<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
REGISTRATION NO. 333-03987
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
FILM ROMAN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7812 95-4585357
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION OF INDUSTRIAL EMPLOYER
INCORPORATION OR CLASSIFICATION IDENTIFICATION
ORGANIZATION) CODE NUMBER) NO.)
12020 CHANDLER BOULEVARD, SUITE 200
NORTH HOLLYWOOD, CALIFORNIA 91607
(818) 761-2544
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
PHIL ROMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FILM ROMAN, INC.
12020 CHANDLER BOULEVARD, SUITE 200
NORTH HOLLYWOOD, CALIFORNIA 91607
(818) 761-2544
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS W. DOBSON, ESQ. GARY I. HOROWITZ, ESQ.
LATHAM & WATKINS SIMPSON THACHER & BARTLETT
633 WEST FIFTH STREET, SUITE 4000 425 LEXINGTON AVENUE
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10017
(213) 485-1234 (212) 455-2000
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Securities Act") check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT PROSPECTUS CAPTION
------------------------------- ------------------
<S> <C>
1. Forepart of the Registration Statement and Out-
side Front Cover Page of Prospectus............ Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Outside Front Cover Page of
Prospectus; Underwriting
6. Dilution........................................ Dilution
7. Selling Security-Holders........................ Principal and Selling Stockholders
8. Plan of Distribution............................ Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered...... Description of Capital Stock
10. Interests of Named Experts and Counsel.......... Legal Matters; Experts
11. Information with Respect to the Registrant...... Outside and Inside Front Cover
Pages; Prospectus Summary; Risk
Factors; Use of Proceeds; Dividend
Policy; Capitalization; Dilution;
Selected Financial Information;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal and Selling Stockholders
12. Disclosure of Commission Position on Indemnifi-
cation for Securities Act Liabilities.......... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 12, 1996
PROSPECTUS
, 1996
3,785,000 SHARES
FILM ROMAN, INC.
COMMON STOCK
Of the 3,785,000 shares of Common Stock offered hereby, 3,600,000 shares are
being sold by Film Roman, Inc. and 185,000 shares are being sold by certain
stockholders of the Company (the "Selling Stockholders"). The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders. See
"Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $10.00 and $12.00 per share. See "Underwriting" for
information relating to the factors considered in determining the initial
public offering price.
Application has been made to include the Common Stock in the Nasdaq National
Market under the symbol "ROMN."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total(3)........... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses estimated at $ , which will be paid by
the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 567,750 additional shares at the Price to the Public less Underwriting
Discounts and Commissions, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions, and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of shares will be made in New York, New York on or about
, 1996.
DONALDSON, LUFKIN & JENRETTE_________________________ MONTGOMERY SECURITIES
SECURITIES CORPORATION
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Film Roman, Inc. ("Film Roman Holdings") was
incorporated in Delaware in May 1996 in order to acquire all of the outstanding
capital stock of Film Roman, Inc., a California corporation ("Film Roman
California") in the Reorganization (as defined below). Unless otherwise
indicated herein and except as otherwise set forth in the financial statements
contained in this Prospectus, (a) the terms the "Company" and "Film Roman"
refer collectively to Film Roman Holdings and Film Roman California, (b) the
term "Offering" refers to the offering of common stock, $.01 par value, of Film
Roman Holdings ("Common Stock") made hereby, and (c) the information in this
Prospectus gives effect to the Reorganization (in which each share of common
stock of Film Roman California will be converted into 1.25 shares of Common
Stock). Unless otherwise stated, all information in this Prospectus assumes an
initial public offering price of $11.00 per share and that the Underwriters'
over-allotment option is not exercised. Certain animation and film industry
terms used in this Prospectus are defined in a Glossary beginning on page 54.
THE COMPANY
Film Roman creates, develops, produces and distributes high quality, family-
oriented animated television programming. Since the Company was founded by Phil
Roman in 1984, it has become the leading independent animation studio in North
America by producing more animated series for broadcast on the U.S. television
networks during the 1996-1997 television season than any other independent
animation studio. Film Roman productions include The Simpsons, Garfield &
Friends, Bobby's World, Felix the Cat, Mighty Max, The Critic and The Mask. The
Company is currently producing 10 animated series (totalling 161 episodes) and
one special, and recently completed the production of one additional special,
all of which are scheduled to air on ABC, CBS, FOX or the USA Network, as well
as in first-run syndication, during the 1996-97 television season. The Company
has produced at least three series each season for the television networks
since 1990 and, in so doing, has successfully competed against other
independent studios, as well as the major studios which have financial and
other resources greater than the Company.
The Company believes that it has a reputation within the entertainment
industry as a reliable producer of high-quality animated programming, making it
one of a select group of suppliers of animated programming to the television
networks. This reputation in the animation industry is critical because
animated series are ordered for production without the benefit of a pilot
episode. As a result, programmers rely to a significant degree on a studio's
track record for producing high quality programming that is delivered on
schedule and within budget. As of March 31, 1996, the Company had produced 465
episodes of animated programming. At the conclusion of the 1996-97 broadcast
season, the Company projects that it will have produced in excess of 600
episodes of animated programming; there is, however, no assurance that all of
the episodes scheduled to be aired will be televised.
Historically, the Company has produced substantially all of its programming
for third parties on a "fee-for-services" basis. Increasingly, the Company is
producing programming for which it controls the "proprietary rights" associated
with such programming (including, for example, international distribution and
licensing and merchandising rights). The Company's strategy is to build a
library of proprietary characters and programs which it can exploit through a
variety of means, including domestic and international television and home
video distribution, licensing and merchandising of consumer products (including
toys, apparel, school supplies and books), feature films and interactive
software. The Company has retained proprietary rights to four of the ten series
it is producing for the 1996-97 television season (Felix the Cat (CBS), C-Bear
& Jamal (FOX), BRUNO the Kid (syndication) and Mortal Kombat (USA Network)).
The Company will produce 67 episodes of such proprietary programming for the
upcoming television season compared to 16 episodes produced last season. In
order to implement its strategy, the Company expanded its internal creative
development of characters and program concepts and established an international
distribution division and a licensing and merchandising division to support the
exploitation of its proprietary rights. As a result of these initiatives, the
Company has
3
<PAGE>
incurred additional overhead and other costs. The Company reported net losses
of $1.7 million and $0.5 million for the year ended December 31, 1995 and the
quarter ended March 31, 1996, respectively. The Company believes that, through
the retention and exploitation of proprietary rights, it can over time earn an
attractive return on its investment and, at the same time, build a library of
characters and programs that will have lasting value. There is no assurance,
however, that the Company will be able to achieve this goal.
The Company's principal executive offices are located at 12020 Chandler
Boulevard, Suite 200, North Hollywood, California 91607, and its telephone
number is (818) 761-2544.
THE REORGANIZATION
Film Roman Holdings was incorporated in Delaware in May 1996 in order to hold
all of the outstanding capital stock of Film Roman California. Film Roman
Holdings currently conducts no operations. A reorganization will be effected
immediately prior to the closing of the Offering (the "Reorganization")
pursuant to which (i) a wholly-owned subsidiary of Film Roman Holdings will
merge with and into Film Roman California; (ii) each outstanding share of
common stock, no par value, of Film Roman California ("California Common
Stock") will be converted into 1.25 shares of Common Stock (including shares of
California Common Stock to be issued immediately prior to such merger upon
exercise of all outstanding warrants to purchase California Common Stock and
upon conversion of all outstanding shares of Class B convertible preferred
stock, $.01 par value, of Film Roman California ("Convertible Preferred
Stock")), (iii) each outstanding share of Class A redeemable preferred stock,
$.01 par value, of Film Roman California ("California Redeemable Preferred
Stock") will be converted into one share of Series A redeemable preferred
stock, $.01 par value, of Film Roman Holdings ("Redeemable Preferred Stock");
and (iv) all outstanding employee options for the purchase of California Common
Stock will, pursuant to the anti-dilution provisions thereof, become options to
purchase shares of Common Stock. As a result of the Reorganization, Film Roman
California will become a wholly-owned subsidiary of Film Roman Holdings and the
stockholders of Film Roman California will become the stockholders of Film
Roman Holdings. Immediately following the Reorganization and the closing of the
Offering, Film Roman Holdings will redeem all outstanding shares of Redeemable
Preferred Stock (the "Redemption"). See "Certain Transactions--Reorganization."
THE OFFERING
<TABLE>
<C> <S>
Shares offered by the Company.... 3,600,000
Shares offered by the Selling
Stockholders.................... 185,000
Shares outstanding immediately
after the Offering.............. 8,184,636(1)
Use of Proceeds to the Company... To pay accumulated but unpaid dividends on
the Redeemable Preferred Stock and the
Convertible Preferred Stock, to redeem the
Redeemable Preferred Stock, to repay short-
term borrowings, to fund the production of
animated programming and for general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.......................... ROMN.
</TABLE>
- --------------------
(1) Pro forma for the Reorganization in which 4,584,636 shares of Common Stock
will be issued as a result of the conversion of (i) 1,713,000 shares of
outstanding California Common Stock, (ii) 1,204,709 shares of California
Common Stock to be issued upon exercise of warrants and options for shares
of California Common Stock and (iii) 750,000 shares of California Common
Stock to be issued upon conversion of Convertible Preferred Stock. Excludes
1,227,695 shares of Common Stock issuable upon the exercise of options
granted or to be granted under the Company's Stock Option Plan (as defined
below), of which 859,375 had been granted at the date of this Prospectus.
See "Management--Stock Option Plan."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $9,642 $21,943 $27,867 $36,201 $ 34,341 $9,111 $ 7,461
Expenses:
Cost of revenue........ 9,021 20,716 25,675 33,190 33,156 8,765 7,111
Selling, general and
administrative
expenses.............. 266 699 1,368 1,829 2,963 594 851
------ ------- ------- ------- --------- ------ ---------
Operating income
(loss)................ 355 528 824 1,182 (1,778) (248) (501)
Interest income
(expense), net........ 1 (16) (21) (28) 89 (9) 30
------ ------- ------- ------- --------- ------ ---------
Net income (loss)...... 356 512 803 1,154 (1,689) (257) (471)
Pro forma data:
Pro forma provision for
income taxes(1)....... $ (142) $ (205) $ (321) $ (462) $ 574 $ 87 $ --
------ ------- ------- ------- --------- ------ ---------
Pro forma net income
(loss)(1)............. $ 214 $ 307 $ 482 $ 692 $ (1,115) $ (170) $ (471)
====== ======= ======= ======= ========= ====== =========
Pro forma net income
(loss) attributable to
common stock(2)....... $ 214 $ 307 $ 482 $ 692 $ (2,000) $ (170) $ (954)
====== ======= ======= ======= ========= ====== =========
Pro forma net income
(loss) per common
share, giving effect
to the
Reorganization(2)(3).. $ (0.41) $ (0.20)
========= =========
Pro forma weighted
average number of
shares outstanding,
giving effect to the
Reorganization(2)(3).. 4,861,181 4,861,181
========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, 1995 MARCH 31, 1996
----------------------- ----------------------
ACTUAL ACTUAL AS ADJUSTED(4)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 5,176 $ 4,707 $27,065
Film costs, net of
amortization.................. 12,379 12,094 12,094
Total assets................... 18,950 18,575 40,933
Debt........................... 1,737 487 --
Redeemable Preferred Stock..... 6,749 6,990 --
Stockholder's equity........... 1,832 728 31,603
</TABLE>
- --------------------
(1) The Company operated as an S Corporation until August 4, 1995. As an S
Corporation, the Company was subject to no federal income taxes and only
minimum state taxes. Pro forma amounts reflect adjustments for additional
income taxes that would have been reported if the Company had been a C
Corporation based upon an estimated statutory rate of 40% in 1991, 1992,
1993 and 1994, and 34% in 1995.
(2) For the year ended December 31, 1995, the pro forma net loss attributable
to common stock gives effect to the accretion of the difference between the
carrying value and the liquidation value of the Redeemable Preferred Stock
of $484,929 and to the accrual of dividends of $400,000 on the Redeemable
Preferred Stock. For the three months ended March 31, 1996, the pro forma
net loss attributable to common stock gives effect to the accretion of the
difference between the carrying value and the liquidation value of the
Redeemable Preferred Stock of $242,414 and to the accrual of dividends of
$240,000 on the Redeemable Preferred Stock.
(3) The pro forma net income (loss) per common share and pro forma weighted
average number of shares outstanding give effect to the Reorganization.
(4) Adjusted to reflect the sale by the Company of 3,600,000 shares of Common
Stock in the Offering at the initial public offering price of $11.00 per
share and the application of the net proceeds therefrom. See "Use of
Proceeds."
5
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Actual results could
differ materially from those projected in the forward-looking statements as a
result of certain of the risk factors set forth below and elsewhere in this
Prospectus and other factors. Prospective investors should consider carefully
the following factors, in addition to the other information contained in this
Prospectus, in evaluating the Company and its business before purchasing
shares of Common Stock offered hereby.
DEPENDENCE ON A LIMITED NUMBER OF TELEVISION PROGRAMS
The Company's revenue has historically been derived principally from the
production of a relatively small number of television programs. The Simpsons,
Felix the Cat, The Critic and The Mask accounted for approximately 35%, 15%,
13% and 12%, respectively, of the Company's total revenue for the year ended
December 31, 1995. The Simpsons, Mighty Max and The Critic accounted for
approximately 28%, 21% and 17%, respectively, of the Company's total revenue
for the year ended December 31, 1994. As audiences' tastes change frequently,
there can be no assurance that broadcasters will continue to broadcast the
Company's "proprietary" or "fee-for-services" programs or that the Company
will continue to be engaged to produce the programs that it currently produces
on a "fee-for-services" basis. While the Company continually endeavors to
develop new programming, there can be no assurance that revenue from existing
or future programming will replace a possible loss of revenue associated with
the cancellation of any particular program.
LIMITED NUMBER OF TIME SLOTS FOR CHILDREN'S AND ANIMATED TELEVISION
PROGRAMMING; VERTICAL INTEGRATION AND STRATEGIC ALLIANCES
Film Roman competes for time slots with a variety of companies which produce
animated or live-action television programming. The number of outlets
available to producers of animated programming has expanded in the last decade
due, in part, to growth in the number of broadcast and cable networks.
However, the number of time slots currently allocated to children's and/or
animated television programming remains limited (a "time slot" being a
broadcast time period for a program that either airs five times per week
(Monday through Friday) or once per week (usually on the weekend)). For the
1995-96 season, children's and/or animated programming occupied (i)
approximately 39 time slots each week on FOX, CBS, ABC, UPN and WB networks
(the "Networks"); (ii) approximately 16 time slots (excluding time slots
primarily occupied by repeat programming) each week on cable networks, such as
USA Network, Nickelodeon and HBO; and (iii) approximately 40 time slots in
syndication, offered by such syndicators as Buena Vista Television
Distribution, Saban Entertainment, New World Entertainment and Bohbot
Entertainment. See "Business--Animation Industry Overview." During the 1995-96
television season, the Company's programming occupied five Network time slots
and one syndication time slot.
Over the last decade, broadcasters, distributors and producers of television
and motion picture programming have become increasingly integrated vertically
through mergers, acquisitions, partnerships, joint ventures or other
affiliations. Film Roman has not entered into any such relationships. These
relationships, coupled with the recent repeal of certain regulations of the
Federal Communications Commission ("FCC") which had limited the ability of
ABC, NBC and CBS to control certain rights in television programming (see
"Business--Government Regulations"), may result in broadcasters favoring the
producers of animated programming with which they are affiliated, thereby
reducing the number of time slots available for other producers. There can be
no assurance that the number of time slots currently available for children's
and/or animated programming and, specifically, for animated programming
supplied by independent animation studios such as the Company, will not
decrease, or that the Company will compete successfully for available time
slots.
6
<PAGE>
DECLINING VALUE OF LICENSE FEE AGREEMENTS AND INCREASING CONTROL OF
PROPRIETARY RIGHTS BY BROADCASTERS
Competition created by the emergence of new broadcasters (such as UPN, WB,
Nickelodeon and the USA Network) has provided television audiences with an
increased number of available "time slots" for programming, thereby generally
reducing the number of viewers watching any one program. As a result, the
market share of, and license fees paid by, FOX, CBS and ABC have decreased.
Even though the license fees paid by FOX, CBS and ABC have decreased, they
continue to be higher than the license fees paid by the newer Networks. As a
result, there continues to be intense competition for the time slots offered
by the Networks, especially FOX, CBS and ABC. Moreover, broadcasters have
recently begun to demand a greater percentage of the revenue generated from
the exploitation of proprietary rights associated with the programs which they
license, and may seek to control and exploit all of the proprietary rights
associated with programs which they license. These industry-wide trends,
should they continue, may have a significant adverse impact on the Company's
business, results of operations and financial condition.
CONCENTRATION OF CUSTOMERS
Since the number of outlets for the Company's productions is limited,
certain customers have historically accounted for a significant portion of the
Company's revenue. The Company derived approximately 35%, 13%, 13%, 12%, and
10% of its total revenue from its top five customers, Twentieth Television (a
division of Twentieth Century Fox), Adelaide Productions, Inc. (an affiliate
of Columbia Tri-Star), Fox Children's Network (an affiliate of Twentieth
Century Fox), Sunbow Productions and CBS, respectively, for the year ended
December 31, 1995. The loss of any one or more of these customers could have a
material adverse effect on the Company's financial position and results of
operations. No assurance can be given that the Company's existing programs
will continue to be broadcast by its current customers or that broadcasters
will be interested in the Company's new programs.
RISKS RELATED TO EXPANSION OF PRODUCTION OF PROPRIETARY PROGRAMMING
Substantially all of the programming produced by the Company has
historically been on a "fee-for-services" basis ("fee-for-services"
programming), in which the Company does not own or control licensing or
distribution rights, but may have profit participation rights based on a
percentage of adjusted gross profits or net profits earned by the owners of
such distribution rights. (For example, the Company has profit participation
rights for The Critic, Garfield & Friends, Mighty Max and Bobby's World.) Fees
paid to the Company for these production services typically cover all direct
production costs plus a profit margin. Increasingly, the Company is producing
programming for which it owns or controls licensing and/or distribution rights
("proprietary" programming). Such rights may include domestic and
international broadcast distribution, home video distribution, licensing and
merchandising, feature film and interactive/game development ("proprietary
rights"). While the Company seeks to limit the financial risk associated with
its proprietary programming by obtaining commitments prior to production to
cover at least 50% of its direct production costs, there can be no assurance
that the Company will be able to recover the balance of its production and
overhead costs through the exploitation of its remaining rights. See
"Business--Funding Production--Proprietary Programming." Revenues derived from
the Company's proprietary programming were $5.6 million and $1.9 million for
the year ended December 31, 1995 and the quarter ended March 31, 1996,
respectively. See "Business--Principal Elements of the Company's Business--
Library." Since the Company has only recently begun to retain the proprietary
rights associated with its animated programs, it has a limited history of
operations and management experience related to the exploitation of such
rights.
7
<PAGE>
POSSIBLE DECLINE IN DEMAND FOR CURRENT PROGRAMS AND UNCERTAINTY OF ACCEPTANCE
OF NEW PROGRAMS; NEILSEN RATINGS
Substantially all of the Company's revenue has been derived from the
production and distribution of animated television programs. Each production
is an individual artistic work, and there can be no assurance that the Company
will be able to continue to create entertaining episodes for its existing
programs or new programs that appeal to broadcasters. Since a program's
existing (or expected) Neilsen rating is one of the most significant factors
that an advertiser considers in determining what it is willing to pay for
commercial time during a program's broadcast, a program's existing (or
expected) Neilsen rating is an important factor which a broadcaster considers
in determining whether or not to license or renew a program. In addition,
since producers of syndicated programs often receive payments from syndicators
based on a share of the revenue derived from advertisers whose commercials air
during a program's broadcast, Neilsen ratings can play an even greater role in
determining what programs will be aired in syndication. As a result, the
Company attempts to create, develop and produce programs that will perform
well in the Neilsen ratings system. The Neilsen ratings associated with the
Company's productions, as well as the ultimate commercial success of its
productions, depend on a variety of factors, including audience reaction,
competing programs, other forms of entertainment, and other factors beyond the
Company's control. There can be no assurance that the Company's programs will
obtain favorable Neilsen ratings or that broadcasters will license the rights
to broadcast any of the Company's programs in development or will renew
licenses to broadcast programs currently produced by the Company. Even if
licenses to broadcast the Company's existing programming are renewed, the
popularity of a particular program and its Neilsen rating may diminish. It is
likely that a decrease in the popularity of the Company's programming will
result in reduced revenue generated by the Company's licensing, merchandising,
distribution and other activities associated with such programs.
OPERATING LOSSES AND FINANCIAL CONDITION
For the year ended December 31, 1995 and the quarter ended March 31, 1996,
the Company had net losses of $1.7 million and $0.5 million, respectively, and
at the respective period ends an accumulated retained deficit of $2.9 million
and $4.0 million, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." There can be no assurance that
the Company will achieve net income or positive retained earnings. If the
Company is unable to do so, the Company may have to reduce overhead, curtail
production and development of proprietary programming or obtain further
financing, if available.
BUDGET AND COST OVERRUNS
The Company reviews cost reports and updates its cost projections regularly.
Although the Company has generally completed its productions within its
budget, there can be no assurance that the actual production costs for its
programming will remain within budget. Risks such as production delays, higher
talent costs, increased subcontractor costs, political instability overseas,
and other unanticipated events may substantially increase production costs and
delay completion of the production of any one or more of the Company's
programs.
RISKS RELATED TO OVERESTIMATION OF REVENUE OR UNDERESTIMATION OF COSTS
The Company follows Financial Accounting Standards Board Statement No. 53,
"Individual Film Forecast" ("FASB 53"), regarding revenue recognition and
amortization of production costs. All costs incurred in connection with an
individual program or film, including acquisition, development, production and
allocable production overhead costs and interest, are capitalized as
television and film costs. These costs are stated at the lower of unamortized
cost or estimated net realizable value. Estimated total production costs for
an individual program or film are amortized in the proportion that revenue
realized relates to management's estimate of the total revenue expected to be
received from such program or film. As a result, if revenue or cost estimates
change with respect to a program or film, the Company may be required to
write-down all or a portion of unamortized costs for such program or film. No
assurance can be given that these write-downs will not have a significant
impact on the Company's results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Accounting Practices."
8
<PAGE>
SEASONALITY
Results of operations in any period depend on the Company's production and
delivery schedule of television programs. Broadcasters typically make most of
their annual programming commitments in the first and second quarters of any
calendar year so that new programs will be ready for delivery in the third
quarter and, to a greater extent, the fourth quarter of that year. Revenues
from license and production agreements are typically recognized when the
finished product has been delivered to and accepted by the customer. As a
result of the production cycle, the Company's revenue is not recognized evenly
throughout the year and a significant portion of such revenue is recognized in
the fourth quarter. The Company's results of operations fluctuate materially
from quarter to quarter and year to year and the results of any one period are
not necessarily indicative of results for future periods. Cash flows also
fluctuate and do not necessarily correlate with revenue recognition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Revenue and Cost Recognition."
COMPETITION
The creation, development, production and distribution of television
programming, together with the exploitation of the proprietary rights related
to such programming, is a highly competitive business. The Company faces
intense competition from producers, distributors, licensors and merchandisers.
While the Company became the leading independent animation studio in North
America by producing more animated series for broadcast on the Networks than
other independent animation studios, the Company also competes with the film
and television animation operations of the major studios, all of which are
larger and have greater financial resources than the Company. In addition to
competing for available time slots offered by the Networks and other
broadcasters (see "--Declining Value of License Fee Agreements and Increasing
Control of Proprietary Rights by Broadcasters"), management believes that it
faces competition in two other principal areas:
CREATIVE PROPERTIES AND CREATIVE PERSONNEL
Film Roman competes with other animation companies in the acquisition of
characters, storylines, plots and ideas created by third parties. Such
competition is generally on the basis of which animation company is perceived
to be best able to create and develop a successful program from the initial
idea or character. Film Roman also competes with other animation companies
(including the film and television animation operations of major studios) for
the animators, writers, producers and other creative personnel needed to
successfully develop and produce animated programming. Management believes
that it competes for creative properties and creative personnel with a variety
of companies including The Walt Disney Company, Warner Bros., Hanna-Barbera,
DIC, Klasky-Csupo, Marvel Entertainment, Saban Entertainment, Cinar Films,
Dreamworks SKG, Nelvana, Universal Cartoon Studios, Sony Cartoon Studios and
Hyperion Productions, many of which have greater financial resources to obtain
creative properties and creative personnel.
LICENSING AND MERCHANDISING
An important element of the Company's strategy is to license the characters
in its proprietary programs to merchandisers that produce and distribute a
variety of products, ranging from toys to apparel, throughout the United
States and internationally. As a result, the Company competes with other
owners of creative content who seek to license their characters and properties
to a limited number of manufacturers and distributors. In connection with the
Company's recent initiatives to exploit the proprietary rights associated with
its programming, it has entered into several licensing and merchandising
agreements. However, for the quarter ended March 31, 1996, the Company derived
no significant revenue from its licensing and merchandising activities. See
"Business--Principal Elements of the Company's Business--Licensing and
Merchandising."
9
<PAGE>
RISKS RELATED TO INTERNATIONAL SUB-CONTRACTING AND SALES
OVERSEAS SUBCONTRACTORS
The Company, like other producers of animated programming, subcontracts some
of the less creative and more labor-intensive components of its production
process to animation studios located in low-cost labor countries, primarily in
the Far East. With a growing number of animated feature films and animated
television programs being produced in recent years, the demand for the
services of overseas studios has increased substantially. This increased
demand may lead overseas studios to raise their fees which may result in
increased animated programming production costs incurred by the Company or the
inability of the Company to contract with its preferred overseas studios.
Many of the subcontractors used by the Company are located in South Korea
and, to a lesser extent, Taiwan, the Philippines and China. Each of these
areas has recently experienced some degree of political unrest or military
activity. The exacerbation of such conditions could cause significant economic
disruptions in the delivery of animation products to the Company. In such
event, the Company may be required to retain new subcontractors. No assurance
can be given that different subcontracting arrangements will be as favorable
to the Company as its current arrangements.
INTERNATIONAL SALES
Approximately 5% of the Company's revenue for the year ended December 31,
1995 was derived from licensing international distribution rights to the
Company's proprietary programming, and the Company anticipates that revenue
from these activities can grow substantially. The Company's ability to
continue to expand its international business (as well as its ability to
contract upon favorable terms with overseas studios) depends, in part, on the
local economic conditions, currency fluctuations, local changes in regulatory
requirements, compliance with a variety of foreign laws and regulations, and
cultural barriers. In addition, political instability in a foreign nation may
adversely affect the ability of the Company to distribute its product in that
country. As a result of the foregoing, as well as many other factors affecting
domestic businesses, there can be no assurance that the Company's
international operations will be profitable. See "Business--Principal Elements
of the Company's Business--Distribution of Proprietary Programming--
International Distribution."
TECHNOLOGICAL CHANGES; POSSIBLE CHANGES IN PRODUCTION OF COMPANY'S PRODUCTS
The proliferation of new production technologies may change the manner in
which the Company's programming is created and distributed. Recently, certain
animators have begun to use computer-generated animation, including three-
dimensional digital animation, instead of two-dimensional cel animation, to
create their animated programming. No assurance can be given that the
introduction and proliferation of three-dimensional digital animation or other
technological changes will not cause the Company's current methods of
producing animation to become less cost competitive or less appealing to its
audiences. In addition, there can be no assurance that the Company will be
able to adapt to such changes in a cost-effective manner.
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a significant extent upon the expertise and
services of Phil Roman, the Company's President and Chief Executive Officer,
and other key personnel, including William Schultz, its Executive Vice
President. The loss of the services of Mr. Roman and/or other key management
personnel could have an adverse effect upon the Company's business, results of
operations and financial condition. The Company has entered into employment
agreements with Messrs. Roman and Schultz and certain of its other key
management personnel. For a description of the terms of such agreements, see
"Management--Employment Agreements." In addition, the Company maintains $5.0
million and $2.0 million "key man" life insurance policies on Messrs. Roman
and Schultz, respectively. There can be no assurance that the Company will be
able to retain its existing management personnel. In addition, the Company's
continued success is highly dependent on the artistic and production
capabilities of its creative staff. The Company is currently a signatory to
the Screen
10
<PAGE>
Actors Guild collective bargaining agreement and certain of the Company's
voice-over actors are members thereof. The Company believes that its future
success will depend, in part, on its continuing ability to attract, retain and
motivate qualified personnel.
CASUALTY RISKS
Substantially all of the Company's operations and personnel are located in
its North Hollywood headquarters, resulting in vulnerability to fire or other
local conditions, including the risk of seismic activity.
POTENTIAL ANTI-TAKEOVER EFFECTS
Upon completion of the Offering, Phil Roman, the Company's President and
Chief Executive Officer, will beneficially own approximately 35.7% of the
Common Stock and therefore may exercise substantial influence over the
Company's affairs, including whether the Company's operations are acquired by
a third party. The Company's Stock Option Plan and certain of the executive
officers' employment agreements provide for the acceleration of the vesting
and exercisability of stock options and grants of stock thereunder under
certain circumstances, including in the event of certain changes in control of
the Company. In addition, provisions of the Certificate of Incorporation and
Bylaws of Film Roman Holdings, as well as provisions of the Delaware General
Corporation Law, may have the effect of delaying or preventing transactions
involving a change of control of the Company, including transactions in which
stockholders might receive a substantial premium for their shares over then
current market prices, and may limit the ability of stockholders to approve
transactions that they deem to be in their best interest. For example, under
the Certificate of Incorporation, the Board of Directors is authorized to
issue one or more classes of preferred stock having such designations, rights
and preferences as may be determined by the Board. In addition, the directors
are divided into three classes, each having a term of three years, with the
term of one class expiring each year. These provisions could delay the
replacement of a majority of the directors and have the effect of making
changes in the Board of Directors more difficult than if such provisions were
not in place. Any amendment of the Company's Bylaws by the stockholders or of
certain provisions of the Company's Certificate of Incorporation (including
provisions regarding the classification and election of directors) requires
the affirmative vote of at least 66 2/3% of the shares of Common Stock then
outstanding. See "Description of Capital Stock--Delaware Law and Limitations
on Change in Control."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market will develop or be
sustained after the Offering. The initial public offering price will be
determined by negotiations between the Company and the Representatives (as
defined below), and there can be no assurance that the market price of the
Common Stock after the Offering will equal or exceed the initial public
offering price. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. Following the
consummation of the Offering, the market price of the Common Stock could be
subject to significant fluctuations in response to variations in results of
operations, general economic and market conditions and other factors.
SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will experience substantial
dilution of $7.14 per share in pro forma net tangible book value per share of
Common Stock from the initial public offering price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
There will be 8,184,636 shares of Common Stock outstanding immediately
following consummation of the Offering (8,752,386 shares if the Underwriters'
over-allotment option is exercised in full). The 3,785,000 shares of Common
Stock offered hereby (plus an additional 567,750 shares if the Underwriters'
over-allotment option
11
<PAGE>
is exercised in full) will be freely tradeable without restriction or
registration under the Securities Act by persons other than "affiliates" (as
defined in the Securities Act) of the Company. The remaining 4,399,636 shares
of Common Stock will be "restricted securities" under the Securities Act and
may only be sold pursuant to an effective registration statement under the
Securities Act or an applicable exemption from the registration requirements
of the Securities Act, including Rule 144 thereunder. Holders of 1,481,250
shares of Common Stock have certain registration rights, and approximately 90
days after completion of the Offering, the Company will file an S-8
Registration Statement to register up to 1,227,695 shares of Common Stock
reserved for issuance pursuant to the Company's Stock Option Plan. See
"Management--Stock Option Plan." All holders of Common Stock and all directors
and executive officers have agreed with the Underwriters (as defined below)
not to offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of their shares of Common Stock of the Company or any
securities convertible into or exercisable or exchangeable for such Common
Stock or in any other manner transfer all or a portion of the economic
consequences associated with the ownership of such Common Stock for a period
of 180 days after the date of this Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. See "Shares
Eligible For Future Sale." At the expiration of such lock-up period, there
will be 2,918,386 shares of Common Stock that will be eligible for sale by
"affiliates."
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares for future sale will have
on the market price of shares of Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock (including shares issuable upon
the exercise of stock options), or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common Stock
offered hereby are estimated to be approximately $36.3 million ($42.1 million
if the Underwriters' over-allotment option is exercised in full) after
deducting the estimated underwriting discount and offering expenses payable by
the Company.
The Company intends to use the estimated net proceeds of the Offering as
follows: (i) approximately $1.5 million to pay accumulated but unpaid
dividends on the Redeemable Preferred Stock and the Convertible Preferred
Stock, (ii) approximately $12.0 million to pay for the redemption of the
Redeemable Preferred Stock, (iii) approximately $487,000 to repay short-term
debt under the Company's existing line of credit having a variable interest
rate (equal to 10.75% at March 31, 1996) and maturing on September 2, 1996;
and (iv) the remaining net proceeds to fund the production of animated
programming and for general corporate purposes. See "Capitalization."
DIVIDEND POLICY
The Company does not anticipate paying dividends in the foreseeable future.
Management anticipates that all earnings and other cash resources of the
Company, if any, will be retained by the Company for investment in its
business. The Company expects that any future debt agreements would contain
significant restrictions on its ability to pay dividends.
12
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of the Company at March 31, 1996, and as adjusted to
reflect the Reorganization, the sale of the shares of Common Stock offered by
the Company hereby (assuming an offering price of $11.00 per share), and the
application of the net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF MARCH 31,
1996
--------------------
AS
ACTUAL ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................. $ 4,707 $27,065
======= =======
Short-term debt(1)........................................ $ 487 $ --
======= =======
Redeemable Preferred Stock, $.01 par value, 1,200,000
shares authorized, issued, and outstanding (actual); none
authorized, issued and outstanding (as adjusted)(1)...... $ 6,990 $ --
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding (as adjusted).. -- --
Convertible Preferred Stock, $.01 par value, 750,000
shares authorized, issued and outstanding (actual);
none authorized, issued and outstanding (as adjusted).. -- (2) --
Common Stock, no par value, 10,000,000 shares
authorized, 1,713,000 shares issued and outstanding
(actual); $.01 par value, 20,000,000 shares authorized,
8,184,636 shares issued and outstanding (as
adjusted)(3)........................................... 1 83
Additional paid-in capital.............................. 4,716 35,509
Deficit................................................. (3,989) (3,989)
------- -------
Total stockholders' equity............................ 728 31,603
------- -------
Total capitalization...................................... $ 7,718 $31,603
======= =======
</TABLE>
- ---------------------
(1) See Notes 4 and 6 of Notes to Financial Statements.
(2) Actual Convertible Preferred Stock balance as of March 31, 1996 rounds to
zero.
(3) The adjusted number of shares issued and outstanding gives effect to the
Reorganization, the Offering and the Redemption. Excludes 1,227,695 shares
of Common Stock issuable upon the exercise of options granted or to be
granted under the Company's Stock Option Plan. See "Management--Stock
Option Plan."
13
<PAGE>
DILUTION
At March 31, 1996, the net tangible book value of the Company, adjusted to
reflect the effects of the Reorganization, was approximately $728,000 or
$0.16 per share. "Net tangible book value per share as adjusted" is defined as
the book value of tangible assets of the Company applicable to Common Stock,
less all liabilities, divided by the number of shares of Common Stock
outstanding after the Reorganization. Without taking into account any changes
in the net tangible book value as adjusted after March 31, 1996 (other than to
give effect to the sale of Common Stock by the Company in this Offering and
the application of the net proceeds therefrom), the pro forma net tangible
book value of the Company at March 31, 1996 would have been approximately
$31,603,000 or $3.86 per share. This represents an immediate increase in pro
forma net tangible book value of $3.70 per share to the existing stockholders
and an immediate dilution of $7.14 per share to new investors. The following
table illustrates the dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)(2).......... $11.00
Net tangible book value per share before offering as
adjusted(3)................................................. $0.16
Increase attributable to purchase by new stockholders in the
Offering.................................................... 3.70
-----
Pro forma net tangible book value as adjusted after the
Offering...................................................... 3.86
------
Dilution of net tangible book value to new stockholders(4)..... $ 7.14
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the differences between existing shareholders and new investors with respect
to the number of shares owned after the Offering, the total consideration
paid, and the average price paid per share in the Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED(2) TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders... 4,399,636 53.8% $ 13,000 -- --
New investors........... 3,785,000 46.2 41,635,000 100% $11.00
--------- ----- ----------- ---
Total................. 8,184,636 100.0% $41,648,000 100%
========= ===== =========== ===
</TABLE>
- ---------------------
(1) Before deduction of underwriting discounts and commissions and estimated
expenses payable by the Company in connection with the Offering.
(2) Assuming a maximum initial public offering price of $12.00 per share, the
pro forma net tangible book value per share as adjusted after the Offering
would be $4.27 and the dilution per share would be $7.73.
(3) Share amounts give effect to the Reorganization.
(4) Dilution is determined by subtracting pro forma net tangible book value
per share from the initial public offering price paid by a new investor
for one share of Common Stock.
The computations in the table set forth above assume no exercise of stock
options outstanding under the Company's Stock Option Plan. On the date of this
Prospectus, there were outstanding options to purchase 859,375 shares of
Common Stock at a weighted average exercise price of $7.46 per share. Assuming
the exercise of all such options, the per share dilution to new investors
would be $6.80 as compared to $7.14 presented above.
14
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial data set forth below as of December 31, 1994 and 1995
and for each of the two years in the period ended December 31, 1995 are
derived from the Company's financial statements audited by Ernst & Young LLP,
independent auditors, included elsewhere in this Prospectus. The selected
financial data presented below as of and for the year ended December 31, 1993
have been derived from the financial statements of the Company audited by
Tanner, Mainstain & Hoffer. The selected financial data presented below as of
and for the years ended December 31, 1991 and 1992 and the three months ended
March 31, 1995 and 1996 are derived from the Company's unaudited financial
statements. The unaudited financial statements from which such selected
financial data are derived include all adjustments which management considers
necessary for a fair presentation. Results for the three months ended March
31, 1996 are not necessarily indicative of the results for the year. The
selected financial data presented below and under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" should be read in
conjunction with the Company's financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $9,642 $21,943 $27,867 $36,201 $ 34,341 $ 9,111 $ 7,461
Expenses:
Cost of revenue........ 9,021 20,716 25,675 33,190 33,156 8,765 7,111
Selling, general and
administrative
expenses.............. 266 699 1,368 1,829 2,963 594 851
------ ------- ------- ------- --------- ------- ----------
Operating income
(loss)................ 355 528 824 1,182 (1,778) (248) (501)
Interest income
(expense), net........ 1 (16) (21) (28) 89 (9) 30
------ ------- ------- ------- --------- ------- ----------
Income (loss) before
provision for income
taxes................. 356 512 803 1,154 (1,689) (257) (471)
Provision for income
taxes................. -- -- -- -- -- -- --
------ ------- ------- ------- --------- ------- ----------
Net income (loss)...... 356 512 803 1,154 (1,689) (257) (471)
Pro forma provision for
income taxes(1)....... (142) (205) (321) (462) 574 87 --
------ ------- ------- ------- --------- ------- ----------
Pro forma net income
(loss)(1)............. $ 214 $ 307 $ 482 $ 692 $ (1,115) $ (170) $ (471)
====== ======= ======= ======= ========= ======= ==========
Pro forma net income
(loss) attributable to
common stock(2)....... $ 214 $ 307 $ 482 $ 692 $ (2,000) $ (170) $ (954)
====== ======= ======= ======= ========= ======= ==========
Pro forma net income
(loss) per common
share(2)(3)........... $ (0.51) (0.25)
========= ==========
Pro forma net income
(loss) per common
share, giving effect
to the
Reorganization(4)..... $ (0.41) $ (0.20)
========= ==========
Pro forma weighted
average number of
shares outstanding,
giving effect to the
Reorganization(4)..... 4,861,181 4,861,181
========= ==========
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
-------------------------------------------- -------------------
1991 1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents........... $ 139 $ 463 $ 448 $ 436 $ 5,176 $ 4,707
Film costs, net of
amortization.......... 7,514 7,660 10,603 12,382 12,379 12,094
Total assets........... 7,958 8,608 11,832 13,694 18,950 18,575
Short-term debt........ 297 356 1,270 1,363 1,737 487
Redeemable Preferred
Stock................. -- -- -- -- 6,749 6,990
Stockholder's equity... 622 345 784 1,691 1,832 728
</TABLE>
(Footnotes appear on following page.)
15
<PAGE>
(Footnotes to Selected Financial Information on previous page.)
- ---------------------
(1) The Company operated as an S Corporation until August 4, 1995. As an S
Corporation, the Company was subject to no federal income taxes and only
minimum state taxes. Pro forma amounts reflect adjustments for additional
income taxes that would have been reported if the Company had been a C
Corporation based upon an estimated statutory rate of 40% in 1991, 1992,
1993 and 1994, and 34% in 1995.
(2) For the year ended December 31, 1995, the pro forma net loss attributable
to common stock gives effect to the accretion of the difference between
the carrying value and the liquidation value of the Redeemable Preferred
Stock of $484,929 and to the accrual of dividends of $400,000 on the
Redeemable Preferred Stock. For the three months ended March 31, 1996
(unaudited), the pro forma net loss attributable to common stock gives
effect to the accretion of the difference between the carrying value and
the liquidation value of the Redeemable Preferred Stock of $242,414 and to
the accrual of dividends of $240,000 on the Redeemable Preferred Stock.
(3) The pro forma net income (loss) per common share gives effect to the split
of the Company's Common Stock which occurred in July 1995 and is
calculated in accordance with a Staff Accounting Bulletin of the
Securities and Exchange Commission whereby common and common equivalent
shares issued within a 12-month period prior to an initial public offering
are treated as outstanding for all periods presented if the issue price
was less than the proposed initial public offering price. In addition,
shares issuable upon the exercise of options and warrants and Convertible
Preferred Stock within the 12-month period are considered to have been
outstanding since inception of the Company. On this basis, the weighted
average number of shares outstanding for all periods presented is
3,888,945.
(4) The pro forma net income (loss) per common share and weighted average
number of shares outstanding, both giving effect to the Reorganization,
reflect the adjustments as outlined under "Prospectus Summary--The
Reorganization."
SUPPLEMENTAL LOSS PER SHARE CALCULATION
Giving effect, at the beginning of the respective periods, to (i) the
issuance of shares of Common Stock whose proceeds are to be used to repay the
Company's short-term debt and to redeem the Redeemable Preferred Stock, (ii)
such short-term debt repayment and Redeemable Preferred Stock redemption, and
(iii) the reduction of the interest and dividend accruals resulting from such
repayment and redemption, the supplemental loss per share (not giving effect
to the Reorganization) for the year ended December 31, 1995, and the three
months ended March 31, 1996, would have been $(1.39) and $(1.19),
respectively. The supplemental loss per share, after giving effect to the
Reorganization for the year ended December 31, 1995, and the three months
ended March 31, 1996, would have been $(1.11) and $(0.95), respectively. The
loss attributable to common stockholders used for this supplemental loss per
share calculation has been increased by $5,724,212 and $5,239,212 for the year
ended December 31, 1995 and the three months ended March 31, 1996,
respectively, for the excess of the price to be paid for the redemption of the
Redeemable Preferred Stock over its carrying value. The excess of the price to
be paid for the redemption of the Redeemable Preferred Stock over its carrying
value will be charged to stockholders' equity in the period in which the
Offering is consummated, and reflected in net income (loss) per share
applicable to common stock.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Film Roman Holdings was incorporated in Delaware in May 1996 in order to
hold all of the outstanding capital stock of Film Roman California. As a
result of the Reorganization, Film Roman California will become a wholly-owned
subsidiary of Film Roman Holdings immediately prior to the closing of the
Offering. See "Certain Transactions--Reorganization."
In 1995 Film Roman California privately placed the California Redeemable
Preferred Stock and warrants to purchase California Common Stock with certain
investors for an aggregate purchase price of $12 million. See "Certain
Transactions--1995 Private Placement."
Film Roman creates, develops, produces and distributes high quality, family-
oriented animated television programming. Historically, the Company has
produced substantially all of its programming for third parties on a "fee-for-
services" basis. Increasingly, the Company is producing programming for which
it controls the "proprietary rights" associated with such programming
(including, for example, international distribution and licensing and
merchandising rights).
The Company produces a limited number of television series in any year and
is substantially dependent on revenues from licensing these programs to
broadcasters. The Company's future performance will be affected by issues
facing all producers of animated programming, including risks related to the
limited number of time slots allocated to children's and/or animated
television programming, the intense competition for those time slots and the
declining license fees paid to producers of programming by broadcasters. In
addition, the Company has recently begun to expand its internal creative
development of proprietary characters and program concepts by establishing an
international distribution division and a licensing and merchandising division
to support the exploitation of its proprietary rights. As a result of these
new initiatives, the Company has incurred additional overhead and other costs
which has depressed operating results. While the Company seeks to limit its
financial risk associated with its proprietary programming by obtaining
commitments prior to production to cover at least 50% of its direct production
costs, there can be no assurance that the Company will be able to cover the
balance of its production costs and overhead costs relating to production,
licensing and distribution through the exploitation of its proprietary rights.
As a result of the foregoing risks, there can be no assurance that the Company
will be able to generate revenues that exceed its costs. See "Risk Factors."
1996 PRODUCTION
The Company is currently producing 161 episodes of programming to be aired
during the 1996-97 broadcast season. The Company estimates that approximately
120 of such episodes will be produced and delivered to broadcasters in 1996.
The approximately 120 episodes that the Company expects to produce and deliver
in 1996 represent an increase of 47 episodes (or 64%) from the number of
episodes produced and delivered in 1995. See "Business--The Company's
Television Programming." Approximately 42% of these episodes are proprietary
productions for which the Company expects to recognize revenues over a period
of years (unlike fee-for-services productions, for which all or most revenues
are recognized upon delivery). The Company expects that its losses will
continue through the second quarter and perhaps beyond.
REVENUE AND COST RECOGNITION
The Company follows FASB 53 for accounting practices related to revenue
recognition and amortization of production costs for its fee-for-services and
proprietary programming.
17
<PAGE>
Revenues from license and production agreements, which may provide for the
receipt by the Company of nonrefundable guaranteed amounts, are recognized
when the license period begins and the programming is available pursuant to
the terms of the agreement, typically when the finished episode has been
delivered to and accepted by the customer. Amounts in excess of minimum
guarantees under such agreements are recognized when earned. Cash collected in
advance of the time of availability of programming is recorded as deferred
revenue ($7.4 million at March 31, 1996).
Broadcasters typically make most of their annual programming commitments in
the first and second quarters so that programs will be ready for broadcast in
the third and fourth quarters of the same year. As a result, the Company's
revenues are concentrated in the third and fourth quarters.
All costs incurred in connection with an individual program or film,
including acquisition, development, production and allocable production
overhead costs and interest are capitalized as film costs. At March 31, 1996,
the Company's capitalized film costs balance was $12.1 million. These costs
are stated at the lower of unamortized cost or estimated net realizable value.
Estimated total production costs for an individual program or film are
amortized in the proportion that revenue realized relates to management's
estimate of the total revenue expected to be received from such program or
film. Estimated liabilities for third party participations are accrued and
expensed in the same manner as film costs are amortized. Due to the inherent
uncertainties of forecasting both total revenue and total expense, at any time
one or the other can be overstated or understated, resulting in potential
adjustments to the financial statements, including losses. See Note 1 to Notes
to Financial Statements.
The Company's cash flows are not necessarily related to revenue recognition
and amortization of production costs. Cash is received and costs are incurred
(and paid) throughout the year. In the fourth quarter, and to a lesser extent
the third quarter, cash used in operations typically exceeds cash generated by
operations as completed shows are delivered to broadcasters.
OVERHEAD ALLOCATION
Overhead is allocated to particular productions on the basis of the total
allocable overhead times the ratio of direct production costs incurred on a
program to total production costs incurred during the period. Total allocable
overhead is determined on the basis of management's estimates of the
percentage of overhead costs which can be attributed to the productions in
progress during the period.
INCOME TAXES
Prior to August 4, 1995, the Company was an S Corporation subject to
taxation under Subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, the net income of the Company, for federal (and
some state) income tax purposes, was reported by and taxed directly to the
Company's sole stockholder, rather than the Company. The Company's S
Corporation status terminated on August 4, 1995 and the Company became a C
Corporation subject to corporate taxation. No adverse tax consequences to the
persons who become stockholders in the Offering are expected to result from
the Company's change to C Corporation status. Pro forma amounts reflect
adjustments for income taxes that would have been reported if the Company had
been a C Corporation based upon an estimated statutory rate of 40% in 1993 and
1994, and 34% in 1995.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
Total revenue for the three months ended March 31, 1996 decreased by 18% to
$7.5 million from $9.1 million for the same period in 1995. This decrease was
primarily attributable to a decrease in the total number of episodes produced
and delivered from 16 to 12 ($1.4 million) and a decrease in revenue from
profit participations
18
<PAGE>
(which are dependent on the activities of owners or their licensees in
exploiting their rights) ($0.4 million). This decrease was partially offset by
an increase in other revenue ($0.2 million), primarily related to an increase
in revenue derived from commercials and specials.
Cost of revenue for the three months ended March 31, 1996 decreased by 19%
to $7.1 million from $8.8 million for the same period in 1995, primarily due
to a decrease in production costs related to decreased episodes in production.
Cost of revenue, as a percentage of revenue, decreased to 95% for the three
months ended March 31, 1996 from 96% for the same period in 1995.
Total selling, general and administrative expenses increased for the three
months ended March 31, 1996 by 43% to $0.9 million from $0.6 million for the
same period in 1995. The increase was primarily due to the expansion of the
Company's licensing and merchandising division ($0.1 million), international
division ($0.1 million) and interactive division ($0.1 million). As a
percentage of total revenue, selling, general and administrative expenses
increased to 11% for the three months ended March 31, 1996 from 7% for the
same period in 1995.
Operating loss increased to $0.5 million for the three months ended March
31, 1996 from $0.2 million for the same period in 1995.
The pro forma income tax benefit was $0.1 million for the three months ended
March 31, 1995. The Company became a C corporation on August 4, 1995 and
therefore there was no pro forma income tax provision for the three months
ended March 31, 1996.
As a result of the above, pro forma net loss increased to $0.5 million for
the three months ended March 31, 1996 from $0.2 million for the same period in
1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Total revenue decreased by 5% to $34.3 million in 1995 from $36.2 million in
1994, primarily due to a decrease in the total number of episodes produced and
delivered. For the three series that were produced and delivered in both 1994
and 1995, six fewer episodes were produced and delivered in 1995 than in 1994
($1.3 million). In addition, the Company produced three series in 1994 which
were not renewed ($12.8 million). This was partially offset by three new
series produced and delivered in 1995 ($10.8 million). These three new series
produced in 1995 represented 19 fewer episodes than the three series produced
in 1994. Although 25 fewer episodes were produced and delivered in 1995 than
in 1994, revenues per episode increased 22%. This decrease in total revenue
was partially offset by an increase in 1995 of revenue from profit
participations ($0.9 million) and an increase in other revenue ($0.5 million),
primarily related to an increase in revenue derived from commercials and
specials.
Although 25 fewer episodes were produced and delivered in 1995, cost of
revenue was $33.2 million in 1995 and 1994. Cost of revenue, as a percentage
of revenue, increased to 97% in 1995 from 92% in 1994. This increase was
primarily due to higher direct production costs of new shows produced and
delivered in 1995 and an increase in total allocable overhead.
Total selling, general and administrative expenses increased by 62% to $3.0
million in 1995 from $1.8 million in 1994, primarily due to increased costs
related to the expansion of the Company's licensing and merchandising division
($0.4 million), interactive division ($0.2 million) and international division
($0.2 million) and an increase in rent and salaries ($0.3 million). As a
percentage of total revenue, selling, general and administrative expenses
increased to 8.6% in 1995 from 5.0% in 1994.
Operating income (loss) decreased by $3.0 million to ($1.8 million) in 1995
from $1.2 million in 1994.
The pro forma income tax benefit was $0.6 million in 1995, compared to a
provision of $0.5 million in 1994.
As a result of the above, there was a pro forma net loss of $1.1 million in
1995 compared to pro forma net income of $0.7 million in 1994.
19
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Total revenue increased by 30% to $36.2 million in 1994 from $27.9 million in
1993. This increase was primarily due to an increase of 20 episodes produced
and delivered.
Cost of revenue increased by 29% to $33.2 million in 1994 from $25.7 million
in 1993, primarily due to an increase in production costs related to increased
episodes in production. As a percentage of revenue, cost of revenue was 92% for
1993 and 1994.
Total selling, general and administrative expenses increased by 34% to $1.8
million in 1994 from $1.4 million in 1993, primarily due to the establishment
of the Company's international division ($0.2 million) and the addition of new
personnel ($0.2 million). As a percentage of total revenue, selling, general
and administrative expenses were 5% in 1994 and 1993.
Operating income increased by 43% to $1.2 million in 1994 from $0.8 million
in 1993. As a percentage of total revenue, operating income was 3% in 1993 and
1994.
The pro forma income tax provision was $0.5 million in 1994, an increase from
$0.3 million in 1993 as a result of the increase in pretax income.
As a result of the above, pro forma net income increased to $0.7 million in
1994 from $0.5 million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
As the Company endeavors to develop and produce more proprietary programs,
retain more of the proprietary rights thereto, and increase its presence in the
licensing and merchandising and international distribution markets, greater
capital resources will be required. The Company seeks to limit the financial
risk associated with its proprietary programming by obtaining commitments prior
to production to cover at least 50% of its direct production costs, but the
Company must utilize its own funds to cover remaining production costs and
overhead costs relating to production, licensing and distribution.
For the year ended December 31, 1995, net cash used in operating and
investing activities was $4.6 million, an increase of $4.9 million from the
same period in 1994, due to a net loss of $1.7 million in 1995, as compared to
a net profit of $1.2 million in 1994, a decrease in deferred revenue, and
fluctuations in other operating assets and liabilities. For the year ended
December 31, 1995, net cash provided by financing activities was $9.4 million,
an increase of $9.5 million from the same period in 1994, due primarily to
$10.7 million in net proceeds from the issuance of Redeemable Preferred Stock
and warrants. For the three months ended March 31, 1996, net cash provided by
operating and investing activities was $0.8 million, an increase of $1.1
million from the same period in 1995, due to an increase in deferred revenue
and fluctuations in other operating assets and liabilities. For the three
months ended March 31, 1996, cash used in financing activities was $1.3
million, an increase of $1.1 million from the same period in 1995, due
primarily to repayments of debt.
The Company has a $1,230,000 revolving credit facility (the "Revolving Credit
Facility") with a bank. Borrowings under the Revolving Credit Facility accrue
interest at a variable rate. The obligations under the Revolving Credit
Facility are secured by various assets of the Company and are guaranteed by
Phil Roman. At March 31, 1996, $450,000 in principal amount was outstanding
under the Revolving Credit Facility; all borrowings outstanding are due and
payable on September 2, 1996. See Note 4 of Notes to Financial Statements.
The Company is seeking to obtain a new bank facility in the principal amount
of approximately $5.0 million. There can be no assurance that it will be able
to obtain a new bank facility on terms that are satisfactory to the Company.
Management believes that, after the consummation of the Offering, the Company's
cash and cash equivalents and anticipated cash flow from operations will be
sufficient to fund the Company's operating requirements for at least the next
year, whether or not the Company enters into a new bank facility.
20
<PAGE>
BUSINESS
OVERVIEW
Film Roman creates, develops, produces and distributes high quality, family-
oriented animated television programming. Since the Company was founded by
Phil Roman in 1984, it has become the leading independent animation studio in
North America by producing more animated series for broadcast on the Networks
during the 1996-97 television season than any other independent animation
studio. The Company is currently producing 10 animated series (Bobby's World,
King of the Hill, The Mask (CBS), The Mask (syndication), Richie Rich, The
Simpsons, BRUNO the Kid, C-Bear & Jamal, Felix the Cat and Mortal Kombat) and
one special (The Story of Santa Claus), and recently completed production of
an additional special (The Magic Pearl), all of which are scheduled to air on
ABC, CBS, FOX or the USA Network, as well as in first-run syndication, during
the 1996-97 television season. Additional previously-produced Film Roman
series that will air during the upcoming television season include Garfield &
Friends, Mighty Max, The Critic and Klutter. The Company has produced at least
three series each season for the Networks since 1990 and, in so doing, has
successfully competed against other independent studios, as well as the major
studios which have financial and other resources greater than the Company.
The Company believes that it has a reputation within the entertainment
industry as a reliable producer of high quality animated programming, making
it one of a select group of suppliers of animated programming to the Networks.
This reputation in the animation industry is critical because animated series
are ordered for production without the benefit of a pilot episode. As a
result, programmers rely to a significant degree on a studio's track record
for producing high quality programming that is delivered on schedule and
within budget. As of March 31, 1996, the Company produced 465 episodes of
animated programming. At the conclusion of the 1996-97 broadcast season, the
Company projects that it will have produced in excess of 600 episodes of
animated programming, substantially all of which will have been broadcast at
least once; there is, however, no assurance that all episodes scheduled to air
during the 1996-97 television season will be televised.
HISTORY
Phil Roman began his animation career in 1955 at The Walt Disney Company as
an assistant animator on Sleeping Beauty. Over the next 30 years, Mr. Roman
worked at many of the major studios, including MGM Animation and Warner Bros.
Cartoons, and was an animator on such productions as The Cat in the Hat, How
the Grinch Stole Christmas, George of the Jungle, Popeye, Snoopy Come Home and
Lord of the Rings. Mr. Roman also directed 13 Emmy-nominated Charlie Brown
specials.
From its inception in 1984, the Company quickly developed its reputation for
producing quality animation with the production of the Emmy award-winning
television special, Garfield In The Rough. Based upon the success of that and
subsequent Garfield specials, the Company was engaged to produce a weekly
half-hour Garfield series on CBS which, in its second season, was expanded to
a weekly one-hour block. In 1989, the Company, together with comedian Howie
Mandel, developed the concept for the series Bobby's World, which the Company
produced on a "fee-for-services" basis for Fox Children's Network. Bobby's
World, entering its seventh season, continues to be a highly-rated program. As
a result of the Company's strong record of producing high quality animated
series, Gracie Films and Twentieth Television (a division of Twentieth Century
Fox) approached Film Roman in 1991 to produce on a "fee-for-services" basis
the successful Simpsons series, which had been previously produced by a
competitor of the Company. To date, Film Roman has produced 96 episodes of The
Simpsons and has another 26 episodes currently in production.
Historically, the Company has produced substantially all of its programming
for third parties on a "fee-for-services" basis. Increasingly, the Company is
producing programming for which it controls the proprietary rights associated
with such programming (including, for example, international distribution and
licensing and merchandising rights). Through the retention and exploitation of
these proprietary rights, the Company believes
21
<PAGE>
that it can earn an attractive return on its investment and, at the same time,
build a library of characters and programs that will have lasting value. Four
of the 10 series the Company is producing for the 1996-97 television season
are proprietary--Felix the Cat (CBS), C-Bear & Jamal (FOX), BRUNO the Kid
(syndication) and Mortal Kombat (USA Network).
STRATEGY
Film Roman's business strategy is to:
. CREATE AND DEVELOP POPULAR CHARACTERS AND PROGRAMS. The Company seeks
to create and develop popular characters and programs that will form
the foundation of enduring character and program franchises. Because
the Company was founded by an animator and has a corporate culture that
emphasizes artistic integrity, the Company believes that it has
consistently attracted some of the most creative artists and
storytellers in the animation industry. The Company believes that
popular characters and program concepts, when creatively developed and
artistically produced, have substantial value in many areas of
exploitation, such as international distribution, licensing and
merchandising, feature film and interactive rights. Popular characters
and programs also enhance the value of the Company's library and may
provide opportunities for exploitation in the future as other means of
exploitation emerge. With its track record of producing high quality,
popular programs, the Company believes it is well-positioned to create
character and program franchises.
. INCREASE PRODUCTION OF PROPRIETARY PROGRAMMING. The Company intends to
continue increasing the amount of proprietary programming it produces
while maintaining a base of "fee-for-services" programming. The Company
believes that its profits can be enhanced by retaining the proprietary
rights to its characters and programs because the Company can better
exploit these rights due to its superior understanding of its
properties. The Company can also optimize its investment in each of its
character and program franchises by coordinating all licensing,
merchandising, international distribution and other activities in order
to maximize the value of such franchises. Moreover, by controlling
proprietary rights, the Company eliminates third party agency and
distributor fees and, at the same time, may capture the profits such
third parties would otherwise retain. As of March 31, 1996, the
Company had produced 17 half-hour episodes and 12 one-hour episodes of
proprietary programming. See "--Principal Elements of the Company's
Business--Funding Production--Proprietary Programming."
. EXPLOIT LICENSING AND MERCHANDISING RIGHTS. The Company intends to
exploit the licensing and merchandising of its proprietary characters
in order to generate revenue and to increase the popularity of its
characters and programs. By licensing its proprietary characters to
select manufacturers and distributors of consumer products such as
toys, apparel, school supplies, housewares and books, the Company seeks
to capture a portion of the growing licensing and merchandising market
which features entertainment properties, such as animated characters.
In 1995, this segment of the merchandising and licensing market had
retail sales in the United States and Canada in excess of $16 billion.
Through March 31, 1996, the Company derived no significant revenue from
these activities. See "--Principal Elements of the Company's Business--
Licensing and Merchandising."
. CONTROL AND EXPAND INTERNATIONAL DISTRIBUTION. The Company intends to
generate revenue from the distribution of its proprietary programming
to the growing international market. The Company's programs are
currently broadcast in over 50 countries. Due in part to the growth in
the number of international television outlets, the global demand for
animated programming continues to expand. Recently, the Company has
begun to distribute its proprietary programming internationally through
its international division, rather than selling these international
distribution rights to third parties. By retaining these rights, the
Company seeks to earn distribution fees while ensuring that its
international distribution rights are properly managed, thereby
increasing the popularity of its characters and
22
<PAGE>
programming worldwide. For the year ended December 31, 1995 and the
quarter ended March 31, 1996, the Company's international distribution
activities generated revenues of $1.8 million and $0.9 million,
respectively (or 5% and 13%, respectively, of total revenues for such
periods). See "--Principal Elements of the Company's Business--
Distribution of Proprietary Programming--International Distribution."
. PURSUE NEW BUSINESS OPPORTUNITIES WHILE MINIMIZING FINANCIAL RISK. The
Company intends to pursue new business opportunities beyond the
production of animated television programming, particularly those which
capitalize on the Company's proprietary rights. The Company intends to
minimize the financial risk associated with such opportunities through
various means, including the receipt by the Company of commitments from
third parties to cover its direct costs of production prior to
commencing production. The Company is currently producing two
interactive projects and is exploring new areas for possible
exploitation, including on-line services. The Company also seeks
strategic alliances with third parties in pursuing feature film
opportunities and currently has one film in development at Universal
Pictures/MCA. Although the Company continuously explores new ideas and
seeks new business opportunities outside animated television
programming, the Company has no material obligations to produce new
projects, except as described herein. See "--Principal Elements of the
Company's Business--Interactive Products; --Feature Films."
. BUILD A LIBRARY. The Company intends to build a library of proprietary
programs which can be licensed and relicensed in the growing television
marketplace. The Company's ownership and control of distribution rights,
coupled with the Company's enduring and popular characters, should
provide permanent and increasing value for the Company's programming.
The Company believes that, as the number of exhibition outlets grows
domestically and internationally, its library will become increasingly
valuable. See "--Principal Elements of the Company's Business--Library."
There can be no assurance given that the Company will be successful in
implementing this strategy. The discussion of the Company's strategy contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in these forward-looking statements as
a result of certain risk factors described elsewhere in this Prospectus or
other factors. See "Risk Factors."
ANIMATION INDUSTRY OVERVIEW
Animation has been a major entertainment medium for decades. Since cartoon
characters appear the same dubbed in any language, animation easily crosses
national and language barriers. In addition, animation generally does not
become "dated" as does live-action programming, allowing an animated series to
be enjoyed by each new generation of children.
Children are the primary target market for animated television programming.
Nielsen data indicate that children aged two to eleven are the nation's
heaviest consumers of television, watching an average of almost 22 hours each
week. Growth in advertising spending targeted at children and the expansion in
the number of television channels dedicated to children's programming around
the world have caused an increase in the demand for animated television
programming.
Animated programming has expanded beyond the traditional Saturday morning
line-up. Monday through Friday mornings and afternoons now attract an even
greater number of young viewers than Saturday morning. There are many
programming blocks targeted toward children, including "The Disney Afternoon,"
Fox Children's Network and WB Kids. In addition, UPN and the USA Network, as
well as many first-run syndicators, provide programming blocks of animation on
Sunday mornings. Furthermore, programming successes such as The Simpsons and
Beavis & Butthead demonstrate that animation also appeals to adults.
Increases in cable and satellite channels worldwide and the privatization,
new entry and expansion in the international broadcast, satellite and cable
industry are providing additional opportunities for growth for animation
companies, especially those companies which own and distribute their own
programs.
23
<PAGE>
U.S. TELEVISION
Networks. The United States network television market is the most valuable
market to producers of animated programming. Networks generally reach the
largest audiences and pay the highest license fees, enabling a producer to
finance a more significant portion of its production costs through network
license fees than if a program is licensed to a cable network or first-run
syndicator. Weekend morning children's programming now airs on ABC, CBS, FOX,
UPN and WB. In addition, FOX and WB broadcast animated programming for young
audiences during weekday mornings and afternoons. NBC has not broadcast
children's programming, including animation, since 1992.
Since network programming generally reaches a larger audience than
programming provided by syndicators and/or cable programmers, programming that
airs on network television is often more widely recognized by audiences. As a
result, the Company believes that an initial network license generally
increases the value of the program in other markets, particularly in the
international television market and "runs" subsequent to network broadcast in
the U.S. cable, syndication, and home-video markets, as well as in the market
for toys, apparel and games that feature characters from network programs. For
the 1995-96 season, animated programming occupied 33 of the approximately 39
Network time slots dedicated to animated and/or children's programming each
week.
Syndication. Syndication provides an important first-run, as well as repeat,
broadcast market for animated programs. Traditionally, syndication has been
populated by programs that support merchandise and whose characters are
featured in toy lines, apparel and other consumer products. For the 1995-96
season, animated programming (distributed by such syndicators as Buena Vista
Television Distribution, Saban Entertainment, Bohbot Entertainment and New
World Entertainment) occupied 28 of the approximately 40 syndicated time slots
dedicated to animated and/or children's programming each week.
Cable and Direct Broadcast Satellite ("DBS"). Cable and DBS are increasing
their audience share among children. The growth in the number of cable
channels and the development of DBS provides additional outlets for animated
programming. The cable channels which currently broadcast animated programs
include Nickelodeon, USA Network, The Disney Channel, The Cartoon Network, The
Comedy Channel, The Family Channel, HBO, Showtime and MTV. For the 1995-96
season, animated programs occupied approximately 16 time slots (excluding
slots primarily occupied by repeat programming) each week on United States
cable networks.
INTERNATIONAL TELEVISION
The growth in the number of international television outlets has created
additional global demand for animated programming. The privatization of the
international television industry has encouraged a ratings/revenue-oriented
focus among international broadcasters, thereby increasing the demand for
high-quality television entertainment. Animated programs produced in the
United States have enjoyed wide acceptance internationally. In addition, the
international market has experienced an increase in the number of cable and
satellite programming services. These added programming services have created
an opportunity for distributors, including the Company, to license
simultaneously both traditional broadcast and satellite programming rights
within the same territory. International television, cable, satellite and home
video sales of an animated program produced in the United States can account
for half or more of the revenue for a given program. See "--Principal Elements
of the Company's Business--Distribution of Proprietary Programming--
International Distribution."
LICENSING AND MERCHANDISING
Due to the significant revenue that can be generated from licensing and
merchandising television characters, producers and owners of animated
characters seek to drive sales of toys and other licensed products through the
production and distribution of programs featuring their characters. According
to "The Licensing Letter" (a licensing and merchandising trade periodical that
is published monthly), U.S. and Canadian retail sales of
24
<PAGE>
products derived from licensed entertainment properties were approximately
$16 billion in 1995. Numerous programs (such as The Teenage Mutant Ninja
Turtles, G.I. Joe, Power Rangers, Sonic the Hedgehog and Transformers) were
initially produced in large part to support the sales of merchandise
associated with these programs. See "--Principal Elements of the Company's
Business--Licensing and Merchandising."
THE COMPANY'S TELEVISION PROGRAMMING
During the 1996-97 television season, Film Roman expects that 14 of its
series occupying 15 "time slots" (or approximately 17 hours) of animated
programming (including new and repeat programming) will air each week, as
described below. The Company is in the process of producing the 161 new
episodes listed in the table below.
25
<PAGE>
FILM ROMAN TELEVISION PROGRAMMING TO BE AIRED DURING 1996-97 SEASON
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT
EPISODES IN BROADCASTER(S)
PRODUCTION YEARS (AND
FOR 1996-97 PROGRAM ON SYNDICATOR,
SERIES SEASON(1) SCHEDULE(2) AIR(3) AS APPLICABLE) PROGRAM DESCRIPTION
- --------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <S>
"FEE-FOR-SERVICES PROGRAMMING":
- --------------------------------------------------------------------------------------------------
Bobby's World 3 Mon.-Fri. 7 FOX Emmy nominated series starring
Howie Mandel.
- --------------------------------------------------------------------------------------------------
King of the 13 TBD 1 FOX Prime-time series based on
Hill characters created by Mike Judy,
creator of Beavis & Butthead.
- --------------------------------------------------------------------------------------------------
The Mask 9 Saturday 2 CBS Based on the blockbuster film
starring Jim Carrey.
- ---------------------------------------------------------------------------------
The Mask 30 Mon.-Fri. 1 First-run
Syndication
(Bohbot)
- --------------------------------------------------------------------------------------------------
Richie Rich 13 TBD 1 First-run Cartoon shorts based on Harvey
Syndication Comics' classic character.
(Claster)
- --------------------------------------------------------------------------------------------------
26 Sunday 5(4) FOX Emmy award-winning prime-time
series starring Homer, Marge,
Bart, Lisa and Maggie Simpson.
-------------------------------------------------------------
The Simpsons
0 Mon.-Fri. 5(4) Syndication
(Twentieth
Television)
- --------------------------------------------------------------------------------------------------
The Critic 0 TBD 2 Comedy Central Highly acclaimed series which
originally aired on ABC in prime-
time featuring the voice of Jon
Lovitz.
- --------------------------------------------------------------------------------------------------
Garfield & 0 Mon.-Fri. 7 Cartoon Network Emmy award-winning series
Friends and TBS featuring that lazy, lasagna-
eating cat.
- --------------------------------------------------------------------------------------------------
Mighty Max 0 TBD 3 USA Network Based on Mattel's popular
children's toy line.
- --------------------------------------------------------------------------------------------------
Klutter 0 Mon.-Fri. 2 FOX Cartoon comedy starring a pile of
clothes that comes to life.
"PROPRIETARY PROGRAMMING":
- --------------------------------------------------------------------------------
BRUNO the Kid 36 Mon.-Fri. 1 First-Run Features voice and persona of
Syndication Bruce Willis as a 12-year-old
(Active spy.
Entertainment)
- --------------------------------------------------------------------------------------------------
C-Bear & Jamal 10 Saturday 1(5) FOX Features the voice of rap star
Tone Loc as a street-wise teddy
bear.
- --------------------------------------------------------------------------------------------------
Felix the Cat 8 Saturday 2 CBS Features the wonderful, wonderful
cat popular with children and
adults for decades.
- --------------------------------------------------------------------------------------------------
Mortal Kombat 13 Sunday 1 USA Network Loosely based on the hit video
game.
- --------------------------------------------------------------------------------------------------
</TABLE>
(Footnotes to table appear on following page.)
26
<PAGE>
(Footnotes to table on previous page.)
(1) Each episode runs for a half hour, except for the 13 Richie Rich cartoons
which run for seven minutes each.
(2) Program schedule for the season includes a combination of new and/or
repeat half-hour episodes. "TBD" (i.e., "to be determined") indicates
that, to the Company's knowledge, the broadcaster has not yet determined
the time slot during which the series will air. The program schedule does
not include the Company's two specials The Magic Pearl and The Story of
Santa Claus.
(3) Number of seasons for which new episodes were/are being produced,
including production for the 1996-97 season. The 1996-97 broadcast season
will begin around the second week of September 1996 and end around the
second week of September 1997.
(4) The Simpsons has been produced by the Company for five seasons and has run
in syndication for two seasons.
(5) Three additional episodes were produced for broadcast during the 1995-96
season.
PRINCIPAL ELEMENTS OF THE COMPANY'S BUSINESS
The Company's business of creating, developing, producing and distributing
high quality, family-oriented animated television programming, together with
the exploitation of any proprietary rights controlled by the Company, is
described in the sections below and includes: (i) acquiring, creating and
developing programming properties; (ii) funding the production of proprietary
programming; (iii) producing its programs; (iv) distributing its programming
domestically and internationally; (v) licensing and merchandising the rights
to its proprietary programs; (vi) producing feature films; (vii) developing
and licensing distribution rights to interactive software products; and (viii)
building a library.
ACQUISITION, CREATION AND DEVELOPMENT OF PROGRAMMING
The Company pursues ideas and properties it believes feature unique and
popular characters with broad appeal. These ideas and properties may originate
from a variety of sources. As a result of the Company's reputation and
position in the industry, many creators, rightsholders and even broadcasters
bring new concepts to the Company for development and production. The Company
may enter into an option agreement to acquire rights to an existing character,
such as Felix the Cat, develop internally a new character based on an existing
persona or consumer product, such as C-Bear & Jamal and Mighty Max,
respectively, or create or acquire an entirely new idea or character.
Once the Company has created a new property or acquired the rights to an
existing property, the Company begins development by preparing a presentation
to "pitch" the project to targeted domestic broadcasters (and, on some
occasions, to international broadcasters and product licensees). These
presentations generally consist of artwork featuring character designs and
"set-ups" (characters in a story scene) and may also include a brief written
description of the characters and sample storylines. If a broadcaster is
interested in developing an idea further, it will acquire an exclusive option
to order the production of episodes based upon the idea and will agree to
reimburse the Company for a portion of the further development costs if it
does not ultimately order production of any episodes. A broadcaster generally
collaborates in the further stages of development and will have the right to
approve the selection of writer, director and voice-over actors and the
creation of a pilot script. The creation, acquisition and development of a new
program normally occurs during a period of three to twelve months (usually
averaging approximately six months).
The Company currently has numerous projects in various stages of internal
development, including Shamu and the Crew and Sea Toons (both being developed
with a division of Anheuser-Busch, owner of Sea World), and 21 (a project
which is featured in a popular comic book series and for which the Company has
secured a master toy license with Playmates Toys), which are in the early
stages of development, and Blues Brothers (based on the Dan Aykroyd and John
Belushi characters), which is in the later stages of development. The Company
has already developed the characters, sample storylines and "set ups" for the
Blues Brothers and is in the final stages of negotiating a license agreement
with UPN for the production of 13 episodes to be aired during the
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<PAGE>
1996-97 television season. No assurance can be given, however, that the
Company will finalize a license agreement or that the Blues Brothers series
will be aired during the upcoming television season. Although the Company has
many projects in development and is continuously considering new ideas, only a
relatively small number of such projects will ultimately be produced.
FUNDING PRODUCTION--PROPRIETARY PROGRAMMING
Historically, the Company has produced programming almost exclusively on a
"fee-for-services" basis. Fees paid to the Company for these production
services generally range from $300,000 to $500,000 per episode and typically
cover all direct production costs plus a profit margin.
For its proprietary programming, the Company generally does not commence
production unless the Company has obtained commitments to cover at least 50%
of the Company's direct production costs through a combination of one or more
of the following sources: (i) network, cable, syndication, or other license
fees for audiovisual exploitation of the program in the United States, (ii)
licensing of merchandising, home video, and international distribution and
interactive rights, and (iii) strategic partners. For example, production
costs for the Company's first two proprietary programs, Felix the Cat and C-
Bear & Jamal, were covered prior to production by a combination of domestic
licensing commitments from the Networks and international distribution
arrangements. With capital provided by a 1995 equity private placement, the
Company was able to cover the balance of production costs without having to
sell its other proprietary rights, including licensing and merchandising
rights for C-Bear & Jamal. Through the retention and exploitation of these
rights, the Company seeks to earn an attractive return on its investment while
at the same time building a library of programming which will have lasting
value. Although historically the Company produced almost all of its
programming on a "fee-for-services" basis, as of March 31, 1996, the Company
had produced 17 half-hour episodes and 12 one-hour episodes of proprietary
programming and the Company expects that 67 episodes of its proprietary
programming will be produced and aired during the 1996-97 television season.
While the Company seeks to limit its financial risk associated with its
proprietary programming by obtaining commitments prior to production to cover
at least 50% of its direct production, there can be no assurance that the
Company will be able to cover the balance of its production costs and overhead
costs relating to production, licensing and distribution through the
exploitation of its remaining rights. Reasons the Company may not cover its
costs include: (i) a proprietary program may be cancelled; (ii) a proprietary
program and/or its related licensed products may not appeal to the Company's
targeted audience or may not appeal to the same audience targeted by a
licensee; or (iii) a licensee may not effectively market and distribute the
Company's programming domestically or internationally. Moreover, since certain
international distribution arrangements and other domestic and international
licensing activities are conditioned upon the U.S. broadcast of a minimum
number of programming episodes on a network or cable channel, no assurance can
be given that any series will be broadcast in the U.S. for a sufficient period
in order to meet these contractual conditions.
Unlike television production of proprietary programming, the Company does
not intend to commence production of an interactive or feature film projects
unless substantially all of the direct costs of production are funded by a
third party.
ANIMATED TELEVISION PRODUCTION
The Company generally commences production of a program during the first and
second quarters of any year for delivery during the third quarter, and to a
larger extent, the fourth quarter of that same year. The Company typically has
seven to nine months to produce and deliver an order of 13 half-hour episodes
(the number of episodes commonly ordered for the first year of a program). The
first step of the Company's production process is the creation of the script.
The Company selects a story editor to supervise the preparation of each
episode's script by various freelance script writers. The artists depict the
story and action in storyboards which provide a blueprint for the animation
process. Voices and songs are recorded and the recordings are analyzed and
timed so that the animation can be synchronized to the voice track. Based on
the script and
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<PAGE>
storyboard, the Company's artists create character designs, as well as key
background drawings and paintings. These essential elements are assembled into
a pre-production package for each episode which is then shipped to an overseas
subcontractor. Subcontractors use the pre-production materials to perform most
of the labor-intensive aspects of production. Most of these subcontractors are
located in low-cost labor countries in the Far East, including South Korea,
Taiwan, China and the Philippines. The subcontractor ships the negative and
work print for each episode to Film Roman. The film is then taken through a
post-production process which includes editing the picture and dialogue,
transferring the filmed images to video tape, creating sound effects,
composing and producing the musical score and mixing and synchronizing the
sound to the picture. After the post production process, an episode is ready
for delivery.
DISTRIBUTION OF PROPRIETARY PROGRAMMING
Domestic Television Distribution. Prior to commencing production of its
proprietary programming, the Company generally licenses broadcast rights to a
U.S. broadcaster. See "--Funding Production--Proprietary Programming." License
fees paid by Networks and cable networks for the Company's proprietary
programming generally cover over 50% of the Company's direct production costs.
License fees paid by first-run syndicators for the Company's proprietary
programming generally cover less than 50% of the Company's direct production
costs, and, under certain circumstances, first-run syndicators pay no license
fees. The Company may choose to enter into such a no-license-fee arrangement
when it can share in a portion of the revenues generated from the sale of
advertising aired by a syndicator during the broadcast of the Company's
programming and when the Company has obtained financing to cover a portion of
its direct production costs from sources other than the syndicator. If the
Company's program is highly rated in syndication, the Company may earn more in
revenues from advertisers (since those advertisers will often be willing to
pay higher fees to have their commercials aired during the broadcast of the
Company's program) than the Company would have earned in revenues from a
license fee arrangement with a syndicator that does not require the syndicator
to share advertising revenues with the Company. Conversely, however, if the
Company's program is poorly rated in syndication, the Company will likely earn
less in revenues than if it had negotiated to receive a license fee.
The license agreement typically includes provisions governing the license
fee, the term during which the program will be broadcast, the number of
episodes and the territories in which the episodes will be broadcast. Upon the
expiration of an initial broadcast license, the exhibition rights for the
applicable program revert to the Company and are available for relicensing. In
1995, substantially all of the Company's revenue was generated from the
domestic distribution of its programming to U.S. television broadcasters.
International Distribution. In 1993, the Company began its transition to the
production of proprietary programming with the establishment of its
international division to capture the economic benefits of owning and
controlling the international distribution rights to its proprietary
programming. The Company believes that by owning and controlling the
international distribution rights to its programming, it can not only generate
significant revenue from the licensing of such programming, but also it can
establish an international presence for the Company and its properties which
should support its international licensing and merchandising efforts.
Furthermore, a strong international division provides the Company with direct
access to market information and feedback which will enable it to produce
programs that are even more marketable on a worldwide basis. Since the
establishment of its international distribution division, the Company has
entered into audio-visual license arrangements with international broadcasters
and distributors to exhibit and distribute certain of the Company's
proprietary programming. The Company has also entered into a significant
distribution and co-production agreement with TaurusFilm GmbH ("TaurusFilm"),
a division of Kirch Group, a German media conglomerate. Under the terms of the
agreement, TaurusFilm has an exclusive right to review Film Roman's
proprietary programs in development and to license those programs for
distribution in certain European territories prior to the Company providing
any other entity with such an opportunity. Important features of this
arrangement are: (i) TaurusFilm pays a license fee, ranging from $60,000 to
$100,000 (depending on whether the program was first aired in first-run
syndication or by a Network/cable network and depending on the number of
European territories covered by the license), subject to an annual increase,
during production of each program licensed
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under the agreement (which the Company estimates will account for between one-
third and two-thirds of the Company's total international audio-visual revenue
derived from any such program); (ii) once TaurusFilm licenses a program, it is
required to license all episodes of that program for all seasons of
production; (iii) TaurusFilm is required to license at least five of the
Company's proprietary programs produced for the 1995-96 through the 1998-99
broadcast seasons; and (iv) the term of the license for each program is 22.5
years. The Company expects that its international distribution activities will
increase as it produces more proprietary programming. For the year ended
December 31, 1995 and the quarter ended March 31, 1996, the Company's
international distribution activities generated revenues of $1.8 million and
$0.9 million, respectively (or 5% and 13%, respectively, of total revenues for
such periods).
Home Video Distribution. The Company may also license to a home video
distributor the rights to manufacture and distribute video cassettes and disks
for a specified term and in a defined territory. The Company generally
receives a non-refundable advance to be applied against royalties which may
range from 8% to 25% of the wholesale selling price of a video cassette or
disk. Although the Company expects that revenue from licensing its home video
distribution rights will increase substantially in the future, the Company
derived less than 1% of its total revenue from such licensing activities in
1995.
LICENSING AND MERCHANDISING
The Company's licensing and merchandising division seeks licensing and
merchandising opportunities for characters and programs to which the Company
retains proprietary rights. Controlling licensing and merchandising rights
provides the Company the opportunity to earn revenue from the sale of products
bearing the likeness of its proprietary characters and other distinctive
features of a program. The Company also evaluates the licensing potential of
characters the Company is considering for development, formulates a licensing
strategy, and creates artwork depicting proposed licensed products and
merchandise featuring its characters for use in soliciting prospective
licensees. Although the Company incurs expenses to develop and establish a
licensing campaign, the Company does not incur the cost or assume the risk
associated with manufacturing, distributing and marketing the merchandise. The
revenue derived from licensing and merchandising depends not only on the
success, recognition and appeal of a character, but also on the quality and
extent of the marketing efforts of the Company and its licensees. Sales of
licensed products in turn promote the programs in which the Company's
characters appear.
Historically, under traditional "fee-for-services" arrangements, after
developing and selling a program for United States broadcast, Film Roman has
had to turn over control of its merchandising rights to those entities which
financed the production of its programming. For example, even though Bobby's
World was created by Film Roman, Twentieth Television acquired most of the
proprietary rights, including the licensing and merchandising rights to such
program. Recently, however, Film Roman was appointed as the agent to
administer the worldwide licensing and merchandising rights to the Bobby's
World property.
The Company expects that it will typically earn royalties between 5% and 12%
of the wholesale revenue derived from the sale of licensed products. The
Company has recently entered into licenses with manufacturers and distributors
of various products related to its proprietary characters C-Bear and Jamal,
including a master toy license. Although the Company believes that these
activities can have a significant impact on future earnings, prior to December
31, 1995, the Company derived no revenue from its licensing and merchandising
activities, and for the quarter ended March 31, 1996, the Company derived no
significant revenue from these activities.
FEATURE FILMS
In 1991 and 1992, the Company produced on a "fee-for-services" basis a
feature film, Tom & Jerry: The Movie, which was released theatrically by
Miramax Films. Although the Company has produced no other feature films, it is
pursuing feature film opportunities. The Company, together with Universal
Pictures/MCA and Dustin Hoffman's Punch Productions, is currently developing
(on a fee-for-services basis) the feature film There Goes The Neighborhood,
which is a project featuring a mixture of live-action and animation (similar
to that of Who
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Framed Roger Rabbit?). Universal Pictures has agreed to pay for the
development of a screenplay and the artwork for the project. No assurance can
be given that There Goes the Neighborhood will be produced. If the feature
film is produced, the Company will earn a fee for its services and may earn
revenues from financial participations based upon the success of the film and
the exploitation of the Company's rights. The Company currently has a number
of feature film projects in early stages of internal development, primarily
featuring the Company's proprietary characters. Although the Company is not
currently producing any feature films (nor has the Company entered into any
agreements to produce any such films), the Company intends to obtain financing
for its feature films through strategic alliances with third parties, such as
major motion picture studios, prior to the production of any such films. As a
result, the Company may be unable to retain control all or any of the
licensing and merchandising rights associated with its feature films.
INTERACTIVE PRODUCTS
In 1995, Film Roman established an interactive division to produce high-
quality interactive software products for consumer use. Such products may
feature characters from the Company's programs or may introduce new characters
which may become the basis for the development of future television series and
marketed to broadcasters. By combining its creative and production talent with
computer and software technology, the Company is focusing on existing and new
market opportunities created by the popularity of dedicated game machines
(such as those manufactured by Sony, Nintendo and Sega) and by wide-spread
computer use by children and adults. The Company may be able to apply
technology developed in connection with interactive products to the production
of animated programming. The Company intends to license distribution rights
for its interactive products to strategic partners who in turn will fund
substantially all of the Company's direct costs of production. For example,
the interactive division is producing two videogames, one based upon Felix the
Cat and the other based upon the BRUNO the Kid. Both projects are being
financed by International Business Machines Corporation ("IBM"). For the year
ended December 31, 1995 and the quarter ended March 31, 1996, the Company
earned no revenues from its interactive division.
LIBRARY
A library of proprietary programming can provide a future revenue stream as
such programs are re-licensed for broadcast after the expiration of the
initial broadcast license. Programs in the Company's library can also be
licensed to new channels and outlets in emerging markets around the world. The
Company began building its library in 1993 with the production of Animated
Classic Showcase, a restoration of existing classic Russian animation. The
Company added to its library the proprietary programming it produced during
the 1995-96 season, including three episodes of C-Bear & Jamal and 13 episodes
of Felix the Cat. In addition, during the 1996-97 season, the Company expects
to add to its library 10 episodes of C-Bear & Jamal, 8 episodes of Felix the
Cat, 36 episodes of BRUNO the Kid and 13 episodes of Mortal Kombat. Revenues
generated from the proprietary programs in the Company's library were $5.6
million (including $3.6 million from domestic television distribution) and
$1.9 million (including $0.8 million from domestic television distribution)
for the year ended December 31, 1995 and the quarter ended March 31, 1996,
respectively.
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The Company has retained the proprietary rights set forth below associated
with the programs in its library. The Company holds the proprietary rights
associated with the Animated Classic Showcase for fifteen years. The Company
holds most of the other proprietary rights listed in the table below in
perpetuity, subject to the rights granted to its licensees.
<TABLE>
<CAPTION>
NUMBER OF LICENSING
SERIES EPISODES DOMESTIC INTERNATIONAL AND
TITLE PRODUCED* DISTRIBUTION DISTRIBUTION MERCHANDISING INTERACTIVE
-------- -------------- -------------- ---------------------------- -----------
HOME HOME
TV VIDEO TV VIDEO
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Animated
Classic
Showcase 12 (X 1 hr.) X X X X X X
- ----------------------------------------------------------------------------------
Felix
the Cat 21 (X 1/2 hr.) X X X X X
- ----------------------------------------------------------------------------------
C-Bear &
Jamal 13 (X 1/2 hr.) X X X X X X
- ----------------------------------------------------------------------------------
BRUNO
the Kid 36 (X 1/2 hr.) X X X X X X
- ----------------------------------------------------------------------------------
Mortal
Kombat 13 (X 1/2 hr.) X X X X
- ----------------------------------------------------------------------------------
</TABLE>
* Includes episodes currently in production for the 1996-97 season.
COMPETITION
The creation, development, production and distribution of television
programming, together with the exploitation of the proprietary rights related
to such programming, is a highly competitive business. The Company faces
intense competition from producers, distributors, licensors and merchandisers,
many of whom are larger and have greater financial resources than the Company.
Management believes that it faces competition with a variety of companies in
three principal areas: (i) for the time slots for animated programming offered
by broadcasters, (ii) for the acquisition of characters, story lines, plots
and ideas and (iii) for the right to license and distribute its products
throughout the United States and internationally. See "Risk Factors--
Competition."
GOVERNMENT REGULATIONS
The FCC repealed its financial interest and syndication rules, effective as
of September 21, 1995. Those FCC rules, which were adopted in 1970 to limit
television network control over television programming and thereby foster the
development of diverse programming sources, had restricted the ability of the
three established, major U.S. television networks (ABC, CBS and NBC) to own
(or to be owned by) a syndicated television programmer and to own financial
interests in programming aired on their networks. The impact of the repeal of
the FCC's financial interest and syndication rules on the Company's operations
cannot be predicted at the present time, although it is expected that there
will be an increase in in-house productions of television programming for the
networks' own use and in the network programs in which a network holds a
financial interest. It is possible that this change will have a negative
impact on the Company's business to the extent that the networks target
children's programming.
Broadcast customers of the Company are subject to the provisions of the
Children's Television Advertising Act of 1990 and the follow-up rules issued
by the FCC which require broadcasters to offer educational and informational
programs to their viewers. As a result, while the Company is not subject to
the direct jurisdiction of the FCC, the content of the Company's programming
may be affected by these rules in order for the Company to place programs on
FCC-licensed television stations. The Company may be subject to local content
and quota requirements in the international markets, which effectively
prohibit or limit access to particular markets. The Company also seeks to
comply with self-regulatory rules relating to children's programming of the
Children's Advertising Review Unit of The Council of Better Business Bureaus
and of the national television networks by reviewing the proposed content of
each property prior to acquisition and acquiring rights to and distributing
only those properties for which there will be no material restrictions on
exhibition to children.
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TRADEMARKS
The Company has applications pending with the United States Patent and
Trademark Office to register several trademarks, including Film Roman, C-Bear &
Jamal, King of the Hill and BRUNO the Kid. Pursuant to arrangements with the
owners of the programs it produces, the Company utilizes certain trademarks and
copyrighted materials, including The Simpsons, Garfield, Bobby's World, Felix
the Cat, The Mask, Richie Rich, Mortal Kombat and Mighty Max.
FACILITIES
The Company conducts its operations through its 65,000 square foot studio and
headquarters located in North Hollywood, California. These facilities are
occupied pursuant to a lease that expires in August 1999 (and contains renewal
options).
EMPLOYEES
As of March 31, 1996, the Company had approximately 234 full-time employees
and 2 part-time employees. The Company also regularly engages numerous
freelance creative staff and other independent contractors on a project-by-
project basis. The Company is subject to the terms in effect from time to time
of various industry-wide collective bargaining agreements, including the Screen
Actors Guild. The Company believes that its relations with its employees are
good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings and is not aware
of any pending or threatened litigation that, if decided adversely to the
Company, would have a material adverse effect upon the Company's business,
results of operations or financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company are identified below:
<TABLE>
<CAPTION>
NAME AGE POSITION(1)
<C> <C> <S>
Phil Roman.......................... 65 President, Chief Executive Officer
and Chairman of the Board of
Directors (Class III Director)
William Schultz..................... 36 Executive Vice President
Jon F. Vein......................... 32 Senior Vice President
Jacqueline Blum..................... 34 Senior Vice President--Worldwide
Licensing and Marketing
Gregory Arsenault................... 39 Senior Vice President--Finance and
Administration
Robert Cresci(3).................... 52 Class I Director
Dixon Q. Dern(2).................... 67 Class III Director
Dennis W. Draper(2)................. 47 Class II Director
Theodore T. Horton, Jr.(2).......... 45 Class I Director
Peter Mainstain(3).................. 47 Class II Director
</TABLE>
- ---------------------
(1) Each director holds office until his resignation or removal and until his
successor shall have been duly elected and qualified. Elections with
respect to the Class I Directors, Class II Directors and Class III
Directors will be held at the annual meeting of stockholders in 1997,
1998, and 1999, respectively.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
The principal occupations and positions for the past five years and in
certain cases prior years, of the directors and executive officers named above
are as follows.
Phil Roman, President, Chief Executive Officer and Director. Mr. Roman has
been the Company's Chief Executive Officer since the Company was founded in
1984. Phil Roman began his animation career in 1955 at The Walt Disney Company
as an assistant animator on Sleeping Beauty. Over the next 30 years, Mr. Roman
worked at many of the major studios, including MGM Animation and Warner Bros.
Cartoons, and was an animator on such productions as The Cat in the Hat, How
the Grinch Stole Christmas, George of the Jungle, Popeye, Snoopy Come Home and
Lord of the Rings. Mr. Roman also directed 13 Emmy-nominated Charlie Brown
specials.
William Schultz, Executive Vice President. In 1989, Mr. Schultz joined the
Company as a Vice President and in 1993 was promoted to Executive Vice
President. Mr. Schultz currently oversees production and development, as well
as the Company's international division, and coordinates new business
opportunities. Prior to joining the Company, Mr. Schultz was employed by New
World Entertainment, where he served in a variety of positions including
Production Controller and Director of Development at the animation studio
Marvel Productions, a subsidiary of New World Entertainment. Mr. Schultz
received his Bachelor of Science degree from the University of Illinois at
Champaign--Urbana in 1982.
Jon F. Vein, Senior Vice President. In February 1995, Mr. Vein joined Film
Roman as a Senior Vice President where he oversees business and legal affairs
for the Company. Mr. Vein also established and oversees the Company's feature
film and interactive divisions. Prior to joining the Company, Mr. Vein
practiced entertainment law at Dern & Donaldson from 1990 to 1993 and at Dern
& Vein from 1993 to 1995. Mr. Vein received his Bachelor of Science degree in
electrical engineering-computer science and material sciences engineering from
University of California at Berkeley in 1986 and his Juris Doctor degree from
The Harvard Law School in 1989.
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<PAGE>
Jacqueline Blum, Senior Vice President--Worldwide Licensing and
Marketing. Ms. Blum joined the Company in 1993 as a Vice President to
establish and oversee the Company's licensing and merchandising division. In
1996, she was promoted to Senior Vice President. Mr. Blum also oversees the
Company's publicity and creative services departments. Prior to joining the
Company, Ms. Blum co-founded Imagination Factory, a licensing and
merchandising agency, in 1991. Previously, Ms. Blum was a principal of
Brentwood Licensing Properties, handling television packaging and
merchandising of the multi-million dollar property Kliban's Cat.
Gregory Arsenault, Senior Vice President--Finance and Administration. Mr.
Arsenault joined the Company in 1991 as Accounting Manager, served as
Controller for two years, served as Vice President of Finance for two years
and was promoted to Senior Vice President--Finance and Administration in 1996.
Mr. Arsenault oversees the Company's accounting department. Prior to joining
Film Roman, Mr. Arsenault served as an accounting systems consultant for LIVE
Entertainment. Mr. Arsenault received his Bachelor of Science degree in
accounting from the University of Southern California in 1980.
Robert Cresci--Director. Mr. Cresci has been a Director of Film Roman since
August 1995 and has been a Managing Director of Pecks Management Partners
Ltd., an investment management firm, since September 1990. Mr. Cresci
currently serves on the board of directors of Bridgeport Machines, Inc., Serv-
Tech, Inc., EIS International, Inc., Sepracor, Inc., Vestro Natural Foods,
Inc., Olympic Financial, Ltd., GeoWaste, Inc., Hitox, Inc., Natures Elements,
Inc., Garnet Resources Corporation, HarCor Energy, Inc. and Meris
Laboratories, Inc.
Dixon Q. Dern--Director. Mr. Dern has been a Director of Film Roman since
August 1995. Mr. Dern has practiced entertainment law for over 40 years and
currently owns and operates his own private practice which specializes in
entertainment, copyright and communications law.
Dennis W. Draper--Director. Mr. Draper has been a Director of Film Roman
since August 1995 and has been an Associate Professor of Finance at the
University of Southern California's School of Business since 1977. Mr. Draper
serves as trustee of the Pacifica Funds.
Theodore T. Horton, Jr.--Director. Mr. Horton has been a Director of Film
Roman since August 1995 and has been a Managing Director of BCI Advisors,
Inc., an investment management firm, since January 1990. Mr. Horton also
serves as a director of People's Choice TV.
Peter Mainstain--Director. Mr. Mainstain has been a Director of Film Roman
since August 1995 and has been a partner of Tanner, Mainstain & Hoffer, an
accountancy corporation, since 1976.
BOARD OF DIRECTORS
The Company's Bylaws provide that directors are divided into three classes,
each having a term of three years, with the term of one class expiring each
year. The directors shall be elected by a plurality vote, with no cumulative
voting, at the annual meeting of stockholders. Each elected director holds
office until his resignation or removal and until his successor shall have
been duly elected and qualified.
Compensation Committee and Audit Committee; Interlocks and Insider
Participation. The Board of Directors has a Compensation Committee and an
Audit Committee. The Compensation Committee, comprised of Messrs. Dern, Draper
and Horton, makes recommendations to the Board concerning salaries and
incentive compensation for officers and employees of the Company and
administers the Stock Option Plan. See "--Stock Option Plan." The Audit
Committee, comprised of Messrs. Cresci and Mainstain, reviews the results and
scope of the audit and other accounting related services. Each of the members
of the Compensation Committee and the Audit Committee is an independent
director who has no significant relationship with the Company or its officers
or directors.
Director Compensation. Directors receive $6,000 per year as compensation for
serving on the Board of Directors, $500 for attendance at each meeting of the
Board of Directors and $250 for attendance at each meeting of a committee of
the Board of Directors. The Company's Stock Option Plan provides that non-
employee directors may be granted stock options. Each of Messrs. Dern, Draper
and Mainstain have been granted options to purchase shares of Common Stock
under the Company's Stock Option Plan. See "--Stock Option Plan."
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<PAGE>
EXECUTIVE COMPENSATION
The following table provides for the periods shown certain summary
information concerning compensation paid or accrued by the Company to or on
behalf of (i) the Company's Chief Executive Officer and each of the four
highest paid executive officers of the Company (collectively, the "Named
Executive Officers") and (ii) the Company's two highest paid employees other
than the Named Executive Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/SAR#
POSITION YEAR SALARY BONUS COMPENSATION(1) (2)
<S> <C> <C> <C> <C> <C>
Phil Roman.................. 1995 $306,500 -- $41,974 --
President and Chief 1994 247,500 -- 36,413 --
Executive Officer 1993 208,000 -- 41,493 --
William Schultz............. 1995 $221,912 $71,839 -- 75,000
Executive Vice President 1994 188,827 47,185 -- --
1993 189,462 -- -- --
Jon F. Vein(3).............. 1995 $128,800 -- -- --
Senior Vice President
Jacqueline Blum............. 1995 $123,962 -- -- --
Senior Vice President-- 1994 109,346 -- -- --
Worldwide Licensing and 1993 93,846 -- -- --
Marketing
Gregory Arsenault........... 1995 $144,160 -- -- --
Senior Vice President-- 1994 103,680 -- -- --
Finance and Administration 1993 92,900 -- -- --
Guy Vasilovich.............. 1995 $156,000 -- -- --
Creative Director of 1994 157,850 -- -- --
Development
1993 137,750 -- -- --
Gary Hartle................. 1995 $157,480 $25,000 -- --
Producer of The Mask 1994 142,000 -- -- --
1993 102,610 -- -- --
</TABLE>
- ---------------------
(1) Each individual in the table, other than Mr. Roman, received annually (i)
a contribution pursuant to the Company's 401(k) profit sharing plan
amounting to less than $2,000 and (ii) perquisites and other persoanl
benefits, securities or property aggregating less than $50,000 or 10% of
the total annual salary and bonus reported for such individual. Mr. Roman
received annually (i) approximately $30,000 in automobile insurance,
service and lease payments, (ii) approximately $2,300 in contributions
pursuant to the Company's 401(k) profit sharing plan and (iii) payments
for personal travel and accounting services which accounted for the
remainder of Mr. Roman's other annual compensation.
(2) The securities underlying the options are shares of the Company's Common
Stock. For a description of terms pertaining to such options and other
information relating thereto, see "--Stock Option Plan."
(3) Mr. Vein began employment with the Company in February 1995.
During the periods indicated above, none of the individuals listed above
received any awards under any long-term incentive plan, and the Company does
not have a pension plan.
36
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into the following employment agreements with the
Named Executive Officers:
Mr. Roman. On August 7, 1995, Mr. Roman and the Company entered into an
employment agreement that expires on August 7, 2000. Pursuant to the terms of
the agreement, Mr. Roman shall serve as the Company's President and Chief
Executive Officer, and the Company will pay Mr. Roman a base salary equal to
$325,000 per year. In the event the Company attains certain earnings goals,
Mr. Roman is entitled to receive an additional $25,000 as base salary during
the fourth year of employment and an additional $50,000 per year as base
salary during the fifth year of employment.
Mr. Roman is also entitled to an incentive bonus for each calendar year
based on the relationship of earnings to earnings goals for such calendar
year. Upon the adoption of the Company's management bonus plan (see "--
Management Bonus Plan"), Mr. Roman's employment agreement is expected to be
amended to remove such incentive bonus provisions and Mr. Roman will become
eligible to receive a bonus under the Company's management bonus plan. The
Company is entitled to terminate Mr. Roman's agreement upon his death or
disability or "for cause" (e.g., commission of a felony, gross negligence or
material breach of his employment agreement).
Mr. Schultz. On August 7, 1995, Mr. Schultz and the Company entered into an
employment agreement that expires on August 7, 1998, and may be extended, at
the Company's option, for up to two additional one-year periods. Pursuant to
the terms of the agreement, Mr. Schultz shall serve as the Company's Executive
Vice President, and the Company will pay Mr. Schultz a base salary equal to
(i) $250,000 per year for each of the first three years of employment, (ii)
$275,000 during the fourth year of employment, if his contract is extended to
a fourth year and, (iii) $300,000 during the fifth year of employment, if his
contract is extended to a fifth year. In the event the Company meets or
exceeds certain earnings goals, Mr. Schultz is entitled to receive an
additional $25,000 per year as base salary during each of the fourth and fifth
years of employment. Mr. Schultz is also entitled to an incentive bonus for
each calendar year based on the relationship of earnings to earnings goals for
such calendar year. Upon the adoption of the Company's management bonus plan
(see "--Management Bonus Plan"), Mr. Schultz's employment agreement is
expected to be amended to remove such incentive bonus provisions and Mr.
Schultz will become eligible to receive a bonus under the Company's management
bonus plan. The Company is entitled to terminate Mr. Schultz's agreement upon
his death or disability, "for cause" (e.g., commission of a felony, gross
negligence or material breach of his employment agreement) or "without cause"
(reasons other than for his death or disability or for cause). Mr. Schultz is
entitled to terminate the agreement if Mr. Roman ceases to be President of the
Company and Mr. Schultz is not selected to replace him or if Mr. Schultz is
required to report to any other person other than Mr. Roman at any time.
Pursuant to the terms of Mr. Schultz's agreement, the Company granted Mr.
Schultz options for the purchase of 60,000 shares of California Common Stock
at an exercise price of $.01 per share and options for the purchase of 124,000
shares of California Common Stock at an exercise price of $10.00 per share.
See "--Stock Option Plan."
Mr. Vein. On February 14, 1995, Mr. Vein and the Company entered into an
employment agreement that expires on February 12, 1997. Pursuant to the terms
of the agreement, Mr. Vein shall serve as a Senior Vice President of the
Company, and the Company will pay Mr. Vein a base salary equal to $145,600
during the first year of employment and $160,160 during the second year of
employment. The Company is entitled to terminate Mr. Vein's agreement upon his
death or disability, "for cause" (e.g., commission of a felony, gross
negligence or material breach of his employment agreement) or "without cause"
(reasons other than for his death or disability or for cause). Mr. Vein is
entitled to terminate the agreement if Mr. Roman ceases to be the President of
the Company.
37
<PAGE>
Ms. Blum. On December 15, 1995, Ms. Blum and the Company entered into an
employment agreement that expires on January 1, 1998, and may be extended, at
the Company's option, for an additional year. Pursuant to the terms of the
agreement, Ms. Blum shall serve as the Company's Senior Vice President--
Worldwide Licensing and Marketing, and the Company will pay Ms. Blum a base
salary equal to $150,000 during the first year of employment, $157,500 during
the second year of employment, and, if such employment is extended by the
Company, $165,375 during the third year of employment. At the end of each
calendar year, Ms. Blum is eligible to receive a bonus in an amount determined
by the Board of Directors. The Company is entitled to terminate Ms. Blum's
agreement upon her death or disability, "for cause" (e.g., commission of a
felony, gross negligence or material breach of her employment agreement) or
"without cause" (reasons other than for her death or disability or for cause).
Pursuant to the terms of Ms. Blum's agreement, the Company granted Ms. Blum
options for the purchase of 35,000 shares of California Common Stock at an
exercise price of $10.00 per share. See "--Stock Option Plan."
Mr. Arsenault. On January 2, 1996, Mr. Arsenault and the Company entered
into an employment agreement that expires on January 2, 1999, and may be
extended at the Company's option for one additional year. Pursuant to the
terms of the agreement, Mr. Arsenault shall serve as the Company's Senior Vice
President--Finance and Administration and the Company will pay Mr. Arsenault a
base salary equal to $160,160 during the first year of employment, $168,168
during the second year of employment and $176,576 during the third year of
employment. If Mr. Arsenault's agreement is extended to include a fourth year
of employment, Mr. Arsenault's base salary during such year will be $194,234.
At the end of each calendar year, Mr. Arsenault is eligible to receive a bonus
in an amount determined by the Board of Directors. The Company is entitled to
terminate Mr. Arsenault's agreement upon his death or disability, "for cause"
(e.g., commission of a felony, gross negligence or material breach of his
employment agreement) or "without cause" (reasons other than for his death or
disability or for cause). Mr. Arsenault is entitled to terminate the agreement
if Mr. Roman ceases to be President of the Company. Pursuant to the terms of
Mr. Arsenault's agreement, the Company granted Mr. Arsenault options for the
purchase of 35,000 shares of California Common Stock at an exercise price of
$10.00 per share.
401(K) PROFIT SHARING PLAN
The Company has a defined contribution 401(k) Profit Sharing Plan which
covers substantially all of its employees. The plan became effective on
January 1, 1991 and was amended effective January 1, 1992. Under the terms of
the plan, employees can elect to defer up to 15% of their wages, subject to
certain Internal Revenue Service limitations, by making voluntary
contributions to the plan. Additionally, the Company, at the discretion of
management, can elect to match up to 100% of the voluntary contributions made
by its employees. For the years ended December 31, 1993, 1994 and 1995, the
Company contributed $42,398, $73,103, and $93,081, respectively, to the plan
on behalf of its employees.
38
<PAGE>
STOCK OPTION PLAN
In January 1996, Film Roman California granted to certain directors,
officers and employees of the Company options to purchase 493,000 shares of
California Common Stock (having a per share exercise price of $10.00). In May
1996, Film Roman California granted to Phil Roman, a consultant and certain
other employees of the Company options to purchase 134,500 shares of
California Common Stock (having a per share exercise price of $10.65). Upon
the effectiveness of the Reorganization and pursuant to the antidilution
provisions of the options, (i) the January 1996 options will become options
for 616,250 shares of Film Roman Holdings at $8.00 per share, and (ii) the May
1996 options will become options for 168,125 shares of Film Roman Holdings at
$8.52 per share. See "Certain Transactions--Reorganization."
Set forth below is a table describing the options granted by the Company to
each of the Named Executive Officers during the year ended December 31, 1995.
STOCK OPTION PLAN
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL OPTION GRANTS(1) FOR OPTION TERM(2)
-------------------------------------------------------------- ------------------------------
NUMBER OF PERCENT OF TOTAL MARKET
SHARES OPTIONS GRANTED EXERCISE PRICE AT
NAME AND UNDERLYING TO EMPLOYEES IN PRICE GRANT EXPIRATION
PRINCIPAL POSITION(3) OPTIONS GRANTED PERIOD PER SHARE DATE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
Phil Roman.............. -- -- -- -- -- -- --
President and Chief
Executive Officer
William Schultz......... 75,000 100% $0.01 $3.20 2005 $378,716 $620,552
Executive Vice
President
Jon F. Vein............. -- -- -- -- -- -- --
Senior Vice President
Jacqueline Blum......... -- -- -- -- -- -- --
Senior Vice President
Gregory Arsenault....... -- -- -- -- -- -- --
Senior Vice President
</TABLE>
- ---------------------
(1) After giving effect to the Reorganization (i.e., options for the purchase
of one share of California Common Stock will be exchanged for options for
the purchase of 1.25 shares of Holdings Common Stock, and the per share
exercise price for Film Roman Holdings options will be equal to 80% of the
per share exercise price of Film Roman California options).
(2) The potential realizable value assumes a rate of annual compound stock
price appreciation of 5% and 10% from the date the option was granted over
the full option term. These assumed annual compound rates of stock price
appreciation are mandated by the rules of the Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
(3) In addition, Messrs. Roman, Schultz, Vein and Arsenault and Ms. Blum were
granted options in 1996 as follows (and giving effect to the
Reorganization): 125,000 at $8.52; 155,000 at $8.00; 62,500 at $8.00;
43,750 at $8.00; and 43,750 at $8.00, respectively.
39
<PAGE>
The following table sets forth the number and value as of December 31, 1995
of shares underlying unexercised options held by each of the Named Executive
Officers. Prior to the Offering, no stock options will be exercised by any
Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED "IN-THE-MONEY"
OPTIONS AS OF OPTIONS AS OF
DECEMBER 31, 1995 DECEMBER 31, 1995
NAME AND ------------------------- -------------------------
PRINCIPAL POSITION EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Phil Roman................. -- -- -- --
President and Chief
Executive Officer
William Schultz............ 75,000 -- $599,250 --
Executive Vice President
Jon F. Vein................ -- -- -- --
Senior Vice President
Jacqueline Blum............ -- -- -- --
Senior Vice President--
Worldwide Licensing and
Marketing
Gregory Arsenault.......... -- -- -- --
Vice President--Finance
</TABLE>
Administration of the Plan. The Plan is administered by the Board of
Directors and/or the Compensation Committee. No person is eligible to serve on
the Compensation Committee unless such person is then a "disinterested person"
within the meaning of paragraph (c)(2) of Rule 16b-3 and an "outside director"
within the meaning of Section 162(m)(4)(C)(ii) of the Code. The Committee has
complete discretion to determine which eligible individuals are to receive
option grants, the number of shares subject to each such grant, the status of
any granted option as either an incentive option or a non-qualified stock
option under the Federal tax laws, the exercise schedule to be in effect for
the option grant and the maximum term for which any granted option is to
remain outstanding.
Eligibility. All regular salaried employees of the Company may, at the
discretion of the Compensation Committee, be granted incentive and non-
qualified stock options to purchase shares of Common Stock at an exercise
price not less than 100% of the fair market value of such shares on the grant
date. Directors of the Company, consultants and other persons who are not
regular salaried employees of the Company are not eligible to receive
incentive stock options, but are eligible to receive non-qualified stock
options.
Number of Shares Subject to Plan. The Company has reserved up to 1,227,695
shares of Common Stock for issuance pursuant to the Plan, 859,375 of which
have been granted under the Stock Option Plan as of the date of this
Prospectus.
Purchase Price of Shares Subject to Options. The price of the shares of
Common Stock subject to each option shall be set by the Committee; provided,
however, that the price per share of an option shall be not less than 100% of
the fair market value of such shares on the date such option is granted;
provided, further, that, in the case of an incentive stock option, the price
per share shall not be less than 110% of the fair market value of such shares
on the date such option is granted in the case of an individual then owning
(within the meaning of Section 424(d) of the Code) more than ten percent of
the total combined voting power of all classes of stock of the Company, any
subsidiary or any parent corporation ("greater than 10% stockholders").
Non-Assignability. Options may be transferred only by will or by the laws of
descent and distribution. During a participant's lifetime, options are
exercisable only by the participant.
Terms and Exercisability of Options. Unless otherwise determined by the
Board of Directors or the Compensation Committee, all options granted under
the Plan are subject to the following conditions: (i) options
40
<PAGE>
exercisable in installments, on a cumulative basis, at the rate of twenty
(20%) each year beginning on the first anniversary of the date of the grant of
the option, until the options expire or are terminated, and (ii) following an
optionee's termination of employment, the Company has the right to repurchase
any outstanding vested options or any shares of Common Stock issued to an
optionee upon exercise of an option by notifying the optionee of the Company's
decision to so purchase the shares or options within 60 days of such
termination of employment. The purchase price for the shares of Common Stock
is the difference between the fair market value of the shares of Common Stock
at the date of notification and the exercise price of such options.
Options are not assignable or transferable by the optionee except by will or
the laws of inheritance following the optionee's death. The optionee has no
stockholder rights with respect to the shares subject to his or her
outstanding options until such options are exercised and the purchase price is
paid for the shares.
To the extent that the aggregate fair market value of stock with respect to
which "incentive stock options" (within the meaning of Section 422 of the
Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company, any subsidiary and any
parent corporation) exceeds $100,000, such options shall be taxed as non-
qualified stock options. The rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were
granted. For this purpose, the fair market value of stock shall be determined
as of the time that the option with respect to such stock is granted.
Options are exercisable in whole or in part by written notice to the
Company, specifying the number of shares being purchased and accompanied by
payment of the purchase price for such shares. The option price may be paid:
(i) in cash or by certified or cashier's check payable to the order of the
Company, (ii) by cancellation of indebtedness owed by the Company to the
optionee, (iii) by delivery of shares of Common Stock of the Company already
owned by, and in the possession of the optionee, (iv) if authorized by the
Board of Directors or the Committee or if specified in the option agreement
for the option being exercised, by a recourse promissory note made by the
optionee in favor of the Company or through installment payments to the
Company, or (v) in such other manner as the Board of Directors or the
Committee may specify in order to facilitate the exercise of options by the
holders thereof, including but not limited to a guarantee by the Company of a
third party loan to the optionee.
On the date the option price is to be paid, the optionee (or his or her
successor) must make full payment to the Company of all amounts that must be
withheld by the Company for federal, state or local tax purposes.
Termination of Employment; Death or Permanent Disability. If a holder of an
option ceases to be employed by the Company for any reason other than for
cause or the optionee's death or permanent disability, such optionee's stock
option shall expire three months after the date of such cessation of
employment unless by its terms it expires sooner; provided, however, that
during such period after cessation of employment, such stock option may be
exercised only to the extent it was exercisable according to such option's
terms on the date of cessation of employment. If an optionee dies or becomes
permanently disabled while the optionee is employed by the Company, such
optionee's option shall expire three months (or such other period as specified
in such optionee's option agreement) after the date of such optionee's death
or permanent disability unless by its terms it expires sooner. During such
period after death, such stock option may, to the extent it remains
unexercised upon the date of such death, be exercised by the person or
person's to whom the optionee's rights under such stock option are transferred
under the laws of descent and distribution.
Acceleration of Exercisability. In the event the Company is acquired by
merger, consolidation or asset sale, each outstanding option which is not to
be assumed by the successor corporation or replaced with a comparable option
to purchase shares of the capital stock of the successor corporation will, at
the election of the Board of Directors (or if so provided in an option or
other agreement with an optionee), automatically accelerate in full.
41
<PAGE>
Adjustments. In the event any change is made to the Common Stock issuable
under the Plan by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate
structure effected without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and class of shares
issuable under the Plan and (ii) the number and/or class of shares and price
per share in effect under each outstanding option.
Amendments to the Plan. The Board of Directors may at any time suspend or
terminate the Plan. The Board of Directors or Committee may also at any time
amend or revise the terms of the Plan, provided that no such amendment or
revision shall, unless appropriate stockholder approval of such amendment or
revision is obtained, (i) increase the maximum number of shares which may be
acquired pursuant to options granted under the Plan (except for adjustments as
described in the foregoing paragraph), (ii) change the minimum purchase price
required under the Plan, (iii) increase the maximum term of options provided
under the Plan or (iv) change the classes of persons eligible to receive
options under the Plan.
Termination. The Plan will terminate on August 7, 2005, unless sooner
terminated by the Board of Directors.
Registration Statement on Form S-8. Approximately 90 days after the
consummation of the Offering, the Company expects to cause to be filed with
the Securities and Exchange Commission a Registration Statement on Form S-8
covering the shares of Common Stock underlying options granted under the Plan.
FEDERAL INCOME TAX CONSEQUENCES TO PARTICIPANTS IN THE PLAN
The following summary of the material federal income tax consequences to
participants in the Plan is based on current law, is for general information
only and is not tax advice. The summary does not purport to discuss all
aspects of federal income taxation that may be relevant to a particular
participant in light of such participant's personal investment circumstances.
A participant may be subject to state or local taxation in various state or
local jurisdictions in which he or she works or resides. State and local tax
treatment of the participants are not discussed in this summary, and such
state and local tax treatment may not conform to the federal income tax
consequences discussed in this summary.
Non-Qualified Stock Options. A participant who is granted non-qualified
stock options does not realize income as a result of the grant of such
options. However, the participant normally realizes compensation income at the
time the options are exercised, in the amount by which the fair market value
of the Common Stock on the date the options are exercised exceeds the option
exercise price paid. This compensation income is taxable at ordinary income
rates, and the Company is required to withhold taxes on the amount treated as
ordinary income to the participant.
The participant's tax basis for Common Stock acquired upon the exercise of a
non-qualified stock option is the price paid to exercise the option plus the
amount of ordinary income realized by the participant as a result of the
exercise of the option. Any appreciation in the value of such Common Stock may
qualify for capital gains treatment, provided that applicable holding period
requirements are satisfied.
The tax consequences resulting from a participant's exercise of non-
qualified options by surrendering Common Stock already owned by the
participant are not completely certain. In published rulings, the Internal
Revenue Service (the "IRS") has taken the position that, to the extent that
the number of shares acquired is equivalent to the number of shares
surrendered, the participant recognizes no gain and the participant's basis in
the shares acquired upon such exercise is equal to the participant's basis in
the surrendered shares, that any additional shares acquired upon such exercise
is compensation to the participant taxable under the rules described above,
and that the participant's basis in any such additional shares will be their
fair market value.
42
<PAGE>
Incentive Stock Options. A participant who is granted incentive stock
options is not treated as having received taxable income upon either the grant
or the exercise of the options. Instead, such participant is taxed at the time
of the sale or other taxable disposition of the Common Stock acquired pursuant
to the exercise of the option. Generally, such participants pay taxes at long
term capital gains rates on the difference between the amount realized on the
sale or other disposition of the shares and the option exercise price. To
qualify for such capital gains treatment, the participant (i) must not sell or
dispose of the shares earlier than either two years from the date of grant of
the incentive stock option or one year from the date of transfer of the shares
to the participant upon exercise, and (ii) must be an employee of the Company
at all times during the period beginning with the date of the grant of the
option and ending three months before the date of exercise. If the shares of
stock are sold or otherwise disposed of before the end of the one-year period
or the two-year period, a portion of the gain, if any, may be treated as
compensation taxable as ordinary income rather than as capital gain.
The tax consequences resulting from a participant's exercise of incentive
stock options by surrendering shares of Common Stock already owned by the
participant are not completely certain. In published rulings and proposed
regulations, the IRS has taken the position that generally the participant
recognizes no income upon such stock-for-stock exercise, that to the extent
that the number of shares acquired is equivalent to the number of shares
surrendered, the participant's basis in the shares acquired upon such exercise
is equal to the participant's basis in the surrendered shares increased by any
compensation income recognized by the participant, that the participant's
basis in any additional shares acquired by such exercise is zero, and that any
sale or other disposition of the acquired shares within the one-year period or
the two-year period described above is viewed as a disposition of the shares
with the lowest basis first.
Alternative minimum tax must be paid when it exceeds a taxpayer's regular
federal income tax. Alternative minimum tax is calculated based on alternative
minimum taxable income, which is taxable income for federal income tax
purposes, modified by certain adjustments and increased by tax preference
items. For purposes of the foregoing, the difference between the exercise
price and the fair market value of shares of Common Stock acquired pursuant to
the exercise of an incentive stock option is classified as alternative minimum
taxable income for the year of exercise. For alternative minimum tax purposes
(but not for regular income tax purposes), the participant's basis in the
acquired shares is the fair market value of the shares at the time the
incentive stock option is exercised. A disqualifying disposition of the
acquired shares during the same year in which the incentive stock option was
exercised will cancel the alternative minimum taxable income generated upon
exercise of the incentive stock option. Should there be a disqualifying
disposition in a year other than the year of exercise, the income on the
disqualifying disposition will not be considered income for alternative
minimum tax purposes.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
The following summary of the material federal income tax consequences to the
Company is based on current law, is for general information only and is not
tax advice.
Section 162(m) Limitation. Subject to a limited number of exceptions,
Section 162(m) of the Code denies a deduction to a publicly held corporation
for payments of remuneration to certain employees to the extent the employee's
remuneration for the taxable year exceeds $1,000,000. For this purpose,
remuneration attributable to stock options is included within the $1,000,000
limitation. However, to the extent that the remuneration is payable solely on
account of the attainment of one or more performance goals and certain other
procedural requirements are met, then such remuneration is not subject to the
$1,000,000 limitation.
The Company has attempted to structure the Plan in such a manner that the
remuneration attributable to the stock options will not be subject to the
$1,000,000 limitation. The Company has not, however, requested a ruling from
the IRS or an opinion of counsel regarding this issue.
43
<PAGE>
Non-Qualified Stock Options. Subject to the limitations set forth in Code
Section 162(m) and discussed above, the Company is entitled to deduct from its
taxable income the amount that the participant is required to include in
ordinary income at the time of such inclusion.
Qualified Stock Options. The Company is not entitled to any deduction on
account of the grant of the incentive stock options or the participant's
exercise of the option to acquire Common Stock. However, in the event of a
subsequent disqualifying disposition of such shares under circumstances
resulting in taxable compensation to the participant, subject to the
limitations set forth in Code Section 162(m) and discussed above, the Company
is entitled to a tax deduction equal to the amount treated as taxable
compensation to the participant.
MANAGEMENT BONUS PLAN
Following the consummation of the Offering, the Company expects to adopt a
management bonus plan covering the Named Executive Officers and other officers
and employees of the Company. Although the provisions of the plan have not yet
been determined by the Company, the Company anticipates that bonuses under the
plan would be awarded to an employee based on the performance of that
employee, on the Company's earnings performance and on other factors that the
Board of Directors and/or the Compensation Committee deem relevant. The
Company intends to retain a consultant to advise the Company with regard to
the terms and provisions of such a plan.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Film Roman Holdings' Common Stock immediately following the
Reorganization and the redemption of the Redeemable Preferred Stock and as
adjusted to give effect to the Offering by: (i) each Selling Stockholder
(i.e., Phil Roman, the Company's President and Chief Executive Officer,
Oppenheimer & Co., Inc., and a partnership managed by Oppenheimer & Co.,
Inc.), (ii) each person known by Film Roman Holdings' to own beneficially 5%
or more of the outstanding Common Stock of Film Roman Holdings, (iii) each
director and Named Executive Officer of Film Roman Holdings, and (iv) all
directors and executive officers as a group. The Company has been advised that
no director or Named Executive Officer will purchase more than 5,000 shares of
Common Stock in the Offering. Mr. Roman has advised the Company that he will
not purchase any shares of Common Stock in the Offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
-------------------- --------------------
NUMBER OF
NAME NUMBER OF SHARES NUMBER OF
---- SHARES PERCENT(2) BEING OFFERED SHARES PERCENT(3)
<S> <C> <C> <C> <C> <C>
Phil Roman(3)........... 3,078,750 67.1% 160,364 2,918,386 35.7%
BCI Growth III, L.P.(4). 740,625 16.1 0 740,625 9.1
Pecks Management
Partners Ltd.(5)....... 740,625 16.1 0 740,625 9.1
Oppenheimer & Co.,
Inc.(6)................ 24,636 * 24,636 0 0
William Schultz(2)(3)... 75,000 1.6 0 75,000 *
Jon F. Vein(2)(3)....... 0 0 0 0 0
Jacqueline Blum(2)(3)... 0 0 0 0 0
Gregory Arsenault(2)(3). 0 0 0 0 0
Robert J. Cresci(5)(7).. 740,625 16.1 0 740,625 9.1
Dixon Q. Dern(2)(8)..... 0 0 0 0 0
Dennis W. Draper(2)(9).. 0 0 0 0 0
Theodore T. Horton,
Jr.(4)(10)............. 740,625 16.1 0 740,625 9.1
Peter Mainstain(2)(11).. 0 0 0 0 0
All Directors and
executive officers as a
Group(10 persons)(2)... 4,635,000 99.8% 185,000 4,474,636 54.7%
</TABLE>
- -------------------
*Less than 1%.
(1) Assumes that the persons in the table do not purchase shares in the
Offering and that the Underwriters' over-allotment option is not
exercised. Adjusted to reflect the Reorganization and the redemption of
the Redeemable Preferred Stock (see "Certain Transactions--
Reorganization").
(2) Shares which each identified stockholder has the right to acquire within
the 60 days of the date of the table set forth above are deemed to be
outstanding in calculating the percentage ownership of such stockholder,
but are not deemed to be outstanding as to any other person. Does not
include shares which will become issuable upon exercise of options in
September 1996, as follows: Mr. Schultz--12,500 shares; Mr. Vein--12,500
shares; Ms. Blum--8,750 shares; Mr. Arsenault--8,750 shares; Mr. Dern--
5,000 shares; Mr. Draper--5,000 shares; and Mr. Mainstain--5,000 shares.
(3) The mailing address for such person is: c/o Film Roman, Inc., 12020
Chandler Boulevard, Suite 200, North Hollywood, California 91607.
(4) Teaneck Associates L.P. is the sole general partner of BCI Growth III,
L.P. BCI Advisors, Inc., the investment advisor to BCI Growth III, L.P.,
has sole investment and voting power with respect to the shares
beneficially owned by BCI Growth III, L.P. Mr. Horton, a director of the
Company, is a general partner of Teaneck Associates L.P., and a Managing
Director of BCI Advisors, Inc. The mailing address for BCI Growth III,
L.P. is c/o BCI Advisors, Inc., Glenpointe Centre West, Teaneck, New
Jersey, 07666. Teaneck Associates L.P. and BCI Advisors, Inc. disclaim
beneficial ownership of such shares.
(5) 500,000, 141,500 and 99,125 of such shares are beneficially owned by
Delaware State Employees' Retirement Fund, Declaration of Trust for
Defined Benefit Plans of ICI American Holding Inc. and Declaration of
Trust for Defined Benefit Plans of Zeneca Holding Inc., respectively.
Pecks Management Partners Ltd., as investment manager for these
beneficial owners, has sole investment and voting power with respect to
such shares. Mr. Cresci, a director of the Company, is a managing partner
of Pecks Management Partners Ltd. The mailing address for Pecks
Management Partners Ltd. is One Rockefeller Plaza, New York, New York
10020. Pecks Management Partners Ltd. disclaims beneficial ownership of
such shares.
(6) 18,750 and 5,886 of such shares are beneficially owned by OPCO Senior
Executive Investment Partnership, L.P. and Oppenheimer & Co., Inc.,
respectively. Oppenheimer & Co., Inc. and OPCO Senior Executive
Investment Partnership, L.P. are affiliates. The mailing address for
Oppenheimer & Co., Inc. is One World Financial Center, 200 Liberty
Street, New York, New York 10281.
(7) Includes 740,625 shares held by pension trusts and a pension fund which
are managed by Pecks Management Partners Ltd. and for which Mr. Cresci
disclaims any beneficial ownership. The mailing address for Mr. Cresci is
c/o Pecks Management Partners Ltd., One Rockefeller Plaza, New York, New
York 10020.
(8) The mailing address for Mr. Dern is 1901 Avenue of the Stars, Suite 400,
Los Angeles, California 90067.
(9) The mailing address for Mr. Draper is c/o The University of Southern
California Business School, University Park, Los Angeles, California.
(10) Includes 740,625 shares held by BCI Growth III, L.P. which is managed by
BCI Advisors, Inc. and for which Mr. Horton disclaims any beneficial
ownership. The mailing address for Mr. Horton is c/o BCI Advisors, Inc.,
Glenpointe Centre West, Teaneck, New Jersey 07666.
(11) The mailing address for Mr. Mainstain is c/o Tanner, Mainstain & Hoffer,
10866 Wilshire Boulevard, 10th Floor, Los Angeles, California 90024.
45
<PAGE>
CERTAIN TRANSACTIONS
1995 PRIVATE PLACEMENT
In 1995, Film Roman California entered into a Securities Purchase Agreement
pursuant to which Film Roman California issued 1,200,000 shares of California
Redeemable Preferred Stock and warrants (the "Investor Warrants") to purchase
an aggregate of 1,200,000 shares of California Common Stock to certain
investors (the "Investors") for an aggregate purchase price of $12 million
(collectively, the "1995 Private Placement"). Of the securities issued in the
1995 Private Placement, (i) 592,500 shares of California Redeemable Preferred
Stock and Investor Warrants to purchase 592,500 shares of California Common
Stock were issued to a private equity partnership managed by BCI Advisors,
Inc., for an aggregate purchase price of $5.925 million; (ii) 592,500 shares
of California Redeemable Preferred Stock and Investor Warrants to purchase
592,500 shares of California Common Stock were issued to certain pension
trusts and a pension fund, which are managed by Pecks Management Partners
Ltd., for an aggregate purchase price of $5.925 million; and (iii) 15,000
shares of California Redeemable Preferred Stock and Investor Warrants to
purchase 15,000 shares of California Common Stock were issued to a partnership
managed by Oppenheimer & Co., Inc. ("Oppenheimer") for an aggregate purchase
price of $150,000. Pursuant to a shareholders agreement (the "Shareholders
Agreement"), so long as the Investors hold a certain amount of California
Redeemable Preferred Stock, the Investors are entitled to designate two
directors to Film Roman California's Board of Directors. Mr. Horton, a
managing director of BCI Advisors, Inc., and Mr. Cresci, a managing director
of Pecks Management Partners Ltd., currently serve as directors of Film Roman
California and Film Roman Holdings. See "--Reorganization."
Concurrently with the 1995 Private Placement, Film Roman California also (a)
issued to Oppenheimer a warrant (the "Oppenheimer Warrant") for the purchase
of 37,000 shares of California Common Stock and (b) effected a
recapitalization pursuant to which Mr. Roman received in exchange for his
1,000 shares of capital stock of Film Roman California, (i) 750,000 shares of
Convertible Preferred Stock, (ii) 1,713,000 shares of California Common Stock,
and (iii) a warrant (the "Roman Warrant") for the purchase of 185,000 shares
of California Common Stock of Film Roman California.
REORGANIZATION
Film Roman Holdings was incorporated in Delaware in May 1996 in order to
hold all of the outstanding capital stock of Film Roman California. Film Roman
Holdings currently conducts no operations. In the Reorganization, which will
be effected immediately prior to the Offering, (i) a wholly-owned subsidiary
of Film Roman Holdings will merge with and into Film Roman California; (ii)
each outstanding share of California Common Stock will be converted into 1.25
shares of Common Stock (including shares of California Common Stock to be
issued immediately prior to such merger upon exercise of the Investor Warrants
and the Oppenheimer Warrant and upon conversion of all outstanding shares of
Convertible Preferred Stock); (iii) each outstanding share of California
Redeemable Preferred Stock will be converted into one share of Redeemable
Preferred Stock; (iv) all outstanding employee options for the purchase of
California Common Stock will, pursuant to the anti-dilution provisions
thereof, become options to purchase Common Stock; (v) the Shareholders
Agreement will terminate; and (vi) the Roman Warrant will be cancelled. As a
result of the foregoing, Film Roman California will become a wholly-owned
subsidiary of Film Roman Holdings and the stockholders of Film Roman
California will become stockholders of Film Roman Holdings. The Reorganization
will be effected pursuant to a Plan of Reorganization Agreement dated as of
May 15, 1996 by and among Film Roman Holdings, Film Roman California, the
Investors, Oppenheimer and Phil Roman. Immediately following the
Reorganization and the closing of the Offering, Film Roman Holdings will
redeem all outstanding shares of Redeemable Preferred Stock. Accrued dividends
on the Redeemable Preferred Stock and Convertible Preferred Stock will be paid
to the date of redemption and conversion, respectively.
46
<PAGE>
OTHER TRANSACTIONS
Mr. Roman guarantees all of the Company's obligations under its existing
debt agreements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Mr.
Dern provides legal services to the Company on a regular basis and receives
customary fees for such services. In 1995, Mr. Dern was paid approximately
$84,000 for such services. Mr. Dern and Mr. Vein, a Senior Vice President of
the Company, were partners at the law firm of Dern & Vein from 1993 to 1995.
Mr. Draper provides independent financial consulting services to the Company
on an ongoing basis and receives customary fees for such services. Mr.
Mainstain is a shareholder of Tanner, Mainstain & Hoffer, an accountancy
corporation that provides accounting services to the Company on a regular
basis, and such firm receives customary fees for such services.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Film Roman Holdings was incorporated in May 1996 in order to hold all of the
outstanding capital stock of Film Roman California upon completion of the
Offering and the Reorganization. See "Certain Transactions--Reorganization."
Film Roman Holdings currently conducts no operations. Film Roman Holdings'
certificate of incorporation (the "Certificate of Incorporation") authorizes
20,000,000 shares of a single class of Common Stock, par value $0.01 per
share, and 5,000,000 shares of preferred stock, par value $.01 per share, none
of which shares of preferred stock will be issued and outstanding immediately
after completion of the Offering and the redemption of the Redeemable
Preferred Stock. All outstanding shares of Common Stock are, and the shares
offered hereby will be, when issued and sold, fully paid and nonassessable.
The discussion below describes the capital stock of Film Roman Holdings,
unless otherwise noted.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share of Common
Stock on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. The rights, privileges and preferences of the
holders of Common Stock are subject to the rights of the holders of any shares
of preferred stock that may be designated and issued by the Company in the
future. Subject to any restrictions contained in preferred stock issued by the
Company, if any, and to restrictions imposed by certain debt agreements of the
Company, holders of Common Stock are entitled to receive dividends when and if
declared by the Board of Directors out of legally available funds. Upon any
liquidation, dissolution or winding up of the Company, subject to the rights
of holders of shares of preferred stock, if any, holders of Common Stock are
entitled to share pro rata in any distribution to the stockholders. Holders of
Common Stock do not have preemptive or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock.
Pursuant to Section 2115 of the California Corporations Code (the
"California Law"), a corporation incorporated in a State other than California
(such as the Company, which is incorporated in Delaware) may nevertheless be
subject to certain of the provisions of the California Law (as specified in
Section 2115 of the California Law) applicable to California corporations
(commonly designated a "Quasi-California Corporation") if more than one-half
of its outstanding voting securities are owned of record by persons having
addresses in California and more than half of its business is conducted in
California (generally, the average of its property factor, payroll factor and
sales factor (as defined in Sections 25129, 25132 and 25134 of the California
Revenue and Taxation Code) is more than 50 percent during its latest full
income year). Such a foreign corporation will not be treated as a Quasi-
California Corporation, however, if it has outstanding securities trading on
the Nasdaq National Market and has at least 800 holders of its equity
securities as of the record date of its most recent annual shareholders'
meeting. Prior to this Offering, all of the Company's outstanding voting
securities were owned of record by persons having addresses in California. It
is expected that such percentage will be reduced significantly as a result of
this Offering. To the extent, however, that the Company meets the requirements
set forth in Section 2115 of the California Law, the Company could become a
Quasi-California Corporation subject to the California Law which, among other
things, requires cumulative voting and is more restrictive than Delaware law
concerning dividends and other distributions to stockholders.
PREFERRED STOCK
The Company's Board of Directors, without the approval of the holders of the
Common Stock, is authorized to designate for issuance up to 5,000,000 shares
of preferred stock, par value $0.01 per share, in such series and with such
rights, privileges and preferences as the Board of Directors may from time to
time determine. Issuance of preferred stock may adversely affect the rights,
privileges and preferences afforded the holders of Common Stock, including a
decrease in the amount available for distribution to holders of the Common
Stock in the event of a liquidation or payment of preferred dividends.
Issuance of shares of preferred stock may also have the effect
48
<PAGE>
of preventing or delaying a change in control of the Company without further
action by the stockholders and could make removal of present management of the
Company more difficult. The Company currently has no plans to designate and/or
issue any shares of preferred stock.
OPTIONS
For a description of the Company's Stock Option Plan, see "Management--Stock
Option Plan."
DELAWARE LAW AND LIMITATIONS ON CHANGES IN CONTROL
Section 203 of the Delaware General Corporation Law (the "DGCL") prevents an
"interested stockholder" (defined in Section 203, generally, as a person
owning 15% or more of a corporation's outstanding voting stock) from engaging
in a "business combination" (as defined in Section 203) with a publicly-held
Delaware corporation for three years following the date such person became an
interested stockholder unless (i) before such person became an interested
stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (ii) upon consummation of
the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder.
The Company's Bylaws generally require 60 days advance notice of any action
to be proposed at any meeting of stockholders and set forth other specific
procedures that a stockholder must follow. There are also specific procedures,
including advance notice, for the nomination of a person to the Board of
Directors when such person is nominated other than at the direction of the
Board. In addition, the Certificate of Incorporation provides that a special
meeting of the Company's stockholders may only be called by certain officers
of the Company or by the Board of Directors; no such meeting may be called by
the stockholders. Further, the Certificate of Incorporation eliminates the
ability of stockholders to act by written consent and consequently
stockholders may only act at meetings thereof. Any amendment of the Bylaws or
certain provisions of the Certificate of Incorporation by stockholders will
require the affirmative vote of at least 66 2/3% of the shares of Common Stock
then outstanding.
In addition, the Directors are divided into three classes, each having a
term of three years, with the term of one class expiring each year. Directors
may be removed only with cause. These provisions could delay the replacement
of a majority of the Directors and have the effect of making changes in the
Board of Directors more difficult than if such provisions were not in place.
These provisions of the Bylaws and the Certificate of Incorporation,
including the provisions authorizing the Board of Directors to issue preferred
stock without stockholder approval, and the provisions of Section 203 of the
DGCL could have the effect of delaying, deferring or preventing a change in
control of the Company or the removal of existing management. See "Risk
Factors--Control by Management; Potential Anti-Takeover Effects."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate of Incorporation provides that a director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except in certain
cases where liability is mandated by the DGCL. The provision has no effect on
any non-monetary remedies that may be available to the Company or its
stockholders, nor does it relieve the Company or its
49
<PAGE>
directors from compliance with federal or state securities laws. The Bylaws of
the Company generally provide that the Company shall indemnify, to the fullest
extent permitted by law, any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses (including
attorneys' fees) and losses, claims liabilities, judgments, fines and amounts
paid in settlement actually incurred by him in connection with such
Proceeding. The Company has entered into, or intends to enter into, agreements
to provide indemnification for the Company's directors and executive officers
in addition to the indemnification provided for in the Bylaws. These
agreements, among other things, will indemnify the Company's directors and
executive officers for certain expenses (including attorney's fees), and all
losses, claims, liabilities, judgments, fines and settlement amounts incurred
by such person arising out of or in connection with such person's service as a
director or officer of the Company to the fullest extent permitted by
applicable law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 8,184,636
shares of Common Stock (8,752,386 shares if the Underwriters' over-allotment
option is exercised in full). All of the 3,785,000 shares (assuming the
Underwriters' over-allotment option is not exercised) sold in this Offering
will be freely tradeable by persons other than affiliates of the Company.
RULE 144
In general, Rule 144, as currently in effect, provides that a person (or
persons whose sales are aggregated) who is an affiliate of the Company or who
has beneficially owned shares which are issued and sold in reliance upon
certain exemptions from registration under the Securities Act ("Restricted
Shares") for at least two years is entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent (1%)
of the then outstanding shares of Common Stock (beginning on the 91st day
immediately after this Offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the filing of a notice
of intent to sell. Sales under Rule 144 are also subject to certain manner-of-
sale provisions, notice requirements and the availability of current public
information about the Company. However, a person who is not deemed to have
been an "affiliate" of the Company at any time during the three months
preceding a sale, and who has beneficially owned Restricted Shares for at
least three years, would be entitled to sell such shares under Rule 144
without regard to volume limitations, manner-of-sale provisions, notice
requirements or the availability of current public information about the
Company. The Company and each of the Company's present stockholders, executive
officers and directors have agreed, subject to certain exceptions relating to
the Company, that they will not, directly or indirectly, offer, sell, contract
to sell or otherwise dispose of or transfer any shares of Common Stock for a
period of 180 days after the date of this Prospectus, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation. See
"Underwriting."
After the expiration of the lock-up period, (a) Mr. Roman's 2,918,386 shares
of Common Stock will be eligible for sale pursuant to Rule 144, subject to
certain volume limitation and other requirements, and (b) the Investors'
1,481,250 shares of Common Stock will be eligible for sale pursuant to Rule
144 following satisfaction of the Rule's holding period and other
requirements. Approximately 90 days after consummation of the Offering, the
Company expects to file with the Commission a Registration Statement on Form
S-8 covering the 1,227,695 shares of Common Stock issuable upon exercise of
options granted or to be granted under the Company's Stock Option Plan. After
the expiration of the lock-up period, a maximum of 213,250 shares issuable
upon exercise of currently outstanding employee stock options will become
freely tradeable, except that persons deemed "affiliates" of the Company will
be required to comply with the terms and conditions of Rule 144 under the
Securities Act when selling such shares.
Prior to the Offering, there has been no public market for the shares of
Common Stock, and no predictions can be made as to the effect that sales of
Common Stock under Rule 144, pursuant to a registration statement or
otherwise, or the availability of shares of Common Stock for sale, will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect prevailing market prices
and could impair the Company's future ability to raise capital through an
Offering of its equity securities.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement entered into in connection with
the 1995 Private Placement (the "Registration Rights Agreement"), the
Investors (and Oppenheimer) were granted two demand and unlimited piggyback
registration rights with respect to Common Stock. Upon the closing of this
Offering, there will be 1,481,250 shares of Common Stock owned by the
Investors subject to the Registration Rights Agreement. Demand registration
rights can be exercised at any time after the date of this Prospectus subject
to the 180-day lock-up period described under "Underwriting."
51
<PAGE>
UNDERWRITING
Subject to certain terms and conditions contained in the Underwriting
Agreement, the syndicate of Underwriters named below, for whom Donaldson,
Lufkin & Jenrette Securities Corporation and Montgomery Securities are acting
as representatives (the "Representatives"), have severally agreed to purchase
from the Company and the Selling Stockholders an aggregate of 3,785,000 shares
of Common Stock. The number of shares of Common Stock that each Underwriter
has agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Montgomery Securities.................................................
---------
Total............................................................. 3,785,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of
the shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be
so purchased.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby has been determined by negotiation between the Company and the
Representatives. The factors considered in determining the initial price to
the public include the history of and the prospects for the industry in which
the Company competes, the ability of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company, the prospects for future earnings of the Company, the present state
of the Company's development, the general condition of the securities markets
at the time of the Offering and the recent market prices of and the demand for
publicly traded common stock of generally comparable companies.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the Common Stock to the
public initially at the price set forth on the cover page of this Prospectus
and to certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $ per share. The Underwriters may allow, and such
dealers may reallow, discounts not in excess of $ per share to any other
Underwriter and certain other dealers.
The Underwriters have reserved approximately shares of the Common Stock
for sale, at the initial public offering price, to directors, officers and
employees of the Company, their business affiliates and related parties, in
each case as such persons have expressed an interest in purchasing such shares
of Common Stock in the Offering. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares of Common Stock. Any reserved shares of
the Common Stock not so purchased will be offered by the Underwriters to the
general public on the same basis as the shares of the Common Stock offered
pursuant to the Offering. The Company has been advised that no director or
Named Executive Officer will purchase more than 5,000 shares of Common Stock
in the Offering. Mr. Roman has advised the Company that he will not purchase
any shares of Common Stock in the Offering.
The Company has granted to the Underwriters an option to purchase up to
567,750 additional shares of Common Stock, at the initial public offering
price less underwriting discounts and commissions, solely to cover over-
allotments. Such option may be exercised at any time until 30 days after the
effective date of the Registration Statement of which this Prospectus is part.
To the extent that the Underwriters exercise such option
52
<PAGE>
each of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
The Company's directors, executive officers and all other stockholders of
the Company have agreed that they will not directly or indirectly offer, sell,
contract to sell, or otherwise dispose or transfer any shares of Common Stock
of the Company owned by them without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, for a period of 180 days after the
date of this Prospectus. In addition, the Company has agreed that for a period
of 180 days after the date of this Prospectus it will not, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation,
directly or indirectly offer, sell, issue, distribute or otherwise dispose of
any equity securities or any options, rights or warrants with respect to any
equity securities, except for (i) shares of Common stock offered hereby, (ii)
shares of Common Stock issued pursuant to the exercise of options outstanding
on the date of this Prospectus and (iii) options granted after the date of
this Prospectus pursuant to the Stock Option Plan. "See Shares Available for
Future Sale."
The Representatives have informed the Company and the Selling Stockholder
that the Underwriters do not intend to confirm sales of shares of Common Stock
offered hereby to accounts over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, Los Angeles, California. Certain legal matters in
connection with this Offering will be passed upon for the Underwriters by
Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York. Latham & Watkins provides legal services to
the Representatives.
EXPERTS
The financial statements of Film Roman, Inc. at December 31, 1994 and 1995,
and for each of the two years in the period ended December 31, 1995 and the
Balance Sheet of Film Roman, Inc. (Delaware) at May 16, 1996, appearing in
this Prospectus and Registration Statement, have been audited by Ernst &
Young, LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Film Roman, Inc. for the year ended December 31,
1993, appearing in this Prospectus and Registration Statement, have been
audited by Tanner, Mainstain & Hoffer, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items
of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; at its Chicago Regional Office, 500 W. Madison
Street, 14th Floor, Chicago, Illinois 60661; and at its New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20459, at prescribed
rates. For further information pertaining to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules filed as a
part thereof.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and with
quarterly reports for each of the first three quarters of each year containing
unaudited, condensed financial statements.
53
<PAGE>
GLOSSARY
"Cable network" is a "network" (as defined below) that transmits its
programming by way of fibre-optic or coaxial cable and amplifiers (as opposed
to transmitting programming through the use of antennae and over-the-air
transmissions). USA Network, Nickelodeon and HBO are examples of cable
networks.
"Character or program franchise" is a character (or a program based on a set
of characters) which because of its popularity, becomes or may become the
foundation for related activities in a number of businesses, including
television production, international television distribution, home video
distribution, licensing and merchandising, and interactive products.
"Direct production costs" are the costs incurred by the Company that relate
solely to the production of a particular series (i.e., excluding overhead
expenses and other general and administrative expenses not attributable to
production). Overhead expenses and other general and administrative expenses
are not included in direct production costs since these items would have been
incurred regardless of the production of a particular series.
"Exploitation" is the process of generating revenue from licensing
proprietary rights.
"Fee-for-services programming" is programming whose entire cost of
production is funded by a person or entity other than the producer of such
programming. The producer receives a "fee" for producing fee-for-services
programming, and the person or entity paying such fee expects to generate
revenue in excess of such fee by retaining and exploiting the proprietary
rights to such programming. As a result, the producer does not usually retain
any of the proprietary rights associated with the programming it produces on a
fee-for-services basis.
"First-run syndication" means the initial broadcast of new episodes of a
series in syndication (as opposed to the second broadcast or "re-run" of
previously aired episodes).
"Independent animation studio" is a studio that produces animation and is
not affiliated with any of the major studios. Film Roman is an independent
animation studio.
"Interactive products/rights" includes the development or production of
video games, multimedia software products, on-line service content or other
software products or the right to create such products.
"Library" refers to a catalogue of films, series, program episodes or
proprietary rights. To the extent that a series or episodes continue to appeal
to audiences, a library is considered to have value such that an owner of the
series or episodes (or the proprietary rights associated with such series or
episodes) can generate future revenues by exploiting the contents of the
library.
"Major studio" is an established movie studio such as Universal
Pictures/MCA, 20th Century Fox, Paramount Studios, Warner Bros. or The Walt
Disney Company.
