from a weaker release schedule in 1993 compared to 1992. Results for 1993 included revenues from the initial rental releases of the theatrical films Reservoir Dogs, Bob Roberts, Glengarry Glen Ross, The Crying Game, Bad Lieutenant and Chaplin, along with the sell-through release of Tom and Jerry: The Movie. The net sales from these 1993 releases were less than the revenues generated from 1992's initial rental releases of Defenseless, Rambling Rose, Basic Instinct and Universal Soldier, along with the sell-through release of Terminator 2: Judgment Day. In addition, LHV's 1992 results included sales of approximately $9,300,000 from titles obtained in the July 1991 acquisition of Vestron that had not been previously released to the video market. All previously unreleased Vestron titles were released by LHV on video by May 1992. Revenues generated by LHV from Carolco titles amounted to 13.0% and 38.4% of combined net sales for 1993 and 1992, respectively. VCL's sales decreased during 1993 compared to 1992, primarily due to a weakening in the video rental market in Germany. In addition, 1992's results included the home video rental release of Terminator 2: Judgment Day in Germany; there was no similar release by VCL in 1993.
Combined gross profits of LHV and VCL decreased $924,000, or 3.8%, to $23,138,000 during 1993 compared to $24,062,000 during 1992. As a percentage of sales, gross profit increased from 12.5% during 1992 to 13.4% during 1993. The increase as a percentage of sales despite the decrease in gross profit dollars is primarily due to greater allowances for returns and related items in 1992 than in 1993. In 1992, the Company temporarily increased its returns and related allowances as a result of matters related to the financial restructuring of the Company that was completed in March 1993 (the "Restructuring").
Combined selling, general and administrative expenses of LHV and VCL decreased $1,113,000, or 4.7%, to $22,700,000 during 1993 compared to $23,813,000 during 1992. As a percentage of sales, the amount increased from 12.4% during 1992 to 13.2% during 1993. The dollar decrease is primarily a result of the Company's efforts to reduce overhead due to lower sales. The percentage increase is primarily due to the decrease in combined sales.
Combined interest income of LHV and VCL decreased $935,000, or 41.0%, to $1,345,000 during 1993 compared to $2,280,000 during 1992. The decrease is primarily due to decreased cash on hand throughout 1993.
Combined interest expense of LHV and VCL decreased $9,095,000, or 54.4%, to $7,609,000 during 1993 compared to $16,704,000 during 1992. Effective September 1, 1992, interest stopped accruing on the then - outstanding $110,000,000 principal amount of 14.5% Senior Subordinated Notes due May 15, 1999 (the "Outstanding Notes"); the interest expense recorded in 1992 on the Outstanding Notes was approximately $10,600,000. Interest to maturity on $36,872,000 of the Company's $40,000,000 of LIVE Increasing Rate Notes has been included in the carrying value of the LIVE Increasing Rate Notes and will not be recognized as interest expense in 1993 and future years. Interest expense recognized in 1992 and 1993 on the remaining $3,128,000 of LIVE Increasing Rate Notes was $104,000 and $312,000, respectively. This decrease in interest expense in 1993 was partially offset by approximately $3,300,000 of interest expense associated with the 12% Notes that were issued in March and April 1993.
LHV and VCL had a combined operating loss of $5,436,000 during 1993 compared to a combined operating loss of $4,854,000 during 1992. Both LHV and VCL had operating losses for 1992 and 1993. The combined loss of LHV and VCL before income tax expense was $27,441,000 during 1993 compared to a combined loss of $19,278,000 during 1992. The increase in the combined pre-tax loss of $8,163,000 was primarily due to the write down of the carrying value of VCL in anticipation of the disposition thereof, offset by a reduction in interest expense in 1993.
Preferred dividends of $3,579,000 in 1993 represents the 5% cash dividend accrued on both the Series B Preferred Stock and the Series C Preferred Stock. Preferred dividends of $2,397,000 in 1992 represents the 10% cash dividend accrued on the Series A Preferred Stock for the eight months ended August 31, 1992 and the 5% cash dividend on the Series B Preferred Stock for the four months ended December 31, 1992.
In 1992, the Company recognized a pre-tax gain of $3,177,000 associated with the Restructuring. The income tax benefit associated with this transaction was $790,000. There were no similar transactions in 1993.
The effective income tax (benefit) rate from continuing operations for 1993 was (2.8)%. The effective tax rate from continuing operations for 1992 was 9.4%.
Revenues, operating profits/(losses) and identifiable assets of the Company's foreign operations were $34,009,000, ($3,289,000) and $28,871,000, respectively, in 1993 compared to $32,993,000, ($3,043,000) and $42,983,000, respectively, in 1992.
Discontinued Operations
As a result of the Board of Directors' decision to dispose of the Company's interest in the Specialty Retail Division, the Division's results of operations for the periods presented have been classified as a discontinued operation.
The Specialty Retail Division revenues in 1993 were $106,124,000 compared to $98,894,000 in 1992. The increase is due to the opening of new stores and an increase in comparable store sales. The Division had income before income taxes of $2,322,000 during 1993 compared to $992,000 during 1992. The increase is primarily attributable to increased sales and increased margins during 1993. The estimated loss on disposal includes a $2,024,000 provision for operating losses during the phase out period.
Liquidity and Capital Resources
In its report on the consolidated financial statements of the Company for the fiscal year ended December 31, 1993, LIVE's auditors noted that there was substantial doubt concerning LIVE's ability to continue as a going concern for the following reasons:
a. LIVE was in default under the Previous Facility and the Previous Facility was scheduled to expire during 1994;
b. The 12% Notes became due and payable in 1994; and
c. At the time of the issuance of that report, LIVE had not arranged for the repayment and/or replacement of those debts.
Since the issuance of that report, LIVE has accomplished the following:
1. On November 16, 1994 LIVE replaced the Previous Facility with the Foothill Credit Facility.
2. On August 31, 1994, LIVE sold its entire interest in the Specialty Retail Division for a cash price of $35,000,000. The net proceeds of the sale, together with other cash on hand, were used to repay the full amount of the 12% Notes - $5,750,000, plus accrued interest, on September 15, 1994, and the remaining $31,250,000, plus accrued interest, on October 17, 1994.
3. LIVE received the consent of the holders of a majority of the principal amount of the LIVE Increasing Rate Notes removing from the Indenture a minimum consolidated net worth covenant, thereby removing a potential event of default.
Based upon the effectiveness of the Foothill Credit Facility, the repayment in full of the 12% Notes and the elimination of net worth covenant from the Indenture, management believes that its existing financial resources and anticipated cash flows from operations will be sufficient to fund its cash requirements for at least the next twelve months. The report of LIVE's auditors on the consolidated financial statements of the Company for the fiscal year ended December 31, 1994, contains no expression of doubt concerning LIVE's ability to continue as a going concern.
In the second quarter of 1994, management of LIVE decided to begin releasing fewer rental titles per month than in prior years for a number of reasons, among them being: (a) fewer titles being purchased by LIVE since late 1991 due to the liquidity problems encountered by LIVE since that time, (b) a shift in rental market tastes, with a much greater portion of video store purchases being devoted to theatrically released "A" titles than lower budgeted, straight to video or television "B" titles that have been the predominant titles released by LIVE since 1992, and (c) an increase in the absolute number of "B" titles in the marketplace, resulting in increased competition for decreasing retailer purchase funds. Management currently intends to address these issues by (i) reducing its number of rental titles released per month, particularly the direct-to-video "B" titles, allowing LIVE's marketing and sales forces to place increased emphasis on a smaller number of titles, (ii) acquiring more rights to films than only domestic video rights (including theatrical, television, international and CD-ROM) and diversifying its business to license such additional rights directly rather than through intermediaries, (iii) continuing LIVE's focus on the sell-through business, exploiting LIVE's library of over 2,000 titles including children's and special interest programs, and (iv) attempting to release a higher percentage of "A" titles by increasing its efforts to acquire films with greater theatrical release potential. Obtaining the Foothill Credit Facility was a critical factor in this latter effort. LHV anticipates releasing on home video a total of between 50 to 75 feature films in 1995 through 1996.
Management believes that the decrease in revenues due to fewer rental releases per month will eventually be compensated for through a combination of increased ancillary revenues (such as theatrical, television, international and CD-ROM) and higher revenues per rental release due to a combination of increased focus on fewer titles and a higher percentage of "A" title acquisitions. There is no assurance that this will be the case, however.
At December 31, 1994, LIVE had total current assets of $103,631,000 and total current liabilities of $62,753,000, resulting in working capital of $40,878,000, an increase of $35,081,000 compared to LIVE's working capital at December 31, 1993. The increase is primarily due to the reclassification of $40,000,000 related to the anticipated redemption of the Series B Preferred Stock from a liability in 1993 to equity in 1994.
Historically, LIVE has funded its operations through a combination of cash generated from operations, bank borrowings, advances from distributors under distribution agreements and the proceeds from the issuance of the 12% Notes. For the twelve months ending December 31, 1994, LIVE generated positive cash flow from continuing operations of $35,055,000.
On May 11, 1992, LHV entered into a three-year distribution agreement with WEA Corp. ("WEA") that became effective on June 1, 1992. Under the terms of the agreement, WEA advanced $20,000,000 to LHV, recoupable from distribution revenues during the three-year term of the agreement at the rate of $555,555 per month plus interest at LIBOR (6.0% at December 31, 1994) plus 0.2%, not to exceed the prime rate. The advance is secured by a first priority security interest in certain of LHV's FHE catalog titles. The amount of the advance outstanding as of December 31, 1994 was $3,333,333. LHV is currently in negotiations for a potential extension of the distribution agreement with WEA beyond its May 1995 expiration date. There is no assurance that such an extension will be agreed upon or, if so, what the terms of such extension may be.
On August 31, 1994, LIVE sold its entire interest in its Specialty Retail Division to a group including Castle Harlan, Inc., Ivan R. Lipton, the President of the Specialty Retail Division, and other senior managers of the Specialty Retail Division. The purchaser group also included Jefferson Capital; R. Timothy O'Donnell, the President of Jefferson Capital, is a Director of LIVE. The total purchase price paid to LIVE for the Specialty Retail Division was $35,000,000 in cash.
LIVE's Series B Preferred Stock was mandatorily redeemable from the net proceeds of any sale of the Specialty Retail Division remaining after the payment of transaction costs and the payment of any debt secured by the Specialty Retail Division. LIVE's $37,000,000 of the 12% Notes, issued in 1993, became due and payable in September and October 1994, and repayment of the 12% Notes was secured by the stock of the Specialty Retail Division. Due to the demand for payment made by the holders of all $37,000,000 in principal amount of the 12% Notes, LIVE used all of the net proceeds from the sale of the Specialty Retail Division to repay the 12% Notes and no net proceeds remained from the sale to redeem any of the Series B Preferred Stock.
As of December 31, 1994, the aggregate redemption price for the Series B Preferred Stock was $50,400,000 ($9.00 per share) and that redemption price increases by an additional $560,000 per month through October 1995, when the redemption price reaches $56,000,000 ($10.00 per share) and remains at that price thereafter.
Although LIVE has no obligation to redeem any Series B Preferred Stock, subject to the availability of funds and the prior approval of its Board of Directors and its lenders, LIVE may acquire shares of its Series B Preferred from time to time, either through private purchases or through open market purchases. Through March 15, 1995, LIVE acquired, and subsequently retired, a total of 1,800,000 shares of the Series B Preferred Stock at an average price of under $4.00 per share.
Investing activities generated a negative cash flow during the twelve months of 1994 of $459,000, primarily as a result of the acquisition of property and equipment at LHV.
On November 16, 1994 LIVE entered into the Foothill Credit Facility. Borrowings available under the Foothill Credit Facility are limited to $20,000,000 until additional participant lenders are added to the Facility, at which time the borrowings available will be increased to a maximum of $30,000,000. Borrowings under the Foothill Credit Facility are determined under a borrowing base calculation, which includes certain allowable accounts receivable, film rights and inventory balances, and are secured by substantially all of the assets of LIVE and its subsidiaries. Outstanding borrowings under the Foothill Credit Facility bear interest at the rate of 2% per annum above the highest of the Bank of America, Mellon Bank or Citibank prime rate (10.5% at December 31, 1994), payable monthly. In no event will interest under the loan be less than 7% per annum. The Foothill Credit Facility provided for a closing fee of $500,000, an annual facility fee of 1/4% of 1% and a commitment fee of 1/4 of 1% on any unused amount. The Foothill Credit Facility also requires LIVE to meet certain financial ratios, and as of December 31, 1994 the Company was in compliance with all such financial ratios.
The Foothill Credit Facility replaced the Previous Facility on which no amounts were outstanding.
By late 1994, LIVE believed that at the end of 1994 it may have been in violation of the minimum consolidated net worth covenant contained in the Indenture (the "Indenture") governing the LIVE Increasing Rate Notes. Such default would have permitted the trustee thereunder or holders of 25% in aggregate principal amount of the LIVE Increasing Rate Notes to give notice and accelerate maturity of the indebtedness represented by the LIVE Increasing Rate Notes. In November 1994, a majority of the holders of the LIVE Increasing Rate Notes agreed to eliminate the minimum net worth covenant contained in the Indenture, thereby removing the possibility that LIVE might have defaulted under that covenant in 1995. As part of the amendment of the Indenture, LIVE agreed to increase the interest rate on the LIVE Increasing Rate Notes from 10% per annum to 12% per annum effective October 18, 1994. The interest rate on the LIVE Increasing Rate Notes was scheduled to increase to 12% in March 1996.
Dividends on the Series C Preferred Stock, at the rate of 5% per annum on the unreturned $15,000,000 liquidation value of the Series C Preferred Stock, are due on June 30 and December 31 of each year. Although the dividends scheduled to be paid on June 30 and December 31, 1993, and June 30 and December 31, 1994 were accrued by LIVE, those dividends were not paid due to restrictions imposed on LIVE by the terms of the Series B Preferred Stock, which prohibit the payment of dividends on the Series C Preferred Stock unless the aggregate amount of such dividends, together with all cash dividends paid on the Series B Preferred Stock, does not exceed the net income of LIVE (adding back specified net worth exclusions) since the March 23, 1993 date of issuance of the Series B Preferred Stock and Series C Preferred Stock. LIVE has had a consolidated net loss for the period subsequent to March 23, 1993. Thus, pursuant to the terms of the Series B Preferred Stock, LIVE was prohibited from paying the June 30 and December 31, 1993, and June 30 and December 31, 1994 cash dividends on the Series C Preferred Stock which, together with accrued and unpaid dividends thereon, totalled $1,378,000 as of December 31, 1994.
The unpaid LIVE Series C Preferred dividend itself bears a dividend of 5% per annum, and is due on the next regularly scheduled dividend payment date for the LIVE Series C Preferred. LIVE intends to pay the June 30 and December 31, 1993, and June 30 and December 31, 1994 dividends, plus the additional dividends thereon, as soon as it has sufficient net income to permit such payment to occur or as soon as the LIVE Series B Preferred has been redeemed, provided that such payment does not impair the capital of LIVE and is permitted under the Delaware General Corporation Law ("DGCL").
LIVE experienced negative cash flows from financing activities of $52,590,000 during 1994 primarily due to interest payments on bank debt, repayment of the 12% Notes and interest payments on long term obligations.
Impact of Inflation and Other Matters
The inflation rate in recent years has been negligible. Where manufacturers have increased prices, the Company generally has been able to pass on such price increases within 90 to 180 days. As a result, inflation has not had a material impact on the results of operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to Consolidated Financial Statements of the Company is included in Item 14.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to the directors and executive officers of the Company as of February 28, 1995. Started with the Name Age Position Company
Anthony J. Scotti 55 Director; Chairman of the Board 1988 Frans J. Afman 61 Director 1988 Jay Burnham 32 Director 1993 Jonathan D. Lloyd 42 Director 1993 Ryuichi Noda 60 Director 1994 Masao Nomura 45 Director 1993 R. Timothy O'Donnell 39 Director 1988 Gregory R. Pierson 36 Director 1994 Roger R. Smith 52 Director 1988 Roger A. Burlage 52 Director; President and Chief 1994 Executive Officer of the Company and LHV Ronald B. Cushey (1) 38 Director; Executive Vice 1993 President and Chief Financial Officer of the Company and LHV Michael J. White 39 Director; Executive Vice 1990 President/Chief Administrative Officer, General Counsel and Corporate Secretary of the Company Paul Almond (2) 52 Executive Vice President/ 1994 Programming and Acquisitions of LHV Steven E. Mangel (2) 41 Executive Vice President/Legal and 1986 Business Affairs and General Counsel of LHV Elliot Slutzky (2) 46 Executive Vice President/Sales and 1994 Marketing of LHV
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(1) Became Executive Vice President/Chief Financial Officer of the Company and LHV in January 1995.
(2) Executive officers of LHV who were determined by the Board of Directors of the Company to be executive officers of the Company effective as of January 1, 1995 by virtue of the policy making functions that they perform for the Company.
Mr. Scotti has been a Director of the Company since November 1988 and Chairman of the Board since November 1992. Since February 1991, Mr. Scotti has been Chairman of the Board and Chief Executive Officer of All American Communications, Inc. ("All American"), a multi-media entertainment conglomerate specializing in television production and distribution, record producing, music publishing and motion picture production. From 1976 to 1991, Mr. Scotti served as Co-Chairman of the Board of Directors and Chief Executive Officer of Scotti Brothers Entertainment Industries ("Scotti Brothers"), a multi-media entertainment company which became a wholly owned subsidiary of All American in February 1991.
Mr. Afman has been a Director of the Company since November 1988. From 1982 until July 1988, Mr. Afman was a Senior Vice President of Credit Lyonnais Bank Nederland N.V. ("Credit Lyonnais"). He served as a consultant to the Board of Directors of Credit Lyonnais from July 1988 until July 1991. In July 1991, Mr. Afman was appointed Managing Director of a newly formed financial services unit of International Creative Management, a leading worldwide talent and literary agency. Currently, Mr. Afman is an independent financial consultant to the entertainment industry.
Mr. Burnham, a Director of the Company since June 1993, has been an investment analyst with Libra Investments ("Libra"), a diversified investment services firm, since January 1995. From June 1990 until he joined Libra, Mr. Burnham performed investment analyst services for Paul D. Sonz Partners, a diversified investment services firm. From August 1987 until June 1990, he was an investment analyst with Columbia Savings and Loan Association, a financial savings institution. Mr. Burnham is a director of Bally's Las Vegas, a hotel and gaming establishment located in Las Vegas, Nevada.
Mr. Lloyd, a Director of the Company since June 1993, is currently the Chairman, President and Chief Executive Officer of OpTel, Inc. ("OpTel"), a national developer and operator of cable television and telephone systems. Prior to joining OpTel, Mr. Lloyd was the President of Qintex Entertainment, Inc. ("Qintex"), a company engaged in the development and production of television programming, a position he held from January 1990 until December 1993. In October 1989, Qintex filed for reorganization under Chapter 11 of the United States Bankruptcy Code and a plan of reorganization for Qintex was confirmed in December 1992. From April 1988 to January 1990, Mr. Lloyd was the Executive Vice President and Chief Financial Officer of Qintex.
