SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE TO
(Amendment No. 3)
TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) or 13(e)(1) OF
THE SECURITIES EXCHANGE ACT OF 1934
FIRST LOOK MEDIA, INC.
(f/k/a Overseas Filmgroup, Inc.)
--------------------------------------------------
(Name of Subject Company (Issuer)
FIRST LOOK MEDIA, INC.
(f/k/a Overseas Filmgroup, Inc.)
--------------------------------------------------
(Name of Filing Person, the Issuer)
COMMON STOCK, PAR VALUE $.001 PER SHARE
--------------------------------------------------
(Title of Class of Securities)
320737109
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(CUSIP Number of Class of Securities)
William F. Lischak
Chief Operating Officer, Chief Financial Officer and Secretary
First Look Media, Inc.
8800 Sunset Boulevard, Third Floor
Los Angeles, California 90069
(310) 855-1199
--------------------------------------------------
(Name, Address And Telephone Number Of Person Authorized To Receive Notices And
Communications On Behalf Of Filing Persons)
with a copy to:
David Alan Miller, Esq.
Graubard Miller
600 Third Avenue
New York, New York 10016
Telephone: (212) 818-8800
Fax: (212) 818-8881
CALCULATION OF FILING FEE
TRANSACTION VALUATION $157,500* AMOUNT OF FILING FEE: $31.50
* Calculated based upon the maximum amount of securities to be acquired
by us muliplied by the market value of the security, using the last
sale price of a warrant ($0.035) reported on the OTC Bulletin Board on
November 6, 2001 (the last date on which a trade was reported).
|_| Check the box if any part of the fee is offset as provided by Rule
011(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number or the Form or Schedule and the date of its filing.
Amount Previously Paid: N/A Form or Registration Number: N/A
Filing Party: N/A Date Filed: N/A
|_| Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to
which the statement relates:
|_| third party tender offer subject to Rule 14d-1.
|X| issuer tender offer subject to Rule 13e-4.
|_| going private transaction subject to Rule 13e-3.
|_| amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting
the results of a tender offer: |_|
Item 1. Summary Term Sheet
The information contained in the attached Offering Memorandum
under the caption "Summary of the Exchange Offer" is specifically incorporated
herein by reference.
Item 2. Subject Company Information
(a) Our company was incorporated in Delaware in December 1993
under the name "Entertainment/Media Acquisition Corporation" in order to acquire
an operating business in the entertainment and media industry. We consummated
our initial public offering in February 1995, in which we sold shares of our
common stock and the warrants that are the subject of the exchange offer.
In October 1996, we merged with Overseas Filmgroup, Inc., a
privately-held Delaware corporation ("Overseas Private") that had been operating
since February 1980. Our company was the surviving corporation in the merger.
Upon consummation of the merger, we changed our name to "Overseas Filmgroup,
Inc." We operated under the name "Overseas Filmgroup, Inc." until January 2001.
In January 2001, we changed our name to "First Look Media, Inc." in order to
reflect the broadening of our operations beyond foreign distribution of
independently produced feature films to additional areas such as theatrical and
video distribution in the United States, television commercial production and
Internet content development.
Our principal executive offices are located at 8800 Sunset
Boulevard, Third Floor, Los Angeles, California 90069, and our telephone number
is (310) 855-1199.
(b) As of October 31, 2001, there were 11,613,848 shares of
common stock and 4,500,000 public warrants outstanding. Each warrant currently
entitles the holder to purchase one share of common stock for $5.00, subject to
adjustment in certain events.
(c) The information contained in the attached Offering
Memorandum under the caption "Price Range of Our Common Stock and Warrants" is
specifically incorporated herein by reference.
Item 3. Identity and Background of Filing Person
The filing person is the Issuer. See Item 8.
Item 4. Terms of the Transaction
(a) The exchange offer is for all the outstanding warrants;
currently there are 4,500,000 issued and outstanding. In the exchange offer, we
are offering to exchange .0714 of a share of our common stock for every one of
our outstanding warrants tendered and accepted by us for exchange. Up to
approximately 321,429 shares of our common stock will be issued in exchange for
all the outstanding warrants that were issued in connection with our initial
public offering in February 1995 if all the warrants are exchanged. No
fractional shares of common stock will be issued in the exchange offer.
Fractional shares will be rounded up to the nearest whole share based upon the
aggregate number of warrants tendered by the holder or its agent in the exchange
offer. The exchange offer will expire at 5:00 p.m. New York City time on
December 18, 2001, unless extended by us. We may extend the exchange offer at
our discretion.
The information contained in the attached Offering Memorandum
under the caption "The Exchange Offer" and "Certain United States Federal Income
Tax Considerations" is specifically incorporated herein by reference.
(b) Not applicable.
1
Item 5. Past Contacts, Transaction, Negotiations and Agreements
The information contained in the attached Offering Memorandum
under the caption "Voting Agreement" is specifically incorporated herein by
reference.
Item 6. Purpose of the Transaction and Plans or Proposals
(a) The purpose of the exchange offer is to retire our public
warrants through the issuance of common stock. This would allow us to simplify
our capital structure, reduce the potential future dilutive impact on our
per-share earnings that could be caused by the warrants, and diminish or
eliminate overhang on the market price of our common stock caused by the
warrants.
(b) Warrants acquired pursuant to the exchange offer will be
extinguished and we intend to delist the warrants from trading on the OTC
Bulletin Board and to deregister the warrants pursuant to the Exchange Act.
(c) Items numbered (1) through (10) are not applicable.
Item 7. Source and Amount of Funds or Other Consideration
(a) The consideration offered by us to induce the exchange of
the warrants consists solely of shares of our common stock. Assuming 100%
participation in the exchange offer, approximately 321,429 shares of common
stock will be issued, and all of the warrants will be extinguished. Other than
the expenses of the exchange offer, we will incur no monetary obligations or
receive any cash proceeds from the issuance of the common stock.
(b) Not applicable.
(d) Not applicable.
Item 8. Interest in Securities of the Subject Company
(a) The information contained in the attached Offering
Memorandum under the caption "Principal Stockholders" is specifically
incorporated herein by reference.
(b) Not applicable.
Item 9. Persons/Assets, Retained, Employed, Compensated or Used.
Not applicable.
Item 10. Financial Statements
(a) (1) Audited financial statements for the two
fiscal years required to be filed with our most recent annual report
are specifically incorporated herein by reference to our Annual Report
on Form 10-K for the year ended December 31, 2000.
(2) Unaudited balance sheets, comparative
year-to-date income statements and related earnings per share data, statements
of cash flows, and comprehensive income are specifically incorporated herein by
reference to our Quarterly Report on Form 10-Q for the quarter ended June 30,
2001.
(3) Not applicable.
(4) The information contained in the attached
Offering Memorandum under the caption "Certain Pro Forma Effects of the Exchange
Offer" is specifically incorporated herein by reference.
2
All documents subsequently filed by us pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act shall be deemed to be
incorporated by reference in this Amendment No. 3 to Schedule TO and to be a
part hereof from the respective date of filing of such documents. Any statement
contained in a document incorporated by reference herein is modified or
superseded for all purposes to the extent that a statement contained in this
filing or in any other subsequently filed document which is incorporated by
reference modifies or replaces such statement.
Copies of our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. Copies may also be read
and copied at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. These documents are also available at the public
reference rooms at the SEC's regional offices in New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms.
(b) Not applicable.
Item 11. Additional Information
(a) (1) Not applicable.
(2) With the exception of Blue Sky securities
qualifications in various jurisdictions, there are no applicable regulatory
requirements which must be complied with or approvals which must be obtained in
connection with the exchange offer.
(3) Not applicable.
(4) The warrants are not marginable securities.
(5) There are no material pending legal
proceedings relating to the exchange offer.
(b) The offering memorandum should be read in its
entirety and is specifically incorporated herein by reference.
Item 12. Exhibits
(a)(i) Offering Memorandum dated November 8, 2001.
(a)(ii) Letter of Transmittal.
(a)(iii) Letter to Brokers, Dealers and Other Nominees.
(a)(iv) Form of Letter to Clients.
(a)(v) Guaranteed Delivery Form.
(a)(vi) Letter from the Issuer to the warrant holders.
(b) Not applicable.
(d) Form of Voting Agreement by and among the Issuer,
Rosemary Street Productions, LLC, Robert Little,
Ellen Little, MRCo., Inc., Christopher Cooney and
Jeffrey Cooney.
(g) Not applicable.
(h) Not applicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statements is true, complete
and correct.
Dated: November 7, 2001
FIRST LOOK MEDIA, INC.
By: /s/ William F. Lischak
--------------------------
William F. Lischak, Chief Operating Officer,
Chief Financial Officer and Secretary
4
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
12(a)(i) Offering Memorandum dated November 8, 2001.
12(a)(ii) Letter of Transmittal.
12(a)(iii) Letter to Brokers, Dealers and Other Nominees.
12(a)(iv) Form of Letter to Clients.
12(a)(v) Guaranteed Delivery Form.
12(a)(vi) Letter from the Issuer to the warrant holders.
12(d) Form of Voting Agreement by and among the Issuer,
Rosemary Street Productions, LLC, Robert Little,
Ellen Little, MRCo., Inc., Christopher Cooney and
Jeffrey Cooney.
5
Exhibit 12(a)(i)
This offering memorandum is not an offer to sell these shares and it is not
soliciting an offer to buy these shares in any state where the offer or sale is
not permitted.
FIRST LOOK MEDIA, INC.
OFFERING MEMORANDUM
We hereby offer approximately 321,429 shares of our common stock in
exchange for the outstanding warrants that were issued in connection with our
initial public offering in February 1995. The exchange offer is made pursuant to
the terms and subject to the conditions set forth in this offering memorandum
and the accompanying letter of transmittal.
In the exchange offer, we will exchange .0714 of a share of our common
stock for every one of our outstanding warrants tendered and accepted by us for
exchange. No fractional shares of common stock will be issued in the exchange
offer. Fractional shares will be rounded up to the nearest whole share based
upon the aggregate number of warrants tendered by the holder or its agent in the
exchange offer.
Our common stock and warrants are traded on the OTC Bulletin Board
under the symbols "FRST" and "FRSTW," respectively. On October 26, 2001, the
last day a trade for our common stock was reported, the last reported sale price
of our common stock was $0.40. On October 19, 2001, the last day a trade of our
warrants was reported, the last reported sale price of our warrants was $0.035.
We reserve the right not to proceed with the exchange offer, as well as
the right to modify the terms of the exchange offer. The exchange offer is
conditioned upon certain customary conditions. We, in our sole discretion,
subject to applicable law, may waive any of these conditions, in whole or in
part, at any time.
The exchange offer will expire at 5:00 p.m. New York City time on
December 18, 2001 unless extended by us.
---------------------------
See "Risk Factors" beginning on page 7 for a discussion of certain
information that should be considered in connection with the exchange offer.
---------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
offering memorandum is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this offering memorandum is November 8, 2001.
Table of Contents
Offering Memorandum Summary...............................................1
Summary of the Exchange Offer.............................................3
Risk Factors..............................................................7
Selected Consolidated Financial Information..............................14
Selected Quarterly Financial Information.................................15
Management's Discussion and Analysis of
Financial Condition and Results of Operations..........................17
Certain Pro Forma Effects of the Exchange Offer..........................25
Price Range of Our Common Stock and Warrants.............................26
The Exchange Offer.......................................................28
Our Business.............................................................37
Management...............................................................64
Certain Relationships and Related Transactions...........................76
Principal Stockholders...................................................77
Description of Securities................................................80
Certain United States Federal Income Tax Considerations..................82
Legal Matters............................................................83
Experts..................................................................83
Where You Can Find More Information......................................84
---------------------------
No person is authorized by us to give any information or to make any
representations, other than those contained herein, in connection with the
solicitation and the offering made by this offering memorandum and, if given or
made, such information or representations should not be relied upon as having
been authorized. This offering memorandum does not constitute the solicitation
of the sale of, or an offer to sell, or a solicitation of the purchase of, or an
offer to purchase, any securities in any jurisdiction in which such solicitation
or offering may not lawfully be made.
---------------------------
This offering memorandum incorporates important business and financial
information about us that is not included or delivered with this document. This
information is available without charge to our securityholders upon written or
oral request made to us. Our address is 8800 Sunset Boulevard, Third Floor, Los
Angeles, California 90069 and our telephone number is (310) 855-1199. In order
to obtain timely delivery of any such information, you must make any request for
it no later than five business days prior to the expiration date of the exchange
offer described herein.
ii
Offering Memorandum Summary
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including notes thereto,
appearing elsewhere in this offering memorandum. You are urged to read this
offering memorandum in its entirety.
Our Business
We specialize in the acquisition and direct distribution of, and
worldwide license and sale of distribution rights to, independently produced
feature films in a wide variety of genres, including action, art-house, comedy,
drama, foreign language, science fiction and thrillers. We have accumulated a
library of distribution rights in various media and markets to more than 250
films. Additionally, we recently established a television commercial production
division and expect to produce television commercials for domestic and
international markets.
We have focused primarily on licensing theatrical, video, pay
television, free television, satellite and other distribution rights to foreign
sub-distributors in major international territories and regions. These
activities accounted for approximately 66.3% of our total revenues in 2000 and
approximately 66.8% of our total revenues in the six-month period ended June 30,
2001.
We engage directly in domestic theatrical distribution through our
First Look Pictures division and domestic video distribution through our First
Look Home Entertainment division. Our theatrical distribution activities include
booking motion pictures for exhibition at movie theaters, arranging for the
manufacture of release prints from film negatives, and promoting motion pictures
with advertising and publicity campaigns. Our video distribution activities
include the promotion and sale of videocassettes to local, regional and national
video retailers. We have also recently launched a television commercial
production division. In connection with our new television commercial production
division, we have hired experienced management and supporting staff, leased
office and production space and engaged directors of television commercial
productions.
1
Corporate Information
Our company was incorporated in Delaware in December 1993 under the
name "Entertainment/Media Acquisition Corporation" in order to acquire an
operating business in the entertainment and media industry. We consummated our
initial public offering in February 1995, in which we sold shares of our common
stock and the warrants that are the subject of the exchange offer.
In October 1996, we merged with Overseas Filmgroup, Inc., a
privately-held Delaware corporation ("Overseas Private") that had been operating
since February 1980. Our company was the surviving corporation in the merger.
Upon consummation of the merger, we changed our name to "Overseas Filmgroup,
Inc." We operated under the name "Overseas Filmgroup, Inc." until January 2001.
In January 2001, we changed our name to "First Look Media, Inc." in order to
reflect the broadening of our operations beyond foreign distribution of
independently produced feature films to additional areas such as theatrical and
video distribution in the United States, television commercial production and
Internet content development.
Our principal executive offices are located at 8800 Sunset Boulevard,
Third Floor, Los Angeles, California 90069, and our telephone number is (310)
855-1199.
2
Summary of the Exchange Offer
The offer....................... We are offering to exchange .0714 of
a share of our common stock for every one of
the outstanding warrants issued in our
initial public offering in February 1995,
that are tendered and accepted by us for
exchange. No fractional shares of common
stock will be issued. Fractional shares will
be rounded up to the nearest whole share
based upon the aggregate number of warrants
tendered by the holder or its agent in the
exchange offer.
Expiration date................. 5:00 p.m., New York City time, on December
18, 2001, unless extended as provided in the
section of this offering memorandum entitled
"The Exchange Offer - Expiration Date;
Extensions; Termination; Amendments."
The warrants................... As of September 30, 2001, there were
4,500,000 public warrants outstanding. Each
warrant currently entitles the holder to
purchase one share of common stock for
$5.00, subject to adjustment in certain
events. Provided that a registration
statement with respect to the common stock
is in effect, the public warrants may be
exercised at any time until February 16,
2002. We have the right to redeem the
warrants under certain circumstances. See
"Description of Securities - Warrants."
Purpose of the exchange
offer..................... To retire any and all of our public warrants
through the issuance of common stock. This
would allow us to simplify our capital
structure, reduce the potential future
dilutive impact on our per-share earnings
that could be caused by the warrants, and
diminish or eliminate overhang on the market
price of our common stock caused by the
warrants.
Conditions of the exchange
offer...................... The exchange offer is subject to certain
customary conditions, any or all of which
may be waived by us in our sole discretion,
subject to applicable law. The exchange
offer is not conditioned upon any minimum
number of warrants being tendered. See "The
Exchange Offer - Conditions of the Exchange
Offer."
3
Effects of the exchange offer
on our company............. In the absence of the exchange offer, an
additional 4,500,000 shares of common stock
would be issued if all of the currently
outstanding warrants were exercised, and we
would receive the cash proceeds of such
exercises. Assuming 100% participation in
the exchange offer, up to approximately
321,429 shares of common stock would be
issued and all of the outstanding warrants
would be extinguished and we would receive
no cash proceeds. The exchange offer will
have no effect on total stockholders' equity
(other than transaction costs). See
"Background of The Exchange Offer,"
"Selected Consolidated Financial
Information" and "Certain Pro Forma Effects
of the Exchange Offer."
Effects of the exchange
offer on you, if you
participate............... If you participate in the exchange offer,
you will:
o receive .0714 of a share of common
stock for every warrant you tender
and we accept (fractional shares to
be rounded up to the nearest whole
share based upon the aggregate
number of warrants tendered by the
holder or its agent in the exchange
offer), without having to make any
exercise payments;
o be able to vote the common stock
received in the exchange offer on
all matters that may come before
the holders of our common stock;
o be able to receive dividends on
such common stock, if any, when
declared and paid by us; and
o participate as a holder of common
stock in proceeds from any
liquidation of our company after
creditors and preferred security
holders, if any, are paid.
However, if you participate in the exchange
offer, you will lose the right to purchase a
share of common stock for $5.00 for each
warrant held.
Effects of the exchange
offer on you, if you
do not participate......... If you do not participate in the exchange
offer, you will retain the right to
purchase, at any time until February 16,
2002, one share of common stock for $5.00
for each warrant held, subject to our right
to redeem the warrants under certain
circumstances. However, you should note,
that if the exchange offer is consummated,
we intend to delist the warrants from
trading on the OTC Bulletin Board and to
deregister the warrants pursuant to the
4
Exchange Act. In such event, the trading
market for, and the liquidity of an
investment in, the warrants remaining
outstanding would be significantly reduced.
You will not have any appraisal or
dissenters' rights under Delaware law.
Procedures for
tendering warrants........ If you wish to tender your warrants, you
must deliver the following documents prior
to 5:00 p.m., New York City time, on the
expiration date to the exchange agent at the
address set forth on page 35:
o certificates representing the
warrants being tendered together
with a letter of transmittal
properly completed and duly
executed by you and all other
documents required by the letter of
transmittal; or
o if you wish to tender by guaranteed
delivery, a properly completed and
duly executed guaranteed delivery
form. See "The Exchange Offer -
Procedure for Tendering" and "-
Guaranteed Delivery Procedure."
If your warrants are registered in the name
of brokers, dealers, commercial banks, trust
companies or nominees, you are urged to
contact such registered holders promptly if
you wish to participate in the exchange
offer. Warrants should not be sent to us.
Withdrawal of tenders.......... Tenders of warrants may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the expiration date. See "The Exchange
Offer - Withdrawal Rights."
Acceptance of warrants and
delivery of common stock... We will accept all warrants properly
tendered and not withdrawn prior to 5:00
p.m., New York City time, on the expiration
date, by giving oral or written notice to
the exchange agent promptly after the
expiration date. We will deliver shares of
common stock pursuant to the exchange offer
promptly following such acceptance. See "The
Exchange Offer - Acceptance of Warrants for
Exchange; Delivery of Common Stock."
Certain federal income tax
considerations............. You are urged to consult your own tax
advisors as to the specific tax consequences
of the exchange offer. In general, however,
we believe that the exchange of common stock
for warrants will be treated as a tax free
recapitalization transaction for federal
income tax purposes. See "Certain United
States Federal Income Tax Considerations."
5
Reimbursement of
expenses.................. We have agreed to reimburse certain brokers
for their expenses incurred in connection
with the exchange offer. We will not be
paying any solicitation fees. See "The
Exchange Offer - Interests of Certain
Persons in the Exchange Offer" and "The
Exchange Offer - Reimbursement of Expenses."
We make no recommendation that you tender or refrain from tendering
your warrants, and no one has been authorized to make any such recommendation on
behalf of our company. The decision to tender is a matter for you to determine
after consultation with your advisors, including tax counsel, on the basis of
your own financial position and requirements.
The delivery of this offering memorandum shall not, under any
circumstances, create an implication that there has been no change in the
affairs of our company since the date hereof or that the information herein is
correct as of any time subsequent to such date.
6
Risk Factors
If you participate in the exchange offer, you will surrender your
warrants and receive shares of our common stock, thereby changing the nature of
your interest in our company. You should carefully consider the following risk
factors, as well as the information set forth elsewhere in this offering
memorandum, in determining whether to participate in the exchange offer.
Risks relating to the exchange offer
The consummation of the exchange offer will likely decrease the liquidity of any
warrants that remain outstanding.
If the exchange offer is consummated, we intend to deregister the
warrants under the Exchange Act and delist the warrants from trading on the OTC
Bulletin Board. If we do this, the trading market for, and liquidity of an
investment in, any warrants remaining outstanding would be significantly
reduced. Any reduction in trading liquidity could depress the market value of
any remaining outstanding warrants.
At the time the exchange offer is actually consummated, the exchange ratio may
not directly relate to the then-current market prices of the common stock being
issued to you or the warrants being surrendered by you.
On October 26, 2001, the last date for which a trade in our common
stock was reported, the last reported sale price of our common stock as reported
on the OTC Bulletin Board was $0.40. On October 19, 2001, the last date for
which a trade in our warrants was reported, the last reported sale price of our
warrants was $0.035. For the 30-trading day period ending on October 31, 2001,
the average last sale prices of our common stock and the average last sale
prices of our warrants were $0.40 and $0.04, respectively. For the 60-trading
day period ending on October 31, 2001, the average last sale prices of our
common stock and warrants were $0.47 and $0.04, respectively.
The exchange ratio of .0714 of a share of common stock for every
warrant was fixed as of the date of this offering memorandum and represents (as
of that date) a slight premium to the exchange ratio implied by the relationship
between the average trading prices of our common stock and warrants for each of
the dates and periods described above. However, the market prices of our common
stock and warrants are subject to fluctuations, which may be exacerbated by the
announcement and consummation of the exchange offer itself. On the date the
exchange offer is actually consummated, the exchange ratio may not directly
relate to the then-current market prices of the securities involved in the
exchange offer and may not result in you receiving at least the market value
that was originally contemplated at the time the exchange ratio was set.
If you participate in the exchange offer, you may give up the investment
leverage afforded by the warrants.
You will have to give up approximately 14 warrants to receive one share
of common stock in the exchange offer. It may be more beneficial for you to own
our warrants as opposed to our common stock. For example, if the market price of
a share of our common stock increases to $6.00, thereby exceeding the $5.00
7
exercise price of a warrant by $1.00, each warrant you owned would give you the
ability to realize a profit equal to $1.00 (without giving effect to the price
you actually paid for the warrant and applicable tax liabilities). In this
scenario, if you owned 14 warrants, you could realize an aggregate profit of
$14.00 by exercising all of your warrants and selling the underlying common
stock. In this same scenario, if you had previously surrendered your 14 warrants
in the exchange offer and received one share of common stock, you could sell the
share for $6.00 and could realize a profit equal to the difference between $6.00
and your cost basis in the share. However, if you do participate in the exchange
offer and surrender your warrants, you will have the ability to participate in
any post-exchange offer appreciation of our common stock, even at market prices
below the $5.00 exercise price of the warrants. The market price of our common
stock may never exceed $5.00 and may not appreciate from the market price in
effect on the date the exchange offer is consummated.
The fact that our securities are traded only on the OTC Bulletin Board could
depress the market prices for these securities.
We believe that the fact that our securities are traded only on the OTC
Bulletin Board could serve to:
o limit distribution of news relating to our company;
o limit investor interest in our securities; and
o restrict our ability to issue additional securities and secure
additional financing.
One or more of these factors could serve to depress the liquidity and market
prices of our securities. We may never apply to, or be accepted by, any trading
market or exchange that provides enhanced liquidity and information flow.
The exchange offer could have a negative effect on the market price of our
common stock.
The issuance of a significant number of shares of common stock in the
exchange offer will cause an initial dilution in per-share earnings and other
per-share measurements, which may have a negative effect on the market price for
our common stock (and, in turn, any warrants still outstanding after
consummation of the exchange offer).
As a holder of common stock, you would be subject to the dilutive effects caused
by future issuances of our common stock.
Following consummation of the exchange offer, we will not need to
reserve as many shares (if any) of common stock for possible future exercises of
the warrants. Accordingly, the number of authorized, but unissued and
unreserved, shares of common stock available for other issuances would increase.
Our board of directors is empowered, without stockholder approval, to issue any
or all of such authorized (but unissued and unreserved) shares of common stock.
These issuances (depending on the consideration, if any, received) may dilute
the interests of common stock holders and affect the market price of our common
stock (and any remaining outstanding warrants). Other potential issuances of
securities, such as options under our stock option plan or shares of our
preferred stock, may have similar effects. Also, potential sales of substantial
blocks of our outstanding securities by holders could have a negative impact on
the market price of our common stock (and any remaining outstanding warrants).
8
We have the right to redeem the warrants.
Any warrants not exchanged in the exchange offer may be redeemed by us,
at a price of $.01 per warrant, subject to not less than 30 days' prior written
notice to you, provided that the last sale price of the common stock has been at
least $8.50 per share for the 20 consecutive trading days ending on the third
day prior to the day on which notice is given. Notice of the redemption of the
warrants could force you to exercise the warrants and pay the exercise price at
a time when it may be disadvantageous for you to do so, to sell the warrants at
the then-current market price when you might otherwise wish to hold the
warrants, or accept the $.01 per warrant redemption price. See "Description of
Securities - Warrants."
Risks relating to our business
Virtually all of our assets are pledged to secure our obligations under our
credit facility with The Chase Manhattan Bank.
In June 2000, we entered into a $40 million five-year secured revolving
credit facility with The Chase Manhattan Bank and other commercial banks and
financial institutions. To secure our obligations under the Chase facility, we
and our domestic subsidiaries have pledged our assets to Chase. If we default on
our obligations under the Chase facility, the banks under the Chase facility
will have the right to satisfy our obligations through these assets. If this
occurs, we may not be able to continue our business or operations. Further,
applicable state law and contractual restrictions, including restrictions in the
Chase facility, prohibit payment of dividends or distributions to holders of our
securities in various circumstances.
We anticipate that our acquisition, production and marketing costs will continue
to be significant.
For 1998, 1999, 2000 and the six-month period ended June 30, 2001, the
average direct negative costs of motion pictures that we have distributed were
approximately $2,800,000, $5,900,000, $3,100,000, and $3,000,000, respectively.
Direct negative costs include production costs of acquiring or developing the
screenplay, the compensation of creative and other production personnel, film
studio and location rentals, equipment rentals, film stock and other costs
incurred in principal photography, as well as post-production costs such as the
creation of special effects and music. For 1998, 1999, 2000 and the six-month
period ended June 30, 2001, the average print and advertising costs associated
with the motion pictures distributed by First Look Pictures were approximately
$561,000, $0 (no films released), $510,000 and $457,000, respectively.
In the future, we may distribute, finance or produce motion pictures
with substantial direct negative costs and marketing costs. These costs would
continue to be significant and could exceed the average direct negative and
marketing costs of the films that we have historically distributed.
Our operations would be hurt if we lost the services of certain of our
personnel.
Christopher J. Cooney serves as our co-chairman of the board and chief
executive officer, Robert B. Little serves as our co-chairman of the board and
president, William F. Lischak serves as our chief operating officer, chief
financial officer, secretary and director. Virtually all decisions concerning
9
the conduct of our business, including the motion picture properties and rights
that we acquire and the arrangements that we make for our distribution,
production and financing of motion pictures, are made or are significantly
influenced by these key executives. The loss of any of their services for any
reason would have a material adverse effect on our business, operations and
future prospects. In addition, our credit facility with Chase generally requires
Mr. Little, Mr. Cooney and Mr. Lischak's continued involvement with, and control
of, our company.
Our receipt of minimum guarantees does not eliminate the risks we face when we
license distribution rights.
We usually receive a minimum guarantee for licensing distribution
rights to sub-distributors. However, these minimum guarantees do not assure the
profitability of our motion pictures or our operations. Additional revenues may
be necessary from distribution of a motion picture in order for us to recover
any investment in excess of the aggregate minimum guarantees, pay for
distribution costs, continue acquisition and development of other motion
pictures, and cover general overhead. Licensing distribution rights to
sub-distributors in exchange for minimum guarantees may also result in us
receiving lower revenues with respect to highly successful films.
We may not be able to achieve our acquisition and distribution goals.
We currently intend to acquire rights to and distribute approximately
twelve to eighteen films per year. Alone or in conjunction with others, we
currently intend to selectively finance all or a portion of the production costs
of, or produce, an aggregate of approximately two to six of these films. We may
not meet these goals and the number of films that we acquire, distribute or
finance may not meet these estimated ranges.
Our First Look Pictures operations face their own particular risks.
Our domestic theatrical distribution activities, which are conducted
through our First Look Pictures division, face numerous challenges and risks,
including:
o The success of a domestic theatrical release can be affected
by a number of factors outside of our control, including
audience and critical acceptance, the success of competing
films in release, awards won by First Look Pictures' releases
or that of its competition, inclement weather, and competing
televised events, such as sporting and news events.
o Payment to First Look Pictures by national theater chains in
the United States is typically made on the close of the
engagement in all the chain's theaters. Since First Look
Pictures typically releases its films on a more limited basis
than a distributor of nationwide releases and since First Look
Pictures' specialized or art-house releases can have extended
runs, theater chains often do not pay us for three to six
months from initial release, or longer.
10
o First Look Pictures' releases are exhibited by a substantial
number of independent theater owners for which it can be
comparatively more difficult to monitor and enforce timely
payment than with respect to national theater chains.
Our quarterly results fluctuate significantly.
Our operating revenues, cash flow and net earnings historically have
fluctuated significantly from quarter to quarter depending in large part on the
number of motion pictures for which we acquire distribution rights and actually
distribute and the amount of revenues recognized and production costs incurred
and amortized during the period. Therefore, year-to-year comparisons of
quarterly results may not be meaningful and quarterly results during the course
of any year may not be indicative of results expected for the entire year.
Our company is effectively controlled in all respects by our management.
Our directors and executive officers, as a group, beneficially own
approximately 79.9% of our voting securities. Accordingly, these persons, acting
together, will be in a position to effectively control our company in all
respects, including the election of our directors. See "Management" and
"Principal Stockholders."
Our issuance of preferred stock could diminish the value of your common stock.
Our restated certificate of incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by our board of directors. Subject to the
rules of the NASD, our board of directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the common stock (or any remaining outstanding
warrants). The preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of our
company, which could have the effect of discouraging bids for our company and,
thereby, preventing stockholders from receiving the maximum value for their
shares.
Risks relating to our industries
Because the motion picture industry is highly speculative and inherently risky,
some or all of the motion pictures that we release, distribute or produce will
not be commercially successful and we will not be able to recover our costs or
realize anticipated profits.
The motion picture industry is highly speculative and inherently risky.
We cannot assure you that any motion picture we release, distribute or produce
will be successful since the revenues derived from the production and
distribution of a motion picture depend primarily upon its acceptance by the
public, which cannot be predicted. The revenues derived also may not necessarily
correlate to the production or distribution costs incurred.
A motion picture's commercial success also depends upon the quality and
acceptance of other competing films released into the marketplace at or near the
same time, the availability of alternative forms of entertainment and leisure
time activities, general economic conditions and other tangible and intangible
factors, all of which can change and cannot be predicted with certainty.
11
Therefore, there is a substantial risk that some or all of the motion pictures
that we release, distribute or produce will not be commercially successful,
resulting in costs not being recovered or anticipated profits not being
realized.
We have not been able to fully capitalize on significant changes in the motion
picture industry and we may not be able to capitalize on changes in the future.
The entertainment industry in general, and the motion picture industry
in particular, are dynamic industries that have undergone significant changes.
Some of the most recent changes include:
o increases in revenues generated from the licensing of rights
in media ancillary to domestic theatrical media;
o studio and theater-chain ownership changes;
o consolidation in the industry; and
o rapid technological change.
We have not benefited from some of these changes. To date, we have not
realized any significant revenues from the newest revenue sources, such as
computer and video games and other interactive media. In addition, some changes
in the motion picture industry have negatively impacted us. For example, despite
the expansion in the market for videocassettes for home use, generally retail
video stores increasingly have been purchasing fewer copies of videocassettes of
motion pictures that have not been theatrically released. Because we distribute
a number of films that are not released theatrically, this trend has impacted us
negatively and has led us to establish our own domestic theatrical and video
distribution operations. We cannot predict what changes or trends will continue
in the motion picture industry, what new changes or trends might occur, and the
overall effect these factors will have on our potential revenue from and
profitability of feature-length motion pictures and our business.
Domestic theatrical distribution is very competitive and dominated by major
studio distributors.
We engage in domestic theatrical distribution through our First Look
Pictures division. Domestic theatrical distribution is very competitive. A
substantial majority of the motion picture screens in the United States
typically are committed at any one time to between 10 and 15 films distributed
nationally by major studio distributors that can command greater access to
available screens. Although some theaters specialize in exhibiting independent
motion pictures and art-house films, there is intense competition for screen
availability for these films as well. The number of motion pictures released
theatrically in the United States also has increased in recent years, which has
increased competition for exhibition outlets and audiences.
We face numerous risks in our international distribution activities.
We derive revenues from distributing motion pictures and licensing
distribution rights in territories outside the United States. Our financial
results and results of operations could be negatively affected by the following:
12
o changes in foreign currency exchange rates and currency
controls;
o trade protection measures;
o motion picture piracy;
o content regulation;
o longer accounts receivable collection patterns;
o changes in regional or worldwide economic or political
conditions; or
o natural disasters.
