In "First Blood" released in 1982 and "Rambo: First Blood Part II" released in 1985, Sylvester Stallone's machine gun-toting, all-American avenger waved the flag and defeated evil while grossing an awesome $390 million at the box office. Along the way, Rambo became for some people an icon of renewed American patriotism.
Meantime, the films' producers had the ironic good fortune of avoiding U.S. taxes on their bonanza by funneling their Rambo earnings through a maze of foreign entities and using the Netherlands Antilles as a legal tax haven.
Their enterprise added an American corporate uniform a year ago as Carolco Pictures. It is controlled by two Hollywood transplants, Hungarian-born Andrew Vajna, 42, and Lebanese-born Mario Kassar, 35.
The Americanization of Vajna and Kassar's empire gained them access to U.S. public capital markets, deemed vital in the money-hungry movie business. Carolco sold 3.6 million shares in an offering on Wall Street last winter.
But unlike Rambo, Carolco Pictures is far from becoming a household word. Even Hollywood insiders seem to know less about Carolco than many smaller, independent movie producers. And, despite its success with Rambo, Carolco Pictures has had its problems recently:
- A lengthy delay in filming "Rambo III" is expected to clobber its 1987 earnings. That has helped to depress its stock price. Then, too, the company has met disappointing U.S. box-office results for its two non-Rambo productions this year, "Angel Heart" and "Extreme Prejudice."
- Its image suffered somewhat after Carolco acquired a nearly defunct home video business last year from Noel C. Bloom, who has been described by federal and state law enforcement officers as a major purveyor of pornographic films with alleged links to organized crime. Although Carolco was a co-owner with Bloom for six months before buying him out, Carolco maintains that it did not buy into Bloom's related sex-movie business.
- Carolco and related entities have been accused of fraud and breach of contract in several lawsuits over its Rambo spoils. The accusers have been a Canadian film company, an investor in a limited partnership that owns title to the first Rambo movie and the author of the 1972 novel in which Rambo first appeared.
Raised $80 Million
For the most part, so-called mainstream Hollywood film makers express fairly limited and hazy impressions of the company. What is generally known is that Carolco hit the jackpot with its first movie, "First Blood." Even though it had relatively little advance publicity, the hit film grossed $120 million. And "Rambo: First Blood Part II," released three years later, ranks among the all-time box-office winners with $270 million in revenue.
Last November and December, with the aid of some major Wall Street underwriters led by Drexel Burnham Lambert, Carolco Pictures raised about $80 million from an initial offering of stock and bonds to the American investing public. About 13% of its stock went into public hands; the shares, traded on the New York Stock Exchange, closed Friday at $6.50.
Although Carolco Pictures is incorporated in Delaware and based in Los Angeles, it disclosed in a recent public filing that it still expects to be shielded from paying U.S. taxes for two more years. That would more than cover the anticipated premiere of its delayed production, "Rambo III."
The two-year reprieve is expected because of revenue going through its Netherlands Antilles tax haven. However, the company noted that the Internal Revenue Service could decide to tax Carolco on movie distribution income.
A movie industry accounting specialist said it has been "common practice by several aggressive film companies" to establish Netherlands Antilles subsidiaries to avoid U.S. taxes by keeping revenues abroad.
Carolco Pictures is controlled by a private Dutch company, Carolco Investments B.V., which--in turn--is owned by Vajna, Kassar and related family trusts in Europe, according to U.S. filings. Vajna and Kassar are co-chairmen of Carolco Pictures, but neither is chief executive. That job belongs to the firm's former outside attorney, Peter Hoffman, who also is president.
A piece of Rambo lore not generally known is that a Lebanese group associated with Kassar's family was instrumental in financing the first Rambo film. This came to light as a result of disclosures Carolco was required to make because of its new status as publicly traded U.S. company.
One filing disclosed that the Vajna-Kassar group paid $18 million to buy out an "unaffiliated person" as owner of 30% of Carolco S.A., the foreign entity through which Vajna and Kassar had held the Rambo rights. The holder of the 30% interest was disclosed as a Panamanian entity, Bonaparte International.
Asked who owned Bonaparte, Hoffman replied: "The exact control of that company is unknown to us, because of the way in which the agreement was done."