- Current report filing (8-K)
February 16 2010 - 4:19PM
Edgar (US Regulatory)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 9, 2010
(Exact name of registrant as specified in its charter)
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DELAWARE
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001-34102
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36-4614616
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(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.)
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1325 Avenue of Americas, 21st Floor, New York, NY
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10019
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code
(212) 977-9001
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement
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As previously reported, on December 23, 2009, RHI Entertainment, Inc.s (the Companys)
indirect subsidiary, RHI Entertainment, LLC (the Borrower), entered into a Forbearance Agreement
(as amended on January 22, 2010, the First Lien Forbearance Agreement) with lenders holding a
majority in principal amount of the loans under its $525 million Credit, Security, Guaranty and
Pledge Agreement (the First Lien Credit Agreement) among the Borrower, RHI Entertainment Holdings
II, LLC ( Holdings), the guarantors named therein, the lenders from time to time party thereto
and JPMorgan Chase Bank, N.A., as administrative agent for the lenders (the First Lien Agent) and
as issuing bank, and with counterparties to the Borrowers interest rate hedge agreements (the
swaps). Holdings and the subsidiaries of the Borrower that guarantee the loans under the First
Lien Credit Agreement (the Guarantors) also are party to the First Lien Forbearance Agreement.
The First Lien Forbearance Agreement will terminate on February 26, 2010 unless previously
terminated in accordance with the occurrence of certain events set forth
therein and as described in the Companys Current Form 8-K filed with the Securities
& Exchange Commission (the SEC) on December 24, 2009.
On February 12, 2010, the Borrower, Holdings, the Guarantors, lenders holding a majority in
principal amount of the loans under the Borrowers $75 million Credit, Security, Guaranty and
Pledge Agreement (the Second Lien Credit Agreement), JPMorgan Chase Bank, N.A., as existing agent
(the Existing Agent), and Wilmington Trust FSB, as successor agent (the Second Lien Agent),
entered into a Successor Agent Agreement and Second Amendment to Credit, Security, Guaranty and
Pledge Agreement (the Successor Agent Agreement), pursuant to which the Second Lien Agent
succeeded the Existing Agent as administrative agent for the lenders under the Second Lien Credit
Agreement. In connection therewith, the Existing Agent and Successor Agent also entered into an
Assignment of Intercreditor Agreements, dated as of February 12, 2010 (the Intercreditor
Assignment), pursuant to which the Existing Agent assigned to the Successor Agent all of its
rights, title and interest in the Replacement Amended and Restated Intercreditor Agreement, dated
as of June 23, 2008, among JPMorgan Chase Bank, N.A., as administrative agent for the First
Priority Secured Parties (as defined therein), the Existing Agent, as administrative agent for the
Second Priority Secured Parties (as defined therein), the Borrower, Holdings, the Guarantors and
KRH Investments LLC.
In addition, On February 12, 2010, the Borrower, Holdings, the Guarantors, the lenders holding
a majority in principal amount of the loans under the Second Lien Credit Agreement and the Second
Lien Agent entered into a separate forbearance agreement (the Second Lien Forbearance Agreement).
Under the Second Lien Forbearance Agreement, subject to certain conditions, the lenders thereunder
have agreed to forbear from exercising their rights and remedies as creditors that may exist by
virtue of certain Specified Defaults (as described below) or which may occur during the forbearance
period, which is the period to and including February 26, 2010, unless previously terminated. Their
agreement to forbear will terminate upon any expiration or termination of the Forbearance Period.
The forbearance period may terminate prior to February 26, 2010 if:
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any default other than a Specified Default occurs under the Second Lien Credit
Agreement;
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the Borrower breaches any representation or covenant in the Second Lien Forbearance
Agreement;
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the First Lien Forbearance Agreement terminates;
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any creditor of the Borrower, Holdings or any Guarantor executes a judgment or obtains
attachment on any of their assets; or
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the Borrower, Holdings or any of the Guarantors commence a voluntary or involuntary
bankruptcy proceeding.