Because our contracts are typically denominated in U.S. dollars,
advances and minimum guarantees of sub-license fees payable to us by foreign
sub-distributors, and advances and minimum guarantees that we pay to foreign
producers in connection with the acquisition of distribution rights generally
are unaffected by exchange rate fluctuations. However, to the extent our
agreements with foreign sub-distributors require them to pay us a percentage of
revenues in excess of any advance or minimum guarantee, fluctuations in the
currencies in which these revenues are received by the sub-distributor may
affect the amount of U.S. dollars that we receive in excess of any minimum
guarantee. Exchange rate fluctuations also could affect the ability of
sub-distributors to pay agreed minimum guarantees or to bid for and acquire
rights to motion pictures that we distribute. Although exchange rate
fluctuations generally have not had a material effect on our results of
operations in the past, we cannot assure you that these fluctuations will not
have a material impact on our future results of operations.
This offering memorandum contains forward-looking statements, which may prove
inaccurate.
Some of the statements in this offering memorandum are forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about our plans, objectives, expectations,
intentions and assumptions that are not statements of historical fact. You can
identify these statements by words such as "may," "will," "should," "plans,"
"expects," "believes," "intends" and similar expressions. We cannot guarantee
our future results, performance or achievements. Our actual results and the
timing of corporate events may differ significantly from the expectations
discussed in the forward-looking statements. You are cautioned not to place
undue reliance on any forward-looking statements.
13
Selected Consolidated Financial Information
(in thousands of dollars, except per-share data)
The following selected consolidated financial data as of and for each
of the years in the five-year period ended December 31, 2000, are derived from
our consolidated financial statements, which statements have been audited by
PricewaterhouseCoopers LLP, independent accountants.
The selected consolidated balance sheet data at June 30, 2001, and the
selected statement of operations data for the six months ended June 30, 2000,
and June 30, 2001 have been derived from our unaudited consolidated financial
statements which, in our opinion include all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair statement of the results
of unaudited periods. The results for the six months ended June 30, 2001, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001.
The selected consolidated financial data set forth below should be read
in conjunction with our consolidated financial statements and the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," each included elsewhere in this offering memorandum. "Statement of
Operations Data" presented below includes reclassifications of certain revenue
and expense items which are not directly associated with operations. Such
reclassifications include interest income, interest expenses, foreign exchange
effects and other non-operating items.
Year Ended December 31,
-------------------------------------------------------------- Six Months Ended
(in thousands, except per share data) June 30,
-----------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000 2001
----------------------------------------------------------------------------------------
Statement of Operations Data: (unaudited)
Revenues........................... $28,678 $22,494 $25,585 $33,784 $22,625 $10,460 $20,001
Film costs......................... 23,058 19,152 21,015 30,888 16,850 8,008 14,580
Distribution and marketing costs.. --- --- --- --- 4,774 1,415 2,151
Selling, general and administrative 3,596 3,509 2,960 2,983 6,473 1,889 3,394
Income (loss) from operations...... 2,024 (168) 1,610 (87) (5,472) (852) (124)
Income (loss) before tax and
cumulative effect of accounting
changes............................ 1,665 (837) 112 (1,989) (6,230) (1,816) (525)
Income tax provision (benefit) (1). 3,131 (293) 53 (736) 137 92 19
Income (loss) before cumulative
effect of accounting changes....... (1,466) (544) 59 (1,253) (6,367) (1,908) (544)
Cumulative effect of accounting
changes(2)......................... --- --- --- --- (14,123) (14,123) ---
Net income (loss) ................. (1,466) (544) 59 (1,253) (20,490) (16,031) (544)
Basic and diluted net income (loss)
per share before cumulative effect. (0.41) (0.09) 0.01 (0.21) (0.78) (0.30) 0.06
Cumulative effect.................. --- --- --- --- (1.74) (2.19) ---
Net income (loss) per share after
cumulative effect.................. (0.41) (0.09) 0.01 (0.21) (2.52) (2.49) 0.06
Basic and diluted weighted average
number of shares outstanding....... 3,611 5,748 5,732 5,990 8,131 6,431 9,804
14
Six Month
Year Ended December 31, Ended
----------------------------------------------------------------------------------
(in thousands, except per share data) June 30,
----------------------------------------------------------------------------------
---------------------------------------------
1996 1997 1998 1999 2000 2001
----------------------------------------------------------------------------------
Balance Sheet Data: (unaudited)
Film costs, net of accumulated
amortization....................... $28,358 $29,741 $29,003 $28,363 $13,393 $15,148
Total assets....................... 40,804 46,560 50,209 . 62,647 42,280 47,032
Total long-term liabilities........ 16,607 23,142 22,013 . 19,764 6,500 11,000
Total liabilities.................. 28,612 34,999 38,588 . 49,348 32,375 37,671
Total shareholders' equity......... 12,192 11,561 11,621 . 13,299 9,905 9,361
(1) From January 1, 1989 to October 31, 1996, Overseas Private operated as
an S corporation under subchapter S of the Internal Revenue Code.
During the year ended December 31, 1996, we recorded a one-time,
non-recurring deferred federal income tax charge of $2,600,000 relating
to the termination of Overseas Private's S corporation status which
occurred on October 31, 1996, the date of our merger with Overseas
Private.
(2) During the year ended December 31, 2000, we recorded a one-time,
pre-tax non-cash charge of $15,582,000 ($14,123,000 after taxes)
relating to our adoption of new film accounting standards in June 2000
pursuant to SOP 00-2, which is discussed in detail in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Relevant Accounting Provisions."
Selected Quarterly Financial Information
(in thousands, except per share data)
The following table sets forth selected unaudited quarterly financial
data for the six months ended June 30, 2001 and each of the two years ended
December 31, 1999 and 2000:
2001
(amount in thousands except for per share data)
-------------------------------------------------
March 31, June 30,
----------------------- --------------------
Revenues $10,243 $9,759
Income (loss) from operations 333 (458)
Net (loss) income 129 (673)
Basic and diluted income
(loss) per share;
Net income (loss) 0.01 (0.07)
15
2000
-----
(amounts in thousands except for per-share data)
-----------------------------------------------------------------------
March 31, June 30, September 30, December 31,
--------------- ----------------- ----------------- ----------------
Revenues 6,049 4,411 4,767 7,398
Income (loss) from operations (20) (831) (596) (4,025)
Loss before cumulative effect of
accounting changes (558) (1,351) (165) (4,294)
Cumulative effect of accounting
changes (14,123) - - -
Net loss (14,681) (1,350) (165) (4,294)
Basic and diluted loss per share:
Loss before cumulative effect
of accounting changes (0.09) (0.21) (0.02) (0.44)
Cumulative effect of accounting
changes (2.24) - - -
Net loss (2.33) (0.21) (0.02) (0.44)
1999
March 31, June 30, September 30, December 31,
--------------- ----------------- ----------------- ----------------
Revenues 6,690 6,541 6,726 13,827
Income (loss) from operations 606 409 (242) (860)
Net income (loss) 100 (48) (444) (861)
Income (loss) per share:
Basic and diluted 0.02 (0.01) (0.07) (0.14)
The increase in loss from operations during the fourth quarter of 2000
compared to the previous three quarters was due to the expansion of our
operations and increases in:
o write offs of certain projects under development;
o marketing and distribution expenses in connection with
preparation for upcoming film festivals;
o bad debt write-offs; and
o legal and consulting fees relating to valuation of our film
library and capital investment opportunities other than
Rosemary Street Productions, LLC ("Rosemary Street").
The lower net loss for the quarter ended September 30, 2000, reflected the
capital gain that we recognized on our sale of 17,454 shares of common stock of
Yahoo! Inc. during the quarter.
The increase in loss from operations and net loss during the fourth
quarter of 1999 compared to the previous three quarters was due to increases in
write offs of certain projects under development and bad debt write-offs.
16
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The operations of Overseas Private were established in February 1980.
We were formed in December 1993 under the name "Entertainment/Media Acquisition
Corporation" for the purpose of acquiring an operating business in the
entertainment and media industry. We acquired Overseas Private through a merger
in October 1996 and we were the surviving corporation in the merger. Immediately
following the merger, we changed our name to "Overseas Filmgroup, Inc." and
succeeded to the operations of Overseas Private. In January 2001, we changed our
name to "First Look Media, Inc." in order to reflect the broadening of our
operations beyond foreign distribution of independently produced feature films
to additional areas such as theatrical and video distribution in the United
States, television commercial production and Internet content development.
Today, we are principally involved in the acquisition and worldwide
license or sale of distribution rights to independently produced motion
pictures. We directly distribute certain motion pictures in the domestic
theatrical market under the name "First Look Pictures" and in the domestic video
market under the name "First Look Home Entertainment."
Relevant accounting provisions
In June 2000, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2"). SOP 00-2
establishes new film accounting standards, including changes in revenue
recognition and accounting for advertising, development and overhead costs.
Additionally, in June 2000, the Financial Accounting Standards Board ("FASB")
issued Statement 139 ("SFAS 139") which rescinds FASB 53 on financial reporting
by motion picture film producers or distributors. SFAS 139 requires public
companies to follow the guidance provided by SOP 00-2. We elected early adoption
of SOP 00-2 and, as a result, in the fiscal quarter ended June 30, 2000, a
cumulative charge for the change in accounting principle of $15,582,000
($14,123,000 net of income taxes) has been reflected in our Consolidated
Statement of Operations for the year ended December 31, 2000. Under SOP 00-2, we
recorded additional operating expense of $888,000 for the year ended December
31, 2000.
Results of operations
Six Months Ended June 30, 2001 Compared to
Six Months Ended June 30, 2000
Revenues increased by $9,541,000 (91.2%) to $20,001,000 for the six
months ended June 30, 2001 from $10,460,000 for the six months ended June 30,
2000. The increase in revenues was primarily due to, (i) increased number of
titles with revenues over $200,000 from foreign territories and U.S. television
rights during the six months ended June 30, 2001 (15 titles with an average of
$885,000 each), compared to the six months ended June 30, 2000 (8 titles with an
average of $880,000 each), (ii) six video releases with an average of $200,000
each for the six months ended June 30, 2001 compared to five video releases with
an average of $67,000 each for the six months ended June 30, 2000 and, (iii) an
increase of approximately $1,203,000 in airline and straight distribution
revenues during the six months ended June 30, 2001.
17
Film costs as a percentage of revenues decreased to 72.9% for the six
months ended June 30, 2001 compared to 76.6% for the six months ended June 30,
2000. Film costs include amortization of capitalized production costs as well as
accruals of participation cost for the current period. The decrease in film
costs as a percentage of revenues was primarily due to higher negotiated fees on
titles released during the six months ended June 30, 2001 compared to six months
ended June 30, 2000.
In accordance with the new accounting standards established pursuant to
SOP 00-2, the Company expenses all distribution and marketing expenses as
incurred. Distribution and marketing expenses increased to $2,151,000 during the
six months ended June 30, 2001 compared to $1,415,000 for the six months ended
June 30, 2000, primarily due to the increased number of titles released on video
and in theaters as well as titles with world wide distribution rights.
Selling, general and administrative expenses, net of amounts
capitalized to film costs, increased by $1,505,000 (79.7%) to $3,394,000 for the
six months ended June 30, 2001 from $1,889,000 for the six months ended June 30,
2000. The increase was primarily due to increases in:
o salary, payroll taxes and related expenses of $908,000 due to
additional personnel;
o legal and consulting fees of $169,000;
o bad debt expense of $269,000;
o health insurance expense of $27,000;
o meals and entertainment expenses of $48,000;
o publicity expenses of $41,000;
o rent expense of $18,000;
o office and computer supplies of $87,000; and
o Shipping and messenger of $13,000.
The above increases were reduced by an increase in overhead
capitalization of $73,000 due to the Company's increased involvement in
production related activities.
Net other expense for the six months ended June 30, 2001 decreased by
$563,000 to $401,000, compared to net other expense of $964,000 for the six
months ended June 30, 2000. The decrease is primarily due to lower interest
expense of $546,000 as a result of lower outstanding notes payable and lower
interest rates during the six months ended June 30, 2001, compared to the
quarter ended June 30, 2000.
As a result of the above, the Company had a loss before income taxes
and cumulative effect of accounting changes of $525,000 for the six months ended
June 30, 2001, compared to a loss before income taxes and cumulative effect of
accounting changes of $1,908,000 for the six months ended June 30, 2000.
The Company reported a cumulative effect of accounting changes of
$14,123,000, net of income tax benefit of $1,459,000 effective January 1, 2000,
relating to its adoption of SOP 00-2.
18
The Company had a net loss of $544,000 for the six months ended June
30, 2001 (reflecting foreign withholding taxes of $19,000), compared to a net
loss of $16,031,000 (including a one-time charge of cumulative effect of
accounting changes of $14,123,000) for the six months ended June 30, 2000.
Year ended December 31, 2000 compared to year ended December 31, 1999
Revenues decreased by $11,159,000 (33.0%) to $22,625,000 for the year
ended December 31, 2000, compared to $33,784,000 for the year ended December 31,
1999. The decrease in revenues was primarily due to lower revenues from the
highest grossing films released in 2000 compared to 1999. For example, the six
highest income-producing films released during the year ended December 31, 2000,
generated approximately $9,410,000 in revenue compared to approximately
$21,180,000 in revenue generated by the six highest income-producing films
released during the year ended December 31, 1999.
In accordance with new accounting standards established pursuant to SOP
00-2, distribution and marketing costs were expensed as incurred during the year
ended December 31, 2000. For the year ended December 31, 1999, distribution and
marketing costs were capitalized and amortized as film costs. Film costs,
distribution and marketing costs as a percentage of revenues increased to 95.6%
for the year ended December 31, 2000, compared to 91.4% for the year ended
December 31, 1999. The increase was in part due to application of the new
accounting standards, and to generally lower distribution fee rates (our gross
margin) on films generating the greatest amount of revenue during the year ended
December 31, 2000, compared to the year ended December 31, 1999.
Selling, general and administrative expenses, net of amounts
capitalized to film costs, increased by $3,490,000 (117.0%) to $6,473,000 for
the year ended December 31, 2000, compared to $2,983,000 for the year ended
December 31, 1999. The largest increases were in the areas of bad debt expense
($1,617,000) and salary and payroll tax expense ($789,000). Bad debt expense
increased as a function of management's decision to write off certain accounts
deemed uncollectible. Salary expense increased due to our expansion of existing
and new operational areas, including expansion related to the equity investment
by Rosemary Street, expansion of our video and DVD operations, creation of a
television commercial production operation and increased staffing of the First
Look Pictures theatrical releasing operation. Additionally, we capitalize some
of our overhead costs incurred in connection with our production activities
related to a motion picture by adding the costs to the capitalized film costs of
the motion picture. The increase in selling, general and administrative expenses
was partially the result of fewer expenses being capitalized ($673,000 in 2000
compared to $1,100,000 in 1999), due to our reduced involvement in production
related activities. Other increases included:
o accounting expenses of $21,000;
o charitable contributions of $10,000;
o consulting fees of $97,000;
o insurance premiums of $132,000;
o legal fees of $222,000;
o office and computer supplies of $21,000;
o officers' fringe and employee benefits of $76,000;
19
o publicity expenses of $23,000;
o repairs expenses of $19,000;
o business and franchise taxes of $17,000;
o telephone expenses of $33,000; and
o travel and entertainment expenses of $61,000.
These increases were partially offset by decreases in contract labor of
$44,000 and miscellaneous expenses related to being a public company of $23,000.
Net other expense decreased by $1,144,000 (60.1%) to $758,000 for the
year ended December 31, 2000, compared to $1,902,000 for the year ended December
31, 1999. The decrease in net other expense was primarily due to the gain
reported on our sale of shares of common stock of Yahoo! Inc. of $625,000,
decreased interest expense of $448,000, an increase in interest income of
$20,000, and an increase in other miscellaneous revenues of $51,000.
As a result of the above, we had a loss before income taxes and
cumulative effect of accounting changes of $6,230,000 for the year ended
December 31, 2000, compared to a loss before income tax benefit and cumulative
effect of accounting changes of $1,989,000 for the year ended December 31, 1999.
We recorded a one-time charge for the cumulative effect of accounting
changes of $14,123,000, net of income tax benefit of $1,459,000 for the year
ended December 31, 2000.
As a result of the above, we had a net loss of $20,490,000 for the year
ended December 31, 2000 (reflecting foreign withholding taxes of $131,000, and
state taxes of $6,000), compared to net loss of $1,253,000 for the year ended
December 31, 1999 (reflecting an effective income tax benefit of $736,000).
Year ended December 31, 1999 compared to year ended December 31, 1998
Revenues increased by $8,199,000 (32.0%) to $33,784,000 for the year
ended December 31, 1999, compared to $25,585,000 for the year ended December 31,
1998. The increase in revenues was due in part to more films generating in
excess of $1,000,000 each in revenue in 1999 as compared to 1998. We licensed
rights to eight motion pictures that each generated over $1,000,000 in revenue
during 1999 and which in the aggregate generated approximately $23,947,000 in
revenue, compared to only six films that each generated over $1,000,000 in
revenue during 1998 and which in the aggregate generated approximately
$16,472,000 in revenue.
Film costs as a percentage of revenues increased to 91.4% for the year
ended December 31, 1999, compared to 82.1% for the year ended December 31, 1998.
The increase was primarily due to lower gross margins on the titles released in
the year ended December 31, 1999, as compared to the year ended December 31,
1998, and a write-off of development costs of approximately $1,100,000 relating
to three films which, although we continue to actively attempt to arrange for
their production, have not been set for production within the three-year
guideline provided in SFAS 53.
20
Selling, general and administrative expenses, net of amounts
capitalized to film costs, increased by $23,000 (0.8%) to $2,983,000 for the
year ended December 31, 1999, compared to $2,960,000 for the year ended December
31, 1998. We capitalize some of our overhead costs incurred in connection with
our acquisition of rights to a motion picture by adding the costs to the
capitalized film costs of the motion picture. The increase in selling, general
and administrative expenses, net of amounts capitalized to film costs, was
partially the result of fewer expenses being capitalized. We capitalized
expenses of $1,229,000 for the year ended December 31, 1998, compared to
$1,089,000 for the year ended December 31, 1999. Other increases included:
o accounting expenses of $22,000;
o bad debt expenses of $129,000;
o consulting fees of $63,000;
o contract labor of $28,000; and
o legal fees of $29,000.
These increases were partially offset by decreases in selling, general
and administrative expenses from the prior year, including decreases in:
o equipment leases of $15,000;
o directors and officers insurance premiums of $19,000;
o the officer life insurance premiums of $27,000;
o employee benefits of $77,000;
o expenses related to our being a publicly traded company of
$20,000;
o publicity expenses of $47,000;
o reader and research expenses of $25,000;
o compensation costs of $102,000; and
o telephone and fax costs of $42,000.
Other expense increased by $404,000 (26.9%) to $1,902,000 for the year
ended December 31, 1999, compared to $1,498,000 for the year ended December 31,
1998. This increase was primarily due to decreased capitalized interest costs of
$136,000 for the year ended December 31, 1999, compared to $650,000 for the year
ended December 31, 1998. Interest costs and fees, before capitalization,
decreased by $139,000 to $2,155,000 for the year ended December 31, 1999,
compared to $2,294,000 for the year ended December 31, 1998, primarily as the
result of lower outstanding balances on various notes and loans payable to banks
and to two of our principal stockholders, Robert B. Little and Ellen Dinerman
Little (together, the "Littles").
As a result of the above, we had a loss before income tax benefit of
$1,989,000 for the year ended December 31, 1999, compared to income before
income taxes of $112,000 for the year ended December 31, 1998.
We recorded an income tax benefit of $736,000 for the year ended
December 31, 1999, reflecting a 37.0% effective tax rate, compared to a tax
provision of $53,000 for the year ended December 31, 1998.
21
As a result of the above, we had a net loss of $1,253,000 for the year
ended December 31, 1999, compared to net income of $59,000 for the year ended
December 31, 1998.
Liquidity and Capital Resources
We require substantial capital for the acquisition of film rights, the
funding of distribution costs and expenses, the payment of ongoing overhead
costs and the repayment of debt. The principal sources of funds for our
operations has been cash flow from operations, bank borrowings and equity
financings.
June 2000 Private Placement
In June 2000, we consummated a private placement with Rosemary Street,
in which we sold to Rosemary Street for an aggregate cash purchase price of
$17,000,000:
o 5,097,413 shares of our common stock;
o 904,971 shares of our Series A preferred stock, each share of
which is convertible into two shares of common stock and votes
with the common stock on an as-converted basis; and
o five-year warrants to purchase up to 2,313,810 shares of our
common stock at an exercise price of $3.40 per share.
As of June 30, 2001, Rosemary Street owned approximately 59.2% of our
voting securities.
Chase Facility
Concurrently with the consummation of the June 2000 private placement
with Rosemary Street, we entered into a $40 million credit facility (of which
$40 million has been committed) with Chase and other commercial banks and
financial institutions. A portion of the proceeds from this new credit facility
was used to refinance outstanding loans and accrued interest under our previous
credit facility with Coutts & Co. and Bankgesellschaft Berlin A.G. The remaining
proceeds will be available to finance our production, acquisition, distribution
and exploitation of feature length motion pictures, television programming,
video product and rights and for working capital and general corporate purposes
including our expansion into television commercial production.
Under the Chase facility, we borrow funds through loans evidenced by
promissory notes. The loans are made available through a revolving line of
credit which may be reduced, partially or in whole, at any time and is to be
fully paid on June 20, 2005. The Chase facility also provides for letters of
credit to be issued from time to time upon our request. At June 30, 2001, we had
borrowed an aggregate of $11,000,000 under the Chase facility.
The amounts drawn down under the Chase facility bear interest, as we
may select, at rates based on either LIBOR plus 2% or a rate per annum equal to
the greater of (a) the Prime Rate plus 1%, (b) the Base CD Rate plus 2% and (c)
the Federal Funds Effective Rate plus 1.5% (as these terms are defined in the
credit agreement). In addition to an annual management fee of $125,000, we pay a
22
commitment fee on the daily average unused portion of the Chase facility at an
annual rate of 0.5%. Upon entering the Chase facility, we paid a one-time fee of
approximately $890,000 as a cost of acquiring the Chase facility. The Chase
facility also restricts the creation or incurrence of indebtedness or the
issuance of additional securities. The Chase facility is collateralized by all
our tangible and intangible assets and future revenues.
In May 2001, we entered into an amendment to the Chase facility,
pursuant to which the requisite lenders agreed, effective as of the date of the
amendment, to:
o permit us to obtain financing for one film from another
lender;
o increase our overhead allowance from $5 million to $7.25
million; and
o reduce the minimum level of Consolidated Net Worth (as defined
in the credit agreement) that we are required to maintain from
$28 million to $22 million.
Other Loans
In addition to the amounts outstanding under the Chase facility, during
1998 we borrowed $2,000,000 from another lender, the proceeds of such loan were
used to acquire rights to a particular film. This subordinated note bears
interest at the Prime Rate plus 1.5% and is collateralized by amounts due under
distribution agreements from the specific film. The subordinated note matures on
May 29, 2002. As of June 30, 2001, $450,000 was outstanding under the
subordinated note.
Note and Debt Contributions
Concurrently with the June 2000 private placement, we entered into a
note and debt contribution agreement with the Littles. Pursuant to the
agreement, the Littles forgave:
o $1,339,037 principal amount and $480,709 of accrued but unpaid
interest on a note issued by us to the Littles as part of the
consideration for our merger with Overseas Private;
o $78,101 of accrued and unpaid interest on loans in the
aggregate principal amount of $400,000 ("P&A Loans") made by
the Littles to us in December 1997 and February 1998, which
were used to provide a portion of the funds required by us for
the print and advertising costs associated with the domestic
theatrical release of Mrs. Dalloway; and
o $125,131 of accrued salaries that we owed to them.
The Littles also contributed $130,000 in cash and 1,588,812 of their
shares of our common stock to our capital and we paid the Littles:
o $135,476 for various reimbursable expenses as provided in
their employment agreements with us;
o $130,000 of the remaining principal balance on the note issued
in connection with our merger with Overseas Private;
23
o $400,000 representing the aggregate principal amount owed by
us to the Littles under the P&A Loans;
o $564,524 of accrued salaries; and
o $200,000 representing the amount owed by us to the Littles
under a tax reimbursement agreement between us and the Littles
entered into in connection with our merger with Overseas
Private.
Yahoo! Inc. Stock Sale
In July and September 2000, we sold for approximately $2,056,000 all
17,454 shares of common stock of Yahoo! Inc. that we received in July 1999 as
part of a share-for-share exchange with broadcast.com, which was subsequently
acquired by Yahoo! Inc.
Resources
At June 30, 2001, we had cash and cash equivalents of $839,000,
compared to cash and cash equivalents of $832,000 as of December 31, 2000. At
June 30, 2001, $5,372,000 was available for us to draw down under the Chase
facility.
We believe that our existing capital, funds from the Chase facility,
funds from our operations and other available sources of capital will be
sufficient to fund our operations for at least the next twelve months.
Qualitative and Quantitative Disclosures About Market Risk
We are exposed to market risk related to changes in interest rates. We
do not use derivative financial instruments. Because only a small portion of our
revenues are denominated in foreign currency, we do not believe there is a
significant risk imposed on us due to the fluctuations in foreign currency
exchange rates. The table below provides information about our debt obligations
as of June 30, 2001, including principal cash flows and related weighted average
interest rates by expected maturity dates:
Expected Maturity Date
----------------------
(in thousands)
2001 2002 2003 2004 2005 Thereafter
---- ---- ---- ---- ---- ----------
Liabilities
Variable Rate:
Chase Credit Facility $11,000
Average Interest Rate 5.8% 5.8% 5.8% 5.8% 5.8%
Subordinated Note Payable $450
Average Interest Rate 8.25%
24
Certain Pro Forma Effects of the Exchange Offer
The following table presents (i) our historical basic and diluted
per-share earnings for the year ended December 31, 2000, and the six months
ended June 30, 2001, (ii) the historical per-share book value as of December 31,
2000, and June 30, 2001, and (iii) the pro forma effect of the issuance of
shares of common stock pursuant to the exchange offer, assuming 100% of the
outstanding warrants are exchanged. All historical per-share information has
been calculated on the basis of 8,131,313 shares and 9,803,906 shares of common
stock outstanding, and all pro forma per-share information has been calculated
on the basis of 8,452,742 shares and 10,125,335 shares of common stock
outstanding at each of, and during the periods ended, December 31, 2000, and
June 30, 2001, respectively.
Earnings Per Share
Year Ended Six Months Ended
December 31, 2000 June 30, 2001
----------------- ----------------
Historical............................... $(2.52) $(0.06)
Pro forma................................ $(2.42) $(0.05)
Book Value Per Share
Year Ended Six Months Ended
December 31, 2000 June 30, 2001
---- --------
Historical............................... $1.02 $0.95
Pro forma................................ $0.99 $0.96
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Price Range of Our Common Stock and Warrants
Our common stock and warrants have been quoted on the OTC Bulletin
Board under the symbols "FRST" and "FRSTW," respectively. Prior to that date,
our common stock and warrants were quoted on the OTC Bulletin Board under the
symbols "OSFG" and "OSFGW," respectively. The following table sets forth the
high and low closing bid quotations for the periods indicated. The quotations
represent prices between dealers and do not include retail markups or markdowns
or commissions. They may not necessarily represent actual transactions.
Common Stock Warrants
------------ --------
High($) Low($) High($) Low($)
---- --- ---- ---
1999
First quarter...................... 3-1/8 2-1/16 1/2 1/4
Second quarter..................... 2-15/16 2-11/16 1/4 3/16
Third quarter...................... 3-3/8 2-1/4 9/16 1/8
Fourth quarter..................... 2-3/4 2-1/4 5/16 1/8
2000
First quarter...................... 2-7/8 2-1/4 1/4 1/8
Second quarter .................... 2-1/2 2 1/8 1/16
Third quarter...................... 2-1/8 1-3/4 1/8 1/16
Fourth quarter..................... 1-7/8 1-1/2 1/8 1/8
2001
First quarter...................... 1-3/16 3/4 3/64 1/32
Second quarter..................... 26/32 1/2 3/64 1/64
Third quarter...................... 1.01 0.40 0.10 0.01
Fourth Quarter*.................... 1.01 0.40 0.05 0.035
* Through October 31, 2001.
As of October 31, 2001, there were approximately 29 holders of record
of our common stock and there were 11,613,848 shares of our common stock issued
and outstanding. We believe that there are more than 250 beneficial owners of
our common stock. As of October 31, 2001, there were approximately 12 holders of
record of our warrants and there were 4,500,000 warrants issued and outstanding.
We believe there are more than 250 beneficial holders of our warrants.
On October 26, 2001, the last date for which a trade in our common
stock was reported, the last reported sale price of our common stock as reported
on the OTC Bulletin Board was $0.40. On October 19, 2001, the last date for
which a trade in our warrants was reported, the last reported sale price of our
warrants was $0.035.
26
Background of the Exchange Offer
Purpose of the exchange offer
The exchange offer is intended to retire any and all of our public
warrants through the issuance of common stock. This would allow us to:
o simplify our capital structure;
o reduce the potential future dilutive impact on our earnings
per share that could be caused by the warrants; and
o diminish or eliminate any overhang on the common stock price
from the existence of the warrants.
We reserve the right not to proceed with the exchange offer. See "The
Exchange Offer - Conditions of the Exchange Offer."
In the absence of the exchange offer, 4,500,000 shares of common stock
would be issued in exchange for the warrants if all of the currently outstanding
warrants were exercised, resulting in an aggregate of 16,113,848 shares of
common stock outstanding, and we would receive the proceeds of such exercises.
Assuming 100% participation in the exchange offer, approximately 321,429 shares
of common stock would be issued, resulting in an aggregate of 11,935,277 shares
of common stock outstanding, and all of the warrants would be extinguished. The
exchange offer will have no effect on total stockholders' equity (other than
transaction costs).
Interests of certain persons in the exchange offer
We have agreed to reimburse certain brokers for their expenses incurred
in connection with the exchange offer. See "The Exchange Offer - Reimbursement
of Expenses."
Effects of exchange offer on you, if you participate
If you participate in the exchange offer, you will:
o receive whole shares of common stock for your warrants in
accordance with the .0714 of a share to one exchange ratio
(fractional shares to be rounded up to the nearest whole share
based upon the aggregate number of warrants tendered by the
holder or its agent in the exchange offer), without having to
make any exercise payments;
o be able to vote the common stock received in the exchange
offer on all matters that may come before the holders of our
common stock;
o be able to receive dividends on such common stock, if any,
when declared and paid by us; and
o participate as a holder of common stock in proceeds from any
liquidation of our company after creditors and preferred
security holders, if any, are paid.
27
However, if you participate in the exchange offer, you will lose the
right to purchase, at any time until February 16, 2002, a share of common stock
for $5.00 for each warrant held.
Effects of the exchange offer on you, if you do not participate
If you do not participate in the exchange offer, you will retain the
right to purchase, at any time until February 16, 2002, one share of common
stock for $5.00 for each warrant held, subject to our right to redeem the
warrants under certain circumstances. However, you should note, that if the
exchange offer is consummated, we intend to delist the warrants from trading on
the OTC Bulletin Board and to deregister the warrants pursuant to the Exchange
Act. In such event, the trading market for, and the liquidity of an investment
in, the warrants remaining outstanding would be significantly reduced. You will
not have any appraisal or dissenters' rights under Delaware law.
The Exchange Offer
Terms of the exchange offer
We are offering to exchange .0714 of a share of common stock for every
outstanding warrant tendered and accepted by us for exchange. No fractional
shares of common stock will be issued as a result of the exchange offer.
Fractional shares will be rounded up to the nearest whole share based upon the
aggregate number of warrants tendered by the holder or its agent in the exchange
offer. You will not have appraisal or dissenters' rights under Delaware Law in
connection with the exchange offer.
The exchange offer is made pursuant to the terms and subject to the
conditions set forth in this offering memorandum and the accompanying letter of
transmittal. This offering memorandum and the letter of transmittal are being
sent to all persons and entities that, as of October 31, 2001, were registered
holders of our outstanding warrants. Although there is no fixed record date for
determining registered holders of warrants entitled to participate in the
exchange offer, only a holder of warrants who is the registered holder thereof
(or such person's legal representative or attorney-in-fact) at the time of their
tender in the exchange offer or who is a person holding sale and transfer
documents with respect to such warrants from the registered holder thereof at
the time of such tender (which documents are satisfactory to us and our transfer
agent), may participate in the exchange offer.
Although we have no current plan or intention to do so, we reserve the
right in our sole discretion to purchase or make offers for any warrants that
remain outstanding after the expiration of the exchange offer, subject to the
requirements of Rule 13e-4(f)(6) of the Exchange Act. The terms of any such
purchases or offers could differ from the terms of the exchange offer.
You will not be required to pay brokerage commissions or fees or,
subject to the instructions in the letter of transmittal, transfer taxes with
respect to the exchange of warrants pursuant to the exchange offer. If, however,
shares of common stock issued pursuant to the exchange offer or substitute
certificates evidencing warrants not exchanged are to be delivered to, or are to
be issued in the name of, any person other than the registered warrant holder,
or if tendered warrants are recorded in the name of any person other than the
person signing the letter of transmittal, then the amount of any transfer taxes
28
(whether imposed on the registered warrant holder or any other person) will be
payable by the tendering warrant holder. See "- Payment of Expenses" below.
Expiration date; extension; termination; amendments
The exchange offer will expire at 5:00 p.m., New York City time, on
December 18, 2001, subject to extension by us, in which event the expiration
date shall be the time and date to which the exchange offer has been extended.
We will notify Continental Stock Transfer & Trust Company, the exchange agent
for the exchange offer, of any extension by oral or written notice, and will
make a public announcement thereof by press release, in each case prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled expiration date.
We reserve the right to:
o delay accepting any warrants for exchange or to extend or
terminate the exchange offer and not accept for exchange any
warrants if any of the events set forth below under the
caption "Conditions of the Exchange Offer" shall have occurred
and shall not have been waived by us, by giving oral or
written notice of such delay or termination to the exchange
agent; or
o amend the terms of the exchange offer in any manner, including
altering the exchange ratio or otherwise changing the
consideration offered in exchange for the warrants in the
exchange offer (provided that any such changed consideration
must be paid with regard to all warrants accepted in the
exchange offer).