"Nielsen ratings" refers to a television audience rating system measured and
compiled by The Nielsen Ratings Service. Through a series of systems of
diaries and set-top devices, known as "people meters," The Nielsen Ratings
Service collects data, analyzes it, and publishes its analyses in the form of
ratings. A program's Nielsen rating is one of the factors that an advertiser
considers in determining whether to air a commercial during such program's
broadcast (and in determining what it is willing to pay for such commercial
time). Therefore, broadcasters and producers monitor Nielsen ratings carefully
to determine success in attracting an audience.
"Network" is a programming entity which broadcasts or exhibits programs
through a group of affiliates. Generally, this programming entity buys
programming from suppliers for distribution across the group. For purposes of
this Prospectus, the Company has used the capitalized term "Networks" to refer
to FOX, CBS, ABC, UPN and WB networks since these networks are generally
considered by the television industry to be the "major networks." NBC is also
considered by the television industry to be a major network; however, since
NBC does not currently reserve slots of its programming for animation, the
term "Networks," as used in this Prospectus, excludes NBC. See also "Cable
network" above.
54
<PAGE>
"Proprietary programming" is programming produced by the Company with
respect to which the Company owns or controls a significant portion or all of
the proprietary rights associated with the programming.
"Proprietary rights" are the intellectual property rights associated with a
program or property. Such rights include domestic and international broadcast
distribution, home video distribution, licensing and merchandising, feature
film and interactive/game development.
"Storyboard" is an illustrated depiction of a television script that
includes an artist's drawing of every scene including the characters in the
scene, as well as the location, the camera angle and camera movement. The
storyboard also indicates the dialogue and sometimes any sound effects needed.
The storyboard acts as a blueprint for the remaining production.
"Syndication" means the sale of a program to syndicators (as opposed to
networks or cable networks), such as Buena Vista Television Distribution,
Saban Entertainment, New World Entertainment and Bohbot Entertainment.
"Television season or broadcast season" generally begins during the second
week of September and ends during the same time in the following year.
"Time Slot" is a broadcast time period for a program that either airs five
times per week (Monday through Friday) or once per week (usually on the
weekend).
"Workprint" is the positive film print that is obtained from the developed
camera negative and used by an editor for cutting or editing the length of a
television episode. A workprint is not meant to be viewed by the audience.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements............................................. F-1
FILM ROMAN, INC.
Report of Independent Auditors.......................................... F-2
Report of Independent Auditors (Ernst & Young LLP)...................... F-3
Balance Sheets as of December 31, 1994 and 1995 and as of the Three
Months
Ended March 31, 1996 (unaudited)....................................... F-4
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995, and
for the Three Months Ended March 31, 1995 and 1996 (unaudited)......... F-5
Statements of Stockholder's Equity at December 31, 1993, 1994 and 1995,
and
at March 31, 1996 (unaudited).......................................... F-6
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995, and for
the Three Months Ended March 31, 1995 and 1996 (unaudited)............. F-7
Notes to Financial Statements........................................... F-8
FILM ROMAN, INC. (a Delaware corporation)
Report of Independent Auditors.......................................... F-18
Balance Sheet as of May 16, 1996........................................ F-19
Notes to Financial Statements........................................... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Film Roman, Inc.
We have audited the accompanying statement of operations, stockholder's
equity and cash flows of Film Roman, Inc. for the year ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Film Roman, Inc. as of
December 31, 1993 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
TANNER, MAINSTAIN & HOFFER
AN ACCOUNTANCY CORPORATION
Los Angeles, California
May 13, 1994
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Film Roman, Inc.
We have audited the accompanying balance sheets of Film Roman, Inc. as of
December 31, 1994 and 1995, and the related statements of operations,
stockholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Film Roman, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Los Angeles, California
May 16, 1996
F-3
<PAGE>
FILM ROMAN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- -----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................ $ 435,580 $ 5,176,090 $ 4,707,216
Accounts receivable...................... 383,121 430,184 582,785
Film costs, net of accumulated
amortization of $85,160,597 (1994),
$118,316,120 (1995) and $125,426,827
(1996) (Notes 1 and 2).................. 12,382,019 12,379,146 12,094,386
Property and equipment, net of
accumulated depreciation and
amortization of $418,719 (1994),
$549,028 (1995) and $596,124 (1996)
(Notes 1 and 3)......................... 263,747 336,875 535,287
Refundable income taxes.................. -- 487,500 487,500
Deposits and other assets................ 229,768 140,583 167,615
----------- ----------- -----------
Total assets......................... $13,694,235 $18,950,378 $18,574,789
=========== =========== ===========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Accounts payable......................... $ 205,835 $ 508,433 $ 559,452
Accrued expenses......................... 724,508 682,183 1,355,270
Dividends payable (Notes 6 and 7)........ -- 650,000 1,040,000
Debt (Note 4)............................ 1,362,576 1,737,145 486,711
Deferred revenue (Note 1)................ 9,710,417 6,791,779 7,415,392
----------- ----------- -----------
Total liabilities.................... 12,003,336 10,369,540 10,856,825
Commitments (Note 8)
Class A Redeemable Preferred Stock, $.01
par value, 1,200,000 shares authorized,
issued and outstanding, $12,000,000
liquidation preference (Notes 1 and 6).. -- 6,748,788 6,989,574
Stockholder's equity (Note 7):
Class B Convertible Preferred stock,
$.01 par value, 750,000 shares
authorized, issued and outstanding,
$7,500,000 liquidation preference..... -- 300 300
Common stock, no par value, 10,000,000
shares authorized, 2,463,000 shares
issued and outstanding in 1994 and
1,713,000 shares issued and
outstanding in 1995 and 1996 1,000 700 700
Additional paid-in capital............. -- 4,716,656 4,716,656
Retained earnings (deficit)............ 1,689,899 (2,885,606) (3,989,266)
----------- ----------- -----------
Total stockholder's equity........... 1,690,899 1,832,050 728,390
----------- ----------- -----------
Total liabilities and stockholder's
equity............................ $13,694,235 $18,950,378 $18,574,789
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
FILM ROMAN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ----------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue (Note 1)........ $27,867,300 $36,201,103 $34,340,620 $9,110,613 $7,460,762
Cost of revenue......... 25,675,371 33,190,002 33,155,523 8,764,819 7,110,707
Selling, general and
administrative
expenses............... 1,367,601 1,829,126 2,963,211 594,110 851,215
----------- ----------- ----------- ---------- ----------
Operating income (loss). 824,328 1,181,975 (1,778,114) (248,316) (501,160)
Interest income......... 4,472 5,470 151,534 98 45,768
Interest expense........ (26,004) (32,559) (62,596) (9,472) (15,854)
----------- ----------- ----------- ---------- ----------
Income (loss) before
provision for
income taxes........... 802,796 1,154,886 (1,689,176) (257,690) (471,246)
Provision for income
taxes.................. -- -- -- -- --
----------- ----------- ----------- ---------- ----------
Net income (loss)....... $ 802,796 $ 1,154,886 $(1,689,176) $ (257,690) $ (471,246)
=========== =========== =========== ========== ==========
Pro forma data (Note 12,
unaudited):
Historical net income
(loss)............... $ 802,796 $ 1,154,886 $(1,689,176) $ (257,690) $ (471,246)
Pro forma provision
(benefit) for income
taxes................ 321,118 461,954 (574,319) (87,615) --
----------- ----------- ----------- ---------- ----------
Pro forma net income
(loss)............... $ 481,678 $ 692,932 $(1,114,857) $ (170,075) $ (471,246)
=========== =========== =========== ========== ==========
Net income (loss)
attributable to
common stock......... $ 481,678 $ 692,932 $(2,000,000) $ (170,075) $ (953,660)
=========== =========== =========== ========== ==========
Pro forma net income
(loss) per share..... $ (0.51) $ (0.25)
=========== ==========
Pro forma weighted
average number of
shares outstanding... 3,888,945 3,888,945
=========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
FILM ROMAN, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CLASS B
CONVERTIBLE
PREFERRED
COMMON STOCK STOCK ADDITIONAL RETAINED TOTAL
----------------- -------------- PAID-IN EARNINGS STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1992............... 2,463,000 $1,000 -- $ -- $ -- $ 344,242 $ 345,242
Dividends paid to
common stockholder.... -- -- -- -- -- (364,172) (364,172)
Net income............. -- -- -- -- -- 802,796 802,796
--------- ------ ------- ----- ---------- ----------- -----------
Balance as of December
31, 1993............... 2,463,000 1,000 -- -- -- 782,866 783,866
Dividends paid to
common stockholder.... -- -- -- -- -- (247,853) (247,853)
Net income............. -- -- -- -- -- 1,154,886 1,154,886
--------- ------ ------- ----- ---------- ----------- -----------
Balance as of December
31, 1994............... 2,463,000 1,000 -- -- -- 1,689,899 1,690,899
Exchange of 750,000
shares of common stock
to Class B Convertible
Preferred Stock, $.01
par value.............. (750,000) (300) 750,000 300 -- -- --
Issuance of the Class A
Stock Warrants......... -- -- -- -- 4,474,256 -- 4,474,256
Dividends paid to common
stockholder............ -- -- -- -- -- (1,751,500) (1,751,500)
Dividends accrued to
Class A Preferred
Stockholder............ -- -- -- -- -- (400,000) (400,000)
Dividends accrued to
Class B Convertible
Preferred Stockholder.. -- -- -- -- -- (250,000) (250,000)
Accretion of Class A
Preferred Stock........ -- -- -- -- -- (484,829) (484,829)
Issuance of common stock
options to an employee. -- -- -- -- 242,400 -- 242,400
Net loss................ -- -- -- -- -- (1,689,176) (1,689,176)
--------- ------ ------- ----- ---------- ----------- -----------
Balance as of December
31, 1995............... 1,713,000 700 750,000 300 4,716,656 (2,885,606) 1,832,050
Dividends accrued to
Class A Preferred
Stockholder............ -- -- -- -- -- (240,000) (240,000)
Dividends accrued to
Class B Convertible
Preferred Stockholder.. -- -- -- -- -- (150,000) (150,000)
Accretion of Class A
Preferred Stock........ -- -- -- -- -- (242,414) (242,414)
Net loss................ -- -- -- -- -- (471,246) (471,246)
--------- ------ ------- ----- ---------- ----------- -----------
Balance as of March 31,
1996 (unaudited)....... 1,713,000 $ 700 750,000 $ 300 $4,716,656 $(3,989,266) $ 728,390
========= ====== ======= ===== ========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
FILM ROMAN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..... $ 802,796 $ 1,154,886 $ (1,689,176) $ (257,690) $ (471,246)
Adjustments to
reconcile net income
(loss) to net cash
(used in) provided by
operating activities:
Depreciation and
amortization......... 92,211 106,800 130,309 26,700 47,096
Amortization of film
costs................ 25,675,371 33,190,002 33,155,523 8,764,819 7,110,707
Compensation expense
in connection with
the issuance of
common stock options
to an employee....... -- -- 242,400 -- --
Changes in operating
assets and
liabilities:
Accounts receivable.. (93,894) (165,179) (47,063) 277,641 (152,601)
Film costs........... (28,618,639) (34,969,106) (33,152,650) (6,714,127) (6,825,947)
Refundable income
taxes............... -- -- (487,500) -- --
Deposits and other
assets.............. (146,606) 25,538 89,185 (24,223) (27,032)
Accounts payable..... 553,748 (885,174) 302,598 (13,505) 166,019
Accrued expenses..... 366,174 28,577 (42,325) 159,955 558,087
Deferred revenue..... 951,131 1,719,514 (2,918,638) (2,487,036) 623,613
------------ ------------ ------------ ----------- -----------
Net cash (used in)
provided by
operating
activities......... (417,708) 205,858 (4,417,337) (267,466) 1,028,696
INVESTING ACTIVITIES:
Additions to property
and equipment........ (147,380) (62,881) (203,437) (38,240) (245,508)
------------ ------------ ------------ ----------- -----------
Net cash used in
investing
activities......... (147,380) (62,881) (203,437) (38,240) (245,508)
FINANCING ACTIVITIES:
Proceeds from issuance
of Class A Preferred
Stock and Warrants,
net of issuance
costs................ -- -- 10,738,215 -- (1,628)
Borrowings under debt. 6,165,000 6,350,000 12,350,000 2,250,000 1,000,000
Repayments on debt.... (5,250,859) (6,257,639) (11,975,431) (2,275,213) (2,250,434)
Dividends declared and
paid to common
stockholder.......... (364,172) (247,853) (1,751,500) (94,999) --
------------ ------------ ------------ ----------- -----------
Net cash provided by
(used in) financing
activities......... 549,969 (155,492) 9,361,284 (120,212) (1,252,062)
------------ ------------ ------------ ----------- -----------
Net (decrease)
increase in cash..... (15,119) (12,515) 4,740,510 (425,918) (468,874)
Cash and cash
equivalents at
beginning of period.. 463,214 448,095 435,580 435,580 5,176,090
------------ ------------ ------------ ----------- -----------
Cash and cash
equivalents at end of
period............... $ 448,095 $ 435,580 $ 5,176,090 $ 9,662 $ 4,707,216
============ ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for:
Interest.............. $ 48,210 $ 65,118 $ 112,355 $ 18,944 $ 44,545
============ ============ ============ =========== ===========
Income taxes.......... $ 16,500 $ 19,950 $ 487,500 $ -- $ --
============ ============ ============ =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
In 1995, the Company accrued dividends of $400,000 due to the Redeemable
Preferred stockholders and $250,000 due to the Convertible Preferred
stockholder. In addition, the Company recorded accretion of the difference
between the carrying value and the Liquidation Value of $484,829 on the
Redeemable Preferred Stock. See Note 6.
For the three months ended March 31, 1996, the Company accrued dividends of
$240,000 due to the Redeemable Preferred stockholders and $150,000 due to the
Convertible Preferred stockholder. In addition, the Company recorded accretion
of the difference between the carrying value and the Liquidation Value of
$242,414 on the Redeemable Preferred Stock. See Note 6.
See accompanying notes.
F-7
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND ORGANIZATION
Film Roman, Inc. (the "Company") was incorporated under the laws of the
State of California on October 17, 1989. The Company is the successor company
to Film Roman, a sole proprietorship, which was established by Phil Roman. The
Company's primary business is the production of animated series and specials,
and the distribution of such animation product throughout the world.
In July 1995, the Company amended its Articles of Incorporation to authorize
the issuance of three classes of capital stock--Common Stock, Class A
Preferred Stock ("Redeemable Preferred Stock"), and Class B Convertible
Preferred Stock ("Convertible Preferred Stock"). Pursuant to the amendment,
the sole stockholder exchanged each share of common stock, no par value, of
the Company ("Common Stock") then outstanding into 2,463 shares of Common
Stock, resulting in the number of shares of Common Stock outstanding to
increase from 1,000 to 2,463,000. The financial statements have been adjusted
to give retroactive treatment for this split. Also pursuant to the amendment,
the sole stockholder exchanged 750,000 shares of Common Stock for 750,000
shares of Convertible Preferred Stock (see Note 6). The total number of shares
of authorized capital stock is 11,950,000, consisting of 10,000,000 shares of
Common Stock, 1,200,000 shares of Redeemable Preferred Stock, and 750,000
shares of Convertible Preferred Stock.
Further, in July 1995, pursuant to a Securities Purchase Agreement entered
into among the Company, BCI Growth III, L.P., and several other purchasers,
such entities purchased 1,200,000 shares of Redeemable Preferred Stock and
1,200,000 stock purchase warrants (the "Warrants") from the Company for
$12,000,000.
REORGANIZATION
In May 1996, Film Roman, Inc., a Delaware corporation ("Film Roman
Holdings"), was incorporated in order to hold all of the outstanding capital
stock of the Company. Film Roman Holdings currently conducts no operations. A
reorganization (the "Reorganization") will be effected immediately prior to
the offering (the "Offering") of 3,600,000 shares of Common Stock, $.01 par
value ("Holdings Common Stock"), of Film Roman Holdings, pursuant to which (i)
a wholly-owned subsidiary of Film Roman Holdings will merge with and into the
Company; (ii) each outstanding share of Common Stock will be converted into
1.25 shares of Holdings Common Stock (including shares of Common Stock to be
issued immediately prior to such merger upon the "cashless" exercise of the
Warrants and a warrant for the purchase of 37,000 shares of Common Stock and
upon conversion of all outstanding shares of Convertible Preferred Stock);
(iii) each outstanding share of Redeemable Preferred Stock will be converted
into one share of redeemable preferred stock of Film Roman Holdings, $.01 par
value, of Film Roman Holdings ("Holdings Redeemable Preferred Stock"); (iv)
all outstanding employee options for the purchase of Common Stock will,
pursuant to the anti-dilution provisions thereof, become options to purchase
Holdings Common Stock (with options to purchase each share of Common Stock
becoming options to purchase 1.25 shares of Holdings Common Stock at 80% of
the exercise price theretofore applicable); and (v) a warrant issued to the
President of the Company for the purchase of 185,000 shares of Common Stock
will be cancelled. As a result of the foregoing, the Company will become a
wholly-owned subsidiary of Film Roman Holdings and the stockholders of the
Company will become stockholders of Film Roman Holdings. The Reorganization
will be effected pursuant to an Plan of Reorganization Agreement dated as of
May 15, 1996 by and among Film Roman Holdings, the Company, and the Company's
stockholders. Immediately following the Reorganization and the closing of the
Offering, Film Roman Holdings will redeem all outstanding shares of Holdings
Redeemable Preferred Stock. Accrued dividends on the Holdings Redeemable
Preferred Stock and Convertible Preferred Stock will be paid to the date of
redemption and conversion, respectively.
F-8
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
INTERIM FINANCIAL INFORMATION
The unaudited consolidated financial statements as of March 31, 1996, and
for the three months ended March 31, 1995 and 1996, include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position,
results of operations and cash flows. Operating results for the three months
ended March 31, 1996, are not necessarily indicative of the results that may
be expected for the year ended December 31, 1996.
CASH AND CASH EQUIVALENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high
credit, quality financial institutions with original maturities when purchased
of three months or less and therefore are subject to little risk. The Company
has not incurred any losses relating to these investments.
The Company performs production services for various companies within the
entertainment industry and licenses various rights in its animation product to
distributors throughout the world. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. At December 31, 1995, substantially all of the Company's
trade receivables were from customers in the entertainment industry.
Receivables generally are due within 30 days. Credit losses relating to
customers in the entertainment industry consistently have been within
management's expectations.
FINANCIAL INSTRUMENTS
Financial instruments are carried at historical cost which approximates fair
value.
REVENUE RECOGNITION
The Company recognizes revenues in accordance with the provisions of
Financial Accounting Standards Board Statement No. 53 (FAS 53). Revenues from
license and production agreements, which may provide for the receipt by the
Company of nonrefundable guaranteed amounts, are recognized when the license
period begins and the programming is available pursuant to the terms of the
agreement, typically when the finished product has been delivered to and
accepted by the customer. Amounts in excess of minimum guarantees under such
agreements are recognized when earned. Cash collected in advance of the time
of availability of programming is recorded as deferred revenue.
FILM COSTS
Costs incurred in connection with the acquisition of story rights, the
development of stories, production and allocable production overhead and
interest are capitalized as film costs. Film costs are stated at the lower of
unamortized cost or estimated net realizable value. In accordance with FAS 53,
the individual film forecast method is used to amortize film costs. Costs
accumulated in the production of a film are amortized in the proportion that
gross revenues realized bear to management's estimate of the total gross
revenues expected to be received. Estimated liabilities for third party
participations are accrued and expensed in the same manner as film costs are
amortized.
F-9
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
Revenue estimates on a film-by-film basis are reviewed periodically by
management and are revised, if warranted, based upon management's appraisal of
current market conditions. Based on this review, if estimated future gross
revenues from a film are not sufficient to recover the unamortized costs, the
unamortized film cost shall be written down to net realizable value. In
unusual cases, such as a change in public acceptance of certain types of films
or actual costs substantially in excess of budgeted costs, a write-down to net
realizable value may be required before the film is released.
DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost. Depreciation on furniture and
equipment is computed by the double-declining balance method over their
estimated useful lives, ranging from five to seven years. Leasehold
improvements are amortized over their estimated useful lives, or the remaining
term of the related lease, whichever is shorter, using the straight-line
method.
INCOME TAXES
Effective January 1, 1994, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes." As permitted under the new rules, prior years' financial statements
have not been restated. Adoption of the new statement did not have an effect
on the Company's financial position or results of operations.
Prior to August 4, 1995 (the "Termination Date"), the Company was treated as
a Subchapter S Corporation for federal and state income tax purposes. Upon the
Termination Date, the Company is subject to federal and state corporate income
taxes.
STOCK-BASED COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock
Issued to Employees" and intends to continue to do so.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FINANCIAL STATEMENT PRESENTATION
Certain amounts shown in the 1993 and 1994 financial statements have been
reclassified to conform to the 1995 presentation.
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
The per share data is based on the weighted average number of common and
common equivalent shares outstanding during the period and are calculated in
accordance with a Staff Accounting Bulletin of the Securities
F-10
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
and Exchange Commission whereby common and common share equivalents issued
within a 12-month period prior to an initial public offering are treated as
outstanding for all periods presented if the issue price was less than the
proposed initial public offering price. In addition, shares issuable upon the
exercise of options and warrants and convertible preferred stock within the
12-month period are considered to have been outstanding since inception of the
Company. For the year ended December 31, 1995, the net loss per Common Share
gives effect to the accretion of the difference between the carrying value and
the Liquidation Value of the Redeemable Preferred Stock of $484,829 and to the
accrual of dividends of $400,000 on the Redeemable Preferred Stock.
For the three months ended March 31, 1996 (unaudited), the net loss per
Common Share gives effect to the accretion of the difference between the
carrying value and the Liquidation Value of the Redeemable Preferred Stock of
$242,414 and to dividends of $240,000 on the Redeemable Preferred Stock.
The supplemental loss per share for the year ended December 31, 1995 and the
three months ended March 31, 1996 would be $(1.39) and $(1.19), respectively.
This calculation gives effect to (i) the reduction of the interest and
dividend accruals resulting from the repayment of the outstanding debt and the
redemption of the Redeemable Preferred Stock, and (ii) the offering of
additional shares of common stock whose proceeds are to be used to repay the
debt and redeem the Redeemable Preferred Stock. In addition, the loss
attributable to common stockholders used for the supplemental loss per share
calculation has been increased by $5,724,212 and $5,239,212, respectively, for
the year ended December 31, 1995 and the three months ended March 31, 1996,
which represents the excess of the price to be paid for the redemption of the
Redeemable Preferred Stock over its carrying value.
2. FILM COSTS
The components of unamortized film costs consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------- ---------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Animated film productions released,
less amortization................. $ 4,427,443 $ 5,391,275 $ 7,125,589
Animated film productions in
process........................... 7,355,012 6,253,597 4,181,009
Animated film productions in
development....................... 599,564 734,274 787,788
----------- ----------- -----------
$12,382,019 $12,379,146 $12,094,386
=========== =========== ===========
</TABLE>
Based on management's estimates of future gross revenues as of December 31,
1995, approximately 78% of unamortized film costs applicable to released films
will be amortized during the three years ending December 31, 1998.
Interest capitalized to film costs in 1993, 1994, and 1995 was, $26,004,
$32,559, and $62,596, respectively.
Interest capitalized to film costs for the three months ended March 31, 1995
and 1996 was $9,472 and $15,854, respectively.
F-11
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1994 1995
<S> <C> <C>
Leasehold improvements................................. $ 117,937 $ 137,373
Furniture and fixtures................................. 205,176 213,138
Office equipment....................................... 359,353 535,392
--------- ---------
682,466 885,903
Less accumulated depreciation and amortization......... (418,719) (549,028)
--------- ---------
$ 263,747 $ 336,875
========= =========
</TABLE>
4. DEBT
At December 31, 1995, the Company had a revolving line of credit of
$2,250,000 which was subsequently reduced to $1,230,000. The line of credit
bears interest at 1% over the commercial base rate (11% at December 31, 1995)
which is paid monthly, is secured by the assets of the Company and personally
guaranteed by the President of the Company, and matures on September 2, 1996.
The line of credit agreement restricts the payment of dividends as long as the
line of credit is outstanding. At December 31, 1994 and 1995 and
March 31, 1996, $1,200,000, $1,675,000 and $450,000, respectively, of the line
had been drawn upon.
The Company has a demand note with a bank with a balance of $143,826,
$55,066 and $32,638 outstanding as of December 31, 1994 and 1995 and March 31,
1996, respectively. The note requires payments of $7,476 per month, including
interest at 1% over the commercial base rate (11% at December 31, 1995), is
secured by a life insurance policy on the President of the Company, and is
personally guaranteed by the President of the Company. The note matures on
August 9, 1996.
The Company believes that the bank intends to extend the terms of both of
these notes when they mature.
Additionally, the Company has a term loan with a bank with a balance of
$18,750, $7,079 and $4,073 outstanding as of December 31, 1994 and 1995 and
March 31, 1996, respectively. The note is secured by equipment and is
personally guaranteed by the President of the Company. The loan calls for
payments, including interest at 12% per annum, of approximately $1,100 per
month and matures on July 15, 1996.
5. INCOME TAXES
Prior to the Termination Date, the Company was treated as a Subchapter S
Corporation under the Internal Revenue Code ("IRC") and, consequently, was not
subject to federal income tax prior to that date; the sole shareholder of the
Company included the income (loss) of the Company through the Termination Date
in his own income tax return for federal income tax purposes. Accordingly, the
Company has not recognized any deferred taxes and has no available federal net
operating loss carryforwards prior to the Termination Date. S Corporations pay
tax to the State of California on their taxable incomes at a rate of 2.5% in
1993 and 1.5% in 1994 and 1995. The state tax provision recorded by the S
Corporation prior to the Termination Date is immaterial to the financial
statements.
F-12
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
As of December 31, 1995, significant components of the Company's net
deferred tax assets, for which a 100% valuation allowance has been provided
and which have not been recognized in the Company's financial statements, are
as follows:
<TABLE>
<S> <C>
Film costs..................................................... $ 97,000
Fixed assets................................................... 9,000
Nondeductible accrual.......................................... 21,000
Net operating loss carryforwards............................... 262,000
---------
389,000
Valuation allowance............................................ (389,000)
---------
$ --
=========
</TABLE>
A reconciliation of income tax computed at the statutory federal income tax
rate to the effective tax rate for the Company for the year ended December 31,
1995 is as follows:
<TABLE>
<S> <C>
Provision for income taxes at statutory rate of 35%........... $(551,000)
Taxable loss incurred prior to the Termination Date........... 154,000
Benefit of deferred tax assets not currently recognized....... 397,000
---------
$ --
=========
</TABLE>
At December 31, 1995, the Company had available federal and state tax net
operating loss carryforwards of approximately $689,000 and $345,000,
respectively, expiring through 2010.
6. REDEEMABLE PREFERRED STOCK
The Redeemable Preferred Stock has a par value of $0.01 per share. The
holders of such stock are entitled to an annual dividend of $0.80 per share,
as declared by the Board of Directors. Dividends of $400,000 and $240,000 were
declared and accrued on the Redeemable Preferred Stock as of December 31, 1995
and March 31, 1996, respectively. The Redeemable Preferred Stock ranks senior
to the Convertible Preferred Stock and common stock. The terms of the
Redeemable Preferred Stock contained in the Company's Articles of
Incorporation restrict the declaration or payment of dividends as long as the
Redeemable Preferred Stock remains outstanding. The liquidation value of each
share of Redeemable Preferred Stock is $10 ("Liquidation Value"). The net
proceeds from the issuance of the Redeemable Preferred Stock and Warrants were
$10,738,000. The Company determined the fair value of the Warrants to be
approximately $4,474,000, net of issuance costs, and, as such, allocated
$4,474,000 of the net proceeds to the Warrants and $6,264,000 to the
Redeemable Preferred Stock. The difference between the carrying value and the
Liquidation Value of the Redeemable Preferred Stock is being amortized to
retained deficit on a straight-line basis from the issuance date to the
mandatory redemption dates. Accretion recorded for the year ended December 31,
1995 and for the three months ended March 31, 1996 was $484,829 and $242,414,
respectively. The Redeemable Preferred Stock is subject to mandatory
redemption beginning July 31, 2000, or upon the occurrence of a liquidation,
dissolution, or winding up of the Company, or a Liquidity Event, as defined
(which includes a public offering in which the aggregate price paid by the
public for such shares is at least $20,000,000) ("Liquidity Event"). In
addition, the Company may redeem the Redeemable Preferred Stock at any time.
The liquidation preference is equal to the Liquidation Value of their
F-13
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
shares plus any accrued and unpaid dividends. If after July 2000, a Liquidity
Event does not occur, any holder of more than 20% of the Redeemable Preferred
Stock may exercise a put option. The purchase price for any put security to be
purchased by the Company will be equal to the fair market value. The holders
of the Redeemable Preferred Stock are not entitled to any voting rights unless
the Company defaults on its redemption requirements or dividend payments; if
such a default occurs, the Redeemable Preferred Stockholders shall be entitled
to elect a majority of the directors of the Company. In connection with the
Reorganization as described in Note 1, all of the outstanding shares of the
Redeemable Preferred Stock will be redeemed.
7. STOCKHOLDER'S EQUITY
The Convertible Preferred Stock has a par value of $0.01 per share. The
holder of such stock, who is the sole common shareholder of the Company, is
entitled to an annual dividend of $0.80 per share, as declared by the Board of
Directors. Dividends of $250,000 and $150,000 were declared and accrued on the
Convertible Preferred Stock as of December 31, 1995 and March 31, 1996,
respectively. Dividends are payable (i) upon redemption of the Redeemable
Preferred Stock, (ii) upon the occurrence of a liquidation, dissolution, or
winding up of the Company, or (iii) upon a Liquidity Event. The liquidation
value of each share of Convertible Preferred Stock is $10 (Liquidation Value).
The Convertible Preferred Stock is junior to the Redeemable Preferred stock
but senior to the common stock. The Convertible Preferred Stock is convertible
at any time into an equal number of common stock shares, subject to
adjustment. The Convertible Preferred Stock is subject to mandatory redemption
upon the occurrence of a public offering in which the aggregate price paid by
the public for such shares is at least $20,000,000 ("Public Offering"). In
connection with the Reorganization as described in Note 1, the holder has
agreed to convert the Convertible Preferred Stock into common stock. The
liquidation preference is equal to the Liquidation Value of such shares plus
any accrued and unpaid dividends. The holder of the Convertible Preferred
Stock is entitled to vote along with the common stock with each share entitled
to as many votes as the number of shares of common stock into which it may be
converted.
The Company issued 1,200,000 Warrants to purchase shares of the Company's
common stock as part of the Redeemable Preferred Stock financing. The Warrants
are exercisable at $0.01 per share after the earlier of July 2000 or the
occurrence of the Liquidity Event. The holders of the Warrants are entitled to
vote along with the common stock and Convertible Preferred Stock stockholder
with each Warrant entitled to as many votes as the number of shares of common
stock into which it may be converted. In connection with the Reorganization as
described in Note 1, the Warrants will be exercised.
In August 1995, the Company issued a warrant to purchase 37,000 shares of
the Company's common stock at an exercise price of $12.00. In connection with
the Reorganization as described in Note 1, such warrant will be exercised. In
addition, the Company issued a warrant to the President of the Company to
purchase 185,000 shares of the Company's common stock at an exercise price of
$32.43. However, upon the occurrence of a Public Offering, such warrant
expires 60 days from the Public Offering date. In connection with the
Reorganization as described in Note 1, such warrant will be cancelled.
In August 1995, an officer was granted options to purchase 60,000 shares of
common stock at an exercise price of $0.01 per share in accordance with his
employment agreement. Such options are exercisable immediately and will remain
exercisable during such officer's employment with the Company and for a period
of one year following the expiration of his employment with the Company or
until a Liquidity Event, if later. The Company recorded compensation expense
of $242,400 associated with the granting of these options as such options were
granted at an exercise price less than the deemed fair value of the common
stock at the date of grant.
F-14
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
In 1996 the Company adopted a stock option plan ("Plan"). All regular
salaried employees of the Company may, at the discretion of the compensation
committee of the Board of Directors, be granted incentive and non-qualified
stock options to purchase shares of Common Stock at an exercise price not less
than 100% of the fair market value of such shares on the grant date. Directors
of the Company, consultants and other persons who are not regular salaried
employees of the Company are not eligible to receive incentive stock options,
but are eligible to receive non-qualified stock options.
The maximum number of shares subject to the Plan is 982,156 and the Plan
will terminate on August 7, 2005, unless sooner terminated by the Board of
Directors. The options vest over a five-year period.
Pursuant to the Plan, in January 1996, the Company granted options to
certain employees and directors of the Company to purchase 419,000 shares of
the Company's common stock at an exercise price of $10.00 per share, which was
deemed to be the fair market value at that time. In May 1996, the Company
granted options to an officer to purchase 100,000 shares and options to
certain employees and directors of the Company to purchase 34,500 shares of
the Company's common stock at $10.65 per share, which was deemed to be the
fair market value at that time. Further pursuant to the plan, in May 1996, the
Company granted options to an officer to purchase 74,000 shares of the
Company's common stock at $10.65 per share, which was deemed to be the fair
market value at that time. These options vest (i) upon reaching certain
performance goals, (ii) upon certain extensions of the officer's employment
agreement, or (iii) upon the sixth anniversary of the grant, whichever occurs
earlier.
As of December 31, 1995, 2,674,500 shares of common stock are reserved for
future issuances related to the Convertible Preferred Stock, Redeemable
Preferred Stock and warrants and options.
8. COMMITMENTS
The Company leases facilities for office space and its animation studios
under an operating lease that was amended in April 1994. Under the terms of
the lease agreement, as amended, the Company is required to pay a pro-rata
share of the building's operating expenses, maintenance and property taxes.
The lease is for a five year period expiring August 31, 1999 with an option
for an additional five year term. The lease agreement includes certain free
rent periods and an escalation in the monthly rental amount, as defined. The
accompanying statement of operations for the year ended December 31, 1995
reflects rent expense on a straight-line basis over the term of the lease. The
Company also has various lease agreements for equipment which expire through
1999, certain of which are personally guaranteed by the President of the
Company. The following is a schedule of the future minimum lease payments
under all noncancelable operating lease agreements:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
<S> <C>
1996....................................................... $1,296,393
1997....................................................... 1,298,585
1998....................................................... 1,243,540
1999....................................................... 829,911
----------
Total minimum lease payments............................... $4,668,429
==========
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995, prior to
any allocation of rent to capitalized film costs, was $776,449, $875,935, and
$1,109,006, respectively.
F-15
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
At December 31, 1995, the Company had outstanding employment agreements with
various employees with initial terms ranging from two to five years. Under the
terms of the agreements, the Company is obligated to pay the following
amounts:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
<S> <C>
1996........................................................ $2,547,296
1997........................................................ 1,219,221
1998........................................................ 942,488
1999........................................................ 840,068
2000........................................................ 393,750
----------
$5,942,823
==========
</TABLE>
Collectively, these employment agreements provide for minimum annual
compensation that can be increased for incentives based on the Company
obtaining certain earning levels, the relationship of earnings to projected
earnings, and/or discretionary incentives to be determined by the Board of
Directors. Such incentives shall not exceed 100% of the employees' base
salary.
9. 401(K) PROFIT SHARING PLAN
The Company has a defined contribution Profit Sharing 401(k) Savings Plan
which covers substantially all of its employees. The plan became effective on
January 1, 1991 and was amended effective January 1, 1992. Under the terms of
the plan, employees can elect to defer up to 15% of their wages, subject to
certain Internal Revenue Service (IRS) limitations, by making voluntary
contributions to the plan. Additionally, the Company, at the discretion of
management, can elect to match up to 100% of the voluntary contributions made
by its employees. The Company has received determination letters from the IRS
indicating that the above plan is qualified within the terms of the applicable
provisions of the Employee Retirement Income Security Act of 1974.
For the years ended December 31, 1993, 1994 and 1995, the Company
contributed $42,398, $73,103, and $93,081, respectively, to the plan on behalf
of its employees.
10. SIGNIFICANT CUSTOMERS
In 1993, the Company earned revenues from four significant customers of
$9,377,000 (34%), $4,550,000 (16%), $4,225,000 (15%) and $3,892,000 (14%). In
1994, the Company earned revenues from four significant customers of
$10,025,000 (28%), $7,695,000 (21%), $5,743,000 (16%), and $4,485,000 (12%).
In 1995, the Company earned revenues from five significant customers of
approximately $11,967,000 (35%), $4,516,000 (13%), $4,400,000 (13%),
$4,229,000 (12%), and $3,575,000 (10%). In 1996, the Company earned revenues
from two significant customers of approximately $4,695,000 (63%) and
$1,042,000 (14%).
11. SUBSEQUENT EVENT
On May 9, 1996, the Company's Board of Directors authorized management of
the Company to file a Registration Statement with the Securities and Exchange
Commission to sell 3,600,000 shares of its common stock.
F-16
<PAGE>
FILM ROMAN, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO MARCH 31, 1996 AND TO THE THREE MONTH PERIODS
ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
12. PRO FORMA DATA (UNAUDITED)
The Company operated as an S Corporation through the Termination Date. Pro
forma amounts reflect adjustments for additional income taxes that would have
been reported if the Company had been a C Corporation based upon an estimated
effective tax rate of 40% in 1993 and 1994 and 34% in 1995.
13. RELATED PARTY TRANSACTIONS
A firm in which an outside director of the Company is a partner acts as a
financial consultant to the Company and fees paid to that firm during 1995
amounted to $66,000. A firm in which an outside director of the Company is a
partner acts as a legal consultant to the Company and fees paid to that firm
during 1995 amounted to $84,000. An outside director of the Company acts as a
financial consultant to the Company and fees paid to this director during 1995
amounted to $22,000.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Film Roman, Inc. (a Delaware corporation)
We have audited the accompanying balance sheet of Film Roman, Inc. (a
Delaware corporation) as of May 16, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Film Roman, Inc. (a
Delaware corporation) as of May 16, 1996, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
May 16, 1996
F-18
<PAGE>
FILM ROMAN, INC. (A DELAWARE CORPORATION)
BALANCE SHEET
MAY 16, 1996
<TABLE>
<S> <C>
ASSETS
Cash................................................................... $10,000
-------
Total assets..................................................... $10,000
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities
Stockholders' equity:
Common stock, $.01 par value: 20,000,000 shares authorized, 100
shares issued and outstanding....................................... $ 1
Preferred stock, $.01 par value: 5,000,000 shares authorized,
no shares issued
and outstanding..................................................... --
Additional paid-in capital........................................... 9,999
-------
Total stockholders' equity....................................... $10,000
=======
</TABLE>
See accompanying notes.
F-19
<PAGE>
FILM ROMAN, INC. (A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
MAY 16, 1996
1. DESCRIPTION OF BUSINESS
In May 1996, the Company was incorporated in Delaware in order to hold all
of the outstanding capital stock of Film Roman, Inc., a California corporation
("Film Roman California"). The Company currently conducts no operations. A
reorganization (the "Reorganization") will be effected immediately prior to
the offering (the "Offering") of 3,600,000 shares of common stock, $.01 par
value ("Common Stock"), of the Company, pursuant to which (i) a wholly-owned
subsidiary of the Company will merge with and into Film Roman California;
(ii) each outstanding share of common stock, no par value ("California Common
Stock") of Film Roman California will be converted into 1.25 shares of Common
Stock (including shares of California Common Stock to be issued immediately
prior to such merger upon the "cashless" exercise of certain warrants for the
purchase of California Common Stock and upon conversion of all outstanding
shares of convertible preferred stock, $.01 par value (the "Convertible
Preferred Stock") of Film Roman California); (iii) each outstanding share of
redeemable preferred stock of Film Roman California will be converted into one
share of redeemable preferred stock of the Company, $.01 par value
("Redeemable Preferred Stock"); (iv) all outstanding employee options for the
purchase of California Common Stock will, pursuant to the anti-dilution
provisions thereof, become options to purchase Common Stock (with options to
purchase each share of California Common Stock becoming options to purchase
1.25 shares of Common Stock at 80% of the exercise price theretofore
applicable); and (v) a warrant issued to the President of the Company for the
purchase of 185,000 shares of California Common Stock will be cancelled. As a
result of the foregoing, Film Roman California will become a wholly-owned
subsidiary of the Company and the stockholders of Film Roman California will
become stockholders of the Company. The Reorganization will be effected
pursuant to a Plan of Reorganization Agreement dated as of May 15, 1996 by and
among Film Roman California, the Company, and Film Roman California's
stockholders. Immediately following the Reorganization and the closing of the
Offering, the Company will redeem all outstanding shares of Redeemable
Preferred Stock. Accrued dividends on the Redeemable Preferred Stock and
Convertible Preferred Stock will be paid to the date of redemption and
conversion, respectively.
PREFERRED STOCK
The Company's Board of Directors, without the approval of the holders of the
Common Stock, is authorized to designate for issuance up to 5,000,000 shares
of preferred stock, par value $0.01 per share, in such series and with such
rights, privileges and preferences as the Board of Directors may from time to
time determine. Issuance of preferred stock may adversely affect the rights,
privileges and preferences afforded the holders of Common Stock, including a
decrease in the amount available for distribution to holders of the Common
Stock in the event of a liquidation or payment of preferred dividends.
Issuance of shares of preferred stock may also have the effect of preventing
or delaying a change in control of the Company without further action by the
stockholders and could make removal of present management of the Company more
difficult. The Company currently has no plans to designate and/or issue any
shares of preferred stock.
STOCK OPTION PLAN
On May 9, 1996, the Company adopted a stock option plan, substantially
similar to the stock option plan of Film Roman California. Pursuant to the
Reorganization, holders of options to purchase stock of Film Roman California
will contribute such options to the Company and the Company will issue options
with substantially the same rights, conditions and restrictions as the options
contributed (except that each option for the purchase of one share of
California Common Stock will be exchanged for an option to purchase 1.25
shares of Common Stock, and the per share exercise price for Company options
will be equal to 80% of the per share exercise price of the Film Roman
California options).
F-20
<PAGE>
PROGRAM HIGHLIGHTS
GARFIELD AND FRIENDS. Garfield and Friends is an
example of how the Company develops a program based
on an existing character. Although the Company
produced the program on a "fee-for-services" basis,
the Company was able to participate in the profits
of the program. One of the first programs produced
by the Company was a Garfield production special
entitled Garfield: In the Rough. Based upon the
success of that Emmy-award winning special and
subsequent Garfield specials produced by the
Company, the Company was engaged to produce a
weekly half hour series entitled Garfield and
Friends which, in its second season, was expanded
to a one-hour block. Repeat episodes of the program
ran in syndication for the two years and the show
is currently broadcast on the Cartoon Network.
Garfield and Friends has also enjoyed significant
success in the international television market.
During the 1995-96 television season, the show was
broadcast in over 50 countries. Film Roman, through
its international distribution division, has
assisted in securing significant international
distribution sales.
BOBBY'S WORLD. Bobby's World is an example of how
the Company created, developed and produced a
program based on an existing popular character,
but, at the time (1989), did not have the financial
resources or organizational infrastructure to
retain and exploit the proprietary rights to the
program. Film Roman proposed to Howie Mandel the
creation of an animated series based upon "Bobby,"
a child-like character created by Mandel for his
stand-up comedy act. Film Roman and Howie Mandel
developed the appearance of Bobby and together with
a writing team developed the world in which "Bobby"
lives. The "Bobby's World" concept was pitched to
several Networks and was licensed in 1989 to FOX.
FOX paid the Company on a "fee-for-services" basis,
funded the entire production cost and acquired
substantially all of the proprietary rights to the
series. Subsequently, the Company's merchandising
and licensing division was established and recently
negotiated with FOX to license back to the Company
the worldwide merchandising rights to Bobby's
World.
MIGHTY MAX. Mighty Max is another example of how
the Company acquires the rights to a concept with
potential broad appeal and then develops and
produces a program based on that concept. Film
Roman was presented with an exciting prototype for
a toy which the Company believed provided a basis
for a promising animated series for the U.S. market
because of the uniqueness of the toy and Mattel's
commitment to distribute it. Since the Company did
not have the financial resources or organizational
infrastructure at the time to retain and exploit
proprietary rights, associated with this program,
it formed a partnership with Canal Plus, a French
cable company, and negotiated to participate in the
program's profits. Film Roman assembled a creative
team of writers and artists and designed characters
and story lines to be presented to potential
broadcasters. Since its original broadcast, Mighty
Max has continued to rank among the top animated
syndicated programs.
<PAGE>
C-BEAR & JAMAL. C-Bear and Jamal is an example of
how the Company creates, develops and produces
proprietary programming based on a well-known
personality. After rap star Tone Loc approached
Film Roman with an interest in developing an
animated series, Film Roman's creative team
explored a number of concepts for the show.
Ultimately, Tone Loc's husky voice and street-wise
persona were captured by Film Roman in the urban
character, C-Bear. The Company further developed
the concept with a team of writers and artists and
presented the program idea to a number of the
Networks. FOX agreed to develop the show with Film
Roman and ordered production of three episodes for
the 1995-1996 season. Based upon the success of
these episodes, FOX ordered ten more episodes for
the 1996-1997 season. Through its international
and merchandising and licensing divisions, the
Company has secured a number of commitments,
including international television license
arrangements and a master toy license.
FELIX THE CAT. Felix the Cat is an example of how
the Company acquires the rights to an existing
character, develops and produces programming based
on the character, controls and exploits the
distribution rights and participates in the
revenue generated from the licensing and
merchandising activities. Recognizing the equity
in the 75 year old character "Felix the Cat," the
Company acquired certain rights from Felix's
owners, and after completing preliminary
development for a series, presented the program
idea to CBS which decided to develop the project
with Film Roman. The Company's writers and artists
developed the concept, "look" and sample
storylines for the series utilizing the visual
style "Felix" had in the 1920's and 1930's. Based
upon the development work, CBS ordered 13 episodes
for the 1995-1996 television season. Film Roman's
international distribution division licensed the
project to several territories throughout the
world during the development period. CBS has
renewed the series for the 1996-1997 season,
ordering 8 new episodes. The Company is also
currently developing a video game based upon
"Felix" for IBM.
THE SIMPSONS. The Simpsons is an example of how
the Company produces programming on a "fee-for-
services" basis when the proprietary rights to the
programming are not available for acquisition. In
1991, Twentieth Television (a division of
Twentieth Century Fox) and Jim Brooks' Gracie
Films decided to move animation production of the
series from the animation studio then producing
the series. Film Roman was selected to produce the
series due to the Company's strong reputation for
producing quality animation on time and on budget.
Film Roman's 80 person production team is now
entering its fifth year producing The Simpsons on
a "fee-for-services" basis and anticipates
delivering the 122nd episode of the series in
1997.
The Company has applications pending with the United States Patent and
Trademark Office to register several trademarks, including Film Roman, C-Bear
& Jamal, King of the Hill and BRUNO the Kid. Pursuant to arrangements with the
owners of the programs it produces, the Company utilizes certain trademarks
and copyrighted materials, including The Simpsons, Garfield, Bobby's World,
Felix the Cat, The Mask, Richie Rich, Mortal Kombat and Mighty Max. This
Prospectus includes other trade names and trademarks of the Company and other
companies.
<PAGE>
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- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAK-
ING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Financial Information............................................ 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 21
Management................................................................ 34
Principal and Selling Stockholders........................................ 45
Certain Transactions...................................................... 46
Description of Capital Stock.............................................. 48
Shares Eligible for Future Sale........................................... 51
Underwriting.............................................................. 52
Legal Matters............................................................. 53
Experts................................................................... 53
Additional Information.................................................... 53
Glossary.................................................................. 54
Index to Financial Statements............................................. F-1
</TABLE>
------------
UNTIL , 1996 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,785,000 SHARES
FILM ROMAN, INC.
COMMON STOCK
[LOGO]
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[Brief Narrative Description of Cartoon Pictures on page 2: Includes cartoon
Pictures of 7 television sets featuring the Company's characters (The Simpsons,
Felix the Cat, The Critic, The Mask, Garfield and Friends, Mighty Max and
Bobby's World).]
["The Twisted Tales of Felix the Cat" (C) 1996 Film Roman, Inc./Felix the Cat
Creations, Inc. The character "Felix the Cat" is (C) and (TM) Felix the Cat
Productions, Inc. All Rights Reserved. "The Mask" (C) 1996 New Line Television,
Inc./Sunbow Productions. All Rights Reserved. "The Simpsons" (C) & (TM)
Twentieth Century Fox Film Corp. All Rights Reserved. "Garfield and Friends" (C)
PAWS, Inc. "Mighty Max" (C) 1996 Film Roman, Inc., Bluebird (UK) and Canal+ D.A.
"Bobby's World" (C) 1996 Fox Children's Network, Inc. "Bobby" character is (TM)
Alevy Productions. All Rights Reserved. "The Critic" (C) 1996 Columbia Pictures
Television, Inc. All Rights Reserved. All other characters (C) 1996 Film Roman,
Inc.]
[Brief Narrative Description of Cartoon Pictures on the fold-out page behind
page 2: Caption stating, "Film Roman offers a bright and colorful future... with
five new shows for the 1996-97 season." Includes cartoon pictures of 12
television sets featuring the Company's characters (Mortal Kombat, C-Bear &
Jamal, The Simpsons, King of the Hill, Bobby's World, Felix the Cat, Garfield
and Friends, The Critic, The Mask, Richie Rich, BRUNO the Kid and Mighty Max).]
[Brief Narrative Description of Cartoon Pictures on the inside back cover pages:
Includes cartoon drawings of the following characters: Garfield, Bobby, Mighty
Max, C-Bear, Felix the Cat and Bart Simpson.]
["The Twisted Tales of Felix the Cat" (C) 1996 Film Roman, Inc./Felix the Cat
Creations, Inc. The character Felix the Cat" is (C) and (TM) Felix the Cat
Productions, Inc. All Rights Reserved. "The Mask" (C) 1996 New Line Television,
Inc./Sunbow Productions. All Rights Reserved. "The Simpsons" (C) & (TM)
Twentieth Century Fox Film Corp. All Rights Reserved. "Garfield and Friends" (C)
PAWS, Inc. "Mighty Max" (C) 1996 Film Roman, Inc., Bluebird (UK) and Canal+ D.A.
"Bobby's World" (C) 1996 Fox Children's Network, Inc. "Bobby" character is (TM)
Alevy Productions. All Rights Reserved. "The Critic" (C) 1996 Columbia Pictures
Television, Inc. All Rights Reserved. All other characters (C) 1996 Film Roman,
Inc.]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered hereby. All of
the amounts shown are estimates except for the Commission registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
Commission Registration Fee........................................ $ 18,012
NASD Filing Fee.................................................... 5,723
Nasdaq National Market Listing Fees................................ 30,000
Accounting Fees and Expenses....................................... 275,000
Blue Sky Fees and Expenses......................................... 15,000
Legal Fees and Expenses............................................ 300,000
Printing and Engraving Expenses.................................... 200,000
Transfer Agent Fees................................................ 10,000
Miscellaneous Expenses............................................. 16,265
--------
TOTAL.......................................................... $870,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company generally provide that the Company shall
indemnify, to the fullest extent permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, investigation, administrative hearing or any other
proceeding (each, a "Proceeding") by reason of the fact that he is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another entity, against
expenses (including attorneys' fees) and losses, claims, liabilities,
judgments, fines and amounts paid in settlement actually incurred by him in
connection with such Proceeding. The Bylaws also provide that the Company may
advance litigation expenses to a director, officer, employee or agent upon
receipt of an undertaking by or on behalf of such director, officer, employee
or agent to repay such amount if it is ultimately determined that the
director, officer, employee or agent is not entitled to be indemnified by the
Company.
The Company has entered into, or intends to enter into, agreements to
indemnify its directors and executive officers in addition to the
indemnification provided for in the Certificate of Incorporation and Bylaws.
These agreements, among other things, will indemnify the Company's directors
and executive officers for certain expenses (including attorneys' fees), and
all losses, claims, liabilities, judgments, fines and settlement amounts
incurred by such person arising out of or in connection with such person's
service as a director or officer of the Company to the fullest extent
permitted by applicable law.
Policies of insurance may be obtained and maintained by the Company under
which its directors and officers will be insured, within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of, and certain liabilities which might be imposed
as a result of, actions, suits or proceedings to which they are parties by
reason of being or having been such directors or officers.
The form of Underwriting Agreement, filed as Exhibit 1.1. hereto, provides
for the indemnification of the Registrant, its controlling persons, its
directors and certain of its officers by the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant was incorporated in Delaware in May 1996 in order to act as a
holding company for Film Roman, Inc., a California corporation ("FRCal"). In
May 1996 the Registrant issued 100 shares of its Common Stock ("Registrant
Common Stock") to FRCal at a price of $100 per share. The transaction was
exempt from registration by virtue of Section 4(2) of the Securities Act.
In May 1996 the Registrant entered into a Plan of Reorganization Agreement
(the "Reorganization Agreement") with FRCal and the holders of all common
stock, preferred stock, and warrants of FRCal. Pursuant to the Reorganization
Agreement, which is filed as Exhibit 2.1 to the Registration Statement, such
holders approved the merger of a wholly-owned subsidiary of Registrant with
and into FRCal (the "Merger"), as a result of which FRCal will become a wholly
owned subsidiary of the Registrant. The Merger is to occur immediately prior
to the closing of the offering (the "Offering") contemplated by this
Registration Statement. Immediately prior to the Merger, (a) Phil Roman will
convert his Convertible Preferred Stock (as defined below) into 750,000 shares
of common stock of FRCal, no par value (the "FRCal Common Stock"), and
surrender his Founder Warrant (as defined below) to FRCal for cancellation,
(b) the five holders of FRCal Redeemable Preferred Stock (as defined below)
and Investor Warrants (as defined below) (BCI Growth III, L.P., Delaware State
Employees' Retirement Fund, Declaration of Trust for Defined Benefit Plan of
ICI American Holding, Inc., Declaration of Trust for Defined Benefit Plans of
Zeneca Holding Inc., and Opco Senior Executive Investment Partnership, L.P.
(collectively, the "Investors")) will exercise their Investor Warrants in full
for 1,200,000 shares of FRCal Common Stock at the price provided in the
Investor Warrants ($.01 per share unless the "Equity Value of the Company" as
defined in the Investor Warrants shall exceed $100,000,000, in which case the
exercise price may escalate from $4.55 per share up to $10.00 per share at
increasing levels of Equity Value of the Company up to $130,000,000) by
surrendering FRCal Redeemable Preferred Stock to satisfy the exercise price,
and (c) Oppenheimer & Co., Inc. ("Opco") will exercise its Opco Warrant (as
defined below) for 37,000 shares of FRCal Common Stock by using the cashless
exercise feature of the Opco Warrant, resulting in the issue of 4,709 shares
of FRCal Common Stock to Opco. Such transactions will be exempt from
registration by virtue of Sections 3(a)(11) or 4(2) of the Securities Act. In
the Merger, each outstanding share of FRCal Common Stock will be converted
into and become 1.25 shares of Registrant Common Stock, and each share of
FRCal Redeemable Preferred Stock will be converted into and become one share
of redeemable preferred stock of the Registrant ("Registrant Redeemable
Preferred Stock"). By virtue of the antidilution provisions of FRCal employee
options (described below), each option will become exercisable after the
Merger for a number of shares of Registrant Common Stock equal to 1.25 times
the number of shares of FRCal Common Stock for which it was theretofore
exercisable, at a price equal to the price at which it was theretofore
exercisable divided by 1.25, disregarding fractions of a share or cent. Such
transactions will be exempt from registration by virtue of Section 4(2) of the
Securities Act (provided that after the effectiveness of the Registration
Statement and prior to the time of the Merger Registrant expects to have filed
an effective Registration Statement on Form S-8 with respect to employee
options). Immediately following the Merger and the closing of the Offering,
the Registrant Redeemable Preferred Stock will be redeemed at the redemption
price of $10 per share plus accrued dividends.
In July 1995 FRCal entered into a Securities Purchase Agreement with the
Investors pursuant to which, in August 1995, FRCal issued to the Investors
1,200,000 shares of FRCal Class A 8% Cumulative Redeemable Preferred Stock
("FRCal Redeemable Preferred Stock") and warrants to purchase 1,200,000 shares
of FRCal Common Stock ("Investor Warrants") for an aggregate purchase price of
$12,000,000. In connection with such transaction, Phil Roman received for his
1,000 shares of FRCal capital stock 1,713,000 shares of FRCal Common Stock and
750,000 shares of FRCal Class B Convertible Preferred Stock ("Convertible
Preferred Stock"). Mr. Roman also received a warrant to purchase 185,000
shares of FRCal Common Stock at a price of $32.43 per share, subject to
adjustment (the "Founder Warrant"). In partial payment for services in
connection with the transaction, FRCal issued to Opco a Warrant to purchase
37,000 shares of FRCal Common Stock at $12 per share (the "Opco Warrant").
Such transactions were exempt from registration by virtue of Sections 3(a)(11)
or 4(2) of the Securities Act.
II-2
<PAGE>
In August 1995 FRCal issued to William Schultz, an officer, an option to
purchase 60,000 shares of FRCal Common Stock at $.01 per share in satisfaction
of certain rights under Mr. Schultz' employment agreement. Such transaction
was exempt from registration by virtue of Section 4(2) of the Securities Act.
In January 1996 FRCal pursuant to its Stock Option Plan granted 44 employees
options to purchase an aggregate of 493,000 shares of FRCal Common Stock at a
price of $10 per share. The options are not transferable, or exercisable prior
to September 1996. Such transactions were exempt from registration by virtue
of Section 4(2) of and Rule 701 under the Securities Act.
In May 1996, FRCal pursuant to this Stock Option Plan granted to five
employees and one consultant options to purchase 134,500 shares of FRCal
Common Stock at a price of $10.65 per share. The options are not transferable,
or exercisable prior to May 1997. Such transactions were exempt from
registration by virtue of Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Exhibits:
See Exhibit Index.
(b)Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting
regulation of the Commission are either not required under the related
instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such new securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) The undersigned will provide to the underwriter at the closing
specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter
to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF NORTH HOLLYWOOD, STATE OF CALIFORNIA, ON JULY 12, 1996.
FILM ROMAN, INC.
/s/ Phil Roman
By___________________________________
Phil Roman
President, Chief Executive Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Phil Roman President, Chief Executive July 12, 1996
____________________________________ Officer and Director
Phil Roman (Principal Executive
Officer)
*/s/ Gregory Arsenault Senior Vice President-- July 12, 1996
____________________________________ Finance and Administration
Gregory Arsenault (Principal Accounting and
Financial Officer)
*/s/ Robert Cresci Director July 12, 1996
____________________________________
Robert Cresci
*/s/ Dennis Draper Director July 12, 1996
____________________________________
Dennis Draper
*/s/ Theodore T. Horton, Jr. Director July 12, 1996
____________________________________
Theodore T. Horton, Jr.
*/s/ Peter Mainstain Director July 12, 1996
____________________________________
Peter Mainstain
*/s/ Dixon Q. Dern Director July 12, 1996
____________________________________
Dixon Q. Dern
July 12, 1996
</TABLE>
/s/ Phil Roman
*By________________________
Attorney-in-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement
*2.1 Plan of Reorganization Agreement dated as of May 15, 1996 by
and among the Registrant, Film Roman, Inc., a California
corporation ("Film Roman California"), and certain stockholders
party thereto
*3.1 Certificate of Incorporation of Registrant
*3.2 Bylaws of Registrant
4.1 Specimen Stock Certificate
5.1 Opinion and Consent of Latham & Watkins
10.1 Employment Agreement dated as of August 7, 1995 by and between
Film Roman California and Mr. Phil Roman
10.2 Employment Agreement dated as of August 7, 1995 by and between
Film Roman California and Mr. William Schultz
10.3 Employment Agreement dated as of February 14, 1995 by and
between Film Roman California and Mr. Jon Vein
10.4 Employment Agreement dated as of December 15, 1995 by and
between Film Roman California and Ms. Jacqueline Blum
10.5 Employment Agreement dated as of January 2, 1996 by and between
Film Roman California and Mr. Gregory Arsenault
10.6 Stock Option Plan of Film Roman California
10.7 Stock Option Plan of Registrant
10.8 Form of Stock Option Agreement for Employees
10.9 Form of Stock Option Agreement for Directors
10.10 Form of Stock Option Agreement for Mr. Schultz
10.11 Lease for Registrant's headquarters and studio in North
Hollywood, California
10.12 Promissory Note for $1,230,000 dated as of May 31, 1996 between
Film Roman, Inc and First Charter Bank, N.A.
10.13 Rights Agreement dated May 30, 1995 between Daniel Aykroyd,
Judith Belushi Pisano and Film Roman, Inc.
10.14 Agreement dated December 11, 1990, between Film Roman, Inc. and
Alevy Productions, Inc.
10.15 Series Production Agreement dated as of April 27, 1990 between
Fox Children's Network and Film Roman, Inc.
10.16 Agreement dated as of June 20, 1995, between Film Roman, Inc.
and Starstream Limited
10.17 Amendment dated December 18, 1992 between Film Roman, Inc. and
Fox Children's Network
10.18 Amendment dated March 22, 1994 between Film Roman, Inc. and Fox
Children's Network
10.19 Agreement dated October 5, 1994 between Flying Heart, Inc. and
Film Roman, Inc.
10.20 Agreement dated February 20, 1996 with Live Film and
Mediaworks, Inc. and Film Roman, Inc.
10.21 Letter Agreement dated January 9, 1995 with Agreement dated
November 22, 1993, revised December 9, 1994, December 13, 1993,
June 23, 1994 and August 1, 1994 between Fox Children's Network
("FCN") and Film Roman, Inc.
</TABLE>
<PAGE>
INDEX TO EXHIBITS--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.22 Agreement dated June 1, 1995, between Fox Children's Network
and Film Roman, Inc.
10.23 Amendment dated March 1, 1996 to the Agreement dated as of
November 22, 1993 between Fox Children Network and Film Roman,
Inc.
10.24 Agreement dated September 12, 1994 between Film Roman, Inc. and
Tone Loc, Inc.
10.25 Agreement dated as of May 7, 1993 between Film Roman, Inc. and
Adelaide Productions, Inc.
10.26 Amendment dated as of May 18, 1994 revised as of June 14, 1994
between Film Roman, Inc. and Adelaide Productions, Inc.
10.27 Amendment dated as of June 20, 1994 revised as of July 7, 1994
between Film Roman, Inc. and Adelaide Productions, Inc.
10.28 Agreement dated November 9, 1993 between Film Roman, Inc. and
Felix The Cat Creations, Inc.
10.29 Agreement dated as of June 28, 1994 between CBS Entertainment
and Film Roman, Inc.
10.30 Agreement dated September 27, 1994 between Felix The Cat
Creations, Inc. and Film Roman, Inc.
10.31 Letter Agreement dated June 6, 1995 between Felix The Cat
Corporation and Film Roman, Inc.
10.32 Agreement dated September 1, 1995 between Felix Comics, Inc.
and Film Roman, Inc.
10.33 Agreement dated November 20, 1995 between Felix The Cat
Creations, Inc. and Film Roman
10.34 Amendment to Output Distribution Agreement dated February 1,
1994 between Film Roman, Inc. and Taurus Film GmbH & Company
10.35 Output Distribution Agreement dated as of September 1, 1994
between Film Roman, Inc. and Taurus Film GmbH & Company
10.36 Agreement dated April 1, 1991 between United Media/Mendelson
Production and Film Roman, Inc. re: Prime Time Television
special
10.37 Agreement dated April 1, 1991 between United Media/Mendelson
Production and Film Roman, Inc. re: Saturday Morning Series
10.38 Co-Production Agreement dated June 11, 1993 between Canal Plus
and Bluebird Toys (the U.K.) Limited and Film Roman, Inc.
regarding Mighty Max
10.39 Agreement dated April 12, 1994 between Canal Plus and Bohbot
Entertainment Worldwide, Inc. and Film Roman, Inc.
10.40 Form of Agreement between Film Roman, Inc. and Threshold
Entertainment
10.41 Agreement dated as of March 30, 1995 as revised May 10, 1995
between Film Roman, Inc. and Greengrass Productions, Inc.
10.42 Agreement dated as of April 15, 1996 between Film Roman, Inc.
and The Harvey Entertainment Company
10.43 Agreement dated as of January 29, 1992 between Film Roman, Inc.
and 20th Television
10.44 Agreement dated as of March 7, 1996, between Film Roman, Inc.
and LUK International
10.45 Agreement dated as of May 22, 1996, between Film Roman, Inc.
and Canal-Plus--Spain
10.46 Co-Production Agreement between Television Espanola, S.A. and
Film Roman, Inc.
11.1 Pro forma Earnings Per Share
*21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
</TABLE>
<PAGE>
INDEX TO EXHIBITS--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
23.3 Consent of Tanner, Mainstain & Hoffer
23.4 Consent of Latham & Watkins (included in Exhibit 5.1)
*24.1 Power of Attorney
*27.1 Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed
<PAGE>
EXHIBIT 1.1
3,785,000 Shares
Film Roman, Inc.
Common Stock
UNDERWRITING AGREEMENT
----------------------
________, 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Film Roman, a Delaware corporation (the "Company"), Phil Roman ("Roman"),
Oppenheimer & Co., Inc. and OPCO Senior Executive Investment Partnership, L.P.
(the "Oppenheimer Holders", and together with Roman, the "Selling
Stockholders"), severally propose to sell an aggregate of 3,785,000 shares of
Common Stock, par value $.01 per share, of the Company (the "Firm Shares"), to
the several underwriters named in Schedule I hereto (the "Underwriters"). The
Firm Shares consist of 3,600,000 shares to be issued and sold by the Company and
185,000 outstanding shares to be sold by the Selling Stockholders. The Company
also proposes to issue and sell to the several Underwriters not more than
567,750 additional shares of Common Stock, par value $.01 per share, of the
Company (the
<PAGE>
2
"Additional Shares"), if requested by the Underwriters as provided in Section 2
hereof. The Firm Shares and the Additional Shares are herein collectively
called the Shares. The shares of common stock of the Company to be outstanding
after giving effect to the sales contemplated hereby are hereinafter referred to
as the Common Stock. The Company and the Selling Stockholders are hereinafter
collectively called the Sellers.
1. Registration Statement and Prospectus. The Company has prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-1 (No. 333-03987) including a
prospectus relating to the Shares, which may be amended. The registration
statement as amended at the time when it becomes effective, including a
registration statement (if any) filed pursuant to Rule 462(b) under the Act
increasing the size of the offering registered under the Act and information (if
any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the Registration Statement; and the prospectus in the form first used to confirm
sales of Shares is hereinafter referred as the Prospectus.
2. Agreements to Sell and Purchase. On the basis of the representations
-------------------------------
and warranties contained in this Agreement, and subject to its terms and
conditions, (i) the Company agrees to issue and sell 3,600,000 Firm Shares, (ii)
each Selling Stockholder agrees, severally and not jointly, to sell the number
of Firm Shares set forth opposite such Selling Stockholder's name in Schedule II
hereto and (iii) each Underwriter agrees, severally and not jointly, to purchase
from each Seller at a price per share of $______ (the "Purchase Price") the
number of Firm Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Firm Shares to be sold by such Seller as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto bears to the total
number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Company agrees to
issue and sell up to 567,750 Additional Shares and (ii) the Underwriters shall
have the right to purchase, severally and not jointly, up to an aggregate
567,750 Additional Shares from the Company at the Purchase Price. Additional
Shares may be purchased solely for the purpose of covering over-allotments made
in connection with the offering of the Firm Shares. The Underwriters may
exercise their right to purchase Additional Shares in whole or in part from time
to time by giving written notice thereof to the Company within 30 days after the
date of this Agreement. You shall give any such notice on behalf of the
Underwriters and such notice shall specify the aggregate number of Additional
Shares to be purchased pursuant to such exercise and the date for payment and
delivery thereof. The date specified in any such notice shall be a business day
(i) no earlier than the Closing Date (as hereinafter defined), (ii) no later
than ten business days after such notice has been given and (iii) no earlier
than three business days after such notice has been given. If any Additional
Shares are to be purchased, each Underwriter, severally and not jointly, agrees
to purchase from the Company the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears the
same proportion to the total number of Additional Shares
<PAGE>
3
to be purchased from the Company as the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I bears to the total number of Firm
Shares.
The Sellers hereby agree, severally and not jointly and the Company shall,
concurrently with the execution of this Agreement, deliver an agreement executed
by (i) each of the directors and officers of the Company who is not a Selling
Stockholder and (ii) each stockholder listed on Annex I hereto, pursuant to
which each such person agrees, not to offer, sell, contract to sell, grant any
option to purchase, or otherwise dispose of any common stock of the Company or
any securities convertible into or exercisable or exchangeable for such common
stock or in any other manner transfer all or a portion of the economic
consequences associated with the ownership of any such common stock, except to
the Underwriters pursuant to this Agreement, for a period of 180 days after the
date of the Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. Each stockholder listed on Annex I hereto
shall also agree not to exercise any rights such stockholder may have to require
the Company to register any shares of Common Stock held by such stockholder
under the Act or any state securities laws for a period of 180 days after the
date of the Prospectus. Notwithstanding the foregoing, during such 180-day
period (i) the Company may grant stock options pursuant to the Company's
existing stock option plan and (ii) the Company may issue shares of its common
stock upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof.
3. Terms of Public Offering. The Sellers are advised by you that the
------------------------
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the effective date of the Registration Statement as
in your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and payment for
--------------------
the Firm Shares shall be made at 10:00 A.M., New York City time, on the [third]
[fourth] business day unless otherwise permitted by the Commission pursuant to
Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), following the date of the initial public offering (the "Closing Date"),
at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York,
New York 10017. The Closing Date and the location of delivery of and the form
of payment for the Firm Shares may be varied by agreement between you and the
Sellers.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at such place as you shall designate
at 10:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you pursuant to Section 2 (an "Option Closing Date").
Any such Option Closing Date and the location of delivery of and the form of
payment for such Additional Shares may be varied by agreement between you and
the Company.
Certificates for the Shares shall be registered in such names and issued in
such denominations as you shall request in writing not later than two full
business days prior to the Closing Date or an Option Closing Date, as the case
may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business
<PAGE>
4
day next preceding the Closing Date or an Option Closing Date, as the case may
be. Certificates in definitive form evidencing the Shares shall be delivered to
you on the Closing Date or an Option Closing Date, as the case may be, with any
transfer taxes thereon duly paid by the respective Sellers, for the respective
accounts of the several Underwriters, against payment of the Purchase Price
therefor by certified or official bank checks payable in immediately available
(same day) funds to the order of the applicable Sellers.
5. Agreements of the Company. The Company agrees with you:
-------------------------
(a) To use its best efforts to cause the Registration Statement to
become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment to it becomes effective, (ii) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purposes, and (iv) of the
happening of any event during the period referred to in paragraph (e) below
which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires the making of any
additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(c) To furnish to you, without charge, three signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
to make any amendment or supplement to the Prospectus of which you shall
not previously have been advised or to which you shall reasonably object;
and to prepare and file with the Commission, as soon as practicable upon
your reasonable request, any amendment to the Registration Statement or
supplement to the Prospectus which is necessary in connection with the
distribution of the Shares by you, and to use its best efforts to cause the
same to become promptly effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales by an
<PAGE>
5
Underwriter or a dealer, to furnish to each Underwriter and dealer as many
copies of the Prospectus (and of any amendment or supplement to the
Prospectus) as such Underwriter or dealer may reasonably request.
(f) If during the period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law, as
soon as practicable to prepare and file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in the
Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with law, and to furnish to each Underwriter and to
such dealers as you shall specify, such number of copies thereof as such
Underwriter or dealers may reasonably request.
(g) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may reasonably request, to continue such qualification
in effect so long as required for distribution of the Shares and to file
such consents to service of process or other documents as may be necessary
in order to effect such registration or qualification.
(h) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration Statement
(but in no event commencing later than 90 days after such date) which shall
satisfy the provisions of Section 11(a) of the Act, and to advise you in
writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Stock a financial report of the
Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by independent certified public
accountants, and (ii) to mail and make generally available as soon as
practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders, a consolidated
balance sheet, a consolidated statement of operations and a consolidated
statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of
<PAGE>
6
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e), (ii) the
printing and delivery of the Prospectus and all amendments or supplements
to it during the period specified in paragraph (e), (iii) the printing and
delivery of this Agreement, the Preliminary and Supplemental Blue Sky
Memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iv) the registration
or qualification of the Shares for offer and sale under the securities or
Blue Sky laws of the several states (including in each case the reasonable
fees and disbursements of counsel for the Underwriters relating to such
registration or qualification and memoranda relating thereto), (v) filings
and clearance with the National Association of Securities Dealers, Inc. in
connection with the offering, (vi) the listing of the Shares on the
National Association of Securities Dealers Automated Quotation system
("NASDAQ") National Market System, (vii) furnishing such copies of the
Registration Statement, the Prospectus and all amendments and supplements
thereto as may be reasonably requested for use in connection with the
offering or sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold and (viii) the performance by the Sellers of their other
obligations under this Agreement; it being understood that the only
reasonable fees and disbursement of Underwriters' counsel to be reimbursed
by the Company are those set forth in the foregoing clauses (iii), (iv) and
(v). The foregoing shall not limit or in any manner alter any agreement
among the Sellers for the payment of costs, expenses, fees and taxes
incident to the registration of the Shares.
(l) To use its best efforts to maintain the inclusion of the Common
Stock in the NASDAQ National Market System (or on a national securities
exchange) for a period of one year after the effective date of the
Registration Statement.
(m) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
<PAGE>
7
6. Representations and Warranties of the Company. The Company and
---------------------------------------------
Film Roman, Inc., a California corporation ("Film Roman California" and,
together with the Company, the "Companies"), jointly and severally, represent
and warrant to each Underwriter that, after giving effect to the consummation
of the transactions contemplated by the Plan of Reorganization Agreement dated
as of May 15, 1996 among the Company, Film Roman California, the Selling
Stockholders, and the other holders of equity interests in Film Roman
California named therein (the "Plan of Reorganization"):
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the best
knowledge of the Companies, threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with
the Act and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
set forth in this paragraph (b) do not apply to statements or omissions
in the Registration Statement or the Prospectus based upon information
relating to (x) any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein or (y) any Selling
Stockholder furnished to the Company in writing by such Selling
Stockholder expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Act, and each Registration Statement
filed pursuant to Rule 462(b) under the Act, if any, complied when so
filed in all material respects with the Act; and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(d) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as it is currently being conducted
and to own, lease and operate its properties, and each is duly qualified
and is in good
<PAGE>
8
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and,
except as set forth in the Prospectus, are owned by the Company, free and
clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights; and the Shares to be
issued and sold by the Company hereunder have been duly authorized and,
when issued and delivered to the Underwriters against payment therefor as
provided by this Agreement, will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) The authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained in the Prospectus.
(h) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of
any obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any other agreement,
indenture or instrument, in each case material to the conduct of the
business of the Company and its subsidiaries, taken as a whole, to which
the Company or any of its subsidiaries is a party or by which it or any
of its subsidiaries or their respective property is bound.
(i) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body (except as such
may be required under the securities or Blue Sky laws of the various
states) and will not (x) conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or by-laws of
the Company or any of its subsidiaries or any agreement, indenture or
other instrument, in each case material to the conduct of the business of
the Company and its subsidiaries, taken as a whole, to which it or any of
its subsidiaries is a party or by which it or any of its subsidiaries or
their respective property is bound, or (y) violate or
<PAGE>
9
conflict with any laws, administrative regulations or rulings or court
decrees applicable to the Company, any of its subsidiaries or their
respective property.
(j) Except as otherwise set forth in the Prospectus, there are no
material legal or governmental proceedings pending to which the Company
or any of its subsidiaries is a party or of which any of their respective
property is the subject, and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated. No contract or document
of a character required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement
is not so described or filed as required.
(k) Neither the Company nor any of its subsidiaries has violated
(x) any foreign, federal, state or local law or regulation relating to
the protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), nor (y) any federal or state law relating to discrimination in
the hiring, promotion or pay of employees nor any applicable federal or
state wages and hours laws, nor any provisions of the Employee Retirement
Income Security Act or the rules and regulations promulgated thereunder,
which in the case of each of clauses (x) and (y) could be reasonably
likely to, individually or in the aggregate, result in any material
adverse change in the business, prospects, financial condition or results
of operation of the Company and its subsidiaries, taken as a whole.
(l) The Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
its respective properties and to conduct its business except where the
failure to have any such permit would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole; the Company and
each of its subsidiaries has fulfilled and performed all of its material
obligations with respect to such permits and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the
rights of the holder of any such permit.
(m) Except as otherwise set forth in the Prospectus or such as are
not material to the business, prospects, financial conditions or results
of operations of the Company and its subsidiaries, taken as a whole, the
Company and each of its subsidiaries has good and marketable title, free
and clear of all liens, claims, encumbrances and restrictions except
liens for taxes not yet due and payable, to all property and assets
described in the Registration Statement as being owned by it. All leases
to which the Company or any of its subsidiaries is a party are valid and
binding, except for such leases that are not material to the business of
Company and its subsidiaries, taken as a whole, and no default has
occurred or is continuing thereunder, which could be reasonably likely
to, individually or in the aggregate, result in any material adverse
change in the
<PAGE>
10
business, financial condition or results of operation of the Company and
its subsidiaries taken as a whole, and the Company and its subsidiaries
enjoy peaceful and undisturbed possession under all such leases to which
any of them is a party as lessee with such exceptions as do not
materially interfere with the use made by the Company or such subsidiary.
(n) The Company and its subsidiaries maintain insurance comparable
to insurance maintained by Companies engaged in similar industries in the
same geographic area.
(o) Ernst & Young, LLP is and Tanner, Mainstain & Hoffer, at the
time of such accountancy firm's preparation of financial statements
included in the Registration Statement, were independent public
accountants with respect to the Company as required by the Act.
(p) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except
as disclosed therein; and the other financial and statistical information
and data set forth in the Registration Statement and the Prospectus (and
any amendment or supplement thereto) is, in all material respects,
accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(q) The Company is not regulated as an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(r) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of
the Company, except for rights that have been waived.
(s) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(t) The Company has filed a registration statement pursuant to
Section 12(g) of the Exchange Act to register the Common Stock, has filed
an application to list the Shares on the Nasdaq National Market, and has
received notification that the listing has been approved, subject to
notice of issuance.
(u) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling
<PAGE>
11
any person to purchase or otherwise to acquire any shares of the capital
stock of, or other ownership interest in, the Company or any subsidiary
thereof except as otherwise disclosed in the Registration Statement.
(v) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(w) There is (i) no significant unfair labor practice complaint
pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, before the
National Labor Relations Board or any state or local labor relations
board, and no significant grievance or more significant arbitration
proceeding arising out of or under any collective bargaining agreement is
so pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, and (ii) no
significant strike, labor dispute, slowdown or stoppage pending against
the Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against it or any of its subsidiaries except for such
actions specified in clause (i) or (ii) above, which, singly or in the
aggregate could not reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(x) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(y) All material tax returns required to be filed by the Company
and each of its subsidiaries in any jurisdiction have been filed, other
than those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees
and other charges due pursuant to such returns or pursuant to any
assessment received by the Company or any of its subsidiaries have been
paid, other than those being contested in good faith or for which
adequate reserves have been provided.
(z) The Company and each of its subsidiaries (i) own or possess
adequate rights to use all material trademarks, copyrights and licenses
necessary for the conduct of their respective businesses and (ii) have no
reason to believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of conflict
with, any such rights of
<PAGE>
12
others which would render any rights of the Company or any of its
subsidiaries invalid or inadequate to protect the interest of the Company
or such subsidiary therein and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding), invalidity or
inadequacy, individually or in the aggregate, would have a material
adverse affect on the Company and its subsidiaries, then as a whole.
(aa) The execution, delivery and performance by the Company and
Film Roman California of the Plan of Reorganization and the transactions
contemplated thereby (a) have been duly authorized by any necessary
corporate action, (b) will not require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may be
required under the securities or Blue Sky laws of the various states and
except as such have been or will be obtained prior to the Closing Date)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company
or Film Roman California or any of their subsidiaries or any agreement,
indenture or other instrument material to the Company and its
subsidiaries, taken as a whole, to which the Company or Film Roman
California or any of their subsidiaries is a party or by which the
Company or Film Roman California or any of their subsidiaries or their
respective property is bound, or violate or conflict with any laws,
administrative regulations or rulings or court decrees applicable to the
Company or Film Roman California, any of their subsidiaries or their
respective property.
7. Representations and Warranties of the Selling Stockholders.
----------------------------------------------------------
Each Selling Stockholder severally represents and warrants to each Underwriter
that:
(a) Such Selling Stockholder is the lawful owner of the Shares to
be sold by such Selling Stockholder pursuant to this Agreement and has,
and on the Closing Date (and Option Closing Date, if applicable) will
have, good and marketable title to such Shares, free of all restrictions
on transfer, liens, encumbrances, security interests and claims
whatsoever.
(b) Upon delivery of and payment for such Shares pursuant to this
Agreement, good and marketable title to such Shares will pass to the
Underwriters, free of all restrictions on transfer, liens, encumbrances,
security interests and claims whatsoever.
(c) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Shares pursuant to the distribution contemplated by this Agreement,
and other than as permitted by the Act, such Selling Stockholder has not
distributed and will not distribute any
<PAGE>
13
prospectus or other offering material in connection with the offering and
sale of the Shares.
(d) The execution, delivery and performance of this Agreement by
such Selling Stockholder, compliance by such Selling Stockholder with all
the provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval, authorization
or other order of any court, regulatory body, administrative agency or
other governmental body (except as such may be required under the Act,
state securities laws or Blue Sky laws or except as such have been or
will be obtained prior to the Closing) and will not conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, organizational documents of such Selling Stockholder, if not an
individual, or any agreement, indenture or other instrument material to
such Selling Stockholder to which such Selling Stockholder is a party or
by which such Selling Stockholder or property of such Selling Stockholder
is bound, or violate or conflict with any laws, administrative regulation
or ruling or court decree applicable to such Selling Stockholder or
property of such Selling Stockholder except where such conflicts or
violations would not have a material adverse effect on such Selling
Stockholder or adversely affect the consummation of the Offering.
(e) (i) Such parts of the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relate to such
Selling Stockholder and (ii) such other statements or omissions in the
Registration Statement that are based upon information relating to such
Selling Stockholder that was furnished to the Company by such Selling
Stockholder expressly for use therein do not, and will not on the Closing
Date (and any Option Closing Date, if applicable), contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of circumstances under which they were made, not misleading.
(f) At any time during the period described in paragraph 5(e)
hereof, if there is any change in the information referred to in
paragraph 7(e) above, such Selling Stockholder will immediately notify
you of such change.
8. Indemnification. (a) The Company and Roman, jointly and
---------------
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
<PAGE>
14
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any
Underwriters furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use therein. Notwithstanding the
foregoing, the aggregate liability of Roman pursuant to the provisions of this
paragraph shall be limited to an amount equal to the aggregate purchase price
received by Roman from the sale of his Shares hereunder; provided, however,
--------- --------
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages and liabilities and
judgments purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended and supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or judgment.
(b) In case any action shall be brought against any Underwriter or
any person controlling such Underwriter, based upon any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment or
supplement thereto and with respect to which indemnity may be sought against
the Company and Roman, such Underwriter shall promptly notify the Company and
Roman in writing and the Company and Roman shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses. Any Underwriter or
any such controlling person shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Underwriter or such
controlling person unless (i) the employment of such counsel has been
specifically authorized in writing by the Company, (ii) the Company and Roman
shall have failed to assume the defense and employ counsel or (iii) the named
parties to any such action (including any impleaded parties) include both such
Underwriter or such controlling person and the Company or Roman, as the case
may be, and such Underwriter or such controlling person shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Company
or Roman, as the case may be (in which case the Company and Roman shall not
have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
Company and Roman shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the fees and expenses of more than one separate firm of attorneys (in addition
to any local counsel) for all such Underwriters and controlling persons, which
firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation and that all such fees and expenses shall be reimbursed as they
are incurred). Neither the Company nor Roman shall be liable for any
settlement of any such action effected without the
<PAGE>
15
written consent of such party, but if settled with the written consent of such
party, such party agrees to indemnify and hold harmless any Underwriter and
any such controlling person from and against any loss or liability by reason
of such settlement. Notwithstanding the immediately preceding sentence, if in
any case where the fees and expenses of counsel are at the expense of the
indemnifying party and an indemnified party shall have requested the
indemnifying party to reimburse the indemnified party for such fees and
expenses of counsel as incurred, such indemnifying party agrees that it shall
be liable for any settlement of any action effected without its written
consent if (i) such settlement is entered into more than ten business days
after the receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall have failed to reimburse the indemnified party
in accordance with such request for reimbursement prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(c) Each of the Oppenheimer Holders agrees, jointly and severally,
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company and Roman to each Underwriter, but only with reference to
information relating to either of the Oppenheimer Holders furnished in writing
by or on behalf of the Oppenheimer Holders expressly for use in the
Registration Statement, the Prospectus or any preliminary prospectus. In case
any action shall be brought against any Underwriter or any person controlling
such Underwriter based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought against
the Oppenheimer Holders, the Oppenheimer Holders shall have the same rights
and duties given to the Company and Roman (except that if any Underwriter
shall have assumed the defense thereof the Oppenheimer Holders shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof but the fees and expenses of such counsel shall be at the
expense of the Oppenheimer Holders), and such Underwriter and any person
controlling such Underwriter shall have the same rights and duties as those
given to the Underwriters by Section 8(b) hereof.
(d) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
Selling Stockholder and each person, if any, controlling such Selling
Stockholder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Sellers to
each Underwriter but only with reference to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter
<PAGE>
16
through you expressly for use in the Registration Statement, the Prospectus or
any preliminary prospectus. In case any action shall be brought against the
Company, any of its directors, any such officer or any person controlling the
Company or any Selling Stockholder or any person controlling such Selling
Stockholder based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought against
any Underwriter, the Underwriter shall have the rights and duties given to the
Sellers (except that if any Seller shall have assumed the defense thereof such
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof but the fees and expenses of
such counsel shall be at the expense of such Underwriter), and the Company,
its directors, any such officers and any person controlling the Company and
the Selling Stockholders and any person controlling such Selling Stockholders
shall have the rights and duties given to the Underwriters, by Section 8(b)
hereof.
(e) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Sellers on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Sellers and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative benefits received by
the Sellers and the Underwriters shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Sellers, and the total underwriting discounts and commissions
received by the Underwriters, bear to the total price to the public of the
Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Sellers and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company, the Selling Stockholders or
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(e) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other
<PAGE>
17
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 8(e) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
9. Conditions of Underwriters' Obligations. The several
---------------------------------------
obligations of the Underwriters to purchase the Firm Shares under this
Agreement are subject to the satisfaction of each of the following
conditions:
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on
the Closing Date with the same force and effect as if made on and as of
the Closing Date.
(b) The Registration Statement shall have become effective not
later than 5:00 P.M.(and in the case of a Registration Statement filed
under Rule 462(b) of the Act, not later than 9:00 a.m. the next business
day), New York City time, on the date of this Agreement or at such later
date and time as you may approve in writing, and at the Closing Date no
stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have
been commenced or shall be pending before or, to the best knowledge of
the Company, contemplated by the Commission.
(c)(i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change in the condition, financial or otherwise, or in
the earnings or business prospects, whether or not arising in the
ordinary course of business, of the Company, (ii) since the date of the
latest balance sheet included in the Registration Statement and the
Prospectus there shall not have been any decrease in the capital stock or
any increase in the long-term debt of the Company from that set forth in
the Registration Statement and Prospectus, except as contemplated by the
Reorganization, (iii) the Company and its subsidiaries shall have no
liability or obligation, direct or contingent, which is material to the
Company and its subsidiaries, taken as a whole, other than those
reflected in the Registration Statement and the Prospectus or arise in
the ordinary course of business since the date of the latest financial
statements included in the Registration Statement and Prospectus and (iv)
on the Closing
<PAGE>
18
Date you shall have received a certificate dated the Closing Date, signed
by the Chief Executive Officer and the Executive Vice President of the
Company, in their capacities as the Chief Executive Officer and the
Executive Vice President of the Company, confirming the matters set forth
in paragraphs (a), (b), and (c) of this Section 9.
(d) All representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct in all material
respects on the Closing Date with the same force and effect as if made on
and as of the Closing Date and you shall have received a certificate to
such effect, dated the Closing Date, from the Selling Stockholders.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Latham & Watkins, counsel for the Company and Roman, to the
effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated and is validly existing in good standing under the laws
of its state of incorporation, with corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Registration Statement and Prospectus;
(ii) all of the outstanding shares of capital stock of
each of the Company's subsidiaries has been duly and validly
authorized and issued and are fully paid and non-assessable, and are
owned by the Company, free and clear of any security interest,
claim, lien or encumbrance, except as set forth in the Registration
Statement;
(iii) all of the outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
non-assessable and are not subject to any preemptive rights;
(iv) the Shares to be issued and sold by the Company
pursuant to this Agreement have been duly authorized and, when
issued to and paid for by the Underwriters in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-
assessable and free preemptive rights;
(v) the Shares to be sold by the Selling Stockholders
pursuant to the Underwriting Agreement have been duly authorized and
validly issued and are fully paid and non-assessable;
(vi) upon delivery of the Shares to be sold by the Selling
Stockholders and upon payment therefor pursuant to the terms of the
Underwriting Agreement, the Underwriters will hold such Shares free
and clear of all adverse claims within the meaning of Section 8202
of
<PAGE>
19
the California Commercial Code, assuming the Underwriters have
purchased such Shares pursuant to the Underwriting Agreement in good
faith and without notice of any such adverse claim within the
meaning of Section 8202 of the California Commercial Code;
(vii) this Agreement has been duly authorized by the
Company and duly executed and delivered by the Company and Roman.
The issuance and sale of the Shares to be sold by the Company and
the sale of the Shares to be sold by Roman pursuant to this
Agreement will not result in the violation by the Company of its
Certificate of Incorporation or Bylaws or the violation by the
Company or Roman of any federal, California or Delaware statute or
rule or regulation known to such counsel to be, applicable to the
Company or Roman (other than federal, California or Delaware
securities laws as to which no opinion is rendered in this
paragraph), and no consent, approval, authorization or order of, or
filing with, any federal, California or Delaware court or
governmental agency or body is required for the consummation of the
issuance and sale of the Shares to be sold by the Company or the
sale of the Shares to be sold by Roman pursuant to this Agreement,
except such as have been obtained under the Act and such as may be
required under California securities laws in connection with the
purchase and distribution of such Shares by the Underwriters;
(viii) the Plan of Reorganization has been duly
authorized, executed and delivered by the Companies. The
performance, on or prior to the Closing Date, by the Company and
Film Roman California of their respective obligations pursuant to
such agreement will not result in the violation by the Company or
Film Roman California of their respective charter or Bylaws or any
federal, Delaware or California statute or rule or regulation known
such counsel to be applicable to the Company or Film Roman
California (other than federal, Delaware or California securities
laws as to which no opinion is given in this paragraph). No
consent, approval, authorization or order of, or filing with, any
federal, Delaware or California court or governmental agency or body
is required for the consummation of the reorganization set forth in
such agreement (except such as are required under federal, Delaware
or California securities laws as to which no opinion is given in
this paragraph);
(ix) the Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the
Registration Statement has been issued under the Act and no
proceedings therefor, to the best of counsel's knowledge, have been
initiated by the Commission;
<PAGE>
20
(x) the Registration Statement and the Prospectus comply
as to form in all material respects with the requirements for
registration statements on Form S-1 under the Act and the rules and
regulations of the Commission thereunder; it being understood,
however, that such counsel need express no opinion with respect to
the financial statements, schedules and other financial and
statistical data included in the Registration Statement or the
Prospectus. In passing upon the compliance as to the form of the
Registration Statement and the Prospectus, such counsel may assume
that the statements made therein are correct and complete;
(xi) the statements set forth in the Prospectus under the
heading "Description of Capital Stock," and Items 14 and 15 of the
Registration Statement insofar as such statements constitute a
summary of the terms of the Company's capital stock, legal matters
or documents referred to therein, are accurate in all material
respects;
(xii) to the best of such counsel's knowledge, there
are no legal or governmental proceedings required to be described in
the Prospectus that are not described as required, or contracts or
documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to
the Registration Statement that are not described and filed as
required;
(xiii) the Company is not regulated as an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended; and
(xiv) to the best of such counsel's knowledge, except
as described in the Prospectus, no holder of any security of the
Company has any right to require registration of shares of Common
Stock or other security of the Company.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of the Underwriters, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, although
such counsel need not pass upon, and need not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus and need not make any independent
check or verification thereof, during the course of such participation
(relying as to materiality to a large extent upon the statements of officers
and other representatives of the Company), no facts came to such counsel's
attention that caused such counsel to believe that the Registration Statement,
at the time it became effective, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements
<PAGE>
21
therein not misleading, or that the Prospectus, as of its date and the Closing
Date, contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; it being understood
that such counsel need not express any belief with respect to the financial
statements, schedules and other financial and statistical data included in the
Registration Statement or the Prospectus.
(f) You shall have received an opinion (satisfactory to you and
counsel to the Underwriters), dated the Closing Date, of Jon F. Vein,
Esq., Senior Vice President of the Company, to the effect that:
(i) the Company and each of its subsidiaries is duly
qualified and in good standing as a foreign corporation authorized
to do business in California;
(ii) the issuance and sale of the Shares to be sold by the
Company and the sale of the Shares to be sold by Roman pursuant to
this Agreement will not, after due inquiry, (x) result in a breach
of any of the terms or provisions of, or a default under, any
agreement, indenture or other instrument material to the Company and
its subsidiaries, taken as a whole, to which the Company, any of its
subsidiaries or Roman is a party or by which the Company, any of its
subsidiaries or Roman or their respective property are bound, or (y)
violate or conflict with any laws, administrative regulations,
rulings or court decrees known to be applicable to the Company, any
of its subsidiaries or Roman or their respective property, except
for such violations or conflicts that would not be material to the
Company and its subsidiaries, taken as a whole; and
(iii) the performance, on or prior to the Closing Date,
by the Company and Film Roman California of their respective
obligations pursuant to the Agreement and Plan of Reorganization
will not, to the best of such counsel's knowledge, (x) result in a
breach of any of the terms or provisions of, or a default under, any
agreement, indenture or other instrument material to the Company and
its subsidiaries, taken as a whole, to which the Company, any of its
subsidiaries or Roman is party or by which the Company, any of its
subsidiaries or Roman or their respective property are bound, or (y)
violate or conflict with any laws, administrative regulations,
rulings or court decrees known to be applicable to the Company, any
of its subsidiaries or Roman or their respective property, except
for such violations or conflicts that would not be material to the
Company and its subsidiaries, taken as a whole.
In addition, such counsel shall state that he has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of the
<PAGE>
22
Underwriters, at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although such counsel need
not pass upon, and need not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus and need not make any independent check or
verification thereof, during the course of such participation (relying as to
materiality to a large extent upon the statements of officers and other
representatives of the Company), no facts came to such counsel's attention
that caused such counsel to believe that the Registration Statement, at the
time it became effective, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as of its
date and the Closing Date, contained any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein,
in light of circumstances under which they were made, not misleading; it being
understood that such counsel need not express any belief with respect to the
financial statements, schedules and other financial and statistical data
included in the Registration Statement or the Prospectus.
The opinions of Latham & Watkins described in paragraph (e) and Jon
F. Vein, Esq. described in paragraph (f) above shall be rendered to you at the
request of the Company or the Selling Stockholders, as the case may be, and
shall so state therein.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of counsel for the Oppenheimer Holders (which may be from inside
counsel) to the effect that:
(i) this Agreement has been duly authorized executed and
delivered by the Oppenheimer Holders;
(ii) the execution, delivery and performance of this
Agreement by the Oppenheimer Holders, compliance by the Oppenheimer
Holders with all the provisions hereof and the consummation of the
transactions contemplated hereby will not require any consent,
approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body (except as
such may be required under the Act or other securities or Blue Sky
laws) and will not conflict with or constitute a breach of any of
the terms or provisions of, or a default under the organizational
documents of the Oppenheimer Holders or any agreement, indenture or
other instrument to which either of the Oppenheimer Holders is a
party or by which either of the Oppenheimer Holders or their
respective properties are bound, or violate or conflict with any
laws, administrative regulations or rulings or court decrees
applicable to the Oppenheimer Holders or their respective
properties;
<PAGE>
23
(iii) each of the Oppenheimer Holders has full legal
right, power and authority, and any approval required by law (other
than any approval imposed by the applicable state securities and
Blue Sky laws) to sell, assign, transfer and deliver the Shares to
be sold by such party in the manner provided in this Agreement; and
(iv) each of the Oppenheimer Holders has good and clear
title to the certificates for the Shares to be sold by such party
and upon delivery thereof, pursuant hereto and payment therefor,
good and clear title will pass to the Underwriters, severally, free
of all restrictions on transfer, liens, encumbrances, security
interests and claims whatsoever.
(h) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Simpson Thacher & Bartlett, counsel for the
Underwriters, as to the matters referred to in clauses (v) (but not with
respect to preemptive or similar rights), (vi) and (ix) (but only with
respect to the statements under the caption "Description of Capital
Stock") and a written statement to the effect of the matters referred to
in clause (xx) of the foregoing paragraph (e). In giving such opinion
with respect to the matters covered by the last sentence of the foregoing
paragraph (e) such counsel may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without
independent check or verification except as specified.
(i) You shall have received a letter on and as of the Closing Date,
in form and substance satisfactory to you, from Ernst & Young, LLP,
independent public accountants, with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus and substantially in the form and substance of the
letter delivered to you by Ernst & Young, LLP on the date of this
Agreement.
(j) You shall have received a letter on and as of the Closing Date,
in form and substance satisfactory to you, from Tanner, Mainstain &
Hoffer, independent public accountants, with respect to the financial
statements and certain financial information contained in the
Registration Statement and the Prospectus and substantially in the form
and substance of the letter delivered to you by Tanner, Mainstain &
Hoffer on the date of this Agreement.
(k) The Company and the Selling Stockholders shall not have failed
at or prior to the Closing Date to perform or comply in all material
respects with any of the agreements herein contained and required to be
performed or complied with by the Company at or prior to the Closing
Date.
<PAGE>
24
(l) The Plan of Reorganization shall have been executed and
delivered by each of the parties thereto and all of the transactions
contemplated thereby shall have been consummated.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
10. Effective Date of Agreement and Termination. (a) This
-------------------------------------------
Agreement shall become effective upon the later of (i) execution of this
Agreement and (ii) when notification of the effectiveness of the Registration
Statement has been released by the Commission.
(b) This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Sellers if any of the following
has occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse change
or development involving a prospective material adverse change in the
condition, financial or otherwise, of the Company and subsidiaries, taken as a
whole, or the earnings, affairs or business prospects of the Company and its
subsidiaries, taken as a whole, whether or not arising in the ordinary course
of business, which would, in your judgment, make it impracticable to market
the Shares on the terms and in the manner contemplated in the Prospectus, (ii)
any outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial
markets of the United States or elsewhere that, in your judgment, is material
and adverse and would, in your judgment, make it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (iii)
the suspension or material limitation of trading in securities on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ National Market
System or limitation on prices for securities on any such exchange or
National Market System, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business or
operations of the Company or any Subsidiary, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking
of any action by any federal, state or local government or agency in respect
of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the financial markets in the United States.
(c) If on the Closing Date or on an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it or
they have agreed to purchase hereunder on such date and the aggregate number
of Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or
<PAGE>
25
Underwriters, as the case may be, agreed but failed or refused to purchase is
not more than one-tenth of the total number of Shares to be purchased on such
date by all Underwriters, each non-defaulting Underwriter shall be obligated
severally, in the proportion which the number of Firm Shares set forth
opposite its name in Schedule I bears to the total number of Firm Shares which
all the non-defaulting Underwriters, as the case may be, have agreed to
purchase, or in such other proportion as you may specify, to purchase the Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase on such date; provided that in no event shall the number of Firm
--------
Shares or Additional Shares, as the case may be, which any Underwriter has
agreed to purchase pursuant to Section 2 hereof be increased pursuant to this
Section 10 by an amount in excess of one-ninth of such number of Firm Shares
or Additional Shares, as the case may be, without the written consent of such
Underwriter. If on the Closing Date or on an Option Closing Date, as the case
may be, any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares, or Additional Shares, as the case may be, and the aggregate number of
Firm Shares or Additional Shares, as the case may be, with respect to which
such default occurs is more than one-tenth of the aggregate number of Shares
to be purchased on such date by all Underwriters and arrangements satisfactory
to you and the applicable Sellers for purchase of such Shares are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter and the applicable
Sellers. In any such case which does not result in termination of this
Agreement, either you or the Sellers shall have the right to postpone the
Closing Date or the applicable Option Closing Date, as the case may be, but in
no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and the Prospectus or any other documents
or arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Underwriter from liability in respect of any
default of any such Underwriter under this Agreement.
11. Agreements of the Selling Stockholders. Each Selling
--------------------------------------
Stockholder severally agrees with you and the Company: (a) to pay or cause to
be paid all transfer taxes with respect to the Shares to be sold by such
Selling Stockholder; and (b) to take all reasonable actions in cooperation
with the Company and the Underwriters to cause the Registration Statement to
become effective at the earliest possible time, to do and perform all things
to be done and performed under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares pursuant to
this Agreement.
12. Miscellaneous. Notices given pursuant to any provision of this
-------------
Agreement shall be addressed as follows: (a) if to the Company, to Film
Roman, Inc., 12020 Chandler Boulevard, Suite 200, North Hollywood, California
91607, Attention: ___________; (b) if to the Selling Stockholders, to the
address shown in Schedule II hereof or (c) to you, c/o Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such other address as the
person to be notified may have requested in writing.
<PAGE>
26
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Selling Stockholders,
the Company, its officers and directors and of the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter or by or on behalf of the Sellers, the
officers or directors of the Company or any controlling person thereof, (ii)
acceptance of the Shares and payment for them hereunder and (iii) termination
of this Agreement.
If this Agreement shall be terminated by the Underwriters (i)
because of any failure or refusal on the part of the Sellers to comply with
the terms or to fulfill any of the conditions of this Agreement or (ii)
pursuant to clause (i) of paragraph 10(b) hereof, Film Roman California agrees
to reimburse the several Underwriters for all out-of-pocket expenses
(including the fees and disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Sellers, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
<PAGE>
27
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
FILM ROMAN, INC., a Delaware corporation
By____________________________
Title:
FILM ROMAN, INC., a California
corporation
By____________________________
Title:
PHIL ROMAN
______________________________
I consent to the foregoing:
-------------------------------
Anita Roman
<PAGE>
28
OPPENHEIMER & CO., INC.
By____________________________
Title:
OPCO SENIOR EXECUTIVE
INVESTMENT PARTNERSHIP, L.P.
By OPCO Partners, Inc., its
general partner
By_________________________
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By__________________________
<PAGE>
SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Montgomery Securities
______________________
Total
<PAGE>
SCHEDULE II
-----------
Number of Shares
Name and Address to be Sold
---------------- --------------------
Phil Roman 160,364
c/o Film Roman, Inc.
12020 Chandler Boulevard
Suite 200
North Hollywood, California 91607
Oppenheimer & Co., Inc. 5,886
One World Financial Center
200 Liberty Street
New York, New York 10281
OPCO Senior Executive Investment 18,750
Partnership, L.P.
c/o Oppenheimer & Co., Inc.
One World Financial Center
200 Liberty Street
New York, New York 10281
<PAGE>
ANNEX I
-------
Required Stockholder Lock-up Agreements
---------------------------------------
BCI Growth III, L.P.
Delaware State Employees' Retirement Fund
Declaration of Trust for Defined Benefit Plans of ICI
American Holding Inc.
Declaration of Trust for Defined Benefit Plans of
Zeneca Holding Inc.
<PAGE>
EXHIBIT 4.1
------ LOGO ------
NUMBER FILM ROMAN SHARES
SD __________ __________
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON COMMON
FILM ROMAN, INC.
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
PER SHARE CUSIP 317234 10 2
THIS CERTIFIES THAT
as the record holder of
--------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
FILM ROMAN, INC., transferable on the share register of the Corporation by
the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar. Reference
is made to the statement on the reverse hereof with respect to the classes of
shares.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
SEAL
/s/ /s/
- ----------------------------- -----------------------------
Secretary Chairman of the Board
<PAGE>
FILM ROMAN, INC.
Film Roman, Inc., is authorized to issue two classes of shares, Common and
Preferred, and the Preferred may be issued in one or more series. A statement of
the powers, designations, preferences and relative, participating, optional or
other special rights to each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
granted to or imposed upon the respective classes or series of shares and upon
the holders thereof as established by the certificate of incorporation or by any
certificate of designation, and the number of shares constituting each series
and the designations thereof, may be obtained upon request and without charge
from the principal office of the corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT ACT.........Custodian..................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants in Acts...........................
common (State)
UNIF TRF MIN ACT........Custodian (until age....)
(Cust)
......under Uniform Transfers
(Minor)
to Minors Act.......................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________________ hereby sell, assign and transfer
unto
PLEASE IDENTIFY SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------
x-------------------------------------
x-------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-----------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
LATHAM & WATKINS
Attorneys At Law
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Telephone (213) 485-1234
Fax (213) 891-8763
July 12, 1996
Film Roman, Inc.
12020 Chandler Boulevard, Suite 200
North Hollywood, California 91607
Re: Registration Statement on Form S-1 (File No. 333-03987)
3,785,000 Shares of Common Stock
-------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of 3,785,000 shares of common
stock, par value $.01 per share (the "Shares") of Film Roman, Inc., a Delaware
corporation (the "Company"), under the Securities Act of 1933, as amended,
pursuant to a Registration Statement on Form S-1 (File No. 333-03987) as filed
with the Securities and Exchange Commission (the "Commission") on May 17, 1996,
as amended by Amendment No. 1 filed with the Commission on July 12, 1996
(collectively, the "Registration Statement"), you have requested our opinion
with respect to the matters set forth below.
<PAGE>
LATHAM & WATKINS
Film Roman, Inc.
July 12, 1996
Page 2
In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the authorization, issuance and sale of
the Shares, and for the purposes of this opinion, have assumed such proceedings
will be timely completed in the manner presently proposed. In addition, we have
made such legal and factual examinations and inquiries, including an examination
of originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the General Corporation Law of the State of Delaware and we express no
opinion with respect to the applicability thereto, or the effect thereon, of any
other laws or as to any matters of municipal law or the laws of any local
agencies within the state.
Subject to the foregoing, it is our opinion that as of the date hereof
the Shares have been duly authorized, and upon issuance, delivery and payment
therefor in the manner contemplated by the Registration Statement, will be
validly issued, fully paid and nonassessable.
We consent to you filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters."
Very truly yours,
/s/ Latham & Watkins
---------------------
<PAGE>
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS AGREEMENT is made as of the 7th day of August, 1995, by and between
FILM ROMAN, INC., a California corporation, 12020 Chandler Street, North
Hollywood, California 91607 ("Company") and PHILIP ROMAN, 3123 La Suvida, Los
Angeles, California 90068 ("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment:
----------
1.1. Company shall employ Executive and Executive accepts such
employment with the Company upon the terms and conditions set forth in this
agreement.
1.2. During the Term (defined below) Executive shall serve as President
and Chief Executive Officer of Company and any subsidiaries, with services to be
of the same type and commensurate with those currently being rendered by
Executive; Executive shall be a member of Company's Board of Directors ("Board")
and Executive shall also serve as Chairman of the Board.
1.3. Executive shall perform his duties and responsibility to the best
of his abilities in a diligent, trustworthy, business-like and efficient manner.
1.4. Reference is made to Company's "Employee Handbook" as the same may
be currently in effect or hereafter modified (modifications, if any, which are
inconsistent with specific provisions of this agreement shall not be deemed
incorporated herein). Executive acknowledges that he has reviewed and is aware
of the contents of such handbook. Said Employee Handbook shall be deemed a part
of this agreement.
1.5. Executive shall cooperate with Company to enable Company to
obtain, at its expense, life insurance on the life of Executive for the benefit
of Company in such amounts as Company may from time to time determine.
1
<PAGE>
2. Term:
----
2.1. The term (herein "Term") of this agreement shall commence as of
the date hereof and shall continue, unless sooner terminated as elsewhere
provided, for five (5) consecutive years (the "initial term").
2.2. The term "year" as used above means each period of fifty-two (52)
consecutive weeks; provided however that if the term were to expire in the
middle of any week, the term shall be deemed extended so as to expire on the
Friday of such week.
3. Termination:
-----------
3.1. Company's Right to Terminate: Company shall have the right to
----------------------------
terminate this agreement prior to the expiration date specified herein only for
the following:
(i) Upon the death of Executive;
(ii) For cause ("cause" as used herein means (a) conviction of a
felony or a crime involving moral turpitude or the commission of any other
act involving willful malfeasance with respect to Company, (b) conduct
tending to bring Company into substantial public disgrace or disrepute, (c)
gross negligence or willful misconduct with respect to Company or (d) any
other material breach of this agreement but Company shall not terminate
under clauses (b)-(d) hereof unless it shall first give Executive written
notice of the alleged defect and the same is not cured within fourteen (14)
days of notice thereof.
(iii) As provided in paragraphs 6.1 and 7.2 below.
3.2. Effect of Termination:
---------------------
(a) With Cause: If Company terminates this agreement for cause
----------
Company shall have no further obligation to pay Executive any salary payments
(other than accrued but unpaid salary or expense reimbursement, if any) and no
further obligation to pay any bonuses other than those theretofore earned, but
unpaid.
(b) Death, Disability: In the event of termination of this
-----------------
agreement for death or disability Company shall have the obligation to pay
Executive any salary, fringe benefits, expense reimbursement and vacation pay
and bonus, if any, for the remainder of the year when such event occurs.
2
<PAGE>
4. Salary and Bonuses: Provide Executive fully and faithfully renders
------------------
all services required hereunder and is not otherwise in breach hereof, Company
will pay salary and bonuses as follows:
4.1 Salary:
------
(a) Years 1 - 3 - $325,000.00 per year;
(b) Year 4 - $325,000.00; however if Company
achieves 90% of Earnings Before Taxes
(EBT) projections described below for
the first three years in the aggregate
(averaged over the first three years)
salary for the fourth year shall be
increased to $350,000.00);
(c) Year 5 - $325,000.00; however if Company
achieves 90% of EBT projections for the
first 4 years in the aggregate
(averaged over said years) then salary
for the fifth year shall be increased
to $375,000.00).
4.2. Incentive Bonuses: At the end of each calendar year during the
-----------------
Term, if Executive has been continuously employed by Company throughout the Term
through the last day of such year, Executive shall be eligible to receive an
annual bonus ("Bonus"); except that in the event of termination during such year
because of Executive's death or disability the provisions of paragraph 3 shall
apply. The Bonus for each calendar year will be based on the relationship of
EBT to Projected EBT for such calendar year. The maximum Bonus for each
calendar year shall be 100% of Executive's base salary for such calendar year.
The Bonus for any calendar year shall be paid by Company to the Executive
promptly after determination thereof but in no event more than one hundred and
twenty (120) days after the end of such calendar year; except that if the
Company is not in a positive "Free Cash Flow" (as defined in Articles) position
at the time when the Bonus is earned payment of the Bonus shall be deferred
until such time as cash is available for such payment (as determined by the
Board).
The Projected EBT for 1995-99 is as follows:
1995 - $ 1,837,000.00
1996 - $ 2,963,000.00
1997 - $11,606,000.00
1998 - $23,410,000.00
3
<PAGE>
1999 - $33,431,000.00
The table set forth below indicates the percentage of the Bonus which
will be payable to the Executive for varying levels of achievement of projected
EBT during each calendar year.
Percentage of
Projected EBT Obtained Percentage of Bonus Earned
---------------------- --------------------------
75-79% (1997 only) 25%
70-79% (1998 only) 25%
65-79% (1999 only) 25%
80-84% 30%
85-89% 35%
90-94% 40%
95-99% 45%
100% 50%
over 100% 50% + 1% for each percentage point
by which EBT obtained exceeds 100%
of Projected EBT, up to a maximum
of 100% of salary.
4.3. Additional bonuses, if any, (other than the guaranteed incentive
bonuses described above) may be paid at the discretion of the Compensation
Committee.
4.4. Company's obligation for payment of compensation hereunder shall
be subject to all present and future laws, rules, regulations and executive
orders affecting such obligation. No withholding, deduction, reduction or
limitation of payments hereunder by reason of any such law, rule, regulation or
order shall be deemed a breach of this agreement or relieve Executive from
Executive's obligations hereunder or give Executive any right to terminate this
agreement. If Company is unable to make full payments hereunder because of any
wage control law or regulation, Company shall pay Executive any portion of such
payment (which is not paid when due) at such time
4
<PAGE>
when such law or regulation no longer prohibits such payment (unless such law or
regulation prohibits such retroactive payments).
5. Expenses; Benefits:
------------------
5.1. Executive is authorized to incur reasonable expenses in
connection with Company's activity in such amounts as he may be from time to
time deem reasonable and necessary (in consultation with the Board, if requested
by the Board). Company agrees to pay or to reimburse Executive for such
expenses which are reasonably incurred by Executive on behalf of or for the
benefit of Company upon the presentation by Executive from time to time of an
itemized account of such expenditures setting forth the date, the purposes for
which incurred, and the amounts thereof, and such other information as Company
may reasonably require, together with such receipt showing payments as Executive
has been able to obtain.
5.2. Additional Benefits: During the Term, Executive shall also be
-------------------
entitled to and shall be accorded all rights and benefits for vacation and under
any disability insurance, life insurance, health and major medical insurance
policy or policies, and any other plans or benefits which Company may provide
for senior executive officers of Company or for employees generally during the
Term.
6. Incapacity:
----------
6.1. If Executive is physically or mentally incapacitated from
rendering services hereunder, and if Executive's incapacity or disability shall
continue for a period of four (4) consecutive months or more, Company may, at
its option, terminate and cancel Executive's employment hereunder by notice
mailed or delivered to Executive at any time prior to Executive's return to work
hereunder. Executive shall be deemed to be physically or mentally incapacitated
if Executive is unable for any reason whatsoever to devote full time to the
business of the Company, as determined by the Board.
6.2. If Company determines that Executive is permanently disabled and
if Executive does not agree, determination shall be made by a panel of three (3)
doctors, the first to be chosen by Company, the second to be chosen by Executive
and the third to be chosen by the first two. Any doctor selected by a party
will not be affiliated, associated or related to the party selecting that doctor
in any manner whatsoever. The opinion of a majority of the panel of doctors
shall be binding on the parties hereto. Each party shall bear its own cost for
their own doctor, and the parties shall split the cost of the third doctor
(unless it is determined that Executive is not permanently incapacitated, in
which event all doctor costs shall be borne by Company).
5
<PAGE>
7. Discontinuance of Business:
--------------------------
If Company shall discontinue operating its business, whether because
of an adjudication of bankruptcy or insolvency, transfer of assets to a
receiver, or for any other reason whatsoever, then this agreement shall
terminate effective as of such discontinuance of business, in which event
paragraphs 9 and 10 shall have no further force or effect.
8. Company's Rights:
----------------
8.1. All results and proceeds of Executive's services hereunder shall
be the sole and absolute property of Company for any and all purposes
whatsoever, in perpetuity.
8.2. Company shall have the right to use, disseminate, reproduce, print
and publish Executive's name, likeness, voice and biographical material
concerning Executive as news or informative matter in connection with Company's
business.
8.3. Executive agrees that all inventions, innovations, improvements,
developments, methods, designs, analyses, drawings, reports, and all similar or
related information which relates to Company's or any of its subsidiaries'
actual or anticipated business, research and development or existing or future
products or services and which are conceived, developed or made by Executive
while employed by Company or its predecessor belong to Company or such
subsidiary. Executive will promptly disclose to the Board and perform all
actions reasonably requested by the Board (whether during or after the Term) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
9. Confidential Information:
------------------------
Executive acknowledges that the information, observations, work
product, trade secrets and data obtained by him while employed by Company and
its subsidiaries concerning the business or affairs of the Company or any
subsidiary thereof ("Confidential Information") are the property of Company or
such subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters (i) become generally known to and available for use
by the public other than as a result of Executive's acts or omissions to act or
(ii) must be disclosed under a subpoena or other governmental order, or (iii)
was possessed by Executive prior to his employment by Company. Executive shall
deliver to Company at the termination of the employment period, or at any other
time Company may request, all memoranda, notes, plans, records, reports,
computer tapes and software and other documents and data (and copies thereof)
relating to the Confidential Information, work product or the business
6
<PAGE>
of Company or any subsidiary which he may then possess or have under his
control.
10. Non-Compete, Non-Solicitation:
-----------------------------
10.1. Executive acknowledges that in the course of his employment
with Company he has and will become familiar with Confidential Information
concerning Company and its subsidiaries and that his services have been and will
be of special, unique and extraordinary value to Company and its subsidiaries.
Therefore during the Term Executive will not be an employee, consultant,
advisor, director, shareholder or partner of any other person, firm or
corporation; provided that Executive may, in any event, own up to five (5)
percent of the stock of a publicly-held corporation whose stock is traded on a
national securities exchange or in an over-the-counter market. The restrictions
hereof shall immediately terminate and be of no further force or effect if
Executive's employment is terminated by Company without cause.
10.2. During Executive's employment and for three (3) years after the
end of the Term Executive will not attempt to hire or to solicit (for his own
purposes or for any other company) any employee of or independent contractor
rendering services to Company. Further during Executive's employment and for
three (3) years after the end of the Term Executive will not (i) transfer or
attempt to transfer any projects in which Company is involved (whether in
negotiation, development or production) from Company to himself or to any other
company and/or (ii) encourage any company or business with whom Company is doing
business (e.g. a network or other exhibitor) from ceasing to do business with
Company with respect to any project which is then in negotiation, development or
production; provided however that, during such three (3)year period, the
submission of projects (other than projects in which Company is involved as
aforesaid) to potential contractees (such as a network) shall not be considered
a violation of this non-solicitation clause (notwithstanding that such project
might be considered competitive to projects of Company).
11. Notices: All notices required to be given hereunder shall be in
-------
writing and shall be delivered personally, electronically, or by express,
certified or registered mail to the respective addresses of the parties hereto
set forth elsewhere in this Agreement, or at such other addresses as may be
designated by written notice. Delivery of any notice shall be deemed
conclusively made (i) if personally delivered at the time of delivery, (ii) if
delivered by transmittal over electronic or telephonic transmitting devices
(such as telex or telecopy) to the addressee's telecopy or telex number, at the
time of transmittal, provided that the party to whom the notice is delivered has
a compatible device, (iii) if delivered by any private overnight express mail
service, twenty-four (24) hours after deposit with such service (this period
shall be seventy-two (72) hours if addressed to or from a party outside the
United States), (iv)
7
<PAGE>
if mailed, properly addressed and postage prepaid, three (3) business days from
date of mailing (seven (7) business days if mailed to or from a country other
than U.S.). A copy of any notice hereunder to Company shall also be given to
the Law Offices of Dixon Q. Dern, 1901 Avenue of the Stars, Suite 400, Los
Angeles, California 90067.
12. Arbitration:
-----------
Any controversy or claim arising out of, or relating to, this
agreement, the breach thereof, or the coverage of this arbitration provision
shall be settled by arbitration pursuant to the provisions of Section 1280, et
seq. of the California Code of Civil Procedure (or such substitute provisions
therefor then in effect); provided, that any arbitrator(s) selected shall have
experience in or knowledge of the business(es) in which Company is engaged. Any
such arbitration shall be conducted in Los Angeles, California. The arbitration
of such issues, including the determination of the amount of any damages
suffered by any party hereof by reason of the acts or omissions of another shall
be to the exclusion of any court of law except as set forth below. The decision
of the arbitrators or a majority of them shall be final and binding on all
parties and their respective heirs, executors, administrators, successors and
assigns. Any action to secure a judicial confirmation of the arbitration award
may be brought in any state or federal court of competent jurisdiction. If the
parties or the arbitrators appointed by them are unable to agree upon the
selection of a neutral arbitrator then either party may, at its election,
require that the arbitration shall be conducted under the auspices and rules of
the American Arbitration Association (AAA) and that the neutral arbitrator shall
be selected by the AAA. Arbitration hereunder shall not, in any event, (i)
prevent any party from seeking and obtaining equitable relief, including, but
not limited to, prohibitory or mandatory injunctions, specific performance or
extraordinary writs, in any court of law or equity having jurisdiction, nor (ii)
prevent any party from joining any other party as defendant in any action
brought by or against a third party, nor (iii) prevent any party from filing
legal action hereunder to effectuate any attachment or garnishment, provided
that such party stipulates in such action, at any other party's request, to
arbitration on the merits of said case, nor (iv) prevent a party from filing
legal action to compel arbitration under the arbitration provisions hereof.
13. General Provisions:
------------------
13.1. Waiver: A waiver by either party of any of the terms or
------
conditions of this agreement in any one instance shall not be construed to be a
waiver of such term or condition for the future, or any subsequent breach
thereof; all remedies, rights, undertakings, obligations and agreements
contained in this agreement shall be cumulative, and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
13.2. Construction: This agreement shall be governed by and
------------
construed in accordance with the laws of the State of California applicable to
contracts entered
8
<PAGE>
into and fully to be performed therein. In view of the fact that this agreement
was in whole or in part negotiated and entered into in California, the parties
consent to and agree to submit to the jurisdiction of the courts of the State of
California (and/or the federal courts within California), and each party agrees
that service of process may be effected by mail (certified or registered mail,
return receipt requested), to or by personal service upon such party (or any
officer of a corporate party) at such party's address as set forth in this
agreement or such other address as such party may specify in writing.
Wherever the context of this agreement requires it, each gender shall
be deemed to embrace and include the others, and the singular shall be deemed to
embrace and include the plural.
13.3. Severability of Provisions: If any provision hereof as applied
--------------------------
to either party or to any circumstance shall be adjudged by a court to be void
or unenforceable, the same shall in no way affect any other provisions hereof,
the application of such provision in any other circumstances or the validity or
enforceability hereof.
13.4. Entire Understanding: This agreement contains the entire
--------------------
understanding of the parties hereto relating to the subject matter herein
contained and supercedes any and all prior negotiations, understanding and
agreements between the parties (whether oral or in writing); this agreement
cannot be changed, rescinded or terminated except by a writing signed by the
Company.
13.5. Successors and Assigns: Except where expressly provided to the
----------------------
contrary, this agreement, and all provisions hereof, shall inure to the benefit
of and be binding upon the parties hereto, their successors in interest,
assigns, administrators, executors, heirs and devisees.
13.6. Paragraph Titles: The titles of the paragraphs of this
----------------
agreement are for convenience only and shall not in any way affect the
interpretation of any paragraphs of this agreement or of the agreement itself.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
FILM ROMAN, INC.
By /signed by Authorized Signatory/
---------------------------------------
/s/ Phil Roman
----------------------------------------
PHILIP ROMAN
9
<PAGE>
Exhibit 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS AGREEMENT is made as of the 7th day of August, 1995, by and between
FILM ROMAN, INC., a California corporation, 12020 Chandler Street, North
Hollywood, California 91607 ("Company") and WILLIAM SCHULTZ, 106 Bell Canyon
Road, Bell Canyon, California 91037 ("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment:
----------
1.1. Company shall employ Executive and Executive accepts such
employment with the Company upon the terms and conditions set forth in this
agreement.
1.2. During the Term (defined below) Executive shall serve as
Executive Vice President, with services to be of the same type and commensurate
with those currently being rendered by Executive; Executive shall have such
additional titles with respect to the Company's subsidiaries and divisions, if
any, as are designated by Company's Board of Directors (the "Board"). The Board
shall have the final determination as to the type and nature of services to be
rendered hereunder.
1.3. Executive shall report to the President and the Executive shall
devote his best efforts and his full business time (as required by the President
or the Board) and attention to the business and affairs of Company and its
subsidiaries if any. In connection with the foregoing, Executive shall be
expected to render services at such times (including full business hours and, if
required, evenings, weekends and holidays) and at such places as the Board may
from time to time designate; provided, however, that if Company were to
designate or to determine that Executive is to render services outside of the
Metropolitan Los Angeles Area, Executive shall not be required to render such
services for any continuous period of more than thirty (30) days without his
consent.
1.4. Executive shall perform his duties and responsibility to the
best of his abilities in a diligent, trustworthy, business-like and efficient
manner.
1.5. Reference is made to Company's "Employee Handbook" as the same
may be currently in effect or hereafter modified (modifications, if any, which
are inconsistent with specific provisions of this agreement shall not be deemed
incorporated
1
<PAGE>
herein). Executive acknowledges that he has reviewed and is aware of the
contents of such handbook. Said Employee Handbook shall be deemed a part of
this agreement.
1.6. Executive shall cooperate with Company to enable Company to
obtain, at its expense, life insurance on the life of Executive for the benefit
of Company in such amounts as Company may from time to time determine.
2. Term:
----
2.1. The term (herein "Term") of this agreement shall commence as of
the date hereof and shall continue, unless sooner terminated as elsewhere
provided, for three (3) consecutive years (the "initial term").
2.2. Company shall have the option at its election to extend the Term
for an additional one (1) year period (the "first extended term") commencing
immediately upon expiration of the initial term and continuing for one (1) year
thereafter.
2.3. If Company exercises its option as provided in paragraph 2.2.
above then Company shall have a further option to extend the term of this
agreement for one (1) additional year (the "second extended term") commencing
immediately upon expiration of the first extended term and continuing for one
(1) year thereafter.
2.4. The term "year" as used above means each period of fifty-two (52)
consecutive weeks; provided however that if the term were to expire in the
middle of any week, the term shall be deemed extended so as to expire on the
Friday of such week. If Company elects to exercise the option referred to in
either paragraph 2.2. or 2.3. above, or both, it shall give Executive at least
four (4) months prior written notice to such effect.
3. Termination:
-----------
3.1. Company's Right to Terminate: Company shall have the right to
----------------------------
terminate this agreement prior to the expiration date specified herein:
(i) Upon the death of Executive;
(ii) For cause ("cause" as used herein means (a) commission of
a felony or a crime involving moral turpitude or the commission of any
other act involving willful malfeasance with respect to Company, (b)
conduct tending to bring Company into substantial public disgrace or
disrepute, (c) gross negligence or willful misconduct with respect to
Company or (d) any other material breach of this agreement. Company shall
be entitled to terminate this agreement pursuant to clauses
2
<PAGE>
(c) and (d) herein only if Executive fails to cure such defect within
fourteen (14) days following his receipt of written notice of his failure
to satisfy his obligations under this agreement.
(iii) As provided in paragraphs 10.1 and 11.2 below;
(iv) Without cause.
3.2. Executive's Right to Terminate: If Phil Roman should cease to
------------------------------
be President of Company and if anyone other than Executive thereafter commences
serving as President, or if at any time Executive is required to report to
anyone other than Phil Roman as President, Executive, by giving written notice
to such effect within one hundred and twenty (120) days after such event, may
resign as of thirty (30) days after the date when such notice is given.
3.3. Effect of Termination:
---------------------
(a) With Cause: If Company terminates this agreement for cause
----------
Company shall have no further obligation to pay Executive any salary payments
(other than accrued but unpaid salary or expense reimbursement, if any) and no
further obligation to pay any bonuses other than those theretofore earned, but
unpaid. Except as otherwise provided in paragraph 6.1 hereof any unexercised
stock options shall be cancelled as of such termination. Company may repurchase
any of its stock then held by Executive at fair market value therefor, except
that in the case of stock acquired through the Executive Stock Options Plan
(defined below) such repurchase, if any, shall be at ninety (90%) percent of
then fair market value (the term "fair market value" as used in this agreement
shall have the same meaning here as in the "Employee Stock Option" Plan referred
to below).
(b) Death, Disability: In the event of termination of this
-----------------
agreement for death or disability Company shall have the obligation to pay any
accrued (but unpaid) salary, expense reimbursement and vacation pay and bonus,
if any, for the year when such event occurs (pro-rated to reflect the number of
days worked in such year prior to termination). Executive (or his heirs) shall
retain both his Executive Stock Option rights and Employee Stock Option Plan
rights which shall be treated as partially or fully vested upon such termination
as the Chief Executive Officer may determine in his discretion, subject to
Company's repurchase rights and other rights with respect to said Plans as
defined below.
(c) Without Cause: In the event Company terminates this
-------------
agreement without cause Company shall have the obligation to pay accrued bonus,
if any, for the year when such termination occurs (pro-rated to reflect the
number of days worked in such year prior to termination) vacation and unpaid
expense reimbursement and all remaining salary for the remainder of the then
current term; provided however
3
<PAGE>
that salary payments due hereunder shall be mitigated and reduced by any
payments which Executive may receive during such period for services rendered
whether as an employee, an independent contractor, or as a self-employed person.
If Executive were to render services through a corporation or company controlled
by him, the "net earnings" (i.e. cash receipts less cash expenses) of said
company attributable to his services would be deemed Executive's earnings for
purposes of this paragraph. Executive will retain all stock option rights
theretofore granted, all of which will be treated as fully vested on such
termination, subject to Company's repurchase rights and other provisions of the
Employee Stock Option plan applicable thereto, as defined below.
(d) Executive Termination: If Executive terminates under
---------------------
paragraph 3.2 above, Company shall have no further obligation to Executive
except for obligations required by law (e.g. COBRA) and for obligations to pay
any accrued (but unpaid) salary, pro-rated bonus (pro-rated to reflect number of
days worked in such year prior to termination) and/or accrued vacation pay,
fringe benefits and reimbursement of business expenses. Executive shall retain
all Stock Option rights to the extent then vested, subject to the repurchase (at
fair market value) and other provisions of the Employee Stock Option Plan
applicable thereto, as defined below.
4. Salary and Bonuses: Subject to paragraph 3.3(c), provided Executive
------------------
fully and faithfully renders all services required hereunder and is not
otherwise in breach hereof, Company will pay salary in equal weekly or by-weekly
installments and bonuses as follows:
4.1 Salary:
------
(a) Initial term - $250,000.00 per year
(b) First extended term - $275,000.00 (if Company
achieves 90% of Earnings
Before Taxes (EBT)
projections described
below for the initial term
in the aggregate (averaged
over the initial term),
then salary for the first
extended term shall be
increased to $300,000.00).
(c) Second extended term - $300,000.00 (if Company
achieves 90% of EBT
projections for the first
4 years in the aggregate
(averaged over said
years), then salary for
the second extended term
shall be increased to
$325,000.00)
4.2 Incentive Bonuses: At the end of each calendar year during the
-----------------
Term, if Executive has been continuously employed by Company throughout the Term
4
<PAGE>
through the last day of such year, Executive shall be eligible to receive an
annual bonus ("Bonus"); except that in the event of termination during such year
because of Executive's death or disability or without cause or termination by
Executive under paragraph 3.2 the provisions of paragraph 3 shall apply. The
Bonus for each calendar year will be based on the relationship of EBT to
Projected EBT for such calendar year. The maximum Bonus for each calendar year
shall be 100% of Executive's base salary for such calendar year. The minimum
Bonus for 1995 shall be $40,000.00 which minimum amount may not be deferred (as
provided below) but shall be paid by December 31, 1995. Except as provided in
the preceding sentences the Bonus for any calendar year shall be paid by Company
to the Executive promptly after determination thereof but in no event more than
one hundred and twenty (120) days after the end of such calendar year; except
that if the Company is not in a positive "Free Cash Flow" (as defined in
Articles) position at the time when the Bonus is earned payment of the Bonus
shall be deferred until such time as cash is available for such payment (as
determined by the Board).
The Projected EBT for 1995-99 is as follows:
1995 - $ 1,837,000.00
1996 - $ 2,973,000.00
1997 - $11,606,000.00
1998 - $23,410,000.00
1999 - $33,431,000.00
The table set forth below indicates the percentage of the Bonus which
will be payable to the Executive for varying levels of achievement of projected
EBT during each calendar year.
<TABLE>
<CAPTION>
Percentage of
Projected EBT Obtained Percentage of Bonus Earned
---------------------- --------------------------
<S> <C>
75-79% (1997 only) 25%
70-79% (1998 only) 25%
65-79% (1999 only) 25%
80-84% (1997-99 only) 30%
85-89% 35%
90-94% 40%
95-99% 45%
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
100% 50%
over 100% 50% + 1/2% for each percentage
point by which EBT obtained
exceeds 100% of Projected EBT,
up to a maximum of 100% of
salary.
</TABLE>
4.3. Additional bonuses, if any, (other than the guaranteed
incentive bonuses described above) may be paid at the discretion of the
Compensation Committee.
4.4. Company's obligation for payment of compensation hereunder
shall be subject to all present and future laws, rules, regulations and
executive orders affecting such obligation. No withholding, deduction,
reduction or limitation of payments hereunder by reason of any such law, rule,
regulation or order shall be deemed a breach of this agreement or relieve
Executive from Executive's obligations hereunder or give Executive any right to
terminate this agreement. If Company is unable to make full payments hereunder
because of any wage control law or regulation, Company shall pay Executive any
portion of such payment (which is not paid when due) at such time when such law
or regulation no longer prohibits such payment (unless such law or regulation
prohibits such retroactive payments).
5. Expenses; Benefits:
------------------
5.1. (a) Executive is authorized to incur reasonable expenses in
connection with Company's activity in such amounts as may be from time to time
established by the Board. Company agrees to pay or to reimburse Executive for
such expenses which are reasonably incurred by Executive on behalf of or for the
benefit of Company upon the presentation by Executive from time to time of an
itemized account of such expenditures setting forth the date, the purposes for
which incurred, and the amounts thereof, and such other information as Company
may reasonably require, together with such receipt showing payments as Executive
has been able to obtain.
(b) Without limiting the foregoing, Executive shall be entitled
to use a Company credit card and phone card in connection with his activities
hereunder. Further, Executive shall be entitled to reimbursements for any travel
expenses (other than normal travel by car and travel to and from work), in
accordance with Company policy, as well as phone and cellular phone expenses
which are reasonably and necessarily incurred by Executive on behalf of Company.
5.2. Executive shall receive a car allowance in the gross amount of
five
6
<PAGE>
hundred ($500.00) dollars per month throughout the Term of the agreement (to be
reported on Form W-2).
5.3 Additional Benefits: During the Term, Executive shall also be
-------------------
entitled to and shall be accorded all rights and benefits under any disability
insurance, life insurance, health and major medical insurance policy or
policies, and any other plans or benefits (excepting stock option plans, equity
appreciation plans, profit sharing or pension plans [other than the 401-K Plan]
or the like) which Company may provide for senior executive officers of Company
or for employees generally during the Term.
6. Executive Stock Options:
-----------------------
6.1 The Company hereby grants to Executive options ("Executive
Stock Options") to purchase 60,000 shares of Company's common stock at an
exercise price of $0.01 per share. Such options are exercisable immediately and
will remain exercisable during Executive's employment with Company and for a
period of one (1) year following the expiration of his employment with Company
or until a liquidity event (i.e. an IPO or transfer of type covered under
paragraph 8.2 below), if later.
6.2 Shares issued pursuant to Executive Stock Options shall be
subject to restrictions on transferability, repurchase rights at their then fair
market value (except that if Executive is terminated for cause, repurchase shall
be at 90% of then market value) and the like to same extent as shares issued
pursuant to Employee Stock Option Plan. Without limiting the foregoing, all
provisions of the Employee Stock Option Plan defined below which are not
expressly contrary to the provisions of this paragraph 6 shall be deemed fully
applicable and a part of the grant of Executive stock options hereunder.
7. Employee Stock Options:
----------------------
7.1 In addition to the Executive Stock Options granted Executive,
Executive will be entitled to participate in the Stock Option Plan ("Employee
Stock Option Plan") to be created for Company's executives. Company will use
its best efforts to adopt such a Plan as soon as possible following the
execution of this agreement. Said Plan shall include usual provisions included
in a non-qualified stock option plan including the right to satisfy the exercise
price with cash, promissory notes (if secured to the reasonable satisfaction of
Company) or stock in the Company. Executive acknowledges that such Plan is not
intended to be an "incentive stock option" within the meaning of Section 422A of
the Internal Revenue Code of 1986 as amended and is to be considered in all
respects as "non-qualified." Under the Plan Executive will receive an immediate
grant of options (to vest equally over five years) to purchase 50,000 shares of
Company's common stock at the exercise price equal to its then fair market value
(as defined in the Employee Stock Option Plan). Said options shall
7
<PAGE>
remain exercisable for a period of ten (10) years from the date of the grant
unless they terminate sooner pursuant to the terms of this agreement.
Executive's rights will otherwise be identical to those of the other
participants in the Plan and he will be subject to the Plan's arrangements,
terms and conditions. If Company decides to use a vehicle other than stock
options to provide benefits to its executives, Executive will be entitled to
participate in such an arrangement, in lieu of the arrangement described here,
and will receive, to the maximum extent possible, the economic equivalent of
what he would have been entitled to under this paragraph.
7.2 In addition Executive will receive an immediate grant of
options to purchase an additional 74,000 shares of Company's stock (to be newly
issued shares, but considered a part of the Employee Stock Option Plan), at the
exercise price equal to its then fair market value (as defined in the Employee
Stock Option Plan) at the time of the grant. Subject to earlier vesting as
provided below, one-half of said shares shall vest at the commencement of the
first extended term if Company exercises its option for the fourth year and one-
half shall vest at the commencement of the second extended term if Company
exercises its option for the fifth year. Notwithstanding the foregoing, if in
any year during the initial term the Company achieves 90% of projected EBT for
such year, then one-sixth (rounded) of said shares (i.e. 12,333) shall
immediately vest upon determination that such projection has been met. If
Company fails to achieve the EBT projections for any such year, but if in any
subsequent year or years (during the initial term) Company achieves greater than
90% of projected EBT with the result that the average for such years meet 90% of
projected EBT for all such years then one-sixth (rounded) of said shares (i.e.
12,333) shall vest with respect to each year with respect to which such average
has been achieved. Said options shall remain exercisable for a period of ten
(10) years from the date of the grant unless they terminate sooner pursuant to
the terms of this agreement.
7.3 Executive's rights will otherwise be identical to those of the
other participants in the Plan and he will be bound by such arrangement's terms
and conditions. However, the Plan will provide that if a participant has been
continuously employed by Company from the date hereof until a change of control
(as defined in the Plan),the portion of the Option which has not vested and
become exercisable at the date of such event will vest and become exercisable
simultaneously with the consummation of such event. Any portion of the option
which is not exercised prior to or in connection with a change of control will
expire and be forfeited upon consummation of such event, unless the sale of said
shares is restricted by law.
8. Other Provisions Regarding Stock Options:
----------------------------------------
8.1 In the event that the Compensation Committee of the Board shall
determine that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase shares
of the Company at a price
8
<PAGE>
substantially below fair market value, or other similar corporate event affects
the shares such that an adjustment is required in order to preserve the benefits
or potential benefits intended to be made available under the Employee Stock
Option Plan, the Compensation Committee shall, in its discretion, and in such
manner as it may deem equitable, adjust (i) the number and kind of shares
subject to outstanding options, and (ii) the grant or exercise price with
respect to any option and/or, if deemed appropriate, make provision for a cash
payment to Executive; provided, however, that the number of shares subject to
any option or other award shall always be a whole number.
8.2 Notwithstanding anything above to the contrary, with respect to
stock options granted under paragraphs 6 and 7.1, Company may elect to require
Executive to exercise such options on a cashless basis, deducting from the
number of option shares to be received a number of shares equal in value to the
exercise price of the option as determined in accordance with paragraph 6.1 or
the provisions of the Employee Stock Option plan, as applicable.
9. Registration; Come-Along:
------------------------
9.1 If at the time Company registers any of its common stock, the
Executive owns or elects to exercise the option with respect to any shares of
common stock, Company agrees that Company shall concurrently with the
registration of its common stock, register at its cost the common stock then
owned by Executive or as to which Executive then exercises an option, if so
requested in writing by Executive. Company will seek to register any shares
held by Executive promptly after any Initial Public Offering subject to
discretion of the underwriter.
9.2 If Phil Roman transfers all or a majority of his interest in
Company other than by gift or devise Executive shall have the right to require
his shares (or the same proportionate amount thereof) be transferred as a part
of that transaction on the same terms as Roman's.
10. Incapacity:
----------
10.1 If Executive is physically or mentally incapacitated from
rendering services hereunder, and if Employee's incapacity or disability shall
continue for a period or aggregate of periods of four (4) months or more during
any year of the Term of this agreement, Company may, at its option, terminate
and cancel Executive's employment hereunder by notice mailed or delivered to
Executive at any time prior to Executive's return to work hereunder. Executive
shall be deemed to be physically or mentally incapacitated if Executive is
unable for any reason whatsoever to devote full time to the business of the
Company, as determined by the Board.
10.2 If Company determines that Executive is permanently disabled and
if Executive does not agree, determination shall be made by a panel of three (3)
9
<PAGE>
doctors, the first to be chosen by Company, the second to be chosen by Executive
and the third to be chosen by the first two. Any doctor selected by a party
will not be affiliated, associated or related to the party selecting that doctor
in any manner whatsoever. The opinion of a majority of the panel of doctors
shall be binding on the parties hereto. Each party shall bear its own cost for
their own doctor, and the parties shall split the cost of the third doctor
(unless it is determined that Executive is not permanently incapacitated, in
which even all doctor costs shall be borne by Company). The definition of
incapacity in this paragraph 10 shall be controlling between the parties and
shall be deemed substituted with respect to Executive for the definition of
"Permanent Disability" as set forth in the Employee Stock Option Plan.
11. Force Majeure; Discontinuance of Business:
-----------------------------------------
11.1. If Company is prevented from or materially hampered or
interrupted in conducting its business by reason of any present or future
statute, law, ordinance, regulation, order, judgment or decree, or by reason of
any act of God, or by reason of any contingency beyond the control of Company
(other than economic events), then, if at such time all executive salaries
(including Phil Roman's) are suspended thereafter, Executive's services and
compensation hereunder may be suspended as often as any such event occurs and
during such period of time as any such event continues while all such other
executive salaries continue to be suspended. The term of this agreement shall
automatically be extended by the period of any suspension hereunder.
11.2. If Company shall discontinue operating its business, whether
because of an adjudication of bankruptcy or insolvency, transfer of assets to a
receiver, or for any other reason whatsoever, then this agreement shall
terminate effective as of such discontinuance of business. Such termination
shall be considered the same as a termination without cause.
12. Company's Rights:
----------------
12.1. All results and proceeds of Executive's services hereunder
shall be the sole and absolute property of Company for any and all purposes
whatsoever, in perpetuity.
12.2. Company shall have the right to use, disseminate, reproduce,
print and publish Executive's name, likeness, voice and biographical material
concerning Executive as news or informative matter in connection with Company's
business.
12.3. Executive agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to Company's or any of its
subsidiaries' actual or anticipated business, research and development or
existing or future products or services and
10
<PAGE>
which are conceived, developed or made by Executive while employed by Company or
its predecessor belong to Company or such subsidiary. Executive will promptly
disclose to the Board and perform all actions reasonably requested by the Board
(whether during or after the Term) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
13. Confidential Information:
------------------------
Executive acknowledges that the information, observations, work
product, trade secrets and data obtained by him while employed by Company and
its subsidiaries concerning the business or affairs of the Company or any
subsidiary thereof ("Confidential Information") are the property of Company or
such subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters (i) become generally known to and available for use
by the public other than as a result of Executive's acts or omissions to act or
(ii) must be disclosed under a subpoena or other governmental order or (iii) was
possessed by Executive prior to his employment by the Company. Executive shall
deliver to Company at the termination of the employment period, or at any other
time Company may request, all memoranda, notes, plans, records, reports,
computer tapes and software and other documents and data (and copies thereof)
relating to the Confidential Information, work product or the business of
Company or any subsidiary which he may then possess or have under his control.
14. Non-Compete, Non-Solicitation:
-----------------------------
14.1 Executive acknowledges that in the course of his employment with
Company he has and will become familiar with Confidential Information concerning
Company and its subsidiaries and that his services have been and will be of
special, unique and extraordinary value to Company and its subsidiaries.
Therefore during the Term Executive will not be an employee, consultant,
advisor, director, shareholder or partner of any other person, firm or
corporation; provided that Executive may, in any event, own up to five (5%)
percent of the stock of a publicly-held corporation whose stock is traded on a
national securities exchange or in an over-the-counter market. The restrictions
hereof shall immediately terminate and be of no further force or effect if
Executive's employment is terminated by Company without cause.
14.2 During Executive's employment and for three (3) years after the
end of the Term Executive will not attempt to hire or to solicit (for his own
purposes or for any other company) any employee of or independent contractor
rendering services to Company. Further during Executive's employment and for
three (3) years after the end of the Term Executive will not (i) transfer or
attempt to transfer any projects in which Company is involved (whether in
negotiation, development or production) from Company to himself or to any other
company and/or (ii) encourage any company or
11
<PAGE>
business with whom Company is doing business (e.g. a network or other exhibitor)
from ceasing to do business with Company with respect to any project which is
then in negotiation, development or production; provided however that, during
such three (3)year period, the submission of projects (other than projects in
which Company is involved as aforesaid) to potential contractees (such as a
network) shall not be considered a violation of this non-solicitation clause
(notwithstanding that such project might be considered competitive to projects
of Company).
15. Notices: All notices required to be given hereunder shall be in
-------
writing and shall be delivered personally, electronically, or by express,
certified or registered mail to the respective addresses of the parties hereto
set forth elsewhere in this Agreement, or at such other addresses as may be
designated by written notice. Delivery of any notice shall be deemed
conclusively made (i) if personally delivered at the time of delivery, (ii) if
delivered by transmittal over electronic or telephonic transmitting devices
(such as telex or telecopy) to the addressee's telecopy or telex number, at the
time of transmittal, provided that the party to whom the notice is delivered has
a compatible device, (iii) if delivered by any private overnight express mail
service, twenty-four (24) hours after deposit with such service (this period
shall be seventy-two (72) hours if addressed to or from a party outside the
United States), (iv) if mailed, properly addressed and postage prepaid, three
(3) business days from date of mailing (seven (7) business days if mailed to or
from a country other than U.S.). A copy of any notice hereunder to Company
shall also be given to the Law Offices of Dixon Q. Dern, 1901 Avenue of the
Stars, Suite 400, Los Angeles, California 9967; a copy of any notice to
Executive shall also be given to Samuel Isreal, Esq., Cohen, Primiani & Foster,
2029 Century Park East, Los Angeles, California 90067.
16. Arbitration:
-----------
Any controversy or claim arising out of, or relating to, this
agreement, the breach thereof, or the coverage of this arbitration provision
shall be settled by arbitration pursuant to the provisions of Section 1280, et
seq. of the California Code of Civil Procedure (or such substitute provisions
therefor then in effect); provided, that any arbitrator(s) selected shall have
experience in or knowledge of the business(es) in which Company is engaged. Any
such arbitration shall be conducted in Los Angeles, California. The arbitration
of such issues, including the determination of the amount of any damages
suffered by any party hereof by reason of the acts or omissions of another shall
be to the exclusion of any court of law except as set forth below. The decision
of the arbitrators or a majority of them shall be final and binding on all
parties and their respective heirs, executors, administrators, successors and
assigns. Any action to secure a judicial confirmation of the arbitration award
may be brought in any state or federal court of competent jurisdiction. If the
parties or the arbitrators appointed by them are unable to agree upon the
selection of a neutral arbitrator then either party may, at its election,
require that the arbitration shall be conducted under the auspices and rules of
the American Arbitration Association (AAA) and that the neutral
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<PAGE>
arbitrator shall be selected by the AAA. Arbitration hereunder shall not, in
any event, (i) prevent any party from seeking and obtaining equitable relief,
including, but not limited to, prohibitory or mandatory injunctions, specific
performance or extraordinary writs, in any court of law or equity having
jurisdiction, nor (ii) prevent any party from joining any other party as
defendant in any action brought by or against a third party, nor (iii) prevent
any party from filing legal action hereunder to effectuate any attachment or
garnishment, provided that such party stipulates in such action, at any other
party's request, to arbitration on the merits of said case, nor (iv) prevent a
party from filing legal action to compel arbitration under the arbitration
provisions hereof.
17. General Provisions:
------------------
17.1 Waiver: A waiver by either party of any of the terms or
------
conditions of this agreement in any one instance shall not be construed to be a
waiver of such term or condition for the future, or any subsequent breach
thereof; all remedies, rights, undertakings, obligations and agreements
contained in this agreement shall be cumulative, and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
17.2 Construction: This agreement shall be governed by and
------------
construed in accordance with the laws of the State of California applicable to
contracts entered into and fully to be performed therein. In view of the fact
that this agreement was in whole or in part negotiated and entered into in
California, the parties consent to and agree to submit to the jurisdiction of
the courts of the State of California (and/or the federal courts within
California), and each party agrees that service of process may be effected by
mail (certified or registered mail, return receipt requested), to or by personal
service upon such party (or any officer of a corporate party) at such party's
address as set forth in this agreement or such other address as such party may
specify in writing.
Wherever the context of this agreement requires it, each gender
shall be deemed to embrace and include the others, and the singular shall be
deemed to embrace and include the plural.
17.3 Severability of Provisions: If any provision hereof as applied
--------------------------
to either party or to any circumstance shall be adjudged by a court to be void
or unenforceable, the same shall in no way affect any other provisions hereof,
the application of such provision in any other circumstances or the validity or
enforceability hereof.
17.4 Entire Understanding: This agreement contains the entire
--------------------
understanding of the parties hereto relating to the subject matter herein
contained and supercedes any and all prior negotiations, understanding and
agreements between the parties (whether oral or in writing); this agreement
cannot be changed, rescinded or terminated except by a writing signed by the
Company.
