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like MGM, was forced to cut production in the early 1990s due to
serious financial problems.
In 1993, Carolco underwent a financial restructuring (the
1993 Carolco restructuring) to reduce or satisfy Carolco’s
financial obligations and to provide additional capital to permit
Carolco to continue as a going concern. As part of the 1993
Carolco restructuring, MGM, with other investors, agreed to
invest in Carolco in exchange for distribution rights to
Carolco’s films.20 On May 25, 1993, in connection with the
restructuring, MGM Holdings purchased 30,000 shares of Carolco
preferred stock for $30 million and Carolco subordinated notes
for $30 million (the Carolco securities).21 Credit Lyonnais
provided MGM Holdings the funds for investing in the Carolco
securities.
As a result of the 1993 Carolco restructuring, Carolco’s
management began preparing some of Carolco’s motion picture
projects for eventual production. By January 1995, however, due
to the unexpectedly high cost of certain motion pictures it
became apparent that Carolco would have inadequate capital to
20 On May 1, 1993, Carolco and MGM entered into two
distribution agreements; a “Domestic Output Agreement”, and an
“International Output Agreement”, in which MGM was to distribute
Carolco films.
21 Between Jan. 15, 1994, and Oct. 15, 1995, Carolco issued
additional securities to MGM Holdings in lieu of quarterly
interest payments on the Carolco subordinated notes.
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