Mr. Noda became a Director of the Company in December 1994. Mr. Noda became President of Pioneer LDC, Inc., a subsidiary of Pioneer Electronic Corporation, in April 1991 and has been a Director of Pioneer Electronic Corporation since December 1988. From October 1988 to April 1991, he was Deputy General Manager of the International Division of Pioneer Electronic Corporation. From January 1986 until October 1988, he was President and Chief Executive Officer of Pioneer Electronics (USA) Inc., a company engaged in sales and marketing of consumer electronics in the United States. From 1985 to 1986, he served as General Manager of the Planning and Coordination Department of the International Division of Pioneer Electronic Corporation. Mr. Noda also serves as a Director of Carolco.
Mr. Nomura became a Director of the Company on November 9, 1993. He has served as Secretary, Treasurer and Chief Financial Officer of Pioneer since March 1987.
Mr. O'Donnell has been a Director of the Company since November 1988. He is currently President of Jefferson Capital, a privately held investment banking group which he co-founded in September 1989. Mr. O'Donnell has been a Director of All American since January 1992, a Director of Shorewood Packaging Corporation, a packager of records, audiocassettes and videocassettes, since 1992, and a Director of Cinergi Pictures Entertainment Inc., an independent motion picture distribution company, since 1994.
Mr. Pierson became a Director of LIVE in April 1994. Mr. Pierson has been the General Counsel of Pioneer North America, Inc. ("PNA") since 1991. From 1985 to 1991, Mr. Pierson was an attorney with the law firm of Adams, Duque & Hazeltine in Los Angeles. Mr. Pierson also serves as a Director of Carolco.
Mr. Smith has been a Director of the Company since November 1988 and was Executive Vice President of Carolco from October 1990 to June 1992. Since June 1992, Mr. Smith has been self employed as an independent motion picture producer. He served as Executive Vice President of the Company from November 1989 until September 1990 and Chief Financial Officer of the Company from November 1988 until September 1990. He also served as Senior Vice President of the Company from November 1988 until he became Acting President of the Company in August 1989, a position he held until his appointment as Executive Vice President of the Company. He was also President of LIVE Enterprises Inc., a subsidiary of the Company, from November 1989 until September 1990.
Mr. Burlage has served as President and Chief Executive Officer of LIVE and LHV since January 1994 and became a Director of the Company in December 1994. From 1989 until joining LIVE, Mr. Burlage served as President and Chief Executive Officer of Trimark Holdings, Inc., a diversified entertainment company ("Trimark"). Prior to joining Trimark, Mr. Burlage served in several other capacities in the entertainment industry, including positions with New World Pictures, Ltd. ("New World") and with AVCO Corporation and AVCO Embassy Pictures.
Mr. Cushey has served as Executive Vice President and Chief Financial Officer of LIVE and LHV since January 1995. He became a Director of the Company on November 9, 1993. He was an Executive Consultant for PNA from April 1992 until December 1994. Mr. Cushey served as Chief Financial Officer of Nelson Holdings International Ltd. and Nelson Entertainment Group (collectively, "Nelson") from January 1989 until June 1991, after serving as Nelson's Acting Chief Financial Officer since November 1987.
Mr. White became a Director of the Company in December 1994. He has been Executive Vice President/Chief Administrative Officer of the Company since November 1993 and General Counsel since September 1990. In February 1993, the Company filed a "prepackaged plan of reorganization" in the United States Bankruptcy Court in order to consummate the Restructuring. The plan of reorganization was confirmed on March 17, 1993 and the Company emerged from bankruptcy on March 23, 1993. Prior to joining the Company, Mr. White served as Vice President, Human Resources and Corporate Counsel of PACE Membership Warehouse, Inc. ("PACE") from June 1988 and February 1988, respectively, until April 1990.
Mr. Almond was named Executive Vice President, Acquisitions and Productions, of LHV in January 1994. From 1986 until joining LIVE, Mr. Almond was Senior Vice President, Worldwide Acquisitions at ITC Entertainment Group, an international motion picture production and distribution company.
Mr. Mangel became LHV's Executive Vice President in July 1994 and currently supervises the Company's international sales division and its legal and business affairs department. Previously, Mr. Mangel served as General Counsel and Senior Vice President/Legal and Business Affairs since August 1989 after serving as its Vice President since January 1986. From 1979 until joining LHV, Mr. Mangel was a private practitioner, specializing in copyright and entertainment law, becoming a member of the law offices of Shapiro and Mangel in 1984.
Mr. Slutzky was named Executive Vice President, Sales and Marketing of LHV in February 1994. From 1989 until his appointment at LIVE, Mr. Slutzky was President, Marketing and Distribution, for Epic Productions, Inc. and Vision International.
Directors are elected for staggered terms of three years, except for one year in regards to Messrs. Burnham and Lloyd, expiring as follows: Jay Burnham, Ronald B. Cushey, Jonathan D. Lloyd, Gregory R. Pierson and R. Timothy O'Donnell, whose terms expired at the 1994 annual meeting of stockholders and who are serving until the election of their successors at the 1995 annual meeting of stockholders; Roger A. Burlage, Roger R. Smith and Michael J. White at the 1995 annual meeting of stockholders; and Frans J. Afman, Ryuichi Noda, Masao Nomura and Anthony J. Scotti at the 1996 annual meeting of stockholders. Officers generally are appointed annually by the Board of Directors and serve at the pleasure of the Board of Directors.
Arrangements Pursuant to Which Certain Directors Have Been Elected
By the terms of the Certificate of Designations, Preferences and Relative, Participating, Optional or Other Special Rights of the Series B Preferred Stock, the holders of the Series B Preferred Stock, voting as a class, are entitled to elect two Directors of the Company, and more in certain events. Messrs. Burnham and Lloyd have been elected as Directors by the holders of the Series B Preferred Stock.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company during the fiscal years ended December 31, 1994, December 31, 1993 and December 31, 1992 to Mr. Burlage, who has served as the Chief Executive Officer of the Company from January 1994 and to each of the other executive officers of the Company during 1994 whose annual salary and bonus for such period was in excess of $100,000. As of the end of the fiscal year ended December 31, 1994, there were only two executive officers of the Company (Mr. Burlage and Michael J. White). Rodney W. Trovinger, formerly the Senior Vice President and Acting Chief Financial Officer of the Company, passed away in April 1994 and his annual salary and bonus between January 1, 1994 and April 17, 1994 was less than $100,000. Ivan R. Lipton, the President of the Specialty Retail Division, ceased serving as an executive officer of the Company by virtue of the sale of the Specialty Retail Division in August 1994; Mr. Lipton's annual salary and bonus between January 1, 1994 and August 31, 1994 was greater than $100,000. Messrs. White and Lipton are referred to herein as the "Named Executives."
Ronald B. Cushey became Executive Vice President and Chief Financial Officer of the Company in January 1995, and Paul Almond, Steven Mangel and Elliot Slutzky - all executive officers of LHV - were named as executive officers of the Company effective as of January 1, 1995 by virtue of the policy making functions that they perform for the Company.
Following the Summary Compensation Table are certain additional charts and tables detailing other aspects of the compensation of the Named Executives including (a) an Option Grants Table that includes information regarding individual grants of options made to the Named Executives during fiscal 1994 along with the potential realizable values of such options and (b) a Fiscal Year End Option Table that indicates whether any of the Named Executives exercised options in fiscal 1994 and includes the number and value of unexercised options held by the Named Executives at December 31, 1994.
The following table sets forth certain information regarding the Chief Executive Officer and the other Named Executives identified in the Summary Compensation Table.
The following table sets forth certain information regarding option exercises and option values for the Chief Executive Officer and the other Named Executives identified in the Summary Compensation Table.
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs at FY-End (#) at FY-End ($) Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized Unexercisable* Unexercisable
Roger A. Burlage -0- - 30,000 (E) 0 (E) 90,000 (U) 0 (U)
Michael J. White -0- - 6,800 (E) 0 (E) 5,200 (U) 0 (U)
Ivan R. Lipton -0- - 0 (E) 0 (E) 0 (U) 0 (U) (*) Gives effect to the Reverse Stock Split.
Board Fees
Directors Fees
During 1994, all Directors of the Company were entitled to receive non-qualified options to acquire 1,000 shares of the Company's Common Stock for service as a Board member. All Directors of the Company who are not employed by the Company are also entitled to receive an annual fee of $10,000 plus $1,000 for attendance at each committee meeting. Mr. Scotti does not receive these fees.
Mr. Scotti receives $25,000 per month for services rendered as Chairman of the Board of Directors of the Company. Mr. Scotti receives no other annual meeting or committee fees for his service on the Board.
Arrangements with Board Members
In September 1994, LIVE offered to amend the applicable stock option agreements with respect to all stock options held by members of its Board of Directors to provide that such options shall be exercisable for a period of twelve months following termination of employment or other relationship with LIVE to the extent such options are exercisable on the date of such cessation of employment or other relationship. Other than agreements concerning options granted to members of the Stock Option Committee of LIVE's Board of Directors in January 1994, which agreements include the twelve- month exercise provision, the applicable stock option agreements of all members of LIVE's Board currently provide that options shall be exercisable for a period of ninety (90) days following termination of employment or other relationship with LIVE to the extent such options are exercisable on the date of such cessation of employment or other relationship. All of the members of LIVE's Board of Directors accepted this offer.
On March 6, 1995, the Stock Option Committee of the Board of Directors granted to all current employees and Directors of LIVE and LHV (other than members of the Stock Option Committee) who were holders of options pursuant to the Company's 1988 Stock Option and Stock Appreciation Rights Plan, as amended (the "1988 Plan"), the option to agree to cancel certain options (the "Canceled Options") and to receive in return therefor new options (the "New Options") pursuant to the 1988 Plan, all on the following terms and conditions: (i) the exercise price for the New Options would equal $3.50, the closing price of the Common Stock on the SmallCap Market on March 6, 1995, (ii) fifty percent (50%) of the New Options would vest on March 6, 1996; the remainder would vest on March 6, 1997, provided that no New Options would vest earlier than the scheduled vesting date for the corresponding Canceled Options, and (iv) all New Options would expire on the expiration date of the corresponding Canceled Options.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1994, the following Board members served on the Company's Compensation Committee: Mr. Afman, Mr. O'Donnell, Mr. Scotti (until December 1994) and Mr. Pierson (effective December 1994). During the fiscal year ended December 31, 1994, none of the members of the Compensation Committee were officers or employees of LIVE or any of its subsidiaries. Furthermore, none of the members of the Compensation Committee are former officers of LIVE or any of its subsidiaries. The Company or its subsidiaries had the following relationships and transactions with members of the Compensation Committee and/or their affiliates.
Arrangements with Mr. Scotti or Affiliates
The Company and Mr. Scotti are parties to an agreement dated December 1993, pursuant to which the Company agreed, for a term ending in December 1996, to pay Mr. Scotti $25,000 per month, plus normal directors expenses and other out-of-pocket expenses he may incur in connection with his services to the Company, in return for Mr. Scotti making himself available to the Company or any video subsidiary thereof to act as Mr. Burlage's primary reporting person for the period ending December 31, 1996. Such compensation is payable as long as Mr. Scotti makes himself available for such purpose, whether or not the Company actually utilizes his services and whether or not Mr. Burlage remains in the Company's employ.
Arrangements with Mr. O'Donnell or Affiliates
In a May 1992 agreement, amended in July and August 1992, the Company engaged Jefferson Capital and Daniels and Associates (collectively, the "Financial Advisors") to review the Company's capital structure, assist in structuring and placing appropriate working capital facilities at LHV and to make recommendations with respect to the Company's capital structure. As part of their engagement, the Financial Advisors assisted the Company in negotiating and obtaining the Foothill Credit Facility and in December 1994 received a total fee of $300,000 for such services. LIVE has also agreed to reimburse the Financial Advisors for their reasonable out-of-pocket expenses, including legal fees, in connection with such engagement.
Jefferson Capital has performed various other investment banking services for the Company. In January 1993, Jefferson Capital received a $100,000 retainer for investment banking services to be provided in connection with any consideration by the Company of a potential business combination of the Company and Carolco. As a result of the Company's execution of the Merger Agreement, an additional $400,000 was paid to Jefferson Capital in August 1994. LIVE has also agreed to reimburse Jefferson Capital for its reasonable out-of-pocket expenses, including legal fees, and to indemnify Jefferson Capital against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of services performed by Jefferson Capital as financial advisor to LIVE's management.
In October 1994, LIVE retained Jefferson Capital as its advisor in connection with LIVE's efforts to obtain the agreement of the holders of the LIVE Increasing Rate Notes to eliminate the minimum net worth covenant contained in the Indenture. Jefferson Capital received a total fee of $200,000 (one half paid in October 1994 and the second half paid in November 1994) for investment banking services provided in connection with such efforts. Jefferson Capital's fee was not contingent upon the success of LIVE's efforts to amend the Indenture. LIVE also agreed to reimburse Jefferson Capital for its reasonable out-of-pocket expenses, including legal fees, and to indemnify Jefferson Capital against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of services performed by Jefferson Capital for this engagement.
In August 1994, LIVE sold the Specialty Retail Division for the total purchase price of $35,000,000. The purchaser is an affiliate of each of (i) Jefferson Capital and (ii) Ivan Lipton, President of the Specialty Retail Division.
Arrangements with Mr. Afman or Affiliates
In July 1994, LIVE entered into an agreement with affiliates of Mr. Afman whereby such affiliates agreed to provide services with respect to the international licensing of film rights held by LIVE. The fees payable to the affiliates of Mr. Afman are based on the license fee paid for such rights by unaffiliated third parties. Such affiliates of Mr. Afman also are entitled to be reimbursed for certain expenses they incur in connection with the services they perform under the agreement. The agreement is terminable by either party upon thirty days prior notice.
Arrangements with Mr. Pierson or Affiliates
Pioneer
Pursuant to an agreement dated October 1991, LIVE America Inc., an affiliate of the Company ("LIVE America"), granted Pioneer a license for United States laser videodisc rights to LIVE America's library of motion pictures (subject to certain reserved rights) for a term ending in September 1995. In October 1991, Pioneer paid LIVE America $5,000,000 under this agreement as a non- returnable advance recoupable on a cross-collateralized basis from all royalties payable to LIVE America under the agreement. Such advance has been recouped by Pioneer and no further amounts are owing thereunder.
Pioneer is the owner of all of the Series C Preferred Stock. The Series C Preferred Stock bears dividends at the rate of 5% per annum, payable semi-annually on January 1 and July 1. The semi- annual dividends on the Series C Preferred Stock scheduled to be paid to Pioneer on July 1, 1993, January 1, 1994, July 1, 1994 and January 1, 1995, were not paid due to restrictions on LIVE imposed by the terms of the Series B Preferred Stock. Under the terms of the Certificate of Designations, Preferences and Rights of the Series C Preferred Stock, any accrued but unpaid dividends on the Series C Preferred Stock are added to the liquidation preference of the Series C Preferred Stock on the semi-annual payment date. As of January 2, 1995, unpaid dividends totalling $1,378,000 from July 1, 1993, January 1, 1994, July 1, 1994 and January 1, 1995 had been added to the liquidation preference resulting in a total liquidation preference of $16,378,000.
Under the terms of the Certificate of Designations, Preferences and Relative, Participating, Optional or Other Special Rights of the Series B Preferred Stock, LIVE is prohibited from paying dividends on any junior series of LIVE preferred stock, including the Series C Preferred Stock, other than from the cumulative net income of LIVE from and after the date of issuance of the Series B Preferred Stock (March 23, 1993). LIVE has had a cumulative net loss since March 23, 1993 and thus has been prohibited from paying dividends on the Series C Preferred Stock. As a result of such non-payment, the unreturned liquidation preference of the Series C Preferred Stock increased to $16,378,000 as of December 31, 1994. It is the intention of LIVE, immediately upon any redemption or retirement of the Series B Preferred Stock, to pay all accrued and unpaid dividends on the Series C Preferred Stock, provided that the payment of such dividends does not impair the capital of LIVE and is not prohibited under the DGCL. Immediately following such payment, the liquidation preference of the Series C Preferred Stock would equal $15,000,000.
Giving effect to the Reverse Stock Split, the Series C Preferred Stock is convertible into that number of shares of Common Stock that is equal to the unreturned liquidation preference of the Series C Preferred Stock divided by $15.225. Thus, as of December 31, 1994, the Series C Preferred Stock was convertible into 1,075,753 shares of Common Stock. Upon the payment of all accrued and unpaid dividends on the Series C Preferred Stock, the Series C Preferred Stock will be convertible into 985,221 shares of Common Stock.
In July 1993, LIVE granted Pioneer, Le Studio Canal+ S.A. ("Le Studio") and RCS Video International Services B.V. ("RCS") the right to require LIVE to use its best efforts to register all Common Stock in the Company owned by either Pioneer, Le Studio or RCS, whether acquired directly from the Company, upon conversion of the Series C Preferred Stock, or upon acquisition of such stock from Carolco pursuant to the financial restructuring of Carolco that occurred in October 1993.
Due to the illness and subsequent death of Rodney Trovinger, LIVE's former Acting Chief Financial Officer, PNA agreed to allow LIVE to use the services of Mr. Cushey, a director of LIVE who was at that time an Executive Consultant for PNA, on an indefinite basis to provide assistance to LIVE's accounting and finance departments pursuant to an agreement dated as of April 1, 1994. The agreement was terminable by either party upon ten days' notice. During the term of this agreement, LIVE agreed to reimburse PNA for all of the costs to PNA of Mr. Cushey's employment by PNA. LIVE also agreed to indemnify both Mr. Cushey and PNA for Mr. Cushey's activities while providing services to LIVE under such agreement. This agreement terminated in December 1994 as a result of Mr. Cushey's departure from PNA in order to become a full time employee of LIVE. LIVE paid PNA a total of $157,500 under this agreement. In July 1994, LIVE paid Mr. Cushey an additional fee of $25,000 for financial advisory services then expected to be rendered by Mr. Cushey to LIVE during 1994 in connection with the Merger.
In July 1994, LIVE NV and an affiliate of Pioneer reached an agreement whereby the Pioneer affiliate will receive the Japanese theatrical, video and television distribution rights to the films Wagons East, Top Dog, The Beans of Egypt, Maine and Goldy III.
Carolco
Pioneer owns approximately 41% of the outstanding voting equity of Carolco. Le Studio and its affiliates own approximately 17% of the outstanding voting equity of Carolco. RCS and its affiliates own approximately 5.8% of the outstanding voting equity of Carolco.