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Without limiting the foregoing, this agreement supercedes the July 24,
1995 (Revised) Term Sheet between the parties, except that Company shall pay
legal fees to the extent and as specified in paragraph 13 thereof.
17.5 Successors and Assigns: Except where expressly provided to the
----------------------
contrary, this agreement, and all provisions hereof, shall inure to the benefit
of and be binding upon the parties hereto, their successors in interest,
assigns, administrators, executors, heirs and devisees.
17.6 Paragraph Titles: The titles of the paragraphs of this agreement
----------------
are for convenience only and shall not in any way affect the interpretation of
any paragraphs of this agreement or of the agreement itself.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
FILM ROMAN, INC.
By /signed by Authorized Signatory/
---------------------------------
/s/ William Schultz
-----------------------------------
WILLIAM SCHULTZ
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EXHIBIT 10.3
February 14, 1995
Mr. Jon F. Vein
2731 Oakhurst Avenue
Los Angeles, California 90034
Dear Mr. Vein:
This will confirm our agreement as follows:
1. EMPLOYMENT:
FILM ROMAN, INC. ("Roman") hereby employs you and you ("Employee") accept
employment as the Senior Vice President for Roman, to render the services
hereinafter described for the period specified below. Employee shall devote his
best talents, efforts and abilities in accordance with the reasonable
instructions of Roman and to fully perform all services required hereunder in a
timely and professional manner.
2. TERM:
The term of employment pursuant to this Agreement (the "Term") shall
commence as of the 13th day of February, 1995 and shall continue through and
including the 12th day of February, 1997.
3. SERVICES:
During the Term, as extended, Employee shall perform for Roman, its
successors and assigns, and or its affiliates or subsidiaries, those duties,
including all activities incidental thereto, customarily associated with
Employee's title and job description in businesses with operations similar to
that of Roman, and such other duties which are assigned to him by Phil Roman.
Employee shall report directly to Phil Roman.
4. COMPENSATION:
a. Salary: Roman shall pay Employee as compensation for his services
rendered and the rights granted to Roman hereunder a salary of Two Thousand
Eight Hundred Dollars ($2,800) per week in weekly installments (unless payroll
periods are subsequently modified for substantially all of Roman's employees)
for the first year of the Term, and Three Thousand Eighty Dollars ($3,080) per
week for the second year of the Term.
<PAGE>
b. Stock Options/Bonuses: Employee shall have the benefit of any stock
option plan subsequently adopted for Roman's employees on the same basis (though
not necessarily the same percentage) extended to other executives at the senior
vice president or executive vice president level. Additionally, if Roman adopts
a bonus program for top executives generally (as opposed to the Bill Schultz
bonus), then Employee shall have the benefit of such bonus plan on the same
basis extended to other executives at the senior vice president or executive
vice president level.
5. FRINGE BENEFITS:
Employee shall be entitled to participate in group health, disability and
life insurance plans, pension, and employee savings plans and/or such other
similar benefit programs which may, from time to time, be available to employees
of Roman generally, subject to (a) each plan's restrictions, eligibility, and
vesting requirements from time to time in effect, and (b) to this Agreement
taking precedence over any conflicting plan or policy. If possible, any waiting
periods associated with health, disability and life insurance plans will be
waived. If the waiting period cannot be waived for health insurance, Roman
shall reimburse Employee for health insurance costs during the waiting period.
During the term of this Agreement Employee shall also be entitled to (i) three
(3) weeks of paid vacation in each year, and (ii) sick leave, both in accordance
with Roman's policy. Roman will reimburse Employee for California State Bar
membership fees as well as, but not limited to, Los Angeles County Bar
Association, American Bar Association, Beverly Hills Bar Association,
International Interactive Communications Society, and Digital Bayside membership
fees. Reimbursement for any other organizational membership fees shall be
subject to Roman's prior approval.
6. CAR ALLOWANCE:
Employee shall receive a car allowance in the gross amount of Five Hundred
Dollars $500.00) per month throughout the Term of the agreement (to be reported
on Form 1099).
7. EXPENSES:
Employee is authorized to incur reasonable and necessary expenses in
connection with Roman's business activities and to use a Roman credit card and
phone card in conjunction with the same. Roman agrees to pay or to reimburse
Employee for such expenses which are reasonably and necessarily incurred by
Employee on behalf of or for the benefit of Roman upon the presentation by
Employee, from time to time, of an itemized account of such expenditures,
setting forth the date, the purposes for which incurred and the amounts thereof,
and such other information as Roman may reasonably require, together with such
receipts showing payments as Employee has been able to obtain. Without limiting
the foregoing, Employee shall be entitled to reimbursement for any (in
accordance with Roman policy) travel expenses (other than normal travel by car
and travel to and from work), as well as phone and cellular phone expenses,
which are reasonably and necessarily incurred by Employee on behalf of Roman.
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<PAGE>
8. EXCLUSIVITY:
Employee shall be exclusive to Roman during the Term for all legal services
and otherwise related to all fields of entertainment. With respect to any other
services or activities outside of entertainment, Employee may render services
for third parties or on Employee's own behalf provided that at all times
Employee's services hereunder shall remain on a first priority basis, and such
other services will not interfere with Employee's services hereunder. Moreover,
Employee shall have the right to remain involved in raising financing for motion
pictures by rendering appropriate services, provided that all of Employee's
services hereunder shall be at all times first priority to Roman and no such
services will in any way interfere with Employee's services hereunder, it being
understood that Employee shall provide Phil Roman with prior notice of any such
activities. Notwithstanding the foregoing, Roman and Employee acknowledge that
employee will be required to render legal services for clients of Dern & Vein
for a reasonable period of time to wind up Employee's pending matters as well as
to provide clients with reasonable continuity of representation and all fees
generated shall be the sole property of Dern & Vein. Such representation shall
be relatively frequent during the first couple of months of the Term and shall
diminish substantially thereafter. Roman acknowledges that Dern & Vein shall
have the right to maintain its name indefinitely, and that Employee may remain
"of counsel" to Dern & Vein as long as Dixon Dern elects. Any services or
activities for parties other than Roman which result in Employee's inability to
perform services on behalf of Roman hereunder for a period in excess of one (1)
consecutive hour shall require the prior written approval of Phil Roman.
9. PLACE OF SERVICE:
Employee shall (i) be available to render services at all reasonable times
and places Roman or its designee may from time to time require; and (ii) comply
with Roman's reasonable instructions and regulations in all matters, including
artistic taste. Roman shall afford Employee with a suitable office with a
computer with multimedia capabilities at Roman's premises and secretarial
assistance.
10. RIGHTS:
(a) Employee acknowledges that Roman, as employer of Employee, shall own
all right, title and interest in and to all material developed or conceived by
Employee within the scope of Employee's services hereunder and the results and
proceeds thereof. Roman shall have the right to use all such materials and the
elements thereof and the programs in which the material is contained worldwide
and in perpetuity, without limitation or restriction whatsoever; and Roman may
broadcast and otherwise exhibit, use and/or exploit, in whole or in part,
worldwide, in perpetuity, same in any manner and through any media, whether
presently in existence or subsequently devised, as Roman may elect. Employee
hereby waives the so called "moral rights" of an Author. Employee agrees and
acknowledges that for purposes of Section 201 of the United States Copyright Act
and for ownership purposes, Roman is the "employer for hire" of Employee and
shall have all ownership rights in the material and services of Employee
hereunder as the author thereof. Roman shall have no obligation to use the
product of Employee's services.
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<PAGE>
(b) Roman has the right to the use of Employee's name and likeness (as well
as the right to grant to others the right to the use of Employee's name and
likeness) in any manner in connection with Employee's services or the products
thereof, provided that such use is not in the nature of a direct endorsement of
a commercial product.
11. TERMINATION:
Nothing in this Agreement shall be construed to prevent Roman from
terminating Employee's employment at any time with or without cause provided,
however, if employment is terminated for "cause" (as hereinbelow defined) all
obligations of Roman to Employee shall cease and terminate.
For purposes of this Agreement, "Cause" shall mean:
(a) Conviction of a criminal act; intentional malfeasance (by action or
inaction); fraud, misappropriation of property, embezzlement, moral turpitude,
or the like; unfair or deceptive trade practice; serious or repeated failure to
comply with material policies or directives of Roman (reasonable notice of which
and opportunity to cure same shall be given) or violation of any provision of
this Agreement; or
(b) If Employee becomes disabled for a period of 60 consecutive days or 90
days (in the aggregate) in any twelve (12) month period so as to preclude
Employee from rendering satisfactory services to Roman (as determined by Roman);
or
(c) In the event of Employee's death.
(d) Any other reason set forth in the Employee Handbook.
If Employee's employment is terminated for reasons other than "cause,"
Employee's health benefits, car allowance and stock option plan (if any and
subject to the terms of such plan) would remain in effect for until the
expiration of the Term, and Roman shall pay Employee, in full and final
settlement of all its obligations to Employee hereunder, monthly for the
unexpired term of the Term, the difference between Employee's gross income
derived from employment other than with Roman and the appropriate salary rate
payable to him pursuant to Paragraph 4.
Employee shall have the right, but not the obligation, to terminate this
agreement if Phil Roman does not preside over Roman.
12. PRESS ANNOUNCEMENT:
Roman and Dern & Vein shall issue a joint press announcement announcing
Employee's employment by Roman, which announcement will be subject to Dixon
Dern's prior, reasonable approval.
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<PAGE>
13. EMPLOYEE HANDBOOK:
All the terms and conditions of the Employee Handbook, to the extent not
inconsistent herewith, are incorporated herein. Employee hereby acknowledges
receipt of the Employee Handbook.
14. COVENANT NOT TO COMPETE:
Employee further agrees for a period of nine (9) months following his last
day of employment with Roman, not to offer directly or indirectly employment to
any employee of Roman or to induce in any way any such employee to leave the
employment of Roman.
15. CONFIDENTIALITY:
Employee acknowledges, covenants and agrees that he will not at any time
(except as required in the course of his employment with Roman), communicate or
divulge to, or use for the benefit of Employee or any other person, firm,
association, or corporation, without the consent of Roman, any trade secrets,
secret data, or other confidential matters possessed, owned or used by Roman
that may be communicated to, acquired by, or learned by Employee, in the course
of, or as a result of, his employment with Roman. All records, files,
documents, memoranda, reports, drawings, plans, sketches, and the like, relating
to the business of Roman and which Employee may use or prepare or come into
contact with during the Term, shall be and remain the sole property of Roman.
16. FEDERAL COMMUNICATIONS ACT:
(a) Employee affirms that neither he nor anyone acting for him gave or
agreed to give to any representative of Roman or anyone associated in any manner
with Roman or any representative of any licensee or network any portion of
Employee's compensation for services rendered hereunder or anything else of
value. Employee understands that Roman's policy prohibits payments of the above
nature and that failure to disclose to Roman any such arrangement constitutes a
federal crime.
(b) Employee is aware that it is a federal offense, unless disclosed to
Roman prior to broadcast of the results of Employee's services, for Employee to
accept or agree to accept anything of value, other than Employee's regular
compensation for services rendered hereunder for promoting any product, service
or venture on the air.
(c) Employee shall notify Roman immediately if any person attempts to
induce Employee to do anything in violation of the foregoing.
17. FORCE MAJEURE:
If Roman is unable to conduct its business, or a substantial portion
thereof, by virtue of governmental regulation or order, or by strike or war
(declared or undeclared), or other calamity such as fire, earthquake, hurricane
or similar acts of God, or because of other similar or
5
<PAGE>
dissimilar causes beyond the control of Roman (all of which events are
hereinafter sometimes referred to as "Force Majeure"), Roman shall, in the event
any such event continues for longer than fourteen (14) consecutive days, have
the right to suspend the operation of this Agreement for the duration of such
Force Majeure upon notices to Employee and, at Roman's election, to add a period
equal to such suspension to the term hereof; provided, however, that if Roman
exercises its right to suspend the operation of this Agreement by reason of
Force Majeure, as provided herein, and if such suspension continues for a period
in excess of twenty-one (21) consecutive days, Employee shall have the right at
any time thereafter, during such suspension, to terminate this Agreement by
written notice to Roman, such termination to take effect on the seventh (7th)
day following delivery to Roman of the aforesaid notice by Employee, unless
prior to such time Roman has delivered to Employee notice, as provided above,
that the suspension has ended or the impediments on Roman's business by reason
of Force Majeure have ceased. Roman shall be entitled to invoke this Paragraph
only once for each particular set of circumstances which may have created a
situation of Force Majeure as defined herein, and only if and to the extent all
other top management at Roman is also suspended by virtue of the same event of
Force Majeure.
18. WARRANTIES:
Employee warrants that he is free to enter into this Agreement and will not
do or permit any act which will interfere with or derogate from the full
performance of his services or Roman's exercise of the rights herein granted.
Employee warrants that any material supplied by him hereunder shall be his
original creation (except for material in the public domain and/or supplied to
him by Roman) and, to the best of Employee's knowledge, will not violate the
rights of any kind of any person.
19. INDEMNITY:
Employee shall hold Roman, its licensees and assigns, and the directors,
officers, employees and agents of the foregoing, harmless from all claims,
liabilities, damages, costs and legal fees arising from any breach by Employee
of any warranty or agreement made by Employee hereunder. Roman will hold
Employee harmless from all claims, liabilities, damages, costs and legal fees
arising from any claim which arises in connection with Employee's employment
hereunder except claims arising with respect to any breach by Employee of any
warranty or agreement made hereunder. The party receiving notice of any claim
or action subject to indemnity hereunder shall promptly notify the other party.
This indemnity shall survive any termination or expiration of this Agreement.
20. REMEDIES:
Employee's services and rights herein granted are unique in character and
value such that the loss thereof could not be reasonably compensable in damages
in an action at law. Accordingly, Roman shall be entitled to seek equitable
relief by way of injunction or otherwise to prevent the breach or continued
breach of this Agreement as well as monetary damages. The sole right of
Employee as to any breach or alleged breach hereof by Roman shall be the
recovery of money damages, and the rights herein granted by Employee shall not
be terminated by reason
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<PAGE>
of such breach. The waiver by either party of any breach hereof shall not be
deemed a waiver of any prior or subsequent breach hereof. All remedies of
either party shall be cumulative and the pursuit of one remedy shall not be
deemed a waiver of any other remedy.
21. ASSIGNMENT:
Roman shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder, either in whole or in part, to any
person, firm or corporation acquiring substantially all of the business or
assets of Roman, provided that such entity is financially responsible and that
it assumes all of Roman's obligations hereunder and provided Phil Roman presides
over Roman. Employee agrees that this Agreement is personal to him and any
assignment by him shall be null and void.
22. MISCELLANEOUS:
(a) Any notice required or permitted hereunder shall be in writing and
shall be sent by registered or certified mail, postage prepaid, with return
receipt requested, if to Roman, to its then principal office, attention of Phil
Roman, President, and if to Employee, at his address above appearing, or at such
other address as Employee may otherwise designate.
(b) This Agreement constitutes the entire understanding of the parties and
replaces and supersedes as of the date hereof any and all prior agreements and
understandings whether oral or written between the parties hereto. No change,
modification, waiver or discharge of any or all of the terms and provisions of
this Agreement shall be effective unless made in writing and executed by both of
the parties hereto.
(c) No waiver by either party hereto of any breach of any term or condition
of this Agreement shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other term or condition. The remedies herein provided
shall be deemed cumulative and the exercise of one remedy shall not preclude the
exercise of any other remedy for the same event of default, nor shall the
specifications of remedies herein exclude any rights or remedies at law or in
equity which may be available including any rights to damages or injunctive
relief.
(d) If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
(e) Paragraph headings shall not be of any force or effect whatsoever in
the interpretation of this Agreement and shall be deemed inserted and used
solely for the convenience of the parties.
(f) Each party shall make, execute and deliver such other instruments or
documents as may be reasonably required in order to effectuate the purpose of
this Agreement.
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(g) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, representatives, successors and
assigns.
(h) In the event any provision of this Agreement is held to be illegal or
unenforceable by reason of law, this Agreement shall remain in full force and
effect, except that such provision shall be deemed modified and/or deleted, as
may be appropriate, in order to achieve compliance with law.
(i) This Agreement shall be construed and interpreted in accordance with
the laws of the State of California applicable to contracts to be performed
fully within such state, and this transaction is made within the State of
California.
(j) This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as of
the day and year first above written.
FILM ROMAN, INC.
By: /s/ Phil Roman
---------------------------
Dated: 2-17-95
------------------------
/s/ Jon F. Vein
- -------------------------------
JON F. VEIN
Dated: 2-17-95
------------------------
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EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS AGREEMENT is made as of the 15th day of December, 1995, by and
between FILM ROMAN, INC., a California corporation, 12020 Chandler Street, North
Hollywood, California 91607 ("Company") and JACQUELINE BLUM, 18740 Maplewood
Lane, Northridge, California 91326 ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment:
----------
1.1. Company shall employ Executive and Executive accepts such
employment with the Company upon the terms and conditions set forth in this
agreement.
1.2. During the Term (defined below) Executive shall serve as Senior
Vice President of Worldwide Licensing and Marketing, managing merchandising and
licensing divisions, with services to be of the same type and commensurate with
those currently being rendered by Executive; Executive shall have such
additional titles with respect to the Company's subsidiaries and divisions, if
any, as are designated by Company's Board of Directors (the "Board"). The Board
shall have the final determination as to the type and nature of services to be
rendered hereunder.
Company acknowledges that Executive may provide services on the
television series currently entitled, "Bad Baby" and Executive's rendering of
such services and receiving producer-type credit in connection therewith shall
not be considered as a breach of this agreement provided that such services do
not materially interfere with Executive's services hereunder and that Company
shall at all times have first call on Executive services.
1.3. Executive shall devote Executive's best efforts and Executive
full business time (as required by the President or the Board) and attention to
the business and affairs of Company and its subsidiaries if any. In connection
with the foregoing, Executive shall be expected to render services at such times
(including full business hours and, if required, evenings, weekends and
holidays) and at such places as the Board may from time to time designate;
provided, however, that if Company were to designate or to determine that
Executive is to render services outside of the Metropolitan Los Angeles Area,
Executive shall not be required to render such services for any continuous
period of more than thirty (30) days without consent.
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1.4. Executive shall perform Executive's duties and responsibility to
the best of Executive's abilities in a diligent, trustworthy, business-like and
efficient manner.
1.5. Reference is made to Company's "Employee Handbook" as the same
may be currently in effect or hereafter modified (modifications, if any, which
are inconsistent with specific provisions of this agreement shall not be deemed
incorporated herein). Executive acknowledges that Executive has reviewed and is
aware of the contents of such Handbook. Said Employee Handbook shall be deemed a
part of this agreement.
1.6. Executive shall cooperate with Company to enable Company to
obtain, at its expense, life insurance on the life of Executive for the benefit
of Company in such amounts as Company may from time to time determine.
1.7 To aid Executive in the conduct of her duties hereunder, Company
shall keep Executive advised of its financial and strategic planning and
activities, to the extent that the same impact upon Executive's area of
responsibility hereunder.
2. Term:
----
2.1. The term (herein "Term") of this agreement shall commence as of
January 1, 1996, and shall continue, unless sooner terminated as elsewhere
provided, for two (2) consecutive "contract years," as defined below (the
"initial term").
2.2. Company shall have the option at its election to extend the Term
for one (1) additional year commencing on expiration of the initial term.
2.3. The term "contract year" as used above means each period of
fifty- two (52) consecutive weeks; provided however that if the Term were to
expire in the middle of any week, the Term shall be deemed extended so as to
expire on the Friday of such week. If Company elects to exercise any option
referred to in paragraph 2.2 above, it shall give Executive at least ninety (90)
days prior written notice to such effect.
3. Termination:
-----------
3.1. Company's Right to Terminate: Company shall have the right to
----------------------------
terminate this agreement prior to the expiration date specified herein:
(i) Upon the death of Executive;
(ii) For cause ("cause" as used herein means (a) commission of a
felony or a crime involving moral turpitude or the commission of any other
act involving willful malfeasance with respect to Company, (b) conduct
tending to bring Company into substantial public
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<PAGE>
disgrace or disrepute, (c) gross negligence or willful misconduct with
respect to Company or (d) any other material breach of this agreement.
Company shall be entitled to terminate this agreement pursuant to clauses
(c) and (d) herein only if Executive fails to cure such defect within three
(3) business days following Executive's receipt of written notice of
Executive's failure to satisfy Executive's obligations under this
agreement.
(iii) As provided in paragraphs 7 and 8 below;
(iv) For any other reason set forth in the Employee Handbook.
(v) Without cause.
3.2. Effect of Termination:
---------------------
(a) With Cause: If Company terminates this agreement for cause
----------
Company shall have no further obligation to pay Executive any salary payments
(other than accrued but unpaid salary, vacation or expense reimbursement, if
any) and no further obligation to pay any bonuses other than those theretofore
earned, but unpaid.
(b) Other: If Company terminates this agreement for death,
-----
disability or without cause Company shall have the obligation to pay accrued
bonus, if any, for the year when such termination occurs (pro-rated to reflect
the number of days worked in such year prior to termination), vacation and
unpaid expense reimbursement. If termination is because of death or disability
base salary shall be prorated to time of termination; if termination is without
cause Company shall pay all remaining salary for the remainder of the then
current term, provided however that such salary payments shall be mitigated and
reduced by any payments which Executive may receive during such period for
services rendered whether as an employee, an independent contractor, or as a
self-employed person.
4. Salary and Bonuses: Provided Executive fully and faithfully renders
------------------
all services required hereunder and is not otherwise in breach hereof, Company
will pay salary in equal weekly or by-weekly installments and bonuses as
follows:
4.1 Base Salary:
-----------
(a) First contract year - $150,000.00
(b) Subsequent contract years - a base salary which is five (5%)
percent greater than the base salary paid during the immediately preceding
contract year.
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4.2 Bonuses:
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(a) At the end of each calendar year during the Term, if
Executive has been continuously employed by Company throughout the Term through
the last day of such year, Executive shall be eligible to receive an annual
bonus ("Bonus"). The Bonus for each calendar year shall be in an amount
determined by the Board and shall be from a bonus pool established by the Board
of Directors for senior management based upon a percentage (to be determined by
the Board) of net income after taxes (for such calendar year), but before the
bonuses, based on the Company's audited financial statements; said bonuses shall
be payable within sixty (60) days after the audited financial statements are
received; if Free Cash Flow (as defined in the Company's Articles of
Incorporation) is not, in the Board's determination, sufficient for the making
of such bonus payments, then such bonus payments shall be deferred until the
Board determines that Free Cash Flow is available for such purpose.
(b) Additionally, upon execution hereof Company shall pay
Executive a one-time bonus of $10,000.00.
4.3. Company's obligation for payment of compensation hereunder shall
be subject to all present and future laws, rules, regulations and executive
orders affecting such obligation. No withholding, deduction, reduction or
limitation of payments hereunder by reason of any such law, rule, regulation or
order shall be deemed a breach of this agreement or relieve Executive from
Executive's obligations hereunder or give Executive any right to terminate this
agreement. If Company is unable to make full payments hereunder because of any
wage control law or regulation, Company shall pay Executive any portion of such
payment (which is not paid when due) at such time when such law or regulation no
longer prohibits such payment (unless such law or regulation prohibits such
retroactive payments).
5. Expenses; Benefits:
------------------
5.1. (a) Executive is authorized to incur reasonable expenses in
connection with Company's business in such amounts as may be from time to time
approved by the Company. Company agrees to pay or to reimburse Executive for
such expenses which are reasonably incurred by Executive on behalf of or for the
benefit of Company upon the presentation by Executive from time to time of an
itemized account of such expenditures setting forth the date, the purposes for
which incurred, and the amounts thereof, and such other information as Company
may reasonably require, together with such receipt showing payments as Executive
has been able to obtain.
(b) Further, Executive shall be entitled to reimbursements for any
auto and travel expenses (other than normal travel by car and travel to and from
work), in accordance with Company policy, as well as cellular phone expenses
which are reasonably and necessarily incurred by Executive on behalf of Company.
With respect
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to auto expenses, Company will pay Executive $500.00 per month automobile
allowance which will include all automobile costs for which Executive might
otherwise seek reimbursement (which amount will be reported as additional income
for each calendar year).
5.2 Additional Benefits: During the Term, Executive shall also be
-------------------
entitled to and shall be accorded all rights and benefits under any disability
insurance, life insurance, health and major medical insurance policy or
policies, and any other plans or benefits, pension plans which Company may
provide for employees generally during the Term. During each contract year
vacation and sick leave to be in accordance with Company's then current policy;
vacation shall in any event be three (3) weeks per contract year at mutually
acceptable times.
6. Employee Stock Options:
----------------------
6.1 Executive will be entitled to participate in the Employee Stock
Option Plan being created for Company's executives. Said Plan shall include
usual provisions included in a non-qualified stock option plan including the
right to satisfy the exercise price with cash, promissory notes (if secured to
the reasonable satisfaction of Company) or stock in the Company. Executive
acknowledges that such Plan is not intended to be an "incentive stock option"
within the meaning of Section 422A of the Internal Revenue Code of 1986 as
amended and is to be considered in all respects as "non-qualified." Under the
Plan Executive will receive an immediate grant of options (to vest equally over
five years) to purchase 35,000 shares of Company's common stock at the exercise
price equal to its fair market value (as defined in the Plan) at the time of the
grant. Said options shall remain exercisable for a period of ten (10) years
from the date of the grant unless they terminate sooner pursuant to the terms of
the Plan. Executive's rights will otherwise be identical to those generally
accorded the other employee participants in the Plan for whom exceptions are not
extended and Executive will be subject to the such generally applied
arrangements, terms and conditions. Notwithstanding anything above to the
contrary, with respect to stock options granted Executive, Company may elect to
require Executive to exercise such options on a cashless basis, deducting from
the number of option shares to be received a number of shares equal in value to
the exercise price of the option as determined in accordance with the provisions
of the Plan, as applicable. Without limiting the foregoing, in the event of
termination of this agreement, stock options granted hereunder shall be
cancelled as and to extent provided in the Plan.
6.2 Company and Executive will execute a more formal Stock Option
Agreement conforming to the foregoing.
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7. Incapacity:
----------
7.1 If Executive is physically or mentally incapacitated from
rendering services hereunder, and if Employee's incapacity or disability shall
continue for a period or aggregate of periods of ninety (90) days or more or
sixty (60) consecutive days or more during any twelve (12) month period during
the Term of this agreement, Company may, at its option, terminate and cancel
Executive's employment hereunder by notice mailed or delivered to Executive at
any time prior to Executive's return to work hereunder. Executive shall be
deemed to be physically or mentally incapacitated if Executive is unable for any
reason whatsoever to devote full time to the business of the Company, as
determined by the Board.
7.2 If Company determines that Executive is permanently disabled and
if Executive does not agree, determination shall be made by a panel of three (3)
doctors, the first to be chosen by Company, the second to be chosen by Executive
and the third to be chosen by the first two. Any doctor selected by a party
will not be affiliated, associated or related to the party selecting that doctor
in any manner whatsoever. The opinion of a majority of the panel of doctors
shall be binding on the parties hereto. Each party shall bear its own cost for
their own doctor, and the parties shall split the cost of the third doctor
(unless it is determined that Executive is not permanently incapacitated, in
which even all doctor costs shall be borne by Company).
8. Force Majeure; Discontinuance of Business:
-----------------------------------------
8.1. If for a period of thirty (30) days or more Company is prevented
from or materially hampered or interrupted in conducting its business by reason
of any present or future statute, law, ordinance, regulation, order, judgment or
decree, or by reason of any act of God, or by reason of any contingency beyond
the control of Company, then, if all other employees (other than those required
for maintenance of the Company's day-to-day business) are also suspended,
Executive's services and compensation hereunder may be suspended as often as any
such event occurs and during such period of time as any such event continues
while all such other executive salaries continue to be suspended. The term of
this agreement shall automatically be extended by the period of any suspension
hereunder. If such suspension continues for eight (8) consecutive weeks or more
either party may terminate the Term while such suspension is still in effect,
except that Company may negate Executive's termination by then terminating such
suspension with the understanding that the Term may not again be suspended for
the same cause.
8.2. If Company shall discontinue operating its business, whether
because of an adjudication of bankruptcy or insolvency, transfer of assets to a
receiver, or for any other reason whatsoever, then this agreement shall
terminate effective as of such discontinuance of business.
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9. Company's Rights:
----------------
9.1 Executive acknowledges that Company, as employer of Executive,
shall own all right, title and interest in and to the results of Executive's
services hereunder, including all material developed or conceived by Executive
within the scope of Executive's employment. Company shall have the right to use
all such materials and the elements thereof and the programs in which the
material is contained worldwide and in perpetuity, without limitation or
restriction whatsoever and Company may broadcast and otherwise exhibit, use
and/or exploit, in whole or in part, worldwide, in perpetuity, same in any
manner and through any media, whether presently in existence or subsequently
devised, as Company may elect. Executive hereby waives the so-called "moral
rights" of an author. Executive agrees and acknowledges that for purposes of
Sections 101 and 201 of the United States Copyright Act and for ownership
purposes, Company is the "employer for hire" of Executive and shall have all
ownership rights in the material and services of Executive hereunder as the
author thereof. Company shall have no obligation to use the product of
Executive's services.
If during the term hereof Executive conceives or develops any
materials outside of the scope of her employment, Executive shall give Company
written notice of the same, accompanied by such material or a description
thereof. For a period of thirty (30) days after the giving of such notice
Executive shall, at Company's request, negotiate with Company with respect to an
agreement pursuant to which Company shall acquire rights in such material; if
the parties fail to successfully conclude an agreement within said thirty (30)
day period, Company shall have no further rights to the material and Executive
shall be free to deal with the same, except that Executive shall not render
services or permit the use of her name (or other identification) other than
authorship credit in connection with the use of such material at any time during
the balance of the term of this agreement.
9.2. Without limiting the foregoing, Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to
Company's or any of its subsidiaries' actual or anticipated business, research
and development or existing or future products or services and which are
conceived, developed or made by Executive while employed by Company or its
predecessor belong to Company or such subsidiary. Executive will promptly
disclose to the Board and perform all actions reasonably requested by the Board
(whether during or after the Term) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
9.3. Company shall have the right to use, disseminate, reproduce,
print and publish Executive's name, approved likeness (other than press photos
and like), voice and approved biographical material concerning Executive as news
or informative matter in connection with Company's business.
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9.4. Executive's services and rights herein granted are unique in
character and value such that the loss thereof could not be reasonably
compensable in damages in an action at law. Accordingly, Company shall be
entitled to equitable relief by way of injunction or otherwise to prevent the
breach or continued breach of this Agreement. The sole right of Executive as to
any breach or alleged breach hereof by Company shall be the recovery of money
damages, and the rights herein granted by Executive shall not be terminated by
reason of such breach. The waiver by either party of any breach hereof shall
not be deemed a waiver of any prior or subsequent breach hereof. All remedies
of either party shall be cumulative and the pursuit of one remedy shall not be
deemed a waiver of any other remedy.
10. Federal Communications Act:
--------------------------
Reference is hereby made to Section 507 of the Federal Communications
Act, making it a criminal offense for any person, in connection with the
production or preparation of any program intended for broadcasting, to accept or
pay any money, service or other valuable consideration for the inclusion of any
matter as part of any such program or program matter without disclosing in
advance the same to the employer of the person to whom such payment is made or
to the person for whom such program is being produced, or to the station over
which such program is broadcast. Executive understands that it is the policy of
Company not to permit any employee of Company to accept or pay any such
consideration, and Executive represents and agrees that Executive has not
accepted and will not accept, and has not paid and will not pay, any money,
services, or other valuable consideration for the inclusion of any "plug,"
reference or product identification, or any other matter in the programs
produced hereunder.
11. Confidential Information:
------------------------
Executive acknowledges that the information, observations, work
product, trade secrets and data obtained by Executive while employed by Company
and its subsidiaries concerning the business or affairs of the Company or any
subsidiary thereof ("Confidential Information") are the property of Company or
such subsidiary. Therefore, Executive agrees that Executive shall not disclose
to any unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters (i) become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions to act or (ii) must be disclosed under a subpoena or other
governmental order or (iii) was possessed by Executive prior to Executive's
employment by the Company. Executive shall deliver to Company at the
termination of the employment period, or at any other time Company may request,
all memoranda, notes, plans, records, reports, computer tapes and software and
other documents and data (and copies thereof) relating to the Confidential
Information, work product or the business of Company or any subsidiary which
Executive may then
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possess or have under Executive's control.
12. Non-Compete, Non-Solicitation:
-----------------------------
12.1 Executive acknowledges that in the course of Executive's
employment with Company Executive has and will become familiar with Confidential
Information concerning Company and its subsidiaries and that Executive's
services have been and will be of special, unique and extraordinary value to
Company and its subsidiaries. Therefore during the Term Executive will not be
an employee, consultant, advisor, director, shareholder or partner of any other
person, firm or corporation; provided that Executive may, in any event, own up
to five (5%) percent of the stock of a publicly-held corporation whose stock is
traded on a national securities exchange or in an over-the-counter market. The
restrictions hereof shall immediately terminate and be of no further force or
effect if Executive's employment is terminated by Company without cause.
12.2 During Executive's employment and for three (3) years after the
end of the Term Executive will not attempt to hire or to solicit (for
Executive's own purposes or for any other company) any employee of or
independent contractor rendering services to Company. Further during
Executive's employment and for three (3) years after the end of the Term
Executive will not (i) transfer or attempt to transfer any projects in which
Company is involved (whether in negotiation, development or production) from
Company to Executive or to any other company and/or (ii) encourage any company
or business with whom Company is doing business (e.g. a network or other
exhibitor) from ceasing to do business with Company with respect to any project
which is then in negotiation, development or production.
13. Notices: All notices required to be given hereunder shall be in
-------
writing and shall be delivered personally, electronically, or by express,
certified or registered mail to the respective addresses of the parties hereto
set forth elsewhere in this Agreement, or at such other addresses as may be
designated by written notice. Delivery of any notice shall be deemed
conclusively made (i) if personally delivered at the time of delivery, (ii) if
delivered by transmittal over electronic or telephonic transmitting devices
(such as telex or telecopy) to the addressee's telecopy or telex number, at the
time of transmittal, provided that the party to whom the notice is delivered has
a compatible device, (iii) if delivered by any private overnight express mail
service, twenty-four (24) hours after deposit with such service (this period
shall be seventy-two (72) hours if addressed to or from a party outside the
United States), (iv) if mailed, properly addressed and postage prepaid, three
(3) business days from date of mailing (seven (7) business days if mailed to or
from a country other than U.S.). A copy of any notice hereunder to Company
shall also be given to the Law Offices of Dixon Q. Dern, P.C., 1901 Avenue of
the Stars, Suite 400, Los Angeles, California 9967; a copy of any notice to
Executive shall also be given to Wayne Alexander, Esq.,
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Alexander, Halloran, Nau & Rose, 2029 Century Park East, Suite 1260, Los
Angeles, CA 90067.
14. Immigration:
-----------
Company's engagement of Executive is subject to Executive's compliance
with the terms and provisions of the Federal Immigration and Naturalization Act.
In that regard concurrently with the execution of this agreement Executive shall
provide Company with such proof of Company's United States Citizenship or
authorization to work in the United States as may be required by the Immigration
and Naturalization Service and shall also complete and return to Company an I-9
Form or such other forms as may be required.
15. Arbitration:
-----------
Any controversy or claim arising out of, or relating to, this
agreement, the breach thereof, or the coverage of this arbitration provision
shall be settled by arbitration pursuant to the provisions of Section 1280, et
seq. of the California Code of Civil Procedure (or such substitute provisions
therefor then in effect); provided, that any arbitrator(s) selected shall have
experience in or knowledge of the business(es) in which Company is engaged. Any
such arbitration shall be conducted in Los Angeles, California. The arbitration
of such issues, including the determination of the amount of any damages
suffered by any party hereof by reason of the acts or omissions of another shall
be to the exclusion of any court of law except as set forth below. The decision
of the arbitrators or a majority of them shall be final and binding on all
parties and their respective heirs, executors, administrators, successors and
assigns. Any action to secure a judicial confirmation of the arbitration award
may be brought in any state or federal court of competent jurisdiction. If the
parties or the arbitrators appointed by them are unable to agree upon the
selection of a neutral arbitrator then either party may, at its election,
require that the arbitration shall be conducted under the auspices and rules of
the American Arbitration Association (AAA) and that the neutral arbitrator shall
be selected by the AAA. Arbitration hereunder shall not, in any event, (i)
prevent any party from seeking and obtaining equitable relief, including, but
not limited to, prohibitory or mandatory injunctions, specific performance or
extraordinary writs, in any court of law or equity having jurisdiction, nor (ii)
prevent any party from joining any other party as defendant in any action
brought by or against a third party, nor (iii) prevent any party from filing
legal action hereunder to effectuate any attachment or garnishment, provided
that such party stipulates in such action, at any other party's request, to
arbitration on the merits of said case, nor (iv) prevent a party from filing
legal action to compel arbitration under the arbitration provisions hereof.
16. General Provisions:
------------------
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16.1 Waiver: A waiver by either party of any of the terms or
------
conditions of this agreement in any one instance shall not be construed to be a
waiver of such term or condition for the future, or any subsequent breach
thereof; all remedies, rights, undertakings, obligations and agreements
contained in this agreement shall be cumulative, and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
16.2 Construction: This agreement shall be governed by and construed
------------
in accordance with the laws of the State of California applicable to contracts
entered into and fully to be performed therein. In view of the fact that this
agreement was in whole or in part negotiated and entered into in California, the
parties consent to and agree to submit to the jurisdiction of the courts of the
State of California (and/or the federal courts within California), and each
party agrees that service of process may be effected by mail (certified or
registered mail, return receipt requested), to or by personal service upon such
party (or any officer of a corporate party) at such party's address as set forth
in this agreement or such other address as such party may specify in writing.
Wherever the context of this agreement requires it, each gender
shall be deemed to embrace and include the others, and the singular shall be
deemed to embrace and include the plural.
16.3 Severability of Provisions: If any provision hereof as applied
--------------------------
to either party or to any circumstance shall be adjudged by a court to be void
or unenforceable, the same shall in no way affect any other provisions hereof,
the application of such provision in any other circumstances or the validity or
enforceability hereof.
16.4 Entire Understanding: This agreement contains the entire
--------------------
understanding of the parties hereto relating to the subject matter herein
contained and supercedes any and all prior negotiations, understanding and
agreements between the parties (whether oral or in writing); this agreement
cannot be changed, rescinded or terminated except by a writing signed by the
Company.
16.5 Successors and Assigns: Except where expressly provided to the
----------------------
contrary, this agreement, and all provisions hereof, shall inure to the benefit
of and be binding upon the parties hereto, their successors in interest,
assigns, administrators, executors, heirs and devisees.
16.6 Paragraph Titles: The titles of the paragraphs of this agreement
----------------
are for convenience only and shall not in any way affect the interpretation of
any paragraphs of this agreement or of the agreement itself.
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IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
FILM ROMAN, INC.
"Company"
By /signed by Authorized Signatory/
-------------------------------------------
/s/ JACQUELINE BLUM
------------------------
EXECUTIVE
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EXHIBIT 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS AGREEMENT is made as of the 2nd day of January, 1996, by and
between FILM ROMAN, INC., a California corporation, 12020 Chandler Street, North
Hollywood, California 91607 ("Company") and GREGORY ARSENAULT, 6542 Yarmouth
Avenue, Reseda, California 91335 ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment:
----------
1.1. Company shall employ Executive and Executive accepts such
employment with the Company upon the terms and conditions set forth in this
agreement.
1.2. During the Term (defined below) Executive shall serve as Senior
Vice President of Finance and Administration, supervising all financial and
accounting activities for Company, with services to be of the same type and
commensurate with those currently being rendered by Executive; Executive shall
have such additional titles with respect to the Company's subsidiaries and
divisions, if any, as are designated by Company's Board of Directors (the
"Board"). The Board shall have the final determination as to the type and nature
of services to be rendered hereunder.
1.3. (a) Executive shall devote Executive's best efforts and Executive
full business time (as required by the President or the Board) and attention to
the business and affairs of Company and its subsidiaries if any. In connection
with the foregoing, Executive shall be expected to render services at such times
(including full business hours and, if required, evenings, weekends and
holidays) and at such places as the Board may from time to time designate;
provided, however, that if Company were to designate or to determine that
Executive is to render services outside of the Metropolitan Los Angeles Area,
Executive shall not be required to render such services for any continuous
period of more than thirty (30) days without consent.
(b) In rendering services hereunder Executive shall report
directly to the President (Philip Roman). If during the term hereof the Company
should elect another person as its President, Employee shall have the right to
terminate his employment hereunder by giving Company at least ninety (90) days
prior written notice to such effect.
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1.4. Executive shall perform Executive's duties and responsibility to
the best of Executive's abilities in a diligent, trustworthy, business-like and
efficient manner.
1.5. Reference is made to Company's "Employee Handbook" as the same may
be currently in effect or hereafter modified (modifications, if any, which are
inconsistent with specific provisions of this agreement shall not be deemed
incorporated herein). Executive acknowledges that Executive has reviewed and is
aware of the contents of such Handbook. Said Employee Handbook shall be deemed a
part of this agreement.
1.6. Executive shall cooperate with Company to enable Company to
obtain, at its expense, life insurance on the life of Executive for the benefit
of Company in such amounts as Company may from time to time determine.
2. Term:
----
2.1. The term (herein "Term") of this agreement shall commence as of
January 2, 1996, and shall continue, unless sooner terminated as elsewhere
provided, for three (3) consecutive "contract years," as defined below (the
"initial term").
2.2. Company shall have one (1) option to extend the Term of the
agreement for one (1) additional year commencing on expiration of the initial
term.
2.3 If Executive is, in Company's determination, involved in
development or production activities of Company, Company shall have the right to
extend the last contract year of the Term hereof by as many as one hundred and
twenty (120) days to meet its development and production requirements, such
extension to be on the same terms as those applicable to such last contract
year.
2.4. The term "contract year" as used above means each period of fifty-
two (52) consecutive weeks; provided however that if the Term were to expire in
the middle of any week, the Term shall be deemed extended so as to expire on the
Friday of such week. If Company elects to exercise any option referred to in
paragraph 2.2 above, it shall give Executive at least ninety (90) days prior
written notice to such effect.
3. Termination:
-----------
3.1. Company's Right to Terminate: Company shall have the right to
-----------------------------
terminate this agreement prior to the expiration date specified herein:
(i) Upon the death of Executive;
(ii) For cause ("cause" as used herein means (a) commission of a
felony or a crime involving moral turpitude or the
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commission of any other act involving willful malfeasance with respect to
Company, (b) conduct tending to bring Company into substantial public
disgrace or disrepute, (c) gross negligence or willful misconduct with
respect to Company or (d) any other material breach of this agreement).
Company shall be entitled to terminate this agreement pursuant to clauses
(c) and (d) herein only if Executive fails to cure such defect within three
(3) business days following Executive's receipt of written notice of
Executive's failure to satisfy Executive's obligations under this
agreement.
(iii) As provided in paragraphs 7 and 8 below;
(iv) For any other reason set forth in the Employee Handbook.
(v) Without cause.
3.2. Effect of Termination:
---------------------
(a) With Cause: If Company terminates this agreement for
----------
cause Company shall have no further obligation to pay Executive any salary
payments (other than accrued but unpaid salary, vacation or expense
reimbursement, if any) and no further obligation to pay any bonuses other than
those theretofore earned, but unpaid.
(b) Other: If Company terminates this agreement for death,
-----
disability or without cause Company shall have the obligation to pay accrued
bonus, if any, for the year when such termination occurs (pro-rated to reflect
the number of days worked in such year prior to termination), vacation and
unpaid expense reimbursement. If termination is because of death or disability
base salary shall be prorated to time of termination; if termination is without
cause Company shall pay all remaining salary for the remainder of the then
current term, provided however that such salary payments shall be mitigated and
reduced by any payments which Executive may receive during such period for
services rendered whether as an employee, an independent contractor, or as a
self-employed person.
4. Salary and Bonuses: Provided Executive fully and faithfully renders
------------------
all services required hereunder and is not otherwise in breach hereof, Company
will pay salary in equal weekly or by-weekly installments and bonuses as
follows:
4.1 Base Salary:
-----------
(a) First contract year - $160,160.00
(b) Second and third contract years - a base salary which is five
(5%) percent greater than the base salary paid during the immediately preceding
contract year.
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(c) Optional contract year - a base salary which is ten (10%) percent
greater than the base salary paid during the third contract year.
4.2 Incentive Bonuses: At the end of each calendar year during the
-----------------
Term, if Executive has been continuously employed by Company throughout the Term
through the last day of such year, Executive shall be eligible to receive an
annual bonus ("Bonus"). The Bonus for each calendar year shall be in an amount
determined by the Board and shall be from a bonus pool established by the Board
of Directors for senior management based upon a percentage (to be determined by
the Board) of net income after taxes (for such calendar year), but before the
bonuses, based on the Company's audited financial statements; said bonuses shall
be payable within sixty (60) days after the audited financial statements are
received; if Free Cash Flow (as defined in the Company's Articles of
Incorporation) is not, in the Board's determination, sufficient for the making
of such bonus payments, then such bonus payments shall be deferred until the
Board determines that Free Cash Flow is available for such purpose.
4.3. Company's obligation for payment of compensation hereunder
shall be subject to all present and future laws, rules, regulations and
executive orders affecting such obligation. No withholding, deduction,
reduction or limitation of payments hereunder by reason of any such law, rule,
regulation or order shall be deemed a breach of this agreement or relieve
Executive from Executive's obligations hereunder or give Executive any right to
terminate this agreement. If Company is unable to make full payments hereunder
because of any wage control law or regulation, Company shall pay Executive any
portion of such payment (which is not paid when due) at such time when such law
or regulation no longer prohibits such payment (unless such law or regulation
prohibits such retroactive payments).
5. Expenses; Benefits:
------------------
5.1. (a) Executive is authorized to incur reasonable expenses in
connection with Company's business in such amounts as may be from time to time
approved by the Company. Company agrees to pay or to reimburse Executive for
such expenses which are reasonably incurred by Executive on behalf of or for the
benefit of Company upon the presentation by Executive from time to time of an
itemized account of such expenditures setting forth the date, the purposes for
which incurred, and the amounts thereof, and such other information as Company
may reasonably require, together with such receipt showing payments as Executive
has been able to obtain.
(b) Further, Executive shall be entitled to reimbursements for any
auto and travel expenses (other than normal travel by car and travel to and from
work), in accordance with Company policy, as well as cellular phone expenses
which are reasonably and necessarily incurred by Executive on behalf of Company.
Company shall pay Executive $500.00 per month as reimbursement for automobile
expenses
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(including maintenance, service, insurance, gas and the like); this amount will
be reported as W-2 income.
5.2 Additional Benefits: During the Term, Executive shall also be
-------------------
entitled to and shall be accorded all rights and benefits under any disability
insurance, life insurance, health and major medical insurance policy or
policies, and any other plans or benefits, pension plans which Company may
provide for employees generally during the Term. During each contract year
vacation and sick leave to be in accordance with Company's then current policy.
6. Employee Stock Options:
----------------------
6.1 Executive will be entitled to participate in the Employee Stock
Option Plan being created for Company's executives. Said Plan shall include
usual provisions included in a non-qualified stock option plan including the
right to satisfy the exercise price with cash, promissory notes (if secured to
the reasonable satisfaction of Company) or stock in the Company. Executive
acknowledges that such Plan is not intended to be an "incentive stock option"
within the meaning of Section 422A of the Internal Revenue Code of 1986 as
amended and is to be considered in all respects as "non-qualified." Under the
Plan Executive will receive a grant of options effective January 1, 1996 (to
vest equally over five years) to purchase 35,000 shares of Company's common
stock at the exercise price equal to its fair market value (as defined in the
Plan) at the time of the grant. Said options shall remain exercisable for a
period of ten (10) years from the date of the grant unless they terminate sooner
pursuant to the terms of this agreement. Executive's rights will otherwise be
identical to those generally accorded the other employee participants in the
Plan for whom exceptions are not extended and Executive will be subject to the
such generally applied arrangements, terms and conditions. Notwithstanding
anything above to the contrary, with respect to stock options granted Executive,
Company may elect to require Executive to exercise such options on a cashless
basis, deducting from the number of option shares to be received a number of
shares equal in value to the exercise price of the option as determined in
accordance with the provisions of the Plan, as applicable. Without limiting the
foregoing, in the event of termination of this agreement, stock options granted
hereunder shall be cancelled as and to extent provided in the Plan.
6.2 Company and Executive will execute a more formal Stock Option
Agreement conforming to the foregoing.
7. Incapacity:
----------
7.1 If Executive is physically or mentally incapacitated from
rendering services hereunder, and if Employee's incapacity or disability shall
continue for a period or aggregate of periods of sixty (60) days or more during
any contract year of the Term
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of this agreement, Company may, at its option, terminate and cancel Executive's
employment hereunder by notice mailed or delivered to Executive at any time
prior to Executive's return to work hereunder. Executive shall be deemed to be
physically or mentally incapacitated if Executive is unable for any reason
whatsoever to devote full time to the business of the Company, as determined by
the Board.
7.2 If Company determines that Executive is permanently disabled and
if Executive does not agree, determination shall be made by a panel of three (3)
doctors, the first to be chosen by Company, the second to be chosen by Executive
and the third to be chosen by the first two. Any doctor selected by a party
will not be affiliated, associated or related to the party selecting that doctor
in any manner whatsoever. The opinion of a majority of the panel of doctors
shall be binding on the parties hereto. Each party shall bear its own cost for
their own doctor, and the parties shall split the cost of the third doctor
(unless it is determined that Executive is not permanently incapacitated, in
which even all doctor costs shall be borne by Company).
8. Force Majeure; Discontinuance of Business:
-----------------------------------------
8.1. If Company is prevented from or materially hampered or
interrupted in conducting its business by reason of any present or future
statute, law, ordinance, regulation, order, judgment or decree, or by reason of
any act of God, or by reason of any contingency beyond the control of Company,
then, if all other employees (other than those required for maintenance of the
Company's day-to-day business) are also suspended. Executive's services and
compensation hereunder may be suspended as often as any such event occurs and
during such period of time as any such event continues while all such other
executive salaries continue to be suspended. The term of this agreement shall
automatically be extended by the period of any suspension hereunder. If such
suspension continues for eight (8) consecutive weeks or more either party may
terminate the Term while such suspension is still in effect, except that Company
may negate Executive's termination by then terminating such suspension with the
understanding that the Term may not again be suspended for the same cause.
8.2. If Company shall discontinue operating its business, whether
because of an adjudication of bankruptcy or insolvency, transfer of assets to a
receiver, or for any other reason whatsoever, then this agreement shall
terminate effective as of such discontinuance of business.
9. Company's Rights:
----------------
9.1 Executive acknowledges that Company, as employer of Executive,
shall own all right, title and interest in and to the results of Executive's
services hereunder, including all material developed or conceived by Executive.
Company shall have the right to use all such materials and the elements thereof
and the programs in
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which the material is contained worldwide and in perpetuity, without limitation
or restriction whatsoever and Company may broadcast and otherwise exhibit, use
and/or exploit, in whole or in part, worldwide, in perpetuity, same in any
manner and through any media, whether presently in existence or subsequently
devised, as Company may elect. Executive hereby waives the so-called "moral
rights" of an author. Executive agrees and acknowledges that for purposes of
Section 201 of the United States Copyright Act and for ownership purposes,
Company is the "employer for hire" of Executive and shall have all ownership
rights in the material and services of Executive hereunder as the author
thereof. Company shall have no obligation to use the product of Executive's
services.
9.2. Without limiting the foregoing, Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to
Company's or any of its subsidiaries' actual or anticipated business, research
and development or existing or future products or services and which are
conceived, developed or made by Executive while employed by Company or its
predecessor belong to Company or such subsidiary. Executive will promptly
disclose to the Board and perform all actions reasonably requested by the Board
(whether during or after the Term) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
9.3. Company shall have the right to use, disseminate, reproduce,
print and publish Executive's name, likeness, voice and biographical material
concerning Executive as news or informative matter in connection with Company's
business.
9.4. Executive's services and rights herein granted are unique in
character and value such that the loss thereof could not be reasonably
compensable in damages in an action at law. Accordingly, Company shall be
entitled to equitable relief by way of injunction or otherwise to prevent the
breach or continued breach of this Agreement. The sole right of Executive as to
any breach or alleged breach hereof by Company shall be the recovery of money
damages, and the rights herein granted by Executive shall not be terminated by
reason of such breach. The waiver by either party of any breach hereof shall
not be deemed a waiver of any prior or subsequent breach hereof. All remedies
of either party shall be cumulative and the pursuit of one remedy shall not be
deemed a waiver of any other remedy.
10. Federal Communications Act:
--------------------------
Reference is hereby made to Section 507 of the Federal Communications
Act, making it a criminal offense for any person, in connection with the
production or preparation of any program intended for broadcasting, to accept or
pay any money, service or other valuable consideration for the inclusion of any
matter as part of any such program or program matter without disclosing in
advance the same to the
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employer of the person to whom such payment is made or to the person for whom
such program is being produced, or to the station over which such program is
broadcast. Executive understands that it is the policy of Company not to permit
any employee of Company to accept or pay any such consideration, and Executive
represents and agrees that Executive has not accepted and will not accept, and
has not paid and will not pay, any money, services, or other valuable
consideration for the inclusion of any "plug," reference or product
identification, or any other matter in the programs produced hereunder.
11. Confidential Information:
------------------------
Executive acknowledges that the information, observations, work
product, trade secrets and data obtained by Executive while employed by Company
and its subsidiaries concerning the business or affairs of the Company or any
subsidiary thereof ("Confidential Information") are the property of Company or
such subsidiary. Therefore, Executive agrees that Executive shall not disclose
to any unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters (i) become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions to act or (ii) must be disclosed under a subpoena or other
governmental order or (iii) was possessed by Executive prior to Executive's
employment by the Company. Executive shall deliver to Company at the
termination of the employment period, or at any other time Company may request,
all memoranda, notes, plans, records, reports, computer tapes and software and
other documents and data (and copies thereof) relating to the Confidential
Information, work product or the business of Company or any subsidiary which
Executive may then possess or have under Executive's control.
12. Non-Compete, Non-Solicitation:
-----------------------------
12.1 Executive acknowledges that in the course of Executive's
employment with Company Executive has and will become familiar with Confidential
Information concerning Company and its subsidiaries and that Executive's
services have been and will be of special, unique and extraordinary value to
Company and its subsidiaries. Therefore during the Term Executive will not be
an employee, consultant, advisor, director, shareholder or partner of any other
person, firm or corporation; provided that Executive may, in any event, own up
to five (5%) percent of the stock of a publicly-held corporation whose stock is
traded on a national securities exchange or in an over-the-counter market. The
restrictions hereof shall immediately terminate and be of no further force or
effect if Executive's employment is terminated by Company without cause.
12.2 During Executive's employment and for three (3) years after the
end of the Term Executive will not attempt to hire or to solicit (for
Executive's own purposes
8
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or for any other company) any employee of or independent contractor rendering
services to Company. Further during Executive's employment and for three (3)
years after the end of the Term Executive will not (i) transfer or attempt to
transfer any projects in which Company is involved (whether in negotiation,
development or production) from Company to Executive or to any other company
and/or (ii) encourage any company or business with whom Company is doing
business (e.g. a network or other exhibitor) from ceasing to do business with
Company with respect to any project which is then in negotiation, development or
production.
13. Notices: All notices required to be given hereunder shall be in
-------
writing and shall be delivered personally, electronically, or by express,
certified or registered mail to the respective addresses of the parties hereto
set forth elsewhere in this Agreement, or at such other addresses as may be
designated by written notice. Delivery of any notice shall be deemed
conclusively made (i) if personally delivered at the time of delivery, (ii) if
delivered by transmittal over electronic or telephonic transmitting devices
(such as telex or telecopy) to the addressee's telecopy or telex number, at the
time of transmittal, provided that the party to whom the notice is delivered has
a compatible device, (iii) if delivered by any private overnight express mail
service, twenty-four (24) hours after deposit with such service (this period
shall be seventy-two (72) hours if addressed to or from a party outside the
United States), (iv) if mailed, properly addressed and postage prepaid, three
(3) business days from date of mailing (seven (7) business days if mailed to or
from a country other than U.S.). A copy of any notice hereunder to Company
shall also be given to the Law Offices of Dixon Q. Dern, P.C., 1901 Avenue of
the Stars, Suite 400, Los Angeles, California 9967; a copy of any notice to
Executive shall also be given to _____________________________________________
_____________________________.
14. Immigration:
-----------
Company's engagement of Executive is subject to Executive's compliance
with the terms and provisions of the Federal Immigration and Naturalization Act.
In that regard concurrently with the execution of this agreement Executive shall
provide Company with such proof of Company's United States Citizenship or
authorization to work in the United States as may be required by the Immigration
and Naturalization Service and shall also complete and return to Company an I-9
Form or such other forms as may be required.
15. Arbitration:
-----------
Any controversy or claim arising out of, or relating to, this
agreement, the breach thereof, or the coverage of this arbitration provision
shall be settled by arbitration pursuant to the provisions of Section 1280, et
seq. of the California Code of Civil Procedure (or such substitute provisions
therefor then in effect); provided, that any arbitrator(s) selected shall have
experience in or knowledge of the business(es) in
9
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which Company is engaged. Any such arbitration shall be conducted in Los
Angeles, California. The arbitration of such issues, including the
determination of the amount of any damages suffered by any party hereof by
reason of the acts or omissions of another shall be to the exclusion of any
court of law except as set forth below. The decision of the arbitrators or a
majority of them shall be final and binding on all parties and their respective
heirs, executors, administrators, successors and assigns. Any action to secure
a judicial confirmation of the arbitration award may be brought in any state or
federal court of competent jurisdiction. If the parties or the arbitrators
appointed by them are unable to agree upon the selection of a neutral arbitrator
then either party may, at its election, require that the arbitration shall be
conducted under the auspices and rules of the American Arbitration Association
(AAA) and that the neutral arbitrator shall be selected by the AAA. Arbitration
hereunder shall not, in any event, (i) prevent any party from seeking and
obtaining equitable relief, including, but not limited to, prohibitory or
mandatory injunctions, specific performance or extraordinary writs, in any court
of law or equity having jurisdiction, nor (ii) prevent any party from joining
any other party as defendant in any action brought by or against a third party,
nor (iii) prevent any party from filing legal action hereunder to effectuate any
attachment or garnishment, provided that such party stipulates in such action,
at any other party's request, to arbitration on the merits of said case, nor
(iv) prevent a party from filing legal action to compel arbitration under the
arbitration provisions hereof.
16. General Provisions:
------------------
16.1 Waiver: A waiver by either party of any of the terms or
------
conditions of this agreement in any one instance shall not be construed to be a
waiver of such term or condition for the future, or any subsequent breach
thereof; all remedies, rights, undertakings, obligations and agreements
contained in this agreement shall be cumulative, and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
16.2 Construction: This agreement shall be governed by and construed
------------
in accordance with the laws of the State of California applicable to contracts
entered into and fully to be performed therein. In view of the fact that this
agreement was in whole or in part negotiated and entered into in California, the
parties consent to and agree to submit to the jurisdiction of the courts of the
State of California (and/or the federal courts within California), and each
party agrees that service of process may be effected by mail (certified or
registered mail, return receipt requested), to or by personal service upon such
party (or any officer of a corporate party) at such party's address as set forth
in this agreement or such other address as such party may specify in writing.
Wherever the context of this agreement requires it, each gender shall
be deemed to embrace and include the others, and the singular shall be deemed to
embrace and include the plural.
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16.3 Severability of Provisions: If any provision hereof as applied
--------------------------
to either party or to any circumstance shall be adjudged by a court to be void
or unenforceable, the same shall in no way affect any other provisions hereof,
the application of such provision in any other circumstances or the validity or
enforceability hereof.
16.4 Entire Understanding: This agreement contains the entire
--------------------
understanding of the parties hereto relating to the subject matter herein
contained and supercedes any and all prior negotiations, understanding and
agreements between the parties (whether oral or in writing); this agreement
cannot be changed, rescinded or terminated except by a writing signed by the
Company.
16.5 Successors and Assigns: Except where expressly provided to the
----------------------
contrary, this agreement, and all provisions hereof, shall inure to the benefit
of and be binding upon the parties hereto, their successors in interest,
assigns, administrators, executors, heirs and devisees.
16.6 Paragraph Titles: The titles of the paragraphs of this agreement
----------------
are for convenience only and shall not in any way affect the interpretation of
any paragraphs of this agreement or of the agreement itself.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
FILM ROMAN, INC.
"Company"
By /signed by Authorized Signatory/
-------------------------------
/s/ Gregory Arsenault
-------------------------------
EXECUTIVE
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Exhibit 10.6
1996 STOCK OPTION PLAN
OF FILM ROMAN, INC.
1. PURPOSE.
The purpose of this 1996 Stock Option Plan of Film Roman, Inc. (the
"Plan") is to secure for Film Roman, Inc., a California corporation (the
"Company") and its stockholders the benefits arising from stock ownership by
selected key employees of the Company or its subsidiaries, directors of the
Company or its subsidiaries, and consultants or other persons (collectively,
"Participants") as the Board of Directors of the Company (the "Board of
Directors"), or a committee thereof constituted for such purpose, shall from
time to time determine. The Plan will provide a means whereby (i) such employees
may purchase shares of the common stock, no par value per share, of the Company
(the "Common Stock") pursuant to options that will qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and (ii) such employees, directors, consultants and other persons may
purchase shares of the Common Stock of the Company pursuant to "non-qualified
stock options." Incentive stock options and non-qualified stock options are
sometimes referred to collectively herein as "options."
2. ADMINISTRATION.
2.1 The Plan shall be administered by the Board of Directors of the
Company; provided, however, that with respect to (i) the participation of the
directors of the Company, and (ii) any grant of options intended not to be
included as "applicable employee remuneration" pursuant to Section 162(m)(4)(C)
of the Code, the Plan shall be administered by a committee of two or more
directors (the "Committee,") all of whom are both (A) "disinterested persons" as
that term is defined in Rule 16b-3(c)(2)(i) of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
(B) "outside directors" as such term is used in Section 162(m)(4)(C)(i) of the
Code ("Outside Directors"). Any action of the Board of Directors or Committee
with respect to administration of the Plan shall be taken by a majority vote or
written consent of its members.
2.2 Subject to the provisions of the Plan, the Board of Directors or
Committee shall have authority (i) to construe and interpret the Plan, (ii) to
define the terms used herein, (iii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (iv) to determine the individuals to whom and
the time or times at which options shall be granted under the Plan, whether
options granted will be incentive stock options or non-qualified stock options,
the number of shares to be subject to each option and the exercise price of the
option; (v) to approve and determine the duration of leaves of absence which may
be granted to Participants who are employed by the Company
1
<PAGE>
without constituting a termination of their employment for the purposes of the
Plan, and (vi) to make all other determinations necessary or advisable for the
administration of the Plan. All determinations and interpretations made by the
Board of Directors or Committee shall be binding and conclusive on all
Participants in the Plan and their legal representatives and beneficiaries.
2.3 Unless otherwise determined by the Board of Directors or
Committee, all options granted under the Plan shall be subject to the following
conditions (i) options shall become exercisable in installments, on a cumulative
basis, at the rate of twenty percent (20%) each year beginning on the first
anniversary of the date of the grant of the option, until the date options
expire or are terminated, and (ii) following a holder's termination of
employment, the Company shall have the right to repurchase any outstanding
vested options or any shares of Common Stock issued to a holder upon the
exercise of an option by notifying the holder of the Company's decision to so
purchase the shares or options within 60 days of such termination of employment.
The purchase price for the shares of Common Stock shall be their fair market
value at the date of notification. The purchase price for options shall be the
difference between the fair market value of the shares of Common Stock at the
date of notification and the exercise price of such options. Fair market value
shall be determined in accordance with Paragraph 7 hereof.
3. SHARES SUBJECT TO THE PLAN.
The shares to be issued under the Plan shall consist of the Company's
authorized but unissued Common Stock. Subject to adjustment as provided in
Paragraph 14 hereof, the aggregate number of shares of Common Stock which may be
issued upon exercise of all options granted under the Plan shall not exceed
629,000 shares. If any option granted under the Plan shall expire or terminate
for any reason, without having been exercised in full, the unpurchased shares of
Common Stock subject to such option shall again be available for new options to
be granted under the Plan. Shares subject to any option (or portion thereof)
surrendered in accordance with Paragraph 15 of the Plan and shares of Common
Stock repurchased by the Company pursuant to its repurchase rights or rights of
first refusal referred to in Paragraph 2.2(vi) of the Plan, shall not be
available to subsequent option grants under the Plan.
4. ELIGIBILITY AND PARTICIPATION.
4.1 All regular salaried employees of the Company and/or any
subsidiary corporation (as defined in Section 424(f) of the Code) with respect
to the Company shall be eligible to receive incentive stock options and non-
qualified stock options. Directors of the Company and/or any subsidiary
corporation, consultants and other persons who are not regular salaried
employees of the Company or any subsidiary corporation are not eligible to
receive incentive stock options, but are eligible to receive non-qualified stock
options.
2
<PAGE>
4.2 No incentive stock options may be granted to any employee who, at
the time the incentive stock option is granted, owns shares representing more
than ten percent of the total combined voting power of all classes of stock of
the Company (or of any of its subsidiary corporations, as defined in Section
424(f) of the Code), unless the exercise price of such incentive stock option is
at least one hundred ten percent (110%) of the fair market value of the Common
Stock subject to the incentive stock option, determining fair market value as of
the date each respective option is granted in accordance with Paragraph 7, and
such incentive stock option by its terms is not exercisable after the expiration
of five years from the date such incentive stock option is granted.
4.3 The aggregate fair market value of the Common Stock for which
incentive stock options granted to any one employee under this Plan or any other
incentive stock option plan of the Company (or of any of its subsidiary
corporations as defined in Section 424(f) of the Code) may by their terms first
become exercisable during any calendar year shall not exceed $100,000,
determining fair market value as of the date each respective option is granted.
4.4 The maximum number of shares of Common Stock with respect to which
options may be granted to any single Participant under the Plan during any
calendar year shall not exceed an aggregate of 629,000 shares, provided that if
any such options expire, are repriced, or are canceled they shall, solely to the
extent required by Section 162(m) of the Code, be counted against this
limitation.
4.5 All options granted under the Plan shall be granted within ten
years from August 7, 1995.
5. DURATION OF OPTIONS.
Each option and all rights associated therewith shall expire on such
date as the Board of Directors or Committee may determine, but in no event later
than ten years from the date on which the option is granted, and shall be
subject to earlier termination as provided herein.
6. PRICE AND EXERCISE OF OPTIONS.
6.1 Subject to Paragraph 4.2, the purchase price of the Common Stock
covered by each option shall be determined by the Board of Directors or
Committee, but in the case of (i) an incentive stock option, or (ii) an option
intended not to be included as "applicable employee remuneration" pursuant to
Section 162(m)(4)(C) of the Code, shall not be less than one hundred percent
(100%) of the fair market value of such Common Stock, as determined by Board of
Directors or Committee on the date the stock option is granted. The purchase
price of the Common Stock upon exercise
3
<PAGE>
of an option shall be paid in full at the time of exercise (i) in cash or by
certified or cashier's check payable to the order of the Company, (ii) by
cancellation of indebtedness owed by the Company to the Participant, (iii) by
delivery of shares of Common Stock of the Company already owned by, and in the
possession of the Participant, (iv) if authorized by the Board of Directors or
the Committee or if specified in the option agreement for the option being
exercised, by a recourse promissory note made by the Participant in favor of the
Company or through installment payments to the Company, in either case subject
to terms and conditions determined by the Board of Directors or Committee, and
in compliance with applicable law (including, without limitation, state,
corporate and federal requirements), (v) if authorized by the Board of Directors
or the Committe or if specified in the Option Agreement applicable thereto, by
surrender of options as provided in paragraph 15 below or (vi) by any
combination thereof, or (vii) in such other manner as the Board of Directors or
the Committee may specify in order to facilitate the exercise of options by the
holders thereof, including but not limited to, a guarantee by the Company of a
third party loan to Participant. Loans, installment payments and guarantees may
be granted by the Board of Directors or Committee without security or
collateral, but must provide for a reasonable rate of interest and the maximum
credit available to the Participant shall not exceed the sum of (x) the
aggregate option price, plus (y) any federal and state income and employment tax
liability incurred by the Participant in connection with the exercise of the
option. Shares of Common Stock used to satisfy the exercise price of an option
shall be valued at their fair market value determined in accordance with
Paragraph 7 hereof.
6.2 No option granted under this Plan shall be exercisable if such
exercise would involve a violation of any applicable law or regulation
(including without limitation, federal and state securities laws and
regulations). Each option shall be exercisable in such installments during the
period prior to its expiration date as the Board of Directors or Committee shall
determine; provided, however, that unless otherwise determined by the Board of
Directors or Committee, if the Participant shall not in any given installment
period purchase all of the shares which the Participant is entitled to purchase
in such installment period, then such Participant's right to purchase any shares
not purchased in such installment period shall continue until the expiration
date or sooner termination of the Participant's option. No option may be
exercised for a fraction of a share and no partial exercise of any option may be
for less than 100 shares.
7. FAIR MARKET VALUE OF COMMON STOCK.
The fair market value of a share of Common Stock shall be determined
for the purposes of this Plan by reference to the mean between the bid and asked
price of a share as supplied by the National Association of Securities Dealers
through NASDAQ (or its successor in function) or, if such shares are then traded
on a principal stock exchange, by reference to the closing price of a share on
the principal stock exchange on which such shares are traded, in each case as
reported by The Wall Street Journal
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<PAGE>
for the business day immediately preceding the date on which the fair market
value is determined or, if for any reason no such price is available, by such
other method as the Board of Directors or Committee shall deem appropriate to
reflect the then fair market value thereof, or by the method provided for in an
agreement with a Participant, if different.
8. WITHHOLDING TAX.
Upon (i) an employee's disposition of shares of Common Stock acquired
pursuant to the exercise of an incentive stock option granted pursuant to the
Plan within two years of the granting of the incentive stock option or within
one year after exercise of the incentive stock option, or (ii) a Participant's
exercise of a non-qualified stock option (or an incentive stock option treated
as a non-qualified stock option), the Company shall have the right to require
such employee or Participant, and such employee or Participant by accepting the
options granted under the Plan agrees, to pay to the Company the amount of any
taxes which the Company shall be required to withhold with respect thereto. In
the event of (i) or (ii), then such employee or Participant may elect to pay to
the Company an amount equal to the amount of the taxes which the Company shall
be required to withhold by delivering to the Company shares of Common Stock
having a fair market value determined in accordance with Paragraph 7 equal to
the amount of the withholding tax obligation as determined by the Company. Such
shares so delivered may be either shares withheld by the Company upon the
exercise of the option or other shares. If the Company becomes subject to the
Exchange Act, and the rules and regulations promulgated thereunder, such
election may not be made by those persons subject to the provisions of Section
16(b) of the Exchange Act within six months of the date of grant of the option,
except that this limitation will not apply in the event of death or disability
occurring prior to the expiration of the six month period. The election must be
made either (x) not later than six months less one day prior to the date as of
which the amount of tax to be withheld is determined (the "Tax Date"), or (y) in
the ten-day window period provided in Rule 16b-3(e) of the General Rules and
Regulations under the Exchange Act, but in no event later than the Tax Date.
9. NONTRANSFERABILITY.
An option granted under the Plan shall, by its terms, be
nontransferable by the holder either voluntarily or by operation of law, other
than by will or the laws of descent and distribution, or to an inter-vivos trust
established by the holder of an option if such transfer shall be allowed by law
and not materially affect the terms and conditions of the Plan, and shall be
exercisable during the holder's lifetime only by the holder, regardless of any
community property interest therein of the spouse of the holder, or such
spouse's successors in interest. If the spouse of the holder shall have acquired
a community property interest in an option pursuant to a qualified domestic
relations order as defined under the Code or Title I of the Employee Retirement
Income Security
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Act of 1974, as amended, the holder, or the holder's permitted successors in
interest, may exercise the option on behalf of the spouse of the holder or such
spouse's successors in interest.
10. HOLDING OF STOCK AFTER EXERCISE OF OPTION.
At the discretion of the Board of Directors or Committee, any option
may provide that the Participant, by accepting such option, represents and
agrees for the Participant and the Participant's permitted transferees, that
none of the shares acquired upon exercise of an option will be acquired with a
view to any sale, transfer or distribution of said shares in violation of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
promulgated thereunder, and the person entitled to exercise the same shall
furnish evidence satisfactory to the Company (including a written and signed
representation) to that effect in form and substance satisfactory to the
Company, including an indemnification of the Company in the event of any
violation of the Act by such person.
11. TERMINATION OF EMPLOYMENT.
If a holder of an incentive stock option ceases to be employed by the
Company or one of its subsidiary corporations (as defined in Section 424(f) of
the Code) for any reason other than for cause, the holder's death or permanent
disability (within the meaning of Section 22(e)(3) of the Code), the holder's
incentive stock option shall expire three months after the date of such
cessation of employment unless by its terms it expires sooner; provided,
however, that during such period after cessation of employment, such incentive
stock option may be exercised only to the extent it was exercisable according to
such option's terms on the date of cessation of employment. If the holder of an
option is terminated for cause, i.e., (a) the commission of a felony or a crime
involving moral turpitude or the commission of any other act involving willful
malfeasance with respect to the Company, (b) conduct tending to bring the
Company into substantial public disgrace, or disrepute, or (c) gross negligence
or willful misconduct with respect to the Company, the holder's options shall
terminate on the date of the holder's cessation of employment, unless by their
term they expire sooner. If the holder shall have entered into an employment or
other agreement with Company, the Board of Directors or Committee, as the case
may be, may in its discretion substitute the definition of "cause" in said
agreement for the definition in the preceding sentence. A leave of absence
approved in writing by the Board of Directors or Committee shall not be deemed a
termination of employment for the purposes of this Paragraph 11, but no
incentive stock option may be exercised during any such leave of absence, except
during the first three months thereof. Termination of employment or other
relationship with the Company and/or any of its subsidiary corporations by the
holder of a non-qualified stock option will have the effect specified in the
individual option agreement as determined by the Board of Directors or
Committee.
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12. DEATH OR PERMANENT DISABILITY OF OPTION HOLDER.
If the holder of an incentive stock option dies or becomes permanently
disabled while the option holder is employed by the Company or one of its
subsidiary corporations (as defined in Section 424(f) of the Code), the holder's
option shall expire three (3) months (or such other period as may be specified
in an agreement with a Participant) after the date of the holder's death or the
date on which the holder became permanently disabled (within the meaning of
Section 22(e)(3) of the Code) unless by its terms it expires sooner. During such
period after death, such incentive stock option may, to the extent that it
remains unexercised (but exercisable by the holder according to such option's
terms) upon the date of such death, be exercised by the person or persons to
whom the option holder's rights under the incentive stock option shall pass by
the option holder's will or by the laws of descent and distribution. The death
or permanent disability of a holder of a non-qualified stock option will have
the effect specified in the individual option agreement as determined by the
Board of Directors or Committee.
13. PRIVILEGES OF STOCK OWNERSHIP.
No person entitled to exercise any option granted under the Plan shall
have any of the rights or privileges of a stockholder of the Company in respect
of any shares of Common Stock issuable upon exercise of such option until
certificates representing such shares shall have been issued and delivered. No
shares shall be issued and delivered upon exercise of any option unless and
until, in the opinion of counsel for the Company, there shall have been full
compliance with any applicable registration requirements of the Act, any
applicable listing requirements of any national securities exchange on which the
Common Stock is then listed, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery.
14. ADJUSTMENTS.
14.1 If the outstanding shares of the Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares as to which options may
be granted under this Plan. A corresponding adjustment changing the number or
kind of shares allocated to unexercised options or portions thereof, which shall
have been granted prior to any such change, shall likewise be made. Any such
adjustment in the outstanding options shall be made without change to the
aggregate purchase price applicable to the unexercised portion of the option but
with a corresponding adjustment in the purchase price for each share covered by
the option.
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14.2 In the event of any of the following transactions (a "Change of
Control"):
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company, or
(iii) any other corporate reorganization or business combination in
which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred to different holders in a single transaction or a series of
related transactions,
then at the election of the Board, or if so provided in an option or other
agreement with a Participant, the exercisability of each option outstanding
under the Plan shall be automatically accelerated so that each such option
shall, during the five (5) business day period immediately prior to the
specified effective date for the Change of Control, become fully exercisable
with respect to the total number of shares of Common Stock purchasable under
such option and may be exercised for all or any portion of such shares;
provided, however, that the exercisability of incentive stock options shall be
subject to the applicable dollar limitation of Paragraph 4.3. Notwithstanding
the foregoing, an outstanding option under the Plan shall not be so accelerated
if and to the extent such option is, in connection with the Change of Control,
either to be assumed by the successor corporation or parent thereof or be
replaced with a comparable option to purchase shares of the capital stock of the
successor corporation or parent thereof. Upon the consummation of the Change of
Control, all outstanding options under the Plan shall, to the extent not
previously exercised or assumed or replaced by the successor corporation or its
parent company, terminate and cease to be outstanding.
14.3 If the Company is the surviving entity in any merger or other
business combination, then each option which remains outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to provide the holder of the option the right to acquire,
upon exercise of the option, the same number of shares of Common Stock that the
holder would have acquired pursuant to the merger or business combination if the
holder had exercised the option immediately prior to the merger or business
combination. Appropriate adjustments shall also be made to the option price
payable per share so that the aggregate option price payable for the aggregate
number of shares subject to the option shall remain the same. Appropriate
adjustments shall also be made to the class and number of securities available
for issuance under the Plan following the consummation of such merger or
business combination.
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14.4 Adjustments under this Paragraph 14 shall be made by the Board of
Directors or Committee, whose determination as to what adjustments shall be
made, and the extent thereof, shall be final, binding and conclusive. No
fractional shares of stock shall be issued under the Plan with respect to any
such adjustment. The grant of options under this Plan shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
15. SURRENDER OF OPTIONS FOR CASH OR STOCK.
15.1 Provided and only if the Board of Directors or Committee
determines in its discretion to implement stock appreciation right provisions of
this Paragraph 15, a Participant may be granted the right, exercisable upon such
terms and conditions as the Board of Directors or Committee may establish at the
time of the option grant or at any time thereafter (which, if the Company
becomes subject to the Exchange Act and the Participant is subject to Section 16
thereof, shall include the provisions of Rule 16b-3(e) of the General Rules and
Regulations under the Exchange Act), to surrender all or part of an unexercised
option under the Plan in exchange for a distribution from the Company equal in
amount to the difference between (i) the fair market value at the date of
surrender (determined in accordance with Paragraph 7) of the number of shares in
which the Participant is at the time vested under the surrendered option or
portion thereof and (ii) the aggregate option price payable for such vested
shares.
15.2 No surrender of an option shall be effective hereunder unless it
is approved by the Board of Directors or Committee. If the surrender is so
approved, then the distribution to which the Participant shall accordingly
become entitled under this Paragraph 15 may be made in shares of Common Stock
valued at fair market value at date of surrender (determined in accordance with
Paragraph 7), in cash, or partly in shares and partly in cash, as the Board of
Directors or Committee shall in its sole discretion deem appropriate.
15.3 If the surrender of an option is rejected by the Board of
Directors or Committee, then the Participant shall retain whatever rights the
optionee had under the surrendered option (or surrendered portion thereof) on
the date of surrender and may exercise such rights at any time prior to the
later of (i) the receipt of the rejection notice or (ii) the last day on which
the option is otherwise exercisable in accordance with its terms.
15.4 Notwithstanding the foregoing provisions of this Paragraph 15, a
Participant may, in the Board of Directors' or Committee's sole discretion, be
granted limited cash-out rights to operate in tandem with his or her outstanding
options under
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the Plan and to be exercisable once the Company becomes subject to the Exchange
Act, provided the Participant is then subject to Section 16 of the Exchange Act.
Any option with such a limited right in effect for at least six (6) months shall
automatically be canceled upon the acquisition of fifty percent (50%) or more of
the Company's outstanding Common Stock (excluding the Common Stock holdings of
officers and directors of the Company who are subject to Section 16 of the
Exchange Act) pursuant to a tender or exchange offer made by a person or group
of related persons (other than the Company or a person that directly or
indirectly controls, is controlled by or is under common control with the
Company) which the Board of Directors does not recommend the Company's
shareholders to accept. In return for the canceled option, the Participant shall
be entitled to a cash distribution from the Company in an amount equal to the
excess of (i) the Cash-Out Price (defined below) of the shares of Common Stock
in which the Participant is vested under the canceled option over (ii) the
aggregate exercise price payable for such vested shares. The cash distribution
payable upon such cancellation shall be made within five (5) days following the
completion of such tender or exchange offer, and neither the approval of the
Board of Directors or Committee shall be required in connection with such
cancellation and distribution.
15.5 For purposes of calculating the cash distribution, the "Cash-Out
Price" per share of the vested Common Stock subject to the canceled option shall
be deemed to be equal to the greater of (i) the fair market value per share on
the date of surrender (determined in accordance with Paragraph 7), or (ii) the
highest reported price per share paid in effecting the tender or exchange offer.
However, if the canceled option is (x) an incentive option or (y) an option
intended not to be included as "applicable employee remuneration" pursuant to
Section 162(m)(4)(C) of the Code, then the Cash-Out Price shall not exceed the
value per share determined under clause (i) above.
15.6 The shares of Common Stock subject to any option surrendered or
canceled for an appreciation distribution in accordance with this Paragraph 15
shall not be available for subsequent option grants under the Plan.
16. AMENDMENT AND TERMINATION OF PLAN.
16.1 The Board of Directors or Committee may at any time suspend or
terminate the Plan. The Board of Directors or Committee may also at any time
amend or revise the terms of the Plan, provided that no such amendment or
revision shall, unless appropriate stockholder approval of such amendment or
revision is obtained, (i) increase the maximum number of shares which may be
acquired pursuant to options granted under the Plan, except as permitted under
the provisions of Paragraph 14, (ii) change the minimum purchase price required
under Paragraphs 4.2 and 6, (iii) increase the maximum term of options provided
for in Paragraph 5, or (iv) change the classes of persons eligible to receive
options as provided in Paragraph 4.
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16.2 No amendment, suspension or termination of the Plan shall,
without the consent of the holder, alter or impair any rights or obligations
under any option theretofore granted under the Plan.
16.3 Except as provided in Paragraph 14 hereof, no modification may be
made to an option granted to a Participant who is subject to Section 16 of the
Exchange Act except in compliance with Rule 16b-3 of the General Rules and
Regulations under the Exchange Act.
16.4 Any options granted to a Participant by a Committee consisting
solely of Outside Directors are intended not to be included as "applicable
employee remuneration" pursuant to Section 162(m)(4)(C) of the Code, and such a
Committee shall administer the Plan with respect to such options and may make
such amendments as may be necessary to effect such exclusion with respect
thereto under Section 162(m)(4)(C) to the extent such amendment would not
otherwise violate this Paragraph 16.
17. GENERAL PROVISIONS APPLICABLE TO PARTICIPANTS SUBJECT TO SECTION 16 OF THE
EXCHANGE ACT.
17.1 It is the intent of the Company that this Plan shall comply in
all respects with Rule 16b-3 of the General Rules and Regulations under the
Exchange Act in connection with any option granted to a person who is subject to
Section 16 of the Exchange Act. Accordingly, if any provision of this Plan does
not comply with the requirements of Rule 16b-3 as then applicable to any such
person, such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements with respect to such person.
17.2 Unless a Participant could otherwise transfer an equity security
(as defined in Section 3(a)(11) of the Exchange Act), derivative security (as
defined in Rule 16a-1(c) of the General Rules and Regulations under the Exchange
Act), or shares of the Company's Common Stock issued upon exercise of a
derivative security granted under the Plan without incurring liability under
Section 16(b) of the Exchange Act, (i) an equity security issued under the Plan,
other than an equity security issued pursuant to the exercise of a derivative
security granted under the Plan, shall be held for at least six months from the
date of acquisition, and (ii) with respect to a derivative security granted
under the Plan and the equity security issued pursuant to the exercise thereof,
at least six months shall elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security.
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18. EFFECTIVE DATE OF PLAN.
No option may be granted under the Plan unless and until (i) the
options and underlying shares have been registered under the Act and qualified
with the appropriate state regulatory agencies, or (ii) the Company has been
advised by counsel that such options and shares are exempt from such
registration and/or qualification. The Plan shall be submitted for approval by
the holders of the outstanding voting stock of the Company within twelve months
from the date the Plan is adopted by the Board of Directors. The Plan shall be
deemed approved by the holders of the outstanding voting stock of the Company by
(i) the affirmative vote of the holders of a majority of the voting shares of
the Company represented and voting at a duly held meeting at which a quorum is
present or (ii) the written consent of the holders of a majority of the
outstanding voting shares of the Company. Any options granted under the Plan
prior to obtaining such stockholder approval shall be granted under the
conditions that the options so granted (x) shall not be exercisable prior to
such approval, and (y) shall become null and void if such stockholder approval
is not obtained. No stock option that is intended not to be included as
"applicable employee remuneration" pursuant to Section 162(m)(4)(C) of the Code
shall be granted prior to stockholder approval of the Plan.
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Exhibit 10.7
1996 STOCK OPTION PLAN
OF FILM ROMAN, INC.
1. PURPOSE.
The purpose of this 1996 Stock Option Plan of Film Roman, Inc. (the "Plan")
is to secure for Film Roman, Inc., a California corporation (the "Company"), and
its stockholders the benefits arising from stock ownership by selected key
employees (as defined in accordance with Section 3401(c) of the Internal Revenue
Code of 1986, as amended (the "Code")) of the Company or its subsidiaries
("Employees"), directors of the Company or its subsidiaries who are not
Employees ("Independent Directors"), and consultants or other persons who are
not Employees or the Independent Directors ("Consultants" and together with the
Employees and Independent Directors, the "Participants") as the Board of
Directors of the Company (the "Board"), or a committee thereof constituted for
such purpose, shall from time to time determine. The Plan will provide a means
whereby (i) such Employee may purchase shares of the common stock, $.01 par
value per share, of the Company (the "Common Stock") pursuant to options that
will qualify as "incentive stock options" under Section 422 of the Code
("Incentive Stock Options") and (ii) such Employee, Independent Director or
Consultant may purchase shares of the Common Stock of the Company pursuant to
options that are not designated as Incentive Stock Options ("Non-Qualified Stock
Options"). Incentive Stock Options and Non-Qualified Stock Options are each
sometimes referred to herein as an "Option" and collectively herein as
"Options."
2. ADMINISTRATION.
2.1 The Plan shall be administered by the Board; provided, however, that
with respect to (i) the participation of the directors of the Company (the
"Directors"), and (ii) any grant of Options intended not to be included as
"applicable employee remuneration" pursuant to Section 162(m)(4)(C) of the Code,
the Plan shall be administered by a committee of two or more Independent
Directors (the "Committee") all of whom are both (A) "disinterested persons" as
that term is defined in Rule 16b-3(c)(2)(i) of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
(B) "outside directors" as such term is used in Section 162(m)(4)(C)(i) of the
Code. Any action of the Board or Committee with respect to administration of
the Plan shall be taken by a majority vote or written consent of its members.
2.2 Subject to the provisions of the Plan, the Board or Committee shall
have authority (i) to construe and interpret the Plan, (ii) to define the terms
used herein, (iii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (iv) to determine
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the individuals to whom and the time or times at which Options shall be granted
under the Plan, whether Options granted will be Incentive Stock Options or Non-
Qualified Stock Options, the number of shares to be subject to each Option and
the exercise price of the Option; (v) to approve and determine the duration of
leaves of absence which may be granted to Participants who are employed by the
Company without constituting a termination of their employment for the purposes
of the Plan, and (vi) to make all other determinations necessary or advisable
for the administration of the Plan. All determinations and interpretations made
by the Board or Committee shall be binding and conclusive on all Participants in
the Plan and their legal representatives and beneficiaries.
2.3 Unless otherwise determined by the Board or Committee, all Options
granted under the Plan to Employees and Consultants shall be subject to the
following conditions (i) Options shall become exercisable in installments, on a
cumulative basis, at the rate of twenty percent (20%) each year beginning on the
first anniversary of the date of the grant of the Option, until the date Options
expire or are terminated, and (ii) following a holder's Termination of
Employment or Termination of Consultancy (in each case, as defined in Paragraph
11), as the case may be, the Company shall have the right to repurchase any
outstanding vested Options or any shares of Common Stock issued to a holder upon
the exercise of an Option by notifying the holder of the Company's decision to
so purchase the shares or Options within 60 days of such Termination of
Employment or Termination of Consultancy, as the case may be. The purchase price
for the shares of Common Stock shall be their fair market value at the date of
notification. The purchase price for Options shall be the difference between the
fair market value of the shares of Common Stock at the date of notification and
the exercise price of such Options. Fair market value shall be determined in
accordance with Paragraph 7 hereof.
2.4 All Options granted under the Plan to Independent Directors shall be
subject to the following conditions: (i) Options shall become exercisable in
installments, on a cumulative basis, at the rate of twenty percent (20%) each
year beginning on the first anniversary of the date of the grant of the Option,
until the date Options expire or are terminated, and (ii) following a holder's
Termination of Directorship (as defined in Paragraph 11), the Company shall have
the right to repurchase any outstanding vested Options or any shares of Common
Stock issued to a holder upon the exercise of an Option by notifying the holder
of the Company's decision to so purchase the shares or Options within 60 days of
such Termination of Directorship. The purchase price for the shares of Common
Stock shall be their fair market value at the date of notification. The purchase
price for Options shall be the difference between the fair market value of the
shares of Common Stock at the date of notification and the exercise price of
such Options. Fair market value shall be determined in accordance with Paragraph
7 hereof.
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3. SHARES SUBJECT TO THE PLAN.
The shares to be issued under the Plan shall consist of the Company's
authorized but unissued Common Stock. Subject to adjustment as provided in
Paragraph 14 hereof, the aggregate number of shares of Common Stock which may be
issued upon exercise of all Options granted under the Plan shall not exceed
1,227,695 shares. If any Option granted under the Plan shall expire or
terminate for any reason, without having been exercised in full, the unpurchased
shares of Common Stock subject to such Option shall again be available for new
Options to be granted under the Plan. Shares of Common Stock repurchased by the
Company pursuant to its repurchase rights referred to in Paragraph 2.3 or 2.4 of
the Plan shall not be available to subsequent Option grants under the Plan.
4. ELIGIBILITY AND PARTICIPATION.
4.1 All Employees of the Company and/or any subsidiary corporation (as
defined in Section 424(f) of the Code) with respect to the Company shall be
eligible to receive Incentive Stock Options and Non-Qualified Stock Options.
Independent Directors and Consultants are not eligible to receive Incentive
Stock Options, but are eligible to receive Non-Qualified Stock Options.
4.2 No Incentive Stock Options may be granted to any Employee who, at the
time the Incentive Stock Option is granted, owns shares representing more than
ten percent of the total combined voting power of all classes of stock of the
Company (or of any of its subsidiary corporations, as defined in Section 424(f)
of the Code), unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the fair market value of the Common
Stock subject to the Incentive Stock Option, determining fair market value as of
the date each respective Option is granted in accordance with Paragraph 7, and
such Incentive Stock Option by its terms is not exercisable after the expiration
of five years from the date such Incentive Stock Option is granted.
4.3 The aggregate fair market value of the Common Stock for which Incentive
Stock Options granted to any one Employee under this Plan or any other Incentive
Stock Option plan of the Company (or of any of its subsidiary corporations as
defined in Section 424(f) of the Code) may by their terms first become
exercisable during any calendar year shall not exceed $100,000, determining fair
market value as of the date each respective Option is granted.
4.4 The maximum number of shares of Common Stock with respect to which
Options may be granted to any single Participant under the Plan during any
calendar year shall not exceed an aggregate of 400,000 shares; provided that if
any such Options expire, are repriced, or are canceled they shall, solely to the
extent required by Section 162(m) of the Code, be counted against this
limitation.
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[4.5 During the term of the Plan, each person who is an Independent Director
shall be granted an Option to purchase ___________ shares of Common Stock
(subject to adjustment as provided in Paragraph 14) on the date of each annual
meeting of stockholders at which the Independent Director is reelected to the
Board.]
4.6 All Options granted under the Plan shall be granted within ten years
from August 1, 1996.
5. DURATION OF OPTIONS.
Each Option and all rights associated therewith shall expire on such date
as the Board (with respect to an Option granted to any Participant) or Committee
(only with respect to an Option granted to an Employees or Consultant) may
determine (but in no event later than ten years from the date on which the
Option is granted) and shall be subject to earlier termination as provided
herein.
6. PRICE AND EXERCISE OF OPTIONS.
6.1 Each Option shall be evidenced by a written stock option agreement,
which shall be executed by a holder of an Option and an authorized officer of
the Company and which shall contain such terms and conditions as the Board (with
respect to an Option granted to any Participant) or Committee (only with respect
to an Option granted to an Employees or Consultant) shall determine, consistent
with this Plan. Stock option agreements evidencing Options intended to qualify
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. Stock option agreements
evidencing Incentive Stock Options shall contain such terms and conditions as
may be necessary to meet the applicable provisions of Section 422 of the Code.
6.2 Subject to Paragraph 4.2, the purchase price of the Common Stock
covered by each Option shall be determined by the Board (with respect to an
Option granted to any Participant) or Committee (only with respect to an Option
granted to an Employee and Consultant), but in the case of (i) an Incentive
Stock Option, or (ii) an Option intended not to be included as "applicable
employee remuneration" pursuant to Section 162(m)(4)(C) of the Code, shall not
be less than one hundred percent (100%) of the fair market value of such Common
Stock, as determined by Board or Committee on the date the Option is granted.
The purchase price of the Common Stock upon exercise of an Option shall be paid
in full at the time of exercise (i) in cash or by certified or cashier's check
payable to the order of the Company, (ii) by cancellation of indebtedness owed
by the Company to the Participant, (iii) by delivery of shares of Common Stock
of the Company already owned by, and in the possession of the Participant, (iv)
if authorized by the Board (with respect to an Option granted to any
Participant), the Committee (only with respect to an Option granted to an
Employee or a Consultant), or if specified in the
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stock option agreement for the Option being exercised, by a recourse promissory
note made by the Participant in favor of the Company or through installment
payments to the Company, in either case subject to terms and conditions
determined by the Board or Committee, and in compliance with applicable law
(including, without limitation, state, corporate and federal requirements), or
(v) by any combination thereof, or (vii) in such other manner as the Board (with
respect to Options granted to Participants) , the Committee (only with respect
to Options granted to an Employee or a Consultant) may specify in order to
facilitate the exercise of Options by the holders thereof, including but not
limited to, a guarantee by the Company of a third party loan to Participant.
Loans, installment payments and guarantees may be granted by the Board or the
Committee without security or collateral, but must provide for a reasonable rate
of interest and the maximum credit available to the Participant shall not exceed
the sum of (x) the aggregate Option price, plus (y) any federal and state income
and employment tax liability incurred by the Participant in connection with the
exercise of the Option. Shares of Common Stock used to satisfy the exercise
price of an Option shall be valued at their fair market value determined in
accordance with Paragraph 7 hereof.
6.3 No Option granted under this Plan shall be exercisable if such exercise
would involve a violation of any applicable law or regulation (including without
limitation, federal and state securities laws and regulations). Each Option
shall be exercisable in such installments during the period prior to its
expiration date as the Board (with respect to an Option granted to any
Participant) or Committee (only with respect to an Option granted to an Employee
or Consultant) shall determine; provided, however, that unless otherwise
determined by the Board or Committee, if the Participant shall not in any given
installment period purchase all of the shares which the Participant is entitled
to purchase in such installment period, then such Participant's right to
purchase any shares not purchased in such installment period shall continue
until the expiration date or sooner termination of the Participant's Option. No
Option may be exercised for a fraction of a share and no partial exercise of any
Option may be for less than 100 shares.
7. FAIR MARKET VALUE OF COMMON STOCK.
The fair market value of a share of Common Stock shall be determined for
the purposes of this Plan by reference to the mean between the bid and asked
price of a share as supplied by the National Association of Securities Dealers
through NASDAQ (or its successor in function) or, if such shares are then traded
on a principal stock exchange, by reference to the closing price of a share on
the principal stock exchange on which such shares are traded, in each case as
reported by The Wall Street Journal for the business day immediately preceding
the date on which the fair market value is determined or, if for any reason no
such price is available, by such other method as the Committee (only with
respect to Options granted to Employees or Consultants) or the Board (with
respect to Options granted to any Participants) shall deem appropriate to
reflect the then fair market value thereof, or by the method provided for in an
agreement with a Participant, if different.
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8. WITHHOLDING TAX.
Upon (i) an Employee's disposition of shares of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option granted pursuant to the
Plan within two years of the granting of the Incentive Stock Option or within
one year after exercise of the Incentive Stock Option, or (ii) a Participant's
exercise of a Non-Qualified Stock Option (or an Incentive Stock Option treated
as a Non-Qualified Stock Option), the Company shall have the right to require
such Employee or Participant, and such Employee or Participant by accepting the
Options granted under the Plan agrees, to pay to the Company the amount of any
taxes which the Company shall be required to withhold with respect thereto. In
the event of (i) or (ii), then such Employee or Participant may elect to pay to
the Company an amount equal to the amount of the taxes which the Company shall
be required to withhold by delivering to the Company shares of Common Stock
having a fair market value determined in accordance with Paragraph 7 equal to
the amount of the withholding tax obligation as determined by the Company. Such
shares so delivered may be either shares withheld by the Company upon the
exercise of the Option or other shares. If the Company becomes subject to the
Exchange Act, and the rules and regulations promulgated thereunder, such
election may not be made by those persons subject to the provisions of Section
16(b) of the Exchange Act within six months of the date of grant of the Option,
except that this limitation will not apply in the event of death or disability
occurring prior to the expiration of the six month period. The election must be
made either (x) not later than six months less one day prior to the date as of
which the amount of tax to be withheld is determined (the "Tax Date"), or (y) in
the ten-day window period provided in Rule 16b-3(e) of the General Rules and
Regulations under the Exchange Act, but in no event later than the Tax Date.
9. NONTRANSFERABILITY.
An Option granted under the Plan shall, by its terms, be nontransferable by
the holder either voluntarily or by operation of law, other than by will or the
laws of descent and distribution, or to an inter-vivos trust established by the
holder of an Option if such transfer shall be allowed by law and not materially
affect the terms and conditions of the Plan, and shall be exercisable during the
holder's lifetime only by the holder, regardless of any community property
interest therein of the spouse of the holder, or such spouse's successors in
interest. If the spouse of the holder shall have acquired a community property
interest in an Option pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, the holder, or the holder's permitted successors in
interest, may exercise the Option on behalf of the spouse of the holder or such
spouse's successors in interest.
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10. HOLDING OF STOCK AFTER EXERCISE OF OPTION.
At the discretion of the Board or Committee, any Option may provide that
the Participant, by accepting such Option, represents and agrees for the
Participant and the Participant's permitted transferees, that none of the shares
acquired upon exercise of an Option will be acquired with a view to any sale,
transfer or distribution of said shares in violation of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations promulgated
thereunder, and the person entitled to exercise the same shall furnish evidence
satisfactory to the Company (including a written and signed representation) to
that effect in form and substance satisfactory to the Company, including an
indemnification of the Company in the event of any violation of the Act by such
person.
11. TERMINATION.
11.1 Upon Termination of Employment (as defined below) of an Employee for
Cause (as defined below), such Employee's Incentive Stock Options and Non-
Qualified Stock Options shall terminate on the date of such Employee's
Termination of Employment, unless by their term they expire sooner. Upon the
Termination of Employment (as defined below) of an Employee for a reason other
than for Cause, such Employee's Incentive Stock Option shall expire three months
after the date of such Employee's Termination of Employment, unless by their
term they expire sooner. Upon Termination of Employment of an Employee, an
Option may be exercised only to the extent it was exercisable according to such
Option's terms on the date of Termination of Employment.
"Termination of Employment" shall mean the time when the employee-employer
relationship between an Employee that holds an Option and the Company or one of
its subsidiary corporations (as defined in Section 424(f) of the Code) is
terminated for any reason other than for Cause, the holder's death or permanent
disability (within the meaning of Section 22(e)(3) of the Code).
Notwithstanding the foregoing, (i) if the Employee shall have entered into an
employment or other agreement with Company, the Board or Committee, as the case
may be, may in its discretion substitute the definition of "cause" in said
agreement for the definition of Cause in this Paragraph 11; (ii) a leave of
absence approved in writing by the Board or Committee shall not be deemed a
Termination of Employment for the purposes of this Paragraph 11, but no
Incentive Stock Option may be exercised during any such leave of absence, except
during the first three months thereof; and (iii) Termination of Employment or
other relationship with the Company and/or any of its subsidiary corporations by
the Employee of a Non-Qualified Stock Option will have the effect specified in
the individual stock option agreement as determined by the Board or Committee.
The Committee, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, provided, however,
that, with respect to Incentive Stock Options, a leave of absence, change in
status from an employee to an independent contractor or other change in the
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<PAGE>
employee-employer relationship shall constitute a Termination of Employment if,
and to the extent that, such leave of absence, change in status or other change
interrupts employment for the purposes of Section 422(a)(2) of the Code and the
then applicable regulations and revenue rulings under said Section.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without Cause, except to the extent
expressly provided otherwise in writing.
"Cause" shall mean (a) the commission of a felony or a crime involving
moral turpitude or the commission of any other act involving willful malfeasance
with respect to the Company, (b) conduct tending to bring the Company into
substantial public disgrace, or disrepute, or (c) gross negligence or willful
misconduct with respect to the Company.
11.2 Upon the Termination of Directorship (as defined below) of an
Independent Director who holds an Option, such Independent Director's Option
shall expire three months from the date of Termination of Directorship.
"Termination of Directorship" shall mean the time when a holder of an
Option who is an Independent Director ceases to be a Director for any reason,
including, but not by way of limitation, a termination by resignation, failure
to be elected, death or retirement. The Board, in its sole and absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Directorship with respect to Independent Directors.
11.3 Upon the Termination of Directorship (as defined below) of an
Independent Director who holds an Option, such Independent Director's Option
shall expire three months from the date of Termination of Directorship.
"Termination of Consultancy" shall mean the time when the engagement of a
Consultant to the Company or a subsidiary of the Company is terminated for any
reason, with or without Cause, including, but not by way of limitation, by
resignation, discharge, death or retirement; but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Consultancy.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a consultant's service at
any time for any reason whatsoever, with or without Cause, except to the extent
expressly provided otherwise in writing.
12. DEATH OR PERMANENT DISABILITY OF OPTION HOLDER.
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If the holder of an Incentive Stock Option dies or becomes permanently
disabled while the Option holder is employed by the Company or one of its
subsidiary corporations (as defined in Section 424(f) of the Code), the holder's
Option shall expire three (3) months (or such other period as may be specified
in an agreement with a Participant) after the date of the holder's death or the
date on which the holder became permanently disabled (within the meaning of
Section 22(e)(3) of the Code) unless by its terms it expires sooner. During
such period after death, such Incentive Stock Option may, to the extent that it
remains unexercised (but exercisable by the holder according to such Option's
terms) upon the date of such death, be exercised by the person or persons to
whom the Option holder's rights under the Incentive Stock Option shall pass by
the Option holder's will or by the laws of descent and distribution. The death
or permanent disability of a holder of a Non-Qualified Stock Option will have
the effect specified in the individual stock option agreement as determined by
the Board (with respect to an Option granted to any Participant) or Committee
(only with respect to an Options granted to an Employee or Consultant).
13. PRIVILEGES OF STOCK OWNERSHIP.
No person entitled to exercise any Option granted under the Plan shall have
any of the rights or privileges of a stockholder of the Company in respect of
any shares of Common Stock issuable upon exercise of such Option until
certificates representing such shares shall have been issued and delivered. No
shares shall be issued and delivered upon exercise of any Option unless and
until, in the opinion of counsel for the Company, there shall have been full
compliance with any applicable registration requirements of the Act, any
applicable listing requirements of any national securities exchange on which the
Common Stock is then listed, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery.
14. ADJUSTMENTS.
14.1 In the event that the outstanding shares of Common Stock are
hereafter changed into or exchanged for a different number or kind of shares or
other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares, appropriate adjustments shall
be made by the Board or Committee in the number and kind of shares (and the
purchase price for such shares) for the purchase of which Options may be
granted; provided, however, that any such adjustment in the outstanding Options
shall be made without change to the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
purchase price for each share covered by the Option.
14.2 In the event of any of the following transactions (a "Change of
Control"):
(i) a merger or acquisition in which the Company is not the surviving
9
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entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company, or
(iii) any other corporate reorganization or business combination in
which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred to different holders in a single transaction or a series of
related transactions,
then at the election of the Board, or if so provided in an Option or other
agreement with a Participant, the exercisability of each Option outstanding
under the Plan shall be automatically accelerated so that each such Option
shall, during the five (5) business day period immediately prior to the
specified effective date for the Change of Control, become fully exercisable
with respect to the total number of shares of Common Stock purchasable under
such Option and may be exercised for all or any portion of such shares;
provided, however, that the exercisability of Incentive Stock Options shall be
subject to the applicable dollar limitation of Paragraph 4.3. Notwithstanding
the foregoing, an outstanding Option under the Plan shall not be so accelerated
if and to the extent such Option is, in connection with the Change of Control,
either to be assumed by the successor corporation or parent thereof or be
replaced with a comparable Option to purchase shares of the capital stock of the
successor corporation or parent thereof. Upon the consummation of the Change of
Control, all outstanding Options under the Plan shall, to the extent not
previously exercised or assumed or replaced by the successor corporation or its
parent company, terminate and cease to be outstanding.
14.3 If the Company is the surviving entity in any merger or other
business combination, then each Option which remains outstanding under the Plan
immediately after such merger or other business combination shall be
appropriately adjusted to provide the holder of the Option the right to acquire,
upon exercise of the Option, the same number of shares of Common Stock that the
holder would have acquired pursuant to the merger or business combination if the
holder had exercised the Option immediately prior to the merger or business
combination. Appropriate adjustments shall also be made to the Option price
payable per share so that the aggregate Option price payable for the aggregate
number of shares subject to the Option shall remain the same. Appropriate
adjustments shall also be made to the class and number of securities available
for issuance under the Plan following the consummation of such merger or
business combination.
14.4 Adjustments under this Paragraph 14 shall be made by the Board (with
respect to Options granted to any Participants) or Committee (only with respect
to Options granted to Employees or Consultants), whose determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
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<PAGE>
No fractional shares of stock shall be issued under the Plan with respect to any
such adjustment. The grant of Options under this Plan shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
15. AMENDMENT AND TERMINATION OF PLAN.
15.1 The Board or Committee may at any time suspend or terminate the Plan.
The Board or Committee may also at any time amend or revise the terms of the
Plan, provided that no such amendment or revision shall, unless appropriate
stockholder approval of such amendment or revision is obtained, (i) increase the
maximum number of shares which may be acquired pursuant to Options granted under
the Plan, except as permitted under the provisions of Paragraph 14, (ii) change
the minimum purchase price required under Paragraphs 4.2 and 6, (iii) increase
the maximum term of Options provided for in Paragraph 5, or (iv) change the
classes of persons eligible to receive Options as provided in Paragraph 4.
15.2 No amendment, suspension or termination of the Plan shall, without the
consent of the holder, alter or impair any rights or obligations under any
Option theretofore granted under the Plan.
15.3 Except as provided in Paragraph 14 hereof, no modification may be made
to an Option granted to a Participant who is subject to Section 16 of the
Exchange Act except in compliance with Rule 16b-3 of the General Rules and
Regulations under the Exchange Act.
15.4 Any Options granted to a Participant by the Committee are intended to
be included as "applicable employee remuneration" pursuant to Section
162(m)(4)(C) of the Code, and such Committee shall administer the Plan with
respect to such Options and may make such amendments as may be necessary to
effect such exclusion with respect thereto under Section 162(m)(4)(C) to the
extent such amendment would not otherwise violate this Paragraph 15.
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<PAGE>
16. GENERAL PROVISIONS APPLICABLE TO PARTICIPANTS SUBJECT TO SECTION 16 OF THE
EXCHANGE ACT.
16.1 It is the intent of the Company that this Plan shall comply in all
respects with Rule 16b-3 of the General Rules and Regulations under the Exchange
Act in connection with any Option granted to a person who is subject to Section
16 of the Exchange Act. Accordingly, if any provision of this Plan does not
comply with the requirements of Rule 16b-3 as then applicable to any such
person, such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements with respect to such person.
16.2 Unless a Participant could otherwise transfer an equity security (as
defined in Section 3(a)(11) of the Exchange Act), derivative security (as
defined in Rule 16a-1(c) of the General Rules and Regulations under the Exchange
Act), or shares of the Company's Common Stock issued upon exercise of a
derivative security granted under the Plan without incurring liability under
Section 16(b) of the Exchange Act, (i) an equity security issued under the Plan,
other than an equity security issued pursuant to the exercise of a derivative
security granted under the Plan, shall be held for at least six months from the
date of acquisition, and (ii) with respect to a derivative security granted
under the Plan and the equity security issued pursuant to the exercise thereof,
at least six months shall elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security.
17. EFFECTIVE DATE OF PLAN.
No Option may be granted under the Plan unless and until (i) the Options
and underlying shares have been registered under the Act and qualified with the
appropriate state regulatory agencies, or (ii) the Company has been advised by
counsel that such Options and shares are exempt from such registration and/or
qualification. The Plan shall be submitted for approval by the holders of the
outstanding voting stock of the Company within twelve months from the date the
Plan is adopted by the Board. The Plan shall be deemed approved by the holders
of the outstanding voting stock of the Company by (i) the affirmative vote of
the holders of a majority of the voting shares of the Company represented and
voting at a duly held meeting at which a quorum is present or (ii) the written
consent of the holders of a majority of the outstanding voting shares of the
Company. Any Options granted under the Plan prior to obtaining such stockholder
approval shall be granted under the conditions that the Options so granted (x)
shall not be exercisable prior to such approval, and (y) shall become null and
void if such stockholder approval is not obtained. No Option that is intended
not to be included as "applicable employee remuneration" pursuant to Section
162(m)(4)(C) of the Code shall be granted prior to stockholder approval of the
Plan.
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Exhibit 10.8
THE FILM ROMAN, INC. STOCK OPTION PLAN
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") dated as of ________________,
1996, is made by and between FILM ROMAN, INC., a Delaware corporation
("Company") and __________________________________ ("Employee").
WHEREAS, the Company desires to permit the Employee to share directly in
the growth of the business of the Company and its Subsidiaries, and to identify
the Employee's interests with those of Company's stockholders by awarding an
Option to Employee under the terms of the Company's 1996 Stock Option Plan
hereof (the "Plan");
NOW, THEREFORE, and in consideration of the Employee's employment with the
Company or a Subsidiary, the Company and the Employee agree as follows:
1. DEFINITIONS.
-----------
Any term which is not defined in this Agreement shall have the meaning
given such term under the Plan. The following terms shall have the meaning
specified below, unless the context clearly indicates to the contrary:
"Agreement" shall mean this Option Agreement.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (a) the commission of a felony or a crime involving
moral turpitude or the commission of any other act involving willful malfeasance
with respect to the Company, (b) conduct tending to bring the Company into
substantial public disgrace or disrepute or (c) gross negligence or willful
misconduct with respect to the Company, provided that, if the Employee has
entered into an employment agreement with the Company which contains a different
definition of "Cause" such different definition shall be deemed substituted
herein.
"Change in Control" shall have the meaning set forth in Paragraph 14.2 of
the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Committee appointed as provided in Paragraph 2.1
of the Plan.
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"Company" shall mean Film Roman, Inc., a Delaware corporation. In
addition, "Company" shall mean any corporation assuming, or issuing new employee
stock options in substitution for, the Options outstanding under the Plan, in a
transaction to which Section 424(a) of the Code applies.
"Employer" shall mean the Company or the Subsidiary that employs the
Employee on the date hereof, provided that, if the Employee subsequently is
transferred to another corporation covered by the Plan, such employing
corporation shall be the Employer for purposes of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the value per share of the Company's Common
Stock determined in accordance with Paragraph 7 of the Plan.
"Incentive Stock Option" shall mean an Option intended to be and designated
as an "incentive stock option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" shall mean an Option that is not an Incentive
Stock Option.
"Option" shall mean an option to purchase Shares granted pursuant to the
Plan.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean a share of the Company's Common Stock, no par value.
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company, if each such corporation (other than
the last corporation in the unbroken chain), or if each group of commonly
controlled corporations, then owns fifty percent (50%) or more of the total
combined voting power in one of the other corporations in such chain.
"Ten Percent Stockholder" shall mean an Employee, who at the time an
Incentive Stock Option is to be granted to him/her, owns (within the meaning of
Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or a
Subsidiary.
"Termination of Employment" shall mean the date on which the employee-
employer relationship between the Employee and the Employer is terminated for
any
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<PAGE>
reason whatsoever, but excluding any termination where there is a simultaneous
re-employment by the Company or a Subsidiary.
2. GRANT OF OPTION.
---------------
2.1 Grant; Grant Date
-----------------
Pursuant to the provisions of the Plan and subject to the terms and
conditions of the Plan, the Company hereby grants to the Employee the right and
option to purchase from the Company all or any part of an aggregate of _____
Shares upon the terms and conditions set forth in this Agreement. The Grant
Date of the Option shall be __________________. The Employee hereby accepts the
Option, acknowledges that Employee has received and read a copy of the Plan, and
agrees to be bound by all the terms and provisions of the Plan and this
Agreement. The Option granted hereunder is a Non-Qualified Stock Option as
defined herein.
2.2 Adjustments in Option
---------------------
In the event that the outstanding Shares are hereafter changed into or
exchanged for a different number or kind of shares or other securities of the
Company, or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, appropriate adjustments shall be made by the
Board or Committee in the number and kind of shares (and the purchase price for
such shares) for the purchase of which Options may be granted; provided,
however, that any such adjustment in the outstanding Options shall be made
without change to the aggregate purchase price applicable to the unexercised
portion of the Option, but with a corresponding adjustment in the purchase price
for each Share covered by the Option.
2.3 Option Terms
------------
The Option granted under this Option Agreement shall be subject to the
following terms and conditions:
(a) Price. The exercise price for the Shares subject to the Option shall
-----
be _____ per Share.
(b) Term. The Option shall expire on the tenth anniversary of the Grant
----
Date, unless terminated earlier in accordance with Paragraph 2.3(e) hereof.
(c) Vesting. Except as provided in Paragraph 3.1, the Option shall become
-------
exercisable as follows:
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THE OPTION SHALL BECOME
EXERCISABLE WITH RESPECT TO
THE FOLLOWING CUMULATIVE
ON OR AFTER NUMBER OF SHARES
-------------------- ------------------------------
20%, i.e., _____ shares
20%, i.e., _____ shares
20%, i.e., _____ shares
20%, i.e., _____ shares
20%, i.e., _____ shares
(d) Exercise. The exercise of an Option shall be made only by a written
--------
notice delivered in person or by first class mail to the Secretary of the
Company at the Company's principal executive office, specifying the number of
Shares to be purchased and accompanied by full payment therefor and otherwise in
accordance with this Agreement and the Plan. The purchase price of the Shares
upon exercise of an Option shall be paid in full at the time of exercise (i) in
cash or by certified or cashier's check payable to the order of the Company,
(ii) by cancellation of indebtedness owed by the Company to the Employee, (iii)
by delivery of Shares of the Company already owned by, and in the possession of
the Employee, (iv) by a recourse promissory note made by the Employee in favor
of the Company or through installment payments to the Company, in either case
subject to terms and conditions determined by the Board or Committee, and in
compliance with applicable law (including, without limitation, state, corporate
and federal requirements) or (v) by any combination thereof.
(e) Status of Option Upon Termination of Employment. In the event of the
-----------------------------------------------
Employee's Termination of Employment, any outstanding Options held by Employee
shall terminate as follows:
(i) If the Employee's Termination of Employment is due to the
Employee's death or permanent disability (within the meaning of Section
22(e)(3) of the Code or as defined in Employee's employment agreement with
Company, if different), all Options, to the extent exercisable at the
Termination of Employment shall be exercisable for a period of three (3)
months from the Termination of Employment, unless, by their term, they
expire sooner, as may be set forth in the Employee's employment agreement
with the Company, if any.
(ii) If the Employee's Termination of Employment is for Cause,
all Options shall terminate on the date of the Employee's Termination of
Employment, unless, by their term, they expire sooner.
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(iii) In all other cases, all Options (to the extent exercisable
at the time of such termination) shall be exercisable for a period of three
(3) months following the month of Employee's Termination of Employment,
unless, by their term, they expire sooner.
2.4 Non-Transferability
-------------------
The Options granted hereunder are nontransferable by the Employee
either voluntarily or by operation of law, other than by will or the laws of
descent and distribution, or to an inter-vivos trust established by the Employee
if such transfer shall be allowed by law and not materially affect the terms and
conditions of the Plan, and shall be exercisable during the Employee's lifetime
only by the Employee, regardless of any community property interest therein of
the spouse of the Employee, or such spouse's successors in interest. If the
spouse of the Employee shall have acquired a community property interest in an
option pursuant to a qualified domestic relations order as defined under the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, the Employee, or the Employee's permitted successors in interest, may
exercise the option on behalf of the spouse of the Employee or such spouse's
successors in interest.
2.5 Conditions to Issuance of Stock Certificates
--------------------------------------------
(a) The Shares deliverable upon the exercise of the Option, or any
portion thereof, shall be authorized, but unissued Shares of the Company. Such
Shares shall be fully paid and nonassessable. The stock certificates evidencing
the Shares shall bear such legends restricting transferability as the Board or
Committee deems necessary or advisable.
(b) The Company shall not be required to issue or deliver any
certificate or certificates for Shares deliverable upon any exercise of the
Option prior to fulfillment of all of the following conditions:
(i) The completion of any registration, or other qualification of
such Shares under any state or federal law, or exemptions from such state
or federal law, or under rulings or regulations of the Securities and
Exchange Commission, or of any other governmental regulatory body, or the
obtaining of approval or other clearance from any state or federal
governmental agency which the Board or Committee shall, in its sole
discretion, deem necessary or advisable.
(ii) If the Board or Committee shall, in its sole discretion,
deem it necessary or advisable, the execution by the Employee of a written
representation and agreement, in a form satisfactory to the Board of
Committee, in which the Employee represents that the Shares acquired by the
Employee
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<PAGE>
upon exercise are being acquired for investment and not with a view to
distribution thereof.
(iii) If the Board or Committee shall, in its sole discretion,
so determine the execution by the Employee of an agreement to be bound by
the provisions of any shareholders agreement then in force between other
shareholders of the Company.
2.6 Rights as Stockholder
---------------------
The Employee shall not be, nor have any or the rights or privileges
of, a stockholder of the Company in respect of any Shares purchasable upon the
exercise of the Option unless and until certificates representing such Shares
shall have been issued by the Company.
2.7 Representations of Employee
---------------------------
Employee hereby warrants and represents that Employee is acquiring the
Options for Employee's own account and not with a view to their resale or
distribution and that Employee is prepared to hold the Option for an indefinite
period and has no present intention to sell, distribute or grant any
participating interests in the Options. Employee hereby acknowledges the fact
that the Options have not been registered under the Securities Act, or
applicable state securities law and that the Company is issuing the Options to
Employee in reliance upon the exemption from such registration provided by Rule
701 of the General Rules and Regulations under the Securities Act for securities
issuances under compensatory benefit plans such as the Plan and on the
representations made by Employee herein or by Section 4.(2) of the Securities
Act.
3. OTHER PROVISIONS RE: OPTIONS.
----------------------------
3.1 Corporate Transaction (Change of Control).
----------------------------------------
In the event of a Change of Control, the Committee may, in its
absolute discretion and upon such terms and conditions as it deems appropriate,
provide by resolution, adopted prior to such event, that at some time prior to
the effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable; provided, however, that this acceleration of exercisability
shall not take place if:
(a) This Option becomes unexercisable under Section 2.3 prior to
said effective date; or
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<PAGE>
(b) in connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
3.2 Repurchase Right.
----------------
Upon Employee's Termination of Employment, the Company shall have the
right to purchase from the Employee, any Shares issued to Employee upon exercise
of Options pursuant to this Agreement, or vested but unexercised Options, by
notifying Employee of its decision to so purchase the Shares or vested but
unexercised Options within sixty (60) days of such Termination of Employment;
the purchase price for such Shares shall be their Fair Market Value at the date
of notification; the purchase price for Options shall be the difference between
the Fair Market Value and the exercise price for such Options at the date of
notification. The Fair Market Value determined in accordance with the
provisions of Paragraph 7 of the Plan.
4. MISCELLANEOUS.
-------------
4.1 Administration.
--------------
The Board or Committee shall have the power to interpret the Plan and
this Agreement, and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret or
revoke any such rules. All actions taken and all interpretations and
determinations made by the Board or Committee shall be final and binding upon
the Employee, the Company and all other interested persons.
4.2 Withholding of Taxes; Code Section 83(b) (Election to Include in
----------------------------------------------------------------
Gross Income in Year of Transfer)
---------------------------------
Upon Employee's exercise of a Non-Qualified Stock Option (or an
Incentive Stock Option treated as a Non-Qualified Stock Option), the Company
shall have the right to require such Employee, and such Employee, by accepting
the Options granted under the Plan and this Agreement, agrees to pay to the
Company the amount of any taxes which the Company shall be required to withhold
with respect thereto. The Employee may elect to pay to the Company an amount
equal to the amount of the taxes which the Company shall be required to withhold
by delivering to the Company Shares having a Fair Market Value determined in
accordance with Paragraph 7 of the Plan equal to the amount of the withholding
tax obligation as determined by the Company. Such Shares so delivered may be
either Shares withheld by the Company
7
<PAGE>
upon the exercise of the Option or other Shares. If the Company becomes subject
to the Exchange Act, and the rules and regulations promulgated thereunder, such
election may not be made by those persons subject to the provisions of Section
16(b) of the Exchange Act within six months of the date of grant of the Option,
except that this limitation will not apply in the event of death or disability
occurring prior to the expiration of the six month period. The election must be
made either (x) not later than six months less one day prior to the date as of
which the amount of tax to be withheld is determined (the "Tax Date"), or (y) in
the ten-day window period provided in Rule 16b-3(e) of the General Rules and
Regulations under the Exchange Act, but in no event later than the Tax Date.
4.3 No Right to Continued Employment
--------------------------------
Nothing in this Agreement or in the Plan shall confer upon the
Employee any right to continue in the employ of the Employer or shall interfere
with or restrict in any way the rights of the Employer, which are hereby
expressly reserved, to discharge the Employee at any time for any reason
whatsoever, with or without cause.
4.4 Entire Agreement; Amendment
---------------------------
This Agreement, together with the Plan, constitutes the entire
agreement between the parties with respect to the subject matter hereof. Any
term or provision of this Agreement may be waived at any time by the party which
is entitled to the benefits thereof, any term or provision of this Agreement may
be amended or supplemented at any time by the mutual consent of the parties
hereto, except that any waiver of any term or condition, or any amendment, of
this Agreement must be in writing.
4.5 Governing Law
-------------
The laws of the State of Delaware shall govern the interpretation,
validity and performance of the terms of this Agreement, regardless of the law
that might be applied under principles of conflict of laws.
4.6 Successors
----------
This Agreement shall be binding upon and inure to the benefit of the
successors, assigns and heirs of the respective parties.
4.7 Notices
-------
All notices or other communications made or given in connection with
this Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by registered or certified mail, return receipt
requested, to those listed below at their following respective addresses or at
such other address as each may specify by notice to the others:
8
<PAGE>
To the Employee:
---------------
---------------------------
---------------------------
---------------------------
To the Company:
--------------
Film Roman, Inc.
12020 Chandler Boulevard
North Hollywood, California 91607
Attention: Corporate Secretary
4.8 Waiver
------
The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
4.9 Titles; Construction
--------------------
Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Agreement. The
masculine pronoun shall include the feminine and neuter and the singular shall
include the plural, when the context so indicates.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
FILM ROMAN, INC.
By:
-------------------------------
Name: Philip Roman
Title: President
EMPLOYEE
----------------------------------
Name:
-----------------------------
9
<PAGE>
Exhibit 10.9
THE FILM ROMAN, INC. STOCK OPTION PLAN
DIRECTOR OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") dated as of ________________, 1996,
is made by and between FILM ROMAN, INC., a Delaware corporation ("Company") and
__________________________________ ("Director").
WHEREAS, the Company desires to permit the Director to share directly in
the growth of the business of the Company and its Subsidiaries, and to identify
the Director's interests with those of Company's stockholders by awarding an
Option to Director under the terms of the Company's 1996 Stock Option Plan
hereof (the "Plan");
NOW, THEREFORE, and in consideration of the Director's service on the board
of Directors of the Company, the Company and the Director agree as follows:
1. DEFINITIONS.
-----------
Any term which is not defined in this Agreement shall have the meaning
given such term under the Plan. The following terms shall have the meaning
specified below, unless the context clearly indicates to the contrary:
"Agreement" shall mean this Option Agreement.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall have the meaning set forth in Paragraph 14.2 of
the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Committee appointed as provided in Paragraph 2.1
of the Plan.
"Company" shall mean Film Roman, Inc., a Delaware corporation. In
addition, "Company" shall mean any corporation assuming, or issuing new employee
stock options in substitution for, the Options outstanding under the Plan, in a
transaction to which Section 424(a) of the Code applies.
1
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the value per share of the Company's Common
Stock determined in accordance with Paragraph 7 of the Plan.
"Non-Qualified Stock Option" shall mean an Option that is not designated as
an "incentive stock option" within the meaning of Section 422 of the Code.
"Option" shall mean an option to purchase Shares granted pursuant to the
Plan.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean a share of the Company's Common Stock, $.01 value.
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company, if each such corporation (other than
the last corporation in the unbroken chain), or if each group of commonly
controlled corporations, then owns fifty percent (50%) or more of the total
combined voting power in one of the other corporations in such chain.
"Termination of Directorship" shall mean the time when the Director ceases
to be a member of the Board for any reason, including, but not by way of
limitation, a termination by resignation, failure to be elected, death or
retirement. The Board, in its sole and absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Directorship with
respect to the Director.
2. GRANT OF OPTION.
---------------
2.1 Grant; Grant Date
-----------------
Pursuant to the provisions of the Plan and subject to the terms and
conditions of the Plan, the Company hereby grants to the Director the right and
option to purchase from the Company all or any part of an aggregate of _____
Shares upon the terms and conditions set forth in this Agreement. The Grant
Date of the Option shall be ____________________. The Director hereby accepts
the Option, acknowledges that Director has received and read a copy of the Plan,
and agrees to be bound by all the terms and provisions of the Plan and this
Agreement. The Option granted hereunder is a Non-Qualified Stock Option as
defined herein.
2.2 Adjustments in Option
---------------------
In the event that the outstanding Shares are hereafter changed into or
exchanged for a different number or kind of shares or other securities of the
2
<PAGE>
Company, or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, appropriate adjustments shall be made by the
Board or Committee in the number and kind of shares (and the purchase price for
such shares) for the purchase of which Options may be granted; provided,
however, that any such adjustment in the outstanding Options shall be made
without change to the aggregate purchase price applicable to the unexercised
portion of the Option, but with a corresponding adjustment in the purchase price
for each Share covered by the Option.
2.3 Option Terms
------------
The Option granted under this Option Agreement shall be subject to
the following terms and conditions:
(a) Price. The exercise price for the Shares subject to the
-----
Option shall be ____________ per Share.
(b) Term. The Option shall expire on the tenth anniversary of
----
the Grant Date, unless terminated earlier in accordance with Paragraph 2.3(e)
hereof.
(c) Vesting. Except as provided in Paragraph 3.1, the Option
-------
shall become exercisable as follows:
THE OPTION SHALL BECOME
EXERCISABLE WITH RESPECT TO
THE FOLLOWING CUMULATIVE
ON OR AFTER NUMBER OF SHARES
-------------------- ------------------------------
20%, i.e., _____ shares
20%, i.e., _____ shares
20%, i.e., _____ shares
20%, i.e., _____ shares
20%, i.e., _____ shares
(d) Exercise. The exercise of an Option shall be made only by
--------
a written notice delivered in person or by first class mail to the Secretary of
the Company at the Company's principal executive office, specifying the number
of Shares to be purchased and accompanied by full payment therefor and otherwise
in accordance with this Agreement and the Plan. The purchase price of the Shares
upon
3
<PAGE>
exercise of an Option shall be paid in full at the time of exercise (i) in cash
or by certified or cashier's check payable to the order of the Company, (ii) by
cancellation of indebtedness owed by the Company to the Director, (iii) by
delivery of Shares of the Company already owned by, and in the possession of the
Director, or (iv) by a recourse promissory note made by the Director in favor of
the Company or through installment payments to the Company, in either case
subject to terms and conditions determined by the Board, and in compliance with
applicable law (including, without limitation, state, corporate and federal
requirements).
(e) Status of Option Upon Termination of Directorship. In the
-------------------------------------------------
event of the Director's Termination of Directorship, any outstanding Options
held by Director shall terminate three (3) months following the date of the
Director's Termination of Directorship, unless, by their term, they expire
sooner.
2.4 Non-Transferability
-------------------
The Options granted hereunder are nontransferable by the Director
either voluntarily or by operation of law, other than by will or the laws of
descent and distribution, or to an inter-vivos trust established by the Director
if such transfer shall be allowed by law and not materially affect the terms and
conditions of the Plan, and shall be exercisable during the Director's lifetime
only by the Director, regardless of any community property interest therein of
the spouse of the Director, or such spouse's successors in interest. If the
spouse of the Director shall have acquired a community property interest in an
option pursuant to a qualified domestic relations order as defined under the
Code or Title I of the Director Retirement Income Security Act of 1974, as
amended, the Director, or the Director's permitted successors in interest, may
exercise the option on behalf of the spouse of the Director or such spouse's
successors in interest.
2.5 Conditions to Issuance of Stock Certificates
--------------------------------------------
(a) The Shares deliverable upon the exercise of the Option, or any
portion thereof, shall be authorized, but unissued Shares of the Company. Such
Shares shall be fully paid and nonassessable. The stock certificates evidencing
the Shares shall bear such legends restricting transferability as the Board or
Committee deems necessary or advisable.
(b) The Company shall not be required to issue or deliver any
certificate or certificates for Shares deliverable upon any exercise of the
Option prior to fulfillment of all of the following conditions:
(i) The completion of any registration, or other qualification of
such Shares under any state or federal law, or exemptions from such state or
federal law, or under rulings or regulations of the Securities and Exchange
Commission, or of any other governmental regulatory body, or the obtaining of
approval or other clearance from any state or federal governmental
4
<PAGE>
agency which the Board or Committee shall, in its sole discretion, deem
necessary or advisable.
(ii) If the Board or Committee shall, in its sole discretion,
deem it necessary or advisable, the execution by the Director of a written
representation and agreement, in a form satisfactory to the Board of Committee,
in which the Director represents that the Shares acquired by the Director upon
exercise are being acquired for investment and not with a view to distribution
thereof.
(iii) If the Board or Committee shall, in its sole discretion, so
determine the execution by the Director of an agreement to be bound by the
provisions of any shareholders agreement then in force between other
shareholders of the Company.
2.6 Rights as Stockholder
---------------------
The Director shall not be, nor have any or the rights or privileges of, a
stockholder of the Company in respect of any Shares purchasable upon the
exercise of the Option unless and until certificates representing such Shares
shall have been issued by the Company.
2.7 Representations of Director
---------------------------
Director hereby warrants and represents that Director is acquiring the
Options for Director's own account and not with a view to their resale or
distribution and that Director is prepared to hold the Option for an indefinite
period and has no present intention to sell, distribute or grant any
participating interests in the Options. Director hereby acknowledges the fact
that the Options have not been registered under the Securities Act, or
applicable state securities law and that the Company is issuing the Options to
Director in reliance upon the exemption from such registration provided by Rule
701 of the General Rules and Regulations under the Securities Act for securities
issuances under compensatory benefit plans such as the Plan and on the
representations made by Director herein or by Section 4.(2) of the Securities
Act.
3. OTHER PROVISIONS RE: OPTIONS.
----------------------------
3.1 Change of Control.
-----------------
In the event of a Change of Control, the Board or Committee may, in its
absolute discretion and upon such terms and conditions as it deems appropriate,
provide by resolution, adopted prior to such event, that at some time prior to
the effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable; provided, however, that this acceleration of exercisability
shall not take place if:
5
<PAGE>
(a) This Option becomes unexercisable under Section 2.3 prior to
said effective date; or
(b) in connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Board or Committee may make such determinations and adopt such rules
and conditions as it, in its absolute discretion, deems appropriate in
connection with such acceleration of exercisability, including, but not by way
of limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
3.2 Repurchase Right.
----------------
Upon Director's Termination of Directorship, the Company shall have the
right to purchase from the Director, any Shares issued to Director upon exercise
of Options pursuant to this Agreement, or vested but unexercised Options, by
notifying Director of its decision to so purchase the Shares or vested but
unexercised Options within sixty (60) days of such Termination of Directorship;
the purchase price for such Shares shall be their Fair Market Value at the date
of notification; the purchase price for Options shall be the difference between
the Fair Market Value and the exercise price for such Options at the date of
notification. The Fair Market Value determined in accordance with the
provisions of Paragraph 7 of the Plan.
4. MISCELLANEOUS.
-------------
4.1 Administration.
--------------
The Board or Committee shall have the power to interpret the Plan and this
Agreement, and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Board or Committee shall be final and binding upon the Director, the
Company and all other interested persons.
4.2 Withholding of Taxes; Code Section 83(b) (Election to Include in
----------------------------------------------------------------
Gross Income in Year of Transfer)
---------------------------------
Upon Director's exercise of a Non-Qualified Stock Option, the
Company shall have the right to require such Director, and such Director, by
accepting the Options granted under the Plan and this Agreement, agrees to pay
to the Company the amount of any taxes which the Company shall be required to
withhold with respect thereto. The Director may elect to pay to the Company an
amount equal to the amount of the taxes which the Company shall be required to
withhold by delivering to the Company Shares having a Fair Market Value
determined in accordance with Paragraph
6
<PAGE>
7 of the Plan equal to the amount of the withholding tax obligation as
determined by the Company. Such Shares so delivered may be either Shares
withheld by the Company upon the exercise of the Option or other Shares. If the
Company becomes subject to the Exchange Act, and the rules and regulations
promulgated thereunder, such election may not be made by those persons subject
to the provisions of Section 16(b) of the Exchange Act within six months of the
date of grant of the Option, except that this limitation will not apply in the
event of death or disability occurring prior to the expiration of the six month
period. The election must be made either (x) not later than six months less one
day prior to the date as of which the amount of tax to be withheld is determined
(the "Tax Date"), or (y) in the ten-day window period provided in Rule 16b-3(e)
of the General Rules and Regulations under the Exchange Act, but in no event
later than the Tax Date.
4.3 Entire Agreement; Amendment
---------------------------
This Agreement, together with the Plan, constitutes the entire agreement
between the parties with respect to the subject matter hereof. Any term or
provision of this Agreement may be waived at any time by the party which is
entitled to the benefits thereof, any term or provision of this Agreement may be
amended or supplemented at any time by the mutual consent of the parties hereto,
except that any waiver of any term or condition, or any amendment, of this
Agreement must be in writing.
4.4 Governing Law
-------------
The laws of the State of Delaware shall govern the interpretation, validity
and performance of the terms of this Agreement, regardless of the law that might
be applied under principles of conflict of laws.
4.5 Successors
----------
This Agreement shall be binding upon and inure to the benefit of the
successors, assigns and heirs of the respective parties.
4.6 Notices
-------
All notices or other communications made or given in connection with this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by registered or certified mail, return receipt requested,
to those listed below at their following respective addresses or at such other
address as each may specify by notice to the others:
To the Director:
---------------
--------------------------------------------
--------------------------------------------
7
<PAGE>
--------------------------------------------
To the Company:
--------------
Film Roman, Inc.
12020 Chandler Boulevard
North Hollywood, California 91607
Attention: Corporate Secretary
4.7 Waiver
------
The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver thereof or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
4.8 Titles; Construction
--------------------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Agreement. The masculine
pronoun shall include the feminine and neuter and the singular shall include the
plural, when the context so indicates.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
FILM ROMAN, INC.
By:
--------------------------------
Name: Philip Roman
Title: President
Director
-----------------------------------
Name:
-----------------------------
8
<PAGE>
Exhibit 10.10
THE FILM ROMAN, INC. STOCK OPTION PLAN
FORM OF WILLIAM SCHULTZ OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") dated as of ________________, 1996,
is made by and between FILM ROMAN, INC., a California corporation ("Company")
and William Schultz ("Employee").
WHEREAS, the Company desires to permit the Employee to share directly in
the growth of the business of the Company and its Subsidiaries, and to identify
the Employee's interests with those of Company's stockholders by awarding an
Option to Employee under the terms of the Company's 1996 Stock Option Plan
hereof (the "Plan");
WHEREAS, the Employee's employment agreement dated August 7, 1995 (the
"Employment Agreement") provides for the grant of an option to purchase 74,000
shares of the common stock of the Company;
NOW, THEREFORE, and in consideration of the Employee's employment with the
Company and pursuant to the terms of the Employment Agreement, the Company and
the Employee agree as follows:
1. DEFINITIONS.
------------
Any term which is not defined in this Agreement shall have the meaning
given such term under the Plan. The following terms shall have the meaning
specified below, unless the context clearly indicates to the contrary:
"Agreement" shall mean this Option Agreement.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (a) the commission of a felony or a crime involving
moral turpitude or the commission of any other act involving willful malfeasance
with respect to the Company, (b) conduct tending to bring the Company into
substantial public disgrace or disrepute or (c) gross negligence or willful
misconduct with respect to the Company, provided that, if the Employee has
entered into an employment agreement with the Company which contains a different
definition of "Cause" such different definition shall be deemed substituted
herein.
"Change in Control" shall have the meaning set forth in Paragraph 14.2
of the Plan.
1
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Committee appointed as provided in Paragraph 2.1
of the Plan.
"Company" shall mean Film Roman, Inc., a California corporation. In
addition, "Company" shall mean any corporation assuming, or issuing new employee
stock options in substitution for, the Options outstanding under the Plan, in a
transaction to which Section 424(a) of the Code applies.
"Employer" shall mean the Company or the Subsidiary that employs the
Employee on the date hereof, provided that, if the Employee subsequently is
transferred to another corporation covered by the Plan, such employing
corporation shall be the Employer for purposes of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the value per share of the Company's Common
Stock determined in accordance with Paragraph 7 of the Plan.
"Non-Qualified Stock Option" shall mean an Option that is not designated as
an "incentive stock option" within the meaning of Section 422 of the Code.
"Option" shall mean an option to purchase Shares granted pursuant to the
Plan.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean a share of the Company's Common Stock, no par value.
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company, if each such corporation (other than
the last corporation in the unbroken chain), or if each group of commonly
controlled corporations, then owns fifty percent (50%) or more of the total
combined voting power in one of the other corporations in such chain.
"Termination of Employment" shall mean the date on which the employee-
employer relationship between the Employee and the Employer is terminated for
any reason whatsoever, but excluding any termination where there is a
simultaneous re-employment by the Company or a Subsidiary.
2
<PAGE>
2. GRANT OF OPTION.
---------------
2.1 Grant; Grant Date
-----------------
Pursuant to the provisions of the Plan and subject to the terms
and conditions of the Plan, the Company hereby grants to the Employee the right
and option to purchase from the Company all or any part of an aggregate of
74,000 Shares upon the terms and conditions set forth in this Agreement. The
Grant Date of the Option shall be January 8, 1996. The Employee hereby accepts
the Option, acknowledges that Employee has received and read a copy of the Plan,
and agrees to be bound by all the terms and provisions of the Plan and this
Agreement. The Option granted hereunder is a Non-Qualified Stock Option as
defined herein.
2.2 Adjustments in Option
---------------------
In the event that the outstanding Shares are hereafter changed
into or exchanged for a different number or kind of shares or other securities
of the Company, or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, appropriate adjustments shall be made by the
Board or Committee in the number and kind of shares (and the purchase price for
such shares) for the purchase of which Options may be granted; provided,
however, that any such adjustment in the outstanding Options shall be made
without change to the aggregate purchase price applicable to the unexercised
portion of the Option, but with a corresponding adjustment in the purchase price
for each Share covered by the Option.
2.3 Option Terms
------------
The Option granted under this Option Agreement shall be subject to
the following terms and conditions:
(a) Price. The exercise price for the Shares subject to the
-----
Option shall be $10.00 per Share.
(b) Term. The Option shall expire on the tenth anniversary of
----
the Grant Date, unless terminated earlier in accordance with Paragraph 2.3(e)
hereof.
(c) Vesting. Except as provided in Paragraph 3.1, the Option
-------
shall become exercisable as follows (unless earlier terminated pursuant to the
terms of this Agreement):
(i) if during the calendar year 1995, 1996 or 1997, EBT for such year
equals or exceeds 90% of projected EBT for such year (as set forth in the
Employment Agreement), then 12,333 Shares subject to the Option shall
immediately vest upon determination by the Board of Directors that such EBT has
been obtained; or
3
<PAGE>
(ii) if Company fails to achieve the 90% EBT projections for any of the
calendar years 1995 or 1996, but if during the calendar year 1996 (in the event
EBT projections are not met for 1995) or during any calendar year 1997 (in the
event EBT projections are not met for 1996), EBT for such year equals or exceeds
90% of projected EBT for such year with the result that the average EBT for the
preceding calendar year 1995 or 1996, as the case may be, equals or exceeds 90%
of projected EBT for all such years then 12,333 Shares shall vest with respect
to each year with respect to which such average has been achieved;
(iii) 50% of the Shares subject to the Option shall vest on August 7,
1998 if, pursuant to Section 2.2 of the Employment Agreement, Company exercises
its option to employ the Employee for the "first extended term" (i.e., for at
least one year beginning August 7, 1998 and ending no earlier than one year
thereafter);
(iv) all of the Shares remaining subject to the Option shall vest on
August 7, 1999 if, pursuant to Section 2.2 of the Employment Agreement, Company
exercises its option to employ the Employee for the "second extended term"
(i.e., for at least one year beginning August 7, 1999 and ending no earlier than
one year thereafter);
(v) if the Company does not elect to employ the Employee for the
"second extended term" as described in the foregoing clause (iv), but,
nonetheless, if the Employee remains a full-time salaried employee of the
Company through January 1, 2002, then all the Shares remaining subject to the
Option shall vest on January 1, 2002.
(d) Exercise. The exercise of an Option shall be made only by a written
--------
notice delivered in person or by first class mail to the Secretary of the
Company at the Company's principal executive office, specifying the number of
Shares to be purchased and accompanied by full payment therefor and otherwise in
accordance with this Agreement and the Plan. The purchase price of the Shares
upon exercise of an Option shall be paid in full at the time of exercise (i) in
cash or by certified or cashier's check payable to the order of the Company,
(ii) by cancellation of indebtedness owed by the Company to the Employee, (iii)
by delivery of Shares of the Company already owned by, and in the possession of
the Employee, (iv) by a recourse promissory note made by the Employee in favor
of the Company or through installment payments to the Company, in either case
subject to terms and conditions determined by the Board or Committee, and in
compliance with applicable law (including, without limitation, state, corporate
and federal requirements) or (v) by any combination thereof.
(e) Status of Option Upon Termination of Employment. In the event of
-----------------------------------------------
the Employee's Termination of Employment, any outstanding Options held by
Employee shall terminate as follows:
(i) If the Employee's Termination of Employment is due to the
Employee's death or permanent disability (within the meaning of Section
4
<PAGE>
22(e)(3) of the Code or as defined in Employee's employment agreement with
Company, if different), all Options, to the extent exercisable at the
Termination of Employment shall be exercisable for a period of three (3)
months from the Termination of Employment, unless, by their term, they
expire sooner, as may be set forth in the Employee's employment agreement
with the Company, if any.
(ii) If the Employee's Termination of Employment is for Cause,
all Options shall terminate on the date of the Employee's Termination of
Employment, unless, by their term, they expire sooner.
(iii) In all other cases, all Options (to the extent exercisable
at the time of such termination) shall be exercisable for a period of three
(3) months following the month of Employee's Termination of Employment,
unless, by their term, they expire sooner.
2.4 Non-Transferability
-------------------
The Options granted hereunder are nontransferable by the Employee
either voluntarily or by operation of law, other than by will or the laws of
descent and distribution, or to an inter-vivos trust established by the Employee
if such transfer shall be allowed by law and not materially affect the terms and
conditions of the Plan, and shall be exercisable during the Employee's lifetime
only by the Employee, regardless of any community property interest therein of
the spouse of the Employee, or such spouse's successors in interest. If the
spouse of the Employee shall have acquired a community property interest in an
option pursuant to a qualified domestic relations order as defined under the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, the Employee, or the Employee's permitted successors in interest, may
exercise the option on behalf of the spouse of the Employee or such spouse's
successors in interest.
2.5 Conditions to Issuance of Stock Certificates
--------------------------------------------
(a) The Shares deliverable upon the exercise of the Option, or
any portion thereof, shall be authorized, but unissued Shares of the Company.
Such Shares shall be fully paid and nonassessable. The stock certificates
evidencing the Shares shall bear such legends restricting transferability as the
Board or Committee deems necessary or advisable.
(b) The Company shall not be required to issue or deliver any
certificate or certificates for Shares deliverable upon any exercise of the
Option prior to fulfillment of all of the following conditions:
(i) The completion of any registration, or other
qualification of such Shares under any state or federal law, or exemptions
from such state or federal law, or under rulings or regulations of the
Securities and Exchange Commission, or of any other governmental regulatory
body, or the
5
<PAGE>
obtaining of approval or other clearance from any state or federal
governmental agency which the Board or Committee shall, in its sole
discretion, deem necessary or advisable.
(ii) If the Board or Committee shall, in its sole discretion,
deem it necessary or advisable, the execution by the Employee of a written
representation and agreement, in a form satisfactory to the Board of
Committee, in which the Employee represents that the Shares acquired by the
Employee upon exercise are being acquired for investment and not with a
view to distribution thereof.
(iii) If the Board or Committee shall, in its sole
discretion, so determine the execution by the Employee of an agreement to
be bound by the provisions of any shareholders agreement then in force
between other shareholders of the Company.
2.6 Rights as Stockholder
---------------------
The Employee shall not be, nor have any or the rights or
privileges of, a stockholder of the Company in respect of any Shares purchasable
upon the exercise of the Option unless and until certificates representing such
Shares shall have been issued by the Company.
2.7 Representations of Employee
---------------------------
Employee hereby warrants and represents that Employee is
acquiring the Options for Employee's own account and not with a view to their
resale or distribution and that Employee is prepared to hold the Option for an
indefinite period and has no present intention to sell, distribute or grant any
participating interests in the Options. Employee hereby acknowledges the fact
that the Options have not been registered under the Securities Act, or
applicable state securities law and that the Company is issuing the Options to
Employee in reliance upon the exemption from such registration provided by Rule
701 of the General Rules and Regulations under the Securities Act for securities
issuances under compensatory benefit plans such as the Plan and on the
representations made by Employee herein or by Section 4.(2) of the Securities
Act.
3. OTHER PROVISIONS RE: OPTIONS.
----------------------------
3.1 Corporate Transaction (Change of Control).
----------------------------------------
In the event of a Change of Control, the Committee may, in its
absolute discretion and upon such terms and conditions as it deems appropriate,
provide by resolution, adopted prior to such event, that at some time prior to
the effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully
6
<PAGE>
exercisable; provided, however, that this acceleration of exercisability shall
not take place if:
(a) This Option becomes unexercisable under Section 2.3 prior to
said effective date; or
(b) in connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules
and conditions as it, in its absolute discretion, deems appropriate in
connection with such acceleration of exercisability, including, but not by way
of limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
3.2 Repurchase Right.
----------------
Upon Employee's Termination of Employment, the Company shall have
the right to purchase from the Employee, any Shares issued to Employee upon
exercise of Options pursuant to this Agreement, or vested but unexercised
Options, by notifying Employee of its decision to so purchase the Shares or
vested but unexercised Options within sixty (60) days of such Termination of
Employment; the purchase price for such Shares shall be their Fair Market Value
at the date of notification; the purchase price for Options shall be the
difference between the Fair Market Value and the exercise price for such Options
at the date of notification. The Fair Market Value determined in accordance with
the provisions of Paragraph 7 of the Plan.
4. MISCELLANEOUS.
-------------
4.1 Administration.
--------------
The Board or Committee shall have the power to interpret the Plan
and this Agreement, and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Board or Committee shall be final and binding
upon the Employee, the Company and all other interested persons.