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The Specified Defaults with respect to which the Agent and lenders have agreed to forbear are
limited to those relating to:
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a failure to pay interest on the loans under the Second Lien Credit Agreement when due;
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certain modifications of the Borrowers contracts with one of its customers;
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the existence of the Borrowers plans to manage cash flows or any cross-default
resulting from non-payment of any amounts in accordance with those plans; and
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any breach of a financial covenant that requires the Borrower to maintain a minimum
coverage ratio.
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On February 12, 2010, the Borrower failed to make a $398,000 interest payment under the Second
Lien Credit Agreement. This event constitutes a Specified Default under the first bullet above,
and accordingly there currently is a default under the Second Lien Credit Agreement and the Agent
and lenders have agreed to provisionally waive the payment default for the duration of the
forbearance period. As a result, during the forbearance period the Company does not believe there
will be any payment default under the Second Lien Credit Agreement to which any of the Borrowers
other material indebtedness would cross-default. The other Specified Defaults may occur during the
forbearance period.
Under the Second Lien Forbearance Agreement, the Borrower also agreed, among other things,
that:
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default interest of 2% will accrue on all overdue amounts under the Second Lien Credit
Agreement, in addition to the rate of interest otherwise applicable;
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certain covenants under the Second Lien Credit Agreement (including those relating to
investments, restricted payments, permitted liens, asset sales and cash expenditures and
distributions) will become more restrictive;
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the Borrower will provide additional information to the Agent and its counsel, including
among other things certain information that the Borrower is required to deliver to the
First Lien Agent under the First Lien Forbearance Agreement;
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the Borrower will limit the amounts and timing of its cash expenditures to the amounts
itemized in the cash flow schedule, subject to a specified variance;
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the Borrower will maintain a minimum cash balance of at least $12.5 million;
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the Borrower will add one of its subsidiaries as a Guarantor under the Second Lien
Credit Agreement and will use best efforts to obtain specified deposit account control
agreements, in each case consistent with the First Lien Forbearance Agreement;
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the Borrower will release all claims against the Agent, the lenders under the Second
Lien Credit Agreement and the swap counterparties, and indemnify them against claims by
third parties, in each case that arise under or in connection with (x) the Credit Agreement
based on facts existing on or before the date of the Second Lien Forbearance Agreement and
(y) the Second Lien Forbearance Agreement.
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The Second Lien Forbearance Agreement is a short term arrangement that allows the Borrower to
work with the Agent and lenders under the Second Lien Credit Agreement to develop a longer-term
strategy for restructuring its liabilities. If the Borrower is not able to cure all defaults or
enter into a new forbearance agreement by February 26, 2010 (or any earlier date that the Second
Lien Forbearance Agreement may be terminated), then subject to the terms of the intercreditor
agreement that governs the rights and privileges between the agent and lenders under the First Lien
Credit Agreement and the agent and lenders under the Second Lien Credit Agreement (the
Intercreditor Agreement), the Agent and lenders under the Second Lien Credit Agreement may
exercise all of their rights and remedies, including acceleration of the loans and, subject to
compliance with the Intercreditor Agreement, foreclosure on collateral, which if exercised
would reasonably be expected to result in a bankruptcy filing by the Borrower.