In March 1994, LIVE and Carolco reached agreement in principle on a business combination (the "Merger"), and executed a Merger Agreement with respect thereto on August 10, 1994 (the "Merger Agreement"). On October 13, 1994 LIVE and Carolco jointly announced that they had agreed to terminate the Merger Agreement between the two companies and to end all discussions regarding a possible business combination. In 1994, LIVE incurred approximately $1,000,000 in expenses in connection with the Merger. As a result of the December 1994 agreement discussed below, which settled all open accounts between LIVE and Carolco, LIVE wrote off the remaining unpaid receivable amount of $6,211,000 that LIVE had recorded in its financial records as owing from Carolco, the entire amount of which previously had been reserved for.
LHV is party to an agreement with Carolco entitling LHV to acquire home video rights in the United States and Canada for most motion pictures produced or controlled by Carolco on which principal photography has commenced prior to July 31, 1995 or for which LHV has paid an advance to Carolco prior to such date, under a series of agreements which principally consist of a master agreement entered into in July 1987, restated in October 1987, and amended in April 1990, March 1991, October 1991, March 1992 and December 1994 (the "Domestic Master Agreement"). Canadian home video rights have not been granted to LHV in the case of several films produced or acquired by Carolco. Pioneer, Le Studio, RCS and/or their affiliates (collectively, the "Carolco Strategic Investors") have co-financed certain of the motion pictures produced by Carolco subject to the Domestic Master Agreement. The Domestic Master Agreement provides for the payment by LHV of certain advances for each picture, which advances are recoupable from LHV's net receipts from video distribution of the pictures. The Domestic Master Agreement also guarantees that LHV will receive a certain minimum distribution fee; there is a corresponding upper limit on the total gross distribution fee that LHV can earn. "Net receipts" generally are LHV's wholesale receipts less certain expenses such as marketing and costs of manufacturing. All aspects of the Domestic Master Agreement, amendments thereto and advances on individual pictures have been or will be (in the case of future amendments or pictures) approved by the Independent Committees of each of Carolco's and LIVE's Board of Directors. In 1994, LHV made no payments to Carolco and at December 31, 1994 had no recorded contractual obligations under the Domestic Master Agreement. Additional advances will be due if additional films are made available from Carolco under the Domestic Master Agreement.
LEII is party to an agreement with Carolco International N.V. (now Carolco International Inc.) ("CII") entitling LEII to acquire home video rights in the German-speaking European market for most motion pictures produced or controlled by CII on which principal photography has commenced prior to July 31, 1995 or for which LHV has paid an advance to CII prior to such date (other than rights granted by CII to other parties prior to April 1991), under a master agreement entered into in April 1991 (the "German Master Agreement"). The Carolco Strategic Investors have co-financed certain of the motion pictures produced by CII subject to the German Master Agreement. The German Master Agreement provides for the payment by LEII of certain advances for each picture, which advances are recoupable from LEII's net receipts from video distribution of these pictures. LEII is guaranteed to earn a certain minimum overall distribution fee on each film; there is a corresponding upper limit on the total gross distribution fee that LEII can earn on each film. "Net receipts" generally are the wholesale receipts of LEII or its designated subsidiaries, including VCL, less certain expenses such as marketing and costs of manufacturing. All aspects of the German Master Agreement and advances on individual pictures have been or will be (in the case of future amendments or pictures) approved by the Independent Committee of each of Carolco's and LIVE's Board of Directors. In 1994, LEII did not pay any advances to CII and at December 31, 1994 had no recorded contractual obligations under the German Master Agreement. Additional advances will be due if additional films are made available from Carolco under the German Master Agreement.
In December 1992, the Company, Carolco and certain of their affiliates reconciled the amounts owing to each by the others (the "Reconciliation Agreement"). In December 1994, as part of an agreement settling all open accounts between them, including those that arose as a result of the Reconciliation Agreement, LIVE and Carolco agreed that all individual films previously delivered to LHV or LEII under either the Domestic Master Agreement or the German Master Agreement would no longer be cross-collateralized with other films, either within individual packages or among so called "film packages"; the companies also agreed that for purposes of their settlement only, all such films would be deemed to have earned the minimum distribution fee that was guaranteed to LHV and LEII.
LEII and CII were general partners in a Netherlands Antilles general partnership which was involved in the international marketing and distribution of video rights. LEII's contribution to the partnership consisted of international video rights, and CII's contribution consisted of international distribution services. LEII had a 99% interest in the partnership and CII's interest was 1%. By mutual agreement of LEII and CII, the partnership was dissolved, and the service agreement was canceled, both effective as of September 30, 1994.
In December 1993, an affiliate of Carolco commenced principal photography of Wagons East, starring John Candy and Richard Lewis. As a result of the untimely death of Mr. Candy, in March 1994 Carolco entered into an arrangement with the insurance carrier and an affiliate of LIVE pursuant to which certain rights in the film were conveyed to LIVE, LIVE agreed to fund completion of the film, and LIVE engaged Carolco to complete production and servicing of certain pre-existing distribution agreements.
In January 1995, in order to settle disputes between them with respect to the ownership of the United States and Canada video distribution rights to the film Cutthroat Island, LIVE and Carolco reached agreement that Cutthroat Island would not be subject to either the Domestic Master Agreement or the German Master Agreement. LIVE also reached agreement with the distributor of Cutthroat Island whereby LIVE obtained video distribution rights to such film in the United States and Canada, and Carolco made certain payments to LIVE to compensate LIVE for the fact that its distribution fee under the Cutthroat Island video distribution agreement was less favorable to LIVE than the terms of the Domestic Master Agreement.
In connection with the class action litigation described above under "Item 3 - Legal Proceedings," LIVE and Carolco entered into an agreement dated April 8, 1992, with respect to the division of legal fees and costs relating to that litigation. Pursuant to the agreement, 65% of the legal fees and costs will be paid by LIVE and 35% of the legal fees and costs will be paid by Carolco.
The Company believes that each transaction with an affiliate of the Company was on terms at least as favorable to the Company as would have prevailed in arms-length transactions between unrelated parties. In addition, future transactions between the Company and its affiliates will be referred to either the Company's Board of Directors or a committee of disinterested Directors to ensure that the interests of the Company are protected in any such transaction.
Employment and Consulting Agreements
Mr. Burlage is party to a December 1993 employment agreement with LIVE which provides that he will serve as Chief Executive Officer and President of LIVE from January 1994 until December 1997. Mr. Burlage's minimum salary was $450,000 per annum during 1994 and will be increased each calendar year thereafter by 5% of the base salary in effect in the prior calendar year (or more at the discretion of the Company's Board of Directors). Mr. Burlage will also receive incentive compensation equal to two percent of the Company's earnings before interest and taxes in excess of $10,000,000 per annum, subject to certain exclusions, limited to 100% of his base salary for the applicable year. As part of the agreement, the Company paid Mr. Burlage a signing bonus of $100,000 and agreed to pay for and/or provide a life insurance policy, disability benefits, health insurance benefits, automobile benefits, vacation benefits and a country club membership. In addition, the Company granted Mr. Burlage options to acquire 120,000 shares of the Company's Common Stock at a price of $9.375 per share (the closing price of the Company's Common Stock on the New York Stock Exchange on the date the Company and Mr. Burlage reached agreement on his employment), with 30,000 of such options vesting annually commencing December 31, 1994. LIVE also paid approximately $11,000 in legal fees incurred by Mr. Burlage in connection with his employment agreement with LIVE. If Mr. Burlage's employment is terminated by LIVE for other than "good cause," he will receive his salary, incentive compensation, life insurance, health insurance and automobile benefits for the remainder of the term of his employment agreement. All payments pursuant to the provisions of the immediately preceding sentence would be reduced, dollar for dollar, by the amount received by Mr. Burlage from employment following termination of his agreement. The stock option information contained in this paragraph has been adjusted to give effect to the Reverse Stock Split.
Mr. White is party to a February 1994 employment agreement with the Company which provides that he will serve as Executive Vice President/Chief Administrative Officer and General Counsel of the Company until such time that either the Company or Mr. White gives notice of termination. The agreement provides that Mr. White will receive a minimum annual salary of $250,000, plus such incentive compensation as is determined from time to time by the Board. As part of the agreement, the Company agreed to provide Mr. White with health insurance, life insurance and vacation benefits. If Mr. White's employment is terminated by LIVE for other than "good cause," he will receive his salary for one year, along with health insurance. All payments pursuant to the provisions of the immediately preceding sentence would be reduced, dollar for dollar, by the amount received by Mr. White from employment following termination of his agreement.
Mr. Lipton and Strawberries were parties to a December 1992 employment agreement which provided that he would serve as President of Strawberries though January 1996. The agreement provided that Mr. Lipton would receive a minimum annual salary of $161,250 through the term of the agreement, plus such incentive compensation as is determined from time to time by the Board of Directors of Strawberries. As part of the agreement, Strawberries paid Mr. Lipton a $50,000 signing bonus and agreed to provide Mr. Lipton with health insurance, life insurance, automobile benefits and vacation benefits. If more than 50% of the stock or assets of Strawberries was sold above a minimum price during the term of Mr. Lipton's contract and, in certain circumstances, within two years after such term, then Mr. Lipton would have been entitled to additional compensation based upon the net proceeds received in connection with such sale; no amounts were paid to Mr. Lipton as a result of this clause of his agreement upon the Company's sale of the Specialty Retail Division in August 1994. Mr. Lipton's employment agreement was cancelled and replaced by the new owners concurrently with the sale of the Specialty Retail Division.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of February 28, 1995, certain information concerning the ownership of shares of Common Stock and Series C Preferred Stock, and all such information gives effect to the Reverse Stock Split. The Series C Preferred Stock votes on an as converted basis on all matters which may come before the holders of Common Stock, voting together on such matters with the Common Stock. As of February 28, 1995 the Series C Preferred Stock was convertible into 1,075,753 shares of Common Stock. Information is provided concerning the ownership of Common Stock and Series C Preferred Stock by (i) the holders known to LIVE of more than 5% of the outstanding shares of Common Stock or Series C Preferred Stock, (ii) each executive officer and director of LIVE and (iii) all executive officers and directors of LIVE as a group.
Columns (A) and (B) of the table provide information regarding the voting power of the foregoing persons, entities and groups. Columns C through E of the table show their beneficial ownership of Common Stock and Series C Preferred Stock issued and outstanding as of February 28, 1995. Beneficial ownership has been determined in accordance with Rule 13d-3(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which provides that a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power which includes the power to dispose of, or to direct the disposition of, such security. Where known by LIVE, the footnotes to the table indicate when shares have been included in the table based upon beneficial ownership resulting other than from actual ownership of the shares.
Column C of the table ("Number of Shares of Issued and Outstanding Common Stock") includes only shares of Common Stock actually issued and outstanding as of February 28, 1995. Column E ("Shares of Common Stock in Which Person Has Right to Acquire Beneficial Ownership Within 60 Days") provides information with respect to shares of Common Stock that are not held by a person as of February 28, 1995, but which a person has the right to acquire beneficial ownership of within 60 days of that date (such as upon the exercise of options or warrants, the conversion of convertible securities or through other similar securities or arrangements). Shares of Common Stock issuable upon exercise of options or warrants, upon conversion of convertible securities, or through other similar securities or arrangements are included in Column E if such options, warrants, convertible securities or other similar securities or arrangements are exercisable (or convertible) within 60 days of February 28, 1995, regardless of whether the exercise, conversion or other acquisition price is above or below the current market price for Common Stock.
Columns (F) and (G) of the table show each of the person's, entity's and group's beneficial ownership of Common Stock calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act, and includes shares of Common Stock issued and outstanding as of February 28, 1995, as well as shares for which beneficial ownership may be acquired within 60 days of that date. In accordance with Rule 13d-3(d)(1) under the Exchange Act, any securities not outstanding but which are the subject of options, warrants, rights, or conversion privileges (or other arrangements which could result in the issuance of additional shares of Common Stock by LIVE) exercisable within 60 days of February 28, 1995, are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person.
Certain members of the Board of Directors named in the table are affiliated with one of the beneficial owners of more than 5% of the Common Stock or Series C Preferred Stock (a "5% Owner"). In certain circumstances, a 5% Owner may be deemed to beneficially own Common Stock or Series C Preferred Stock held by such directors, and vice versa. For purposes of the table below, (i) the beneficial ownership of a 5% Owner includes such director's ownership where indicated by footnote even though the 5% Owner may disclaim beneficial ownership of such shares and (ii) the beneficial ownership of the director does not include such 5% Owner's beneficial ownership solely by reason of such director's affiliation with such 5% Owner.
The following table sets forth, as of December 31, 1994, the beneficial ownership of shares of LIVE's Series B Preferred Stock, by each stockholder who is known by LIVE to own more than 5% of the outstanding shares of the Series B Preferred Stock based upon 5,600,000 shares of the Series B Preferred Stock outstanding as of December 31, 1994. Although 6,000,000 shares of Series B Preferred Stock were originally issued by LIVE, LIVE purchased 400,000 shares by December 31, 1994 (See "Recent Developments for the Company - Purchase of Series B Preferred Stock," above) leaving 5,600,000 shares outstanding as of that date.
Shares of Percentage of Name of Beneficial Series B Outstanding Owner Preferred Series B Stock Owned Preferred Stock
FMR Corp. (1) 2,832,756 50.6% Metropolitan Life Insurance Company (2) 369,770 6.6%
(1) FMR Corp. is the parent of Fidelity Management & Research Company which manages or advises various funds that hold these shares of Series B Preferred Stock.
(2) Represents shares of Series B Preferred Stock indirectly owned by Metropolitan Life Insurance Company ("Metropolitan") through its wholly-owned subsidiary State Street Research & Management Company ("State Street Research") and State Street Research's affiliate State Street Research Investment Services, Inc. ("State Street Services"). State Street Research and State Street Services are investment advisers registered under the Investment Advisers Act of 1940. In its most recent Schedule 13G filed with the Commission, Metropolitan claimed sole voting power and sole investment power over all 369,770 shares of Series B Preferred Stock. In their most recent Schedule 13G filed with the Commission, State Street Research and State Street Services claimed that various of their clients are the beneficial owners of all 369,770 shares of Series B Preferred Stock held by them and State Street Research and State Street Services disclaimed any beneficial interest in those securities. The address of Metropolitan is One Madison Avenue, New York, New York 10010. The address of State Street Research and State Street Services is One Financial Center, Boston, Massachusetts 02111-2690.
As of February 28, 1995, none of the directors or executive officers of LIVE beneficially owned any shares of LIVE's Series B Preferred Stock.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Arrangements with Members of the Compensation Committee or Their Affiliates
See "Executive Compensation - Compensation Committee Interlocks and Insider Participation," above.
Arrangements with Le Studio
In July 1994, Carolco and an affiliate of Le Studio reached an agreement whereby the Le Studio affiliate received the rights in certain French-speaking territories to the motion picture Wagons East. This agreement was performed by an affiliate of LHV after such affiliate acquired rights to Wagons East pursuant to the agreements described above in "Executive Compensation - Compensation Committee Interlocks and Insider Participation."
In July 1994, LHV and an affiliate of Le Studio executed a definitive agreement whereby LHV licensed the United States and Canadian video rights to the motion picture Stargate.
Arrangements with RCS
Pursuant to a pre-existing output agreement, an affiliate of RCS received the rights in certain Italian-speaking territories in Europe and Africa to the motion picture Wagons East. Certain of Carolco's rights and obligations under the output agreement relating to the motion picture Wagons East were performed by an affiliate of LHV after such affiliate acquired rights to Wagons East pursuant to the agreements described above in "Executive Compensation - Compensation Committee Interlocks and Insider Participation."
Transactions with FMR Corp.
In October 1994, the Company repaid the entire remaining amount of principal and accrued interest on the 12% Notes. Funds managed or advised by Fidelity Management & Research Company held approximately $31,250,000 in principal amount of the 12% Notes. FMR Corp. is the parent of Fidelity Management & Research Company.
On March 7, 1995, the Company acquired 1,400,000 shares of Series B Preferred Stock from various funds managed or advised by Fidelity Management & Research Company, at the market price in effect on that date.
The Company believes that each transaction with an affiliate of the Company was on terms at least as favorable to the Company as would have prevailed in arms-length transactions between unrelated parties. In addition, future transactions between the Company and its affiliates will be referred to either the Company's Board of Directors or a committee of disinterested Directors to ensure that the interests of the Company are protected in any such transaction.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Commission and Nasdaq initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by Commission regulation to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended December 31, 1994 all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were complied with except that Mr. Noda, a Director of the Company, failed to file on a timely basis his initial report on Form 3, which report was filed one day late.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of LIVE and its subsidiaries are included in Item 8 and filed herewith:
Consolidated Balance Sheets as of December 31, 1993 and
Consolidated Statements of Operations for the Years Ended December 31, 1992, 1993 and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1992, 1993 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31, 1992, 1993 and 1994
Notes to Consolidated Financial Statements
(a)(2) The following consolidated financial statement schedule is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Commission are either not required under the related instructions or are inapplicable, and therefore have been omitted.
(a)(3) The exhibits listed on the Exhibit Index are filed as part of this report.
(b) On December 19, 1994, the Company filed a report on Form 8-K, dated December 19, 1994, announcing the December 9, 1994, filing of the Certificate of Amendment with the Delaware Secretary of State, amending the Restated Certificate to effectuate the Reverse Stock Split.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LIVE ENTERTAINMENT INC.
By /s/ ROGER A. BURLAGE Roger A. Burlage Chief Executive Officer
Dated: March 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
ANTHONY J. SCOTTI* Chairman of the Board March 20, 1995 Anthony J. Scotti
/s/ ROGER A. BURLAGE Chief Executive Officer March 20, 1995 Roger A. Burlage (principal executive officer); Director
/s/ RONALD B. CUSHEY Chief Financial Officer March 20, 1995 Ronald B. Cushey (principal financial officer); Director
/s/ ROBERT L. DENTON Vice President and March 20, 1995 Robert L. Denton Chief Accounting Officer (principal accounting officer)
FRANS J. AFMAN* Director March 20, 1995 Frans J. Afman
JAY BURNHAM* Director March 20, 1995 Jay Burnham
/s/ MICHAEL J. WHITE Director March 20, 1995 Michael J. White
Signature Title Date
JONATHAN D. LLOYD* Director March 20, 1995 Jonathan D. Lloyd
RYUICHI NODA* Director March 20, 1995 Ryuichi Noda
MASAO NOMURA* Director March 20, 1995 Masao Nomura
R. TIMOTHY O'DONNELL* Director March 20, 1995 R. Timothy O'Donnell
ROGER R. SMITH* Director March 20, 1995 Roger R. Smith
GREGORY R. PIERSON* Director March 20, 1995 Gregory R. Pierson
* By signing his name hereto, Roger A. Burlage signs this document as Chief Executive Officer of the Registrant and on behalf of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed herewith.
By: /s/ ROGER A. BURLAGE, ATTORNEY-IN-FACT Roger A. Burlage, Attorney-In-Fact
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LIVE ENTERTAINMENT INC.