4.2 Withholding of Taxes; Code Section 83(b) (Election to Include in
----------------------------------------------------------------
Gross Income in Year of Transfer)
---------------------------------
Upon Employee's exercise of a Non-Qualified Stock Option, the
Company shall have the right to require such Employee, and such Employee, by
accepting the Options granted under the Plan and this Agreement, agrees to pay
to the Company the amount of any taxes which the Company shall be required to
withhold
7
<PAGE>
with respect thereto. The Employee may elect to pay to the Company an amount
equal to the amount of the taxes which the Company shall be required to withhold
by delivering to the Company Shares having a Fair Market Value determined in
accordance with Paragraph 7 of the Plan equal to the amount of the withholding
tax obligation as determined by the Company. Such Shares so delivered may be
either Shares withheld by the Company upon the exercise of the Option or other
Shares. If the Company becomes subject to the Exchange Act, and the rules and
regulations promulgated thereunder, such election may not be made by those
persons subject to the provisions of Section 16(b) of the Exchange Act within
six months of the date of grant of the Option, except that this limitation will
not apply in the event of death or disability occurring prior to the expiration
of the six month period. The election must be made either (x) not later than
six months less one day prior to the date as of which the amount of tax to be
withheld is determined (the "Tax Date"), or (y) in the ten-day window period
provided in Rule 16b-3(e) of the General Rules and Regulations under the
Exchange Act, but in no event later than the Tax Date.
4.3 No Right to Continued Employment
--------------------------------
Nothing in this Agreement or in the Plan shall confer upon the
Employee any right to continue in the employ of the Employer or shall interfere
with or restrict in any way the rights of the Employer, which are hereby
expressly reserved, to discharge the Employee at any time for any reason
whatsoever, with or without cause.
4.4 Entire Agreement; Amendment
---------------------------
This Agreement, together with the Plan, constitutes the entire
agreement between the parties with respect to the subject matter hereof. Any
term or provision of this Agreement may be waived at any time by the party which
is entitled to the benefits thereof, any term or provision of this Agreement may
be amended or supplemented at any time by the mutual consent of the parties
hereto, except that any waiver of any term or condition, or any amendment, of
this Agreement must be in writing.
4.5 Governing Law
-------------
The laws of the State of California shall govern the
interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflict of
laws.
4.6 Successors
----------
This Agreement shall be binding upon and inure to the benefit of
the successors, assigns and heirs of the respective parties.
8
<PAGE>
4.7 Notices
-------
All notices or other communications made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, to those listed below at their following respective addresses or at
such other address as each may specify by notice to the others:
To the Employee:
---------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
To the Company:
--------------
Film Roman, Inc.
12020 Chandler Boulevard
North Hollywood, California 91607
Attention: Corporate Secretary
4.8 Waiver
------
The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
4.9 Titles; Construction
--------------------
Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Agreement. The
masculine pronoun shall include the feminine and neuter and the singular shall
include the plural, when the context so indicates.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
FILM ROMAN, INC.
By:
---------------------------------
Name: Philip Roman
Title: President
EMPLOYEE
------------------------------------
Name:
-------------------------------
10
<PAGE>
EXHIBIT 10.11
VALLEY CORPORATE CENTER
-----------------------
OFFICE BUILDING LEASE
BETWEEN
THE ROCK GROUP AND PATRICIAN ASSOCIATES, INC.
("LANDLORD")
AND
FILM ROMAN, INC.
("TENANT")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PARAGRAPH TITLE NO.
- --------- ----- ----
<S> <C> <C>
1. TERMS AND DEFINITIONS....................... 1
2. PREMISES AND COMMON AREAS................... 2
3. TERM........................................ 3
4. POSSESSION.................................. 3
5. MONTHLY BASIC RENT.......................... 4
6. RENTAL ADJUSTMENT........................... 4
7. SECURITY DEPOSIT............................ 7
8. USE......................................... 8
9. NOTICE...................................... 8
10. BROKERS..................................... 9
11. HOLDING OVER................................ 9
12. TAXES ON TENANT'S PROPERTY.................. 9
13. CONDITION OF PREMISES....................... 10
14. ALTERATIONS................................. 10
15. REPAIRS..................................... 11
16. LIENS....................................... 13
17. ENTRY BY LANDLORD........................... 14
18. UTILITY AND SERVICES........................ 14
19. BANKRUPTCY.................................. 15
20. INDEMNIFICATIONS AND EXCULPATION OF LANDLORD 15
21. DAMAGE TO TENANT'S PROPERTY................. 16
22. TENANT'S INSURANCE.......................... 16
23. DAMAGE OR DESTRUCTION....................... 18
24. EMINENT DOMAIN.............................. 20
25. DEFAULTS AND REMEDIES....................... 20
26. ASSIGNMENT AND SUBLETTING................... 22
27. SUBORDINATION............................... 24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
PARAGRAPH TITLE NO.
- --------- ----- ----
<S> <C> <C>
28. ESTOPPEL CERTIFICATE........................ 25
29. HAZARDOUS MATERIALS......................... 26
30. RULES AND REGULATIONS....................... 29
31. CONFLICT OF LAWS............................ 29
32. SUCCESSORS AND ASSIGNS...................... 29
33. SURRENDER OF PREMISES....................... 29
34. ATTORNEYS' FEES............................. 30
35. PERFORMANCE BY TENANT....................... 30
36. MORTGAGEE PROTECTION........................ 30
37. DEFINITION OF LANDLORD...................... 30
38. WAIVER...................................... 30
39. IDENTIFICATION OF TENANT.................... 31
40. PARKING..................................... 31
41. FORCE MAJEURE............................... 31
42. TERMS, HEADINGS AND CONSTRUCTION............ 32
43. NO OFFER.................................... 32
44. TIME........................................ 32
45. PRIOR AGREEMENT; AMENDMENTS................. 32
46. SEVERABILITY................................ 32
47. RECORDING................................... 32
48. LIMITATION ON LIABILITY..................... 33
49. TRAFFIC IMPACT.............................. 33
50. MODIFICATION FOR LENDER OR GOVERNMENT....... 33
51. FINANCIAL STATEMENTS........................ 33
52. QUIET ENJOYMENT............................. 33
53. TENANT'S SIGNS.............................. 34
54. TRAFFIC AND ENERGY MANAGEMENT............... 34
55. NO LIGHT, AIR OR VIEW EASEMENT.............. 34
56. TENANT AS CORPORATION OR PARTNERSHIP........ 35
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
PARAGRAPH TITLE NO.
- --------- ----- ----
<S> <C> <C>
57. [INTENTIONALLY OMITTED]..................... 35
58. COUNTERPARTS................................ 35
59. ARBITRATION OF DISPUTES..................... 35
60. ADDENDA..................................... 37
</TABLE>
EXHIBITS:
A-1 Outline of Floor Plan of Premises
A-2 Site Plan
B Work Letter Agreement
C Notice of Lease Term Dates
D Standards for Utilities and Services
E Sample Form of Tenant Estoppel Certificate
F Rules and Regulations
G Traffic and Parking Rates and Regulations
H Form of Non-Disturbance Agreement
RIDER:
1. Right of First Refusal to Lease Additional Space (First Floor South)
2. Right of First Refusal to Lease Additional Space (Fourth Floor North)
3. Options to Extend Term
4. Relocation Right (First Floor North)
5. Cancellation Right (First Floor North)
6. Cancellation Right (Second Floor South)
iii
<PAGE>
VALLEY CORPORATE CENTER
OFFICE BUILDING LEASE
---------------------
THIS OFFICE BUILDING LEASE ("LEASE"), dated for reference purposes only as
April 1, 1994, is between THE ROCK GROUP, a California general partnership and
PATRICIAN ASSOCIATES, INC., a California corporation (collectively, "LANDLORD")
and FILM ROMAN INC., a California corporation ("TENANT") for the following space
contained within the building located at 12020 Chandler Boulevard, North
Hollywood, California (the "BUILDING"): (i) the space consisting of 14,580
rentable square feet located in the northern section of the first floor of the
Building as depicted on attached Exhibit A-1 ("FIRST FLOOR NORTH"), (ii) the
-----------
space consisting of 17,143 rentable square feet located in the northern section
of the second floor of the Building as depicted on attached Exhibit A-2 ("SECOND
-----------
FLOOR NORTH"), and (iii) the space consisting of 16,145 rentable square feet
---
located in the southern section of the second floor of the Building as depicted
on attached Exhibit A-3, which will be improved in accordance with the terms and
-----------
conditions of the Work Letter Agreement (attached hereto as Exhibit B) ("SECOND
---------
FLOOR SOUTH"). The term "LEASED SPACE" as hereinafter used in this Lease shall
mean, interchangeably, First Floor North, Second Floor North and/or Second Floor
South. The term "PREMISES" shall mean, unless otherwise indicated, all of the
Leased Space. The Building is part of the Building site, which includes the
parking areas, parking structure and other improvements depicted on attached
Exhibit A-4 (collectively, the "PROJECT").
- -----------
1. TERMS AND DEFINITIONS.
---------------------
For the purposes of this Lease, the following terms shall have the
following definitions:
(a) ADDRESSES:
Landlord's Addresses: c/o The Lewis Company, 20969 Ventura Boulevard,
Suite 216, Woodland Hills, CA 91364, Attn: Mr. John O. Lewis. A courtesy copy
of all notices to Landlord under this Lease shall also be delivered to Patrician
Associates, Inc., Attn: Southern California Equity Team, Fifth Floor, 711 High
Street, Des Moines, Iowa 50392-1370.
Tenant's address: 12020 Chandler Boulevard, Suite 200, North
Hollywood, CA 91607; Attn: General Counsel.
(b) APPROXIMATE RENTABLE SQUARE FEET: For purposes of determining the
rentable area of the Premises, the parties agree that (A) the rentable square
feet for First Floor North, Second Floor North and Second Floor South is as set
forth above, or 47,868 total rentable square feet for the Premises, and (B) that
Rentable Square Feet will also include an equitable apportionment of the Common
Areas of the Building, the use or benefit of which Tenant may share with other
tenant(s) occupying the Building.
(c) BASE YEAR FOR OPERATING EXPENSES ("BASE YEAR"): 1994 calendar year.
(d) BROKER(S): For Tenant, Julian J. Studley, Inc. For Landlord, None.
(e) TERM: April 1, 1994 ("TERM COMMENCEMENT DATE") through August 31,
1999.
(f) EXHIBITS AND RIDERS: Exhibits A through H, inclusive, and Riders 1
---------- -
through 6, inclusive, all of which are attached to this Lease and are
incorporated herein by this reference. Defined or initially capitalized terms
in the attached documents have the same meaning as in this Lease unless
otherwise expressly provided in those documents.
(g) MONTHLY BASIC RENT (per rentable square foot): For the First Floor
North: One Dollar and Thirty-Five Cents ($1.35) for the Second Floor North:
One Dollar and Seventy Cents ($1.70); and for the Second Floor South: an amount
equal to (i) One Dollar and Fifty Cents ($1.50) plus (ii) the Overage Amount (as
defined in paragraph 6 of the Work
1
<PAGE>
Letter Agreement) equally amortized over the initial Term based on an interest
rate of nine percent (9%) per annum. Provided Tenant shall faithfully perform
all of the material terms and conditions of this Lease, Basic Monthly Rent for
Second Floor North shall abate during the twenty-sixth (26th) and twenty-seventh
(27th) months following the Term Commencement Date, and Basic Monthly Rent for
Second Floor South shall abate on the second (2nd), third (3rd) and seventh
(7th) months following the Rent Commencement Date for Second Floor South (as
defined in Subparagraph l(m), below). During such abatement periods, Tenant
shall still be responsible for the payment of all other monetary obligations
under this Lease. In the event of a default by Tenant resulting in the
termination of this Lease, Landlord shall be entitled to recovery of the Basic
Monthly Rent abated under this Subparagraph 1(g) as an element of damages, such
Basic Monthly Rent shall not be deemed to have been forgiven or abated, but
shall become immediately due and payable as unpaid rent which is earned at the
date of termination.
(h) PARKING: Four (4) vehicle parking spaces per one thousand square feet
of rentable square feet of the Premises. Tenant shall be entitled to purchase
additional vehicle parking spaces, to the extent available. During the first
three (3) years of the Term only, such additional parking spaces may be
purchased at the rate of Twenty Dollars ($20.00) per month per space, and
thereafter such additional parking spaces may be purchased at the prevailing
rate established by Landlord for the Project from time to time.
(i) SECURITY DEPOSIT: An amount equal to Seventy-Three Thousand Forty
Three and 60/100 Dollars ($73,043.60). Of the foregoing amount, $56,653.39 is
on deposit with Landlord. On Lease execution, Tenant shall pay Landlord
$16,390.21.
(j) TENANT IMPROVEMENT ALLOWANCE: See paragraph 6 of Work Letter
Agreement.
(k) TENANT IMPROVEMENTS: As defined in Paragraph 1 of the Work Letter
Agreement.
(l) TENANT'S PERCENTAGE: Tenant's Percentage shall be equal to a fraction
whose numerator is the number of rentable square feet within the Premises and
whose denominator is the number of rentable square feet within the Building,
which the parties agree for the purposes of this Lease to be 123,298 rentable
square feet. Tenant's Percentage may vary from time to time during the Term to
the extent of any permitted expansion or contraction of the Premises.
(m) RENT COMMENCEMENT DATE: Notwithstanding subparagraph l(e), Tenant's
obligation to pay Monthly Basic Rent shall commence as follows:
For First Floor North and
Second Floor North: April 1, 1994; and
For Second Floor South: The date established pursuant to Paragraph 7
of the Work Letter Agreement.
(n) USE: General business office use for an animation studio, an animation
studio and related purposes.
2. PREMISES AND COMMON AREAS.
-------------------------
(a) Subject to all the provisions of this Lease, Landlord leases to Tenant
and Tenant leases from Landlord the Premises, which include Second Floor South
that is to be improved by Landlord with the Tenant Improvements described in the
Work Letter Agreement, those Premises being agreed to have the rentable square
feet designated in the first paragraph of this Lease.
(b) Tenant shall have the nonexclusive right to use, in common with other
present and future tenants in the Building, the following areas ("COMMON AREAS")
appurtenant to the Premises, subject to the Rules and Regulations referred to in
Paragraph 30 and to other
2
<PAGE>
reasonable rules and regulations which Landlord may deem advisable for the
Common Areas (including without limitation the hours during which they are open
for use):
(i) The Building's common entrances, lobbies, rest rooms not within a
suite, elevators, stairways and accessways, loading docks, ramps, drives and
platforms and any passageways and serviceways thereto, and the common pipes,
conduits, wires and appurtenant equipment serving the Premises;
(ii) Loading and unloading areas, trash areas, parking areas, and
similar areas and facilities appurtenant to the Building;
(iii) The roadways, sidewalks, walkways, parkways, driveways and
landscaped areas and similar areas and facilities within the lot on which the
Building is located which are made available for the use or benefit of all
Building tenants and their invitees and other visitors; and
(iv) The parking areas and parking structure, including driveways and
alleys and other improvements, as depicted on attached Exhibit A-4.
-----------
(c) Landlord reserves the right from time to time without unreasonable
interference with Tenant's use and, except in cases of emergency, with prior
reasonable notice:
(i) To install, use, maintain, repair and replace pipes, ducts,
conduits, wires and appurtenant meters and equipment for service to other parts
of the Building above the ceiling surfaces, below the floor surfaces, within the
walls and in the central core areas, and to relocate any pipes, ducts, conduits,
wires and appurtenant meters and equipment included in the Premises which are
located in the Premises or located elsewhere outside the Premises, and to expand
the Building and the Project;
(ii) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways;
(iii) To temporarily close or designate for other uses any of the
Common Areas for purposes of improvement, maintenance or repair, so long as
reasonable access to the Premises remains available;
(iv) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Building or the Project, or any
portion thereof; and
(v) To do and perform such other acts can make such other changes in,
to or with respect to the Common Areas, the Building or the Project as Landlord
may deem to be appropriate.
3. TERM.
----
The Term shall be for the period designated in Subparagraph 1(e), beginning
on the Term Commencement Date and ending on August 31, 1999, unless the Lease
shall be terminated sooner as hereinafter provided. The Rent Commencement Date
for Second Floor South, will be specified in Landlord's Notice of Lease Term
Dates ("NOTICE"), substantially in the form of attached Exhibit "C", which
-----------
Landlord shall serve on Tenant upon completion of Second Floor South to Tenant
under Paragraph 7 of the Work Letter Agreement.
4. POSSESSION.
----------
Tenant is in occupancy of First Floor North and Second Floor North. If the
Rent Commencement Date for Second Floor South has not occurred within one
hundred eighty (180) days after the date Tenant executes this Lease plus any
Force Majeure Events (as
3
<PAGE>
defined in Paragraph 41, below) (the "OUTSIDE DATE"), Landlord shall not be
liable to Tenant for any loss or damage resulting therefrom except to the extent
caused by the gross negligence or willful misconduct of Landlord; however,
Tenant may terminate this Lease by delivering written notice thereof to Landlord
within thirty (30) days after the Outside Date (and Landlord shall be entitled
without liability to Tenant to cease construction during the foregoing 30-day
period pending Tenant's decision whether to terminate the Lease).
Notwithstanding Paragraph 41 (Force Majeure), the Outside Date shall not be
extended by delays in the procurement of governmental permits and/or licenses or
delays caused by insurance adjusters' determination of loss and issuance of
insurance proceeds. However, to the extent Landlord's inability to tender
possession of Second Floor South to Tenant by the Outside Date is caused by
Tenant's negligence or breach of this Lease or of the Work Letter Agreement, or
by other delays (including without limitation those listed in Subparagraphs 7(a)
through 7(e) of the Work Letter Agreement) caused by Tenant or its agents or
contractors (collectively, "TENANT DELAYS") the Rent Commencement Date of Second
Floor South for all purposes under this Lease shall be accelerated by the number
of days of those Tenant Delays.
5. MONTHLY BASIC RENT.
------------------
(a) Tenant agrees to pay Landlord as Monthly Basic Rent for the Premises
the Monthly Basic Rent designated in Subparagraph l(g) (subject to adjustment
under Paragraph 6) in advance on the first day of each calendar month during the
Term beginning on the Rent Commencement Date for each of the respective Leased
Spaces, as set forth in paragraph 1(m), above. If the Rent Commencement Date
for any Leased Space is other than the first day of a calendar month, then the
rent for such Leased Space for such period shall be prorated in the proportion
that the number of days this Lease is in effect during such period bears to
thirty (30). In addition to the Monthly Basic Rent, Tenant agrees to pay as
additional rental the amount of rental adjustments and other charges required by
this Lease. In no event shall Monthly Basic Rent ever be less than the initial
Monthly Basic Rent (other than during months of Monthly Basic Rent abatement as
set forth in Paragraph 1(g), above). All rental shall be paid to Landlord,
without prior demand and without any deduction or offset, in lawful money of the
United States of America, at the address of Landlord designated in Subparagraph
1(a) or to such other person or at such other place as Landlord may from time to
time designate in writing.
(b) Rent and any other payments required to be made by Tenant to Landlord
under this Lease shall be deemed to be and treated as rent and payable and
recoverable as rent, and Landlord shall have the same rights against Tenant for
default in any such payment as in the case of nonpayment of rent.
(c) If Tenant fails to pay any installment of rent within five (5) days
following the date due, and Landlord thereafter provides Tenant with written
notice of such failure to pay and does not receive payment within two (2)
business days after delivery of such notice, then Tenant shall pay to Landlord
as additional rent a late charge equal to five percent (5%) of the amount due to
compensate Landlord for the extra costs incurred as a result of such late
payment. The parties agree that such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. Acceptance of any late charge shall not constitute a waiver
of the Tenant's default with respect to the overdue amount or prevent Landlord
from exercising any other rights and remedies available to Landlord.
6. RENTAL ADJUSTMENT.
-----------------
(a) For purposes of this Lease, the following terms are defined as follows:
(i) "TENANT'S PERCENTAGE" shall have the meaning set forth in
Subparagraph 1(1).
(ii) "BASE YEAR EXPENSES" shall mean the actual amount of all
Operating Expenses (as defined in Subparagraph 6(b)) incurred in the Base Year
(as defined in subparagraph 1(c)).
4
<PAGE>
(iii) "ADDITIONAL EXPENSES" means Tenant's Percentage of the amount
by which the estimated Operating Expenses to be incurred by Landlord in any
Comparison Year (as defined below) exceed the Base Year Expenses.
(iv) "HVAC COSTS" means all costs incurred in the operation, repair
and maintenance of the systems for heating, ventilating and air conditioning the
Building including, without limitation, supplies, materials, equipment, tools,
and contracted services.
(v) "TAXES AND ASSESSMENTS" shall mean: (1) Real property taxes and
fees and expenses incurred in contesting the amount or validity of any real
property tax; (2) Any assessment, fee, tax, levy, charge, penalty or similar
imposition imposed by any authority, improvement district or special assessment
district upon or in respect of the Premises, Building or Common Areas, including
any such charges imposed for the use or occupancy of the Building or Premises,
or upon this transaction or any document to which Tenant is a party; (3) Any new
or increased assessment, tax, fee, levy or charge in substitution, partially or
totally, of any assessment, tax, fee, levy or charge previously included under
Subparagraphs 6(a)(v)(1) and (2), including without limitation, increases due to
tax rate increases or reassessment of the Premises, Building, Common Areas, or
Project for any reason; (4) Any tax or fee on personal property used in
connection with the Building or Common Areas; and (5) All payroll taxes on
salaries of on-site personnel used in the direct management, maintenance or
operation of the Building or Common Areas.
(vi) "INSURANCE COSTS" means all costs of premiums for insurance for
which Landlord is responsible under this Lease and any insurance which any
beneficiary or mortgagee with a lien affecting the Premises reasonably deems
necessary in connection with the ownership or operation of the Building or
Common Areas.
(vii) "CAPITAL COSTS" means all costs incurred to make any capital
improvements or structural repairs to the Building or Common Areas which: (1)
reduce or limit Operating Expenses to the extent Operating Expenses are so
reduced or limited; (2) are now or may hereafter be required by any statute,
ordinance or regulation of any governmental or enforcement agency or the
interpretation thereof; or (3) are needed to operate and maintain the Building
or Common Areas at the same quality levels as prior to the improvement or repair
including the amount of insurance deductibles (but excluding deductible amounts
for earthquake insurance) applicable to capital repairs. Such costs shall be
amortized over the useful life of such improvement or repair amortized in
accordance with generally accepted accounting principles at an interest rate
equal to Landlord's cost of funds.
(viii) "COMPARISON YEAR" means the calendar year following the Base
Year and each calendar year thereafter.
(b) "OPERATING EXPENSES" shall consist of all direct costs of ownership,
operation, repair or maintenance (including necessary supplies, material, tools
and equipment) of the Building or Common Areas, and all indirect costs that are
reasonably attributable to the operation, repair and maintenance of the Building
and Common Areas, for any calendar year, including costs for the following by
way of illustration, but not limitation:
HVAC Costs; Taxes and Assessments; Insurance Costs; Capital Costs;
utilities, such as water, sewer and electrical services and any costs
connected with providing such utility services; janitorial service and
window cleaning; waste disposal; parking facilities; elevator,
plumbing and electrical systems; Common Areas signage; landscaping and
gardening; security; and accounting, legal, administrative and
consulting fees attributable to the Building.
Operating Expenses shall also include costs incurred in the on-site
management of the Building and Common Areas (including, without limitation,
wages and salaries and related benefits for personnel to the extent used in the
management, operation and maintenance of the Building or Common Areas, and
Building management office rental and supplies) and a management fee equal to no
more than four percent (4%) of the actual gross
5
<PAGE>
rental revenues to which Landlord is entitled to receive for the Building for
the calendar year. For purposes of this Subparagraph 6(b), if the Building is
less than ninety-five percent (95%) occupied, Operating Expenses shall be deemed
to have been paid for ninety-five percent (95%) of the rentable square feet in
the Building for a full calendar year.
(c) In order that the rent payable during the Term reflects any Additional
Expenses, Tenant shall pay Landlord as additional rent Tenant's Percentage of
such excess Operating Expenses by the method and in accordance with the terms
below.
(d) As close as reasonably possible to the beginning of each Comparison
Year, Landlord shall compute and deliver to Tenant an estimate of the Operating
Expenses for that Comparison Year. If the estimated costs for the Comparison
Year exceed the Operating Expenses for the Base Year, Tenant shall pay the
Additional Expenses without further notice and in monthly installments of one-
twelfth (1/12) of such estimate, on the first day of each calendar month, as
additional rent. If Landlord has not furnished Tenant with a written estimate
for that year, Tenant shall continue to pay Additional Expenses at the rate
established for the preceding Comparison Year (if applicable), provided that
when a written estimate of Operating Expenses for the current Comparison Year is
delivered to Tenant, Tenant shall, on or before the next monthly payment date,
pay all accrued and unpaid Additional Expenses based on the new estimate. After
the end of the Base Year, Landlord shall compute and deliver to Tenant a
statement of the actual Operating Expenses for the Base Year.
(e) On or before May 1 of each Comparison Year after the first Comparison
Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a
statement (the "STATEMENT") setting out Tenant's actual Additional Expenses for
the preceding Comparison Year. If Tenant's actual Additional Expenses for the
previous Comparison Year differ from the total estimated monthly payments of
Additional Expenses made by Tenant for such previous year, Tenant shall pay the
amount of the deficiency within thirty (30) days of receipt of the statement or
Landlord shall credit the difference, as the case may be; in the case of a
credit due, Landlord shall credit against Tenant's next ensuing monthly
installment(s) of rent an amount equal to the difference until the credit is
exhausted. If a credit is due from Landlord on the last day of the Term,
Landlord shall credit against any payments due from Tenant under this Lease an
amount equal to the credit or, if no payments are due, or may become due from
Tenant, Landlord shall pay Tenant the amount of the credit. If the dollar
amount of Tenant's Percentage of actual Operating Expenses for any Comparison
Year is less than the dollar amount of Tenant's Percentage of the Base Year
Operating Expenses, Landlord shall not be required to pay the differential to
Tenant. The obligations of Tenant and Landlord to make payments required under
this Paragraph 6 shall survive the termination of this Lease.
(f) If any dispute arises as to the accuracy of Operating Expenses as set
forth in the Statement, Tenant shall nevertheless make payment in accordance
with any notice given by Landlord, but Tenant shall have the right, after
reasonable notice and at reasonable times, to inspect and photocopy Landlord's
accounting records at Landlord's office in Woodland Hills, California. If,
after such inspection and photocopying, Tenant continues to dispute the accuracy
of the Statement, Tenant shall be entitled to retain an independent company or
certified public accountant to audit and/or review Landlord's records to
determine the proper amount of Tenant's Percentage of Additional Expenses. If
such audit and/or review reveals that Landlord has overcharged Tenant, then
within thirty (30) days after the results of such audit and/or review are made
available to Landlord, Landlord shall reimburse Tenant the amount of such
overcharge plus interest at the Interest Rate. If the audit and/or review
reveals that Tenant was undercharged, then within thirty (30) days after the
results of the audit are made available to Tenant, Tenant shall reimburse
Landlord the amount of such undercharge plus interest thereon at the Interest
Rate. If Landlord desires to contest such audit and/or review results, Landlord
may do so by submitting the results of the audit and/or review to arbitration
pursuant to Paragraph 59 below, within thirty (30) days of receipt of the
results of the audit and/or review, and the arbitration shall be final and
binding upon Landlord and Tenant. Tenant agrees to pay the cost of such audit
and/or review, provided that, if the audit and/or review reveals that Landlord's
determination of Tenant's Percentage
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of Additional Expenses as set forth in the Statement was in error in Landlord's
favor by more than five percent (5%), Landlord shall pay the cost of such audit
and/or review.
(g) Additional Expenses due from Tenant in any Comparison Year which has
less than 365 days because the Term expires on other than the last day of that
Comparison Year shall be prorated on a per-day basis.
(h) Notwithstanding anything to the contrary contained immediately above,
as to each specific category of expense which one or more tenants of the
Building either pays directly to third parties or actually reimburses Landlord
(for example, separately metered utilities, property taxes directly reimbursed
to Landlord, etc.) then each such expense which is actually paid or reimbursed
shall not be included in "OPERATING EXPENSES" for purposes of this Paragraph 6.
Tenant's Percentage for each such category of expense shall be adjusted by
excluding from the denominator thereof the rentable square feet of all such
tenants paying such category of expense directly to third parties or actually
reimbursing same directly to Landlord. Moreover, if Tenant directly pays a
third party or actually reimburses Landlord for any such category of expense,
each such category of expenses which is paid or actually reimbursed by Tenant
shall be excluded from the determination of Operating Expenses for Tenant to the
extent such expense (after deduction of that portion paid or directly reimbursed
by Tenant) was incurred with respect to space in the Building actually leased to
other tenants. Further, "OPERATING EXPENSES" shall specifically exclude the
following: (i) costs of Landlord's general corporate or partnership overhead
and general administrative expenses; (ii) rental costs and other related
expenses, if any, incurred in leasing air conditioning systems, elevators, or
other equipment ordinarily considered to be of a capital nature (except
reasonable cost savings of leasing equipment which is used in providing
janitorial services exclusively to the Building, and which equipment is not
affixed to the Building, and the total cost of leasing of equipment required by
governmental or quasi-governmental authorities); (iii) costs incurred in
connection with any environmental clean-up, response action, or remediation on,
in, under, or about the Premises or the Project, including but not limited to
costs and expenses associated with the defense, administration, settlement,
monitoring, or management thereof, except to the extent such clean-up, response
action, and/or remediation is necessitated by or through the acts or omissions
of Tenant or its Agents; and (iv) costs incurred in any Comparison Year of any
new items or categories of maintenance, operation, or repair to the extent such
costs are not included in the Base Year Operating Expenses; provided, however,
that this exclusion shall not include future new items or categories of
maintenance, operation, or repair that in Landlord's reasonable judgment are (w)
required as a result of new technology, (x) required as a result of changes in
laws, statutes, ordinances, regulations, and/or governmental policies or the
interpretation thereof, (y) necessitated in order to effectively and efficiently
maintain, operate, or repair the Building, or (z) are similar to items or
categories of maintenance, operation, or repair used or adopted by the owners or
operators of similar general geographic vicinity of the Project.
7. SECURITY DEPOSIT.
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The Security Deposit designated in Subparagraph 1(i) shall be held by
Landlord as security for the faithful performance by Tenant of all of Tenant's
obligations under this Lease. If Tenant breaches any obligation under this
Lease, including, without limitation, under provisions relating to the payment
of rent, Landlord may (but shall not be required to) use, apply or retain all or
any part of the Security Deposit for the payment of any rent or any other sum in
default, or for the payment of any other amount which Landlord may reasonably
spend or become obligated to spend by reason of Tenant's default or to help to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of the Security Deposit is so used
or applied, Tenant shall, upon demand, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount. Tenant's
failure to do so shall be a material breach of this Lease. Landlord shall not
be required to keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. If Tenant
shall fully and faithfully perform all of its obligations under this Lease, the
Security Deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last permitted assignee of Tenant's interests under
this Lease) at the expiration of the Term, provided that Landlord may retain the
Security Deposit until such time as any amount due
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from Tenant in accordance with Paragraph 6 has been determined and paid in full.
If Landlord sells its interest in the Premises during the Term and if Landlord
deposits with the purchaser of the Premises the then unappropriated portion of
the Security Deposit in compliance with California Civil Code section 1950.7 and
any successor statute thereto, Landlord shall be discharged from any further
liability with respect to the Security Deposit.
8. USE.
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(a) Tenant shall use the Premises only for the use set forth in
Subparagraph 1(n), and shall not use or permit the Premises to be used for any
other purpose without Landlord's prior written consent, which may be withheld in
Landlord's sole and absolute discretion. Nothing contained herein shall be
deemed to give Tenant any exclusive right to such use in the Building or shall
be deemed to be a warranty by Landlord that the Premises are suitable for a
particular use. Tenant shall not use or occupy the Premises in violation of any
present or future applicable law, and shall, upon written notice from Landlord,
discontinue any use of the Premises which is declared by any applicable
governmental authority to be a violation of law. Tenant shall comply with any
direction of any such governmental authority which shall, by reason of the
nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant
or Landlord with respect to the Premises or with respect to the use or
occupation thereof. Tenant shall comply with all rules, orders, regulations and
requirements of such generally recognized fire rating organization(s) as
Landlord may specify from time to time. Tenant shall promptly, upon demand,
reimburse Landlord for any additional insurance premium charged by reason of
Tenant's failure to comply with the provisions of this Paragraph 8. Tenant
shall take all steps required to ensure that neither Tenant nor its contractors
or invitees (i) violate any governmental regulations, ordinances, or laws
applicable to the Premises, (ii) do or permit anything to be done in or about
the Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Building, or injure or annoy them, (iii) use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, or (iv) cause, maintain or permit any nuisance in, on or
about the Premises. Tenant shall comply with all present and future covenants,
conditions, and restrictions or other restrictive covenants and obligations,
whether or not of record, which affect the use and operation of the Premises,
the Building, the Common Areas or the Project. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises and shall keep the
Premises in first-class repair and appearance. Tenant shall not place a load
upon the Premises exceeding the average pounds of live load per square foot of
floor area specified for the Building by Landlord's architect, with partitions
to be considered a part of the live load. Landlord reserves the right to
prescribe the weight and position of all files, safes and heavy equipment which
Tenant desires to place in the Premises so as to properly distribute the weight
thereof. Further, Tenant's business machines and mechanical equipment which
cause vibration or noise that may be transmitted to the Building structure or to
any other space in the Building shall be so installed, maintained and used by
Tenant as to eliminate such vibration or noise. Tenant shall be responsible for
all structural engineering required to determine the structural load in the
Premises.
(b) Landlord shall not, without Tenant's prior written consent, lease any
space in the Building to any tenant whose primary business in the Building is
the operation of an animation production studio. The foregoing restriction is
specifically subject to all existing and subsequently adopted laws which
prohibit or modify such restriction. In addition, the foregoing restriction
shall be of no further force or effect if at any time during the Term (a) the
original Tenant executing this Lease and/or its affiliates (as defined below)
are not in physical occupancy of all of the Premises, or (b) the Premises are
not primarily used for the operation of the animation studio permitted in
Subparagraph 1(n), above.
9. NOTICE.
------
Any notice, consent, or approval required or permitted to be given under
this Lease must be in writing and may be given by personal delivery or by mail,
and shall be deemed sufficiently given when actually received by the intended
party, whether personally delivered or mailed by registered or certified mail,
if to Tenant at the Premises, and if to Landlord at
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the addresses designated in Subparagraph 1(a). Either party may specify a
different address for notice purposes by written notice to the other.
10. BROKERS.
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Tenant warrants that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease, except the Broker(s)
(named in Subparagraph l(d)) whose commission shall be payable by Landlord.
Tenant shall indemnify and defend Landlord from any cost, expense or liability
for any compensation, fee, commission or charge claimed by any other party
claiming by, through or on behalf of Tenant with respect to this Lease which
claim is reduced to final non-appealable judgment or settled with Tenant's
consent. Similarly, Landlord shall indemnify and defend Tenant from any cost,
expense or liability for any compensation, fee, commission or charge claimed by
any party claiming by, through or on behalf of Landlord with respect to this
Lease which claim is reduced to final non-appealable judgment or settled with
Landlord's consent. Notwithstanding the foregoing, neither party waives hereby
the right to bring suit for equitable indemnity for any claims, damages, costs
(including attorneys' fees), or liability as a result of and upon any third
party claiming any compensation, fee, commission or charge based on the acts or
omissions of the other party.
11. HOLDING OVER.
------------
Tenant shall vacate the Premises upon the expiration or earlier termination
of this Lease. Tenant shall reimburse Landlord for and indemnify Landlord
against all damages and liability which Landlord incurs from Tenant's delay in
vacating the Premises, including, without limitation, claims by and liability to
any succeeding tenant founded on such delay and any attorneys' fees and costs.
If Tenant does not vacate the Premises upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Premises shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Monthly Basic Rent then in effect shall be increased by twenty-five
percent (25%).
12. TAXES ON TENANT'S PROPERTY.
--------------------------
(a) Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes levied against any personal property or trade fixtures
placed by Tenant in or about the Premises. If any such taxes on Tenant's
personal property or trade fixtures are levied against Landlord or Landlord's
property or if the assessed value of the Premises is increased by the inclusion
therein of a value placed upon such personal property or trade fixtures of
Tenant and if Landlord, after written notice to Tenant, pays the taxes based
upon such increased assessment, which Landlord shall have the right to do
regardless of the validity thereof, but only under proper protest if requested
by Tenant, Tenant shall, upon demand, repay to Landlord the taxes so levied
against Landlord, or the portion of such taxes resulting from such increase in
the assessment. In the event Tenant disputes the assessment of any taxes
against any of Tenant's personal property or trade fixtures, Tenant shall be
entitled to challenge such assessment, and, upon reasonable notice from Tenant,
Landlord agrees to reasonably cooperate with Tenant in the challenge of any such
assessment(s), provided such challenge and cooperation shall be at no cost or
liability to Landlord.
(b) If the Tenant Improvements in the Premises, whether installed by
Landlord or Tenant, or paid for by Landlord or Tenant and whether or not affixed
to the real property so as to become a part thereof, are assessed for real
property tax purposes at a valuation higher than the valuation at which tenant
improvements conforming to Landlord's Standards (as defined in the Work Letter
Agreement) for other space in the Building are assessed, then the real property
taxes and assessments levied against the Building by reason of such higher
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of Subparagraph 12(a). If the
records of the County Assessor are not available or sufficiently detailed to
serve as a basis for determining whether the Tenant Improvements are subject to
a higher valuation than improvements conforming to Landlord's Building
Standards, the actual cost of construction shall be used.
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(c) Any assessment, tax, fee, levy or charge allocable to or measured by
any payments to be made by Tenant under this Lease, including, without
limitation, any gross income tax or excise tax levied by any governmental agency
or political subdivision thereof with respect to the receipt of rent or other
payments under a lease, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof, shall be deemed to be taxes
levied against personal property of Tenant and shall be governed by the
provisions of Subparagraph 12(a). The foregoing shall not, however, include
Landlord's federal, state, or local income taxes, franchise, or inheritance
taxes.
13. CONDITION OF PREMISES.
---------------------
Tenant's taking of possession of the Premises shall conclusively establish
that the Premises and the Building were in satisfactory condition at the time of
that possession. Tenant accepts that from time to time there may be
construction and improvement work by Landlord on other space in the Building and
to the Common Areas and other portions of the Project, and that such work may
cause intermittent noise, vibrations, or other temporary inconveniences;
provided, however, Landlord will take steps reasonably necessary and feasible to
minimize inconveniences to Tenant and Tenant's employees and visitors. Landlord
warrants that (i) the Building is in compliance with The Americans with
Disabilities Act of 1990 (the "ADA"), (ii) upon its completion, Second Floor
South will be in compliance with the ADA, and (iii) as of the date of Landlord's
completion of construction of First Floor North and Second Floor North, First
Floor North and Second Floor North were in compliance with the ADA. Landlord
shall pay for the costs of ADA compliance to the extent any of the foregoing
warranties are not true. Similarly, Tenant shall pay for the cost of ADA
compliance to the extent any Alterations are not in compliance with the ADA
and/or to the extent any Alteration, Tenant's use of the Premises or any other
portion of the Project results or resulted in any portion of the Building not
being in compliance with the ADA.
14. ALTERATIONS.
-----------
(a) Tenant shall make no alterations, additions, repairs or improvements
(collectively, "ALTERATION(S)") to the Premises or any portion thereof without
obtaining Landlord's prior written consent. Landlord's consent for any
nonstructural Alteration to the interior of the Premises (collectively, "NON-
STRUCTURAL ALTERATIONS") which does not involve the plumbing, electrical life-
safety, HVAC, telecommunications or mechanical systems (collectively "BUILDING
SYSTEMS") or any other structural components of the Building shall not be
unreasonably withheld; provided, however, Landlord hereby consents to all Non-
Structural Alterations during the Term, the cost of which does not exceed $5,000
for any Non-Structural Alteration and $15,000 in the aggregate of Non-Structural
Alterations during any twelve (12) month period (collectively, "PERMITTED NON-
STRUCTURAL ALTERATIONS"). Tenant shall, however, use its best efforts to
provide Landlord with at least fifteen (15) days prior written notice of the
commencement of installation or construction of such Permitted Non-Structural
Alterations. Upon Landlord's demand at the expiration or earlier termination of
the Term, all Permitted Non-Structural Alterations constructed without
Landlord's prior written consent shall be removed by Tenant at Tenant's cost
pursuant to Subparagraph 14(c), below, and all damage resulting from such
removal shall be immediately repaired by Tenant. Consent for any type of
Alteration (which is not a Non-Structural Alteration) may be withheld in
Landlord's subjective discretion. Notwithstanding the other provisions of this
Paragraph 14, Tenant may install normal office decorations (e.g., paintings) in
the Premises without obtaining Landlord's consent. Upon submission of any
request for approval of a proposed Alteration, Tenant may request Landlord to
provide Tenant with binding notification whether or not Landlord will reserve
the right to require the proposed Alteration to be removed by Tenant upon the
expiration or earlier termination of this Lease. If Landlord approves the
proposed Alteration and concurrently notifies Tenant that Landlord will reserve
the right to require such removal, then Tenant shall, at Landlord's request, be
required to remove such approved Alteration pursuant to Subparagraph 14(c),
below (each, a "REMOVABLE ALTERATION"). If Landlord approves the proposed
Alterations but fails to notify Tenant within fifteen (15) business days
following Landlord's actual receipt of Tenant's proposal and request whether
Landlord will reserve the right to require such
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removal, then Tenant shall not be required to remove that approved Alteration
upon Tenant's surrender of the Premises.
(b) Landlord may condition its consent to any type of Alteration on such
requirements as Landlord may deem necessary in its subjective discretion,
including without limitation: (i) the manner in which the work is to be done,
(ii) the right of approval over the entity which shall perform, or contract to
perform, the work (which approval may be withheld if, among other things, that
entity is not properly licensed under all applicable laws or if Landlord deems
the insurance carried by that entity to be inadequate), (iii) the times during
which the work is to be accomplished, (iv) the issuance at Tenant's sole cost of
a performance or labor and material payment bond ensuring lien-free completion
of the proposed Alterations, (v) delivery to Landlord of a set of plans for the
proposed Alterations, or (vi) modification of the proposed Alterations to
conform to Landlord's subjective opinion about the appearance of the proposed
Alterations. Tenant shall give Landlord at least ten (10) days prior written
notice of the expected commencement date of any work related to the Premises.
Tenant shall be responsible for obtaining all permits required by law for all
work done by Tenant under this Lease (excluding work Tenant performs, or shall
cause to be performed, under the Work Letter Agreement which shall be obtained
by or through Landlord) and Tenant warrants that such work shall comply with all
applicable governmental laws, codes, or ordinances, including, without
limitation, the ADA.
(c) If upon the expiration or earlier termination of this Lease, (i) all or
any part of Permitted Non-Structural Alterations, and (ii) all or any part of
any Removable Alterations have not been removed by Tenant, then, at the option
of Landlord and subject to paragraph 14(a), above, such Alterations shall either
(A) become the property of Landlord and remain and be surrendered with the
Premises, or (B) be removed from the Premises and the Premises restored to their
condition immediately before those Alterations were made, all by and at the
expense of Tenant, or, at Landlord's option, Tenant shall pay to Landlord all of
Landlord's reasonable costs of such removal and repair.
(d) All articles of personal property and all business and trade fixtures,
machinery and equipment, furniture and movable partitions owned by Tenant
("TENANT'S EFFECTS") shall be and remain the property of Tenant and may be
removed by Tenant at any time during the Term when Tenant is not in material
default under this Lease. If Tenant fails to remove all of Tenant's Effects
from the Premises upon termination of this Lease, Landlord may, at its option,
remove Tenant's Effects and store Tenant's Effects without liability to Tenant
for loss of Tenant's Effects. Tenant agrees to pay Landlord upon demand any and
all expenses incurred by Landlord in removing Tenant's Effects, including court
costs, attorneys' fees and storage charges on Tenant's Effects, for any length
of time that Tenant's Effects shall be in Landlord's possession. Landlord may,
at its option, without notice, sell Tenant's Effects, or any of the same, at a
private sale and without legal process, for such price as Landlord may obtain,
and apply the proceeds of such sale to any amounts due under this Lease from
Tenant to Landlord and to the expenses incident to the removal and sale of
Tenant's Effects.
15. REPAIRS.
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(a) Tenant shall keep, maintain and preserve the Premises in first-class
condition and repair consistent with the permitted uses hereunder, and shall,
when and if needed, at Tenant's sole cost and expense, make all repairs to the
Premises and every part thereof, including, without limitation, the interior
surfaces of the ceilings, walls and floors, all doors, all interior windows,
leasehold improvements, all plumbing, pipes, and electrical wiring (which are
not part of Building systems), light fixtures and bulbs, switches, furnishings,
signs and special items and equipment installed by or at the expense of Tenant.
Tenant may contract for its own janitorial services using a janitorial
contractor acceptable to Landlord, in which case the cost of such services shall
be credited (upon timely presentation of paid invoices and other reasonable
documentation Landlord may require) to Tenant's Percentage. Landlord shall have
no obligation to alter, remodel, improve, repair, decorate or paint the Premises
or any part thereof. Tenant and Landlord affirm that Landlord has made no
representations to Tenant respecting the condition of the Premises, the
Building, the Common Areas, or the Project except as specifically set forth in
this Lease.
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(b) Anything contained in Paragraph 15(a) to the contrary notwithstanding,
Landlord shall promptly repair and maintain the structural portions of the
Building and the Building Standard plumbing, heating, ventilating, air
conditioning, elevator and electrical systems, unless such maintenance and
repairs are required in part or in whole by the act, neglect or omission of
Tenant, its agents, servants, employees or invitees, in which case Tenant shall
pay to Landlord, as additional rent, the reasonable cost of such maintenance and
repairs. Landlord will provide a building engineer to be available on an
overtime basis. The costs of the building engineer shall be considered a
component of Operating Expenses. However, if any services of the building
engineer are required to address maintenance and repair specific to the Premises
or Tenant's use of the Premises and which are not generally considered a
component of in-common Operating Expenses (e.g., service calls to repair damage
caused by Tenant's employees, duplicating charges for lost keys, etc.) to be
borne pro rata by other tenants of the Building, the cost of those services will
not be a component of Operating Expenses but will be billed directly to Tenant,
and shall be due and payable as additional rent within ten (10) days after
written demand therefor.
(c) Landlord shall not be liable for any failure to make any such repairs
or to perform any maintenance or service unless such failure shall persist for
an unreasonable time after Landlord becomes aware of the need for such repairs
or maintenance. Except as expressly provided in Paragraph 23 and Subparagraph
15(d), below, there shall be no abatement of rent and no liability of Landlord
by reason of any injury to or interference with Tenant's business arising from
the making of any repairs, alterations or improvements in or to any portion of
the Building, the Premises, the Common Areas, or the Project or in or to
fixtures, appurtenances and equipment therein. Tenant shall in any event
provide Landlord with prompt written notice of the need for any repairs and/or
maintenance. Subject to Subparagraph 15 (f), below, Tenant waives the right to
make repairs at Landlord's expense under any law, statute or ordinance now or
hereafter in effect. No provision of this Lease shall be construed as
obligating Landlord to perform any repairs, alterations or decorations except as
otherwise expressly provided under this Lease.
(d) In the event that Tenant is prevented from using, and does not use, the
Premises or any portion thereof, for five (5) consecutive business days as a
result of any failure of Landlord to provide to the Premises any essential
repairs to the Premises required of Landlord pursuant to Subparagraph 15(b),
above, (the "REPAIRS ELIGIBILITY PERIOD"), then Tenant's rent shall be abated or
reduced, as the case may be, during the period after expiration of the Repairs
Eligibility Period that Tenant continues to be so prevented from using and does
not use the Premises or a portion thereof, in the proportion that the rentable
square feet of the portion of the Premises that Tenant is prevented from using,
and does not use, bears to the total rentable square feet of the Premises. If
Landlord disputes Tenant's claim regarding Tenant's right to abatement of rent
under the provisions of this Subparagraph 15(c), Landlord shall be entitled to
submit the dispute to binding arbitration pursuant to the procedures set forth
in Paragraph 59, below. At the time of or during the pendency of such
arbitration, as applicable, Tenant shall pay (if the cause for abatement has not
then ceased) or shall have paid (if the cause for abatement has then ceased) at
least fifty percent (50%) of the amount of abated Monthly Basic Rent and
Additional Expenses in dispute and all of the Monthly Basic Rent and Additional
Expenses not in dispute. Within five (5) business days after issuance of the
arbitration decision, Tenant shall pay the amount of any underpayments to
Landlord, and Landlord shall reimburse the amount of any overpayments to Tenant.
(e) As between Landlord and Tenant, Landlord is recognized as the owner of
telephone cable and related wiring serving the Premises (the "TELEPHONE CABLE")
and situated in the Premises and the Common Areas. Tenant shall be responsible
for the maintenance of all Telephone Cable within the Premises, and shall
provide Landlord with access to the Premises to the extent necessary for
Landlord to repair, maintain or replace all or any portion of the Telephone
Cable. Tenant's access to the Common Areas for the purposes of installing and
maintaining the Telephone Cable is conditioned upon Landlord's approval of
Tenant's telephone service contract and appropriate insurance policies being
obtained by the entity installing the Telephone Cable. Landlord shall not be
responsible and shall have no liability for interruption in or failures of
telephone service. Tenant shall abide by all reasonable, written and
nondiscriminatory rules and regulations hereafter promulgated
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by Landlord regarding access to the Telephone Cable. Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all claims, losses,
liabilities, costs and expenses, including, without limitation, actual
attorneys' fees, incurred by Landlord and related to Tenant's access to the
Common Areas or work in the Common Area in connection with the Telephone Cable.
(f) Notwithstanding any provision set forth in this Section 15 to the
contrary, if Tenant provides written notice (or oral notice in the event of an
emergency such as damage or destruction to or of a structural component, or any
electrical, plumbing, mechanical, life-safety, or telecommunications system of
or in the Building (including but not limited to damage to the roof, or exterior
window or door)) to Landlord of an event or circumstance which requires the
action of Landlord with respect to repair and/or maintenance, and Landlord fails
to provide such action within a reasonable period of time, given the
circumstances, after the receipt of such notice, but in any event not later than
twenty-one (21) days after receipt of such notice, then Tenant may proceed to
take the required action upon delivery of an additional ten (10) business days'
notice to Landlord specifying that Tenant is taking such required action
(provided, however, that such additional notice shall not be required in the
event of an emergency), and if such action was required under the terms of the
Lease to be taken by Landlord and was not taken by Landlord within such ten (10)
day period, then Tenant shall be entitled to prompt reimbursement by Landlord of
Tenant's reasonable costs and expenses in taking such action. In the event
Tenant takes such action, and such work will affect the Building Systems or the
structural integrity of the Building, Tenant shall use only those contractors
used by Landlord in the Building for work on such Building Systems or structural
components unless such contractors are unwilling or unable to perform such work,
in which event Tenant may utilize the services of any other qualified contractor
which normally and regularly performs similar work in similar buildings.
Further, if Landlord does not deliver a detailed written objection to Tenant
within thirty (30) days after receipt of an invoice (together with reasonable
supporting documentation) by Tenant of its costs of taking action which Tenant
claims should have been taken by Landlord, and if such invoice and supporting
documentation from Tenant sets forth a reasonably particularized breakdown of
its costs and expenses in connection with taking such action on behalf of
Landlord, then Tenant shall be entitled to deduct from Monthly Basic Rent
payable by Tenant under the Lease, the amount set forth in such invoice. If,
however, Landlord delivers to Tenant within thirty (30) days after receipt of
Tenant's invoice, a written objection to the payment of such invoice, setting
forth with reasonable particularity Landlord's reasons for its claim that such
action did not have to be taken by Landlord pursuant to the terms of the Lease
or that the charges are excessive (in which case Landlord shall pay the amount
it contends would not have been excessive), then Tenant shall not be entitled to
such deduction, but as Tenant's sole remedy, Tenant may proceed to claim a
default by Landlord or, if elected by either Landlord or Tenant, the matter
shall proceed to resolution by arbitration pursuant to the procedures set forth
in Section 59, below [Arbitration of Disputes], and whose costs shall be paid
for by the losing party, unless it is not clear that there is a "losing party,"
in which event the costs of arbitration shall be shared equally.
16. LIENS.
-----
Tenant shall not permit any mechanics', materialmens' or other liens to be
filed against the Building, the Project or against Tenant's leasehold interest
in the Premises. Landlord shall have the right at all reasonable times to post
and keep posted on the Premises any notices which it deems necessary for
protection from such liens. If any such liens are filed, Landlord may, without
waiving its rights and remedies based on such breach of Tenant and without
releasing Tenant from any of its obligations, cause such liens to be released by
any means it shall deem proper, including payments in satisfaction of the claim
giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by
Landlord, any sum paid by Landlord to remove such liens, together with interest
on that sum at (a) the maximum rate permitted by then-existing usury law, if
applicable, or (b) if the then-existing usury law is not applicable, one and
one-half percent (l-l/2%) per month ("INTEREST RATE") from the date of
Landlord's payment.
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17. ENTRY BY LANDLORD.
-----------------
Landlord reserves and shall at all times have the right, upon prior notice
of at least twenty-four (24) hours (except in case of emergency in which case no
prior notice shall be required) to enter the Premises to inspect the same, to
supply any service (other than janitor service) to be provided by Landlord to
Tenant as required under this Lease, to show the Premises to prospective
purchasers or tenants, to post notices of nonresponsibility, to alter, improve
or repair the Premises or any other portion of the Building, without any such
act being deemed an eviction of Tenant and without abatement of rent. Landlord
may, in order to carry out such purposes, erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed. Tenant waives any claim for damages for any injury or inconvenience
to or interference with Tenant's business, any loss of occupancy or quiet
enjoyment of the Premises, and any other loss in, upon and about the Premises
resulting from any entry permitted under this paragraph. Landlord shall at all
times have and retain a key with which to unlock all doors in the Premises,
excluding Tenant's vaults and safes. Landlord shall have the right to use any
and all means which Landlord may deem proper to open any door in an emergency in
order to obtain entry to or within the Premises. Any entry to the Premises
obtained by Landlord by any means shall not be deemed to be a forcible or
unlawful entry into the Premises, or an eviction of Tenant from the Premises or
any portion thereof, and any damages caused on account thereof shall be paid by
Tenant if that entry was caused by the acts or omissions of Tenant, its agents
or contractors. Landlord shall provide Tenant with prompt notice of any defects
in the Building actually known to Landlord which affect Tenant's use of the
Premises.
18. UTILITY AND SERVICES.
--------------------
(a) Provided that Tenant is not in default under this Lease, Landlord
agrees to furnish or cause to be furnished to the Premises the utilities and
services as described in the Standards for Utilities and Services attached
hereto as Exhibit "D". Landlord's failure to furnish any of the foregoing items
-----------
shall not result in any liability of Landlord when such failure is caused by (i)
accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance
or labor dispute of any character; (iii) governmental regulation, moratorium or
other governmental action; (iv) inability despite the exercise of reasonable
diligence to obtain electricity, water or fuel; or (v) any other cause beyond
Landlord's reasonable control. In addition, Tenant shall not be entitled to any
abatement or reduction of rent by reason of such failure (whether such failure
affects elevator or HVAC services or otherwise), no eviction of Tenant shall
result from such failure, and Tenant shall not be relieved from the performance
of any covenant or agreement in this Lease because of such failure. In the
event of any failure, stoppage or interruption thereof, Landlord shall
diligently attempt to resume service promptly. If Tenant requires or utilizes
more water or electrical power than is considered reasonable or normal by
Landlord or HVAC at times other than those hours set forth on attached Exhibit
-------
D, Landlord may at its option require Tenant to pay, as additional rent, the
cost, as fairly determined by Landlord, incurred by such extraordinary usage or
after-hours HVAC. In addition, Landlord may install separate meter(s) for all
or part of the Premises, at Tenant's sole expense, and Tenant thereafter shall
pay all sub-metered utility charges and Landlord shall make a commensurate
Operating Expenses adjustment to account for the fact Tenant is directly paying
such metered charges. Any incandescent light bulbs installed in the Premises
shall be paid by Tenant. Tenant shall pay for all telephone service to the
Premises and shall contract directly with the providing company for such
service, and Landlord shall have no responsibilities in connection therewith.
Notwithstanding the foregoing, Landlord reserves the right from time to time to
make reasonable and nondiscriminatory modifications to the above standards for
utilities and services.
(b) In the event that Tenant is prevented from using, and does not use, the
Premises or any portion thereof, for five (5) consecutive business days (the
"UTILITIES ELIGIBILITY PERIOD") as a result of any failure of Landlord to
provide to the Premises any essential utilities to be provided by Landlord
pursuant to this Paragraph 18, then Tenant's rent shall be abated or reduced, as
the case may be, during the period after expiration of the Utilities Eligibility
Period that Tenant continues to be so prevented from using and does not use the
Premises or a portion thereof, in the proportion that the rentable square feet
of the portion of the Premises that Tenant is prevented from using, and does not
use, bears to the
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total rentable square feet of the Premises. If Landlord disputes Tenant's claim
regarding Tenant's right to abatement of rent under the provisions of this
Subparagraph 18(b), Landlord shall be entitled to submit the dispute to binding
arbitration pursuant to the procedures set forth in Paragraph 59, below. At the
time of or during the pendency of such arbitration, as applicable, Tenant shall
pay (if the cause for abatement has not then ceased) or shall have paid (if the
cause for abatement has then ceased) at least fifty percent (50%) of the amount
of abated Monthly Basic Rent and Additional Expenses in dispute and all of the
Monthly Basic Rent and Additional Expenses not in dispute. Within five (5)
business days after issuance of the arbitration decision, Tenant shall pay the
amount of any underpayments to Landlord, and Landlord shall reimburse the amount
of any overpayments to Tenant.
19. BANKRUPTCY.
----------
If Tenant shall file a petition in bankruptcy under any provision of the
Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a bankrupt
in involuntary bankruptcy proceedings and such adjudication shall not have been
vacated within thirty (30) days from the date thereof, or if a receiver or
trustee of Tenant's property shall be appointed and the order appointing such
receiver or trustee shall not be set aside or vacated within thirty (30) days
after the entry thereof, or if Tenant shall assign Tenant's estate or effects
for the benefit of creditors (collectively, "ACTS OF INSOLVENCY"), or if this
Lease shall, by operation of law or otherwise, pass to any person or persons
other than Tenant, then in any such event Landlord may terminate this Lease, if
Landlord so elects, with or without notice of such election and with or without
entry or action by Landlord. In such case, notwithstanding any other provisions
of this Lease, Landlord, in addition to any and all rights and remedies allowed
by law or equity, shall, upon such termination, be entitled to recover damages
in the amount provided in Subparagraph 25(b), and neither Tenant nor any person
claiming through or under Tenant or by virtue of any statute or order of any
court shall be entitled to possession of the Premises but shall immediately
surrender the Premises to Landlord. Nothing contained herein shall limit or
prejudice the right of Landlord to recover, by reason of any such termination,
damages equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such damages are greater, equal to or less than the
amount of damages otherwise recoverable under the provisions of this Paragraph
19.
20. INDEMNIFICATIONS AND EXCULPATION OF LANDLORD.
--------------------------------------------
(a) Tenant shall indemnify, defend and hold Landlord and its respective
constituent partners harmless from all liability, claims and losses arising from
Tenant's use of the Premises or the conduct of its business or from any
activity, world or thing done, permitted or suffered by Tenant in or about the
Premises, the Building, the Common Areas or any other part of the Project.
Tenant shall further indemnify, defend and hold Landlord and its respective
constituent partners harmless from all liability, claims and losses arising from
any breach or default in the performance of any obligation to be performed by
Tenant under this Lease, or arising from any act, neglect, fault or omission of
Tenant or of its agents, employees, or contractors, and from and against all
costs, attorneys' fees, expenses and liabilities incurred in, or arising out of,
such claim or any action or proceeding brought thereon. In case any action or
proceeding shall be brought against Landlord by reason of any such claim,
Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by
counsel approved in writing by Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons in, upon or about the Premises from any cause whatsoever
except that which is caused by the gross negligence or willful misconduct of
Landlord or Landlord's breach of this Lease. Tenant hereby waives all its
claims in respect thereof against Landlord.
(b) Neither Landlord nor any partner, co-tenant, director, officer, agent
or employee of Landlord shall be liable to Tenant or its partners, directors,
officers, contractors, agents, employees, invitees, sublessees or licensees for
any loss, injury or damage to Tenant or to any other person, or to its or their
property, except to the extent such injury, damage or loss is caused by the
gross negligence or willful misconduct of Landlord or its employees in the
operation or maintenance of the Premises or the Building. Further, neither
Landlord nor any partner, co-tenant, director, officer, agent or employee of
15
<PAGE>
Landlord shall be liable (i) for any such damage caused by other tenants or
persons in or about the Building; or (ii) for consequential or incidental
damages (including, without limitation, lost profits) arising out of any loss of
the use of the Premises or any equipment or facilities therein by Tenant or any
person claiming through or under Tenant.
(c) Landlord shall indemnify, defend and hold Tenant harmless from and
against, any injury to persons or damage to property located on the Premises or
Project (but not for injury to, or interference with, Tenant's business or for
consequential damages), to the extent such damage or injury arises or results
from the gross negligence or willful misconduct of Landlord; provided, however,
that Landlord's indemnity shall not apply or extend to any such damage or injury
which is covered by insurance maintained by Tenant hereunder (or would have been
covered had Tenant obtained the insurance as required under this Lease). In
case any action or proceeding is brought against Tenant by reason of any such
injury or damage indemnified by Landlord as set forth hereinabove, Landlord,
upon notice from Tenant, shall defend the same at Landlord's expense by counsel
approved in writing by Tenant, which approval shall not be unreasonably
withheld.
21. DAMAGE TO TENANT'S PROPERTY.
---------------------------
Subject to the provisions of Paragraph 20, neither Landlord nor its agents
shall be liable for (i) any damage to any property entrusted to employees of
Tenant, (ii) loss or damage to any property by theft or otherwise, or (iii) any
injury or damage to persons or property resulting from fire, explosion, falling
plaster or other improvements, steam, gas, electricity, water or rain which may
leak from any part of the Building or from any latent defect in the Premises or
in the Building or from the pipes, appliances or plumbing work in the Building
or from the roof, street or subsurface or from any other place or resulting from
dampness or any other cause whatsoever. Except as expressly provided otherwise
in this Lease, neither Landlord nor its agents shall be liable for interference
with light or other property rights. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises or in the Building or of
defects in the Premises or the Building or in any fixtures or equipment.
22. TENANT'S INSURANCE.
------------------
(a) Tenant shall, during the Term and any other period of occupancy, at its
sole cost and expense, keep in full force the following insurance:
(i) Standard form property insurance insuring against all-risk perils
("ALL-RISK") and sprinkler leakage. This insurance policy shall be upon all
property owned by Tenant, for which Tenant is legally liable or that was
installed at Tenant's expense, and which is located in the Building including,
without limitation, furniture, fittings, installations, fixtures (other than
tenant improvements installed by Landlord or which Landlord otherwise permits
Tenant to install pursuant to Paragraph 14, above), and any other personal
property, in an amount not less than the full replacement cost thereof. If
there is a dispute as to the amount which comprises full replacement cost, the
decision of Landlord or any mortgagees of Landlord shall be conclusive. This
insurance policy shall also cover direct or indirect loss of Tenant's earnings
attributable to Tenant's inability to use fully or obtain access to the Premises
or Building in an amount which will properly reimburse Tenant. Such policy
shall name Landlord and any mortgagees of Landlord as insured parties, as their
respective interests may appear.
(ii) Commercial General Liability Insurance insuring Tenant against
any liability arising out of the lease, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be in the
amount of $5,000,000 Combined Single Limit for injury to, or death of one or
more persons in an occurrence, and for damage to tangible property in an
occurrence. The policy shall insure the hazards of the Premises and Tenant's
operations thereon, independent contractors, and contractual liability (covering
the indemnity contained in Paragraph 20), and shall (1) name Landlord and
Landlord's lender(s) and mortgagee(s) as additional insureds, (2) contain a
cross-liability provision, and (3) contain a provision that the insurance
provided Landlord under this Subparagraph
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<PAGE>
22(a)(ii) shall be primary and non-contributing with any other insurance
available to Landlord.
(iii) Workers' Compensation and Employer's Liability insurance as
required by state law.
(iv) Any other form or forms of insurance which Tenant or Landlord or
any mortgagees of Landlord may reasonably require from time to time in form, in
amounts, and for insurance risks against which a prudent tenant would protect
itself.
(b) All policies shall be written in a form satisfactory to Landlord and
shall be maintained with insurance companies holding a General Policyholders
Rating of "A" and a Financial Rating of "X" or better, as set forth in the most
current issue of Best's Insurance Guide. Within ten (10) days after the
execution of this Lease and before occupying the Premises, Tenant shall deliver
to Landlord copies of policies or certificates evidencing the existence of the
amounts and forms of coverage satisfactory to Landlord. No such policy shall be
cancellable or reducible in coverage without at least thirty (30) days prior
written notice to Landlord. Tenant shall, at least ten (10) days before the
expiration of such policies, furnish Landlord with renewals or "binders"
thereof, or Landlord may order such insurance and charge the cost thereof to
Tenant as additional rent. If Landlord obtains any insurance that is the
responsibility of Tenant under this Paragraph 22, Landlord shall deliver to
Tenant a written statement setting forth the cost of any such insurance and
showing in reasonable detail the manner in which it has been computed.
(c) During the Term, Landlord shall insure the full replacement value of
the Building (excluding any property which Tenant is obligated to insure under
Subparagraphs 22(a) and (b)) against damage with All-Risk insurance and public
liability insurance, all in such amounts and with such deductibles as Landlord
considers appropriate. The insurance carried by Landlord hereunder shall be
maintained with insurance companies holding a General Policyholders Rating of
"A" and a Financial Rating of "X" or better, as set forth in the most current
issue of Best's Insurance Guide. Landlord may, but shall not be obligated to,
obtain and carry any other form or forms of insurance (including, without
limitation, earthquake coverage) as it or Landlord's mortgages may determine
advisable. Notwithstanding any contribution by Tenant to the cost of insurance
premiums as provided under this Lease, Tenant acknowledges that it has no right
to receive any proceeds from any insurance policies carried by Landlord.
(d) Tenant will not keep, use, sell or offer for sale in or upon the
Premises any article which may be prohibited by any insurance policy
periodically in force covering the Building. If Tenant's use of the Premises,
whether or not Landlord has consented to the same, results in any increase in
premiums for the insurance periodically carried by Landlord with respect to the
Building, Tenant shall pay any such increase in premiums as additional rent
within ten (10) days after being billed therefor by Landlord. In determining
whether increased premiums are a result of Tenant's use of the Premises, a
schedule issued by the organization computing the insurance rate on the Building
or the Tenant Improvements showing the various components of such rate shall be
conclusive evidence of the several items and charges which make up such rate.
Tenant shall promptly comply with all reasonable requirements of the insurance
authority or any present or future insurer relating to the Premises.
(e) If any of Landlord's insurance policies shall be canceled or
cancellation shall be threatened or the premium or coverage thereunder changed
or threatened to be changed in any way because of the use of the Premises or any
part thereof by Tenant or any assignee or subtenant of Tenant or by anyone
Tenant permits on the Premises and, if Tenant fails to remedy the condition
giving rise to such threatened or actual cancellation, or threatened or actual
change in coverage or premiums, then, within five (5) business days after
written notice thereof, Landlord may, at its option, either terminate this Lease
or enter upon the Premises and attempt to remedy such condition, and Tenant
shall promptly pay the cost thereof to Landlord as additional rent. Landlord
shall not be liable for any damage or injury caused to any property of Tenant or
of others located on the Premises resulting from such
17
<PAGE>
entry. If Landlord is unable or elects not to remedy such condition, then
Landlord shall have all of the remedies for a Tenant default provided for in
this Lease.
(f) All policies of insurance required hereunder shall include a clause or
endorsement denying the insurer any rights of subrogation against the other
party to the extent rights have been waived by the insured before the occurrence
of injury or loss. Landlord and Tenant waive any rights of recovery against the
other for injury or loss due to hazards covered by policies of insurance
containing such a waiver of subrogation clause or endorsement to the extent of
the injury or loss covered thereby.
23. DAMAGE OR DESTRUCTION.
---------------------
(a) Loss Covered By Insurance. If, at any time prior to the expiration or
-------------------------
termination of this Lease, the Premises are wholly or partially damaged or
destroyed by a casualty, which loss to Landlord is (except for any applicable
deductible) fully covered by insurance maintained by Landlord or for Landlord's
benefit, which casualty renders the Premises totally or partially inaccessible
or unusable by Tenant in the ordinary conduct of Tenant's business, then:
(i) Repairs Which Can Be Completed Within Six (6) Months. Within
----------------------------------------------------
twenty (20) business days after Landlord's receipt of notice of such damage or
destruction, Landlord shall provide Tenant with notice of its determination of
whether the damage or destruction can be repaired within six (6) months of such
damage or destruction without the payment of overtime or other premiums. If all
repairs to such Premises can, in Landlord's judgment, be completed within six
(6) months following the date of such damage or destruction without the payment
of overtime or other premiums, Landlord shall, at Landlord's expense, repair the
same, and this Lease shall remain in full force and effect and a proportionate
reduction of the Basic Monthly Rent shall be allowed Tenant for such portion of
the Premises as shall be rendered inaccessible or unusable to Tenant, and which
is not used by Tenant, during the period of time that such portion is unusable
or inaccessible and not used by Tenant.
(ii) Repairs Which Cannot Be Completed Within Six (6) Months. If all
-------------------------------------------------------
such repairs to the Premises cannot, in Landlord's judgment, be completed within
six (6) months following the date Landlord receives notice of such damage or
destruction without the payment of overtime or other premiums, Landlord shall
notify Tenant of such determination and Tenant may, at its option, upon written
notice to Landlord given within twenty (20) business days after Landlord's
delivery to Tenant of the notice of such damage or destruction, elect to
terminate this Lease as of the date of the occurrence of such damage or
destruction. In the event that Tenant does not elect to terminate this Lease in
accordance with the foregoing provisions, then Landlord shall, at Landlord's
expense, repair such damage or destruction, and in such event, this Lease shall
continue in full force and effect but the Basic Monthly Rent shall be
proportionately reduced as provided in Paragraph 23(a)(i), above; provided,
however, that if any such repair is not commenced by Landlord within ninety (90)
days after Landlord's receipt of notice of such damage or destruction or is not
substantially completed by Landlord within nine (9) months after Landlord's
receipt of notice of such damage or destruction, then in either such event
Tenant may, at its option, upon written notice to Landlord, elect to terminate
this Lease as of the date of the occurrence of such damage or destruction.
(b) Loss Not Covered By Insurance. If, at any time prior to the expiration
-----------------------------
or termination of this Lease, the Premises are totally or partially damaged or
destroyed from a casualty, which loss to Landlord is not fully covered (except
for any deductible) by insurance maintained by Landlord or for Landlord's
benefit and such loss was not required to be insured by Landlord or for
Landlord's benefit, and, which damage renders the Premises inaccessible or
unusable to Tenant in the ordinary course of its business, Landlord may, at its
option, upon written notice to Tenant within twenty (20) business days after
notice to Landlord of the occurrence of such damage or destruction, elect to
repair or restore such damage or destruction, or Landlord may elect to terminate
this Lease so long as Landlord terminates every other lease in the Building
which was similarly affected by the casualty. If Landlord elects to repair or
restore such damage or destruction, this Lease shall continue in
18
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full force and effect but the Basic Monthly Rent shall be proportionately
reduced as provided in Paragraph 23(a)(i). If Landlord does not elect by notice
to Tenant to repair such damage the Lease shall terminate. Notwithstanding the
foregoing, if all repairs to the Premises cannot, in Landlord's reasonable
judgment, be completed within nine (9) months following the date of Landlord's
receipt of notice of such damage or destruction without the payment of overtime
or other expenses, then either Landlord or Tenant may at its option, upon
written notice to the other party given within thirty (30) days after Landlord's
receipt of notice of such damage or destruction, elect to terminate this Lease
as of the date of the occurrence of such damage or destruction.
(c) Destruction During Final Year. Notwithstanding anything to the
-----------------------------
contrary contained in Paragraphs 23(a) and 23(b), if the Premises or the
Building are wholly or partially damaged or destroyed within the final twelve
(12) months of the Term so that Tenant shall be prevented from using the
Premises for thirty (30) consecutive days due to such damage or destruction,
then either Landlord or Tenant may, at its option, by notice to the other party
within thirty (30) days after Landlord's notice of such damage or destruction,
elect to terminate the Lease.
(d) Destruction of Tenant's Personal Property, Tenant Improvements or
-----------------------------------------------------------------
Property of Tenant's Employees. In the event of any damage to or destruction of
- ------------------------------
the Premises or the Building, under no circumstances shall Landlord be required
to repair any injury, or damage to, or make any repairs to or replacements of,
Tenant's personal property or trade fixtures or any other items not required to
be insured by Landlord. However, as part of Operating Expenses, Landlord shall
cause to be insured the Tenant Improvements and Alterations permitted by
Landlord which do not consist of Tenant's personal property or trade fixtures
and shall cause such Tenant Improvements and Alterations to be repaired and
restored at Landlord's expense, except that Tenant shall pay for such portion
which is covered by the deductible. Landlord shall have no responsibility for
any contents placed or kept in or on the Premises or the Building by Tenant or
Tenant's Agents.
(e) Except as provided otherwise in this Lease, upon any termination of
this Lease under any of the provisions of this Paragraph 23, the parties shall
be released without further obligation to the other from the date possession of
the Premises is surrendered to Landlord except for items which have previously
accrued and are then unpaid.
(f) In the event of repair, reconstruction or restoration by Landlord as
provided in this Paragraph 23, the rent payable under this Lease shall be abated
proportionately to the degree to which Tenant's use of the Premises is impaired
during the period of such repair, reconstruction or restoration; provided that
there shall be no abatement of rent if such damage is the result of the
negligence or intentional wrongdoing of Tenant or its agents, employees,
contractors or invitees. Except for abatement of Basic Monthly Rent as
expressly set forth above, Tenant shall not be entitled to any compensation or
damages for (i) loss in the use of the whole or any part of the Premises or (ii)
any inconvenience or annoyance occasioned by such damage, repair, reconstruction
or restoration. Tenant shall not be released from any of its obligations under
this Lease except to the extent and upon the conditions expressly stated in this
Paragraph 23.
(g) Notwithstanding anything to the contrary contained in this Paragraph
23, Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Paragraph 23 occurs during the last twelve (12) months of the Term.
(h) The provisions of Civil Code section 1932, subsection 2, and section
1933, subsection 4, which permit termination of a lease upon destruction of the
leased premises, are hereby waived by Tenant, and the provisions of this Lease
shall govern in case of such destruction. Except as provided otherwise in this
Lease, Tenant shall not be released from any of its obligations under this
Lease, the rent and other expenses payable by Tenant under this Lease shall not
abate, and Landlord shall have no liability to Tenant for any damage or
destruction to the Premises or the Building or any inconvenience or injury to
Tenant by reason of any maintenance, repairs, alterations, decoration, additions
or improvements to the Premises, Building, or Project.
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24. EMINENT DOMAIN.
--------------
(a) If all of the Premises, or such part thereof as shall substantially
interfere with Tenant's use and occupancy thereof, shall be taken for any public
or quasi-public purpose by any lawful power or authority by exercise of the
right of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to such authority. Tenant
shall not assert any claim against Landlord or the taking authority for any
compensation because of such taking, and Landlord shall be entitled to receive
the entire amount of any award without deduction for any estate or interest of
Tenant. If the amount of property or the type of estate taken does not
substantially interfere with the conduct of Tenants business, Landlord shall be
entitled to the entire amount of the award without deduction for any estate or
interest of Tenant, Landlord shall restore the Premises to substantially their
same condition before the partial taking, and a proportionate allowance shall be
made to Tenant for the rent corresponding to the time during which, and to the
part of the Premises of which, Tenant shall be so deprived on account of such
taking and restoration. Nothing contained in this subparagraph shall be deemed
to give Landlord any interest in any award made to Tenant for the taking of
personal property and fixtures belonging to Tenant.
(b) In the event of taking of the Premises or any part thereof for
temporary use, (i) this Lease shall be and remain unaffected thereby and rent
shall not abate, and (ii) Tenant shall be entitled to receive for itself such
portion or portions of any award made for such use with respect to the period of
the taking which is within the Term, provided that if such taking shall remain
in force at the expiration or earlier termination of this Lease, Tenant shall
then pay to Landlord a sum equal to the reasonable cost of performing Tenant's
obligations under Paragraph 14 with respect to surrender of the Premises and
upon such payment shall be excused from such obligations. For purpose of this
Subparagraph 24(b), a temporary taking shall be defined as a taking for a period
of 180 days or less.
25. DEFAULTS AND REMEDIES.
---------------------
(a) The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(i) Abandonment of the Premises by Tenant. Notwithstanding the
provisions of Civil Code section 1951.3, "ABANDONMENT" means any absence by
Tenant from the Premises for five (5) days or longer while in default of any
provision of this Lease.
(ii) The failure by Tenant to make any payment of rent or additional
rent or any other payment required to be made by Tenant under this Lease, as and
when due, where such failure shall continue for a period of three (3) business
days after written notice thereof from Landlord to Tenant; provided, however,
that any such notice shall be in lieu of, and not in addition to, any notice
required under Code of Civil Procedure section 1161 regarding unlawful detainer
actions.
(iii) The failure by Tenant to observe or perform any of the express
or implied covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in Subparagraphs 25(a)(i) or (ii), where such
failure shall continue for a period of ten (10) days after written notice
thereof from Landlord to Tenant. Any such notice shall be in lieu of, and not
in addition to, any notice required under Code of Civil Procedure section 1161
regarding unlawful detainer actions. If the nature of Tenant's default is such
that it is reasonably capable of being cured but more than ten (10) days are
required for its cure, then Tenant shall not be deemed to be in default if
Tenant shall commence such cure within the ten (10) day period and thereafter
diligently prosecute such cure to completion, which completion shall occur not
later than sixty (60) days from the date of such notice from Landlord.
(iv) (1) Acts of Insolvency; or (2) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease where such seizure is not discharged
within thirty (30) days.
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(b) If any such default by Tenant occurs, in addition to any other remedies
now or later available to Landlord at law or in equity, Landlord can terminate
Tenant's right to possession of the Premises and terminate this Lease and all
rights of Tenant under this Lease. No act by Landlord other than giving notice
thereof to Tenant shall terminate this Lease. Upon termination, Landlord may
recover from Tenant:
(i) the worth at the time of award of any unpaid rent which had been
earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
(iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.
As used in Subparagraphs 25(b)(i) and (ii), the "WORTH AT THE TIME OF
AWARD" is computed by allowing interest at the Lease Interest Rate. As used in
Subparagraph 25(b)(iii), the "WORTH AT THE TIME OF AWARD" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
(c) If any such default by Tenant occurs, Landlord may utilize the remedy
described in California Civil Code section 1951.4 (which says landlord may
continue the lease in effect after a tenant's breach and abandonment and recover
rent as it becomes due, if tenant has the right to sublet or assign subject to
reasonable limitations).
(d) If an abandonment of the Premises by Tenant occurs or if Landlord
elects to reenter as provided above or shall take possession of the Premises
pursuant to legal proceeding or pursuant to any notice provided by law, then if
Landlord does not elect to terminate this Lease as provided above, Landlord may
from time to time, without terminating this Lease, either recover all rent as it
becomes due or relet the Premises or any part thereof for the Term on terms and
conditions as Landlord in its sole discretion may deem advisable with the right
to make alterations and repairs to the Premises.
If Landlord elects to so relet, then rentals received by Landlord from
that reletting shall be applied: first, to the payment of any indebtedness
other than rent due under this Lease from Tenant to Landlord; second, to the
payment of any cost of such reletting; third, to the payment of the cost of any
alterations and repairs to the Premises; fourth, to the payment of rent due and
unpaid under this Lease; and the residue, if any, shall be held by Landlord and
applied to payment of future rent as the same may become due and payable under
this Lease. Should that portion of such rentals received from such reletting
during any month, which is applied to the payment of rent under this Lease, be
less than the rent payable during that month by Tenant under this Lease, then
Tenant shall pay such deficiency to Landlord immediately upon demand therefor by
Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord, as soon as ascertained, any costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not covered
by the rentals received from such reletting.
(e) All rights, options and remedies of Landlord contained in this Lease
shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by law,
whether or not stated in this Lease. Without limitation, Tenant acknowledges
that Tenant's failure to timely comply with the requirements of Paragraphs 27,
28 and 52 may result in a lender refusing to loan Landlord funds or a buyer
refusing to purchase the Building on favorable terms (or at all), causing
Landlord
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substantial monetary damages. No waiver of any default of Tenant under this
Lease shall be implied from any acceptance by Landlord of any rent or other
payments due under this Lease (whether that acceptance occurs before or after
(i) a default has occurred or (ii) a three-day or other notice of default has
been given) or from any omission by Landlord to take any action on account of
such default if such default persists or is repeated, and no express waiver
shall affect defaults other than as specified in the waiver. The consent or
approval of Landlord to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant.
(f) The term "MATERIAL DEFAULT" whenever used in this Lease shall mean,
without limitation, (i) the failure of Tenant to pay any monetary obligations to
Landlord when due, (ii) the failure to obtain and maintain the insurance
policies required under this Lease and provide Landlord with satisfactory and
timely evidence thereof, (iii) Tenant's violation of any of the use restrictions
under this Lease, (iv) Tenant's violation of any of the assignment and
subletting restrictions under this Lease, and (v) Tenant's failure to provide
estoppel certificates, non-disturbance, subordination and attornment agreements,
and/or financial statements within the time required of Tenant.
26. ASSIGNMENT AND SUBLETTING.
-------------------------
(a) Tenant shall not assign, encumber, or otherwise transfer (collectively,
"TRANSFER") all or any part of its interest in this Lease or in the Premises or
sublease all or any part of the Premises, or allow any other person or entity to
occupy or use all or any part of the Premises, without obtaining Landlord's
prior written consent as set forth below. Any Transfer or sublease without
Landlord's prior written consent shall be voidable at Landlord's election and
shall constitute a default.
(b) If Tenant is a partnership, a withdrawal or change, in one or more
transactions, of partners owning in the aggregate a fifty percent (50%) or more
interest in the profits of the partnership, and, subject to Subparagraph 26(f),
below, if Tenant is a corporation, any change or transfer in the aggregate of
fifty percent (50%) or more of its voting stock or beneficial interest, whether
in one or more transactions, shall constitute a Transfer and shall be subject to
these provisions. Subject to Subparagraph 26(f), below, if Tenant is a
corporation or partnership, a sale, encumbrance or other transfer of fifty
percent (50%) or more of its assets in the aggregate, in one or more
transactions, shall also be a Transfer under this Lease and in addition shall be
void as to Landlord without Landlord's prior written consent. No consent to a
Transfer or sublease shall constitute a future waiver of the provisions of this
Paragraph 26.
(c) Tenant shall notify Landlord in writing of Tenant's intent to Transfer
or sublease all or part of this Lease or the Premises, the name of the proposed
assignee or sublessee, information concerning the financial responsibility of
the proposed assignee or sublessee and all the terms of the proposed Transfer or
subletting; within thirty (30) days after receipt of all such information and
all additional information requested by Landlord concerning the proposed
Transfer or sublease, Landlord shall elect by notice to Tenant ("LANDLORD'S
ELECTION") to do one of the following: (A) consent to such proposed Transfer or
sublease; or (B) refuse such consent, which refusal shall be on reasonable
grounds, which reasonable grounds shall include, without limitation, those
grounds set forth in Subparagraph 26(d), below.
As conditions to granting its consent to any Transfer or sublease,
Landlord may require:
(i) delivery to and approval by Landlord of a true copy of the fully
executed instrument of Transfer or sublease, and the delivery to Landlord of an
agreement executed by the transferee or sublessee in form and substance
satisfactory to Landlord and expressly enforceable by Landlord, whereby the
transferee or sublessee assumes and agrees to be bound by all of the terms and
provisions of this Lease and to perform all of the obligations of Tenant under
this Lease;
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(ii) that any sublease provide that it is subject and subordinate to
this Lease and to all mortgages, that Landlord may enforce the provisions of the
sublease, including collection of rent, and that in the event of termination of
this Lease for any reason, including without limitation a voluntary surrender by
Tenant, or in the event of any reentry or repossession of the Premises by
Landlord, Landlord may, at its option, either (x) terminate the sublease or (y)
take over all of the right, title and interest of Tenant, as sublessor, under
such sublease, in which latter case such sublessee shall attorn to Landlord, but
that nevertheless Landlord shall not (1) be liable for any previous act or
omission of Tenant under such sublease, (2) be subject to any defense or offset
previously accrued in favor of the sublessee against Tenant, or (3) be bound by
any previous modification of any sublease made without Landlord's written
consent, or by any previous prepayment by sublessee of any rent or other
payments.
(d) Landlord shall have the right to approve or disapprove any proposed
assignee or subtenant. In exercising such right of approval or disapproval,
Landlord shall be entitled to take into account any fact or factor which
Landlord reasonably deems relevant to such decision, including but not
necessarily limited to the following, all of which are agreed to be reasonable
factors for Landlord's consideration:
(i) The financial strength of the proposed assignee or subtenant,
including the adequacy of its working capital to pay all expenses anticipated in
connection with any proposed remodeling of the Premises.
(ii) The proposed use of the Premises by such proposed assignee or
subtenant and the compatibility of such proposed use within the quality and
nature of the other uses in the Building.
(iii) Any violation which the proposed use by such proposed assignee
or subtenant would cause of any other rights granted by Landlord to other
tenants of the Building.
(iv) Any adverse impact of the proposed use of the Premises by such
proposed assignee or subtenant upon the parking or other services provided for
Building tenants generally.
(v) Whether there then exists any default by Tenant pursuant to this
Lease or any non-payment or non-performance by Tenant under this Lease which,
with the passage of time or the giving of notice, would constitute a default
under this Lease.
(vi) The business reputation, character, history and nature of the
business of the proposed assignee or subtenant.
(vii) Whether the proposed assignee or subtenant is a person with
whom Landlord has negotiated for space in the Building during the six (6) month
period ending with the date Landlord receives notice of such proposed assignment
or subletting.
(viii) Whether the proposed assignee or subtenant is a governmental
entity or agency.
Moreover, Landlord shall be entitled to be reasonably satisfied that each and
every covenant, condition or obligation imposed upon Tenant by this Lease and
each and every right, remedy or benefit afforded Landlord by this Lease is not
impaired or diminished by such assignment or subletting Landlord and Tenant
acknowledge that the express standards and provisions set forth in this Lease
dealing with assignment and subletting, including those set forth in this
subparagraph (d) have been freely negotiated and are reasonable at the date
hereof taking into account Tenant's proposed use of the Premises and the nature
and quality of the Building and Project. No withholding of consent by Landlord
for any reason deemed sufficient by Landlord shall give rise to any claim by
Tenant or any proposed assignee or subtenant or entitle Tenant to terminate this
Lease, to recover contract damages or to any abatement of rent. In this
connection, Tenant hereby expressly waives its rights under California Civil
Code Section 1995.310.
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(e) Whether or not Landlord shall consent to a Transfer or sublease under
the provisions of this Paragraph 26, (i) Tenant shall pay Landlord's reasonable
processing costs and attorneys' fees incurred in determining whether or not to
so consent, and (ii) Tenant shall not be relieved of any responsibility under
this Lease without Landlord's express written release, which Landlord may grant
or withhold in its sole, subjective discretion. If Landlord shall consent to
any Transfer, Tenant shall pay to Landlord, as additional rent, fifty percent
(50%) of all net sums or other consideration payable to and for the benefit of
Tenant by the transferee on account of the Transfer, as and when such sums and
other consideration are due and payable to or for the benefit of Tenant (or, if
Landlord so requires, and without any release of Tenant's liability for the
same, Tenant shall instruct the transferee to pay such sums and other
consideration directly to Landlord). If in connection with any proposed
sublease Tenant receives net sums or other consideration, either initially or
over the term of the sublease, in excess of the rent called for under this Lease
or, in case of the sublease of a portion of the Premises, in excess of such rent
fairly allocable to such portion, after appropriate adjustments to assure that
all other payments called for under this Lease are taken into account, Tenant
shall pay to Landlord as additional rent fifty percent (50%) of the net sums or
other consideration received by Tenant promptly after its receipt. As used in
this paragraph, "NET SUMS OR OTHER CONSIDERATION" shall include without
limitation the then fair value of any non-cash consideration and shall be
calculated after first deducting reasonable costs incurred by Tenant in
connection with the Transfer or sublease, including without limitation
commissions payable to a broker not affiliated with Tenant, space modification
costs in connection with the Transfer or sublease, reasonable legal costs, free
rent concessions to the transferee or sublessee, and lease take-over costs.
Landlord's waiver of or consent to any Transfer or subletting shall not relieve
Tenant or any transferee or sublessee from any obligation under this Lease
whether or not accrued.
(f) Notwithstanding the provisions of Subparagraph 26(b), above, a
"TRANSFER" shall not include the arms-length stock purchase or series of stock
purchases by a third-party entity of fifty percent (50%) or more of Film Roman,
Inc., provided any such transaction or series of transactions does not result or
will not result in a reduction of the Net Worth of Tenant (as hereinafter
defined) by an amount equal to or greater than twenty-five percent (25%) of the
Net Worth of Tenant as of the Term Commencement Date. The "NET WORTH OF TENANT"
shall be the net worth of Tenant (excluding the net worth of any guarantors)
established under generally accepted accounting principles consistently applied.
(g) Notwithstanding the foregoing provisions of this Paragraph 26, Tenant
may sublease portions of the Premises without Landlord's prior consent to an
entity in which Film Roman, Inc. has and maintains throughout the Term at least
a fifty-one percent (51%) equity interest and daily managing and decision-making
authority (an "AFFILIATE"), provided such subleases (i) do not extend beyond the
Term, (ii) require the subtenant to comply with all terms and conditions of this
Lease, and (iii) do not purport to release Tenant or Guarantor from any of their
respective direct obligations to Landlord. Tenant shall promptly provide
Landlord with written notice of any such subletting to any affiliate together
with a copy of any documentation evidencing such sublease and any concurrent or
subsequent amendments or modifications thereto. A Transfer to an affiliate
shall not, however, require Tenant to pay Landlord the 50% of net sums or other
consideration otherwise required to be paid in connection with a permitted
Transfer pursuant to Subparagraph 26(e), above.
27. SUBORDINATION.
-------------
Unless Landlord or any beneficiary or mortgagee with a lien on the Building
or any ground lessor with respect to the Building elects otherwise as provided
below in this Paragraph 27, this Lease shall be subject and subordinate at all
times to the following without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination:
(a) the lien and provisions of any mortgage, deed of trust, or declaration
of covenants, conditions and restrictions which may now exist or hereafter be
executed by which the Building, Project, any ground lease, or Landlord's
interest or estate in any of those items, is encumbered; and
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(b) all ground leases which may now exist or hereafter be executed
affecting the Building.
Landlord, any such beneficiary or mortgagee, or any such ground lessor,
shall at any time have the right to elect to subordinate or cause to be
subordinated to this Lease any such liens and provisions or ground lease. Any
election under this Paragraph 27 may be made by giving notice thereof to Tenant
at least sixty (60) days before the election is to become effective. If any
ground lease terminates for any reason or any mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant
shall, at the election of any successor-in-interest to Landlord and regardless
of any subordination, attorn to and become the Tenant of the successor-in-
interest to Landlord. Tenant waives any right to declare this Lease terminated
or otherwise ineffectual because of any such foreclosure, conveyance or ground
lease termination. Tenant shall execute and deliver, upon demand by Landlord
and in the form and content requested by Landlord, any additional documents
evidencing the priority or subordination of this Lease and Tenant's obligation
to attorn to and become the Tenant of any successor-in-interest to Landlord as
provided for under this Paragraph 27. Tenant's failure to sign and return any
such documents within ten (10) days of request shall constitute a material
default by Tenant under this Lease and Landlord may, at Landlord's option,
terminate the Lease provided written notice of such termination (which shall be
in lieu of and not in addition to the notice and cure period otherwise provided
for under Subparagraph 25(a)(iii)) is received by Tenant prior to Landlord's
receipt of such documents. Tenant hereby irrevocably appoints Landlord as
attorney-in-fact of Tenant to execute, deliver and record any such document in
the name and on behalf of Tenant.
Additionally, with respect to any ground leases, underlying leases,
mortgages and/or deeds of trust affecting the Building which are executed after
the date of this Lease (collectively, "FUTURE LEASES OR MORTGAGES"), Landlord
and Tenant agree that as a condition precedent to the effectiveness of the
subordination and attornment provisions contained in this Paragraph 27, Landlord
shall obtain from any ground lessor, underlying lessor, mortgagee and/or
beneficiary under Future Leases or Mortgages, as applicable, a commercially
reasonable form of nondisturbance agreement which shall provide that so long as
Tenant is in compliance with the terms and provisions of this Lease, Tenant's
right to possession of the Premises shall not be disturbed in the event of any
termination or foreclosure of any Future Leases or Mortgages, as applicable.
Tenant agrees that a non-disturbance agreement in the form of attached Exhibit I
---------
is commercially reasonably and may be required by Landlord pursuant to this
Section 27.
28. ESTOPPEL CERTIFICATE.
--------------------
(a) Within ten (10) days following any written request which Landlord may
make from time to time, Tenant shall execute and deliver to Landlord a "TENANT
ESTOPPEL CERTIFICATE", in a form substantially similar to the form of attached
Exhibit "E" or in any other form reasonably required by Landlord. Landlord and
- -----------
Tenant intent that any statement delivered pursuant to this Paragraph 28 may be
relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of
the Building or any interest therein.
(b) Tenant's failure to deliver such Tenant Estoppel Certificate within
such time shall be conclusive upon Tenant (i) that this Lease is in full force,
without modification except as may be represented by Landlord, (ii) that there
are no uncured defaults in Landlord's performance, and (iii) that not more than
one (1) month's rental has been paid in advance. Tenant's failure to deliver
the Tenant Estoppel Certificate to Landlord within ten (10) days of receipt
shall constitute a material default under this Lease and Landlord may, at
Landlord's option, terminate the Lease, provided written notice of such
termination (which shall be in lieu of and not in addition to the notice and
cure period otherwise provided for under Subparagraph 25(a)(iii)) is received by
Tenant prior to Landlord's receipt of the Tenant Estoppel Certificate.
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29. HAZARDOUS MATERIALS.
-------------------
(a) As used in this Lease, the following words or phrases shall have the
following meanings:
(i) "AGENTS" means Tenant's partners, officers, directors,
shareholders, employees, agents, contractors and any other third parties
entering upon the Project at the request or invitation of Tenant.
(ii) "CLAIMS" means claims, liabilities, losses, actions,
environmental suits, causes of action, legal or administrative proceedings,
damages, fines, penalties, loss of rents, liens, judgments, costs and expenses
(including, without limitation, attorneys' fees and costs of defense, and
consultants', engineers' and other professionals' fees and costs).
(iii) "HAZARDOUS" means: (A) hazardous; (B) toxic; (C) reactive; (D)
corrosive; (E) ignitible; (F) carcinogenic; (G) reproductive toxic; (H) any
other attribute of a Substance now or in the future referred to in, or regulated
by, any Hazardous Materials Laws; and (I) potentially injurious to health,
safety or welfare, the environment, the Premises, the Building or the Project.
(iv) "HAZARDOUS MATERIALS" means any: (A) Substance which is
Hazardous, regardless of whether that Substance is Hazardous by itself or in
combination with any other Substance; (B) Substance which is regulated by any
Hazardous Materials Laws; (C) asbestos and asbestos-containing materials; (D)
urea formaldehyde; (E) radioactive substance; (F) flammable explosives; (G)
petroleum, including crude oil or any fraction thereof; (H) polychlorinated
biphenyls; and (I) "hazardous substances," "hazardous materials" or "hazardous
wastes" under any Hazardous Materials Laws.
(v) "HAZARDOUS MATERIALS LAWS" means: (A) any existing or future
federal, state or local law, ordinance, regulation or code which protects
health, safety or welfare, or the environment; (B) any existing or future
administrative or legal decision interpreting any such law, ordinance,
regulation or code; and (C) any common law theory which may result in Claims
against Landlord, the Premises, the Building or the Project.
(vi) "PERMITS" means any permit, authorization, license or approval
required by any applicable governmental agency.
(vii) "PROJECT" for purposes of this Paragraph 29 only, shall mean
the Project, the air about the Project and the soil, surface water and ground
water under the surface of the Project.
(viii) "SUBSTANCE" means any substance, material, product, chemical,
waste, contaminant or pollutant.
(ix) "USE" means use, generate, manufacture, produce, store, release
or discharge.
(b) (i) Without limiting the generality of Paragraph 8 of this Lease, and
except as provided in Paragraphs 29(b)(ii) and 29(b)(iii), Tenant covenants and
agrees that Tenant and its Agents shall not bring into, maintain upon, engage in
any activity involving the Use of, or Use in or about the Project, or transport
to or from the Project, any Hazardous Materials. Notwithstanding the provisions
of Paragraphs 29(b)(ii) or 29(b)(iii), in no event shall Tenant or its Agents
release or dispose of any Hazardous Materials in, on, under or about the
Project.
(ii) Notwithstanding the provisions of Paragraph 29(b)(i), if Tenant
or its Agents proposes to Use any Hazardous Materials, or to install or operate
any equipment which will or may Use Hazardous Materials ("EQUIPMENT"), then
Tenant shall first obtain Landlord's prior written consent, which consent may be
given or reasonably withheld by Landlord (provided such Use, installation or
operation is consistent with the reasonable and necessary requirements of an
animation studio), within thirty (30) days of Landlord's receipt
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of the last of documents or information requested by Landlord as set forth in
this Paragraph. Tenant's failure to receive Landlord's consent within such
thirty (30) day period shall be conclusively deemed Landlord's withholding of
consent. Tenant's request for Landlord's consent shall include the following
documents or information: (A) a Hazardous Materials list pursuant to Paragraph
29(c) regarding the Hazardous Materials Tenant proposes to Use or Equipment
Tenant proposes to install and operate; (B) reasonably satisfactory evidence
that Tenant has obtained all necessary Permits to Use those Hazardous Materials
or to install and operate the proposed Equipment; (C) reasonably satisfactory
evidence that Tenant's Use of the Hazardous Materials or installation and
operation of the Equipment shall comply with all applicable Hazardous Materials
Laws, Tenant's permitted use under this Lease and all restrictive covenants
encumbering the Project; (D) reasonably satisfactory evidence of Tenant's
financial capability all responsibility for potential Claims associated with the
Use of the Hazardous Materials or installation and operation of the Equipment;
and (E) such other documents or information as Landlord may reasonably request.
Landlord may, at its option, condition its consent upon any terms that Landlord,
in its subjective, good faith judgment, deems necessary to protect itself, the
public and the Project against potential problems, Claims arising out of
Tenant's Use of Hazardous Materials or installation and operation of Equipment
including, without limitation, (i) changes in the insurance provisions of the
Lease, (ii) installation of equipment, fixtures or personal property or
alteration of the Premises (all at Tenant's sole cost) to minimize the
livelihood of a violation of Hazardous Materials Laws as a result of Tenant's
Use of the Hazardous Materials or installation and operation of Equipment, or
(iii) increasing the amount of the security deposit. Neither Landlord's consent
nor Tenant's obtaining any Permits shall relieve Tenant of any of its
obligations pursuant to this Paragraph 29. Landlord's granting of consent to
one request to Use Hazardous Materials or install and operate Equipment shall
not be deemed Landlord's consent to any other such request. If Landlord grants
its consent to Tenant's request, no subtenant, assignee or successor of Tenant
shall have the right to Use those Hazardous Materials or install or operate that
Equipment without again complying with the provisions of this Paragraph
29(b)(ii).
(iii) Notwithstanding the provisions of Paragraphs 29(b)(i) and
29(b)(ii), Tenant may Use any Substance typically found or used in applications
of the type permitted by this Lease so long as: (A) any such Substance is
typically found only in such quantity as is reasonably necessary for Tenant's
permitted use under Paragraph 8 of this Lease; (B) any such Substance and all
equipment necessary in connection with the Substance are Used strictly in
accordance with the manufacturers' instructions therefor; (C) no such Substance
is released or disposed of in or about the Project; (D) any such Substance and
all equipment necessary in connection with the Substance are removed from the
Project and transported for Use or disposal by Tenant in compliance with any
applicable Hazardous Materials Laws upon the expiration or earlier termination
of this Lease; and (E) Tenant and its Agents comply with all applicable
Hazardous Materials Laws.
(iv) Tenant shall not use or install in or about the Premises any
asbestos or asbestos-containing materials.
(c) Tenant shall deliver to Landlord, within thirty (30) days after
Tenant's receipt of Landlord's written request, a written list identifying any
Hazardous Materials that Tenant or its Agents then Uses or has Used within the
last twelve (12) month period in the Project. Each such list shall state: (i)
the use or purpose of each such Hazardous Material; (ii) the approximate
quantity of each such Hazardous Material Used by Tenant; (iii) such other
information as Landlord may reasonably require; and (iv) Tenant's written
certification that neither Tenant nor its Agents have released, discharged or
disposed of any Hazardous Materials in or about the Project, or transported any
Hazardous Materials to or from the Project, in violation of any applicable
Hazardous Materials Laws. Landlord shall not request Tenant to deliver a
Hazardous Materials list more often than once during each twelve (12) month
period, unless Landlord reasonably believes that Tenant or its Agents have
violated the provisions of this Paragraph 29 (in which case (A) Landlord may
request such lists as often as Landlord determines is necessary until such
violation is cured, and (B) Tenant shall provide such lists within ten (10) days
of each of Landlord's requests, or if an emergency exists, such lists shall be
immediately provided).
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(d) Tenant shall furnish to Landlord copies of all notices, claims,
reports, complaints, warnings, asserted violations, documents or other
communications received or delivered by Tenant, as soon as possible and in any
event within five (5) days of such receipt or delivery, with respect to any
actual or alleged Use, disposal or transportation of Hazardous Materials in or
about the Premises, the Building or the Project. Whether or not Tenant receives
any such notice, claim, report, complaint, warning, asserted violation, document
or communication, Tenant shall immediately notify Landlord, orally and in
writing, if Tenant or any of its Agents knows or has reasonable cause to believe
that any Hazardous Materials, or a condition involving or resulting from the
same, is present, in Use, has been disposed of, or transported to or from the
Premises, the Building or the Project other than as previously consented to by
Landlord in strict accordance with Paragraph 29(b).
(e) Tenant acknowledges that it, and not Landlord, is in possession and
control of the Premises for purposes of all reporting requirements under any
Hazardous Materials Laws. If Tenant or its Agents violate any provision of this
Paragraph 29, then Tenant shall immediately notify Landlord in writing and shall
be obligated, at Tenant's sole cost, to abate, remediate, clean-up or remove
from the Project, and dispose of, all in compliance with all applicable
Hazardous Materials Laws, all Hazardous Materials Used by Tenant or its Agents.
Such work shall include, but not be limited to, all testing and investigation
required by Landlord, Landlord's lender and/or ground lessor, if any, and any
governmental authorities having jurisdiction, and preparation and implementation
of any remedial action plan required by any governmental authorities having
jurisdiction. All such work shall, in each instance, be conducted to the
satisfaction of Landlord and all governmental authorities having jurisdiction.
If at any time Landlord determines that Tenant is not complying with the
provisions of this Paragraph 29(e), then Landlord may, without prejudicing,
limiting, releasing or waiving Landlord's rights under this Paragraph 29,
separately undertake such work, and Tenant shall reimburse all reasonable costs
incurred by Landlord upon demand.
(f) Landlord's right of entry pursuant to Paragraph 17 shall include the
right to enter and inspect the Premises to verify Tenant's compliance with, or
violations of, the provisions of this Paragraph 29. Furthermore, Landlord may
conduct such investigations and tests as Landlord or Landlord's lender or ground
lessor may require. If Landlord determines that Tenant has violated the
provisions of this Paragraph 29, or if any applicable governmental agency
requires any such inspection, investigation or testing, then Tenant, in addition
to its other obligations set forth in this Paragraph 29, shall immediately
reimburse Landlord for all costs incurred therewith.
(g) (i) Tenant shall indemnify, protect, defend (with legal counsel
acceptable to Landlord in its subjective, good faith judgment) and hold harmless
Landlord, its partners and its and their respective successors, assigns,
partners, directors, officers, shareholders, employees, agents, lenders, ground
lessors and attorneys, and the Project, from and against any and all Claims
incurred by such indemnified persons, or any of them, in connection with, or as
the result of: (A) the presence, Use or disposal of any Hazardous Materials
into or about the Project by Tenant or its Agents, or the transportation of any
Hazardous Materials to or from the Project, by Tenant or its Agents; (B) any
injury to or death of persons or damage to or destruction of property resulting
from the presence, Use or disposal of any Hazardous Materials into or about the
Project by Tenant or its Agents, or the transportation of any Hazardous
Materials to or from the Project, by Tenant or its Agents; (C) any violation of
any Hazardous Materials Laws by Tenant or its Agents; and (D) any failure of
Tenant or its Agents to observe the provisions of this Paragraph 29. Payment
shall not be a condition precedent to enforcement of the foregoing
indemnification provision. Tenant's obligations hereunder shall include,
without limitation, and whether foreseeable or unforeseeable, all costs of any
required or necessary testing, investigation, studies, reports, repair, clean-
up, detoxification or decontamination of the Project due to and specifically
resulting from the use of Hazardous Materials by Tenant or its Agents, and the
preparation and implementation of any closure, removal, remedial action or other
required plans in connection therewith, and shall survive the expiration or
earlier termination of the term of this Lease. For purposes of these indemnity
provisions, any acts or omissions of Tenant, its assignees, sublessee, Agents or
others acting for or on behalf of Tenant (regardless of whether they are
negligent, intentional, willful, or unlawful) shall be strictly attributable to
Tenant.
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(h) Upon any violation of the provisions of this Paragraph 29, Landlord
shall be entitled to exercise any or all remedies available to a landlord
against a defaulting tenant including, but not limited to, those set forth in
Paragraph 25.
(i) By its signature to this Lease, Tenant confirms that, except for claims
arising out of Landlord's covenants contained in Subparagraph 29(1), below,
Landlord has not made any representation or warranty regarding the environmental
condition of the Premises, the Building or the Project.
(j) No termination, cancellation or release agreement entered into by
Landlord and Tenant shall release Tenant from its obligations under this
Paragraph 29 unless specifically agreed to by Landlord in writing at the time of
such agreement.
(k) Tenant's covenants and obligations under this Paragraph 29 shall also
apply to any assignee or sublessee of Tenant, and to any such assignee's or
sublessee's partners, officers, directors, shareholders, employees, agents,
contractors and any other third parties entering upon the Project at the request
or invitation of such assignee or sublessee.
(l) Landlord hereby represents and warrants to Tenant that to Landlord's
actual knowledge the Building and the Premises are not currently or as of the
Second Floor South Commencement Date will not be in violation of any existing
federal or state laws, ordinances or regulations relating to earthquake safety
or Hazardous Materials. Landlord shall indemnify, defend and hold Tenant
harmless from and against any and all claims, judgments, damages, penalties,
costs, liabilities and losses (including attorneys' fees) resulting from any
breach of the foregoing representation and warranty.
30. RULES AND REGULATIONS.
---------------------
Tenant shall faithfully observe and comply with the "RULES AND REGULATIONS"
attached hereto as Exhibit "F", and all reasonable and nondiscriminatory
-----------
modifications thereof and additions thereto from time to time put into effect by
Landlord. Landlord shall not be responsible to Tenant for the violation or
nonperformance by any other tenant or occupant of the Building of any of the
Rules and Regulations; provided, however, without Tenant or any of its Agents,
affiliates, successors or assigns having any express or implicit right as third
party beneficiaries to any lease or other agreement between Landlord and any
other entity, Landlord shall use its commercially reasonable efforts to enforce
the Rules and Regulations against any other tenant of the Building.
31. CONFLICT OF LAWS.
----------------
This Lease shall be governed by and construed pursuant to the laws of the
State of California
32. SUCCESSORS AND ASSIGNS.
----------------------
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties to this Lease and their respective heirs, personal
representatives, successors and assigns.
33. SURRENDER OF PREMISES.
---------------------
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation of this Lease, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or termination of this Lease, Tenant shall
peaceably surrender the Premises and all Tenant Improvements, alterations and
additions to the Premises, broom clean the Premises, leave the Premises in good
order, repair and condition (including the due completion by that expiration or
termination of all repairs which Tenant is responsible for making under this
Lease), reasonable wear and tear (consistent with the permitted use of the
Premises) excepted, and comply with the provisions of Paragraph 14. The
delivery of keys to any employee of
29
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Landlord or to Landlord's agent or any employee thereof shall not be sufficient
to constitute a termination of this Lease or a surrender of the Premises.
34. ATTORNEYS' FEES.
---------------
If any legal proceeding arises between the parties hereto in connection
with this Lease, in addition to any other remedy at law or in equity sought or
obtained by the prevailing party, the losing party shall pay the reasonable
legal and other fees and all costs of the prevailing party incurred in
connection with those proceedings.
35. PERFORMANCE BY TENANT.
---------------------
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If Tenant shall fail to pay any sum
of money owed to any party other than Landlord, for which it is liable under
this Lease, or if Tenant shall fail to perform any other act on its part to be
performed under this Lease, Landlord may, without waiving or releasing Tenant
from Tenant's obligations, but shall not be obligated to, make any such payment
or perform any such other act to be mate or performed by Tenant. All sums so
paid by Landlord and all necessary incidental costs incurred by Landlord
together with interest thereon at the Lease Interest Rate, from the date of such
payment by Landlord, shall be payable to Landlord on demand. Landlord shall
have (in addition to any other right or remedy of Landlord) all rights and
remedies in the event of the nonpayment thereof by Tenant as are set forth in
Paragraph 25.
36. MORTGAGEE PROTECTION.
--------------------
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises whose address shall have been furnished to
Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity
to cure the default, including time to obtain possession of the Premises by
power of sale or a judicial foreclosure, if such should prove necessary to
effect a cure.
37. DEFINITION OF LANDLORD.
----------------------
The term "LANDLORD," as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of the fee title of
the Building or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title,
Landlord (and in case of any subsequent transfers or conveyances, the then-
grantor) shall be automatically freed and relieved from and after the date of
such transfer, assignment or conveyance of all liability as respects the
performance of any covenants or obligations on the part of Landlord contained in
this Lease thereafter to be performed, provided the transferee of such title
shall have assumed and agreed to observe and perform any and all covenants and
obligations of Landlord under this Lease during its ownership of the Premises.
Landlord may transfer its interest in the Premises without the consent of Tenant
and such transfer or subsequent transfer shall not be deemed a violation on
Landlord's part of any of the terms and conditions of this Lease. With respect
to any indemnity by Tenant of Landlord under this Lease, "LANDLORD" shall
include, and the indemnity shall run to, Landlord and its respective partners,
affiliates, shareholders, directors, officers, agents, lenders, employees,
partners, successors and assigns.
38. WAIVER.
------
The waiver by Landlord of any breach of any term, covenant or condition
contained in this Lease shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition contained in this
Lease, nor shall any custom or practice to which the parties may have adhered in
the administration of the terms of this Lease be deemed a waiver of or in any
way affect the right of Landlord to insist upon the performance by Tenant in
strict accordance with the terms of this Lease. The subsequent acceptance of
30
<PAGE>
rent under this Lease by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent. Other than in connection with a mutual accord and
satisfaction of a dispute between Landlord and Tenant, no acceptance by Landlord
of a lesser sum than the sum then due shall be deemed to be other than on
account of the earliest installment of such rent or other amount due, nor shall
any endorsement or statement on any check be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or other amount or pursue any
other remedy available to Landlord.
39. IDENTIFICATION OF TENANT.
------------------------
If more than one person signs this Lease as Tenant, the act of or notice
from, or notice or refund to, or the signature of, any one or more of them with
respect to this Lease shall be binding upon Tenant.
40. PARKING.
-------
Unless Tenant is in default under this Lease, Tenant shall be entitled to
use the number of vehicle parking spaces designated in Subparagraph 1(h).
Neither Tenant nor its employees or invites shall use more parking spaces than
designated in Subparagraph 1(h). If Landlord determines in its sole discretion
that it is necessary for orderly and efficient parking, all or any portion of
any unreserved or unassigned parking spaces may be assigned to, made available
to or reserved by Landlord for other tenants or users of the Building. If
Landlord has not assigned specific spaces to Tenant, neither Tenant nor its
employees shall use any spaces which have been so specifically assigned by
Landlord to other tenants or for other uses such as visitor parking or which
have been designated by Landlord or governmental entities as being restricted to
certain uses.
(a) Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, suppliers, shippers, contractors,
customers or invitees to be loaded, unloaded or parked in areas other than those
designated by Landlord for such activities.
(b) If Tenant permits or allows any of the prohibited activities described
in this Paragraph 40, then Landlord shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove, tow
away, and/or impound the vehicle involved and charge the cost to Tenant, which
cost shall be immediately payable upon demand by Landlord with interest thereon
at the Lease Interest Rate from the date Landlord incurs that cost.
(c) Landlord shall provide in-common visitor parking to be used by all
tenants of the Building, which shall be free of charge to visitors of Tenant and
which shall be located within parking lot, as depicted on attached Exhibit A-4.
-----------
(d) The use by Tenant, its employees and invitees, of the parking
facilities of the Building shall be on the additional terms and conditions set
forth in attached Exhibit "G", and shall be subject to such other agreement
-----------
between Landlord and Tenant as may hereinafter be established.
41. FORCE MAJEURE.
-------------
Landlord shall have no liability whatsoever to Tenant on account of
(a) the inability of Landlord to fulfill, or delay in fulfilling, any of
Landlord's obligations under this Lease, the Work Letter Agreement, or any other
Lease attachment by reason of strike, other labor trouble, inability to secure
materials, supplies, equipment, machinery or labor through ordinary sources,
delays in the procurement of required governmental permits and/or licenses,
delays caused by insurance adjusters' determination of loss and issuance of
insurance proceeds, governmental preemption or priorities or other controls in
connection with a national or other public emergency, or shortages of fuel,
supplies or labor resulting
31
<PAGE>
therefrom, fire, storm, flood, inclement weather, earthquake, hurricane,
explosion or any other cause, whether similar or dissimilar to the above, beyond
Landlord's reasonable control (each, a "FORCE MAJEURE EVENT"); or (b) any
failure or defect in the supply, quantity or character of electricity or water
furnished to the Premises, by reason of any requirement, act or omission of the
public utility or others furnishing the Building with electricity or water, or
for any other Force Majeure Event. The foregoing is subject to Subparagraph
15(d), above and Subparagraph 18(b), above. If this Lease or any Exhibit or
Work Letter Agreement specifies a time period for performance of an obligation
of Landlord, that time period shall be extended by the period of any delay in
Landlord's performance caused by any Force Majeure Event. Similarly, other than
with respect to the payment of any monetary obligations under this Lease (the
time for payment of which shall not be extended in any manner by this Paragraph
41 or otherwise), Tenant shall have no liability whatsoever to Landlord on
account of the inability of Tenant to fulfill, or delay in fulfilling, any of
Tenant's obligations under this Lease, the Work Letter Agreement, or any other
Lease attachment by reason of a Force Majeure Event, and the time period for
Tenant's performance shall be extended by the period of time of any delay caused
by a Force Majeure Event.
42. TERMS, HEADINGS AND CONSTRUCTION.
--------------------------------
The title and paragraph headings are not a part of this Lease and shall
have no effect upon the construction or interpretation of any part of this
Lease. Unless stated otherwise, references to paragraphs and subparagraphs are
to those in this Lease. This Lease shall be strictly construed neither against
Landlord nor Tenant.
43. NO OFFER.
--------
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of the Premises, offer, or option for lease, and it
is not effective as a lease or otherwise until execution by and delivery to both
Landlord and Tenant.
44. TIME.
----
Time is of the essence with respect to the performance of every provision
of this Lease in which time of performance is a factor, including specifically
and without limitation, Tenant's obligation to make any payments, give any
notices and timely perform under the Work Letter Agreement.
45. PRIOR AGREEMENT; AMENDMENTS.
---------------------------
This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in this Lease, and no prior
agreements or understanding or letter or proposal pertaining to any such matters
shall be effective for any purpose. No provisions of this Lease may be amended
or added to, whether by conduct, oral or written communication, or otherwise,
except by an agreement in writing signed by the parties hereto or their
respective successors-in-interest. No other provision of this Lease shall
modify the effect of this paragraph.
46. SEVERABILITY.
------------
Any provision of this Lease which shall prove to be invalid, void or
illegal shall in no way affect, impair or invalidate any other provision of this
Lease, and such other provisions shall remain in full force.
47. RECORDING.
---------
Neither this Lease nor a short form memorandum of this Lease shall be
recorded.
32
<PAGE>
48. LIMITATION ON LIABILITY.
-----------------------
In consideration of the benefits accruing under this Lease, Tenant and all
successors and assigns agree that, in the event of any actual or alleged
failure, breach or default under this Lease by Landlord: (a) the sole and
exclusive remedy shall be against the Landlord's interest in the Building
(including Landlord's interests from any rent derived therefrom, any insurance
or condemnation proceeds therefrom payable to Landlord, and, in the event of a
sale of the Building, the net sales proceeds derived therefrom); (b) no partner
of Landlord shall be named as a party in any suit or proceeding (except as may
be necessary to secure jurisdiction of the partnership, if applicable); (c) no
partner of Landlord shall be required to answer or otherwise plead to any
service of process; (d) no judgment will be taken against any partner of
Landlord (if applicable); (e) no writ of execution will ever be levied against
the assets of any partner of Landlord; and (f) the obligations of Landlord under
this Lease do not constitute personal obligations of the individual partners,
directors, officers or shareholders of Landlord, and Tenant shall not seek
recourse against the individual partners, directors, officers or shareholders of
Landlord or any of their personal assets for satisfaction of any liability in
respect to this Lease.
49. TRAFFIC IMPACT.
--------------
Tenant acknowledges that traffic control and flow is a major concern of the
County of Los Angeles and the City of Los Angeles, of Landlord, and of each
tenant in the Building and surrounding buildings. Therefore, Tenant agrees that
Tenant and its employees, invitees, and contractors shall comply with the
provisions of Exhibit "G" (Traffic and Parking Rules and Regulations).
-----------
50. MODIFICATION FOR LENDER OR GOVERNMENT.
-------------------------------------
If, in connection with obtaining construction, interim or permanent
financing or refinancing for the Building or all or part of the Project, a
lender shall request reasonable modifications in this Lease as a condition to
such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereto, provided that such modifications do not increase the
obligations of Tenant under this Lease or materially adversely affect the
leasehold interest hereby created or Tenant's rights under this Lease. In
addition, the parties agree to promptly sign all documents reasonably required
by any governmental agency from time to time in connection with the Premises,
provided that those documents do not materially adversely affect the rights or
obligations of the parties under this Lease.
51. FINANCIAL STATEMENTS.
--------------------
When reasonably requested by Landlord, Tenant shall, upon ten (10) business
days notice from Landlord, provide Landlord with a current financial statement
and financial statements of the two (2) years prior to the current financial
statement year. Such statement(s) shall be maintained in confidence by Landlord
and shall be prepared in accordance with generally accepted accounting
principles and, if such is the normal practice of Tenant, shall be audited by an
independent certified public accountant. The above ten business days notice is
the only notice Landlord is required to give Tenant in connection with Tenant's
financial statements and shall be in lieu of and not in addition to the notice
and cure period otherwise provided for under Subparagraph 25(a)(iii). Tenant's
failure to comply with its obligations under this Paragraph 51 shall constitute
a material default under this Lease.
52. QUIET ENJOYMENT.
---------------
Landlord covenants that upon Tenant paying the rent required under this
Lease and paying all other charges and performing all of the covenants and
provisions on Tenant's part to be observed and performed under this Lease,
Tenant shall and may peaceably and quietly have, hold and enjoy the Premises in
accordance with this Lease.
33
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53. TENANT'S SIGNS.
--------------
(a) Tenant may, at its sole cost and expense, place its signs displaying
its logo and graphics on the entrance doors to the Premises and in Landlord
designated locations in the hallways or elevator lobbies on half-floors wholly
leased by Tenant. On partial floors leased by Tenant, Tenant, at its sole cost
and expense, may place its signs on entrance doors to the Premises, provided the
number, size, color, style, material and location of such signs shall be subject
to Landlord's prior consent, which shall not be unreasonably withheld, and
Landlord shall place directional signs to the Premises, at Tenant's expense, at
a location determined by Landlord.
(b) Landlord at its own cost and expense shall place a directory board in
the Building lobby. Landlord shall cause Tenant's name to be affixed thereto,
at Tenant's cost.
(c) Unless specifically set forth to the contrary in an addendum or a Lease
Rider to this Lease, Tenant shall not place any sign on the exterior of the
Building, or within the Building if such sign may be seen from outside of the
Building or on any Building sign monument or other device constructed for the
placement of tenant signs.
(d) All Tenant signs installed by Landlord or Tenant shall comply with all
applicable requirements of all governmental authorities having jurisdiction and
shall be installed in a good and workmanlike manner. Such signs shall be
maintained and kept in good repair at Tenant's sole cost and expense, and, on
expiration or earlier termination of the Term, removed at Tenant's sole cost and
expense.
54. TRAFFIC AND ENERGY MANAGEMENT.
-----------------------------
(a) Tenant and its employees shall comply with Air Quality Management
District Regulation 15 and any other environmental regulation and/or program now
or hereafter applicable to the Project. Landlord and Tenant agree to cooperate
and use their best efforts to participate in governmentally mandated and
voluntary traffic management programs generally applicable to businesses located
in Los Angeles, California or to the Project and, initially, shall encourage and
support van and car pooling by office workers and service employees and shall
encourage and support staggered and flexible working hours for employees to the
fullest extent permitted by the requirements of Tenant's business. Neither this
Paragraph nor any other provision in this Lease, however, is intended to or
shall create any rights or benefits in any other person, firm, company,
governmental entity or the public.
(b) Landlord and Tenant agree to cooperate and use their best efforts to
comply with any and all guidelines or controls imposed upon either Landlord or
Tenant by federal or state governmental organizations or by any energy
conservation association to which Landlord is a party concerning energy
management.
(c) All costs, fees and assessments and other charges paid by Landlord to
any governmental authority or voluntary association in connection with any
program of the types described in this Paragraph, and all costs and fees paid by
Landlord to any governmental authority, voluntary association or third party
pursuant to or to implement any such program, shall be included in Operating
Expenses, whether or not specifically listed in such Paragraph. Any breach by
Tenant of any of its covenants in this Paragraph 54 may result in penalties or
fees being assessed against Landlord or the Project. These penalties or fees
shall not be part of Operating Expenses but instead shall be payable by Tenant
on demand of Landlord.
55. NO LIGHT, AIR OR VIEW EASEMENT.
------------------------------
Any diminution or shutting off of light, air or view by any structure which
may be erected on lands adjacent to the Project shall in no way affect this
Lease, abate any payment owed by Tenant under the Lease, or otherwise impose any
liability on Landlord.
34
<PAGE>
56. TENANT AS CORPORATION OR PARTNERSHIP.
------------------------------------
If Tenant executes this Lease as a corporation, then Tenant and the persons
executing this Lease on behalf of Tenant represent and warrant that the
individuals executing this Lease on Tenant's behalf are duly authorized to
execute and deliver this Lease on its behalf in accordance with a duly adopted
resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution of this Lease, and in accordance with the by-
laws of Tenant and that this Lease is binding upon Tenant in accordance with its
terms. If Tenant executes this Lease as a partnership, (a) each general partner
shall be jointly and severally liable for keeping, observing and performing all
the provisions of this Lease to be kept, observed or performed by Tenant and (b)
the term "Tenant" shall mean and include each general partner jointly and
severally and the act of or notice from, or notice or refund to, or the
signature of, any one or more of them with respect to this Lease shall be
binding on Tenant and each and all of the general partners of Tenant with the
same effect as if each of them had so acted or so given or received such notice
or refund or so signed. Dissolution of any partnership which is a Tenant under
this Lease shall be deemed to be an assignment jointly to all of the partners,
who shall thereafter be subject to the terms of this Lease as if each such
former partners had initially signed this Lease as individuals.
57. [INTENTIONALLY OMITTED].
58. COUNTERPARTS.
------------
This Lease may be executed in several counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same
instrument.
59. ARBITRATION OF DISPUTES.
-----------------------
The provisions of this Paragraph 59 shall apply only to the extent this
Lease expressly mandates or permits the use of arbitration for the resolution of
a specified dispute (an "ARBITRATED DISPUTE"). Under no circumstances shall
these or any other arbitration procedures apply in the event of a default by
Tenant under this Lease.
Landlord and Tenant hereby agree that any Arbitrated Dispute shall be
settled by arbitration before the Judicial Arbitration and Mediation Service
(the "SERVICE"), located at 350 South Figueroa, Suite 990, Los Angeles,
California 90071, in accordance with the usual procedures of the Service,
subject to the following provisions:
(a) The party seeking arbitration of the Arbitrated Dispute shall deliver a
written Notice of Demand to Resolve Dispute (the "DEMAND") to the other party
and to the Service. The Demand shall include a brief statement of the demanding
party's claim, the amount thereof, and the name of the proposed retired judge
from the Service to decide the dispute ("ARBITRATOR"). Within ten (10) business
days after receipt of the Demand, the other party shall deliver a written
response to the demanding party and the Service. Such response shall include a
short and plain statement of the non-demanding party's defenses to the claim and
shall also state whether such party agrees to the Arbitrator chosen by the
demanding party. In the event the parties cannot agree upon an arbitrator, then
the Service shall select and name an arbitrator to conduct the hearings.
(b) The venue of the arbitration shall be in Los Angeles County,
California.
(c) In the event the Service is no longer in business and there is no
comparable successor, then the parties shall agree upon another Arbitrator. If
the parties cannot agree upon another Arbitrator, then a single neutral
arbitrator shall be appointed pursuant to Section 1281.6 of the California Code
of Civil Procedure.
(d) The parties shall be entitled to full rights of discovery as set forth
in the California Code of Civil Procedure for civil actions tried in the
Superior Courts of the State of California, with the following limitations:
35
<PAGE>
(i) Discovery shall be limited to special interrogatories, document
requests and depositions;
(ii) All document requests shall be noticed by hand-delivered written
notice delivered not later than ten (10) business days after delivery of the
Demand (the "NOTICE DATE"), and all other discovery requests shall be made
within twenty (20) business days after delivery of the Demand;
(iii) Neither party shall have the right to take any discovery that
is not noticed on or before the Notice Date;
(iv) Each side will be limited to one (1) set of special
interrogatories that will each be limited to twenty (20) single questions;
(v) Each side will be limited in an aggregate to eight (8) hours of
depositions;
(vi) Each side will be limited to one (1) document production request
that will be limited collectively to ten (10) requests for specific documents
and categories of documents. Any request for categories of documents shall
describe each such category with reasonable particularity;
(vii) All discovery shall be completed within twenty (20) business
days before the hearing;
(viii) Any motion before the Service with regard to discovery
responses shall be brought within five (5) business days after service of the
document request response,
interrogatory response or the deposition; and
(ix) At least ten (10) business days before the scheduled hearing,
each side shall serve upon the other a written list of all witnesses and
exhibits and a complete legible set of all such exhibits. Any witnesses and
exhibits not so disclosed shall be precluded at the hearing.
(e) The Arbitrator shall have all the legal and equitable powers of a
Superior Court judge and shall follow the substantive laws of the State of
California, including rules of evidence. The Arbitrator shall not consider
anything outside the record unless notice is given to all parties with the
opportunity to respond to such matters. The decision of the Arbitrator shall be
final and binding upon the parties, and shall not be subject to writ or appeal.
(f) The costs of the arbitration shall be shared equally between the
parties; provided, however, that such costs, along with all other costs and
expenses, including reasonable attorneys' fees, shall be subject to award, in
full or in part, by the Arbitrator, in the Arbitrator's discretion, to the
prevailing party. Unless the Arbitrator so awards attorneys' fees, each party
shall be responsible for its own attorneys' fees.
(g) To the extent possible, the arbitration hearing shall be conducted on
consecutive days, excluding Saturdays, Sundays and holidays, until the
completion of the case. The Arbitrator shall conclude all proceedings within
three (3) months of the service of the Demand.
(h) In connection with any arbitration proceedings commenced hereunder, any
party shall have the right to join any third parties in such proceedings in
order to resolve any other disputes, the facts of which are related to the
matters submitted for arbitration hereunder.
36
<PAGE>
60. ADDENDA.
-------
The attached Lease Addendum, Exhibits A through H, inclusive, and
Lease Rider Nos. 1 through 6, inclusive, are incorporated herein by reference.
To the extent of any inconsistency between any terms in the Exhibits (other than
the Work Letter Agreement) and any terms in this Lease, the terms of this Lease
shall control. In the event of any inconsistency between the terms of any Lease
Rider and the terms of this Lease, the terms of the Lease Rider shall control.
To the extent of any inconsistency between the terms of the Lease Addendum and
the terms of this Lease, terms of the Lease Addendum shall control.
37
<PAGE>
THEREFORE, the parties have executed this Lease as of the date first
written above.
PATRICIAN ASSOCIATES, INC., TENANT:
a California corporation
FILM ROMAN, INC., a California
corporation
By: /s/ Timothy E. Minton
-------------------------------- By: Phil Roman
Its: Vice President & Secretary --------------------------------
---------------------------- Its: President
----------------------------
By: /s/ Ronald B. Franklin
-------------------------------- By:
Its: Vice President --------------------------------
---------------------------- Its:
----------------------------
THE ROCK GROUP, a California general
partnership
By: /s/ John O. Lewis
--------------------------------
John O. Lewis, a sole proprietorship,
d.b.a. The Lewis Company, general
partner
By: Laurel Canyon Partners, a California
general partnership, general partner
By: /s/ J.O. Ottmans
--------------------------------
J.O. Ottmans II, general partner
By: /s/ Basil C. Johnson
--------------------------------
Basil C. Johnson, general partner
Date of Lease Execution: June 30, 1994
38
<PAGE>
EXHIBIT 10.12
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,230,000.00 05-31-1996 09-02-1996 180535223 55 BEVHILLS ISS
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWER: Film Roman, Inc. LENDER: First Charter Bank, N.A.
12020 Chandler Street, Suite 200 265 North Beverly Drive
North Hollywood, CA 91607 Beverly Hills, CA 90210
====================================================================================================================================
PRINCIPAL AMOUNT: $1,230,000.00 INITIAL RATE: 10.750% DATE OF NOTE: MAY 31, 1995
</TABLE>
PROMISE TO PAY. Film Roman, Inc. ("Borrower") promises to pay to First Charter
Bank, N.A. ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Million Two Hundred Thirty Thousand &
00/100 Dollars ($1,230,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance. Interest
shall be calculated from the date of each advance until repayment of each
advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on
September 2, 1996. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning June 2, 1996, and all subsequent interest
payments are due on the same day of each month after that. Interest on this
Note is computed on a 365/360 simple interest basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any unpaid collection costs and any late charges, then to any unpaid
interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the First Charter Bank,
N.A.'s "Commercial Base Rate" (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans and is set by Lender in its sole
discretion. If the Index becomes unavailable during the term of this loan,
Lender may designate a substitute index after notifying Borrower. Lender will
tell Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day rate changes. The
Index currently is 9.750% per annum. The interest rate to be applied to unpaid
principal balance of this Note will be at a rate of 1.000 percentage point over
the Index, resulting in an initial rate of 10.750% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is entitled
to a minimum interest charge of $250.00. Other than Borrower's obligation to
pay any minimum interest charge, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation
to continue to make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $1.00,
whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is impaired.
(i) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
1
<PAGE>
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate on this Note to 6.000 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower will also pay any court
costs, in addition to all other sums provided by law. This Note has been
delivered to Lender and accepted by Lender in the State of California. If there
is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Los Angeles County, the State of California. This
Note shall be governed by and construed in accordance with the laws of the State
of California.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's rights, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. The
following party of parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address show above
written notice of revocation of their authority: Philip Roman,
President/Secretary. Borrower agrees to be liable for all sums either: (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (a)
Borrower or any guarantor is in default under the terms of this Note or any
agreement that Borrower or any guarantor has with Lender, including any
agreement made in connection with the signing of this Note; (b) Borrower or any
guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; (d) Borrower has applied funds provided
pursuant to this Note for purposes other than those authorized by Lender; or (e)
Lender in good faith deems itself insecure under this Note or any other
agreement between Lender and Borrower.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Film Roman, Inc.
By: /s/ Phil Roman
---------------------------------
Philip Roman, President/Secretary
2
<PAGE>
EXHIBIT 10.13
EXECUTED
FILM ROMAN, INC.
12020 Chandler Blvd.
North Hollywood, California 91607
Re: BLUES BROTHERS ANIMATION RIGHTS AGREEMENT
Gentlepersons:
The following when signed by us, Daniel Aykroyd, Judith Belushi Pisano
(as successor in interest to the estate of John Belushi) and, or their
collective or respective corporate designees (hereinafter collectively "RIGHTS
HOLDERS") and by you, Film Roman, Inc. (hereinafter "PRODUCER") will constitute
an agreement between us (hereinafter "RIGHTS AGREEMENT") with respect to the
subject matters set forth below.
This RIGHTS AGREEMENT is entered into with reference to the following:
A. RIGHTS HOLDERS own valuable copyright, publicity, trademark, trademark
registrations, and trade dress connected with "The Blues Brothers" and other
rights including without limitation the names, likeness and embodiment of "The
Blues Brothers," "Jake Blues" and "Elwood Blues" (collectively "PROPERTY").
B. PRODUCER desires to acquire a license to ANIMATION RIGHTS (as defined
hereinafter) in the PROPERTY. PRODUCER initially intends to develop an animated
television Series based upon the PROPERTY and featuring "The Blues Brothers" as
the lead characters (the "SERIES"). In order to promote the financial success of
exploitation of the animated productions of "The Blues Brothers" and other
animation projects, PRODUCER requires that the ANIMATION RIGHTS licensed include
the right to develop and sell merchandise utilizing the animated "Blues
Brothers" characters and other characters developed in connection with animated
productions.
C. Additionally, PRODUCER desires to engage Michael Waeghe and Tino
Insana, or their loan-out companies now created or created in the future,
(hereinafter "ARTISTS") to furnish certain writing and producing services of
ARTISTS in connection with the ANIMATION RIGHTS.
D. RIGHTS HOLDERS agree to grant PRODUCER certain rights in the PROPERTY
as set forth herein, contingent upon execution of a mutually acceptable
agreement with ARTISTS for certain writing and producing services.
Based upon the above, RIGHTS HOLDERS and PRODUCER agree as follows:
<PAGE>
1. Rights Acquisition.
1.1 OPTION.
1.1.1 For good and valuable consideration, including without
limitation, PRODUCER'S obligation hereunder to utilize its diligent best efforts
to develop, produce, and sell the SERIES, the adequacy of which is hereby
acknowledged, RIGHTS HOLDERS grant to PRODUCER, the sole and exclusive
irrevocable option (the "OPTION") to license the ANIMATION RIGHTS set forth in
section 1.2 of this RIGHTS AGREEMENT. This OPTION shall be effective as of the
first date this RIGHTS AGREEMENT and the agreement between ARTISTS and PRODUCER
(which agreement is also acceptable to RIGHTS HOLDERS) are fully executed;
however, if the agreement between ARTISTS and PRODUCER is not fully executed
within thirty (30) days of the first date this RIGHTS AGREEMENT is fully
executed, then this RIGHTS AGREEMENT shall not take effect and no Option to
license ANIMATION RIGHTS is granted hereby. The term of the initial OPTION will
continue for twelve (12) months (the "INITIAL OPTION PERIOD").
1.1.2 At any time prior to the expiration of the INITIAL OPTION
PERIOD, PRODUCER shall have the right to extend the term of the OPTION for an
additional ten (10) months commencing upon conclusion of the INITIAL OPTION
PERIOD (the "EXTENSION PERIOD") by written notice to RIGHTS HOLDERS accompanied
by payment of Seven Thousand Five Hundred Dollars ($7,500).
1.2 EXERCISE OF OPTION. PRODUCER may exercise the OPTION by
giving RIGHTS HOLDERS written notice of PRODUCER'S commitment to commence
production of the first episode of the SERIES at any time on or before the
expiration of the INITIAL OPTION PERIOD or EXTENSION PERIOD, if any; provided
however that this RIGHTS AGREEMENT shall terminate automatically and all rights
revert to RIGHTS HOLDERS if PRODUCER does not obtain a PRIME-TIME or CHILDREN'S
SERIES' sale before the expiration of the INITIAL OPTION PERIOD or the EXTENSION
PERIOD, if any. If PRODUCER does not commence production of the first episode of
the SERIES within three (3) months of the expiration of the INITIAL OPTION
PERIOD or the EXTENSION PERIOD, the RIGHTS AGREEMENT shall terminate
automatically and all rights revert to RIGHTS HOLDERS.
1.2.1 PRIME-TIME shall mean a version of the SERIES in which the
characters, backgrounds, writing and other such items are developed for an
audience other than that of children and irrespective of the broadcast time
slot, and CHILDREN'S shall mean a version of the SERIES in which the characters,
backgrounds, writing and other such items are developed for a children's
audience and irrespective of the broadcast time slot.
1.2.2 PRODUCER shall be deemed to have exercised the OPTION upon
written commitment to commence production or upon actually commencing production
of the
2
<PAGE>
first episode of the SERIES (regardless of whether advance written notice was
provided). Commencing production of the first episode and payment of the first
royalty payment due here under shall constitute sufficient and adequate
consideration for exercise of the OPTION. RIGHTS HOLDERS acknowledge and
understand that PRODUCER may undertake development and pre-production activities
(including the completion of a SERIES Bible and the writing of a pilot script)
in connection with the SERIES during the INITIAL OPTION PERIOD or EXTENSION
PERIOD, if any, and that the OPTION shall not be deemed to be exercised because
of any such activities.
1.3 Grant of Rights.
1.3.1 Definition of ANIMATION RIGHTS. ANIMATION RIGHTS means the
exclusive right to produce, perform, and distribute through sale, lease or
rental any number of television, theatrical or multi-media productions involving
animated characters as opposed to live action characters based upon the PROPERTY
and to use such animated characters developed for television or theatrical
productions in other forms and processes, including without limitation use of
such animated characters in home video, laser disc, computer games, CD-ROM,
interactive, or electronic processes, comic books and comic strips, commercials
(print, television or film) promoting television or film productions, and
merchandising utilizing such animated characters in poster art, fine art, books,
print material, clothing, and all other animation rights using such animated
characters whether now known or known in the future; provided however that the
ANIMATION RIGHTS are subject to certain exclusions and restrictions set forth
below and those exclusions and restrictions are incorporated herein.
1.3.2 Exclusions and Restrictions to ANIMATION RIGHTS. The
ANIMATION RIGHTS granted herein are subject to the following exclusions and
restrictions:
(a) Any rights to "The Blues Brothers" owned by Universal
Pictures, a division of Universal Studios, Inc., or its successors, those rights
arising out of the existing motion picture titled, "The Blues Brothers" and all
rights arising out of Universal Pictures interest in the basic literary material
consisting of an original motion picture story idea created by Dan Aykroyd and
the screenplay entitled "The Blues Brothers" based upon that story idea, must be
obtained from Universal Pictures;
(b) Rights to the Blue Brothers recorded music must be
obtained from the recording company(ies);
(c) Rights to likenesses of any member of the Blues Brothers
Band must be obtained from the band member(s) directly;
(d) Any agreement for recording services with the Blues
Brothers Band must be reached separately by PRODUCER. PRODUCER shall offer the
Blues
3
<PAGE>
Brothers Band with the first right to perform new music for the SERIES and if
the Band is interested negotiate in good faith. No musical recordings, including
but not limited to phonographic records, CDs, tapes or other similar things may
be created without permission of the Blues Brothers Band. There shall be no
personal appearances by any musical group called "The Blues Brothers Band"
without prior permission of the Blues Brothers' Band. RIGHTS HOLDERS will use
their good faith efforts to assist producer to obtain consent of the Blues
Brothers Band with the understanding that such consent is subject to the
standard in the RIGHTS HOLDERS agreement with the Blues Brothers Band.
(e) Animation rights for use in interactive video and
computer games are excluded for so long as and only to the extent that RIGHTS
HOLDERS are subject to a pre-existing license with Titus, a French corporation,
for exclusive use of "The Blues Brothers" in connection with the sale of
interactive video and computer games;
(f) NBC's compilation rights to use "The Blues Brothers"
characters inclusive of animation rights along with at least two Saturday Night
Live characters.
(g) All rights to use animated characters to promote
"Restaurants" (as that term is defined in the RIGHTS HOLDERS Licensing Agreement
with Isaac Tigrett, founder of the House of Blues) are excluded;
(h) All rights to the PROPERTY which are not ANIMATION
RIGHTS are excluded, including without limitation rights granted to Isaac
Tigrett or the House of Blues, Inc., the Blues Brothers Band, and David Pugh
Limited for "A Tribute to the Blues Brothers" are excluded.
1.3.3 Grant of Rights. Upon exercise of the OPTION and only if
the OPTION is exercised, PRODUCER shall have the exclusive royalty-bearing
license without the right to sublicense or transfer except as provided herein to
ANIMATION RIGHTS (as defined in section 1.3 subject to the exclusions and
restrictions of section 1.3.2) in all media, whether now known or hereafter
devised, throughout the world in perpetuity throughout the term of this RIGHTS
AGREEMENT. All rights not expressly granted hereunder are reserved to RIGHTS
HOLDERS and may be exercised without limitation except that no use shall be made
of any material (other than goodwill) added to the PROPERTY by or at the behest
of PRODUCER.
2. License Fees and Royalties. Except as otherwise stated within ten (10)
business days of receipt of funds by PRODUCER or any entity controlled by
PRODUCER, PRODUCER shall pay RIGHTS HOLDERS sums equal to the following:
2.1 Network, First Run and Foreign License Fees. Ten percent (10%) of
all the gross Network, First-Run and Foreign license fees including advances
(without any deductions whatsoever) received by PRODUCER or any entity
controlled by PRODUCER in connection with the first run of the SERIES; said
percentage shall be payable to RIGHTS HOLDERS and allocated as follows: (i) one-
half (1/2) of said royalty shall be payable
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<PAGE>
immediately upon commencement of production of each such episode; and (ii) the
remaining one-half (1/2) shall be payable on a deferred basis. Payment of
deferred royalty (if any) shall be made with the quarterly accounting for the
quarter in which the payment becomes due. There is no deferral on license fees
other than Network, First-Run and Foreign Television license fees.
2.1.1 The deferred royalty shall only be payable if at the end of
an accounting period PRODUCER (together with any entity controlled by PRODUCER)
has recouped one hundred twenty-five percent (125%) of its direct production
costs incurred in connection with the production of the SERIES. Direct
production costs shall not include distribution fees, costs and agency fees, nor
time devoted by any PRODUCER employee or officer receiving a Producer's credit.
All direct production costs including overhead charges incurred by PRODUCER
shall be broken out as line items to be included as part of the direct
production budget and approved in advance by RIGHTS HOLDERS for each episode,
such approval, not to be unreasonably withheld. Moreover, overhead charges shall
be capped at ten percent (10%) of direct production costs and no overhead
charges shall be allocated to any and all voice talent engaged by PRODUCER
hereunder or fees paid to PRODUCER or ARTISTS or any entity controlled by
PRODUCER or ARTISTS or royalties paid to RIGHTS HOLDERS.
2.1.2 All sources of revenue related in any way to the ANIMATION
RIGHTS received by PRODUCER or any entity controlled by PRODUCER will be
credited toward PRODUCER'S recoupment of one hundred twenty-five percent (125%)
of direct production costs except an amount equal to royalty amounts already
paid to RIGHTS HOLDERS pursuant to Sections 2.1 through 2.6; provided, however,
that PRODUCER'S direct production expenses arising from generation of non-SERIES
related revenue (such as, for example, revenue generated from sale of an
animated video produced at PRODUCER'S cost) shall be deducted from revenue
before the revenue is credited toward recoupment.
2.1.3 In accounting to RIGHTS HOLDERS concerning PRODUCER'S
recoupment of one hundred twenty-five percent (125%) of direct production costs
hereunder, the following shall apply:
(a) Revenues shall be deemed received by PRODUCER at such
time as PRODUCER possesses an irrevocable commitment to receive such revenues
within twelve (12) months. For example, if PRODUCER receives a commitment from a
home video distributor to pay PRODUCER One Hundred Thousand Dollars
($100,000.00) on signing, One Hundred Thousand Dollars ($100,000.00) six (6)
months later and One Hundred Thousand Dollars ($100,000.00) eighteen (18) months
following signing, PRODUCER shall immediately recognize revenues of Two Hundred
Thousand Dollars ($200,000.00) on signing and an additional One Hundred Thousand
Dollars ($100,000.00) six (6) months later; and
(b) Expenses shall be deemed spent at such time PRODUCER has
committed to incur such expenses. In that regard, PRODUCER may only "commit" to
produce SERIES episodes hereunder at such time as PRODUCER has received a
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<PAGE>
commitment from a domestic broadcaster (including a syndicator) to broadcast the
SERIES.
2.1.4 Once PRODUCER recoups one hundred twenty-five percent
(125%) of the direct production costs for all episodes to date, any remaining
deferred amount shall be paid as follows: (1) that portion of the deferred
royalty equal to the revenues credited toward PRODUCER'S recoupment which are in
excess of one hundred twenty-five percent (125%) of direct production costs
shall be paid with the quarterly accounting, and (2) any remaining unpaid
portion of the deferred royalty shall be paid along with subsequent quarterly
accountings to extent revenues are available from all revenues received by
PRODUCER or any entity controlled by PRODUCER in connection with the
exploitation of ANIMATION RIGHTS (such revenues to be dedicated first to payment
of deferred royalties). Thereafter, until and unless one hundred twenty-five
percent (125%) of direct production costs exceeds all sources of revenues
credited to PRODUCER'S recoupment at the end of an accounting period, ten
percent (10%) of all Gross Network, First-Run and Foreign license fees received
by PRODUCER or any entity controlled by PRODUCER for Network, First-Run and
Foreign Television shall be paid with no deferrals. If, however, all sources of
revenues credited to PRODUCER'S recoupment fall below one hundred twenty-five
percent (125%) of direct production costs at the end of a subsequent accounting
period, PRODUCER may again defer one-half (1/2) of any royalty based upon
Network, First-Run and Foreign License fees in that quarter and subsequent
quarters until PRODUCER'S recoupment again exceeds one hundred twenty-five
percent (125%) of direct production costs. The comparison of PRODUCER'S
cumulative direct production costs to revenues credited to recoupment will occur
at the end of each accounting period of a recurring basis.
For example, assume PRODUCER has deferred $500,000 in royalties by the
end of quarter 4 and has not recouped 125% of direct production costs ("DPC").
No deferred royalties will be paid at the end of quarter 4. At the end of
quarter 5, however, PRODUCER has recouped 126% of DPC and assuming the
recoupment account has $200,000 more than the amount equal to 125% of DPC, then
$200,000 would be paid to reduce the deferred royalties of $500,000. The
remaining $300,000 of such deferred royalty is now due and will be paid with the
quarter 6 accounting (assuming PRODUCER receives $300,000 from all sources
related to exploitation of the ANIMATION RIGHTS during quarter 6). The $300,000
will be paid at the end of quarter 6 even if PRODUCER'S recoupment account falls
below 125% of DPC. If at the end of quarter 7, PRODUCER'S recoupment account
exceeds 125% of DPC, PRODUCER will pay 10% of any new Gross Network, First-Run
and License Fees without deferral. Assume, however, at the end of quarter 8,
125% of DPC exceeds the amount in PRODUCER's recoupment account and PRODUCER
receives additional Network First-Run fee at the beginning of quarter 9;
PRODUCER will then pay 5% of the Network First-Run fee received in quarter
9 and defer the other 5%. The deferred quarter 9 royalty would be paid in the
manner described above, only if at the end of a subsequent quarter, PRODUCER'S
recoupment account exceeds 125% of DPC.
2.1.5 Any production fees payable to PRODUCER or ARTISTS and any
distribution fees payable to a Third Party must be approved by RIGHTS HOLDERS,
such
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approval not to be unreasonably withheld.
2.1.6 The parties acknowledge that it is their intent and
expectation that RIGHTS HOLDERS will be paid any accumulated deferred royalty
for Network, First Run and Foreign license fees before PRODUCERS and ARTISTS
receive net profits related to ANIMATION RIGHTS provided for in PRODUCER'S
agreement with ARTISTS.
2.1.7 If PRODUCER commences production on an episode before
selling the SERIES' episodes of which that episode is a part, PRODUCER shall pay
RIGHTS HOLDERS Fifteen Thousand Dollars ($15,000) upon commencement of
production of such episode or an amount equal to the pro rata license fee for an
episode of any immediately prior sale of SERIES' episodes, whichever is greater.
Upon sale of those SERIES' episodes, PRODUCER shall immediately pay any
additional amount necessary to bring the total payment to five percent (5%) of
the gross license fee including advances (without any deductions whatsoever).
The deferred royalty shall be paid as provided in section 2.1.1.
2.2 Network Re-Run License Fees. Ten percent (10%) of the gross
Network Re-Run licensee fee including advances (without any deductions
whatsoever) received by PRODUCER or any entity controlled by PRODUCER from each
re-run of each episode of the SERIES.
2.3 Syndication (Resale) and Off Network License Fees (other than
First-Run) Video Games, CD-ROM, Computer and Electronic Rights. Ten percent
(10%) of the gross licenses fees for Syndication (Resale), Off Network (other
than First-Run), Video Games, CDRom, Computer and Electronic rights, including
advances (without any deductions whatsoever) received by PRODUCER or any entity
controlled by PRODUCER in connection therewith.