If the exchange offer is amended in a manner determined by us to
constitute a material change, we will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of warrants of the amendment
and we, depending upon the significance of the amendment and the manner of
disclosure to the holders of the warrants, will extend if necessary the exchange
offer for a period of time in accordance with Rules 13e-4(d)(2) and 13e-4(e)(2)
under the Exchange Act. These rules have been interpreted by the SEC as
requiring that the minimum period during which the exchange offer must remain
open following an announcement of a material change in the terms of the exchange
offer or information concerning the exchange offer (other than a change in
price, a change in the amount of securities sought, or a change in certain fees)
will depend on the facts and circumstances, including the relative materiality
of such change or information.
If a material change in the exchange offer relates to a change in the
exchange ratio, Rule 13e-4(f)(1) requires the exchange offer to remain open for
a period of not less than ten business days following the announcement of any
such change if the exchange offer would otherwise expire within such ten
business-day period. For purposes of the exchange offer, "business day" means
any day other than a Saturday, Sunday or federal holiday and consists of the
time period from 12:01 a.m. through 12:00 midnight, New York City time. The
rights reserved by us in this paragraph are in addition to our rights set forth
below under the caption "Conditions of the Exchange Offer."
29
Procedure for tendering
Your acceptance of the exchange offer pursuant to the procedure set
forth below will constitute an agreement between you and us in accordance with
the terms and subject to the conditions set forth herein and in the letter of
transmittal.
To be tendered validly, the warrants, together with the properly
completed letter of transmittal (or facsimile thereof), executed by the
registered holder thereof, and any other documents required by the letter of
transmittal, must be received by the exchange agent at the address set forth
below prior to 5:00 p.m., New York City time, on the expiration date. In
addition, prior to such time the certificates for such warrants must be
delivered to the exchange agent along with the letter of transmittal.
Alternatively, if time does not permit a holder of warrants to provide
the exchange agent with a letter of transmittal or other required documents
prior to 5:00 p.m., New York City time, on the expiration date, or if
certificate(s) representing such holder's warrants are not available for
delivery, prior to such time, to the exchange agent, a warrant holder desiring
to tender his or her warrants must comply with the guaranteed delivery procedure
set forth below under "Guaranteed Delivery Procedure."
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the warrants tendered pursuant thereto
are tendered (i) by a registered holder of warrants who has not completed the
box entitled "Special Issuance and Delivery Instructions" on the letter of
transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a firm that is a member of a registered national securities exchange
or a member of the NASD, a commercial bank or trust company having an office or
correspondent in the United States or that is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively "Eligible Institution").
The method of delivery of warrants and other documents to the exchange
agent is at the election and risk of the holder, but if such delivery is by
mail, it is suggested that the mailing be made sufficiently in advance of the
expiration date to permit delivery to the exchange agent before the expiration
date.
If the letter of transmittal is signed by a person other than a
registered holder of any certificates representing warrants listed thereon, such
warrants must be endorsed or accompanied by appropriate stock powers or other
instruments of transfer satisfactory to us and our transfer agent, in each case
signed exactly as the name or names of the registered holder or holders appear
on such warrants.
If the letter of transmittal or the guaranteed delivery form or any
certificates representing warrants or any stock powers or other transfer
instruments are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by us, proper evidence satisfactory to us of their authority to so
act must be so submitted.
30
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered warrants will be resolved by us,
whose determination will be final and binding. We reserve the absolute right to
reject any or all tenders that are not in proper form or the acceptance of which
would, in the opinion of our counsel, be unlawful or violate the regulations of
any national securities exchange or the NASD. We also reserve the right to waive
any irregularities of tender as to particular warrants. Our interpretation of
the terms and conditions of the exchange offer (including the instructions in
the letter of transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured prior to the expiration
date. Neither us, the exchange agent, or any other person shall be under any
duty to give notification of any defects or irregularities in such tenders or
incur any liability for failure to give such notification. Tenders of warrants
will not be deemed to have been made until such irregularities have been cured
or waived. Any warrants received by the exchange agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the exchange agent to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
If your warrants are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender warrants
in the exchange offer, you should contact such registered warrant holder
promptly and instruct such registered warrant holder to tender on your behalf.
If you wish to tender directly, you must, prior to completing and executing the
letter of transmittal and tendering warrants, make appropriate arrangements to
register ownership of the warrants in your own name. You should be aware that
the transfer of registered ownership may take considerable time.
Guaranteed delivery procedure
If you desire to tender your warrants and certificate(s) representing
such warrants are not immediately available, or time will not permit your
certificate(s) or any other required documents to reach the exchange agent
before 5:00 p.m., New York City time, on the expiration date, a tender may be
effected if:
(a) The tender is made by or through an Eligible Institution;
(b) Prior to 5:00 p.m., New York City time, on the expiration date, the
exchange agent receives from such Eligible Institution a properly completed and
duly executed guaranteed delivery form (by facsimile transmission, mail or hand
delivery), setting forth your name and address and the number of warrants
tendered, stating that the tender is being made thereby and guaranteeing that,
within five business days after the expiration date, the certificate(s)
representing such warrants, accompanied by a properly completed and duly
executed letter of transmittal and all other documents required by the letter of
transmittal, will be deposited by the Eligible Institution with the exchange
agent; and
(c) The certificate(s) for all tendered warrants, as well as a properly
completed and duly executed letter of transmittal and all other documents
required by the letter of transmittal, are received by the exchange agent within
five business days after the expiration date.
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Conditions of the exchange offer
We will not be required to accept for exchange, or issue common stock
in exchange for, any warrants tendered. We may terminate or amend the exchange
offer as provided herein, or may postpone (subject to the requirements of the
Exchange Act for prompt exchange or return of the warrants) the acceptance for
exchange of, and exchange of, the warrants tendered, if, at any time on or after
the date of this offering memorandum and before acceptance for exchange or
exchange of any such warrants, any of the following conditions exist:
o any action or proceeding is instituted or threatened in any
court or by or before any governmental agency or regulatory
authority which challenges the making of the exchange offer or
which might materially impair our ability to proceed with or
consummate the exchange offer or have a material adverse
effect on the contemplated benefits of the exchange offer to
our company; or
o there shall have been proposed, adopted or enacted any law,
statute, rule or regulation which might materially impair our
ability to proceed with or consummate the exchange offer or
have a material adverse effect on the contemplated benefits of
the exchange offer to our company; or
o there shall have occurred:
o any general suspension of, shortening of hours for,
or limitation on prices for, trading in securities on
the OTC Bulletin Board (whether or not mandatory);
o a declaration of a banking moratorium or any
suspension of payments in respect of banks by federal
or state authorities in the United States (whether or
not mandatory);
o a commencement of a war, armed hostilities or other
international or national crisis directly or
indirectly involving the United States;
o any limitation (whether or not mandatory) by any
governmental authority on, or other event having a
reasonable likelihood of affecting, the extension of
credit by banks or other lending institutions in the
United States;
o in the case of any of the foregoing existing at the
time of the commencement of the exchange offer, a
material acceleration or worsening thereof; or
o any tender or exchange offer with respect to some or
all of the common stock or the warrants (other than
the exchange offer), or a merger, acquisition or
other business combination proposal involving our
company, shall have been proposed, announced or made
by any person or entity.
32
The foregoing conditions are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to such conditions or may be
waived by us in whole or in part at any time and from time to time. However, if
any of the foregoing conditions shall have occurred, we may:
o terminate the exchange offer and return tendered warrants to
the holders who tendered them;
o extend the exchange offer and retain all tendered warrants,
subject to Rule 13e-4(f)(2) of the Exchange Act (withdrawal
rights), until the expiration of the extended exchange offer;
or
o amend the exchange offer in any respect, including by waiving
such unsatisfied conditions and accepting all validly tendered
warrants that have not been withdrawn.
Acceptance of warrants for exchange; delivery of common stock
Upon the satisfaction or waiver of all of the conditions of the
exchange offer, we will accept all warrants properly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the expiration date. We will deliver
or cause the exchange agent to deliver shares of common stock issued pursuant to
the exchange offer promptly after the expiration date.
For purposes of the exchange offer, we shall be deemed to have accepted
validly tendered and not withdrawn warrants when, and if we have given oral or
written notice thereof to the exchange agent. The exchange agent will act as
agent for the tendering holders of warrants for the purposes of receiving the
common stock pursuant to the exchange offer from us. Under no circumstances will
interest be paid by us by reason of any delay in delivering such common stock.
If any tendered warrants are not accepted for exchange because of an
invalid tender, or due to the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted warrants will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration or termination of the exchange offer.
Withdrawal rights
If you have tendered warrants, you may withdraw the tender thereof, in
whole or in part, at any time prior to 5:00 p.m., New York City time, on the
expiration date, by delivery of a written notice of withdrawal to the exchange
agent.
To be effective, a written notice of withdrawal (sent by hand delivery,
overnight courier, mail or facsimile transmission) must:
o be timely received by the exchange agent at the address set
forth herein;
o specify the name of the person having tendered the warrants to
be withdrawn;
33
o indicate the certificate number or numbers of the warrants to
which the withdrawal relates;
o specify the number of warrants so withdrawn; and
o be (x) signed by the holder in the same manner as the original
signature on the letter of transmittal (including a guarantee
of signature, if required) or (y) accompanied by evidence
satisfactory to us that the holder withdrawing such tender has
succeeded to registered ownership of such warrants.
Withdrawals of tenders of warrants may not be rescinded, and any
warrants withdrawn will thereafter be deemed not validly tendered for purposes
of the exchange offer; provided, however, that withdrawn warrants may be
re-tendered by again following one of the tender procedures described herein at
any time prior to 5:00 p.m., New York City time, on the expiration date.
All questions as to the validity (including time of receipt) of notices
of withdrawal will be determined by us and our determination will be final and
binding. Neither us, the exchange agent, nor any other person will be under any
duty to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
Fractional shares
No fractional shares of common stock will be issued as a result of the
exchange offer. All fractional interests in a share of common stock that you
would be entitled to receive as a result of the exchange offer will be
aggregated and, if after such aggregation a fractional interest in a share of
common stock would result, such fractional interest will be rounded up to the
nearest whole share.
Transferability of shares of common stock received upon exchange
The issuance of shares of common stock upon exchange of the warrants
pursuant to the exchange offer are being issued pursuant to Section 3(a)(9) of
the Securities Act of 1933 and are, therefore, exempt from registration
thereunder. As such, the shares of common stock issued upon exchange of the
warrants will be freely tradable under federal law, provided that the person
receiving the shares of common stock issued upon exchange of the warrants is not
our affiliate. If the recipient of the shares of common stock is an affiliate of
our company, the shares of common stock may only be sold pursuant to an
effective registration statement under the Securities Act with respect to such
shares of common stock or an exemption from registration thereunder.
Accounting for the exchange offer
The exchange offer will be accounted for as a purchase of the warrants
into treasury followed by a cancellation of the warrants. As a result, there
will be no impact on total stockholders' equity other than the associated costs
of the exchange offer, which will result in a decrease of additional paid-in
capital. See "Payment of Expenses."
34
Exchange agent
Our transfer and warrant agent has been appointed as exchange agent for
the exchange offer. All correspondence in connection with tendering and
withdrawal procedures relating to the exchange offer and the letter of
transmittal should be addressed to the exchange agent, as follows:
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, New York 10004
Attention: Reorganization Department
Telephone: (212)-509-4000 (extension 535)
Facsimile: (212)-509-5150
Please note that all corresondence prior to November 19, 2001, should
be sent to the above at 2 Broadway, 19th Floor, New York, New York 10004.
Reimbursement of expenses
We have agreed to reimburse certain brokers for their expenses incurred
in connection with effecting the exchange. We will not be paying any
solicitation fees. We, however, will reimburse the exchange agent reasonable and
customary fees for its services and will reimburse the exchange agent for its
reasonable out-of-pocket expenses in connection therewith. We will reimburse
brokers, dealers and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this offering
memorandum and related documents to the beneficial owners of the warrants, and
in handling or forwarding tenders for their customers.
In general, the rules of the SEC prohibit any broker-dealer that is
participating in the distribution of securities for or on behalf of us from
making a market in the common stock or warrants during a "restricted period"
commencing up to five days prior to the date that this offering memorandum is
distributed to warrant holders and extending until completion of the exchange
offer.
Payment of expenses
The cash expenses to be incurred by us in connection with the exchange
offer are estimated in the aggregate to be approximately $225,000 and include
fees and expenses of the exchange agent, reimbursement of expenses of certain
brokers, printing and miscellaneous expenses and accounting and legal fees.
We will pay all transfer taxes, if any, applicable to the transfer of
warrants to it or its order pursuant to the exchange offer. If, however, shares
of common stock issued pursuant to the exchange offer or substitute certificates
evidencing warrants not exchanged are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the warrants tendered, or if tendered certificates representing warrants are
registered in the name of any person other than the person signing the letter of
transmittal, or if a transfer tax is imposed for any reason other than the
transfer and sale of warrants to us or our order pursuant to the exchange offer,
the amount of any such transfer taxes (whether imposed on the registered holder
35
or any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
Use of proceeds
We will not receive any cash proceeds from the issuance of the common
stock offered hereby.
36
Our Business
General
We specialize in the acquisition and direct distribution of, and
worldwide license and sale of distribution rights to, independently produced
feature films in a wide variety of genres. These genres include:
o action;
o art-house;
o comedy;
o drama;
o foreign language;
o science fiction; and
o thrillers.
We have accumulated a library of distribution rights, including sales agency
rights, in various media and markets to more than 250 feature films.
We operate in numerous capacities, including as:
o a distributor. We acquire the distribution rights to films for
specified terms, territories and media from independent
producers. In this capacity, we receive distribution fees. In
exchange for these distribution rights, we may commit to pay
the independent producer a minimum guaranteed payment ranging
from approximately $100,000 to $5,000,000 at or after delivery
of the completed film. These minimum guaranteed payments
represent varying portions of the films' production costs,
including, on occasion, substantially all of such costs. These
minimum guaranteed payments may enable the independent
producer to obtain financing for the production and/or
completion of the film. By providing these minimum guaranteed
payments, we are often able to secure more extensive
distribution rights on more favorable terms.
o a producer. We selectively produce motion pictures that we
distribute, generally acquiring fully developed projects ready
for pre-production and contracting out pre-production and
production activities. Additionally, we have established a
television commercial production division and expect to begin
producing commercials for domestic and international markets
in the second half of 2001.
Strategic objectives
We seek to become a more significant player in the entertainment
industry, while at the same time managing our risk and cash flow so as to be
able to effectively respond to continuing changes in the entertainment industry.
Our strategy to achieve our objectives includes:
Creating a television commercial production division. We have
established a television commercial production division called "First Look
Artists." This division seeks to exploit the current trend in the industry of
37
utilizing talent not typically associated with advertising, such as high-profile
feature film directors. In this regard, we are assembling a roster of
accomplished feature filmmakers who we believe can successfully cross over to
the medium of television commercials. We also believe that we can attract proven
television commercial directors to our division's projects by offering them
access to potential film projects.
Creating a home entertainment division. We have launched a home
entertainment division called "First Look Home Entertainment." This division
directly distributes films on videocassette and DVD. Our premier release was
Quiet Days in Hollywood, starring Academy Award-winner Hilary Swank. We intend
to release 18 to 24 films into the home entertainment market during the next 12
months.
Creating an Internet entertainment division. We have established an
Internet entertainment division named "First Look Internet." We will utilize our
existing rights to content, relationships and expertise to create and offer
desirable entertainment through the Internet.
Utilizing our recently obtained financial resources to expand our
domestic theatrical distribution activities. We believe there is great
opportunity in the U.S. theatrical distribution market. Though we have had
domestic success with films such as John Sayles' The Secret of Roan Inish and
the Academy Award-winning Antonia's Line, limited financial resources kept us
from becoming a more active player in this area. We intend to utilize our
expanded financial resources, including our Chase facility, to become
increasingly more active in this market. We are currently identifying product
and have hired the appropriate staff to supplement our domestic theatrical
distribution operations.
Capitalizing our reputation and relationships with foreign sources. We
believe that we enjoy a prominent position in the international independent film
marketplace. We intend to capitalize on our reputation and relationships to
exploit opportunities in the areas of production and acquisition financing,
especially through private equity and international sources. These efforts will
enable us to access increasingly higher profile films with commercial potential.
Reducing our risk by limiting our direct investment in acquisition
costs and film production. As part of this strategy, we:
o act as distributor or license distribution rights for films
that are produced with funds provided by other parties and not
by us; and
o act on behalf of producers to locate and arrange equity
sources, co-production and co-financing sources, pre-sales,
gap financing and other resources for the production of motion
pictures in exchange for sales and distribution rights to the
films and negotiated fees.
Acquiring films that we believe are likely to merit theatrical release
or are suitable for initial release on pay and basic television. As part of this
strategy, we:
o acquire films that have recognizable casts, directors and
producers and which embody greater production values, which we
believe enhances their audience appeal in the competitive
38
theatrical market. We attempt to accomplish this by offering
more incentives to talent than is offered by major studios,
such as greater creative and financial opportunity tied to
film performance;
o acquire films that are oriented to basic and pay television
programming needs, such as films with lower budgets or which
target specific genres, such as action films; and
o develop relationships with major studios and seek to expand
our executive producing role in connection with motion
pictures that other companies produce and distribute.
The Motion Picture Industry
Generally
The motion picture industry consists of two principal activities:
o production, which encompasses the creation, development and
financing of motion pictures; and
o distribution, which involves the promotion and exploitation of
feature-length motion pictures in a variety of media,
including theatrical exhibition, home video, television and
other ancillary markets, both domestically and
internationally.
The United States motion picture industry is dominated by the major
studios, including The Walt Disney Company, Paramount Pictures Corporation,
Warner Brothers Inc., Universal Pictures, Twentieth Century Fox, Sony Pictures
Entertainment, and MGM/UA. The major studios, which historically have produced
and distributed the vast majority of high-grossing theatrical motion pictures
released annually in the United States, are typically large, diversified
corporations that have strong relationships with creative talent, television
broadcasters and channels, Internet service providers, movie theater owners and
others involved in the entertainment industry. The major studios also typically
have extensive national or worldwide distribution organizations and own
extensive motion picture libraries.
Motion picture libraries, consisting of motion picture copyrights and
distribution rights owned or controlled by a film company, can be valuable
assets capable of generating revenues from worldwide commercial exploitation in
existing media and markets, and potentially in future media and markets
resulting from new technologies and applications. The major studios also may own
or be affiliated with companies that own other entertainment related assets such
as music and merchandising operations and theme parks. The major studios' motion
picture libraries and other entertainment assets may provide a stable source of
earnings which can offset the variations in the financial performance of their
new motion picture releases and other aspects of their motion picture
operations.
During the past 15 years, independent production and distribution
companies, many with financial and other ties to the major studios, have played
an important role in the production and distribution of motion pictures for the
worldwide feature film market. These companies include:
39
o Miramax Films Corporation, now affiliated with The Walt Disney
Company, which produced Scary Movie, the Scream film series,
Shakespeare in Love and Chocolat;
o New Line Cinema Corporation/Fine Line Features, now affiliated
with Time Warner Entertainment Company, L.P., which produced
the Austin Powers films, The Mask, Teenage Mutant Ninja
Turtles and the Nightmare on Elm Street series;
o USA Films (formerly October Films), which produced Traffic,
Secrets & Lies and Breaking the Waves together with Gramercy
Pictures, which produced Dead Man Walking and Fargo, is part
of USA Films and USA Network;
o Orion Pictures, now affiliated with MGM/UA, which produced The
Silence of the Lambs and Hannibal;
o Artisan Entertainment Inc., which distributed The Blair Witch
Project; and
o Lion's Gate Films, which distributed American Psycho, Dogma,
Gods and Monsters and Affliction.
As a result of consolidation in the domestic motion picture industry, a
number of previously independent producers and distributors have been acquired
or are otherwise affiliated with major studios. However, there are also a large
number of other production and distribution companies that produce and
distribute motion pictures that have not been acquired or become affiliated with
the major studios. In contrast to the major studios, independent production and
distribution companies generally produce and distribute fewer motion pictures
and do not own production studios, national or worldwide distribution
organizations, associated businesses or extensive film libraries which can
generate gross revenues sufficient to offset overhead, service debt or generate
significant cash flow.
The motion picture industry is a world-wide industry. In addition to
the production and distribution of motion pictures in the United States, motion
picture distributors generate substantial revenues from the exploitation of
motion pictures internationally. In recent years, there has been a substantial
increase in the amount of filmed entertainment revenue generated by U.S. motion
picture distributors from foreign sources. From 1990 to 2000, international
revenues of motion picture distributors from filmed entertainment grew from
approximately $1.1 billion in 1990 to approximately $2.6 billion in 2000. This
growth has been due to a number of factors, including the general worldwide
acceptance of and demand for motion pictures produced in the United States, the
privatization of many foreign television industries, growth in the number of
foreign households with videocassette players and growth in the number of
foreign theater screens.
Many countries and territories, such as Australia, Canada, China,
France, Germany, Hong Kong, India, Italy, Russia, Japan, Spain, and the United
Kingdom have substantial indigenous film industries. As in the United States, in
a number of these countries the film industry, and in some cases, the
entertainment industry, in general, is dominated by a small number of companies
that maintain large and diversified production and distribution operations.
However, like in the United States, in most of these countries, there are also
smaller, independent, motion picture production and distribution companies.
40
Foreign distribution companies not only distribute motion pictures produced in
their countries or regions but also films licensed or sub-licensed from United
States production companies and distributors. In addition, film companies in
many foreign countries produce films not only for local distribution, but also
for export to other countries, including the United States. While some foreign
language films and foreign English-language films appeal to a wide U.S.
audience, most foreign language films distributed in the United States are
released on a limited basis because they draw a specialized audience for which
the appeal has decreased substantially in recent years.
Motion Picture Production
Motion picture production 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 by a writer and acquired by the producer. In the development phase,
the producer typically seeks production financing and tentative commitments from
a director, the principal cast members and other creative personnel. A proposed
production schedule and budget also are prepared during this phase.
Pre-production begins upon completing the screenplay and arranging financing
commitments. In this phase, the producer:
o engages creative personnel to the extent not previously
committed;
o finalizes the filming schedule and production budget; obtains
insurance and secures completion guaranties, if necessary;
establishes filming locations and secures any necessary studio
facilities and stages; and
o prepares for the start of actual filming.
Principal photography, which is the actual filming of the screenplay,
generally extends from eight to sixteen weeks for a film produced by a major
studio and for as little as four to eight weeks for low budget films and films
produced by independent production companies. The length of filming depends in
each case upon factors such as budget, location, weather and complications
inherent in the screenplay. Following completion of principal photography, the
film enters the post-production phase. During this phase, the motion picture is
edited, opticals, dialogue, music and any special effects are added, and voice,
effects and music sound tracks and pictures are synchronized. This results in
the production of a negative from which release prints of the motion picture are
made.
Production costs consist primarily of:
o acquiring or developing the screenplay;
o compensating creative and other production personnel;
o film studio and location rentals;
o equipment rentals;
o film stock and other costs incurred in principal photography;
and
o post-production costs, including the creation of special
effects and music.
Distribution expenses, which consist primarily of the costs of
advertising and preparing release prints, are not included in direct production
costs. The major studios generally fund production costs from cash flow
41
generated by motion pictures and related activities or, in some cases, from
unrelated businesses or through off-balance sheet methods. 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 overhead costs as
substantial as those incurred by the major studios by hiring creative and other
production personnel and retaining the other elements required for
pre-production, principal photography and post-production activities on a
picture-by-picture basis. As a result, these companies do not own sound stages
and related production facilities, and, accordingly, do not have the fixed
payroll, general administrative and other expenses resulting from ownership and
operation of a studio. Independent production companies also may finance their
production activities on a picture-by-picture basis. Sources of funds for
independent production companies include bank loans, pre-licensing of
distribution rights, foreign government subsidies, equity offerings and joint
ventures. Independent production companies generally attempt to obtain all or a
substantial portion of their financing of a motion picture prior to commencement
of principal photography, at which point substantial production costs begin to
be incurred and require payment.
As part of obtaining financing for its films, an independent production
company often is required by its lenders and distributors who advance production
funds to obtain a completion bond or production completion insurance from an
acceptable completion guarantor which names the lenders and applicable
distributors as beneficiaries. The guarantor assures the completion of the
particular motion picture on a certain date. If the motion picture cannot be
completed for the agreed upon budgeted cost, the completion guarantor is
obligated to pay the additional costs necessary to complete the picture by the
agreed upon delivery date. If the completion guarantor fails to timely complete
and deliver the motion picture on or before the agreed upon delivery date, the
completion guarantor is required to pay the lenders and distributor, if
applicable, an amount equal to the aggregate amount the lenders and distributor
have loaned or advanced to the independent producer.
In connection with the production and distribution of a motion picture,
major studios and independent production companies generally grant contractual
rights to actors, directors, screenwriters, owners of rights and other creative
and financial contributors to share in net revenues from a particular motion
picture. Except for the most sought-after talent, these third-party
participations are generally payable after all distribution fees, marketing
expenses, direct production costs and financing costs are recovered in full.
Major studios and independent film companies in the United States
typically incur obligations to pay residuals to various guilds and unions
including the Screen Actors Guild, the Directors Guild of America and the
Writers Guild of America. Residuals are payments required to be made on a
picture-by-picture basis by the motion picture producer to the various guilds
and unions arising from the exploitation of a motion picture in markets other
than the primary intended market. Residuals are calculated as a percentage of
the gross revenues derived from the exploitation of the picture in these
ancillary markets. The guilds and unions typically obtain a security interest in
all of the producer's rights in the motion picture being exploited to ensure
satisfaction of the residuals obligation. This security interest usually is
subordinate to the security interest of the lenders financing the production
cost of the motion picture and the completion bond company guaranteeing
completion of the motion picture. Under a producer's agreement with the guilds
and unions, the producer may transfer the obligation to pay the residuals to a
42
distributor if the distributor assumes the obligation to make the residual
payment. If the distributor does not assume those obligations, the producer is
obligated to pay those residuals.
Motion Picture Distribution
General
Motion picture distribution involves domestic and international
licensing of the picture for:
o theatrical exhibition;
o videocassettes, laser discs and digital video discs (DVD);
o presentation on television, including pay-per-view, basic and
premium cable, network, syndication or satellite;
o marketing of the other rights in the picture and underlying
literary property, which may include books, merchandising and
soundtracks;
o non-theatrical exhibition, which includes airlines, hotels and
armed forces facilities; and
o exploitation via the Internet, which is still evolving.
Although releases by the major studios typically are licensed and fully
exploited in all of the foregoing media, films produced or distributed by
independent film companies are often not exploited in all of the media. For
example, some films may not receive theatrical exhibition in the United States
or various other territories and instead may be released directly on home video
or as a pay television premiere or otherwise exploited on a pay television
service. In limited circumstances, these films may then be released in theaters.
Production companies with distribution divisions typically distribute
their motion pictures themselves. Production companies without distribution
divisions may retain the services of sales agents or distributors to exploit the
motion pictures produced by them in selected or all media and territories.
Distribution companies may directly exploit distribution rights licensed to, or
otherwise acquired, by them by booking motion pictures with movie theaters or
selling videocassettes to video retailers. Alternatively, they may grant
sub-licenses to domestic or foreign sub-distributors to exploit completed motion
pictures in particular territories or media.
Acquisition of distribution rights
A sales agent does not generally acquire distribution rights from the
producer or other owner of rights in the motion picture. Instead, he acts as an
agent for the producer or rights owner, licensing the distribution rights to
distributors on behalf of the producer or rights owner in exchange for a sales
agency fee. This fee typically is computed as a percentage of gross revenues
from licenses obtained by the sales agent. A distributor generally licenses and
takes a grant of distribution rights from the producer or other rights owner of
the motion picture for a specified term in a particular territory or territories
and media, generally in exchange for a distribution fee calculated as a
percentage of gross revenues generated by the distribution of exploitation of
the motion picture. The distributor may agree to pay the producer of the motion
picture an advance or a minimum guarantee upon the delivery of the completed
43
motion picture. This amount is to be recouped by the distributor out of revenues
generated from the exploitation of the motion picture in particular media or
territories. After receiving its ongoing distribution fee and recouping the
advance or minimum guarantee plus its distribution costs, the distributor
generally pays the remainder of revenues in excess of an ongoing distribution
fee to the producer of the motion picture.
Obtaining license agreements with a distributor or distributors prior
to completion of a motion picture which provide for payment of a minimum
guarantee is often referred to as the pre-licensing or pre-selling of film
rights. This pre-selling may enable the producer to obtain financing for its
project by using the contractual commitment of the distributor to pay the
advance or minimum guarantee as collateral to borrow production funding. In the
past, pre-selling of film rights provided a means for financing film production.
However, the ability to pre-sell film rights in various territories and media,
the amount of pre-sales that can be obtained in certain territories and media
and thus, the percentage of a film's budget that can be covered with pre-sales,
fluctuates. In recent years, independent film companies generally have not been
able to pre-sell as great a percentage of a film's budget as they have in past
years.
The producer also may be able to acquire additional production funds
through gap financing. Although gap financing currently is being made available
by multiple lenders, certain banks have ceased providing this type of financing,
and many banks that provide gap financing are becoming more conservative in
their approach to these lending practices. As a result, there can be no
assurance that lenders will continue to make funds available on this basis. In
some circumstances, the distributor is entitled to recover any unrecouped costs
and advances from a film licensed to the distributor from the revenues from
another film or films also licensed to the distributor. This is commonly known
as cross collateralizing.
In addition to obtaining distribution rights in a motion picture for a
limited duration, a distributor also may acquire all or a portion of the
copyright in the motion picture or license certain distribution rights in
perpetuity. 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 pay a specified minimum guaranteed amount to a production company in exchange
for all rights to the film upon completion of production and delivery of the
film. The production company normally finances production of the motion picture
pursuant to financing arrangements with banks and other lenders in which the
lender receives an assignment of the production company's right to payment of
the minimum guarantee and is granted a security interest in the film and in the
production company's rights under its arrangement with the studio or independent
film company. When the major studio or independent film company picks up the
completed motion picture, it pays the minimum guarantee or assumes the
production financing indebtedness incurred by the production company in
connection with the film. In addition, the production company is paid a
production fee and generally is granted a participation in net revenues from
distribution of the motion picture.
The distribution cycle
Concurrently with their release in the United States, motion pictures
typically are released in Canada and also may be released in one or more other
international markets. Generally, a motion picture that is released theatrically
44
is available for distribution in other media during its initial distribution
cycle as follows:
Number of months following initial
Marketplace (Media) Domestic theatrical release
------------------- ----------------------------------
International theatrical --
Domestic home video and DVD (initial release) 4-6 months
Domestic pay-per-view 6-9 months
International home video and DVD (initial release) 6-12 months
Domestic pay television 12-15 months
International television (pay or free) 18-24 months
Domestic free television (network, barter syndication, 30-33 months
syndication and basic cable)
Films often remain in distribution for varying periods of time. For
example, major studio motion pictures that are released theatrically can play in
theaters for several weeks following their initial release or, at times,
including in the case of successful art-house films that are released on a
limited basis, for several months. On the other hand, unsuccessful films may
play in theaters for only a short period of time. Once released on
videocassette, a motion picture may remain available on videocassette for many
years. Similarly a motion picture can be licensed to various forms of television
for many years after its first release. The release periods set forth above
represent standard holdback periods. A holdback period represents a stipulated
period of time during which release of the motion picture in other media is
prevented to allow the motion picture to maximize its value in the media in
which it is currently being released. Holdback periods are often specifically
negotiated with various distributors on a media-by-media basis. However, the
periods set forth above represent our estimate of typical current holdback
periods in the motion picture industry.
In general, if a film is not released theatrically in the United States
and is instead first released on domestic home video, television exploitation
does not commence until four to eight months after the video release.
Thereafter, the same general release patterns indicated in the table above
typically apply. If a film premieres on United States pay television, the pay
television service is typically licensed for a four to six week exclusive airing
period. The license generally will provide for limited airings made up of five
to eight exhibition days with multiple airings permitted on each exhibition day.
The provisions of the license also usually provide for the pay television
service to receive subsequent airing periods following a period in which the
film can be released on video or sometimes even theatrically and a period during
which the film may be broadcast on free television.
A substantial portion of a film's ultimate revenues are generated in
its initial distribution cycle. The initial distribution cycle usually consists
of the first five years after the film's initial domestic release and includes
theatrical, video, and pay and free television. Commercially successful motion
pictures, however, may continue to generate revenues after the film's initial
distribution cycle from the re-licensing of distribution rights in certain media
and from the licensing of distribution rights with respect to new media and
technologies and in emerging markets. Although there has been a substantial
increase over the past fifteen years in the revenues generated from the
licensing of rights in ancillary media such as home video, DVD, cable and
pay-per-view, the theatrical success of a motion picture remains a significant
factor in generating revenues in foreign markets and in other media such as
45
video and television. For example, retail video stores currently purchase fewer
copies of videocassettes of motion pictures that have not been theatrically
released, and purchase more copies of major studio theatrical hits.
Theatrical
The theatrical distribution of a motion picture, whether in the United
States or internationally, involves the licensing and booking of the motion
picture to movie theaters, the promotion of the picture through advertising and
publicity campaigns and the manufacture of release prints from the film
negative. Expenditures on these activities, particularly on promotion and
advertising, are often substantial and may have a significant impact on the
ultimate success of the film's theatrical release. In addition, expenditures can
vary significantly depending upon a number of factors including:
o the markets and regions in which the film is distributed;
o the media used to promote the film such as newspaper,
television and radio;
o the number of screens on which the motion picture is to be
exhibited; and
o the ability to exhibit motion pictures during peak exhibition
seasons.