The aforementioned description of the Successor Agent Agreement, Intercreditor Assignment and
the Second Lien Forbearance Agreement is qualified in its entirety by the full terms and conditions
of the Successor Agent Agreement, the Intercreditor Assignment and the Second Lien Forbearance
Agreement, a copy of which is attached as Exhibits 10.1, 10.2 and 10.3, respectively, to this
Current Report on Form 8-K and each of which is incorporated herein by reference. A copy of the
First Lien Forbearance Agreement was filed with the Securities and Exchange Commission as Exhibit
10.1 to the Companys Current Report on Form 8-K, dated December 23, 2009, and the first amendment
to the First Lien Forbearance Agreement was filed with the Securities and Exchange Commission as
Exhibit 10.1 to the Companys Current Report on Form 8-K, dated January 22, 2010, and each of which
is also incorporated herein by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
On February 9, 2010, the President & Chief Executive Officer, Robert A. Halmi, Jr., and
Chairman of the Board, Jeff Sagansky, entered into surrender agreements with the Company (the
Agreements) whereby Mr. Halmi and Mr. Sagansky irrevocably surrendered, cancelled and forfeited
16,666 and 38,888 restricted stock units (RSUs), respectively. Notwithstanding the Agreements,
as of February 9, 2010, Mr. Halmi and Mr. Sagansky, became vested with respect to 33,334 and 77,778
RSUs that, by their terms, are not transferable unless and until the Companys share price achieves
certain target levels set forth in the original Award Grant Notices related to the RSUs. Subject
to Mr. Halmis and Mr. Saganskys continued employment with the Company, Mr. Halmis and Mr.
Saganskys remaining RSUs will vest on February 9, 2011 (50% of the remaining RSUs) and February 9,
2012 (50% of the remaining RSUs). The RSUs that vest on these future dates have not been
surrendered, cancelled nor forfeited and are not subject to the Agreements. The RSUs were awarded
pursuant to the Amended & Restated RHI Entertainment, Inc. 2008 Incentive Award Plan (the Plan),
filed on April 15, 2009 as Appendix A to the Companys Definitive Proxy Statement, the Companys
Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement, the form of
which was filed on February 9, 2009, as Exhibit 10.2 to the Companys Current Report on Form 8-K,
each of which qualify the foregoing description of the RSUs in its entirety.
The number of shares of Company common stock subject to the RSUs granted to Mr. Halmi and Mr.
Sagansky on February 9, 2009 that (a) were surrendered pursuant to the Agreements, (b) were vested
but not transferable to Mr. Halmi or Mr. Sagansky pursuant to the applicable Restricted Stock Unit
Award Grant Notice and (c) remain outstanding as of the date hereof is as follows:
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Total # of RSUs
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Total # of RSUs Vested but
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Total # of RSUs That
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Name
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Surrendered
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Not Transferable
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Remain Outstanding
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Robert A. Halmi, Jr.
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16,666
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33,334
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100,000
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Jeff Sagansky
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38,888
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77,778
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233,333
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Item 2.06.
Material Impairments;
Item 8.01. Other Events
As
previously disclosed in a Form 8-K filed with the SEC on December 24, 2009, as a result of market
conditions during the fourth quarter of 2009, the Company expected that further reductions in (i)
the value of the Companys film library as provided by a third party valuation and (ii) a
substantial impairment of the net book value of the Companys film library in accordance with
Companys internal analysis had occurred during the fourth quarter of 2009 and/or would occur
during the first quarter of 2010.
As a result of the Companys assessment of market conditions, sales data, pricing and other
factors, the Company believes that changes have occurred that will reduce the expected ultimate
revenue for its films. A reduction in the ultimate revenue associated with a film results in a
higher rate of amortization over that films remaining accounting life and causes a reduction in
that films prospective profit margin. The Company estimates that the reduction in ultimate
revenues will increase the Companys film amortization cost for the year ended December 31, 2009
related to films for which revenue has been recognized for such period. Additionally, the Company
believes that the reduction in ultimate revenues will result in a decrease in the fair value of
certain films to an amount below their net book value. The Company believes that impairment charges
associated with the value of a significant number of films in its library will be required in its
financial statements for the year ended December 31, 2009. While the Company is still in the
process of concluding its analysis of the ultimate revenue of its films, based on its work done to
date, it estimates that impairment charges totaling approximately $200 million to $250 million will
be recorded for the year ended December 31, 2009. These results are preliminary estimates only and
the final results remain subject to additional review, including review by the Companys auditors,
and may differ materially from the preliminary estimates. This analysis is an estimate by the
Company of future results, and actual realizations of revenues may differ significantly from these
estimates.
In addition, the Company is required by the lenders under its First Lien Credit Agreement to
provide a third party valuation report of the film library on an annual basis (the Valuation
Report) to be used in the calculation of certain covenants under the First Lien Credit Agreement.