By Roger A. Burlage Chief Executive Officer
Dated: March 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
ANTHONY J. SCOTTI* Chairman of the Board March 20, 1995 Anthony J. Scotti
Chief Executive Officer March 20, 1995 Roger A. Burlage (principal executive officer); Director
Chief Financial Officer March 20, 1995 Ronald B. Cushey (principal financial officer); Director
Vice President and March 20, 1995 Robert L. Denton Chief Accounting Officer (principal accounting officer)
FRANS J. AFMAN* Director March 20, 1995 Frans J. Afman
JAY BURNHAM* Director March 20, 1995 Jay Burnham
Director March 20, 1995 Michael J. White
Signature Title Date
JONATHAN D. LLOYD* Director March 20, 1995 Jonathan D. Lloyd
RYUICHI NODA* Director March 20, 1995 Ryuichi Noda
MASAO NOMURA* Director March 20, 1995 Masao Nomura
R. TIMOTHY O'DONNELL* Director March 20, 1995 R. Timothy O'Donnell
ROGER R. SMITH* Director March 20, 1995 Roger R. Smith
GREGORY R. PIERSON* Director March 20, 1995 Gregory R. Pierson
* By signing his name hereto, Roger A. Burlage signs this document as Chief Executive Officer of the Registrant and on behalf of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed herewith.
By: Roger A. Burlage, Attorney-In-Fact
REPORT OF INDEPENDENT AUDITORS
Board of Directors LIVE Entertainment Inc.
We have audited the accompanying consolidated balance sheets of LIVE Entertainment Inc. and subsidiaries as of December 31, 1993 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in all material respects, the consolidated financial position of LIVE Entertainment Inc. and subsidiaries at December 31, 1993 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Century City Los Angeles, California March 15, 1995
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) December 31, 1993 1994 ASSETS CURRENT ASSETS: Cash and cash equivalents, including restricted cash of $17,173 and $4,663 . . . . . . . . . . . . . $ 42,358 $ 24,264 Accounts receivable, less allowances of $25,440 and $19,469. . . . . . . . . . . . . 2,432 1,950 Inventories . . . . . . . . . . . . . . . . . . . 10,124 7,842 Film rights . . . . . . . . . . . . . . . . . . . 29,839 50,288 Deferred income taxes . . . . . . . . . . . . . . 4,176 -- Other . . . . . . . . . . . . . . . . . . . . . . 1,543 1,371 Assets held for sale. . . . . . . . . . . . . . . 86,000 17,916 TOTAL CURRENT ASSETS . . . . . . . . . . . 176,472 103,631 PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . 1,686 1,400 RECEIVABLE FROM AFFILIATE. . . . . . . . . . . . . . 8,047 -- FILM RIGHTS, net of accumulated amortization of $415,681 and $466,260. . . . . . . . . . . . 32,228 20,820 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 1,320 1,072 GOODWILL, net of accumulated amortization of $32,193 and $36,118 . . . . . . . . . . . . 33,796 29,871 $253,549 $156,794 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: 12% Subordinated Secured Notes due 1994 . . . . . $ 36,707 $ -- Current maturities of long-term obligations . . . 8,043 3,478 Current maturities of Increasing Rate Senior Subordinated Notes . . . . . . . . 3,791 3,954 Film rights obligations . . . . . . . . . . . . . 15,850 19,776 Accounts payable. . . . . . . . . . . . . . . . . 9,697 7,305 Accrued expenses. . . . . . . . . . . . . . . . . 8,646 9,499 Liabilities related to assets held for sale . . . 46,601 13,542 Series B Cumulative Convertible Preferred Stock (5,000,000 shares 1993) . . . . 40,000 -- Dividends payable . . . . . . . . . . . . . . . . 1,340 2,131 Income taxes payable and deferred income taxes. . -- 3,068 TOTAL CURRENT LIABILITIES . . . . . . . . . 170,675 62,753 LONG-TERM OBLIGATIONS, less current maturities . . . 3,333 -- INCREASING RATE SENIOR SUBORDINATED NOTES DUE 1999, including capitalized interest of $20,662 and $16,871, less current maturities . . . . . . . . . . . . . . . . 56,871 53,184 ACCRUED EXPENSES, less current portion . . . . . . . 1,740 1,572 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 10,188 3,568 STOCKHOLDERS' EQUITY: Series B Cumulative Convertible Preferred Stock--authorized 9,000,000 shares; $1.00 par value; $60,000,000 liquidation preference (1993); $56,000,000 liquidation preference (1994); 1,000,000 (1993) and 5,600,000 (1994) shares outstanding . . . . 1,000 5,600 Series C Convertible Preferred Stock--15,000 shares authorized and outstanding; $1.00 par value; $15,000,000 liquidation preference . 15 15 Common Stock -- authorized 120,000,000 shares (1993) and 24,000,000 shares (1994); $0.01 par value; 12,090,016 (1993) and 2,418,720 (1994) shares outstanding . . . . . . . . . . . . . . 121 121 Additional paid-in capital. . . . . . . . . . . . 106,507 136,656 Retained deficit. . . . . . . . . . . . . . . . . (96,901) (106,675) 10,742 35,717 $253,549 $156,794 See notes to consolidated financial statements.
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Thousands, Except Per Share Data)
Year Ended December 31, 1992 1993 1994
Net sales. . . . . . . . . . . . . . . . . $ 160,953 $ 143,735 $ 117,205 Cost of goods sold . . . . . . . . . . . . 142,000 124,336 101,781 GROSS PROFIT. . . . . . . . . . . . . 18,953 19,399 15,424 Operating expenses: Selling, general and administrative expenses. 16,092 17,248 17,673 Amortization of goodwill. . . . . . . . 3,924 3,924 3,925 20,016 21,172 21,598 (1,063) (1,773) (6,174) Disposal of VCL/Carolco Communications GmbH (VCL): Net Sales . . . . . . . . . . . . . . . 31,560 28,511 22,712 Costs and Expenses. . . . . . . . . . . 35,351 32,174 22,712 (3,791) (3,663) -- Loss on disposal of VCL . . . . . . . . -- (15,741) -- (3,791) (19,404) -- OPERATING LOSS. . . . . . . . . . (4,854) (21,177) (6,174) Interest income . . . . . . . . . . . . 2,280 1,345 2,601 Interest expense. . . . . . . . . . . . (16,704) (7,609) (5,901) LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (BENEFIT). . . . . (19,278) (27,441) (9,474) Income tax (benefit) expense. . . . . . (1,818) 768 200 LOSS FROM CONTINUING OPERATIONS . (17,460) (28,209) (9,674) Discontinued Operations: Income (loss) from discontinued operations net of income taxes. . . . 1,090 1,690 (100) Loss on disposal and operating losses during phase-out period, net of income tax benefit . . . . . . . . . -- (23,773) -- INCOME (LOSS) FROM DISCONTINUED OPERATIONS. . . . . . . . . . . 1,090 (22,083) (100) LOSS BEFORE EXTRAORDINARY ITEM. . (16,370) (50,292) (9,774) EXTRAORDINARY ITEM-Gain from debt restructuring, including income tax benefit of $790 . . . . . . . . . 3,967 -- -- NET LOSS. . . . . . . . . . . . . $ (12,403) $ (50,292) $ (9,774)
(Loss) income per common share: Continuing operations . . . . . . . . . $ (8.20) $ (13.15) $ (8.05) Discontinued operations . . . . . . . . 0.45 (9.15) (0.04) Extraordinary item. . . . . . . . . . . 1.65 -- -- Net loss. . . . . . . . . . . . . . . . $ (6.10) $ (22.30) $ (8.09)
Net loss attributable to common stock. . . $ (14,800) $ (53,881) $(19,565)
Weighted average number of shares outstanding . . . . . . . . . . . . . . 2,416,047 2,417,801 2,418,003
See notes to consolidated financial statements.
(Continued)
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) (Dollar Amounts in Thousands)
Year Ended December 31,
1992 1993 1994
Additional Paid-in Capital Beginning balance . . . . . . . . . . . . $ 92,615 $ 126,405 $106,507 Series B Cumulative Convertible Preferred Stock dividend accrual. . . . (3,000) Series C Convertible Preferred Stock dividend accrual . (791)
Common Stock issued . . . . . . . . . . . 9 7 Series B Cumulative Convertible Preferred Stock repurchase. . . . . . . . . . . . (1,060) Cancellation of stock options granted at below market price . . . . . 604 Exchange of Series A Cumulative Convertible Preferred Stock for Series B Cumulative Convertible Preferred Stock and Increasing Rate Senior Subordinated Notes due 1999 . . . . . . 36,766 Issuance of Warrants. . . . . . . . . . . 600 Series C Convertible Preferred Stock issued. . . . . . . . . . . . . . 14,495 Series B Cumulative Convertible Preferred Stock transferred (to) from current liabilities . . . . . . . . . . (35,000) 35,000 Ending balance. . . . . . . . . . . . . . 129,994 106,507 136,656
Retained Earnings (Deficit) Beginning balance . . . . . . . . . . . . (34,206) (46,609) (96,901) Net loss . . . . . . . . . . . . . . . . (12,403) (50,292) (9,774) Ending balance. . . . . . . . . . . . . . (46,609) (96,901) (106,675)
Other Beginning balance . . . . . . . . . . . . (380) (447) -- Translation adjustment. . . . . . . . . . (67) 447 -- Ending balance. . . . . . . . . . . . . . (447) -- --
Total Stockholders' Equity . . . . . . . . . $ 89,059 $ 10,742 $ 35,717
See notes to consolidated financial statements.
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands)
Year Ended December 31, 1992 1993 1994 OPERATING ACTIVITIES: Loss from continuing operations . . . . . $ (17,460) $ (28,209) $ (9,674) Adjustments to reconcile net loss to net cash provided by (used for) continuing operating activities: Depreciation and amortization of property and equipment . . . . . . . . 1,496 880 745 Amortization of goodwill . . . . . . . . 4,875 3,924 3,925 Loss on disposal of VCL. . . . . . . . . -- 15,741 -- Extraordinary item - gain from debt restructuring. . . . . . . . . . . . . 3,967 -- -- Amortization of and adjustments to film rights . . . . . . . . . . . . . 78,961 53,091 49,056 Income taxes payable and deferred income taxes . . . . . . . . . . . . . (2,353) (478) 624 Utilization of pre-acquisition net operating loss carryforwards . . . . . 1,000 -- -- (Increase) decrease in operating assets, net of acquisitions: Accounts receivable. . . . . . . . . . . 56,088 6,515 482 Refundable income taxes. . . . . . . . . 7,718 -- -- Inventories. . . . . . . . . . . . . . . 5,250 5,802 2,282 Assets held for sale . . . . . . . . . . 9,095 (12,637) 68,084 Receivable from affiliate. . . . . . . . (329) (2,683) 8,047 Other assets . . . . . . . . . . . . . . 1,468 427 420 Increase (decrease) in operating liabilities, net of acquisitions: Accounts payable and accrued expenses. . 2,263 (13,888) (1,707) Liabilities related to assets held for sale. (2,028) 6,436 (33,059) Acquisition of and adjustment to film rights . . . . . . . . . . . . . (53,331) (31,907) (58,096) Film rights obligations incurred . . . . 51,360 31,907 58,096 Payments on film rights obligations. . . (70,856) (43,631) (54,170) Cash provided by (used for) continuing operating activities. . . 77,184 (8,710) 35,055 Cash (used for) provided by discontinued operations. . . . . . . (17,040) 1,150 (100) Cash provided by (used for) operating activities . . . . . . . . . . . . . 60,144 (7,560) 34,955 INVESTING ACTIVITIES: Acquisition of property and equipment . . (3,051) (3,676) (459) Cash used for investing activities . . (3,051) (3,676) (459) FINANCING ACTIVITIES: Issuance of bank debt and long-term obligations . . . . . . . . . . . . . . 166,131 211,260 2,500 Payments on bank debt and long-term obligations . . . . . . . . . . . . . . (220,410) (189,381) (50,631) Payment of debt restructuring expenses. . (2,533) -- -- Issuance of Common Stock. . . . . . . . . 10 -- -- Repurchase of Series B Cumulative Preferred Stock . . . . . . . . . . . . . -- -- (1,460) Dividends paid on Preferred Stock (Series B and Series C) . . . . . . . . (2,397) (2,249) (2,999) Issuance of Series C Preferred Stock. . . -- 15,117 -- Cash provided by (used for) financing activities . . . . . . . . . . . . . (59,199) 34,747 (52,590) Effect of exchange rate changes. . . . 190 -- -- Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . (1,916) 23,511 (18,094) Cash and cash equivalents at beginning of period . . . . . . . . 20,763 18,847 42,358 Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 18,847 $ 42,358 $ 24,264
See notes to consolidated financial statements.
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1994
Note 1 - Summary of Significant Accounting Policies
Background and Operations: LIVE Entertainment Inc. ("LIVE" or the "Company") was formed in 1988 and its largest ongoing businesses are LIVE Home Video ("LHV") and LIVE Entertainment International Inc. (formerly LEI-IVE Entertainment N.V.)("LEII"), which acquire rights to theatrical motion pictures, children's films and special interest programs (including CD-ROM) which they market and distribute in all media to wholesalers, retailers and consumers in the United States and Canada (LHV) and internationally (LEII). As part of its international activities, the Company also owns an 81% interest in VCL/Carolco Communications GmbH ("VCL"), a home video distribution and marketing company headquartered in Munich, Germany. VCL's year-end is November 30. In March 1994, the Company decided to dispose of its interests in the "Specialty Retail Division," consisting of its former wholly owned subsidiary, Strawberries Inc. ("Strawberries") and Strawberries' wholly owned subsidiary, Waxie Maxie Quality Music Co. ("Waxie Maxie"), and VCL. In August 1994, the Company completed the sale of the Specialty Retail Division and in February 1995 executed a preliminary agreement providing for the disposal of its interest in VCL. Accordingly, the Company's interests in the Specialty Retail Division, as of December 31, 1993, and VCL, as of December 31, 1993 and 1994, have been recorded as "Assets Held For Sale" and "Liabilities Related To Assets Held For Sale." The results of operations for the Specialty Retail Division have been included through August 31, 1994 (the disposal date). The Company's continuing operations are principally in a single business segment, the distribution and retail sale of a broad variety of entertainment software products.
Principles of Consolidation: The financial statements include the accounts of the Company and its subsidiaries - LHV, the Specialty Retail Division, LEII and VCL. The financial statements reflect the Company's interests in the Specialty Retail Division and VCL as "Assets Held For Sale" and "Liabilities Related To Assets Held For Sale" and have been restated to account for the Specialty Retail Division as a discontinued operation. All significant intercompany balances and transactions have been eliminated.
Cash Equivalents: Cash equivalents are all highly liquid investments maturing in three months or less when purchased.
Restricted Cash: Restricted cash is cash on deposit with foreign banks, representing collateral for demand loans or funds subject to certain foreign restrictions, and collateral for domestic letters of credit relating to video rights obligations. Such restricted cash is expected to be available to the Company within 12 months of the balance sheet date.
Accounts Receivable Allowances: Accounts receivable are net of allowances for doubtful accounts, sales returns and advertising credits.
Inventory Valuation: LHV's inventory of duplicated videocassettes and boxes is stated at the lower of actual cost or market. All other inventories, which consist of pre-recorded music, videocassettes and accessories, are stated at the lower of cost or market determined by using an average cost which approximates the first-in, first-out (FIFO) method. The Specialty Retail Division's (in 1993) and VCL's (in 1993 and 1994) inventories have been re-classified and included in "Assets Held For Sale."
Depreciation and Amortization: Property and equipment are stated at cost and are depreciated over their estimated service lives using accelerated and straight-line methods. Leasehold improvements are amortized over the lesser of their estimated useful lives or the terms of the related leases.
Film Rights: Acquisition, production, print and advertising costs (which benefit future periods) are capitalized as film rights. Film rights are stated at the lower of unamortized cost or estimated net realizable value. In accordance with Financial Accounting Standards Board Statement No. 53, the individual film forecast method is used to amortize film rights. Costs accumulated in the acquisition, production and distribution of a film are amortized in the proportion that gross revenues realized bear to management's estimate of the total gross revenues expected to be received. Estimated liabilities for residuals and participations are accrued and expensed in the same manner as film rights are amortized. Where film rights are acquired from producers for a guaranteed minimum payment and the producer retains a participation in the film profits, the film profits are allocated to the Company until the guaranteed minimum payment is recovered, after which the producer's share is accrued.
Revenue estimates on a film by film basis are reviewed periodically by management and are revised, if warranted, based upon management's appraisal of current market conditions. When necessary, unamortized film rights are written down to net realizable value based on this appraisal.
Goodwill: Goodwill represents both the excess of consideration paid for companies acquired in purchase transactions over the estimated fair value of the net assets of such companies and the application of pushdown accounting associated with the purchase of LHV by Carolco Pictures Inc. ("Carolco") in 1986. Goodwill is being amortized principally on a straight-line basis over periods ranging from 7 to 30 years. The recoverable goodwill balance relating from the acquisition of the Specialty Retail Division (in 1993) and VCL (in 1993 and 1994) has been re- classified and included in "Assets Held For Sale." It is the Company's policy to evaluate goodwill and recognize impairment if it is probable that the recorded amounts are not recoverable from future cash flows.
Income Taxes: The Company records its income tax provision in accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Prior to the adoption of SFAS No. 109, income tax expense was determined using the liability method prescribed by Statement of Financial Accounting Standards No. 96 ("SFAS No. 96"), which was superseded by SFAS No. 109. Among other changes, SFAS No. 109 changed the recognition and measurement criteria for deferred tax assets included in SFAS No. 96. Adoption of SFAS No. 109 has had no material impact on the Company's financial position or results of operations.
Deferred income taxes are provided on transactions which are reported in the financial statements in different periods than they are for income tax purposes. Goodwill is reduced for the tax effect of pre-acquisition net operating losses utilized to reduce current and deferred federal and state income taxes. Current and deferred taxes are provided based on filing a consolidated tax return for federal income tax purposes and combined state tax returns where permitted by state taxing authorities. Income taxes for foreign subsidiaries are provided based upon the applicable statutory rates of the respective jurisdictions.
Revenue Recognition: Minimum guaranteed amounts from theatrical exhibition and revenues from home video, television and pay television license agreements are recognized when the license period begins from each motion picture and such motion pictures are available pursuant to the terms of the license agreement. Revenues from theatrical exhibition in excess of minimum guaranteed amounts are recognized ratably during the period of exhibition. Cash collected in advance of the time of availability is recorded as advance collections on contracts.
Once completed, a typical theatrical film will generally be made available for license as follows:
Months After Approximate Marketplace Initial Release Release Period
Domestic theatrical ---- 4-6 months Domestic home video 4-6 months ---- Domestic pay-per-view 6-9 months 3 months Domestic pay television 10-18 months 12-21 months Domestic network/basic cable 30-36 months 18-36 months Domestic syndication 30-36 months 3-15 years Foreign home video 6-12 months ---- Foreign television 18-24 months 18-30 months
Sales Revenue and Returns Recognition: Revenue from sales is generally recognized upon delivery to the customer. However, in accordance with industry practice, certain sales are made with the right to return unsold items. An allowance is provided for the gross profit impact of future sales returns, which reduces sales and cost of goods sold accordingly.