With a release by a major studio, the vast majority of these costs,
which primarily consist of advertising costs, are incurred prior to the first
weekend of the film's domestic theatrical release. Accordingly, there is not
necessarily a correlation between these costs and the film's ultimate box office
performance. In addition, the ability to distribute a picture during peak
exhibition seasons, including the summer months and the Christmas holidays, and
in the most popular theaters, may affect the theatrical success of a picture.
Films distributed theatrically by an independent film company are sometimes
released on a more limited basis which allows the distributor to defer marketing
costs until it is able to assess the initial public acceptance of the film.
While arrangements for the exhibition of a film vary greatly, there are
certain economic relationships generally applicable to theatrical distribution.
Theater owners retain a portion of the admissions paid at the box office,
typically referred to as gross box office receipts. The share of the gross box
office receipts retained by a theater owner generally includes a fixed amount
per week, in part to cover overhead, plus a percentage of receipts that usually
increases over time. Although these percentages vary widely, a theater owner's
share of a particular film's revenues will normally be approximately 60% to 65%
of gross box office receipts. The balance of the gross box office receipts,
referred to as gross film rentals, is paid to the distributor. The distributor
then retains a distribution fee, which is typically 30-35%, from the gross film
rentals. This percentage is used to recover the costs incurred in distributing
the film, which consist primarily of marketing and advertising costs and the
cost of release prints for exhibition. The balance of gross film rentals, after
deducting distribution fees and distribution costs recouped by the distributors,
is then applied against the recoupment of any advance paid for the distribution
rights plus interest and the balance is paid to the producer or other rights
owner of the film.
46
Home video
A motion picture released theatrically typically will become available
for videocassette distribution within four to six months after its initial
domestic theatrical release. Certain films are not initially released
theatrically but may instead be released directly to home video. Given the
increasing preference of retail video stores for successful theatrical releases,
it has become increasingly difficult to secure the initial release of a film
directly to home video, and the economic opportunity for the films where a home
video release is obtained has greatly diminished.
Home video distribution consists of the promotion and sale of
videocassettes to local, regional and national video retailers that rent or sell
videocassettes to consumers primarily for home viewing. Traditionally, films
initially were made available in videocassette form at a wholesale price of
approximately $50 to $75 per videocassette. The wholesalers would then resell
the videocassette to video rental stores at a price of approximately $75 to $105
per videocassette. Today, although a significant amount of video revenue is
generated on this basis, most video revenue is being generated on a "revenue
sharing" basis whereby video cassettes are sold at a very reduced price to video
rental stores, and a percentage of the rental revenue is then shared with the
owners or licensors of the films. Following the initial marketing period,
selected films may be remarketed at a wholesale price of $10 to $15 or less for
sale to consumers. These sell-through arrangements are used most often with
films that will appeal to a broad marketplace or to children. A few major
releases with broad appeal may be initially offered by a film company at a price
designed for sell-through rather than rental when it is believed that the
ownership demand by consumers will result in a sufficient level of sales to
justify the reduced margin on each cassette sold. Today, most home video
distribution contracts in international territories are arranged similarly to
those in domestic territories, although the wholesale prices may differ.
Television
Television rights for films initially released theatrically that have
broad appeal generally are licensed:
o first to pay-per-view for an exhibition period within six to
nine months following initial domestic theatrical release;
o then to pay television approximately 12 to 15 months after
initial domestic theatrical release;
o thereafter to basic cable broadcasters or in certain cases to
network television for an exhibition period; and
o then to syndication or "free" television.
Pay-per-view allows subscribers to pay for individual programs. Pay
television allows cable television subscribers to view such services as
HBO/Cinemax, Showtime/The Movie Channel, Encore Media Services or others offered
by their cable system operators for a monthly subscription fee. Pay-per-view and
pay television are now delivered not only by cable, but also by satellite
47
transmission, and films are usually licensed in both of these media. Films that
are not initially released in the domestic theatrical market may premiere
instead on pay television followed in some limited circumstances by theatrical
release. Groups of motion pictures often are packaged and licensed as a group
for exhibition on television over a period of time and, therefore, revenues from
these television licensing packages may be received over a period that extends
beyond the initial distribution cycle of a particular film. Motion pictures also
are licensed and packaged by producers and distributors for television broadcast
in international markets by government or privately owned television studios and
networks. Pay television is less developed outside the United States, but is
experiencing significant international growth. The prominent foreign pay
television services include Canal+, Premiere, STAR TV, British Sky Broadcasting
and the international operations of several U.S. cable services, including HBO,
the Disney Channel, Turner Broadcasting and DirecTV.
Non-theatrical and other rights
Films may be licensed for use by airlines, schools, public libraries,
community groups, the military, correctional facilities, ships at sea and
others. Music contained in a film may be licensed for sound recording, public
performance and sheet music publication. Rights in motion pictures may be
licensed to merchandisers for the manufacture of products such as toys,
T-shirts, posters and other merchandise. Rights also may be licensed to create
novels from a screenplay and to generate other related book publications, as
well as interactive games on platforms such as CD-ROM and CD-I.
Our Motion Picture Distribution
International distribution
Our management has considerable expertise in international
distribution. Robert B. Little, our co-chairman of the board and president, has
substantial experience in licensing motion pictures for distribution outside the
United States and has been active in international motion picture sales since
1975. Over the past 25 years, he has developed relationships with distributors
in most territories through his foreign sales activities. In addition, we are a
founding member of the American Film Marketing Association, which sponsors the
American Film Market. The American Film Market, along with the Cannes Film
Festival and MIFED, are the major annual international film markets that are
attended by distributors worldwide. We participate annually with a sales office
at all three major film markets, as well as three major television and two major
video markets. We also attend many film festivals throughout the world including
Sundance, the Toronto Film Festival and others. From time to time, we also may
engage independent representatives to assist us in acquiring and licensing
motion picture rights.
We license distribution rights internationally in various media such as
theatrical, video, pay television, free television, satellite and other rights
to foreign sub-distributors on either an individual rights basis or grouped in
combinations of rights. We license these rights to sub-distributors in
international territories either on a picture-by-picture basis or occasionally
pursuant to output arrangements. Currently, our most important international
territories are Australia, the Benelux countries, Canada, France, Germany,
Italy, Japan, Scandinavia, Spain and the United Kingdom.
48
The terms of our license agreements with foreign sub-distributors vary
depending upon the territory and media involved and whether the agreement
relates to a single or multiple motion pictures. Most of our license agreements
provide that we will receive a minimum guarantee from the foreign
sub-distributor with all or a majority of the minimum guarantee paid prior to,
or upon delivery of, the film to the sub-distributor for release in the
particular territory. The remainder of any unpaid minimum guarantee generally is
payable at specified intervals after delivery of the film to the
sub-distributor. The minimum guarantee is recovered by the sub-distributor out
of the revenues generated from exploitation of the picture in the territory. The
foreign sub-distributor retains a negotiated distribution fee, generally
measured as a percentage of the gross revenues generated from its distribution
of the motion picture, recovers its distribution expenses and the minimum
guarantee and ultimately pays us the remainder of any receipts in excess of the
distributor's ongoing distribution fee. We must rely on the foreign
sub-distributor's ability to successfully exploit the film in order to receive
any proceeds in excess of the minimum guarantee.
We occasionally do not receive a minimum guarantee from the foreign
sub-distributor and instead negotiate terms that usually result in an allocation
of gross revenues between the sub-distributor and us. Typically, the terms of
these types of arrangements provide for the sub-distributor to retain an ongoing
distribution fee, calculated as a percentage of the sub-distributor's gross
receipts in the territory, recover its expenses and pay remaining receipts in
excess of the ongoing distribution fee to us. Alternatively, often with respect
to video rights, the terms may provide for a royalty to be paid to us calculated
as a percentage of the sub-distributor's gross receipts from exploitation of the
video rights without deduction for the sub-distributor's distribution expenses.
At times, we enter into output arrangements with local foreign
distributors whereby the foreign sub-distributor receives the right, typically
for a specified period and number of motion pictures, to distribute motion
pictures that we have released in a particular territory and designated media.
In some circumstances, the foreign sub-distributor pays us a minimum guarantee
on a picture-by-picture basis with each minimum guarantee having been either
pre-negotiated or computed as a stipulated percentage of the production or
acquisition cost of each picture.
Domestic distribution
In addition to obtaining foreign distribution rights, we have been
active in acquiring domestic distribution rights. We exploit our domestic
distribution rights in a variety of ways. In 1993, we established First Look
Pictures, our domestic theatrical releasing operation, and in 1999 we began
releasing films directly on video under First Look Home Entertainment. Some of
the films we license or distribute receive domestic theatrical release by First
Look Pictures or video release by First Look Home Entertainment. We may license
films initially to cable and satellite companies for premiere on pay television.
We license some films to domestic television broadcasters for release initially
on television. We also license to third party distributors, such as Fox
Searchlight, who may release theatrically and distribute the films in other
media as well.
We occasionally license domestic video rights to a film to
sub-distributors, including Blockbuster, Inc. and USA Films. In addition, we
49
have created First Look Home Entertainment, which has released 15 films on video
in 2000, six films during the six months ended June 30, 2001, and expects to
release an additional 12 films before the end of 2001.
We license distribution rights directly to pay television services
including HBO, Showtime and Encore, as well as smaller services, pay-per-view
services and basic cable services, including USA, Lifetime, Bravo and the
Independent Film Channel. Although we have not engaged in significant licensing
or syndication of domestic free television rights except as part of a license of
rights in multiple media, we control these rights to a significant portion of
the films in our library and have licensed these rights in certain films to
third parties.
In some cases, we will license the right to distribute a film
domestically in multiple media to a major studio, a division of a major studio
or an independent distributor. Although the terms of these licenses vary, we
typically will be paid a minimum guarantee. The sub-distributor then retains a
distribution fee, measured as a percentage of the gross receipts received by the
sub-distributor from exploitation of the film, recovers its distribution costs
and the advance paid to us, and ultimately pays us the remainder of any receipts
in excess of an ongoing distribution fee.
We do not always receive a minimum guarantee from the licensing of
distribution rights to foreign and domestic sub-distributors. This has caused us
to rely more heavily on the actual financial performance of the film being
distributed. In some circumstances, whether we receive a minimum guarantee
depends upon the media. For example, in the case of motion pictures that have
not been theatrically released, we are increasingly entering into video
distribution arrangements with sub-distributors where no minimum guarantee is
paid to us or where the minimum guarantee paid to us is significantly less than
those paid to us for similar films in the past. In addition, even if we do
obtain minimum guarantees from our sub-distributors, the minimum guarantees do
not assure the profitability of our motion pictures or our operations.
Additional revenues may be necessary from distribution of a motion picture to
enable us to recover any investment in the motion picture in excess of the
aggregate minimum guarantees obtained from sub-distributors, pay for
distribution costs, pay for ongoing acquisition and development of other motion
pictures by us and cover general overhead. While the pre-licensing of
distribution rights to sub-distributors in exchange for minimum guarantees may
reduce some of our risk from unsuccessful films, it also may result in us
receiving lower revenues with respect to highly successful films.
First Look Pictures
Some of the motion pictures for which we control domestic rights are
directly distributed to theaters throughout the United States through First Look
Pictures. During 2000, First Look Pictures released three films (The
Opportunists, Ratcatcher, and Me and Isaac Newton) and broadened the release of
one film initially released in December 1999 (A Map of the World). During the
six months ended June 30, 2001, we released two films (A Question of Faith and
Chopper). Although some of First Look Pictures' future releases may appeal to a
wide audience, many of our releases to date have been foreign language and
art-house films intended to appeal primarily to sophisticated audiences.
We believe that we can benefit in several ways by theatrically
distributing films in the United States directly through First Look Pictures.
The domestic theatrical success of a motion picture can be a significant factor
in generating revenues from its distribution in ancillary media and foreign
50
markets. For example, retail video stores purchase few copies of videocassettes
of motion pictures that have not been theatrically released. In addition, we
believe we are generally able to obtain more favorable distribution terms in our
agreements with foreign and domestic sub-distributors in other media with
respect to motion pictures that have been theatrically released in the United
States. We also believe that, in some cases, First Look Pictures' operations
enable us to achieve domestic theatrical release for films that might not
otherwise be released in U.S. theaters. In addition, we believe that our ability
to release a film theatrically in the U.S. enables us to attract more
recognizable talent, higher profile producers and more promising motion picture
projects for both domestic and foreign distribution and that by theatrically
releasing films ourselves in the United States, we can retain a significantly
greater share of the revenue from domestic media in the event of a highly
successful theatrical release.
Films distributed theatrically in the United States by First Look
Pictures typically have been released on a limited basis to initially less than
100 screens and in selected cities, expanding to new cities or regions based
upon the performance of the film. Some films that are released in new cities as
prints become available from cities where the engagement has closed, reducing
the number of prints needed and the aggregate cost of the prints. We may release
appropriate films with more mass market appeal on a wide release basis either
through First Look Pictures or, more likely, by licensing the film to a domestic
distributor with more significant financial and distribution resources.
The cost to First Look Pictures to distribute a specialized motion
picture or art-house film on a limited-release basis has typically ranged from
approximately $100,000 to $2,000,000. Expenditures for prints, marketing and
advertising represent a substantial portion of the costs of releasing a film. In
connection with the acquisition of domestic theatrical rights to a film, we
occasionally commit to spend no less than a specified minimum amount for prints
and advertising costs. These costs are in addition to the direct production or
acquisition costs and other distribution expenses of the films.
Generally, in addition to receiving a distribution fee, we are entitled
to recover our print and advertising expenditures. Although First Look Pictures
may at times utilize standard broadcast television advertising, First Look
Pictures typically supports its limited releases with local newspaper and, in
certain instances, some cable television advertising. First Look Pictures also
relies on local and national publicity, such as reviews or articles in local and
national publications and appearances of a film's principal artists on radio and
television talk shows. In contrast, distributors of national, wide release films
rely primarily on national advertising campaigns, including substantial
television advertising, to attract theatergoers.
The success of a domestic theatrical release by First Look Pictures can
be affected by a number of factors outside our control. These factors include:
o audience and critical acceptance;
o the availability of motion picture screens;
o the success of competing films in release;
o awards won by First Look Pictures' releases or that of its
competition;
51
o inclement weather; and
o competing televised events such as sporting and news events.
As a result of the foregoing, and depending upon audience acceptance of
the films distributed through First Look Pictures, we expect that in some cases
we may not recover all of our distribution expenses or derive any profit solely
from domestic theatrical distribution revenue of First Look Pictures' releases.
In addition, we cannot assure you that total revenues from any First Look
Pictures' release, including revenues derived from the film in ancillary media
and international markets, will be sufficient to allow us to recover all of our
costs or to realize a profit.
During 2000, First Look Pictures released the following four motion
pictures:
Title Major Creative Elements Storyline Release Date
------------------------ --------------------------------- ----------------------------- -----------------------------
A Map of the World Producers: Kathleen Kennedy A journey to discover the December 1999 for a one
and Frank Marshall (The Sixth meaning of friendship, the week Oscar qualifying run
Sense, The Color Purple, E.T.) strength of family and the and then re-released in
Director: Scott Elliott power of forgiveness January 2000
Cast: Sigourney Weaver (the
Alien Series, Gorillas in The
Mist, Working Girl), Julianne
Moore (Hannibal, The End of The
Affair, Boogie Nights), Chloe
Sevigny, (Boys Don't Cry, The
Last Days of Disco)
The Opportunists Executive Producer: Jonathan An ex-con is having a hard Summer 2000
Demme (Philadelphia, That Thing time making ends meet and
You Do) an alleged long-lost Irish
Director: Myles Connell cousin convinces him to go
Cast: Christopher Walken along on one more heist
(The Deer Hunter, Pulp
Fiction), Peter McDonald
(Felicia's Journey), Cyndi
Lauper (Mrs. Parker and the
Vicious Circle)
Ratcatcher Executive Producer: Andrea Portrait of an impoverished October 2000
Calderwood Glasgow community in the
Director: Lynne Ramsay, Jr. 1970s through the eyes of a
Cast: William Eadie, Tommy 12-year old boy
Flanagan, Mandy Matthews
Me and Isaac Newton Executive Producer: Michael A documentary in which November 2000
Apted, Jody Patton seven scientists explain
Director: Michael Apted their work and the roles
Cast: Gertrude Ellon, Ashok that creativity and
Gadgil, Michio Kaku invention play in their
research
52
The following titles were released during the first half of 2001:
Title Major Creative Elements Storyline Release Date
------------------------ --------------------------------- ----------------------------- -----------------------------
Chopper Executive Producer: Al Clark Standover man, underworld April 2001
Director: Andrew Dominik executioner and inventive
Cast: Eric Bana raconteur, Mark `Chopper'
Read is Australia's most
infamous criminal
and best-selling
author. This is
the story.
A Question of Faith Executive Producer: Edward R. In the heart of California wine May 2001
Pressman country lies a monastery where
Director: Tim Disney centuries-old traditions of
Cast: Martha Hackett, Bernard Hill ritual, discipline and solitude
create a timeless serenity-until
one dazzling moment changes
everything.
Bread and Tulips Producer: Daniele Maggioni Rosalba, a bored housewife, is July 2001
Director: Silvio Soldini left behind at a rest stop during
Cast: Licia Maglietta, Bruno Ganz, annual holiday. She tries to
Giuseppe Battiston hitchhike home but finds love in
Venice and stays with it
Lisa Picard is Famous Producer: Mira Sorvino, Dolly Hall A filmmaker searching for a August 2001
Director: Griffin Dunne subject and an actor seeking fame
Cast: Griffen Dunne, Laura Kirk, cross paths in a whimsical look
Nat De Wolf, Daniel London at the consequences of blind
ambition.
We cannot assure that the motion pictures scheduled for release by
First Look Pictures in 2001 or any motion pictures thereafter will actually be
released or released in accordance with its anticipated schedule. The motion
picture business is subject to numerous uncertainties, including financing
requirements, personnel availability and the release schedule of competing
films.
Our Acquisition of Rights, Production and Financing
We acquire sales and distribution rights from a wide variety of
independent production companies and producers. We generally acquire these
rights to single films, as compared to acquiring films pursuant to multi-picture
acquisition agreements with independent film companies or producers. We commit
to acquire rights to motion pictures at various stages in the completion of a
film, from films completed and ready for release to developed or undeveloped
film projects for which we may arrange financing or production services to
complete. In acquiring rights, we generally seek to obtain rights to
commercially appealing motion pictures with substantially lower direct negative
costs than motion pictures released by the major studios.
In order to fund the acquisition costs of the films for which we
acquire rights, we have primarily relied on:
o our credit facility;
o other lenders willing to finance our contractual minimum
guarantee obligations to the films' producers or rights
owners;
o working capital;
o pre-sales;
o gap financing;
o insurance backed financing structures; and
o other third party equity sources such as private investors.
The films that we sell, license and distribute generally have direct
negative costs ranging from $1,000,000 to $7,000,000. We may acquire rights to
finance or produce motion pictures with direct negative costs and marketing
costs below or substantially in excess of the average direct negative costs and
marketing costs of the films that we have distributed. As part of our overall
business strategy, we intend to emphasize films with more recognizable cast,
directors and producers and greater production values and which may accordingly
have broader appeal in the competitive theatrical market. We also will attempt
to limit our exposure with respect to production and acquisition costs through
accessing third party equity sources such as private investors.
We sometimes acquire limited distribution or sales rights and at other
times acquire worldwide rights, occasionally including the copyright, to films.
The rights we acquire may depend upon whether we agree to pay the producer or
other rights owner a minimum guarantee. Additionally, as part of our acquisition
of theatrical, video and television distribution rights, we may obtain the right
to exploit ancillary rights, such as music or sound track rights, merchandising
rights, or rights to produce CD-ROMs or other interactive media products.
Although we may license these rights to sub-distributors, we historically have
not derived any significant revenues from these ancillary rights.
In distribution arrangements where we do not pay a minimum guarantee,
the amounts payable by us to the rights owner will depend upon our success in
licensing the film and the financial performance of the film itself. In
acquiring distribution rights to a completed or incomplete film, however, we may
agree to pay the rights owner a minimum guarantee that is independent of the
financial performance of the film. Historically, the minimum guarantees paid by
us have ranged from approximately $100,000 to $5,000,000, although in some
circumstances they may exceed these amounts. Depending upon the particular
arrangement, a minimum guarantee may be payable in full at the time of delivery
of the completed film or in installments following complete delivery of the
film. The rights owner also may receive additional payments as a result of our
exploitation of the distribution rights to the film. After receiving a
distribution fee and recovering our distribution expenses and minimum guarantee,
we pay the remainder of revenues in excess of an ongoing distribution fee to the
rights owner.
We typically receive a larger share of gross receipts from the license
and distribution of motion pictures for which we have provided a minimum
guarantee. At times, the minimum guarantee paid by us may represent all or a
substantial portion of the film's production costs. In those circumstances, we
may receive worldwide distribution rights in all media and may also obtain
ownership of the copyright to the film with the producer. In 2000, we provided
minimum guarantees for only one film, which represented a majority of the final
54
production costs of the film. For six months ended June 30, 2001, we provided
minimum guarantees for two international titles, one video title and one
theatrical title.
Our commitment to pay a minimum guarantee with respect to films that
have not begun production often enables the production company or producer to
obtain financing for its project, if needed. In some cases, our contractual
commitment to pay a minimum guarantee upon delivery of a film serves as
sufficient collateral for a bank to lend production funds. The bank typically
will insure delivery of the film to us by requiring the producer to purchase a
completion guaranty. To enable the production company or producer to borrow
production funding, or to borrow at preferential bank fees and interest rates,
we also may have to secure our purchase or acquisition commitment, which we
generally have done by obtaining a letter of credit from our lenders. In some
situations, the production company or producer of a film initially may obtain
funds:
o from other distribution companies that obtain distribution
rights in specified media or territories, for example, the
domestic distribution rights or distribution rights in Germany
or the United Kingdom;
o by accessing foreign governmental film industry incentive
programs such as programs offered in the past by the Isle of
Man, the United Kingdom, Canada, Australia and New Zealand; or
o by using its own resources or other resources available to it,
and subsequently approaching us to supply the remaining funds
necessary to complete or co-finance the film in exchange for
our obtaining the remaining distribution rights to the motion
picture.
We have not been actively involved in co-financing arrangements.
However, we intend to increase our participation in these arrangements. When we
participate in co-financing arrangements, we will commit to fund a portion of a
particular film's production costs in combination with other equity providers.
We also intend to further develop relationships with major studios and expand
our executive producing role in connection with motion pictures produced and
distributed by other companies.
In June 2000, we entered into a "first look" agreement with The Little
Film Company, Inc. and Ellen Dinerman Little, our former co-chairman, co-chief
executive officer and president. The agreement provides for a three-year term
ending in June 2003. Under this agreement, we will have an exclusive "first
look" on any project that The Little Film Company owns or controls or which it
has the right to submit to us or any project that it has the right to acquire or
may wish to acquire for development or production. The agreement also provides
for us to pay The Little Film Company annual overhead for office space and
related expenses, an annual fee and a discretionary revolving development fund.
We also will compensate The Little Film Company on a project-by-project basis.
In connection with the purchase of certain of our securities by
Rosemary Street in June 2000, Rosemary Street assigned to us a first look
agreement with Grandview Pictures LLC and Jon Kilik. The agreement provides for
a three-year term ending in May 2002, which we may renew for an additional
two-year term. Under the agreement, we will have an exclusive "first look" on
55
any project that Grandview Pictures wants to produce and which it owns or
controls or which it has the right to submit to us under the agreement or which
it has the right to acquire or may wish to acquire for development and/or
production, or has been authorized by third parties to submit to us for
development and/or production, as a feature length theatrical motion picture or
television production. The agreement also provides for us to pay to Grandview
Pictures annual overhead for its New York office, including an annual salary for
Jon Kilik and fees for Kilik's production services based on the cash budget of
the applicable pictures. We also will compensate Grandview Pictures for each
theatrical or television motion picture produced by Kilik.
We did not produce any of the films that we distributed in 2000.
However, during the six months ended June 30, 2001, we were involved in
production of four motion pictures (Skins, The Jimmy Show, Bundy, and Thirteen
Conversations About One Thing) all of which are in post-production. Skins is the
first film to be produced under our first look agreement with Grandview
Pictures. When we have produced a film, our production subsidiaries typically
have obtained production financing by obtaining production loans using our
minimum guarantee commitment as collateral, at times secured by a letter of
credit issued under our credit facilities. We attempt to minimize the risks
associated with any development and production activities that we conduct in a
variety of ways. We do not maintain a substantial staff of creative or technical
personnel. We also do not own or operate sound stage and related production
facilities and, accordingly, do not have the fixed payroll, general and
administrative and other expenses resulting from such ownership. In addition, in
those circumstances where we produce a film, we generally attempt to acquire
fully developed projects ready for pre-production with, when feasible, completed
scripts, directors and cast members who are committed to or are interested in
the project. Many projects also have a producer involved or committed. However,
if at the time of our acquisition of rights in a project, a producer is not
formally or informally committed to a project, we may also engage a production
services company or a producer to supervise and arrange all pre-production,
production and post-production activities in exchange for a production fee and a
participation in net revenues from the film.
The following chart provides information regarding completed motion
pictures first made available to us for distribution during 2000 and 2001, other
than those films described under "Our Motion Picture Distribution -First Look
Pictures." The chart includes acquisitions of rights from unaffiliated
production companies or other rights owners, as well as from production
companies that we own or control.
Motion Picture Title Genre Territories Acquired Selected Cast
-------------------- ----- -------------------- -------------
Before Night Falls Drama Universe excluding the United Javier Bardem (Academy Award(R)nominee
States and Canada for Best Actor), Andrea di Stefano,
Olivier Martinez, Johnny Depp
(Platoon, Chocolat, Ed Wood), Sean
Penn (Sweet and Lowdown, Dead Man
Walking, Carlito's Way), Michael
Wincott (Alien: Resurrection, The
Crow, Robin Hood: Prince of Thieves)
(continued)
56
Motion Picture Title Genre Territories Acquired Selected Cast
-------------------- ----- -------------------- -------------
Chasing Beauties Comedy Universe excluding the United Hill Harper (He Got Game, Get on the
States Bus, Beloved), Heather Gottlieb,
Nicole Ari Parker (The End of
Violence, Hairspray, Boogie Nights)
Dead Babies Comedy Universe excluding the United Paul Bettany (Land Girls, Suicide
Kingdom and Scandinavia Club, Bent), Olivia Williams (The
Sixth Sense, Rushmore, The Postman),
Charlie Condou
Ed Gein Thriller Universe Steve Railsback (Disturbing Behavior,
Barb Wire), Carrie Snodgress
Envy Thriller Universe excluding Canada and Linda Cropper, Anna Lise Phillips,
the United States Wade Osborne, Jeff Truman
Falling Through Thriller United States Peter Weller (Robocop, Mighty
Aphrodite), Roy Scheider (All That
Jazz, The French Connection, Jaws)
Following Thriller Universe excluding Canada and Jeremy Theobald, Alex Haw, Lucy
the United States Russell, John Nolan
Full Disclosure Thriller Universe Fred Ward (Road Trip, Short Cuts, Bob
Roberts, Thunderheart), Christopher
Plummer (The Insider, Twelve
Monkeys),Penelope Ann Miller
(Carlito's Way, Chaplin, Awakenings),
Rachel Ticotin (Con Air, Don Juan
DeMarco), Virgina Madsen (The
Haunting, The Rainmaker, Ghosts of
the Mississippi)
Graduation Week Comedy Universe Nicholle Tom (The Nanny, Beethoven),
Albanna Ubach (All of It,
Clockwatchers, johns), John
Livingston (The Net, Mr. Wrong,
EdTV), Irene Ng, Jack Noseworthy
(Cecil B. Demented, U-571,
Unconditional Love), Devon Odessa (My
So Called Life), Sean Patrick Thomas
(Can't Hardly Wait, Cruel Intentions)
Greenfingers Comedy Universe Clive Owen (Croupier), Helen Mirren
(Teaching Mrs. Tingle, The Pledge,
Mosquito Coast), David Kelly (Waking
Ned Devine), Natasha Little, Warren
Clarke
(Continued)
57
Motion Picture Title Genre Territories Acquired Selected Cast
-------------------- ----- -------------------- -------------
Here's to Life Comedy Universe excluding the United Eric McCormack (Will and Grace),
Kingdom, Canada and the United James Whitmore (Shawshank Redemption,
States Nuts, Planet of the Apes), Kim
Hunter, Ossie Davis (Dr. Doolittle,
Get on the Bus, I'm Not Rappaport)
Housebound Thriller Universe Peter Sarsgaard (Boys Don't Cry,
Unconditional Love, Desert Blue),
Kathatina Wressnig, Angeline Ball,
Geoffrey Lower
Life Before This Drama/Thriller United States Stephen Rea (The End of the Affair,
The Crying Game, Crime of the
Century), Catherine O'Hara (Nightmare
Before Christmas, Home Alone Series,
Beetlejuice), Joe Pantoliano (The
Matrix, Memento, The Fugitive), Sarah
Polley (The Sweet Hereafter, Go)
Proximity Thriller/Action Universe excluding Germany and Rob Lowe (The West Wing, St. Elmo's
the United States Fire), James Coburn (Affliction, The
Nutty Professor, The Player)
Relative Values Romantic Comedy Universe Julie Andrews (The Sound of Music,
Mary Poppins), William Baldwin
(Primary Suspect, Virus, Bulworth,
Flatliners), Jeanne Tripplehorn (The
Firm, Basic Instinct, Timecode),
Colin Firth (Shakespeare in Love, The
English Patient), Stephen Fry
Something More Drama United States Michael Goorjian (Party of Five,
Chaplin, David's Mother), Jennifer
Beals (Flashdance, Without Malice,
Last Days of Disco), Chandra West,
David Lovgren (Antitrust)
Sunstorm Action Universe Bo Derek (10, Bolero, Tommy Boy),
Stacy Keach (American History X, The
Sea Wolf), Elena Llyons
Titles first made available to us for distribution during the six months ended
June 30, 2001:
Motion Picture Title Genre Territories Acquired Selected Cast
-------------------- ----- -------------------- -------------
Bongwater Comedy Domestic Lude Wilson, Alicia Witt
Chopper Drama Domestic Eric Bana
(Continued)
58
Motion Picture Title Genre Territories Acquired Selected Cast
-------------------- ----- -------------------- -------------
Devilstone Horror Universe excluding U.S. and A.J. Cook
Canada
Gypsy Woman Romantic/Drama Universe excluding U.K. Jack Davenport, Neve McIntosh
Just One Time Comedy Domestic Lane Janger, Jennifer Esposito
My Kingdom Drama Universe excluding U.K. Richard Harris, Lynn Redgrave
A Question of Faith Drama Universe Bernard Hill, Paul Guilfoyle
Soul Keeper Thriller/Horror Universe Robert Davi, Rodney Rowland, Michael
Ironside
Swimming Thriller Universe excluding U.S., U.K, Lauren Ambrose, Jennifer Dundas
Canada, the Netherlands Lowe, Joelle Carter
The Wedding Party Romantic/ Domestic Cate Blanchett, Frances O'Connor
Comedy
Wishmaster 4 Horror Universe excluding U.S. and Michael Trucco, Tara Spencer
Canada
Young Blades Adventure Universe excluding Hugh Daney, Ben Cross
non-English speaking Europe
and Africa
Our Film Library of Distribution Rights
Our film library consists of rights to a broad range of films, most of
which were produced since 1980. At September 30, 2001, we had various
distribution rights to more than 270 motion pictures, including more than 70
motion pictures in which we own an interest in the copyright. With respect to
these films where we do not own the copyright, the term of our distribution
rights generally range from 12 to 25 years or more from the date of acquisition,
and typically extend to many, if not all, media for exhibition worldwide or in
specified territories.
In addition to exploitation of distribution rights to motion pictures
in our library in the major media, we are able to exploit various ancillary
rights in the films under certain situations. We have arranged for the music in
several motion pictures that we have distributed to be released as soundtrack
recordings, including Waking Ned Devine, A Merry War, Mrs. Dalloway, The Secret
of Roan Inish, Party Girl, The Big Squeeze and Infinity. Although exploitation
of these soundtracks and other ancillary rights have not generated significant
revenues for us to date, our ownership or control of ancillary rights to motion
pictures in our library, including interactive rights, remake rights and
merchandising rights, may provide future sources of additional revenues.
Additionally, we have granted to Yahoo! Inc. the right to exploit on
the Internet approximately fifty titles from our film library on a revenue
sharing basis.
59
Major Customers
In 1998, Fox Searchlight accounted for $5,000,000 or 19.5% of our
revenues. In 1999, Buena Vista accounted for $3,500,000 or 10.4% of our
revenues. In 2000, USA Network accounted for $3,014,000 or 13.3% of our total
revenues. For the six months ended June 30, 2001, USA Network accounted for
$2,285,000 or 11.4 % of the total revenues and Global Media Distribution
accounted for $2,800,000 or 14% of the total revenues.
Employees
As of September 30, 2001, we employed 49 full-time employees and 3
part-time employees. Some of our subsidiaries are or may become subject to the
terms in effect from time to time of various industry-wide collective bargaining
agreements, including the Writers Guild of America, the Directors Guild of
America, the Screen Actors Guild and the International Alliance of Theatrical
Stage Employees. We may assume a production company's obligation to pay
residuals to these various entertainment guilds and unions. A strike, job action
or labor disturbance by the members of any of these entertainment guilds and
unions could have a material adverse effect on the production of a motion
picture within the United States, and, consequently, on our business, operations
and results of operations. These organizations all have engaged in strikes and
similar activities. We believe that our current relationship with our employees
is satisfactory.
Competition
Motion picture distribution, finance and production are highly
competitive businesses. The competition comes both from companies within the
same business and from companies in other entertainment media that create
alternative forms of leisure entertainment. We compete with major film studios
including:
o The Walt Disney Company;
o Paramount Pictures Corporation;
o Universal Pictures;
o Sony Pictures Entertainment;
o Twentieth Century Fox;
o Warner Brothers Inc.; and
o MGM/UA and their affiliates, including previously independent
companies such as Miramax and New Line Cinema, which are
dominant in the motion picture industry.