2.4 Commercials and Ancillary Markets. Ten percent (10%) of all monies
for commercials and ancillary markets including advances (without any deductions
whatsoever) received by PRODUCER or any entity controlled by PRODUCER in
connection herewith.
2.5 Other Sources. Ten percent (10%) of any and all Gross income
including advances (without any deductions whatsoever) received by PRODUCER or
any entity controlled by PRODUCER in connection with any other exploitation of
the rights hereunder including without limitation any merchandising related to
the SERIES or other television or theatrical productions.
2.6 Outright Sale of PRODUCER'S Rights. If PRODUCER makes an outright
sale of its rights as described in Section 6.5, ten percent (10%) of gross
rights sales price including advances (without any deductions whatsoever). Such
payment shall be in addition to and not in-lieu of any payments hereunder,
including without limitation future royalty payment on episodes.
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3. SERIES' Development.
-------------------
3.1 Throughout the INITIAL OPTION PERIOD and the EXTENSION PERIOD, if
any, PRODUCER shall use diligent best efforts and sell at least six episodes of
the SERIES for television broadcast.
3.2 PRODUCER shall use diligent best efforts to consummate a sale of
the SERIES on PRIME-TIME television. If RIGHTS HOLDERS, ARTISTS, and PRODUCER
agree that efforts for a PRIME-TIME sale have been exhausted, PRODUCER shall use
diligent best efforts to consummate a sale of the SERIES for a CHILDREN'S
broadcast slot.
3.3 PRODUCER shall use diligent best efforts to develop for release
with the initial broadcast of an animated television SERIES merchandise
utilizing the animated "Blues Brothers" characters developed for the SERIES.
PRODUCER represents that such merchandising efforts are reasonably necessary to
the economic viability of exploiting the ANIMATION RIGHTS and that PRODUCER is
not willing to proceed with the development of the SERIES absent the right to
mount such merchandising effort.
3.4 If PRODUCER exercises the OPTION, PRODUCER shall continue to use
diligent best efforts to market the SERIES in the most financially desirable
television market possible throughout the term of the RIGHTS AGREEMENT.
4. Creative Rights and Credits.
---------------------------
4.1 Creative Rights. RIGHTS HOLDERS shall have final creative
control over the likeness of "The Blues Brothers," "Jake" and "Elwood."
Animated versions of "Jake" and "Elwood" will be based upon and consistent with
models, turn-arounds and key poses of the characters which have been approved by
RIGHTS HOLDERS. RIGHTS HOLDERS shall have the right (but not the obligation) to
offer creative input on the SERIES or other uses of ANIMATION RIGHTS which input
shall be duly considered.
4.1.1 Before commencing production of the SERIES, PRODUCER shall
prepare a complete Bible for RIGHTS HOLDERS' review and approval. Production of
episodes for the SERIES shall be consistent with the approved Bible and any
memorandum from RIGHTS HOLDERS setting forth limitations and expectations
concerning characters or storyline(s). Any changes to Bible and RIGHTS HOLDERS'
memorandum shall be approved by RIGHTS HOLDERS prior to any production changes
being initiated. Such changes would include without limitation any changes
anticipated in tone or approach of existing characters and introduction of
significant or recurring new characters for any following season. PRODUCER shall
also timely prepare premises for each episode of the Initial or any following
season, and a synopsis of the characters and story line for any other production
postponed. With respect to the SERIES or other animated productions or print
stories using animated characters developed under the rights granted herein,
RIGHTS HOLDERS, ARTISTS and PRODUCER shall have mutual approval
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rights of characters other than "The Blues Brothers," to the extent practicable
and backgrounds. The RIGHTS HOLDERS shall have the right to approve in their
discretion, any SERIES Bible, premise, or synopsis or similar story outlines for
other productions and other creative decisions.
4.1.2 RIGHTS HOLDERS may designate ARTISTS, one of them or a
third party to exercise their creative rights. Any third-party designated by
RIGHTS HOLDERS is subject to approval by PRODUCER, such approval not to be
unreasonably withheld. Any change in designation by RIGHTS HOLDERS must be in
writing to PRODUCER and shall become effective upon receipt. Decisions made by
RIGHTS HOLDERS' designee are final and a change in designee shall not affect
decisions made before the change becomes effective.
4.1.3 RIGHTS HOLDERS hereby appoint ARTISTS as their revocable
designee for the exercise of their creative rights, this designation to become
effective immediately, except that RIGHTS HOLDERS reserve the right to
personally approve the initial likeness of "Jake Blues" and "Elwood Blues" for
the SERIES, and any SERIES' Bible, and any other approval right expressly
reserved herein.
4.2 Voice Talent. Daniel Aykroyd shall have the first right to perform
the voice of "Elwood Blues" contingent upon execution of an agreement for voice
talent between PRODUCER and Aykroyd. If Daniel Aykroyd does not perform the
voice of "Elwood Blues," Peter Aykroyd shall have the first right to perform the
voice of "Elwood Blues" contingent upon execution of an agreement for voice
talent. James Belushi shall have the first right to perform the voice of "Jake
Blues" contingent upon execution of an agreement for voice talent between
PRODUCER and James Belushi. PRODUCER shall negotiate in good faith to consummate
the voice talent agreements.
4.3 Credits. PRODUCER shall include the following credits with any
broadcast of the SERIES, whether PRIME-TIME, Saturday morning or otherwise.
RIGHTS HOLDERS' credits shall be equal in size to PRODUCER'S credits.
4.3.1 The front credit shall be: "Based on Characters created by
Dan Aykroyd & John Belushi";
4.3.2 The end credits shall include: "Creative Consultants: Dan
Aykroyd, Judy Belushi Pisano & Victor Pisano" and "Production Assistance
provided by the House of Blues."
4.3.3 Credits for other productions shall be similar and subject
to mutual agreement as to content and size.
5. Merchandising.
-------------
5.1 RIGHTS HOLDERS shall have approval rights over products
developed pursuant to the merchandising rights and any likenesses of the Blues
Brothers used in
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merchandising and may exercise these rights in their discretion. RIGHTS HOLDERS
shall also have mutual approval rights with PRODUCER and ARTISTS over the
selection of any merchandising companies and any contractual agreements with
merchandising companies. RIGHTS HOLDERS initially reserve these rights of
approval to themselves personally.
5.2 PRODUCER may not use ANIMATION RIGHTS for third-party
endorsements, premiums or commercial endorsements without the written permission
of RIGHTS HOLDERS. RIGHTS HOLDERS shall have the right to approve endorsements,
premiums or commercial tie-ins in their discretion and reserve this right of
approval to themselves personally.
5.3 PRODUCER shall offer the House of Blues, Inc. the right to serve
as a sales outlet at its Restaurants (as that term is defined in RIGHTS HOLDERS'
Licensing Agreement with Isaac Tigrett now assigned to House of Blues Band
Corp.) on terms and conditions no less favorable than offered to any other
retailer. House of Blues, Inc. may accept or decline the offer in its sole
discretion.
5.4 All merchandising activity pursuant to this RIGHTS AGREEMENT is
subject to the terms and conditions herein and set forth in Appendix A.
6. Intellectual Property Rights:
----------------------------
6.1 PRODUCER acknowledges the value of the goodwill associated with
the PROPERTY and agrees not to impair that goodwill. PRODUCER shall use
ANIMATION RIGHTS only upon the terms and conditions provided herein. All
copyrights, trademarks, trademark registrations and other intellectual property
rights in the PROPERTY now existing (including ANIMATION RIGHTS licensed
hereunder) shall remain the property of RIGHTS HOLDERS. All goodwill now
existing as well as any goodwill accruing in the future from any use of the
PROPERTY including use of ANIMATION RIGHTS shall inure directly and exclusively
to the benefit of RIGHTS HOLDERS and remain the property of RIGHTS HOLDERS.
6.2 PRODUCER agrees that RIGHTS HOLDERS shall be the sole owners of
all intellectual property rights, including copyright, in any Blues Brothers
("Jake" and "Elwood") characters created by PRODUCER. PRODUCER agrees to take
such actions and execute such documents as RIGHTS HOLDERS may reasonably request
to enable RIGHTS HOLDERS to perfect their ownership of such intellectual
property rights.
6.3 Except for the rights granted to RIGHTS HOLDERS under Section
6.2, RIGHTS HOLDERS and PRODUCER agree that they shall jointly own all
intellectual property rights, including copyright, in any original work created
by or at the behest of PRODUCER in connection with PRODUCER'S exercise of the
ANIMATION RIGHTS. Notwithstanding the above, PRODUCER shall be the sole owner
of tangible personal property including without limitation drawings and film
negatives developed by or at the behest of PRODUCER.
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6.4 PRODUCER shall use commercially reasonable, diligent best efforts
to prosecute any infringement of the ANIMATION RIGHTS. RIGHTS HOLDERS shall
have the right to prosecute such infringement if, in the reasonable judgement of
RIGHTS HOLDERS, PRODUCER'S efforts to pursue infringement are insufficient.
Each party shall have the right, through counsel of its own choice and at its
own expense, to participate in such prosecution. Any monetary recovery from
such prosecution shall be applied first to reimburse any party for reasonable
litigation expenses incurred in prosecuting the infringement, and thereafter
shall be divided equally between PRODUCER and RIGHTS HOLDERS.
6.5 PRODUCER may sell its rights in completed episodes, SERIES or
other productions ("Outright Sale of PRODUCER'S Rights") subject to the terms
and conditions of this RIGHTS AGREEMENT and PRODUCER shall remain primarily
responsible to RIGHTS HOLDERS for its obligations under this RIGHTS AGREEMENT.
Such an Outright Sale of PRODUCER'S Rights shall require RIGHTS HOLDERS' and
ARTISTS' written consent, such consent not to be unreasonably withheld.
6.6 PRODUCER agrees to include such copyright notices, copyright,
trademark or other legends as RIGHTS HOLDERS reasonably require in connection
with any publication of Blues Brothers animated characters or features,
merchandise or other uses.
7. Term and Termination. The term of this RIGHTS AGREEMENT shall continue
from the commencement of the INITIAL OPTION PERIOD through the earliest of the
following dates:
7.1 Upon expiration of the INITIAL OPTION PERIOD if the OPTION is not
extended;
7.2 Twenty-two (22) months from the commencement of the INITIAL
OPTION PERIOD in the event that PRODUCER does not obtain a PRIME-TIME SERIES or
CHILDREN'S SERIES' sale or Twenty-five (25) months in the event PRODUCER has not
commenced production of the first episode;
7.3 Upon material breach of this RIGHTS AGREEMENT or PRODUCER'S
material breach of its agreement with ARTISTS, (1) if such breach is not cured
within thirty (30) days after delivery of written notice to PRODUCER, and (2) in
the case of a material breach (other than failure to pay royalties which
PRODUCER acknowledges are due), an arbitrator has determined that there has been
a material breach of the agreement.
7.4 Upon expiration of the PRODUCTION TERM as set forth in subsection
7.5.
7.5 Production Term. The term of PRODUCER'S exclusive Production
Rights shall be as follows:
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7.5.1 If PRODUCER produces thirteen (13) or fewer episodes of the
SERIES, the Production Term shall end twelve (12) months after the first
broadcast of the last such episode broadcast.
7.5.2 If PRODUCER produces between fourteen (14) and thirty-eight
(38) episodes of the SERIES, the Production Term shall end eighteen (18) months
after the first broadcast of the last such episode; provided, however, if
PRODUCER informs RIGHTS HOLDERS in writing that PRODUCER is in negotiations with
a third party (identified in such written notice) for the financing of
additional productions based upon the PROPERTY, said term shall be extended
automatically for six (6) additional months.
7.5.3 If PRODUCER produces between thirty-nine (39) and sixty-
four (64) episodes of the SERIES, the Production Term shall end thirty (30)
months after the first broadcast of the last such episode.
7.5.4 If PRODUCER produces sixty-five (65) or more episodes of
the SERIES, the Production Term shall end thirty-six (36) months after the first
broadcast of the last such episode broadcast.
For purposes of determining the number of episodes pursuant
to this paragraph, each special shall count as six and one half (6.5) episodes
and a theatrical motion picture shall count as thirty-nine (39) episodes. It is
understood that, in the event that PRODUCER commits to produce additional
episodes during the EXTENSION PERIOD set forth in paragraphs 7.5.1 through
7.5.4, then such additional episodes shall be deemed produced episodes for
purposes of determining the Production Term. (PRODUCER may only "commit" to
produce additional episodes at such time PRODUCER has received a commitment from
a domestic broadcaster (including a syndicator) to broadcast additional episodes
of the SERIES.) By way of example, if PRODUCER has produced thirteen (13)
episodes of the SERIES, but the SERIES is cancelled, then, provided that
PRODUCER commits to produce thirteen (13) additional episodes within twelve (12)
months of the first broadcast of the last of the original thirteen (13)
episodes, then PRODUCER shall be deemed to have produced twenty-three (23)
episodes, and paragraph 7.5.2 shall apply; provided, however, if the additional
order is not actually produced in a reasonable and customary time period not to
exceed six (6) months any unproduced episodes shall be deleted from the imputed
total produced episodes.
Notwithstanding the foregoing, PRODUCER shall only have the
right to produce additional episodes of the SERIES:
7.5.5 for the sixth (6th) year after the first broadcast of the
SERIES, if RIGHTS HOLDERS have received at least either (i) One Million Dollars
($1,000,000.00) in the fifth (5th) year of the SERIES, or (ii) an aggregate of
Two Million Dollars ($2,000,000.00) in the fourth (4th) and fifth (5th) years of
the SERIES;
7.5.6 for the seventh (7th) year after the first broadcast of the
SERIES,
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if RIGHTS HOLDERS have received at least either (i) One Million Fifty Thousand
Dollars ($1,050,000.00) in the sixth (6th) year of the SERIES, or (ii) an
aggregate of Three Million Fifty Thousand Dollars ($3,050,000.00) in the fourth
(4th) through the sixth (6th) years of the SERIES; or
7.5.7 any year subsequent to the seventh (7th) year after the
first broadcast of the SERIES, if RIGHTS HOLDERS have received at least either
(i) an amount equal to the produce of One Million Dollars ($1,000,000.00) times
1.05 raised to the "n"th power, where "n" is the number of years beyond year six
(6) of the term, or (ii) the average monies received by RIGHTS HOLDERS over the
prior four (4) years equals or exceeds the amount set forth in the prior clause.
In the event that (i) PRODUCER is in production of the
SERIES in a particular year, but fails to meet the foregoing performance
criteria, and (ii) RIGHTS HOLDERS elect to prohibit PRODUCER from producing new
episodes in the immediately succeeding year, the Production Term shall expire at
the end of the last calendar year in which PRODUCER is in production of the
SERIES; however, RIGHTS HOLDERS shall be precluded from distributing any product
based upon the ANIMATION RIGHTS for that immediately succeeding year.
8. Rights and Duties on Expiration and Termination.
------------------------------------------------
8.1 Upon expiration or termination of this RIGHTS AGREEMENT, all right
of PRODUCERS to exercise or exploit the ANIMATION RIGHTS shall forthwith
terminate and automatically revert to RIGHTS HOLDERS except as specifically
provided this Section 8. Notwithstanding the reversion of ANIMATION RIGHTS,
RIGHTS HOLDERS shall not use any of the ANIMATION RIGHTS described in Section
6.3 without PRODUCER'S written approval; such approval is discretionary and may
be conditioned upon payment of compensation.
8.2 For a period of one hundred eighty (180) days after expiration or
termination (the "Sell-Off Period"), PRODUCER shall be entitled to continue to
sell, on a nonexclusive basis, existing merchandise created pursuant to rights
granted herein in accordance with the terms and conditions contained in this
RIGHTS AGREEMENT. Notwithstanding the foregoing, PRODUCER shall make a good
faith effort to negotiate a provision in third-party licenses permitting RIGHTS
HOLDERS to purchase from PRODUCER, at the then current standard wholesale prices
less twenty percent (20%), all unsold merchandise in lieu of permitting PRODUCER
to exercise its Sell-Off rights. Within thirty (30) days after expiration of the
Sell-Off Period, if any, PRODUCER shall supply RIGHTS HOLDERS with a written
report of the sales of merchandise during the Sell-Off Period, as well as the
royalties due. With respect to any inventory remaining upon expiration of the
Sell-Off Period, RIGHTS HOLDERS shall have the option to (i) purchase such
product at manufacturing costs less fifty percent (50%); or (ii) require
PRODUCER to destroy such inventory, the destruction to be verified by an officer
of PRODUCER. Assuming a third-party license which extends beyond the term of
RIGHTS HOLDERS AGREEMENT, then PRODUCER and RIGHTS HOLDERS shall share in
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merchandising revenues on the terms set forth herein throughout the term of that
third-party agreement.
8.3 Notwithstanding expiration or termination of this RIGHTS
AGREEMENT, PRODUCER shall have the perpetual right to perform and distribute all
television, theatrical, and multi-media productions as well as cels based upon
the ANIMATION RIGHTS that were created prior to the date of expiration or
termination, or to sell its rights outright to such productions. All such
productions or sales shall be subject to the terms and conditions of this RIGHTS
AGREEMENT, including without limitation PRODUCER'S royalty obligations.
9. Sublicense. RIGHTS HOLDERS grant PRODUCER the right to sublicense
manufacturing and distribution of merchandising rights granted hereunder subject
to the terms and conditions of Appendix A.
10. Indemnity. RIGHTS HOLDERS shall indemnify and defend PRODUCER against
any third-party claim or cause of action challenging PRODUCER'S right to use the
ANIMATION RIGHTS and hold PRODUCER harmless from any liabilities resulting from
the use of rights granted herein. PRODUCER shall indemnify and defend RIGHTS
HOLDERS against any third-party claim or cause of action arising from or
relating to (1) any use of rights in the PROPERTY which are not ANIMATION RIGHTS
(see Section 1.3) and (2) the story lines, narrative or audio content of any
animated production or printed matter and hold RIGHTS HOLDERS harmless from any
liabilities resulting from such claims or causes of action. PRODUCER shall
indemnify RIGHTS HOLDERS for all aspects of the use of ANIMATION RIGHTS except
to the extent RIGHTS HOLDERS have expressly agreed to indemnify PRODUCER.
11. Accounting and Audit.
--------------------
11.1 LICENSE FEES AND ROYALTIES. RIGHTS HOLDERS' earnings pursuant to
Section 2 shall be accounted for on a quarterly basis, beginning with the first
full calendar quarter following exercise of the Option. Within ten (10) business
days after receipt by PRODUCER or any entity controlled by PRODUCER of payment
of any license fees under Section 2, PRODUCER shall pay RIGHTS HOLDERS its
earnings from such license fees not subject to deferral. Within thirty (30) days
after each calendar quarter PRODUCER shall furnish RIGHTS HOLDERS with a
complete statement showing the SERIES direct production costs, all sources of
revenue resulting from or related to exploitation of the ANIMATION RIGHTS, and
the calculation of RIGHTS HOLDERS' earnings based thereon, during such period
along with payment (if any) of deferred earnings which become due during the
quarter.
11.2 Foreign Earnings. Royalties shall be computed in the currency of
the country where earned and credited to Licensor's account in U.S. dollars at
the exchange rate received by PRODUCER or any entity controlled by PRODUCER at
the time of conversion.
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PRODUCER may, if necessary, deposit any Royalties due Licensor in a U.S. dollar
account bearing Licensor's name in the country where such Royalties are earned.
Any such deposit will constitute Royalty payment hereunder.
11.3 Audit. PRODUCER shall keep full, true and accurate records
containing all data reasonably required for the full computation and
verification of the amounts to be paid and the information to be reported to
RIGHTS HOLDERS under this RIGHTS AGREEMENT.
11.3.1 During the term of the RIGHTS AGREEMENT and for a period
of three (3) years thereafter, RIGHTS HOLDERS or their designee shall have the
right to inspect such records. Any such inspection shall be held during normal
business hours upon reasonable advance notice to PRODUCER no more frequently
than once every six (6) months.
11.3.2 RIGHTS HOLDERS shall be deemed to have consented to be
bound by any accountings rendered by PRODUCER unless an objection is made in
writing within three (3) years after the date rendered, and after such
objection, arbitration is commenced within sixty (60) days.
11.3.3 All costs and expenses incurred by RIGHTS HOLDERS for such
inspection shall be borne by RIGHTS HOLDERS unless the inspection discovers
errors or omissions of more than Ten Thousand Dollars ($10,000) and five percent
(5%) in PRODUCER'S favor, in which case, the costs and expenses shall be borne
by PRODUCER.
11.3.4 Acceptance of any payment by RIGHTS HOLDERS shall not
preclude RIGHTS HOLDERS from questioning the correctness of payments at any
time.
12. Miscellaneous Provisions.
------------------------
12.1 No Waiver; Severability. No waiver of any provision of this
RIGHTS AGREEMENT by either party, whether express or implied, shall constitute a
continuing waiver of such provision or any other provision, and any provision
which is or becomes prohibited or unenforceable; all remaining provisions shall
remain valid and enforceable.
12.2 Further Assurances. The parties heretofore shall execute such
further documents and perform such further documents and perform such further
acts as may be necessary to comply with the terms of this RIGHTS AGREEMENT and
consummate the transactions herein provided.
12.3 No Partnership. Nothing contained herein shall be construed to
create a partnership, joint venture or agency between RIGHTS HOLDERS and
PRODUCER.
12.4 Amendments. This RIGHTS AGREEMENT cannot be modified or amended
except by a written instrument executed by both parties heretofore.
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12.5 Assignment. Except as otherwise provided in this RIGHTS
AGREEMENT (including without limitation PRODUCER'S rights under Section 8.3 and
9) this RIGHTS AGREEMENT shall be binding upon and inure to each party
respective heirs, legal representative, successors, and assigns, and it is
understood that neither party may assign the rights hereunder.
12.6 Arbitration. The parties agree to arbitrate any dispute
concerning (1) RIGHTS HOLDERS' right to terminate this RIGHTS AGREEMENT
based upon a material breach of this RIGHTS AGREEMENT or ARTISTS' agreement
(other than for failure to make timely payment of royalties which PRODUCER
acknowledges are due), and (2) other disputes arising out of the RIGHTS
AGREEMENT. The arbitration will be expedited and must be completed within
ninety (90) days of initial notice. The parties shall select an arbitrator
within ten (10) business days of notice. The parties shall cooperate in
providing each other voluntarily with relevant discovery on an expedited basis.
Unless otherwise agreed, the arbitrator shall be selected from a list provided
by the Judicial Arbitration and Mediation Service (JAMS). If no arbitrator is
selected, the parties agree to authorize the administrator of the Los Angeles
JAMS office to appoint an arbitrator.
12.7 Interest. PRODUCER agrees to pay interest on any amount due to
RIGHTS HOLDERS beginning on the tenth (10th) day after the due date thereof; at
the annual percentage rate equal to the Prime Rate quoted by First Interstate
Bank or its successor at its headquarters branch, plus two percent.
12.8 Notifications. All notice required to be given hereunder shall
be in writing and shall be delivered personally, by confirmed facsimile ("fax")
transmission, or by overnight courier, as follows:
If the RIGHTS HOLDERS: Judith Belushi Pisano
PO Box 433
Vineyard Haven, MA 02568
Fax: (508) 693-6414
With a copy to: Pamela Jacklin
Stoel Rives Boley Jones & Grey
900 SW Fifth Avenue
Suite 2300
Portland, OR 97204
Fax: (503) 220-2480
Daniel Aykroyd
3960 Laurel Canyon Blvd.
Studio City, CA 91604
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Fax: (213) 882-6113
With a copy to: Peter Laird
Edlestein & Laird
9220 Sunset Blvd., Suite 320
Los Angeles, CA 90069
Fax: (310) 271-2664
If to PRODUCER: FILM ROMAN, INC.
12020 CHANDLER BLVD.
NORTH HOLLYWOOD, CA 91607
Fax: (818) 985-2973
Notice personally delivered or confirmed by fax transmission shall be deemed
effective upon receipt. Notice sent by overnight courier shall be deemed
effective as of the date of delivery. Either party may change the address to
which notice is to be sent by giving written notice of such change of address to
the other party as provided herein.
12.9 Entire RIGHTS AGREEMENT. This RIGHTS AGREEMENT constitutes the
entire agreement between the parties relating to the subject matter hereof, and
supersedes all prior oral and written understandings and agreements relating
thereto.
12.10 Counterparts. This RIGHTS AGREEMENT may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same RIGHTS AGREEMENT.
DATED this 30th day of May 1995.
FILM ROMAN, INC.
By: /s/
------------------
Title: President & CEO
/s/ Daniel Aykroyd
------------------
Daniel Aykroyd
/s/ Judith Belushi Pisano
-------------------------
Judith Belushi Pisano
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APPENDIX A
Manufacturing and Distribution
------------------------------
In addition to the terms and conditions set forth in the RIGHTS
AGREEMENT, the following terms shall govern PRODUCER'S right to manufacture and
distribute merchandise under the RIGHTS AGREEMENT.
1. All products shall be of high quality in contents and workmanship.
PRODUCER or its sublicensee shall furnish RIGHTS HOLDERS with a sample of each
product, including packaging, if applicable, for RIGHTS HOLDERS' approval prior
to the distribution of the product, such approval not to be unreasonably
withheld.
2. RIGHTS HOLDERS may designate an agent to approve samples of products.
3. A sample shall be deemed approved if RIGHTS HOLDERS or their designee
fails to approve or disapprove a sample within fifteen (15) business days after
receipt.
4. If PRODUCER elects to sublicense manufacturing and distribution to a
third party ("Sublicensee"), PRODUCER shall first enter into a Sublicense
Agreement with the Sublicensee under which the Sublicensee agrees to be bound by
the terms and conditions of the RIGHTS AGREEMENT to the same extent PRODUCER is
bound. The Sublicense Agreement shall provide that RIGHTS HOLDERS shall have the
right to enforce the terms and conditions of the sublicense agreement in the
same manner they are entitled to enforce the terms and conditions of the RIGHTS
AGREEMENT against PRODUCER; provided, however, that RIGHTS HOLDERS shall not be
entitled to collect royalties from the Sublicensee so long as PRODUCER timely
pays all amounts required to be paid under the RIGHTS AGREEMENT.
5. PRODUCER agrees to include such copyright notices, copyright,
trademark or other legends as RIGHTS HOLDERS reasonably require in connection
with any publication of Blues Brothers animated characters or features,
merchandise or other uses.
With a copy to: Pamela Jacklin
Stoel Rives Boley Jones & Grey
900 SW Fifth Avenue
Suite 2300
Portland, OR 97204
Fax: (503) 220-2480
Daniel Aykroyd
3960 Laurel Canyon Blvd.
Studio City, CA 91604
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Fax: (213) 882-6113
With a copy to: Peter Laird
Edlestein & Laird
9220 Sunset Blvd., Suite 320
Los Angeles, CA 90069
Fax: (310) 271-2664
If to PRODUCER: FILM ROMAN, INC.
12020 CHANDLER BLVD.
NORTH HOLLYWOOD, CA 91607
Fax: (818) 985-2973
Notice personally delivered or confirmed by fax transmission shall be deemed
effective upon receipt. Notice sent by overnight courier shall be deemed
effective as of the date of delivery. Either party may change the address to
which notice is to be sent by giving written notice of such change of address to
the other party as provided herein.
12.9 Entire RIGHTS AGREEMENT. This RIGHTS AGREEMENT constitutes the
entire agreement between the parties relating to the subject matter hereof, and
supersedes all prior oral and written understandings and agreements relating
thereto.
12.10 Counterparts. This RIGHTS AGREEMENT may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same RIGHTS AGREEMENT.
DATED this 30th day of May, 1995.
FILM ROMAN, INC.
By: /s/ Phil Roman
---------------
Title: President & CEO
/s/ Daniel Aykroyd
------------------
Daniel Aykroyd
/s/ Judith Belushi Pisano
-------------------------
Judith Belushi Pisano
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APPENDIX A
Manufacturing and Distribution
------------------------------
In addition to the terms and conditions set forth in the RIGHTS
AGREEMENT, the following terms shall govern PRODUCER'S right to manufacture and
distribute merchandise under the RIGHTS AGREEMENT.
1. All products shall be of high quality in contents and workmanship.
PRODUCER or its sublicensee shall furnish RIGHTS HOLDERS with a sample of each
product, including packaging, if applicable, for RIGHTS HOLDERS' approval prior
to the distribution of the product, such approval not to be unreasonably
withheld.
2. RIGHTS HOLDERS may designate an agent to approve samples of products.
3. A sample shall be deemed approved if RIGHTS HOLDERS or their designee
fails to approve or disapprove a sample within fifteen (15) business days after
receipt.
4. If PRODUCER elects to sublicense manufacturing and distribution to a
third party ("Sublicensee"), PRODUCER shall first enter into a Sublicense
Agreement with the Sublicensee under which the Sublicensee agrees to be bound by
the terms and conditions of the RIGHTS AGREEMENT to the same extent PRODUCER is
bound. The Sublicense Agreement shall provide that RIGHTS HOLDERS shall have the
right to enforce the terms and conditions of the sublicense agreement in the
same manner they are entitled to enforce the terms and conditions of the RIGHTS
AGREEMENT against PRODUCER; provided, however, that RIGHTS HOLDERS shall not be
entitled to collect royalties from the Sublicensee so long as PRODUCER timely
pays all amounts required to be paid under the RIGHTS AGREEMENT.
5. PRODUCER agrees to include such copyright notices, copyright,
trademark or other legends as RIGHTS HOLDERS reasonably require in connection
with any publication of Blues Brothers animated characters or features,
merchandise or other uses.
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EXHIBIT 10.14
December 11, 1990, Effective as of February 10, 1990
ALEVY PRODUCTIONS, INC.
c/o Bill Sobel, Esq.
Arrow, Edelstein, & Laird, P.C.
9220 Sunset Blvd.
Los Angeles, California 90069
RE: "Bobby's World"
Dear Bill:
This letter will confirm the basic terms of the agreement between ALEVY
PRODUCTIONS, INC., a New York corporation, ("Licensor") f/s/o Howie Mandel, and
FILM ROMAN, INC. ("FRI") relating to the fictional character "Bobby" created by
Licensor and Howie Mandel (individually) and the animated characters, events,
stories and elements which shall form the basis of animated television programs
and the live action elements included in such programs as heretofore or
hereafter constituted (the "Property").
We have agreed and hereby agree as follows:
1. OPTION:
In consideration of One Thousand Dollars ($1,000.00) payable upon receipt
by FRI of a copy of this letter agreement executed by Licensor, Licensor grants
FRI an irrevocable option (the "Option") through and including May 1, 1990 to
acquire the rights set forth below, which Option must be exercised in writing as
hereinafter provided. Said Option is applicable against any payments due
Licensor pursuant to Paragraph 7. FRI and Licensor acknowledge that said Option
has been exercised.
FRI agrees to undertake such development as it determines is necessary in
the exercise of its good business judgment to attempt to obtain an order to
produce at least thirteen (13) episodes of a non-prime time animated television
series ("Series") or one (1) animated thirty (30) minute special ("Special")
based on the Property for initial exhibition over a U.S. network or nationally
sponsored with at least a fifty percent (50%) U.S. market clearance.
2. FOX CHILDREN'S NETWORK:
It is hereby acknowledged and agreed that FRI has entered into a series
production agreement with the Fox Children's Network ("FCN") for the production
of a minimum of thirteen (13) one-half hour animated programs presently intended
to be broadcast on a weekly basis, beginning on Saturday mornings in September
1990.
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Attached hereto and incorporated by this reference is the March 28, 1990
letter of agreement (Exhibit "A") from FCN to Licensor and the March 29, 1990
letter from Phil Kent of Creative Artists Agency, Inc. (Exhibit "B") to FCN (c/o
Fox Broadcasting Company ("FBC")) accepting the terms thereof. When FRI and FCN
enter into a more formal agreement as contemplated by said letter, said more
formal agreement (the "FRI-FCN Agreement"), in conjunction with this agreement
and any agreement covering the services of Howie Mandel, will supersede Exhibits
"A" and "B." It is agreed that to the extent that the FRI-FCN Agreement is
inconsistent with Exhibit "A", Licensor shall have the right to approve the
same. All terms of this agreement shall be binding on the parties hereto.
3. RIGHTS:
Licensor grants exclusively to FRI, which is concurrently conveying to FCN,
the following worldwide rights to the Property, it being understood that, with
the exception of the Ancillary Rights, as such term is hereinafter defined, the
grant of the following rights shall be for the periods hereinafter set forth:
(a) Television:
The right to produce the Series and/or the Special(s) during the
Production Term as such term is hereinafter defined (which, at FCN's election,
shall incorporate live action and animated lead-ins to and lead-outs from the
programs (collectively, the "wraparounds"), featuring, Howie Mandel (subject to
his reasonable availability), and which shall not exceed two (2) minutes in the
aggregate per half hour program) for initial television broadcast and to exploit
same and all elements thereof in all media whether now known or hereafter
devised, including (without limitation) television (free, pay, cable or
otherwise), home video, theatrically and non-theatrically (schools,
institutions, museums, film festivals, filmstrips, or otherwise).
(b) Theatrical:
The right of first negotiation for a period not to exceed sixty (60)
days after the Production Term to conclude an agreement to produce one animated
motion picture based upon the Property for exploitation in all media now known
or hereafter devised commencing upon expiration of the Production Term.
Notwithstanding the foregoing, neither Licensor nor FRI (or FCN after FRI
assigns this agreement to FCN) shall have the right to produce such motion
pictures during the Production Term without the express written approval of the
other party. If FRI does in fact produce an animated feature based upon the
Property, and if Licensor elects to have a sequel or remake of such motion
picture produced, Licensor shall notify FRI in writing to such effect and FRI
shall have a right of first negotiation for thirty (30) days with respect
thereto. If FRI and Licensor fail to reach an agreement within the prescribed
thirty (30) days, Licensor shall be free to enter into negotiation with third
parties with respect to the same; provided, however, that Licensor shall provide
FRI written notice setting forth the terms of any proposed agreement with such
third party prior to Licensor's entering into such agreement. FRI
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shall have ten (10) days to match the terms of any such offer, in which case,
Licensor shall enter into said agreement with FRI in lieu of the third party.
(c) Exclusivity:
The right to grant FCN or its designees for the Production Term the
exclusive right to exhibit all programs produced which are based upon the
Property in animation (including the animated likeness of "Bobby" and "Howie,"
the Series, the programs, the Specials, the title(s) and all elements thereof as
they appear in all programs produced hereunder throughout the universe in
perpetuity, but excluding Howie Mandel's performance as himself or as Bobby,
which characters may be used by Howie Mandel in any non-animated manner Howie
Mandel so chooses, subject to the restrictions set forth in paragraphs 3(d) and
3(f)(i), below). Additionally, Licensor grants FRI the right to grant FCN or its
designees the exclusive, perpetual right to exhibit all programs produced
hereunder. Howie Mandel may not create another animated series which features an
animated Howie Mandel, including without limitation, as Bobby, himself or
Bobby's dad, during the Production Term. Notwithstanding the foregoing, FRI
shall have the right to grant U.S. television exhibitors the exclusive right to
broadcast Howie Mandel's appearance as the animated character of Bobby's father
and/or as himself and/or the live Bobby character as the latter two appear in
the wraparounds or advertisements. It is agreed and acknowledged that FRI and
Licensor have granted FCN the exclusivity provisions and rights set forth in
Paragraph 5 of Exhibit A which is incorporated herein by this reference to the
extent that the same is not inconsistent with the terms hereof.
(d) Live Action Holdback:
All live television rights in which Bobby is a central character shall
be frozen during the Production Term. Live action theatrical rights in which
Bobby is a central character shall be frozen through the conclusion of any
season (e.g., Sept. 1990 - Sept. 1991) in which FRI orders new episodes. For the
balance of the Production Term, live action theatrical rights will be subject to
the following first negotiation/last refusal rights:
i) if only thirteen (13) episodes are ordered, following the end of
the first season in which such episodes are exhibited, FRI shall have
a three month exclusive first negotiation right followed by a forty-
five (45) day exclusive last refusal right through the balance of the
Production Term.
ii) if new Series episodes are ordered for a second season or
subsequent seasons or if the Series is ordered for strip exhibition,
following the end of the second or subsequent season(s) in which such
episodes are exhibited, FRI shall have a six (6) month exclusive first
negotiation right followed by a forty-five (45) day exclusive last
refusal right through the balance of the Production Term.
With regard to the terms of the freeze on live action theatrical rights the
following, non-precedential provisions shall apply and such provisions shall
remain confidential:
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if a performer other than Mandel has a previously created fictional
character which has not been previously exploited as a featured
character (live action, animated or both live action and animated) in
either
- a theatrical motion picture,
- a television series or special,
- a home video movie or special or
- has been exploited previously as a literary character in books,
syndicated newspapers or magazines or has granted rights to a
third party to so exploit such character
and if FCN enters directly (as opposed to an assignment of rights from
a third party in which live action theatrical rights have been
reserved by the rights holder as a result of either (i) a previous
grant of such rights or, (ii) a current theatrical development deal
or, (iii) rights holder is in discussions with third parties for
theatrical development) into an agreement with such performer for the
rights to feature such fictional character in an animated series and,
if in such agreement, FCN grants such performer the right to exploit
such fictional character as a featured performer in a live action
theatrical during the Production Term then FCN shall afford the same
rights to Licensor (or Mandel) as those which FCN grants to such
performer to enter into an agreement with a third party to develop
and/or produce a live action theatrical based on such performer's
fictional character during the Production Term.
(e) Spinoffs:
The right in perpetuity to produce animated television program(s)
("spinoffs") based in whole or in part on any characters created for and used in
the Series or Specials other than pre-existing characters. A "pre-existing
character" shall mean a character or element created or owned by Licensor which
existed prior to the production of any animated program(s) hereunder.
(f) Ancillary Rights:
In addition to the foregoing, in the event FRI exercises its Option,
it shall thereby acquire from Licensor the following exclusive perpetual
worldwide ancillary rights to the Property:
(i) Merchandising Rights.
FRI shall have the sole, exclusive and worldwide Merchandising
Rights with respect to the Series and the Property. "Merchandising Rights" means
the right to use and/or authorize others to use physical properties, character
names or other materials appearing or used in or in connection with the Property
or the Series or any Special, and likenesses, voices
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and characteristics of any and all characters (including without limitation the
"Bobby" character and/or "animated Bobby's father" character appearing in the
series), objects or other elements appearing in the Property, the Series or any
Program, for products and services, including without limitation, dolls
(including a talking doll, for which Howie Mandel shall provide voice services;
provided, however, that Howie Mandel shall make himself available upon
reasonable notice to provide said services and that Howie Mandel will be paid
twice SAG scale for such services as though said services were covered by the
SAG Basic Agreement), toys, games, cutouts, comic books, and comic strips. A
license by FRI to a third party of any Merchandising Rights is a "Merchandising
License." It is acknowledged that this grant of rights does not prohibit Howie
Mandel from merchandising his live likeness, including "Bobby" and the name
"Bobby," which right he reserves; provided, however, that neither Licensor nor
Howie Mandel may link such merchandising with the Series or Specials.
(ii) Other Ancillary Rights. FRI shall have the following sole,
exclusive and worldwide rights, in perpetuity:
(A) Music Publishing Rights. To publish and exploit all music
created in connection with the Series and/or any Special produced hereunder,
together with the right to identify such music as being derived from or
connected with the Series, and the right to use artwork and graphics from the
Series in connection with the exploitation of music publishing rights.
(B) Soundtrack Rights. To incorporate and exploit all music
created in connection with the Series and/or any Special produced hereunder in
sound recordings, soundtrack recordings, and/or story recordings based upon the
Series and/or the Property (all of which recordings may be exploited by means of
records, tapes, discs, or any other means), together with the right to identify
such music as being derived from or connected with the Series, and the right to
use artwork and graphics from the Series in connection with the exploitation of
soundtrack rights.
(C) Publication Rights. To publish and exploit printed materials,
including without limitation books, comic books, pamphlets, periodicals,
inserts, cut-outs, strips and photonovels, all based upon the Series and/or any
Special produced hereunder, together with the right to identify such materials
as being derived from or connected with the Series, and the right to use artwork
and graphics from the Series in connection with the exploitation of publication
rights.
(D) Advertising, Publicity and Promotion Rights. To advertise,
publicize and promote the Series, the Specials, and the exercise of all of FRI's
rights hereunder, by means of all media, whether now known or hereafter devised.
Without limiting the foregoing, FRI shall have the right, solely for the purpose
of advertising, publicizing and promoting the Series, Programs and the exercise
of FRI's rights hereunder, to exhibit, perform and/or publish excerpts from the
Property in all media and without additional compensation to
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Licensor therefor; provided, that such excerpts shall not exceed [ten thousand
(10,000)] words in print media or three (3) minutes in electronic media.
4. RETAINED RIGHTS:
Subject to the provisions of this Agreement, Exhibit A, and the FRI-FCN
Agreement, Licensor retains all rights not licensed herein to live action motion
pictures, stage, and radio; however, Licensor may not exercise said rights
during the Production Term hereof in connection with any production based
entirely upon the live Bobby character.
FRI retains all rights to FRI-created characters unless otherwise set forth
herein.
5. TERM:
(a) Production Term:
The term of FRI's rights to produce new programs hereunder shall
commence on the date of this agreement and end upon the expiration of the full
term set forth in Exhibit "A" (the "Production Term"). However, thereafter FRI
shall have the right of first negotiation for the period of thirty (30) days to
extend the Production Term. If FRI and Licensor fail to reach an agreement,
Licensor shall have the right to enter into negotiations with third parties with
respect to the Property; provided, however, that for a period of two (2) years
following the termination of the Production Term, Licensor shall provide FRI
written notice setting forth the terms of any proposed agreement with such third
party prior to Licensor's entering into such agreement. FRI shall have ten (10)
days to match the terms of any such offer, in which case, Licensor shall enter
into said agreement with FRI in lieu of the third party.
(b) Distribution Term:
Subject to the grant of rights herein, the term of FRI's rights to
distribute programs produced hereunder shall be in perpetuity, in all media now
known or hereafter devised, in all territories. Subject to the limitations
contained in Exhibit A, it is agreed and acknowledged that FRI and Licensor have
granted to FCN all distribution rights in and to the programs produced pursuant
to the FRI-FCN Agreement, in all media, in perpetuity.
6. SERVICES:
Following FRI's exercise of its Option, Licensor shall furnish the services
of Howie Mandel in the following capacities for each program produced hereunder,
subject to his reasonable approval, availability, creative determination and the
applicable network's approval (which network approval has already been granted):
(a) Creative Consultant on all programs produced hereunder;
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(b) Voice Over for the animated "Howie" and "Bobby" characters and for such
other characters as FRI shall designate, subject to Howie Mandel's reasonable
approval;
(c) Voice Over or on-camera acting in live portions of wraparounds and in
main title;
(d) Writing (or co-writing) lyrics any songs. In connection therewith,
Licensor shall be entitled to royalties per Exhibit C which is hereto attached.
7. PAYMENTS:
Provided Licensor is not in material breach of this agreement, FRI shall
pay to Licensor immediately on exercise of the Option, Sixty Thousand Dollars
($60,000.00) if a television series is to be initially produced (it being
acknowledged that such sums have already been paid by FRI to Licensor), or Ten
Thousand Dollars ($10,000.00) if a prime time special is to be initially
produced, the applicable sum to be credited against the following payments,
payable within ten (10) days following completion of final edit of the
respective episode of the Series or Special:
(a) Royalties for Rights:
(i) For each new program produced for initial exhibition on
U.S. network television or by Fox Broadcasting Company or
any of its subsidiaries or affiliates (unless Fox
Broadcasting Company or its subsidiaries or affiliates
orders a strip series, in which case paragraph 7(a)(ii)
shall apply):
(1) One half hour non prime time series episodes:
$1,000.00 per episode
(2) One half hour Prime Time Specials: $2,000.00 per
Special
(ii) For each new program produced for initial exhibition in
nationally sponsored syndication, but excluding Fox
Broadcasting Company or any of its subsidiaries or
affiliates (unless Fox Broadcasting Company or any of its
subsidiaries or affiliates orders a strip series, in which
case the following shall apply):
(1) One half hour series episodes: $500.00 per episode
(2) One half hour Specials: $1,000.00 per Special
(iii) Royalties for new programs in the foregoing categories of
different lengths (e.g., one hour Saturday morning series
episodes) shall be subject to good faith negotiation.
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(b) Creative Consultant Fees:
(i) FRI shall pay Licensor a creative consultant fee of Three
Thousand Dollars ($3,000.00) per each half hour episode for
Saturday or Sunday broadcast;
(ii) FRI shall pay Licensor a creative consultant fee of Two Thousand
Two Hundred Fifty Dollars ($2,250.00) per each half hour episode
of a Strip broadcast;
(c) Reimbursement for Howie Mandel's Voice Over Fees:
Amounts equal to the then applicable SAG scale plus 10%.
(d) Reimbursements for Howie Mandel's acting in the main titles and
wraparounds:
Amounts equal to twice the then applicable SAG scale.
(e) Reimbursement for Howie Mandel's writing (or co-writing) lyrics to "Do
Fish Smell":
Payment included within royalty payment.
(f) Payments for new programs in different categories (e.g., prime time
series episodes) shall be negotiated in good faith giving due regard for
comparable programming and the foregoing royalties.
(g) In the event FRI produces a spinoff, it shall pay Licensor fifty
percent (50%) of all the applicable financial terms set forth in subparagraphs
7(a)-7(b) and paragraph 8, below.
(h) Pension, Health and Welfare: FRI shall pay directly to SAG all
applicable pension, health and welfare contributions due for services rendered
by Howie Mandel hereunder.
8. NET PROFITS:
In the event FRI produces a Series and or Special hereunder and provided
Licensor is not in material breach of this Agreement, FRI shall pay Licensor a
sum equal to Thirty Five Percent (35%) of One Hundred Percent (100%) of FRI's
Net Profits from the exploitation of the Series and Specials and all ancillary
rights. "Net Profits" shall be the net profits (as therein defined) paid to FRI
by FCN, if any, pursuant to the FRI-FCN Agreement, less any unreimbursed direct
production costs incurred by FRI which remain unreimbursed by FCN and less any
unreimbursed profit participations paid by FRI to the writers of the Series and
Specials. For purposes hereof, production costs shall include the total cost of
producing the Series and/or
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Specials including all direct items incurred in connection with the production
thereof. Such costs shall include, but not be limited to, all charges and
expenses for above-the-line personnel and services, including fees for regular
employees of FRI who render production or creative services on the series
(fairly allocated to accurately reflect a reasonable amount of compensation
(based on rates that would be paid to comparable individuals not affiliated with
FRI) for such employee's services on the Series or Special(s)) or receive credit
as Executive Producer, Supervising Producer, Producer or other customary
credits; below-the-line facilities, equipment, materials, and services; all
fixed dollar deferred payments to third parties not affiliated with FRI;
interest on unrecouped monies advanced for the series by FRI computed quarterly
at 1-1/2% above the prime rate charged FRI by its bank and any and all other
costs and expenses deemed production costs in the television industry. FRI
shall, in addition, be entitled to charge an overhead allowance, including FRI's
salaries, materials, equipment and facilities not allocated as a direct
production cost, in an amount equal to its overhead expenses attributable to
programs produced hereunder less any overhead reimbursed and executive producer
fees paid to FRI by any third party in connection with the same ("Overhead
Reimbursement"); provided, however, that in no event shall such amounts exceed
thirteen percent (13%) of the production costs in connection with the same less
the Overhead Reimbursement ("Overhead Cap"). It is currently anticipated that
FCN shall be providing FRI with an Overhead Reimbursement of seven thousand five
hundred dollars ($7,500) per series episode for overhead and a seven thousand
five hundred dollars ($7,500) per series episode for executive producer fees.
FRI shall be entitled to recoup its overhead allowance after recoupment of FRI's
unreimbursed direct production expenses, as defined above, less any unreimbursed
profit participations paid by FRI to the writers of the Series and Specials in
the following manner:
(i) FRI shall recoup sixty-five percent (65%) of its overhead allowance;
(ii) FRI and Licensor shall divide the next monies received by FRI, up to
an amount equal to thirty-five percent (35%) of FRI's overhead allowance, as
though said sums were Net Profits (e.g., FRI shall receive sixty-five percent
(65%) of said sums and Licensor shall receive thirty-five percent (35%) of said
sums);
(iii) FRI shall recoup the balance of its overhead allowance up to the
Overhead Cap; and
(iv) Thereafter, all other sums will be divided as Net Profits.
9. OWNERSHIP AND COPYRIGHT:
Subject only to any limitations on the exploitation contained in this
agreement, all materials, whether or not furnished by Licensor, used on or in
connection with the programs produced hereunder, and any portion thereof, and,
of course, the programs themselves, including but not limited to any copies
and/or recordings thereof by film, tape, disc or any other similar or dissimilar
method of recording, whether now known or hereafter devised, shall be the sole
and absolute property of FRI for any and all purposes whatsoever, and for any
method of
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exhibition or exploitation, including but not limited to theatrical and non-
theatrical exhibition, broadcast transmission, satellite transmission, video
cassette/disc exhibition, hotel exhibition, and any similar or dissimilar uses
whether now known or hereafter devised, and Licensor agrees that Licensor does
not have and will not claim to have, either under this agreement or otherwise,
any right, title or interest of any kind or nature whatsoever, in or to any of
such materials or in or to the programs or any elements or copies thereof.
In the event FRI fails to commence production of the Series or the
Special(s) within two (2) years following the exercise of the Option hereunder,
all rights granted to FRI shall revert to Licensor. (FRI and Licensor
acknowledge that FRI has commenced production of the Series.)
It is agreed and acknowledged that FRI and Licensor have granted FCN
ownership in and to the copyright and trademarks in the programs and elements
thereof produced hereunder. It is expressly acknowledged and agreed that
Licensor shall maintain all copyrights and trademarks in and to the live "Bobby"
character and the animated and "live" likenesses of Howie Mandel as they may
appear separate and apart from the Series or Specials; however, neither Licensor
nor Mandel shall have any right to use the animated likeness of Howie Mandel
beyond the scope of this agreement. Notwithstanding the foregoing, Licensor
shall maintain the right to use an animated likeness of Howie Mandel if such
likeness is different from that used in the Series or Specials and, during the
Production Term, is not likely to cause confusion or be competitive with that
used in the Series or Specials.
All rights granted or agreed to be granted FRI hereunder shall vest in FRI
immediately and shall remain vested in FRI, its successors, assigns and
licensees, whether this agreement expires in normal course or whether Licensor's
engagement hereunder is sooner terminated for any cause or reason, and Licensor
shall and does hereby assign all rights therein to FRI, subject to the terms of
this agreement. All materials furnished by Licensor, and the results and
proceeds of Licensor's services shall be considered in all respects as materials
furnished by Licensor as the employee of FRI (or, if Licensor's services are on
loan, by the lending company) and/or furnished pursuant to the specific
commission of FRI for use in connection with the programs, and such materials
and the results and proceeds of Licensor's services shall be considered in all
respects as "works for hire" as that term is used in the U.S. Copyright Act, it
being understood that under all circumstances FRI shall be considered the author
and proprietor of such materials and of the results and proceeds of Licensor's
services, and of all rights comprised in the copyright thereof, and FRI shall
have the sole and absolute right to copyright such material and the programs as
copyright author and proprietor thereof. Notwithstanding the foregoing, FRI and
Licensor acknowledge that FRI shall produce the Series and/or Specials for FCN
as works-for-hire. Consequently, FCN shall be entitled to all rights herein set
forth.
Licensor shall be accorded appropriate trademark and copyright credit as
owner of the pre-existing characters and properties of Licensor on all positive
prints of the program(s), FRI paid advertising and on Howie Mandel, "Bobby," or
Howie Mandel created character based
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merchandise. In this regard, it is acknowledged that Licensor is owner of the
trademark in the Bobby character.
10. SCREEN CREDIT:
Licensor shall receive at Licensor's and Howie Mandel's election screen
credit on the Program(s) produced hereunder, and if within FRI's control, in all
paid advertising substantially as follows:
"in Association with Alevy Productions, Inc."
The on-screen credit may combine the name of Licensor and its logo if FRI
reasonably approves of the style and appearance such logo. No other credit,
other than a logo, shall be of a size larger than the aforementioned "in
Association with" credit.
Further, additional credit on all Programs produced hereunder shall be
accorded Howie Mandel so as to accurately reflect his services rendered,
including but not limited to a "Based on a character created by" credit and a
"Creative Consultant" credit.
FRI shall contractually require FCN to comply with the credit provisions
hereof and if such provisions are not complied with, FRI shall use best efforts
to cure such failure on a prospective basis.
Such credit shall be subject to network or broadcasters' standards and
practices, which shall be applied equally to Licensor's and FRI's credits. All
other characteristics of such credit will be in FRI's sole discretion. No
casual or inadvertent failure of FRI to comply with the provisions of this
paragraph, and no failure of others to comply with their obligation to FRI shall
constitute a breach of this agreement by FRI. Licensor shall not be entitled to
any injunctive relief for breach of the provisions of this paragraph.
Licensor acknowledges that the credits as they have appeared in the first
thirteen episodes of the Series satisfy the foregoing requirements; provided,
however, all subsequent programs produced hereunder shall accord the "creative
consultant" credit set forth above.
11. CREATIVE APPROVAL RIGHTS:
Licensor shall designate in writing one individual to act as creative
consultant with respect to the Property. Said individual shall have the
reasonable right to approve the initial creative elements (i.e., bible with
sample story premises and model sheets of major continuing characters including
Howie Mandel and "Bobby"), production outlines and teleplays of the programs
produced hereunder to ensure that the Property is depicted in a manner
consistent with the integrity and artistic representations of the original
Property. Said individual shall have approval rights with respect to models,
artwork, character development and character design, provided that such approval
rights may not be unreasonably withheld. Licensor acknowledges
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that it has granted said approvals with respect to all elements of the first
thirteen (13) episodes. Licensor shall have continuing reasonable approval
rights over additional elements.
Additionally, Licensor shall have the reasonable right to approve
merchandise style guides and product categories thereof incorporating the
animated likeness of the "Bobby's father" and "Bobby" characters.
Such approvals and consultations shall be exercised within the time periods
reasonably required by FRI due to production exigencies, including within two
(2) business days if appropriate. FRI shall exercise best efforts to ensure
approval turnarounds of seventy two (72) hours. If disapproval is not received
within the appropriate time periods as communicated to Licensor in writing,
matters subject to such approvals shall be deemed approved. FRI shall have all
other controls and approvals. Licensor shall not be entitled to any injunctive
relief for breach of the provisions of this paragraph.
12. WARRANTIES AND INDEMNITIES:
(a) Licensor represents and warrants that: it is a valid corporation,
incorporated under the law of the state of New York; it owns all right, title,
and interest in and to the Property; it has the full power and authority to
enter into this agreement; none of the rights herein licensed have been licensed
to any other person or entity nor has Licensor entered into any other agreement
which would interfere with this agreement; Licensor and Howie Mandel have
entered into an employment agreement whereby all materials and services
furnished by Howie Mandel are works-for-hire under federal copyright law; to the
best of Licensor's knowledge the Property and any other materials furnished by
Licensor will not be libelous or violate the right of privacy, publicity, or any
other right of any person or entity; Licensor is a signatory of the current
Writers Guild of America's Basic Agreement; and Howie Mandel is a member of the
Writers Guild of America. Licensor agrees to indemnify and hold harmless FRI
and any telecasting network, their successors, assigns, licensees and its and
their affiliates and subsidiaries and its and their employees, agents, officers
and directors from and against any and all claims, demands, losses, expenses,
and/or fees (including attorney's fees) arising out of or resulting from any
breach by Licensor of any of its representations, warranties, indemnities,
and/or agreements herein:
(b) FRI represents and warrants that: any and all material incorporated by
it in any programs produced hereunder, other than that furnished by Licensor or
Howie Mandel, shall be either original or in the public domain and shall not be
libelous or violative of the rights of privacy, publicity, or any other right of
any person or entity; it has full power and authority to enter into this
Agreement. FRI agrees to indemnify and hold harmless Licensor from any claims,
demands, losses, damages, expenses and/or fees (including attorney's fees)
arising from FRI's incorporation of material in any program(s) produced
hereunder or in any licensed merchandise product which was not supplied by
Licensor and/or resulting from any breach by FRI of any of its representations,
warranties, indemnities and/or agreements herein.
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13. ASSIGNMENT:
FRI may assign this agreement, in whole or in part, only to FCN or its
related designee or to an affiliated company of FRI or to any entity with whom
any parent, subsidiary or affiliated company of FRI is merged or consolidated or
to any entity with substantially the same financial status as FRI, acquiring all
or substantially all of the stock or assets of any such parent, subsidiary or
affiliated company. Any such assignee shall assume in writing all obligations
to Licensor and Howie Mandel hereunder; assignment hereunder to FCN or Fox
Broadcasting Company under an agreement whereby such obligations are assumed
shall relieve FRI of liability hereunder as to such obligation, except any WGA
obligations, which FRI explicitly retains.
14. INSURANCE:
FRI shall procure and at all times cause the maintenance of, with
acceptable insurance companies, the following insurance policies:
(a) A standard producer's errors and omissions liability policy which shall
have standard coverage, including but not limited to, coverage with respect to
liability, defamation, infringement of copyright, infringement of rights in
material to be broadcast and in the manner of presentation thereof, infringement
of privacy and publicity rights and unauthorized use of material for the Series
and each Episode thereof. Each policy shall provide that Licensor and Howie
Mandel shall be named additional insureds.
(b) A standard products liability policy which shall have standard coverage
for merchandise licensing organizations naming Licensor and Howie Mandel as
additional insureds.
15. SECURITY OF COPYRIGHT, ETC.:
FRI shall not cause or authorize any action which might impair the
copyright of or the service or trade names or marks of Licensor or Howie Mandel
used in any program produced hereunder or their right, title and interest in the
service or trade names or marks of Licensor or Howie Mandel and FRI will use its
best efforts to safeguard the same and will fully cooperate with Licensor in any
efforts by Licensor to enforce and protect the same and shall promptly provide
written notice to Licensor of all unauthorized uses of the same which come to
FRI's attention.
16. BANKRUPTCY:
Licensor shall have the right to terminate this Agreement if FRI shall have
a petition in bankruptcy filed on its behalf or against it, shall take advantage
of any insolvency law or generally fail to pay its debts as such debts become
due, or shall make an assignment for the benefit of creditors, or a receiver,
liquidator, or trustee shall be appointed for such party's property or affairs
effective upon written notice to the party so affected, unless or until this
agreement is assigned to FCN, in which case the foregoing termination rights
shall still remain
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with Licensor in the event FCN shall have a petition in bankruptcy filed on its
behalf or against it, shall take advantage of any insolvency law or generally
fail to pay its debts as such debts become due, or shall make an assignment for
the benefit of creditors, or a receiver, liquidator, or trustee shall be
appointed for such party's property or affairs effective upon written notice to
the party so affected. FCN will assume FRI's obligations hereunder in the event
FRI files a petition for bankruptcy prior to FRI's assigning this agreement to
FCN.
17. LICENSOR'S REMEDIES:
In the event of a failure or omission by FRI constituting a breach of FRI's
obligations hereunder, including but not limited to obligations with respect to
screen credit and/or paid advertising credit, Licensor's remedies hereunder
shall be limited to Licensor's remedies at law for damages, and, specifically,
Licensor shall have no right to injunctive relief or to rescind any rights of
FRI or any of its licensee's or assignees to produce, distribute and otherwise
exploit the programs and any rights therein as herein elsewhere provided.
18. ADDITIONAL DOCUMENTS: Licensor agrees to execute any and all additional
documents or instruments reasonably requested by FRI (or FCN after assignment of
this agreement to FCN) which are necessary to fulfill the intent of the terms
hereof.
19. MISCELLANEOUS:
This agreement also includes other terms not inconsistent with the terms
hereof which are common in the entertainment industry, including but not limited
to, force majeure, default, pay-or-play, insurance, termination, and other
provisions which may be more precisely determined in a more extensive agreement
between the parties.
Would you please have the appropriate individual(s) sign in the space
provided therefor below and return two (2) signed copies to us for our files.
Sincerely,
FILM ROMAN, INC.
By: /s/
--------------------------------
AGREED TO AND ACCEPTED:
ALEVY PRODUCTIONS
By: /s/
-----------------------
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I have read the foregoing Agreement and, as an inducement to you to enter
into the Agreement, I hereby represent, warrant and agree as follows:
I am familiar with all of the terms of the Agreement and I hereby consent
to the execution thereof. I shall perform and comply with all of the terms of
the Agreement as if I had executed it directly as an individual, even if the
employment agreement between me and Alevy Productions, Inc. ("Licensor") should
hereafter expire, terminate or be suspended. I, as an individual, hereby join
in and confirm all grants, representations, warranties and agreements made by
Lender under the Agreement.
Very truly yours,
/s/
---------------------------------
Howie Mandel
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EXHIBIT 10.15
SERIES PRODUCTION AGREEMENT
---------------------------
Agreement dated as of April 27, 1990 between Fox Children's Network ("FCN")
and Film Roman, Inc. ("Producer"), relating to a proposed television series
presently entitled "BOBBY'S WORLD" (the "Series").
R E C I T A L S
A. FCN controls the right to produce the Series; and
B. The parties desire to provide for Producer to perform production
services in connection with the production of certain Programs (as defined
below) of the Series.
WHEREFORE, it is agreed as follows:
A G R E E M E N T
1. PROGRAMS.
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"Program" means an episode of the Series, which in each case shall be a
wholly new and original half-hour program in color, which will be animated
except for live-action segments (contemplated to be opening and closing
"bookends") featuring Howie Mandel ("Mandel"). Without limiting the generality
of Paragraphs 8 and 9 below, each Program shall be produced in strict accordance
with models, scripts, storyboards, audio voice tracks and other major elements
pre-approved by FCN ("FCN-Approved Major Elements").
2. INITIAL PROGRAM ORDER.
---------------------
FCN hereby orders from Producer, and Producer hereby agrees to produce and
Deliver (as defined in Paragraph 6 below) to FCN for Exhibition by FCN
commencing in September 1990, 13 Programs (the "Initial Program Order").
3. PRODUCTION SERVICES.
-------------------
(a) Engagement. Subject to the terms and conditions hereof, Producer shall
provide all production services required in order to complete and Deliver (as
defined below) each of the Programs ordered by FCN hereunder. Producer shall
furnish (or, to the extent permitted hereunder, subcontract for the furnishing)
of all personnel, services, facilities, equipment and materials necessary for
the production of the Programs, including without limitation preparation of
story outlines, scripts, storyboards, voice tracks and animation for each
Program ordered
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by FCN hereunder, all subject to FCN's rights of approval, as described
hereinbelow.
(b) Work-Made-For-Hire. All results and proceeds of Producer's services
hereunder and any party Producer subcontracts with to render services on the
Series or any Program thereof (including without limitation, any and all
intellectual property or other matter subject to copyright protection, the
original negative of each Picture and all other physical materials built,
manufactured or created in connection with the performance of Producer's
services hereunder and any party Producer subcontracts with to render services
on the Series or any Program thereof, and all documents, papers, records and
files created in connection with the performance of Producer's services
hereunder and any party Producer subcontracts with to render services on the
Series or any Program thereof) are and will be deemed to have been specially
ordered or commissioned by FCN for use as part of a motion picture or other
audiovisual work. All such results and proceeds are and will be a "work-
made-for-hire" within the meaning of the United States Copyright Act. FCN
shall be deemed to be the absolute owner of all rights in and to all such
results and proceeds of Producer's services hereunder from the moment of
their creation, and of all monies and other proceeds derived therefrom.
Without limiting the generality of the foregoing, FCN shall be deemed to be
the sole author of all intellectual property (or other matter subject to
copyright protection) which results from Producer's services hereunder.
FCN shall at all times have the absolute right to make such changes in any or
all of the foregoing materials and such uses and disposition thereof, in whole
or in part, as FCN may from time to time determine as the sole author and
owner thereof and Producer expressly waives any so-called rights of droit
morale and moral rights of authors. Producer agrees to execute, and further
agrees to cause any party Producer subcontracts with to render services on
the Series or any Program thereof to execute, any and all Certificates of
Authorship and/or assignments to effectuate the foregoing; provided that if
Producer and/or any such party fails to execute any such document within ten
(10) days of Producer's, or any such party's, receipt of FCN's said request, FCN
is hereby irrevocably appointed (such appointment being coupled with an
interest) as Producer's and/or any such party's true and lawful agent to execute
the same in Producer's and/or any such party's name. Notwithstanding anything to
the contrary in this Paragraph 3(b), Producer and FCN acknowledge that this
Paragraph 3(b) shall (i) apply only to material furnished by Producer and any
party Producer subcontracts with to furnish materials in connection with the
Series or any Program thereof and not to material furnished in writing to
Producer by FCN and (ii) shall not be deemed to apply to the copyright ownership
or trademark rights to the "Bobby" character.
4. PAYMENT OF PRODUCTION COSTS.
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Except as otherwise provided in Paragraph 5(a)(iii) below, Producer shall
pay, and shall hold FCN harmless from, any and all costs and expenses incurred
in connection with the production of the Programs including, without limitation,
any and all payments required under the WGA or AFM Basic Agreements or any other
guild or union collectively bargaining agreement except as expressly provided to
the contrary in this Agreement with respect to SAG runs. Without limiting the
generality of the foregoing, Producer shall bear any and all amounts by which
the cost of production of any Program ordered by FCN hereunder exceeds the
budget for such Program approved by FCN and/or the reimbursement provided for in
Paragraph 5(a)(i) below. The costs and expenses paid by Producer shall include,
without limitation, all of the following: (a) all development costs;
(b) all pre-production costs; (c) all animation costs; (d) all post-production
costs; (e) payment for "voice" talent at no more than Screen Actors Guild
("SAG") minimum scale plus ten percent (10%); (f) payment for actors appearing
in live action segments at no more than SAG minimum scale, except for Mandel who
will receive a fee equal to 200% of applicable SAG minimum scale; (g) payment to
each SAG member of residuals for four (4) runs of each Program, in accordance
with the applicable minimum provisions of the SAG Agreement relating to voice
talent; (h) the applicable minimum SAG pension, health and welfare payments; and
(i) all amounts (including without limitation royalties for the acquisition of
rights in certain characters, fees for Mandel's consulting services and fees for
Mandel's acting services) to Alevy Productions, Inc. ("Alevy") pursuant to the
agreement dated as of March 28, 1990 between Producer and Alevy (the "FRI/Alevy
Agreement").
5. FINANCIAL TERMS.
(a) Series Production Fees -- Initial Program Order. For each Program from
the Initial Program Order produced and delivered by Producer, FCN shall pay to
Producer, in accordance with the payment schedule set forth in Paragraph 5(f)
below, and subject to all of the terms and conditions hereof, the following
amounts (collectively, the "Production Fee") in full consideration for all
production services rendered by Producer and all rights granted to FCN
hereunder:
(i) A production cost reimbursement in an amount equal to Producer's
actual, direct, auditable, out-of-pocket costs incurred in connection with the
production of the animated portions of the Program up to a maximum of $250,000
per Program inclusive of all costs incurred for all applicable items specified
in Paragraph 4 above except as provided in Paragraphs 5(a)(ii) and 5(a)(iii),
and except to the extent that Producer agrees to pay any "voice" talent an
amount in excess of SAG minimum scale plus ten percent (10%) unless pre-approved
in writing by FCN it being understood that Producer shall be solely
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responsible for the payment of any excess amounts and that FCN shall not be
obligated to reimburse Producer for the same.
(ii) Provided that live action segments are actually produced for such
Program, a production cost reimbursement in an amount equal to Producer's
actual, direct, auditable, out-of-pocket costs incurred in connection with the
production of the live-action portions of the Program (inclusive of all costs
incurred for all applicable items specified in Paragraph 4 above), up to a
maximum of $5,000 per Program; and
(iii) an additional production cost reimbursement ("Contingency Fund")
in an amount equal to Producer's actual, direct, auditable out-of-pocket costs
incurred in connection with the production of the Program, up to a maximum of
$7,500 per Program, payable only to the extent that the total of the maximum
amounts provided in Paragraphs 5(a)(i) and 5(a)(ii) (if applicable) above is
insufficient to reimburse Producer for all reimbursable costs incurred in
connection with the Program, irrespective of whether such costs are incurred for
the animated or live-action (if applicable) portions of the Program. Producer
may apply any amounts paid by FCN pursuant to Paragraphs 5(a)(i), 5(a)(ii) (if
applicable) or 5(a)(iii) against any reimbursable costs incurred in connection
with the Program. The total of the maximum reimbursements payable by FCN
pursuant to Paragraphs 5(a)(i), 5(a)(ii) (if applicable) and 5(a)(iii) hereof is
the "Reimbursement Cap".
(iv) In addition to the amounts provided for in Paragraphs 5(a)(i),
5(a)(ii) (if applicable) and 5(a)(iii) above, FCN shall pay to Producer the
following flat, nonauditable fees for each Program ordered by FCN and delivered
by Producer:
(A) The sum of $7,500 per Program for Producer's overhead; and
(B) The sum of $7,500 per episode for executive producing
services supplied by Producer.
(v) FCN shall, in addition, pay to Producer the sum of $15,000 per
Program which shall be utilized and allocable by Producer, in its discretion, to
pay directly to Alevy or Howie Mandel, the amount of $15,000 per Program for the
acquisition of rights in certain characters and all services of Mandel in
connection with each such Program of the Series; and, FCN agrees that such
$15,000 amount will be recognized as a legitimate per Program cost in connection
with any audit verification conducted by FCN under this agreement.
(b) Contingent Compensation. Provided that Producer performs all of its
material obligations hereunder, and subject to the provisions of the FRI/Alevy
Agreement, Producer shall be
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entitled to receive contingent compensation in an amount equal to 50% of 100% of
the Net Profits, if any, of the Programs of the Series Delivered by Producer to
FCN hereunder, out of which contingent compensation Producer shall pay directly
to Alevy contingent compensation in an amount as set forth in the FRI/Alevy
Agreement. The contingent compensation, if any, payable to Producer shall be
computed, determined and paid in accordance with FCN's standard definition of
Net Profits, subject to such changes therein as are agreed upon by FCN as a
result of good faith negotiation within FCN's customary parameters.
(c) Payment for Creative Changes Required by FCN. Notwithstanding any
provision to the contrary contained in Paragraphs 5(a)(i), (ii) or (iii) hereof,
if any Program is produced in strict accordance with all FCN-Approved Major
Elements, but FCN shall nevertheless require Producer in writing to make a
change in the Program (other than minor changes, e.g., inserts or film editorial
revisions mutually agreed upon) with respect to creative material therein, and
if it was readily apparent from a final reading or review of the FCN-Approved
Major Elements that such creative material would appear in the Program as it in
fact does appear before such change is made, then Producer shall make such
change and FCN shall reimburse Producer for its direct, pre-approved, actual,
auditable, unavoidable, out-of-pocket cost and expenses incurred in good faith
in making such change, but only to the extent that such out-of-pocket costs and
expenses are in excess of the amounts for which Producer is entitled to be
reimbursed under Paragraphs 5(a)(i), (ii) or (iii) of this agreement. FCN shall
negotiate in good faith with Producer regarding the pre-approval of such costs
and expenses.
(d) Conditions to Payment. Payment of all Production Fees pursuant to this
Paragraph 5 is subject to FCN's receipt of a properly executed copy of this
Agreement, a properly executed copy of the Indemnity Agreement of even date
herewith between FCN and Producer, the Certificate of Errors and Omissions
Insurance described in Paragraph 16 below and appropriate invoices from
Producer.
(e) Payment Schedule. Payment of each amount specified in Paragraph 5(a)
shall be due 10 days after Delivery of the applicable Program; provided that the
sum of $188,005 (the "Holdback Amount") shall be retained by FCN out of the
Production Fees payable in respect of the entire Initial Program Order pending
completion of FCN's Final Audit pursuant to Paragraph 5(g)(ii) below.
Notwithstanding the foregoing, subject to FCN's receipt of the executed copies,
Certificate, and invoices described in Paragraph 5(d) and satisfaction of all
other conditions set forth in Paragraph 5(d), FCN shall advance to Producer,
against amounts otherwise payable in accordance with the foregoing, the
following amounts:
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(i) A preproduction advance in respect of the entire Initial Program
Order in an amount equal to $350,000, receipt of which is hereby acknowledged by
Producer;
(ii) The sum of $95,000 per Program, payable upon FCN's approval of
the script and storyboard for such Program;
(iii) The sum of $47,500 per Program, payable upon shipment of
applicable materials by Producer to an animation studio approved by FCN;
(iv) The sum of $47,500 per Program, payable 10 days after delivery
of a rough cut of such Program to FCN; and
(v) The sum of $53,615 per Program, payable 10 days after completion
of the Delivery of the applicable Program to FCN.
FCN will consider in good faith any request by Producer for additional advances
against the balance of Production Fees which are being held pending audit and/or
against the Contingency Fund, subject to Producer's substantiation, to FCN's
reasonable satisfaction, of the need for such additional advances in order to
meet unavoidable, out-of-pocket Program production costs.
(f) Order Reduction/Cancellation. Without limiting any of FCN's other
rights under this Agreement, at law or in equity, FCN shall have the right, at
its election and at any time, to reduce or cancel the Initial Program Order or
any subsequent Program order. In the event of any such cancellation by FCN,
Producer shall immediately discontinue production and Delivery of further
Programs to FCN; and in the event of any such reduction by FCN, Producer shall
discontinue production and Delivery of any Programs in excess of the number of
Programs ordered by FCN after giving effect to such reduction. FCN shall
thereafter not be further obligated to Producer, for the payment of Production
Fees or otherwise, with respect to Programs not produced as a result of such
reduction or cancellation; and FCN shall not be obligated to Producer for the
payment of Production Fees or otherwise in respect of Programs produced in whole
or in part but not Delivered as a result of such reduction or cancellation,
except that FCN shall, subject to the provisions of Paragraph 5(i) below,
reimburse Producer for the actual, direct, auditable, unavoidable, out-of-pocket
costs, if any, reasonably incurred by Producer in good faith to satisfy the
Initial Program Order or any subsequent Program order including an amount equal
to Producer's actual, direct, auditable, unavoidable, out-of-pocket overhead
costs in connection with the same provided in no event shall such overhead costs
exceed $7,500 per Program.
(g) Audit.
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(i) All costs, if any, which are to be reimbursed by FCN may be
audited by FCN, at its election, either prior to or following such
reimbursement. Costs which are recovered by means of insurance coverage, legal
settlement or adjudication, refund or otherwise shall not be reimbursable by
FCN. Producer shall promptly notify FCN of any such recovery, and such recovery
shall be treated as an overpayment as provided for in Paragraph 5(i) below.
(ii) FCN agrees to perform its final audit with respect to the
Initial Program Order ("Final Audit"), within 30 days after FCN's receipt of
written notification from Producer that all customary and relevant
substantiation of payments and other documents which are customarily made
available for audits of this type, including, but not limited to, canceled
checks, check registers and third-party agreements with respect to the entire
Initial Program Order (collectively "Documentation") are available for FCN's
audit. If substantially all of the applicable and relevant Documentation is
actually available (after best efforts by Producer to secure all such
Documentation), and FCN fails to complete its Final Audit within 30 days
following FCN's receipt of Producer's written notification thereof, then FCN
shall promptly advance to Producer an amount equal to the lesser of (A) 50% of
the Holdback Amount plus 50% of the Contingency Fund, or (B) the total of all
production costs (including all overages specifically approved in writing by
FCN, provided such overages result in Producer incurring production costs in
excess of the Reimbursement Cap) presented by Producer for audit less the
aggregate of all amounts which FCN has theretofore advanced to (or for the
benefit of) Producer in respect of the Initial Program Order. If all of the
applicable and relevant Documentation is actually available and FCN fails to
complete its Final Audit within 60 days following FCN's receipt of Producer's
written notification thereof, then FCN will promptly advance to Producer the
lesser of (x) the remaining balance of the Holdback Amount plus the balance of
the Contingency Fund, or (y) the total of all production costs presented by
Producer for audit less the aggregate of all amounts theretofore advanced by FCN
to (or for the benefit of) Producer in respect of the Initial Program Order.
Producer agrees to use its best efforts to provide to FCN all Documentation
required by FCN for purposes of audit.
(iii) In addition to FCN's Final Audit, FCN shall, if requested by
Producer, perform periodic audits with respect to those production costs which
are auditable and have been expended during the course of production of any one
or more Programs, provided that Producer has notified FCN in writing that all
relevant Documentation is available for FCN's auditor and all such Documentation
is actually available.
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(iv) For all purposes hereunder no Documentation shall be deemed
"available" for audit by FCN unless and until such Documentation has been
assembled and organized by Producer in accordance with industry custom and
practice so that such Documentation is readily reviewable by FCN's auditors
without undue burden or inconvenience.
(h) Overpayment. If FCN determines from any audit that any Production Fee
or other amount which has been paid, reimbursed or advanced to Producer in
connection with the Series exceeds the actual amount due to Producer under this
Agreement, then FCN may recover such excess by any combination of the following:
(i) FCN may deduct an amount equal to such excess from any payments,
reimbursements or advances then or thereafter payable to Producer under this
Agreement or any other agreement between Producer and FCN relating to the Series
(including without limitation any and all advances or production fees payable in
respect of any Program(s)); and/or
(ii) FCN may deduct an amount equal to such excess from any sums
payable in respect of Producer's share of Net Profits under this Agreement or
any other agreement between FCN and Producer (whether or not related to the
Series); and/or
(iii) at FCN's election, Producer shall promptly repay such excess to
FCN on demand.
(i) Limitations on Reimbursement. Notwithstanding anything to the contrary
contained in this Agreement:
(i) Unless FCN specifically agrees otherwise in writing with Producer,
FCN shall not be obligated to reimburse Producer for costs relating to services,
facilities, equipment or other items utilized in connection with the production
of any Program(s) to the extent that such items are retained by Producer or
utilized by Producer on any other production or otherwise; provided, however,
that FCN will recognize the fair market value (inclusive of any savings realized
by Producer) for purposes of any audit verification conducted by FCN under the
terms of this agreement;
(ii) such costs shall not in any event be reimbursed to the extent
otherwise reimbursed under this Agreement or any other written agreement between
the parties:
(iii) in no event shall the aggregate of all amounts reimbursed to
Producer in connection with any Program(s) exceed the applicable Reimbursement
Cap for such Program(s) except to the extent that the provisions of Paragraph
5(c) apply;
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(iv) Producer shall be responsible for all cost overages whether or
not such amounts fall within the Reimbursement Cap except to the extent that the
provisions of Paragraph 5(c) apply;
(v) Producer shall be solely responsible for the payment of any and
all amounts due Alevy Productions pursuant to any agreements between Producer
and Alevy Productions with respect to the Series and agrees to indemnify FCN in
connection with the same; and,
(vi) Producer shall, when appropriate, use its best efforts to
minimize the amounts FCN is required to reimburse by entering into settlement
agreements, by taking advantage of an employer's rights regarding mitigation of
damages by an employee or by other appropriate methods.
6. DELIVERY.
(a) Definition of "Delivery". As used in this Agreement, the term
"Delivery" (and variations thereof) shall mean delivery by Producer to FCN of
all the elements of each Program, in full accordance with this Agreement and
with FCN's delivery requirements set forth in Exhibit A attached hereto and
incorporated herein by this reference (as such delivery requirements may be
amended, modified and/or supplemented by FCN from time to time by notice to
Producer) at such place(s) as FCN shall designate and at the sole cost of
Producer. Delivery in accordance with this Paragraph 6 shall be of the essence
of this Agreement.
(b) Delivery Schedule. The Programs for the Initial Program Order shall be
Delivered in accordance with the following schedule: one Program per week
commencing no later than September 5, 1990.
(c) Advertising Materials. Producer shall deliver to FCN as soon as
available (i.e. prior to August 15, 1990 or sooner, if possible) all customary
film elements, stills, soundtracks and other physical materials reasonably
requested by FCN for the creation of advertising and promotional materials
relating to the Series.
(d) Late Delivery. Without limiting any other rights or remedies available
to FCN, if Producer Delivers any Program late, Producer shall reimburse FCN for
any and all resultant costs incurred to facilitate the Exhibition of such
Program as initially scheduled by FCN.
7. NEGOTIATION AND LAST REFUSAL REGARDING PRODUCTION OF ADDITIONAL PROGRAMS.
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(a) Provided that Producer performs all of its material obligations
hereunder, in the event that FCN elects, in its sole discretion, at any time
during the "Term" of the FRI/Alevy Agreement to order the production of
additional Programs (subsequent to the Initial Program Order), Producer and FCN
shall negotiate in good faith with respect to Producer performing production
services in connection with such additional Programs. In negotiating regarding
the maximum production cost reimbursement to be payable to Producer in
connection with such production services the parties shall take into
consideration, inter alia, the following: the "normal" start-up costs inherent
in the development and production of the initial 13-episode order of any
animated series; the actual, direct, out-of-pocket costs of producing the
Initial Program Order as verified and approved by FCN's final audit (provided
that such costs were incurred as a result of "normal production circumstances"
but excluding from such audit Producer's $7,500 overhead and producing fees);
the anticipated increases and/or decreases, if any, in the cost of production of
the Programs to be covered by such additional order; union increases and/or
decreases, if any; and the "network practice" of increasing license fees by 5%
for each subsequent production season. If, following a reasonable, good faith
negotiation in accordance with this Paragraph 7(a), FCN and Producer are unable
to agree upon a maximum production fee (a "Maximum Production Fee") for the
services to be performed by Producer in connection with the production of such
additional Programs (inclusive of a production fee reimbursement, subject to
audit, up to a specified maximum amount, a minimum of $7,500 per-Program
executive producing fee and a $7,500 per-Program overhead allocation to
Producer) within a reasonable period for such negotiation, then FCN shall the
right to enter into an agreement with a third party to produce such additional
Programs with the same or comparable quality, during the same or comparable time
frame, with the same or comparable personnel and with the same or comparable
animation studio as contemplated by FCN during its negotiations with Producer
pursuant to this Paragraph (collectively "Comparable Terms"), subject to
Producer's last refusal rights pursuant to Paragraph 7(b) below.
(b) If FCN receives from any third party an offer regarding the production
of additional Programs which FCN wishes to accept (a "Third Party Offer"), FCN
shall give written notice thereof to Producer, and Producer shall have the
right, exercisable by written notice to FCN within ten business days after the
giving of such notice, to enter into an agreement with FCN to produce such
additional Programs upon the Comparable Terms for a production fee in the amount
of the Maximum Production Fee contained in the Third Party Offer. If Producer
does not exercise its right of last refusal in accordance with this Paragraph
7(b),c FCN shall be free to finalize an agreement with the third party regarding
the production of the additional Programs ordered by FCN on the terms set forth
in this Third
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Party Offer and Producer's negotiation and last refusal rights with respect to
the Series shall terminate.
(c) Provided that Producer performs its material obligations under this
Agreement with respect to the Initial Program Order, if FCN produces additional
Programs utilizing the production services of any third party production entity,
Producer shall receive, as a passive royalty, with respect to each such Program
produced by such other production entity, a participation in the Net Profits of
such additional Program(s) equal to 16-1/4% of 100% of the Net Profits of such
additional Program(s). Nothing contained in this Paragraph 7(c) shall affect
the vesting of Producer's contingent compensation with respect to the Initial
Program Order.
8. BUSINESS AND CREATIVE APPROVALS.
All of Producer's activities pursuant to this Agreement or otherwise in
connection with the Series or any Program shall be subject to the supervision
and control of FCN, and FCN shall at all times have all final business and
creative controls and approvals with respect to all Programs produced by
Producer hereunder, which such controls and approvals, subject to the exigencies
of production, shall be exercised by FCN in a timely, good faith and reasonable
manner. Producer shall keep FCN informed of the status of each Program's
development and production and shall provide, upon request, such additional
information as FCN may require. If Producer and FCN are unable to reach
agreement, within such period as FCN may require, concerning any matter with
respect to which FCN is vested with a right of control or approval hereunder,
FCN shall have the right, in its sole discretion, to designate such matter or
element. Such designation by FCN shall be final and binding for all purposes,
and Producer shall follow all of FCN's instructions regarding same.
9. PRODUCTION SPECIFICATIONS; APPROVALS and DESIGNATIONS.
(a) Specifications and Approval Rights. Without limiting the generality of
Section 8 hereof, Producer shall cause each Program to contain the following
elements as designated or approved by FCN and to be produced in accordance with
the following specifications and rights of approval:
(i) FCN shall have full prior approval rights over all creative
elements in the Series and each Program, including, but not limited to,
executive and line producers, director(s), writer(s), story editor(s), concept,
format, actors, voices, animation studio, stories and story lines, story
outlines, teleplays, program titles, opening and closing titles and bookends,
live action segments, detailed script outlines, scripts, models and music. In
addition, FCN subject to the terms
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of any agreement(s) pre-approved in writing by FCN, shall have the right to
require Producer to dismiss or replace any key creative element, and subject to
FCN's dismissal and replacement rights, any key creative element approved by FCN
including, without limitation, Phil Roman, shall be of the essence of this
Agreement.
(ii) Each Program shall be produced in accordance with a final budget
and production schedule approved by FCN.
(iii) Each Program shall be produced with first class "network quality"
animation (comparable in quality to "SMURFS" or other network programs with
similar production costs and technical qualities) and shall conform in all
technical respects, including technical quality, with the standards generally
required by FCN for animated television programs. The average cell count of the
Programs shall be no less than 16,000 per Program. Timing and commercial format
shall be in accordance with FCN's then-current standards (or as designated by
FCN).
(iv) Pre-production and post-production of each Program shall be at a
first class production facility in the Los Angeles area or such other area, if
any, as may be mutually agreed upon by FCN and Producer; in this regard, Film
Roman's studio is deemed an acceptable facility for the Initial Program Order.
All animation of each Program shall be carried out at Cuckoo's Nest Studio in
Taiwan or another animation facility approved by FCN. The Production Fees
provided in Paragraph 5 are predicated on the foregoing.
(b) Changes in FCN-Approved Elements. No approvals hereunder shall be
binding upon FCN unless given in writing signed by an authorized officer of FCN.
There shall be no change of or deviation from any elements of any Program which
are subject to FCN's approval, once such element has been approved by FCN,
without FCN's prior written consent. Subject to Paragraph 5(c), FCN shall have
the unrestricted right at any time (provided FCN shall first consult Producer
unless the exigencies of production make it impossible to do so) to require the
scripts, storyboards, music and/or any person, facility, element or material
approved or designated by FCN in connection with any Program to be replaced and
to approve or designate such replacement, and Producer shall comply with FCN's
instructions relating thereto.
10. REPORTS AND RECORDS; OTHER PRODUCTION MATTERS.
(a) Records and Reports. Producer shall prepare and deliver to FCN
detailed production reports in a form approved by FCN which shall reflect the
progress of the production of each Program. Producer shall promptly notify FCN
of any occurrence which delays or interferes with, or might delay or interfere
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with, the production of any Program. FCN shall have the right to have its
representatives and personnel, present through all stages of development,
production and Delivery of each Program, and Producer shall fully cooperate with
such persons. Producer will keep FCN's production representatives advised as to
all phases of the production of each Program and shall make available to FCN's
representatives all books, records and other information and data relating to
the Program and the production thereof.
(b) Broadcast Standards. Producer represents, warrants and agrees that
each Program shall be subject to, and shall conform to, the then-current
broadcast standards and other program and operating practices and policies
established or determined by FCN of which Producer has reasonable prior notice.
Producer expressly acknowledges that FCN has the right to direct Producer to
make such changes in any script for any Program(s) (collectively the "Material")
as FCN deems necessary for the Material to so conform. Producer shall pay all
costs and expenses incurred in connection with any such changes in the Material
and FCN shall not be obligated to reimburse Producer therefor, except to the
extent required by Paragraph 5(c) above. If subsequent to FCN's approval of the
Material, FCN is apprised of any claim, or of any new facts which might give
rise to a claim, which FCN determines to necessitate revisions in the Material,
FCN has the right to require Producer to make such additional changes at
Producer's sole cost and expense except to the extent such changes are for
creative reasons in which case the provisions of Paragraphs 5(c) or 9(b) as
appropriate, shall apply. The rights set forth in this Paragraph 10(b) are
cumulative of any other rights of FCN, including, without limitation, FCN's
rights under Paragraphs 8 and 9 above.
11. AGREEMENTS WITH TALENT. All above-the-line talent (including voice talent)
performing services in connection with any Program shall be engaged by Producer
pursuant to an agreement in writing the form of which shall have been pre-
approved by FCN it being acknowledged and agreed that the agreements for voice
talent in connection with the initial Program Order have been approved by FCN.
Producer shall promptly supply FCN with a fully-executed copy of each such
agreement, together with an accurate contract summary thereof.
12. OWNERSHIP OF PROGRAMS; INCIDENTAL RIGHTS.
-----------------------------------------
(a) FCN'S Ownership of Programs. FCN owns, and shall at all times own,
solely and exclusively, throughout the universe, in perpetuity, free of any
liens, claims, encumbrances, limitations or restrictions, and Producer hereby
irrevocably assigns and transfers to FCN any and all right, title and interest
(if any) of Producer in and to, all of the following: (i) all right, title and
interest (including without limitation the worldwide copyrights and all
extensions and renewals thereof)
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in and to each Program, all elements thereof, and all literary, dramatic,
musical and other materials upon which each Program is (or is to be) based, all
merchandising and music rights (including, without limitation, all soundtrack
and publishing rights), all rights with respect to live action and animated
motion picture and television remakes, sequels, television spin-offs and other
derivative works of any kind and in any medium, and all other allied, subsidiary
and ancillary rights in and to each Program; (ii) the original negative and
sound elements in which each Program is now or hereafter embodied: and (iii) the
exclusive right, under copyright and otherwise, in perpetuity and throughout the
universe, to exhibit, distribute, market, publicize and otherwise exploit each
Program and all elements thereof or excerpts therefrom in any and all media, by
any and every means, method, process or device, now known or hereafter devised.
Producer further assigns to FCN all of Producer's right, title and interest in
and to all agreements and other documents, if any, pursuant to which Producer
may have acquired any right, title or interest in and to any Program or in and
to any of the literary, dramatic, musical or other materials upon which any
Program is (or is to be) based. Notwithstanding the foregoing, FCN and Producer
acknowledge that the copyright and trademarks to the "Bobby" character are
subject to the terms of the FRI/Alevy Agreement. Producer agrees to execute
such additional documents including, without limitation, assignments of
copyright, as shall be necessary to effectuate the foregoing; provided that if
Producer fails to execute any such document within ten (10) days of Producer's
receipt of FCN's said request, FCN is hereby irrevocably appointed (such
appointment being coupled with an interest) as Producer's true and lawful agent
to execute the same in Producer's name.
(b) Ownership of Physical Materials. All physical equipment and material
created or purchased for the production of each Program (including without
limitation all drawings, storyboards, models and cels) shall from the moment of
such creation or purchase be the sole and exclusive property of FCN, except for
items for which FCN does not reimburse Producer by reason of Paragraph 5(i).
(c) Advertising and Publicity.
(i) FCN shall at all times from and after the date hereof have the
sole right to advertise and publicize the Series, its production, and all
elements of the Series. Neither Producer nor any of its personnel or
affiliates, nor any production personnel, shall, except with FCN's prior written
approval, issue, authorize, or participate in any statements, interviews, press
releases, advertisements, or publicity or promotion activities relating to any
Program other than incidental, non-derogatory, factually accurate, informational
press releases.
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(ii) FCN and each of its licensees and assigns and each sponsor of the
Series (and its advertising agency) may use (and may grant to others the right
to use) in any form and in any media, without the payment of additional
compensation, Producer's name, the title of the Series and each Program, any
other portion or element of the Series and the name, photograph and other
likeness, voice and biography of each and all of the executive producers of the
Series and any and all employees of Producer rendering services in connection
with the Series, for advertising, publicity, promotion and informational
purposes in connection with the Series and the exploitation thereof and, also,
in connection with the "institutional advertising" (i.e., advertising designed
to create good will and prestige) of FCN and/or its licensees and assigns and in
connection with the advertising of the products or services of any sponsor of
any Program(s) and/or of the Series, provided that such advertising occurs in
conjunction with the promotion or publicizing of the Series, and provided
further that no such use shall constitute a direct endorsement of any product or
service.
13. RELATIONSHIP, REMEDIES AND "PAY OR PLAY".
(a) Producer is an independent contractor, and nothing contained in this
Agreement shall create any partnership, association, joint venture, fiduciary or
agency relationship between FCN and Producer. All persons employed in connection
with Producer's performance hereunder shall be, as between FCN and Producer,
Producer's employees. In connection therewith, Producer shall have all
responsibilities of any employer, including those arising under any applicable
law or collective bargaining agreement. As between FCN and Producer, Producer
shall pay all amounts due for services or materials in connection with
Producer's performance hereunder. All amounts payable to Producer hereunder
shall be subject to all laws and regulations now or hereafter in existence
requiring the deduction or withholding by FCN of payments for income or other
taxes payable by or assessable against Producer. FCN shall have the right to
make such deductions and withholdings, and the payment of any amounts so
withheld or deducted to the governmental agency concerned in accordance with
FCN's good faith interpretation of such laws and regulations shall constitute
payment hereunder to Producer (and shall discharge FCN's payment obligations to
Producer with respect to such amounts). Producer warrants that at all times that
compensation payable by Producer in connection with any Program is subject to
the withholding of any California tax, Producer will comply with the applicable
California law, and will be fully qualified to do business in the State of
California. Except as otherwise expressly provided herein, FCN shall not share
in Producer's Program profits nor bear any production risks or losses.
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(b) Failure by Producer to perform hereunder will cause FCN irreparable
loss of a unique, intellectual property warranting injunctive or other equitable
relief to prevent such loss. In the event FCN breaches or otherwise fails to
perform any of the provisions of this Agreement, the damage (if any) caused
Producer thereby shall not be deemed irreparable or otherwise sufficient to
entitle Producer to rescission or to injunctive or other equitable relief, and
Producer's sole remedy shall be the right to seek damages in an action at law.
Producer shall not be entitled, in any event, to restrain or enjoin FCN's
exercise of any of the rights granted to FCN hereunder or FCN's exhibition of
any Program or of any advertising, promotion or publicity in connection
therewith.
(c) FCN shall have no obligation to exhibit any Program or Programs or any
other element or portion of the Series. FCN's only obligation shall be payment
to Producer (for each Program Delivered hereunder) of the applicable amounts
provided in Paragraph 5 above, subject to all of FCN's rights hereunder, at law
or in equity.
14. COMPLIANCE.
Producer recognizes FCN's policy of equal employment opportunity and that
FCN applies such policy to all aspects of its operations; and Producer agrees
that in all aspects of its production activity there will likewise be no
discrimination because of race, creed, religion, sex or national origin.
15. REPRESENTATIONS AND WARRANTIES.
(a) Producer represents and warrants that: (i) Producer has the right to
enter into and fully perform this Agreement and to grant all rights granted by
Producer under this Agreement; (ii) Producer has not done, and shall not do, any
act or enter into any agreement which would violate any of the rights granted to
FCN or interfere with the performance of Producer's obligations under this
Agreement or FCN's ownership of the Programs free and clear of any encumbrance,
including any lien or tax; (iii) the exercise by FCN in accordance with the
terms of this Agreement of the rights granted to it will not violate, infringe
any personal or property rights of, or defame, any person, firm, corporation or
other entity; (v) Producer has or shall secure prior to production and Delivery
of each Program all rights, interests, licenses and clearances necessary for
Producer's production and Delivery of such Program and for the unrestricted use
and exploitation in any and all media now known or hereafter devised, throughout
the universe in perpetuity, of the Series, each Program and any script or other
literary property or other property relating to the Series or any Program, or of
any element of any of the foregoing; (vi) Producer has not and shall not take or
cooperate in any action that would or might
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subject FCN to the jurisdiction or payment obligations of any guild or
collective bargaining agreement including, without limitation, the WGA and AFM
Basic Agreements except as expressly provided to the contrary in this Agreement
with respect to SAG reruns; (vii) all services performed by any person or entity
in connection with production of each Program shall be pursuant to a written
agreement providing, inter alia, that all results and proceeds of such services
are a "work-made-for-hire" for FCN, specially ordered or commissioned for use as
part of a motion picture or other audiovisual work of which FCN is sole owner
and author; and (vii) all music synchronized with any Program shall be (A)
specifically created for such Program as work-made-for-hire for FCN, (B) in the
public domain, or (C) synchronized pursuant to a license providing for FCN to
utilize such music in synchronization with the Program in any and all media
throughout the world in perpetuity, without the payment of any additional fees
or royalties, except for the payment for non-dramatic performing rights,
provided that such non-dramatic performing rights are controlled by ASCAP, BMI,
SESAC or their affiliates; and (viii) Producer shall pay all amounts due any
party with whom Producer contracts for services and/or materials in connection
with the development and/or production of Series and/or any Program.
(b) (i) Without limiting the generality of the warranties and
representations made in Paragraph 15(a), Producer warrants and represents that
Producer shall, for the benefit of FCN, obtain from any applicable third party
publisher(s) as part of any synchronization license(s) the non-dramatic
performing rights in each musical composition in the Programs not owned or
controlled by Producer (the "Direct License") so that FCN may at any time at its
sole option broadcast the Programs under such Direct License (rather than under
any blanket license from ASCAP or BMI to FCN). Producer agrees that Producer's
agreement(s) with any composer(s) will provide for the right to license directly
as described in this Agreement subject only to the payment of the writers share
of any fee paid by the broadcaster of the Programs to Producer. The license
fee(s) for such Direct License shall be determined in accordance with the
procedures set forth in Paragraph 15(b)(ii) below. (As used herein, the word
"publisher(s)" shall mean any person(s) or entity(s) other than Producer which
hold or control the applicable non-dramatic performing rights). Each Direct
License shall be assigned by Producer to FCN if and when FCN shall so request.
(ii) Each Direct License shall provide for the following procedures
for determination of the applicable license fee: FCN or its designee or an
applicable broadcaster shall negotiate in good faith with the publisher(s) for a
"Negotiating Period" of 60 days to arrive at a fee under the Direct License for
each exhibition of a Program (the "Direct License Fee"). Failing agreement on a
fee acceptable to FCN within the
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Negotiating Period, the determination of the Direct License Fee shall be
submitted to an expedited arbitration proceeding, at FCN's sole expense, which
shall be conducted in Los Angeles in accordance with the then-current rules of
the American Arbitration Association. The criterion to be used by the
arbitrator in determining the Direct License Fee shall be the competitive market
value of the non-dramatic performing rights in the music. FCN and any
applicable publisher(s) shall all be parties to the arbitration and shall be
bound by the decision of the arbitrator as to the amount of such fee. FCN shall
pay the Direct License Fee directly to the applicable publisher.
Notwithstanding the foregoing, FCN shall: (i) continue to have the right to
exhibit the Programs pending a final arbitration as described above, if
applicable; and (ii) assume Producer's liability, if any, for royalties to
composers in connection with any Direct License.
(c) Producer's representations and warranties hereunder and under the
related Indemnity Agreement between FCN and Producer, as well as Producer's and
FCN's obligations under such Indemnity Agreement, shall survive the termination
of this Agreement; and neither the existence nor the exercise of any right of
FCN specified in this Agreement, including, without limitation, approval rights,
shall affect any of Producer's warranties or representations.
(d) To the extent FCN so requests at any time and from time to time,
Producer shall promptly Deliver to FCN evidence satisfactory to FCN that
Producer has obtained all rights, interests, licenses and clearances necessary
to produce each Program in accordance with all the terms of this Agreement.
16. INDEMNITIES.
(a) Producer shall indemnify and hold harmless FCN, its parents,
affiliates, subsidiaries, licensees, successors and assigns, the stations
broadcasting the Programs, each Program sponsor and its advertising agency, and
the respective owners, officers, directors, agents and employees of each from
and against all liability, actions, claims, demands, losses or damages,
(including reasonable attorney's fees) caused by or arising out of the broadcast
or other use hereunder of the Programs or the elements, material or performances
contained therein (excluding any claim to the extent FCN is obligated to
indemnify Producer with respect thereto under subparagraph 16(b) immediately
below), or caused by or arising out of any breach of any of its representations,
warranties or agreements hereunder.
(b) FCN shall indemnify and hold harmless Producer, its employees,
directors, licensees and assigns, from and against any and all claims, damages,
liabilities, costs and expenses, including reasonable counsel fees arising out
of any use of any
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material furnished by FCN in writing for the Programs or inserted by FCN without
Producer's approval into any Program(s), or any advertising therefor, or any
breach by FCN of any of its representations, warranties or agreements hereunder.
(c) Notwithstanding anything to the contrary in subparagraphs 16(a) or
16(b) above, the indemnitor may assume, and if the indemnitee requests in
writing shall assume, the defense of any claim, demand or action, and upon
request by the indemnitee, shall allow the indemnitee to cooperate in the
defense at indemnitee's expense to the extent the cost of indemnitee's
involvement in such defense is not covered under the terms of any applicable
insurance policy that indemnitor may have for its own benefit with respect to
the defense of any such claim, demand or action. The indemnitee shall give the
indemnitor prompt notice of any claim, demand or action covered by this
indemnity. If the indemnitee settles any such claim, demand or action without
the prior written consent of the indemnitor, the indemnitor shall be released
from the indemnity in that instance; provided, however, that the foregoing
provisions of this sentence shall not apply in any instance where the indemnitor
has refused or failed to assume, after the indemnitee's written request
therefor, the defense of any such claim, demand or action. Notwithstanding
anything to the contrary in this Paragraph 16(c), Producer and FCN acknowledge
and agree that they each shall be relieved of their respective indemnification
obligations to each other under this Agreement to the extent that any such
obligations are covered by any applicable insurance policy, but this shall not
be deemed to relieve either Producer or FCN or their respective indemnification
obligations to each other under this Agreement for any costs, damages,
liabilities, losses and expenses (including reasonable attorney's fees) not
covered by or in excess of any amounts covered by any applicable insurance
policy.
(d) Producer's representations, warranties, and agreements hereunder and
under the related Indemnity Agreement between FCN and Producer, as well as
Producer's and FCN's indemnification obligations hereunder and under such
Indemnity Agreement, shall survive the termination of this Agreement; and
neither the existence nor the exercise of an FCN right specified in this
Agreement, including, without limitation, approval of right, shall affect any of
Producer's warranties, representations or agreements.
(e) To the extent FCN so requests at any time and from time to time,
Producer shall promptly deliver to FCN all evidence satisfactory to FCN that
Producer has obtained all rights, interest, licensees and clearances necessary
to producer the Programs and grant the right granted to FCN hereunder in
accordance with the terms of this Agreement.
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17. INSURANCE.
(a) Producer shall, at its own expense, obtain and maintain in effect the
following insurance policies for such time as is necessary to cover any and all
claims arising in connection with the production or exhibition of the Series,
which insurance shall be issued by a carrier or carriers approved by FCN:
(i) Producer's Errors and Omissions insurance (E&O Insurance) to
cover such production and all exhibitions of the Series and all Programs, having
standard coverage acceptable to FCN and liability limits of not less than
$1,000,000 per occurrence/$3,000,000 annual aggregate and a deductible of not
greater than $10,000. Such E&O Insurance shall provide coverage with respect to
any and all claims which are asserted during a period of not less than three (3)
years following the first Exhibition by FCN of each Program, to be extended for
additional annual periods thereafter as required by FCN.
(ii) Such other insurance as is customarily required of and/or
carried by production companies producing and Delivering television series under
agreements of this type.
(b) FCN shall be included as an additional insured in each of the
insurance policies (excluding workers' compensation) obtained by Producer in
compliance with subparagraph (a) above, and Producer shall furnish FCN a
certificate of such insurance prior to commencement of production of the first
Program hereunder. A certificate of blanket insurance, covering all productions
of Producer and satisfying the coverage, liability limit and term requirements
specified hereinabove, shall be acceptable to FCN. Each of the foregoing
policies shall be primary, and not excess of or contributory to any other
insurance provided by or for the benefit of FCN, and shall provide that at least
thirty (30) days' advance written notice of any cancellation, non-renewal or
other material change in the policy shall be accorded FCN. Producer shall not
make any revision, modification or cancellation of any such policy, which may
affect FCN's rights, without FCN's prior written consent.
(c) Notwithstanding anything to the contrary in subparagraph 17(a) above,
Producer shall be responsible for only the cost of the first year of the E&O
insurance policy specified therein
18. DEFAULT.
In the event that Producer at any time breaches any provision of this
Agreement, or at any time refuses or neglects or causes FCN to be notified that
Producer intends to fail, refuse or neglect to perform fully any one or more of
Producer's obligations hereunder, as required by FCN or at any time fails to
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confirm by written notice within two (2) business days after Producer's receipt
of FCN's written or telefaxed notice of request that Producer give such
confirmation that Producer will fully perform Producer's obligations hereunder
(hereinafter referred to as "Default"), FCN may at any time suspend Producer's
services and all of FCN's obligations hereunder during the period of such
Default and/or may, at FCN's option, terminate this Agreement immediately upon
the occurrence of an event of Default hereunder.
19. FORCE MAJEURE.
In the event that Producer is prevented from timely delivering, or FCN is
prevented from timely exhibiting, any Program ordered hereunder by reason of any
event beyond, respectively, Producer's or FCN's control, including but not
limited to war (declared or undeclared), black out, air raid, act of public
enemy, riot, epidemic, fire, casualty, accident, labor controversy (including
but not limited lockout and/or strike or threat of either), governmental order
or regulation, judicial order or decree (including without limitation any grant
of injunctive relief, whether imposed on any industry wide basis or affecting
only the Series), act of God, death, illness, incapacity, disfigurement, failure
or refusal or neglect to perform for any reason of the producer, director, other
production personnel or any member of the cast, failure of technical facilities,
materials and/or personnel which make production in accordance with customary or
established schedules and practices impracticable, or any other similar or
dissimilar contingency beyond Producer's or FCN's control, FCN shall have the
following rights:
(a) The rights to: (i) reduce accordingly its order of Programs, in which
event no amount shall be payable to Producer for the Program(s) not Delivered as
the result of such reduction or cancellation (except that if the Force Majeure
occurrence relates to FCN's inability to exhibit rather than to Producer's
inability to make timely Delivery, FCN shall, subject to the provisions of
Paragraph 5(i) above, reimburse Producer for the actual, direct, auditable,
unavoidable, out-of-pocket costs, if any, incurred by Producer in connection
with each such Program not Delivered as the result of such reduction or
cancellation including an amount equal to Producer's actual, direct, auditable,
unavoidable, out-of-pocket overhead costs in connection with each such Program
provided in no event shall such overhead costs exceed $7,500 per Program;
provided, further that in no event shall such reimbursement exceed the
applicable Reimbursement Cap any for such Program; and/or (ii) credit any
Programs not timely Delivered or exhibited against the number of Programs to be
included in any subsequent order of Programs from Producer; and
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(b) If, with respect to the Initial Program Order or any subsequent
Program order, Delivery or exhibition of the first or second Program, any two
(2) consecutive Programs or any four (4) Programs in the aggregate in that order
is so prevented or delayed, the right to cancel FCN's order of any or all
Programs which have not yet been, respectively, Delivered or exhibited;
provided, however, that with respect to Programs not Delivered as the result of
a Force Majeure occurrence relating to FCN's inability to exhibit, FCN shall
reimburse Producer for costs as set forth in the applicable provisions of
Paragraph 5(i) hereof. FCN acknowledges that with respect to the Initial Program
Order, only, Producer timely delivered the first and second Program of such
order.
If Producer fails, or will fail, to make timely Delivery of any Program(s) due
to any Force Majeure occurrence, Producer shall notify FCN, promptly following
said occurrence, whether Producer will be able to Deliver said Program(s) and,
if so, when. Notwithstanding anything to the contrary in this Paragraph 19, if
this Agreement is terminated by FCN based on a Force Majeure occurrence and
thereafter FCN elects to recommence production of the Series, then provided
Producer was not otherwise in breach of the Agreement at the time FCN elected to
terminate and is active as a producer of animated network television programs,
FCN will accord Producer the first opportunity to render producer services on
the recommenced Series on terms to be negotiated within FCN's customary
parameters.
20. ASSIGNMENT.
(a) FCN shall have the right to assign or otherwise transfer this
Agreement in whole or in part, or any or all of its rights or privileges
hereunder, and/or to delegate any or all of its obligations hereunder, to any
person or other entity provided FCN shall first consult with Producer unless a
written confidentiality clause or law prohibits FCN from doing so and provided,
further, that any such assignment, transfer or delegation shall not relieve FCN
of its liability hereunder.
(b) Producer shall not assign this Agreement or any of its rights
hereunder without FCN's prior written consent, prior to Producer's full
performance, nor shall Producer delegate to another the performance of any of
its obligations. Notwithstanding the foregoing, Producer shall not require FCN's
consent to assign the proceeds which may become payable under this Agreement as
security for monies advanced to finance production, of any Program; but
provided, further, that in no event shall Producer assign, pledge, mortgage,
hypothecate or otherwise encumber in any manner any Program or any rights
therein.
21. COMMUNICATIONS ACT SECTION 507.
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Producer shall comply with Section 507 of the Federal Communications Act
concerning broadcast matter and disclosures required thereunder, insofar as that
Section applies to persons furnishing program material for television
broadcasting. Without limiting the foregoing, Producer hereby certifies and
agrees that Producer has no knowledge of any information relating to any Program
that is required to be disclosed by Producer under Section 507, that Producer
will promptly disclose to FCN any such information of which Producer hereafter
acquires knowledge and that Producer shall not, without FCN's prior approval,
include in any Program hereunder any matter for which any money, service or
other valuable consideration (as such terms are used in Section 507) is directly
or indirectly paid or promised to Producer by a third party, or accepted from or
charged to a third party by Producer. Producer shall exercise reasonable
diligence to inform its employees and all other persons with whom it deals
directly in connection with any Program, of the requirements of Section 507.
Notwithstanding anything to the contrary contained in this Agreement, Producer's
proper completion, execution and Delivery to FCN of a Producer's Affidavit of
Disclosure pursuant to the Federal Communications Act, in the form attached
hereto as Exhibit B and incorporated herein by this reference, when requested to
do so by FCN, shall be a condition precedent to reimbursement, payment and
advancement of License Fees or other amounts hereunder.
22. Notices.
(a) All notices or communications to each party hereunder shall be in
writing and shall be deemed given when personally delivered (including, without
limitation, upon delivery by overnight courier or other messenger or upon
receipt of facsimile copy), upon the date of mailing by certified or registered
mail postage prepaid, or when delivered to the telegraph office for
transmission, charges prepaid, addressed as follows, or to such other address as
such party may hereafter specify in a notice sent as provided herein:
If to Producer:
Film Roman, Inc.
10635 Riverside Drive
Toluca Lake, CA 91602
Attention: Phil Roman, Chairman
With a courtesy copy to:
Dixon Q. Dern, Esq.
1901 Avenue of the Stars
Suite 400
Los Angeles, CA 90067
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If to FCN:
Fox Children's Network
10201 West Pico Boulevard
Los Angeles, CA 90035
Attn: Business Affairs
and:
Fox Children's Network
10201 West Pico Boulevard
Los Angeles, CA 90035
Attn: Legal Affairs
(b) If the last day on which notice may be given falls on a Saturday,
Sunday or other day on which the department of the sending party that is
responsible for sending such notice is not open for business, then
notwithstanding any other provision hereof, such last day shall be deemed
postponed until the next day on which such department is open for business, but
such postponement shall in no event be more than 3 business days.
23. CONFIDENTIALITY.
Neither Producer nor FCN shall disclose to any third party (other than its
respective employees, in their capacity as such) any information with respect to
the financial terms and provisions of this Agreement, except: (a) to the extent
necessary to comply with any law or the valid order of a court of competent
jurisdiction or a union requirement for payment of residuals, and in any such
event the party making such disclosure shall seek confidential treatment of such
information; (b) to its parent company, its auditors and its attorneys as part
of its normal reporting or review procedure, and, in any such event, such parent
company, auditors and attorneys agree to be bound by the provisions of this
Paragraph 22; or (c) in order to enforce its rights pursuant to this Agreement.
24. CLAIMS.
If any claim shall be asserted against FCN arising out of any matter
concerning which Producer has made a representation, warranty or agreement in
this Agreement, and if because of such claim, FCN, in its discretion, deems
itself placed in jeopardy of suffering any liability as a result of such claim,
FCN will thereupon serve written notice upon Producer containing the full
details of such claim as then known to FCN. Until said claim has been finally
adjudicated or settled, FCN, in its discretion, shall have the right (in
addition to all of its rights and
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<PAGE>
remedies at law, in equity and otherwise) to: (a) withhold a portion of the
monies due or payable to Producer by virtue of this Agreement, such portion to
be reasonably related to the amount of such claim; and/or (at FCN's election)
(b) suspend this Agreement until such time as FCN, in its discretion, deems that
exhibition or other use hereunder of each Program affected by such claim
hereunder would not place FCN in jeopardy of suffering any liability as a result
of such claim. In the event FCN withholds any monies, Producer shall have the
right to post a bond issued by a company acceptable to FCN and covering the
portion withheld by FCN, which portion shall then be remitted to Producer. Upon
the final adjudication or final settlement of such claim, FCN shall disburse all
such funds held by it to Producer or to any other party entitled thereto, in
accordance with the terms of any such adjudication, settlement or other final
disposition. In no event shall FCN's suspension of this Agreement, if any,
continue beyond the date of such final adjudication, settlement or other final
disposition of such claim.
25. MISCELLANEOUS.
(a) No waiver of any failure of any condition or of the breach of any
obligation hereunder shall be deemed to be a waiver of any preceding or
succeeding failure of the same or any other condition, or a waiver of any
preceding or succeeding breach of the same or any other obligation.
(b) This Agreement constitutes the entire understanding between FCN and
Producer concerning the subject matter hereof and shall not be amended,
modified, changed, renewed, extended or discharged except as specifically
provided herein, or by an instrument in writing signed by the party against whom
enforcement of such amendment, modification, change, renewal, extension or
discharge is sought. Producer agrees to execute and deliver any and all
documents requested by FCN to effectuate the purpose or provisions of this
Agreement; provided that if Producer fails to execute any such document within
ten (10) days of Producer's receipt of FCN's said request, FCN is hereby
appointed (such appointment being coupled with an interest) or Producer's true
and lawful agent to execute the same in Producer's name.
(c) This Agreement shall be construed and enforced in accordance with the
internal laws of the State of California applicable to contracts negotiated,
executed, and wholly performed within said State, regardless of where this
Agreement negotiated, executed and/or performed.
(d) Each and all of the several rights, remedies and options of each party
hereto under or contained in or by reason of this Agreement shall be cumulative,
and the exercise of one or
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<PAGE>
more of said rights or remedies shall not preclude the exercise of any other
right or remedy under this Agreement, at law, or in equity.
(e) If any of the provisions of this Agreement, as applied to either
Producer or FCN or to any circumstances, shall be adjudged void or
unenforceable, or in conflict with any applicable law, or any mandatory
provision of any applicable and binding collective bargaining agreement, the
same shall in no way affect any other provision of this Agreement, the
application of such provisions in any other circumstances or the validity or
enforcement of the balance of this Agreement.
(f) Notwithstanding this Agreement, FCN may exercise at any time any legal
right derived prior or subsequent hereto from the public domain or any source
independent of this Agreement, to any creative or other elements, ideas,
methods, characters, characterizations, locales, formulas, incidents and formats
or any treatments of any of the foregoing, all without any obligation to
Producer.
(g) Paragraph headings are inserted for convenience only and shall not be
used to interpret this Agreement or any of the provisions hereof or given any
legal or other effect whatsoever.
(h) As to any matter not specifically covered in this Agreement, industry
custom and practice shall be controlling to the extent not inconsistent with
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
FOX CHILDREN'S NETWORK
By:
__________________________
Its: ____________________
FILM ROMAN. INC.
By:
__________________________
Its: _____________________
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<PAGE>
EXHIBIT 10.16
Dated as of June 20, 1995
LICENSOR: Film Roman, Inc.
12020 Chandler Blvd., Ste. 200
North Hollywood, California 91607 USA
Attn.: Business Affairs Department
LICENSEE: Starstream Limited,
trading as "The Children's Channel"
9-13 Grape Street
London, WC2H 8DR
Re: LICENSE AGREEMENT
Ladies/Gentlemen:
When executed by you ("LICENSEE") and by us, FILM ROMAN, INC. ("LICENSOR"), this
letter (Schedule "A") and the attached License Agreement will constitute the
Agreement between Licensor and Licensee concerning certain rights to the
Picture(s) set forth below in accordance with the terms and conditions hereof.
The following are the basic terms of the Agreement:
TITLES
("Picture/s"): 13 episodes of "The Twisted Tales of Felix The Cat" animated
series and Fifty (50) commercial bumpers utilizing the "Felix
The Cat" animated character.
TOTAL TIME: One-half hour commercial broadcast time per episode
Five (5) seconds per commercial bumper
TERRITORY: Rights Licensed shall be Exclusive in United Kingdom and
Ireland and Non Exclusive (cable/satellite encrypted,
English Language only) in The Netherlands, Denmark, Norway,
Sweden, Finland, Belgium, Luxembourg and Iceland
LANGUAGE: English Language Only
Schedule A
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RIGHTS LICENSED: As defined in the attached License Agreement
<TABLE>
<CAPTION>
Cinematic Rights: Licensed:
<S> <C> <C>
Theatrical [ ] Yes [X] No
Non-Theatrical [ ] Yes [X] No
Public Video [ ] Yes [X] No
</TABLE>
Video Rights: Licensed:
Home Video [ ] Yes [X] No
<TABLE>
<CAPTION>
Ancillary Rights: Licensed:
Airline [ ] Yes [X] No
Ship [ ] Yes [X] No
Hotel [ ] Yes [X] No
<S> <C> <C> <C>
Television Rights: Licensed:
Pay TV
Terrestrial [ ] Yes [X] No
Cable [X] Yes [ ] No
Satellite [X] Yes [ ] No
Free TV
Terrestrial [ ] Yes [X] No
Cable [X] Yes [ ] No
Satellite [X] Yes [ ] No
</TABLE>
TERM: 4 years from delivery of each episode.
NUMBER OF
BROADCAST
RUNS: 8 broadcast runs per episode. Unlimited broadcast of bumpers
during Term of this Agreement
Schedule A
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<PAGE>
LICENSE FEE: US$260,000 TOTAL. Allocable as follows:
US$239,200 for first 13 episodes.
US$20,800 for 50 commercial bumpers.
If episodes 14 through 26 of the Picture are produced by
Licensor, Licensor agrees to offer and Licensee agrees to
accept all such episodes on the same terms and conditions
for distribution and agrees to pay an additional license fee
of US$20,000 per episode for episodes 14 through 26
(US$260,000 total) and the continued right of exhibition of
the previously delivered bumpers.
ROYALTIES: N/A
PAYMENT
TERMS: Episodes 1-13:
US$59,800 upon signature of this agreement;
US$59,800 upon the earlier of (i) first broadcast of the
first episode or (ii) October 1, 1995; and
US$119,600 ninety days following the earlier of (i) first
broadcast of the first episode or (ii) October 1, 1995.
Commercial Bumpers:
US$5,200 upon signature of this agreement;
US$5,200 upon the earlier of (i) first broadcast of the
episode or (ii) October 1, 1995; and
US$10,400 ninety days following the earlier of (i) first
broadcast of the first episode or (ii) October 1, 1995.
Schedule A
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<PAGE>
Episodes 14-26:
If Episodes 14-26 are produced by Licensor:
US$65,000 within 45 days of written notification from
Licensor of commitment to produce such additional episodes.
US$65,000 upon the earlier of (i) first broadcast of any
additional episode or (ii) ninety days following delivery of
any such additional episodes; and
US$130,000 ninety (90) days following the earlier of (i)
first broadcast of any such additional episode or (ii) one
hundred and eighty (180) days following delivery of such
additional episodes.
HOLDBACKS: Based on terrestrial broadcast rights granted to ITV Network
within the Territory, Licensee may not broadcast any episode
of the Pictures prior to Saturday, September 30, 1995. The
first broadcast of each episode is restricted to Saturday or
Sunday only. If Licensor produces episodes 14 through 28,
the timing of the first broadcast of such episodes shall be
subject to any holdbacks required by ITV Network. For
broadcast runs 2 through 8 of each episode hereunder,
Licensee will constructively consult and mutually agree with
ITV Network regarding the day and timing of such broadcasts.
In the event of any dispute with ITV Network, Licensor
agrees to use its best efforts to ensure that Licensee is
not unduly inhibited from exploiting the rights herein
granted.
TRANSMISSION
MATERIAL: 1 BETA SP PAL Master on loan,
scripts, music cue sheets, and publicity materials
Schedule A
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<PAGE>
PAYMENT: Due in accordance with the provisions of the agreement shall
be paid to Licensor by wire transfer to:
FILM ROMAN, INC.
First Charter Bank
265 North Beverly Dr.
Beverly Hills, California 90210
Account#: 002-858-487
ABA#: 122239843 (on behalf of Film Roman, Inc.)
Licensee shall advise Licensor by fax (818/985-2973) when
any such remittance is sent. Timely payment by Licensee is
the essence of this agreement.
FILM ROMAN, INC. ("Licensee")
By:________________________ By:________________________
An Authorized Signatory An Authorized Signatory
Schedule A
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<PAGE>
LICENSE AGREEMENT
This agreement ("Agreement") is made and entered into as of the date set
forth in Schedule "A" which is attached hereto and incorporated herein by
reference, by and between FILM ROMAN, INC., whose principal place of business is
located at 12020 Chandler Blvd., Ste. 200, North Hollywood, California 91607
(hereinafter, "Licensor"), and Licensee, whose name and principal place of
business are set forth in Schedule "A" (hereinafter, "Licensee").
In consideration of the mutual representations, warranties and covenants
herein contained and other good and valuable consideration, Licensor and
Licensee hereby agree as follows:
1. Definitions: As used herein the following terms shall have the
following meanings:
(A) The "Picture": The "Picture/s" is/are set forth in Schedule "A".
(B) "Master": "Master" means technically satisfactory material from
which duplicate Masters ("Sub-Masters") suitable for use in the manufacture of
broadcast devices can be made.
(C) "Territory": "Territory" shall include those territories set
forth in Schedule "A".
(D) "Term": The "Term" shall mean the period as set forth in
Schedule "A".
(E) "Language": The "Language" means the language set forth in
Schedule "A".
(F) "Delivery": "Delivery" as used herein shall mean the date the
complete Master or Sub-Master is either delivered or made available to the
Licensee for dublication.
(G) "Motion Picture": "Motion Picture" as used herein means an
audiovisual work consisting of a series of related images which, when shown in
succession, impart an impression of motion, with accompanying sounds, if any.
(H) "Motion Picture Copy" "Motion Picture Copy" as used herein means
the embodiment of a Motion Picture in any physical form, including without
limitation
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film, tape, cassette, disc or computer storage. Where a specific medium is
limited to exploitation by a specific physical form, for example, to
exploitation of Videograms, then Motion Picture Copy with respect to such medium
is limited to such physical form.
(I) Cinematic Definitions:
(i) "Cinematic" means all forms of "Theatrical", "Non-Theatrical"
and "Public Video" exploitation of a Motion Picture Copy.
(ii) "Theatrical" means exploitation of a Motion Picture Copy
only for direct exhibition in conventional or drive-in theaters, licensed as
such in the place where the exhibition occurs, which are open to the general
public on a regularly scheduled basis and which charge an admission fee to view
the Picture.
(iii) "Non-Theatrical" means exploitation of a Motion Picture
Copy, whether embodied in a Videogram or otherwise, only for direct exhibition
before an audience by and at the facilities of either organizations not
primarily engaged in the business of exhibiting Motion Pictures, such as in
educational organizations, churches, restaurants, bars, clubs, trains,
libraries, Red Cross facilities, oil rigs, oil fields, or by and at the
facilities of governmental bodies such as in embassies, military bases, military
vessels, and other governmental facilities flying the flag of the licensed
territory. By way of clarification but not limitation, Non-Theatrical does not
include Public Video, Airline, Ship or Hotel exploitation.
(iv) "Public Video" means exploitation of a Motion Picture Copy
embodied in a videogram only for direct exhibition before an audience in a
"mini-theater", an "MTV theater" or like establishment which charges an
admission to use the viewing facility or to view the Videogram and which is not
licensed as a traditional motion picture theater in the place where the viewing
occurs.
(J) Video Definitions:
(i) "Video" means all forms of "Home Video" exploitation of a
Motion Picture.
(ii) "Home Video" means the exploitation of a Motion Picture Copy
embodied in a Videogram which is rented or sold to the viewer only for viewing
the embodied Motion Picture in private living accommodations where no admission
fee is charged with respect to such viewing. Home Video does not include the
public performance, diffusion, exhibition or broadcast of the Videogram.
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<PAGE>
(K) Ancillary Definitions:
(i) "Ancillary" means all forms of "Airline", "Ship" and "Hotel"
exploitation of such Motion Picture.
(ii) "Airline" means exploitation of a Motion Picture Copy only
for direct exhibition in airplanes, where ever located, which are operated by an
airline flying the flag of any country in the licensed territory for which the
Airline exploitation is granted, but excluding airlines which are customarily
licensed from a location outside the licensed territory or which are only
serviced in but not do fly the flag of a country in the licensed territory.
(iii) "Ship" means exploitation of a Motion Picture Copy only for
direct exhibition in ocean going vessels, where ever located, which are operated
by an shipping line flying the flag of any country in the licensed territory for
which Ship exploitation is grated, but excluding shipping lines which are
customarily licensed from a location outside the territory or which are only
serviced in but do not fly the flag of a country in the licensed territory.
(iv) "Hotel" means exploitation of a Motion Picture Copy only for
direct exhibition in temporary or permanent living accommodation such as hotels,
motels, apartment complexes, co-operatives or condominium projects by means of
closed-circuit television systems where the telecast originates within or in the
immediate vicinity of such living accommodations.
(L) Television Definitions:
(i) "Television" means all forms of "Free TV" and "Pay TV"
exploitation of a Motion Picture.
(ii) "Free TV" means all forms of "Terrestrial Free TV", "Cable
Free TV", and "Satellite Free TV" exploitation of a Motion Picture.
(iii) "Terrestrial Free TV" means only standard over-the-air
broadcast by means of Hertzian waves of a Motion Picture Copy which is intended
for reception on a television receiver in private living accommodations without
a specific charge being made to the viewer for the privilege of viewing the
Motion Picture. For purposes of this definition, neither governmental television
receiver assessments or taxes will be deemed a charge to the viewer.
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<PAGE>
(iv) "Cable Free TV" means only the transmission by means of
coaxial, fiber-optic or comparable cable of a Motion Picture Copy for reception
on a television receiver in private living accommodations without a specific
charge being made to the viewer for the privilege of viewing the Motion Picture.
For purposes of this definition, neither governmental television receiver
assessments or taxes, nor the regular periodic service charges (other than a
charge paid with respect to Pay TV) paid by a subscriber to a cable television
system will be deemed a charge to the viewer.
(v) "Satellite Free TV" means only the up-link transmission of a
Motion Picture Copy to a satellite and its down-link transmission to a
terrestrial satellite reception dish for the purpose of viewing of the Motion
Picture on a television receiver in private living accommodations which is
located in the immediate vicinity of the reception dish without a specific
charge being made to the viewer for the privilege of viewing the Motion Picture.
For purposes of this definition, neither governmental television receiver
assessments or taxes will be deemed a charge to the viewer.
(vi) "Pay TV" means all forms of "Terrestrial Pay TV", "Pay-Cable
TV" and "Satellite Pay TV" exploitation of a Motion Picture. Pay TV does not
include any form of "pay-per-view" or "video on demand" telecast or other
exhibition.
(vii) "Terrestrial Pay TV" means only standard over-the-air
broadcast of any Motion Picture Copy by means of encoded Hertzian waves for
reception on a television receiver in private living accommodations by means of
a decoding device where a charge is made: (1) to the viewer for the right to use
the decoding device for viewing any special channel which transmits the Motion
Picture along with other programming; or (2) to the operator of a hotel, motel,
apartment complex, co-operative, condominium project or similar place located
distant from the place where such broadcast signal originated for the right to
use the decoding device to receive and retransmit the programming on such
channel throughout such place.
(viii) "Cable Pay TV" means transmission or retransmission of a
Motion Picture Copy by means of an encoded signal over coaxial or fiber-optic
cable for reception on a television receiver in private living accommodations by
means of a decoding device where a charge is made: (1) to the viewer for the
right to use the decoding device for viewing any special channel which transmits
the Motion Picture along with other programming; or (2) to the operator of a
hotel, motel, apartment complex, co-operative, condominium project or similar
place located distant from the place where such broadcast signal originated for
the right to use the decoding device to receive and retransmit the programming
on such channel throughout such place.
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<PAGE>
(ix) "Satellite Pay TV" means the up-link transmission of a
Motion Picture Copy by means of an encoded signal to a satellite and its down-
link transmission to a terrestrial satellite reception dish and a decoding
device for the purpose of viewing the Motion Picture on a television receiver in
private living accommodations which is located in the immediate vicinity of the
reception dish and decoding device where a charge is made: (1) to the viewer for
the right to use the decoding device for viewing any special channel which
transmits the Motion Picture along with other programming; or (2) to the
operator of a hotel, motel, apartment complex, co-operative, condominium project
or similar place located distant from the place where such broadcast signal
originated for the right to use the decoding device to receive and retransmit
the programming on such channel throughout such place.
2. Grant of Rights
(a) Subject to the limitations, terms and conditions set forth in this
Agreement, Licensor hereby grants to the Licensee the right, license and
privilege throughout the Territory during the Term to exploit the Picture
linearly in the Language, pursuant to the Rights set forth in Schedule "A" as
such rights are defined in Paragraph 1 above. Licensee shall not authorize or
permit any telecasts or videocassettes to be exported and/or exploited out of
the Territory. Licensee shall in addition have the right to use extracts from
the Picture not exceeding two (2) minutes in length on any manner and media for
the sole purpose of advertising and promoting the Picture hereunder.
(b) Licensee shall have the right to use and authorize others to use
the name, likeness (whether by photograph or otherwise) and voice of any person
who appears recognizably in the Picture, solely for the purpose of advertising,
publicizing or exploiting the Picture, provided that:
(i) Licensee shall, and shall cause its licensees to, strictly
abide by all relevant restrictions imposed upon Licensor of which notice is
given to Licensee with respect to the use of any person's name, likeness and/or
voice pursuant to this subparagraph 2(b);
(ii) The name, likeness and/or voice of any person shall not be
used as a direct or indirect endorsement of any product, service or commodity;
(iii) No such advertising materials shall use more than two (2)
minutes of the Picture; and
(iv) intentionally deleted
(c) Notwithstanding anything to the contrary contained herein, the
rights
5
<PAGE>
granted to Licensee hereunder do not include the right to use or permit the use
of any broadcast or telecast devices for viewing in any place of public assembly
where an admission fee or viewing fee is charged, for theatrical exhibition, or
for broadcast or exhibition in hotels, military camps and installations,
embassies, prisons, buses, oil rigs, aircraft, ships, educational institutions,
hospitals, or by other so-called "non-standard" means, not known or hereafter
devised, nor do the rights include so-called "on-line" services nor "video on
demand" services, unless approved in writing by Licensor.
(d) All rights to the Picture which have not been granted to Licensee
pursuant to this Paragraph 2 are hereby expressly reserved to Licensor, and
Licensor shall be entitled to exercise, exploit and/or dispose of any such
reserved rights throughout the world (including, without limitation, in the
Territory) at any time without prior notice or any obligation to Licensee
whatsoever.
(e) It is specifically agreed that Licensee shall have no right to
edit, re-sequence, alter the music in any way, dub (unless otherwise agreed to
herein), add to delete from or otherwise alter the Picture in any manner
whatsoever without obtaining Licensor's prior written consent. In the event
Licensee is authorized hereunder to create dubbed versions of the Picture, upon
Licensor's request Licensee shall make such version immediately available to
Licensor for purposes of creating copies thereof, such costs of reproduction to
be paid by Licensor. Notwithstanding the foregoing, Licensee may, at its own
cost, add its "logo" preceding the main title or following the end title.
3. Obligations of Licensee.
(a) Licensee shall use its best efforts, skill and ability in the
distribution, marketing and exploitation of the Picture hereunder.
(b) Licensee shall strictly comply with all contractual requirements
for advertising credit to persons who rendered services or furnished materials
in connection with the Picture of which Licensor notifies Licensee.
(c) Licensee shall be solely responsible for all marketing,
advertising and other costs incident to the rights granted hereunder.
(d) Any and all licenses or broadcast rights granted by Licensee
shall terminate and/or expire as of the expiration date of this agreement. No
such grant by Licensee shall survive the Term. Upon expiration of the Term:
(i) the Licensee shall at its own expense return the Programs to
the Licensor at the Licensor's original point of dispatch or such other address
as the Licensor nominates; or
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<PAGE>
(ii) at the option of the Licensor, the Licensee shall, if the
Programs are recorded on film, destroy the Programs and furnish the Licensor a
certificate of destruction thereof; or
(iii) at the option of the Licensor, the Licensee shall erase the
Program signals if recorded on videotape and furnish to the Licensor a
certificate of erasure thereof.
(e) The Licensee shall be responsible for the payment to the
appropriate performing rights collecting bodies or agencies of all royalties and
license fees payable to any composers, authors, music publishers and performing
rights societies by reason of Licensee's exercise of the Rights in accordance
with this Agreement.
(f) Unless otherwise provided, all credits will be given in respect
of the Picture in accordance with the usual practice in the film and television
industry and the Picture shall be telecast without any omission, editing or
abbreviation of the production credits as they appear on the Picture.
(g) The Licensee may make only such cuts or deletions as are
necessary to make the Picture conform to its time segment requirements and its
continuity and broadcast acceptance standards and may add commercial matter not
exceeding then (10) minutes in duration per twenty (20) minutes of the picture
provided it is clear to the television viewers that such commercial matter is
not part of the continuity of the Picture.
4. Delivery and Use of Materials.
Licensor shall provide Licensee with a reasonable quantity of
advertising and publicity materials free of charge. In the event that Licensee
shall desire additional publicity materials, Licensee shall purchase all
materials, including but not limited to pertinent advertising and publicity
materials at Licensor's "Standard Proforma Price", such price list to be
provided promptly upon Licensee's request, and Licensor shall deliver such
Materials to the address specified herein. Unless a definite schedule of
telecasting the Picture is stipulated herein, Licensee shall give Licensor not
less than thirty (30) days prior written notice of the scheduled date of each
telecast where shipment is via air and reasonable prior notice where shipment is
other than via air. All reasonable costs of delivery of such additional
Materials, including, without limitation, packaging, shipping, insurance and
custom fees and duties, shall be the Licensee's sole responsibility.
(a) At the end of the exhibition period or, if the Materials are on
loan, within a reasonable time after the date of delivery of the Materials, the
Licensee, at Licensee's sole expense, shall return the Materials to Licensor
unless otherwise instructed.
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<PAGE>
(b) The Licensee shall refund to the Licensor any replacement costs of
any Material lost or damaged while in the possession of the Licensee.
(c) Unless the Licensee advises the Licensor within two (2) weeks of
the Material having been delivered to the Licensee of any technical or quality
or other defect in the Material that will prevent telecasting, the Material
shall be deemed fit for telecasting.
5. Distribution Guarantees.
(a) In full consideration for all rights, privileges and licenses
granted to Licensee, Licensee agrees to pay Licensor and Licensor agrees to
accept the License Fee and Royalties, if applicable, set forth in Schedule "A".
(b) Licensor will have the option to terminate this Agreement if 100%
payment has not been received from Licensee in accordance with the payment terms
as set forth in Schedule "A".
(c) All payments made hereunder and the requisite notice thereof
shall be forwarded to the account of Licensor as provided for in Paragraph 6 (b)
below.
6. Payments and Accountings.
A. Licensee shall use its best efforts to timely obtain all government
permits necessary to make payment to Licensor as and when required under this
Agreement. Notwithstanding anything to the contrary contained herein, there
shall be no deductions whatsoever from any payments made to Licensor hereunder
on account of bank charges, including without limitation, bank wire transfer
charges, costs of currency conversion or conversion taxes, it being the intent
hereof that any amounts payable to Licensor hereunder shall be free and clear of
any tax, levy or charge whatsoever, except with respect to any withholding tax
or similar tax which Licensee is obliged by law to deduct, subject to Paragraph
17 and 18 herein.
B. Payment shall be made in U.S. dollars at the address of Licensor by
bank wire transfer.
7. Titles and Substitution of Pictures.
Licensor reserves the right to change the title of any Picture
embraced by this Agreement. Licensor also reserves the right to substitute a
Picture of comparable quality for any Picture licensed hereunder because of
force majeure, unavailability or any threatened litigation in connection with
such Picture or to minimize possible damage from
8
<PAGE>
any pending, threatened, or possible court action. In the event that Licensor is
not in a position to make such substitution and so notifies Licensee, then
Licensee agrees that Licensor may remove such Picture from this Agreement, and
in such event the License Fee shall be reduced by an amount equal to the License
Fee applicable to such Picture; provided, however if a License Fee is not
specified for a particular Picture, Licensor may, in its sole, but reasonable
discretion, allocate a portion of the License Fee to such Picture.
8. Licensor's Warranties.
Licensor represents and warrants that it possesses the full right,
titles and interest to enter into and to perform this Agreement, and it will
not, so long as this Agreement remains in effect, grant to any other person,
firm or corporation any rights which it has exclusively granted to Licensee
hereunder. Licensor further represents and warrants that the Picture was made in
accordance with all relevant contracts, legislation and regulations, and
provided that Licensee complies with its obligations hereunder, Licensee shall
be able, without financial, legal or other liability, to fully and freely
exploit and exercise its right in the Picture(s) as granted hereunder.
9. Default by Licensee.
Subject to paragraph 15 hereof, in the event:
(a) Licensee shall fail to make all payments hereunder for any reason
and shall not make payments as aforesaid within ten (10) days after written
demand for same from Licensor; or
(b) Licensee shall make or attempt to make any assignment for the
benefit of creditors or make or attempt to make any composition with creditors,
or any action or proceeding under bankruptcy or insolvency law is taken by or
against Licensee, or Licensee shall effect or attempt to effect a voluntary or
compulsory liquidation of assets; or
(c) Licensee shall fail within twenty-one (21) days after written
demand by Licensor to remedy completely any other material act or failure
constituting a material breach of this Agreement;
then, and in any such events, Licensor may, in addition to (and without
prejudice of any or all of its other rights and remedies at law or otherwise it
may possess) terminate the Term of this Agreement by giving written notice to
Licensee of such termination, without refunding or rebating any amounts
whatsoever to Licensee. The Licensor is hereby entitled to retain (without in
any way limiting Licensor's rights or remedies) such amounts by way of partial
liquidated damages.
9
<PAGE>
10. Protection of Pictures.
Licensee shall take all reasonable and practicable steps necessary to
protect the copyright in the Picture, and all material delivered hereunder.
Subject to Licensor's prior approval with respect to the institution of any
legal proceeding, Licensee shall further take all legal action necessary to
protect the interest of Licensor and Licensee in the Picture and to restrain or
obtain redress from any third party from any unauthorized use of the Picture,
the broadcast or duplication thereof, or the doing of any act which infringes
upon the Picture or any Materials manufactured or delivered hereunder. Licensor
shall be free to participate in such action using counsel of its own choice, at
Licensor's expense, and Licensor's expenses thereof shall be repaid to Licensor
out of any recovery from such action, pro rata with the repayment to Licensee of
its expenses. If Licensee shall fail or refuse to take any of the foregoing
actions, then, in addition to any of the rights which Licensor shall have
hereunder, either at law or in equity, Licensor may (but shall not be obligated
to) take such action in Licensor's and/or Licensee's name, in which event any
recovery from such action undertaken by Licensor shall be the sole property of
Licensor. Licensee shall notify Licensor in writing of the occurrence of any
event relating to the provisions of this paragraph and all actions taken with
regard thereto.
11. Indemnification.
The parties hereto agree to defend, indemnify and hold each other and
the other's officers, directors, agents, employees, parents, subsidiaries,
affiliates, successors and assigns harmless from and against any and all
liability, loss, damage, costs or expense, including reasonable attorneys' fees,
paid or incurred by reason of any breach or alleged breach of the warranties,
representations or agreements contained herein reduced to final non-appealable
judgment or settled with the indemnitor's consent. The indemnitor shall receive
prompt written notice of any claim or action to which this indemnity applies and
shall be given the reasonable opportunity to defend against and/or settle such
claim or action.
12. Notices.
All notices, approvals, payments or documents which either party is
required to deliver hereunder shall be in writing and shall be personally
delivered, telexed, telecopied, telegraphed or mailed, postage prepaid, at the
address set forth in Schedule "A", or to such other address, as either party may
from time to time designate. All notices given by mail shall be deemed given
when received but in any event no later than five (5) days from the day of
deposit in the mail. All notices sent by telex, telecopy or telegraph shall be
deemed given when received but in no event later than one working day from the
date sent. All notices given by personal delivery shall be deemed given when
received.
10
<PAGE>
13. Assignability.
Licensee shall not assign or license this Agreement or any of its
rights hereunder or delegate any of its obligations hereunder, in whole or in
part, without the prior written consent of Licensor, provided, however,
Licensees may sub-license its rights hereunder to a reputable broadcaster in and
for the Territory, provided that such assignment and/or sub-license will not
relieve Licensee of any of its obligations hereunder. Licensor may at any time
freely assign this Agreement in whole or in part, or any of its rights
hereunder.
14. Relationship of Parties.
This Agreement shall not be deemed to create any partnership, joint
venture, agency, fiduciary or employment relationship between the parties, and
neither party shall hold itself out as the agent or partner of the other.
Neither party shall hold itself out contrary to the terms of this paragraph and
neither shall become liable for any representations, acts or omissions of the
other.
15. Force Majeure.
Neither party shall be deemed in default if the performance of
obligations hereunder is delayed or becomes impossible or impracticable by
reason of any Act of God, war, fire, earthquake, flood, accident, civil
commotion, strike or in general any industrial disturbance or shortage of raw
material or energy, act or refusal of any Government, union, guild or similar
body, their agencies or officers, or any other legitimate cause beyond the
control of the parties hereto. In the event the exploitation of the Picture
becomes impossible or impracticable because of any such event, the Term hereof
shall be automatically extended by the same period as such event continues,
provided that if such period exceeds three (3) months, either party shall at any
time thereafter be entitled to terminate this Agreement, during such event of
force majeure, by written notice to the other party.
16. Applicable Law.
This Agreement is entered into pursuant to the laws of the State of
California, and the United States of America, and shall be interpreted in
accordance with the laws applicable to agreements entered into and wholly
performed therein. Any controversy or claim arising out of or relating to this
Agreement or the validity, construction or performance of this Agreement, or the
breach thereof, shall be governed by such laws, and Licensee hereby consents to
binding arbitration in accordance with the American Arbitration Association in
Los Angeles, California.
11
<PAGE>
17. Blocked Currency and Foreign Exchange.
(a) Licensee shall promptly notify Licensor in writing if the
transmission of any gross receipts payable to Licensor is prevented by embargo,
blocked currency regulations or other restrictions. Provided that the laws of
the country in which such frozen funds exist permit the transfer of Licensor's
share of such funds to Licensor, then Licensor's share of gross receipts shall
be deposited in Licensor's name in any bank designated by Licensor in such
foreign country. Such deposit will be deemed proper payment to Licensor of the
monies due and payable to Licensor.
(b) If, in Licensor's judgment, the transfer of funds from the
Territory to the United States becomes economically inadvisable because of
prohibitive exchange rates, then Licensee agrees, upon Licensor's request, to
deposit Licensor's share of gross receipts in such foreign country in the manner
described in subparagraph (a) above.
18. Taxes.
Licensee agrees to assist Licensor with the application and completion of
all documents necessary to qualify Licensor for exemptions from taxes imposed on
the payment of fees for rights licensed hereunder.
19. Miscellaneous.
(a) No waiver of any default or breach of this Agreement by either
party shall be deemed a continuing waiver or a waiver of any other breach or
default, no matter how similar.
(b) Each of the parties acknowledges and agrees that the other has
not made any representations, warranties, or agreements of any kind, except as
may be expressly set forth herein.
(c) This Agreement constitutes and contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements, oral or written. Nothing herein contained
shall be binding upon the parties until this Agreement has been executed by an
officer of each party. This Agreement may not be changed, modified, amended or
supplemented, except in writing signed by both parties.
12
<PAGE>
(d) The paragraph headings used in this Agreement are for convenience
only and shall have no legal effect whatsoever.
(e) If any part of this Agreement shall be declared invalid or
unenforceable by a court of competent jurisdiction, it shall not affect the
validity of the balance of this Agreement, provided, however, that if any
provision of this Agreement pertaining to the payment of monies to Licensor
shall be declared invalid or unenforceable, Licensor shall have the right, at
its option, to terminate this Agreement upon giving written notice to Licensee
of its election to do so.
(f) In the event of any action, suit or proceeding hereunder, the
prevailing party shall be entitled to recover its attorneys' fees and the costs
of said action, suit or proceeding.
FILM ROMAN, INC.
By:___________________________
An Authorized Signatory
("Licensor")
By:___________________________
An Authorized Signatory
13
<PAGE>
EXHIBIT 10.17
P.O. Box 900
Beverly Hills, California 902__
FOX CHILDREN'S NETWORK Phone 310 277
As of December 18, 1992
Bill Schultz
Film Roman, Inc.
12020 Chandler Blvd.
Suite 200
North Hollywood, CA 91607
Jon Vein, Esq.
Dern & Donaldson
1901 Avenue of the Stars
Suite 400
Los Angeles, CA 90067
Re: "BOBBY'S WORLD" (the "Series")
Gentlemen:
Reference is hereby made to that certain unexecuted Series Production Agreement
dated as of April 27, 1990 between Fox Children's Network, Inc. ("FCN") and Film
Roman, Inc. ("Producer") with respect to the Series (said Series Production
Agreement and any written amendments thereto being hereinafter collectively
referred to as the "Series Agreement"). The following shall constitute an
addendum ("Addendum") to the Series Agreement. All capitalized terms not defined
herein shall have the same meaning as set forth in the Series Agreement.
FCN and Producer hereby agree as follows:
A. 1993/1994 SEASON
1. FCN has ordered from Producer and Producer has agreed to produce and
Deliver thirteen (3) half-hour episodes ("Programs") of the Series for the
1993/1994 exhibition year. Producer shall Deliver one Program per week
commencing August 15, 1993. The thirteen Program order shall be hereinafter
called the "Program Order."
2. FCN shall pay Producer, in accordance with the payment schedule set
forth below and subject to all of the terms and conditions of the Series
Agreement, a flat
1
<PAGE>
production fee ("Production Fee") of Three Hundred Twenty-Five Thousand
Dollars ($325,000) for each Program produced and Delivered by Producer in
accordance with the Series Agreement, such Production Fee includes any and
all compensation due to Alevy Productions, Inc. for the services of Howie
Mandel. The payment schedule for such Production Fee shall be as follows:
(a) A one-time only pre-production advance for the entire 1993/94
Program Order in the amount of One Hundred Thousand Dollars ($100,000)
payable upon receipt by FCN of an executed copy of this Addendum and
the sum of Two Hundred Sixty Three Thousand Dollars ($263,000) payable
on or about February 15, 1993, subject to receipt by FCN of an
executed copy of this Addendum;
(b) The sum of One Hundred Ten Thousand Dollars ($110,000) per
Program payable upon FCN's approval of the script and storyboard of
each such Program;
(c) The sum of Sixty-Thousand Dollars ($60,000) per Program, payable
upon shipment by Producer of all applicable preproduction materials
for each such Program to an animation studio pre-approved in writing
by FCN;
(d) The sum of Sixty Thousand Dollars ($60,000) per Program, payable
10 days after delivery of the rough cut of each such Program to FCN;
(e) The sum of Sixty-Four Thousand Dollars ($64,000) per Program,
payable 10 days after completion of the Delivery of each such Program
to FCN; and
(f) A one-time only payment of Forty Thousand Dollars ($40,000)
payable 10 days after final Delivery of all elements required by FCN
in connection with the entire Program Order, including without
limitation, cels, masters, music, cue sheets, contracts, and any and
all other materials reasonably requested by FCN.
B. 1994/1995 SEASON
1. FCN has ordered from Producer and Producer agrees to Deliver to FCN
seven (7) half-hour scripts ("Script(s)") for the Series for the 1994/1995
exhibition season, all such Scripts, their premises and the writers thereof
shall be subject to pre-approval by FCN. Each such Script shall include a
story, a first draft teleplay, two sets of revisions and a polish, the
schedule for delivery of each such story, teleplay, revisions and polish to
be determined by FCN in its sole discretion.
2
<PAGE>
2. FCN shall reimburse Producer for Producer's actual, direct, auditable
out-of-pocket costs up to the amount of $13,000 per Script ("Script
Reimbursement Amount") for each Script delivered by Producer to FCN in
accordance with the Series Agreement. Such Script Reimbursement Amount
shall be subject to FCN's receipt of a complete itemized accounting of any
and all costs upon which such reimbursement is to be based and shall be
made within a reasonable time following completion of FCN's audit of the
submitted accounting. If at any time FCN orders a Program based upon one of
these seven (7) Scripts, then FCN shall have the right to deduct any Script
Reimbursement Amount paid for such Script from any Production Fee paid for
the Program based upon such Script, as such Production Fee is defined in
paragraph 3 below.
