Recounting Odyssey’s Long Fall

A palace revolt aimed at ousting senior management shook things up last week at Communications & Entertainment Inc., the publicly held parent company of the once high-flying indie film company Odyssey Entertainment.

Known for launching “Q&A,” “Switch” and “Sniper,” among other films, Odyssey’s glory days reached an apex with a 500-guest bash at the exclusive Hotel du Cap during the 1993 Cannes Film Festival celebrating a $40 million foreign rights deal with HBO.

But $8 million in red ink last year, a lawsuit from HBO over payments and the firing or resignation of almost all of Odyssey’s staff recently seemed to spell Odyssey’s end… until last week.

The Securities & Exchange Commission was notified Feb. 1 by Odyssey president Shane O’Neil and an investor group that it plans to “effect the removal of (ComEnt chairman) N. Norman Muller” and seek the “preservation and development” of Odyssey.

A proxy battle and lawsuits appear to be inevitable.

‘What is left of Odyssey to fight over?” wondered one industry observer. Indeed, in the tough indie film world, the ruins of Odyssey illustrate a hard-luck tale.

Odyssey’s journey began with its founding in 1984 as KMS Filmpartners. The principals were the actor and comedian Alan King, entertainment attorney J. David Marks and Gabe Sumner, a studio marketing exec.

KMS became Odyssey Entertainment, went public in 1986, and produced its first film, “Memories of Me,” in 1988, starring King and Billy Crystal, directed by Henry Winkler. It was a box office disappointment, and so was business generally until a foreign sales division was launched with Patrick Wachsberger in charge.

Head of Summit Entertainment today, Wachsberger was then well on his way to being a top gun in the foreign sales world. Within a year, Odyssey’s new division was bringing in much-needed cash with pictures such as “The Handmaiden’s Tale” and the Oscar-nominated “Pelle the Conqueror.” Still, the company was struggling.

A potential turning point was reached in 1989 with a co-production deal between Odyssey and Universal. Investment from two Boston real estate magnates was lined up and the future looked promising. But Boston real estate went bust and the Universal deal was never activated.

In October 1989, Odyssey was talking merger with Double Helix Films, a New York-based B-movie producer and distributor owned by pharmaceuticals magnate Jerry Silva.

Attractive library

DHF had a library of about 55 films; Odyssey had cash flow. The deal made sense to all involved, including DHF’s chief financial officer, Thomas W. Smith, and the company’s financial consultant, N. Norman Muller; neither was experienced in the film business.

Odyssey execs hoped that Muller would use his Wall Street savvy to boost the business. But Muller’s back story was not auspicious.

A veteran of various proxy battles, Muller has been charged with SEC violations on two occasions. In interviews with Variety, Muller acknowledged those charges, but noted the suits were settled without any admission or denial of guilt.

Once DHF had merged with Odyssey in 1990, a new company was created: Communications & Entertainment Inc. ComEnt functioned as the parent company for Odyssey and DHF, and the New York office of Muller and Smith.

Bitter departure

Odyssey had cut its losses to $3.1 million and revenues soared to $14 million, much of it due to the foreign sales division; nevertheless, by the end of 1990, the company’s original founders had had enough, and bitterness lingers.

Wachsberger, who would later split from the company in a nasty dispute, became president of the Odyssey entertainment and distribution divisions. Muller became chairman and CEO, and Smith became chief operating officer of ComEnt.

Their first move was to sell DHF and its library to Krishna Shah, a director of low-budgeters such as “Hard Rock Zombies.” Shah was Muller’s brother-in-law, and for the DHF library ComEnt took Shah’s IOU for $3.6 million.

Measuring a film library’s true worth is an inexact science. Yet even before the merger with Odyssey, DHF had taken a $250,000 writedown on the library’s value.

Two years later, Shah defaulted on the note that ComEnt had carried on its books as a $3.2 million asset. ComEnt transferred the debt to Carnegie Films, in turn acquired by ATC II Inc., which gained control of the DHF film library.

Stock options

ATC sold stock to ComEnt, carried for a year on ComEnt’s books as a $3 million-plus “investment.”

But in its 1994 year-end financial statement, ComEnt wrote down to zero the ATC stock that had swelled the company’s worth by more than $3 million the year before.

Far from the doings in ComEnt’s New York office, producer Mark Johnson, formerly the partner of director Barry Levinson, was in California making “Sniper” for Odyssey to distribute overseas.

Johnson and his director, Luis Llosa, were late delivering the final cut and Johnson recalls reworking the picture well into the fall of 1992.

Yet ComEnt’s financial statement for the period ending March 31 of that year states that “Sniper” had become available for distribution, and revenue was booked based on the value of the film’s foreign sales.

“I believe the film was delivered by that time,” says Muller now. But a letter from Smith to Johnson’s attorney, Bruce Lilliston, states that the film had not been delivered by the contractual July date.

Pork barrel

Meanwhile, Muller was pulling down $250,000 in salary with a $207,715 bonus in 1993, and Smith took in $200,000 with a $207,900 bonus.

“They sucked the company dry,” says one departed employee.

“I think that’s an overstatement,” Smith replies.

Nevertheless, in a letter to company shareholders, Shane O’Neil alleged “excessive perquisites, salaries and expenses” as among the reasons his group wanted to oust Smith and Muller.

The letter also said that ComEnt’s CFO, Jay Behling, had been fired in September “after making inquiries about senior management’s dealings with Odyssey,” and that Price Waterhouse, the company’s independent auditors, “had expressed similar concerns.”

Muller has said O’Neil’s charges were “factually incorrect.”

Yet a Price Waterhouse spot check of company expenses during its 1994 audit questioned trips taken by Muller and his wife charged to the company as well as personal-use items written to the company account.

The Price Waterhouse report said, “It does call into question the integrity of management’s allocation of company funds.”

Why is Odyssey worth fighting for?

Other assets

Smith says there is a film library of 30-odd titles “and Odyssey’s name,” but the real prize might be ComEnt’s recent acquisitions of two computer businesses.

O’Neil, installed as ComEnt’s president in October by Muller, said at that time, “I think we can turn this company around.”

Apparently, he and his group of investors believe that is still possible.

And so Odyssey’s odyssey continues.

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