We also compete with numerous independent and foreign motion picture
production and distribution companies. Many of the organizations with which we
compete have significantly greater financial and other resources than us. For
instance, German-based and multinational production and distribution companies
recently have been successful in raising significant capital in equity
financings in Germany. Our ability to compete successfully depends upon the
continued availability of independently produced, domestic and foreign motion
pictures and our ability to identify and acquire distribution rights to, and
successfully license and distribute, motion pictures with commercial potential.
A number of formerly independent motion picture companies have been acquired in
60
recent years by major entertainment companies. These transactions have
significantly increased competition for the acquisition of distribution rights
to independently produced motion pictures.
Films that we distribute or finance also compete for audience
acceptance and exhibition outlets with motion pictures that other companies
distribute and produce. As a result, the success of any of the films that we
distribute or finance is dependent not only on the quality and acceptance of
that particular film, but also on the quality and acceptance of other competing
films released into the marketplace at or near the same time. With respect to
our domestic theatrical releasing operations, a substantial majority of the
motion picture screens in the United States typically are committed at any one
time to films distributed nationally by the major film studios, which generally
buy large amounts of advertising on television and radio and in newspapers and
can command greater access to available screens. Although some movie theaters
specialize in the exhibition of independent, specialized motion pictures and
art-house films, there is intense competition for screen availability for these
films as well. Given the substantial number of motion pictures released
theatrically in the United States each year, competition for exhibition outlets
and audiences is intense. In addition, there also have been rapid technological
changes over the past fifteen years. Although technological developments have
resulted in the creation of additional revenue sources from the licensing of
rights with respect to new media, these developments also have resulted in
increased popularity and availability of alternative and competing forms of
leisure time entertainment including pay/cable television programming and home
entertainment equipment such as videocassettes, interactive games and
computer/Internet use.
Regulation
In 1994, the United States was unable to reach an agreement with its
major international trading partners to include audio-visual works, such as
television programs and motion pictures, under the terms of the General
Agreement on Trade and Tariffs Treaty. The failure to include audio-visual works
under the treaty allows many countries to continue enforcing quotas that
restrict the amount of United States-produced television programming which may
be aired on television in those countries. The Council of Europe has adopted a
directive requiring all member states of the European Union to enact laws
specifying that broadcasters must reserve a majority of their transmission time,
exclusive of news, sports, game shows and advertising, for European works. The
directive does not itself constitute law, but must be implemented by appropriate
legislation in each member country. In addition, France requires that original
French programming constitute a required portion of all programming aired on
French television. These quotas generally apply only to television programming
and not to theatrical exhibition of motion pictures, but quotas on the
theatrical exhibition of motion pictures could also be enacted in the future. We
cannot assure you that additional or more restrictive theatrical or television
quotas will not be enacted or that countries with existing quotas will not more
strictly enforce such quotas. Additional or more restrictive quotas or more
stringent enforcement of existing quotas could materially and adversely affect
our business by limiting our ability to fully exploit our rights in motion
pictures internationally and, consequently, to assist or participate in the
financing of these motion pictures.
Distribution rights to motion pictures are granted legal protection
under the copyright laws of the United States and most foreign countries. These
laws provide substantial civil and criminal sanctions for unauthorized
61
duplication and exhibition of motion pictures. Motion pictures, musical works,
sound recordings, art work, still photography and motion picture properties are
separate works subject to copyright under most copyright laws, including the
United States Copyright Act of 1976, as amended. We are aware of reports of
extensive unauthorized misappropriation of videocassette rights to motion
pictures which may include motion pictures distributed by us. Motion picture
piracy is an industry-wide problem. The Motion Picture Association of America,
an industry trade association, operates a piracy hotline and investigates all
reports of such piracy. Depending upon the results of investigations,
appropriate legal action may be brought by the owner of the rights. Depending
upon the extent of the piracy, the Federal Bureau of Investigation may assist in
these investigations and related criminal prosecutions.
Motion picture piracy is also an international problem. Motion picture
piracy is extensive in many parts of the world, including South America, Asia
including Korea, China and Taiwan, the countries of the former Soviet Union and
other former Eastern bloc countries. In addition to the Motion Picture
Association, the Motion Picture Export Association, the American Film Marketing
Association and the American Film Export Association monitor the progress and
efforts made by various countries to limit or prevent piracy. In the past, these
various trade associations have enacted voluntary embargoes of motion picture
exports to certain countries in order to pressure the governments of those
countries to become more aggressive in preventing motion picture piracy. In
addition, the United States government has publicly considered trade sanctions
against specific countries that do not prevent copyright infringement of United
States produced motion pictures. We cannot assure you that voluntary industry
embargoes or United States government trade sanctions will be enacted. If
enacted, these actions could impact the amount of revenue that we realize from
the international exploitation of motion pictures depending upon the countries
subject to and the duration of such action. If not enacted or if other measures
are not taken, the motion picture industry as a whole, and our business in
particular, may continue to lose an indeterminate amount of revenues as a result
of motion picture piracy.
The Code and Ratings Administration of the Motion Picture Association
assigns ratings indicating age-group suitability for theatrical distribution of
motion pictures. We sometimes, although not always, submit our motion pictures
for these ratings. In certain circumstances, motion pictures that we did not
submit for rating might have received restrictive ratings, including, in some
circumstances, the most restrictive rating which prohibits theatrical attendance
by persons below the age of seventeen. Unrated motion pictures, or motion
pictures receiving the most restrictive rating, may not be exhibited in certain
movie theaters or in certain locales, thereby potentially reducing the total
revenues generated by these films. United States television stations and
networks, as well as foreign governments, impose additional restrictions on the
content of motion pictures which may restrict in whole or in part theatrical or
television exhibition in particular territories. In 1997, the major broadcast
networks and the major television production companies implemented a system to
rate television programs. This television rating system has not had a material
adverse effect on the motion pictures distributed by us. However, the
possibility exists that the sale of theatrical motion pictures for broadcast on
domestic free television may become more difficult because of potential
advertiser unwillingness to purchase advertising time on television programs
that are rated for limited audiences. We cannot assure you that current and
future restrictions on the content of motion pictures may not limit or adversely
affect our ability to exploit certain motion pictures in particular territories
and media.
62
Properties
Our principal executive offices are located at 8800 Sunset Boulevard,
Third Floor, Los Angeles, California 90069 and consist of approximately 10,000
square feet of office space. Our payments under the lease are approximately
$20,000 per month. The lease expires on September 30, 2002. Under the terms of
the lease, in October 1999, we became responsible for a percentage of operating
costs above a base year calculation.
In May 2001, we entered into a sublease for 4,000 square feet of office
space located at 2932 Nebraska Avenue, Santa Monica, California for our
television commercial production operations. We have since ceased these
operations and have further sublet the premises.
Legal proceedings
We are engaged in legal proceedings incidental to our normal business
activities. In the opinion of management, none of these proceedings are material
in relation to our financial position.
63
Management
Our current directors and executive officers are set forth below.
Biographical information concerning each of the directors and executive officers
is presented on the following pages. Information is presented as of the date of
this offering memorandum.
Name Age Position
---- --- --------
Christopher J. Cooney 40 Co-Chairman of the Board and Chief
Executive Officer
Robert B. Little 56 Co-Chairman of the Board and
President
William F. Lischak 44 Chief Operating Officer, Chief
Financial Officer, Secretary and
Director
Jeffrey Cooney 43 Executive Vice President - Creative
Affairs and Director
Stephen K. Bannon 47 Director
Scot K. Vorse 40 Director
Barry R. Minsky 58 Director
Joseph Linehan 40 Director
Nicholas Bavaro 61 Director
Christopher J. Cooney has served as co-chairman of our board and our
chief executive officer since June 2000. Since August 1999, Mr. Cooney has
served as president of Rosemary Street Productions LLC, a New York-based
entertainment holding company. Since 1986, Mr. Cooney has served in various
positions at EUE/Screen Gems, Ltd. ("EUE/Screen Gems"), a New York-based
television commercial facility and production house, including as head of
production from 1986 to 1988, as vice president in charge of all facilities from
1988 to 1992, and as vice president of physical production from 1992 to 1996. In
1996, Mr. Cooney led EUE/Screen Gems in the acquisition of DeLaurentis Studios.
Since 1996, Mr. Cooney has been responsible for overseeing all commercial and
daytime television production for the North Carolina operations of EUE/Screen
Gems. Mr. Cooney also holds an ownership interest in EUE/Screen Gems. In 1984,
Mr. Cooney formed Total Picture Company to produce concert films, commercials
and videos for record labels and musical instrument manufacturers. Prior to
that, Mr. Cooney was employed by Independent Artists as an assistant producer of
64
international television commercials. Mr. Cooney received his B.A. from Boston
University. Christopher J. Cooney is the brother of Jeffrey Cooney, our
executive vice president - creative affairs, and a director of our company.
Robert B. Little has been president of our company since June 2000 and
co-chairman of our board of directors since our merger with Overseas Private in
October 1996. Mr. Little also served as our co-chief executive officer from
October 1996 to June 2000. Mr. Little co-founded Overseas Private in February
1980 and served as chairman of the board of Overseas Private from February 1987
until October 1996 and its chief executive officer from February 1990 until
October 1996. Mr. Little was a founding member of the American Film Marketing
Association, the organization which established the American Film Market, and
served multiple terms on its board of directors. In 1993, Mr. Little served on
the City of Los Angeles Entertainment Industry Task Force, a task force composed
of industry leaders focused on maintaining and enhancing Los Angeles' reputation
as the entertainment capital of the world. Mr. Little is also a founding member
of The Archive Council, an industry support group for the University of
California at Los Angeles Archive Film Preservation Program, and a member of the
board of directors of the Antonio David Blanco Scholarship Fund, an endowment
fund that annually benefits deserving students in the UCLA Department of Film
and Television. Mr. Little was an executive producer of Titus, which was
nominated for an Academy Award(R) in 1999.
William F. Lischak has served as our chief operating officer, chief
financial officer, secretary and a director of our company since October 1996.
Mr. Lischak served as chief operating officer of Overseas Private from September
1990 until October 1996 and its chief financial officer from September 1988
until October 1996. Mr. Lischak, a certified public accountant, previously had
worked in public accounting, including from 1982 to 1988 with the accounting
firm of Laventhol & Horwath. Mr. Lischak has a masters degree in taxation and
has taught courses in the extension program at UCLA in accounting, finance and
taxation for motion pictures and television. Mr. Lischak attended New York
University's Tisch School of Arts and received a bachelor's degree in business
administration from New York University's Leonard N. Stern School of Business.
Jeffrey Cooney has served as our executive vice president-creative
affairs and a director of our company since June 2000. Since August 1999, Mr.
Cooney has served as creative director of Rosemary Street. Mr. Cooney also holds
an ownership interest in EUE/Screen Gems. In 1990, Mr. Cooney formed Jeffrey
Cooney Films and until August 1999 directed commercials for clients such as
Kodak, Mitsubishi, Procter & Gamble and General Mills. Mr. Cooney received a
B.A. in English from Holy Cross College. Jeffrey Cooney is the brother of
Christopher J. Cooney, the co-chairman of our board and our chief executive
officer.
Stephen K. Bannon has been a director of our company since its
inception in December 1993. From October 1996 to June 2000, he served as vice
chairman of our board of directors and chairman of its executive committee. From
December 1993 until October 1996, he served as our chairman of the board. From
June 1991 through July 1998, Mr. Bannon served as the chief executive officer of
Bannon & Co., Inc., an investment banking firm specializing in the
entertainment, media and communications industries. In July 1998, Bannon & Co.,
Inc. was acquired by SG Cowen Securities Corporation, an integrated, full
service U.S. securities and investment banking firm. Mr. Bannon served as
managing director and co-head of SG Cowen Securities Corporation's media and
entertainment group from July 1998 until March 2000. In March 2000, Mr. Bannon
65
founded and is currently a managing partner of Jefferies Bannon Media Partners
L.L.C. As part of an investment banking assignment, from April 1994 to December
1995, Mr. Bannon served as acting chief executive officer of SBV, a division of
Decisions Investment Corp., which operates the Biosphere 2 project near Oracle,
Arizona. Mr. Bannon is a registered principal with the NASD. Mr. Bannon was an
executive producer of Titus, which was nominated for an Academy Award(R)in 1999.
Scot K. Vorse became a director of our company in January 1995. From
January 1995 until October 1996, he served as our treasurer and secretary, and
from January 1995 until November 1996, he served as our vice president. From
June 1991 through July 1998, Mr. Vorse served as an executive vice president and
the chief financial officer of Bannon & Co., Inc. After the acquisition of
Bannon & Co., Inc. by SG Cowen Securities Corporation in July 1998, Mr. Vorse
served as managing director and co-head of SG Cowen Securities Corporation's
media and entertainment group until March 2000. Since March 2000, Mr. Vorse has
been managing his personal investments.
Barry R. Minsky has served as a director of our company since June
2000. Since 1977, Mr. Minsky has served as president of Wharton Capital
Corporation and since 1996 as chief executive officer of Wharton Capital
Partners, Ltd., a New York-based investment banking firm which, along with its
partners, facilitates financing for public companies and institutional clients.
Mr. Minsky has assisted public and private corporations in merger and
acquisition activities, sourcing financing and developing financial strategies.
Mr. Minsky also has experience in music publishing, film libraries, motion
picture production and distribution. Mr. Minsky received a B.S. in economics and
graduated on the dean's list from the Wharton School, University of
Pennsylvania.
Joseph Linehan has served as a director of our company since June 2000.
Mr. Linehan has been employed in various capacities with The Union Labor Life
Insurance Co. since 1984. Since December 1999, Mr. Linehan has served as vice
president-private capital and vice president-securities. From May 1998 to
December 1999, Mr. Linehan served as second vice president-investments and from
February 1993 to May 1998, Mr. Linehan served as assistant vice
president-investments. Mr. Linehan received a B.A. and M.B.A. from the
University of Maryland.
Nicholas Bavaro has served as a director of our company since June
2000. Mr. Bavaro has served as vice president and chief financial officer of
EUE/Screen Gems since 1983, when Columbia Pictures International ("Columbia")
sold its Screen Gems division. From 1961 to 1983, Mr. Bavaro served in various
positions at Columbia, including as an employee in the financial department from
1961 to 1967, as comptroller of the Screen Gems division from 1967 to 1973 and
as vice president and chief financial officer of that division from 1974 to
1983.
Our board of directors is divided into three classes, each of which
serves for a term of three years, with only one class of directors being elected
in each year. The term of the first class of directors, consisting of William F.
Lischak, Joseph Linehan and Barry R. Minsky, will expire at the annual meeting
of our stockholders in 2002. The term of the second class of directors,
consisting of Robert B. Little, Stephen K. Bannon and Christopher J. Cooney,
will expire at the annual meeting of our stockholders in 2003. The term of the
third class of directors, consisting of Scot K. Vorse, Nicholas Bavaro and
Jeffrey Cooney, will expire at the annual meeting of our stockholders in 2001.
66
In each case, each director serves from the date of his election until the end
of his term and until his successor is elected and qualifies.
Committees
Executive Committee. Christopher J. Cooney, Robert B. Little, William
F. Lischak and Stephen K. Bannon currently serve on the executive committee,
with Mr. Cooney serving as chairman of such committee. During intervals between
the meetings of the board of directors, the executive committee exercises all
powers of the board of directors (except those powers specifically reserved by
Delaware law or our Bylaws to the full board of directors) in the management and
direction of the business and conduct of our affairs in all cases in which
specific directions have not been given by the board.
Compensation Committee. William F. Lischak, Joseph Linehan and Stephen
K. Bannon currently serve on the compensation committee, with Mr. Lischak
serving as chairman of such committee. The compensation committee administers
our stock option plans to the extent contemplated thereby and reviews, approves,
and makes recommendations with respect to compensation of officers, consultants
and key employees.
Audit Committee. The audit committee currently consists of Stephen K.
Bannon, Scot K. Vorse and Nicholas Bavaro, with Mr. Bavaro serving as chairman
of such committee. The functions of the Audit Committee are: to review and
approve the selection of, and all services performed by, our independent
auditors; to meet and consult with and to receive reports from, our independent
auditors and our financial and accounting staff; and to review and act with
respect to the scope of audit procedures, accounting practices and internal
accounting and financial controls.
Voting Agreement
In June 2000, our company, Rosemary Street, the Littles, MRCo., Inc. (a
member of Rosemary Street), Christopher J. Cooney and Jeffrey Cooney entered
into a voting agreement, which provides that:
o so long as Robert B. Little is employed as our president, or
the Littles own no less than 5% of our issued and outstanding
voting securities, we will nominate and Rosemary Street will
vote for Robert B. Little to serve as a member of our board;
o so long as Christopher J. Cooney and Jeffrey Cooney own, in
the aggregate, directly or indirectly, no less than 5% of our
issued and outstanding voting securities, we will nominate and
the Littles and other members of Rosemary Street will vote for
Christopher J. Cooney and Jeffrey Cooney to serve as members
of our board; and
o so long as MRCo. owns no less than 5% of our issued and
outstanding voting securities, we will nominate and the
Littles and other members of Rosemary Street will vote for
Joseph Linehan to serve as a member of our board.
The voting agreement further provides that if the size of the board is
increased from nine members to eleven members prior to June 20, 2002, Rosemary
Street has the right to designate for election or appoint as directors the two
67
persons to fill the vacancies created by the increase. The Littles have agreed
to vote all of their shares of our voting securities for the election of
Rosemary Street's two nominees in this situation.
Executive Compensation
The following table sets forth the total compensation paid or accrued
during 2000, 1999 and 1998 to Christopher J. Cooney, our current chief executive
officer, Ellen Dinerman Little and Robert B. Little, our co-chief executive
officers until June 2000 and to William F. Lischak, our only other executive
officer who earned more than $100,000 during those periods.
Long Term
Compensation
Annual Compensation Awards
----------------------------------------------------------------------------------------------------
Other Annual Securities
Compen- Underlying All Other Compen
Name and Salary Bonus sation Options/SARS sation
Principal Position Year ($) ($) ($) - (#) ($)
-----------------------------------------------------------------------------------------------------------------------
Christopher J. Cooney
Co-chairman of the board 2000 100,000(1) 0 0 0 0
and chief executive 1999 - 0 0 0 0 0
officer 1998 0 0 0 0 0
Robert B. Little 2000 215,865(2) 37,500(3) 36,371(4) 250,000 38,715(5)
Co-chairman of the board 1999 125,000(6) 25,000(7) 11,852(8) 0 34,791(9)
and president 1998 125,000(10) 25,000(7) 26,985(11) 0 48,101(12)
Ellen Dinerman Little
Former co-chairman of the 2000 60,096(13) 12,500(14) 0 250,000 30,494(15)
board, co-chief executive 1999 125,000(16) 25,000(7) 0 0 22,638(17)
officer and president 1998 125,000(18) 25,000(7) 17,203(19) 0 19,642(20)
William F. Lischak
Chief operating officer, 2000 212,980 150,000 0(21) 75,000 12,286(22)
chief financial officer 1999 200,000 50,000 0(21) 10,000 12,528(23)
and secretary 1998 193,209 50,000 0(21) 0 10,677(24)
--------------------------------
(1) Represents salary earned by Mr. Cooney commencing in June 2000 when he
became co-chairman of the board and chief executive officer in
connection with the closing of the private placement with Rosemary
Street.
(2) Represents salary earned by Mr. Little as our co-chairman of the board
and co-chief executive officer through June 2000. In connection with
the closing of the private placement with Rosemary Street in June 2000,
we amended Mr. Little's existing employment agreement to provide for
him to serve as co-chairman of the board and president.
(3) Represents bonus earned by Mr. Little pursuant to his employment
agreement, $25,000 of which has been deferred.
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(4) Represents $11,852 of auto expense allowance, $3,750 in business
management fees and $20,769 of general expense allowance paid pursuant
to Mr. Little's employment agreement.
(5) Represents $3,115 in contributions we made on behalf of Mr. Little
pursuant to our 401(k) plan, $32,966 in life insurance premiums and
$2,634 in disability insurance premiums paid by us for the benefit of
Mr. Little.
(6) Represents salary earned by Mr. Little pursuant to his employment
agreement, the payment of which was made or forgiven in June 2000.
(7) Represents bonus of $25,000, payment of which was made or forgiven in
June 2000.
(8) Represents $10,987 for automobile lease payments and $865 in automobile
expenses.
(9) Represents $32,480 in life insurance premiums we paid or accrued for
the benefit of Mr. Little and $2,311 in disability insurance premiums
we paid for the benefit of Mr. Little.
(10) Represents salary earned by Mr. Little pursuant to his employment
agreement, payment of $68,066 of which was made or forgiven in June
2000.
(11) Represents $11,985 for automobile lease payments, $10,700 in business
management and accounting fees we paid on behalf of Mr. Little and
$4,300 in business management and accounting fees to which Mr. Little
was entitled to reimbursement, payment of which was made in June 2000.
(12) Represents $2,266 in contributions we made on behalf of Mr. Little
pursuant to our 401(k) Plan, $34,258 in life insurance premiums paid or
accrued for the benefit of Mr. Little, $2,123 in disability insurance
premiums we paid for the benefit of Mr. Little and $9,454 in tax
preparation fees for 1996 for which Mr. Little was entitled to
reimbursement, payment of which was made in June 2000.
(13) Represents salary earned by Ms. Little as co-chairman of the board,
co-chief executive officer and our president through June 2000. In
connection with the June 2000 private placement, we terminated Ms.
Little's employment.
(14) Represents bonus earned by Ms. Little through June 2000.
(15) Represents $27,860 in life insurance premiums and $2,634 in disability
insurance premiums we paid for the benefit of Ms. Little.
(16) Represents salary earned by Ms. Little pursuant to her employment
agreement, the payment of which was made or forgiven in June 2000.
(17) Represents $20,225 in life insurance premiums we paid or accrued for
the benefit of Ms. Little and $2,413 in disability insurance premiums
we paid for the benefit of Ms. Little.
(18) Represents salary earned by Ms. Little pursuant to her employment
agreement, payment of $68,063 of which was made or forgiven in June
2000.
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(19) Represents $10,700 of business management and accounting fees we paid
on behalf of Ms. Little, $2,203 in automobile expenses and $4,300 of
business management and accounting fees to which Ms. Little was
entitled to reimbursement, payment of which was made in June 2000.
(20) Represents $2,267 in contributions we made on behalf of Ms. Little
pursuant to our 401(k) Plan, $15,100 in life insurance premiums we paid
or accrued for the benefit of Ms. Little and $2,275 in disability
insurance premiums we paid for the benefit of Ms. Little.
(21) Perquisites with respect to the executive officer did not exceed the
lesser of $50,000 or 10% of the executive officer's salary and bonus.
(22) Represents $4,260 in contributions we made on behalf of Mr. Lischak
pursuant to our 401(k) plan, $6,139 in life insurance premiums and
$1,887 in disability insurance premiums we paid for the benefit of Mr.
Lischak.
(23) Represents $3,569 in contributions made on behalf of Mr. Lischak
pursuant to our 401(k) Plan, $7,295 in life insurance premiums for
which Mr. Lischak is entitled to reimbursement and $1,664 in disability
insurance premiums we paid for the benefit of Mr. Lischak.
(24) Represents $3,077 in contributions we made on behalf of Mr. Lischak
pursuant to our 401(k) Plan, $5,135 in life insurance premiums and
$2,465 in disability insurance premiums we paid for the benefit of Mr.
Lischak.
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The following table summarizes the number of options granted to the
executive officers named above during the year ended December 31, 2000, and the
percentage that such options relate to the stock options granted to all
employees during such fiscal year:
OPTION GRANTS IN 2000
Individual Grants
% of Total Market
Options Granted Price on
Options to Employees in Exercise Price Date of Expiration
Name Granted(#) Fiscal Year ($/Share) Grant ($) Date
---- ---------- ----------- --------- -------- ----------
Christopher J. Cooney
Co-chairman of the board and chief
executive officer 0 0% -- -- --
Robert B. Little
Co-chairman of the board and
president 250,000(1) 40% $3.40 $2.00 6/19/05
Ellen Dinerman Little
Former co-chairman of the board,
co-chief executive officer and
president 250,000(1) 40% $3.40 $2.00 6/19/05
William F. Lischak
Chief operating officer, chief
financial officer and secretary 75,000(2) 12% $3.40 $2.00 6/19/05
-----------------------
(1) Represents immediately exercisable options to purchase 250,000 shares
of common stock pursuant to our amended and restated 1996 special stock
option plan and agreement.
(2) Represents options to purchase 75,000 shares of common stock pursuant
to our 1996 basic stock option and stock appreciation rights plan, of
which 31,257 options were exercisable as of September 30, 2001 and
2,083 options become exercisable on the last day of each of the next 19
consecutive months thereafter.
71
The following table summarizes the number of exercisable and
unexercisable options held by the executive officers named above at December 31,
2000, and their value at that date if such options were in-the-money:
AGGREGATED OPTION EXERCISES IN 2000 AND
FISCAL YEAR-END OPTION VALUES
Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at
Options at December December 31,
31, 2000 2000
Shares Acquired on Exercisable/ Exercisable/
Exercise Value Realized Unexercisable Unexercisable
Name (#) ($) (#) ($)
---------------------------------------------------------------------------------------------------------------------
Christopher J. Cooney
Co-chairman of the board and 0 0 0/0 0/0
chief executive officer
Robert B. Little
Co-chairman of the board and 0 0
president 250,000/0 0/0
Ellen Dinerman Little
Former co-chairman of the 0 0
board, co-chief executive 250,000/0 0/0
officer and president
William F. Lischak
Chief operating officer, 0 0
chief financial officer and 16,676/58,324 0/0
secretary
Director Compensation
Pursuant to the automatic option grant program under our 1996 Basic
Stock Option and Stock Appreciation Rights Plan, each individual serving as a
non-employee board member on October 31, 1996, was granted a non-qualified
option to purchase 5,000 shares of common stock. In addition, each member of the
board who is not employed by us receives an automatic grant of a non-qualified
option to purchase 5,000 shares of the common stock (i) upon becoming a board
member, whether through election at a meeting of our stockholders or through
appointment by the board of directors and (ii) on the date of each annual
meeting of stockholders, if such individual is to continue to serve as a board
member after such meeting; provided such individual has served as a non-employee
member of the board of directors for at least six months. Each such automatic
option grant is, among other things, exercisable at the fair market value of the
common stock on the date of the automatic grant and is generally exercisable
after completion of one year of service to the board of directors measured from
the automatic grant date. In addition, we reimburse all directors for travel and
related expenses incurred in connection with their activities on our behalf. Our
Directors are not otherwise compensated for serving on the board.
72
Compensation Committee Interlocks And Insider Participation
Our compensation committee was established in October 1996 and
currently consists of William Lischak, Joseph Linehan and Stephen K. Bannon,
with William F. Lischak serving as chairman of such committee. Mr. Lischak has
served as chief operating officer, chief financial officer, secretary and one of
our directors since October 1996. Mr. Linehan has served as one of our directors
since June 2000. Mr. Bannon was our chairman of the board of directors during
1996 until consummation of the merger with Overseas Private and served as vice
chairman of the board of directors and chairman of the executive committee from
October 1996 to June 2000. The compensation committee currently administers both
of our stock option plans to the extent contemplated thereby.
Indemnification
We have entered into indemnification agreements with our directors
(including those who are also executive officers) providing for indemnification
by us, including in circumstances in which indemnification is otherwise
discretionary under Delaware law. These agreements constitute binding agreements
between us and each of the parties thereto, thus preventing us from modifying
its indemnification policy in a way that is adverse to any person who is a party
to such an agreement.
Compensation Arrangements For Current Executive Officers
Christopher J. Cooney
In June 2000, we entered into an employment agreement with Christopher
J. Cooney, which provided for Mr. Cooney to serve as our co-chairman of the
board and the chief executive officer for a one-year term ending in June 2001.
Under the terms of the agreement Mr. Cooney received a base salary of $200,000
and was entitled to receive an annual $25,000 bonus if our pre-tax profits
exceed $500,000 in any year during the term. Mr. Cooney was also entitled to an
additional bonus, if any, as established by the board at the beginning of the
employment term based on our achieving certain profit targets. The agreement
contained a non-compete clause whereby Mr. Cooney agreed not to compete with us
for the duration of the agreement. We are currently in the process of amending
and extending this agreement.
Robert B. Little
In June 2000, we entered into an amended and restated employment
agreement with Robert B. Little, which provides for Mr. Little to serve as our
co-chairman of the board and the president for a three-year term ending in June
2003. Mr. Little receives a base salary of $300,000 and a guaranteed bonus of
$50,000, which will be increased by $25,000 on a cumulative basis for each year
of the employment term in which our pre-tax profits exceed $500,000. Mr. Little
also will be entitled to an additional bonus, if any, as may be established by
the board at the beginning of each year of the employment term based on our
achieving certain profit targets. If we achieve these targets, Mr. Little's
employment agreement will be automatically renewed on the same terms for an
additional two-year term. Regardless of whether we achieve the targets, we may
give Mr. Little written notice at least six months prior to the expiration of
the initial employment term that we elect to extend the initial term for an
additional two years. If the initial term is not renewed, Mr. Little will be
entitled to receive $400,000 in cash, payable in six equal monthly installments
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of $66,666, with the first payment to be made within 30 days after termination
of the initial term. The agreement contains a non-compete clause whereby Mr.
Little agreed not to compete with us for the duration of the agreement and for
one year after its termination.
William F. Lischak
In June 2000, we entered into an amended and restated employment
agreement with William F. Lischak, which provides for Mr. Lischak to serve as
our chief operating officer and chief financial officer for a three-year term
ending in June 2003. Mr. Lischak receives a base salary of $225,000 and a
guaranteed bonus of $50,000, which will be increased by $15,000 on a cumulative
basis for each year of the employment term in which our pre-tax profits exceed
$500,000. Mr. Lischak also will be entitled to an additional bonus, if any, as
may be established by the board at the beginning of each year of the employment
term based on our achieving certain profit targets. If we achieve these targets,
Mr. Lischak's employment agreement will be automatically renewed on the same
terms for an additional two-year term. Regardless of whether we achieve the
targets, we may give Mr. Lischak written notice at least six months prior to the
expiration of the initial employment term that we elect to extend the initial
term for an additional two years. If the initial term is not renewed, Mr.
Lischak will be entitled to receive $300,000 in cash, payable in six equal
monthly installments of $50,000, with the first payment to be made within 30
days after termination of the initial term. The agreement contains a non-compete
clause whereby Mr. Lischak agreed not to compete with us for the duration of the
agreement and for one year after its termination.
In connection with the June 2000 private placement, we granted Mr.
Lischak an option under our 1996 Basic Stock Option Plan to purchase 75,000
shares of common stock at an exercise price of $3.40 per share. As of September
30, 2001, 31,257 options were exercisable. 2,083 options will become exercisable
on the last day of each of the next 19 consecutive months thereafter. Once
exercisable, the options will remain exercisable until April 2005.
Jeffrey Cooney
In June 2000, we entered into an employment agreement with Jeffrey
Cooney, which provides for Mr. Cooney to serve as our executive vice
president-creative affairs for a three-year term ending in June 2003. Mr. Cooney
receives a base salary of $60,000 and will receive a $25,000 bonus for each year
of the employment term in which our pre-tax profits exceed $500,000. Mr. Cooney
also will be entitled to an additional bonus, if any, as may be established by
the board at the beginning of each year of the employment term based on our
achieving certain profit targets. If we achieve these targets, Mr. Cooney's
employment agreement will be automatically renewed on the same terms for an
additional two-year term. Regardless of whether we achieve the targets, we may
give Mr. Cooney written notice at least six months prior to the expiration of
the initial employment term that we elect to extend the initial term for an
additional two years. If the initial term is not renewed, Mr. Cooney will be
entitled to receive $100,000 in cash, payable in six equal monthly installments
of $16,666.67, with the first payment to be made within 30 days after
termination of the initial term. The agreement contains a non-compete clause
whereby Mr. Cooney agreed not to compete with us for the duration of the
agreement and for one year after its termination.
74
Stock Option Plans
Amended and Restated 1996 Special Stock Option Plan and Agreement
The Amended and Restated 1996 Special Stock Option Plan and Agreement
primarily provides equity incentives to each of Robert B. Little and Ellen
Dinerman Little. Under the Special Option Plan, on October 31, 1996, each of Ms.
Little and Mr. Little was granted two non-qualified options to purchase a total
of 1,100,000 shares of common stock:
o one option to purchase 537,500 shares of common stock at an exercise
price of $5.00 per share, exercisable on October 31, 1996 for 100,000
shares with the balance vesting in five equal annual installments
beginning on October 30, 1997; and
o one option to purchase 562,500 shares of common stock at an exercise
price of $8.50 per share, vesting in five equal annual installments
beginning on October 30, 1997.
All 2,200,000 shares of common stock initially reserved for issuance
under the Special Option Plan were subject to the options granted to the
Littles.
In June 2000, we amended the Special Option Plan. Pursuant to this
amendment, we cancelled all of the options outstanding under the Special Option
Plan and granted each of Ms. Little and Mr. Little an option to purchase 250,000
shares of common stock at an exercise price of $3.40 per share. The options are
immediately exercisable and expire in June 2005.
1996 Basic Stock Option Plan
In October 1996, our stockholders approved the 1996 basic stock option
and stock appreciation rights plan under which a total of 550,000 shares of
common stock are available for grant to our regular full-time employees,
non-employee members of the board of directors, independent consultants and
other persons who provide services to us on a regular or substantial basis.
Awards consist of stock options (both non-qualified options and options intended
to qualify as incentive stock options under Section 422 of the Internal Revenue
Code) and stock appreciation rights. As of June 30, 2001, options to purchase an
aggregate of 279,500 shares of common stock were outstanding under the basic
option plan, with exercise prices ranging from $1.75 to $5.25 per share.
2000 Performance Equity Plan
In November 2000, our stockholders approved the 2000 performance equity
plan, under which a total of 1,000,000 shares of common stock are available for
grant to our key employees, officers, directors and consultants. Awards consist
of stock options (both non-qualified options and options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code),
restricted stock awards, deferred stock awards, stock appreciation rights and
other stock-based awards, as described in the 2000 plan. As of June 30, 2001,
options to purchase an aggregate of 50,000 shares of common stock were
outstanding under the 2000 plan at an exercise price of $1.50 per share.