3. FCN shall have the option to order, at its sole discretion, a minimum
of six (6) and a maximum of thirteen (13) new half-hour Programs for
initial exhibition during the 1994/1995 exhibition year, such option to be
exercised by written notice to Producer on or before December 1, 1993. For
each such Program produced and delivered to FCN by Producer, FCN shall pay
Producer, subject to all of the terms and conditions of the Series
Agreement and to the reduction, if applicable, of the Production Fee by the
Script Reimbursement Amount, the flat amount of Three Hundred Thirty Five
Thousand Dollars ($335,000). Such Production Fee includes all compensation
due to Alevy Productions, Inc. for the services of Howie Mandel. The
payment schedule for such Production Fee shall be negotiated by the parties
in good faith and shall take into consideration the payment schedule for
the 1993/1994 season, provided, however, that Producer shall Deliver any
and all Programs ordered hereunder at the rate of one Program per week
beginning on August 15, 1994.
C. 1995/1996 SEASON
FCN shall have the option to order, at its sole discretion, a minimum of
six (6) and a maximum of thirteen (13) new half-hour Programs for initial
exhibition during the 1995/1996 exhibition year, such option to be exercised by
written notice to Producer on or before December 1, 1994. For each such Program
produced and Delivered by Producer, FCN shall pay Producer, subject to all of
the terms and conditions of the Series Agreement, the flat amount of Three
Hundred Forty Five Thousand Dollars ($345,000). Such Production Fee includes all
compensation due to Alevy Productions for the services of Howie Mandel. The
payment schedule for such Production Fee shall be negotiated by the parties in
good faith and shall take into consideration the payment schedule for the
1994/1995 season, provided, however, that Producer shall Deliver any and all
Programs ordered hereunder at the rate of one Program per week beginning on
August 15, 1995.
D. SPECIAL
3
<PAGE>
1. Included in the 1992/93 Program order is a special Program (the
"Special") as defined in that certain Addendum ("Addendum") between FCN and
Producer dated March 27, 1992 and incorporated herein by this reference.
2. In connection with the Special, FCN has agreed to increase the
Production Fee from a flat amount of Three Hundred Sixty Five Thousand
Dollars ($365,000) as set forth in the Addendum to Producer's actual,
direct, auditable, out-of-pocket costs up to a maximum reimbursement of
Four Hundred Twenty Five Thousand Dollars ($425,000), such payment to be
subject to FCN's receipt of a complete itemized accounting of any and all
costs upon which such payment is to be based and upon completion of Fox's
audit. In addition, FCN shall pay the flat amount of One Hundred Fifteen
Thousand Dollars ($115,000) to Producer for the services of Howie Mandel.
The payment schedule for the Production Fee for the Special shall be as
follows:
(a) The sum of One Hundred Fifteen Thousand Dollars ($115,000) to be
paid to Producer for the services of Howie Mandel, receipt of which is
hereby acknowledged by Producer;
(b) The sum of One Hundred Five Thousand Dollars ($105,000) payable
upon FCN's approval of the script and storyboard, receipt of which is
hereby acknowledged by Producer;
(c) The sum of Seventy-Five Thousand Dollars ($75,000) payable upon
shipment of all of the preproduction materials of the Special to the
foreign animation studio pre-approved by FCN;
(d) The sum of Seventy-Five Thousand Dollars ($75,000) payable ten
(10) days after delivery of the rough cut of the Special to FCN;
(e) The sum of Eighty-Six Thousand Five Hundred Dollars ($86,500)
payable ten (10) days after completion of Delivery of the Special,
such Delivery to be no later than April 10, 1993; and
(f) The remaining balance of Forty-Two Thousand Five Hundred Dollars
($42,500) payable ten (10) days after final Delivery of all elements
required by FCN in connection with the Special, including without
limitation, cels, masters, music, cue sheets, contracts and all other
materials reasonably required by FCN and completion of final audit by
FCN.
4
<PAGE>
All of the other terms and conditions of the Series Agreement not expressly
changed herein shall remain in full force and effect.
Sincerely,
Rich Vokulich
ACCEPTED AND AGREED TO:
FOX CHILDREN'S NETWORK, INC.
By
-----------------------------------
Its
----------------------------------
FILM ROMAN, Inc.
By
-----------------------------------
Its
----------------------------------
5
<PAGE>
EXHIBIT 10.18
As of March 22, 1994, Revised as of June 15, 1994, July 12, 1994 and August 3,
1994
Bill Schultz
Film Roman, Inc.
12020 Chandler Blvd.
Suite 200
North Hollywood, CA 91607
Jon Vein, Esq.
Dern & Vein
1901 Avenue of the Stars
Suite 400
Los Angeles, CA 90067
Re: "BOBBY'S WORLD" (the "Series")
Gentlemen:
Reference is hereby made to that certain unexecuted Series Production
Agreement dated as of April 27, 1990, between Fox Children's Network, Inc.
("FCN") and Film Roman, Inc. ("Producer") with respect to the Series and to that
certain fully executed amendment ("Amendment") to the Series Production
Agreement dated as of December 18, 1992 (said Series Production Agreement and
any written amendments thereto, including without limitation the Amendment,
being hereinafter collectively referred to as the "Series Agreement"). The
following shall constitute an addendum to the Series Agreement. All capitalized
terms not defined herein shall have the same meaning as set forth in the Series
Agreement.
1. 1994/95 SEASON
A. Subject to FOX's receipt of a fully executed copy of this agreement
and to Producer's granting to FCN full and customary audit rights over
Producer's expenses in connection with the Series, FCN will increase the
Production Fee payable to Producer in connection with each episode in the amount
of $10,000 per episode, so that FCN will pay Producer the total amount of Three
Hundred Forty-Five Thousand Dollars ($345,000) per episode.
B. The Ten Thousand Dollars referred to in paragraph 1(A) above will be
payable seventy-five percent upon commencement of production services on the
relevant episode and twenty-five percent upon FCN's completion of its audit,
which audit will be conducted in a timely manner following FCN's receipt of
notice from Producer that all customary records and materials are available for
audit and will be for FCN's information only and will not
<PAGE>
reduce the amounts payable pursuant to this paragraph. Producer will provide all
customary materials and information required for FCN to conduct its audit.
2. 1995/96 SEASON
A. Subject to FCN's receipt of a fully executed copy of this agreement,
and provided that FCN exercises its option to order new episodes of the Series
for the 1995/96 season, FCN will increase the Production Fee payable to Producer
in connection with each episode in the amount of $10,000 per episode, so that
FCN will pay Producer the total amount of Three Hundred Fifty-Five Thousand
Dollars ($355,000) per episode.
B. The Ten Thousand Dollars referred to in paragraph 2(A) above will be
payable seventy-five percent upon commencement of production services on the
relevant episode and twenty-five percent upon FCN's completion of its audit,
which audit will be conducted in a timely manner following FCN's receipt of
notice from Producer that all customary records and materials are available for
audit and which audit will be for FCN's information only and will not reduce the
amounts payable pursuant to this paragraph. Producer will provide all customary
materials and information required for FCN to conduct its audit.
All of the other terms and conditions of the Series Agreement not expressly
changed herein shall remain in full force and effect.
Sincerely,
/s/ Rich Vokulich
- ------------------------------
Rich Vokulich
ACCEPTED AND AGREED TO:
FOX CHILDREN'S NETWORK, INC.
By /s/ Rich Vokulich
----------------------------
Its V.P. Business Affairs
FILM ROMAN, INC.
By /s/ Phil Roman
----------------------------
Its President
2
<PAGE>
EXHIBIT 10.19
VIA FAX (310) 859-2788
October 5, 1994
David Feldman, Esq.
Bloom, Dekom, Hergott & Cook
150 S. Rodeo Dr., 3rd Floor
Beverly Hills, CA 90212
Re: Film Roman, Inc. -w- Flying Heart, Inc. f/s/o Bruce Willis
----------------------------------------------------------
Dear David:
On behalf of Film Roman, Inc. ("FRI"), I would like to propose the following
agreement in connection with a concept and series of characters (collectively,
the "Property") which may be used as the basis for one or more animated
productions (the "Productions").
1. Services: Flying Heart, Inc. shall furnish the services of Bruce Willis
("Willis") and David Willis for the purpose of creating and developing the
Property jointly with FRI, which services shall in no way be construed as
exclusive to FRI for the creation and development of other intellectual
properties. Flying Heart, Inc., Willis, and David Willis are sometimes
collectively referred to herein as "Heart". Heart agrees to render such
reasonable services as are necessary in connection with the development and
securing of a third party development agreement in connection with the Property.
Such services shall be subject to Willis' reasonable availability and shall
include, but not be limited to, the attending of occasional "pitch",
presentation and FRI meetings, as well as any other necessary services relating
thereto.
In the event Productions are produced, FRI shall be entitled to (i) require
Willis to perform the voice of a character or characters in Productions of the
Property, (ii) utilize the likeness and voice of Willis, subject to Heart's good
faith approval (at Heart's sole discretion if such use is for purposes of
merchandising), and (iii) require Willis to render Willis' services for live
action segments of up to two (2) minutes per episode of such Productions, which
services shall be subject to Willis' prior professional commitments. Heart,
Willis, and David Willis shall further render non-exclusive executive producer
services (e.g., story and
<PAGE>
DAVID FELDMAN, ESQ
OCTOBER 5, 1994
PAGE 2
script consulting, script and writer selection, etc.). Willis' services shall
be rendered on a non-exclusive basis; provided, however, that such services
shall be exclusive in connection with (i) all animated television series
productions during the first run broadcast cycle of television Productions
produced hereunder, and (ii) all live action services, the results and proceeds
of which are broadcast either on Saturday-morning or Sunday-morning, but only to
the extent Productions are broadcast during such mornings, i.e., the broadcast
of Productions shall preempt the broadcast of Willis' live action services for
Saturday-morning programming if Productions are broadcast during Saturday-
morning. All other live action services of Willis are permitted unless
restricted herein. Notwithstanding the foregoing, Willis shall be entitled to
render his voiceover services in (i) non-animation series programs, and (ii) a
single episode of an animated television series, subject to a limit of three
appearances per thirteen week cycle.
In the event that sequels, remakes, or spinoffs are produced based on the
Property or Productions, Willis may render the foregoing services subject to the
mutual approval of FRI and Heart. In the event Willis does not render the
foregoing services, Heart shall nevertheless be entitled fifty percent (50%) of
the current fees and Net Profits to such television sequels, remakes, or
spinoffs, as defined herein. Feature films based on the Property shall not be
produced by FRI without the written approval of Willis.
2. Rights: FRI and Heart will jointly retain the exclusive worldwide
copyright to the Property, the Productions, and all rights derived therefrom, in
all media now known or hereafter devised, including without limitation the right
to character merchandising, music publishing, sound recordings, sequels,
spinoffs, etc. (collectively, the "Rights"). Notwithstanding the foregoing, FRI
shall have the exclusive ability to commercially exploit the Rights, including
the right to collect revenues therefrom, subject to reasonable meaningful
consultation with Heart in connection with the commercial exploitation of the
Property, Production and Rights.
3. Creative Controls: Heart and FRI shall retain mutual creative control in
connection with the creation and development of the Property, and any
Productions based thereon, subject to the good faith approval of Heart with
regard to the presentation of any character for which Willis provides his
voiceover services, including without limitation, the character
<PAGE>
David Feldman, Esq.
October 5, 1994
Page 3
currently known a "Bruno". Heart further agrees that FRI shall be entitled to
utilize the name, approved image and approved likeness (including photographs)
of Willis for purposes of advertising and exploiting the Property.
4. Fees: In the event FRI produces a Production, and Willis renders the
following specified services in connection therewith, FRI shall pay Heart the
following fees:
Voiceover Services SAG scale, on favored nations
basis (w/ top of show)
Live Action Services 2xSAG scale, on favored nations
basis (w/ top ofshow)
Writing Services Favored nations basis
(w/ top of show)
The foregoing payments shall be made commensurate with the rendition of
services; provided, however, that payment for writing services shall be made
one-half on commencement of services, one-half on delivery.
5. Royalties: In the event FRI produces a Production, and Heart and Willis
render their non-exclusive executive producer services in connection therewith,
FRI shall pay Heart (for each episode of all Television Productions) five
percent (5%) of the direct budget of each episode of such Productions, subject
to the following minimum one-time payments, and contingent on the license fee
received by FRI from the initial United States broadcast of the Production:
<TABLE>
<CAPTION>
U.S. License Fee
----------------
>$250K $250K or less
------ -------------
<C> <S> <S>
Year 1 of production -- $17,500 per episode $17,500 per episode
Year 2 of production -- $22,500 per episode $20,000 per episode
Year 3 of production -- $27,500 per episode $25,000 per episode
Year 4 of production -- $32,500 per episode $30,000 per episode
Year 5 of production -- $40,000 per episode $35,000 per episode
</TABLE>
<PAGE>
David Feldman, Esq.
October 5, 1994
Page 4
The royalty payable to Heart for all other Productions shall be subject to good
faith negotiation.
Provided that a third party broadcaster places non-cancellable orders for
episodes of a Production, FRI agrees that it will pay Heart the foregoing
royalty for no fewer than six episodes during the first year of production,
eight episodes during the second year of production, and ten episodes during the
third year of production or thereafter for Productions initially exhibited on a
U.S. network, and thirteen episodes during the third year of production or
thereafter for Productions initially exhibited on U.S. cable or syndicated
television.
6. Net Profits: FRI shall pay Heart fifty percent (50%) of FRI's net profits
(FRI's gross revenues less distribution fees and expenses, production costs,
third party profit participations, and agency commissions) derived from
exploitation of the Rights, including without limitation revenues derived from
audiovisual exhibition, merchandising, music publishing, sound recordings, etc.;
provided that Heart shall receive no less than thirty-five percent (35%) of one
hundred percent (100%) of adjusted net profits (FRI's gross revenues less
distribution fees and expenses, production costs, and agency commissions)
without the written approval of Heart, not to be unreasonably witheld. For
purposes of clarification, Productions incorporating "Bruno" or related
characters shall be deemed a William Morris Agency "package" production.
As a component of production costs, FRI shall take a reduced overhead fee
of twelve and one-half percent (12.5%) of the actual out-of-pocket costs for
television Productions. FRI shall be entitled FRI's customary fees and actual
out-of-pocket expenses for exploitation of the Rights, distribution expenses for
Productions not to exceed a total of ten percent (10%) of gross revenues derived
from exploitation of Productions; provided, however, that FRI shall take no
distribution fee for the initial license of a domestic network (including Fox,
Paramount and Warner) broadcast of Productions (provided that no other domestic
broadcast license has yet been consummated), a distribution fee of five percent
(5%) for domestic network broadcast licenses occurring subsequent to any other
domestic broadcast licenses, a reduced all-in distribution fee of twenty-five
percent (25%) for the license of Productions for foreign (outside United States)
exhibition, a reduced all-in distribution fee of fifteen percent (15%) for the
license of Productions for domestic cable exhibition, a reduced master agency
fee of twenty-eight percent (28%) for
<PAGE>
David Feldman, Esq.
October 5, 1994
Page 5
all merchandise and licensing agreements attributable to the Property that are
entered into directly by FRI and secured by FRI, and a ten percent (10%)
override payment to FRI (not to exceed all-in fees of 35%) for those merchandise
and licensing agreements attributable to the Property that are entered into or
secured by subagents of FRI. For purposes of clarification, the foregoing agency
fees are inclusive of out-of-pocket expenses incurred in connection with
merchandising and licensing rights. All third party profit participations shall
be subject to the mutual approval of Heart and FRI, such approval not to be
unreasonably witheld. For purposes of clarification, it is currently
contemplated that third parties financing the production of Productions shall be
entitled to participate in profits derived from exploitation of Productions.
FRI agrees that the monies contributed by FRI to finance Productions (e.g.,
unrecouped production costs) shall not bear interest, nor shall interest accrue
on FRI's overhead expenditures.
7. Merchandise Licensing Revenue: Heart and Willis agree to render their
reasonable services in connection with the creation and promotion of merchandise
utilizing the Property. In consideration for such services, and notwithstanding
anything to the contrary contained herein, FRI shall pay Heart ten percent (10%)
of FRI's gross revenues derived from exploitation of merchandise utilizing the
Property in connection with Willis' actual name, voice, image or likeness, i.e.,
not merchandise merely utilizing the name, image or likeness of a fictional
character. For purposes of clarification, all other revenues derived from
exploitation of merchandise utilizing the Property shall initially be for the
purpose of recouping the costs of Productions and shall be payable to FRI and
Heart subject to the net profits provisions set forth in paragraph 6 above.
Further, revenues derived from the exploitation of sound recordings utilizing
the Property shall be deemed "merchandise" income. Notwithstanding the
foregoing, in the event that sound recordings embodying the performance of
Willis are released by means of audio-only phonorecords, FRI shall negotiate in
good faith with Willis for an appropriate artist royalty. All merchandise
licensing subagents, and the terms of their engagement, shall be subject to the
approval of Heart, such approval deemed given if Heart does not object to such
subagent within seven business days after receipt by Heart of the prospective
subagent's identity and terms of engagement.
8. Credit: Willis shall receive a single-card 100% of title "Executive
<PAGE>
David Feldman, Esq.
October 5, 1994
Page 6
Producer" credit in either the main or end titles at Willis' discretion, such
credit also to be accorded Phil Roman on no more favorable terms, and no smaller
than the credit provided for any other individual, for all Productions produced
hereunder. David Willis shall receive a "Co-Executive Producer" credit on a
favored nations basis with other individuals rendering comparable services.
Credit shall be provided for all other services rendered by Willis on a favored
nations basis with other individuals rendering comparable services. Heart shall
receive an "In Association With" credit in the end titles of Productions. The
foregoing credits shall be provided in all paid advertisements placed by or
under the control of FRI, except such paid advertisements as are subject to
FRI's customary exclusions (e.g., congratulatory advertisements naming only the
person being congratulated).
No inadvertent failure of FRI to accord the foregoing credits shall be
deemed a breach of this agreement, provided that FRI uses its reasonable efforts
to rectify such failure on future Productions and copies thereof after FRI's
notification of the same. FRI agrees to notify all third party broadcasters of
the foregoing credit obligations.
9. Arbitration: In the event of a dispute between the parties hereto, the
parties agree to submit their dispute to expedited, binding arbitration pursuant
to the rules of the American Arbitration Association.
10. Insurance: Heart, Willis and David Willis shall be named as additional
insureds pursuant to FRI's errors and omissions insurance policies, and be
insured pursuant to FRI's general liability policies and workers' compensation
policies to the extent available pursuant to such policies.
11. Videocassettes; Production Cels: FRI shall provide Heart two (2)
videocassettes of each Production produced hereunder at no charge to Heart. In
the event Productions are produced utilizing traditional cel animation, FRI
shall provide Heart ten (10) foreground animation cels (with high quality
background copies, to the extent available) for each episode of a Production;
provided, however, that such cels shall not be distributed for sale by Heart or
any recipient of such cels and FRI shall be entitled to retain an equivalent
number of cels for its own non-commercial use. The remainder of cels shall be
distributed by FRI, the revenues of which shall be deemed merchandising revenue.
<PAGE>
David Feldman, Esq.
October 5, 1994
Page 7
12. Accountings: Accountings shall be provided to Heart within forty-five (45)
days of each quarter-annual period, identifying the revenues received by FRI
from exploitation of the Property and all fees, expenses, production costs, etc.
incurred by FRI in connection therewith, during the quarter-annual period and
cumulatively. Simultaneously therewith, FRI shall remit any monies due
hereunder. Heart shall be entitled to customary audit and objection rights, by
which
<PAGE>
David Feldman, Esq.
October 5, 1994
Page 8
Heart shall be entitled to audit and copy FRI's books and records relating to
the Property, such audit or objection to be conducted within two years from the
rendition of any particular accounting and such audit to be conducted no more
frequently than once in a given one-year period and no more than once in
connection with any given statement.
If the foregoing comports with your understanding of this matter, please so
indicate by signing below. A more formal agreement may be prepared for the
parties' execution at a later date. Until the execution thereof, if at all,
this document shall be deemed valid and binding.
Best regards.
/s/ Raul Galaz
Raul Galaz
Business Affairs
AGREED TO AND ACCEPTED:
FLYING HEART, INC.
By: /s/ Authorized Signatory
---------------------------
An Authorized Signatory
<PAGE>
DAVID FELDMAN, ESQ.
OCTOBER 5, 1994
PAGE 9
I have read the foregoing Agreement and, as an inducement to you to enter into
the Agreement, I hereby represent, warrant and agree as follows:
I am familiar with all of the terms of the Agreement and I hereby consent
to the execution thereof. I shall perform and comply with all of the terms of
the Agreement as if I had executed it directly as an individual, even if the
employment agreement between me and Flying Heart, Inc. should hereafter expire,
terminate or be suspended. I, as an individual, hereby join in and confirm all
grants, representations, warranties and agreements made by Flying Heart, Inc.
under the Agreement.
By: /s/ Bruce Willis
--------------------
BRUCE WILLIS
By: /s/ David Willis
---------------------
DAVID WILLIS
cc: Greg Lipstone
Mark Itkin
Phil Roman
Bill Schultz
Greg Arsenault
Jon Vein, Esq.
<PAGE>
EXHIBIT 10.20
LIVE Entertainment Companies
February 20, 1996
Mr. Regis Brown
FILM ROMAN
12020 Chandler Blvd.
Suite 200
North Hollywood, CA 91607
VIA FAX: 818-985-2973
RE: "B.R.U.N.O. THE KID"
Dear Regis:
LIVE Film and Mediaworks Inc. ("LIVE") would like to acquire from FILM ROMAN
("ROMAN") the rights to "B.R.U.N.O. THE KID", as follows:
1. PROPERTY: One animated Christmas episode and 32 additional animated
episodes featuring the "B.R.U.N.O." character with each episode of no less
than 22 minutes in length and featuring the voice of Bruce Willis (the
"Series"), and one feature-length motion picture of no less than 68 minutes
(not inclusive of titles and credits), provided that ROMAN shall make a
reasonable, good faith effort to extend the running time of such feature-
length motion picture to 72 minutes (not inclusive of titles and credits),
such feature-length motion picture to be compiled in a linear, sequential
fashion from an additional 3 or more episodes of the Series (both the
animated episodes and the feature-length motion picture collectively
referred to herein as the "Property").
2. RIGHTS: Video; all formats and configurations, including cassette, disc,
commercial video (including, without limitation, schools, libraries and
hospitals), and, subject to ROMAN's reasonable consultation, exclusive
video premium and video promotional sales, provided that ROMAN shall have a
right of approval, not to be unreasonably withheld, with respect only to
LIVE's video premium and promotional agreements that directly relate to or
conflict with ROMAN's
<PAGE>
contemplated or existing promotional agreements in the same industry as the
premium or promotional agreement to be concluded by LIVE. LIVE shall have
the right, subject to ROMAN's reasonable approvals, to re-title the title
of the Property, provided any costs associated with such re-titling shall
be at LIVE's expense. LIVE's rights shall include, without limitation, the
exclusive right to distribute both Spanish and English versions of the
Property in LIVE's territory.
3. TERRITORY: The Dominion of Canada (excluding French speaking Canada) and
the United States, its territories, possessions, and commonwealths,
including, without limitation, Puerto Rico, U.S. Virgin Islands, Panama
Canal Zone, Guam and Samoa.
4. TELEVISION CLEARANCES: ROMAN will guarantee for the 1996-97 television
broadcast season (i) 75% clearances of Nielsen NTI, on or before the first
national syndicated airing of the Series on a stripped, daily basis, (ii)
television clearances in 20/25 top television markets, and 10/10 top
television markets, on or before the first national syndicated airing of
the Series, and (iii) an average clearance rate of 75% of Nielsen NTI for a
period of 3 months from the first national syndicated airing of the Series.
In the event LIVE pays to ROMAN any payments hereunder prior to the first
airing of the Series and upon such airing ROMAN has not met its above
clearance requirements, LIVE shall have the option, following written
notice to ROMAN of its failure to meet its clearance requirements and ROMAN
not curing such failure within 14 business days following such notice, to
either retain its rights to the Property, or, within 60 days following
LIVE's written notice to ROMAN of such failure, relinquish its rights to
the Property and receive back any payments made by LIVE to ROMAN hereunder.
5. AUTHORIZED LANGUAGES: All. ROMAN will supply free access to LIVE to all
foreign language dubs to which ROMAN has access or control.
6 TERM: The Term shall begin upon execution of the Agreement and continue
for 10 years from the earlier of the first video release in the Territory
of the Property or April 15, 1997 (the "Term").
7. DELIVERY: The Property shall be delivered in conformity with LIVE's
standard delivery schedule, such schedule subject to good faith
negotiation, in the American English language no later than 1) for the
Christmas animated episode November 1, 1996, 2) for the feature-length
motion picture November 1, 1996, and 3) for 16 additional episodes December
15, 1996, and 4) for the last 16 additional
2
<PAGE>
episodes April 1, 1997, all such delivery dates time being of the essence.
8. FINANCIAL TERMS: U.S. $400,000 recoupable advance, payable in the
following manner:
(a) Payment of twenty thousand dollars ($20,000) of the total recoupable
advance 10 days following ROMAN's and LIVE's execution of this Agreement.
(b) Payment of forty thousand dollars ($40,000) of the total recoupable
advance 10 days following the earlier of ROMAN's and LIVE's execution of a
more formal, longform Agreement or payment of the "First Installment"
(defined below).
(c) Payment of seventy thousand dollars ($70,000) of the total recoupable
advance 10 days following timely Delivery of the feature-length motion
picture referred to above; such payment to be deducted from the total
advance, and is chargeable against and recoupable from any royalties
becoming due and payable to you (the "First Installment").
(d) Payment of thirty thousand dollars ($30,000) of the total recoupable
advance 10 days following timely Delivery of the animated Christmas episode
referred to above; such payment to be deducted from the total advance, and
is chargeable against and recoupable from any royalties becoming due and
payable to you (the "Second Installment").
(e) Payment of thirty thousand ($30,000) of the total recoupable advance 10
days following timely Delivery of 16 episodes of the Series referred to
above but in no event sooner than concurrently with payment of the First
and Second Installment; such payment to be deducted from the total advance,
and is chargeable against and recoupable from any royalties becoming due
and payable to you (the "Third Installment").
(f) Payment of thirty thousand ($30,000) of the total recoupable advance 10
days following timely Delivery of an additional 16 episodes of the Series
referred to above but in no event sooner than concurrently with payment of
the First, Second, and Third Installment; such payment to be deducted from
the total advance, and is chargeable against and recoupable from any
royalties becoming due and payable to you (the "Fourth Installment").
(g) Payment of forty-five thousand dollars ($45,000) of the total
recoupable advance 10 days following first release of the feature-length
motion picture referred to above but no later than April 1, 1996, provided,
however, that should all the 32 additional episodes of the Series not have
been delivered to LIVE, LIVE may withhold this payment, and
3
<PAGE>
provided further, that payment will be extended one day for each day
Delivery is delayed on the feature-length motion picture; such payment to
be deducted from the total advance, and is chargeable against and
recoupable from any royalties becoming due and payable to you.
(h) Payment of thirty five thousand dollars ($35,000) of the total
recoupable advance 10 days following first video release of any of the
episodes of the Series but no later than July 1, 1996, including the
Christmas episode of the Series referred to above provided, however, that
should all the 32 additional episodes of the Series not have been delivered
to LIVE, LIVE may withhold this payment and, provided further, that payment
will be extended one day for each day Delivery is delayed on the Series;
such payment to be deducted from the total advance, and is chargeable
against and recoupable from any royalties becoming due and payable to you.
(i) Payment of one hundred thousand dollars ($100,000) payable 10 days
following the occurrence of both the following: (1) ROMAN's and IBM's
execution of a production/financing/distribution agreement to finance and
distribute a SONY Playstation "B.R.U.N.O. The Kid" interactive game; and
(2) introduction of the "B.R.U.N.O. the Kid" toyline by or before Toyfair
1997, provided that such introduction must be part of a major toy
manufacturer's (Mattel, Playmates, Hasbro, Kenner, Bandai, Tyco, Galoob, Up
Up And Away, Trendmasters, Toy Biz, Ertl, or Just Toys) presentation and
that the toys will be exhibited, with prototypes and marketing plans
presented to potential toy buyers, and provided further, that the toys will
be marketed on a national basis with the toy manufacturer spending an
advertising budget for such national release.
(j) Royalties:
-- 15% of LIVE's gross receipts with respect to each video embodying
the Property for which the wholesale selling price is U.S. $10.01 (or
Canadian currency equivalent) or more
-- 12.5% of LIVE's gross receipts with respect to each video embodying
the Property for which the wholesale selling price is at or between
U.S. $7.49 and U.S. $10.00 (or Canadian currency equivalent); and
-- 10% of LIVE's gross receipts with respect to each video embodying
the Property for which the wholesale selling price is at or between
U.S. $4.98 and U.S. $7.48 (or Canadian currency equivalent); and
-- 5% of LIVE's gross receipts with respect to each video embodying
the Property for which the wholesale
4
<PAGE>
selling price is below U.S. $4.98 but equal to or greater than LIVE's
manufacturing and shipping costs (or Canadian currency equivalent).
9. RENEWAL OF TERMS: If, upon expiration of the initial 10 year term, LIVE
has paid to ROMAN an amount equal to an additional $100,000 as royalties or
any other payments pursuant to this agreement during the Term, then LIVE
may automatically extend its first 10 year Term on the Property for one
successive 10 year term upon LIVE's payment to ROMAN of an additional
recoupable advance in the amount of $100,000.
10. OPTIONS: LIVE shall have the option, during the Term of this agreement, to
acquire any and all Additional Episodes of the Series under the same terms
and conditions herein, with the exception that should ROMAN produce
additional episodes of the Series ("Additional Episodes"), whether in the
form of individual episodes or compiled together in a feature-length motion
picture format LIVE shall pay to ROMAN an amount equal to $8,500 per
episode as an additional recoupable advance for each such additional
episode, provided that LIVE's total payments for such Additional Episodes
shall not exceed $250,000 and, should LIVE's payments for such Additional
Episodes equal $250,000, then any and all further Additional Episodes shall
be acquired by LIVE without any further payments (the "Option"). Should
ROMAN produce episodes of a spinoff series, i.e. any and all episodes of a
series produced with one or more of the same recurrent characters as the
Property but with other characters and storylines different from the
Property (a "Spinoff Series"), then LIVE shall have a right of first
negotiation/last refusal with respect to such spinoff series. LIVE shall
have thirty days (30) following ROMAN's delivery to LIVE of written notice
(including synopses and screening cassette, if available) of a commitment
to commence production and a television broadcast commitment of any such
Additional Episodes of the Series, a feature-length motion picture compiled
from the Series, or single additional programs to exercise such Option. In
the event LIVE does not exercise its option to acquire such Additional
Episodes referred to above, ROMAN may not license such Additional Episodes
until eighteen (18) months following the earlier of LIVE's first release of
the Property in the U.S. or LIVE's expiration of the above-referenced 30
day period. In addition, LIVE shall have a right of first refusal/first
negotiation with respect to any original feature-length animated direct-to-
video motion picture produced based on the Property.
11. CONDITION PRECEDENT: Notwithstanding anything to the contrary contained
herein, any obligations of LIVE hereunder are expressly conditioned upon
LIVE's approval of all chain
5
<PAGE>
of title documents and all lab access letters with regard to the Property.
12. RESIDUALS, PARTICIPATIONS, MUSIC AND OTHER CLEARANCES: All the
responsibility of Producer.
13. SECURITY INTEREST: LIVE shall be granted a first priority lien in and
mortgage of copyright on the rights in the Property granted herein in order
to secure the rights granted to LIVE hereunder.
14. NAME, LIKENESS, AND VOICES: LIVE will be able to use the name, likeness,
and voices of all persons rendering services in the Picture without
restriction, subject to Bruce Willis' rights of approval contained in his
prior, existing agreement with ROMAN, and, with respect to other talent
employed on the Property, other than normal and customary restrictions on
the name, likeness and voices provided in ROMAN's standard talent
agreements. Immediately following the execution of this letter agreement,
ROMAN will deliver to LIVE all service agreements to verify that there are
no restrictions on name and likeness uses other than noted above. Should
there be any such restrictions, LIVE will have the right to cancel this
agreement within seven business days following ROMAN's delivery to LIVE of
such service agreements.
15. RIGHT OF TERMINATION: ROMAN shall have a right to terminate this agreement
if, 30 days following written notice from ROMAN to LIVE of LIVE's failure
to make any payments due and payable under paragraph 8(a)-(i), LIVE does
not pay to ROMAN such payment(s) due and payable to ROMAN.
16. LIMITED RELEASES: LIVE agrees that, during the first five years of the
Term, it shall not, without the prior approval of ROMAN (such approval not
to be unreasonably withheld), release for sale to the general public more
than six videocassettes of the Property (excluding premium and promotional
videocassettes) in each calendar year.
If the above is acceptable to you, please execute this Agreement where indicated
below and return via facsimile. The Agreement, together with LIVE's standard
terms and conditions which are incorporated herein by its reference (subject to
good faith negotiation within parameters customarily acceptable to Distributor),
constitutes a binding agreement between the parties and shall govern until such
time as a more formal agreement is executed between the parties. Any points not
addressed by LIVE's standard terms and conditions shall be subject to those
customs and standards prevailing in the entertainment industry in Los Angeles.
Best regards,
6
<PAGE>
LIVE FILM AND MEDIAWORKS INC.
/s/ Rick Mischel
- ------------------------------
Rick Mischel
Vice President, Family Entertainment
AGREED AND ACCEPTED
FILM ROMAN
By: /s/ Phil Roman
--------------------------
Phil Roman
Position:
--------------------
Date:
------------------------
cc: P. Almond T. Fournier R. Burlage
S. Mangel E. Slutzky B. Weinzimer
D Stein D. Garber
7
<PAGE>
EXHIBIT 10.21
FOX CHILDREN'S NETWORK
VIA FACSIMILE & U.S. MAIL
(818) 985-2973
January 9, 1995
Raul Galaz
FILM ROMAN, INC.
12020 Chandler Boulevard
Suite 200
North Hollywood, CA 91607
Re: "T-BEAR & JAMAL"
Dear Raul:
Attached to this letter agreement as "Exhibit 1" is a copy of the deal memo (the
"Deal Memo") you and Rich Vokulich agreed to in August 1994 containing the terms
of the agreement between Fox Children's Network, Inc. ("FCN") and Film Roman,
Inc. ("Producer") with respect to the above-referenced project. Since the Deal
Memo, you and Rich have agreed upon the following amendments thereto: in
addition to the development materials described in Paragraph 1 of the Deal Memo,
Producer shall prepare for FCN: (1) a substantially revised version of the
prototype script to be written by Todd Jones, Ritchie Jones and Al Sonja Rice,
for which FCN shall reimburse Producer for an amount up to $10,000 for
producer's applicable, actual, auditable, direct, out-of-pocket costs; and (2)
an additional script rewrite plus a storyboard of half of the script and a voice
track to be based on the script, for which FCN shall reimburse Producer in the
aggregate for an amount up to $11,725 for Producer's applicable, actual,
auditable, direct, out-of-pockets costs.
Please arrange for the execution of the enclosed copies of this letter agreement
on behalf of Producer, and promptly return all partially-executed copies to Rich
Vokulich at the following address: Rich Vokulich, Fox Children's Network, 10201
West Pico Boulevard, Building 88/Room 372, Los Angeles, California 90035. For
purposes of clarification, by signing this letter agreement Producer shall be
re-confirming its prior agreement to the terms of attached Exhibit 1, as
amended above.
I presume that there will be no problem having this letter executed immediately
by Producer as you have agreed to this previously and as you informed me last
week that it was your recollection that you had in fact signed the Deal Memo
<PAGE>
Raul Galaz
January 9, 1995 - Page 2
"T-BEAR & JAMAL"
previously.
Thanks for your help.
Best regards,
/s/ Robert Jay Weinberg
- -----------------------
Robert Jay Weinberg
Counsel
FILM ROMAN, INC.
BY:/s/Phil Roman
-------------
Its: President
FOX CHILDREN'S NETWORK
BY:/s/Rich Vokulich
----------------
Its: V.P. Business Affairs
RJW:el
enclosure
cc: Karen Barnes
Karen Fox
David Grant
Ira Kurgan
Del Mayberry
Minna Taylor
Rich Vokulich
Eric Yeldell
(all w/enclosures)
2
<PAGE>
EXHIBIT "1"
PROPOSAL
"T-BEAR AND JAMAL" ("Property")
FILM ROMAN, INC. ("Producer")
FOR DISCUSSION PURPOSES ONLY
November 22, 1993, revised December 9, 1993, December 13, 1993, June 23, 1994
and August 1, 1994.
1. INITIAL DEVELOPMENT - Producer shall provide FCN with the following
development materials:
(a) a series bible, consisting of full descriptions of all major
characters, the environment in which the stories will be played and up
to eight story premises which, if approved, shall be the basis of
series episodes;
(b) a prototype script based upon one of the aforementioned story
premises; and
(c) artwork including main character color models and backgrounds.
The bible, prototype script and artwork shall hereafter be referred to as
"Initial Development Materials."
For such Initial Development Materials, FCN shall reimburse Producer up to
$15,000 for its actual, auditable, direct out-of-pocket costs incurred in
connection with preparing and delivering such materials to FCN. In
connection with the Initial Development Materials, FCN shall advance
Producer $14,500 immediately upon execution of a short form agreement with
the balance of $500 to be paid upon audit verification.
In addition to the Initial Development Materials described hereinabove, FCN
shall reimburse Producer for an additional script ("Supplemental
Development Material"), the writer of such Supplemental Development
Material and the amount of FCN's reimbursement shall be subject to FCN's
prior written approval.
2. FIRST SERIES OPTION
FCN shall have an exclusive, irrevocable option exercisable on or before
December 15, 1994 in which to order the production and delivery of a series
of 13 new half hour episodes based on the Property, the Initial Development
Materials and the Supplemental Development Materials ("Series"). FCN shall
pay Producer, immediately upon execution of a short form agreement, an
option payment of $5,000 for the above option period. If FCN exercises its
option, the Series will be produced and delivered in accordance with FCN's
delivery requirements, but in no event
1
<PAGE>
"T-BEAR AND JAMAL"
EXHIBIT "1"
Page 2
later than on a one episode per week basis, commencing August 15, 1995.
FCN may increase the initial Series order described hereinabove by up to an
additional 10 new half hour episodes at anytime prior to December 15, 1995.
3. ADDITIONAL OPTIONS - FCN shall have the following additional annual
options:
(a) 2nd Order - on or before April 1, 1996 to order a minimum of 8 and a
maximum of 30 new half-hour episodes;
(b) 3rd Order - on or before April 1, 1997 to order a minimum of 6 and a
maximum of 30 new half-hour episodes;
(c) 4th Order - on or before April 1, 1998 or later as provided below to
order a minimum of 6 and a maximum of 30 new half-hour episodes;
(d) 5th Order - on or before April 1, 1999 or later as provided below to
order a minimum of 6 and a maximum of 30 new half-hour episodes;
(e) 6th Order - on or before April 1, 2000 or later as provided below to
order a minimum of 6 and a maximum of 30 new half-hour episodes;
(f) 7th Order - on or before April 1, 2001 or later as provided below to
order a minimum of 6 and a maximum of 30 new half-hour episodes; and
(g) 8th Order - on or before April 1, 2002 or later as provided below to
order a minimum of 6 and a maximum of 24 new half hour episodes.
Provided that FCN exercises its options as described in paragraph 2, 3(a)
and 3(b) above, then FCN shall have the right to elect not to order new
episodes for one season and thereafter may resume ordering new episodes. At
any time after FCN orders a total of 65 episodes, FCN shall have the right
to elect not to order new episodes for up to three seasons and thereafter
may resume ordering new episodes.
4. LICENSE FEE(S) - FCN shall pay Producer the following license fees for each
new episode produced and delivered hereunder:
(a) 1st Order - $210,000
(b) 2nd Order - 220,500
2
<PAGE>
"T-BEAR AND JAMAL"
EXHIBIT "1"
Page 3
(c) 3rd Order - 231,525
(d) 4th Order - 243,101
(e) 5th Order - 255,256
(f) 6th Order - 268,019
(g) 7th Order - 281,420
(h) 8th Order - 295,491
In the event FCN exercises any of the options described above, the license fees
described above shall provide FCN with a minimum of 52 aggregate runs (i.e., the
"Annual Aggregate Runs Purchased") of the Series Library (i.e., all episodes
produced during the Term as defined below in Paragraph 7). If FCN orders more
than 8 new episodes pursuant to any of the options in Paragraphs 3(a)-3(g),
above, then for each new episode ordered by FCN in excess of 8 episodes, the
number of the Annual Aggregate Runs Purchased for such order shall be increased
by four (e.g., if 9 episodes are ordered, the Annual Aggregate Runs Purchased
for such order shall be 56 runs, etc.). Any unused runs may be carried forward
and used at anytime during the Term at no additional cost. For runs in excess
of those purchased or those carried forward hereunder, FCN shall pay Producer a
flat fee of $6,500 per run ("Flat Rerun Fee").
FCN shall have the right, in its sole discretion, to exhibit the Series Library
during the Term during any and all FCN time periods without any limitations
whatsoever.
License fees shall be payable as follows:
. 1/3rd of the applicable license fee upon script and storyboard
approval by FCN;
. 1/3rd of the applicable license fee upon completion of production and
delivery of animated rough cut; and
. the balance of the applicable license fee upon final delivery to and
acceptance by FCN of each episode.
In connection with the initial order of the Series, FCN shall pay a one-time
only pre-production advance of $130,000 upon signature of a license agreement,
indemnification agreement and presentation of required insurance certificates.
This pre-production advance shall be recouped equally from the script/storyboard
payment from each of the first 13 episodes.
5. QUALITY - Episodes to be produced hereunder shall be produced with quality
equal to or better than "Bobby's World". For the first season, the direct
budget (i.e., excluding any overhead and/or Producer's fee) for each
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"T-BEAR AND JAMAL"
EXHIBIT "1"
Page 4
episode shall be at least $300,000 per episode. In subsequent seasons the
budget shall increase proportionately with the license fees paid by FCN
herein with appropriate adjustments for items that may be amortized over
the entire production period. Prior to commencement of production, FCN
shall have approval over the budget in addition to its customary approvals
(i.e., script, voices, storyboard, backgrounds, foreign animation studio,
writers, producers, etc.). FCN's approval of the budget shall not be
unreasonably withheld.
6. EXCLUSIVITY - The Property, the characters, the storylines and all elements
contained within the Series shall be exclusive to FCN within the FCN
Territory (as defined herein) during the FCN Term (as defined herein).
Such exclusivity shall include but not be limited to the exclusive rights
to broadcast, exhibit and distribute any and all live-action, live-
action/animation and/or animated series, including the Series, specials,
programs and/or feature films based on the Property intended for any
audio/visual media, including but not limited to television, home video and
motion pictures during the Term. The Series, the episodes and all elements
contained therein are owned by the Producer. Notwithstanding the
foregoing, following the second season, if any, in which new episodes of
the Series are ordered by FCN, Producer shall have the right to exploit the
motion picture theatrical rights to the Property within the FCN Territory
subject to the following conditions:
(a) Producer shall afford 20th Century Fox Film Corporation ("Fox
Film") a first negotiation/first refusal right to acquire any and
all such theatrical rights as more fully described in Exhibit "A"
attached hereto, and
(b) For each theatrical motion picture produced by Fox Film or any
other party, FCN shall receive 10% of 100% of Producer's adjusted
gross revenues (for purposes of this subparagraph, adjusted gross
revenues shall be defined as all revenues from all motion picture
theatrical sources including but not limited to home video, laser
disc, television, soundtracks, etc. received by Producer in
connection with each such theatrical including but not limited to
fixed and contingent compensation less only pre-approved third
party participants and Producer's unrecouped, actual, direct,
auditable, out-of-pocket production costs of any such
theatrical). In connection with each such theatrical motion
picture, Producer shall actively
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"T-BEAR AND JAMAL"
EXHIBIT "1"
Page 5
and in good faith consult with FCN on all business and marketing
matters concerning such theatrical(s). In connection with each
such theatrical motion picture, Producer shall provide FCN
meaningful, good faith consultation rights in connection with the
story and script unless Producer or third party distributor
elects to change the basic concept and characters of the Series.
In the event of a change in such basic concept and/or characters
FCN shall have story and script approvals. Such approvals shall
be rendered reasonably, timely and in a good faith manner.
In the event Producer renders animation production services on an
animated theatrical motion picture, then FCN shall be entitled to
10% of Producer's executive producing fees, rights fees and any
and all fixed and contingent participation as more fully defined
above.
Notwithstanding anything to the contrary contained hereinabove, FCN's share
of adjusted gross revenues shall not exceed 10% of 100% of Producer's
adjusted gross revenues.
7. TERM - The Term of this agreement shall be defined as the period of time
including all broadcast seasons of the Series hereunder plus the applicable
periods as set forth below:
(a) if FCN orders only 13 episodes - for one year after FCN's last regular
exhibition of the Series.
(b) if FCN orders more than 13 episodes but less than 25 episodes - for
two years after FCN's last regular exhibition of the Series.
(c) if FCN orders more than 25 episodes but less than 37 episodes - for
three years after FCN'S last regular exhibition of the Series.
(d) if FCN orders more than 37 episodes but less than 50 episodes - for
four years after FCN's last regular exhibition of the Series.
(e) if FCN orders 65 episodes - for five years after FCN's last regular
exhibition of the Series.
Following the Term, FCN shall have first negotiation, first refusal rights
(based on FCN's last offer to Producer) to
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"T-BEAR AND JAMAL"
EXHIBIT "1"
Page 6
reacquire rights to the Property and to any programs produced hereunder.
8. HOME VIDEO - Following the end of each season in which FCN orders and
exhibits a minimum of 8 new episodes, Producer may release up two cassettes
containing up to two episodes on each such cassette within the FCN
Territory (i.e., following the 94/95 season (September 1995)) Producer may
release four of the thirteen new episodes produced for the 94/95 season on
two cassettes). If FCN exercises a repeat option rather than an option for
new episodes, then in addition to those episodes described in the preceding
sentence, Producer may release up to a maximum of two episodes during each
repeat season. Any home video released by Producer within the FCN
Territory during the FCN Term shall be subject to the following:
(a) FCN's prior approval as to the episode(s) to be released (which
approval not to be unreasonably withheld); and
(b) such video cassette shall be identified or stickered with an FCN
identification (i.e., "See T-BEAR AND JAMAL - Saturdays on Fox").
9. TERRITORY - FCN's Territory shall include the United States, its
territories, possessions including english speaking to Puerto Rico as well
as customary Mexico and Canadian border protection.
10. MERCHANDISING - All merchandising/publishing/promotional tie-in rights
(hereafter collectively referred to as Merchandising"), shall be retained
exclusively by Producer. Provided, however, that during the FCN Term
hereof, Producer shall pay FCN a total of 12-1/2% of 100% of gross
merchandising/publishing revenues prior to production breakeven. Upon
production breakeven, Producer shall retroactively increase FCN's share of
gross Merchandising revenues by 2-1/2% so that FCN's total share of gross
Merchandising revenues equals 15%. After production breakeven, Producer
shall pay FCN 15% of 100% of the gross Merchandising revenues. Gross
Merchandising revenues shall be defined as 100% of all gross revenues
generated from domestic (i.e., U.S., its territories and possessions and
Canada) sales from the date in which FCN announces the exercise of its
initial Series option described in Paragraph 2 until the end of the Term.
For purposes of this agreement, Merchandising shall include, but not be
limited to, the following types of products/services: toys, games, board
games, hardcover and softcover books, activity books,
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"T-BEAR AND JAMAL"
EXHIBIT "1"
Page 7
hand held video games, apparel, fast food promotions,
advertising/commercial tie-ins, stage tours, CD Rom and CD-I games
featuring the characters included within the Series but in no event shall
such CD Rom or CD-I applications feature Series footage unless such footage
has been previously released on home video. For purposes of determining
"break-even", it is understood that break-even shall occur when actual,
direct, auditable production costs excluding producing fees or overhead
equal actual gross revenues from all sources without limitation.
In the event Producer acts as a manufacturer or distributor of goods and/or
services utilizing the Property, then FCN and Producer will negotiate in
good faith the appropriate royalty for such use(s). In connection
herewith, FCN shall have customary audit rights. Notwithstanding the
foregoing, Producer may deduct an administration fee of 10% (including all
fees, costs, etc.) from all Merchandising proceeds payable to FCN
hereunder.
11. PRIMETIME RUN - During each season in which FCN exercises its option for
new episodes, FCN shall have the right to exhibit one episode in primetime.
For each such primetime run, FCN shall reimburse Producer for its actual,
direct, out-of-pocket residual costs in connection with the SAG voice
actors. Such SAG residual costs shall not exceed SAG scale without FCN's
prior written approval. The fee for any additional primetime exhibitions
shall be subject to good faith negotiations.
12. OTHER - This proposal shall be subject to all other FCN standards terms and
conditions for similar deals including but not limited to indemnification,
promotion, publicity, audit, insurance, warranties, creative and budget
approvals and animation studio approvals. Such standard terms and
conditions shall be subject to good faith negotiation within FCN's
customary parameters.
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<PAGE>
"T-BEAR AND JAMAL"
EXHIBIT "1"
Page 8
EXHIBIT "A"
1. "Right of First Negotiation": The term "Right of First Negotiation" means
that if Film Roman desires to dispose of or exercise Film Roman's rights in
a theatrical motion picture ("Reserved Right"), whether directly or
indirectly, then Film Roman shall by written notice notify Fox of such
desire and immediately thereafter negotiate with Fox with respect to the
Reserved Right and if, after the expiration of 45 calendar days following
such notice from Film Roman to Fox, no agreement has been reached, then
Film Roman shall be free to negotiate elsewhere with respect to the
Reserved Right, subject to Fox's Right of First Refusal.
2. "Right of First Refusal": The term "Right of First Refusal" means that if
Film Roman and Fox fail to reach an agreement pursuant to Fox's Right of
First Negotiation as to the Reserved Right and Film Roman makes and/or
receives any bona fide offer to license, lease and/or purchase the Reserved
Right, or any interest therein, which contains any material financial terms
which are less favorable to Film Roman than the corresponding financial
terms which Fox last offered to Film Roman and/or which changes any other
element of the offer last offered to Fox and Film Roman proposes to accept
such offer, Film Roman shall notify Fox of such offer specifying the
particulars thereof, including the name of the offeror, the proposed
financial terms and all other terms of such offer. During the period of 10
business days after said notice, Fox shall have the exclusive option to
license, lease and/or purchase, as the case may be, the Reserved Right or
the interest therein referred to in such offer, upon the same financial
terms and such other terms as are set forth in such notice, it being agreed
that the terms subject to the option shall not require the performance by
Fox of terms which are not capable of performance on a financial basis. If
Fox elects to exercise said option, Fox shall notify Film Roman of the
exercise thereof within said ten (10) business day period, otherwise Film
Roman shall be free to accept said bona fide offer; provided that, if any
such proposed offer is not consummated within 75 calendar days following
the expiration of said ten (10) business day period, Fox's option shall
revive and shall apply to such proposed offer again and to each and every
further offer or offers at any time received by Film Roman relating to the
Reserved Right or any interest therein. Fox's said option shall continue
in full force and effect, upon all of the terms and conditions of this
Paragraph, so long as Film Roman retains any right, title or interest in or
to the Reserved Right and provided, further, that Fox's said option
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<PAGE>
"T-BEAR AND JAMAL"
EXHIBIT "1"
Page 9
shall inure to the benefit of Fox and successors and assigns, and shall
bind Film Roman and its heirs, successors and assigns.
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<PAGE>
EXHIBIT 10.22
As of June 1, 1995
Fox Children's Network, Inc.
10201 West Pico Blvd.
Los Angeles, California 90035
Re: "T-BEAR AND JAMAL"/Indemnification Agreement
Gentlemen:
The undersigned, Film Roman, Inc. ("Producer"), is entering into this
Indemnification Agreement in connection with the production and delivery by
Producer to Fox Children's Network, Inc. ("FCN") of a television pilot and/or
television series tentatively entitled "T-BEAR AND JAMAL", intended for license
by FCN as a part of FCN's satellite program delivery service. As used herein,
the word "Program" shall include, individually and collectively, said pilot and
series (and each and all episodes thereof), if any, the basic idea, format and
literary and other property upon which they are based, and all other elements
thereof. In order to induce FCN to enter into the license agreement with respect
to the Program with Producer, Producer agrees as follows:
1. Within the agreed-upon term and territory, Producer has granted to FCN
certain exclusive rights to exhibit the Program and certain rights relating
thereto, including the right to use, for informative purposes and in
advertising, publicizing and exploiting the Program, the name and likeness of
the above-the-line persons whose services, or the results and proceeds of whose
services, Producer furnishes. In connection with the advertising and publicizing
of the Program, FCN may also authorize and permit mention of the products or
services of any sponsor of the Program; provided, however, no such mention shall
constitute an endorsement of any product or service. Producer represents and
warrants that the Program and all elements thereof are original or are owned or
controlled by Producer, to the extent necessary to grant all rights (including
exclusivity rights) that Producer is granting FCN, or are in the public domain,
and that Producer has the right to enter into this Agreement and grant all
rights referred to above.
2. (a) Producer shall indemnify and hold harmless FCN and its parents,
affiliates, subsidiaries, licensees, successors and assigns, the stations
broadcasting the Program, each Program sponsor and its advertising agency, and
the respective owners, officers, directors, agents and employees of each ( all
of the foregoing are collectively the "Indemnified Parties") from and against
all liability, actions, claims, demands, losses or damages (including reasonable
attorneys' fees) caused by or arising out of the development or production of
the Program or the broadcast or
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other uses of the Program (or the elements, material or performances contained
therein) authorized or permitted by Producer, excluding any claim to the extent
FCN is obligated to indemnify Producer with respect thereto under subparagraph
2(b) below.
(b) FCN shall indemnify and hold harmless Producer and its parent,
affiliates, subsidiaries, licensees, successors and assigns, and the respective
owners, officers, directors, agents and employees of each from and against all
liability, actions, claims, demands, losses or damages (including reasonable
attorneys' fees) caused by or arising out of FCN's use of the Program to the
extent that such liability, action, claim, demand, loss or damage is based on
any material contained in the Program that was in fact furnished in writing by
FCN to Producer for use in the Program, in violation of any third party's
rights, or caused by or arising out of the non-dramatic performance of music, by
the broadcast of the Program by stations affiliated with FCN to their audiences
that at the time of such performance the music was available for license for
non-dramatic performance through ASCAP or BMI. FCN's review and approval of any
elements, material or Program furnished by Producer shall not constitute a
waiver of Producer's indemnity.
(c) The indemnitor may assume, and if the indemnitee requests in writing
shall assume, the defense of any claim, demand or action, and upon request by
the indemnitee, shall allow the indemnitee to cooperate in the defense. The
indemnitee shall give the indemnitor prompt notice of any claim, demand or
action covered by this indemnity. If the indemnitee settles any such claim,
demand or action without the prior written consent of the indemnitor, the
indemnitor shall be released from the indemnity in that instance; provided,
however, that the foregoing provisions of this sentence shall not apply in any
instance where the indemnitor has refused or failed to assume, after the
indemnitee's written request therefor, the defense of any such claim, demand or
action.
3. Producer shall immediately obtain a television producer's liability (error
and omissions) policy, issued by a reputable company approved by FCN and naming
FCN and the other Indemnified Parties as additional insureds, with coverage of
at least $5,000,000 and with a deductible of not greater than $10,000. Said
policy shall be maintained in full force and effect until at least the end of
FCN's rights to license exhibition of the Program, and shall provide the
coverage required herein not only with respect to claims asserted at any time
during the term of said policy, but also with respect to claims asserted within
three (3) years after the expiration of said policy term. Said policy shall be
primary and not excess of or contributory to any other insurance provided for
the benefit of or by FCN. Producer shall furnish FCN with a binder of coverage
or an endorsement (said binder or endorsement shall name the Indemnified Parties
and be issued directly by the insurance carrier) within (10) days after any
Program order.
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INITIAL INITIAL
------------------------- ----------------------
------------------------- * $2,000,000 ---------------------- ** $15,000
------------------------- ----------------------
4. This agreement shall bind Producer, its successors and assigns and shall
inure to the benefit of FCN, its successors and assigns. The laws of the State
of California applicable to contracts negotiated, signed and to be fully
performed therein shall apply to and govern the construction and enforcement of
this Agreement.
Very truly yours,
FILM ROMAN, INC.
By: /s/ Phil Roman
------------------------------------
Its: Phil Roman
------------------------------------
ACCEPTED AND AGREED TO:
FOX CHILDREN'S NETWORK, INC.
By: /s/ Donna Cunningham
-------------------------
Its: VP Business Affairs
-------------------------
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<PAGE>
EXHIBIT 10.23
VIA FACSIMILE & U.S. MAIL
(818) 985-2973
As of March 1, 1996
Jon Vein, Esq.
FILM ROMAN, INC.
12020 Chandler Boulevard
Suite 200
North Hollywood, CA 91607
Re: "C-BEAR AND JAMAL" ("Series")
Dear Jon:
The following shall serve as an amendment to the agreement dated as of November
22, 1993, as revised (the "Agreement") between Film Roman, Inc. ("FRI") and the
FOX Children's Network, Inc. ("FCN") in connection with the above-referenced
Series. The parties hereto agree that for purposes of the Agreement, FCN shall
be deemed to include affiliates, subsidiaries and parent companies of FCN.
1. SECOND ORDER OPTION: In accordance with Paragraph 3(a) of Exhibit "1" of
the Agreement, FCN hereby orders the production and delivery of ten (10) half-
hour episodes of the Series. The Series episodes shall be produced and
delivered on a one-episode-per-week basis commencing on or about September 1,
1996. FCN's order pursuant hereto maintains FCN's ability to elect not to order
new episodes for one season and thereafter resume ordering new episodes as set
forth i the final paragraph of Paragraph 3.
2. LICENSE FEES: Paragraph 4 of the Agreement is hereby amended by adding the
following sentence at the end of the first paragraph thereof:
"Notwithstanding anything to the contrary contained herein, FCN shall be
entitled to an unlimited number of runs of the Series Library in the Non-
Domestic Territory (as defined herein) during the Non-Domestic Term (as
defined herein)."
3. EXCLUSIVITY:
(a) Paragraph 6 of the Agreement is hereby amended by deleting the first
sentence thereof and substituting therefore the following:
"The Property, the characters, the storylines and all elements
contained within the Series shall be exclusive
<PAGE>
to FCN within the Domestic Territory (as defined herein) during the
Domestic Term (as defined herein).
(b) Paragraph 6 of the Agreement is hereby further amended by (i) deleting
the reference to "Term" contained in the second sentence thereof and
substituting therefor the term "Domestic Term" and (ii) deleting the
reference to "FCN Territory" contained in the fourth sentence thereof and
substituting therefor the term "Domestic Territory".
(c) Paragraph 6 of the Agreement is hereby further amended by adding the
following at the end thereof:
"Notwithstanding anything to the contrary contained in this Agreement,
Producer hereby grants to FCN exclusive worldwide rights to exhibit
the Series via Non-OTA Transmission (as defined herein). "Non-OTA
Transmission" means exhibition by means of cable, wire, fiber or other
wired transmission or other forms of closed or scrambled transmission,
satellite (including direct broadcast or TVRO satellite
transmissions), satellite master antenna, single and multi-channel
multi-point distribution, radio, tape, cassette and disc delivery,
over-the air scrambled transmission, or by other similar means whether
now or hereafter devised. As permitted pursuant to the immediately
preceding sentence, Producer may license the exhibition of the Series
in the Non-Domestic Territory (as defined herein) with respect to
free, over-the-air, television exhibition (such rights being the
"Producer OTA Rights"); provided, however, that Producer may not
exercise such Producer OTA Rights with respect to any episode of the
Series until six months following the date of delivery by Producer of
such episode to FCN."
4. TERM: Paragraph 7 of the Agreement is hereby be amended by deleting it in
its entirety and substituting therefore the following:
"7. FCN TERM: In connection with the exploitation of the Series
within the Domestic Territory, the Term of this Agreement shall be
defined as the period of time including all broadcast seasons of the
Series hereunder plus the applicable periods as set forth below (the
"Domestic Term"):
(a) if FCN orders only 13 episodes - for one year after FCN's
last regular exhibition of the Series.
(b) If FCN orders more than 13 episodes but less than 25
episodes - for two years after FCN's last regular exhibition
of the Series.
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(c) if FCN orders more than 25 episodes but less than 37
episodes - for three years after FCN's last regular
exhibition of the Series.
(d) if FCN orders more than 37 episodes but less 65 episodes -
for four years after FCN's last regular exhibition of the
series.
(e) if FCN orders 65 episodes - for five years after FCN's last
regular exhibition of the Series.
In connection with the worldwide exploitation rights of the Series via Non-
OTA Transmission granted to FCN, the Term of this Agreement shall be
defined as the period of seven (7) years following the date of delivery to
FCN of the final episode of the Series ordered hereunder (collectively, the
"Non-Domestic Term").
Following the expiration of either of the Domestic Term or the Non-Domestic
Term, FCN shall have first negotiation, first refusal rights (based on
FCN's last offer to Producer) to reacquire such rights to the Property and
to any programs produced hereunder."
5. HOME VIDEO:
(a) Paragraph 8 of Exhibit "1" of the Agreement is hereby amended by
deleting the reference to "FCN Territory" in the first and third sentences
thereof and substituting therefore the phrase "Domestic Territory."
(b) Paragraph 8 of Exhibit "1" of the Agreement is hereby further amended
by adding the following paragraph at the end thereof:
"Notwithstanding anything to the contrary contained in this Paragraph
8, subject to the immediately succeeding sentence, Producer may
release cassettes containing an episode or episodes of the Series in
the Non-Domestic Territory ("Foreign Releases") subject to the
restrictions contained herein:
(i) Producer shall not be permitted to release any such cassettes
as Foreign Releases until six (6) months following the initial
exhibition of the Series in the Non-Domestic Territory.
(ii) In those territories within the Non-Domestic Territory where
FCN is distributing the Series, Producer shall consult with FCN
regarding the number of episodes of the Series to be released as
Foreign Releases and the timing of such release;
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<PAGE>
provided,however, that notwithstanding anything to the contrary
contained herein, Producer agrees that it shall not allow the
release of more than 50% of all episodes of the Series produced
during any season as part of such Foreign Releases.
(iii) In no event shall any episode of the Series be released as
part of a Foreign Release until at least three months following
the initial exhibition of such episode by FCN in the Non-Domestic
Territory.
(iv) Each video cassette released as a Foreign Release in a
territory within the Non-Domestic Territory where FCN is
transmitting the Series shall be identified or stickered with an
FCN identification similar to the one set forth in clause (a)
above (with an appropriate reference to the applicable
programming service carrying the Series in such territory)."
6. TERRITORY: Paragraph 9 of Exhibit "1" of the Agreement is hereby amended
by deleting it in its entirety and substituting the following therefore:
"FCN TERRITORY - FCN's Territory shall include (i) the United States,
its territories and possessions, including English-speaking Puerto
Rico, as well as customary Mexico and Canadian border protection (the
"Domestic Territory") and (ii) all other territories worldwide other
than the Domestic Territory (the "Non-Domestic Territory"). FCN
hereby acknowledges that due to pre-existing contractual commitments,
Germany shall be excluded from the Non-Domestic Territory."
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All other terms and conditions of the Agreement are hereby ratified and
confirmed and by this reference incorporated herein.
ACCEPTED AND AGREED TO
FILM ROMAN, INC. FOX CHILDREN'S NETWORK, INC.
BY: BY:
------------------------ ------------------------
ITS: ITS:
------------------------ ------------------------
cc: Donna Cunningham
Kathy Edrich
Ira Kurgan
Margaret Loesch
Del Mayberry
Rich Vokulich
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<PAGE>
EXHIBIT 10.24
Dated: September 12, 1994
TONE LOC, INC.
c/o Kevin Murray
8721 Santa Monica Blvd. #403
Los Angeles, California 90069
Re: Film Roman, Inc. / Tone Loc Option Agreement
--------------------------------------------
Gentlepersons:
This memorandum of agreement (the "Agreement") by and between FILM
ROMAN, INC. ("FRI"), on the one hand, and TONE LOC, INC. f/s/o Tone Loc
("Owner"), on the other, in connection with the development and production of
one (1) or more theatrical or television productions based on the Rights, as
herein defined below, is as follows:
1. Option:
------
In consideration of good and valuable consideration hereby
acknowledged as received, Owner hereby grants to FRI the sole and exclusive
irrevocable option (the "Option") to purchase all of the rights set forth in
paragraph 3 of this Agreement. The term of the Option commences as of the date
set forth above and will expire upon expiration of Fox Children's Network's
option to order episodes of the Series.
2. Exercise of Option: If FRI elects to exercise the Option, FRI shall
do so by giving Owner written notice delivered to Owner's address set forth
above at any time on or before the expiration of the Initial Option Period, or
Extension Period, if any.
3. Grant of Rights: Subject to paragraph 4 (Reserved Rights) and any
exceptions in paragraph 7 (Exclusivity), if FRI exercises the Option, then as of
that time, FRI shall own, without restriction or reservation, all rights
("Rights") of every kind and nature throughout the world in perpetuity in all
media, whether now known or hereafter devised, to utilize Tone Loc's name, voice
and/or animated likeness in connection with the animated series contemplated
hereunder ("Series") and all subsidiary and ancillary rights therein, including
without limitation merchandising, publication and comic syndication. As used
herein, the term "Rights" includes, but is not limited to, the right to produce
the Series, specials based thereon, all theatrical and/or television remake,
sequel (including
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series) rights based upon the concept therefor, and all rights to advertise,
broadcast, exhibit and otherwise exploit any productions produced hereunder and
all rights therein and portions thereof. It is understood that all of Owner's
services hereunder are being performed under a special commission and shall be
considered a work-for-hire under copyright law; as such, FRI shall be deemed the
owner and author thereof at the time of creation/rendering of services.
Notwithstanding the foregoing, FRI shall not have the right to produce,
distribute or otherwise exploit a soundtrack recording embodying Tone Loc's
voice without the prior written approval of Delicious Vinyl Records and Tone
Loc. Tone Loc agrees to use reasonable best efforts to cause Delicious Vinyl
Records to enter into good faith negotiations with FRI concerning the same.
Additionally, it his hereby acknowledged and agreed to that Tone Loc may not
utilize any song from any production produced hereunder in any other media
and/or album without FRI's prior written approval. Finally, FRI may use Tone
Loc's name, voice and/or likeness in connection with merchandising subject only
to the limitation that the animated Tone Loc character which is the subject of
the productions produced hereunder, is also used in connection with said
merchandising.
4. Reserved Rights: Notwithstanding anything to the contrary contained
in paragraph 3 above and without derogation of any rights otherwise granted
pursuant to paragraph 3, Owner hereby reserves all rights not granted in
paragraph 3, above.
5. Reversion of Rights: If FRI (or its assigns) exercises the option
and thereafter fails to produce new productions for a continuous period in
excess of two (2) years, all rights granted hereunder shall revert to Owner, it
being understood that FRI shall continue to have the right to exploit any works
produced hereunder, including without limitation, television series episodes,
television specials, theatrical motion pictures, and merchandising rights (for
the duration of existing merchandising agreements), subject to the terms hereof.
6. Services: Following FRI's exercise of its option Owner shall furnish
the services of Tone Loc to render the following services (as indicated) for
each program produced hereunder, subject to the approval of the applicable
financing entity/broadcaster. FRI shall pay Owner the following sums (fifty
percent (50%) on commencement and fifty percent (50%) on shipment of each
episode to overseas animation studio, unless specified to the contrary below) as
compensation for such services, as rendered:
(a) Voice Over: The then applicable SAG scale + 10% (Tone Loc) on a
favored nations basis with other recurring talent, payable on the next regular
pay day following rendering of services.
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(b) Acting: Twice the then applicable SAG scale (Tone Loc), payable
on the next regular pay day following rendering of services.
(c) Song Writing: Five Hundred Dollars ($500.00) per song upon delivery
and acceptance, not to be unreasonably withheld, of each set of lyrics
and music in connection with each song written by Tone Loc. Subject to
paragraph 9, below, the foregoing fee shall include all costs in
connection with writing services only, it being understood that FRI
shall engage the facilities and services necessary to produce each
song and bear any and all costs associated therewith. Notwithstanding
the foregoing, FRI agrees that Tone Loc shall have reasonable approval
rights in connection with the producer(s), which approval shall not be
unreasonably withheld.
(d) Executive producer fees:
(i) Prime Time Series Episode: $10,000
(ii) Saturday Morning Series Episode: $ 5,000
(iii) Syndicated Strip Series: $ 5,000/week
(e) Royalty payment:
(i) Prime Time Series Episode: $12,500
(ii) Saturday Morning Series Episode: $ 7,500
(iii) Syndicated Strip Series: $ 5,000/week
(f) Pension, Health and Welfare: FRI shall pay directly to the
Guild, all applicable pension, health and welfare contributions
due for services rendered by Tone Loc hereunder.
Owner is guaranteed to be engaged in some capacity in all productions
produced hereunder. In connection therewith, FRI and Owner shall negotiate in
good faith for fees/services for Owner in connection with all such other
productions, including feature length motion pictures, television specials and
the like.
7. Exclusivity: Owner hereby agrees that Tone Loc's services rendered
hereunder shall be on an exclusive basis in connection with any children's
television programs, both animated and live action as well as in all other forms
of animation. Notwithstanding the foregoing, Tone Loc shall have the right to
perform voice over services in connection with animated features without any
obligation to FRI so long as no FRI created characters are utilized.
Additionally, Tone Loc must obtain FRI's prior written approval, not to be
unreasonably withheld, if Tone Loc desires to provide voice over services (on a
non-recurring basis) on animated television programs. FRI hereby acknowledges
that Tone Loc shall be rendering voice over services in connection with a series
of animated spots for the NFL Super Bowl to air in January
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of 1993.
8. Net Profits: FRI shall pay Owner sums equal to twenty-five percent (25%) of
FRI's share of the net profits derived from the exploitation of any of the
Rights granted hereunder, except music publishing (see paragraph 7, below). Net
profits shall be defined, computed, accounted for and paid in accordance with
FRI's standard net profit definition. Notwithstanding the foregoing and in
computing the net profit definition, the maximum amount which shall be charged
as overhead shall be seventeen percent (17%) of the final actual budget and the
maximum amount which shall be charged as the production fee shall be twice that
which FRI receives as the executive producer fee.
9. Music Publishing:
a. Administration: Owner or its music publishing subsidiary or
affiliate may administer any songs which Tone Loc writes and any songs in which
he performs (unless the writer of such songs retains publishing rights) in
connection with any productions produced hereunder and may charge fifteen
percent (15%) of revenues received therefrom (excluding small performance
royalties from ASCAP or BMI) as an administration fee in connection with same;
FRI retains the right to administer or to cause its music publishing subsidiary
or affiliates any underscores from any productions produced hereunder and to
charge fifteen percent (15%) of revenues received therefrom (excluding small
performance royalties from ASCAP or BMI) as an administration fee in connection
with same.
b. Music Publishing Rights - Composer Royalties: Subject to paragraph
3 (Grant of Rights), the party administrating the music pursuant to paragraph
9.a. ("Administrator") shall have the complete control of the publication of the
music and of all rights incident thereto, including, but not limited to, the
right to license the manufacture of phonograph records and other recordings of
the music and the right to license motion picture synchronization rights (all of
which rights are herein sometimes collectively called "music publishing
rights").
(1) With respect to Administrator's exercise of music publishing
rights (as defined above), Administrator agrees to pay Owner as royalties:
(i) sums equal to fifty (50%) percent of the net proceeds (as defined
below) received or credited by the Administrator from third parties for licenses
for the manufacture of commercial phonograph records and/or licenses of motion
picture synchronization rights (as defined below);
(ii) for regular piano copies, if any, sold and paid for at wholesale
in the United States and/or Canada, sums equal to six (6c) cents per copy;
(iii) sums equal to ten (10%) percent of
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net proceeds received by FRI from third parties for regular piano copies, if
any, sold and paid for at wholesale outside of the United States and/or Canada;
(iv) with respect to orchestrations, including band arrangements, if
any, sold and paid for at wholesale anywhere in the world, sums equal to ten
(10%) percent of the wholesale price therefor, after trade discounts;
(v) with respect to any song book, folio similar publication, if any,
sold land paid for at wholesale anywhere in the world, sums equal to the amount
resulting from dividing ten (10%) percent of the wholesale price, after trade
discounts, therefor by the total number of copyrighted musical compositions
contained in such publication.
No royalties shall be payable hereunder for professional material not sold
or resold; further, no royalties shall be payable to Owner with respect to uses
of the music except as hereinabove expressly set forth. The term "motion picture
rights" as used herein refers to synchronization rights granted with respect to
motion pictures or television programs other than the Series or any remake or
sequel thereof or any other production produced by or under the authority of FRI
if Tone Loc is involved in the same. The term "net proceeds" as used hereinabove
shall mean all monies actually received or credited by the Administrator (or any
assignee of Administrator's rights or licensee hereunder) which are directly
attributable to licenses issued authorizing the manufacture of commercial
phonograph records and/or licenses relating to motion picture synchronization
rights, and/or for the exercise of publication rights referred to in subclause
(iii) - (v) above, as the case may be, after the deduction of all costs, direct
expenses, fees (including the aforesaid administrative fee of fifteen (15%)
percent of such amounts to the Administrator) and commissions which are directly
attributable to the exploitation of the music by way of commercial phonograph
records or by way of motion picture synchronization, or by way of publication,
as the case may be, computed in accordance with good and standard accounting
practices. In the event that Administrator licenses the music in a form
containing lyrics or other musical materials composed by any third party or
parties, then Owner's royalties hereunder, with respect to the music in such
form, shall be reduced proportionately to an amount equal to the royalties
payable hereunder, divided by the number of composers and lyricists (including
Tone Loc or Owner employees) who have furnished materials and services for such
music. Administrator shall render royalty statements to the parties hereto,
accompanied by any remuneration due the parties hereto, such statements to be
rendered at least twice during each calendar year during which royalties are
payable.
(2) If, for any reason, exportation of money to the United States from
any foreign country, territory or place should be prohibited, prevented or
rendered commercially impracticable, the amount received or credited by
Administrator (if Administrator's share thereof is actually paid to
Administrator in
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<PAGE>
such foreign country, territory or place) shall not be considered gross receipts
hereunder unless, and until the same shall have actually been received in the
United States in United States currency, provided, however, that if Owner or FRI
so requests in writing, that portion of such blocked or frozen funds which would
represent Owner's or FRI's share of net proceeds of such gross receipts, but for
being frozen or blocked, shall be deposited in Owner's or FRI's name in any bank
or depository designated by Owner or FRI in such country wherein such funds are
blocked or frozen subject the laws of such country with respect to such deposits
and withdrawals by Owner or FRI therefrom. Owner or FRI shall have the right to
inspect Administrator books and records relative to gross receipts derived from
use of the music hereunder provided such inspection shall be made at
Administrator's offices during reasonable business hours.
(3) FRI and Owner acknowledge that Administrator has not made and is
not hereby making any representation or warranty with respect to the amount of
royalties, if any, which may be derived from uses of music publishing rights, it
being further understood that nothing herein shall be deemed to impose any
obligation on Administrator to use or authorize the use of the music and/or any
music publishing rights derived therefrom. However, Administrator agrees that if
the music is licensed for a sound track album, the mechanical licenses payable
therefore shall be not less than 75% of the statutory rate for such rights.
(4) The Administrator shall be affiliated with the same small
performing rights society (i.e., either ASCAP or BMI) as Tone Loc.
b. Music Publishing Rights - Allocation of
Publisher's Share:
(1) Term "publisher's share" of music publishing rights means (i) that
portion of revenues derived from exercise of the music publishing rights
described in paragraph 9.a. above remaining after deduction therefrom of all
costs, direct expenses and fees (including the Administrator's administrative
fee) and all royalties payable to Owner and other composers and (ii) that
portion of small performance rights royalties which are paid by ASCAP or BMI to
the Administrator as its "publisher's share" of such small performance rights
royalties.
(2) As additional consideration hereunder, the Administrator
controlling music publishing rights in the music shall pay to Owner and FRI each
sums equal to one-half (1/2) of the publisher's share of net revenues derived
from music publishing rights (as defined above); provided however that in the
case of co-written music Owner's share of any such payments shall be reduced
proportionately to an amount equal to revenues payable hereunder divided by the
number of composers and lyricists (including Owner) who have furnished materials
and services for such songs.
(3) Administrator or such music publishing
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<PAGE>
music company shall render statements to Owner and FRI with respect to payments
due under this paragraph 9.a., which statements shall be rendered at least twice
during each calendar year during which any payments are due hereunder within
ninety (90) days of the close of each statement period. Statement periods shall
close on the thirtieth day of June and the thirty-first day of December of each
year, subject to reasonable change by Administrator.
Payments pursuant to this paragraph 9 shall not be cross-collateralized against
any other costs or sources of revenues.
10. Credit: Tone Loc shall receive credit as co-executive producer in
connection with all series episodes produced hereunder and on all other
productions produced hereunder on which each renders such services. Moreover,
Tone Loc shall receive credit as composer of all songs written by him hereunder
and top billing amongst all performers on all productions upon which he renders
the such services. Subject to the foregoing, the exact form, style, size,
placement and all other matters relating to any credit accorded to Owner shall
be determined by FRI in FRI's sole discretion. No casual or inadvertent failure
by FRI to accord the credit provided for in this paragraph shall be deemed a
breach by FRI of this Agreement.
11. Termination: In light of the fact that Tone Loc will serve as a role
model for children in connection with his services hereunder, if Tone Loc shall
have committed or does commit any act, or if he shall have done or does
anything, which shall be an offense involving moral turpitude under federal,
state or local laws, or which might tend to bring him into public disrepute,
contempt, scandal or ridicule, or which might tend to reflect unfavorably upon
FRI (or any network, station, or other licensee broadcasting the programs) the
sponsors, if any, or their advertising agencies, if any, of the productions
hereunder, or otherwise injure the success of the productions in connection with
which the music is used, FRI shall have the right to delete the name of the
Owner from any programs in which such screen credit to Owner appears or may
appear, and to terminate this agreement; provided, however, if FRI elects to
terminate this agreement pursuant to this subparagraph, FRI's payment
obligations with respect to productions theretofore produced shall survive such
termination. Notwithstanding the foregoing, FRI hereby acknowledges that FRI
does not disapprove of the one (1) extension of Mr. Loc's beer endorsement
agreement which took place in June of 1992. If this agreement is terminated by
virtue of this paragraph 11, FRI shall continue to pay Owner the royalty
payments set forth in paragraph 6.(e) hereof.
12. Warranties and Indemnities: The parties hereto represent and
warrant that each has the right and power to enter into and fully perform this
Agreement and to grant the rights granted to hereunder, and that neither has
granted, assigned, conveyed or otherwise encumbered, and nor will grant, assign,
convey or otherwise encumber, any of the rights granted to hereunder.
Additionally, Owner agrees to indemnify FRI for any and
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<PAGE>
all costs incurred by FRI, including reasonable court costs and attorney's fees,
arising in connection with Owner's agreement to pay third parties, including
without limitation Martin Schwartz, monies derived from exploitation of the
Rights.
13. Assignment: This agreement and all provisions hereof shall be binding
upon Owner and Owner's successors, assigns, executors, administrators, heirs and
next of kin, and FRI shall have the right to assign all or any rights granted to
FRI hereunder to any third party.
14. Counterpart Signature: This document may be executed in
counterparts which, taken together, shall constitute the whole of the agreement
as between the parties.
15. Memorandum of Agreement: The foregoing constitutes a memorandum of
agreement between Owner and FRI concerning the subject matter set forth above.
Either Owner or FRI may at any time hereafter prepare and submit a more formal
agreement encompassing the foregoing provisions and such other provisions as are
customary for this type of agreement. Owner and FRI shall promptly review,
negotiate and execute any such more formal agreement. Unless and until such
more formal agreement is executed, this memorandum of agreement encompassing the
provisions set forth herein, together with such other provisions as are
customary for this type of an agreement, shall constitute a binding and
enforceable agreement. This memorandum of agreement and any more formal
agreements entered into by Owner and by FRI pursuant to the provisions hereof
shall be governed by and construed in accordance with the laws of the State of
California applicable to contracts fully to be performed therein. This
memorandum of agreement shall supercede any prior agreement between the parties
relating to the Rights and, specifically, that certain document entered into as
of October 12, 1992.
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<PAGE>
Please indicate your agreement with the foregoing by signing in the
space provided below.
Very truly yours,
FILM ROMAN, INC.
("FRI")
/s/ Phil Roman
----------------------------
By: Its Authorized Signatory
AGREED AND ACKNOWLEDGED:
TONE LOC, INC.
By:/s/ Authorized Signatory /Date: 3/28/95
---------------------------------------
TONE LOC
I agree to be bound by the foregoing the extent that the same applies to me.
/s/ Authorized Signatory /Date: 3/28/95
- ---------------------------------------
TONE LOC
9
<PAGE>
EXHIBIT 10.25
ADELAIDE PRODUCTIONS, INC.
10202 Washington Boulevard, SPP 8402
Culver City, California 90232
(310) 280-8368
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Film Roman, Inc.
12020 Chandler Street
Suite 200
North Hollywood, California 91607
Attention: Phil Roman
RE: THE CRITIC
Gentlemen:
The following will set forth the agreement ("Agreement") between Film Roman,
Inc. ("Animation Studio") and Adelaide Productions, Inc. ("Producer") with
respect to the rendering of animation production services concerning a series of
half-hour animated television programs to be produced by Producer, currently
entitled "THE CRITIC" (the "Series"):
1. Producer hereby engages Animation Studio to supply production personnel and
services, as more specifically set forth below, for the purpose of the
production, completion and delivery of all episodes of the Series to be produced
for its first production year. Producer shall have four (4) separate,
consecutive and dependent options to engage Animation Studio upon the terms and
conditions set forth herein, in connection with all episodes of the Series to be
produced for its second through fifth production years. Each of said options
shall be exercisable by written notice to Animation Studio within ten (10)
business days following Producer's acceptance of a firm, written, non-contingent
order from a network or other buyer for production of the Series for the
applicable production year. A production schedule shall be established and
adhered to which allows for delivery of each episode by Animation Studio in
accordance with the delivery schedule attached hereto as Exhibit "A".
2. Animation Studio shall perform the necessary services and create or
otherwise fabricate the necessary elements as set forth below in sub-paragraphs
2(a) - 2(o), and such other animation materials and elements as described in the
following paragraphs (hereinafter collectively "Animation Studio Elements") to
complete the production of the Series episodes. Animation Studio further agrees
to perform and supply the necessary services in connection
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 2
with the Animation Studio Elements for each episode in accordance with the
warranties, agreements and specifications set forth in this Agreement, within
the budget parameters agreed to by Producer and Animation Studio, and to comply
with the delivery requirements attached hereto as Exhibit "B". The services and
Animation Studio Elements required shall include the following:
Complete Animation Production
- -----------------------------
(a) Storyboards (X)
(b) Layouts (X)
(c) Exposure sheets (X)
(d) Model sheets (X)
(e) Color keys of props and characters (X)
(f) Painted key backgrounds (X)
(g) Animation (X)
(h) Animation checking (X)
(i) Backgrounds (X)
(j) Ink and Paint (X)
(k) Production camera work (X)
(1) Xerox (X)
(m) Negative (developed) (X)
(n) Edit: In sequence and synchronize dialogue (X)
(o) Animatic (X)
3. Producer shall furnish Animation Studio with scripts and soundtracks
(hereafter collectively "Producer Elements"), which are necessary for Animation
Studio to perform its services and deliver said Animation Studio Elements to
Producer. Any dispute as to the quality or condition of the Producer Elements
supplied hereunder must be submitted by Animation Studio immediately to
Producer. Prior to commencement of production (i.e., prior to the shipment of
pre-production material overseas) if requested by Producer, Animation Studio
will submit to Producer color prints of the color keys of props, series regular
characters, and backgrounds for Producer's approval. Said approvals shall be
obtained by Animation Studio from Jim Brooks ("Brooks"), Al Jean ("Jean") and/or
Mike Reiss ("Reiss"). Animation Studio shall be responsible for furnishing its
own facilities, supplies and materials used in the production work as well as
all qualified personnel necessary to perform Animation Studio services
hereunder. In the event Producer elects to change color keys after the pre-
production materials have been shipped overseas, Producer and Animation Studio
shall negotiate in good faith with respect to any additional costs
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 3
incurred by Animation Studio. In the event Animation Studio makes changes or
errors in the color keys utilized in production, the costs of color correction
shall be borne solely by Animation Studio. Producer shall have the right to
specify or approve supplies and/or materials to be used including, but not
limited to, the brand and quality of cels, paint, negative stock and the
processing laboratory. Animation Studio's obligation to provide the supplies
and materials specified or approved by Producer shall be subject to the budget
parameters agreed to by Producer and Animation Studio, and to the availability
of such supplies and materials when required to accommodate the production
schedule.
Producer shall have the right to have its personnel review and approve the
performance of the production work rendered by the Animation Studio personnel
hereunder. Producer shall have approval over all key personnel, or changes
thereto, employed or engaged by Animation Studio. Producer shall also have
approval over the company(ies) engaged by Animation Studio to render overseas
animation production (individually and collectively, the "Overseas Production
Facility"). Producer has approved Rough Draft Studios as an Overseas Production
Facility. Animation Studio shall consult in good faith with Producer in
connection with the terms and conditions applicable to the engagement of each
Overseas Production Facility, and with respect to the scheduling of all
production work to be rendered by each Overseas Production Facility. Producer
may also assign one or more employees of Producer to Animation Studio's premises
to advise, expedite, review and approve the production work and coordinate same
with Animation Studio. The exercise by Producer of its rights of approval under
this Agreement shall not operate to relieve Animation Studio of its obligations
hereunder; nor shall it create any agency, employment or partnership; nor shall
it constitute Producer as the employer or supervisor of Animation Studio or any
of its workers or create any liability on the part of Producer as such.
4. Animation Studio shall furnish a supervising director and four (4)
directors. Producer shall have approval of the individuals employed as
supervising director and directors, and Animation Studio shall consult in good
faith with Producer in connection with the terms and conditions applicable to
such employment. In the event Animation Studio is unable to employ the
aforementioned personnel at the rates approved by Producer in the final
production budget, Producer and Animation Studio will negotiate in good faith
with respect to an increase in the budget for said personnel. Producer further
acknowledges that in the event the individuals initially employed as directors
are later disapproved by Producer,
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 4
Producer and Animation Studio will negotiate in good faith with respect to any
increased costs associated with the employment by Animation Studio of the
replacement individual(s) approved by Producer. Producer acknowledges that it
has approved Rich Moore as the supervising director for the first production
year of the Series. For all such services, Moore shall be paid $200,000, of
which $115,200 shall be paid by Animation Studio, and $84,800 shall be paid by
Producer.
Animation Studio shall submit to Producer for approval all prop, character and
background designs. After submission of said designs, Producer shall have
seventy-two (72) hours to provide Animation Studio with Producer's notes.
Animation Studio shall, upon its receipt of Producer's notes, implement the
changes requested by Producer, and resubmit all designs to Producer on a timely
basis for Producer's approval. Animation Studio will supplement all such
designs with whatever turnarounds, mouth charts, views, and other materials
required by the Overseas Production Facility in connection with animation
production. Except as otherwise herein provided, all approvals required by
Producer hereunder shall be obtained by Animation Studio from Richard Raynis
("Raynis"), or such other individual(s) as Producer may in writing designate.
5. Animation Studio shall submit to Brooks, Jean, Reiss and Producer the first
draft storyboard for each episode of the Series, based upon each final script
submitted to Animation Studio. Brooks, Jean, Reiss and Producer shall have
seven (7) days after submission of the first draft storyboard to provide
Animation Studio with notes on the storyboard. The foregoing turnaround period
shall include not less than one (1) weekend. In the event such storyboards
cannot be submitted during normal business hours, Animation Studio shall deliver
them to Brooks, Jean and Reiss at their respective homes. Animation Studio will
compile the storyboard notes provided by Brooks, Reiss, Jean and Producer, and
notify each of any potential problems or conflicts arising from said notes.
Raynis shall resolve with Animation Studio any such potential problems and/or
conflicts. Upon resolution of all storyboard notes, all such notes will be
incorporated into the episode at the layout stage.
6. For the first production year of the Series, Animation Studio shall create
and complete layouts for seven (7) episodes, and commission the creation and
completion of layouts for six (6) episodes by the Overseas Production Facility.
Animation Studio shall provide the necessary means for layout revisions to be
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 5
accomplished by Animation Studio. In the event more than thirteen (13) episodes
are produced for the first production year of the Series, Producer shall
determine where and by whom the layouts shall be created and completed for such
additional episodes. Producer shall consult in good faith with Animation Studio
with respect thereto.
7. Animation Studio shall create an animatic of the layouts for each episode
of the Series. Each such animatic shall be twenty-one hundred feet (2100') in
length, and shall be delivered to Producer on three-quarter inch (3/4") video
tape. In the event Animation Studio anticipates the animatic for one (1) or more
episodes will be shorter than twenty-one hundred feet (2100'), Animation Studio
shall timely advise Producer of the actual length projected by Animation Studio.
Animation Studio and Producer shall then consult in good faith in order to
determine an acceptable length animatic for each such episode. Alternatively, in
the event Animation Studio anticipates the animatic for one (1) or more episodes
will be longer than twenty-one hundred feet (2100') Animation Studio shall
timely advise Producer of the actual length projected by Animation Studio.
Animation Studio and Producer shall then consult in good faith in order to
determine an acceptable length animatic for each such episode, and negotiate in
good faith with respect to the additional costs resulting from any such
overage(s). Animation Studio shall cause its representatives to be present for
the screening of each animatic by Producer, when and where designated by
Producer. At Producer's request, Animation Studio will promptly provide a second
video tape of each animatic to a representative of Producer, as Producer may
from time to time designate. After Producer screens each animatic, Animation
Studio shall compile all of the notes given by Producer, and submit such
compilation to Producer within forty-eight (48) hours of the Producer's
screening of the animatic. Brooks, Jean and Reiss shall approve in writing all
retakes necessitated by Producer's notes, as compiled and submitted to Producer
by Animation Studio. In the event of any conflict in the notes or questions
which may arise with respect to the retakes called by Producer, Animation Studio
shall promptly submit such conflicts or questions to Raynis for resolution.
8. Animation Studio shall be responsible for all layout revisions or deletions
requested by Producer following Producer's review of each animatic. The
revisions required by Producer shall affect not more than sixty-five percent
(65%) of the scenes in each episode, provided, however, that the level of
quality of each animatic as delivered to Producer is equal to or greater than
the level of quality produced by Animation Studio for the series "THE SIMPSONS".
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 6
At Producer's request, up to sixty (60) new scenes may be included in the
revisions as a result of rewriting the script for each Series episode. In
connection with such new scenes, Animation Studio may incorporate up to fifty
(50) new lines of dialogue written and recorded after delivery of the animatic
for each episode of the Series. Producer shall provide Animation Studio with a
script of such new lines of dialogue within one (1) week after delivery of the
animatic to Producer. The recorded new lines of dialogue will be delivered by
Producer to Animation Studio within two (2) weeks after delivery of each
animatic, and Animation Studio shall incorporate all new dialogue into each
episode prior to shipping each episode to the Overseas Production Facility.
9. Animation Studio shall be solely responsible for meeting the delivery
schedule and requirements established by the Overseas Production Facility. In
the event a delay in shipping materials to the Overseas Production Facility is
anticipated by Animation Studio as a result of Producer's late delivery of
materials to Animation Studio, Animation Studio shall promptly so advise Raynis.
Producer shall then, at its election, take steps necessary to avoid the
anticipated delay, or negotiate in good faith with Animation Studio with respect
to the payment of additional costs directly resulting from any such delay.
10. Animation Studio shall be solely responsible for the timely completion and
delivery of the animation produced by the Overseas Production Facility, and for
all costs associated with the services rendered and the animation produced by
the Overseas Production Facility. In the event the actual costs associated with
the services rendered and the animation produced by the Overseas Production
Facility exceed the sums budgeted by Animation Studio and approved by Producer,
Animation Studio and Producer will negotiate in good faith with respect to the
potential reimbursement of such excess costs.
11. Animation Studio shall edit, synchronize and transfer to three-quarter inch
(3/4") video tape the 35mm color work print. The color work print and 3/4"
video tape shall be delivered to Producer where and when designated by Producer
in Los Angeles, California. Producer shall then schedule a screening of each
episode, and Animation Studio's representatives shall attend such screenings.
Animation Studio's representatives shall be responsible for obtaining and
compiling animation retake notes given by Producers at each such screening.
12. Animation Studio shall be solely responsible for calling all
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 7
technical retakes for each episode, and for the costs associated with all
technical retakes. Animation Studio shall also compile a list of all non-
technical retakes, and the costs associated therewith. Subject to its pre-
approval of the costs associated therewith, Producer shall reimburse Animation
Studio for its actual costs incurred in connection with all non-technical
retakes, provided, however, that Animation Studio shall be solely responsible
for the costs associated with correcting its mistakes, whether such mistakes
require technical or nontechnical retakes.
13. The preliminary retake list, including the costs related to non-technical
retakes, shall be delivered by Animation Studio to Producer within twenty-four
(24) hours of the initial screening of each color work print by Producer.
Subject to the provisions of paragraph 12 above, after Producer determines which
nontechnical retakes are necessary and Raynis has approved in writing any costs
resulting therefrom, Animation Studio shall cause all such retakes to timely
occur, and to be timely delivered to Producer.
14. Animation Studio shall assemble and transfer the 35mm negative and retakes
required by Producer. The final telecine shall by delivered on one-inch (1")
video tape and three-quarter inch (3/4") video tape. The one-inch (l") master
delivered by Animation Studio to Producer shall include a synchronized composite
dialogue track. If Producer, following review of the aforementioned video
tapes, orders retakes, corrections, added scenes, or other material due to
Animation Studio's error or deviation from Producer's directions and/or
Producer's Elements, all such corrections shall be completed promptly at
Animation Studio's expenses.
15. Within five (5) days after the scheduled delivery of the TAKE 1 by the
Overseas Production Facility to Animation Studio, Animation Studio shall deliver
to Producer the TAKE 1 telecine master. All retakes required by Producer shall
be delivered to Producer as follows:
TAKE 2: One-inch (l") video tape to be delivered not later than fourteen
(14) days from the scheduled TAKE 1 delivery date from the Overseas
Production Facility.
TAKE 3: One-inch (l") video tape to be delivered not later than seven (7)
days from the scheduled TAKE 2 delivery date.
TAKE 4: One-inch (l") video tape to be delivered not later than seven (7)
days from the scheduled TAKE 3 delivery date.
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 8
16. In consideration for all the services rendered hereunder by Animation
Studio, and the completed Animation Studio Elements (including the completed
elements set forth in Exhibit "B") to be supplied to Producer by Animation
Studio, Animation Studio shall receive the sum of $385,000 for each episode for
which Animation Studio is required to provide animation production services for
the first production year of the Series. In the event Producer exercises its
applicable option(s), said fee shall increase by 7% with respect to episodes of
the Series for which Animation Studio is engaged for the second production year,
with 6% cumulative increases thereafter.
The sums set forth above with respect to each production year shall be payable
as follows:
(a) Production Advance: $500,000, payable on commencement of production of
an initial order of 13 episodes, or $750,000 if the initial order is for 22
episodes; the applicable production advance shall be recouped by Producer from
the episodic fees set forth below on a pro rata basis.
(b) Episodic Fees:
(i) 25% upon commencement of production of the applicable episode
(less a pro rata portion of the production advance);
(ii) 25% upon completion of the animatic of the applicable episode
(less a pro rata portion of the production advance);
(iii) 25% when the applicable episode is sent overseas (less a pro
rata portion of the production advance);
(iv) 12.5% upon receipt of the work print from overseas (less a pro
rata portion of the production advance); and
(v) 12.5% upon delivery of the completed Animation Studio Elements
to Producer (less a pro rata portion of the production advance).
(c) Notwithstanding the provisions of sub-paragraph 16(b) above, subject
to execution of this Agreement by Animation Studio, payments to be made
hereunder by Producer to Animation Studio for the first production year shall
occur in accordance with the cash flow schedule provided by Animation Studio and
attached hereto as
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 9
Exhibit "C", and incorporated herein by this reference. For each succeeding
production year of the Series for which Producer exercises its applicable
option(s), the cash flow of the applicable compensation provided herein shall be
subject to good faith negotiation.
17. Animation Studio will be solely responsible for the payment of all taxes,
costs or other governmental charges or imposts incurred in connection with the
services hereunder, the creation of or provision for the Animation Studio
Elements or the Producer Elements, including without limitation (1) any sales or
use taxes, (2) customs duties or the costs of clearance or compliance with
applicable governmental laws, rules or regulations of any country, (3) costs of
expedited clearance and fees and costs paid to agents for such services, whether
by flat fee or based on percentage of expenses incurred by the agent or (4) any
other applicable governmental charge or impost. Animation Studio shall be
solely responsible for the payment of all costs (including insurance coverage)
of delivering the Animation Studio Elements to Producer, and Producer shall be
solely responsible for the payment of all costs (including insurance coverage)
of delivering the Producer Elements to Animation Studio. Delivery of the
Animation Studio Elements to Producer shall be considered completed when made to
Producer at its offices in Los Angeles, California, or such other address as
Producer may in writing direct.
18. The sums set forth in Paragraph 16 shall be Animation Studio's payment for
the completed and delivered Animation Studio Elements, and the results and
proceeds thereof supplied hereunder. Animation Studio shall bear the full
expense of providing the animation production services set forth in Paragraphs 1
through 15, including, but not limited to:
(a) The cost of all film, supplies, materials, and film developing,
including freight, taxes and other similar costs;
(b) Payroll, including all payroll taxes, fringe benefits and other
labor costs; and
(c) Freight and delivery. Each party shall ship prepaid.
In regard to the animation cels manufactured by the Overseas Animation Facility,
Producer shall advise Animation Studio of its delivery instructions upon
completion of production for the
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 10
applicable production year, and Producer shall bear the full expense of the
freight to deliver such cels to Producer. In the event Producer elects to
require storage of such cels by the Overseas Animation Facility beyond sixty
(60) days after completion of production for the applicable production year,
Producer shall bear the full expense of storage costs beyond said sixty (60) day
period.
19. In addition to the sums set forth in paragraph 16, above, Animation Studio
shall be entitled to receive an amount equal to five percent (5%) of one hundred
percent (100%) of the net merchandising revenues derived by Producer from the
exploitation of the Series merchandising rights, after deduction by Producer of
out-of-pocket costs and expenses and a thirty percent (30%) administration fee.
Animation Studio shall also be entitled to receive an amount equal to ten
percent (10%) of the net proceeds derived by Producer from the exploitation of
the Series. The foregoing percentages of net merchandising revenues and net
proceeds shall be reducible by percentages of net merchandising revenues/net
proceeds granted to all third parties. Net proceeds shall be defined and
calculated in accordance with the "Computation of Net Proceeds" attached hereto
as Exhibit "D" and incorporated herein by this reference. Net merchandising
revenues shall be defined and calculated in accordance with Producer's standard
definition. For purposes of this paragraph 19, Producer's share of net
merchandising revenues and net proceeds shall be deemed to be Columbia Pictures
Television, Inc.'s (as the distributor of the Series) share of net merchandising
revenues and net proceeds derived from the exploitation of the Series. The
language of Exhibit "D" and Producer's standard definition of net merchandising
revenues shall be subject to good faith negotiation, except with respect to the
financial terms (i.e., distribution fees, expenses, overhead, interest, etc.)
set forth therein.
20. (a) All Producer Elements supplied to Animation Studio by Producer are,
and shall remain, the property of Producer. All services rendered by Animation
Studio hereunder shall be considered "work made for hire" under the United
States Copyright Act of 1976 and a work specially ordered or commissioned for
use as part of a contribution to collective works (i.e., motion picture) with
Producer being the sole author; provided, however, to the extent that such work
or the results and proceeds hereof is not deemed a "work made for hire" under
any jurisdiction, Animation Studio irrevocably assigns, transfers and conveys
any such work and results and proceeds, including any right of Animation Studio
to Producer throughout the world in any and all media and markets now
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 11
known or hereafter devised in perpetuity. Animation Studio further specifically
waives moral rights or similar rights, if any, that Animation Studio may have.
All right, title and ownership in the Animation Studio Elements (including
without limitation, all distribution rights therein) hereunder belong to
Producer, and all copyrights shall be in its name. Animation Studio agrees to
follow the directions of Producer in securing such copyright protection, which
shall include the placement of any copyright notice if and as Producer directs.
At the request of Producer, Animation Studio and any parties working for it
shall execute and deliver to Producer any and all documents evidencing
Producer's ownership rights and do such other acts requested by Producer to
further effect the rights granted Producer hereunder. Animation Studio shall
have no rights whatsoever in the Series, or in any of the episodes thereof, or
in any of the production elements and/or the Producer Elements, or in any other
materials or services relating to or arising from the production of the Series.
Animation Studio will undertake prudent precautions to assure that said results
shall be protected from unauthorized taking or copying. Any materials which are
sent to Animation Studio or created by it shall be used only for the purposes
allowed hereunder. Animation Studio shall return all cels, backgrounds and
other such elements requested by Producer, provided, however, that Producer
shall bear the full expense of storage of all such elements beyond sixty (60)
days after the completion of production for the applicable production year,
subject to good faith negotiations with respect to the costs of such storage.
Any material or the results of the Producer and/or Animation Studio Elements not
returned by Animation Studio to Producer shall be stored by Animation Studio
until written instructions are received from Producer to either destroy same or
ship same to Producer. If destruction is requested, Animation Studio shall
furnish Producer with an affidavit of the destruction thereof.
(b) To protect against attachment or seizure by any third party for any
reason whatsoever, and without limiting any other of the rights of Producer
hereunder, Producer may enter the premises of Animation Studio and/or any
parties working for Animation Studio on the Series, including the Overseas
Production Facility, during regular business hours and upon reasonable notice,
and may remove any and all materials relating to the Series and/or this
Agreement. In the event Producer exercises its right to enter the premises of
the Animation Studio and/or any parties working for Animation Studio on the
Series and/or the Overseas Production Facility, and removes any materials
therefrom, Animation Studio shall have no further responsibility to Producer to
deliver any materials removed
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 12
by Producer.
(c) Animation Studio will conspicuously mark, and make best efforts to
cause the Overseas Production Facility to conspicuously mark, at all stages of
production, all folders and boxes containing materials relating to this
Agreement, including, without limitation the Producer Elements, which are in
Animation Studio's/Overseas Production Facility's care, custody or control with
a notice in the form of "sole and exclusive property of Adelaide Productions,
Inc." (or such other form as Producer may request), and will use best efforts to
keep such materials physically segregated from other materials under Animation
Studio's/Overseas Production Facility's care, custody or control.
21. Producer shall accord Animation Studio an appropriate on-screen credit in
connection with each Series episode for which Animation Studio renders and
completes services hereunder. In addition, Producer shall accord Phil Roman and
Bill Schultz an appropriate producer credit on each such Series episode in
substantially the following form: Phil Roman shall receive credit as "Animation
Executive Producer" on a single card or frame which, on an alternating episodic
basis, shall be placed immediately following the cast credits, and placed in
second position following the cast credits, and Bill Schultz shall receive
credit as "Animation Producer", on the card or frame immediately following Phil
Roman's credit. The credits to be accorded to other personnel employed or
engaged by Animation Studio in connection with the Series shall be subject to
good faith negotiations. All credits shall be prepared by Producer and
incorporated into each Series episode by Producer. Except as hereinabove
provided, all aspects of such credit shall be at Producer's discretion. No
casual or inadvertent failure by Producer or by a third party to comply with
said screen credit provisions shall be deemed a breach of this Agreement.
Animation Studio's rights in the event of a breach of this paragraph or of any
covenant of this Agreement shall be limited to an action at law for damages, and
in no event shall Animation Studio be entitled by reason of such breach, to
terminate this Agreement or to enjoin or restrain the distribution, exhibition
or exploitation of the Series or any episode.
22. Producer shall accord Animation Studio a right of first negotiation with
respect to the production of commercials for the Series, commercials based upon
the Series, and theatrical short films based upon the Series, provided that the
production of such commercials and short films is under the sole control of
Producer.
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 13
23. Animation Studio shall supply completed Animation Studio Elements as set
forth in the attached Exhibit "B" for each episode in accordance with the terms
hereof which, in all respects, shall not only be technically suitable, according
to U.S. network industry standards, for broadcasting, but shall be of superior
network animation quality. Each episode shall contain painted backgrounds,
which shall not be reproduced on the cels. Each episode shall contain not fewer
than 20,000 cels, or no fewer cels than required pursuant to the exposure-
sheets, and the requirements of the directors of the Series and Raynis.
24. All of the services to be rendered, and all of the Animation Studio
Elements to be provided by Animation Studio pursuant to this Agreement shall be
subject to the approval of Producer.
25. Provided Animation Studio renders and completes all necessary and required
services hereunder, and is not in material breach of this Agreement, Animation
Studio shall be entitled to retain up to ten (10) set-ups from each episode, for
file, reference, archival and in-studio display purposes. Said set-ups may not
be utilized by Animation Studio for marketing and promotion purposes outside of
its facilities, and may not be sold by Animation Studio. For purposes of this
paragraph 25, a "setup" shall consist of a cel and copies of the background(s).
All original backgrounds shall remain property of Producer, and shall not be
retained by Animation Studio.
26. Animation Studio represents, warrants and agrees as follows:
(a) Animation Studio is free to enter into and fully perform under this
Agreement.
(b) If a copyright infringement or other legal action arising from the
production of the Series is filed against Animation Studio, Animation Studio
will defend such action; will not settle or compromise such action without prior
written consent of Producer; and will continue to perform its obligations
hereunder unless and until it is ordered to stop production of the Series
pursuant to a judgment issued by the court having jurisdiction of such action.
(c) If a copyright infringement or other legal action arising from
production of the Series is filed against Animation Studio, and provided such
action is based upon elements produced or provided by Animation Studio in
compliance with Producer's specifications, Producer shall indemnify and hold
harmless
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 14
Animation Studio from and against all liability, actions, claims, demands,
losses, damages or expenses (including reasonable attorney's fees) resulting
therefrom.
(d) All materials (characters, costuming, drawings, etc.) not provided to
Animation Studio by Producer which Animation Studio incorporates into the Series
are originally created or are clearly derived from the public domain. For any
such material which is not wholly original or based upon public domain material,
Animation Studio shall provide Producer with documentation showing (i) the
origin of that material, and (ii) demonstrating that such material does not
infringe or unfairly compete with any pre-existing material or otherwise violate
the rights of any third party.
(e) In the event Animation Studio elects to sell its company to any entity
prior to completion and delivery of the completed Animation Studio Elements and
any and all other materials required hereunder (the "Production Period"),
Producer shall have the right to terminate this Agreement upon sixty (60) days
written notice to Animation Studio. Notwithstanding the foregoing, in the event
Animation Studio elects to sell its company during the Production Period,
Producer shall not have the right to so terminate this Agreement if (i)
Animation Studio's key personnel assigned to the Series remain engaged on the
Series in the same capacities and with the same responsibilities, and (ii) the
buyer of Animation Studio is not a competitor of Producer, and (iii) the buyer
of Animation Studio is able to demonstrate financial responsibility with respect
to the performance of all of Animation Studio's obligations pursuant to this
Agreement. In the event the Agreement is terminated pursuant to this provision,
Producer shall have no further obligation to Animation Studio except as to
episodes for which Animation studio has already commenced to provide the
Animation Studio Elements, and for the costs of any of Animation Studio's firm,
written, non-contingent commitments respecting production of the Series which
precede such termination. Animation Studio warrants and represents that no such
sale is presently contemplated.
(f) Animation Studio has the sole right and authority to enter into this
Agreement and to sell and assign all of the rights, titles, interests and
benefits sold and assigned hereunder;
(g) There is no other contract or assignment affecting Animation Studio's
ability to fully perform its obligations hereunder, or which would interfere
with the rights granted hereunder.
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 15
27. (a) Animation Studio shall indemnify and hold harmless Producer and its
parents, affiliates, subsidiaries, assigns and licensees, the stations
broadcasting the Series, each Series sponsor and its advertising agency, and the
respective owners, officers, directors, agents and employees of each from and
against all liability, actions, claims, demands, losses, damages or expenses
(including reasonable attorneys fees) caused by or arising out of the breach of
any of Animation Studio's representations, warranties or agreements hereunder.
In addition, Animation Studio shall also so indemnify and hold harmless Producer
and all others set forth in the preceding sentence from and against all
liability, actions, claims, demands, losses, damages or expenses (including
reasonable attorney's fees) caused by or arising out of any materials,
including, without limitation the Animation Studio Elements, created by
Animation Studio hereunder, which are not pursuant to Producer's direction, or
which are not approved by Producer.
(b) Producer shall indemnify and hold harmless Animation Studio and its
parents, affiliates, subsidiaries, officers, directors, agents and employees of
each from and against all liability, actions, claims, demands, losses, damages
or expenses (including reasonable attorney's fees) caused by or arising out of
the breach of any of Producer's representations, warranties or agreements
hereunder.
(c) Producer warrants and represents that Producer shall cause Animation
Studio to be a named insured for purposes of Producer's errors and omissions
liability policy in connection with Animation Studio's services hereunder
respecting the Series, provided, however, that if there is any claim which is
determined to be within Animation Studio's indemnity to Producer pursuant to the
second sentence of subparagraph (a) above, then with respect to such claim(s),
Animation Studio shall be designated only as an additional insured for purposes
of said errors and omissions liability policy.
28. If Animation Studio shall fail to perform any of its obligations hereunder
or if Animation Studio shall breach any representation or warranty contained
herein, or if Animation Studio becomes subject to the bankruptcy or similar
debtor protection laws of any country or if any secured creditor forecloses upon
any liens or similar security interest affecting Animation Studio or its ability
to produce hereunder or if an injunction and/or judgment is issued ordering
Animation Studio to stop production of the Series, Producer may, in addition to
such other rights or remedies which it
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 16
may have at law or otherwise under this Agreement, terminate this Agreement in
its entirety and thereafter, shall be relieved of any obligations to Animation
Studio hereunder. Animation Studio acknowledges that its services rendered and
the Animation Studio Elements to be provided hereunder are of a character which
gives them a peculiar value, for the loss of which Producer cannot be reasonably
or adequately compensated in damages, and a breach by Animation Studio of the
provisions of the Agreement will cause Producer irreparable injury and damage.
Animation Studio therefore expressly agrees that Producer shall be entitled to
injunctive and other equitable relief to prevent a breach of this Agreement or
any part hereof by Animation Studio and to secure its enforcement. Resort to
such equitable relief, however, shall not be construed to be a waiver of any
other rights or remedies which Producer may have for damages or otherwise. It
is expressly understood and agreed that in the event it is ultimately determined
by a court that Producer has committed a material breach of this Agreement, the
damage, if any, caused Animation Studio thereby would not be irreparable or
otherwise sufficient to entitle Animation Studio to injunctive or other
equitable relief. Animation Studio hereby acknowledges that its rights and
remedies in any such event shall be strictly limited to the right, if any, to
recover damages in an action at law, and Animation Studio shall not have either
the right to rescind this Agreement or any of Producer's rights hereunder, or to
enjoin any broadcast or exploitation of any Series episode, or other dramatic
version, based thereon or adapted therefrom.
29. Producer shall have the right, at its election and at any time, to reduce
or cancel its engagement of Animation Studio without any obligation to Animation
Studio except as to episodes for which Animation Studio has already commenced to
provide the Animation Studio Elements. Payment by Producer pursuant to
Paragraph 16 for episodes actually ordered and delivered, and for the costs of
any of Animation Studio's firm, written non-contingent commitments respecting
production of the Series which precede such termination, plus an additional
fifteen percent (15%) reimbursement/payment for Animation Studio's overhead,
shall fully discharge Producer from any further obligations hereunder.
30. The parties acknowledge that Producer is under strict time requirements and
Producer is entering into this Agreement with the understanding that Animation
Studio can perform its obligations hereunder in a timely fashion. Accordingly,
time is of the essence of this Agreement.
31. Neither Animation Studio nor Producer shall disclose to any
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 17
third party (other than its respective employees, in their capacity as such) any
information with respect to the financial terms and provisions of this
Agreement, except: (a) to the extent necessary to comply with any law or the
valid order of a court of competent jurisdiction and in any such event the party
making such disclosure shall seek confidential treatment of such information;
(b) to its parent company, its auditors and its attorneys as part of its normal
reporting or review procedure, and, in any such event, such parent company,
auditors and attorneys agree to be bound by the provisions of this Paragraph 31,
or (c) in order to enforce its rights pursuant to this Agreement.
32. Nothing herein shall require Producer to use the services of Animation
Studio in any manner and Producer shall have fully discharged its obligations
hereunder by the payment to Animation Studio of the applicable cash compensation
hereunder.
33. Any publicity, paid advertisements, press notices or other information with
respect to this Agreement and the Series shall be under the sole control of
Producer. Therefore, Animation Studio shall not consent to and/or authorize any
person or entity to release such information without the express prior written
approval of Producer.
34. All payments and notices shall be deemed delivered upon posting as first-
class mail in the United States mail, postage prepaid, and addressed to the
respective party upon whom it is to be delivered. With respect to all notices
to Animation Studio, a courtesy copy shall be provided to Dern & Vein, 1901
Avenue of the Stars, Suite 400, Los Angeles, California 90067, Attention: Dixon
Dern, Esq.
35. Animation Studio agrees to execute and deliver to Producer any and all
documents which Producer shall deem desirable or necessary to effectuate the
purposes of this Agreement. In case of Animation Studio's refusal or failure to
so execute or deliver, or cause to be so executed and delivered, any assignment
or other instrument herein provided for, then in such event, Animation Studio
hereby nominates, constitutes and appoints Producer and Producer shall therefore
be deemed to be said party's true and lawful attorney-in-fact, irrevocably, to
execute and deliver all of such documents, instruments and assignments in such
party's name and on their behalf.
36. In the event of the occurrence of an event of force majeure (as that term
is understood in the television industry), Producer
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 18
shall have the right to suspend the Agreement and shall have the right, but not
the obligation, to extend the Agreement by the length of any such suspension.
If an event of force majeure continues for eight (8) consecutive weeks, Producer
shall have the right to terminate the Agreement.
37. Animation Studio hereby agrees that Animation Studio has not and will not
accept or agree to accept, or pay or agree to pay, any money, service or other
valuable consideration, other than the compensation payable hereunder, for the
inclusion of any matter, including but not by way of limitation the name of any
person, product, service, trademark or brand name as a part of any program in
connection with which Animation Studio's services are rendered hereunder.
38. Nothing contained herein shall create any partnership or joint venture
between the parties.
39. The Agreement and all matters collateral thereto shall be governed by
California law applicable to contracts executed and performed entirely in
California. Any legal proceeding for the interpretation or enforcement of the
respective rights of the parties shall be filed in a state or federal court in
the County of Los Angeles, and all parties consent and submit to personal
jurisdiction of such courts for the purpose of litigating any action arising
under or pertaining to this Agreement.
40. Producer may assign this Agreement, in whole or in part, or to any parent,
subsidiary or affiliated company or to any entity which Producer may designate.
Animation Studio may not assign this Agreement, in whole or in part, to any
entity without the prior written consent of Producer.
41. The above terms and such other incidental and ancillary provisions as are
customary in more formal agreements of the this type with Producer (e.g.,
relating to suspension and termination due to disability and default; equitable
relief, FCC Section 507, no right to rescission or injunction by Artist,
severability, etc.) which are incorporated herein by reference, will constitute
a binding agreement between the parties. In due course a more formal agreement
may be prepared but the failure of the parties to prepare and/or execute such
formal agreement shall not affect their rights as set forth in the Agreement,
which shall in any event be binding upon them.
IN WITNESS WHEREOF, the parties have executed this
<PAGE>
Film Roman, Inc.
Re: "THE CRITIC"
As of May 7, 1993
Revised as of July 21, August 25,
September 22, and October 5, 1993
Page 19
Agreement effective on the date first above written. This will serve as a
binding agreement until execution of a more formal agreement which will
incorporate all of the terms hereof and such other terms as are customary in
agreements with Producer.
Sincerely,
ADELAIDE PRODUCTIONS, INC. ACCEPTED AND AGREED TO:
By: _______________________ FILM ROMAN, INC.
Its: ______________________ By: __________________________
Its: __________________________
Fed. I.D. # ___________________
<PAGE>
EXHIBIT 10.26
EXECUTED
ADELAIDE PRODUCTIONS
10202 West Washington Boulevard
Culver City, Cafifornia 90232
(310) 280-8368
As of May 18, 1994
Revised as of June 14, and June 17, 1994
Film Roman, Inc.
12020 Chandler Street
Suite 200
North Hollywood, California 91607
Attention: Bill Schultz
Re: THE CRITIC ("Series")
---------------------
Gentlemen:
Reference is hereby made to that certain agreement dated as of May 7, 1993, as
revised and amended (the "Agreement") between Adelaide Productions, Inc.
("Producer") and Film Roman, Inc. ("Animation Studio"). For good and valuable
consideration, the receipt of which is hereby acknowledged, Animation Studio and
Producer have agreed to further amend the Agreement, as follows:
1. Subject to execution hereof, Producer shall pay Animation Studio the
additional sum of $600,000, as full and complete consideration for all
additional costs incurred by Animation Studio in connection with the production
of the Animation Studio Elements (as defined in the Agreement) for the initial
thirteen (13) episodes produced for the first production year of the Series.
Said additional sum shall be payable as follows:
(i) $350,000, payable upon execution hereof.
(ii) $50,000, payable ten (10) business days after Producer's acceptance
of a firm, written, non-contingent order from a network or other
buyer for episodes of the Series for the third production year
(i.e., 1995/96).
(iii) $200,000, payable upon the initial United States free broadcast
television syndication (other than the first run-sale, if any, of
the Series. For purposes hereof, an
<PAGE>
Film Roman, Inc.
Re: THE CRITIC
As of May 18, 1994
Revised as of June 14, and June 17, 1994
Page 2
"initial United States free television sale" shall be deemed to occur
at such time as Producer has (a) entered into a binding syndication
license agreement with television stations in each of the top five (5)
United States markets, and (b) episodes of Series are initially
broadcast as a result of such sale:
All sums paid by Producer pursuant to the foregoing shall be fully-recoupable
against Animation Studio's share of the net merchandising revenues derived by
Producer from the exploitation of the Series merchandising rights pursuant to
paragraph 19 of the Agreement. Net merchandising revenues shall thereafter be
paid by Producer to Animation Studio pursuant to the terms of the Agreement upon
Producer's recoupment of the sums provided herein.
2. In consideration for all services rendered by Animation Studio in
connection with episodes of the Series produced for the second production year,
Producer shall pay Animation Studio $454,000 per episode, payable pursuant to
the terms of the Agreement, in lieu of the episodic compensation set forth in
the Agreement. In addition, in connection with the production of one (1) "clip
show" using scenes from previous episodes, the episodic fee payable to Animation
Studio in connection with said "clip show" shall be $100,000, in lieu of the
episodic fee set forth in the preceding sentence. Said "clip show" fee shall
entitle Producer to up to three (3) new minutes of animation to be produced by
Animation Studio. Producer shall have the right to order from Animation Studio
up to an additional four (4) new minutes of animation in connection with the
"clip show", and shall pay Animation Studio an additional $25,000 per new minute
of animation ordered and produced. Producer shall deliver the Producer Elements
(as defined in the Agreement) for the initial three (3) minutes of new animation
for said "clip show" to Animation Studio with the Producer elements for episodes
5, 6 and 7 (approximately one (1) minute with each episode) produced for the
second production year, and the remainder of Producer Elements for the "clip
show" not later than the scheduled commencement date of production for the tenth
(10th) such episode.
3. In lieu of the annual increases provided for in paragraph 16 of the
Agreement, and provided Producer exercises its option(s) for the third and
subsequent production years of the Series, Animation Studio shall be entitled to
8% cumulative increases in the fee paid by Producer to Animation Studio for all
services rendered pursuant to the Agreement.
<PAGE>
Film Roman, Inc.
Re: THE CRITIC
As of May 18, 1994
Revised as of June 14, and June 17, 1994
Page 3
4. Producer and Animation Studio acknowledge that all producers, directors and
other key creative personnel assigned by Producer to the Series shall be
required to render services in accordance with the budgetary parameters
established by Producer and Animation Studio ("Animation Budget"). In the event
Animation Studio anticipates that any of the aforesaid personnel are potentially
causing individual episodes of the Series to exceed the Animation Budget,
Animation Studio shall timely advise Producer of the circumstances causing the
potential overages, and suggest means by which such episode(s) may be completed
within the Animation Budget. Producer shall then consult in good faith with
Animation Studio with respect to the control of such potential overages, and
assist Animation Studio in maintaining the integrity of the Animation Budget.
Except as specifically set forth herein, the Agreement is not otherwise modified
in any respect and the Agreement, as herein amended, is hereby ratified and
confirmed in all respects.
Kindly confirm you acceptance of the foregoing by signing in the spaces
provided.
Sincerely,
ADELAIDE PRODUCTIONS, INC. ACCEPTED AND AGREED TO:
By: /s/ Authorized Signatory FILM ROMAN, INC.
---------------------------
Its: Ass't Secretary
---------------------------
By: /s/ Phil Roman
--------------------
Its:
--------------------
Fed. I.D. #95-4239652
<PAGE>
EXHIBIT 10.27
ADELAIDE PRODUCTIONS
9336 West Washington Boulevard, Bldg D Rm. 208
Culver City, California 90232
(310) 202-3704
As of June 20, 1994
Revised as of July 7, 1994
Film Roman, Inc.
12020 Chandler Street
Suite 200
North Hollywood, California 91607
Attention: Bill Schultz
Re: THE CRITIC ("Series")
---------------------
Gentlemen:
Reference is hereby made to that certain agreement dated as of May 7, 1993, as
revised and amended (the "Agreement"), between Adelaide Productions, Inc.
("Producer") and Film Roman, Inc. ("Animation Studio"). For good and valuable
consideration, the receipt of which is hereby acknowledged, Animation Studio and
Producer have agreed to further amend the Agreement, as follows:
1. In consideration for all services rendered by Animation Studio in
connection with episodes of the Series produced for the second production year,
Producer shall pay Animation Studio $454,190 per episode, payable pursuant to
the terms of the Agreement, in lieu of the episodic compensation set forth in
the Agreement. In addition, in connection with the production of one (1) "clip
show" using scenes from previous episodes, the episodic fee payable to Animation
Studio in connection with said "clip show" shall be $100,000, in lieu of the
episodic fee set forth in the preceding sentence. Said "clip show" fee shall
entitle Producer to up to three (3) new minutes of animation to be produced by
Animation Studio. Producer shall have the right to order from Animation Studio
up to an additional four (4) new minutes of animation in connection with the
"clip show", and shall pay Animation Studio an additional $25,000 per new minute
of animation ordered and produced. Producer shall deliver the Producer Elements
(as defined in the Agreement) for the initial three (3) minutes of new animation
for said "clip show" to Animation Studio with the Producer Elements for episodes
5, 6 and 7 (approximately one (1) minute with each episode) produced for the
second production year, and the remainder of Producer Elements for the "clip
show" not later than the scheduled commencement date of production for the tenth
(10th) such episode. Notwithstanding the foregoing, Producer shall deliver the
soundtracks for the "clip show" to Animation Studio not later than October 10,
1994, and the final script not
<PAGE>
Film Roman, Inc.
Re: THE CRITIC
As of June 20, 1994
Revised as of July 7, 1994
Page 2
later than October 24, 1994. The foregoing sums to be paid by Producer to
Animation Studio for the second production year shall be inclusive of all costs
related to the character designs for up to 40 new characters, 40 re-use
characters with costume changes, and up to 12 new celebrity caricatures.
Additionally, Animation Studio shall provide for said sums an average of 28 new
background designs per episode, and an average of 24 background color keys per
episode. The design and color keys parameters set forth in the preceding
sentence shall be the responsibility of Animation Studio to monitor, and
Animation Studio shall timely advise Producer in the event it anticipates that
said parameters may be exceeded. Animation Studio agrees that it will consult in
good faith with Producer and cooperate with Producer in regard to accommodating
Producer's design requirements in connection with the Series, within the
approved budgetary parameters and the requirements of the Production Schedule
(as defined in paragraph 5 below). In addition, Producer shall pay Animation
Studio the sum of $6,500 per episode for the services of David Cutler, for each
episode on which Cutler renders and completes services as the art director.
2. The minimum order for the second production year of the Series shall be for
nine (9) episodes, and one (1) "clip show". In the event Producer orders less
than the minimum number of episodes set forth in the preceding sentence for the
second production year of the Series, Producer and Animation Studio shall
negotiate in good faith with respect to the fees payable to Animation Studio for
the actual number of episodes ordered by Producer.
3. In connection with the redevelopment of the Series for the second
production year, Producer shall pay Animation Studio $60,000 for the new
development of characters and backgrounds, and the sum of $110,000 for all other
episodic costs related to the redevelopment of the Series.
4. The sums set forth hereinabove with respect to the second production year
shall be payable, subject to execution of this amendment by Animation Studio, in
accordance with the cash flow schedule provided by Animation Studio and attached
hereto as Exhibit "A-1", and incorporated herein by this reference.
5. Producer shall provide Animation Studio with a draft of each episodic
script not later than the Wednesday prior to the week in which recording of the
soundtracks for each episode occurs.
6. Animation Studio shall provide Producer with approved storyboards in
accordance with the production and delivery schedule attached hereto as Exhibit
"A-2" (the "Production Schedule"), and incorporated herein by this reference.
Producer shall return its
<PAGE>
Film Roman, Inc.
Re: THE CRITIC
As of June 20, 1994*
Revised as of July 7, 1994
Page 3
notes and request for storyboard changes to Animation Studio not later than the
Monday following the Friday of the week in which the storyboards are completed
and submitted to Producer.
7. Provided Animation Studio delivers each episodic animatic to Producer for
Producer's review and comments in accordance with the Production Schedule,
Producer shall provide Animation Studio with an animatic rewrite by noon of the
Friday during the week in which the animatic is submitted to Producer.
8. For each episode produced for the second production year of the Series,
Animation Studio acknowledges that Animation Studio shall adhere to the
Production Schedule. With respect to the "clip show" referred to in paragraph 1
above, said "clip show shall be delivered to Producer by Animation Studio in
accordance with Producer's scheduling requirements, but in no event later than
February 20, 1995.
9. Animation Studio shall not commence services involving expenditures
exceeding the approved budgetary parameters established by Producer and
Animation Studio, without first obtaining the prior written authorization of
Producer. In the event Animation Studio requests the prior written
authorization of Producer in accordance with the provisions of the preceding
sentence, such request(s) shall be submitted to Producer in writing and signed
on behalf of Animation Studio by Phil Roman, Bill Schultz or Anne Lighting only.
Except as specifically set forth herein, the Agreement is not otherwise modified
in any respect and the Agreement, as herein amended, is hereby ratified and
confirmed in all respects.
Kindly confirm you acceptance of the foregoing by signing in the spaces
provided.
Sincerely,
ADELAIDE PRODUCTIONS, INC. ACCEPTED AND AGREED TO:
By: /s/ Authorized Signatory FILM ROMAN, INC.
------------------------
Its: Authorized Signatory
------------------------
By: /s/ Phil Roman
------------------------------------
Its: President
Fed. I.D. #95-4239652
<PAGE>
EXHIBIT 10.28
as of November 9, 1993
Agreement
---------
For good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, Film Roman, Inc. (hereafter referred to as "FRI") and Felix The
Cat Creations, Inc., (hereafter referred to as "FTCC") have agreed and do hereby
agree as follows:
1. Rights:
a. Production Rights: Subject to paragraphs 2 and 7, hereof, FTCC hereby
grants to FRI the exclusive right to produce animated audio-visual productions
initially intended for television broadcast, in the case of television series or
television special(s), theatrical release, in the case of theatrical motion
picture(s), or made-for-video productions (herein collectively referred to as
"Productions") based upon the "Felix the Cat" (the "Property"), as well as the
exclusive right to distribute said Productions in accordance with paragraph
l.c., below. All rights not specifically granted by FTCC to FRI are reserved
hereunder, including, without limitation, legitimate stage, live action, and the
right to distribute existing animation shorts and existing motion pictures based
upon the Property. All rights granted by FTCC to FRI hereunder (but not the
rights in and to the physical materials, the Ancillary Rights (defined in
paragraph 1.d.) or the distribution rights in Productions produced hereunder)
shall terminate and expire at the conclusion of the applicable Production Term
specified in Paragraph 2, below.
b. Ownership of Physical Materials: FRI and FTCC shall jointly own all
rights in the physical materials created in connection with the Productions,
including the cels, it being understood that the cels will be identified with
the "Oriolo" name alone.
c. Distribution Rights: FRI and FTCC shall mutually own and control the
exclusive right to distribute all Productions produced hereunder in all media
now known or hereafter devised. Notwithstanding the foregoing, FRI shall have
the exclusive right to enter into agreements in the name of FRI and FTCC to
raise production financing for the Productions, and FRI may grant exhibition or
distribution rights as part of such agreements as may be required by the
exhibitor or distributor; provided, however, FRI shall consult meaningfully with
FTCC with respect to such agreements. At any time that FRI and FTCC are unable
to reach an agreement with respect to distribution of the Productions (except
with respect to the aforementioned production financing agreements), either FRI
or FTCC shall have the right to have the dispute resolved by arbitration
pursuant to California law; if the parties appointed by them are unable to agree
upon the selection of
<PAGE>
a neutral arbitrator then either party may, at its election, require that the
arbitration shall be conducted under the auspices and rules of the American
Arbitration Association (AAA) and that the neutral arbitrator shall be selected
by the AAA.
d. Intellectual Property Rights: Subject to the terms of this Agreement,
FTCC shall retain and reserve ownership in and to all underlying intellectual
property rights in the Property, including without limitation, all existing
characters constituting the Property, all merchandising/licensing rights
therein, as well as any and all rights with respect to characters created by FRI
("New Characters"); provided, however, neither FRI nor FTCC may exploit New
Characters in audio-visual productions without the prior written approval of the
other party but FTCC may exploit such New Characters in any media if such New
Characters have not been utilized or exploited in a Production hereunder prior
to Reversion or expiration of Production Rights. Notwithstanding anything to the
contrary contained herein, FRI and FTCC shall own and control all other
intellectual property rights in the Productions produced hereunder, including
without limitation all soundtrack rights and music publishing rights ("Ancillary
Rights"). Notwithstanding the foregoing, during the Production Term (as defined
in Paragraph 2), FTCC agrees that he will not license to third parties the right
to create audio-visual works which contain linear stories which might be
considered de facto episodes.
2. Production Term: The term of FRI's exclusive Production Rights shall be as
follows:
a. If FRI produces thirteen (13) or fewer episodes of a series based upon
the Property ("Series"), the Production Term shall end eighteen (18) months
after the first broadcast of the last such episode broadcast.
b. If FRI produces between fourteen (14) and thirty-eight (38) episodes
of the Series, the Production Term shall end two (2) years after the first
broadcast of the last such episode; provided, however, if FRI informs FTCC in
writing that FRI is in negotiations with a third party (identified in such
written notice) for the financing of additional productions based upon the
Property, said term shall be extended automatically for six (6) additional
months.
c. If FRI produces between thirty-nine (39) and Sixty-four (64) episodes
of the Series, the Production Term shall end thirty-six (36) months after the
first broadcast of the last such episode; provided, however, said term shall be
extended for thirty (30) additional months if FTCC receives at least the
following amounts from FRI (including, without limitation, paragraph 4 payments)
by the conclusion of said thirty-six (36) month period:
(i) Thirty Thousand Dollars ($30,000) per episode for each episode
produced for network television on a once-a-week basis, or
2
<PAGE>
(ii) Twenty-Five Thousand Dollars ($25,000) per episode for each
episode produced for syndication, Fox Broadcasting Company (or affiliated
companies), or pay or basic cable on a once-a-week basis, or
(iii) Fifteen Thousand Dollars ($15,000) per episode for each episode
produced on strip basis, i.e., for transmission five times per week.
For purposes of paragraph 2.c.(i) and paragraph 2.d.(i), below, in the event
that episodes are produced for network television on a once-a-week basis at less
than a full license fee, said episodes shall be treated in accordance with
paragraphs 2.c (ii) or 2.d. (ii), as applicable.
d. If FRI produces sixty-five (65) or more episodes of the Series, the
Production Term shall end thirty-six (36) months after the first broadcast of
the last such episode broadcast; provided, however, said term shall be extended
for thirty (30) additional months if FTCC receives at least the following
amounts from FRI (including, without limitation, paragraph 4 payments) by the
conclusion of said thirty-six (36) month period:
(i) Thirty Thousand Dollars ($30,000) per episode for each episode
produced for network television on a once-a-week basis, or
(ii) Twenty-Five Thousand Dollars ($25,000) per episode for each
episode produced for syndication, Fox Broadcasting Company (or affiliated
companies), or pay or basic cable on a once-a-week basis, or
(iii) Fifteen Thousand Dollars ($15,000) per episode for each episode
produced on strip basis, i.e., for transmission five times per week.
3. Distribution Term: Subject to paragraph 1.c., FRI and FTCC shall jointly
own the perpetual right to distribute all Productions produced hereunder in all
media now known or hereafter devised.
4. Executive Producer Fee / Royalty: FTCC shall receive as an Executive
Producer Fee / Royalty an amount equal to five percent (5%) of the going-in
budget of each Production produced hereunder up to the following amounts per
applicable Productions:
a. Network Series (once-a-week): $15,000/ep
b. Syndication, Fox, cable series (once-a-week): $10,000/ep
c. Strip (five times per week): $5,000/ep
d. Network Special: no cap, but fee/royalty shall be 5% of license fee
instead of 5% of going-in budget
e. Syndication, Fox, cable special: no cap
3
<PAGE>
f. Theatrical Motion Pictures: $500,000
5. Division of Revenues:
a. Audio-Visual Productions based upon the Property:
After recoupment of production costs, payment of third party profits
participations (pre-approved by FTCC), and distribution fees and costs, FRI
shall receive sixty percent (60%) of the remaining revenues, and FTCC shall
receive forty percent (40%) of the same. Revenues from the sale of cels or
physical materials or exploitation of the Ancillary Rights shall be deemed
revenues pursuant to this subparagraph.
b. Merchandising / Licensing:
From all monies derived from merchandising / licensing in excess of an
established baseline ("Baseline"), FRI shall receive the following share of such
monies with the understanding that the Baseline shall be equal the average
annual revenues from merchandising / licensing over the thirty-six (36) month
period ending nine (9) months prior to first broadcast of the first Production
hereunder in the applicable territories:
(i) United States: For merchandising / licensing rights in the United States,
FRI shall receive twenty percent (20%) of all amounts received from exploitation
of such rights. Advances received prior to FRI's right to receive
merchandising / licensing revenues shall be deemed received when earned
thereafter. FRI's right to receive the merchandising / licensing revenues
derived within the United States shall vest upon the broadcast of the thirteenth
(13th) episode of the Series retroactively to the broadcast of the first (1st)
episode. FRI shall not be entitled to receive any revenues derived from
licensing agreements entered into:
(a) following any one (1) year period during which station clearance of
such Productions does not equal or exceed seventy percent (70%), and FRI has
produced thirteen (13) or fewer episodes of a series; or
(b) following any two (2) year period during which station clearance of
such Productions does not equal or exceed seventy percent (70%), and FRI has
produced more than thirteen (13), but fewer than thirty-nine (39) episodes of a
series; or
(c) following any thirty (30) month period during which station clearance
of such Productions does not equal or exceed seventy percent (70%), and FRI has
produced more than thirty-nine (39), but fewer than fifty-two (52) episodes of a
series; or
(d) following any three (3) year period during which station clearance of
such Productions does not equal or exceed seventy percent (70%), and FRI has
produced fifty-two (52) or more episodes
4
<PAGE>
of a series.
(ii) International: On a territory-by-territory basis, FRI shall
receive twenty percent (20%) of one hundred percent (100%) all amounts received
from licensees or licenses from exploitation of such rights. Advances received
prior to FRI's right to receive merchandising / licensing revenues shall be
deemed received when earned thereafter. FRI's right to receive the
merchandising / licensing revenues derived internationally shall vest with
respect to each territory upon the first exploitation a Production produced by
FRI. FRI shall not be entitled to receive any revenues derived from agreements
entered into:
(a) following any one (1) year period during which thirteen (13) or fewer
episodes of the series are distributed;
(b) following any two (2) year period during which more than thirteen
(13), fewer than thirty-nine (39) episodes of the series are distributed; or
(c) following any thirty (30) month period during which more than thirty-
nine (39), but fewer than fifty two (52) episodes of the series episodes are
distributed; or
(d) following any three (3) year period during which fifty-two (52) or
more episodes of the series episodes are distributed.
For purposes of determining the number of episodes in paragraphs 2 and 5, each
special shall count as six and one half (6.5) episodes and a theatrical motion
picture shall count as thirty-nine (39) episodes. Moreover, episodes shall not
"count" as new episodes hereunder unless at least seventy percent (70%) of such
animation is new animation. For purposes of this Agreement, the periods in
paragraph 5.b.(i) and (ii) shall commence following the initial theatrical
release of theatrical motion pictures in the U.S. and in each international
territory.
c. Financing Secured by FTCC: If FTCC is able to secure production
financing which FRI uses in the production of Productions hereunder, FRI and
FTCC will negotiate in good faith for FTCC's share of revenues hereunder to be
adjusted upwards.
6. Merchandising / Licensing Rights:
Upon the termination of the current merchandising / licensing agent, FRI shall
have a 15-day right of first negotiation to administer such rights.
7. Credit:
FRI shall accord FTCC the following credits in connection with the Productions:
(a) Don Oriolo: Executive Producer credit, shared with Phil
5
<PAGE>
Roman and possibly others
(b) Joe Oriolo: "Felix The Cat" is an original creation of Joe Oriolo
(c) Felix the Cat Creations, Inc.: "In association with" credit.
The foregoing credits shall read substantially as set forth above; provided,
however, the form, style, manner and placement of such credit shall be as FRI
may, in its sole discretion, elect. No inadvertent or unintentional failure to
give credit hereunder shall be deemed a breach of this agreement.
8. Reversion:
If FRI does not commit to produce Productions hereunder within twelve (12)
months from the date hereof, and, if FRI does not commence production based upon
the Property within eighteen (18) months from the date hereof, all rights
conveyed hereunder shall revert to FTCC. Any materials created by FRI shall
remain with FRI; provided, however, FTCC shall have the absolute right if FTCC
desires to acquire such materials at Film Roman's out-of-pocket cost plus
thirty-five percent (35%).
8. Memorandum of Agreement:
The foregoing constitutes a memorandum of agreement between us with respect to
the subject matter set forth herein. Either you or we shall have the right at
any time hereafter to prepare and submit a more formal agreement encompassing
the provisions set forth herein, together with such other provisions as are
customary for this type of an agreement. You and we shall promptly review,
negotiate and execute any such more formal agreement. Unless and until such more
formal agreement is executed, this memorandum of agreement shall be, and remain,
a binding and enforceable agreement between us. This memorandum of agreement and
any more formal agreement entered into pursuant hereto shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts executed and fully to be performed therein.
ACCEPTED AND AGREED:
Felix The Cat Creations, Inc. Film Roman, Inc.
By:/s/ Authorized Signatory By:/s/ Phil Roman
------------------------ -------------------------
Its Authorized Signatory Its Authorized Signatory
6
<PAGE>
EXHIBIT 10.29
June 28, 1994
VIA FACSIMILE (213) 655-7631
Mr. Marty Garcia
CBS Television
7813 Beverly Boulevard
Los Angeles, CA 90036
Re: "Felix"; Commercial Bumpers
Dear Marty:
For purposes of clarification, I would like confirm the terms of the agreement
between Film Roman, Inc. ("FRI") and CBS Television ("CBS") for the production
and license of fifty (50) five-second commercial bumpers (the "Bumpers") using
the character "Felix the Cat".
As between CBS and FRI, FRI shall own all right, title and interest in and to
the Bumpers, including the copyright therein and any renewals thereof. CBS
shall pay FRI the sum of $200,000 in consideration of FRI's license to CBS (the
"License") of the Bumpers for use in connection with five (5) half-hour Saturday
morning series (the "Series") broadcast by CBS, and the promotion thereof. In
the event CBS broadcasts the Bumpers after the one year anniversary of the
initial broadcast of the Bumpers, CBS shall pay FRI the additional sum of
$25,000. The License shall expire ten years from FRI's delivery of the Bumpers
and shall be limited to the territory of the United States. During the initial
year of broadcast of the Bumpers, CBS shall be entitled to utilize the Bumpers
in connection with Saturday morning series other than the Series only if CBS
accepts responsibility for all union payments required as a result of such
additional use. As of the one year anniversary of the initial broadcast of any
of the Bumpers, CBS shall be responsible for all union payments required as a
result of exploitation of the Bumpers by CBS.
Notwithstanding the foregoing, FRI shall transfer all of its rights to the
compositions embodied in the Bumpers, but only with regard to the territory of
the United States, and subject to FRI's right to embody such compositions in
future FRI productions without payment of fees to CBS or its successors-in-
interest. All other rights not granted herein are expressly reserved by FRI.
<PAGE>
Mr. Marty Garcia
CBS Television
June 28, 1994
Page 2
If the foregoing comports with your understanding of this matter, please so
indicate by arranging for execution of four (4) originals of this letter and
returning them to my attention.
Best regards,
/s/ Raul Galaz
- --------------------------------------
Raul Galaz
Business Affairs
AGREED TO AND ACCEPTED:
CBS TELEVISION
BY:/s/ Martin Garcia
-----------------------------------
An Authorized Signatory
cc: Walter Calmette (via facsimile)
Don Oriolo (via facsimile)
Stewart Prajer, Esq. (via facsimile)
Phil Roman
Bill Schultz
Greg Arsenault
<PAGE>
EXHIBIT 10.30
FULLY-EXECUTED
Walton E. Calmette
VIA FACSIMILE
- -------------
DATE: September 27, 1994
- ----
TO: Bill Schultz, Exec. VP cc: Don Oriolo
- --
FILM ROMAN FAX # 010 985 2973
FROM: Walter Calmette FAX # 818 986 7044
- ----
NUMBER OF PAGES INCLUDING THIS ONE:
- ----------------------------------
- -------------------------------------------------------------------------
Dear Bill: I enjoyed our meeting. Lets continue moving forward in an atmosphere
of mutual respect and benefit.
Let me give this agreement one final attempt. If I do not have your and Don
Oriolo's approval by Friday September the 29th at midnight, I would assume that
you both would have made a decision to start the negotiations anew using your
respective legal counsels. If however, you both decide to approve this
amendment, please place your signature on the lines provided below. You'll
receive shortly copies of the fully executed amendment for your files.
In view of our discussions involving the so-called "Bumpers" and Felix the Cat,
FRI requested an amendment to our main agreement expiring November 8, 1994. FRI
and FTCC agree to the following:
1. - To extend the reversion period to Commit to produce Productions to June 1,
1995.
2. - FTCC shall receive an Executive Producer fee of 2% of Budget of the
Bumpers.
3. - The "Bumpers" airing date shall be not later than September 30, 1994, with
a 45 day Grace Period, therefore the effective date related to the established
"Baseline" shall be June 30, 1994. FRI right to receive such revenue shall not
vest until a "Production" is initiated by FRJ or all "Bumpers" have been aired
to a national audience with at least 70% coverage. There will be at least forty
"Bumpers" aired.
4. - FRI shall receive 20% of all licensing and merchandising rights in the
United States above the established "Baseline" for as long as the "Bumpers" are
being aired, however, in no event such a
<PAGE>
period during which FRI shall receive revenue above the "Baseline" shall exceed
one year from the first "Bumper" airing date.
5. - The rights to the Theatrical Animated Motion Picture version of Felix The
Cat shall immediately and forthwith revert to FTCC. If during the term of the
agreement FTCC engages in making such an animated Production, FTCC agrees to
share with Film Roman all contingent compensation (as opposed to fixed)
compensation derived FRI from the exploitation of such a motion picture and
defined as per FTCC's standard net profits definition on the basis of 50% to
FTCC and 50% to FRI.
6. - FRI shall have the non-exclusive right to initiate a theatrical animated
motion picture version of Felix the Cat during the term of the agreement,
subject to pro-production and production cost pre-approval by FTCC. If during
the term of the agreement, FRI initiates a Theatrical Animated Motion Picture
version of Felix the Cat, FTCC shall be the leading negotiator retaining
distribution control over the project. FTCC agrees to share with FRI all
contingent (as opposed to Fixed) derived FRI from the exploitation of such a
motion picture and defined as per FTCC's standard net profit definition on the
basis of 50% to FTCC and 50% to FRI.
Under paragraph 5 or 6, FTCC and FRI agree to initiate a Theatrical Animated
Motion Picture of an acceptable Industry quality with a budget of not less than
Twelve (12) million dollars.
The above is my understanding of our agreement as discussed with you.
/s/Phil Roman /s/ Authorized Signatory
- ------------------------ ---------------------------
Film Roman Inc. Felix the Cat Creation Inc.
2
<PAGE>
EXHIBIT 10.31
FILM ROMAN, INC.
VIA TELEFAX
June 6, 1995
Walter Calmette
1811 Colina Drive
Glendale, California 91208
Re: "FELIX THE CAT"/Letter Agreement
Dear Walter:
Below is a list of points which, when Phil and Don both sign the bottom of this
letter will indicate that we have agreed to these in clarification of the
production and distribution deal signed on November 9, 1993.
1. It is agreed that the going-in direct budget per episode for the first year
of the series is $445,000. This includes the Executive Producer fees to Don
Oriolo and Film Roman.
2. FRI will be entitled to recoup from its worldwide gross receipts from
distribution of the series production costs that include direct costs and
an overhead allowance in the amount of ten percent of the direct production
cost, except that the ten percent shall not be calculated on the Executive
Producer fees.
3. Film Roman shall receive as a fee for its services, including fees and
commissions to any sub-agents or Neil Court, ten percent from any of its
worldwide gross receipts from expolitation of the series audiovisual rights
in any media. Film Roman will not, however, take a fee on domestic
television.
This ten percent fee will apply only to the first round of sales (i.e.,
initial license in each territory).
For any re-licenses of the same episode, Film Roman's fee will be reduced
from ten percent to a fee of seven percent.
In the case of home video, the ten percent fee would apply to receipts from
the initial license of any episodes. The re-license of those episodes will
be done for a seven percent fee.
4. Film Roman will be entitled to recoup its out-of-pocket
1
<PAGE>
To: Walter Calmette June 6, 1995
Re: "FELIX THE CAT"/Letter Agreement Page 2 of 3
distribution expenses from its worldwide gross receipts from distribution
of the series, with a cap of ten percent of these receipts. Recoupment of
these distribution expenses, to the extent that they exceed the ten percent
cap, would require the prior written approval of FTCC. In addition, the
costs of preparing the French language dubs shall not be included within
this ten percent cap. It is estimated that this will cost approximately
$6,000 per episode - but in any event will be capped at $7,000 per episode.
5. Don Oriolo's executive producer fee shall be increased by $5,000 per
episode making his per episode executive producer fee $20,000. In addition,
Film Roman will also receive a total executive producer fee of $5,000 per
episode as part of the budget. Oriolo's payments shall be made following
the same payment schedule as previously agreed upon.
6. After Film Roman has recouped production costs (including the ten percent
overhead), the out-of-pocket distribution expenses as stated in item 4, and
the fees as stated in item 3, the remaining money will be split seventy
percent to Film Roman and thirty percent to FTCC.
7. FTCC agrees to subsidize forty percent of the gross licensing and
merchandising revenue allocated and paid to CBS' "ten percent" share of
such revenue. FRI will subsidize twenty percent. FTCC will give best
reasonable efforts to cause Determined or its successors to subsidize the
remaining forty percent of this "ten percent" CBS share, out of
Determined's overall licensing revenue. FTCC also agrees that CBS' fifteen
percent is a third party audiovisual net profit participation which will be
deducted "off the top", before the 70/30 split. FTCC will have meaningful
and significant consultation over CBS' net profit definition. FTCC will
also give good faith consideration, without any commitment or obligation,
to treat the profit participation of Tim Berglund and RTVE as "off the
top".
If this information correctly states FTCC's understanding, please have Don sign
where indicated below and then we can file this away and get on with the
business of making a successful franchise.
Best regards,
/s/ Bill Schultz
- -----------------------
Bill Schultz
Executive Vice President
BS:ap
2
<PAGE>
To: Walter Calmette June 6, 1995
Re: "FELIX THE CAT"/Letter Agreement Page 3 of 3
AGREED AND ACCEPTED AGREED AND ACCEPTED
By:/s/ Don Oriolo By:/s/ Phil Roman
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Don Oriolo, President Phil Roman, President
FELIX THE CAT CORPORATION FILM ROMAN, INC.
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EXHIBIT 10.32
EXECUTED
FELIX COMICS, INC.
87 Birch Lane
Wayne, NJ 07470
Dated: September 1, 1995
Film Roman, Inc.
12020 Chandler Blvd., Suite 200
North Hollywood, CA 91609
Gentlemen:
Upon your signing below under the words "CONSENTED AND AGREED TO", the following
will constitute our agreement:
1. As used herein, the "Production Agreement" shall mean the agreement
between you and Felix the Cat Creations, Inc. ("FTCC") dated November 9, 1993,
as amended, pursuant to which FTCC granted you the right to produce audiovisual
works based upon our copyrighted and trademarked character known as FELIX THE
CAT, and other characters associated with FELIX THE CAT (the "Characters").
