Cannon Chiefs Pledge Stock for $10-Million Loan Stake

Cannon Group said Friday that its two largest shareholders and top executives, Menahem Golan and Yoram Globus, have pledged their Cannon stock to secure a $10-million loan from a newly formed company to improve the movie studio’s cash position.

Golan and Globus, together with two European businessmen and a Luxembourg-based company named Interpart S.A., have formed a new holding company named Intercorporation to make the loan and develop a proposal to restructure Cannon’s financing.

But Cannon, mired in debt and losses, said Intercorporation has “advised the company” that a refinancing plan won’t be unveiled until shareholder suits and an inquiry by the Securities and Exchange Commission are resolved.

The SEC last year broadened an earlier investigation into Cannon’s film cost accounting practices to include the firm’s financial disclosures since 1983. Last month, the company said it is hopeful that it will soon conclude settlement discussions with the SEC staff.

The two European investors were identified as Giancarlo Parretti and Frederic Scheer, officers and directors of Interpart, described as “a European corporation with holdings in numerous publicly traded European companies.”

Cannon executives did not return The Times’ calls. But Associated Press quoted a Cannon spokesman Friday as saying Golan and Globus “have never before done business with the Europeans, who have to date been only peripherally involved in the movie business, financing one film in Europe.”

Several Wall Street and entertainment executives with European connections said Friday that they had not heard of Parretti and Scheer, who have been named to Cannon’s board and also appointed senior executive vice presidents and directors of finance for Cannon.

One investment banker who is familiar with Cannon said he was puzzled by Cannon’s latest move. “If they’re only taking in $10 million, maybe they have a more desperate cash flow problem than I had realized,” he said.

Lisbeth R. Barron, a research vice president at Balis Zorn Gerard Inc. in New York, predicted that a restructuring of Cannon’s debt would require a rescuer with major financial muscle.

Barron and other analysts have speculated that a restructuring plan might include Cannon’s purchase on the open market of the company’s own “junk,” or high-risk, high-yield, bonds. Those bonds have a face value of $243 million but have been trading at about 30 cents on the dollar.

At that price, a repurchase of the bonds would cost $73 million, but open market purchases could drive the price up to $100 million to $150 million, Barron said.

“The more likely scenario,” she said, “is that in return for a capital infusion, the (Luxembourg) company would insist that a restructuring be done which gives the bondholders a mix of convertible debt and/or warrants, common stock and perhaps a percentage of movie gross revenues.”

According to a year-old proxy statement (the most recent issued by Cannon), Golan and Globus control 1.4 million shares, or nearly 30% of Cannon’s common stock. As of Friday, when Cannon shares closed at $4.75 on the New York Stock Exchange, the stock presumably would have a value of $6.7 million.

The Associated Press, however, reported that Golan and Globus control only 20%.