75
Certain Relationships and Related Transactions
On October 31, 1996, as part of the consideration to them in our merger
with Overseas Private, we issued to the Littles a $2,000,000 secured promissory
note, bearing interest at the rate of 9% per annum, with principal and interest
originally payable in monthly installments of $41,517 over a five-year period
ending October 1, 2001. In connection with the June 2000 private placement, the
Littles forgave the principal amount and interest accrued under the note.
The Littles had agreed to defer all payments under the note until
outstanding borrowings under the operating facility portion of our previous
credit facility with Coutts & Co. was reduced to at least $5,000,000. However, a
later amendment to the credit facility with Coutts & Co. permitted us to pay to
the Littles an amount equal to their aggregate weekly salary without interest on
a weekly basis towards repayment of the note so long as the Littles deferred the
payments until the deferral lapse date. Pursuant to the note and debt
contribution agreement entered into in connection with the June 2000 private
placement, we paid the Littles $564,524 in accrued salaries owed by us to them
and the Littles forgave $125,131 of accrued salaries. We also repaid the Littles
$135,476 in expenses owed to them under their respective employment agreements.
In connection with the merger with Overseas Private, we entered into a
tax reimbursement agreement with the Littles and Mr. Lischak. In June 2000,
pursuant to the note and debt contribution agreement, we paid the Littles
$200,000, representing the entire amount owed by us to them under the provisions
of the tax reimbursement agreement.
In December 1997 and February 1998, the Littles loaned us an aggregate
of $400,000 in order to provide a portion of the funds required by us for the
print and advertising costs associated with the domestic theatrical release by
us of Mrs. Dalloway. Pursuant to the note and debt contribution agreement, we
repaid the aggregate principal amount of this loan to the Littles and the
Littles forgave $78,101 of accrued and unpaid interest on the loan.
Until June 2000, Ellen Dinerman Little was employed as our co-chairman
of the board, co-chief executive officer and president. In June 2000, our
existing employment agreement with Ms. Little was terminated and we entered into
a "first look" agreement with The Little Film Company and Ms. Little. The
agreement provides for a three-year term ending in June 2003. Pursuant to the
"first look" agreement, the Little Film Company receives:
o an annual fee of $100,000;
o a discretionary revolving development fund of $100,000 for The
Little Film Company's use in the option/acquisition of
literary properties, engagement of writers and other customary
development costs; and
o customary overhead, including office space, staff, telephone
and reasonable travel costs.
The Little Film Company also will be compensated on a
project-by-project basis. We will have an exclusive "first look" on any project
that The Little Film Company owns or controls or any project that it has the
right to acquire or may wish to acquire for development or production. The
76
Little Film Company will furnish us with the services of Ms. Little in
connection with the development and possible production of theatrical motion
pictures based upon accepted artist submissions meeting certain criteria.
In October 2000, we entered into a consulting agreement with Wharton
Capital Partners Ltd. Barry R. Minsky, one of our directors, is the chief
executive officer and a 50% stockholder of Wharton. Under the agreement, Wharton
received a one-time fee of $100,000 and is entitled to receive a monthly fee of
$4,166 for 24 months. If Wharton introduces us to a financing source and we
consummate any public or private equity and/or debt financing with the source
during the term of the consulting agreement or during the two-year period
following the expiration of the agreement, then we also will pay Wharton an
amount equal to (i) 5% of all funds received by us from such public or private
equity financing and (ii) 3% of all funds received by us from such public or
private debt financing. Additionally, upon completion of an equity-based
financing, we will issue to Wharton warrants to purchase shares of common stock
equal to 5% of the common stock or common stock equivalents issued in the
financing at an exercise price equal to 120% of the five-day average closing bid
price prior to the closing of such financing. The warrants will be exercisable
on a cashless basis and will have registration rights.
Principal Stockholders
The following table sets forth certain information as of September 30,
2001 with respect to the common stock ownership of:
o those persons or groups known to beneficially own more than 5%
of our voting securities;
o each director;
o each executive officer whose compensation exceeded $100,000 in
2000; and
o all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. The information concerning the stockholders is
based upon information furnished to us by these stockholders. Except as
otherwise indicated, all of the shares of common stock are owned of record and
beneficially and the persons identified have sole voting and investment power
with respect to the shares. Except as otherwise indicated in the table below,
the business address of each of the persons listed is care of First Look Media,
Inc., 8800 Sunset Boulevard, Third Floor, Los Angeles, California 90069.
Amount and Nature of Percent of Class
Name of Beneficial Owner Beneficial Ownership of Voting Securities
------------------------ ---------------------- ---------------------
Christopher J. Cooney 7,830,430 (1) 59.2%
c/o Rosemary Street Productions, LLC
222 East 44th Street
New York, New York 10017
Robert B. Little 1,864,406(2) 18.1%
(Continued)
77
Amount and Nature of Percent of Class
Name of Beneficial Owner Beneficial Ownership of Voting Securities
------------------------ ---------------------- ---------------------
William F. Lischak 299,149(3) 3.0%
Jeffrey Cooney 7,830,430(1) 59.2%
c/o Rosemary Street Productions, LLC
222 East 44th Street
New York, New York 10017
Stephen K. Bannon 146,324(4) 1.5%
c/o Jeffries Bannon
Media Fund LLC
11100 Santa Monica Blvd.
Los Angeles, California 90025
Scot K. Vorse 151,323(5) 1.5%
c/o 1863 Mango Way
Los Angeles, California 90049
Barry R. Minsky 990,735(6) 9.8%
c/o Wharton Capital Partners, Ltd.
545 Madison Avenue
New York, New York 10022
Joseph Linehan 5,000(7) *
c/o The Union Labor Life Insurance Co.
111 Massachusetts Avenue, N.W.
Washington, DC 20001
Nicholas Bavaro 25,000(8) *
c/o EUE/Screen Gems, Ltd.
222 East 44th Street
New York, New York 10017
Rosemary Street Productions, LLC 7,830,430(9) 59.2%
222 East 44th Street
New York, New York 10017
Dolphin Offshore Partners, L.P. 1,262,500(10) 12.5%
c/o Dolphin Management
129 East 17th Street
New York, New York 10003
Wharton Capital Partners, Ltd. 690,735 7.0%
545 Madison Avenue
New York, New York 10022
Ellen Dinerman Little 1,864,406(2) 18.1%
c/o Savitsky & Co.
1901 Avenue of the Stars
Suite 1450
Los Angeles, California 90067
All current executive officers and directors as a 11,312,367(11) 79.9%
group (9 persons)
78
-----------------------
* Less than 1%
(1) Represents shares of common stock beneficially owned by Rosemary
Street, of which Christopher J. Cooney is one of the two designated
managers and president and of which Jeffrey Cooney is one of the two
designated managers and creative director.
(2) Represents (i) 1,364,406 shares of common stock held by the Littles as
community property in a revocable living trust, (ii) 250,000 shares of
common stock issuable upon exercise of immediately exercisable options
and (iii) 250,000 shares of common stock issuable upon exercise of
immediately exercisable options granted to such person's spouse which
generally only may be exercised by such person's spouse. Such person
disclaims beneficial ownership of the shares subject to his or her
spouse's options.
(3) Includes (i) 45,423 shares of common stock issuable upon exercise of
immediately exercisable options through September 30, 2001, and (ii)
4,166 shares of common stock issuable upon exercise of options
exercisable on or before November 30, 2001. Excludes 35,411 shares of
common stock issuable upon exercise of options, 2,083 of which become
exercisable during each of the next 17 months thereafter.
(4) Includes (i) 20,000 shares of common stock issuable upon exercise of
immediately exercisable options and (ii) 5,000 shares of common stock
issuable upon exercise of options exercisable on or before November 30,
2001.
(5) Represents (i) 20,000 shares of common stock issuable upon exercise of
immediately exercisable options, (ii) 126,323 shares of common stock
contributed by Mr. Vorse to a revocable living trust for the benefit of
Mr. Vorse's spouse, and (iii) 5,000 shares of common stock issuable
upon exercise of options exercisable on or before November 30, 2001.
(6) Represents (i) 690,735 shares of common stock owned by Wharton Capital
Partners Ltd., a New York corporation of which Mr. Minsky holds a 50%
interest, (ii) 295,000 shares of common stock issuable upon exercise of
immediately exercisable warrants, 95,000 of which are held by Mr.
Minsky's spouse and (iii) 5,000 shares of common stock issuable upon
exercise of immediately exercisable options.
(7) Represents 5,000 shares of common stock issuable upon exercise of
immediately exercisable options.
(8) Represents (i) 20,000 shares of common stock issuable upon exercise of
immediately exercisable warrants and (ii) 5,000 shares of common stock
issuable upon exercise of immediately exercisable options.
(9) Includes (i) 1,809,942 shares of common stock issuable upon conversion
of our Series A preferred stock and (ii) 1,613,810 shares of common
stock issuable upon exercise of immediately exercisable warrants.
79
(10) Includes 328,000 shares of common stock issuable upon exercise of
currently exercisable warrants. Information provided herein was
obtained from a Schedule 13D/A, dated December 31, 1998 filed by
Dolphin Offshore Partners, L.P. with the SEC.
(11) Includes shares referred to as being included in notes 1 through 8.
Excludes shares referred to in such notes as being excluded.
Description of Securities
General
We are authorized to issue 50,000,000 shares of common stock, par value
$.001 per share, and 10,000,000 shares of preferred stock, par value $.001 per
share.
Common Stock
Holders of our common stock are entitled to one vote per share on all
matters to be voted on by our stockholders. The holders of our common stock do
not have cumulative voting rights, which means that the holders of more than 50%
of the shares voted can elect all of our directors. Our board of directors is
divided into three classes, which means that only one class of directors is
elected each year. Holders of our common stock are entitled to receive such
dividends, if any, as may be declared from time to time by the board of
directors out of legally available funds. In the event we are liquidated or
dissolved, holders of our common stock are entitled to receive all assets
available for distribution to them. Holders of our common stock have no
preemptive or other subscription rights and there are no conversion rights or
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and the shares of common stock to be
issued in the exchange offer as set forth in this offering memorandum will be,
validly issued, fully paid and non-assessable.
Preferred Stock
Our restated certificate of incorporation authorizes us to issue
preferred stock with such designations, rights and preferences as may be
determined by our board of directors. Accordingly, the board of directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the common stock holders. In addition, the
preferred stock could be utilized as a method of discouraging, delaying or
preventing a change in control.
Series A Preferred Stock
We are authorized to issue 1,100,000 shares of Series A Preferred
Stock. In June 2000, we sold 904,971 shares of our Series A Preferred Stock. On
October 15, 2001, pursuant to the Certificate of Designations, Preferences and
Rights of Series A Preferred Stock, each of the 904,971 shares of Series A
Preferred Stock automatically converted into two shares of our common stock.
Upon conversion, the 904,971 shares of Series A Preferred Stock were cancelled
and returned to the status of authorized but unissued shares of preferred stock.
80
Warrants
As of September 30, 2001, there were 4,500,000 warrants outstanding
that were issued in connection with our initial public offering. Each of these
warrants entitles the registered holder to purchase one share of our common
stock for $5.00 at any time until February 16, 2002. We may call all of these
warrants for redemption with the consent of GKN Securities Corp., the
underwriter of our initial public offering, at a price of $.01 per warrant at
any time upon not less than 30 days' notice to the warrant holders if the last
sale price of our common stock has been at least $8.50 per share for the 20
consecutive trading days ending on the third day prior to the date on which the
notice of redemption is given.
The exercise price, number of shares of common stock issuable upon
exercise of the warrants and redemption price are subject to adjustment in some
circumstances including a stock dividend, recapitalization, reorganization,
merger or consolidation. However, the warrants are not subject to adjustment for
issuance of common stock at a price below the exercise price of the warrants.
We have the right, in our sole discretion, to decrease the exercise
price of the warrants for a period of not less than 30 days on not less than 30
days' prior written notice to the warrantholders. In addition, we have the
right, in our sole discretion, to extend the expiration date of the warrants on
five business days' prior written notice to the warrantholders.
No fractional shares will be issued upon exercise of the warrants.
Fractional shares will be rounded up to the nearest whole share based upon the
aggregate number of warrants tendered by the holder or its agent in the exchange
offer.
Other warrants
In October 1996, we issued warrants to purchase 62,500 shares of our
common stock. These warrants are exercisable at $5.00 per share and expire on
October 31, 2003.
In connection with the June 2000 private placement, we issued warrants
to purchase 2,313,810 shares of our common stock. We also issued warrants to
purchase 600,000 shares of our common stock to individuals as compensation for
services rendered in connection with the securities purchase. We also issued
warrants to purchase 75,000 shares of common stock to an individual in
consideration of his consent to the assignment by Rosemary Street to us of his
first look agreement. All of these warrants are exercisable at $3.40 per share
and expire on June 19, 2005.
Anti-takeover effect of various provisions of Delaware corporate law and our
restated certificate of incorporation and bylaws.
Our restated certificate of incorporation, bylaws and sections of
Delaware corporate law contain provisions that may discourage a third party from
pursuing a non-negotiated takeover of our company because they have the effect
of delaying, deterring or preventing a change in our control. These provisions
may have an adverse impact on the price of our securities that are traded in the
public market. Our restated certificate of incorporation authorizes the issuance
of blank check preferred stock with rights and preferences as may be determined
from time to time by our board of directors, without stockholder approval. If
issued, the preferred stock could be utilized as a method of discouraging,
81
delaying or preventing a change in control even though such an attempt might be
economically beneficial to our stockholders. Our restated certificate of
incorporation also provides for a staggered board of directors. We are subject
to provisions of the Delaware corporate law, which, subject to certain
exceptions, will prohibit us from engaging in any business combination with a
person who, together with affiliates and associates, owns 15% or more of our
common stock for a period of three years following the date that the person
became a 15% or greater stockholder, unless the business combination is approved
in a prescribed manner as was the merger. These provisions of Delaware corporate
law and of our restated certificate of incorporation and bylaws may have the
effect of delaying, deterring or preventing a change in control, may discourage
bids for our common stock at a premium over market price and may adversely
affect the market price, and the voting and other rights of the holders, of our
common stock. In addition, the acceleration of vesting of options granted under
our stock option plans in the event of a change in our ownership or control may
be seen as an anti-takeover provision and may have the effect of discouraging a
merger proposal, a takeover attempt or other efforts to gain control of us.
Certain United States Federal Income Tax Considerations
The following discussion is a general summary of the United States
federal income tax consequences to holders of warrants tendering their warrants
pursuant to the exchange offer. The exchange offer will not affect the United
States federal income tax treatment of holders who do not participate in the
exchange offer. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury regulations, administrative
pronouncements and judicial decisions, all as in effect and existing on the date
hereof and all of which are subject to change, possibly with retroactive effect.
There can be no assurance that the Internal Revenue Service (the "Service") will
not take a contrary view, and no ruling from the Service has been or will be
sought by the Company.
This summary applies only to those holders who have held our warrants
and will hold our common stock received in exchange therefor as capital assets
pursuant to Section 1221 of the Code, and does not address the federal income
tax consequences to holders who are subject to special rules (such as insurance
companies, financial institutions, tax-exempt organizations and broker-dealers)
or special rules with respect to integrated transactions (such as certain
hedging transactions) or certain straddle transactions.
As used in the discussion which follows, the term "U.S. Holder" means a
beneficial owner of warrants that is:
o a citizen or resident of the United States;
o a corporation, partnership or other entity created or
organized under the laws of the United States or any of its
political subdivisions;
o a trust that (x) is subject to the supervision of a court
within the United States and the control of one or more U.S.
persons or (y) has a valid election in effect under applicable
United States Treasury regulations to be treated as a United
States person; or
82
o an estate that is subject to U.S. federal income tax on its
income regardless of its source
The term "Non-U.S. Holder" means a holder of warrants that is, for United States
federal income tax purposes, not a U.S. Holder.
Tax consequences to U.S. Holders
We believe that the exchange of warrants for shares of common stock
pursuant to the exchange offer will be treated as a tax free recapitalization
and will result in the following federal income tax consequences to
participating U.S. Holders of warrants:
o No gain or loss will be recognized on the exchange of warrants
for shares of common stock pursuant to the exchange offer;
o The aggregate adjusted basis of the shares of common stock
received in the exchange offer will be equal to the aggregate
adjusted basis of the U.S. Holder's warrants exchanged for
that common stock; and
o The holding period for the shares of common stock received in
the exchange offer will include the holding period of the U.S.
Holder's warrants exchanged for the shares of common stock.
Tax consequences to Non-U.S. holders
A Non-U.S. Holder similarly will not realize gain or loss on the
exchange of their warrants for shares of our common stock pursuant to the
exchange offer.
All holders are advised to consult their tax advisors as to the
specific federal, state, local and foreign tax consequences of their
participation in the exchange offer.
Legal Matters
The validity of the common stock offered hereby is being passed upon
for us by Graubard Miller, New York, New York.
Experts
The financial statements as of December 31, 2000 and 1999, and for each
of the three years ended December 31, 2000 included in this offering memorandum
have been included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
83
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You also may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. These documents are also available at the
public reference rooms at the SEC's regional offices in New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms.
In connection with the exchange offer, we have filed with the SEC a
Schedule TO pursuant to the Securities Exchange Act of 1934. This offering
memorandum is an exhibit to the Schedule TO, as permitted by the SEC's rules and
does not necessarily contain all of the information included in the Schedule TO.
For further information about us, our securities and the exchange offer, you may
refer to the Schedule TO, and the respective exhibits and schedules. You can
review and copy these documents at the public reference facilities maintained by
the SEC or on the SEC's website as described above.
85
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements for the Year Ended December 31, 2001
Page Number
-----------
Report of Independent Accountants F-1
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 2000 and 1999 F-2
Consolidated Statements of Operations - Years Ended
December 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Cash Flows -
Years Ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity - Years
Ended December 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6 - F-18
Unaudited Financial Statements for the Six Months Ended
June 30, 2001
Consolidated Balance Sheets (unaudited) for the six months
ended June 30, 2001 F-19
Consolidated Statements of Operations (unaudited) for the six
months ended June 30, 2001 and June 30, 2000 F-20
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 2001 and June 30, 2000 F-21
Consolidated Statements of Comprehensive Income
(unaudited) for the six months ended June 30, 2001 and
June 30, 2000 F-22
Notes to Consolidated Financial Statements (unaudited) F-23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of First Look Media, Inc.
(formerly known as Overseas Filmgroup, Inc.):
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 53 present fairly, in all material
respects, the financial position of First Look Media, Inc. (formerly known as
Overseas Filmgroup, Inc.) and its subsidiaries at December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 2 to the consolidated financial statements, in 2000 the
Company changed its film accounting method.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Los Angeles, California
May 16, 2001
F-1
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED BALANCE SHEETS
Year Ended December 31,
2000 1999
-----------------------------
(in thousands)
ASSETS:
Cash and cash equivalents $ 832 $ 270
Restricted cash - 88
Accounts receivable, net of allowance for doubtful accounts of $1,100,000 26,583 30,089
Related party receivable - 149
Investment available for sale - 2,908
Film costs, net of accumulated amortization 13,393 28,364
Other assets 1,472 779
-----------------------------
Total assets $ 42,280 $ 62,647
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 1,411 $ 1,147
Accrued interest payable 174 273
Deferred revenue 87 919
Payable to producers 23,587 22,462
Notes payable 7,116 19,764
Payable to related parties - 1,335
Note payable to shareholders - 1,989
Deferred income taxes - 1,459
-----------------------------
Total liabilities 32,375 49,348
-----------------------------
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, $.001 par value, 10,000,000 and 2,000,000 shares authorized at
December 31, 2000 and 1999, respectively; 904,971 and 0 shares issued and
outstanding at December 31, 2000 and 1999, respectively (Liquidation
preference
of $3,846,271) 1 -
Common stock, $.001 par value, 50,000,000 and 25,000,000 shares authorized at
December 31, 2000 and 1999, respectively; 9,848,906 and 6,340,305 shares
issued at December 31, 2000 and 1999, respectively; 9,803,906 and 6,295,305
shares
outstanding at December 31, 2000 and 1999, respectively 10 6
Additional paid-in capital 30,675 12,107
Accumulated deficit (20,694) (204)
Accumulated other comprehensive income - 1,477
Treasury stock at cost, 45,000 shares (87) (87)
-----------------------------
Total shareholders' equity 9,905 13,299
-----------------------------
Total liabilities and shareholders' equity $ 42,280 $ 62,647
=============================
The accompanying notes are an integral part of these statements.
F-2
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
2000 1999 1998
---- ---- ----
(in thousands except per share amounts)
Revenues $ 22,625 $ 33,784 $ 25,585
Expenses:
Film costs 16,850 30,888 21,015
Distribution and marketing 4,774 - -
Selling, general and administrative 6,473 2,983 2,960
------------ ----------- -----------
Total expenses 28,097 33,871 23,975
------------ ----------- -----------
(Loss) income from operations (5,472) (87) 1,610
------------ ----------- -----------
Other income (expense):
Interest income 27 7 27
Interest expense (1,571) (2,019) (1,644)
Other income 786 110 119
------------ ----------- -----------
Total other expense (758) (1,902) (1,498)
------------ ----------- -----------
(Loss) income before income taxes and cumulative effect
of accounting changes (6,230) (1,989) 112
Income tax provision (benefit) 137 (736) 53
------------ ----------- -----------
(Loss) income before cumulative effect of accounting
changes (6,367) (1,253) 59
Cumulative effect of accounting changes (net of income
taxes) (14,123) - -
------------ ----------- -----------
Net (loss) income $ (20,490) $ (1,253) $ 59
============ ============ ===========
Basic and diluted (loss) income per share:
(Loss) income before cumulative effect of accounting
changes $ (0.78) $ (0.21) $ 0.01
Cumulative effect (1.74) - -
------------ ----------- -----------
Net (loss) income $ (2.52) $ (0.21) $ 0.01
============= ============ ===========
Weighted average number of common shares outstanding 8,131 5,990 5,732
============= ============ ===========
The accompanying notes are an integral part of these statements.
F-3
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
---- ---- ----
Cash flows from operating activities: (in thousands)
Net (loss) income $ (20,490) $ (1,253) $ 59
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities
Cumulative effect of accounting changes 15,582 - -
Film costs 16,850 14,340 21,014
Additions to film costs (2,865) (13,700) (20,277)
Payments to producers (13,472) 13,282 4,727
Equity based charge - 24 -
Capital gains and other non-cash income (625) - -
Change in assets and liabilities:
Accounts receivable 3,506 (10,364) (5,308)
Related party receivables 149 - 132
Other assets (693) (145) 136
Accounts payable and accrued expenses (485) 87 728
Deferred income taxes (1,459) (874) (169)
Deferred revenue (832) 786 (668)
------------ ----------- ------------
Net cash (used in) provided by operating activities (4,833) 2,183 374
------------ ----------- ------------
Cash flows from investing activities:
Sale of marketable securities 2,056 - -
------------ ----------- ------------
Net cash provided by investing activities 2,056 - -
------------ ----------- ------------
Cash flows from financing activities:
Issuance of equity instruments, net of expenses 16,420 - -
Investment by significant shareholder 130 - -
Net pay down under credit facility (11,554) (1,960) (3,129)
Net (pay down) borrowings of subordinated note payable (1,095) (289) 2,000
Net (pay down) issuance of note payable to shareholders (650) (273) 101
------------ ----------- ------------
Decrease in restricted cash position 88 71 13
------------ ----------- ------------
Net cash provided by (used in) financing activities 3,339 (2,451) (1,015)
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents 562 (268) (641)
Cash, cash equivalents at beginning of period 270 538 1,179
------------ ----------- ------------
Cash, cash equivalents at end of period $ 832 $ 270 $ 538
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,875 $ 2,199 $ 1,763
============ ============ ============
Income taxes $ 6 $ 22 $ 12
============ ============ ============
Foreign withholding taxes $ 131 $ 196 $ 117
============ ============ ============
Non-cash financing activities:
Contribution of capital by significant shareholder $ 2,02 $ - $ -
=========== ============ ============
The accompanying notes are an integral part of these statements
F-4
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Preferred Stock Common Stock
--------------- ------------ Additional
Paid-in
Number Amount Number Amount Capital
------ ------ ------ ------ ---------
Balance at December 31, 1997 - $ - 5,778 $ 6 $ 10,652
Net income - - - - -
---------------------------------------------------------------------------------------
Balance at December 31, 1998 - - 5,778 6 10,652
Issuance of common stock - - 563 - 1,431
Equity based charge - - - - 24
Comprehensive income:
Unrealized holding gain in
investments available
for sale - - - - -
Net loss - - - - -
Total comprehensive income
--------------------------------------------------------------------------------------
Balance at December 31, 1999 - - 6,341 6 12,107
Issuance of common stock,
preferred stock and
warrants 905 1 5,097 5 16,414
Retirement of common stock - - (1,589) (1) 1
Forgiveness of notes
payable, accrued
expenses and
contribution of capital - - - - 2,153
Comprehensive income:
Reversal of unrealized
holding gain upon sale
of invest-ment
available for sale - - - - -
Net loss - - - - -
Total comprehensive income
--------------------------------------------------------------------------------------
Balance at December 31, 2000 905 $ 1 9,849 $ 10 $ 30,675
======================================================================================
(Continued)
F-5
Accumulated
Accumulated Other Total
(Deficit) Comprehensive Treasury Shareholders'
Earnings Income Stock Equity
--------- ------ ----------- ------
Balance at December 31, 1997 $ 990 $ - $ (87) $ 11,561
Net income 59 - - 59
-----------------------
Balance at December 31, 1998 1,049 - (87) 11,620
Issuance of common stock - - - 1,431
Equity based charge - - - 24
Comprehensive income:
--------------------
Unrealized holding gain in
investments available
for sale - 1,477 - 1,477
Net loss (1,253) - - (1,253)
----------------------
Total comprehensive income 224
-------------------------------------------------------------------------------
Balance at December 31, 1999 (204) 1,477 (87) 13,299
Issuance of common stock,
preferred stock and
warrants - - - 16,420
Retirement of common stock - - - 0
Forgiveness of notes
payable, accrued
expenses and
contribution of capital - - - 2,153
Comprehensive income:
Reversal of unrealized
holding gain upon sale
of invest-ment
available for sale - (1,477) - (1,477)
Net loss (20,490) - - (20,490)
--------------------
Total comprehensive income (21,967)
-------------------------------------------------------------------------------
Balance at December 31, 2000 $(20,694) $ - $ (87) $ 9,905
================================================
The accompanying notes are an integral part of these statements
F-5 Continued
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS:
First Look Media, Inc. (formerly known as Overseas Filmgroup, Inc.) ("Company")
is principally involved in the acquisition and worldwide license or sale of
distribution rights to independently produced motion pictures. Certain motion
pictures are directly distributed by the Company in the domestic theatrical
market under the name "First Look Pictures", and in the domestic video market
under the name "First Look Home Entertainment". As stated in Note 12, subsequent
to December 31, 2000, the Company has expanded its operations to include the
production of television commercials.
As stated in Note 3, in June 2000, the Company entered into a Securities
Purchase Agreement with Rosemary Street Productions, LLC ("Rosemary Street")
under which Rosemary Street purchased from the Company certain equity
instruments for cash consideration of $17 million.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of the Company include the financial
position, results of operations and cash flows of the Company and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated.
Revenues
Revenues from nonrefundable guarantees payable by sub-distributors are
recognized when the film becomes available for release and certain other
conditions are met in accordance with Statement of Position 00-2 "Accounting by
Producers or Distributors of Films" ("SOP 00-2"). Amounts received in advance of
the film being available are recorded as deferred revenue. Revenues from direct
theatrical distribution of films are recognized on the dates of exhibition.
Revenues from home video market are recognized, net of a reserve for returns,
upon availability of product to retailers.
Film Costs and Amortization
The Company accounts for film costs in accordance with SOP 00-2. Film costs
include the direct costs of acquiring and producing motion picture product.
Capitalized costs, which include interest, are amortized using the individual
film forecast method whereby expense is recognized in the proportion that
current year revenues for each film bear to management's estimate of ultimate
revenues. Film costs are stated at the lower of net unamortized cost or net
realizable value.
In June 2000, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 00-2, which replaces SFAS
No. 53. SOP 00-2 was adopted for the Company's fiscal year beginning January 1,
2000. SOP 00-2 establishes new accounting standards for producers or
F-6
distributors of films, including changes in revenue recognition and accounting
for advertising, development and overhead costs. Under the new standard, all
exploitation costs such as advertising and marketing costs for theatrical and
television products will be expensed as incurred, whereas under the previous
standards, these costs were capitalized and amortized over the products'
lifetime revenues. In addition, the new standard requires that development costs
for abandoned projects be charged directly to expense rather than being included
in production overhead and reestablished as film costs. The Company elected
early adoption of SOP 00-2 and, as a result, in the fiscal quarter ended June
30, 2000, a cumulative charge for the change in accounting principle of
$15,582,000 ($14,123,000 net of income taxes) has been reflected in the
Company's Consolidated Statement of Operations for the year ended December 31,
2000. Under SOP 00-2, the Company recorded additional operating expense of
$888,000 for the year ended December 31, 2000.
Payables to Producers
The Company accounts for participations due to producers in accordance with SOP
00-2. Management's estimate of ultimate participations is accrued as an expense
using the individual film forecast method whereby expense is recognized in the
proportion that current year revenues for each film bear to management's
estimate of ultimate revenues. In the year ending December 31, 2001, management
expects to make payments of approximately $14,000,000 to settle payable to
producer liabilities outstanding at December 31, 2000.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of
less than three months to be cash equivalents. The carrying value of the
Company's cash and cash equivalents approximate fair value due to their
short-term nature.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
provided over the estimated useful lives of assets, which range from 5 to 7
years using the straight line method. Leasehold improvements are amortized over
the shorter of the useful lives of assets or the term of the lease.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of such assets may not be
recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. If such assets are considered
impaired, the amount of the impairment loss recognized is measured as the amount
by which the carrying value of the asset exceeds the fair value of the asset,
fair value being determined based upon discounted cash flows or appraised
values, depending on the nature of the asset. The Company has identified no such
impairment losses.
F-7
Financial Instruments
The recorded value of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities and payable to producers
approximate their fair value due to the relative short maturities of these
instruments. The fair value of notes payable approximates the recorded value due
to the stated interest rate on such instruments.
Segment Reporting
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information" for
the year ended December 31, 2000. SFAS No. 131 establishes standards for the way
companies report information about operating segments in interim and annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company's
management has determined that the Company operated within one discrete
reportable business segment for the years ended December 31, 2000, 1999 and
1998.
Income Taxes
The Company records income taxes in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes". The standard requires, among other
provisions, an asset and liability approach to recognize deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and tax basis of
assets and liabilities. Valuation allowances are provided if, based upon the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Basic and Diluted Income (Loss) per Share
Basic and diluted net income (loss) per share is computed by dividing the net
income (loss) applicable to common stockholders by the weighted average number
of shares of common stock and common equivalent shares outstanding. Common
equivalent shares related to stock options, warrants and convertible preferred
stock have been excluded from the computation because their effect is
anti-dilutive.
The following table sets forth common stock equivalents (potential common stock)
that are not included in the diluted net income (loss) per share calculation
above because their effect would be anti-dilutive for the periods indicated:
Year Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Weighted average common stock equivalents:
Convertible preferred stock 904,971 0 0
Stock options 1,546,377 2,310,722 2,244,274
Warrants 6,118,319 4,562,500 4,562,500
F-8
Accounting for Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and FASB Interpretation ("FIN") No.
28 "Accounting for Stock Appreciation Rights and Other Variable Stock Option
Award Plans an Interpretation of APB Opinions No. 15 and 25" and complies with
the disclosure requirements of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation cost, if any, is recognized over the respective vesting period
based on the difference, if any, on the date of grant, between the fair value of
the Company's common stock and the grant price. The Company accounts for stock
issued to non-employees in accordance with the provisions of SFAS No. 123 and
EITF 96-18, "Accounting for Equity Instruments that are issued to other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
In March 2000, the Financial Accounting Standards Board issued FIN No. 44,
"Accounting for Certain Transactions involving Stock Compensation." FIN No. 44
provides guidance for issues arising in applying APB No. 25. FIN No. 44 applies
specifically to new awards, exchanges of awards in a business combination,
modification to outstanding awards, and changes in grantee status that occur on
or after July 1, 2000, except for the provisions related to repricing and the
definition of an employee which apply to awards issued after December 15, 1998.
The Company's financial statements have been prepared under the guidance
provided by FIN No. 44.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist primarily of cash and accounts receivable. The Company places its cash
with a financial institution and, at times, such amounts may be in excess of the
FDIC insurance limits. Concentration of credit risk associated with accounts
receivable is limited due to the large number of customers, as well as their
dispersion across geographic areas. The Company performs credit evaluations of
its customers and generally does not require collateral. As of December 31,
2000, two customers had outstanding balances of 10% or more ($3.5 million and
$3.2 million, respectively) of the Company's total accounts receivable.
Comprehensive Income
The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity during a period from non-owner sources.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amount of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-9
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." In June
1999, the FASB delayed the effective date of the standard, which will now be
effective for the Company's fiscal year beginning January 1, 2001. If the
Company enters into derivative transactions in the future, SFAS No. 133 will
require the Company to record all derivatives on the balance sheet at fair
value. Changes in derivative fair values will either be recognized in earnings
as offsets to the changes in fair value of related hedged assets, or deferred
and recorded as a component of accumulated other comprehensive income until the
hedged transactions occur and are recognized in earnings. The ineffective
portion of a hedging derivative's change in fair value will be immediately
recognized in earnings. The impact of SFAS No. 133 on the Company's financial
statements will depend on a variety of factors, including the extent of the
Company's future hedging activities, the types of hedging instruments used and
the effectiveness of such instruments. Management does not expect the impact of
adopting SFAS No. 133 on the Company's financial statements to be significant.