2. You have advised us that you are in a position to assist us in
commercially exploiting the Characters in "Corporate Sponsorships" and
"Premiums" in the United States only (collectively, "Sponsorships").
Accordingly, we hereby appoint you as our exclusive representative to solicit
opportunities for the commercial exploitation of the Characters in Sponsorships
in the United States only; provided, however, that it is specifically understood
that we shall have the right to negotiate agreements for the exploitation of the
Characters in Sponsorships on our own behalf. (It also is specifically
understood that, for purposes of this agreement, any agreement obtained through
the services of Walter Calmette ("WC") shall be deemed an agreement negotiated
by us on our own behalf). As used herein, "Corporate Sponsorships" shall mean
the use of the Characters to promote any business entity or its products or
services, and "Premiums" shall mean items bearing the name or likeness of the
Characters, distributed to the public in connection with the promotion of a
product or service.
3. It shall be up to us, in our sole and absolute discretion, to
determine in each instance whether to pursue any opportunities presented by you
to us for the commercial exploitation of the Characters in Sponsorships.
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4. All presentations of proposed opportunities for the commercial
exploitation of the Characters in Sponsorships ("Proposals", or, singularly, a
"Proposal") shall be made in writing, by you to us, and shall identify the
proposed licensee and the proposed means of commercial exploitation of the
Characters.
5. (a) If, at any time during the Production Term (as defined in the
Production Agreement), or within ninety (90) days following the expiration
thereof, we enter into any agreement authorizing the use of the Characters in
Sponsorships by a licensee specified in a Proposal submitted by you to us during
the term of this agreement, then we shall pay you, or cause to be paid to you,
in full consideration of your services hereunder, forty percent (40%) of all
monies, royalties and fees paid to us under that agreement, within thirty (30)
days of our receipt thereof.
(b) If, at any time during the Production Term (as defined in the
Production Agreement), or within ninety (90) days following the expiration
thereof, we enter into any agreement authorizing the use of the Characters in
Sponsorships in the United States as a result of negotiations conducted by us on
our own behalf, with a licensee not identified in any Proposal theretofore
submitted by you to us, then we shall pay you, or cause to be paid to you, (i)
twenty percent (20%) of all monies, royalties and fees paid to us under that
agreement, within thirty (30) days of our receipt thereof; provided, however,
(ii) that we shall pay you only ten percent (10%) of such monies, royalties and
fees received by us under that agreement after two (2) years shall have expired
following the date nine (9) months following the initial broadcast, in the
United States, of the last new episode of a series produced by you under the
Production Agreement; and provided further, that our obligation to pay you under
this paragraph for the use of the Characters shall forever terminate after the
expiration of the Merchandise Term in United States. We shall not, during the
Production Term, commence negotiations of an agreement authorizing the use of
the Characters in Sponsorships in the United States on our behalf with any party
identified in a Proposal theretofore submitted by you to us.
(c) If, at any time during the Production Term (as defined in the
Production Agreement), or within ninety (90) days following the expiration
thereof, we enter into any agreement authorizing the use of the Characters in
Sponsorships in any Territory other than the United States in which your rights
under paragraph 6.2 of the Production Agreement shall have been vested, then we
shall pay you ten percent (10%) of all monies, royalties, and fees paid to us
under that agreement, within thirty (30) days of our receipt thereof; provided,
however, that our obligation to
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pay you under this paragraph for the use of the Characters shall forever
terminate after the expiration of the Merchandise Term in that Territory.
(d) The payments specified in this paragraph 5 shall be in lieu and
instead of any other payment to you under the Production Agreement in respect of
the use of the Characters in Sponsorships.
(e) If the term of any agreement entered into by us pursuant to
paragraphs 5(b) or 5(c) above (i) extends beyond the last day of the Merchandise
Term in the applicable Territory and (ii) provides for a portion of any
guaranteed sums payable thereunder to be paid after the expiration of the
Merchandise Term in the applicable Territory, then, if that portion of such
guaranteed sums allocable (on a proportionate basis, as measured by the term of
that agreement), to the Merchandise Term in that Territory exceeds the monies
paid to us under that agreement during the Merchandising Term, then we shall,
upon our receipt of such guaranteed sums, pay or cause to be paid to you the
applicable percentage of such excess amount pursuant to in paragraphs 5(b) or
5(c), as the case may be.
(f) As used herein, "Territory", "Vests" and "Merchandise Term" shall
have the meaning set forth in the amendment to the Production Agreement dated
October 12, 1995.
6. You understand that you are not our agent for the purpose of
commercially exploiting the Characters in Sponsorships, and that you are not
empowered to bind us to any agreement for the commercial exploitation of the
Characters in Sponsorships.
7. (a) You shall be solely responsible for all expenses incurred by you
in the performance of this agreement, but this paragraph shall not apply to
compensation paid to you by any party to an agreement entered into by us
pursuant to paragraph 5(a) above for services actually rendered in connection
with the performance of that agreement, such as for the creation of artwork.
(b) Subject to the condition that we make the additional payments to
you, if any, pursuant to paragraph 7(c) below, you shall be solely responsible
for all payments to third parties, including, but not limited to CBS
Entertainment, Inc. ("CBS") in respect of the use of the Characters in
sponsorships, and you shall indemnify us and our affiliates, and our and their
officers, shareholders and directors, from any and all loss or damage we or they
may suffer (including court costs and reasonable attorney's fees) by reason of
your failure to do so.
(c) If, with our prior written consent, you enter into
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an agreement with CBS providing for CBS to receive not more than Ten Percent
(10%) of all monies, royalties and fees paid under any agreement authorizing the
use of the Characters in Sponsorships in the United States ("CBS Sponsorship
Payments") for so long as CBS continues to broadcast episodes of a series
produced by you under the Production Agreement (the "CBS Broadcast Term") -- and
we hereby grant such consent-- and, subject to our express written consent,
during part of the Merchandise Term in the United States following the
expiration of Broadcast Term, then, in such event only, and only for so long as
CBS Sponsorship Payments shall be due, if at all, and subject to paragraph 7(b)
above, your compensation pursuant to paragraph 5(b)(i) above, if any, shall be
increased by an amount equal to Eighty Percent (80%) of the CBS Sponsorship
Payments, and your compensation pursuant to paragraph 5(b)(ii) above, if any,
shall be increased by an amount equal to One Hundred Percent (100%) of the CBS
Sponsorship Payments.
8. This agreement shall be construed under the laws of the State of New
York. You hereby consent and submit to the exclusive jurisdiction and venue of
the Supreme Court of the State of New York, County of New York, or the United
States District Court for the Southern District of New York for the adjudication
of any dispute arising out of or relating to this agreement or the alleged
breach thereof.
9. Neither this agreement nor any rights granted to you hereunder may be
assigned or licensed by you, and any assignment contrary to this paragraph shall
be void from inception; provided however, that you may utilize the services of
Determined Productions, Inc. ("DPI") in performing your services hereunder, but
if you do so, you will be solely responsible for all payments to DPI in
connection therewith, and you hereby indemnify and hold us harmless from any
claim by DPI for any compensation in relation to such services.
10. All rights not specifically granted herein are reserved to us.
11. All notices, deliveries, payments, and other communications between
the parties shall be in writing and shall be deemed to be given when delivered
in person or sent by prepaid first class registered or certified mail, return
receipt requested, to the following addresses, or other addresses as may be
designated by notice:
If to you:
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Film Roman, Inc.
12020 Chandler Blvd., Suite 200
North Hollywood, CA 91609
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If to us:
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Felix Comics, Inc.
87 Birch Lane
Wayne, NJ 07470
12. This agreement sets forth the entire agreement between you and us with
respect to the subject matter hereof and shall not be modified except by the
execution of a written instrument signed by you and us.
13. The term of your representation of us pursuant to paragraph 2 above
shall be for a period of one (1) year commencing September 1, 1995; provided,
however, that such term shall be extended until December 31, 1996 if, within
thirty (30) days prior to August 31, 1996, you provide us with documentary
evidence that you are preparing a Proposal for submission to us. The expiration
of that term shall not terminate our obligation or obligations, if any, pursuant
to paragraph 5 above.
14. It is a condition of this agreement and all of your rights hereunder
that throughout the term of this agreement, you provide suitable office space
and facilities to WC (or another person designated by us) in order that he may,
on our behalf, perform services related to the Characters, that you make
reasonably available to WC all artwork generated by you pursuant to the
Production Agreement, and that you provide all of the foregoing at no expense to
us, except that we shall reimburse you for the cost of all long distance
telephone calls made and faxes sent by WC.
15. If the licensee under any agreement authorizing the use of the
Characters in Sponsorships wishes to use the Characters on Articles in the
Territory, then such licensee shall first notify DPI, in writing, of its
intention to make such use of the Characters, specifically identify on such
written notice the Articles on which the Characters are to be used, and
negotiate in good faith with DPI the proposed terms of an agreement whereby DPI
shall manufacture such Articles. Upon the failure of such licensee and DPI to
reach such an agreement within sixty (60) days after DPI receives such written
notice from such licensee, such licensee shall have the right to engage another
party to manufacture such Articles, but only on more favorable terms than those
offered by DPI. As used herein, "Articles" shall mean merchandise of all types
or kinds incorporating or using any of the Characters, other than entertainment
products, such as records, tapes, videocassettes, motion pictures and the like,
books, newspapers, magazines, and other publications, computer software, CD-
ROMs, "Sega Genesis" games, "Sony Game Boy" games, "CD-ROMs" or any other
devices, discs, copies or things by which visual images and/or sounds may be
digitally displayed, transmitted or reproduced; and
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the "Territory" shall mean the world, excluding Latin America, South America,
the Middle East, Africa and the Indian Subcontinent.
16. We shall endeavor, wherever it is practical to do so, to cause all
monies, if any, becoming payable to you pursuant to paragraph 5 above to be paid
directly to you by the party to the applicable agreement.
17. You specifically acknowledge, confirm, and understand that Felix the
Cat Productions, Inc. ("FTCP") has no and shall have no liability to you
whatsoever, under this agreement or otherwise, that you have no and shall have
no privity of contract with FTCP.
Very truly yours,
FELIX COMICS, INC.
By: /s/ Don Oriolo
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Don Oriolo
CONSENTED AND AGREED TO:
FILM ROMAN, INC.
By: /s/ Phil Roman
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Phil Roman
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EXHIBIT 10.33
FELIX THE CAT CREATIONS, INC.
87 Birch Street
Wayne, NJ 07470
Dated: November 20, 1995
Film Roman, Inc.
12020 Chandler Blvd., Suite 200
North Hollywood, CA 91607
Gentlemen:
Reference is made to an agreement dated November 8, 1993, (the "1993
Agreement") as amended by agreements dated September 27, 1994 (the "1994
Agreement") and June 6, 1995 (collectively, "Said Agreement"), pursuant to which
we granted you, among other things, the right to produce certain animated
audiovisual works based upon the character known as "Felix the Cat" (the
"Character"). Upon your signing below under the words "CONSENTED AND AGREED
TO", Said Agreement shall be amended as follows:
Paragraphs 5b and 6 of the 1993 Agreement and paragraph 4 of the 1994
Agreement shall be deleted in their entirety and paragraphs 6 and 6A below shall
be added to the 1993 Agreement. All references in this amendment to "you" shall
mean FRI, all references to "us" shall mean FTCC, and all capitalized terms
shall have the meaning hereinafter set forth.
6. Merchandise Revenues From The Character
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6.1 We have advised you that Felix The Cat Productions, Inc. ("FTCP") has
entered into an agreement with Determined Productions, Inc. ("DPI") dated July
1, 1986, as amended, pursuant to which FTCP appointed DPI as its exclusive agent
for the purpose of licensing the name, image and likeness of the Character in,
on and through merchandise, throughout the world (provided, however, that such
rights are non-exclusive in the Netherlands, Belgium, Luxembourg, Germany,
Austria and Switzerland; the "DPI Agreement").
6.2 As, if and when your rights Vest in any Territory, we shall cause DPI
to pay you Twenty Percent (20%) of the amount by which "net license royalties"
(as that term is defined in the DPI Agreement) earned in that Territory only,
during the Merchandise Term only (except only as the same may be extended in
certain circumstances pursuant to paragraphs 6.15 and 6A.8 below), exceeds the
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Baseline Amount for that Territory during each succeeding calendar quarter. As
used herein, the "Baseline Amount" shall mean, in any Territory, the average
"net license royalties" earned in that Territory, per calendar quarter, pursuant
to the DPI
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Agreement, during the twelve (12) calendar quarters immediately preceding the
date nine (9) months before the date the first Program is Broadcast Nationally
in that Territory.
6.3 All payments to you pursuant to paragraph 6.2 shall be calculated and
paid in the same manner and at the same times as FTCP is paid pursuant to the
DPI Agreement. Annexed hereto and made a part hereof as Exhibit A are excerpts
from the DPI Agreement containing all of the provisions concerning the
calculation and payment of "net license royalties" thereunder.
6.4 As used herein, a "Territory" shall mean a single country, unless, for
marketing purposes, DPI customarily treats a group of two (2) or more countries
as a single territory, in which event the countries encompassing that group
shall constitute a single Territory.
6.5 Your rights under paragraph 6.2 shall Vest in a Territory on the day
the thirteenth New Program shall have been Broadcast Nationally in that
Territory; provided, however, that we acknowledge that your rights under
paragraph 6.2 Vested in the United States on September 27, 1994.
6.6 If you and we mutually agree to pay or cause to be paid to CBS
Entertainment, Inc. ("CBS"), for so long as CBS Broadcasts Nationally Programs
in the United States (the "CBS Broadcast Term") and, subject to our express
written consent, during a portion of the Merchandise Term in the United States
following the expiration of the CBS Broadcast Term, a portion of the amount by
which "net license royalties" payable under the DPI Agreement in respect of the
United States only exceeds the Baseline Amount-- and you and we hereby agree to
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pay CBS Ten Percent (10%) of such excess amount only, during the CBS Broadcast
Term, but no more -- we shall cause DPI to make such payments, but Twenty
Percent (20%) of the amount paid by DPI to CBS shall be deducted from the
amount, if any, otherwise becoming payable to you under paragraph 6.2 above.
6.7 If your rights under paragraph 6.2 above do not Vest in a Territory
prior to December 31, 1998, such rights shall be forever extinguished in that
Territory.
6.8 The Merchandise Term in the United States shall commence on the
Commencement Date and, subject to paragraph 6.11 below, terminate on the
following date:
(a) Two (2) years after the Trigger Date if (i) less than eight (8) New
Programs shall have been Broadcast Nationally in the United States during
the Production Term, or (ii) less than fourteen (14) New Programs shall
have been produced.
(b) Forty-two (42) months after the Trigger Date if more than thirteen
(13) but less than twenty-seven (27) New Programs shall have been produced;
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(c) Four (4) years after the Trigger Date if more than twenty-six (26) but
less than fifty-three (53) New Programs shall have been produced;
(d) Six (6) years after the Trigger Date if more than fifty-two (52) New
Programs shall have been produced.
6.9 The Merchandise Term shall be determined in each Territory (other than
the United States) where a Program shall have been Broadcast Nationally on a
Territory-by-Territory basis, and shall commence in a Territory on the
Commencement Date in that Territory and terminate in that Territory on the
following date:
(a) two (2) years after the Trigger Date in that Territory if thirteen
(13) or less New Programs shall have been Broadcast Nationally in that
Territory;
(b) Forty-two (42) months after the Trigger Date in that Territory if more
than thirteen (13) but less than forty (40) New Programs shall have been
Broadcast Nationally in that Territory;
(c) Four (4) years after the Trigger Date in that Territory if more than
thirty-nine (39) but less than fifty-three (53) New Programs shall have
been Broadcast Nationally in that Territory;
(d) Six (6) years after the Trigger Date in that Territory if more than
fifty-two (52) New Programs shall have been Broadcast Nationally in that
Territory.
6.10 Notwithstanding anything to the contrary contained in paragraphs 6.8
and 6.9 above, the Merchandise Term in any Territory shall continue until the
last day of the calendar quarter during which the Merchandise Term otherwise
would expire in that Territory pursuant to paragraph 6.8 (for the United States)
or 6.9 (for any other Territory).
6.11 As used herein, (i) a "Program" shall mean an animated cartoon program
featuring the Character, intended for a thirty (30) minute broadcast, produced
by you pursuant to Said Agreement; (ii) a "New Program" shall mean a Program of
which not less than 70% of the contents thereof (as measured by the duration of
time of exhibition or broadcast) consists of animated footage or videotape not
previously exhibited or broadcast; (iii) a Program shall have been "Broadcast
Nationally" (A) in the United States, if it is broadcast during Prime Children's
Viewing Hours, in television markets containing at least 60% of the television
sets in that Territory, as measured by persons, firms, or entities that
customarily make such measurements in the television industry, in that
Territory, including at least six (6) of ten (10) largest television markets,
and (B) in any other Territory, if it is broadcast during Prime Children's
Viewing Hours in television markets containing at least 50% of the television
sets in a
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Territory, as measured by the persons, firms or entities that customarily make
such measurements in that Territory; (iv) "Prime Children's Viewing Hours" shall
mean those hours during which children ages 2 to 13 customarily watch television
in the applicable Territory; (v) as used herein, the Commencement Date for the
United States shall mean April 1, 1994, for the United Kingdom shall mean July
1, 1995, and for any other Territory shall mean the first day of the calendar
quarter in which the first Program is Broadcast Nationally in that Territory,
but in no event shall any Commencement Date (other than in the United States or
the United Kingdom) be earlier than October 1, 1995; and (vi) the Trigger Date
shall mean, in any Territory, the date nine (9) months following the date upon
which the last of the New Programs to have been Broadcast Nationally in that
Territory shall have Broadcast Nationally for the first time.
6.12 You specifically acknowledge, confirm and understand that FTCP has no
and shall have no liability to you whatsoever, either under Said Agreement or
otherwise, that you have no and shall have no privity of contract with FTCP, and
that you are not and shall not be a third-party beneficiary under the DPI
Agreement or under any other agreement entered into by FTCP.
6.13 For so long as you are entitled to receive payments pursuant to
paragraphs 6.8 and 6.9 above, the Baseline Amount shall be adjusted quarterly on
a Territory-by-Territory basis, to reflect the rate of inflation in each
applicable Territory, as measured by the index generally used in each applicable
Territory to determine the rate of inflation, but only if the rate of inflation
in a Territory during the preceding year (i.e., the last four quarterly periods)
shall have exceeded Ten Percent (10%); provided, however, that with the
exception of the Territories of Japan and Taiwan (as, if and when your rights
Vest in those Territories), the Baseline Amount only shall be adjusted to the
extent the rate of inflation exceeds Ten Percent (10%) during the preceding
year.
6.14 As, if and when the DPI Agreement terminates during the Production
Term and is not extended, renewed or replaced, then and only then we shall cause
FTCP to negotiate with you exclusively, for a period of fifteen (15) days
immediately following the last day of the DPI Agreement, the terms of an
agreement whereby you would act as the representative of FTCP for soliciting
licenses for the exploitation of the Character. You specifically understand
that FTCP has no obligation whatsoever to enter into any such agreement with
you. If it does not do so, then we shall cause any successor to DPI as the
representative of FTCP to continue to pay you those sums, if any, to which you
may be entitled pursuant to paragraph 6.2 above, and all references to DPI
shall, where applicable refer to that successor.
6.15 If at any time during the last two (2) years of the Merchandise Term
in a Territory we enter into an agreement, through DPI or any successor to DPI,
for the exploitation of the Character in, on or through merchandise in that
Territory for a term longer
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than two years, then (i) with respect to that agreement only, the Merchandise
Term shall be extended until the end of the calendar quarter following the date
two (2) years after the commencement date of the term of that agreement (the
"Extension Date"), and (ii) if the portion of any guaranteed payment to be made
pursuant to that agreement after the Extension Date allocable (on a
proportionate basis, as measured by the term of that agreement), to the
Merchandise Term as applied to that agreement (the "Allocated Guarantee")
exceeds the "net license royalties" paid to us thereunder prior to the Extension
Date, then, upon our receipt of any such guaranteed payment, we shall pay that
portion of the amount by which the Allocated Guarantee exceeds the "net license
royalties" paid to us thereunder prior to the Extension Date as to which you may
become entitled pursuant to paragraph 6.2 above, if any.
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6.16 Notwithstanding anything to the contrary contained in paragraphs 6.8
and 6.9 above, the Merchandise Term in any Territory shall be extended upon the
following conditions:
(a) In the United States, if the average of the monies paid by you to
us, computed annually, pursuant to this agreement from the exploitation of the
Programs in the United States (the "US Production Revenues") during the
Merchandising Term exceeds the US Base Amount, then the Merchandising Term shall
be extended for a period of one (1) year; provided, however, that if the annual
average of US Production Revenues during the Merchandise Term exceeds two,
three, four or five times the US Base Amount, then the Merchandising Term in the
United States shall be extended for two, three, four or five years,
respectively. If the Merchandising Term in the United States is extended
pursuant to the preceding sentence, it shall continue to be extended for periods
of one (1) year each for so long the US Production Revenues paid by you to us
pursuant to Said Agreement during each year the Merchandising Term is so
extended exceed the US Base Amount. As used herein, the US Base Amount shall
mean (i) during the Merchandising Term, $200,000., and (ii) during each extended
year of the Merchandising Term, if any, 110% of the Base Amount for the
immediately preceding year of the Merchandising Term (i.e., during the first
such extended year, $220,000., during the second such extended year, $242,000.,
etc.); but if the Merchandising Term is extended more than one year initially,
then the provisions of clause (ii) shall apply if the average annual US
Production Revenues paid by you to us during that extension of the Merchandising
Term exceeds $220,000.
(b) In any other Territory, if the average of monies paid by you to
us, computed annually, pursuant to this agreement from the exploitation of the
Programs in that Territory ("Local Production Revenues") during the
Merchandising Term exceed the Local Base Amount, then the Merchandising Term
shall be extended for a period of one (1) year in that Territory; provided,
however, that if the annual average of Local Production Revenues in any
Territory during the Merchandise Term exceeds two, three, four or
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five times the Local base Amount, then the Merchandising Term in that Territory
shall be extended for two, three, four or five years, respectively. If the
Merchandise Term in any Territory is extended pursuant to the preceding
sentence, it shall continue to be extended in that Territory for periods of one
(1) year for so long as Local Production Revenues paid by you to us pursuant to
Said Agreement during each year the Merchandising Term is so extended exceed the
Local Base Amount. As used herein, the "Local Base Amount" shall mean (i)
during the Merchandising Term in any Territory other than the United States, an
amount computed by multiplying $200,000. by a fraction, the numerator of which
shall be the average, per calendar quarter, of Local Production Revenues paid to
us for that Territory throughout the Merchandising Term in that Territory, and
the denominator of which shall be the average, per calendar quarter, of US
Production Revenues paid to us throughout the Merchandising Term, and (ii)
during each extended year of the Merchandising Term, if any, in that Territory,
110% of the Local Base Amount for the immediately preceding year of the
Merchandising Term; but if the Merchandising Term is extended more than one year
initially, then the provisions of clause (ii) shall apply if the average annual
Local Production Revenues paid by you to us during that extension of the
Merchandising Term exceeds 110% of the Local Base Amount for the last year of
the Merchandising Term in that Territory prior to any extension.
6A. Revenues From New Forms of Exploitation of The Character
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6A.1. As used herein, (i) "Other Licenses" shall mean licenses, if any,
entered into by us for the exploitation of the Character, in a Territory in
which your rights under paragraph 6.2 shall have Vested or shall Vest, at any
time during the period commencing nine (9) months prior to the Commencement Date
in that Territory and terminating upon the expiration of the Merchandising Term
in that Territory, subject to paragraphs 6A.2 and 6A.9 below; and (ii) "Other
Revenues" shall mean any and all monies, royalties and fees paid to us pursuant
to any Other License.
6A.2. Other Licenses shall not include (i) any license entered into by
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FTCP pursuant to the DPI Agreement; (ii) any agreement for the use of the
Character specifically excluded pursuant to a written agreement between you and
us; (iii) this agreement; (iii) the agreement between Felix Comics, Inc. ("FCI")
and The Epic Interactive Media Company Limited dated April 19, 1993 as amended;
(iv) subject to paragraph 6A.9 below, the agreement between FCI. and Big Top
Productions, L.P. dated August 1, 1994, as amended (the "Big Top Agreement");
and (v) any agreement for the commercial exploitation of the Character in (A)
motion pictures produced for initial exploitation in theatres, or (B)
phonorecords.
6A.3 As, if and when your rights Vest in any Territory, we shall cause the
licensee under any Other License for that Territory to pay you Ten Percent (10%)
of the Other Revenues payable to us in respect of that Territory only, during
the Merchandise Term in that
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Territory only.
6A.4 All payments to you pursuant to paragraph 6A.3 shall be calculated
and paid in the same manner and at the same times as we are paid pursuant to the
applicable Other License. At the time, if any, that payments are to be made to
you pursuant to any Other License, we shall provide you with excerpts therefrom
containing all of the provisions concerning the calculation and payment of Other
Revenues thereunder.
6A.5 If you and we mutually agree to pay or cause to be paid to CBS,
during the CBS Broadcast Term, a portion of Other Revenues paid to us in respect
of the United States only -- and you and we hereby agree to pay CBS Ten Percent
(10%) thereof during the CBS Broadcast Term, but no more -- and, subject to our
express written consent, during a portion of the Merchandise Term following the
expiration of the CBS Broadcast Term, we shall cause the licensee under any
Other License for the United States to make such payments.
6A.6 If your rights under paragraph 6A.3 above do not Vest in a Territory
prior to December 31, 1998, such rights shall be forever extinguished in that
Territory.
6A.7 You specifically acknowledge, confirm and understand that FCI has no
and shall have no liability to you whatsoever, either under Said Agreement or
otherwise, that you have no and shall have no privity of contract with FCI, and
that you are not and shall not be a third-party beneficiary under the Big Top
Agreement or under any other agreement entered into by FCI.
6A.8 If at any time during the last two (2) years of the Merchandise Term
in a Territory we enter into an Other License for a term longer than two years,
then (i) with respect to that agreement only, the Merchandise Term shall be
extended until the end of the calendar quarter following the date two (2) years
after the commencement date of the term of that agreement (the "Other License
Extension Date"), and (ii) if the portion of any guaranteed payment to be made
pursuant to that agreement after the Extension Date allocable (on a
proportionate basis, as measured by the term of that agreement), to the
Merchandise Term as applied to that agreement (the "Other License Allocated
Guarantee") exceeds the "net license royalties" paid to us thereunder prior to
the Other License Extension Date, then, upon our receipt of any such guaranteed
payment, we shall pay that portion of the amount by which the Other License
Allocated Guarantee exceeds the Other Revenues paid to us thereunder prior to
the Other License Extension Date as to which you may become entitled pursuant to
paragraph 6A.3 above, if any.
-- ---
6A.9 Notwithstanding anything to the contrary contained in paragraph 6A.2
above, any monies, royalties payable pursuant to the Big Top Agreement may,
subject to the Vesting of your rights under paragraph 6A.3 above, be deemed
Other Revenues for purposes of this
7
<PAGE>
paragraph 6A; provided, however, that any monies, royalties and fees payable or
to become payable under the Big Top Agreement in respect of the Territories of
the United States or Japan shall not, under any circumstances, be deemed Other
---
Revenues.
Except as amended herein, all of the terms, covenants and conditions of Said
Agreement shall remain in full force and effect.
Very truly yours,
FELIX THE CAT CREATIONS, INC.
By:/s/Don Oriolo
----------------------------
Don Oriolo
CONSENTED AND AGREED TO:
FILM ROMAN, INC.
By:/s/Phil Roman
---------------------------
Phil Roman
8
<PAGE>
EXECUTED
FELIX THE CAT CREATIONS, INC.
87 Birch Lane
Wayne, NJ 07470
Dated: November 20, 1995
Film Roman, Inc.
12020 Chandler Blvd., Suite 200
North Hollywood, CA 91607
Gentlemen:
Reference is made to the agreement of even date between you and us amending
prior agreements between you and us (the "Amendment"). Upon your signing below
under the words "CONSENTED AND AGREED TO", the Amendment shall be amended as
follows:
1. Paragraph 6.6 of the Amendment shall be deleted in its entirety and
replaced with the following:
6.6 If you and we mutually agree to pay or cause to be paid to CBS
Entertainment, Inc. ("CBS"), for so long as CBS Broadcasts Nationally
Programs in the United States (the "CBS Broadcast Term") and, subject
to our express written consent, during a portion of the Merchandise
Term in the United States following the expiration of the CBS
Broadcast Term, a portion of the amount by which "net license
royalties" payable under the DPI Agreement in respect of the United
States only exceeds the Baseline Amount --and you and we hereby agree
-------
to pay CBS Ten Percent (10%) of such excess amount only, during the
CBS Broadcast Term, and that portion of the Merchandise Term in the
United States commencing upon the expiration of the Broadcast Term and
continuing for a period equal in duration to the CBS Broadcast Term,
but no longer -- we shall cause DPI to make such payments, but Twenty
Percent (20%) of the amount paid by DPI to CBS shall be deducted from
the amount, if any, otherwise becoming payable to you under paragraph
6.2 above.
2. All capitalized terms used herein shall have the same meaning as in
the Amendment.
9
<PAGE>
3. Except as amended herein, all of the terms, covenants and conditions
of the Amendment shall remain in full force and effect.
Very truly yours,
FELIX THE CAT CREATIONS, INC.
By: /s/ Don Oriolo
-------------------------------
Don Oriolo
CONSENTED AND AGREED TO:
FILM ROMAN, INC.
By: /s/ Phil Roman
-------------------------
10
<PAGE>
EXHIBIT 10.34
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT, effective as of February 1, 1994, entered into by and
between Film Roman, Inc. ("Producer"), 12020 Chandler Boulevard, Suite 200,
North Hollywood, California 91607, and Taurus Film GmbH & Company
("Distributor"), Robert-Burkle-Strasse 2, 85737 Ismaning, Federal Republic of
Germany, and with respect to the production, delivery and license of certain
animated productions created by Producer, is as follows:
In consideration for the mutual covenants contained herein, Producer and
Distributor agree as follows:
1. Subject Matter: The subject matter of this Agreement are Productions.
As used herein, "Productions" means the animated television series (and all
episodes thereof) actually developed, produced, distributed or otherwise
controlled by Producer that are based on the character "Felix the Cat", and are
intended for initial United States network broadcast as a Saturday morning
program.
2. Grant of Rights: Producer hereby licenses to Distributor the exclusive
right within the Territory and during the Term hereof to exploit Productions by
all means of television exhibition and home video devices. All rights not
specifically granted herein are hereby retained by Producer, including without
limitation the right to independently exploit elements contained within
Productions (e.g., music publishing rights, sound recording rights).
As used herein, "television exhibition" shall include traditional pay and
free television transmitted via Hertzian waves, coaxial cable, or satellite. As
used herein, "home video device" means a device rented or sold to the viewer
intended only for viewing Productions embodied therein in private living
accommodations where no admission fee is charged for such viewing, and does not
include the public performance, diffusion, exhibition or broadcast of
Productions embodied on the video device. Notwithstanding the foregoing,
"television exhibition" and "home video device" shall not include exhibition via
computer technology and other new technologies, where a significant
characteristic of such presentation is consumer interactivity, non-linear
programming, or the use of computer information, storage, retrieval, management
techniques and technology capable of consumer interactivity, or which may be
received by end users on optical or magnetic disks through interactive
television or through any other technology hereafter developed, including by
means of electronic delivery; provided, however, if such use is exclusively
linear in nature, whether by CD-ROM, or any other device, such use shall be
deemed a method of "television exhibition" (if transmitted) or "home video
device" (if recorded on tangible media).
In the event that Producer desires to enter into an agreement with a third
party for the worldwide distribution of video devices embodying a Production,
Producer shall be entitled to retain and license such rights for the Territory,
subject only to Producer's good faith negotiation with Distributor of an
appropriate reduction of the license fee set forth hereunder; provided, however,
that
<PAGE>
Producer shall not be entitled to retain and license the right to distribute
video devices embodying the German language version of a Production without the
express approval of Distributor.
3. Territory: Distributor's exclusive territory (the "Territory"), unless
modified according to paragraph 6 hereunder to exclude the Retained Territory
and/or the Sub-Agent Territory, shall include Germany, France, Spain, Italy,
Portugal, Greece, Belgium, Netherlands, Switzerland, Austria, Luxembourg,
Lichtenstein, Denmark, Norway, Sweden, Finland, Iceland, Greenland, Czech
Republic, Slovak Republic, Poland, Romania, Bulgaria, Hungary, Yugoslavia,
Bosnia, Croatia, Macedonia, Albania, Andorra, Monaco, San Marino, and Vatican
City.
4. License Term: The term of the license of Productions licensed under
this Agreement (the "Term") shall commence on the date hereof and shall continue
for a period equal to twenty-two and one-half (22-1/2) years from delivery to
Distributor of the initial episode of the Productions. Notwithstanding the
foregoing, the Term shall be extended one (1) year for each subsequent season
that the Production is produced, such extension not to exceed four (4) years.
During the final year of the Term, and for a thirty day period, Producer
shall afford Distributor the first opportunity to negotiate for the license of
rights granted hereunder. In the event that Producer and Distributor do not
reach an agreement in connection therewith, Producer shall be entitled to
negotiate with third parties for the license of such rights. If Producer
desires to enter into an agreement with a third party for the license of such
rights on terms less favorable to Producer than last offered by Distributor,
Producer shall not enter into such agreement unless Producer has first informed
Distributor of the terms of such offer and, within thirty days, Distributor has
agreed to license such rights on the terms last offered by Distributor.
5. Audiovisual License Fee: Distributor shall pay Producer a license fee
of One Hundred Fifteen Thousand Dollars ($115,000) per half-hour episode of the
Production, in consideration of Producer's license to Distributor of home video
rights and television exhibition rights, as defined herein.
Notwithstanding the foregoing, Producer shall have the option (the
"Territory Retention Option"), exercisable at any time prior to delivery of the
initial episode of the Production, to retain the rights otherwise granted
hereunder for either the territory of Spain or all French-speaking European
territories, the designated territory being deemed the "Retained Territory". In
the event that Producer exercises the Territory Retention Option, Producer shall
be entitled to the license fees set forth above, less Fifteen Thousand Dollars
($15,000) per episode produced according to such scenario. In the event that
Producer exercises the Territory Retention Option, Producer shall have the
further option (the "Sub-Agency Option") of acting as the sub-agent of
Distributor in the territory/territories (the "Sub-Agent Territory") for which
Producer did not exercise the Territory Retention Option (i.e., Spain or the
French-speaking European territories). If Producer exercises the Sub-Agency
Option, Producer shall retain sole approval over the terms of license of
Productions subject to the Sub-Agency Option, provided that Producer consult
with Distributor.
<PAGE>
In the event Producer exercises both the Territory Retention Option and the
Sub-Agency Option, Producer shall be entitled to the license fees set forth
above, less Twenty Thousand Dollars ($20,000) per episode of Productions
produced according to such scenario. In addition thereto, Producer shall be
further entitled to (i) twenty-five percent (25%) of the gross proceeds from the
license in the Sub-Agent Territory during the Term of Productions subject to the
Sub-Agency Option, (ii) recoupment of dubbing or subtitling costs incurred by
Producer in connection with such Productions, and (iii) fifty percent (50%) of
the remaining revenues from the license of such Productions during the Term.
The balance of revenues from the license during the Term of Productions subject
to the Sub-Agency Option shall be payable to Distributor.
The episodic license fees set forth above shall increase, cumulatively, by
four percent (4%) during each broadcast year of the Term, calculated according
to the date on which Producer commits to produce a given episode of the
Productions. For example:
Commitment Date License Fee
--------------- -----------
September 1, 1994 $115,000
through August 31,
1995
September 1, 1995 $119,600
through August 31,
1996
September 1, 1996 $124,384
through August 31,
1997
September 1, 1997 $129,359
through August 31,
1998
For purposes of clarification, Distributor shall be obligated to pay
Producer the episodic license fees set forth above for each and every episode of
a given Production, regardless of when ordered by a third party broadcaster or
produced by Producer. The foregoing license fees shall be paid, on an episode
by episode basis, by Distributor pursuant to a cash flow schedule prepared by
Producer, and according to the following events and percentages:
Notice to Distributor of Producer's 35%
commitment to produce episodes of
a given Production
Shipment of storyboards to overseas 35%
studios
Delivery and acceptance 30%
of materials
Notwithstanding the foregoing, Distributor agrees to promptly review delivered
materials and inform Producer of Distributor's acceptance thereof and, in no
event, will Distributor's acceptance be deemed to have occurred later than four
weeks after Producer's
<PAGE>
delivery of the delivery materials to Distributor.
6. Producer's Representations and Warranties: Produce warrants and agrees
as follows:
a. the Productions licensed hereunder are new and original and have
not heretofore been distributed or otherwise exploited in any
part of the Territory;
b. that Producer has the full right, power and authority to enter
into and perform under this Agreement, and that Producer now owns
all rights granted to Distributor pursuant to this Agreement;
c. that at the time of completion of Productions, Producer shall own
or have good and sufficient licenses from the owners of all
literary, dramatic and musical materials contained in
Productions, or upon which Productions are based, to the extent
required to enable Distributor to exploit the rights granted
hereunder;
d. that Producer will not during the Term of this Agreement,
negotiate or enter into distribution agreements for Productions
in the Territory, and Producer will refer all inquiries therefor
to Distributor; and
7. Delivery of Materials; Laboratory Access Letter: Producer shall
deliver to Distributor the materials identified in Exhibit A attached hereto,
promptly upon Producer's completion of an episode of a given Production.
Producer will supply Distributor with a laboratory access letter, in customary
form, granting Distributor access to a complete set of masters of Productions
that may be required to enable Distributor to sufficiently exploit the rights
granted hereunder. Upon expiration of the Term, or earlier termination of this
Agreement, Distributor shall (at Producer's cost and expense) immediately return
to Producer all materials retained by Distributor in connection with the
Productions, including but not limited to, all devices utilized in connection
with the home video exhibition of Productions, all prints and pre-print
materials of Productions, subtitled or subtitling materials, soundtracks, and
all other materials manufactured, created or procured by or for Distributor
hereunder. Alternatively, and at Producer's option, Producer may require
Distributor to destroy any or all of the materials retained by Distributor in
connection with the Productions.
8. Editing; Promotional Materials: All Productions and trailers thereof
supplied by Producer shall be exhibited in their original continuity, without
change, alteration, interpolation, cut or elimination. Furthermore, no other
audiovisual productions or other material (including advertisements) shall be
embodied in or included on any video devices embodying Productions, without the
express consent of Producer, and subject to any editing rights of third parties
of which Producer has informed Distributor. Distributor may alter Productions
for the following purposes only, subject to Producer's approval and only to the
minimum extent necessary for such purposes:
<PAGE>
(a) adding a foreign title;
(b) dubbing or subtitling; and
(c) conforming Productions to the standards required for free and/or
pay television exhibition of Productions hereunder, provided that
such Productions shall not be substantially altered for such
purpose.
Notwithstanding the foregoing, to the extent Distributor is required by a third
party to change, alter, interpolate, cut or eliminate any aspect of an episode
of a Production as a contingency of entering into an agreement for the
distribution or broadcast of the Production episode in the third party's
territory, Distributor is entitled to authorize such alteration as long as such
alteration will not affect the artistic substance of the respective Production.
Any credit, trademark, trade name, symbol or copyright notice included in the
Productions should not be eliminated or altered in any manner. Further, in no
event may the music embodied in Productions delivered hereunder be eliminated or
altered without the approval of Distributor, not to be unreasonably witheld.
To the extent Distributor alters Productions according to the terms
hereunder, Distributor warrants that any alteration or addition of material to
such Productions shall not infringe upon the rights of any other person or
entity, including the person's or entity's rights of privacy, copyright,
trademark or publicity.
Distributor and Producer may, at their sole cost and expense, make dubbed
or subtitled foreign language versions of Productions; provided, however, that
each party shall at all times have access to and the right to exploit all
subtitled or dubbed materials created by the other party, subject to a good
faith negotiation for the reimbursement of expenses incurred in the replication
of master recordings embodying such foreign language versions and dubbing
expenses, and in consideration of the value of use to the requesting party.
Producer and Distributor shall make available to each word other
promotional materials created by each party (e.g., electronic press kits),
subject to good faith negotiation for the sharing of expenses incurred in
connection with the creation of such materials; provided, however, that
promotional materials created by Distributor shall conform to the standards
employed by Producer for the creation of comparable materials.
9. Collection Societies; Residuals: In connection with Distributor's
exploitation of rights granted hereunder, Distributor shall pay all royalties
and license fees customarily collected by rights societies (e.g., GEMA, AGICOA)
pursuant to the laws of the Territory, including but not limited to payments for
the public performance of sound recordings and musical compositions, sales of
video devices, etc. If and as far as Producer shall, due to an exploitation of
the original English language version by Distributor in the Territory, be
obliged to pay residuals under the Screen Actors Guild Collective Bargaining
Agreement, the respective amounts shall be reimbursed to Producer by
Distributor.
10. Statements and Payments: Distributor shall maintain
<PAGE>
books and records which shall reflect all revenues derived from exploitation of
merchandising rights granted hereunder. Distributor shall render to Producer,
within forty-five (45) days of each calendar quarter, an accounting reflecting
revenues received pursuant to each merchandising agreement entered into by
Distributor, accompanied by Producer's share of revenues owing pursuant to this
Agreement. Producer shall have the right, at its own expense, to examine the
books and records of Distributor pertaining to accountings to be rendered
hereunder, upon reasonable notice to Distributor and in such manner as not to
interfere with Distributor's normal business activity.
In the event that Producer acts as the sub-agent of Distributor in the Sub-
Agent Territory, as set forth above, Producer shall account to Distributor on
the same basis as Distributor accounts to Producer hereunder, in connection with
revenues derived by Producer from the Sub-Agent Territory.
Simultaneous with accountings rendered hereunder, Distributor shall submit
information specifying the exploitation of rights granted hereunder,
specifically the consumers/licensees of Productions, sales/license fee
information, deal terms, etc.; provided, however, that any information relating
to the exploitation of audiovisual rights in Germany shall not include license
fee information.
11. Mutual Indemnity: Producer and Distributor will at all times defend,
indemnify and hold harmless each other and their officers, agents, employees,
attorneys and assignees, from and against any and all claims, damages,
liabilities, costs and expenses, including but not limited to reasonable
attorneys' fees arising out of any breach by a party of any representation,
warranty or agreement made pursuant to this Agreement.
12. Governing Law; Jurisdiction: All questions with respect to the
construction of this Agreement and the rights and liabilities of the parties
hereto shall be governed by the laws of the State of California. Producer and
Distributor expressly agree that jurisdiction over any dispute between them with
respect to this Agreement shall be brought only in federal or state courts
located in Los Angeles County, California.
13. Notices: Except as otherwise provided herein, any notice or statement
required or desired to be given hereunder by one party to the other shall be in
writing and sent by mail, postage pre-paid, or by telecopy, to the address
specified above, or as otherwise specified, and the date of receipt of such
mailing or facsimile shall be deemed the date of such notice or statement.
14. More Formal Document: The parties hereto agree to jointly prepare and
execute a more formal document incorporating the provisions set forth above.
Until the execution thereof, this document shall be deemed a valid and binding
agreement.
<PAGE>
IN WITNESS HEREOF, Producer and Distributor have executed this
Agreement as of the date set forth above to constitute a binding contract
between them.
FILM ROMAN, INC. ("Producer")
By: /s/Authorized Signatory
----------------------------
Its Authorized Signatory
TAURUS FILM GMBH & COMPANY
("Distributor")
By: /s/Authorized Signatory
----------------------------
Its Authorized Signatory
<PAGE>
EXHIBIT A
DELIVERY MATERIALS
------------------
Producer shall deliver to Distributor, on loan, a DCT Master or D2 Master
of each episode of a Production in the original English language version. The
delivery of the material of all episodes shall be completed in a timely fashion.
During the Term, Producer shall always, at laboratory cost to be promptly paid
by Distributor, provide Distributor with additional materials upon Distributor's
request.
In addition, Producer shall deliver and transfer ownership of the following
materials to Distributor free of charge:
- lists of dialogues resp. comments
- lists of the titles of the episodes
- synopses
- music cue sheets
- advertising, press and photographic material in the quantities
customary in the trade (at least 1 set of black-and-white photos or
transparencies with various motifs)
- list of cast resp. contractual credit obligations.
The shipping charges, including possible customs duties, with regard to the
delivery of materials pursuant to the foregoing paragraphs shall be borne by
Distributor.
Producer guarantees that the quality of the material to be delivered
hereunder is suitable for transmission in compliance with the technical
standards of German television stations.
<PAGE>
EXHIBIT 10.35
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT, effective as of September 1, 1994, entered into by and
between Film Roman, Inc. ("Producer"), 12020 Chandler Boulevard, Suite 200,
North Hollywood, California 91607, and Taurus Film GmbH & Company
("Distributor"), Robert-Burkle-Strasse 2, 85737 Ismaning, Federal Republic of
Germany, and with respect to the production, delivery and license of certain
animated productions created by Producer, is as follows:
In consideration for the mutual covenants contained herein, Producer and
Distributor agree as follows:
1. Subject Matter: The subject matter of this Agreement is Productions.
As used herein, "Production" means an animated television series (and all
episodes thereof) or special actually developed, produced, distributed or
otherwise controlled by Producer that has been deemed a Designated Production
according to the following process or pursuant to the provisions of paragraph 2
hereunder:
(a) (i) Producer shall present Distributor with the initial development
materials for all animated television series and specials that
Producer desires to produce, e.g., drawings and written materials
briefly describing the proposed animated television
series/special and any important creative elements, such as the
characters or attached talent; provided that Producer shall only
be obligated to submit to Distributor development materials for
proposed series and specials to be produced for initial United
States broadcast during the 1997/1998 broadcast season (September
1, 1997 through August 31, 1998) or earlier.
(ii) Distributor shall have twenty-two (22) business days (the
"Designation Period") to designate whether Distributor desires to
distribute the proposed series/special pursuant to the terms of
this Agreement, such designation to be made by written notice to
Producer. If Distributor notifies Producer within the Designation
Period that Distributor desires to distribute the proposed
series/special pursuant to the terms of this Agreement, such
proposed series/special shall be deemed a "Designated
Production". If Distributor fails to affirmatively notify
Producer within the
-1-
<PAGE>
Designation Period that the proposed series shall be deemed a
"Designated Production", Distributor's ability to deem such
series/special as a Designated Production shall be forfeited.
(iii) Alternatively, Distributor may agree within the Designation
Period to pay Producer the sum of Seven Thousand Five Hundred
Dollars ($7,500.00). In consideration thereof, Producer will
agree to prepare further development materials for the proposed
series/special, e.g., a "mini-Bible" and key artwork, and
Distributor's ability to designate the proposed series/special as
a "Designated Production" shall be extended until such date as is
twenty-two (22) business days following delivery to Distributor
of the additional development materials (the "Extended
Designation Period").
(iv) If the proposed series/special is deemed a "Designated
Production" by Distributor during the Extended Designation
Period, and the Designated Production is produced, Distributor
shall be entitled to recoup the $7,500.00 development
contribution from the initial license fees owing to Producer for
such Designated Production pursuant to paragraph 6 hereunder. If
the Designated Production is not produced, or Distributor fails
to affirmatively notify Producer within the Extended Designation
Period that the proposed series/special shall be deemed a
"Designated Production", Distributor's ability to designate such
series/special as a Designated Production, and the $7,500.00
development contribution, shall be forfeited.
(b) Notwithstanding the foregoing, if Producer is required by a third
party rightsholder to acquire rights to produce an animated television
series/special within a timeframe more restrictive than as otherwise provided
above pursuant to the Designation Period or, if applicable, the Extended
Designation Period, Distributor shall only be afforded such third party imposed
timeframe (less two business days) in which to deem such proposed series a
Designated Production.
(c) For purposes of clarification, all episodes produced of an Designated
Production, regardless of when such episodes are produced by Producer or ordered
by a third party broadcaster, shall be considered part of a single "Production".
(d) A proposed series/special with a good faith estimated
-2-
<PAGE>
production budget (inclusive of fifteen percent overhead charge by Producer,
$15,000 per episode executive producer fee to Producer, agency commissions,
etc.) in excess of $450,000 per episode shall not be governed by the terms of
this Agreement.
Notwithstanding the foregoing, for a period of six weeks after notification
to Distributor that the estimated production budget exceeds $450,000, Producer
shall negotiate in good faith exclusively with Distributor for the license of
rights to such Committed Series that, other than for the $450,000 episodic
production budget, could be deemed a Designated Production pursuant to the terms
of this Agreement. Producer shall not present Distributor more than two
Committed Series with episodic production budgets in excess of $450,000 during
the term of this agreement. In connection with any Committed Series with a
production budget in excess of $450,000 per episode, Producer shall be entitled
to accept an offer presented by Distributor at any time prior to such date as is
three months prior to the commencement of production for such Committed Series;
provided, however, that such offer shall remain open and subject to Producer's
acceptance for no less than three months from the date of Distributor's initial
presentation of such offer to Producer. In the event that Producer and
Distributor do not reach an agreement in connection therewith, Producer shall be
entitled to negotiate with third parties for the license of such rights. If
Producer desires to enter into an agreement with a third party for the license
of such rights, Producer shall not enter into such agreement on terms less
favorable than last offered by Distributor.
In the event Producer and Distributor subsequently enter into an agreement
for the license of such Committed Series with a production budget in excess of
$450,000, Producer agrees to provide Distributor reports verifying production
costs in excess of $450,00 per episode.
(e) Notwithstanding anything to the contrary contained herein, if in
connection with any proposed series/special Producer does not retain the rights
identified at paragraph 3 hereunder, such series shall not be governed by the
terms of this Agreement.
2. Minimum Commitment:
(a) Distributor agrees that prior to August 31, 1997, no fewer than five
(5), nor more than twelve (12), of the new animated television series (of no
less than 13 half-hour episodes) that Producer has committed to produce (the
"Committed Series") shall be deemed "Productions", the rights to which are
governed by this Agreement.
(b) Distributor agrees that in the event:
-3-
<PAGE>
(1) fewer than one Committed Series has been deemed a "Designated
Production" by Distributor during any one of each of the periods (i)
September 1, 1994 through August 31, 1995, (ii) September 1, 1995
through August 31, 1996, or (iii) September 1, 1996 through August 31,
1997; or
(2) as of August 31, 1997, the provisions of paragraph 2(a) hereunder
relating to the minimum number of Committed Series to be deemed
Productions have not been satisfied,
Producer shall be entitled, upon notice to Distributor, to unilaterally
designate a Committed Series previously rejected by Distributor (i.e., failed to
be deemed a Designated Series) as a Designated Production in order to satisfy
the minimum commitments required by this paragraph 2(b); provided that, in the
case of paragraph 2(b)(1) above, Producer have presented Distributor no fewer
than six proposed series for which Distributor is capable of deeming as
Designated Series during the period in question.
(c) A Committed Series that is a "spin-off" of a Production hereunder,
i.e., derived from the Production by virtue of creative elements previously
appearing in the Production, shall not apply as a Committed Series for purposes
of paragraph 2(a)-(b), above.
(d) As of September 1, 1996, if two or fewer Committed Series have
been deemed "Designated Productions" by Distributor, Producer shall have the
option, exercisable at its sole discretion and upon notice to Distributor, to
cease presenting Distributor with Producer's development materials as required
by paragraph 1(a) hereunder. In connection therewith, Distributor shall not be
entitled to deem Producer's proposed series/specials or Committed Series as a
Designated Production, nor shall Producer be entitled to unilaterally designate
a Committed Series as a Designated Production pursuant to the provisions of
paragraph 2(b)(2) above.
3. Grant of Rights: Producer hereby licenses to Distributor the
exclusive right within the Territory and during the Term hereof to exploit
Productions by all means of television exhibition and home video devices. All
rights not specifically granted herein are hereby retained by Producer,
including without limitation the right to independently exploit elements
contained within Productions (e.g., music publishing rights, sound recording
rights).
As used herein, "television exhibition" shall include traditional pay and
free television transmitted via Hertzian waves, coaxial cable, or satellite. As
used herein, "home video device" means a device rented or sold to the viewer
intended only for viewing Productions embodied therein in private living
accommodations where no admission fee is charged for such viewing,
-4-
<PAGE>
and does not include the public performance, diffusion, exhibition or broadcast
of Productions embodied on the video device. Notwithstanding the foregoing,
"television exhibition" and "home video device" shall not include exhibition via
computer technology and other new technologies, where a significant
characteristic of such presentation is consumer interactivity, non-linear
programming, or the use of computer information, storage, retrieval, management
techniques and technology capable of consumer interactivity, or which may be
received by end users on optical or magnetic disks through interactive
television or through any other technology hereafter developed, including by
means of electronic delivery; provided, however, that if such use is exclusively
linear in nature, whether by CD-ROM or any other device, such use shall be
deemed a method of "television exhibition" or a "home video device".
In the event that Producer desires to enter into an agreement with a third
party for the worldwide distribution of video devices embodying a Production,
Producer shall be entitled to retain and license such rights for the Territory,
subject only to Producer's good faith negotiation with Distributor of an
appropriate reduction of the license fee set forth at paragraph 6 hereunder;
provided, however, that Producer shall not be entitled to retain and license the
right to distribute video devices embodying the German language version of a
Production without the express approval of Distributor.
4. Territory: Distributor's exclusive territory (the "Territory"),
unless modified according to paragraph 6 hereunder to exclude the Retained
Territory and/or the Sub-Agent Territory, shall include Germany, France, Spain,
Italy, Portugal, Greece, Belgium, Netherlands, Switzerland, Austria, Luxembourg,
Lichtenstein, Denmark, Norway, Sweden, Finland, Iceland, Greenland, Czech
Republic, Slovak Republic, Poland, Romania, Bulgaria, Hungary, Yugoslavia,
Bosnia, Croatia, Macedonia, Albania, Andorra, Monaco, San Marino, and Vatican
City.
5. License Term: The term of the license of each Designated Production
licensed under this Agreement (the "Term") shall commence on the date hereof and
shall continue, on a Production-by-Production basis, for a period equal to
twenty-two and one-half (22-1/2) years from delivery to Distributor of the
initial episode of a given Production. Notwithstanding the foregoing, the Term
for a given Production shall be extended one (1) year for each subsequent season
that the Production is produced, such extension for a given Production not to
exceed four (4) years.
During the final year of the Term for any given Production, and for a
thirty day period, Producer shall afford Distributor the first opportunity to
negotiate for the license of rights granted
-5-
<PAGE>
hereunder. In the event that Producer and Distributor do not reach an agreement
in connection therewith, Producer shall be entitled to negotiate with third
parties for the license of such rights. If Producer desires to enter into an
agreement with a third party for the license of such rights on terms less
favorable to Producer than last offered by Distributor, Producer shall not enter
into such agreement unless Producer has first informed Distributor of the terms
of such offer and, within thirty days, Distributor has agreed to license such
rights on the terms last offered by Distributor.
6. Audiovisual License Fee: Distributor shall pay Producer the following
license fees in consideration of Producer's license to Distributor of home video
rights and television exhibition rights, as defined herein:
(a) One Hundred Thousand Dollars ($100,000) per half-hour episode for
Productions exhibited initially in the United States on a
television broadcast network (including, without limitation, ABC,
CBS, NBC, Fox Network, Warner Bros. Network, and Paramount
Network), pay cable television or basic cable television.
(b) Eighty Thousand Dollars ($80,000) per half-hour episode for
Productions intended for initial United States exhibition by
means of syndication or otherwise.
In the event the production costs of a given Production exceed $400,000 per
episode (inclusive of fifteen percent overhead charge by Producer, $15,000 per
episode executive producer fee to Producer, agency commissions, etc.), but do
not exceed $450,000 per episode, the foregoing license fees shall be increased
by thirty percent (30%) of the incremental costs exceeding $400,000 per episode.
Notwithstanding the foregoing, Producer shall have the option (the
"Territory Retention Option"), exercisable at any time prior to delivery of the
initial episode of a Production, to retain the rights otherwise granted
hereunder for either the territory of Spain or all French-speaking European
territories, the designated territory being deemed the "Retained Territory". In
the event that Producer exercises the Territory Retention Option, Producer shall
be entitled to the license fees set forth at paragraphs 6(a)-(b) herein, less
Fifteen Thousand Dollars ($15,000) per episode produced according to such
scenario. In the event that Producer exercises the Territory Retention Option,
Producer shall have the further option (the "Sub-Agency Option") of acting as
the sub-agent of Distributor in the territory/territories (the "Sub-Agent
Territory") for which Producer did not exercise the Territory
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<PAGE>
Retention Option (i.e., Spain or the French-speaking European territories). If
Producer exercises the Sub-Agency Option, Producer shall retain sole approval
over the terms of license of Productions subject to the Sub-Agency Option,
provided that Producer consult with Distributor.
In the event Producer exercises both the Territory Retention Option and the
Sub-Agency Option, Producer shall be entitled to the license fees set forth at
paragraphs 6(a)-(b) herein, less Twenty Thousand Dollars ($20,000) per episode
of Productions produced according to such scenario. In addition thereto,
Producer shall be further entitled to (i) twenty-five percent (25%) of the gross
proceeds from the license in the Sub-Agent Territory during the Term of
Productions subject to the Sub-Agency Option, (ii) recoupment of dubbing or
subtitling costs incurred by Producer in connection with such Productions, and
(iii) fifty percent (50%) of the remaining revenues from the license of such
Productions during the Term. The balance of revenues from the license during
the Term of Productions subject to the Sub-Agency Option shall be payable to
Distributor.
The episodic license fees set forth at paragraph 6(a)-(b) above shall
increase, cumulatively, by four percent (4%) during each year of the Term,
calculated according to the date on which Producer commits to produce a given
episode of a given Production. For example, the following license fees shall
apply to episodes of a Production intended for exhibition on a U.S. network, to
the extent not otherwise increased or decreased hereunder:
<TABLE>
<CAPTION>
Commitment Date License Fee
--------------- -----------
<S> <C>
September 1, 1994 $100,000
through August 31,
1995
September 1, 1995 $104,000
through August 31,
1996
September 1, 1996 $108,160
through August 31,
1997
September 1, 1997 $112,486
through August 31,
1998
</TABLE>
For purposes of clarification, if a Designated Production is ultimately
produced (and therefore deemed a "Production"), Distributor shall be obligated
to pay Producer the episodic license
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<PAGE>
fees set forth above for each and every episode of a given Production,
regardless of when ordered by a third party broadcaster or produced by Producer.
The foregoing license fees shall be paid, on an episode by episode basis, by
Distributor pursuant to a cash flow schedule prepared by Producer, and according
to the following events and percentages:
Notice to Distributor of Producer's 35%
commitment to produce episodes of
a given Production
Shipment of storyboards to overseas 35%
studios
Delivery and acceptance 30%
of materials
Notwithstanding the foregoing, Distributor agrees to promptly review delivered
materials and inform Producer of Distributor's acceptance thereof and, in no
event, will Distributor's acceptance be deemed to have occurred later than four
weeks after Producer's delivery of the delivery materials to Distributor.
7. Producer's Representations and Warranties: Producer represents,
warrants and agrees as follows:
a. the Productions licensed hereunder are new and original and have
not heretofore been distributed or otherwise exploited in any
part of the Territory;
b. that Producer has the full right, power and authority to enter
into and perform under this Agreement, and that Producer now owns
all rights granted to Distributor pursuant to this Agreement;
c. that at the time of completion of Productions, Producer shall own
or have good and sufficient licenses from the owners of all
literary, dramatic and musical materials contained in
Productions, or upon which Productions are based, to the extent
required to enable Distributor to exploit the rights granted
hereunder;
d. that Producer will not during the Term of this Agreement,
negotiate or enter into distribution agreements for Productions
in the Territory, and Producer will refer all inquiries therefor
to Distributor; and
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<PAGE>
[Blank Page]
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<PAGE>
8. Delivery of Materials; Laboratory Access Letter: Producer shall deliver
to Distributor the materials identified in Exhibit A attached hereto, promptly
upon Producer's completion of an episode of a given Production. Producer will
supply Distributor with a laboratory access letter, in customary form, granting
Distributor access to a complete set of masters of Productions that may be
required to enable Distributor to sufficiently exploit the rights granted
hereunder. Upon expiration of the Term, or earlier termination of this
Agreement, Distributor shall (at Producer's cost and expense) immediately return
to Producer all materials retained by Distributor in connection with the
Productions, including but not limited to, all devices utilized in connection
with the home video exhibition of Productions, all prints and pre-print
materials of Productions, subtitled or subtitling materials, soundtracks, and
all other materials manufactured, created or procured by or for Distributor
hereunder. Alternatively, and at Producer's option, Producer may require
Distributor to destroy any or all of the materials retained by Distributor in
connection with the Productions.
9. Editing; Promotional Materials: All Productions and trailers thereof
supplied by Producer shall be exhibited in their original continuity, without
change, alteration, interpolation, cut or elimination. Furthermore, no other
audiovisual productions or other material (including advertisements) shall be
embodied in or included on any video devices embodying Productions, without the
express consent of Producer, and subject to any editing rights of third parties
of which Producer has informed Distributor. Distributor may alter Productions
for the following purposes only, subject to Producer's approval and only to the
minimum extent necessary for such purposes:
(a) adding a foreign title;
(b) dubbing or subtitling; and
(c) conforming Productions to the standards required for free and/or
pay television exhibition of Productions hereunder, provided that
such Productions shall not be substantially altered for such
purpose.
Notwithstanding the foregoing, to the extent Distributor is required by a third
party to change, alter, interpolate, cut or eliminate any aspect of an episode
of a Production as a contingency of entering into an agreement for the
distribution or broadcast of the Production episode in the third party's
territory, Distributor is entitled to authorize such alteration as long as such
alteration will not affect the artistic substance of the respective Production.
Any credit, trademark, trade name, symbol or copyright
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<PAGE>
notice included in the Productions should not be eliminated or altered in any
manner. Further, in no event may the music embodied in Productions delivered
hereunder be eliminated or altered without the approval of Distributor, not to
be unreasonably witheld.
To the extent Distributor alters Productions according to the terms
hereunder, Distributor warrants that any alteration or addition of material to
such Productions shall not infringe upon the rights of any other person or
entity, including the person's or entity's rights of privacy, copyright,
trademark or publicity.
Distributor and Producer may, at their sole cost and expense, make dubbed
or subtitled foreign language versions of Productions; provided, however, that
each party shall at all times have access to and the right to exploit all
subtitled or dubbed materials created by the other party, subject to a good
faith negotiation for the reimbursement of expenses incurred in the replication
of master recordings embodying such foreign language versions and dubbing
expenses, and in consideration of the value of use to the requesting party.
Producer and Distributor shall make available to eachother promotional
materials created by each party (e.g., electronic press kits), subject to good
faith negotiation for the sharing of expenses incurred in connection with the
creation of such materials; provided, however, that promotional materials
created by Distributor shall conform to the standards employed by Producer for
the creation of comparable materials.
10. Collection Societies; Residuals: In connection with Distributor's
exploitation of rights granted hereunder, Distributor shall pay all royalties
and license fees customarily collected by rights societies (e.g., GEMA, AGICOA)
pursuant to the laws of the Territory, including but not limited to payments for
the public performance of sound recordings and musical compositions, sales of
video devices, etc. In connection with Distributor's exploitation of rights
granted hereunder, Distributor shall additionally be responsible for the payment
of all monies owing pursuant to collective bargaining agreements to which
Producer or Distributor are subject, and Distributor agrees to execute
documentation reflecting Distributor's direct obligation therefor, i.e.,
assumption agreements.
11. Merchandising Agency: Producer also agrees to grant Distributor
merchandising agency rights in connection with Productions licensed hereunder.
As used herein, "merchandising agency rights" means the right to represent
Producer in the procurement and negotiation of merchandising and licensing
agreements for the Territory (specifically excluding the Retained Territory and
the Sub-Agent Territory, if applicable) relating to
-11-
<PAGE>
intellectual properties specifically derived from Productions; provided,
however, that merchandising agency rights shall not include interactive rights,
videogame rights, master toy license rights, and any other rights customarily
licensed on a worldwide basis or for an aggregate of territories larger than the
Territory, and such rights are hereby expressly reserved by Producer.
Notwithstanding the foregoing, Producer shall only be obligated to grant
merchandising agency rights to the extent Producer retains such rights, and such
grant shall be subject to the approval of third parties with whom Producer has
contracted in connection with Productions related to such merchandising agency
rights.
Producer's grant of merchandising agency rights shall additionally be
contingent on: (i) Producer's approval of the entity rendering agency services
for any particular territory of the Territory; (ii) Producer's and Distributor's
agreement as to Distributor's minimum annual monetary performance levels in any
particular territory of the Territory, and Distributor's achievement thereof;
(iii) and Producer's and Distributor's agreement to other terms and conditions
that customarily exist in merchandising agency agreements, including but not
limited to establishment of a 2-3 year term, with a twenty-five percent (25%)
agency commission to Distributor and the balance of revenues to Producer.
Notwithstanding the foregoing, any and all terms relating to Producer's grant of
merchandising agency rights shall be subject to the requirements of a particular
intellectual property and the requirements of any third party retaining
ownership of or approval over the exploitation of such rights, regardless if
such requirements do not comport with terms and conditions customarily existent
in merchandising agency agreements. Merchandising Munchen is pre-approved as a
merchandising agent for the territories of Germany and Austria. In connection
with the foregoing, Producer and Distributor agree to execute such additional
documentation as is necessary to memorialize the foregoing terms in greater
detail.
12. Statements and Payments: Distributor shall maintain books and records
which shall reflect all revenues derived from exploitation of merchandising
rights granted hereunder. Distributor shall render to Producer, within forty-
five (45) days of each calendar quarter, an accounting reflecting revenues
received pursuant to each merchandising agreement entered into by Distributor,
accompanied by Producer's share of revenues owing pursuant to this Agreement.
Producer shall have the right, at its own expense, to examine the books and
records of Distributor pertaining to accountings to be rendered hereunder, upon
reasonable notice to Distributor and in such manner as not to interfere with
Distributor's normal business activity.
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<PAGE>
In the event that Producer acts as the sub-agent of Distributor in the Sub-
Agent Territory, as set forth above, Producer shall account to Distributor on
the same basis as Distributor accounts to Producer hereunder, in connection with
revenues derived by Producer from the Sub-Agent Territory.
Simultaneous with accountings rendered hereunder, Distributor shall submit
information specifying the exploitation of rights granted hereunder,
specifically the consumers/licensees of Productions, sales/license fee
information, deal terms, etc.; provided, however, that any information relating
to the exploitation of audiovisual rights in Germany shall not include license
fee information.
13. Mutual Indemnity: Producer and Distributor will at all times defend,
indemnify and hold harmless eachother and their officers, agents, employees,
attorneys and assignees, from and against any and all claims, damages,
liabilities, costs and expenses, including but not limited to reasonable
attorneys' fees arising out of any breach by a party of any representation,
warranty or agreement made pursuant to this Agreement.
14. Governing Law; Jurisdiction: All questions with respect to the
construction of this Agreement and the rights and liabilities of the parties
hereto shall be governed by the laws of the State of California. Producer and
Distributor expressly agree that jurisdiction over any dispute between them with
respect to this Agreement shall be brought only in federal or state courts
located in Los Angeles County, California.
15. Notices: Except as otherwise provided herein, any notice or statement
required or desired to be given hereunder by one party to the other shall be in
writing and sent by mail, postage pre-paid, or by telecopy, to the address
specified above, or as otherwise specified, and the date of receipt of such
mailing or facsimile shall be deemed the date of such notice or statement.
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<PAGE>
16. More Formal Document: The parties hereto agree to jointly prepare and
execute a more formal document incorporating the provisions set forth above.
Until the execution thereof, this document shall be deemed a valid and binding
agreement.
IN WITNESS HEREOF, Producer and Distributor have executed this Agreement as
of the date set forth above to constitute a binding contract between them.
FILM ROMAN, INC. ("Producer")
By: /s/ Phil Roman
----------------------------
Its Authorized Signatory
TAURUS FILM GMBH & COMPANY
("Distributor")
By: /s/Authorized Signatory
----------------------------
Its Authorized Signatory
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<PAGE>
EXHIBIT A
DELIVERY MATERIALS
------------------
Producer shall deliver to Distributor, on loan, a DCT Master of each
episode of a Production in the original English language version. The delivery
of the material of all episodes shall be completed in a timely fashion. During
the License Term, Producer shall always, at laboratory cost to be promptly paid
by Distributor, provide Distributor with additional materials upon Distributor's
request.
In addition, Producer shall deliver and transfer ownership of the following
materials to Distributor free of charge:
- lists of dialogues resp. comments
- lists of the titles of the episodes
- synopses
- music cue sheets
- advertising, press and photographic material in the quantities
customary in the trade (at least 1 set of black-and-white photos or
transparencies with various motifs)
- list of cast resp. contractual credit obligations.
The shipping charges, including possible customs duties, with regard to the
delivery of materials pursuant to the foregoing paragraphs shall be borne by
Distributor.
Producer guarantees that the quality of the material to be delivered
hereunder is suitable for transmission in compliance with the technical
standards of German television stations.
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<PAGE>
EXHIBIT 10.36
GARFIELD
--------
PRIME TIME TELEVISION SPECIALS
------------------------------
AGREEMENT
---------
This Agreement, dated as of April 1, 1991, with retroactive effect to
January 1, 1984, is between Film Roman, Inc. ("Contractor"), 10635 Riverside
Drive, Toluca Lake, California 91602, and United Media/Mendelson Productions,
1408 Chapin Avenue, Burlingame, California 94010 ("UM/MP"), a joint venture of
L. M. Greatrace, Inc. and United Feature Syndicate, Inc.
RECITALS
--------
A. UM/MP contemplates entering into one or more contracts (the "UM/MP-CBS
Contracts") with Columbia Broadcasting System ("CBS") to provide CBS certain
animated color television specials (collectively, the "Specials") based upon the
cartoon character "GARFIELD."
B. As of the commencement of this Agreement, the Specials covered by this
Agreement, and the terms applicable thereto, shall be the Specials and terms set
forth in the attached Exhibit A, which is made a part hereof. (It is
contemplated by the parties that the number of Specials described in Exhibit A,
and the specific requirements and terms applicable to the Specials, may be
changed or modified from time to time by mutual agreement of the parties, and
that such changes and modifications shall be incorporated in one or more revised
Exhibits A, each of which shall be substituted for the Exhibit A then in effect
hereunder.)
C. UM/MP wishes to use the services of Contractor in connection with the
production of the Specials, and Contractor wishes to provide such services.
D. The parties confirm that Contractor has succeeded by novation to all
rights and
<PAGE>
obligations of Phil Roman, d.b.a. Film Roman, and that Contractor is the proper
party to this Agreement.
NOW, THEREFORE, the parties agree as follows:
I.
DUTIES OF UM/MP
---------------
1.1 UK/MP agrees to provide to Contractor teleplays and storyboards for
the Specials at no cost to Contractor, in accordance with the schedule set forth
in the attached Exhibit A.
1.2 If UM/MP makes any changes in the teleplay of any Special after
delivery to Contractor in accordance with the schedule, UM/MP will reimburse
Contractor for Contractor's direct out-of-pocket costs caused by such changes.
UM/MP will also reimburse Contractor for Contractor's direct out-of-pocket
costs, if any, caused by changes in the teleplay, voice-over dialogue, or music
after delivery thereof.
1.3 UM/MP agrees to deliver to Contractor at UM/MP's expense, and in
accordance with the mutually agreed-upon schedule set forth in Exhibit A, the
numbers of minutes of wall-to-wall music specified in Exhibit A for each
Special, for use as part of the soundtrack for such Special. (The above-
specified music for the Specials will be referred to herein as the "Music").
Contractor will be responsible for integrating the Music for each Special with
the script and video footage into the finished videotape for such Special, as
provided in section 2.1 below.
1.4 UM/MP will deliver to Contractor, at UM/MP's expense, and in
accordance with the schedule set forth in Exhibit A, voice-over dialogue for use
as part of the soundtracks for the Specials.
1.5 The parties agree that the number of Specials listed in Exhibit A, and
all of the
2
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other terms set forth in Exhibit A with respect to the Specials, including
schedules of delivery, compensation and payment terms, etc., (a) shall be
subject to the UM/MP-CBS Agreements (and the terms thereof), and (b) may be
changed from time to time by mutual agreement of the parties, in which event a
revised Exhibit A shall be prepared and be substituted for the Exhibit A then in
effect hereunder; provided, however, that notwithstanding the foregoing
provisions, in the event that CBS cancels a Special which is in production or is
to be produced hereunder, UM/MP agrees to pay to Contractor, upon receipt of an
itemized statement therefor from Contractor, all direct out-of-pocket costs
incurred by Contractor in producing such canceled Special, plus fifteen percent
(15%) of such costs through a period ending thirty days after receipt by
Contractor of written notice from UM/MP of such cancellation by CBS.
1.6 UM/MP confirms that it is responsible for all union costs (including,
without limitation, SAG and AFM residuals) attributable to elements of Specials
furnished by UM/MP, and UM/MP agrees to indemnify and hold Contractor harmless
against any claims that might be asserted against Contractor with respect
thereto.
II.
DUTIES OF CONTRACTOR
--------------------
2.1 Contractor will provide all camera, ink and paint layout, editing,
animation, checking, lab processing, titles and credits (the "Services")
necessary to create finished, animated videotapes for the Specials, in
accordance with the technical specifications attached hereto as Exhibit B (the
"Specifications"), and based upon and/or incorporating, as applicable, the
following:
(a) teleplays and storyboards based upon and in accordance with the
story outlines, dialogue track, and music track (all as delivered to Contractor
by UM/MP hereunder);
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<PAGE>
(b) provision of the Services in connection with the creation and
development of the finished animated videotapes ("Videotapes") for the Specials
listed in Exhibit A, prepared in accordance with the teleplays and storyboard
dialogue tracks, and music tracks (all as delivered to Contractor by UM/MP
hereunder); and
(c) hiring or engaging all personnel needed to provide the Services
for the Specials.
2.2 Contractor will deliver to CBS, unless otherwise directed by UM/MP,
the completed Videotapes and Soundtracks for the Specials in accordance with the
schedule set forth in Exhibit A. The Videotapes and Soundtracks shall meet the
Specifications set forth in Exhibit B, and the quality and workmanship thereof
shall be equal to or shall exceed that of the previous GARFIELD specials
produced by Contractor. Acceptance of the Videotapes and the Soundtracks will
be subject to the approval of UM/MP and Paws, Incorporated, such approvals not
to be unreasonably withheld. If UM/MP is unable to supply the teleplays,
storyboards, music, or voice-over dialogue on the dates set forth in Exhibit A
for each Special, the delivery schedule from Contractor to CBS will be adjusted
accordingly. UM/MP will reimburse Contractor for any reasonable out-of-pocket
costs incurred by Contractor as a direct result of such delays.
2.3 Except as specifically set forth herein, Contractor will pay all costs
and expenses of performing the Services and delivering the products of the
Services hereunder.
2.4 All Services will be performed by or under the direct supervision of
Phil Roman or if he is not available for such performance and supervision, by
such substitute director as may be designated by Contractor, subject to the
advance written approval of UM/MP, which shall not be unreasonably withheld.
4
<PAGE>
2.5 UM/MP has added Contractor as an additional insured party on UM/MP's
Errors and Omissions policies with respect to all acts and omissions by UM/MP or
Contractor in connection with the Specials, and has furnished Contractor with a
copy of such policies, which Contractor hereby acknowledges having received.
III.
COMPENSATION
------------
3.1 Assuming Contractor substantially provides all the Services and
Specials called for under this Agreement:
(a) UM/MP agrees to pay Contractor the lump-sum compensation amount
for each Special as specified in Exhibit A, as initial compensation to
Contractor to cover the initial two network broadcasts of the Special by CBS
pursuant to the UM/MP-CBS Contracts. Each such lump-sum compensation amount
shall be payable to Contractor on an installment basis, in accordance with the
payment schedule set forth in Exhibit A. In addition, such lump-sum
compensation amounts shall be subject to adjustment for increases or decreases
in union payments if, and to the extent that, such union adjustment provisions
are contained in the applicable UM/MP-CBS Contracts.
(b) In addition to the lump-sum compensation amounts provided for in
section 3.1(a), UM/MP will pay Contractor in perpetuity twenty-five percent
(25%) of the "Net Profits" of UM/MP for each Special (as computed on a Special-
by-Special basis and not cross-collateralized unless such cross-
collateralization (among GARFIELD programs only) is provided for under any
distribution or exploitation agreement which UM/MP has entered into with a third
party with respect to such Special), in accordance with the provisions of the
"net Profits" definition which is attached hereto as Exhibit C, with respect to
the exploitation of the
5
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Special (in the form of an audiovisual presentation only), any place in the
world, by means of U.S. network, free or pay cable or syndicated broadcast
television (other than the initial two network broadcasts of the Special under
the UM/MP-CBS Agreements), or by means of video cassettes, video discs or
related home video technology, or by any other means of exhibition, such as
theatrical motion pictures in motion picture theaters or other viewing arenas,
or by the sale of Cels. Contractor shall not be entitled to receive any share
of UM/MP's Net Profits for a Special to the extent such Net Profits are
attributable to the exploitation of any subsidiary rights in such Special,
including, without limitation, the music, publishing and merchandising rights
therein; provided, however, that in the event a process is hereafter invented
which permits the incorporation of animated program segments from the Specials
in articles of merchandise (such as for example, video games or video toys), the
parties agree to negotiate with one another in good faith for the purpose of
reaching agreements on a profit participation for Contractor in UM/MP; Net
Profits relating to the exploitation of such articles of merchandise. If any
Special is combined with other programs for broadcast on television, for release
as a theatrical motion picture, or for exploitation in the form of video
cassettes, video discs or related video technology (collectively, a "Package"),
Contractor will receive compensation equal to twenty-five percent (25%) of
UM/UMP's "Net Profits" with respect to such Package, multiplied by a fraction,
the numerator of which is the total playing time of the Specials in the Package
and the denominator of which is the total playing time of all programs in the
Package. To the extent sales or use taxes are applicable to the transaction
between UM/MP and Contractor under this Agreement, UM/MP will pay all such
taxes. If and to the extent that UM/MP receives no "Net Profits" from the
exploitation of a Special in the manner described herein, UM/MP will have no
obligation to pay Contractor any amounts under this section 3.1(b). Further,
subject to the
6
<PAGE>
provisions of section 8, UM/MP shall have no obligation to pay Contractor any
amounts under this Agreement with respect to any Special if UM/MP rightfully
terminates this Agreement pursuant to section 8.2, below, before Contractor has
provided substantially all the Services it is required to provide under this
Agreement with respect to the Special in question.
3.2 Subject to the terms set forth in this section 3, UM/MP will pay
Contractor all sums due under section 3.1(a) by the agreed due dates see forth
in Exhibit A. UM/MP will pay Contractor all sums due under section 3.1(b)
within thirty (30) days after the end of each calendar quarter in which UM/MP
has any "Net Profits" for any Special. Each payment will be accompanied by an
accounting setting forth in detail, and on a cumulative annual basis, the terms
on which Net Profits have been computed by UM/MP on a Special-by-Special basis.
Contractor shall also be entitled to receive semiannual reports from UM/MP with
respect to any periods in which no Net Profits are payable to Contractor
hereunder.
3.3 For as long as UM/MP continues to receive revenues for any of the
Specials, and for three years thereafter, UM/MP will maintain accurate books and
records concerning the Specials. Upon seven days written notice to UM/MP,
Contractor or its authorized representatives may inspect and copy such books and
records at its own expense, provided that no more than one such inspection is
made in any one (1) calendar year.
IV.
ASSIGNMENT OF RIGHTS
--------------------
4.1 Contractor will acquire from all parties whose services are used by
Contractor in rendering the Services hereunder an absolute, worldwide, perpetual
assignment to Contractor of all rights of such persons, including copyrights and
renewal copyrights, in and to the Specials and the product of the Services.
Subject to Contractor's continuing rights to receive
7
<PAGE>
compensation from UM/MP hereunder, Contractor hereby assigns and transfers
absolutely to UM/MP's designee, UNITED FEATURE SYNDICATE, INC. ("UFS"), in
perpetuity, all of Contractor's worldwide right, title, and interest (including,
without limitation, the copyrights and renewal copyrights therein) whether now
or hereafter existing, in and to the Specials (and all works of authorship
incorporated therein, such as the teleplays, storyboards, the Soundtracks and
the Videotapes). At UM/MP's or UFS's request, Contractor will execute such
further documents as are reasonably necessary to enable UFS to obtain the full
benefit of and protect the rights herein assigned and transferred. Contractor
hereby waives all moral rights, if any, in and to the Services rendered
hereunder and the products thereof.
V.
CREDITS
-------
5.1 Assuming Contractor provides substantially all of the Services and
products thereof called for under this Agreement, Contractor will receive
corporate credit in the main titles as the corporate producer of the Specials.
In addition, Phil Roman (or such other individual as Contractor may designate)
shall receive appropriate credit, in the manner set forth below, as the
individual producer and director of the Specials. Contractor's name shall
appear in the same size and degree as UM/MP's name in all paid advertising'
materials for the Specials. In addition, the end titles for the Specials will
specify that each Special is "A Film Roman, Inc. Production In Association with
United Media/Mendelson Productions." All parties will mutually agree in good
faith on the form and content of the other credits used in the main and end
titles. No casual or inadvertent failure to comply with the provisions of this
paragraph will constitute a breach of this Agreement. Either party may give
notice in writing of a failure to comply with the provisions of this paragraph.
Upon receipt of such notice, a party will use its diligent efforts
8
<PAGE>
to cure such breach prospectively with respect to prints of the Specials made
after the date of such notice; no action need be taken with respect to prints of
the Specials made before the date of such notice, and such prints may be
distributed without restriction.
VI.
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
-----------------------------------------------
6.1 Contractor warrants that all Services provided to UM/MP in connection
with the Specials will be performed in a first class and professional manner and
in accordance with the standard of care, skill, and diligence employed by
Contractor with respect to work performed by Contractor on the previous GARFIELD
specials it has produced.
6.2 Contractor warrants that to the best of its knowledge none of the
Services or products thereof (including, without limitation, works of
authorship) which it has provided or will provide to UM/MP under this Agreement
has infringed or does or will infringe any personal or property right of any
third party. Specifically, and without limiting the generality of the foregoing
sentence, Contractor warrants that it has obtained (and will in the future
obtain) from all persons whose services are used or will be used by Contractor
in rendering the Services hereunder an exclusive worldwide assignment to
Contractor of all rights of such persons, including copyrights and renewal
copyrights, in and to the Specials and the product of the Services.
6.3 UM/MP warrants that all Materials, including, but not limited to, the
teleplays, music soundtracks, and voice-over dialogue supplied or to be supplied
by UM/MP to Contractor for the Specials does not and will not infringe the
right, title, or interest of any third party.
6.4 UM/MP agrees to defend, indemnify, and hold Contractor harmless from
and against any and all damages, liabilities, costs and expenses (including, but
not limited to,
9
<PAGE>
attorneys' fees) incurred by Contractor as a result of any claim, judgment or
proceeding against Contractor arising solely (a) out of the negligence of UM/MP,
or (b) out of a breach by UM/MP of the agreements and warranties made by UM/MP
in this Agreement; provided that Contractor promptly notifies UM/MP in writing
of any such claim, judgment or proceeding, tenders to UM/MP the opportunity to
settle such claim, judgment or proceeding at UM/MP's expense, and cooperates
with UM/MP in settling such claim, judgment or proceeding.
6.5 Contractor agrees to defend, indemnify, and hold UM/MP harmless from
and against any and all damages, liabilities, costs and expenses (including, but
not limited to, attorneys' fees) incurred by UM/MP as a result of any claim,
judgment or proceeding against UM/MP arising solely (a) out of the negligence of
Contractor, or (b) out of Contractor's breach of the agreements and warranties
made by Contractor under this Agreement; provided that UM/MP promptly notifies
Contractor of any such claim, judgment or proceeding in writing, tenders to
Contractor the opportunity to settle such claim, judgment or proceeding at
Contractor's expense and cooperates with Contractor in settling such claim,
judgment or proceeding.
VII.
INDEPENDENT CONTRACTOR
----------------------
7.1 In providing Services and products thereof hereunder, Contractor will
operate as and have the status of an independent contractor and neither
Contractor nor any of his agents or employees will act as or be an agent or
employee of UM/MP. For this reason all of Contractor's activities will be at
Contractor's own risk, and Contractor will not be entitled to Workers'
Compensation or similar benefits or other insurance protection by UM/MP, other
than as provided in section 2.5. With the exception of errors and omission
insurance, Contractor will
10
<PAGE>
make its own arrangements, as it sees fit, for insurance covering losses
sustained in connection with providing Services and products thereof hereunder,
including hospital and medical costs in connection with any injury or illness,
including that of Phil Roman.
7.2 Confidentiality. Contractor will not disclose to any third person,
---------------
except where necessary to the rendering of Services hereunder, the involvement
of UM/HP in the creation, development, production, and sale of the Specials.
VIII.
TERMINATION
-----------
8.1 This Agreement will be and remain in effect from the date first see
forth above until it is terminated by the mutual written consent of both parties
or until terminated pursuant to section 8.2 below.
8.2 Either party may terminate this Agreement in the event the other party
substantially breaches a material provision hereof and has not commenced a cure
of such breach within ten days after its receipt of written notice of breach by
the aggrieved party and pursued such cure to a prompt resolution of the matter.
8.3 In the event Phil Roman is unable to perform the Services required
under section 2.4 due to death, disability, or incapacitation, Contractor will
designate a qualified person to perform Roman's duties and informs UM/MP; such
designation shall be subject to the advance written approval of UM/MP, which
shall not be unreasonably withheld.
8.4 The provisions of sections 2.3 and 5.1 and all of Sections VI and IX
will survive the termination of this Agreement. Obligations under Section III
incurred prior to termination shall also survive termination.
8.5 The termination of Contractor's right to produce Specials hereunder
shall not
11
<PAGE>
terminate Contractor's continuing right to receive compensation hereunder for
previously produced Specials, and such compensation right may not be affected by
any such termination.
IX. MISCELLANEOUS
9.1 Entire Agreement. This Agreement with its exhibits contains the
----------------
entire understanding of the parties with respect to the subject matter herein.
There are no promises, covenants or undertakings other than those expressly set
forth herein. This Agreement may not be modified except by a written agreement
entered into between UM/MP and Contractor.
9.2 Notices. Any notice, request, demand or other communication required
-------
or permitted hereunder will be deemed to be properly given when deposited in the
United States mail, return receipt requested, to the addresses set forth above
in this Agreement, or to such other addresses as the parties may from time to
time designate in a writing delivered pursuant to this section 9.2.
9.3 Non-Waiver. The failure of either party at any time to require
----------
performance by the other party of any provision hereof shall not affect in any
way the full right to require such performance at any time thereafter, nor shall
the waiver by either party of a breach of any provision hereof be taken or held
to be a waiver of the provision itself.
9.4 Severability. If any term, provision, covenant or condition of this
------------
Agreement is held invalid or unenforceable for any reason, the remainder of the
provisions shall continue in full force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated.
9.5 Headings. The section heading in this Agreement are solely for
--------
convenience and shall not be considered in its interpretation.
9.6 Controlling Law. This Agreement will be governed in all respects by
---------------
the laws
12
<PAGE>
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California.
9.7 Assignment. No party hereto may assign this Agreement, or any of its
----------
rights or obligations hereunder, without the written approval of the other
parties, except that no such approval is required with regard to (a) an
assignment by Contractor to a third party of Contractor's right to receive
payment hereunder, or (b) an assignment to a third party into which a party is
merged, or (c) an assignment to a surviving entity in the case of a corporate
reorganization not involving a change in control. Subject to the above
restrictions on assignment, this Agreement will inure to the benefit of and bind
the successors and assigns of the parties.
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first set forth above. This
Agreement may be executed in counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same instrument.
FILM ROMAN, INC.
By /s/ Phil Roman
-------------------------------------------
Phil Roman
UNITED MEDIA/MENDELSON PRODUCTIONS, a Joint
venture, by
UNITED FEATURE SYNDICATE, INC.
By /s/ Robert R. Metz, President
-------------------------------------------
Robert R. Metz, President
L. M. GREATRACE, INC.
By /s/ Lee Mendelson, President
-------------------------------------------
Lee Mendelson, President
14
<PAGE>
Exhibit C
DEFINITION OF NET PROFITS
-------------------------
PRIME TIME SPECIALS
-------------------
The terms of this Exhibit and Schedule I hereto and are part of and are
incorporated in the foregoing Option Agreement (the "Agreement") between Film
Roman, Inc. (the "Participant") and United Media/Mendelson Productions (the
"Producer") relating to each television Program ("Motion Picture" for purposes
of the following provisions) described in the Agreement. If there is any
inconsistency between the terms of this Exhibit A and Schedule I and the
Agreement, the provisions of the Agreement shall control.
1. Definition of Net Profits.
-------------------------
1.1 The term "Net Profits" from the Motion Picture as used herein
shall mean the Gross Receipts (as defined in Paragraph 2 below) remaining after
the deduction therefrom on a continuing basis of the "Distribution Fees" (as
defined in Paragraph 3 below), the "Distribution Expenses" (as defined in
Paragraph 4 below) and the "Production Expenses" (as defined in Paragraph 5
below, and subject to the special limitations set forth therein).
1.2 Notwithstanding anything to the contrary herein, if the Producer
enters into an agreement with a person, firm or corporation who provides the
financing, production, sale and/or distribution of the Motion Picture and such
agreement contains a definition of "Net Profits" and/or provisions for
accounting and payment thereof which are different from those provisions
contained herein, such definition and provisions in such other agreement shall,
at the Producer's election, be substituted for those provisions contained in
this Exhibit A. It is agreed that in such event the Producer's and the
Participant's share of Net Profits shall be computed in accordance with the same
definition.
15
<PAGE>
2. Gross Receipts. The "Gross Receipts" from the Motion Picture shall be
--------------
deemed to mean the following:
2.1 There shall be included the actual gross payments collected in
the United States in United States dollars from the exploitation of the Motion
Picture in any country of the world by (a) the distributor of the Motion Picture
to whom the Producer has granted distribution rights in and to the Motion
Picture, or (b) the Producer, if the Producer itself distributes the Motion
Picture, in any medium now or hereafter known; and relating to any component or
element of the Motion Picture or the exercise by Producer of any of its allied,
subsidiary or ancillary rights in the Motion Picture; subject to the express
exclusions and limitations set forth in the Agreement; provided that, subject to
local currency restrictions and regulations, the Producer shall use its best
efforts to convert all receipts into U.S. Dollars and to remit the same to the
United States.
2.2 There shall not be included any of the following:
2.2.1 The receipts of any television network or stations,
theatre, or any other exhibitor or user of the Motion Picture, or rights
therein or derived therefrom in any medium, and only the license fee or
rental paid by such user to the Producer or distributor of the Motion
Picture shall be included in the Gross Receipts:
2.2.2 In any territory where the Producer and/or distributor
make an outright sale or license of the Motion Picture to a person, firm or
corporation under arrangements where the gross receipts of such person,
firm or corporation may not be known to the Producer and/or distributor,
any sums received by such person, firm or corporation shall not be included
in the Gross Receipts, and only the sale price or license fee received by
the Producer or distributor shall be included in the Gross Receipts;
16
<PAGE>
2.2.3 The amounts of any tariffs, import, export or sales taxes,
imports or duties, quota fees or import permit fees, or fees or taxes which
are based on receipts from the Motion Picture as transmitted to the
Producer and/or distributor, other than net income and corporation
franchise taxes;
2.2.4 The amounts of any advances or deposits until earned;
2.2.5 The amounts of any refunds or rebates by the Producer
and/or distributor;
3. Distribution Fees. The "Distribution Fees" in connection with the
-----------------
Motion Picture shall be deemed to mean the following:
3.1 All third-party distributors', subdistributors', and/or agents'
fees charged to the Producer, plus a fee to the Producer in an amount not to
exceed ten percent (10%) of the Gross Receipts for arranging and for supervising
distribution by such third parties; but subject to the limitation that all such
Distribution Fees (including any fees payable to Producer under this
subparagraph 3.1) shall not exceed, in the aggregate, 40% of Gross Receipts;
and/or
3.2 If, in any particular medium, the Producer (or any affiliate,
subsidiary or other related or controlled entity of Producer) licenses rights in
the Motion Picture directly to the user thereof, in lieu of the Distribution
Fees pursuant to Paragraph 3.1 above, fees to the Producer in the amounts set
forth on Schedule I attached hereto and incorporated by reference herein.
4. Distribution Expenses. The "Distribution Expenses" in connection with
---------------------
the Motion Picture shall be deemed to mean and include all actual costs, charges
and expenses of distributing, marketing, advertising and exploiting the Motion
Picture in any medium anywhere in the world, including, but not limited to, the
following: trade association fees, the cost of
17
<PAGE>
prints, transportation, shipping and delivery, advertising, publicity, dubbing,
titling, taxes, import licenses and visa fees, residual payments required by any
union or guild, performing rights fees (to the extent paid by the Producer or
distributor); the amounts, if any, spent in connection with the preservation,
insuring, storing and/or recovery of the Motion Picture or the recovery of any
rents, income or profits thereof, including, without limitation, checking
expenses and/or collection costs, costs of obtaining and protecting copyright on
and in the Motion Picture, reasonable accounting and legal fees, and the cost of
litigation, including settlements, if any; to the extent not included in
Production Expenses, any deferments and shares of gross receipts of the Motion
Picture, or any compensation measured by such gross receipts, which is payable
to or retained by any third party in consideration for services and/or materials
actually supplied in connection with the Motion Picture and/or in consideration
of financing, or providing financing for the Motion Picture, provided, however,
-------- -------
that, except for any profit participation and/or residual rights payable to
Henrienzo, Inc. (Lorenzo Music), there shall not be deducted any shares of the
Net Profits or Gross Receipts from the Motion Picture or any compensation
measured by such shares of the Net Profits or Gross Receipts, unless otherwise
expressly provided for in the Agreement; and all other costs and expenses which
distributors may be authorized or permitted to deduct and retain under and
pursuant to the terms of any distribution agreement with any distributors of the
Motion Picture.
5. Production Expenses. If with respect to any Motion Picture to be
-------------------
produced under the Agreement, the Producer and Participant, by express terms set
forth in an amendment to the Agreement, agree that the Production Expenses (or
any portion of the Production Expenses) of such Motion Picture shall be deducted
in computing the Net Profits of such Motion Picture hereunder, the following
terms shall be applicable. The "Production Expenses" of the Motion
18
<PAGE>
Picture shall be deemed to mean all costs, charges and expenses actually
incurred or expended in connection with the preparation, production, completion
and delivery of the Motion Picture fully cut, edited and scored (calculated
according to accounting practices customarily employed in the motion picture
industry in the United States), and shall include, but shall not be limited to,
the following: Payments for acquisition of underlying rights, preparation of
screenplays, preproduction expenses, producers' fees (including, without
limitation, payments to the Producer for supplying actual services of production
personal, including, without limitation, executive producers, producers,
production managers or production assistants), directors' fees, actors' fees,
retroactive and deferred items of cost, charges for studio space; studio
facilities, studio overhead, laboratory and sound services and facilities,
location expenses, travel and living expenses in connection with preproduction,
production and postproduction activities, reasonable legal and accounting
charges, interest charges actually paid to a third party (other than a bank or
other financial institution) for financing for the Motion Picture supplied by or
through such third party, and for financing supplied by the Producer, interest
charges to the Producer at one (1) percentage point over the higher of (a) the
prevailing prime commercial interest rate then in effect, or (b) the effective
interest rate charged the Producer by a bank or other financial institution for
such financing (it being understood that all of the foregoing interest charges
are subject to reduction to the maximum legal interest rate if such interest
charges are in excess of the maximum legal rate), an overhead charge by the
producer in the amount of seven and one-half percent (7- 1/2%) of the negative
cost of the Motion Picture (such negative cost to be computed excluding such
overhead charge and interest charges but including all deferments payable in
connection with the Motion Picture which are fixed obligations in a definite
amount), and all other costs of materials, services, facilities, duties,
insurance and taxes (other than
19
<PAGE>
income, franchise and like taxes) in connection with production of the Motion
Picture.*
6. Statements, Profit Payments, and Records.
----------------------------------------
6.1 The Producer agrees to furnish the Participant semi-annually for a
period of 24 months from and after the Producer's semi-annual accounting period
in which the Producer first collects any of the "Gross Receipts" after
completion and delivery of the Motion Picture, and thereafter annually, with a
statement showing the Net Profits from the Motion Picture, if any. Each such
statement shall show in detail the Gross Receipts and the deductions permitted
hereunder, including changes, if any, in the Production Expenses of the Motion
Picture. Losses in one accounting period may be charged against profits in any
subsequent accounting period. The Producer agrees, concurrently with the
delivery of such statements, to pay to the Participant any sums to which the
Participant may then be entitled pursuant to the Agreement to which this Exhibit
A is attached. A reasonable sum may be retained from Net Profits of one or more
accounting periods to establish a reserve for reasonably anticipated future
Distribution Expenses, unbilled Production Expenses, and/or reasonably
anticipated losses which may be incurred during subsequent accounting periods
within two years from the end of the accounting period in which such reserve is
retained. In the event such anticipated expenses or losses do not occur within
said two-year period, the reserve amount in question shall be released from the
reserve account. All reserve accounts shall affect the rights of Participant
and all other Net Profits participants on a proportional basis. Each statement
shall be furnished to the Participant within 90 days after the close of the
period for which such report is made. Notwithstanding the foregoing, it is
agreed that statements as specified in this Paragraph 6.1 are to be rendered
only
___________________
* Absent a written amendment of this Agreement to the contrary, each party
shall bear its own production overages and such deficits shall not be
deducted in computing net profits.
20
<PAGE>
for periods during which actual expenses are incurred or collections are made.
6.2 The Producer agrees to maintain full and complete records of all
transactions had by it in connection with the distribution and exploitation of
the Motion Picture in any medium, and if at any time within 24 months after the
mailing of any statement, the Participant shall elect to question the accuracy
of the same and shall so notify the Producer in writing, the Participant shall
have the right employ, at the Participant's expense, a firm of certified public
accountants experienced in the motion picture business to examine and to audit
the Producer's records and accounts, no more than once each calendar year,
insofar and only insofar as they relate to the Motion Picture and such
distribution and exploitation. The Participant's representative shall have the
right, at Participant's expense, to take excerpts from, and make copies of, such
records and accounts. The Participant shall give the Producer not less than two
weeks prior written notice of any such audit, and such audit will be continuous
from start to finish, and shall be completed within a reasonable period of time
after it is commenced. The right of the Participant to inspect the records and
accounts of the Producer shall be limited to the rights granted the Participant
in this Paragraph 6.2. The Producer agrees to reimburse the Participant for the
reasonable costs of any audit undertaken hereunder by the Participant if the
results of such audit establish that the amount of net profits actually paid to
the Participant during any accounting periods covered by such audit was less, by
more than ten percent (10%), in the aggregate, the amounts of Net Profits to
which the Participant was entitled for such accounting periods, in the
aggregate.
6.3 Nothing herein contained shall be deemed to give the Participant the
right to go into any matters or items which make up any of the items contained
in any such statement, if inquiry into the same shall require an examination of
the Producer's records or books after the
21
<PAGE>
expiration of 24 months from and after the mailing to the Participant of any
statement questioned by the Participant. The Participant shall be forever
barred from maintaining or instituting any action or proceeding based upon, or
involving, or in any way relating to, or pertaining to, or concerning any
transactions had by the Producer or the distributors of the Motion Picture, or
their licensees, in connection with the Motion Picture and the accounting
embraced in any statement delivered hereunder or the accuracy of any item
appearing therein, unless such written objection shall have been delivered by
the Participant to the Producer within the 12-month period mentioned in
Paragraph 6.2.
6.4 All accounting and payments made by the Producer shall be upon sums
actually collected by the Producer and/or the distributors of the Motion
Picture, in the United States in United States dollars, in connection with the
distribution and exploitation of the Motion Picture in any medium in any country
of the world. A uniform accounting system will be used hereunder. The Producer
and the distributors of the Motion Picture shall in any event have the right to
deduct bad accounts, cancellations, allowances, rebates, refunds or nonpayments
of billings.
6.5 It is the intention of the parties to this Agreement that (a) nothing
herein contained shall be deemed to mean that any monies due or payable to the
Participant hereunder are held in trust by the Producer or the distributors of
the Motion Picture for the Participant, and (b) the Producer and the
distributors of the Motion Picture shall have the right to commingle any part or
portion of the monies payable to the Participant based on the Net Profits from
the Motion Picture which may be received by the Producer or the distributor of
the Motion Picture with any of their own monies, the Producer being indebted to
the Participant only for the amounts to which the Participant is entitled
hereunder.
22
<PAGE>
7. Complete Disposition of Rights. Notwithstanding anything to the
------------------------------
contrary contained herein, but subject to the prior written approval of the
Participant (which shall not be unreasonably withheld), the Producer shall have
the right, in its sole discretion, to sell or otherwise dispose of any or all of
its rights in the Motion Picture to any person, firm or corporation. If the
Producer elects to exercise such right, such sale or other disposition shall be
at arm's length and shall be made either "subject to the rights of the
Participant," or "including all the rights of the Participant," as follows:
7.1 A sale or other disposition "subject to the rights of the
Participant" shall occur if the purchaser or acquirer of the Motion Picture or
rights therein assumes the executory obligations of the Producer to the
Participant hereunder in connection with the future distribution and other
exploitation of the Motion Picture or such rights by or under authority from
such purchaser or acquirer. Upon the assumption o(Pounds) such obligations by
such purchaser or acquirer, the Producer shall be released from any further
obligations to the Participant with respect to the payment of any share of the
Net Profits from the Motion Picture to the extent such share is measured by
receipts in the hands of such purchaser or acquirer. If the Producer makes any
sale or other disposition subject to the rights of the Participant, then the
purchase price or other consideration received by the Producer from such
purchaser or acquirer shall not be included in computing the Gross Receipts and
shall be retained solely by the Producer.
7.2 A sale or other disposition "including all the rights of the
Participant" shall occur if the Producer sakes such sale or other disposition
without obtaining the agreement of the purchaser or acquirer to assume the
Producer's executory obligations to the Participant hereunder. If the Producer
makes such sale or other disposition, the Gross Receipts shall not include any
sums collected by such purchaser or acquirer thereafter, and all rights of the
23
<PAGE>
Participant to receive any portion of such suns shall thereupon be deemed to
terminate automatically. Notwithstanding such termination, the Producer shall
account to the Participant pursuant to Paragraph 6 above for all Net Profits
received by the Producer prior to such termination, and in computing such Net
Profits, any suns received by the Producer from such sale or other disposition
shall be included in the Gross Receipts.
7.3 If any sale or other disposition pursuant to Paragraphs 7.1 or 7.2
above does not include all of the Producer's rights in the Motion Picture, then
the Producer shall continue to account to the Participant hereunder with respect
to any rights it retains in the Motion Picture.
The provisions of Sections 7.1, 7.2 and 7.3 shall not apply with respect to an
exclusive license, as distinguished from an outright sale or assignment, of any
of the Producer's rights in the Motion Picture.
24
<PAGE>
SCHEDULE I
----------
Distribution fees for actual distribution services by the Producer shall be
the following percentages of the Gross Receipts:
(a) Theatrical Release of the Motion Picture in the United States and
Canada: 30%.
(b) Theatrical Release of the Motion Picture in the United Kingdom: 35%.
(c) Theatrical Release of the Motion Picture elsewhere in the world: 40%.
(d) For any repeat Network Exhibition of the Motion Picture in the United
States after the initial and repeat network broadcasts of the Motion Picture as
provided for in the Agreement: 0%. "Network Exhibition" means the exhibition of
the Motion Picture over a United States free commercial national television
network.
(e) From Non-Network Exhibition of the Motion Picture: 10%. "Non-Network
Exhibition" terms any exhibition of the Motion Picture on United States or
foreign television, other than a United States Network Exhibition, but including
any exhibition of the Motion Picture on cable, pay cable, direct broadcast, or
subscription television in the United States or any foreign countries.
(f) From Distribution of the Motion Picture by means of Home Video Devices
(including videocassettes, video discs and other similar or dissimilar formats,
whenever devised):
(1) If Producer directly manufactures and sells or rents Home Video
Devices in the United States, a sum equal to twenty-five percent
(25%) of the monies received by Producer.
(2) If Producer directly manufactures and sells or rents Home Video
Devices outside the United States, a sum equal to twenty-five
percent (25%) of the
25
<PAGE>
monies received by Producer, after deduction of foreign agent's
fees and commissions, if any.
(3) All monies received with respect to the marketing of such Home
Video Devices shall be subject to the following deductions: (a)
all adjustments, such as returns for defective Videocassettes,
and other credits, allowances, rebates and refunds; (b) deposits,
advances and periodic payments until earned or forfeited; (c)
sales, excise and remittance taxes, however denominated, and
duties; and (d) any other deductions which are provided for in
any agreement which Producer enters into with a third party for
the distribution of the Home Video Devices.
(g) From all other sources: 40%.
26
<PAGE>
EXHIBIT 10.37
GARFIELD
SATURDAY MORNING SERIES
AGREEMENT
This Agreement, dated as of April 1, 1991 with retroactive effect to
January 1, 1987, is between Film Roman, Inc. ("Contractor"), 10635 Riverside
Drive, Toluca Lake, California 91602, and United Media/Mendelson Productions,
1408 Chapin Avenue, Burlingame, California 94010 ("UM/MP"), a Joint venture of
L. H. Greatrace, Inc. and United Feature Syndicate, Inc. ("UFS").
RECITALS
A. UM/MP contemplates entering into one or more contracts (the "UM/MP-CBS
Series Contracts") with Columbia Broadcasting System ("CBS") to provide CBS with
a series (the "Series") of animated color television programs (the "Programs"),
for initial broadcast on Saturday morning commercial network television based
upon the "GARFIELD" and "U.S. ACRES" properties, all rights to which are owned
by UFS, with each Program in the Series, as presently constituted, to have
approximately two-thirds of its running time based upon GARFIELD and
approximately one-third based upon U.S. ACRES.
B. As of the commencement of this Agreement, the Programs covered by this
Agreement, and the terms applicable thereto, shall be the Programs and terms set
forth in the attached Exhibit A, which is made a part hereof. (It is
contemplated by the parties
<PAGE>
that the number of Programs described in Exhibit A, and the specific
requirements and terms applicable to the Programs, may be changed or modified
from time to time by mutual agreement of the parties, and that such changes and
modifications shall be incorporated in one or more revised Exhibits A, each of
which shall be substituted for the Exhibit A then in effect hereunder.)
C. UM/MP has entered into Agreements, dated July 1, 1987, and June 4,
1989, with Horse Feathers, Inc. ("HFI") under which HFI has provided and will
provide treatment concepts and scripts for the Programs to UM/MP, copies of
which agreements have been furnished by UM/MP to Contractor, receipt of which is
hereby acknowledged by Contractor.
D. UM/MP has entered into an Agreement, dated as of July 22, 1987, as
amended March 20, 1989, with Wang Film Productions Co. Ltd. ("WF"), under which
WF has produced and will produce for UM/MP certain "Animation Materials" (as
described in paragraph 5 of said July 22, 1987 Agreement) for use in the
Programs. Contractor acknowledges its receipt from UM/MP of a copy of the
provisions of said paragraph 5.
E. UM/MP wishes to use the services of Contractor in connection with the
production of the Programs, and Contractor wishes to Provide such services.
F. The parties confirm that Contractor has succeeded by
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novation to all rights and obligations of Phil Roman, d.b.a. Film Roman, and
that Contractor is the proper party to this Agreement.
NOW, THEREFORE, the parties agree as follows:
I.
DUTIES OF UM/MP
1.1 UM/MP agrees to provide to Contractor approved teleplays for the
Programs at no cost to Contractor in accordance with the provisions set forth in
the attached Exhibit A. The parties acknowledge that currently HFI delivers
teleplays for the Programs to UM/MP. If UM/MP makes any changes in a teleplay
for any Program after delivery to Contractor in accordance with the agreed
schedule set forth in Exhibit A (herein Exhibit A or the "Schedule") UM/MP will
reimburse Contractor for Contractor's direct out-of-pocket costs caused by such
changes. UM/MP will also reimburse Contractor for Contractor's direct out-of-
pocket costs, if any, caused by changes in the voice-over dialogue or music
after delivery thereof. Further, the parties agree to make appropriate changes
in the Schedule which may be required due to changes in a teleplay for a
Program.
1.2 UM/MP agrees to deliver to Contractor, at UM/MP's expense and in
accordance with the Schedule, the Animation Materials for the Programs as
prepared by WF.
1.3 UM/MP agrees to deliver to Contractor, at UM/MP's expense and in
accordance with the Schedule, the numbers of minutes of
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wall-to-wall music specified in the Schedule for each Program, for use as part
of the soundtrack for such Program. (The above-specified music for the Programs
will be referred to herein as the "Music.") Contractor will be responsible for
integrating the Music for each Program with the script and Animation Materials
into the finished videotape for such Program, as provided in section 2.1 below
1.4 UM/MP will deliver to Contractor, at UM/MP's expense, and in
accordance with the Schedule, voice-over dialogue for use as part of the
soundtracks for the Programs.
1.5 The parties agree that the number of Programs listed in the Schedule,
and all of the other terms set forth in the Schedule with respect to the
Programs, including schedules of delivery, compensation and payment terms, etc.,
(a) shall be subject to the UM/MP-CBS Series Contracts (and the terms thereof),
and (b) may be changed from time to time by mutual agreement of the parties, in
which event a revised Schedule shall be prepared and be substituted for the
Exhibit A then in effect hereunder; provided, however, that notwithstanding the
foregoing provisions, in the event that CBS cancels a Program or series of
Programs which are in production or are to be produced hereunder, UM/MP agrees
to pay to Contractor, upon receipt of an itemized statement therefor from
Contractor, all direct out-of-pocket costs incurred by Contractor in producing
such canceled Program or series of Programs, plus fifteen percent (15%) of such
costs, through a period ending thirty days after receipt by
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Contractor of written notice from UM/MP of such cancellation by CBS.
1.6 UM/MP confirms that it is responsible for all union costs (including,
without limitation, SAG and AFM residuals) attributable to elements of Programs
furnished by UM/MP, and UM/MP agrees to indemnify and hold Contractor harmless
against any claims that might be asserted against Contractor with respect
thereto.
II.
DUTIES OF CONTRACTOR
2.1 Contractor will provide all editing and integration services, lab
processing, titles and credits (the "Services") necessary to create finished,
animated videotapes for the Programs, in accordance with the technical
specifications attached hereto as Exhibit B (the "Specifications"), based upon
and/or incorporating, as applicable, the following:
(a) approved teleplays for the Programs as prepared by HFI and
delivered to Contractor by UM/MP in accordance with the terms of the Schedule;
(b) Animation Materials for the Programs as provided to UM/MP by WF
and delivered to Contractor by UM/MP in accordance with the terms of the
Schedule;
(c) Wall-to-wall music and voice-over dialogue for each Program, as
specified in the Schedule, to be delivered by UM/MP to Contractor in accordance
with the terms of the Schedule;
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2.2 Contractor will be responsible for hiring or engaging all personnel
needed to provide the Services for the Programs, and will deliver to CBS, unless
otherwise directed by UM/MP, the completed Videotapes and Soundtracks for the
Programs, in accordance with the schedule set forth in Exhibit A. The
Videotapes and Soundtracks shall meet the Specifications set forth in Exhibit B,
and the quality and workmanship thereof shall be equal to or shall exceed that
of the Programs heretofore produced and delivered by Contractor. Acceptance of
the Videotapes and the Soundtracks will be subject to the approval of UM/MP and
Paws, Incorporated, such approvals not to be unreasonably withheld. If UM/MP is
unable to supply the scripts, Animation Materials, music, or voice-over dialogue
on the dates set forth in the Schedule for each Program, the delivery schedule
from Contractor to CBS will be adjusted accordingly. UM/MP will reimburse
Contractor for any reasonable "out-of-pocket costs incurred by Contractor as a
direct result of such delays.
2.3 Except as specifically set forth herein, Contractor will pay all costs
and expenses of performing the Services and delivering the products of the
Services hereunder.
2.4 All Services will be performed by or under the direct supervision of
Phil Roman, or if he is not available for such performance and supervision, by
such substitute director as may be designated by Contractor, subject to the
advance written approval of UM/MP, which shall not be unreasonably withheld.
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2.5 UM/MP has added Contractor as an additional insured party on UM/MP's
Errors and Omissions policies with respect to all acts and omissions by UM/MP
and Contractor in connection with the Programs, and has furnished Contractor
with a copy of such policies, which Contractor hereby acknowledges having
received.
III.
COMPENSATION
3.1 Assuming Contractor substantially provides all the Services and
Programs called for under this Agreement:
(a) UM/MP agrees to pay Contractor the lump-sum compensation amount
for each Program as specified in the Schedule, as initial compensation to
Contractor for the initial four network broadcasts of the Program by CBS
pursuant to the UM/MP-CBS Contracts. Each such lump-sum compensation amount
shall be payable to Contractor on an installment basis, in accordance with the
payment schedule set forth in the Schedule. In addition, such lump-sum
compensation amounts shall be subject to adjustment for increases or decreases
in union payments if, and to the extent that, such union adjustment provisions
are contained in the applicable UM/MP-CBS Contracts.
(b) In addition to the lump-sum compensation amounts provided for in
section 3.1(a), UM/MP will pay Contractor in perpetuity twenty-five percent
(25%) of the "Net Profits" of UM/MP for each Program (as computed on a Program-
by-Program basis, and not cross-collateralized, unless such cross-
collateralization
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(among GARFIELD programs only) is provided for under any distribution or
exploitation agreement which UM/MP has entered into with a third party with
respect to such Special), in accordance with the provisions of the "Net Profits"
Definition which is attached hereto as Exhibit C, with respect to the
exploitation of the Program (in the form of an audiovisual presentation only),
any place in the world, by means of network, free or pay cable, or syndicated
broadcast television, or by means of video cassettes, video discs or related
home video technology, or by means of exhibition, such as theatrical motion
pictures in motion picture theaters or other viewing arenas or by the sale of
cels. Contractor shall not be entitled to receive any share of UM/MP's Net
Profits for a Program to the extent such Net Profits are attributable to the
first four network broadcasts of the Program or to the exploitation of any
subsidiary rights in such Program, including, without limitation, the music,
publishing and merchandising rights therein; provided, however, that in the
event a process is hereafter invented which permits the incorporation of
animated program segments from the Programs in articles of merchandise (such as,
for example, video games or video toys), the parties agree to negotiate with one
another in good faith for the purpose of reaching agreement on a profit
participation for Contractor in UM/MP's Net Profits relating to the exploitation
of such articles of merchandise. If any Program is combined with other programs
for broadcast on television, for release as a theatrical motion picture, or for
exploitation in the form of video cassettes, video discs or related video
technology (collectively,
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a "Package"), Contractor will receive compensation equal to twenty-five percent
(25%) of UM/MP's "Net Profits" with respect to such Package, multiplied by a
fraction, the numerator of which is the total playing time of the Programs in
the Package and the denominator of which is the total playing time of all
programs in the Package. To the extent sales or use taxes are applicable to the
transaction between UM/MP and Contractor under this Agreement, UM/MP will pay
all such taxes. If and to the extent that UM/MP receives no "Net Profits" from
the exploitation of a Program in the manner described herein, UM/MP will have no
obligation to pay Contractor any amounts under this section 3.1(b). Further,
subject to the provisions of section 8, UM/MP shall have no obligation to pay
Contractor any amounts under this Agreement with respect to any Program, if
UM/MP rightfully terminates this Agreement pursuant to section 8.2, below,
before Contractor has provided substantially all the Services it is required to
provide under this Agreement with respect to the Program in question.
3.2 Subject to the terms set forth in this section 3, UM/MP will pay
Contractor all sums due under section 3.1(a) by the agreed due dates set forth
in the Schedule. UM/MP will pay Contractor all suns due under section 3.1(b)
within thirty (30) days after the end of each calendar quarter in which UM/MP
has any "Net Profits" for any Program. Each payment will be accompanied by an
accounting setting forth in detail, and on a cumulative annual basis, the terms
on which Net Profits have been computed by UM/MP on a Program-by-Program basis.
Contractor shall also be entitled to
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receive semiannual reports from UM/MP with respect to any periods in which no
Net Profits are payable to Contractor hereunder.
3.3 For as long as UM/MP continues to receive revenues for any of the
Programs, and for three years thereafter, UM/MP will maintain accurate books and
records concerning the Programs. Upon seven days written notice to UM/MP,
Contractor, or its authorized representatives, may inspect and copy such books
and records at its own expense, provided that no more than one such inspection
is made in any one (1) calendar year.
IV.
ASSIGNMENT OF RIGHTS
4.1 Contractor will acquire from all parties whose services are used by
Contractor in rendering the Services hereunder an absolute, worldwide, perpetual
assignment to Contractor of all rights of such persons, including copyrights and
renewal copyrights, in and to the Programs and the product of the Services.
Subject to Contractor's continuing rights to receive compensation from UM/MP
hereunder, Contractor hereby assigns and transfers absolutely to UM/MP's
designee, UNITED FEATURE SYNDICATE, INC. ("UFS"), in perpetuity, all of
Contractor's worldwide right, title, and interest (including, without
limitation, the copyrights and renewal copyrights therein) whether now or
hereafter existing, in and to the Programs (and all works of authorship
incorporated therein, such as the scripts, teleplays, storyboards, Animation
Materials, the soundtracks and the Videotapes). At UM/MP's or UFS's request,
Contractor will execute such further documents as
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are reasonably necessary to enable UFS to obtain the full benefit of and protect
the rights herein assigned and transferred. Contractor hereby waives all moral
rights, if any, in and to the Services rendered hereunder and the Products
thereof.
V.
CREDITS
5.1 Assuming Contractor provides substantially all of the Services and
products thereof called for under this Agreement, Contractor will receive
corporate credit in the main titles as the corporate producer of the Programs.
In addition, Phil Roman ( or such other individual as Contractor may designate)
shall receive appropriate credit, in the manner set forth below, as the
individual producer and director of the Program. Contractor's name shall appear
in the same size and degree as UM/MP's name in all paid advertising materials
for the Programs. In addition, the end titles for the Programs will specify
that each Program is "Film Roman Inc. Production in Association with United
Media/Mendelson Productions." All parties will mutually agree in good faith on
the form and content of the other credits used in the main and end titles. No
casual or inadvertent failure to comply with the provisions of this paragraph
will constitute a breach of this Agreement. Either party may give notice in
writing of a failure to comply with the provisions of this paragraph. Upon
receipt of such notice, a party will use its diligent efforts to cure such
breach prospectively with respect to prints of the Programs made after the date
of such notice; no action need be taken with respect to prints of the Programs
made before the date of such notice, and such
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prints may be distributed without restriction.
VI.
REPRESENTATIONS, WARRANTIES, AND INDEMNIFICATION
6.1 Contractor warrants that all Services provided to UM/MP in connection
with the Programs will be performed in a first-class and professional manner and
in accordance with the standard of care, skill, and diligence employed by
Contractor with respect to work performed by Contractor on the previous GARFIELD
programs it has produced.
6.2 Contractor warrants that to the best of its knowledge none of the
Services or products thereof (including, without limitation, works of
authorship) which it has provided or will provide to UM/MP under this Agreement
has infringed or does or will infringe any personal or property right of any
third party. Specifically, and without limiting the generality of the foregoing
sentence, Contractor warrants that it has obtained (and will in the future
obtain) from all persons whose services are used or will be used by Contractor
in rendering the Services hereunder an exclusive worldwide assignment to
Contractor of all rights of such persons, including copyrights and renewal
copyrights, in and to the Programs and the product of the Services.
6.3 UM/MP warrants that all Materials, including, but not limited to, the
teleplays, Animation Materials, music soundtracks, and voice-over dialogue
supplied or to be supplied by UM/MP to
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Contractor for the Programs does not and will not infringe the right, title, or
interest of any third party.
6.4 UM/MP agrees to defend, indemnify, and hold Contractor harmless from
and against any and all damages, liabilities, costs and expenses (including, but
not limited to, attorneys' fees) incurred by Contractor as a result of any
claim, judgment or proceeding against Contractor arising solely (a) out of the
negligence of UM/MP, or (b) out of a breach by UM/MP of the agreements and
warranties made by UM/MP in this Agreement, provided that Contractor promptly
notifies UM/MP in writing of any such claim, judgment or proceeding, tenders to
UM/MP the opportunity to settle such claim, Judgment or proceeding at UM/MP's
expense, and cooperates with UM/MP in settling such claim, judgment or
proceeding.
6.5 Contractor agrees to defend, indemnify, and hold UM/MP harmless from
and against any and all damages, liabilities, costs and expenses (including, but
not limited to, attorneys' fees) incurred by UM/MP as a result of any claim,
judgment or proceeding against UM/MP arising solely (a) out of the negligence of
Contractor, or (b) out of Contractor's breach of the agreements and warranties
made by Contractor under this Agreement; provided that UM/MP promptly notifies
Contractor of any such claim, judgment or proceeding in writing, tenders to
Contractor the opportunity to settle such claim, judgment or proceeding at
Contractor's expense and cooperates with Contractor in settling such claim,
judgment or
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proceeding.
VII.
INDEPENDENT CONTRACTOR
7.1 In providing Services and products thereof hereunder, Contractor will
operate as and have the status of an independent contractor and neither
Contractor nor any of his agents or employees will act as or be an agent or
employee of UM/MP. For this reason all of Contractor's activities will be at
Contractor's own risk, and Contractor will not be entitled to Workers'
Compensation or similar benefits or other insurance protection by UM/MP, other
than as provided in section 2.5. With the exception of errors and omissions
insurance, Contractor will make its own arrangements, as it sees fit, for
insurance covering losses sustained in connection with providing Services and
products thereof hereunder, including hospital and medical costs in connection
with any injury or illness, including that of Phil Roman.
7.2 Confidentiality. Contractor will not disclose to any third person,
except where necessary to the rendering of Services hereunder, the involvement
of UM/MP in the creation, development, production, and sale of the Programs.
VIII.
TERMINATION
8.1 This Agreement will be and remain in effect from the date first set
forth above until it is terminated by the mutual written consent of both parties
or until terminated pursuant to section 8.2
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below.
8.2 Either party may terminate this Agreement in the event the other party
substantially breaches a material provision hereof and has not commenced a cure
of such breach within ten days after its receipt of written notice of breach by
the aggrieved party and pursued such cure to a prompt resolution of the matter.
8.3 In the event Phil Roman is unable to perform the Services required
under section 2.4 due to death, disability, or incapacitation, Contractor will
designate a qualified person to perform Roman's duties and inform UM/MP; such
designation shall be subJect to the advance written approval of UM/MP, which
shall not be unreasonably withheld
8.4 The provisions of sections 2.3 and 5.1 and all of sections VI and IX
will survive the termination of this Agreement. Obligations under Section III
incurred prior to termination shall also survive termination.
8.5 The termination of Contractor's right to produce Programs hereunder
shall not terminate Contractor's continuing right to receive compensation
hereunder for previously produced Programs, and such compensation right may not
be affected by any such termination.
IX.
MISCELLANEOUS
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9.1 Entire Agreement. This Agreement with its exhibits contains the
entire understanding of the parties with respect to the subject matter herein.
There are no promises, covenants or undertakings other than those expressly set
forth herein. This Agreement may not be modified except by a written agreement
entered into between UM/MP and Contractor.
9.2 Notices. Any notice, request, demand or other communication required
or permitted hereunder will be deemed to be properly given when deposited in the
United States mail, return receipt requested, to the addresses set forth above
in this Agreement, or to such other addresses as the parties may from time to
time designate in a writing delivered pursuant to this section 9.2.
9.3 Non-Waiver. The failure of either party at any time to require
performance by the other party of any provision hereof shall not affect in any
way the full right to require such performance at any time thereafter, nor shall
the waiver by either party of a breach of any provision hereof be taken or held
to be a waiver of the provision itself.
9.4 Severability. If any term, provision, covenant or condition of this
Agreement is held invalid or unenforceable for any reason, the remainder of the
provisions shall continue in full force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated.
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9.5 Headings. The section headings in this Agreement are solely for
convenience and shall not be considered in its interpretation.
9.6 Controlling Law. This Agreement will be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
9.7 Assignment. No party hereto may assign this Agreement, or any of its
rights or obligations hereunder, without the written approval of the other
parties, except that no such approval is required with regard to (a) an
assignment by Contractor to a third party of Contractor's right to receive
payment hereunder, or (b) an assignment to a third party into which a party is
merged, or (c) an assignment to a surviving entity in the case of a corporate
reorganization not involving a change in control. Subject to the above
restrictions on assignment, this Agreement will inure to the benefit of and bind
the successors and assigns of the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first set forth above. This
Agreement may be executed in counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same instrument.
FILM ROMAN, INC.
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By/s/ Phil Roman
--------------------------------------
Phil Roman
UNITED MEDIA/MENDELSON PRODUCTIONS,
a Joint venture, by
UNITED FEATURE SYNDICATE, INC.
By/s/ Robert R. Metz
--------------------------------------
Robert R. Metz, President
L. M. GREATRACE, INC.
By/s/Lee Mendelson
--------------------------------------
Lee Mendelson, President
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EXHIBIT C
---------
The terms of this Exhibit and Schedule I hereto are part of and are
incorporated in the foregoing Option Agreement (the "Agreement") between Film
Roman, Inc. (the "Participant") and United Media/Mendelson Productions (the
"Producer") relating to each television Program ("Motion Picture" for purposes
of the following provisions) described in the Agreement. If there is any
inconsistency between the terms of this Exhibit and Schedule I and the
Agreement, the provisions of the Agreement shall control.
1. Definition of Net Profits.
1.1 The term "Net Profits" from the Motion Picture as used herein
shall mean the "Gross Receipts" (as defined in Paragraph 2 below) remaining
after the deduction therefrom on a continuing basis of the "Distribution Fees"
(as defined in Paragraph 3 below), the "Distribution Expenses" (as defined in
Paragraph 4 below) and the "Production Expenses" (as defined in Paragraph 5
below, and subject to the special limitations set forth therein).
1.2 Notwithstanding anything to the contrary herein, if the Producer
enters into an agreement with a person, firm or corporation who provides the
financing, production, sale and/or distribution of the Motion Picture and such
agreement contains a definition of "Net Profits" and/or provisions for
accounting and payment thereof which are different from those provisions
contained herein, such definition and provisions in such other agreement shall,
at the Producer's election, be substituted for those provisions contained in
this Exhibit A. It is agreed that in such event the Producer's and the
Participant's share of Net Profits shall be computed in accordance with the same
definition.
2. Gross Receipts. The "Gross Receipts" from the Motion Picture shall be
deemed to mean the following:
2.1 There shall be included the actual gross payments collected in
the United States in United States dollars from the exploitation of the Motion
Picture in any country of the world by (a) the distributor of the Motion Picture
to whom the Producer has granted distribution rights in and to the Motion
Picture, or (b) the Producer, if the Producer itself distributes the Motion
Picture, in any medium now or hereafter known; and relating to any component or
element of the Motion Picture or the exercise by Producer of any of its allied,
subsidiary or ancillary rights in the Motion Picture; subject to the express
exclusions and limitations set forth in the Agreement; provided that, subject to
local currency restrictions and regulations, the Producer shall use its best
efforts to convert all receipts into U.S. Dollars and to remit the same to the
United States.
2.2 There shall not be included any of the following:
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2.2.1 The receipts of any television network or stations,
theatre, or any other exhibitor or user of the Motion Picture, or rights therein
or derived therefrom in any medium, and only the license fee or rental paid by
such user to the Producer or distributor of the Motion Picture shall be included
in the Gross Receipts;
2.2.2 In any territory where the Producer and/or distributor
make an outright sale or license of the Motion Picture to a person, firm or
corporation under arrangements where the gross receipts of such person, firm or
corporation may not be known to the Producer and/or distributor, any sums
received by such person, firm or corporation shall not be included in the Gross
Receipts, and only the sale price or license fee received by the Producer or
distributor shall be included in the Gross Receipts;
2.2.3 The amounts of any tariffs, import, export or sales
taxes, imports or duties, quota fees or import permit fees, or fees or taxes
which are based on receipts from the Motion Picture as transmitted to the
Producer and/or distributor, other than net income and corporation franchise
taxes:
2.2.4 The amounts of any advances or deposits until earned:
2.2.5 The amounts of any refunds or rebates by the Producer
and/or distributor:
3. Distribution Fees. The "Distribution Fees" in connection with the
Motion Picture shall be deemed to mean the following:
3.1 All third-party distributors', subdistributors', and/or agents'
fees charged to the Producer, plus a fee to the Producer in an amount not to
exceed ten percent (10%) of the Gross Receipts for arranging and for supervising
distribution by such third parties, but subject to the limitation that all such
Distribution Fees (including any fees payable to Producer under this
subparagraph 3.1) shall not exceed, in the aggregate, 40% of Gross Receipts;
and/or
3.2 If, in any particular medium, the Producer (or any affiliate,
subsidiary or other related or controlled entity of Producer) licenses rights in
the Motion Picture directly to the user thereof, in lieu of the Distribution
Fees pursuant to Paragraph 3.1 above , fees to the Producer in the amounts set
forth on Schedule I attached hereto and incorporated by reference herein.
4. Distribution Expenses. The "Distribution Expenses" in connection with
the Motion Picture shall be deemed to mean and include all actual costs, charges
and expenses of distributing, marketing, advertising and exploiting the Motion
Picture in any medium anywhere in the world, including, but not limited to, the
following: trade association fees, the cost of prints, transportation, shipping
and delivery, advertising, publicity,
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dubbing, titling, taxes, import licenses and visa fees, residual payments
required by any union or guild, performing rights fees (to the extent paid by
the Producer or distributor) the amounts, if any, spent in connection with the
preservation, insuring, storing and/or recovery of the Motion Picture or the
recovery of any rents, income or profits thereof, including, without limitation,
checking expenses and/or collection costs, costs of obtaining and protecting
copyright on and in the Motion Picture, reasonable accounting and legal fees,
and the cost of litigation, including settlements, if any; to the extent not
included in Production Expenses, any deferments and shares of gross receipts of
the Motion Picture, or any compensation measured by such gross receipts, which
is payable to or retained by any third party in consideration for services
and/or materials actually supplied in connection with the Motion Picture and/or
in consideration of financing, or providing financing for the Motion Picture,
provided, however, that, except for any profit participation and/or residual
rights payable to Horsefeathers, Inc. (Mark Evanier) and/or Henrienzo, Inc.
(Lorenzo Music), there shall not be deducted any shares of the Net Profits or
Gross Receipts from the Motion Picture or any compensation measured by such
shares of the Net Profits or Gross Receipts, unless otherwise expressly provided
for in the Agreement; and all other costs and expenses which distributors say be
authorized or permitted to deduct and retain under and pursuant to the terms of
any distribution agreement with any distributors of the Motion Picture.
5. Production Expenses. If with respect to any Motion Picture to be
produced under the Agreement, the Producer and Participant, by express terms set
forth in an amendment to the Agreement, agree that the Production Expenses (or
any portion of the Production Expenses) of such Motion Picture shall be deducted
in computing the Net Profits of such Motion Picture hereunder, the following
terms shall be applicable. The "Production Expenses" of the Motion Picture
shall be deemed to mean all costs, charges and expenses actually incurred or
expended in connection with the preparation, production, completion and delivery
of the Motion Picture fully cut, edited and scored (calculated according to
accounting practices customarily employed in the motion picture industry in the
United States), and shall include, but shall not be limited to, the following:
Payments for acquisition of underlying rights, preparation of screenplays,
preproduction expenses, producers' fees (including, without limitation, payments
to the Producer for supplying actual services of production personnel,
including, without limitation, executive producers, producers, production
managers or production assistants), directors' fees, actors' fees, retroactive
and deferred items of cost, charges for studio space; studio facilities, studio
overhead, laboratory and sound services and facilities, location expenses,
travel and living expenses in connection with preproduction, production and
postproduction activities, reasonable legal and accounting charges, interest
charges actually paid to a third party (other than a bank or other financial
institution) for financing for the Motion Picture supplied by or through such
third party, and for financing
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supplied by the Producer, interest charges to the Producer at one (1) percentage
point over the higher of (a) the prevailing prime commercial interest rate then
in effect, or (b) the effective interest rate charged the Producer by a bank or
other financial institution for such financing (it being understood that all of
the foregoing interest charges are subject to reduction to the maximum legal
interest rate if such interest charges are in excess of the maximum legal rate),
an overhead charge by the producer in the amount of seven and one-half percent
(7-1/2%) of the negative cost of the Motion Picture (such negative cost to be
computed excluding such overhead charge and interest charges but including all
deferments payable in connection with the Motion Picture which are fixed
obligations in a definite amount), and all other costs of materials, services,
facilities, duties, insurance and taxes (other than income, franchise and like
taxes) in connection with production of the Motion Picture.**
**Absent a written amendment to this Agreement to the contrary each party shall
bear its own production overages and such deficits shall not be deducted in
computing net profits.
6. Statements, Profit Payments, and Records.
6.1 The Producer agrees to furnish the Participant semi-annually for
a period of 24 months from and after the Producer's semi-annual accounting
period in which the Producer first collects any of the "Gross Receipts" after
completion and delivery of the Motion Picture, and thereafter annually, with a
statement showing the Net Profits from the Motion Picture, if any. Each such
statement shall show in detail the Gross Receipts and the deductions permitted
hereunder, including changes, if any, in the Production Expenses of the Motion
Picture. Losses in one accounting period may be charged against profits in any
subsequent accounting period. The Producer agrees, concurrently with the
delivery of such statements, to pay to the Participant any sums to which the
Participant may then be entitled pursuant to the Agreement to which this Exhibit
A is attached. A reasonable sum may be retained from Net Profits of one or more
accounting periods to establish a reserve for reasonably anticipated future
Distribution Expenses, unbilled Production Expenses, and/or reasonably
anticipated losses which may be incurred during subsequent accounting periods
within two years from the end of the accounting period in which such reserve is
retained. In the event such anticipated expenses or losses do not occur within
said two-year period, the reserve amount in question shall be released from the
reserve account. All reserve accounts shall affect the rights of Participant
and all other Net Profits participants on a proportional basis. Each statement
shall be furnished to the Participant within 90 days after the close of the
period for which such report is made. Notwithstanding the foregoing, it is
agreed that statements as specified in this Paragraph 6.1 are to be rendered
only for periods during which actual expenses are incurred or collections are
made.
22
<PAGE>
6.2 The Producer agrees to maintain full and complete records of all
transactions had by it in connection with the distribution and exploitation of
the Motion Picture in any medium, and if at any time within 24 months after the
mailing of any statement, the Participant shall elect to question the accuracy
of the same and shall so notify the Producer in writing, the Participant shall
have the right employ, at the Participant's expense, a firm of certified public
accountants experienced in the motion picture business to examine and to audit
the Producer's records and accounts, no more than once each calendar year,
insofar and only insofar as they relate to the Motion Picture and such
distribution and exploitation. The Participant's representative shall have the
right, at Participant's expense, to take excerpts from, and make copies of, such
records and accounts. The Participant shall give the Producer not less than two
weeks prior written notice of any such audit, and such audit will be continuous
from start to finish, and shall be completed within a reasonable period of time
after it is commenced. The right of the Participant to inspect the records and
accounts of the Producer shall be limited to the rights granted the Participant
in this Paragraph 6.2. The Producer agrees to reimburse the Participant for the
reasonable costs of any audit I undertaken hereunder by the Participant if the
results of such audit establish that the amount of net profits actually paid to
the Participant during any accounting periods covered by such audit was less, by
more than ten percent (10%), in the aggregate, the amounts of Net Profits to
which the Participant was entitled for such accounting periods, in the
aggregate.
6.3 Nothing herein contained shall be deemed to give the Participant
the right to go into any matters or items which make up any of the items
contained in any such statement, if inquiry into the same shall require an
examination of the Producer's records or books after the expiration of 24 months
from and after the mailing to the Participant of any statement questioned by the
Participant. The Participant shall be forever barred from maintaining or
instituting any action or proceeding based upon, or involving, or in any way
relating to, or pertaining to, or concerning any transactions had by the
Producer or the distributors of the Motion Picture, or their licensees, in
connection with the Motion Picture and the accounting embraced in any statement
delivered hereunder or the accuracy of any item appearing therein, unless such
written objection shall have been delivered by the Participant to the Producer
within the 12-month period mentioned in Paragraph 6.2.
6.4 All accounting and payments made by the Producer shall be upon
sums actually collected by the Producer and/or the distributors of the Motion
Picture, in the United States in United States dollars, in connection with the
distribution and exploitation of the Motion Picture in any medium in any country
of the world. A uniform accounting system will be used hereunder. The Producer
and the distributors of the Motion Picture shall in any event have the right to
deduct bad accounts, cancellations, allowances, rebates, refunds or nonpayments
of billings.
23
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6.5 lt is the intention of the parties to this Agreement that (a)
nothing herein contained shall be deemed to mean that any monies due or payable
to the Participant hereunder are held in trust by the Producer or the-
distributors of the Motion Picture for the Participant, and (b) the Producer and
the distributors of the Motion Picture shall have the right to commingle any
part or portion of the monies payable to the Participant based on the Net
Profits from the Motion Picture which may be received by the Producer or the
distributor of the Motion Picture with any of their own monies, the Producer
being indebted to the Participant only for the amounts to which the Participant
is entitled hereunder.
7. Complete Disposition of Rights. Notwithstanding anything to the
contrary contained herein, but subject to the prior written approval of the
Participant (which shall not be unreasonably withheld), the Producer shall have
the right, in its sole discretion, to sell or otherwise dispose of any or all of
its rights in the Motion Picture to any person, firm or corporation. If the
Producer elects to exercise such right, such sale or other disposition shall be
at arm's length and shall be made either "subject to the rights of the
Participant," or "including all the rights of the Participant," as follows:
7.1 A sale or other disposition "subject to the rights of the
Participant" shall occur if the purchaser or acquirer of the Motion Picture or
rights therein assumes the executory obligations of the Producer to the
Participant hereunder in connection with the future distribution and other
exploitation of the Motion Picture or such rights by or under authority from
such purchaser or acquirer. Upon the assumption of such obligations by such
purchaser or acquirer, the Producer shall be released from any further
obligations to the Participant with respect to the payment of any share of the
Net Profits from the Motion Picture to the extent such share is measured by
receipts in the hands of such purchaser or acquirer. If the Producer makes any
sale or other disposition subject to the rights of the Participant, then the
purchase price or other consideration received by the Producer from such
purchaser or acquirer shall not be included in computing the Gross Receipts and
shall be retained solely by the Producer.
7.2 A sale or other disposition "including all the rights of the
Participant" shall occur if the Producer makes such sale or other disposition
without obtaining the agreement of the purchaser or acquirer to assume the
Producer's executory obligations to the Participant hereunder. If the Producer
makes such sale or other disposition, the Gross Receipts shall not include any
sums collected by such purchaser or acquirer thereafter, and all rights of the
Participant to receive any portion of such suns shall thereupon be deemed to
terminate automatically. Notwithstanding such termination, the Producer shall
account to the Participant pursuant to Paragraph 6 above for all Net Profits
received by the Producer prior to such termination, and in computing such Net
Profits, any sums received by the Producer from such sale or other disposition
shall be included in
24
<PAGE>
the Gross Receipts.
7.3 If any sale or other disposition pursuant to Paragraphs 7.1 or
7.2 above does not include all of the Producer's rights in the Motion Picture,
then the Producer shall continue to account to the Participant hereunder with
respect to any rights it retains in the Motion Picture.
The provisions of Sections 7.1, 7.2 and 7.3 shall not apply with respect to an
exclusive license, as distinguished from an outright sale or assignment, of any
of the Producer's rights in the Motion Picture.
25
<PAGE>
SCHEDULE I
----------
Distribution fees for actual distribution services by the Producer shall be
the following percentages of the Gross Receipts:
(a) Theatrical Release of the Motion Picture in the United States and
Canada: 30%
(b) Theatrical Release of the Motion Picture in the United Kingdom:
35%.
(c) Theatrical Release of the Motion Picture elsewhere in the world:
40%.
(d) For any repeat Network Exhibition of the Motion Picture in the
United States after the initial and repeat network broadcasts of the Motion
Picture as provided for in the Agreement: 0%. "Network Exhibition" means the
exhibition of the Motion Picture over a United States free commercial national
television network.
(e) From Non-Network Exhibition of the Motion Picture: 10%. "Non-
Network Exhibition" means any exhibition of the Motion Picture on United States
or foreign television, other than a United States Network Exhibition, but
including any exhibition of the Motion Picture on cable, pay cable, direct
broadcast, or subscription television in the United States, or any foreign
country.
(f) From Distribution of the Motion Picture by means of Home Video
Devices (including videocassettes, video discs and other similar or dissimilar
formats, whenever devised):
(1) If Producer directly manufactures and sells or rents Hone Video
Devices ln the United States, a sum equal to twenty-five percent (25%) of the
monies received by Producer.
(2) If Producer directly manufactures and sells or rents Home Video
Devices outside the United States, a sum equal to twenty-five percent (25%) of
the monies received by Producer, after deduction of foreign agent's fees and
commissions, if any.
(3) All monies received with respect to the marketing of such Home
Video Devices shall be subject to the following deductions: (a) all
adjustments, such as returns for defective Videocassettes, and other credits,
allowances, rebates and refunds; (b) deposits, advances and periodic payments
until earned or forfeited; (c) sales, excise and remittance taxes, however
denominated, and duties; and (d) any other deductions which are provided for in
any agreement which Producer enters into with a third party for the distribution
of the Home Video Devices.
26
<PAGE>
(g) From all other sources: 40*.
27
<PAGE>
EXHIBIT 10.38
June 11, 1993
2766.03
Film Roman, Inc.
c/o Dern & Vein
1901 Avenue of the Stars,
Suite 400
Los Angeles, California 90067
Attention: Jon F. Vein, Esq.
Bluebird Toys (UK) Limited
c/o Alexander, Halloran, Nau & Shanker
2029 Century Park East, Suite 1260
Los Angeles, California 90067
Attn: L. Wayne Alexander, Esq.
Re: "MIGHTY MAX"
Gentlemen:
This letter will confirm the basic terms of the agreement between Film Roman,
Inc. ("FRI"), Canal+ Droits Audiovisuelles, SNC ("C+") and Bluebird Toys (UK)
Limited ("Bluebird") regarding the development, production, distribution and
other exploitation of the animated television series presently known as "MIGHTY
MAX" (the "Series") which is to be based on the toy property of the same name
(the "Property") owned by Bluebird. Those terms are as follows:
1. Conditions Precedent.
C+'s obligations hereunder are subject to satisfaction of the following
conditions precedent:
A. C+'s approval of the chain of title documentation with respect to the
Property and the Series. This condition will be deemed satisfied upon C+'s
receipt of a signed Assignment Agreement from Breslow, Morrison, Terzian &
Associates, Inc. to Bluebird, in a form satisfactory to C+;
B. C+ and FRI's approval of the primary terms of a distribution agreement with
Bohbot Entertainment, Inc. which are acknowledged
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Film Roman, Inc.
June 11, 1993
Page 2
in writing by Bohbot. C+ and FRI acknowledge they have given such approval;
C. Bluebird's execution and delivery to C+ of this Letter Agreement; and
D. FRI's execution and delivery to C+ of this Letter Agreement, the Security
Agreement, Assignment and Mortgage of Copyright attached hereto as Exhibit "E",
and any other documents reasonably requested by C+ to secure its first priority
security interest in the Series.
2. Production Financing for Initial Thirteen Episodes.
(a) C+ will provide financing for the production of the first thirteen (13)
episodes of the Series up to a maximum of Three Hundred Thousand Dollars
($300,000) per episode, not including overhead or executive producer fees to FRI
or C+. The parties acknowledge that the aforesaid budget sum shall include the
cost of all residuals for the first run distribution of the Series in the United
States by Bohbot. A copy of the mutually approved budget is attached hereto as
Exhibit A. FRI shall provide C+ with a final cost report within ninety (90)
days following completion and delivery of the last episode and any savings from
the budget shall be returned promptly to C+. C+ shall not be required to
provide financing for more than Three Hundred Thousand Dollars ($300,000) per
episode. The payment of the foregoing sums shall be pursuant to the Cash Flow
Schedule attached hereto as Exhibit "B", it being understood that C+ shall not
be required to provide any production financing until the satisfaction of all
conditions precedent. The last Forty Thousand Dollars ($40,000) in financing
shall not be paid until after C+'s receipt of the final cost report and final
delivery and acceptance of all delivery items. All financing provided by C+ in
connection with the Series, including any financing provided in connection with
subsequent episodes or other productions and all accrued interest, is
hereinafter sometimes referred to as the "C+ Investment". Interest shall be
charged at PIBOR + 1-1/2%, shall be compounded quarterly and shall be recouped
before principal. Notwithstanding the foregoing, C+ agrees that interest shall
not begin to accrue until after delivery of the thirteenth (13th) episode.
(b) FRI shall be entitled to receive an overhead fee of fifteen percent (15%)
and an executive producer fee of Fifteen Thousand Dollars ($15,000) per episode,
all of which shall be deferred. Two-thirds (2/3) of the fifteen percent (15%)
overhead fee, up to a maximum of Thirty Thousand Dollars ($30,000) per episode
(the "Deferred Overhead Fee"), shall be recouped by FRI as further
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 3
provided in subparagraph 8(a) below. One-third (1/3) of the fifteen percent
(15%) overhead fee (the "Second Deferred Overhead Fee") and the Fifteen Thousand
Dollar ($15,000) per episode executive producer fee (the "Deferred Executive
Producer Fee") shall be recouped as further provided in subparagraph 8(a) below.
Notwithstanding the foregoing, the parties agree that the Second Deferred
Overhead Fee and the Deferred Executive Producer Fee shall be shared equally
between FRI and C+. Neither FRI nor C+ shall be entitled to take overhead fees,
producer or executive producer fees or other production fees, other than as
specifically provided in this Paragraph 2(b).
(c) If C+ approves any enhancements to the budget in its sole discretion, C+
shall provide financing for such enhancements and C+ shall be entitled to recoup
such additional financing as part of the C+ Investment. C+ agrees to pay up to
One Thousand Five Hundred Dollars ($1,500) per episode above the approved budget
for certain delivery materials, which costs shall be included within the C+
Investment. FRI shall be solely responsible for all production overages which
are not approved by C+ and which are not covered by insurance.
3. Production Financing For Subsequent Episodes.
(a) C+ shall have the right, but not the obligation, to provide production
financing on all subsequent episodes of the Series produced hereunder on the
same terms and conditions as are applicable to the first thirteen (13) episodes,
subject to reasonable decreases in the budget. Notwithstanding the foregoing,
provided the budget for subsequent episodes of the Series does not exceed Three
Hundred Fifteen Thousand Dollars ($315,000) inclusive of FRI's overhead fee if
C+ agrees to finance the production of an additional order of fewer than twenty-
six (26) episodes, C+ agrees that FRI shall have the right to include an
overhead fee of up to seven and one-half percent (7 1/2%) on a non-deferred
basis. If C+ agrees to finance the production of an additional order of twenty-
six (26) or more episodes, C+ and FRI agree the budget for such episodes shall
not exceed Two Hundred Eighty Thousand Dollars ($280,000) per episode plus a
seven and one-half percent (7 1/2%) overhead fee on a non-deferred basis. Any
part of the seven and one-half percent (7 1/2%) overhead fee that must be
deferred to retain the budget at Three Hundred Fifteen Thousand Dollars
($315,000), if applicable, shall be treated as part of the Deferred Overhead Fee
and shall be recouped by FRI as provided in subparagraph 8(a) below. The
remaining seven and one-half percent (7 1/2%) of the overhead fee, for a total
overhead fee of fifteen percent (15%), shall be treated as part of the Second
Deferred Overhead Fee and
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 4
shall be recouped by FRI and C+ as provided in subparagraph 8(a) below.
(b) FRI shall provide C+ with a detailed written proposal regarding the
production of additional episodes which shall include the proposed budget,
production schedule, method of distribution in the U.S. and other information
reasonably requested by C+, and C+ shall have thirty (30) days from C+'s receipt
of such proposal and additional information within which to elect to provide
production funding. Notwithstanding the foregoing, C+ shall not be required to
make such election with respect to the first episodes to be produced after the
initial thirteen (13) until after the later of January 1, 1994 or C+'s receipt
of U.S. television ratings and barter sales information and Non-Toy
Merchandising Rights (as defined in subparagraph 7(a)) sales information for the
last quarter of 1993. Such sales information at a minimum shall consist of
information regarding the number of outstanding licenses, the total amount of
advances and guarantees and the amount of all Christmas 1993 orders.
(c) If C+ elects, in its sole discretion, not to provide production financing or
fails to respond within the time limit specified in subparagraph 3(b) above, FRI
shall have the right to seek financing from third parties; provided if
subsequent to C+'s election not to provide such production financing there are
any "changed material elements," whether creative or financial, including but
not limited to FRI's decision to produce the episodes for a lower budget, or to
produce fewer episodes, or to use a different format, FRI must first offer C+
the opportunity to provide production financing for the episodes with such
changed elements before offering such rights to a third party. If C+ elects not
to provide production funding and a third party actually provides production
funding, C+'s right to provide future production funding shall lapse.