Net Loss Per Common Share: Loss per common share is based on the weighted average number of common and common equivalent shares outstanding during the periods. Common equivalent shares, consisting of outstanding stock options and warrants, and convertible preferred stock are not included as they are antidilutive. Per share information has been determined on the basis of 2,416,047, 2,417,801 and 2,418,003 weighted average shares outstanding for the years ended December 31, 1992, 1993 and 1994, respectively. The net loss per common share for the year ended December 31, 1994 gives effect to the accretion of the redemption value of the Series B Preferred Stock of $6,000,000. The net loss per common share for the years ended December 31, 1992, 1993 and 1994 gives effect to total dividends on both the Series B Preferred Stock and the Series C Preferred Stock of $2,397,000, $3,589,000 and $3,791,000, respectively.
Foreign Currency Translation: The Company's foreign subsidiaries use the local currency as the functional currency. The assets and liabilities are translated into U.S. dollars at year-end exchange rates. Revenues and expenses have been translated into U.S. dollars based generally on the average rates prevailing during the period. Gains and losses resulting from foreign currency transactions were not significant during 1992, 1993 and 1994.
Concentration of Credit Risk: The Company sells film properties and videocassettes to wholesalers, retailers and consumers worldwide. Sales by LHV are made to customers nationwide. Sales by LEII are made to customers in various territories worldwide. Credit is extended to wholesalers and retailers based on an evaluation of the customer's financial condition, and generally collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management's expectations. Credit risk relating to the sale and distribution of videocassettes by WEA Corp. ("WEA") to LHV's customers has been assumed by WEA under the terms of a three- year distribution agreement (see Note 8).
The Company places its temporary cash investments with high credit quality financial institutions and limits the amount of credit exposure to any one financial institution. Generally, the investments made mature within 30 days and therefore are subject to little risk. The Company has not incurred any losses related to these investments.
Fair Values of Financial Instruments: At December 31, 1994, the carrying value of the Company's financial instruments, which consist primarily of short-term and long-term debt, approximates the fair value thereof. Fair value of publicly held debt has been determined based on quoted market prices.
Re-classification: Certain re-classifications were made to the 1992 and 1993 financial statements to conform to the 1994 presentations.
Note 2 - Restructuring of Senior Subordinated Notes and Series A Preferred Stock
On March 17, 1993, the United States Bankruptcy Court for the Central District of California (the "Bankruptcy Court") confirmed a prepackaged plan of reorganization (the "Prepackaged Plan") for LIVE, providing for the issuance of $40,000,000 in principal amount of Increasing Rate Senior Subordinated Notes due 1999 (the "LIVE Increasing Rate Notes") (see Note 11), 6,000,000 shares of Series B Preferred Stock, with a liquidation preference of $60,000,000, par value $1.00 per share, initially bearing a dividend of 5% if paid in cash or 8% if paid in kind (see Note 13) and $8,000,000 in cash, replacing an aggregate of $110,000,000 principal amount of the Company's then-outstanding 14.5% Senior Subordinated Notes due May 15, 1999 (the "Outstanding Notes"), plus accrued and unpaid interest of $12,672,000 through August 31, 1992, and 1,050,000 shares of outstanding Series A Cumulative Convertible Preferred Stock, with a liquidation preference of $21,000,000, bearing a 10% cash dividend of which $872,000 was accrued and unpaid as of August 31, 1992 (the "Series A Preferred Stock") (the Outstanding Notes and the Series A Preferred Stock are referred to herein collectively as the "Outstanding Securities"). This completed the financial restructuring of LIVE begun in 1992 (the "Restructuring") that contemplated these transactions. Reorganized LIVE emerged from bankruptcy on March 23, 1993.
In 1992, the Company recognized an extraordinary gain on the debt restructuring of $3,967,000, including a tax benefit of $790,000.
Note 3 - Series C Preferred Stock
On March 23, 1993, Pioneer LDCA, Inc. ("Pioneer") received 15,000 shares of the Company's Series C Preferred Stock, par value $1.00 per share.
The Series C Preferred Stock bears a cash dividend rate of 5% ($50 per share) per annum, payable semi-annually on June 30 and December 31 of each year. Although dividends were accrued by the Company during 1993 and 1994, the June 30 and December 31, 1993, and June 30 and December 31, 1994 dividends totaling $1,378,000 ($91.87 per share) (including dividends on the unpaid dividends) were not paid due to restrictions imposed on the Company by the terms of the Series B Preferred Stock, which prohibit the payment of dividends on the Series C Preferred Stock unless the aggregate amount of such dividends, together with all cash dividends paid on the Series B Preferred Stock, does not exceed the net income of the Company (adding back specified net worth exclusions) since the March 23, 1993 date of issuance of the Series C Preferred Stock and the Series B Preferred Stock. The Company has realized consolidated net losses since the Series C Preferred Stock and the Series B Preferred Stock were issued. Thus, pursuant to the terms of the Series B Preferred Stock, the Company is prohibited from paying the June 30 and December 31, 1993 and June 30 and December 31, 1994 cash dividends on the Series C Preferred Stock.
The Series C Preferred Stock ranks junior to the Series B Preferred Stock and senior to all other classes of stock of the Company. The Series C Preferred Stock is convertible into 1,075,753 shares of common equity of the Company (either Common Stock or Series A Common Stock). The number of shares into which the Series C Preferred Stock is convertible was determined by dividing the $16,378,000 liquidation preference of the Series C Preferred Stock by $15.225, which was 140% of the average closing price of the Company's Common Stock on the New York Stock Exchange for the ten trading days ending March 18, 1993, the date that was three business days before the closing of the Restructuring. Holders of the Series C Preferred Stock are entitled to vote with the holders of Common Stock generally with each share entitled to as many votes as the number of shares of Common Stock into which it may be converted. The Series C Preferred Stock, in combination with the Company's Common Stock owned by Pioneer, represents approximately 53% of the voting equity of the Company (see Note 13). The Series C Preferred Stock may not be redeemed until March 23, 1995. Thereafter, the Series C Preferred Stock may only be redeemed in certain limited circumstances in the event of increases in the trading price of the Company's Common Stock or in the event of a merger of the Company with another entity.
Note 4 - Discontinued Operations
On August 31, 1994, LIVE sold its entire interest in its Specialty Retail Division to a group including Castle Harlan, Inc., the President of the Specialty Retail Division, and other senior managers of the Specialty Retail Division. The purchaser group also included Jefferson Capital Group, Ltd. ("Jefferson Capital"). The total purchase price paid to LIVE for the Specialty Retail Division was $35,000,000 in cash, resulting in a loss on disposal of $23,773,000, which was accrued in 1993.
In February 1995, the Company and certain of its affiliates, on the one hand, and Datty Ruth, the owner of 19% of VCL, and Apricot Computer GmbH ("Apricot"), on the other, entered into a preliminary agreement whereby the Company's 81% interest in VCL, as well as all receivables owed by VCL to the Company or its affiliates, will be transferred to Ruth and Apricot. The total consideration to be received by the Company and its affiliates in connection with such transactions is approximately $7,900,000, of which approximately $3,100,000 was received in February 1995. The Company could receive additional amounts depending upon the post closing profits of VCL; furthermore, the Company will be entitled to share in the profits from future sales of VCL if, following closing but no later than December 31, 1996, greater than 19% of VCL is sold for greater than $4,800,000.
Consummation of the transactions contemplated by the preliminary agreement is subject to the execution and completion of definitive agreements. The parties expect the transactions contemplated by their preliminary agreement to be finalized during 1995.
Accordingly, the Company's interests in the Specialty Retail Division, as of December 31, 1993, and VCL as of December 31, 1993 and 1994, have been recorded as "Assets Held For Sale," and "Liabilities Related To Assets Held For Sale" and have been written down to their estimated net realizable values. The Company anticipates completing the disposal of VCL by the end of 1995. The operating statements presented have been restated to separately disclose the results of operations of VCL and to account for the Specialty Retail Division as a discontinued operation in 1993. The losses on disposal of the Specialty Retail Division and VCL include provisions for operating losses during the phase out period of $2,024,000 and $3,885,000, respectively, which have been included in "Liabilities Related To Assets Held For Sale" as of December 31, 1993. "Assets Held For Sale" consist primarily of accounts receivable, inventories, properties, equipment and video rights. "Liabilities Related To Assets Held For Sale" consist primarily of accounts payable, accrued expenses, debts and video obligations. Corporate general and administrative expenses have not been allocated to either entity.
The Specialty Retail Division's revenues for the years ending December 31, 1992, 1993 and the seven months ended August 31, 1994 were $98,894,000, $106,124,000 and $57,846,000, respectively. Income/(losses) from operations for the same periods were $1,090,000, $1,690,000 and ($3,339,000), respectively, net of (benefit)/provision for income taxes of ($98,000), $632,000 and $100,000, respectively.
Note 5 - Foreign Operations
For the year ended December 31, 1994, net revenues, operating profits and identifiable assets relating to foreign operations were $26,629,000, $2,945,000 and $33,262,000, respectively. At December 31, 1993 and 1994 the assets of VCL have been included in "Assets Held For Sale." For the year ended December 31, 1993, net revenues, operating losses and identifiable assets relating to foreign operations were $34,009,000, ($3,289,000) and $28,871,000, respectively. For the year ended December 31, 1992, net revenues, operating losses and identifiable assets relating to foreign operations were $32,993,000, ($3,043,000) and $42,983,000, respectively.
Note 6 - Film Rights
The components of film rights are as follows:
December 31, 1993 1994 (In Thousands)
Titles released. . . . . . . . . . . . . . . . . $443,161 $491,576 Less amortization. . . . . . . . . . . . . . . . (415,681) (466,260) 27,480 25,316 Titles not released, masters received. . . . . . 17,783 34,872 Advances paid, masters not received. . . . . . . 16,804 10,920 TOTAL FILM RIGHTS . . . . . . . . . . . . . . $ 62,067 $ 71,108 Current portion of film rights . . . . . . . . . $ 29,839 $ 50,288 Non-current portion of film rights . . . . . . . 32,228 20,820 Total. . . . . . . . . . . . . . . . . . . . . $ 62,067 $ 71,108
The Company estimates that 78.8% of its film rights will be amortized during the three years ending December 31, 1997.
Note 7 - Property and Equipment
The components of property and equipment are as follows:
December 31, 1993 1994 (In Thousands)
Building and improvements. . . . . . . . . . . . $ 415 $ 447 Equipment and furniture. . . . . . . . . . . . . 6,432 6,128 6,847 6,575 Less accumulated depreciation and amortization . (5,161) (5,175) $ 1,686 $ 1,400
Note 8 - Debt and Other Financing
Debt and other financing consist of the following: December 31, 1993 1994 (In Thousands)
12% Subordinated Secured Notes due 1994. . . . . $ 36,707 $ -- Distribution agreements. . . . . . . . . . . . . 11,353 3,478 Increasing Rate Senior Subordinated Notes due 1999 (see Note 11), including capitalized interest of $20,662 (1993) and $16,871 (1994) . . . . . . . . . . . . . . . . 60,662 57,138 Other. . . . . . . . . . . . . . . . . . . . . . 23 -- 108,745 60,616 Less current maturities. . . . . . . . . . . . . 48,541 7,432 $ 60,204 $ 53,184
On November 16, 1994 LIVE entered into a three year $30,000,000 revolving credit facility with Foothill Capital Corporation (the "Foothill Credit Facility"). Borrowings available under the Foothill Credit Facility are limited to $20,000,000 until additional participant lenders are added to the Facility, at which time the borrowings available will be increased to a maximum $30,000,000. Borrowings under the Foothill Credit Facility are determined under a borrowing base calculation, which includes certain allowable accounts receivable, film rights and inventory balances, and are secured by substantially all of the assets of LIVE and its subsidiaries. Outstanding borrowings under the Foothill Credit Facility bear interest at the rate of 2% per annum above the highest of the Bank of America, Mellon Bank or Citibank prime rate (10.5% at December 31, 1994), payable monthly. In no event will interest under the Foothill Credit Facility be less than 7% per annum. The Foothill Credit Facility provides for a closing fee of $500,000, an annual facility fee of 1/4 of 1% and a commitment fee of 1/4 of 1% on any unused amount. The Foothill Credit Facility also requires LIVE to meet certain financial ratios, and as of December 31, 1994 the Company was in compliance with all such financial ratios. As of December 31, 1994 there were no amounts outstanding under the revolving credit facility.
On February 5, 1993, the Company, LHV and certain of their subsidiaries entered into a $20,000,000 credit facility (the "Junior Credit Facility") with Pioneer North America, Inc., ("PNA"), the parent of Pioneer, and a group of other participants. PNA committed to fund $15,000,000 of the Junior Credit Facility conditioned upon completion of Restructuring, and a group of participants (the "Junior Credit Facility Participants") funded $5,000,000 of the Junior Credit Facility prior to completion of the Restructuring. An affiliate of the Company was one of the Junior Credit Facility Participants, and provided $250,000 of the $5,000,000 funded by the Junior Credit Facility Participants. Borrowings under the Junior Credit Facility bore interest at the Chemical Bank prime rate plus six percentage points, resulting in an interest rate of 12% per annum. On March 26, 1993, the Junior Credit Facility was refinanced by an Indenture governing $37,000,000 in principal amount of the 12% Subordinated Secured Notes due 1994 (the "12% Notes"). An affiliate of the Company held $500,000 in principal amount of the 12% Notes; a director of the Company held $250,000 in principal amount of the 12% Notes. The 12% Notes held by this same affiliate and director were sold to unrelated parties in July 1993.
On August 31, 1994, LIVE sold its entire interest in its Specialty Retail Division to a group including Castle Harlan, Inc., Ivan R. Lipton, the President of the Specialty Retail Division, and other senior managers of the Specialty Retail Division. The purchaser group also included Jefferson Capital Group, Ltd.; R. Timothy O'Donnell, the President of Jefferson Capital Group, Ltd., is a Director of LIVE. The total purchase price paid to LIVE for the Specialty Retail Division was $35,000,000 in cash. LIVE's Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") was mandatorily redeemable from the net proceeds of any sale of the Specialty Retail Division remaining after the payment of transaction costs and the payment of any debt secured by the Specialty Retail Division. Repayment of the 12% Notes was secured by the stock of the Specialty Retail Division. As a result of LIVE's early 1994 decision to dispose of its interest in the Specialty Retail Division, a total of $40,000,000 of Series B Preferred Stock had been re-classified from equity to current liabilities as of December 31, 1993 reflecting LIVE's then expectation to sell the Specialty Retail Division for $40,000,000. LIVE at that time had also expected that the holders of the 12% Notes would extend the maturity date of the 12% Notes on a long term basis beyond September 15, 1994. Due to the demand for payment made by the holders of all $37,000,000 in principal amount of the 12% Notes, LIVE used all of the net proceeds from the sale of the Specialty Retail Division to repay the 12% Notes and no net proceeds remained from the sale to redeem any of the Series B Preferred Stock. The net proceeds of the sale, together with other cash on hand, were used to repay the full amount of the 12% Notes - $5,750,000, plus accrued interest, on September 15, 1994, and the remaining $31,250,000, plus accrued interest, on October 17, 1994.
On May 11, 1992, LHV entered into a three-year distribution agreement with WEA that became effective on May 31, 1992. Under the terms of the agreement, WEA advanced $20,000,000 to LHV, recoupable from distribution revenues during the three year term of the agreement at the rate of $555,555 per month plus interest at LIBOR plus 0.2%, not to exceed the prime rate. In order to obtain the advance, LHV granted WEA a first priority security interest in most of LHV's Family Home Entertainment catalog titles. LHV received an additional $4,900,000 advance from WEA, which was repaid in full in September 1992. At December 31, 1993 and 1994 there was $10,000,000 and $3,333,000, respectively, outstanding. Interest on the advance at December 31, 1994 was 6.2%. LHV is currently in negotiations with WEA for a possible extension of this agreement. There is no assurance that such an extension will be agreed upon or, if so, what the terms of such extension may be.
LHV has an agreement with MCA Canada Ltd. ("MCA Canada") under which MCA Canada is the exclusive distributor of LHV's videocassette product in Canada. This agreement expires in December 1997, subject to a three year option to extend in favor of LHV. MCA Canada advanced $10,000,000 to LHV in October 1991; $5,000,000 was recoupable from 100% of the proceeds on sales commencing September 1, 1991 and $5,000,000 is recoupable in 31 equal monthly installments commencing March 1, 1992, plus interest at LIBOR plus 0.2%, not to exceed the prime rate. At December 31, 1993 and 1994 there were $1,353,000 and $145,000, respectively, outstanding. Interest on the advance at December 31, 1994 was 6.2%.
On June 11, 1992, the Specialty Retail Division entered into a two-year $10,000,000 line of credit with Foothill Capital Corporation (the "Strawberries Credit Facility") to provide working capital as well as funds for expansion for the Specialty Retail Division. Borrowings under the Strawberries Credit Facility were secured by substantially all of the assets of the Specialty Retail Division. Outstanding borrowings under the Strawberries Credit Facility bore interest at the rate of 3.5% per annum above the higher of the Bank of America reference rate or the greater of the Citibank or Mellon Bank prime rate. In no event was interest under the loan less than 9% per annum or $25,000 per month. As of the Specialty Retail Division's 1993 fiscal year end, $3,354,000 was outstanding under the Strawberries Credit Facility and the interest rate under this facility were 9.5%. Such amounts were included in "Liabilities Related To Assets Held For Sale" at December 31, 1993.
The Specialty Retail Division owns the building housing its corporate headquarters and distribution center in Milford, Massachusetts. In 1988, the Division entered into a $4,000,000 mortgage loan on this building, bearing interest at the prime rate plus 0.5%, with interest payable monthly, annual principal reduction payments of $40,000 and a balloon payment of all unpaid principal and interest on August 20, 1993. In July 1993, the Division agreed with the holder of the mortgage loan to change the interest rate to a fixed rate of 9% per annum, to continue annual principal reduction payments of $40,000 and to extend the balloon payment date to August 20, 1995. At December 31, 1993, there was $3,800,000 outstanding under the loan. Such amount was included in "Liabilities Related To Assets Held For Sale" at December 31, 1993.
In December 1989, VCL entered into an agreement with a former shareholder to acquire certain stock and video rights for $2,155,000, of which $1,333,000 accrued interest at 2-1/2% above LIBOR and was paid in 1991. The balance accrued interest at 8% per annum and had required principal payments of 48 equal monthly installments. At December 31, 1993 there was $268,000 outstanding under this obligation. In addition, as of December 31, 1993, VCL owed $859,000 to another former shareholder, of which $199,000 bore interest at 7% per annum and was payable in eight quarterly installments beginning in April 1991. The balance was non-interest bearing and was payable in four equal annual installments commencing in April 1994. Such amounts were included in "Liabilities Related To Assets Held For Sale" at December 31, 1993.