A preliminary draft of the Valuation Report indicates a material and substantial reduction of
approximately 45% to 55% of the non-contracted value of the films in our film library at December
31, 2009 as compared to the third party valuation at December 31, 2008 using similar methodologies.
The methodology used in the preliminary draft of the Valuation Report differs from that used
in the Companys internal ultimate revenue analysis in that it provides a discounted present value
of cash flow from projected future sales of domestic and international rights to the films in the
library, which include miniseries, made for television movies, series, feature films and other
titles. This valuation of the film library takes into account the value attributed to each of (i)
the Companys new productions in 2008 and 2009, (ii) the U.S. film library, (iii) the international
film library and (iv) the new media platforms for which the film library is distributed. The
Valuation Report excludes, among other things, the value of any on- or off-balance sheet
receivables and any future cash flow from currently contracted sales of films. Notwithstanding
these differences, substantial changes in the valuation provided in the Valuation Report may be
indicative of changes in the value of the Companys film library for purposes of the Companys
financial statements. The Valuation Report is subject to a number of assumptions, qualifications
and disclaimers which may change prior to finalization of the report and the valuation of the film
library reflected therein may not reflect the actual values that would be realized if the Company
were to sell the film library to a third-party purchaser.
The expected decrease in the value of the Companys film library directly and materially
reduces the borrowing base governing the revolving credit facility under the First Lien Credit
Agreement as previously discussed on the Companys Current Form 8-K, filed with the SEC on December
24, 2009. The Valuation Report is used solely for the purpose of determining compliance with
certain financial covenants contained in the First Lien Credit Agreement. The basis for the
valuation depends on the accuracy of a variety of assumptions and projections, any of which may not
reflect actual conditions
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Item 9.01 Exhibits.
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Exhibit
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Number
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Description
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10.1
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Successor Agent Agreement and Second Amendment to Credit,
Security, Guaranty and Pledge Agreement (Second Lien Credit
Agreement), dated February 12, 2010, among RHI Entertainment, LLC,
its subsidiaries party to the Second Lien Credit Agreement, RHI
Entertainment Holdings II, LLC, the Lenders party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and Wilmington
Trust FSB, as successor administrative agent.
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10.2
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Assignment of Intercreditor Agreements, dated February 12, 2010,
among JPMorgan Chase Bank, N.A., as administrative agent for the
lenders under the Second Lien Credit Agreement, and Wilmington
Trust FSB, as successor administrative agent.
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10.3
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Forbearance Agreement, dated February 12, 2010, among RHI
Entertainment, LLC, its subsidiaries party to the Second Lien
Credit Agreement, RHI Entertainment Holdings II, LLC, the Lenders
party thereto and Wilmington Trust FSB, as Administrative Agent.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: February 16, 2010
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RHI ENTERTAINMENT, INC.
(Registrant)
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By:
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/s/ William J. Aliber
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Name:
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William J. Aliber
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Title:
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Chief Financial Officer
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EXHIBIT INDEX
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Exhibit
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Number
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Description
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10.1
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Successor Agent Agreement and Second Amendment to Credit,
Security, Guaranty and Pledge Agreement (Second Lien Credit
Agreement), dated February 12, 2010, among RHI Entertainment, LLC,
its subsidiaries party to the Second Lien Credit Agreement, RHI
Entertainment Holdings II, LLC, the Lenders party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and Wilmington
Trust FSB, as successor administrative agent.
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10.2
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Assignment of Intercreditor Agreements, dated February 12, 2010,
among JPMorgan Chase Bank, N.A., as administrative agent for the
lenders under the Second Lien Credit Agreement, and Wilmington
Trust FSB, as successor administrative agent.
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10.3
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Forbearance Agreement, dated February 12, 2010, among RHI
Entertainment, LLC, its subsidiaries party to the Second Lien
Credit Agreement, RHI Entertainment Holdings II, LLC, the Lenders
party thereto and Wilmington Trust FSB, as Administrative Agent.
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