Reclassifications
Certain reclassifications have been made to amounts reported in prior periods to
conform with the current year presentation.
NOTE 3 - AGREEMENT WITH ROSEMARY STREET PRODUCTIONS, LLC:
In June 2000, the Company consummated a Securities Purchase Agreement with
Rosemary Street in which the Company sold to Rosemary Street for an aggregate
cash price of $17,000,000 (i) 5,097,413 shares of common stock, (ii) 904,971
shares of Series A convertible preferred stock and (iii) five-year warrants to
purchase up to 2,313,810 shares of common stock for an exercise price of $3.40
per share. Expenses associated with this issuance of stock and warrants totaled
$580,000 through December 31, 2000. As of December 31, 2000, Rosemary Street
owned approximately 53.5% of the Company's voting securities.
In accordance with the terms of the Securities Purchase Agreement with Rosemary
Street, Robert B. Little and Ellen Dinerman Little (collectively, "the
Littles"), former co-chairs of the Board of Directors, co-chief executive
officers and significant stockholders of the Company, forgave outstanding notes
payable and other payables of $2,023,000 and contributed to capital $130,000 in
cash and 1,588,812 shares of common stock. Pursuant to the agreement, the
Company paid the Littles $1,430,000 to settle remaining outstanding notes
payable and other payables.
NOTE 4 - MARKETABLE SECURITIES:
In July 1999, the Company and broadcast.com entered into an agreement whereby
broadcast.com was granted the right to exhibit, via the Internet, certain films
owned by the Company. Additionally, broadcast.com received 562,527 shares of the
Company's common stock in consideration for 11,302 shares in broadcast.com.
F-10
In July 1999, the Company received 17,454 shares of common stock of Yahoo!, Inc.
("Yahoo!"), reflecting a 2 for 1 stock split, in exchange for its shares of
broadcast.com, following Yahoo!'s acquisition of broadcast.com
The Company accounted for its investment in Yahoo! under the provisions of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The
investment in Yahoo! was classified as an available-for-sale security and was
carried on the balance sheet at fair value.
During 2000, the Company sold all its shares of Yahoo! common stock for
approximately $2,056,000.
NOTE 5 - FILM COSTS:
Film costs consist of the following:
December 31,
2000 1999
---- ----
(in thousands)
Film costs in release net of accumulated amortization $ 11,702 $ 26,433
Films costs not yet available for release 1,691 1,931
-------- --------
$ 13,393 $ 28,364
======== ========
Interest costs capitalized to films were $186,000, $303,000 and $649,000 during
the years ended December 31, 2000, 1999 and 1998, respectively. Based on the
Company's estimates of projected gross revenues as of December 31, 2000,
approximately 28% and 81% of unamortized film costs applicable to films in
release, are expected to be amortized during the next year and next three years,
respectively.
NOTE 6 - NOTES PAYABLE:
Notes payable consist of the following:
December 31,
2000 1999
---- ----
(in thousands)
Chase Credit Facility $ 6,500 $ -
Coutts/Bankgesellschaft Credit Facility - 18,053
Subordinated Note Payable 616 1,711
------- --------
$ 7,116 $ 19,764
======= ========
Concurrently with the consummation of the Securities Purchase Agreement with
Rosemary Street (Note 3), the Company entered into a five year $40 million
revolving credit facility (of which $33 million has been committed) with The
Chase Manhattan Bank and other commercial banks and financial institutions (the
"Chase Credit Facility"). A portion of the proceeds from this new credit
facility were used to refinance outstanding loans and accrued interest under the
Company's previous credit facility with Coutts & Co. and Bankgesellschaft Berlin
A.G. (the "Coutts/Bankgesellschaft Credit Facility"). The remaining proceeds
will be available to finance the Company's production, acquisition, distribution
and exploitation of motion pictures, and for working capital and general
corporate purposes, including the Company's planned expansion into television
commercial production (Note 12).
The amounts drawn down under the Chase Credit Facility bear interest, as the
Company may select, at rates based on either LIBOR plus 2% or a rate per annum
equal to the greater of (a) the Prime Rate plus 1%, (b) the Base CD Rate plus 2%
and (c) the Federal Funds Effective Rate plus 1.5% (as these terms are defined
in the Chase Credit Facility Agreement). In addition to an annual management fee
F-11
of $125,000, the Company pays a commitment fee on the daily average unused
portion of the Chase Credit Facility at an annual rate of 0.5%. Upon entering
the Chase Credit Facility, the Company was required to pay a one-time fee of
approximately $848,000. The Chase Credit Facility Agreement also restricts the
creation or incurrence of indebtedness and the issuance of additional
securities. The Chase Credit Facility is collateralized by all tangible and
intangible assets, and future revenues of the Company.
In May 2001, the Company entered into an amendment to the Chase Credit Facility,
pursuant to which the requisite lenders agreed, effective as of the date of the
amendment, to:
o permit the Company to obtain financing for one film from
another lender;
o increase the Company's overhead allowance from $5 million to
$7.25 million; and
o reduce the minimum level of Consolidated Net Worth (as defined
in the credit agreement) that the Company is required to
maintain from $28 million to $22 million.
As of December 31, 2000, the Company was not in compliance with the overhead and
net worth covenants of the credit agreement as in effect prior to the amendment.
Such non-compliance has been waived by the requisite lenders under the credit
agreement.
In addition to the amounts outstanding under the Chase Credit Facility
Agreement, during 1998 the Company borrowed $2,000,000 from another lender, the
proceeds of such loan were used to acquire rights to a particular film. This
subordinated note bears interest at the Prime Rate plus 1.5% and is
collateralized by amounts due under distribution agreements from the specific
film. The subordinated note matures on May 29, 2001.
F-12
NOTE 7 - INCOME TAXES:
The components of the provision for income taxes on earnings before income taxes
are as follows:
Years ended December 31,
------------------------
2000 1999 1998
---- ---- ----
(in thousands)
Current
State $ 6 $ - $ 53
Foreign withholding 131 - 117
------- ------- -------
- - 170
------- ------- -------
Deferred
State - (60) (49)
Federal - (676) (68)
------- ------- -------
- (736) (117)
------- ------- -------
$ 137 $ (736) $ 53
======== ======== =======
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory income tax rates to income (loss)
before taxes and cumulative effect of accounting changes, as a result of the
following differences:
2000 1999 1998
---- ---- ----
Federal statutory rate (34.0)% (34.0)% 34.0%
State taxes, net of federal benefit
and income not subject to tax (3.0)% (3.0)% 3.0%
Deferred tax asset valuation allowance 37.0% - -
Non-deductible portion of officers'
life insurance - - 8.0%
Other 2.2% - 2.0%
------- ------ ------
2.2% (37.0)% 47.0%
======= ======= ======
The deferred taxes relate primarily to differences arising from the amortization
of film costs for book and tax purposes and the benefits associated with tax
loss and foreign withholding tax credit carryforwards. The foreign withholding
taxes are substantially recouped from the producers' share of revenue.
The Company has provided a valuation allowance for the full amount of its net
deferred tax assets since realization of any future benefit from deductible
temporary differences and net operating loss and tax credit carryforwards cannot
be sufficiently assured at December 31, 2000.
At December 31, 2000, the Company had net operating losses for both federal and
state income tax purposes of approximately $9,957,000 and $9,906,000,
respectively, which expire at various dates between 2014 and 2015, respectively.
The net operating losses can be carried forward to offset future taxable income,
F-13
if any. Utilization of the carryforwards may be subject to utilization
limitations which may inhibit the Company's ability to use carryforwards in the
future.
NOTE 8 - SHAREHOLDERS' EQUITY:
Common Stock
During 2000, the Company increased the number of authorized shares of common
stock, $.001 par value, from 25,000,000 to 50,000,000 shares.
Preferred Stock
During 2000, the Company increased the number of authorized shares of preferred
stock, $.001 par value, from 2,000,000 to 10,000,000 shares.
Series A Preferred Stock
In accordance with the terms of the Securities Purchase Agreement with Rosemary
Street (Note 3), the Company issued 904,971 shares of Series A preferred stock.
The Series A preferred stock has the following characteristics:
Voting - Each share of Series A preferred stock is entitled to the number of
votes equal to the number of shares of common stock into which the preferred
stock is then convertible. Holders of the Series A preferred stock vote together
with common stockholders as one class.
Dividends - The holders of Series A preferred stock are not entitled to any
dividends.
Liquidation Preference - In the event of any liquidation, dissolution or winding
up of the affairs of the Company, the holders of the then outstanding Series A
preferred stock shall receive for each share an amount equal to the liquidation
value, payable in preference and priority to any payments made to the holders of
the then outstanding common stock. The exercise of the liquidation preference is
not beyond the control of the Company's management.
Conversion - Each share of Series A preferred stock, at the option of the
holder, is convertible at any time into two shares of common stock. Conversion
is automatic if by October 15, 2001, the convertible preferred stock is still
outstanding. At December 31, 2000, 1,809,942 shares of the Company's common
stock have been reserved for conversion.
Stock Option Plans
In October 1996, the Company's stockholders approved the 1996 Basic Stock Option
and Stock Appreciation Rights Plan ("1996 Plan"), under which incentive and
non-qualified stock options and stock appreciation rights may be granted to
certain employees, directors, independent consultants and certain other persons
who provide services to the Company to purchase up to a maximum of 550,000
shares of common stock. The 1996 Plan calls for annual grants to non-employee
directors of 5,000 shares at an exercise price equal to the fair market value of
the common stock on the date of grant, which is the date of the Annual
Stockholders meeting. These options are exercisable one year after the date of
F-14
grant and expire on the earlier of ten years from the date of grant or three
years from the date on which the director ceases to be a director of the
Company.
As part of the Securities Purchase Agreement with Rosemary Street (Note 3), the
Company cancelled all outstanding stock options granted to the Littles. Under
the terms of the Company's 1996 Special Stock Option Plan, the Littles held
options to purchase up to 2.2 million shares of common stock at exercise prices
ranging from $5.00 to $8.50 per share. These stock options were issued in 1996
and vested over a five-year period. The Company subsequently granted the Littles
fully vested stock options to purchase 500,000 shares of common stock at an
exercise price of $3.40 per share.
In November 2000, the Company's stockholders approved the 2000 Performance
Equity Plan ("2000 Plan"), under which a total of 1,000,000 shares of common
stock are available for grant to the Company's key employees, directors and
independent consultants. Awards consist of stock options, restricted stock
awards, deferred stock awards, stock appreciation rights and other stock-based
awards, as described in the 2000 plan.
An aggregate of 1,550,000 shares of common stock were reserved for grant under
the 1996 Plan and the 2000 Plan of which 1,220,000 shares were available for
future grant at December 31, 2000.
Number Weighted Average
of Shares Price Per Share
--------- ----------------
Balance, December 31, 1997 2,240,000 $ 6.73
1998:
Granted 20,000 $ 1.88
Balance, December 31, 1998 2,260,000 $ 6.69
1999:
Granted 120,000 $ 2.40
Balance, December 31, 1999 2,380,000 $ 6.48
2000:
Cancelled 2,200,000 $ 6.78
Granted 650,000 $ 3.20
Balance, December 31, 2000 830,000 $ 3.22
Exercisable at December 31, 2000 716,000 $ 3.31
F-15
The following summarizes prices and terms of options outstanding at December 31,
2000:
Stock Option Outstanding
------------------------
Weighted Average Number
Number Outstanding Remaining Exercisable at
Exercise Price at December 31, 2000 Contractual Life December 31, 2000
-------------- -------------------- ---------------- -----------------
$ 1.50 50,000 10 yrs 20,000
$ 1.75 10,000 10 yrs 0
$ 1.88 20,000 5.25 yrs 20,000
$ 2.25 20,000 5.75 yrs 20,000
$ 2.38 35,000 6.75 yrs 20,000
$ 2.44 100,000 8 yrs 100,000
$ 3.40 575,000 4.5 yrs 516,000
$ 5.25 20,000 4.25 yrs 20,000
------- -------
830,000 5.44 yrs 716,000
======= =======
The Company applies APB No. 25 and related interpretations to account for stock
options granted to employees and directors. Had compensation cost been
recognized pursuant to the fair value approach of SFAS No. 123, the Company's
pro forma net loss and net loss per share applicable to common stockholders
would have been as follows:
2000 1999 1998
---------- ---------- ---------
(in thousands)
Net loss before cumulative effect
of accounting changes:
As reported $ (6,367) $ (1,253) $ 59
SFAS 123 pro forma (6,700) (1,670) (276)
Net loss:
As reported (20,490) (1,253) 59
SFAS 123 pro forma (20,823) (1,670) (276)
Basic and diluted net loss per share:
As reported
Net loss before cumulative
effect of accounting changes (0.78) (0.21) 0.01
Net loss (2.52) (0.21) 0.01
SFAS 123 pro forma
Net loss before cumulative
effect of accounting changes (0.82) (0.28) (0.05)
Net loss (2.56) (0.28) (0.05)
F-16
The fair value of each stock option granted has been estimated on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions:
Risk-free interest rate 6.10%
Expected life (in years) 4 years
Dividend yield 0%
Expected volatility 50%
Warrants
In accordance with the terms of the Securities Purchase Agreement with Rosemary
Street (Note 3), the Company granted Rosemary Street warrants to purchase
2,313,810 shares of common stock. The Company also granted warrants to purchase
600,000 shares of common stock to individuals as compensation for services
rendered in connection with closing of the Securities Purchase Agreement. The
Company also granted warrants to purchase 75,000 shares of common stock to an
individual in consideration of his consent to the assignment by Rosemary Street
to the Company of his first look agreement. These warrants have an exercise
price of $3.40 per share, are fully vested, expire in June 2005 and remain
unexercised at December 31, 2000.
In addition to the warrants issued pursuant to the Securities Purchase Agreement
with Rosemary Street, at December 31, 2000, warrants to purchase 4,500,000 and
75,000 shares of common stock, issued in 1995 and 1996, at an exercise price of
$5.00 per share remained unexercised. These warrants are fully vested and expire
in February 2002 and October 2003, respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS:
Through June 2000, Ellen Dinerman Little was employed by the Company as its
co-chairman of the board, co-chief executive officer and president. In June
2000, the Company and Ms. Little terminated Ms. Little's existing employment
agreement and the Company entered into a first look agreement with The Little
Film Company, Inc. and Ms. Little. The agreement provides for a three-year term
ending in June 2003. Pursuant to the first look agreement, The Little Film
Company receives (i) an annual fee of $100,000; (ii) a discretionary revolving
development fund of $100,000 for The Little Film Company's use in the
option/acquisition of literary properties, engagement of writers and other
customary development costs; and (iii) customary overhead, including office
space, staff, telephone and reasonable travel costs.
The Little Film Company also will be compensated on a project-by-project basis.
The Company will have an exclusive "first look" on any project that The Little
Film Company owns or controls or any project that it has the right to acquire or
may wish to acquire for development or production. The Little Film Company will
furnish the Company with the services of Ms. Little in connection with the
development and possible production of theatrical motion pictures based upon
accepted artist submissions meeting certain criteria.
In October 2000, the Company entered into a consulting agreement with Wharton
Capital Partners Ltd. ("Wharton"). Barry Minsky, a director of the Company, is
the chief executive officer and a 50% shareholder of Wharton. Under the
agreement, Wharton received a one-time fee of $100,000, and is entitled to
receive a monthly fee of $4,166 for 24 months starting in November 2000.
According to the agreement, if Wharton introduces the Company to a financing
source and the Company consummates any public or private equity and/or debt
financing with the source during the term of the consulting agreement or during
F-17
the two-year period following the expiration of the agreement, then the Company
also will pay Wharton an amount equal to (i) 5% of all funds received by the
Company from such public or private equity financing and (ii) 3% of all funds
received by the Company from such public or private debt financing.
Additionally, upon completion of an equity-based financing, the Company will
issue to Wharton warrants to purchase shares of the Company's common stock equal
to 5% of the common stock or common stock equivalents issued in the financing at
an exercise price equal to 120% of the five-day average closing bid price prior
to the closing of such financing. The warrants will be exercisable on a cashless
basis and will have registration rights.
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
As of December 31, 2000, the Company was committed to pay a minimum guarantee of
approximately $281,000 contingent upon delivery of a film to the Company.
The Company leases office space and office equipment under various operating
leases, which expire between 2001 and 2003. Total rental expense under these
leases for the years ended December 31, 2000, 1999 and 1998 amounted to
$255,000, $257,000, and $277,000 respectively. Minimum annual rental payments
under non-cancelable leases are as follows:
2001 $259,000
2002 196,000
2003 7,000
NOTE 11 - FOREIGN SALES AND SIGNIFICANT CUSTOMERS:
The Company's foreign revenues are summarized as follows:
Years Ended December 31,
--------------------------------------------------
2000 1999 1998
---- ---- ----
(in thousands)
Western Europe $ 9,289 $14,282 $ 9,723
Asia 1,999 1,701 1,298
Latin America 1,139 1,610 1,316
Eastern Europe 806 469 673
Other 1,775 4,775 4,125
------- ------- -------
$15,008 $22,837 $17,135
======= ======= =======
Customers representing 10% or more of the Company's revenues accounted for
$3,014,000 (one customer) for the year ended December 31, 2000, $3,500,000 (one
customer) for the year ended December 31, 1999 and, $5,000,000 (one customer)
for the year ended December 31, 1998.
NOTE 12 - SUBSEQUENT EVENTS:
Since December 31, 2000, the Company has established a television commercial
division to produce television commercials ("spots") for domestic and
international markets. The Company has hired experienced management and
supporting staff and has engaged directors of television commercial productions.
The Company expects to begin producing television commercials in the second half
of 2001. In May 2001, the Company entered into a sublease agreement ending on
March 31, 2003 for its television commercial production operations for an annual
rent of $108,000.
F-18
UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED BALANCE SHEETS
June 30, 2001
-------------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 839
Accounts receivable, net of allowance for doubtful 29,423
accounts of $1,100,000
Film costs, net of accumulated amortization 15,148
Other assets 1,622
-------------
Total assets $ 47,032
=============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 1,529
Accrued interest payable 137
Deferred revenue 391
Payable to producers 24,164
Notes payable 11,450
-------------
Total liabilities 37,671
-------------
Shareholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized; 904,971 shares issued and outstanding
(Liquidation preference of $3,846,271) 1
Common stock, $.001 par value, 50,000,000 shares
authorized; 9,848,906 shares issued; 9,803,906
shares outstanding 10
Additional paid in capital 30,675
Accumulated deficit (21,238)
Treasury stock at cost, 45,000 shares (87)
-------------
Total shareholders' equity 9,361
-------------
Total liabilities and shareholders' equity $ 47,032
=============
The accompanying notes are an integral part of these consolidated
financial statements.
F-19
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30,
2001 2000
---- ----
Revenues $ 20,001 $ 10,460
Expenses:
Film costs 14,580 8,008
Distribution and marketing costs 2,151 1,415
Selling, general and administrative 3,394 1,889
---------- -----------
Total expenses 20,125 11,312
---------- -----------
Loss from operations (124) (852)
---------- -----------
Other income (expense):
Interest income 8 10
Interest expense (516) (1,062)
Other income 107 88
--------- ----------
Net other expense (401) (964)
Loss before income taxes and cumulative
effect of accounting changes (525) (1,816)
--------- ----------
Income taxes 19 92
--------- ----------
Loss before cumulative effect of accounting
changes (544) (1,908)
Cumulative effect of accounting changes - (14,123)
--------- ----------
Net loss $ (544) $ (16,031)
========= ==========
Basic and diluted loss per share:
---------------------------------
Loss before cumulative effect of accounting
changes $ (0.06) $ (0.30)
Cumulative effect of accounting changes - (2.19)
--------- ----------
Net loss $ (0.06) $ (2.49)
========= ==========
Weighted average number of common share
outstanding 9,804 6,431
========= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-20
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
2001 2000
---- ----
(in thousands)
Cash flows used in operating activities:
Net loss $ (544) $(16,031)
Adjustments to reconcile net loss to net
cash used in operating activities:
Cumulative effect of accounting changes - 14,123
Film cost amortization 14,580 907
Additions to film costs (4,101) (2,377)
Payment to producers (11,657) -
Change in assets and liabilities:
Accounts receivable (2,840) 3,193
Other assets (150) (1,341)
Accounts payable and accrued expenses 81 (451)
Payable to producers - 1,596
Deferred income taxes - (1,459)
Deferred revenue 304 (325)
---------- --------
Net cash used in operating activities (4,327) (2,165)
---------- --------
Cash flows from financing activities:
Sale of securities, net of expenses - 16,696
Net borrowings (pay down) under credit facility 4,500 (12,553)
Net pay down of subordinated note payable (166) (182)
Net pay down of note payable to related party - (650)
Restricted cash position - 75
---------- --------
Net cash provided by financing activities 4,334 3,386
---------- --------
Net increase in cash and cash equivalents 7 1,221
Cash and cash equivalents at beginning of period 832 270
---------- --------
Cash and cash equivalents at end of period $ 839 $ 1,491
========== ========
Supplemental disclosure of cash flow information:
Cash paid during the period
for:
Interest $ 567 $ 1,287
========= ========
Income taxes $ 6 $ 6
========= ========
Foreign withholding taxes $ 13 $ 86
========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
F-21
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Six Months Ended June 30,
----------------------------
2001 2000
---- ----
(in thousands)
Net loss $ (544) $ (16,031)
Unrealized holding loss on
investment available-for-sale - (1,017)
-------- ---------
Total comprehensive loss $ (544) $ (17,048)
======== =========
The accompanying notes are an integral part of these consolidated
financial statements
F-22
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The accompanying unaudited consolidated financial statements of First
Look Media, Inc. (formerly known as Overseas Filmgroup, Inc.) (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation
have been reflected in these consolidated financial statements.
Operating results for the six months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2001. Certain reclassifications have been made in
the 2000 consolidated financial statements to conform to the 2001
presentation. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 (the
"2000 Consolidated Financial Statements").
(2) Film costs consist of the following:
June 30, 2001
-------------
(in thousands)
Film costs in release net of accumulated amortization $ 11,032
Film costs not yet available for release 4,116
-----------
$ 15,148
===========
(3) In June 2000, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 00-2, "Accounting by Producers or Distributors of Films" ("SOP
00-2"). SOP 00-2 establishes new accounting standards for producers or
distributors of films, including changes in revenue recognition and
accounting for advertising, development and overhead costs.
Additionally, in June 2000, the Financial Accounting Standards Board
("FASB") issued Statement 139 ("SFAS 139") which rescinds FASB 53 on
financial reporting by motion picture film producers or distributors.
SFAS 139 requires public companies to follow the guidance provided by
SOP 00-2. The Company adopted SOP 00-2 and, as a result, in the fiscal
quarter ended June 30, 2000 recorded a one-time, pre-tax non-cash
charge of $15,582,000 ($14,123,000 net of income taxes). This charge
has been reflected in the Company's Consolidated Statements of
Operations as a cumulative effect of accounting changes, effective
January 1, 2000.
(4) Segment Information
The Company manages its business in two operating segments: Motion
Picture Distribution and Television Commercial Production. The segments were
determined based upon the types of products and services provided and sold by
each segment.
The Motion Picture Distribution segment licenses, distributes, sells
and otherwise exploits distribution rights to motion pictures. Activities
include direct theatrical, video and DVD distribution in the U.S. as well as
F-23
licensing of rights to other theatrical, video and DVD distributors and to pay,
basic and free television broadcasters throughout the world. The Television
Commercial Production segment produces commercials ("spots") for manufacturers
and service providers who use the commercial to promote their products and
services. The accounting policies of the segments are the same as those
described above in the summary of significant accounting policies. There have
been no inter-segment transactions during the reported period. The Company
evaluates performance based on income or loss from operations before interest
expense and taxes.
Financial information by operating segment is set forth below:
Six Months Ended and as of June 30, 2000 Six Months Ended and as of June 30, 2001
---------------------------------------- ----------------------------------------
(in thousands) (in thousands)
Television Television
Commercial Commercial
Motion Pictures Production Totals Motion Pictures Production Totals
----------------------------------------------- ------------------- ----------------- ----------
Revenues to external
customers $ 20,001 $ - $ 20,001 $ 10,460 $ - $10,460
Income (loss) from
operations before
interest and taxes 148 (272) (124) (852) - (852)
Total assets 46,900 132 47,032 48,272 - 48,272
F-24
Indemnification of Directors and Officers
Our restated certificate of incorporation provides that all of our
directors, officers, employees and agents shall be entitled to be indemnified by
us to the fullest extent permitted by law.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of the person's duty to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
85
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, with respect to a person who is a director or officer at the time
of such determination (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) by a committee of such directors designated by majority vote of such
directors, even though less than a quorum, or (3) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
86
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this section with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees). (Last amended by Ch. 120, L. `97, eff. 7-1-97.)
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted for our directors, officers, and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person in a successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
87
Exhibit 12(a)(ii)
LETTER OF TRANSMITTAL
to accompany
COMMON STOCK PURCHASE WARRANTS
of
FIRST LOOK MEDIA, INC.
Tendered Pursuant to the Offering Memorandum
-------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON DECEMBER 18,
2001, UNLESS EXTENDED. WE RESERVE THE RIGHT NOT TO PROCEED WITH THE EXCHANGE
OFFER, AS WELL AS THE RIGHT TO MODIFY THE TERMS OF THE EXCHANGE OFFER. WARRANTS
TENDERED FOR EXCHANGE MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
-------------------------------------------------------------------------------
EXCHANGE AGENT:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By Mail:* By Overnight Courier:* By Hand:*
Continental Stock Transfer & Continental Stock Transfer & Continental Stock Transfer &
Trust Company Trust Company Trust Company
17 Battery Place, 8th Floor 17 Battery Place, 8th Floor 17 Battery Place, 8th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
Attn: Reorganization Attn: Reorganization Attn: Reorganization
Department Department Department
(registered or certified mail
recommended)
By Facsimile:
Continental Stock Transfer & Trust
Company
Attn: Reorganization Department
Fax No. (212) 509-5150
(For Eligible Institutions Only)
Confirm by telephone:
Telephone no. (212) 509-4000,
[extension 535]
* Please note that all correspondence prior to November 19, 2001, should be sent
to the above at 2 Broadway, 19th Floor, New York, New York 10004.
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of instructions via a facsimile transmission to a
number other than as set forth above will not constitute a valid delivery.
The undersigned acknowledges receipt of the offering memorandum dated
November 8, 2001 (the "Offering Memorandum") of First Look Media, Inc.
("Company") which, together with this letter of transmittal (the "Letter of
Transmittal"), constitute the Company's offer (the "Exchange Offer") to exchange
.0714 ("Exchange Ratio") of a share of its common stock ("Common Stock") for
each and every of its issued and outstanding redeemable common stock purchase
warrants ("Warrants"). No fractional shares of Common Stock will be issued as a
result of the Exchange Offer. Fractional share interests will be rounded up to
the nearest whole share based upon the aggregate number of warrants tendered by
the holder or its agent in the exchange offer.
The undersigned has checked the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE OFFERING
MEMORANDUM CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
OFFERING MEMORANDUM AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE
EXCHANGE AGENT.
List below the Warrants to which this Letter of Transmittal relates.
If the space provided below is inadequate, the warrant certificate numbers, the
number of Warrants represented thereby, the number of Warrants being tendered
and the Series of Warrant should be listed on a separate signed schedule and
affixed hereto.
--------------------------------------------------------------------------------
DESCRIPTION OF WARRANTS TENDERED HEREWITH
--------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF | WARRANTS TENDERED
REGISTERED HOLDER(S) |
(Please fill in) |
-------------------------------- -----------------------------------------------
| | Total | Total
| Warrant | Number | Number of
| Certificate | of | Warrants
| Number(s) | Warrants | Tendered*
-------------------------------- ----------------- -------------- --------------
| | |
-------------------------------- ----------------- -------------- --------------
| | |
-------------------------------- ----------------- -------------- --------------
| | |
-------------------------------- ----------------- -------------- --------------
| | |
-------------------------------- ----------------- -------------- --------------
| | |
-------------------------------- ----------------- -------------- --------------
Total Warrants | | |
-------------------------------- ----------------- -------------- --------------
* Unless otherwise indicated, it will be assumed that the total number of
Warrants represented by the certificates bearing the serial numbers
listed are being tendered.
--------------------------------------------------------------------------------
The undersigned represents and warrants to the Company that the
undersigned is the lawful owner(s) of the above described Warrants and the
undersigned holds the Warrants free and clear of all liens, charges or
encumbrances whatsoever.
This Letter of Transmittal is to be completed by holders of Warrants
pursuant to the procedures set forth in the offering memorandum under the
caption "The Exchange Offer."
Holders whose Warrants are not immediately available or who cannot
deliver their Warrants and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date (as defined below) must tender their
Warrants in accordance with the Notice of Guaranteed Delivery enclosed herewith
and the guaranteed delivery procedure set forth in the Offering Memorandum under
the caption "The Exchange Offer--Guaranteed Delivery Procedure." See Instruction
1 of this Letter of Transmittal.
2
|_| CHECK HERE IF TENDERED WARRANTS ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s): _________________________________________
Name of Eligible Institution that Guaranteed Delivery:_________________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE OFFERING MEMORANDUM AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO AND COMPLETE THE FOLLOWING:
Name:__________________________________________________________________
Address:_______________________________________________________________
|_| CHECK HERE TO INDICATE WHETHER ANYONE ASSISTED YOU IN THE TENDER OF
YOUR WARRANTS AND COMPLETE THE FOLLOWING:
If so, indicate name of the Dealer:____________________________________
Name of Individual Broker:_____________________________________________
Telephone Number of Broker:____________________________________________
Address:_______________________________________________________________
3
NOTE: SIGNATURE MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company, the Warrants listed above. Subject
to, and effective upon, the acceptance for exchange of the Warrants tendered
herewith, the undersigned hereby exchanges, assigns and transfers to, or upon
the order of, the Company all right, title and interest in and to such Warrants.
No fractional shares of Common Stock will be issued as a result of the Exchange
Offer. Fractional share interests will be rounded up to the nearest whole share
based upon the aggregate number of warrants tendered by the holder or its agent
in the exchange offer.
The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Warrants tendered hereby
and to acquire Common Stock issuable upon the exchange of such tendered
Warrants, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title to the tendered Warrants, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Warrants.
The Exchange Offer is subject to certain conditions as set forth in the
Offering Memorandum under the caption "The Exchange Offer--Conditions of the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Company) as more particularly
set forth in the offering memorandum, the Company may amend the Exchange Offer
and may not be required to complete the Exchange Offer and/or exchange any of
the Warrants tendered hereby and, in such event, the Warrants not exchanged will
be returned to the undersigned at the address shown below the signature of the
undersigned.
All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Tendered Warrants
may be withdrawn at any time prior to 5:00 p.m., New York City Time on December
18, 2001, unless extended (the "Expiration Date").
Certificates for all shares of Common Stock delivered in exchange for
tendered Warrants and any Warrants delivered herewith but not exchanged, in each
case registered in the name of the undersigned, shall be delivered to the
undersigned at the address shown below the signature of the undersigned unless
otherwise indicated as provided below.
Unless otherwise indicated herein under "Special Exchange
Instructions," please issue the Common Stock and/or return any Warrants not
accepted for exchange in the name of the registered holder(s) appearing above
under "Description of Warrants Tendered Herewith." Similarly, unless otherwise
indicated under "Special Delivery Instructions" below, please mail the
certificates representing issued Common Stock and/or return any Warrants not
accepted for exchange (and accompanying documents, as appropriate) to the
address(es) of the registered holder(s) above appearing under "Description of
Warrants Tendered Herewith." If both the "Special Exchange Instructions" and the
"Special Delivery Instructions" are completed, please issue the Common Stock
and/or return any Warrants not accepted for exchange in the name of, and deliver
the certificates(s) for such Common Stock and/or return any Warrants not
accepted for exchange to, the person or persons so indicated. The undersigned
recognizes that the Company has no obligation, pursuant to the "Special Exchange
Instructions," to transfer any Warrants from the name of the registered holder
thereof if the Company does not accept for exchange any of the Warrants so
tendered.
4
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3, 4 and 5) (See Instructions 3, 4 and 5)
To be completed ONLY if the shares of the Common To be completed ONLY if the shares of the issued
Stock are to be issued in the name of someone other Common Stock are to be mailed to someone other than
than the undersigned. the undersigned, or to the undersigned at an address
other than that shown above.
Issue (and mail) Shares of the Common Stock to: Mail Shares of the Common Stock to:
Name: Name:
--------------------------------------------- ---------------------------------------------------
(Please Print) (Please Print)
Address: Address:
------------------------------------------ ------------------------------------------------
--------------------------------------------------- -------------------------------------------------------
(Include Zip Code) (Include Zip Code)
------------------------------------------------------- --------------------------------------------------------
(Tax Identification or Social Security No.) (Tax Identification or Social Security No.)
The undersigned understands that tender of any of the Warrants
pursuant to any of the procedures described in the offering memorandum under the
caption "The Exchange Offer" and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions set forth in the offering memorandum.
5
TENDERING WARRANT HOLDER(S) SIGN HERE
------------------------------------- ----------------------------------------
Signature of Holder Social Security Number or Taxpayer I.D.
Number
------------------------------------- ----------------------------------------
Signature(s) of Holder(s) Social Security Number or Taxpayer I.D.
Number
Dated: ________________, 2001
(Must be signed by the registered holder(s) exactly as the name(s) appear(s) on
the certificate(s) for the tendered Warrants or a security position listing or
by any person(s) authorized to become registered holder(s) by endorsements and
other documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please provide the
following information.) See Instruction 3.