The future maturities of long-term obligations are as follows:
Year Ending December 31, (In Thousands)
1995 . . . . . . . . . . . . . . . . . . . . . .$ 7,432 1996 . . . . . . . . . . . . . . . . . . . . . . 4,008 1997 . . . . . . . . . . . . . . . . . . . . . . 4,425 1998 . . . . . . . . . . . . . . . . . . . . . . 23,502 1999 . . . . . . . . . . . . . . . . . . . . . . 21,249 $ 60,616
Interest paid for the years ended December 31, 1992, 1993 and 1994 was $6,280,000, $9,190,000 and $4,621,000 respectively, including $569,000, $964,000 and $787,000 related to the Company's discontinued operations.
Note 9 - Leases
The Company generally conducts its operations through leased office facilities. The Company also leases automobiles, computer equipment, furniture, fixtures and other equipment. Most leases require that the Company perform all necessary repairs and maintenance, provide insurance and pay taxes assessed against the leased property. The terms of leases range from month-to-month to five years, some of which have renewal options. Certain rents are adjusted for increases based upon the Consumer Price Index. The leases are classified as operating leases.
Future minimum operating lease payments for the Company, as of December 31, 1994 are:
(In Thousands) 1995 . . . . . . . . . . . . . . . . . . . . . .$ 810 1996 . . . . . . . . . . . . . . . . . . . . . . 794 1997 . . . . . . . . . . . . . . . . . . . . . . 794 1998 . . . . . . . . . . . . . . . . . . . . . . 792 1999 . . . . . . . . . . . . . . . . . . . . . . 371 Total net minimum lease payments . . . . . . . . $3,561
For the years ended December 31, 1992, 1993 and 1994, rent expense under all operating leases aggregated $7,505,000, $7,953,000 and $6,685,000,, respectively, including $5,964,000, $6,548,000 and $5,213,000, related to the Company's discontinued operations.
Note 10 - Film Rights Obligations
At December 31, 1994, the unrecorded future obligation for undelivered film product approximates $11,478,000. Deposits made for guaranteed delivery of undelivered film product are recorded as film rights.
Certain agreements permit a reduction in the amount of film right payments when stipulated conditions have not been met. Many agreements also contain an obligation for the payment of royalties above the minimum guarantee if sales exceed a stipulated amount. At December 31, 1994, $11,545,000 of royalties payable are included in film rights obligations.
Note 11 - Increasing Rate Senior Subordinated Notes Due 1999
On March 17, 1993, the Bankruptcy Court confirmed the Prepackaged Plan for LIVE, providing for the issuance of the LIVE Increasing Rate Notes. The LIVE Increasing Rate Notes mature on March 23, 1999. Interest accrued on the LIVE Increasing Rate Notes from September 1, 1992 at 10% per annum and was scheduled to increase to 12% on March 23, 1996. The LIVE Increasing Rate Notes are governed by the terms of an Indenture between the Company and American Stock Transfer & Trust Company, as Trustee (the "Public Indenture"). LIVE believed that at the end of 1994 it may have been in violation of the minimum consolidated net worth covenant contained in the Indenture. Such default would have permitted the trustee thereunder or holders of 25% in aggregate principal amount of the LIVE Increasing Rate Notes to give notice and accelerate maturity of the indebtedness represented by the LIVE Increasing Rate Notes. In November 1994, a majority of the holders of the LIVE Increasing Rate Notes agreed to eliminate the minimum net worth covenant contained in the Indenture, thereby removing the possibility that LIVE might have defaulted under that covenant in 1995. As part of the amendment of the Indenture, LIVE agreed to increase the interest rate on the LIVE Increasing Rate Notes from 10% per annum to 12% per annum effective October 18, 1994. Payment of the LIVE Increasing Rate Notes is secured only by a lien on the Common Stock of LHV, subject and subordinate to a lien under the Foothill Credit Facility and is subordinated to all of the Company's present and future senior debt. The LIVE Increasing Rate Notes are subject to mandatory redemption of $20,000,000 of the principal amount on March 23, 1998 and are redeemable at any time at par plus accrued interest.
The Indenture restricts the ability of the Company and its Restricted Subsidiaries to incur additional senior debt and subsidiary senior debt, to make restricted payments and restricted investments, to merge, consolidate or sell assets of the Company or its Restricted Subsidiaries, to create liens other than to secure senior debt, subsidiary senior debt and certain other permitted debt, or to enter into certain transactions with affiliates of the Company, including Carolco Pictures Inc. ("Carolco").
Interest to maturity on $36,872,000 of the LIVE Increasing Rate Notes of $20,622,000 and $16,871,000 at December 31, 1993 and 1994, respectively, has been included in the carrying value of the LIVE Increasing Rate Notes, in accordance with Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings," and will not be recognized as interest expense in current and future years.
Note 12 - Income Taxes
As discussed in Note 1, the Company records its income tax provision in accordance with SFAS No. 109.
Loss From Continuing Operations Before Income Taxes is as Follows:
December 31, 1992 1993 1994 (In Thousands)
Domestic . . . . . . . . . . . .$ (15,944) $ (8,037) $ (7,945) Foreign. . . . . . . . . . . . . (3,334) (19,404) (1,529) $ (19,278) $(27,441) $ (9,474)
Income Tax Expense (Benefit) From Continuing Operations
December 31, 1992 1993 1994 (In Thousands) Currently payable: Federal. . . . . . $ 239 $ 453 $ -- State. . . . . . . 342 332 (494) Foreign. . . . . . 263 54 70 844 839 (424) Deferred: Federal. . . . . . (1,023) 411 624 State. . . . . . . (2,639) (482) -- (3,662) (71) 624
Expense in lieu of income taxes resulting from utilization of pre-acquisition net operating losses: Foreign. . . . . . 1,000 -- -- 1,000 -- -- $ (1,818) $ 768 $ 200
Components of Deferred Income Taxes
December 31, 1992 1993 1994 (In Thousands)
Film rights. . . . . . . . . . . . . . $ (3,280) $ (71) $ 368 Sales returns and other allowances . . 286 1 35 Accelerated depreciation and basis reduction . . . . . . . . . . . . . (20) 2 3 Accruals not currently deductible for tax purposes . . . . . . . . . . (685) (8) 218 Other. . . . . . . . . . . . . . 37 5 -- $ (3,662) $ (71) $ 624
Reconciliation of Effective Rate of Income Taxes
Percentage of Income (Loss) December 31, 1992 1993 1994
Restated tax provision . . . . . $ (1,818) $ 768 $ 200 Book loss. . . . . . . . . . . . (19,278) (27,441) (9,474) Effective tax rate . . . . . . 9.4% (2.8)% (2.1)%
Federal statutory rate . . . . . 4.0% 35.0% 35.0% State income taxes . . . . . . . 12.8 (0.4) (3.0) Alternative minimum tax effect, other. . . . . . . . . . . . . (17.3) (4.4) (1.2) Utilized net operating loss. . . -- (26.9) (17.6) Foreign income subject to local taxes. . . . . . . . . . (6.5) (0.2) (0.7) Foreign deemed dividend. . . . . (6.7) (0.9) (0.1) Goodwill amortization. . . . . . (6.9) (5.0) (14.5)
Effective tax rate . . . . . . 9.4% (2.8)% (2.1)%
Components of Deferred Tax Liabilities and Assets
Current Non-current Deferred tax liabilities: Amortization of film rights and other. . . . $ (4,440) $ (3,568) Total deferred tax liabilities . . . . . . (4,440) (3,568) Deferred tax assets: Sales returns and other allowances . . . . . 6,743 -- Accelerated depreciation . . . . . . . . . . -- 71 Accruals not currently deductible. . . . . . 2,187 -- Other. . . . . . . . . . . . . . . . . . . . 2,447 -- Tax effect of NOL carryforward . . . . . . . -- 3,325 Tax basis difference - debt. . . . . . . . . 1,290 4,072 12,667 7,468 Less valuation allowance . . . . . . . . . . (11,295) (7,468) Net deferred tax assets . . . . . . . . . . 1,372 -- Total deferred tax assets/(liabilities). . $ (3,068) $ (3,568)
Income taxes paid for the years ended December 31, 1992, 1993 and 1994 were $196,000, $1,766,000 and $1,456,000, respectively, including $89,000, $230,000 and $580,000, related to the Company's discontinued operations. The valuation allowance has increased $2,978,000, from $15,785,000 at December 31, 1993 to $18,763,000 at December 31, 1994.
At December 31, 1992, the cumulative undistributed earnings of the Company's foreign subsidiaries of approximately $3,824,000 were deemed remitted as a dividend in accordance with certain provisions of the U.S. Internal Revenue Code ("I.R.C."). During 1993, $4,400,000 of undistributed earnings of the Company's foreign subsidiaries were deemed remitted as a dividend in accordance with the provisions referred to above. The related taxes were provided for these deemed dividends in the Company's 1993 U.S. tax provision. Effective September 13, 1994 LEI-IVE Entertainment N.V. was domesticated as a Delaware corporation under the name LIVE Entertainment International Inc. Such reorganization should not result in United States or California tax liability to the Company.
On March 17, 1993, the Bankruptcy Court confirmed the Prepackaged Plan. In accordance with the I.R.C., this reorganization has caused a "change in ownership" which will result in a limitation on the future utilization of the Company's net operating loss carryforwards beginning with the year ending December 31, 1993. The annual limitation is approximately $1,600,000 per year subject to certain increases relating to built- in gain items. The income tax effect of the confirmation of the Prepackaged Plan was reflected in the Company's statement of operations for the year ended December 31, 1992.
At December 31, 1994, approximately $31,000,000 of net operating loss carryforwards are available for regular federal tax return purposes. In accordance with Section 108 of the I.R.C., the Company was required to reduce its "tax attributes" due to the confirmation of the Prepackaged Plan. This resulted in the reduction of net operating loss carryforwards by approximately $35,000,000. Remaining federal net operating losses of $31,000,000 for regular income tax purposes are subject to annual limitations as described above and will expire between the years 1996 and 2010. State net operating loss carryforwards were $13,000,000 prior to the reduction in "tax attributes." This amount was fully absorbed after the reduction in "tax attributes" due to the confirmation of the Prepackaged Plan, resulting in the elimination of all net operating losses for state tax purposes. For federal Alternative Minimum Tax ("AMT") return purposes, $4,000,000 of net operating loss carryforwards are available after the reduction in "tax attributes." AMT net operating loss carryforwards will expire between 1996 and 2006. AMT credits of $2,000,000 and foreign tax credits of $370,000 are available to offset future regular federal income tax liabilities. The disposal of the Specialty Retail Division on August 31, 1994 resulted in a capital loss of approximately $22,000,000 for regular tax purposes and $22,800,000 for AMT purposes, which may be carried forward, but expire in 1999.
The Company is currently under examination by the Internal Revenue Service for the years ended 1989 through 1991 and by the California Franchise Tax Board for the years ended 1988 through 1990. The Company does not believe these examinations will have a material impact on the financial position or the results of operations.
Note 13 - Stockholders' Equity
On December 9, 1994, the Company filed with the Delaware Secretary of State a Certificate of Amendment (the "Certificate of Amendment") to the Company's Restated Certificate of Incorporation (the "Restated Certificate"), amending Article FOURTH of the Restated Certificate to reclassify every five outstanding shares of its common stock, par value $.01 per share ("Prior Common Stock"), as one share of the Company's common stock having the same par value and other powers, preferences and rights as the Prior Common Stock (such shares of reclassified Prior Common Stock are sometimes hereinafter referred to as shares of "Common Stock") (the "Reverse Stock Split").
The Reverse Stock Split was approved by the affirmative written consent of holders of over 64% of the Prior Common Stock and the Company's Series C Preferred Stock, voting together as a single class, pursuant to a Consent Solicitation Statement dated November 23, 1994. Only holders of record of the Prior Common Stock and Series C Preferred Stock at the close of business on October 31, 1994 were entitled to consent to the Reverse Stock Split. All share amounts indicated herein have been adjusted to reflect the retroactive application of such Reverse Stock Split.
On October 20, 1993, Carolco, formerly the owner of approximately 51.7% of the outstanding Common Stock and 37% of the voting equity of the Company, completed a financial restructuring (the "Carolco Restructuring"). As part of the Carolco Restructuring, Pioneer, RCS Video International Services B.V. ("RCS") and a subsidiary of Le Studio Canal+ ("Canal+" and collectively with Pioneer and RCS, the "Strategic Investors") received all 1,249,057, shares of LIVE Common Stock owned by Carolco. Canal+ subsequently transferred to its affiliate, Cinepole Productions B.V. ("Cinepole"), all of the Common Stock in the Company owned by Canal+. As of February 28, 1995 the LIVE voting ownership percentage held by Pioneer, RCS and Cinepole and their affiliates was 53.8%, 7.4% and 7.4%, respectively.
On March 23, 1993, pursuant to the Prepackaged Plan, the Series A Preferred Stock was exchanged for a combination of LIVE Increasing Rate Notes and Series B Preferred Stock. Effective upon the completion of the Restructuring, 6,000,000 shares of Series B Preferred Stock were outstanding. Each share of Series B Preferred Stock has a liquidation value of $10.00 per share. Holders of the Series B Preferred Stock are entitled to an annual dividend, payable quarterly, which accrues from September 1, 1992 at 5% ($0.50 per share) if paid in cash or 8% if paid in kind ("PIK") and increases on May 1, 1996 to 10% ($1.00 per share) if paid in cash and 12% if PIK. Dividends of $3,000,000 ($0.50 per share) in each of 1994 and 1993, and $1,000,000 ($0.17 per share) in 1992 were accrued on the Series B Preferred Stock and were paid beginning in March 1993 and quarterly thereafter. The Company may redeem the Series B Preferred Stock at any time, initially at 80% of the liquidation value until March 31, 1994, increasing 1% per month to 100% of the liquidation value after October 31, 1995.
Although LIVE has no obligation to redeem any Series B Preferred Stock, subject to the availability of funds and the prior approval of its Board of Directors and its lenders, LIVE may acquire shares of its Series B Preferred from time to time, either through private purchases or through open market purchases. On December 9, 1994, and March 7, 1995, LIVE acquired, and subsequently retired, 400,000 shares and 1,400,000 shares, respectively, of the Series B Preferred Stock at average prices under $4.00 per share.
Holders of the Series B Preferred Stock are entitled to elect two directors, and in certain circumstances, up to four members, or under certain other circumstances, a majority of the Company's Board of Directors. No other voting rights exist. In addition, commencing May 1, 1996, or earlier if the Company has elected to pay PIK dividends for a total of four quarters, holders can convert the Series B Preferred Stock into LIVE Common Stock. The conversion price per share is obtained by dividing the liquidation value by either the market price of the Common Stock or the "Floor Price." The Floor Price is initially $20.00 per share of Common Stock, decreasing $1.25 per share at the end of each three month period thereafter. On September 1, 1998, the conversion price will be reset to the lower of the market price or $5.00 per share, resulting in the potential issuance of a minimum of 12,000,000 shares of the Company's Common Stock.
The Company's Stock Option and Stock Appreciation Rights Plan (the "Plan") provides for the granting of incentive stock options, non-qualified stock options and stock appreciation rights ("SARs") to its officers, directors, key employees, consultants and other persons. Options to purchase a maximum of 300,000 shares of the Company's Common Stock, of which 120,000 may be granted as SARs, are available under the Plan. In March 1994, the Company's Board of Directors resolved, subject to stockholder approval, to increase the maximum number of shares which may become available under the Plan by 100,000 shares. The options vest over varying periods and expire in 10 years.
On March 6, 1995, the Stock Option Committee of the Board of Directors granted to all current employees and Directors of LIVE and LHV (other than members of the Stock Option Committee) who were holders of options pursuant to the Company's 1988 Stock Option and Stock Appreciation Rights Plan, as amended (the "1988 Plan"), the option to agree to cancel certain options (the "Canceled Options") and to receive in return therefor new options (the "New Options") pursuant to the 1988 Plan, all on the following terms and conditions: (i) the exercise price for the New Options would equal $3.50, the closing price of the Common Stock on the SmallCap Market on March 6, 1995, (ii) fifty percent (50%) of the New Options would vest on March 6, 1996; the remainder would vest on March 6, 1997, provided that no New Options would vest earlier than the scheduled vesting date for the corresponding Canceled Options, and (iv) all New Options would expire on the expiration date of the corresponding Canceled Options.
A summary of stock option transactions during the three years ended December 31, 1994 follows:
Number of Option Price Shares Per Share
Stock options outstanding: December 31, 1991. . . . . . . . . . . . . 202,670 33.35-110.00 Canceled . . . . . . . . . . . . . . . . (228,930) 9.38-110.00 Granted. . . . . . . . . . . . . . . . . 162,740 9.38- 33.35 December 31, 1992. . . . . . . . . . . . . 136,480 9.38- 70.00 Canceled . . . . . . . . . . . . . . . . (24,130) 9.38- 70.00 Granted. . . . . . . . . . . . . . . . . 185,860 8.75- 13.75 December 31, 1993. . . . . . . . . . . . . 298,210 8.75- 70.00 Canceled . . . . . . . . . . . . . . . . (85,960) 8.75- 70.00 Granted. . . . . . . . . . . . . . . . . 86,570 2.75- 15.63 December 31, 1994. . . . . . . . . . . . . 298,820 2.75- 15.63
At December 31, 1994, 133,260 options were exercisable, at an average exercise price of $12.76 per share, and no stock appreciation rights were outstanding. Options to purchase 139,320 (1992), 77,590 (1993) and 76,860 (1994) shares of the Company's Common Stock were available for grant under the Plan.
In January 1992, the Board of Directors of the Company, acting as the Stock Option Committee pursuant to the Plan, granted to current employees and directors of LIVE, LHV and the Specialty Retail Division who were holders of options pursuant to the Plan the right to agree to cancel certain options ("Previous Canceled Options") and to receive in return therefore additional options ("Previous New Options") pursuant to the Plan, all on the following terms and conditions: (a) the exercise price for the Previous New Options would equal $14.38, the closing price of the Company's Common Stock on the New York Stock Exchange on January 16, 1992; (b) fifty percent (50%) of the Previous New Options would vest on January 16, 1993, the remainder would vest on January 16, 1994; (c) no Previous New Options would vest earlier than the scheduled vesting date for the corresponding Previous Canceled Options and (d) all Previous New Options would expire on January 15, 2002. In connection with this arrangement, options to purchase 109,440 shares were exchanged for Previous New Options.
Warrants to purchase 9,900 shares of the Company's Common Stock were issued during 1990 and were outstanding as of December 31, 1994. These warrants are currently exercisable at prices ranging from $71.25 to $72.50 per share (fair market value at the date of grant) and expire over varying periods through 2000.
In 1993, the Company issued warrants to purchase 266,666 and 200,000 shares of the Company's Common Stock at a price of $10.00 and $13.60 per share, respectively. The warrants are exercisable until March 1998 and the holders have been granted demand and piggyback registration rights for the Common Stock underlying the Warrants. Proceeds of $600,000 from the 12% Notes were allocated to the warrants and were accounted for as additional paid-in capital in 1993.
Note 14 - Stockholders' Rights Plan
In July 1990, the Board of Directors of LIVE adopted a Stockholders' Rights Plan and declared a dividend of one preferred stock purchase right (a "Right") for each outstanding share of Company Common Stock. Among other provisions, each Right may be exercised to purchase one one-hundredth share of LIVE's Series R Junior Participating Cumulative Preferred Stock at an exercise price of $90, subject to adjustment (the "Exercise Price"). The Rights may only be exercised after a party, exclusive of LIVE, Carolco or their affiliates, has acquired or obtained the right to acquire 20% or more of the Company's Common Stock or in the event certain mergers or sales of assets by LIVE occur. The Rights, which do not have voting rights, expire on July 19, 2000 and may be redeemed by the Company at a price of $.01 per Right at any time prior to their expiration or the acquisition of 20% of the Company's Common Stock by any person other than LIVE, Carolco or their affiliates.
In the event a party other than LIVE, Carolco or their affiliates acquires 20% or more of the Company's outstanding Common Stock in accordance with certain defined terms, each Right will entitle its holder to purchase, at the Right's then Exercise Price, a number of shares of Company Common Stock having a market value of twice the Right's Exercise Price. The independent directors of LIVE may elect to exchange the Rights at an exchange ratio of one share of Company Common Stock per Right upon the occurrence of certain defined acquisition events. If certain mergers or sales of assets by LIVE occur, each Right shall entitle the holder to purchase, at the Exchange Price, a number of shares of common stock of the surviving corporation or purchaser (so long as it is not LIVE) having a market price of two times the Exercise Price.
Note 15 - Related Party Transactions
Revenues generated by LHV from Carolco titles amounted to 38.4%, 13.0% and 4.6% of combined LHV and VCL net sales for the years ended December 31, 1992, 1993 and 1994, respectively. As of December 31, 1993, the Company had a note receivable from Carolco bearing interest aggregating $8,047,000. In December 1992, the Company, Carolco and certain of their affiliates reconciled the amounts owing to each by the others (the "Reconciliation Agreement"). In December 1994, as part of an agreement settling all open accounts between them, including those that arose as a result of the Reconciliation Agreement, LIVE and Carolco agreed that all individual films previously delivered to LHV or LEII under either the Domestic Master Agreement or the German Master Agreement would no longer be cross-collateralized with other films, either within individual packages or among so called "film packages"; the companies also agreed that for purposes of their settlement only, all such films would be deemed to have earned the minimum distribution fee that was guaranteed to LHV and LEII.
In December 1993, an affiliate of Carolco commenced principal photography of Wagons East, starring John Candy and Richard Lewis. As a result of the untimely death of Mr. Candy, in March 1994 Carolco entered into an arrangement with the insurance carrier and an affiliate of LIVE pursuant to which certain rights in the film were conveyed to LIVE, LIVE agreed to fund completion of the film, and LIVE engaged Carolco to complete production and servicing of certain pre-existing distribution agreements.
In March 1994, LIVE and Carolco reached agreement in principle on a business combination (the "Merger"), and executed a Merger Agreement with respect thereto on August 10, 1994 (the "Merger Agreement"). On October 13, 1994 LIVE and Carolco jointly announced that they had agreed to terminate the Merger Agreement between the two companies and to end all discussions regarding a possible business combination. In 1994, LIVE incurred approximately $1,000,000 in expenses in connection with the Merger. As a result of the December 1994 agreement discussed above which settled all open accounts between LIVE and Carolco, LIVE wrote off the remaining unpaid receivable amount of $6,211,000 that LIVE had recorded in its financial records as owing from Carolco (of which all but $2,177,000 was reserved for in prior years).
In 1991, a subsidiary of LHV granted Pioneer a license for United States laser videodisc rights to LHV's library of motion pictures for a term of four years. Pioneer paid $5,000,000 under this agreement as a non-returnable advance recoupable on a cross- collateralized basis from all royalties payable to LHV's subsidiary. As of December 31, 1994 the advance had been fully recouped.
In July 1994, LIVE NV and an affiliate of Pioneer reached an agreement whereby the Pioneer affiliate will receive the Japanese theatrical, video and television distribution rights to the films Wagons East, Top Dog, The Beans of Egypt, Maine and Goldy III.
In July 1994, Carolco and an affiliate of Le Studio Canal+ S.A. ("Le Studio"), a greater than 5% owner of LIVE, reached an agreement whereby the Le Studio affiliate received the rights in certain French-speaking territories to the motion picture Wagons East. This agreement was performed by an affiliate of LHV after such affiliate acquired rights to Wagons East pursuant to the agreements described above.
In July 1994, LHV and an affiliate of Le Studio executed a definitive agreement whereby LHV licensed the United States and Canadian video rights to the motion picture Stargate.
Pursuant to a pre-existing output agreement, an affiliate of RCS Video International Services B.V. ("RCS"), a greater than 5% owner of LIVE, received the rights in certain Italian-speaking territories in Europe and Africa to the motion picture Wagons East. Certain of Carolco's rights and obligations under the output agreement relating to the motion picture Wagons East were performed by an affiliate of LHV after such affiliate acquired rights to Wagons East pursuant to the agreements described above.
In 1991, Jefferson Capital, an affiliate of a director of the Company, received a $100,000 cash retainer for investment banking services provided in connection with the proposed business combination of the Company and Carolco. During 1992, Jefferson Capital (together with a co-financial advisor) received $850,000, plus out-of-pocket expenses, as payment for financial advisory services rendered in connection with the Restructuring and, in January 1993 received a $100,000 retainer for investment banking services to be provided in connection with the Company's consideration of a potential business combination of the Company and Carolco. As a result of the Company's execution of the Merger Agreement, an additional $400,000 was paid under this agreement in August 1994. Additionally, $850,000 was paid in connection with the completion of the Restructuring. In 1993, Jefferson Capital and the co-financial advisor received a $150,000 non-refundable retainer to assist the Company in structuring and placing a long- term working capital facility for LHV and to make recommendations regarding the Company's capital structure. In addition, each received warrants to purchase 3,333 and 2,941 shares of the Company's Common Stock at a price of $10.00 and $13.60 per share, respectively. In 1994 these parties assisted the Company in negotiating and obtaining the Foothill Credit Facility and received a total fee of $300,000 for such services.
In October 1994, LIVE retained Jefferson Capital as its advisor in connection with LIVE's efforts to obtain the agreement of the holders of the LIVE Increasing Rate Notes to eliminate the minimum net worth covenant contained in the Indenture. Jefferson Capital received a total fee of $200,000 (one half paid in October 1994 and the second half paid in November 1994) for investment banking services provided in connection with such efforts. Jefferson Capital's fee was not contingent upon the success of LIVE's efforts to amend the Indenture. LIVE also agreed to reimburse Jefferson Capital for its reasonable out-of-pocket expenses, including legal fees, and to indemnify Jefferson Capital against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of services performed by Jefferson Capital for this engagement.
In connection with the Restructuring, a director of the Company and Jefferson Capital received a total of $630,000, plus expenses. The director received $92,000 of such amount.
In a July 1993 consulting agreement, the Company engaged a director to provide consulting services as an independent contractor in connection with the search by the Company for an individual to become Chief Executive Officer of LIVE and LHV. The fee for such service was $10,000 per month (pro rated for partial months) plus expenses. This agreement terminated upon the hiring of a President and Chief Executive Officer of the Company in January 1994. The Company paid this same director a total of $62,200 in consideration of his services under this agreement.
In 1993, the Company's Chairman of the Board was issued warrants to purchase 2,941 shares of the Company's Common Stock at a price of $13.60 per share.
The Company and the Chairman of the Board are parties to an agreement dated December 1993, pursuant to which the Company agreed, for a term ending in December 1996, to pay the Chairman $25,000 per month, plus normal directors expenses and other out-of- pocket expenses he may incur in connection with his services to the Company, in return for the Chairman making himself available to the Company or any video subsidiary thereof to act as the Chief Executive Officer's primary reporting person for the period ending December 31, 1996. Such compensation is payable as long as the Chairman makes himself available for such purpose, whether or not the Company actually utilizes his services and whether or not any particular Chief Executive Officer is in the Company's employ.
An affiliate of a director of the Company received a cash fee of $79,000 and $75,000 in 1992 and 1993, respectively, for services provided to the Company.
Note 16 - Incentive Savings Plan
The Company has established the LIVE Incentive Savings Plan, a profit sharing and 401(k) savings plan, in which eligible employees of LIVE, LHV and the Specialty Retail Division may participate. Each employee who has attained the age of 21 may become a participant as of the beginning of each calendar quarter when such employee has completed 1,000 hours of service in the relevant one-year computation period. The Company, at the discretion of the Board of Directors, may make annual contributions to the LIVE Incentive Savings Plan. The Company's profit sharing contributions are allocated to individual accounts of participants in proportion to their compensation. A participant is fully vested in his or her tax-deferred employee contributions at all times. A participant whose employment terminates for any reason other than death or disability is entitled only to the vested portion of the contributions made by the Company on behalf of the plan participant. The LIVE Incentive Savings Plan permits tax-deferred voluntary employee contributions of an amount equal to not more than 10% of compensation, to be matched by a LIVE contribution in an amount equal to 50% of the employee's voluntary contributions which do not exceed 6% of his or her compensation. With certain exceptions, contributions made by the Company vest equally over a period of four years. Company contributions to the Savings Plan were $53,000 $55,000 and $46,000 for the years ended December 31, 1992, 1993 and 1994, respectively.
Note 17 - Commitments and Contingencies
Letters of Credit and Guarantees:
At December 31, 1994 the Company had outstanding letters of credit of $3,675,000 relating to certain video rights obligations, which are secured by restricted cash, and $370,000 related to other miscellaneous obligations.
Employment and Separation Agreements:
The Company has employment agreements with certain of its officers generally for a term of one to four years. Future minimum payments under these contracts are approximately $2,376,000, $1,812,000 and $1,283,000 for the years ending December 31, 1995, 1996 and 1997.
Legal Proceedings:
On January 9, 1992, a purported class action lawsuit was filed in the U.S. District Court, Central District of California, by alleged stockholders of LIVE against LIVE, Carolco and certain of LIVE's past and present directors and executive officers. The complaint alleges, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder (a) by concealing the true value of certain of LIVE's assets, and overstating goodwill, stockholders' equity, operating profits and net income in LIVE's Form 10-K for the year ended December 31, 1990, in its 1990 Annual Report and in its Forms 10-Q for the quarters ended March 31, 1991 and June 30, 1991, and (b) by materially understating the true extent of the write off of goodwill in connection with the sale of substantially all of the assets of LIVE's wholly owned subsidiary, Lieberman, to Handleman in July 1991. In addition, the complaint alleges that certain of the defendants are liable as controlling persons under Section 20 of the Exchange Act and alleges that certain other defendants are liable for aiding and abetting the primary violations. Subsequently, two additional lawsuits were filed in the U.S. District Court, Central District of California, by alleged stockholders of LIVE against the same persons and entities who were defendants in the original actions, making substantially the same allegations as were made in the first lawsuit. On March 30, 1992, these lawsuits were consolidated. Further, in April 1992, an amended complaint was filed in the consolidated action, lengthening the alleged class period and adding as defendants certain additional officers, directors and affiliates of LIVE and Carolco, including Pioneer, as well as a lender to LHV and Carolco. On June 17, 1992, the U.S. District Court, Central District of California, entered an order conditionally certifying the class, subject to possible decertification after discovery is completed. On January 27, 1993, a second amended complaint was filed in the consolidated class action making additional and modified allegations against certain of the defendants claiming they are liable as controlling persons under Section 20 of the Exchange Act and claiming that certain other defendants are liable for aiding and abetting the primary violations. On April 19, 1993, the court issued a ruling dismissing defendant Pioneer from this lawsuit.
In February 1992, a purported class action lawsuit was filed in the U.S. District Court, District of Delaware, by an alleged holder of Carolco's public debt, against LIVE, Carolco and certain directors and executive officers of Carolco. The Delaware complaint alleges, among other things, that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by concealing the true value of certain of LIVE's assets, and overstating goodwill, stockholders' equity, operating profits and net income in LIVE's Form 10-K for the year ended December 31, 1990 and in its Forms 10-Q for the quarters ended March 31, 1991 and June 30, 1991. In April of 1992 this lawsuit was transferred to the U.S. District Court, Central District of California. The proceedings are being coordinated with the consolidated action described in the preceding paragraph. On July 17, 1992, the U.S. District Court, Central District of California, entered an order conditionally certifying the class, subject to possible decertification after discovery is completed.
Discovery is currently taking place in both lawsuits.
In connection with the above described class action litigation, LIVE and Carolco entered into an agreement dated April 8, 1992, with respect to the division of legal fees and costs relating to that litigation. Pursuant to the agreement, 65% of the legal fees and costs will be paid by LIVE and 35% of the legal fees and costs will be paid by Carolco.
Management and counsel to LIVE are unable to predict the ultimate outcome of the above-described actions at this time. However, LIVE and the other defendants believe that all these lawsuits are without merit and intend to defend them vigorously. Accordingly, no provision for any liability which may result has been made in LIVE's consolidated financial statements. In the opinion of management, these actions, when finally concluded and determined, will not have a material adverse effect upon LIVE's financial position or results of operations.
On March 24, 1994, the same day that the signing of a letter of intent with respect to the Merger was announced, a purported class action lawsuit was filed in the Court of Chancery of the State of Delaware in and for New Castle County by an alleged stockholder of LIVE against LIVE, Carolco, certain of Carolco's and LIVE's past and present executive officers and directors, Pioneer and Cinepole. The complaint alleged, among other things, that the defendants violated their fiduciary duties owed to LIVE's stockholders in connection with the Merger. The plaintiff sought a preliminary and permanent injunction enjoining the Merger under its announced financial terms; an open market auction of LIVE; to the extent the Merger was consummated prior to the entry of a final judgment in the action, rescission of the Merger; repayment of profits and benefits obtained as a result of the defendants' alleged conduct; and attorneys fees and expenses. As a result of the termination of the Merger Agreement between LIVE and Carolco, the plaintiff agreed to voluntarily dismiss this lawsuit, without prejudice, in November 1994.
Other than as described above, there are no material legal proceedings to which LIVE or any of its subsidiaries are a party other than ordinary routine litigation in the ordinary course of business. In the opinion of management (which is based in part on the advice of outside counsel), resolution of these matters will not have a material adverse impact on LIVE's financial position or results of operations.
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
EXHIBITS
To
Form 10-K
Of
LIVE ENTERTAINMENT INC.
For the fiscal year ended December 31, 1994
INDEX TO EXHIBITS
Sequentially Exhibit Numbered Number Description Page
2.1 Agreement and Plan of Merger dated as of August 31, 1994 among the Registrant, Strawberries Inc., Strawberries Merger Corp. and Strawberries Holding, Inc. (without exhibits) (incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated September 15, 1994) . .
2.2 Agreement and Plan of Merger dated as of August 10, 1994 among Carolco Pictures Inc., the Registrant and Carolco Acquisition Corp. (including certain exhibits) (incorporated by reference to Exhibit 2 to Mario F. Kassar and New Carolco Investments B.V.'s Schedule 13D (Amendment No. 14) under the Securities Exchange Act of 1934 filed with the Commission on August 16, 1994). .
2.3 Termination Agreement, dated as of October 13, 1994, among the Registrant, Carolco Acquisition Corp. and Carolco Pictures Inc. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K of Carolco Pictures Inc. filed with the Commission on October 13, 1994). . . . . . . . .
3.1 Restated Certificate of Incorporation of the Registrant (incorporated herein by reference to Appendix C of Registrant's Registration Statement No. 33-24396). . . . . . . . . . . . . . . . . .
3.2 Form of Certificate of Amendment to Restated Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 20 to the Registrant's Schedule 13E-4, filed on December 15, 1992, as amended). . . . . . . . . . . . . .
3.3 Form of Certificate of Designations, Preferences and Relative, Participating, Optional or Other Special Rights of Series B Cumulative Convertible Preferred Stock of the Registrant (incorporated herein by reference to Exhibit 36 to the Registrant's Schedule 13E-4, filed on December 15, 1992, as amended). . . . . . . . . . . . . . . .
3.4 Amended Certificate of Designations, Preferences and Rights of Series C Cumulative Convertible Preferred Stock of the Registrant (incorporated herein by reference to Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992) . . . . . .
3.5 Certificate of Designations specifying the terms of the Series R Junior Participating Preferred Stock, par value $1.00 per share, of the Registrant, filed with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit 3 to the Registrant's Current Report on Form 8-K, dated August 1, 1990). . . .
3.6 Form of Certificate of Amendment to Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated December 19, 1994) . . . . . . . . . . . . . . .
3.7 Bylaws of the Registrant (incorporated herein by reference to Exhibit 3.4 to the Registrant's Registration Statement No. 33-24396) . . . . . .
3.8 Amendment to Bylaws of the Registrant, adopted on June 18, 1992 (incorporated herein by reference to Exhibit 3.6 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended). . . . . . . . . . . . . . . . . . .
3.9 Contingent Payment Rights Agreement, dated as of June 28, 1991, between the Registrant, Vestron Acquisition Corp., Vestron Inc. and American Stock Transfer & Trust Company, as Rights Agent, and Price Waterhouse, as Representative (incorporated herein by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form 8-A, dated July 15, 1991) . . . . . . . . . . . . . .
4.1 Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4 to the Registrant's Registration Statement No. 33-24396) . . . . . . . . . . . . . . . . . . . . . . . .
4.2 Rights Agreement, dated as of July 19, 1990, between the Registrant and American Stock Transfer & Trust Company, which includes as exhibits thereto, the form of Right Certificate and the Summary of Rights (incorporated herein by reference to Exhibit 4a to the Registrant's Current Report on Form 8-K, dated August 1, 1990) . . . . . . . . . . . . . . . . . . . . . . . .
4.3 First Amendment to Rights Agreement, dated as of May 1, 1992, between the Registrant and American Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K, dated May 1, 1992) . . . . . . . . . . . . . . . . . . . .
4.4 Form of Indenture between the Registrant and American Stock Transfer & Trust Company, as trustee, relating to the LIVE Increasing Rate Notes (including Note and Pledge Agreement) (incorporated herein by reference to Exhibit 35 to the Registrant's Schedule 13E-4, filed on December 15, 1992, as amended). . . . . . . . . . . . . .
4.5 Form of Supplemental Indenture between the Registrant and American Stock Transfer & Trust Company, as trustee, relating to the LIVE Increasing Rate Notes* . . . . . . . . . . . . .
4.6 Form of Certificate of Series B Cumulative Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended) . . . . . . . . .
4.7 Form of Certificate of Series C Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.8 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended). . . . . . . . . . . . . . . . . . .