Name(s):________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title):__________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.:____________________________________________________
Tax Identification No.:_________________________________________________________
GUARANTEE OF SIGNATURE(S)
(If Required -- See Instruction 3)
Authorized Signature:___________________________________________________________
Name:___________________________________________________________________________
(Please Print)
Title:__________________________________________________________________________
Name of Eligible Institution:___________________________________________________
Address:________________________________________________________________________
Area Code and Telephone No.:____________________________________________________
Dated:_____________________________ , 2001
6
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter of Transmittal and Warrant Certificates;
Guaranteed Delivery Procedures. This Letter of Transmittal is to be
used to exchange Warrants for shares of Common Stock if Warrants are to
be forwarded herewith or, alternatively, if tendered pursuant to
guaranteed delivery procedures. Accordingly, certificates for all
physically delivered Warrants or a Notice of Guaranteed Delivery, as
the case may be, as well as a properly completed and duly executed copy
of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by
the Exchange Agent at its address set forth herein on or prior to the
Expiration Date.
The method of delivery of this Letter of Transmittal, the Warrants, and
any other required documents is at the election and risk of the Warrant
holders and, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. Instead
of delivery by mail, it is recommended that Warrant holders use an
overnight or hand delivery service.
Holders whose Warrants are not immediately available or who cannot
deliver their Warrants and all other required documents to the Exchange
Agent on or prior to the Expiration Date, may tender their Warrants by
having the Notice of Guaranteed Delivery form enclosed herewith
properly completed and duly executed by an Eligible Institution (as
defined in the Offering Memorandum) pursuant to the guaranteed delivery
procedure set forth in the Offering Memorandum under "Exchange
Offer--Guaranteed Delivery Procedure." To be effective, such Notice of
Guaranteed Delivery must be: (i) made by or through an Eligible
Institution, (ii) received substantially in the form provided herewith
by the Exchange Agent on or prior to the Expiration Date, and (iii)
received, within five business days after delivery of the Notice of
Guaranteed Delivery, with the tendered Warrants, in proper form for
transfer, together with a properly completed and duly executed Letter
of Transmittal (or a facsimile thereof) and any other documents
required by this Letter of Transmittal.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Warrant holders, by execution of this Letter of
Transmittal (or facsimile thereof), shall waive any right to receive
notice of the acceptance of the Warrants for exchange.
2. Withdrawals; Inadequate Space. Tenders of Warrants may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration
Date. To be effective, a written notice of withdrawal (sent by hand
delivery, overnight courier, mail or facsimile transmission) must be
timely received by the Exchange Agent. Any such notice of withdrawal
must specify the person named in the Letter of Transmittal as having
tendered Warrants to be withdrawn, the certificate numbers and
designation of the Warrants to be withdrawn, the principal amount of
Warrants delivered for exchange, a statement that such a Warrant
holder is withdrawing its election to have such Warrants exchanged,
and the name of the registered Warrant holder of such Warrants, and
must be signed by the Warrant holder in the same manner as the
original signature on the Letter of Transmittal (including any
required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Warrants being withdrawn.
The Exchange Agent will return the properly withdrawn Warrants
promptly following receipt of notice of withdrawal. Withdrawals of
tenders of warrants may not be rescinded, and any warrants withdrawn
will thereafter be deemed not validly tendered for purposes of the
exchange offer; provided, however, that withdrawn warrants may be
re-tendered by again following the tender procedures described in the
Offering Memorandum and herein.
7
If the space provided herein is inadequate, list and attach hereto on a
separate schedule the Warrant Certificate numbers, the number of
Warrants represented thereby, and the number of Warrants being
tendered.
3. Guarantee of Signatures; Signature on this Letter of Transmittal;
Written Instruments and Endorsements. No signature guarantee on this
Letter of Transmittal is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Warrants being tendered
herewith (the term "registered holder" for purposes of this document,
shall include any participant in DTC whose name appears on a security
position listing as the owner of such Warrants) unless such holder(s)
have completed either the box entitled "Special Delivery Instructions"
or the box entitled "Special Exchange Instructions" on this Letter of
Transmittal or (ii) such Warrants are tendered for the account of an
Eligible Institution. In all other cases, all signatures on this
Letter of Transmittal must be guaranteed by a firm that is a member of
a registered national securities exchange or a member of the NASD, a
commercial bank or trust company having an office or correspondent in
the United States or that is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange
Act. If the Warrant is registered in the name of a person other than
the signer of this Letter of Transmittal, the tendered Warrant must be
endorsed or accompanied by an appropriate instrument of transfer,
signed exactly as the name or names of the registered owner or owners
appear on the Warrant, with the signatures on the Warrant or
instrument of transfer guaranteed as aforesaid.
If this Letter of Transmittal is signed by the registered holder(s) of
the Warrants tendered hereby, the signature must correspond with the
name(s) as written on the face of certificates without alteration,
enlargement or any change whatsoever.
If any of the Warrants tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of
Transmittal.
If a number of Warrants registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies
of this Letter of Transmittal as there are different registrations of
Warrants.
When this Letter of Transmittal is signed by the registered holder or
holders of Warrants listed and tendered hereby, no endorsements of
certificates or separate written instruments of transfer or exchange
are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Warrants listed, the tendered
Warrants must be endorsed or accompanied by a separate written
instrument of transfer or exchange in form satisfactory to the Company
and duly executed by the registered holder or holders, in either case
signed exactly as the name or names of the registered holder or holders
appear(s) on the Warrant with the signatures on the Warrant or
instrument of transfer guaranteed as aforesaid.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority
to so act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must
be guaranteed by an Eligible Institution.
8
4. Transfer Taxes. The Company shall pay all transfer taxes, if any,
applicable to the exchange of Warrants pursuant to the Exchange Offer.
If, however, certificates representing Common Stock, or Warrants are
to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the Warrants tendered hereby, or
if a transfer tax is imposed for any reason other than the exchange of
Warrants pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered Warrant holder or
any other person) will be payable by the tendering Warrant holder. If
satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering Warrant holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Warrants listed in this Letter
of Transmittal.
5. Special Exchange and Delivery Instructions; Mutilated, Lost, Stolen or
Destroyed Warrants. If shares of the Common Stock are to be issued in
the name of a person other than the signer of this Letter of
Transmittal or if shares of the Common Stock are to be sent or returned
to someone other than the signer of this Letter of Transmittal or to an
address other than that shown above, the appropriate boxes on this
Letter of Transmittal should be completed.
Any holder whose Warrants have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated
above for further instructions.
6. Requests for Assistance or Additional Copies. Questions relating to
the Exchange Offer, as well as requests for assistance or additional
copies of the Offering Memorandum and this Letter of Transmittal,
should be directed to the Exchange Agent at (212) 509-4000, extension
535, or by mail to 17 Battery Place, 8th Floor, New York, New York
10004, Attention: Reorganization Department.
7. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal
or Warrants will be resolved by the Company, whose determination will
be final and binding. The Company reserves the absolute right to
reject any or all Letters of Transmittal or tenders of Warrants that
it determines are not in proper form or the acceptance of which may,
in the opinion of the Company's counsel, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender
as to the particular Warrants covered by any Letter of Transmittal or
tendered pursuant to such Letter of Transmittal or any particular
Warrant holder. None of the Company, the Exchange Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give
any such notification. The Company's interpretation of the terms and
conditions of the Exchange Offer shall be final and binding.
8. Expenses. The Company has agreed to reimburse certain brokers for
their expenses incurred in connection with effecting the exchange. We
will not be paying any solicitation fees.
No such expenses shall be reimbursed with respect to the tender of
Warrants by a holder unless the Letter of Transmittal accompanying such
tender designates a broker as having obtained the tender of the
Warrants covered thereby. No such reimbursement shall be payable to a
broker with respect to the tender of Warrants by the holder of record,
for the benefit of the beneficial owner, unless the beneficial owner
has designated such broker. All questions as to the validity, form or
eligibility (including time of receipt) of notices of withdrawal will
be determined by the Company, whose determination will be final and
binding. Neither the Company, the Exchange Agent, nor any other person
will be under any duty to give notification of any defects or
irregularities in any notices of withdrawal or incur any liability for
failure to give any such notification. The Company reserves the
absolute right not to reimburse any expenses that would, in the opinion
9
of counsel for the Company, be unlawful or violate the regulations of
any national securities exchange or the NASD. No broker, dealer, bank,
trust company or fiduciary shall be deemed to be the agent of the
Company or the Exchange Agent for purposes of the Exchange Offer.
9. Definitions. Capitalized terms used in this Letter of Transmittal and
not otherwise defined have the meanings given in the Offering
Memorandum.
IMPORTANT: This Letter of Transmittal or a facsimile thereof (together
with certificates for Warrants and all other required documents) or a
Notice of Guaranteed Delivery must be received by the Exchange Agent on
or prior to the Expiration Date.
10
Exhibit 12(a)(iii)
FIRST LOOK MEDIA, INC.
Offer to Exchange
0.0714 of a Share of Common Stock
of First Look Media, Inc.
for Each and Every of its Outstanding
Common Stock Purchase Warrants
November 8, 2001
To Brokers, Dealers and Other Nominees:
First Look Media, Inc. ("Company") is enclosing herewith copies of an
Offering Memorandum, dated November 8, 2001 ("Offering Memorandum"), a related
Letter of Transmittal (which, as amended from time to time, together with the
Offering Memorandum constitute the "Exchange Offer") and certain other materials
listed below. These materials are intended for you to distribute to your clients
in connection with the Company's offer to exchange 0.0714 of a share of its
common stock, par value $.001 per share ("Common Stock"), for each and every of
its outstanding Redeemable Common Stock Purchase Warrants ("Warrants"), upon the
terms and subject to the conditions of the Exchange Offer. As described in more
detail in the Offering Memorandum, the Company will issue 0.0714 of one share of
Common Stock in exchange for every Warrant tendered and accepted by the Company
for exchange pursuant to the Exchange Offer. No fractional shares of Common
Stock will be issued as a result of the Exchange Offer. Fractional shares will
be rounded up to the nearest whole share based upon the aggregate number of
Warrants tendered by the holder or its agent and accepted by the Company for
exchange.
We will not be paying any solicitation fees. The Company has agreed to
reimburse certain, specific brokers for their expenses incurred in connection
with effecting the exchange. No such expenses shall be reimbursed with respect
to the tender of Warrants by a holder unless the Letter of Transmittal
accompanying such tender designates a broker as having obtained the tender of
the Warrants covered thereby. No such reimbursement shall be payable to a broker
with respect to the tender of Warrants by the holder of record, for the benefit
of the beneficial owner, unless the beneficial owner has designated such broker.
All questions as to the validity, form or eligibility (including time of
receipt) of notices of withdrawal will be determined by the Company, whose
determination will be final and binding. Neither the Company, the Exchange
Agent, nor any other person will be under any duty to give notification of any
defects or irregularities in any notices of withdrawal or incur any liability
for failure to give any such notification. The Company reserves the absolute
right not to reimburse any expenses that would, in the opinion of counsel for
the Company, be unlawful or violate the regulations of any national securities
exchange or the NASD. No broker, dealer, bank, trust company or fiduciary shall
be deemed to be the agent of the Company or the Exchange Agent for purposes of
the Exchange Offer.
For your information and for forwarding to your clients for whom you
hold Warrants registered in your name or in the name of your nominee, or who
hold Warrants registered in their own names, we are enclosing the following
documents:
1. The Offering Memorandum, dated November 8, 2001;
2. The Letter of Transmittal to be used by registered holders of
Warrants in accepting the Exchange Offer;
3. A form of letter which you may send, as a cover letter to accompany
the Offering Memorandum and related materials, to your clients for whose
accounts you hold Warrants registered in your name or the name of your nominee,
with space provided for obtaining such clients' instructions with respect to the
Exchange Offer;
4. A Letter to Warrant holders from the Company;
5. A Form of Notice of Guaranteed Delivery (to be used to accept the
Exchange Offer if certificates evidencing the Warrants are not immediately
available or under certain other circumstances described in the Offering
Memorandum);
6. A Notice of Warrants Tendered to be used by you to report the
Warrant tenders obtained by you; and
7. A return envelope addressed to Continental Stock Transfer & Trust
Company, the Exchange Agent.
Your prompt action is requested. We urge you to contact your clients as
soon as possible. The Exchange Offer will expire at 5:00 p.m., New York City
time, on December 18, 2001, unless extended ("Expiration Date"). Tendered
Warrants may be withdrawn at any time prior to the Expiration Date.
The Company reserves the right to delay accepting any Warrants for
exchange or to terminate or not proceed with the Exchange Offer, or to extend or
otherwise amend the Exchange Offer, if certain customary conditions exist as
described in the Offering Memorandum. The Exchange Offer is also conditioned
upon certain other customary conditions. Any or all of the conditions, if not
satisfied in the Company's reasonable discretion, may be waived by the Company,
in whole or in part at anytime prior to the Expiration Date, subject to
applicable law.
Other than the reimbursement of expenses to certain brokers, as
described above, the Company will not make any payments to brokers, dealers or
others for the solicitation of tenders of Warrants pursuant to the Exchange
Offer. The Company, however, will pay to Continental Stock Transfer & Trust
Company (the Exchange Agent) reasonable and customary fees for their services in
connection with the Exchange Offer and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith. In addition, you will be
reimbursed for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients who are beneficial
owners of the Warrants, and in handling or forwarding any of their tenders of
Warrants.
In general, the rules of the Securities and Exchange Commission
("Commission") prohibit any broker-dealer that is participating in the
distribution of securities for or on behalf of the Company from making a market
in the Common Stock or Warrants during a "restricted period" commencing up to
five days prior to the date that the Offering Memorandum is distributed to
Warrant holders and extending until completion of the Exchange Offer. The
Commission has, however, adopted exceptions to these rules that permit market
2
making under certain conditions. These rules permit such broker-dealers to
continue to make a market subject to the conditions, among others, that its bid
not exceed the highest bid by a market maker not connected with the Exchange
Offer and that its net purchases on any one trading day not exceed prescribed
limits.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Warrants to it or its order pursuant to the Exchange Offer. If,
however, shares of Common Stock issued pursuant to the Exchange Offer or
substitute certificates evidencing Warrants not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Warrants tendered, or if tendered certificates
representing Warrants are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the transfer and sale of Warrants to the Company or its
order pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
To participate in the Exchange Offer, the certificates for Warrants
together with a duly executed and properly completed Letter of Transmittal or
facsimile thereof, with any required signature guarantees, and any other
required documents, must be received by the Exchange Agent by 5:00 p.m., New
York City time on the Expiration Date as indicated in the Letter of Transmittal
and the Offering Memorandum.
If holders of the Warrants wish to tender, but it is impracticable for
them to forward their Warrants prior to 5:00 p.m., New York City time, on the
Expiration Date, a tender may be effected by following the guaranteed delivery
procedures described in the Offering Memorandum under "The Exchange Offer -
Guaranteed Delivery Procedure," which procedures include delivering a properly
completed and executed Notice of Guaranteed Delivery with required signature
guarantees prior to such time.
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be directed to
the Exchange Agent at (212) 509-4000, extension 535.
Very truly yours,
FIRST LOOK MEDIA, INC.
-------------------------------
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF ANY
OF THEM IN CONNECTION WITH THE EXCHANGE OFFER, EXCEPT FOR THE DOCUMENTS ENCLOSED
AND THE STATEMENTS EXPRESSLY MADE THEREIN.
3
NOTICE OF WARRANTS TENDERED
The Company has agreed to reimburse certain brokers for their expenses
incurred in connection with effecting the exchange. We will not be paying any
solicitation fees.
No such expenses shall be reimbursed with respect to the tender of
Warrants by a holder unless the Letter of Transmittal accompanying such tender
designates a broker as having obtained the tender of the Warrants covered
thereby. No such reimbursement shall be payable to a broker with respect to the
tender of Warrants by the holder of record, for the benefit of the beneficial
owner, unless the beneficial owner has designated such broker. All questions as
to the validity, form or eligibility (including time of receipt) of notices of
withdrawal will be determined by the Company, whose determination will be final
and binding. Neither the Company, the Exchange Agent, nor any other person will
be under any duty to give notification of any defects or irregularities in any
notices of withdrawal or incur any liability for failure to give any such
notification. The Company reserves the absolute right not to reimburse any
expenses that would, in the opinion of counsel for the Company, be unlawful or
violate the regulations of any national securities exchange or the NASD. No
broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent
of the Company or the Exchange Agent for purposes of the Exchange Offer.
List below the number of Warrants tendered by each beneficial owner
whose tender you have obtained. If the space below is inadequate, list the
Warrants on a separate signed schedule and affix the list to this Notice of
Warrants Tendered.
---------------------------------------- --------------------------------------------------------------------
|
Name(s) and Address(es) |
of Registered Holder(s) | Warrants Tendered
(Please fill in) |
---------------------------------------- --------------------------------------------------------------------
| | |
| Warrant | |
| Certificate | Total Number of | Total Number of
| Number(s) | Warrants | Warrants Tendered*
---------------------------------------- --------------------- ----------------------- ----------------------
| | |
---------------------------------------- --------------------- ----------------------- ----------------------
| | |
---------------------------------------- --------------------- ----------------------- ----------------------
| | |
---------------------------------------- --------------------- ----------------------- ----------------------
| | |
---------------------------------------- --------------------- ----------------------- ----------------------
| | |
Total Warrants | | |
---------------------------------------- --------------------- ----------------------- ----------------------
* Unless otherwise indicated, it will be assumed that the total number of Warrants represented by the
certificates bearing the certificate numbers listed are being tendered.
-------------------------------------------------------------------------------------------------------------
ALL NOTICES OF WARRANTS TENDERED SHOULD BE RETURNED TO THE EXCHANGE
AGENT AND MUST BE RECEIVED BY THE EXCHANGE AGENT WITHIN FIVE BUSINESS DAYS AFTER
THE EXPIRATION DATE.
4
The undersigned hereby confirms that: (i) it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the applicable rules and regulations thereunder; (ii) it is entitled to
reimbursement of expenses incurred in connection with facilitating the exchange
of Warrants under the terms and conditions of the Exchange Offer; (iii) in
facilitating the exchange of Warrants, it has used no materials other than those
furnished by the Company; and (iv) if it is a foreign broker or dealer not
eligible for membership in the NASD, it has agreed to conform to the NASD's
Rules of Fair Practice in connection with the exchange.
--------------------------------- --------------------------------
Firm Name Address (including Zip Code)
--------------------------------- --------------------------------
By: Area Code and Telephone Number
Title:
5
DO NOT SEND WARRANTS WITH THIS FORM.
WARRANT CERTIFICATES MUST BE SENT WITH THE
LETTER OF TRANSMITTAL
REIMBURSEMENT PAYMENT INSTRUCTIONS
Issue check to:
Name: __________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
6
Exhibit 12(a)(iv)
Offer to Exchange
0.0714 of Shares of Common Stock
of
FIRST LOOK MEDIA, INC.
for Each and Every of its Outstanding
Redeemable Common Stock Purchase Warrants
To Our Clients: November 8, 2001
Enclosed for your consideration is an Offering Memorandum, dated
November 8, 2001 ("Offering Memorandum"), of FIRST LOOK MEDIA, INC., a Delaware
corporation ("Company") and a related Letter of Transmittal (which, as amended
from time to time, together with the Offering Memorandum constitute the
"Exchange Offer"), relating to the Exchange Offer by the Company to exchange
0.0714 of a share ("Exchange Ratio") of its common stock, par value $.001 per
share ("Common Stock"), for each and every of its outstanding Redeemable Common
Stock Purchase Warrants ("Warrants"), upon the terms and subject to the
conditions of the Exchange Offer. As described in more detail in the Offering
Memorandum, the Company will issue 0.0714 of one share of Common Stock in
exchange for every Warrant tendered and accepted by the Company for exchange
pursuant to the Exchange Offer. No fractional shares of Common Stock will be
issued as a result of the Exchange Offer. Fractional shares will be rounded up
to the nearest whole share based upon the aggregate number of Warrants tendered
by the holder and accepted by the Company for exchange.
Please note that the Exchange Offer will expire at 5:00 p.m., New York
City time, on December 18, 2001, unless extended ("Expiration Date").
The Company reserves the right to delay accepting any Warrants for
exchange or to terminate or not proceed with the Exchange Offer, or to extend or
otherwise amend the Exchange Offer, if certain customary conditions exist as
described in the Offering Memorandum. The Exchange Offer is also conditioned
upon certain other customary conditions. Any or all of the conditions, if not
satisfied in the Company's reasonable discretion, may be waived by the Company,
in whole or in part at anytime prior to the Expiration Date, subject to
applicable law.
This material is being forwarded to you as the beneficial owner of
Warrants carried by us in your account but not registered in your name. A tender
of such Warrants may only be made by us as the holder of record and pursuant to
your instructions. The accompanying Letter of Transmittal is furnished to you
for your information only and may not be used by you to tender Warrants.
Accordingly, we request instructions as to whether you wish us to
tender any or all such Warrants held by us for your account, pursuant to the
terms and conditions of the Exchange Offer as described in the enclosed Offering
Memorandum and Letter of Transmittal. Your instructions to us should be
forwarded as promptly as possible in order to permit us to tender your Warrants
on your behalf in accordance with the provisions of the Exchange Offer. If you
wish to have us tender any or all of your Warrants, please so instruct us by
completing, executing and returning to us the attached instruction form.
NAME OF BROKER DEALER:
INSTRUCTION WITH RESPECT TO THE EXCHANGE OFFER
OF
FIRST LOOK MEDIA, INC.
The undersigned acknowledge(s) receipt of your letter, the Offering
Memorandum describing the Exchange Offer by the Company to acquire all of its
outstanding Warrants and the related Letter of Transmittal.
This will instruct you to tender the number of Warrants indicated below
(or, if no number is indicated below, all Warrants) held by you for the account
of the undersigned, pursuant to the terms and conditions of the Exchange Offer
as set forth in the Offering Memorandum and the related Letter of Transmittal.
Number of Warrants to be Tendered:__________________
Date:___________________________
--------------------------------------- -----------------------------------
Please Type or Print Address(es)
--------------------------------------- -----------------------------------
Area Code and Telephone Number Signature(s)
--------------------------------------- -----------------------------------
Taxpayer Identification or
Social Security Number(s)
-----------------------------------
Please print name(s) here
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED,
YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OF
YOUR WARRANTS HELD BY US PURSUANT TO THE TERMS AND CONDITIONS SET FORTH IN THE
OFFERING MEMORANDUM AND THE RELATED LETTER OF TRANSMITTAL.
3
Exhibit 12(a)(v)
NOTICE OF GUARANTEED DELIVERY
for
FIRST LOOK MEDIA, INC.
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of First Look Media, Inc. ("Company") made pursuant to the
Offering Memorandum dated November 8, 2001 ("Offering Memorandum") and the
accompanying Letter of Transmittal, if certificates for the Warrants are not
immediately available or time will not permit all required documents to reach
the Exchange Agent prior to the Expiration Date of the Exchange Offer. Such form
may be delivered by hand or transmitted by facsimile transmission or by mail to
the Exchange Agent. See "The Exchange Offer" in the Offering Memorandum.
to
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By Mail:* By Overnight Courier:* By Hand:*
Continental Stock Transfer & Continental Stock Transfer & Continental Stock Transfer &
Trust Company Trust Company Trust Company
17 Battery Place, 8th Floor 17 Battery Place, 8th Floor 17 Battery Place, 8th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
Attn: Reorganization Attn: Reorganization Attn: Reorganization
Department Department Department
(registered or certified mail
recommended)
By Facsimile:
Continental Stock Transfer &
Trust Company
Attn: Reorganization Dept.
Fax No.: (212) 509-5150
(For Eligible Institutions Only)
Confirm by telephone:
Telephone No.: (212) 509-4000
extension 535
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
1
Ladies & Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and
subject to the conditions set forth in the Offering Memorandum and the Letter of
Transmittal, receipt of which is hereby acknowledged, the number of Warrants set
forth below, pursuant to the guaranteed delivery procedure set forth under the
caption "The Exchange Offer" in the Offering Memorandum. By so tendering, the
undersigned hereby does make, at and as of the date hereof, the representations
and warranties of a tendering holder of Warrants as set forth in the Letter of
Transmittal.
All authority herein conferred or agreed to be conferred by this Notice
of Guaranteed Delivery shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Owner(s) or Name(s) of Registered Holder(s):
Authorized Signatory:
_______________________________________ _________________________________
_______________________________________ _________________________________
(Please Print)
Name(s)_______________________________
Address__________________________
Tel. No(s)_______________________
______________________________________
(Please Type or Print)
Warrants Tendered Hereby:
------------------------
Certificate Warrant Nos. (if available)_______
Number of Warrants Tendered__________
2
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the NASD, a commercial bank or trust company
having an office or correspondent in the United States or that is otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act hereby (a) represents that each holder of Warrants on whose behalf
this tender is being made "own(s)" the Warrants covered hereby, and (b)
guarantees that, within five business days from the date of this Notice of
Guaranteed Delivery, a properly completed and duly executed Letter of
Transmittal, together with certificates representing the Warrants tendered
hereby in proper form for transfer with any required signature and any other
required documents, will be deposited by the undersigned with the Exchange
Agent.
The undersigned acknowledges that it must deliver the Letter of
Transmittal and Warrants tendered hereby to the Exchange Agent within the time
set forth above and that failure to do so could result in financial loss to the
undersigned.
Name of Firm_______________________ Authorized Signature____________________
Address____________________________
___________________________________ Print Name______________________________
Area Code and Telephone No.: Title___________________________________
__________________________________ Dated___________________________________
3
Exhibit 12(a)(vi)
FIRST LOOK MEDIA, INC.
November 8, 2001
To Our Warrant Holders:
The Company is allowing holders of its redeemable common stock purchase
warrants (OTC: FRSTW) to exchange those warrants for shares of the Company's
common stock (OTC: FRST) on the basis of 0.0714 of a share of common stock for
each and every outstanding warrant (the "Exchange Offer"). Fractional shares
will be rounded up to the nearest whole share based upon the aggregate number of
Warrants tendered by the holder and accepted by the Company for exchange.
The Company is undertaking the Exchange Offer in order to simplify the
Company's capital structure, reduce the potential future dilutive impact on the
Company's earnings per share that could be caused by the warrants and eliminate
any overhang on the common stock price from the existence of the warrants. The
Company reserves the right not to proceed with the Exchange Offer in its
discretion. If the Exchange Offer is consummated, the Company intends to delist
any remaining warrants from trading on the OTC Bulletin Board and to deregister
such warrants under the Securities Exchange Act of 1934.
Neither the Company nor its Board of Directors is making any
recommendation to you as to whether or not to tender your warrants in the
Exchange Offer.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
December 18, 2001, unless extended. Accordingly, we urge you to read promptly
the enclosed offering memorandum, which sets forth the full terms and conditions
of the Exchange Offer and information concerning the Company. The enclosed
letter of transmittal and offering memorandum contains detailed instructions as
to the steps needed to be taken by you in order to participate in the Exchange
Offer. In addition, if you have any questions about the Exchange Offer or need
additional copies of the enclosed materials, you should feel free to contact our
exchange agent, Continental Stock Transfer & Trust Company at (212) 509-4000,
[extension 535].
Very truly yours,
FIRST LOOK MEDIA, INC.
Exhibit 12(d)
VOTING AGREEMENT
THIS VOTING AGREEMENT ("Agreement") is entered into as of the 20th day
of June, 2000 by and among Overseas Filmgroup, Inc. ("Company"), Rosemary Street
Productions, LLC ("Rosemary"), Robert Little ("Robert"), Ellen Little ("Ellen"),
MRCo., Inc. ("MRCo."), Christopher Cooney ("Christopher") and Jeffrey Cooney
("Jeffrey").
WHEREAS, each of Rosemary, Robert, Ellen, MRCo., Christopher and
Jeffrey is a shareholder of the Company;
WHEREAS, Rosemary (of which MRCo. is a member) is purchasing shares of
common stock, $.001 par value ("Common Stock") and Series A Preferred Stock,
$.001 par value ("Preferred Stock") of the Company pursuant to a Securities
Purchase Agreement dated of even date herewith ("Securities Purchase
Agreement"); and
WHEREAS, as a condition to the Securities Purchase Agreement, the
Company, Rosemary, Robert, Ellen, MRCo., Christopher and Jeffrey have agreed to
enter into an agreement whereby each of Rosemary, Robert, Ellen and MRCo. agree
to nominate for election as directors certain persons or nominees of parties to
this agreement and to vote the shares of voting capital stock of the Company
that they each own for such nominee directors.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth below, the parties hereto agree as follows:
1. Voting Terms.
(a) So long as (i) Robert is employed as the President of the
Company or (ii) Robert and Ellen together beneficially own five percent (5%) or
more of all the Voting Securities (as defined herein), then Rosemary shall use
its best efforts to nominate Robert for election as a director or appoint Robert
as a director of the Company and vote all of its Voting Securities for Robert in
an election of directors by the stockholders. Rosemary shall not vote any of its
Voting Securities for the removal of Robert as a director, except in the event
Robert is being removed for "cause."
(b) So long as Christopher and Jeffrey together beneficially own
five percent (5%) or more of all the Voting Securities, then each of Robert,
Ellen, and Rosemary shall use its best efforts to nominate Christopher and
Jeffrey for election as a director or appoint either of them as a director of
the Company and vote all their Voting Securities for Christopher and Jeffery in
an election by the stockholders. Robert, Ellen and Rosemary shall not vote any
of their Voting Securities for the removal of either Christopher or Jeffrey as a
director, except in the event either of them is being removed for "cause."
(c) So long as MRCo. beneficially owns five percent (5%) or more
of all the Voting Securities, then each of Robert, Ellen and Rosemary shall use
its best efforts to nominate for election or appoint as a director of the
Company a person selected by MRCo. and vote all their Voting Securities for such
nominee in an election of directors by the stockholders. Robert, Ellen and
Rosemary shall not vote any of their Voting Securities for the removal of the
director nominee of MRCo., except in the event the person is being removed for
"cause."
MRCo. agrees that any person nominated by it for election or appointment as
director will be reasonably acceptable to the majority of the then sitting board
of directors of the Company, which approval will not be unreasonably withheld
and when withheld only upon written notice to MRCo. by the board of directors
stating their specific objections to the nominee. Such notice shall be sent to
MRCo. within three days of receipt of the name of the nominee by the Company for
inclusion in the proxy statement of the Company relating to the election of
directors or the appointment of such person to the board of directors of the
Company.
(d) For a period of two years after the date of this Agreement, if
the board of directors of the Company is increased from its current size of nine
persons to consist of a board of eleven persons, Rosemary shall have the right
to nominate for election or appoint as directors the two persons to fill the two
vacancies created by the increase in the number of directors to eleven persons.
Each of Robert and Ellen agree to vote all their Voting Securities for such
nominees in an election of directors by the stockholders.
2. Transfer or Acquisition of Voting Securities. The obligations under
this Agreement will end as to any of the Voting Securities upon their transfer
by a party where such party is no longer the beneficial owner thereof hereto and
will attach to any Voting Securities upon their being acquired by a party
hereto. Notwithstanding the foregoing, if any of the Voting Securities are
transferred by Rosemary or MRCo. to their respective members or shareholders,
the transferees of such Voting Securities will be subject to the terms of this
Agreement as if they were the transferor, and prior to the Company being
obligated to effect the transfer on the books and records of the Company, the
transferee shall enter into a written agreement accepting the obligations of
this Agreement as it relates to their Voting Securities and the rights the
transferor has as to any nominations or appointments of directors.
3. Power of Appointment. Each party has the power to appoint another
shareholder of the Company or proxy designated by the Company with the authority
to exercise the voting of any Voting Securities beneficially owned by such
party, so long as the person with the appointment votes the securities in
accordance with the terms of this Agreement.
4. Entire Agreement; Modifications and Amendments. This writing
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may not be modified, amended or terminated (other than in
accordance with its terms) except by a written agreement specifically referring
to this Agreement signed by all of the parties hereto.
5. Waivers. No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
of the same or similar nature.
6. Legends. Each stock certificate currently outstanding and
evidencing shares subject to the provisions of this Agreement, as soon as
practicable after the execution of this Agreement, shall be submitted to the
Company by the party to this Agreement for the purpose of putting the following
legend thereon, and each stock certificate issued after the date hereof
evidencing shares of the Company's capital stock subject to the provisions of
this Agreement (including any shares issued upon a transfer, stock split, stock
dividend, recapitalization, merger or other similar event) shall at all times
during the term of this Agreement bear the following legend:
2
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A VOTING AGREEMENT DATED AS OF JUNE 20, 2000.
7. Titles and Subtitles. The section headings contained herein are for
convenience only and are not intended to define or limit the contents of said
sections.
8. Cooperation. Each party hereto shall take such further action and
shall execute and deliver such further documents as may be reasonably requested
by any other party in order to carry out the provisions and purposes of this
Agreement.
9. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
10. Governing Law. This Agreement and all amendments hereof shall be
governed by and construed in accordance with the laws of the State of Delaware,
disregarding any principles of conflicts of laws that would otherwise provide
for the application of the substantive laws of another jurisdiction.
11. Specific Performance. Without limiting the rights of each party
hereto to pursue all other legal and equitable rights available to such party
for any other party's failure to perform its obligations under this Agreement,
each such party acknowledges and agrees that the remedy at law for any failure
to perform obligations hereunder would be inadequate and all such parties shall
be entitled to specific performance, injunctive relief or other equitable
remedies in the event of any such failure.
12. Definitions.
"Cause" means fraud or dishonest action by the person in his
relations with the Company or any of its subsidiaries or affiliates, or the
conviction of the person of any crime involving an act of moral turpitude or a
felony crime.
"Voting Securities" means any and all of the issued and
outstanding equity securities of the Company entitled to vote together for the
election of directors of the Company, including, but not limited to, the Common
Stock, the Series A Preferred Stock, and any other securities convertible into
such equity securities that have any right to vote for the election of directors
of the Company.
3
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement on the date first above written.
OVERSEAS FILMGROUP, INC.
By:_________________________________
Name: William Lischak
Title: Chief Operating Officer and
Chief Financial Officer
ROSEMARY STREET PRODUCTIONS, LLC
By:_________________________________
Name:
Title:
MRCo., Inc.
By:_________________________________
Name:
Title:
-----------------------------------
ROBERT LITTLE, individually
-----------------------------------
ELLEN LITTLE, individually
-----------------------------------
CHRISTOPHER COONEY, individually
-----------------------------------
JEFFREY COONEY, individually
4