4.8 Indenture, dated as of March 26, 1993, between the Registrant and U.S. Trust Company of California, N.A., relating to the $37,000,000 of 12% Senior Subordinated Secured Notes due 1994 (including form of Note) (incorporated herein by reference to Exhibit 4.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). . . . . . . . . . . . . . . . . . . . . .
4.9 Agreement dated as of December 22, 1993 between LIVE Ventures Inc. and U.S. Trust Company of California, N.A. (incorporated herein by reference to Exhibit 4.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). . . . . . . . . . . . . . . . . . .
10.1 Exclusive Distribution Agreement, dated as of March 1, 1987, between International Video Entertainment Inc. and MCA Distribution Corporation (incorporated herein by reference to Exhibit 10.33 to Carolco Pictures Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1986) . . . . . . . . . . . . . . .
10.2 Amendment, dated as of December 28, 1989, of Exclusive Distribution Agreement between International Video Entertainment Inc. and MCA Distribution Corporation (incorporated herein by reference Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). . . . . . . . . . . . . . . . . . . .
10.3 Amendment, dated as of May 10, 1990, of Exclusive Distribution Agreement between International Video Entertainment Inc. and MCA Distribution Corporation (incorporated herein by reference to Exhibit 10.13 to the Registrant's Annual Report of Form 10-K for the fiscal year ended December 31, 1990). . . . . . . . . . . . . . . . . . . . . .
10.4 License and Distribution Agreement, dated as of May 11, 1992, by and between LIVE Home Video Inc., LIVE America Inc., LIVE Distributing Inc., Vestron Inc. and WEA Corp. (incorporated herein by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended) . . . . . . . . .
10.5 Amendment to License and Distribution Agreement, dated as of June 8, 1992, by and between LIVE Home Video Inc., LIVE America Inc., LIVE Distributing Inc., Vestron Inc. International Video Productions Inc. and WEA Corp. (incorporated herein by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended) . . . . . . . . .
10.6 Four-Party Agreement, dated as of May 19, 1992, among Uni Distribution Corp. (formerly MCA), LIVE Home Video Inc., LIVE America Inc. and WEA Corp. (incorporated herein by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended) . .
10.7 Security Agreement, dated as of June 8, 1992, by and between LIVE Home Video Inc., LIVE America Inc., International Video Productions Inc. and WEA Corp. (incorporated herein by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended) . . . . . . . . . . . . . . . . . . . . . . . .
10.8 Amendment, dated April 12, 1990, to Video Rights License Agreement, dated July 27, 1987, between Carolco Pictures Inc. and International Video Entertainment Inc., as amended as of October 15, 1987 (incorporated herein by reference to Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990) . . . . . . . . . . . . . . . . . . . . . . . .
10.9 Second Amendment, dated March 6, 1991, to Video Rights License Agreement, dated July 27, 1987, between Carolco Pictures Inc. and International Video Entertainment Inc., as amended on October 15, 1987 and April 12, 1990 (incorporated herein by reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990) . . . . . . . . . . . .
10.10 Third Amendment, dated October 21, 1991, to Video Rights License Agreement, dated July 27, 1987, between Carolco Pictures Inc. and LIVE Home Video Inc. (formerly known as International Video Entertainment Inc.), as amended on October 15, 1987, April 12, 1990 and March 6, 1991 (incorporated herein by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended) . .
10.11 Fourth Amendment, dated March 2, 1992, to Video Rights License Agreement, dated July 27, 1987, between Carolco Pictures Inc. and LIVE Home Video Inc., as amended on October 15, 1987, April 12, 1990, March 6, 1991 and October 21, 1991 (incorporated herein by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended) . .
10.12 Agreement, dated as of January 1, 1995, between Carolco Pictures Inc. and LIVE Film and Mediaworks Inc.*# . . . . . . . . . . . . . . . . . . . . .
10.13 Memorandum of Agreement, dated as of September 1, 1991, between LIVE America Inc. and MCA Canada Ltd. (incorporated herein by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1991) .
10.14 Term Extension Letter Agreement, dated December 16, 1994, among LIVE Film and Mediaworks Inc., LIVE America Inc. and MCA Home Video Canada* . .
10.15 Laser Videodisc Sublicense Deal Memorandum, dated as of October 1, 1991, by and between LIVE America Inc. and Pioneer LDCA, Inc. (incorporated herein by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991) . . . . . . . . . . . .
10.16 Employment Agreement, dated as of December 23, 1993, for the services of Roger A. Burlage (incorporated herein by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^. . . .
10.17 Letter Agreement, dated as of September 29, 1993, pertaining to the departure of David A. Mount as President and Chief Executive Officer of the Registrant (incorporated herein by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^ . . . . . . . . . . . . . . . . . . . . .
10.18 Letter Agreement, dated as of July 7, 1992, pertaining to the Employment Agreement for the services of Devendra Mishra (incorporated herein by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended)^. . . . . . . . .
10.19 Employment Agreement, dated as of February 1, 1994, for the services of Michael J. White (incorporated herein by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^. . . .
10.20 Memorandum Agreement dated as of December 23, 1993, by and between the Registrant and Anthony J. Scotti (incorporated herein by reference to Exhibit 10.29 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^ . . . . . . . . . . . . . . . . . . . . .
10.21 Agreement dated as of April 1, 1994 between the Registrant and Pioneer North America Inc. with respect to the services of Ronald B. Cushey*^. .
10.22 Employment Agreement, dated as of December 31, 1994, for the services of Ronald B. Cushey*^ . .
10.23 Employment Agreement, dated as of April 29, 1994, for the services of Steve Mangel*^ . . . . . . .
10.24 Employment Agreement, dated as of January 20, 1994, for the services of Paul S. Almond*^ . . .
10.25 First Amendment to Employment Agreement, dated as of February 2, 1994, for the services of Paul S. Almond*^ . . . . . . . . . . . . . . . . . . . .
10.26 Employment Agreement, dated as of January 31, 1994, for the services of Elliot Slutzky*^ . . .
10.27 Jefferson Capital Group, Ltd. and Bear Stearns & Co. Inc. Retainer Letter with the Registrant, dated as of May 21, 1992, with Indemnification Agreement (incorporated herein by reference to Exhibit 27 to the Registrant's Schedule 13E-4, filed on December 15, 1992, as amended)^ . . . .
10.28 Agreement, dated as of July 31, 1992, between Jefferson Capital Group, Ltd. and the Registrant (incorporated herein by reference to Exhibit 28 to the Registrant's Schedule 13E-4, filed on December 15, 1992, as amended)^ . . . . . . . . . . . . .
10.29 Agreement, dated as of August 13, 1992, between Daniels & Associates and the Registrant (incorporated herein by reference to Exhibit 29 to the Registrant's Schedule 13E-4, filed on December 15, 1992, as amended)^ . . . . . . . . . . . . .
10.30 Agreement, dated as of July 7, 1993, between Jefferson Capital Group, Ltd. and Daniels & Associates and the Registrant (incorporated herein by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^ . . . . . . . . . . .
10.31 Consulting Agreement, dated as of July 26, 1993, between Roger R. Smith and the Registrant (incorporated herein by reference to Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^. . . .
10.32 Letter of Understanding, dated as of January 26, 1993, by and between the Registrant and Jefferson Capital Group, Ltd. (incorporated herein by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992)^. . . . . . . . . . . .
10.33 Asset Purchase Agreement, dated as of October 30, 1990, between Vestron Acquisition Corp. and Vestron Inc., including annexes (incorporated herein by reference to Exhibit 10.66 of Registrant's Current Report on Form 8-K, dated October 30, 1990). . . . . . . . . . . . . . . .
10.34 Indemnification Agreement, dated as of October 30, 1990, by and among Vestron Acquisition Corp., Furst Holdings, Inc., Frogtown Holdings Inc., Austin O. Furst, Jr., and Vestron Inc., including annex (incorporated herein by reference to Exhibit 10.67 of Registrant's Current Report on Form 8-K, dated October 30, 1990). . . . . . . . . . . . .
10.35 Securities Indemnification Agreement, dated as of October 30, 1990, by and among Vestron Acquisition Corp., Furst Holdings, Inc., Frogtown Holdings Inc., Austin O. Furst, Jr., and Vestron Inc., including annex (incorporated herein by reference to Exhibit 10.68 of Registrant's Current Report on Form 8-K, dated October 30, 1990)
10.36 New Notes Intercreditor Agreement, dated as of March 26, 1993 by and between Chemical Bank, as Administrative Agent and as Collateral Agent, and U.S. Trust Company of California, N.A. (incorporated herein by reference to Exhibit 10.57 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992) . . . .
10.37 Addendum to New Notes Intercreditor Agreement, dated as of December 22, 1993 by and between Chemical Bank, as Administrative Agent and as Collateral Agent, and U.S. Trust Company of California, N.A. (incorporated herein by reference to Exhibit 10.64 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). . . . . . . . . . . . . . . . . . . .
10.38 Amended and Restated Trustee Intercreditor Agreement, dated as of March 26, 1993 by and among Chemical Bank, as Administrative Agent and as Collateral Agent, U.S. Trust Company of California, N.A. and American Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 10.58 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). . . . . . . . . . . . . . . . . . . . . .
10.39 Warrant Agreement and Warrant Certificate, dated as of November 26, 1990, between the Registrant and Jefferson Capital Group, Ltd. (incorporated herein by reference to Exhibit 10.44 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990)^. . . . . .
10.40 Loan Fund Warrant Agreement, dated as of March 23, 1993, between the Registrant and the Warrant Holders (incorporated herein by reference to Exhibit 10.60 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). . . . . . . . . . . . . . . . . . . . . .
10.41 Loan Fund Common Stock Purchase Warrants, dated as of March 23, 1993, between the Registrant and Jefferson Capital Group, Ltd. (incorporated herein by reference to Exhibit 10.61 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992)^. . . . . . . . . . . .
10.42 Registration Rights Agreement for Loan Fund Common Stock Purchase Warrants, dated as of March 23, 1993, by and among the Registrant and the holders of the Loan Fund Common Stock Purchase Warrants (incorporated herein by reference to Exhibit 10.62 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992) . . . .
10.43 Class B Warrant Agreement, dated as of March 26, 1993, between the Registrant and the Class B Warrant Holders (incorporated herein by reference to Exhibit 10.63 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). . . . . . . . . . . . . . . . . . . .
10.44 Class B Common Stock Purchase Warrants, dated as of March 29, 1993, between the Registrant and Jefferson Capital Group, Ltd. (incorporated herein by reference to Exhibit 10.64 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992)^. . . . . . . . . . . .
10.45 Class B Common Stock Purchase Warrants, dated as of March 29, 1993, between the Registrant and Anthony J. Scotti (incorporated herein by reference to Exhibit 10.65 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992)^. . . . . . . . . . . .
10.46 Registration Rights Agreement for Class B Common Stock Purchase Warrants, dated as of March 26, 1993, by and among the Registrant and the holders of the Class B Common Stock Purchase Warrants (incorporated herein by reference to Exhibit 10.66 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992) . . . .
10.47 1988 Stock Option and Stock Appreciation Rights Plan of the Registrant as amended through March 6, 1995*^ . . . . . . . . . . . . . . . . . . . . .
10.48 Master Agreement for Home Video Rights to German Language Versions, dated as of April 25, 1991, by and between LEI-IVE Entertainment N.V. d/b/a/ LIVE Entertainment International and Carolco International N.V. (incorporated herein by reference to Exhibit 10.52 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991) . . . . . . . . . . . .
10.49 Short-Form Agreement, dated as of August 15, 1991, by and between Carolco Television Inc. and Vestron Inc. (incorporated herein by reference to Exhibit 10.53 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991) . . . . . . . . . . . . . . . . . . . . . . . .
10.50 Short-Form Agreement (International), dated as of August 15, 1991, by and between Carolco International N.V. and Vestron Inc. (incorporated herein by reference to Exhibit 10.54 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991) . . . . . .
10.51 Registration Rights Agreement, dated as of July 3, 1990, by and between the Registrant and Pioneer LDCA, Inc. (incorporated herein by reference to Exhibit 10.55 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). . . . . . . . . . . . . . . . . . . . . .
10.52 Registration Rights Agreement, dated as of March 24, 1992, by and between the Registrant and Carolco Pictures Inc., Pioneer LDCA, Inc., RCS Video Services International B.V., RCS Video Services Antilles N.V. and Le Studio Canal+ S.A. (incorporated herein by reference to Exhibit 10.56 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991) . . . .
10.53 Amendment to Registration Rights Agreement, dated as of August 1992, by and between the Registrant and Carolco Pictures Inc., Pioneer LDCA, Inc., RCS Video Services International B.V., RCS Video Services Antilles N.V. and Le Studio Canal+ S.A. (incorporated herein by reference to Exhibit 10.68 to the Registrant's Registration Statement on Form S-4, filed on December 15, 1992, as amended) . .
10.54 Registration Rights Agreement for Common Stock dated as of July 20, 1993, by and among the Registrant, Carolco Pictures Inc., Pioneer LDCA, Inc., RCS Video Services International B.V., RCS Video Services Antilles N.V., and Le Studio Canal+ S.A. (incorporated herein by reference to Exhibit 10.84 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993) . . . . . . . . . . . . . . . . . . . . . . . .
10.55 Reconciliation and Offset Agreement, dated as of December 31, 1992, by and between Carolco Pictures Inc., Carolco International N.V., the Registrant, LIVE Home Video Inc. and LEI-IVE Entertainment N.V. (incorporated herein by reference to Exhibit 10.85 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993) . . . . . . . . . . . . . . . . . . . . . . . .
10.56 Compromise Settlement Agreement and Release dated as of December 31, 1994, between the Registrant and Carolco Pictures Inc.* . . . . . . . . . . .
10.57 Registration Rights Agreement for Series C Convertible Preferred Stock, dated as of September 14, 1992, by and among the Registrant and Pioneer LDCA, Inc. (incorporated herein by reference to Exhibit 17 to the Registrant's Schedule 13E-4, filed on December 15, 1992, as amended). . . . .
10.58 Fiscal 1993 Incentive Cash Compensation Program for the Registrant, dated July 1993 (incorporated herein by reference to Exhibit 10.103 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^. . . . . .
10.59 Fiscal 1994 Incentive Cash Compensation Program for the Registrant and LIVE Home Video Inc., dated February 1994 (incorporated herein by reference to Exhibit 10.104 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^ . . . . . . . . . . . . . . . . . . .
10.60 Fiscal 1994 Incentive Cash Compensation Program for the LIVE Specialty Retail Division, dated February 1994 (incorporated herein by reference to Exhibit 10.105 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993)^ . . . . . . . . . . . . . . . . . . .
10.61 Fiscal 1995 Incentive Cash Compensation Program for the Registrant, dated March 6, 1995*^. . . .
10.62 Securities Exchange Agreement, dated as of March 26, 1993, by and between the Registrant, LIVE Home Video Inc., LIVE America Inc., LEI-IVE Entertainment N.V., International Video Productions, Inc., Vestron Inc., Daniels & Associates and Jefferson Capital Group, Ltd. (incorporated herein by reference to Exhibit 10.96 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992) . . . .
10.63 Form of Securities Purchase Agreement, dated as of March 26, 1993, by and between the Registrant, LIVE Home Video Inc., LIVE America Inc., LEI-IVE Entertainment N.V., International Video Productions, Inc., Vestron Inc. and various purchasers (incorporated herein by reference to Exhibit 10.97 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). . . . . . . . . . . . . . . . . . . . . .
10.64 Agreement, dated as of October 11, 1994, between Jefferson Capital Group, Ltd. and the Registrant*^ . . . . . . . . . . . . . . . . . . . . . . . .
10.65 Agreement, dated as of August 1, 1994, among LEI- IVE Entertainment N.V., International Video Productions Inc., Atrium Productions Kft. and Beleggingsmaatschappijmaasmond II B.V.*^ . . . .
10.66 Amended and Restated Loan and Security Agreement dated as of November 14, 1994 among Foothill Capital Corporation, and each of LIVE Home Video Inc., LIVE Film and Mediaworks Inc., LIVE Entertainment International Inc., LIVE America Inc. and Vestron Inc. (without schedules or exhibits)* . . . . . . . . . . . . . . . . . . .
10.67 Continuing Guaranty dated as of November 14, 1994 from the Registrant in favor of Foothill Capital Corporation* . . . . . . . . . . . . . . . . . .
10.68 Assignment of Liens and Loan Documents effective as of November 14, 1994, among, Chemical Bank, Foothill Capital Corporation, and each of the Registrant, LIVE Home Video Inc., LIVE Film and Mediaworks Inc., LIVE Entertainment International Inc., LIVE America Inc., LIVE Ventures Inc. and Vestron Inc.*. . . . . . . . . . . . . . . . . .
10.69 Notice of Assignment, dated November 14, 1994, from Chemical Bank to WEA Corp.*
10.70 Notice of Assignment and Irrevocable Authority, dated November 16, 1994, from LIVE Home Video Inc., LIVE America Inc., LIVE Film and Mediaworks Inc. (formerly known as International Video Productions Inc.) and Vestron Inc. to WEA Corp.*
10.71 Notice of Inventory Access Rights, dated November 16, 1994, from LIVE Home Video Inc., LIVE America Inc., LIVE Film and Mediaworks Inc. (formerly known as International Video Productions Inc.) and Vestron Inc. to WEA Corp.*
10.72 Intercreditor Agreement, dated as of November 16, 1994, by and between Foothill Capital Corporation and WEA Corp.* . . . . . . . . . . . . . . . . .
10.73 Trustee Intercreditor Agreement, dated as of November 16, 1994, by and between Foothill Capital Corporation and American Stock Transfer & Trust Company* . . . . . . . . . . . . . . . . . . . .
10.74 Agreement dated April 8, 1992 between the Registrant and Carolco Pictures Inc. with respect to the division of legal fees and costs* . . . .
10.75 Tax Agreement dated as of August 31, 1994 among the Registrant, Strawberries Inc., Strawberries Investments Inc., Waxie Maxie Quality Music Co. and Strawberries Holding, Inc. (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated September 15, 1994) . .
10.76 Heads of Agreement, dated February 15, 1995, among the Registrant, LIVE Home Video, Inc., LIVE Entertainment International Inc., VCL/Carolco Communications B.V., VCL/Carolco Communications GmbH, Apricot Computer GmbH and Gunther Detlef Ruth*. . . . . . . . . . . . . . . . . . . . . .
10.77 Short Form Deal Memo dated as of June 21, 1994 between International Video Productions Inc. and Le Studio Canal+(U.S.)*# . . . . . . . . . . . .
11 Computation of Earnings Per Share* . . . . . . .
21 Subsidiaries of the Company* . . . . . . . . . .
23 Consent of Independent Auditors* . . . . . . . .
24 Powers of Attorney and Board of Directors resolution authorizing the same* . . . . . . . .
99.1 Letter dated August 30, 1994 from Chemical Securities Inc. to the Board of Directors of the Registrant (incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K dated September 15, 1994). . . . . . . . . . . .
*Filed Herewith ^Management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) #Confidential treatment has been requested for portions of this document