(d) If C+ wishes to proceed with the production of additional episodes of the
Series and FRI elects in its sole discretion not to provide animation services
in connection with such episodes, C+ shall have the right to proceed with
another animation company. Bluebird shall have approval over the selection of
any such other animation company, which approval shall not unreasonably be
withheld.
4. Production of the Series.
(a) FRI shall produce, complete and deliver thirteen (13) one-half (1/2) hour
animated programs for the Series, which will be completed and delivered to C+
and Bohbot pursuant to the production schedule attached hereto as Exhibit "C".
The episodes
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Film Roman, Inc.
June 11, 1993
Page 5
shall be produced as first rate quality animation meeting at least the same
production and content standards as similar programming being produced for
initial broadcast on a U.S. national free television network. FRI shall
deliver to C+ at the place or places designated by C+, at FRI's sole cost and
expense, (i) all the items ("Delivery Items") specified in Exhibit "D" attached
hereto, in the form set forth in Exhibit "D" or otherwise in a form acceptable
to the reasonable satisfaction of C+ consistent with first class animation
standards; and (ii) executed laboratory access letters in the form of Exhibit
"F" attached hereto with respect to the film and audio materials for the Series.
Both FRI and C+ shall have permanent, joint access to all laboratory materials
and neither party shall remove any such materials from the laboratory without
the other party's consent. All animation cels shall be mutually controlled by
FRI, C+ and Bluebird. All revenue derived from the sale of animation cels shall
be treated as Series Distribution Rights revenues hereunder. FRI shall deliver
to Bohbot at FRI's sole cost and expense all elements that are required for
delivery pursuant to the Bohbot Agreement. Tender of delivery shall be
completed no later than December, 1993. In this regard, FRI acknowledges that
time is of the essence.
(b) FRI will furnish the non-exclusive services of Phil Roman, Rob Hudnut and
Mark Zaslov in connection with the production of the Series; provided FRI shall
have the right to replace or terminate Hudnut and/or Zaslov after full and
meaningful consultation with C+.
(c) FRI will keep C+ fully informed at all times as to the status of production
and will provide C+ and Bluebird with not less than monthly cost reports. C+
and Bluebird shall have customary rights to audit and inspect the books and
records of FRI at any time or times, during regular business hours upon
reasonable advanced notice, to confirm the accuracy of the cost of production of
the Series.
(d) FRI agrees to obtain general liability, workman's compensation, errors and
omissions, and all other customary animation production insurance and to name
C+, Bluebird and any other entities specified by C+ as additional insureds on
all such policies, not including workers compensation insurance. Such insurance
shall be primary and not contributory, and shall provide for thirty (30) day
notice to C+ and Bluebird prior to any cancellation. Certificates evidencing
such insurance shall be delivered by FRI to C+ and Bluebird prior to the
commencement of financing by C+. C+ acknowledges receipt of its certificate.
In addition, FRI shall make and retain copies of all materials in
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Film Roman, Inc.
June 11, 1993
Page 6
accordance with standard animation preproduction practices before shipping them.
(e) With respect to the production of any episodes subsequent to the initial
thirteen (13), FRI agrees to engage Le Studio or another entity affiliated with
C+ to perform layouts or other services that are contracted out by FRI, provided
Le Studio or such other entity is available and can perform such services for
the budgeted amount and within the scheduled time and is mutually acceptable on
a creative basis.
(f) If C+ agrees to provide financing for the production of additional episodes
of the Series subsequent to the first thirteen (13) episodes, and FRI is willing
to produce such episodes, FRI shall produce such episodes on the same terms and
conditions as are applicable to the first thirteen (13) episodes, unless
provided otherwise herein.
(g) Bluebird shall be entitled to receive an episodic royalty in the amount of
Ten Thousand Dollars ($10,000) per episode for the first thirteen (13) episodes
and for any additional thirty (30) minute episodes which are produced within the
same budget range for broadcast on a once per week basis. With respect to all
other productions, including but not limited to productions of other lengths,
productions with other budget ranges, and productions which are produced on a
stripped basis (i.e., intended for broadcast five (5) times per week), the
amount of the royalty shall be subject to good faith negotiation. The
applicable royalty shall be payable on the earlier of completion of production
of the applicable episode or the last payment made by C+ to FRI of the non-
deferred portion of the production financing for such episode.
5. Series Distribution Rights.
(a) C+ shall have the exclusive and irrevocable right in perpetuity throughout
the universe to distribute in any and all media, whether now known or hereafter
discovered, all episodes of the Series financed by C+ in whole or in part
pursuant to this agreement (the "Series Distribution Rights"). With respect to
the international exploitation of the Series, C+ shall charge a distribution fee
of thirty percent (30%) for Western Europe and thirty-five percent (35%) for the
rest of the world (inclusive of all subdistributors) and shall next recoup its
reasonable distribution costs in connection with the Series. All remaining
revenues shall be distributed as provided in Paragraph 8 below. With respect to
exploitation of the Series in the United States, C+ shall charge a distribution
fee of thirty-five percent (35%) for barter sales, twenty-five percent (25%) for
cash sales and seventeen and one-half percent (17 1/2%) for cable sales if it
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 7
distributes the Series directly, or, alternatively if C+ uses a subdistributor,
C+ shall not take any "override" on the distribution fees actually charged by
such subdistributor, including but not limited to Bohbot, and C+ shall next
recoup its distribution costs. Neither C+ nor FRI shall charge any sales fee
with respect to a sale by C+ to a U.S. national free television network.
(b) The Series Distribution Rights shall include all music publishing rights and
all soundtrack album rights to the Series. C+ shall administer the music
publishing rights in the United States for an administrative fee of five percent
(5%) plus reasonable costs and outside the United States for an administrative
fee of ten percent (10%), plus reasonable costs. Notwithstanding the foregoing,
following recoupment of the C+ Investment, FRI shall administer the U.S. music
publishing rights for a fee of five percent (5%) plus reasonable costs. C+
shall charge a fifteen percent (15%) distribution fee with respect to all
soundtrack album agreements plus costs, which shall not exceed an additional ten
percent (10%) of gross revenues. FRI, C+ and Bluebird shall be listed on all
music cue sheets, provided applicable performing rights societies shall be
directed to make all payments to C+. With respect to non-soundtrack records
(including storytelling records) and road shows, FRI shall control U.S. rights
and C+ shall control all foreign rights, provided the parties shall work
together to make a worldwide deal unless there is a good business reason not to
do so. Each party shall charge the same distribution fees in its territory as
it charges with respect to merchandise licensing rights.
(c) C+ agrees to consult meaningfully in good faith with FRI and Bluebird with
respect to distribution of the Series in the United States. Except as otherwise
specifically set forth in this Letter Agreement, C+ shall have complete and
exclusive discretion and control as to the time, manner and terms of
distribution, exhibition and exploitation of the Series in accordance with such
policies, terms and conditions and through such parties as C+ in its reasonable
business judgment may determine proper or expedient and the decision of C+ on
all such matters shall be binding and conclusive. C+ agrees that it shall
exercise its reasonable business judgment solely in connection with the Series
and not in relation to other properties or businesses controlled by C+.
(d) C+ agrees to license to FRI the home video rights to the Series in the
United States and Canada on the following terms. FRI shall pay C+ an advance
payment of One Hundred Thirty
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Film Roman, Inc.
June 11, 1993
Page 8
Thousand Dollars ($130,000) (the "Advance"), which payment shall be deducted by
C+ from the last production financing payment payable to FRI with respect to the
first thirteen (13) episodes pursuant to Exhibit "B." FRI shall guarantee C+
receipts of Two Hundred Thousand Dollars ($200,000) (the "Home Video Guarantee")
during the first three (3) years following delivery of the thirteenth (13th)
episode to C+. If C+ finances the production of twenty-six (26) or more
additional episodes and the Series is broadcast in the United States on a
stripped basis, the Advance will be increased by Seventy Thousand Dollars
($70,000), the Home Video Guarantee will be increased by Fifty Thousand Dollars
($50,000) and the period in which FRI must pay the Home Video Guarantee will be
extended by one (1) year. The additional Seventy Thousand Dollar ($70,000)
Advance shall be deducted by C+ from the last production financing payment
payable to FRI with respect to the additional twenty-six (26) episodes. If C+
has not received the Home Video Guarantee by the end of the aforesaid applicable
period, FRI shall pay C+ the difference between the Home Video Guarantee and the
amount actually received by C+ at the end of the three (3) or four (4) year
period, as applicable. It C+ does not receive Five Hundred Thousand Dollars
($500,000) of U.S. and Canada home video income within the first ten (10) years
of the home video term, all domestic home video rights shall revert to C+,
subject to any existing U.S. and Canada licenses. FRI shall charge a twenty-
five percent (25%) distribution fee, inclusive of all subdistributors. FRI
shall consult meaningfully and in good faith with C+ regarding any home video
agreement, which consultation shall include informing C+ of the potential
parties and terms of any deal and giving C+ an opportunity to discuss them
before FRI enters into any agreement. FRI shall not have the right to enter
into any home video agreement which would result in the payment of a royalty of
less than fifteen percent (15%) without C+'s prior approval, which shall not
unreasonably be withheld. FRI shall pay all residuals payable with respect to
the U.S. and Canada home video exploitation and shall deduct such residuals as
a distribution expense.
(e) If C+ elects not to provide financing for at least fifty-two (52) episodes
of the Series, and FRI obtains financing from an alternative source and actually
produces additional episodes of the Series, the rights jointly acquired by FRI
and C+ from Bluebird hereunder shall revert to FRI and FRI shall have the right
to find a substitute financier for the Series, subject to the following: (i) C+
shall retain all Series Distribution Rights to the episodes financed by C+ as
provided in subparagraph 5(a) above; (ii) C+ shall retain one hundred percent
(100%) of the "C+ Participation" (as defined in subparagraph 8(b) below) until
such time as it has fully recouped the C+ Investment and one-half
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Film Roman, Inc.
June 11, 1993
Page 9
(1/2) of each of the Second Deferred Overhead Fee and Deferred Executive
Producer Fee; (iii) the C+ Participation shall be reduced as provided in
subparagraph 8(d) below after C+'s recoupment of the C+ Investment and one-half
(1/2) of each of the Second Deferred Overhead Fee and Deferred Executive
Producer Fee; and (iv) C+ and FRI shall each retain a first negotiation/last
refusal right to exploitation of the New Characters (as defined in Paragraph 11)
in audio/visual media outside of the "MIGHTY MAX" universe, including but not
limited to spinoffs. A right of "first negotiation/last refusal" as used
throughout this agreement shall mean a thirty (30) day right of first
negotiation and a ten (10) day right of last refusal following written notice
which includes the name of the parties and all financial terms of any bona fide
third party offer which would be acceptable; it being understood that such third
party offer shall not include any term which is not reasonably and readily
performable by one party as any other. If the party with the last refusal right
does not match the third party offer, the other party or parties may enter into
the agreement with the specified third party on terms that are not less
favorable than those submitted to the party with the last refusal right;
provided if the aforesaid third party offer is not then accepted the last
refusal right shall be applicable to each new bona fide third party offer.
(f) If FRI does not provide animation production services in connection with at
least fifty-two (52) episodes of the Series due to FRI's election not to provide
such services and C+ obtains animation production services from another
animation company the rights jointly acquired by FRI and C+ from Bluebird shall
revert to C+, subject to the following: (i) FRI shall retain one hundred percent
(100%) of the FRI Participation (as defined in subparagraph 8(b) below) until
such time as it has fully recouped the Deferred Overhead Fee and one-half (1/2)
of each of the Second Deferred Overhead Fee and Deferred Executive Producer Fee;
(ii) the FRI Participation shall be reduced as provided in subparagraph 8(d)
below after FRI's recoupment of the Deferred Overhead Fee and one-half (1/2) of
each of the Second Deferred Overhead Fee and Deferred Executive Producer Fee;
and (iii) C+ and FRI shall each retain a first negotiation/last refusal right in
to exploitation of the New Characters in audio/visual media outside of the
"MIGHTY MAX" universe, including but not limited to spinoffs.
6. Videogame Distribution Rights.
(a) FRI shall have the exclusive right to create, produce and/or exploit and/or
authorize others to create, produce and/or exploit all types of videogames
throughout the universe during the period commencing immediately and continuing
as long as FRI and/or C+
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Film Roman, Inc.
June 11, 1993
Page 10
have the right to produce new productions hereunder (the "Videogame Distribution
Rights"). IF FRI and/or C+'s production rights expire pursuant to Paragraph 12
below, FRI's right to act as the licensing agent for the Videoram Distribution
Rights shall expire concurrently. FRI shall receive a licensing fee of twenty-
five percent (25%) of the gross receipts actually received by FRI from
exploitation of such rights, inclusive of all subdistributors and all costs.
For purposes of this agreement, videogame shall mean all electronic devices,
mechanical devices or devices utilizing other processor whether now known or
hereafter developed and all software programs therefor embodying the Property or
the Series, in whole or in part, whether such devices or means of software
programming are now known or hereafter developed, which permit interactivity
between the user and the device, including without limitation personal computer
systems, CD-ROM/I/XA ("bolt on devices" or otherwise), the Nintendo
Entertainment System, Nintendo Game Boy, the Super Nintendo Entertainment
System, the Sega Master System, Sega Game Gear, the Sega Genesis System, NEC
Turbo Graphics, the 3DO system, arcade games, holographic systems and virtual
reality; provided, however, Bluebird has retained the right to create, produce
and/or exploit and/or authorize others to create, produce and/or exploit
handheld electronic games which are completely self-contained and do not require
a separate cartridge or other external software. If FRI desires to use
animation from episodes of the Series in videogames or to create new animation
for such videogames which would be directly competitive with the Series
animation, FRI must obtain C+'s prior written approval, which approval shall not
unreasonably be withheld. If C+ agrees to such use of the animation, FRI may
use it in videogame licenses without making any additional payments other than
the actual costs. FRI acknowledges and agrees that any agreements entered into
by FRI with respect to the videogames shall not conflict or interfere with any
broadcasting or home video rights in any Series Distribution Rights agreements.
Until C+'s recoupment of the C+ Investment and C+'s share of the Second Deferred
Overhead Fee and the Deferred Executive Producer Fee, FRI will forward to C+ all
revenues received by FRI from the exploitation of the Videogame Distribution
Rights less FRI's distribution fee within fifteen (15) days following FRI's
receipt of any such payments. FRI shall pay all residuals, it any, with respect
to exploitation of the Videogame Distribution Rights and shall deduct such
residuals as a distribution expense. C+ shall have a first priority security
interest in all revenue derived from exploitation of the Videogame Distribution
Rights until recoupment of the C+ Investment.
(b) If FRI does not make a worldwide videogame deal and elects to use a
sublicensing agent outside of the United States, FRI shall
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Film Roman, Inc.
June 11, 1993
Page 11
engage C+ as its sublicensing agent. If FRI ceases to function as a licensing
agent with respect to the Videogame Distribution Rights or stops providing
animation production services in connection with subsequent episodes, C+ shall
have an exclusive right of first negotiation for a period of fifteen (15) days
with Bluebird to acquire the right to act as the licensing agent with respect to
such rights. FRI shall consult in good faith with C+ regarding the licensing of
all videogame rights, which consultation shall include but not be limited to,
discussing all parties and material financial terms before entering into any
agreement.
(c) Bluebird shall have the same creative approval rights with respect to the
Videogame Distribution Rights as it has with respect to the Series.
[PAGE 12 IS MISSING.]
period. Bluebird also agrees that C+ shall have an exclusive first negotiation
right for a period of fifteen (15) days following receipt of written notice from
Bluebird or C+ to be engaged as Bluebird's merchandise licensing agent in those
territories outside the United States not granted to DRI and/or LCI. If the
parties do not reach agreement during such period, Bluebird shall have the right
to engage a third party as its merchandising agent in the applicable territory.
(b) FRI, C+ and Bluebird agree if DRI loses any of its licensing rights outside
of the United States in territories in which C+ or a related company (e.g.,
Ellipse) has a direct licensing presence (i.e., with full time employees), C+
automatically shall acquire such rights and shall charge the same fees as
charged by DRI for such territory and shall be subject to the same performance
standards. In territories outside of the United States in which C+ does not
have a direct licensing presence, Bluebird shall negotiate in good faith
exclusively with C+ for a period of fifteen (15) days before negotiating with
any third party with respect to the acquisition of such rights. The parties
further have agreed that if DRI and/or its sublicensing agent, LCI, loses any of
its licensing rights in tho United States, then, if FRI has a direct licensing
presence in the U.S., FRI shall acquire such rights and shall charge a licensing
fee of twenty-five percent (25%). The foregoing is contingent upon C+ and/or
FRI, as applicable, having a viable merchandising/licensing company at the time
it acquires such rights, which includes at least one person employed on a full
time basis to do licensing and C+ and/or FRI having the right to produce new
productions pursuant to this Agreement.
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Film Roman, Inc.
June 11, 1993
Page 12
(c) The parties agree that if they succeed in arranging a merchandising and
licensing agreement in Japan with Bandai or a related entity, no party hereto
shall charge a distribution fee with respect to such agreement. The foregoing
shall not prevent C+ from charging a distribution fee on Series Distribution
Rights or FRI from charging a distribution fee on Videogame Distribution Rights
to the extent such rights can be separated out. If all rights (i.e.,
merchandising and licensing, Series Distribution and Videogame Distribution
Rights) are sold in Japan as one package, no party shall charge a distribution
fee unless the parties agree otherwise.
(d) Bluebird shall have the same creative approval rights with respect to Non-
Toy Merchandising Rights as it has with respect to the Series, including the
right to approve each specific proposed merchandising item. Items included on
Schedule I are deemed preapproved. Bluebird also shall have the right to
maintain quality controls and approve the inclusion of new items within the Non-
Toy Merchandising Rights, provided Bluebird shall not exercise such approval
rights so as to frustrate the purpose and intent of this agreement.
8. Distribution of Gross Receipts.
(a) Subject to the terms of this agreement, C+ shall be entitled to receive one
hundred percent (100%) of the gross receipts derived from all sources from the
exploitation of the Property and the Series episodes financed by C+, excluding
only Toy Merchandising Rights, which rights have been reserved by Bluebird, less
only distribution fees, merchandising and licensing fees, agency fees and any
costs which have been agreed to by FRI, C+, and Bluebird, including but not
limited to, fees payable and costs deductible by Bohbot, C+ and FRI, as
applicable, all on a cross-collateralized basis (hereinafter the "Available
Revenue"), until such time as C+ has recouped all of the C+ Investment. The
sources of revenue include, but are not limited to, revenues from exploitation
of the Series Distribution Rights, the Non-Toy Merchandising Rights, the
Videogame Distribution Rights (including the interactive rights), all music
publishing and soundtrack albums, non-soundtrack albums (including story
telling), road shows, and exploitation of any and all other ancillary or
subsidiary rights owned and/or controlled by FRI and/or C+. For purposes of
determining recoupment interest shall be recouped before principal. Until C+
recoups the C+ Investment, C+ shall receive payments directly from the
authorized licensing agents (e.g., currently Bohbot with respect to U.S.
television syndication rights, DRI with respect to Non-Toy Merchandising Rights
and FRI with respect to Videogame Distribution Rights and U.S. and Canadian
home video rights) and
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Film Roman, Inc.
June 11, 1993
Page 13
C+ shall account to FRI and Bluebird on a regular quarterly basis. After C+ has
recouped all of the C+ Investment, FRI shall be entitled to receive one hundred
percent (100%) of the Available Revenue until FRI has recouped one hundred
percent (100%) of the Deferred Overhead Fee. After FRI has recouped all of the
Deferred Overhead Fees, FRI and C+ shall share equally on a dollar for dollar
basis one hundred percent (100%) of the Available Revenue until FRI and C+ have
recouped one hundred percent (100%) of the Second Deferred Overhead Fee and the
Deferred Executive Producer Fee. All payments from the authorized licensing
agents shall be collected by C+ and disbursed to C+ and/or FRI, as applicable,
until full recoupment by C+ and FRI of the Second Deferred Overhead Fee and the
Deferred Executive Producer Fee.
(b) After (i) C+'s recoupment of one hundred percent (100%) of the C+
Investment, (it) FRI's recoupment of one hundred percent (100%) of the Deferred
Overhead Fee, and (iii) FRI and C+'s recoupment of one hundred percent (100%) of
the Second Deferred Overhead Fee and the Deferred Executive Producer Fee, gross
receipts shall be shared by C+, FRI and Bluebird as follows:
A. Series Distribution Rights.
All gross receipts from C+'s exercise of the Series Distribution Rights will be
applied and disbursed on an ongoing basis in the following order of priority:
(i) C+ will first withhold and retain therefrom its applicable distribution fees
(not including any fee for the U.S. if it does not distribute directly). C+
shall not take any override on Bohbot syndication distribution fees in the U.S.
(ii) C+ will next withhold and retain therefrom an amount equal to all C+
actual, direct expenses paid or accrued by C+ from the exercise of the Series
Distribution Rights, including but not limited to music reuse fees, residuals,
taxes and dubbing costs, which costs shall be reasonable and customary and shall
be net of all discounts and rebates to C+, if any. Distribution expenses shall
not include any overhead or staff employee salary charges.
(iii) C+ will next pay the remaining balance forty percent (40%) to C+, forty
percent (40%) to FRI and twenty percent (20%) to Bluebird.
B. Non-Toy Merchandising Rights.
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Film Roman, Inc.
June 11, 1993
Page 14
All gross receipts from the exercise of Non-Toy Merchandising Rights will be
applied and disbursed on an ongoing basis in the following order of priority:
(i) DRI, LCI, C+, FRI and/or any other authorized licensing agent (hereinafter
the "Licensing Agent") will first withhold and retain an
administration/licensing fee in an amount that has been approved by C+, FRI and
Bluebird, which will be inclusive of all third party fees and commissions.
(ii) The Licensing Agent will next pay to C+ any participations in merchandising
revenues that have been granted to broadcasters as part of any series
distribution agreement and C+ will pay such amounts to the applicable
broadcasters.
(iii) DRI will next pay to Bluebird on receipt of invoice the expenses which
Bluebird is entitled to recoup pursuant to its agreement with DRI. FRI and C+
shall be provided with copies of such invoices.
(iv) The Licensing Agent will next pay the remaining balance Bluebird, which
shall disburse it one-third (1/3) to C+, one-third (1/3) to FRI and one-third
(1/3) to Bluebird.
C. Videogame Distribution Rights.
All gross receipts from FRLG's exercise of the Videogame Distribution Rights
will be applied and disbursed on an ongoing basis in the following order of
priority:
(i) FRLG will first withhold and retain therefrom a distribution fee in the
amount of twenty-five percent (25%) of gross receipts.
(ii) FRLG will next pay to C+ any participations in the Videogame Distribution
Rights that have been granted to any broadcasters as part of any series
distribution agreement and C+ will pay such amounts to the applicable
broadcasters.
(iii) FRLG will next pay the remaining balance one-third (/1/3) to C+, one-third
(1/3) to FRI and one-third (1/3) to Bluebird.
D. Other Distribution Rights.
All gross receipts from the exercise of all other distribution rights and
sources not retained by Bluebird and not addressed in subparts A, B and C above
will be applied and disbursed on an ongoing basis in the following order of
priority.
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Film Roman, Inc.
June 11, 1993
Page 15
(i) The applicable authorized distribution entity will first withhold and retain
an administration/distribution fee in an amount that has been approved by FRI,
C+ and Bluebird.
(ii) The distribution entity will next withhold and retain an amount equal to
its actual costs, provided such deduction of costs has been approved by FRI, C+
and Bluebird.
(iii) The distribution entity will next pay to C+ any participations in the
applicable source of revenues that have been granted to broadcasters as part of
any series distribution agreement, if any, and C+ will pay such amounts to the
applicable broadcasters.
(iv) The distribution entity will next pay the remaining balance forty percent
(40%) to C+, forty percent (40%) to FRI and twenty percent (20%) to Bluebird if
the revenue is derived from the exploitation of audio visual rights, or
alternatively, one-third (1/3) to C+, one-third (1/3) to FRI, and one-third
(1/3) to Bluebird if the revenue is derived from the exploitation of
merchandising and licensing rights. The parties agree that music publishing
revenues from exhibition of the Series shall be shared on a 40:40:20 basis and
all other ancillary revenues such as soundtrack album, literary publishing, and
story cassettes shall be shared on a 1/3:1/3:1/3 basis.
The participations payable to C+ pursuant to subparagraphs 8(b)A.(iii),
8(b)B.(iv), 8(b)C.(iii) and 8(b)D.(iv) are collectively referred to herein as
the C+ Participation. The participations payable to FRI pursuant to
subparagraphs 8(b)A.(iii), 8(b)B.(iv), 8(b)C.(iii) and 8(b)D.(iv) are
collectively referred to herein as the FRI Participation. The participations
payable to Bluebird pursuant to subparagraphs 8(b)A.(iii), 8(b)B.(iv),
8(b)C.(iii) and 8(b)D.(iv) are collectively referred to herein as the Bluebird
Participation.
(c) Bluebird shall be responsible for all third party participations granted
by Bluebird, including but not limited to the participations payable to Breslow,
Morrison, Terzian, and Associates, Inc. and Origin, if any, and any other
inventors, out of the Bluebird Participation hereunder. FRI shall be
responsible for all third party participations granted by FRI, including but not
limited to, any participations granted to Mark Zaslov and Rob Hudnut, out of the
FRI Participation hereunder. C+ shall be responsible for all third party
participations granted by C+, excluding any participations granted to
broadcasters as part of a series distribution agreement, (which such
participations shall be deducted "off-the-top"), out of the C+ Participation
hereunder.
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Film Roman, Inc.
June 11, 1993
Page 16
(d) Bluebird and FRI shall have approval over participations granted to
broadcasters as part of a series distribution agreement, which approval shall
not unreasonably be withheld. The parties acknowledge that participations of up
to five percent (5%) of the Non-Toy Merchandising Rights revenues and Videogame
Distribution Rights revenues after the deduction of all commissions and costs in
a particular approved territory shall be deemed reasonable and that it is
customary for such participations to be granted in most territories throughout
the world.
(e) Notwithstanding anything to the contrary provided above, if at any time
prior to the completion of production of fifty-two (52) episodes of the Series,
FRI is required to seek financing from a party other than C+ due to C+'s
election not to provide financing, or C+'s failure to provide financing which is
not excused as a matter of agreement or law, for additional episodes, and FRI
actually produces episodes with such third party financing, then following C+'s
recoupment of the C+ Investment, the C+ Participation with respect to Non-Toy
Merchandising Rights and Videogame Distribution Rights shall be decreased
according to the formula set forth below. Similarly, if prior to the completion
of production of fifty-two (52) episodes of the Series, FRI elects not to
provide animation services in connection with the production of additional
episodes and C+ provides financing for the production of such episodes with an
animation company other than FRI, the FRI Participation shall be decreased
according to the same formula. The applicable party's Participation shall be
reduced to an amount that shall be calculated by multiplying the Participation
by a fraction, the numerator of which is the number of episodes financed by C+
or produced by FRI, as applicable, and the denominator of which is the total
number of episodes produced. Tho reduction in the participation shall only be
effective (i) in the U.S. following the date on which the distributing entity
accepts a firm written offer for the broadcast of new episodes in the U.S.,
provided such episodes are actually produced, and (ii) in all territories
outside the U.S. following the date on which the distributing entity accepts a
firm written offer for the broadcast of new episodes by a broadcaster in the
EEC, provided such episodes are actually produced.
(f) The parties agree that each entity which is collecting revenues which will
be disbursed to the other parties will credit the appropriate accounts for any
withholding taxes on a dollar for dollar, pound for pound or other currency
basis during the accounting period in which that credit is taken by the
collecting entity as a credit against its domestic taxes. If the tax credit is
available to the collecting entity but is not taken, such
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Film Roman, Inc.
June 11, 1993
Page 17
amount will nonetheless be credited to gross revenues for the applicable source.
If no such credit is available to the collecting entity, the collecting entity
will cooperate with the other parties to allocate the credit to another party
who could claim the credit, if possible. Bluebird shall contractually require
that the same obligation be imposed on DRI pursuant to the agreement between
Bluebird and DRI.
9. Accountings.
(a) Accountings (not including production cost accountings) will be rendered by
C+, FRI, DRI or Bluebird, as applicable, on a quarterly basis throughout the
period in which C+ and/or FRI produce new episodes hereunder and for two (2)
years after the production of the last episode produced hereunder, no more than
sixty (60) days after the close of each quarterly accounting quarter.
Thereafter statements will be rendered semiannually for two (2) years and then
annually, provided a party will not be required to render statements after a
period of three (3) consecutive years in which there are no revenues received.
Notwithstanding the foregoing, such party shall issue a statement if requested
to do so in writing. After such three (3) year period, statements will be
rendered without written request for accounting periods in which revenues are
received. Statements will include reasonable detail as to the source and amount
of all revenues and fees and items of recoupment. All payments pursuant to this
paragraph will be made in U.S. dollars at the notice addresses set forth in
paragraph 23, provided if payments are not made on a timely basis (i.e., within
sixty (60) days after the close of the applicable accounting period), the paying
party shall bear the risk of any currency fluctuations.
(b) Each statement will be deemed accurate and conclusively accepted if not
contested, in good faith, during the period ("Contestability Period") commencing
upon receipt of same and expiring thirty-six (36) months after the rendering of
such statement. Items included in later statements which appeared in any
earlier statement will not be subject to contest after the date such items are
first deemed accurate and conclusively accepted. However, if a party delivers a
written notice to the other objecting to one or more items of an accounting
within the Contestability Period, and if such notice specifies in detail the
items to which such party objects and the reasons for the objections, then such
party may question the particular items objected to despite the expiration of
the Contestability Period.
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Film Roman, Inc.
June 11, 1993
Page 18
(c) Upon reasonable notice, the parties may examine and extract or cause the
other party's books and records of account relating solely to the Series and/or
the Property to be examined and extracted; provided the parties shall have the
right to examine the records of any transaction involved in an allocation of
income or expenses. Such examination may be conducted no more than once each
calendar year and during regular business hours at the place where the records
are normally kept.
10. FRI and Bluebird Guarantee.
FRI and Bluebird guarantee that C+ shall receive a total of not less than Seven
Hundred Fifty Thousand Dollars ($750,000) from exploitation of the Videogame
Distribution Rights and the Non-Toy Merchandising Rights over the five (5) year
period commencing upon the execution hereof (the "Minimum Guarantee"). If C+
does not receive a total of Seven Hundred Fifty Thousand Dollars ($750,000) from
exploitation of the Videogame Distribution Rights and the Non-Toy Merchandising
Rights within the aforesaid period, then promptly following the expiration of
the five (5) year period, FRI and Bluebird shall pay to C+ the difference
between the Minimum Guarantee and the amounts actually received by C+ from such
rights during the aforesaid period. Bluebird shall be responsible for Five
Hundred Thousand Dollars ($500,000) of the Minimum Guarantee and FRI shall be
responsible for Two Hundred Fifty Thousand Dollars ($250,000) of the Minimum
Guarantee.
11. Bohbot Agreement.
(a) FRI and C+ have agreed to engage Bohbot as a syndicator of the initial
thirteen (13) episodes of the Series in the United States on terms to be
mutually approved. The Bohbot Agreement shall provide, among other things, for
(i) a Bohbot guarantee that it has obtained commitments in sufficient quantities
so as to guarantee the telecast of the Series in the United States commencing
during the month of September 1993, with a clearance of at least seventy percent
(70%) of the total television homes in the United States and (ii) direct payment
to C+ of all revenues derived by Bohbot after the deduction of Bohbot's
distribution fees and costs. In determining clearance in market areas, the
parties shall refer to the A.C. Nielsen U.S. Television Household Estimates.
(b) All of the major terms and conditions of the form agreement to be used by
Bohbot in connection with the television stations shall be subject to the prior
approval of C+.
12. Bluebird Grant of Rights. Bluebird hereby grants to C+ and FRI the
following rights and agrees as follows:
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Film Roman, Inc.
June 11, 1993
Page 19
(i) Bluebird hereby grants to C+ and FRI the exclusive rights to exploit the
Property in any and all media, whether now known or hereafter devised,
throughout the universe in perpetuity (subject to Bluebird's reversion rights if
less than fifty-two (52) episodes are produced), including without limitation in
television series, spin-off series, theatrical motion pictures, videorams, music
publishing, soundtrack and non-soundtrack (including story telling) recordings,
stage shows, road shows, theme parks, videogames, interactive programs, and
other rights of any kind therein, not including any Toy Merchandising Rights or
other merchandising/licensing rights previously granted to DRI and/or LCI
(collectively, the "Rights"). The Series Distribution Rights shall not be
subject to reversion.
(ii) If FRI and C+ produce fewer than twenty-six (26) episodes of the Series,
FRI and C+ shall have an additional period of twenty-four (24) months following
broadcast of the last episode produced to commit to the production of new
episodes and an additional twelve (12) months to commence production of such new
episodes before the Rights revert to Bluebird; following any such reversion, FRI
and C+ shall have an ongoing right of first negotiation/ last refusal to finance
production of additional episodes. If FRI and C+ produce twenty-six (26) or
more but fewer than fifty-two (52) episodes of the Series, FRI and C+ shall have
an additional period of forty-eight (48) months following broadcast of the last
episode produced to commit to the production of new episodes and an additional
twelve (12) months to commence production of such new episodes before the Rights
revert to Bluebird; following any such reversion, FRI and C+ shall have an
ongoing right of first negotiation/last refusal to finance production of
additional episodes. Any reversion of Rights shall be subject to preexisting
licenses, including but not limited to exclusive grants of broadcast rights to
the Series in particular territories. If FRI and/or C+ produce new episodes,
the applicable time period referred to above shall be recalculated following
broadcast of the last new episode.
(iii) If C+ provides financing for the production of fifty-two (52) or more
episodes of the Series, the Rights shall be fully vested in C+ and FRI in
perpetuity and following the production of the fifty-second (52nd) episode the
Rights shall be under the joint control of FRI, C+ and Bluebird, with the
exploitation of such Rights being subject to the majority vote (i.e., only two
out of three votes shall be necessary), provided no party shall have the right
to require any other party to spend any money.
(iv) Bluebird shall be responsible for all copyright and trademark registration
and protection costs for the Property, other than the Series, throughout the
world which it has already
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Film Roman, Inc.
June 11, 1993
Page 20
incurred, and FRI shall be responsible for the registration of all copyrights
for the Series with the United States Copyright Office. FRI shall provide C+
and Bluebird with copies of all applications and copyright registration. The
parties shall mutually determine what other trademarks and service marks should
be registered and in what territories and classes, and such costs shall be
deducted from the applicable revenue stream to which they relate.
(v) Bluebird will give good faith consideration to allowing a broadcaster to
participate in revenues from Toy Merchandising Rights in the broadcaster's
territory if Bluebird's failure to agree to such participation would have a
significant impact on C+'s ability to enter into a favorable series broadcast
license agreement in such territory. Bluebird's failure to agree to any such
participation shall not be deemed a breach of this agreement.
(vi) All new characters and other materials created by FRI and/or C+, which are
not furnished by Bluebird (herein referred to as the "New Characters")shall be
deemed part of the Property and shall be treated in the same way as all existing
materials included within the Property. Notwithstanding the foregoing, Bluebird
agrees that FRI and C+ shall have a right of first negotiation/last refusal
(matching rights) with regard to any audiovisual exploitation of any such New
Characters separate and apart from the "MIGHTY MAX" universe.
13. Controls.
(a) Bluebird shall have creative approval over the style guide and bible for the
Series and any other production produced hereunder, which approval shall include
the primary look of the characters, and Bluebird shall provide FRI and C+ with
written guidelines for the characters which shall include permitted and
prohibited behavior by the characters.
(b) Subject to Bluebird's creative approval rights, all major creative and
business decisions in connection with the production of episodes of the Series
shall be subject to FRI's and C+'s mutual approval; provided, in the event of a
dispute, FRI's decision shall govern with respect to creative decisions and C+'s
decision shall govern with respect to business decisions. The key creative
decisions relating to the development and production of the Series shall include
but not be limited to, the choice of principal voices, scripts, principal
character descriptions and designs, and general plot outlines. FRI shall
furnish C+ and Bluebird on a regular basis with copies of all scripts and other
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Film Roman, Inc.
June 11, 1993
Page 21
design elements, and shall provide C+ with access to all production materials.
(c) During the period that C+ and FRI retain production rights hereunder the
decision to go forward with the production of a spinoff series, theatrical
motion picture or any other derivative work based upon the Series or the
Property, shall require the mutual agreement and approval of both C+ and FRI.
Notwithstanding the foregoing, after Bluebird obtains a one-third (1/3) Vote,
the decision to proceed with production of a new production shall be made as
provided in subparagraph 12(iii) above. The relative participations of the
parties with respect to such other productions shall be subject to good faith
negotiation with this agreement as the basis assuming the parties are performing
similar roles.
14. Copyright. The copyright in the episodes of the Series financed by C+
shall be owned equally by C+, FRI and Bluebird. If possible, the copyright
notice for Bluebird will be the word Bluebird in its logo form in which the word
Bluebird is spelled out with a bird perched over the letter "i."
15. Credits.
(a) C+ and FRI shall receive the following end card credit (which shall include
C+'s and FRI's moving logos) on all positive prints of the Series used or
broadcast throughout the world:
A Production of FRI in association with C+.
(b) FRI agrees to include an "In Association With" production credit to C+
including C+'s logo, in all paid advertising issued by or under the direct
control of FRI in which FRI's name appears, which credit to C+ shall be equal in
all respects to FRI's credit. C+ agrees to comply with the same conditions with
respect to all paid ads issued by or under the direct control of C+ in which C+
receives a production credit as opposed to a distribution company credit.
(c) C+ will have the right to include a logo distribution credit to C+ or a
designated C+ company in the end credits on all copies of episodes of the Series
distributed by C+.
(d) Bluebird shall receive a credit on screen in substantially the following
form: "MIGHTY MAX" is a Bluebird character. The credit shall include the word
"Bluebird" in Bluebird's logo style, and shall be accorded on a separate card in
the same size of type as used for the producer/director/writer credits. If the
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Film Roman, Inc.
June 11, 1993
Page 22
Series is sold to a U.S. national free television network, the form of the
credit shall be subject to such network's approval.
16. FRI Representations, Warranties and Indemnifications. FRI represents,
covenants and warrants to C+ and Bluebird as follows:
(a) The Series, when delivered to C+ and throughout the term will be free and
clear of any claim, lien, encumbrance or litigation by any third party;
(b) FRI has obtained or will obtain all of the rights, permissions and licenses
(including all music synchronization, master use, performance or other licenses)
required to enable C+ to fully exploit the Series throughout the universe,
including, but not limited to the right to use performers' names, likenesses and
biographies to advertise and promote the Series, subject only to payment by C+
or its licensees of music performance fees to the appropriate performing rights
societies (FRI representing that all such performing rights will be in the
public domain, controlled by FRI or controlled by ASCAP, BMI or SESAC). FRI
further agrees that all music shall be works made for hire for which FRI shall
acquire all rights in perpetuity for all media unless FRI has obtained C+'s
prior approval, not to be unreasonably withheld, to license music on a different
basis;
(c) No part of the Series (including the sound synchronization thereof) nor C+'s
exercise of any rights granted hereunder will infringe upon the trademark, trade
name, copyright, right of privacy, property right or any other right of any
person or entity;
(d) Good and sufficient copyright notice is or shall be affixed to the Series in
accordance with the Universal Copyright Convention. The Series and the
underlying literary property upon which the Series is based shall be registered
for copyright in the United States Copyright Office (and FRI agrees to deliver
to C+ such certificate of registration and application therefore as soon as is
reasonably practicable after such items become available) and the Series will be
protected under the copyright law during the term;
(e) FRI has the full power and authority to make this Agreement and has not done
and will not do anything which interferes with the full performance of FRI's
obligations or C+'s rights hereunder;
(f) That, other than the residuals which C+ is obligated to pay (i.e., non-U.S.
residuals, U.S. residuals payable after the first run distribution of the
Series in the United States and
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 23
synch/music rights which have been approved by C+ as not perpetual pursuant to
subparagraph 15(b)), all license fees, compensation, royalties, participations
(third party or otherwise) granted by FRI, residuals, reuse payments, rerun fees
and other amounts payable to any person, firm or entity which are now due or may
become due in connection with the Series and its exploitation, including but not
limited to the Videogame Distribution Rights, the U.S. and Canada home video
rights, and the first run distribution of the Series in the United States have
been or will be paid by or under the authority of FRI;
(g) FRI is a duly organized and existing corporation and presently in good
standing under the laws of the State of California; this Letter Agreement has
been duly authorized by all requisite corporate action of FRI, has been executed
on its behalf by a duly authorized officer of FRI, and constitutes a valid and
binding obligation of FRI, enforceable in accordance with the terms hereof;
(h) FRI has not sold, assigned, transferred, licensed or conveyed, and will
not sell, assign, transfer, license or convey, to any person, firm or
corporation, any right, title or interest in or to the Series, adverse to or
derogatory of any of the rights, licenses or privileges herein granted or agreed
to be granted to C+, and FRI will not exercise any right or take any action
which might tend to derogate from or compete with any of the rights, licenses or
privileges herein granted or agreed to be granted to C+.
(i) FRI has entered into or will enter into valid and binding written agreements
with all persons rendering services in connection with the Series, and the
results and proceeds of all said persons' services shall be either "works-made-
for-hire" and shall be properly treated and designated as such in said persons'
agreements with FRI, or shall be assigned to FRI to the extent necessary for C+
to exercise all rights granted hereunder;
(j) FRI shall not violate any guild agreement or governmental rule, regulation,
law, statute or ordinance (including without limitation the provisions of
Section 507 of the United States Federal Communications Act); and
(k) FRI hereby indemnifies and holds C+ and Bluebird, their subsidiaries,
affiliates, subdistributors, agents and successors, licensees and assigns and
their respective partners, officers, directors and employees (the "Indemnitees")
harmless from and against any and all claims, losses, liabilities, damages or
costs, including reasonable legal fees and legal costs (whether or not
litigation is actually commenced) arising out of: any
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 24
material breach of any warranty, representation or undertaking made by FRI
hereunder; any broadcast, exhibition, reproduction, distribution, use or
exploitation of the Series or other exercise of the rights granted hereunder; or
any damage to property of any person or entity or injury to, illness of, or
death of any person arising out of or in the course of the development,
production or delivery of the Series. C+ and/or Bluebird shall give FRI written
notice of all claims for which C+ and/or Bluebird seeks indemnification
hereunder and shall offer FRI the opportunity to settle, defend, litigate and/or
otherwise handle the same, provided that if FRI fails or refuses to act, given a
reasonable time to do so, C+ and/or Bluebird may handle said claim in its sole
discretion. C+ and/or Bluebird shall have the right to participate in the
defense of any claim with counsel of C+'s and Bluebird's choice and at C+'s and
Bluebird's expense. Any amount which FRI may become obligated to pay to any of
the Indemnitees pursuant to this indemnity shall be paid by FRI upon demand. No
settlement of any claim for which FRI must indemnify the other parties may be
made without FRI's approval, which approval shall not unreasonably be withheld.
17. C+ Representations, Warranties and Indemnities: C+ represents, covenants
and warrants to FRI and Bluebird as follows:
(a) C+ has the full power and authority to make this Letter Agreement and has
not done and will not do anything which would interfere with the full
performance of C+'s obligations or FRI's rights hereunder.
(b) C+ is a duly organized and existing corporation and is presently and will
continue to be in good standing under the laws of France; this Agreement has
been duly authorized by all requisite action of C+, has been executed on its
behalf by a duly authorized officer of C+, and constitutes a valid and binding
obligation of C+ enforceable in accordance with the terms hereof;
(c) C+ and its assigns will adhere to and comply with all third party
contractual obligations in exploiting the Series.
(d) C+ hereby indemnifies and holds FRI and Bluebird and their subsidiaries,
affiliates, subdistributors, agents and successors, licensees and assigns and
their respective partners, shareholders, officers, directors and employees (the
"Indemnitees") harmless from and against any and all claims, losses,
liabilities, damages or costs, including reasonable legal fees and legal costs
(whether or not litigation is actually commenced) arising out of: any material
breach of any warranty,
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 25
representation or undertaking made by C+ hereunder and any material added to the
Series by C+ and C+'s exploitation of the Series and its elements. FRI and
Bluebird shall give C+ written notice of all claims for which FRI and Bluebird
seek indemnification hereunder and C+ shall settle, defend, litigate and/or
otherwise handle the same, provided that if C+ fails or refuses to act within a
reasonable period of time after receiving written notice from FRI and Bluebird,
FRI and Bluebird may handle said claim using their reasonable business judgment;
provided, however, that if FRI's or Bluebird's proposed settlement would,
adversely impact C+'s rights it must first obtain C+'s written permission prior
to entering into said settlement. FRI and Bluebird shall have the right to
participate in the defense of any claim with counsel of FRI's and Bluebird's
choice and at FRI's and Bluebird's expense. Any amount which C+ may become
obligated to pay to any of the Indemnitees pursuant to this indemnity shall be
paid by C+ upon demand. No settlement of any claim for which C+ must indemnify
the other parties may be made that Breslow, Morrison, Terzian and Associates
("BMT") and Origin have an interest in Bluebird's share of revenues hereunder
pursuant to separate agreements between BMT and Bluebird and Origin and
Bluebird.
(h) Bluebird hereby indemnifies and holds FRI, C+ and their subsidiaries,
affiliates, subdistributors, agents and successors, licensees and assigns and
their respective partners, shareholders, officers, directors and employees (the
"Indemnitees") harmless from and against any and all claims, losses,
liabilities, damages or costs, including reasonable legal fees and legal costs
(whether or not litigation is actually commenced) arising out of: any material
breach of any warranty, representation or undertaking made by Bluebird
hereunder. FRI and C+ shall give Bluebird written notice of all claims for
which FRI and C+ seek indemnification hereunder and Bluebird shall settle,
defend, litigate and/or otherwise handle the same, provided that if Bluebird
fails or refuses to act within a reasonable period of time after receiving
written notice from FRI and C+, FRI and C+ may handle said claim using their
reasonable business judgment. FRI and C+ shall have the right to participate in
the defense of any claim with counsel of FRI's and C+'s choice and at FRI's and
C+'s expense. Any amount which Bluebird may become obligated to pay to any of
the Indemnitees pursuant to this indemnity shall be paid by Bluebird upon
demand. No settlement of any claim for which Bluebird must indemnify the other
parties may be made without Bluebird's approval, which approval shall not
unreasonably be withheld.
19. Default. No party hereunder shall be deemed in default hereunder:
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 26
(a) Unless the other party has served upon that party a written notice of such
default, and such party has failed to cure such default within fifteen (15)
business days of its receipt of such notice (or such shorter period of time as
may be reasonable under the circumstances).
(b) If any alleged nonperformance has been caused by the occurrence of any act
of God, war, governmental law, ordinance, order or regulation, or by reason of
fire, flood, earthquake, labor dispute, lockout, strike, accident, or public
enemy or by reason of any other cause, thing or occurrence of the same or any
other nature not within that party's control which would excuse such performance
under applicable law.
20. Security Interest
To secure the full and complete performance of all of FRI's obligations and
liabilities under this Letter Agreement, FRI hereby grants to C+ a first
priority security interest in all collateral derived from the Series and the
Videogame Distribution Rights. FRI shall sign and deliver to C+ UCC-1 Financing
Statements and a Security Agreement, Assignment and Mortgage of Copyright in the
form attached hereto as Exhibit "F", and shall, at the request of C+, promptly
execute and deliver all further forms, documents and agreements which C+ may
request in order to evidence, confirm or perfect the first priority security
interest granted hereunder. C+ agrees to release such security interest
promptly following C+'s recoupment of one hundred percent (100%) of the C+
Investment.
21. Takeover Right.
It at any time C+ believes, in its reasonable good faith sound business judgment
based upon cost reports, production reports and customary television animation
production measures of progress and cost projections that there is a likely risk
of FRI not being able to complete and deliver the Series under this Letter
Agreement; or FRI fails at any time to comply with any of the material terms
hereof and C+ reasonably believes such noncompliance will affect its rights
hereunder, and C+ is not reasonably satisfied that the likelihood of any such
risk arising will be removed or adequately reduced by the steps proposed to be
taken by FRI, then in addition to any and all other remedies available to C+
hereunder, C+ shall have the right but not the obligation to take over and
complete the production of the Series. C+ agrees that prior to taking over the
production of the Series hereunder, it shall meet with FRI and give full
consideration to the views and proposals put forward by FRI to
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 27
remove the risks to C+'s rights hereunder, and that FRI shall have a period of
not less than fifteen (15) business days to cure any deficiencies, if such
deficiencies could reasonably be cured within such period. If C+ exercises such
right, it shall be deemed to have been appointed the manager and agent of FRI
for the purpose of completing the Series and FRI shall and hereby undertakes to
place at the disposal of and under the control of C+, the production account and
all persons, premises and equipment employed and used by FRI in connection with
the production of the Series. FRI also undertakes upon takeover by C+, without
additional remuneration, to cooperate fully with C+ to enable such takeover to
take place with the minimum possible disruption to the Series and to furnish all
information and render all reasonable and customary production services in
connection with the production of the Series as C+ shall reasonably request.
22. Notices.
All notices from a party to any other party or parties shall be given in writing
by airmail (postage prepaid), messenger or telecopier (and if sent by
telecopier, such notice shall be concurrently sent through the mail) addressed
as indicated below. The earlier of: (i) actual receipt; (ii) seven (7) business
days after the date of mailing; or (iii) the date of telecopying shall be deemed
to be the date of service.
(a) To FRI:
Mail: Film Roman, Inc.
12020 Chandler Boulevard
Suite 200
North Hollywood, California 91706
Attention: Mr. Bill Schultz
Telecopier: (818) 985-2973
With a Jon F. Vein, Esq.
courtesy Dern & Vein
copy to: 1901 Avenue of the Stars
Suite 400
Los Angeles, California 90067
Telecopier: (310) 557-2224
(b) To C+:
Mail: CANAL+ Droits Audiovisuelles, SNC
85/89 Quai Andre Citroen
75711, Paris, France
Cedex 15
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 28
Attention: Ms. Valerie Rolandez
Ellipse Programme
CANAL+ Distribution
Business Affairs Department
15 Square de Vergennes
75015, Paris, France
Attention: Ms. Raechel Crossen
[PAGE 32 IS MISSING.]
of the California Code-of Civil Procedure but only to the extent the
arbitration shall not be unreasonably delayed as determined by the arbitrators.
Written notice of a claim for arbitration must be given within the applicable
statute of limitations. During arbitration, each party shall bear the cost of
the arbitrator chosen by such party and the cost of witnesses called by such
party; the costs of the third arbitrator and the arbitration shall be shared
equally; provided, however, that the prevailing party in the arbitration shall
be entitled to recover its reasonable attorneys' fees and other arbitration
costs from the other party as part of the arbitration award. The decision and
award of the arbitrators shall be final and binding without appeal, and
enforceable in all courts of competent jurisdiction. The results of the
arbitration shall be confidential. Nothing contained herein shall, however, (i)
prevent any party from seeking and obtaining temporary, preliminary, prohibitory
or mandatory injunctions in any court having jurisdiction, (ii) prevent any
party from joining any other party as defendant in any action brought by or
against a third party, or ((iii) prevent C+ from enforcing its security interest
through a court proceeding.
24. Relationship of Parties
Neither FRI nor C+ nor Bluebird is an agent or representative of the other, and
neither shall be liable for or bound by any representation, act or omission
whatsoever of the other. This Letter Agreement shall in no way create a joint
venture or partnership or be for the benefit of any third party. Neither C+ nor
FRI nor Bluebird shall have the authority to bind the other or the other's
representatives in any way.
25. Assignment. Neither C+, FRI nor Bluebird shall have the right to assign
this Letter Agreement or any obligation, right or interest hereunder without the
prior written consent of the other parties, which shall not unreasonably be
withheld.
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 29
26. Other Documents. Each party shall, at the request of the other, execute
such assignments, certificates or other instruments ("Documents") as each party
may from time to time deem necessary or desirable to evidence, establish,
maintain, perfect, protect, enforce or defend its rights hereunder and to
effectuate the intent and purpose of this agreement.
27. Waiver. No waiver of any breach of any provision of this agreement shall
constitute a waiver of any other breach of the same or any other provision of
this agreement. No waiver will be effective unless made in writing.
28. Paragraph Headings. The paragraph headings in this agreement are provided
for convenience of reference only and will not effect, qualify, or amplify the
contents of the paragraphs.
29. Agreement Binding. This agreement will be binding on an inure to the
benefit of, the duly appointed heirs, executors, administrators, successors and
assigns of the parties hereto.
30. General Provisions.
No payment by C+ shall constitute a waiver of any term or condition of this
agreement. This Agreement may be executed in counterpart copies, each of which
shall be an original agreement and all of which when taken together shall
constitute one and the same instrument. If any provision of this agreement
shall be adjudged by a court of competent jurisdiction to be void or
unenforceable, the agreement shall be deemed modified to the extent necessary to
avoid the illegality but the void or unenforceable provision shall in no way
affect any other provision of this agreement or the validity or enforceability
of this agreement. This agreement shall be construed in accordance with the
internal substantive laws of the State of California, U.S.A., applicable to
agreements entered into and wholly performed therein.
31. Counterparts. This agreement may be executed in counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one instrument.
32. Entire Agreement. This agreement, including attached Schedules and
Exhibits, contains the entire understanding of the parties and supersedes all
previous written and oral understandings between the parties with respect to the
subject matter of this agreement. No modification of this agreement or any part
of it will be effective unless in writing and duly executed by all parties.
<PAGE>
Film Roman, Inc.
June 11, 1993
Page 30
IN WITNESS WHEREOF, the parties have entered into this agreement as of the
date first written above.
FILM ROMAN, INC.
By:/s/ Phil Roman
-------------------------------------
Its:President
------------------------------------
CANAL+ DROITS AUDIOVISUELLES, SNC
By:_____________________________________
Its:____________________________________
BLUEBIRD TOYS (UK) LIMITED
By:_____________________________________
Its:____________________________________
<PAGE>
EXHIBIT 10.39
EXECUTED
SHORT FORM DISTRIBUTION ASSIGNMENT
"MIGHTY MAX"
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned ("Licensor") hereby assigns to Bohbot
Entertainment, Inc. and its successors, assigns and licensees (collectively
"Licensee") the sole and exclusive right and license, to distribute under
copyright certain episodic television series entitled "Mighty Max," which
together with the title and themes, the literary, dramatic and musical contents,
the characters, and other versions thereof is the "Series".
Licensee's rights extend for the duration of the license and cover the
geographic area of the United States, its territories and possessions, including
Puerto Rico for television distribution in the Series are all as more
particularly set forth in and subject to that certain Distribution and Other
Rights Acquisition Agreement between Licensor and Licensee dated as of April 12,
1994 (the "Distribution Agreement").
Licensor hereby agrees to obtain and/or cause to be obtained registration of
United States copyright in and to the Series and the literary, dramatic and
musical material embodied in it or upon which it is based, as well as renewals
of all United States copyright in and to said Series which may expire during the
Term (defined in the Distribution Agreement), whether or not referred to herein.
Licensor hereby irrevocably appoints Licensees as attorney-in-fact (which
appointment is a power coupled-with-an-interest), with full and irrevocable
power and authority to do all such acts and things, and to execute, acknowledge,
deliver, file, register and record all such documents, in the name of and on
behalf of Licensor, as Licensee may deem necessary or proper to accomplish the
same.
Licensee is also hereby empowered to bring, prosecute, defend and appear in
suits, actions and proceedings of any nature or concerning copyrights in and to
said Series and all renewals thereof, or concerning any infringement thereof, or
interference with any of the rights hereby or in the Distribution Agreement
granted under said copyrights or renewals thereof, in its own name or in the
name of the copyright proprietor or the Licensor, but at the expense of
Licensee, at its option, Licensee may join such copyright proprietor and/or
Licensor as a party plaintiff or defendant in any such suit, action or
proceeding.
/s/ Phil Roman Date: As of 9/28/95
- ---------------------------------------------------
By: Philip Roman
Its: President
<PAGE>
EXECUTED
April 12 , 1994
Canal + D.A. Film Roman, Inc.
6 Boulevard de la Republique 12020 Chandler Boulevard
92514 Boulonge Bilancourt Cedex North Hollywood, CA 91607
France U.S.A.
Attention: Mr. Stephane Sperry Attention: Mr. Phil Roman
RE: "MIGHTY MAX"
------------
Dear Gentlemen:
This letter will summarize the basic terms of the agreement between Bohbot
Entertainment Worldwide, Inc. ("Bohbot"), on the one hand and Canal + Droits
Audiovisuelles, SNC ("C+") and Film Roman, Inc. (C+ and Film Roman are
collectively referred to as "Producer"), on the other hand, with respect to the
above referenced animated television series (the "Series").
1. TV Distribution. Bohbot shall distribute the first forty (40)
---------------
episodes of the Series in the United States and its territories and possessions
in the English and Spanish languages, provided Puerto Rico is limited to the
English language unless otherwise approved in writing by Producer. Bohbot shall
guarantee clearance in not less than seventy percent (70%) of the U.S.
television homes (per the Nielsen DMA) during traditional children's time slots
for fifty-two (52) weeks a year in any year in which Bohbot distributes.
2. Reserved Rights. Any rights not expressly licensed to Bohbot are
---------------
reserved to Producer, including but not limited to, all rights in the Series
other than broadcast rights in the Bohbot territory, including video
cassette/discs exhibition rights, merchandising rights and any subsidiary
rights. Producer shall be entitled to exercise all of such reserved rights
within the Bohbot territory or otherwise at any time, without restriction.
3. Term. The term of the license shall be for a period of ten (10) years
----
commencing September 1, 1993 ( the "Initial Term") provided, if Producer
receives revenues of Four Million Three Hundred Fifty Thousand Dollars
($4,350,000) or more by the end of the Initial Term, the term automatically
shall be extended for an additional ten (10) year period (the "Second Term").
If Producer receives revenues of One Million Dollars ($1,000,000) or more during
the Second Term, the term automatically shall be extended for unlimited
consecutive ten (10) year periods, provided Producer received a minimum of One
Million Dollars ($1,000,000) in revenue from Bohbot during the immediately
preceding ten (10) year period.
<PAGE>
Canal + D.A.
Film Roman, Inc.
April 12, 1994
Page 2 of 7
4. Guarantee.
---------
a) Bohbot agrees to pay C+ a non-refundable guarantee (the
"Guarantee") of Three Million Three Hundred Fifty Thousand Dollars ($3,350,000),
payable as per the agreed upon payment plan as set forth in Exhibit A attached
hereto and made a part hereof. This is intended to be a minimum payment to C+
and does not diminish Bohbot's obligation to pay C+ any amounts due to the
extent they exceed such Guarantee.
Any monies due to C+ during any accounting period in excess of the
applicable amount of guarantee shall be paid to C+, provided Bohbot shall have
the right to credit any amounts in excess of the specified guarantee installment
against future minimum payments required under the Guarantee.
For example, assuming for the quarter ending January 1, 1994, the
amount due to C+ equals $125,000. The amount would be paid in its entirety. If
for the quarter ending April 1, 1994, the amount due is $90,000, Bohbot would
pay a total of $95,000 or the payment due less the $40,000 credit.
As a further example, assuming that for the quarter ending January 1,
1994, the amount due to C+ is $55,000. The $85,000 would be paid in its
entirety. If for the quarter ending April 1, 1994, the amount due is $165,000,
Bohbot would only pay the $135,000 due and off-set the extra $30,000 with the
same overpayment on January 1, 1994.
In no event will Bohbot pay C+ less than the cumulative total of the
minimum quarterly payments as per the schedule set forth in Exhibit A.
b) Bohbot's corporate Guarantee is Bohbot's full and binding
commitment. It is not Bohbot's responsibility to secure the financing or
banking needs of the venture. Bohbot has entered into a contract with One World
Entertainment, a division of MTV Networks, A Viacom Company ("OWE") ("Ad Sales
Agreement"). A copy of the Ad Sales Agreement has been delivered to Producer
and attached hereto as Exhibit C. Bohbot shall notify Producer in writing of
any proposed changes or amendments to the Ad Sales Agreement which would have a
material adverse affect on the amount of OWE's guarantee and Bohbot shall not
accept any amendment having such an effect without Producer's prior written
consent, which shall not be unreasonably withheld. Bohbot will promptly
irrevocably instruct OWE in writing to forward all funds received by OWE
pursuant to the Ad Sales Agreement to a lock box ("Lock Box"). Any funds
inadvertently received by Bohbot in connection with such Ad Sales Agreement will
be forwarded by Bohbot to the
2
<PAGE>
Canal + D.A.
Film Roman, Inc.
April 12, 1994
Page 3 of 7
Lock Box and will not be cashed by Bohbot but rather will be disbursed from the
Lock Box. Bohbot agrees that no funds will be disbursed from the Lock Box other
than monies to Canal + in accordance with paragraphs 4 and 5 of this Agreement,
and for Bohbot's fees and expenses as provided in paragraph 5. In the event of
a default in payment by Bohbot to C+, Bohbot's obligations under this paragraph
4 which continues for a period in excess of thirty (30) days and is thereafter
not cured within 10 days after Bohbot's receipt of written notice of such
default, i.e., Bohbot shall have not less than 40 days, Bohbot's rights under
the Ad Sales Agreement, including specifically the right to receive payments
from OWE, will automatically be assigned directly to C+. If Bohbot remains in
default following said ten (10) day cure period, C+ shall have the right to
forward the letter of assignment which is hereto attached as Exhibit to OWE.
Said letter of assignment shall be held in trust by Film Roman or its counsel,
Dern & Vein, and said letter shall be released to C+ upon notice by C+ to Film
Roman (or, if applicable Dern & Vein) that Bohbot remains in default following
said forty (40) day period. Upon receipt of funds by C+ from OWE, C+ shall
promptly forward to Bohbot its applicable fees and costs. In addition, C+ will
have a security interest in revenues from the Sales as described in paragraph 7
hereunder.
c) Bohbot represents and warrants
(i) There is no restriction on Bohbot assigning the Ad Sales
Agreement and Bohbot shall grant OWE no rights of offset under the Ad Sales
Agreement.
(ii) Bohbot will not assign or hypothecate the Ad Sales
Agreement to anyone other than C+.
(iii) Provided Film Roman delivers all the episodes on time and
in compliance with this Agreement, Bohbot shall not breach the Ad Sales
Agreement.
d) Promptly following execution of this letter agreement, but not in
any event later than ten (10) days, Bohbot will pay to C+ the guaranteed
payments due for January 1, 1994 and April 1, 1994. With respect to all
subsequent payments of the Guarantee, if payment is overdue by more than thirty-
five (35) days, Bohbot shall pay interest on the overdue balance on a two
percent (2%) monthly rate.
5. Distribution Fees and Expenses.
------------------------------
a) Bohbot shall charge a distribution fee of thirty-five percent
(35%) for barter sales and twenty-five percent (25%)
3
<PAGE>
Canal + D.A.
Film Roman, Inc.
April 12, 1994
Page 4 of 7
for cash sales, inclusive of all subdistribution. The distribution fee for
barter shall be charged on all gross receipts remaining after deduction of
unrelated third party advertising agency commissions, which commissions shall
not exceed fifteen percent (15%) ("Adjusted Gross Receipts). The foregoing
restriction to unrelated third parties shall not apply in regard to arm's length
commission paid to Bohbot Communications Inc. (or any subsidiary) for media
buying services actually rendered, provided the "cap" of 15% shall always apply.
Whenever one Bohbot company deals with another they shall do so in good faith
and on an arm's length basis. In the case of a sale involving both barter
income and cash, the distribution fee shall be apportioned in accordance with
the source of revenues.
b) Bohbot shall be entitled to deduct from Adjusted Gross Receipts,
all Bohbot's direct, documented, out-of-pocket costs incurred in the
distribution of the Series, which costs shall not exceed the following:
1993 broadcast season (once a week) $200,000
1994 broadcast season (Monday-Friday) $625,000
For all subsequent seasons, allowed deductions shall be Five Hundred
Thousand Dollars ($500,000) per year for a Monday-Friday clearance and Two
Hundred Thousand Dollars ($200,000) for a once-a-week clearance.
6. Bohbot Profit Participation. Subject to the approval of Bluebird Toys
---------------------------
(UK) Limited ("Bluebird"), and provided (i) Producer has received a total of
Four Million Three Hundred Fifty Thousand Dollars ($4,350,000) in revenues
during the Initial Term and (ii) C+ has recouped all of the financing provided
in connection with the Series, including interest, Bohbot shall be entitled to
receive a profit participation of ten percent (10%) of one hundred percent
(100%) of the net profits derived by the Producer and Bluebird from the Series
excluding revenues from toy merchandising. Producer shall use its reasonable
best efforts to obtain Bluebird's approval. In the event Bluebird does not
approve Bohbot shall receive 8 1/3% of 100% of the net profits. In any event
once the conditions in (i) and (ii) above have been satisfied, Bohbot shall
receive the share of net profits retroactively from the first net profits
earned, even if such net profits accrued prior to the satisfaction of such
conditions. Bohbot shall not be entitled to share in any net profits relating
to episodes of the Series not distributed by Bohbot.
7. Security i.e. the Lock Box Interest. Bohbot shall keep all funds from
-----------------------------------
distribution of the Series in a separate account which is not commingled with
any other funds. Producer shall have
4
<PAGE>
Canal + D.A.
Film Roman, Inc.
April 12, 1994
Page 5 of 7
a first priority security interest in all such revenues, and Bohbot's
distribution and all other rights in the Series, and Bohbot shall sign all
necessary and reasonable documentation in order to perfect such security
interests, including but not limited to the Form UCC-1, and a Security Agreement
Assignment and Mortgage of Copyright attached hereto as Exhibits D and E.
Bohbot shall provide to producer copies of the monthly bank statements
pertaining to the Lock Box within ten (10) days of receipt. Bohbot shall obtain
and furnish the Producer any releases and subordinations of claims or liens
which may be required to maintain the priority of Producer's rights and liens
hereunder before any new episodes are delivered to Bohbot. This is an essential
term of this Agreement.
8. Delivery Schedule. Producer acknowledges that it is essential to
-----------------
Bohbot that all new episodes of the Series, 27 of them currently in production,
be delivered to Bohbot on a timely basis as provided in Schedule B attached
hereto and incorporated herein subject to force majeure. Producer shall be
provided with a twelve (12) business day cure period in the event an episode is
not delivered on a timely basis for reasons other than force majeure.
In the event Producer fails to cure, the Guarantee shall be considered
null and void with respect to all undelivered episodes and Bohbot will maximize
the revenue of the Series to the best of its abilities.
9. Assignment. Bohbot shall not have the right to subdistribute or to
----------
assign any of its distribution rights to any third party, excluding any of its
wholly owned subsidiaries or entitles, without Producer's prior written
approval, which approval shall not be unreasonably withheld. In any event,
Bohbot Communications, Inc. shall guarantee the obligations of any Bohbot
"entity" under this Agreement. Bohbot shall give written notice of any
Assignment to a wholly owned subsidiary or entity.
10. Subsequent Episodes. If Producer elects to produce additional
-------------------
episodes of the Series, and provided Bohbot is not in breach of any of its
obligations under this agreement, Bohbot shall have a right of first
negotiation/last refusal to obtain United States distribution rights with
respect to such episodes.
11. Accounting Statements/Audit.
---------------------------
a) Bohbot shall account to producer on a quarterly basis within 30
days after the end of each calendar quarter. Bohbot agrees to produce a report
that is satisfactory to the good faith needs of C+.
5
<PAGE>
Canal + D.A.
Film Roman, Inc.
April 12, 1994
Page 6 of 7
b) Bohbot shall maintain accurate books and records with respect to
all transactions relating to distribution and exploitation of the Series, and
shall keep all such records until two (2) years after expiration of the Term.
Producer shall have the right to audit Bohbot's books and records on an annual
basis upon prior written notice. Statements shall become uncontestable two (2)
years following Producer's receipt of such statement unless Producer objects to
such statement within such period and initiates an action within one (1) year
after the end of such two (2) year period. Producer also shall have the right
to have an auditor appointed by Producer present at any time in which Bohbot
audits third parties responsible for barter or advertising sales and Bohbot
shall give producer 15 days prior written notice of any intended audit.
c) Bohbot shall provide to Producer within ten (10) days after
execution of this Agreement a report regarding the distribution of the first 13
episodes of the Series during the 1993-94 Broadcast year through December 31,
1993 in a form which, in good faith, is acceptable to Producer.
12. Miscellaneous.
-------------
a) Bohbot shall not have the right to edit the program without the
Producer's prior written approval, notwithstanding reasonable edits by broadcast
stations.
b) Bohbot acknowledges that Producer owns all rights, including all
copyrights, in the Series.
c) This Agreement shall be governed by the laws of the State of
California, USA.
d) In any dispute between the parties arising out of or in
connection with this Agreement, the prevailing party shall be entitled to
recover its attorney's fees and other reasonable costs.
e) This Agreement supersedes all prior Agreements between the
parties, including but not limited to, the letter agreement dated June 4, 1993
and all prior agreements have been merged herein whether written or oral.
f) All other terms shall be negotiated in good faith consistent with
industry practice. The parties shall enter into a more formal written agreement
within 60 days following execution of this letter agreement. Unless and until
such formal agreement is signed, this letter will serve as a binding agreement
between the parties.
6
<PAGE>
Canal + D.A.
Film Roman, Inc.
April 12, 1994
Page 7 of 7
g) Bohbot shall consult fully with Producers with respect to
Bohbot's overall plans for distribution of the Series, provided that Bohbot
shall not be required to consult in regard to individual licenses and all of the
terms of Bohbot's licensees shall be determined by Bohbot in its sole
discretion. Bohbot shall not be deemed in breach of this provision of the
agreement by reason of any failure to consult through inadvertence or the
exigencies of time.
ACCEPTED AND AGREED TO:
BOHBOT ENTERTAINMENT WORLDWIDE, INC.
By /s/Authorized Signatory
----------------------------------
Its_________________________________
CANAL + DROITS AUDIOVISUELLES SNC
By /s/Authorized Signatory
----------------------------------
Its_________________________________
FILM ROMAN, INC.
By /s/ Phil Roman
----------------------------------
Phil Roman
Its_________________________________
AGREED IN SO FAR AS WE ARE CONCERNED
AS PROVIDED IN PARAGRAPH 9
BOHBOT COMMUNICATIONS, INC.
By /s/Authorized Signatory
---------------------------------
Its_________________________________
cc: Ms. Raechel Crossen
Ms. Valerie Rolandez
Jon F. Vein, Esq.
Robert Getman, Esq.
Tami Morachnick, Esq.
Robert Oppenheim, Esq.
Ralph Sorrentino
Allen Bohbot
Bill Schultz
Wayne Alexander, Esq.
7
<PAGE>
April 11, 1994
One World Entertainment Inc.
a Division of Viacom International Inc.
1515 Broadway
New York, NY 10036
Re: "Mighty Max" One Half-Hour Animated TV Series (the "Program")
-------------------------------------------------------------
Gentlemen:
You and we have entered into a contract dated August 2, 1993 (the "Ad Sales
Agreement") pertaining to your representing us as our exclusive ad sales agent
with respect to the sales of national advertising time for certain television
programs. The following amendment of the Ad Sales Agreement is agreed as to the
Program:
1. Paragraph 1 will be amended to also include "Mighty Max", a thirty (30)
minute series of forty (40) episodes (the "Series"). The Term for the
"Mighty Max" Series shall commence on the date hereof and expire on the
expiration of the 1994-1995 broadcast season, unless sooner terminated in
accordance with the Ad Sales Agreement. The definition of Program(s) will
also be amended to include "Mighty Max." The Program will be covered by
the Ad Sales Agreement and sold as a weekly strip. There will be forty
(40) episodes of the Program. There will be available for sale by you not
less than nine hundred eight (908) thirty (30) second units during the
1994-95 season as follows:
Week Of
-------
a) Fourth Quarter, 1994 (9/5-12/19) 14 units/week
b) First Quarter, 1995 (12/26-3/20) 19 units/week
c) Second Quarter, 1995 (3/27-6/19) 19 units/week
d) Third Quarter, 1995 (6/2-8/28) 19 units/week
Bohbot Communications, Inc.
X NEW YORK CHICAGO SAN FRANCISCO
41 Madison Avenue 875 N Michigan Avenue 801 Montgomery Street
New York, NY 10010 Chicago, IL 60611 San Francisco, CA 941__
TEL (212) 213-2700 TEL (312) 944-4040 TEL (415) _________
FAX (212) 389-3766 FAX (312) 944-3987 FAX (415) _________
8
<PAGE>
One World Entertainment, Inc.
April 11, 1994
Page 2
2. We guarantee clearances of the Program in at least seventy percent (70%) of
the total U.S. viewing households determined by NTI weight. We guarantee
that at least ninety percent (90%) of those clearances will be in the time
slot from 6:00 am to 9:00 am or from 3:00 pm to 6:00 pm.
3. You shall pay us our share of net receipts pursuant to the terms set forth
in Paragraph 6 of the Ad Sales Agreement. You guarantee that if the series
rating averages for the entire broadcast year is not less than 3.0 for kids
2-11, that the net receipts for the 1994-95 broadcast year, i.e., the gross
receipts less advertising agency commissions (not to exceed fifteen percent
(15%) shall not be less then Three Million Eighty One Thousand Dollars
($3,081,000). This is intended to be a minimum payment to us and does not
diminish your obligation to pay us our full share of net receipts to the
extent they exceed the guarantee. In the event the average rating for kids
2-11 is less than 3.0, your guarantee shall be reduced by the sum of One
Hundred Two Thousand Seven Hundred Dollars ($102,700) for each l/10 of a
rating point that the actual average rating is less than 3.0. If actual
average rating for kids 2-11 is below 2.0, you shall not be required to pay
us any guarantee. If your guarantee, as so computed, exceeds the net
receipts paid to us during 1994-95 broadcast year, you shall pay an amount
equal to such excess to us on October 1, 1995. We shall have the right to
audit your books and records as they apply to the Series and the other
programs covered by the Ad Sales Agreement once annually consisting of two
(2) visits, one (1) interim and one (1) final audit.
4. With respect to net receipts collected by you hereunder, we hereby
irrevocably instruct you to send all such net receipts directly to the lock
box provided by us and set up exclusively for Mighty Max.
9
<PAGE>
One World Entertainment, Inc.
April 11, 1994
Page 3
Please indicate your consent and agreement to the foregoing by signing this
letter in the space provided below.
Very truly yours,
BOHBOT ENTERTAINMENT, INC.
By: /s/ Ralph Sorrentino
---------------------------------
Ralph Sorrentino
Executive Vice-President
Chief Financial and
Administrative Officer
ACCEPTED AND AGREED TO:
ONE WORLD ENTERTAINMENT,
a Division of Viacom International Inc.
By: /s/ Richard P.
------------------------------------
Title: Sr. V.P.
----------------------------------
10
<PAGE>
Dated ________________________________
One World Entertainment, Inc.
A Division of Viacom International, Inc.
1515 Broadway
New York, New York 10036
Re: "Mighty Max"/One Half-Hour Animated TV Series
---------------------------------------------
Gentlemen:
Reference is hereby made to the contract dated August 2, 1993, as
amended by that certain letter dated April 7, 1994, relating to your
representing us as our exclusive sales agent with respect to sales of national
advertising for the above-referenced series.
Notice is hereby given that Bohbot Entertainment, Inc. as security for
certain obligations has irrevocably assigned its right to receive revenues under
such agreement to Canal+ Droits Audiovisuelles, SNC ("Canal+"). You are hereby
irrevocably directed to make all payments that are due to us pursuant to such
agreement directly to Canal+ at 85/89 Quai Andre Citroen 75015, Paris, France,
or to such other entity or bank account as Canal+ shall designate.
Very truly yours,
BOHBOT ENTERTAINMENT, INC.
By /s/ Authorized Signatory
------------------------------
Title___________________________
cc: Mr. Stephane Sperry
Ms. Raechel Crossen
Ms. Valerie Rolandez
George T. Hayum, Esq.
Robert S. Getman, Esq.
11
<PAGE>
Dated ________________________________
One World Entertainment, Inc.
A Division of Viacom International, Inc.
1515 Broadway
New York, New York 10036
Re: "Mighty Max"/One Half-Hour Animated TV Series
---------------------------------------------
Gentlemen:
Reference is hereby made to the contract dated August 2, 1993, as
amended by that certain letter dated April 7, 1994, relating to your
representing us as our exclusive sales agent with respect to sales of national
advertising for the above-referenced series.
Notice is hereby given that Bohbot Entertainment, Inc. as security for
certain obligations has irrevocably assigned its right to receive revenues under
such agreement to Canal+ Droits Audiovisuelles, SNC ("Canal+"). You are hereby
irrevocably directed to make all payments that are due to us pursuant to such
agreement directly to Canal+ at 85/89 Quai Andre Citroen 75-15, Paris, France,
or to such other entity or bank account as Canal+ shall designate.
Very truly yours,
BOHBOT ENTERTAINMENT, INC.
By S/
-----------------------------
Title___________________________
cc: Mr. Stephane Sperry
Ms. Raechel Crossen
Ms. Valerie Rolandez
George T. Hayum, Esq.
Robert S. Getman, Esq.
12
<PAGE>
NON-DISTURBANCE AGREEMENT
-------------------------
THIS NON-DISTURBANCE AGREEMENT is made as of April 12, 1994 by and between
Bohbot Entertainment Worldwide, Inc. ("Bohbot") and Canal+ Droit Audiovisuelles,
SNC ("Canal+"). Bohbot, Canal+ and Film Roman, Inc. are parties to a Letter
Agreement dated April 12, 1994 (the "Letter Agreement") and Bohbot and Canal+
are parties to a Security Agreement, Assignment and Mortgage of Copyright dated
April 12, 1994 concerning the animated television series entitled "MIGHTY MAX"
(the "Series"). In connection with various distribution rights granted by
Canal+ and Film Roman to Bohbot, Bohbot has granted Canal+ a first priority
security interest in certain collateral relating to the series.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Canal+ shall take no action to deprive any television station granted
a license by Bohbot pursuant to Bohbot's rights under the Letter Agreement or
the Quiet Enjoyment of those rights. For purposes hereof, "Quiet Enjoyment"
shall mean that no foreclosure proceedings by Canal+, or any other action by
Canal+ as a security creditor will impair or otherwise interfere with Bohbot's
licensees full enjoyment and exploitation of their television syndication rights
in the Series under any station license agreements.
2. If Canal+ forecloses on the station license agreements due to Bohbot's
bankruptcy or failure to pay the Guarantee or other payments on a timely basis
as more specifically provided in the Letter Agreement, then provided Bohbot is
not otherwise in breach of the Letter Agreement, and Bohbot is ready, willing
and able to perform such services, Canal+ agrees to engage Bohbot as its agent
to continue to service the stations pursuant to the station license agreements.
3. The validity of this Agreement, its construction, interpretation and
enforcement and the rights of the parties hereto shall be determined under,
governed by and construed in accordance with the internal laws of the State of
California, without regard to principals of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first set forth above.
CANAL+ DROIT BOHBOT ENTERTAINMENT
AUDIOVISUELLES, SNC WORLDWIDE, INC.
By /s/ Authorized Signatory By /s/Authorized Signatory
------------------------- ----------------------------
Its Chairman Its Authorized Signatory
------------------------ -----------------------------
13
<PAGE>
"MIGHTY MAX"
SECURITY AGREEMENT, ASSIGNMENT AND MORTGAGE OF COPYRIGHT
AGREEMENT ("Security Agreement") dated as of April 12, 1994, between BOHBOT
ENTERTAINMENT WORLDWIDE, INC. ("Debtor"), whose address is 41 Madison Avenue,
New York, New York 10010 and CANAL + DROITS AUDIOVISUELLES, SNC, whose address
is 85/89 Quai Andre Citroen, 75015, Paris, France ("Secured Party").
1. SERIES: The "Series" is the animated television series entitled "MIGHTY
------
MAX" to be produced by Film Roman, Inc., based on the toy property owned by
Bluebird Toys (UK) Limited.
2. DEFINITIONS: All terms initially capitalized and not expressly defined in
-----------
accordance with the Letter Agreement (as described below).
3. SECURITY INTEREST IN THE SERIES:
-------------------------------
(a) Grant: In consideration of and in order to induce Secured Party to
enter into the Letter Agreement dated as of April 11, 1994 with respect to the
Series (the "Letter Agreement") and to grant Debtor certain distribution rights
in the Series and to perform all of its obligations to Debtor thereunder, and in
order to secure Secured Party's rights in the Series and under the Letter
Agreement and in consideration of various of Secured Party's agreements in
connection with the exploitation of the Series, Debtor hereby grants and assigns
to Secured Party a continuing security interest in and copyright mortgage on all
of Debtor's right, title, and interest in and to the items described or referred
to in (i) through (vii) below associated with or relating to the Series
("Collateral"), to the extent such Collateral is now owned or hereafter acquired
by Debtor.
(i) Underlying Properties: All rights with respect to the literary,
---------------------
musical, dramatic and other written materials created for the Series or upon
which the Series is based or which are used in or in connection with the Series,
including, without limitation, rights in the scripts and the underlying
materials on which the scripts are based;
(ii) Physical Properties: All positive and negative film or animation
-------------------
cels relating to the Series, wherever located or situated, all sound materials
and all other original physical materials relating to the Series (the "Physical
Properties") Secured Party's right in the Physical Properties shall be on a non-
exclusive basis and not exercised so as to disturb Debtor's licensees of
Debtor's rights with respect to television syndication in the United States;
provided that any license of such rights does not adversely affect or impact
upon Secured Party's rights to the Series and the rights of Secured Party
14
<PAGE>
under the Letter Agreement and this Security Agreement and that such licensee
expressly agrees that its lien, if any, on the Physical Properties shall not
entitle it to foreclosure with respect thereto, and such lien will not otherwise
interfere with any of Secured Party's rights;
(iii) Copyrights: All common law and statutory domestic and foreign
----------
copyrights, renewals and extensions of copyright relating to the Series,
including all rights derived pursuant to security agreements or mortgages of
copyright in any version or with any entity with respect to the Series;
(iv) Contract Rights: All rights in all agreements and understandings
---------------
(whether or not evidenced in writing) with third parties relating to the Series
or to any of the elements described in Paragraphs 3.(a)(i) and (ii) above, and
any rights derived therefrom or related thereto, including all rights derived
under contract with others, including all rights derived pursuant to security
agreements and mortgages of copyright with any person or entity with respect to
the Series;
(v) Distribution Rights: The continuing right to exercise
-------------------
distribution rights in the Series throughout the territory granted to Debtor
pursuant to and subject to the Letter Agreement ("Territory");
(vi) Other Items: All rights in and to those certain accounts,
-----------
inventories and general intangibles with respect to the Series, (including any
bank account of Debtor into which such proceeds have been or are deposited); all
other items deemed inventories, equipment, accounts and general intangible (as
defined under the California Uniform Commercial Code or other Applicable Law but
only to the extent such rights are derived from or relate to the Series). The
parties acknowledge that Debtor intends to establish a separate segregated bank
account into which all proceeds relating to the Series will be deposited; and
(vii) Proceeds: All periods and products of the items referred to in
--------
Paragraphs 3.(a)(i) through 3.(a)(vi) above.
(b) Rights of Secured Party: With respect to the security interest
-----------------------
granted to the Secured Party pursuant hereto, Secured Party and any of its
assignees shall have all rights, privileges and remedies to the maximum extent
permitted by law (including without limitation all legal, equitable,
administrative, and self-help rights and remedies). The foregoing are cumulative
and the exercise of one shall not preclude Secured Party from a later or
concurrent exercise of any other.
(c) Exercise of Rights: Secured Party or any of its assignees shall be
------------------
entitled to exercise the rights granted hereunder with respect to the Collateral
in the event any one or more of the following events of default shall occur:
15
<PAGE>
(i) Debtor (or anyone acting on Debtor's behalf or in its place and stead)
terminates, attempts to terminate, disaffirms or attempts to disaffirm any of
the following: (A) the Letter Agreement; (B) this Security Agreement; and (C)
any agreement entered into with Secured Party pursuant to or in connection with
the Letter Agreement or the Security Agreement:
(ii) Debtor (or anyone acting on Debtor's behalf or in its place and
stead) defaults in the performance of any of Debtor's material obligations to
Secured Party (or anyone acting on Secured Party's behalf or in its place and
stead) under any of the following: (A) the Letter Agreement; (B) this Security
Agreement; and (C) any agreement entered into with Secured Party pursuant to or
in connection with the Letter Agreement or the Security Agreement; and such
default or failure shall continue for a period of more than 10 business days
after written notice thereof from Secured Party to Debtor;
(iii) Debtor shall become insolvent howsoever evidenced, or make a general
assignment for the benefit of creditors, or admit in writing its inability to
pay its debts as they become due, or commence or consent to the commencement of
any proceeding to be adjudicated a bankrupt or insolvent or seeking
reorganization, arrangement, adjustment, composition or other relief from
creditors under applicable law, or suffer the entry of any decree or order by a
court of competent jurisdiction adjudicating Debtor as bankrupt or insolvent or
approving or imposing such relief from creditors, or seek or consent to the
appointment of any receiver, liquidator, assignee, trustee, sequestrator or
other similar official for all or any substantial part of its assets or
properties; or in the event of the commencement of any involuntary proceeding
against Debtor seeking adjudication of bankruptcy or insolvency or
reorganization, arrangement, adjustment, composition or other relief from
creditors under applicable law, or the involuntary appointment of any receiver,
liquidator, assignee, trustee, sequestrator or other similar official for all or
any substantial part of its assets or properties, and such involuntary
proceeding or appointment is not dismissed or vacated within 45 days after the
date of such commencement or appointment;
(iv) There is any material misstatement or false statement made by Debtor
knowingly, or in the exercise of reasonable prudence which Debtor should have
known, in connection with any of Debtor's obligations, agreements, or any breach
of the representations or warranties under or related to this Security Agreement
or the Letter Agreement; and
(v) Debtor elects to sell substantially all of its
16
<PAGE>
assets or to wind up, liquidate or dissolve and to distribute its assets
prior to the completion of Debtor's obligations as to the development and
production of the Series without Secured Party's prior written approval.
(d) Further Documents: Debtor hereby agrees to sign and deliver to
-----------------
Secured Party all such financing statements and other instruments as Secured
Party shall request and are reasonably required to better perfect, protect,
evidence, renew and/or continue the security interest and copyright mortgage in
the Collateral granted hereunder and/or to effectuate the purposes and intents
of this Security Agreement. If Debtor fails to sign any such document within 7
days of Secured Party's written request thereof, Debtor hereby appoints Secured
Party its irrevocable Attorney-in-fact to sign any such document for Debtor, and
agrees that such appointment constitutes a power coupled with an interest and is
irrevocable.
4. DEBTOR'S WARRANTIES AND REPRESENTATIONS: Debtor confirms, warrants and
---------------------------------------
represents to Secured Party that:
(a) Debtor has full power and authority to enter into this Security
Agreement and sign and deliver the financing statements to Secured Party
and to perform its obligations hereunder and under the Letter Agreement;
(b) No other security interest will be granted by Debtor with respect to
the Collateral and no security interest which has been granted and which is
in conflict with or in any way would interfere with the rights granted by
Debtor to Secured Party will be allowed to remain in higher priority than
the security interest granted hereunder;
(c) Debtor has no knowledge of any legal proceedings now pending,
threatened or reasonably anticipated against Debtor which might impede
performance of Debtor's obligations as to the Series and shall promptly
notify Secured Party if Debtor hereafter learns of any such legal
proceedings; and
(d) No agreements, understandings or other arrangements have been made or
entered into by Debtor which are in or would in any way conflict or
interfere with the rights granted by Debtor to Secured Party in this
Security Agreement, the financing statements or in the Letter Agreement.
Without limiting the foregoing, Debtor hereby agrees as follows: (i) in
any agreement with a third party pursuant to which such third party could
obtain control of any of the Collateral, Debtor shall provide that (A)
ownership of such Collateral shall be vested in Debtor at all times; (B)
the third party shall not have the right to encumber or mortgage any
Collateral under its control; (C) upon the default of Debtor under such
agreement, the third party's remedy is limited to the right to obtain
damages and the third party shall have no right to revoke, terminate,
17
<PAGE>
diminish or enjoin any rights granted to Debtor with respect to the
Collateral; and (ii) Debtor shall use its best efforts to enforce its
rights under the applicable agreement to the fullest extent in order to
protect the Collateral and maintain Debtor's rights in the Collateral and
shall not subordinate its rights in the Collateral to any third party.
5. GOVERNING LAW: This Security Agreement shall be governed by the laws
-------------
of the State of California, United States of America, without giving effect to
the principles of conflict of laws thereof.
6. ANY LEGAL ACTION: All of the parties hereto (i) agree that any legal
----------------
suit, action or proceeding arising out of or relating to this Security Agreement
may be instituted in a state or federal court in the City of Los Angeles, State
of California, (ii) waive any objection which they may have now or hereafter to
the County of Los Angeles as the venue of any such suit, action or proceeding,
and (iii) irrevocably submit to the non-exclusive jurisdiction of the United
States District Court for the Central District of California, or any court of
the State of California located in the City of Los Angeles in any such suit,
action or proceeding and any summons, order to show cause, writ, judgment,
decree or other process with respect to any such suit, action or proceeding may
be delivered to Debtor personally outside the State of California, and when so
delivered, Debtor shall be subject to the jurisdiction of such court, and
amenable to the process so delivered as though the same had been served within
the State of California, but outside the County in which such suit, action or
proceeding is pending.
7. NOTICES: All notices from Debtor to Secured Party with respect to
-------
this Security Agreement shall be given in writing by mail (postage paid), or
telecopier (and if sent by telecopier, such notice shall bc concurrently sent by
mail) addressed as indicated below. The earlier of: (i) actual receipt; (ii) 7
business days the date of mailing; or (iii) the date of telecopying shall be
deemed to be the date of service.
Mail: Canal + Droits Audiovisuelles, SNC
85/89 Quai Andre Citroen
75015, Paris, France
Telocopier: 011 3314 828-1126
With a copy to: Armstong Hirsch Jackoway
Tyeman & Wertheimer
1888 Century Park East, 18th Floor
Los Angeles, California 90067
Attention: Robert S. Getman, Esq.
Secured Party may change such address by written notice to Debtor at the address
for Debtor set forth below in this Paragraph.
18
<PAGE>
All notices from Secured Party to Debtor with respect to this Security Agreement
shall be given in writing by mail (postage prepaid), or messenger, cable, telex
or telecopier (and if sent by telex, cable or telecopier, such notice shall be
concurrently sent by mail) addressed as indicated below. The earlier of (i)
actual receipt; (ii) 7 business days after the date of mailing; or (iii) the
date of cabling, telexing or telecopying shall be deemed to be the date of
service.
Mail & Messenger: Bohbot Entertainment Worldwide, Inc.
41 Madison Avenue
New York, New York 10010
Telecopier: (212) 889-3766
With a courtesy copy to: Robert L. Oppenheim, Esq.
1875 Century Park East
Suite 2000
Los Angeles, California 90067
Debtor may change such addresses by notice to Secured Party at the addresses for
Secured Party set forth above in this Paragraph.
By signing in the spaces below, the parties hereto have agreed to all of the
terms and conditions of this Security Agreement.
BOHBOT ENTERTAINMENT CANAL + DROITS AUDIOVISUELLES,
WORLDWIDE, INC. SNC
("Debtor") ("Secured Party")
By:Authorized Signatory By:Authorized Signatory
----------------------------- --------------------------------
Its:Authorized Signatory Its:Chairman
---------------------------- -------------------------------
19
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On April 15, 1994, before me, the undersigned, a Notary Public in and for
said State, personally appeared Ralph J. Sorrentino, known to me to be the CFO
of Bonhot Entertainment Worldwide, Inc., the corporation that executed the
within instrument, known to me to be the person who signed the within instrument
on behalf of the corporation herein named and acknowledged to me that such
corporated executed the same.
Witness my hand and official seal.
/s/ Carol Ann Martinez
-------------------------------------
Notary Public in and for said State
CAROL ANN MARTINEZ
Notary Public, State of New York
No. 4691566
Qualified in Nassau County
Commission Expires August 31, 1995
20
<PAGE>
EXHIBIT 10.40
MEMORANDUM OF AGREEMENT
-----------------------
THIS MEMORANDUM OF AGREEMENT is entered into this _____ day of June,
1996, by and between THRESHOLD ENTERTAINMENT, INC., 1649 Eleventh Street, Santa
Monica, California 90404 ("Threshold") and FILM ROMAN, INC., 12020 Chandler
Street, Suite 200, North Hollywood, California 91607 ("FRI").
This agreement is entered into with reference to the following:
A. Midway Manufacturing Company ("Midway") has heretofore developed and now
owns a property, including all characters and characterizations portrayed
therein, known as "Mortal Kombat" or, alternatively, "Mortal Kombat Defenders of
the Realm" (all herein the "Underlying Property"). The Underlying Property has
heretofore been used or licensed by Midway in connection with interactive video
games (utilizing computer graphics) and in connection with live action motion
pictures and home video productions.
B. Pursuant to an agreement (the "Midway Agreement") dated ___________ ,
Threshold has heretofore acquired from Midway all rights relative to production,
distribution and exploitation of animated (as defined below) productions based
upon the Underlying Property, together with rights related thereto. Threshold
has warranted (and warrants) that the rights acquired by it (herein the
"Animated Rights") consist of: (i) the exclusive right, in perpetuity (subject
to reversion as below provided), to produce one or more animated video taped or
filmed productions based upon the Underlying Property (including initial
productions and spin-offs therefrom, prequels and sequels thereto, and the like
(all herein "Animated Productions"), except that the right to produce Animated
Productions intended for initial theatrical release shall be subject to certain
reservations by Midway as set forth below; (ii) the right, in perpetuity, to
distribute, exhibit and otherwise exploit such Animated Productions, throughout
the universe, by any manner and by any means, whether now known or hereafter
devised including but not limited to by of any form of television, exhibition,
cable or pay cable exhibition, video cassette/disc exhibition, theatrical
exhibition, exhibition by means of so-called electronic and/or interactive
devices, and any other means of exhibition or exploitation, by any device
whether now known or hereafter devised; and (iii) all rights (collectively
"Related Rights") to exploit any rights derived from any such Animated
Productions, including but not limited to music rights, merchandising and
licensing rights, and any other subsidiary or ancillary rights whether now known
or hereafter devised, provided that merchandising and licensing rights shall be
subject to certain reservations by Midway as set forth below.
[ The term "animated" as used in reference to "Animated Rights" shall mean
any form of animation which is filmed or taped from drawings, cel or any similar
or
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dissimilar artistic means of creation (i.e. animation commonly known as "cel
animation") but does not include animation resulting solely from computer
generated images. ]
C. Threshold has heretofore entered into negotiations (not yet reduced to a
formal agreement) with the USA Network ("USA") pursuant to which Threshold is to
produce and deliver episodes of a television series, consisting of Animated
Productions to USA (the "USA Series").
D. Threshold desires to enter into an agreement with FRI whereby (i) Threshold
shall assign to FRI an interest in all of its Animated Rights and (ii) FRI will
produce Animated Productions for delivery to USA, as well as, possibly,
additional productions. FRI likewise desires to enter into such an agreement.
Accordingly, the parties have agreed and do hereby agree as follows:
1. Grant of Rights:
(a) For good and valuable consideration receipt of which is hereby
acknowledged Threshold hereby grants to FRI an undivided one-half (1/2) interest
in and to all of the Animated Rights (as defined above) in and to the Underlying
Property, including all such rights now owned or controlled by Threshold and any
other Animated Rights in and to the Underlying Property which it may hereafter
at any time acquire. The grant of an undivided interest in such rights, hereby
made, shall be exclusive, perpetual, and not subject to any reversion or
restriction except for certain rights reserved to Midway as described below.
By virtue of the grant of rights hereunder Threshold agrees that,
although Threshold and FRI shall have mutual rights with respect to exploitation
of Animated Productions and Related Rights, the exclusive right to produce such
Animated Productions shall be deemed held by FRI and Threshold shall not produce
or authorize others to produce any such Animated Productions, except with FRI's
absolute approval.
(b) Notwithstanding the grant pertaining to all Animated Rights
hereunder FRI acknowledges that FRI may not produce an animated feature length
film intended for initial theatrical release without the prior approval of
Midway.
(c) Because of provisions of the Midway Agreement, Midway is entitled
to act as the merchandising and licensing representative for Animated
Productions produced hereunder. Both parties hereto agree that such rights shall
be and hereby are subject to the terms of the Midway Agreement (i) to the extent
that the text thereof
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is attached hereto, marked Exhibit A and by this reference made a part hereof
and (ii) Threshold shall not amend or modify said provisions except with the
prior absolute approval of FRI.
(d) In exercising rights hereunder the parties shall have mutual
creative and business control with respect to the production of any Animated
Productions and the distribution or exploitation of the same and/or of Related
Rights therein; provided however that such mutual controls shall be subject to
the specific provisions of paragraph 4 below relating to the USA Series.
[(e) Reversion Provisions ]
2. Division of Revenues: Subject to the parties' specific agreement with
respect to the USA Series as may be set forth below, the following conditions
shall otherwise apply:
(a) Animated Productions:
Whenever FRI proposes to produce Animated Productions, FRI shall
develop and submit an estimated budget therefor, setting forth its estimate of
direct costs, overhead charges and the FRI production fees. Any such budget
shall be subject to the reasonable approval of Threshold. Once such a budget is
approved (either with respect to a single production or a series of productions)
FRI shall be entitled to proceed with production of the same provided that (i)
FRI shall have secured sufficient funding (from distributors or other buyers) to
cover all such production costs and/or (ii) FRI shall have guaranteed to assume
and pay any costs not covered by a proposed agreement with a distributor of
other buyer.
All agreements relative to distribution or other exploitation of
any Animated Production or Animated Productions shall be subject to Threshold's
prior reasonable approval.
All monies net of all production costs, (including FRI's overhead
and production fees and overages), distribution costs and distribution fees
shall be divided equally between Threshold and FRI; neither party shall charge a
distribution fee for its own distribution activities without approval of the
other party.
(b) Music Publishing Rights: FRI shall be entitled to administer
music publishing rights derived from any Animated Productions; the amount
remaining after deduction of all third party royalties, fees and costs and, if
FRI administers such rights itself, a fifteen (15%) percent administration fee
shall be divided equally between FRI and Threshold.
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(c) Merchandising and Licensing: Under the present agreement with Midway,
Threshold is entitled to receive 17 1/2% of 100% of revenues received by Midway
from merchandising and licensing after deduction only of those deductions
referred to in Exhibit A (if any). Such net revenues shall be divided equally
between FRI and Threshold, as and when received, and the same shall not be
cross-collateralized with other revenues referred to in this paragraph 2.
(d) Other Related Rights: Administration of other Related Rights shall be
handled by FRI, subject, in each instance, to Threshold's prior reasonable
approval. Revenues derived therefrom (net of costs) shall be divided equally
between the parties.
(e) Third Party Participations: Any third party participations in any
Animated Productions or Related Rights shall be subject to the parties' mutual
approval. In this regard the parties acknowledge that Threshold currently has
obligations to third party participants as follows: [ fill in, if any ].
(f) Accounts: All revenues received by either party on account of
"Animated Rights" shall be deposited in a segregated account or segregated
accounts to be set up by Threshold in its name (however each account shall bear
an appropriate designation as to its purpose). Notwithstanding that the
accounts shall stand in the name of Threshold, it is agreed that all withdrawals
therefrom may be made upon the signature of an officer of each party or at its
discretion to meet production costs by an officer of FRI acting alone (and the
bank or banks shall be so advised).
(g) Accountings: Each party shall maintain full and complete books and
records relative to its receipt of any revenues attributable to Animated Rights
and full and complete books and records relative to any sums which are
withdrawn. Each party shall have the right to inspect and, at its own expense,
audit the books and records of the other to verify the accuracy of any deposits
or withdrawals.
(h) Security Interest: Because Threshold shall maintain such accounts in
its own name and, in order to secure FRI's interest in the Animated Rights and
in any expenditures which it may make, Threshold shall and does hereby grant to
FRI a security interest in and to its interest in the Animated Rights and any
Animated Productions and/or Related Rights derived therefrom, together with a
security interest in and to any accounts established with respect to the same.
In the event of a breach by Threshold of any provision of this agreement FRI
shall have all of the rights and remedies of a secured party under and pursuant
to the terms of the Uniform Commercial Code of California. Threshold shall
execute UCC-1 Financing Statements and mortgages of copyright, as reasonably
requested by FRI, to evidence the grant of the security interests hereunder. If
after written demand, Threshold should fail or refuse to execute any such
further documents, any officer of FRI shall be entitled to execute such
documents in the name of Threshold, as attorney in fact for Threshold, it being
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understood that the appointment hereby made is coupled with an interest and is
irrevocable.
3. Credits: Whenever an Animated Production is produced, the parties
(and their designees) shall receive credit in connection therewith and in paid
advertising relative thereto, as may be mutually determined.
4. The USA Series: The parties shall mutually cooperate in concluding
the formal agreement with USA on terms mutually acceptable to both parties.
Assuming such an agreement is consummated, the following provisions shall apply:
(a) Budget: FRI shall develop, prepare and submit a budget for the
first thirteen (13) programs of the Series as ordered by USA. Said budget shall
include FRI's estimate of direct costs and additionally shall include (i) a
$10,000.00 per-program payment, payable to Midway and (ii) a $15,000.00 per-
program fee to FRI to cover FRI's overhead costs in connection with production
of the first thirteen (13) programs of the Series. FRI shall not receive any
additional production fee in connection with the USA Series, but shall be
entitled to charge, as a cost, budgeted amounts for its personnel rendering
services as executive producers, producers and the like. A preliminary copy of
the budget for the USA Series is attached hereto marked Exhibit B and by this
reference made a part hereof. Both parties acknowledge their approval of said
budget. FRI agrees that it shall use reasonable efforts to adhere to the budget,
with the understanding that any overages shall be initially borne by FRI,
subject to reimbursement out of net revenues as provided in paragraph 2.(a)
above.
(b) Production: FRI shall be responsible for production of the Series
in accordance with the requirements of the agreement with USA. In producing the
USA Series the following specific areas have been agreed upon:
(i) FRI will furnish a weekly cost report to Threshold.
(ii) FRI will negotiate with and, if such negotiations are
concluded on terms acceptable to FRI, engage Jonathan Sloate to compose the
music for the USA Series;
(iii) revenues respecting the USA Series shall be handled
through the account referred to in paragraph 2.(f) above.
(c) Distribution:
(i) Domestic: Initial distribution shall be over the facilities
of USA, or a mutually approved substitute exhibitor; "off network"
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<PAGE>
distribution shall be subject to the mutual control of both parties;
(ii) Foreign: FRI shall have the right to distribute the Series
outside of the United States provided that (A) FRI will provide Threshold
with meaningful consultation in connection therewith, (B) FRI will furnish
Threshold with a monthly tab of distribution expenses, (C) FRI will furnish
Threshold with a monthly sales report and (D) FRI will provide Threshold
with tentative sales minimums for its approval. In this regard it is
agreed that the minimum set forth for certain territories on Exhibit C
which is attached hereto shall be deemed pre-approved). Neither FRI nor
Threshold shall be entitled to receive any distribution fees for
distribution services; each party shall be entitled to recover distribution
costs (if approved by the other) which, shall include FRI's payments to
Neil Court and Regis Brown (which costs are currently estimated to be
roughly $130,000.00 to $200,000.00 for the first thirteen (13) episodes).
(d) Music Publishing Administration: FRI shall administer music
publishing rights either itself or through a designee such as Somba Music, (or
other music publishing company). FRI shall charge no administration fee itself
if such rights are administered by a third party.
(e) Credits: Credits shall be as set forth in Exhibit D which is
attached hereto and by this reference made a part hereof.
(f) Other Provisions: Division of revenues, accountings, security
interest, and any other provisions not specifically covered in this paragraph 4
shall be governed by the general provisions outlined in paragraph 1 and 2 above.
5. Warranties and Indemnities: Each party warrants that it has the
right to enter into and fully perform this agreement. Additionally Threshold
warrants that it has full rights to grant to FRI an interest in Animated Rights
as specified in this agreement and that such rights are in no way restricted or
encumbered except as expressly set forth herein. Each party agrees to defend,
indemnify and hold the other free and harmless from and against any claim,
damage, loss or liability arising from any breach of the warranties and other
agreements of such party herein contained.
6. Memorandum of Agreement: The foregoing constitutes a memorandum of
agreement between the parties with respect to the subject matter set forth
herein. Any party shall have the right at any time hereafter to prepare and
submit a more formal agreement encompassing the provisions set forth herein,
together with such other provisions as are customary for this type of an
agreement. The parties shall promptly review, negotiate and execute any such
more formal agreement. Unless and until such more formal agreement is executed,
this memorandum of agreement shall be, and remain, a binding and enforceable
agreement between the parties. This
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<PAGE>
memorandum of agreement and any more formal agreement entered into pursuant
hereto shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts executed and fully to be performed
therein.
IN WITNESS WHEREOF, the parties have executed this Memorandum of Agreement
as of the day and year first above written.
FILM ROMAN, INC.
By ___________________________________
THRESHOLD ENTERTAINMENT, INC.
By ___________________________________
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EXHIBIT 10.41
Greengrass Productions Inc.
Post Office Box 67630 Los Angeles CA 90067
As of March 30, 1995
as revised May 10, 1995
VIA MESSENGER
Mr. Jon Vein
Sr. Vice President
Film Roman
12020 Chandler Blvd.
Suite 200
North Hollywood, California 91607
RE: "POPO AND THE MAGIC PEARL" ("PROPERTY")
A NINETY (90) MINUTE WEEKEND SPECIAL ("SPECIAL")
PRODUCTION SERVICE AGREEMENT ("AGREEMENT")
1995/96 BROADCAST SEASON
FILM ROMAN ("CONTRACTOR")
Dear Jon:
The following sets forth the terms and conditions of the agreement ("Agreement")
entered into between you, on behalf of Contractor and me on behalf of Greengrass
Productions, Inc. ("GP") for the production of the above-referenced project for
initial broadcast as a ninety (90) minute Weekend Special for GP's 1995/96
Broadcast Season and which will also be edited as three (3) one-half (1/2) hour
specials for subsequent broadcast and exploitation (collectively referred to
herein as "Special").
1. PRODUCTION SERVICES:
(a) GP hereby orders the Special into production and engages Contractor to
provide production services and materials for a the Special based on the
Property, which will be owned by GP. Contractor will assemble the
animation, together with all other elements of the Special owned by GP
(including the underlying rights, script, story editing services, character
designs, etc.) in accordance with all of the terms and conditions of this
Agreement and deliver the production elements and creative materials to GP
on a date designated by GP to enable GP to broadcast the Special on or
about April of 1996.
(b) GP shall own all rights (including, without limitation, the copyright)
in and to the Special and all elements thereof (including without
limitation the animation cels)and shall have full business, production and
creative control over the
<PAGE>
development and production of the Special and shall have full financial
responsibility for the Approved Budget, as defined in Paragraph 2 below.
Contractor's production services and materials shall be furnished pursuant
to the Approved Budget,as well as, the production schedule and delivery
schedule to be mutually agreed upon by the parties; however, the delivery
date shall be no later than March 1, 1996.
(c) Other than those items approved in the budget per paragraph 2 below,
Contractor has no authority to and will not employ any person to serve in
any capacity, nor contract for the purchase or renting of any article or
material, nor make any agreement, committing GP to pay any sum of money for
any reason whatsoever in connection with the services to be rendered by
Contractor hereunder, or otherwise, without GP's prior written consent.
2. PRODUCTION:
(a) Approved Budget (attached hereto as Exhibit B):
In consideration of Contractor's furnishing production elements and
creative materials pursuant to this Agreement and as full payment for
Contractor's production services in connection with the Special, GP shall
reimburse Contractor for an approved budget up to One Million Two Hundred
Thousand Dollars ($1,200,000.00) ("Approved Budget"), subject to audit, for
three (3) broadcasts of the Special.
Contractor acknowledges that the Approved Budget includes the following
costs:
(i) an approved executive Producer/Production Service Fee of One
Hundred Thousand Dollars ($100,000.00) ("Production Service Fee") for
Contractor's services:
(ii) all of GP's development costs including option/purchase price
fees in the aggregate amount of Eleven Thousand Dollars ($11,000.00)
and writing fees in the amount of Ten Thousand Six Hundred Ten Dollars
($10,610.00);
(iii) Executive Producer Fees to Omega Hsu & Joseph Kleinman in the
aggregate amount of Thirty Five Thousand Dollars ($35,000.00);
(iv) the cost of any and all residuals required for a second and third
broadcast of the Special, which is currently estimated at
approximately Sixteen Thousand Six Hundred and Seventy Dollars
($16,670.00); and
(v) the cost of all insurance required under paragraph 11 of this
Agreement, including without limitation an estimated premium of Four
Thousand Sixty-Five Dollars
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($4065.00) and an allocation of Two Thousand Dollars ($2000.00) as the
cost of GP's blanket errors and omissions policy.
(b) Approved Additional Costs:
The parties acknowledge and agree that the Approved Budget shall be deemed
by the parties adequate to complete the Special in accordance with the
production schedule and "Delivery Requirements" which are attached hereto
as Exhibit "A" and made a part of this Agreement. Contractor agrees to use
Contractor's best professional efforts to complete its production services
and deliver the production elements and creative materials for the Special
within the Approved Budget.
Notwithstanding the foregoing, in the event GP requires changes in or
additional production elements in connection with the Special and such
additional or changed elements result in additional costs in excess of the
Approved Budget, as well as for production overages resulting from
occurrences of Force Majeure (as defined in Paragraph 16 below)
(collectively referred to as "Approved Additional Costs"), provided GP
Business Affairs approves such costs in writing, GP shall be fully
responsible for such Approved Additional Costs and shall pay or reimburse
Contractor for such Approved Additional Costs, subject to audit and
recoupment by GP.
(c) Underages/Overages:
(i) Underages: In the event the cost of production comes under the
Approved Budget (plus Approved Additional Costs, if any) (the
"Underage") GP and Contractor shall split equally any Underages up to
an aggregate amount of Fifty Thousand Dollars ($50,000.00) (i.e., for
every Two Dollars ($2.00) of savings, one dollar is saved by GP and
the other dollar is paid to Contractor, so that Contractor can make a
total of up to Twenty-Five Thousand Dollars [$25,000.00] over and
above its Production Service Fee). Thereafter, GP shall be entitled to
retain any additional savings.
(ii) Overages: In the event the cost of production for the Special
exceeds the Approved Budget (plus Approved Additional Costs, if any)
(the "Overage") then with respect to such amounts Contractor shall be
responsible for such Overage up to Fifty Thousand Dollars ($50,000.00)
and Contractor's contribution shall be deducted from Contractor's
Production Service Fee. Any Overage in excess of Fifty Thousand
Dollars ($50,000.00) shall be paid by GP provided those costs have
been preapproved by GP.
(d) Payment Schedule: The Approved Budget shall be payable as follows:
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(i) Contractor shall be entitled to a pre-production advance of One
Hundred Twenty Thousand Dollars ($120,000.00) upon receipt of an
executed copy of this Agreement and receipt of a certificate of
insurance that complies with the terms of paragraph 11 below;
(ii) the balance of the Approved Budget shall be paid in accordance
with a cash flow procedure approved by the Chief Financial Officer of
GP. In exercising its discretion, GP will use commercially reasonable
efforts to approve a cash flow that will not cause Contractor to go
out of pocket, except during the final audit of the production.
(e) Production Documents: Contractor will provide GP, upon completion of
Contractor's production services and delivery of the Special with accurate
music cue sheets and schedules pertaining to residuals, pre-approved
royalties, and any other pre-approved fees and/or obligations that are
required to be paid pursuant to any production agreements, union and/or
guild agreements or money owed to any third parties as a result of
rebroadcasting or exploiting the Special.
3. CREDITS:
(a) Contractor shall be fully responsible for providing all screen credits
on the Special that are required pursuant to Network requirements and in
accordance with the terms of the applicable guild or union agreements and
production agreements; provided, however, that GP and ABC shall have the
right to approve, all screen credits before they are finalized. Contractor
shall place GP's name and logo in the last position in the end titles of
the Special, immediately following Contractor's name and logo. The precise
duration, and size of GP's name and logo shall be equal to that accorded to
Contractor.
(b) Contractor shall receive credit on the Special in substantially the
following form:
"Produced by Film Roman
in association with
Greengrass Production, Inc."
(c) Contractor shall place the following copyright notice on the Special:
This motion picture is protected under the laws of the United States
and other countries, and its unauthorized duplication, distribution or
exhibition may result in civil liability and criminal prosection.
This motion picture was first published in the United States of
America. Greengrass Productions, Inc. is the
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author of this motion picture for purposes of Article 15 (2) of the
Berne Convention and all national laws giving effect thereto."
Copyright (C)1996 Greengrass Productions, Inc.
All Rights Reserved
(d) Omega Hsu and Joseph Kleinman shall receive shared credit as Co-
Executive Producers on a single card, and Phil Roman shall receive credit
as the Executive Producer on a single card.
(e) The following writer credits shall be placed on the Special:
Story by Omega Hsu & Joseph Kleinman
Teleplay by Joseph Kleinman & Julianne Klemm
Position, size, prominence, style, form and all other matters relating
to credits shall be determined by GP in its sole discretion.
4. TERM: The Term of this Agreement shall mean the period commencing on the
date first written above and terminate upon completion by Contractor of all its
obligations under this Agreement. In addition, any obligations which remain
executory after the Term shall remain in force until expiration or discharge.
5. DELIVERY: Delivery of all required production materials shall be at on or
before March 1, 1996. Timely delivery of the production materials, in accordance
with the Delivery Requirements and on such date is of the essence to this
Agreement.
6. CREATIVE APPROVALS AND PRODUCTION CONTROL: GP shall have the sole and final
approval over all creative, financial and business aspects of development and
production of the Special, including, without limitation, approval of the
following:
(a) the writer(s), script, the revisions thereto, storyboards, characters,
character designs, uses of characterizations and property on which the
script is based;
(b) all talent and key production personnel including the director,
executive producer (Omega Hsu & Joseph Kleinman are hereby approved as Co-
executive producers), animation director, art director, line-producer,
animator, voices, narrators, technical personnel, composer, production
accountant and compensation for each of the foregoing;
(c) the budget, production schedule and all expenditures;
(d) all on screen and paid advertising credits accorded any person or
entity and the titles (main and end);
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(e) the animation studio(s) where the Special is to be produced, the
facilities where post production is to be done, and the laboratory where
the negatives, prints, tapes and other elements of the programs are to be
held;
(f) music and lyrics and all delivered product;
(g) Contractor shall comply with GP's Broadcast Standards and Practices
policies, and GP's Credit Policies and Delivery Requirements which are
attached to this Agreement.
In exercising its approval rights GP will use best efforts to make its
decisions within 72 business hours from receipt of materials from Contractor,
weekends and holidays are excluded from such turnaround period. If GP needs
additional time, Contractor shall accommodate their request, provided it does
not hinder the. flow of production, or delivery or increase costs. The
turnaround period specified herein is to provide a good faith cooperative
framework of dealing between the parties, so that Contractor can meet its
production deadlines; however, GP shall not be deemed in breach of this
Agreement for failure to respond in said time period.
7. RESULTS AND PROCEEDS: Contractor and GP acknowledge and agree that all of
the results and proceeds of Contractor's services hereunder are and will be
created by Contractor as a "work-made-for-hire" specially ordered or
commissioned by GP and GP is deemed the sole author of all such results and
proceeds. If it is determined that such results and proceeds are not a "work-
made-for-hire", then Contractor hereby irrevocably and exclusively assigns all
rights therein and thereto (including, without limitation, all copyrights and
renewals and extensions thereof) to GP. Contractor acknowledges and agrees that
GP is and shall be the sole and exclusive owner of all rights of every kind and
nature in, to and with respect to Contractor's services hereunder and the
results and proceeds thereof and that GP shall have the right to use, refrain
from using, change, modify, add to, subtract from and to exploit, advertise,
exhibit, and otherwise turn to account any or all of the foregoing in any manner
and in any and all media, whether now known or hereafter devised, throughout the
world, in perpetuity, in all languages, as GP in its sole discretion shall
determine.
The termination of this Agreement for any reason shall not affect GP's
ownership of the results and proceeds of Contractor's services hereunder or
alter any warranty, representation, covenant, or undertaking on the part of
Contractor hereunder.
8. FUTURE EXPLOITATION OF SPECIAL: Contractor shall not be entitled to any
additional payment in connection with any exhibition, use and/or exploitation of
the Special by GP. GP or its designee, shall sign a Buyer's Assumption Agreement
with respect to all residuals, other than those specified in paragraph 2 (a)
(iv) above.
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9. REPRESENTATIONS AND WARRANTIES: In addition to representations and
warranties contained elsewhere in this Agreement,
1. Contractor Representations and Warranties: Contractor represents and
warrants for the benefit of GP that, with respect to the creative and other
production elements supplied by it hereunder:
(a) Contractor has the full right, power and authority to make and
enter into this Agreement and to perform all of the obligations to be
performed by Contractor hereunder
(b) Contractor has secured and/or will secure prior to its furnishing
production services and materials for the programs all rights and
licenses necessary for Contractor's delivery of the necessary creative
materials and other production elements for the Special and all uses
permitted hereunder of the Special. These rights shall include,
without limitation, all literary, artistic and/or intellectual
property rights, music performing and synchronization rights
sufficient to enable GP to exploit or cause the exploitation of the
Special in accordance with the terms of this Agreement, and privacy
rights and releases therefor. GP acknowledges that it has secured
the underlying rights to the Property written by Omega Hsu & Joseph
Kleinman, story written by Omega Hsu & Joseph Kleinman and teleplay
written by Joseph Kleinman & Julianne Klemm (collectively referred to
as the "Underlying Rights") and that this representation and
warranty does not extend to the acquisition of the Underlying Rights,
however, the representation and warranty does extend to securing any
rights Contractor is made aware of as a result of a script clearance
report, as Contractor acknowledges that it is Contractor's
obligation; to clear the script before production of the Special. All
the above rights shall be fully assignable and shall be deemed
assigned to GP;
(c) There are no agreements, nor shall Contractor enter into any
agreements, which would prevent the fulfillment of this Agreement by
Contractor.
(d) Any creative materials and production elements provided by
Contractor to GP shall be of quality consistent with productions
intended for network television broadcast;
(e) With respect to production elements and creative materials
furnished by Contractor for inclusion in the Special, Contractor
agrees that to the best of Contractor's knowledge after exercising
reasonable diligence (which includes obtaining a script clearance
report), neither said elements or materials supplied by Contractor
hereunder, in accordance with the terms
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hereof, nor the use hereunder of the Special containing such
production elements or materials, or any visual or aural element
thereof, will violate or infringe on the copyright, trademark, trade
name, performing, patent or literary right, the right of privacy,
right of publicity or any other similar or dissimilar right or
privilege, or constitute a libel or slander or other defamation
against, any person, firm, corporation, government or other entity;
(f) That there is not now outstanding any litigation or threatened
litigation or claims or threats of any claims which impair: (i) the
rights, licenses or privileges of Contractor being transferred to GP
hereunder or, (ii) Contractor's ability to perform the production
services.
2. GP'S Representations and Warranties: GP hereby represents, warrants
and agrees as follows:
(a) That GP has the full right, power and authority to make and enter
into this Agreement and to perform all of the obligations to be
performed by GP hereunder; that GP has not and will not breach any
covenant or condition to be kept or performed under or pursuant to any
agreements between GP and any third party in so far as such
agreement(s) relate to GP' s obligations to Contractor pursuant to
this Agreement.
(b) That there is not now outstanding any litigation or threatened
litigation or claims or threats of any claims which impair the ability
of GP to engage Contractor to perform production services hereunder.
(c) That GP shall indemnify and hold Contractor, and its officers,
directors, shareholders, employees, agents, licensees, successors and
assigns, and each of them, harmless from and against any and all
liabilities and expenses including reasonable attorneys' fees arising
out of or relating to (i) any breach by GP of any of the
representations, warranties or agreements made by GP in this
Agreement, or (ii) any material GP furnished to Contractor, except if
such claim arises out of the obligation of Contractor to clear such
material pursuant to paragraph 9 1. (b) above.
10. AUDIT RIGHTS: GP shall have the right to audit Contractor's books and
records relating to the production services and materials provided hereunder.
11. INSURANCE: Contractor shall furnish the following:
(a) Prior to furnishing such materials and elements to GP, Contractor
shall, at its own expense, obtain and maintain for such length of time as
is necessary to cover any and all
8
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claims arising out of or in connection with the use of said materials and
elements in the production and/or telecast of the Special, the following
insurance policies each of which shall name GP as a named insured, (except
worker's compensation) and which shall be acceptable to GP:
(i) Worker's Compensation Insurance adequate to comply with statutory
requirements covering all persons employed by Contractor in connection
with the Special, including, if applicable, foreign workers'
compensation insurance (which policy or policies shall include an
employer liability endorsement and a repatriation expense rider);
(ii) Employer's Liability Insurance, having a single limit of at least
One Hundred Thousand Dollars ($100,000.00) per occurrence:
(iii) Comprehensive General Liability Insurance (including contractual
liability and personal injury liability coverage), having a combined
single limit (bodily injury and property damage) of at least One
Million Dollars ($1,000,00.00) per occurrence and Three Million
Dollars ($3,000,000.00) in the aggregate:
(iv) Automobile Liability Insurance (owned and non-owned vehicles),
having a combined single limit (bodily injury and-property damage) of
at least One Million Dollars ($1,000,000.00) per occurrence:
(v) Umbrella Liability Insurance, having a combined single limit
(bodily injury and property damage) of at least Five Million Dollars
($5,000,000.00), per occurrence and in the aggregate, on a following
form basis, excess of the policies described in Paragraphs (ii), (iii)
and (iv) above:
(vi) Television Producer's Liability Insurance (Errors & Omissions
Insurance) for a period of three (3) years, having limits of at least
One Million Dollars ($1,000,000.00) for each claim, with an annual
aggregate limit of at least Three Million Dollars ($3,000,000.00).
Such insurance shall have standard coverage, including but not limited
to, coverage with respect to libel/slander or other forms of
defamation, infringements of common law or statutory copyright,
infringements of rights in material to be broadcast or in the manner
of presentation thereof, infringement of privacy rights, breach of
implied contract and unauthorized use of material in the Special. Any
restrictions of coverage on the title, music or other rights shall be
stated on the certificate of insurance and cleared prior to delivery
of the production materials to GP. Additionally, any deductibles shall
be stated on the certificate of insurance: and
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(vii) Entertainment Package Insurance, to include at the least:
Production Personnel Coverage, Animator Coverage, Third Party Property
Damage Coverage, Faulty Stock Coverage and Negative Film Coverage. The
terms, conditions and limits of these coverages shall be comparable to
that which is customary for a project of this nature. These coverages
shall protect Contractor and GP to the extent of GP's insurable
interest. The Negative Film Coverage for the Special shall continue
until an edited master or earliest generation tape of each program
shall have been stored in a fireproof vault, separate from the
fireproof vault in which the original footage of such program shall be
stored.
(b) Each of the policies required herein shall include a provision
requiring the insurance company to give GP prompt notice, in writing by
registered mail of at least thirty (30) days, of any reduction in coverage,
material modification or cancellation thereof. No reduction of coverage,
material modification or cancellation of such policies, which may affect
GP's rights hereunder, shall be made by Contractor without first obtaining
the prior written approval of GP. Promptly after securing such policies,
Contractor shall furnish GP with certificates of insurance and copies of
the insurance policies. Capital Cities/GP, Inc. shall be named as
additional insured in all polices of insurance (except Workers'
Compensation) obtained by Contractor in compliance with this paragraph, and
all of Contractor's policies shall be primary.
(c) Any terms and conditions appearing in the certificate of insurance that
are contrary to this Agreement shall be unacceptable and null and void
(regardless of receipt by GP) unless GP has agreed to each specific term
and condition in writing.
(d) If any such insurance should be altered or terminated without GP's
prior written consent, and GP fails to secure immediately thereon,
substitute insurance, then GP may secure such insurance and either bill
Contractor for the premium for such insurance or deduct such premium from
any amounts due or to become due under this or any other agreement.
12. INDEMNITIES: With respect to the creative materials and other production
elements furnished by Contractor hereunder:
(a) Contractor shall at all times indemnify and hold harmless Capital
Cities/GP, Inc., its divisions and subsidiaries, each sponsor of the
Special hereunder, each sponsor's advertising agency, each station
affiliated with GP and any present or former officers, directors,
shareholders, employees, licensees and agents of the foregoing, and their
heirs, executors, administrators, successors and assigns, against and from
any and all claims, actions, demands, damages, liabilities, costs
10
<PAGE>
and penalties, including attorney's fees, arising out of:
(i) The production, delivery, broadcast or exhibition of the Special,
the advertising, promotion of the Special, the use by GP of the
Special, the existence of the Special, any and all elements (including
but not limited to "clips" and music) contained in the Special or any
other material or thing furnished by, for or with the authorization of
Contractor and/or used in connection with the Special;
(ii) Any and all or actual violations, conflicts with or infringements
upon any alleged right whatsoever of any person, entity or
corporation;
(iii) Any and all alleged uses by GP of the name, picture or likeness
of any of the above-the-line talent in connection with GP's
advertising and publicity of the Special or in connection with GP
mentioning the product or services of any sponsor provided that no
such use shall constitute an endorsement of any product or services;
(iv) Any act or omission by Contractor or any person whose services
shall be furnished by Contractor in connection with this Agreement;
(v) Any contract or arrangement between Contractor and a third party;
and
(vi) Any breach by Contractor of any representation or warranty made
or obligation promised in connection with the Special.
GP's review and approval of any element or material used in connection with the
Special or the Special itself shall not constitute a waiver of Contractor's
indemnity obligation hereunder;
(b) Contractor will reimburse GP upon demand for any payments made by GP at any
time after the date hereof with respect to any liability, damage or expense to
which the foregoing indemnities relate. GP will promptly notify Contractor of
any such claim, action or demand and Contractor will hire counsel acceptable to
GP to represent GP. By giving written notice to GP, Contractor may assume the
defense of any such claim, action or demand, provided; however, GP shall retain
the right to choose counsel to solely represent GP's interest, and in the event
GP exercises its right to separate counsel, Contractor shall not be relieved of
its obligation hereunder to pay for any liabilities, damages or expenses
(including attorney's fees) incurred by GP. Contractor shall not settle any such
claim, action or demand without the prior written approval of GP.
13. SURVIVAL OF WARRANTIES AND INDEMNITIES: All representations,
11
<PAGE>
warranties and indemnities hereunder shall survive the expiration or earlier
termination of this agreement, unless expressly modified by subsequent
agreements.
14. MUSIC:
(a) Contractor represents and warrants that no Composer will be engaged
until Composer has signed the GP Composer Agreement and GP has confirmed to
Contractor that it is satisfied with the Agreement and is prepared to
countersign it.
(b) In the event Contractor uses music owned by a third party (i.e.
"needledrops"), Contractor shall secure worldwide, perpetual music
synchronization rights, where necessary, for all media, including, without
limitation, theatrical, non-theatrical, television, video cassettes/video
discs and pay and cable television for each musical composition performed
in the Special to be produced hereunder.
(c) Contractor represents and warrants that the performing rights to all
musical compositions contained in the Special are either (i) controlled by
BMI, ASCAP, SESAC, or (ii) in the public domain or (iii) controlled by
Contractor, in which case Contractor hereby assigns to GP such rights so
that GP has the right to incorporate the compositions in the Special for
the uses contemplated hereunder and to perform and authorize the
performance of such compositions throughout the world, in perpetuity,
without any additional compensation.
(d) Contractor will furnish GP with music cue sheet upon delivery of the
Special, and any other necessary information concerning title, composer and
publisher of all music contained in the Special, upon further request.
15. NO OBLIGATION TO PROCEED: Nothing herein contained shall in any way
obligate GP to produce, exhibit, release, perform, advertise, or distribute any
Special, or otherwise to exercise, exploit or make any use of the production
services or materials supplied by Contractor, and its obligation to Contractor
shall be fulfilled by making the payments to the extent applicable, as provided
herein. In the event GP asks Contractor to cease production at any time prior to
delivery of the Special, and provided Contractor is not in breach of this
Agreement, GP shall reimburse Contractor for all expenses incurred by Contractor
to the date of cancellation, and any contractual obligations which Contractor
cannot mitigate despite best efforts to do so, provided said expenses are
relative to the production, within the Approved Budget and following audit by
GP.
16. FORCE MAJEURE: The failure of Contractor to timely supply its production
services and materials because of fire, flood, epidemic, earthquake, explosion,
accident, or other act of God; act of public enemy; act of government, including
governmental order, regulation or order of any court of competent jurisdiction;
illness or
12
<PAGE>
incapacity of a member of the cast or the director; labor dispute or strike;
riot; civil disturbance; war (whether declared or undeclared) or armed conflict;
failure of common carriers; or other cause of a similar nature beyond the
control of Contractor shall not constitute grounds for any action by GP to
recover damages. Any time period or date certain specified in this agreement
shall be postponed for a period of time equal to the duration of the event of
force majeure. In the event of a force majeure event, Contractor shall promptly
notify GP whether or not it shall be able to make a late performance of its
obligations hereunder, and if so, when that shall occur; provided, however, that
if the force majeure event causes a delay of thirty (30) days or more, this
agreement may be terminated at the option of either party; provided, however, GP
will be entitled to receive a refund from Contractor of all monies theretofore
advanced by GP, minus any reimbursement received through any insurance coverage
provided for in this agreement, and actually paid.
17. CONFIDENTIALITY: Other than as may be required by any applicable law,
governmental order or regulation or by order or decree of any court of competent
jurisdiction; neither party shall publicly divulge or announce, or in any manner
disclose to any third party, any of the specific terms and conditions of this
agreement, including without limitation the reimbursements payable hereunder.
For the sole purpose of this paragraph, third party shall be deemed not to
include accountants, auditors, legal counsel, lending institutions, and parent
or related companies.
18. ASSIGNMENT: GP may assign or license its rights hereunder in whole or in
part to any third party.
19. SERVICE OF NOTICE:
(a) All notices which GP is required, or may desire, to give Contractor
shall be given in writing and delivered by hand, registered mail, telegram,
telex, facsimile or air courier to Contractor at the address set forth
above in this agreement. All notices which Contractor is required, or may
desire, to give GP shall be given in writing and delivered by hand,
registered mail, telegram, telex, facsimile or air courier to GP Business
Affairs, 2040 Avenue of the Stars, 5th Floor, Century City, CA 90067.
(b) If the last date on which a notice that this Agreement requires or
permits to be given shall fall on a Saturday, Sunday or day on which the
department of the sending party responsible for sending such notice is not
open for business ("closed day"), then such last date shall be deemed
postponed until the first day that is not a Saturday, Sunday or closed day.
20. CALIFORNIA LAW: This Agreement shall be governed by the law of the State of
California applicable to agreements executed and performed entirely therein.
13
<PAGE>
21. WAIVER: A waiver of any provision hereof in any instance shall not be
construed as a waiver thereof for the future. All rights and remedies of GP with
respect to the Special shall be cumulative and the exercise by GP of any rights
and/or remedies hereunder shall not interfere with or prevent the exercise of
any other right or remedy which may be available to GP.
22. RELATIONSHIP OF PARTIES: Contractor and GP are independent contractors with
respect to each and nothing herein shall create any association, partnership,
joint venture or agency relationship between Contractor and GP. All persons
employed by Contractor in connection with Contractor's performance hereunder
shall be Contractor's employees or agents, and, as between Contractor and GP,
Contractor shall be solely responsible for all matters relating to such persons,
including, without limitation, all compensation, withholding taxes, workers'
compensation insurance and any other payments, deductions and contributions
which may be required by any law, personal service contract, or collective
bargaining agreement applicable to Contractor and/or such persons. Contractor
shall indemnify, defend and hold harmless GP and GP's affiliates, licensees and
assigns from and against the obligation to make any such payments, deductions or
contributions.
23. PROVISION VALIDITY
(a) In the event that any provision of this agreement is deemed by a court
of competent jurisdiction to be invalid or unenforceable, then that
provision shall be deemed to have been deleted herefrom and shall in no way
affect the validity or enforceability of any other provision of this
agreement.
(b) If any provision hereof conflicts with any law, the latter shall
prevail, but such provision shall be restricted only to the extent
necessary to meet the applicable minimum requirements of such law and shall
not affect any other provision hereof nor the validity or enforceability of
this Agreement.
24. DEFAULT/TERMINATION: If Contractor breaches any of the terms or provisions
of this agreement and fails to cure such breach within ten (10) business days
after receipt of written notice from GP, or if at any time prior to delivery of
any program to GP, Contractor is adjudicated bankrupt or formally seeks any form
of relief from its financial obligations hereunder, or if Contractor fails to
perform this Agreement, or if Contractor abandons its obligation to perform the
production services hereunder, then in any such event, GP, in addition to any
and all other rights it may have under this Agreement or in law or in equity,
may declare Contractor to be in default hereunder and may terminate this
Agreement immediately.
14
<PAGE>
25. REMEDIES:
(a) No breach of GP's obligations under this Agreement shall entitle
Contractor to equitable remedies. Contractor agrees. that the rights of
Contractor shall be limited to the right, if any, to obtain damages in an
action at law.
(b) Contractor agrees that the services provided by Contractor hereunder
and the rights accorded in connection with such services are unique, the
loss of which cannot be adequately compensated for in damages in an action
at law. If Contractor defaults in an Agreement obligation, GP shall, in
addition to any other rights which GP may have as to damages or otherwise,
be entitled to seek injunctive relief and other equitable relief to
restrain, enjoin, or prevent the breach of any obligation hereunder.
Pursuit by GP of one remedy shall not be construed as a waiver of any other
remedy.
26. SECTION 507: In compliance with Section 507 of the Communications Act of
1934, as amended, Contractor represents and warrants that it has not accepted
nor agreed to accept, and will not permit its employees, agents, representative,
contractors or affiliated entities to accept any monies, services or other
consideration for the inclusion of any commercial material or matter in the
Special. Contractor hereby certifies that it has no knowledge of any information
relating to the Special that is required to be disclosed by GP under Section 507
and that it will promptly disclose to GP any such information of which it
hereafter acquires knowledge. At GP's request, Contractor will furnish to GP
such affidavits or statements as GP may require with respect to compliance with
Section 507.
27. FURTHER ASSURANCES: Contractor shall execute and deliver to GP, promptly
upon GP's request, any other instruments or documents
15
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Capital Cities/ABC Inc.
To: Those Listed Below
From: Steve Nenno
Date: August 12, 1994
Subject: PROGRAM ELEMENT DELIVERY REQUIREMENTS - REVISION
Attached is the new "Programs Element Delivery Requirements." This replaces the
July 13, 1993 version.
This revision incorporates a major change in our videotape specifications.
Effective with our Fall 1994 program schedule, as advised, we are switching our
video tape standard to D-2. (All programming, commercial and public service
material will on D-2.)
See the new Program and Commercial Material Videotape Specifications (Appendix
Pages 1 - 9).
Please distribute as required.
/s/ Steve Nenno
---------------
Steve Nenno
Attachment
TO: J. Abbattista, L. Alphonso, R. Apter,
B. Bloos, S. Condon Wilcox, F. Cuciti, P. Davis,
J. Dispenza, M. Domal, H. Dzodin, D. Elliot,
A. Farinacci, P. Flli-Krushel, P. Friedman,
J. Galvin, F. Glugliano, W. Horliby,
P. Kopp lsann, D. Levin, N. MacLeod, T. Mahony,
G. Miceli, R. McGee, D. Nuzzi, J. Rapella,
S. Rebidas, E. Rend, W. Rowe, K. Seier, B. Simon,
D. Tryneski, W. Temple, T. Van Schaick, R. Wallen - NY
S. Brower, M. Carlson, ________, K. Fleary,
C. Ginsburg, J. Hamlin, T. Harbert, W. Haren,
L. Harrison, E. Hirst, C. Sopp , D. Leoni,
B. McAndrens, D. Morris, M. Pedowitz, R. Pratz,
B. Rietzel, H. Scott, A. Sternfeld, B. Stoddard,
R. Sunderlznd, J. Trias, T. Weaver, R.A. Young,
M. Zakarin - LA
16
<PAGE>
I. GENERAL REQUIREMENTS
All elements must meet Network technical standards (see Appendix).
All programs must conform to the requirements of the Network program
format.
All prime time series programs shall commence with program material
preceding the main title. In addition, all thirty (30)-minute programs
shall consist of two (2) acts, plus a tag of at least one (1) minute in
length, and all sixty (60)-minute programs shall consist of four (4) acts,
plus either a tag of at least one (1) minute in length, a trailer of thirty
(30) seconds in length, or both a tag and a trailer.
All prime time programs are to be delivered in stereo.
The delivery date for all programs is two (2) weeks prior to air.
All elements the Packager is required to deliver to the Network will be
returned to the Packager in an as-is condition after ABC's rights have
expired.
Any additional elements manufactured at ABC's expense may, at ABC's option,
be made available for sale to the Packager, retained by ABC for file and
reference, or destroyed. To acquire ABC-manufactured Closed Captioned
elements, the Packager must first secure clearance from the National
Captioning Institute. ABC will determine the charge, if any, based in part
on the then current cost of videotape stock.
The Packager will remove all commercial, promotional and public service
material from such tapes.
To purchase the ABC-manufactured elements, the Packager must notify the
Network prior to each season of its intention to acquire such tapes.
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<PAGE>
II. PROGRAMS PRODUCED ON FILM (EXCEPT MOTION PICTURES FOR TELEVISION AND MINI-
SERIES)
For each episode of a series or a special program, the Packager is to
deliver:
A. One (1) 1/2" VHS video cassette of each day's dailies, or the film
dailies for screening purposes.
B. Three (3) 1/2" VHS video cassettes of final rough cut, or the film
rough cut for screening purposes.
C. One (1) 1/2" VHS video cassette of the final version.
D. Two (2) D-2 videotapes of the earliest generation for telecast.
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<PAGE>
III. MOTION PICTURES FOR TELEVISION AND MINI-SERIES
For each motion picture for television and mini-series, the Packager is to
deliver:
A. Two (2) 1/2" VHS video cassettes of each day's dailies, or the film
dailies for screening purposes.
B. Two (2) 1/2" VHS video cassettes of final rough cut, or the film
rough cut for screening purposes.
C. one (1) temp dub no later than thirty (30) days prior to the date of
delivery of the completed motion picture for television/mini-series
which shall contain, but not be limited to, the following elements:
1. Temp music track
2. Visual effects
3. Temp sound effects track
4. Temp titles
The above shall be an as-close-to-the-final version of the motion
picture for television/mini-series as possible for review purposes by
the press.
D. One (1) 1/2" VHS video cassette of the final version.
E. Two (2) D-2 videotapes of the earliest generation for telecast.
F. One line continuity sheet with running times and omissions.
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<PAGE>
IV. PROGRAMS PRODUCED ON VIDEOTAPE
For each episode of a series or a special program, the Packager is to
deliver:
A. Three (3) 1/2" VHS video cassettes of the rough cut.
B. One (1) 1/2" VHS video cassette of the final version.
C. Two (2) D-2 videotapes of the earliest generation for telecast.
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<PAGE>
V. THEATRICAL FEATURE FILMS
For each theatrical feature film, the Packager is to deliver:
A. Two (2) copies of the original theatrical version of the film for
screening on 3/4" video cassettes, panned and scanned for TV, in
stereo (channels 1 and 2) and with drop frame time code (both visual
and address track) referenced to the Director's approved film transfer
master. ABC shall return the New York delivered 3/4" video cassette
after viewing.
B. One (1) copy of the production company's lined script and dailies log.
C. Two (2) copies of the combined continuity script for the theatrical
film release.
D. Two (2) copies of the final network version of the film panned and
scanned for TV, in stereo (channel 1 left and channel 2 right) for
screening on 3/4" video cassettes with drop-frame time code (both
visual and address track). The "final network version", edited and
formatted as requested by ABC Entertainment, must be approved by ABC
Broadcast Standards and Practices, as well as the Director of the
Film.
E. Two (2) D-2 videotapes (with drop-frame time code on the dedicated
time code track only) of the approved final network version master for
ABC's use in creating a submaster which will be formatted for
commercial integration and telecast. The submitted master is subject
to approval by ABC Broadcast Operations and Engineering.
ABC shall return the New York delivered 3/4" video cassette referred to in
"D" above and the New York delivered D-2 videotapes referred to in "E"
above after the approval of their respective network versions.
Promotional Materials
---------------------
To enable ABC to promote the programs effectively and for in-house sales
use, the Packagers shall deliver to ABC's Los Angeles On-Air Promotion
Department as soon as available or no later than three weeks prior to air,
the following on D-2 videotape (one-hour reels) and on 3/4" video cassette:
1. One (1) copy of the final network version of the film with:
A. D-2 video tape with dialogue on channel 1, effects on channel 2
and stereo music on channel 3 and channel 4 with drop frame time
code and VITC.
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<PAGE>
B. 3/4" video cassette with matching drop frame time code on ADDRESS
TRACK and visible in lower left third of the picture within title
safe, without Dolby encoding.
2. The theatrical feature film trailer elements (prefer textless) with
drop frame time code (without Dolby encoding) and VITC.
3. The electronic press kit produced for the theatrical feature film, if
available.
ABC may retain or destroy any trailer elements or electronic press kit
materials.
Music Cue Sheets
----------------
A music cue sheet for the film shall be provided which sets forth each
musical composition used therein, as well as the title, the names of the
composers and publisher, and exact timings and types of usages.
22
<PAGE>
VI. ABC AFTERSCHOOL SPECIALS
A. GENERAL REQUIREMENTS
All elements must meet Network technical standards (see Appendix).
All episodes must conform to the requirements of the Network Program
format.
All episodes are to be delivered in stereo.
The delivery date for all programs is three (3) weeks prior to air.
All elements the Packager is required to deliver to the Network will
be returned to the Packager in an as-is condition after ABC's rights
have expired.
Any additional elements manufactured at ABC's expense may, at ABC's
option, be offered for sale to the Packager, retained by ABC for file
and reference, or destroyed. To acquire ABC manufactured Closed
Captioned elements, the Packager Dust first secure clearance from the
National Captioning Institute. ABC will determine the charge, if any,
based in part on the then current cost of videotape stock.
The Packager will resolve all commercial, promotional and public
service material from such tapes.
To purchase the ABC-manufactured elements, the Packager must notify
the Network prior to each season of its intention to acquire such
tapes.
B. SPECIFIC REQUIREMENTS
For each episode, the Packager is to deliver:
1. One (1) 1/2" VHS video cassette of each day's dailies, or the
film dailies for screening purposes, or the Network is to have
access to the Packager dailies screenings.
2. Two (2) 1/2" VHS video cassettes of first rough cut, or the film
rough cut for screening purposes, or the Network is to have
access to the Packager rough cut screening.
3. One (1) 1/2" VHS video cassette of the final rough cut version.
4. Six (6) 1/2" VHS video cassettes of the final version with
pulled-up black (two-second spacer).
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<PAGE>
5. Two (2) D-2 videotapes of the earliest generation for telecast.
C. PROMOTIONAL MATERIALS
To enable ABC to promote the programs effectively and for in-house sales
use, the Packagers shall deliver to ABC's On-Air Promotion Department as
soon as available or no later than three weeks prior to air, the following:
1. For a film program (work print):
a. D-2 videotape with drop frame time code and VITC with dialogue on
ch. 1, effects (if any) on channel 2 and stereo music (if any) on
channel 3 and channel 4.
b. 3/4" video cassette with matching drop frame time code on ADDRESS
TRACK and visible in the lower left third of the picture within
title safe, without Dolby encoding.
2. Videotape shows (line feed or unsweetened, edited version):
a. D-2 videotape with continuous drop frame time code and VITC.
b. 3/4" video cassette with matching drop frame time code on ADDRESS
TRACK and visible in the lower left third of the picture within
title safe, without Dolby encoding.
VI. ABC AFTERSCHOOL SPECIALS - (Continued)
PROMOTIONAL MATERIALS (continued)
3. For film and videotape programs as soon as available:
a. Main title and end credit music (vocal version and/or
instrumental version with lead instrument replacing vocal) in
stereo on DAT at 48 K with no sync tone and no noiser reduction
encoded tracks. In addition, the entire musical score in same
format with same specs as mentioned above.
b. Textless main title sequence on D-2.
c. Main title/logo animation over keyable background on Beta SP.
4. Upon completion of the pilot and programs:
a. D-2 videotape with dialogue on channel 1, effects on channel 2
and stereo music on channels 3 and 4 with drop frame time code
and VITC.
24
<PAGE>
b. 3/4" video cassette with matching drop frame time code on ADDRESS
TRACK and visible in lower left third of the picture within title
safe, without Dolby encoding.
VII. PILOTS
A. Programs produced on film.
The Packager is to deliver:
1. One (1) 1/2" VHS video cassette of each day's dailies.
2. Two (2) 1/2" VHS video cassettes of the final rough cut with
pulled-up blacks (two-second spacer).
3. Six (6) 1/2" VHS video cassettes of the final version with
pulled-up blacks (two-second spacer).
4. Four (4) 3/4" video cassettes of the final version with pulled-up
blacks (two-second spacer).
5. Two (2) D-2 videotapes of the earliest generation with pulled-up
blacks (two-second spacer).
B. Programs produced on videotape.
The Packager is to deliver:
1. Two (2) 1/2" VHS video cassettes of the rough cut with pulled-up
blacks (two-second spacer).
2. Six (6) 1/2" VHS video cassettes of the final version with
pulled-up blacks (two-second spacer).
3. Four (4) 3/4" video cassettes of the final version with pulled-up
blacks (two-second spacer).
4. Two (2) D-2 videotapes of the earliest generation with pulled-up
blacks (two-second spacer).
NOTE: Reference A and B. If the pilot is scheduled for telecast, the
Packager is required to deliver two (2) D-2 videotapes of the earliest
generation conforming to the requirements of the Network telecast
format.
NOTE: See Promotional Delivery Requirements section for Promotion Department
requirements.
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<PAGE>
VIII. ADVERTISING AGENCY SUPPLIED PROGRAMS
(i.e. client owned programs)
The Advertising Agency is to deliver:
A. Two (2) 1/2" VHS video cassettes.
B. Two (2) D-2 videotapes of the earliest generation for telecast.
NOTE: If the Network does the commercial integration, the Advertising
Agency will be charged the standard per commercial integration
charge.
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<PAGE>
IX. PROMOTIONAL MATERIALS FOR PILOTS AND PROGRAMS
To enable ABC to promote the Programs effectively and for in-house
sales use, the Packager shall deliver to ABC's On-Air Promotion Department
as soon as available or no later than two (2) weeks prior to air, the
following:
A. For a film program (work print):
1. D-2 videotape with drop frame time code and VITC with dialogue on
ch. 1, effects (if any) on ch. 2 and stereo music (if any) on ch.
3 (left) and ch. 4 (right).
2. 3/4" video cassette with matching drop frame time code on ADDRESS
TRACK and visible in the lower left third of the picture within
title safe, with dialogue and effects (if any) on ch. 1 and mixed
music (if any) on ch. 2 without Dolby encoding.
B. Videotape shows (line feed or unsweetened, edited version):
1. D-2 videotape with continuous drop frame time code and VITC.
2. 3/4" videocassette with matching drop frame time code on ADDRESS
TRACK and visible in the lower left third of the picture within
title safe, without Dolby encoding.
C. For film and videotape programs as soon as available:
1. Main title and end credit music (vocal version and/or
instrumental version with lead instrument replacing vocal) in
stereo on DAT at 48 K with no noise reduction encoded tracks. In
addition, for MFTV and Mini-series, the entire musical score in
same format with same specs as mentioned above.
2. Textless main title sequence on D-2.
3. Main title/logo animation over keyable background on Beta SP.
D. Upon completion of the pilot and programs:
1. D-2 videotape with dialogue on ch. 1, effects on ch. 2 and stereo
audio on ch. 3 (left) and ch. 4 (right) with drop frame time code
and VITC.
27
<PAGE>
2. 3/4" videocassette with matching drop frame time code on ADDRESS
TRACK and visible in lower left third of the picture within title
safe, with dialogue and effects on ch. 1 and music mixed on ch. 2
without Dolby encoding.
28
<PAGE>
Issued May 2, 1994
SCOPE:
The purpose of this document is to provide the operational and
technical specifications which will serve as a guide to those producing
commercial, program, public service and promotional tapes for playback on
the ABC Television Network.
APPLICATION:
This specification outlines the requirements that must be met to
assure satisfactory videotape reproduction on ABC facilities. They are
based largely on standards published by SMPTE and EIA, modified and
supplemented as necessary to reflect ABC's experience. All such standards
shall be the latest revision.
ABC reserves the right, at all its offices, to refuse to broadcast or
otherwise utilize television tape recordings which, in its opinion, are
technically unsatisfactory.
These specifications are subject to change.
29
<PAGE>
Beginning with the fall, 1994 season, the approved videotape format for the
delivery of program, commercial, public service and promotional material will be
SMPTE D-2.
1. D-2 SPECIFICATION:
1. The videotape shall meet the specifications in ANSI/SMPTE standard
246M, D-2 Composite Format Magnetic Tape.
2. The videotape cassette shall not exceed "L" size and shall conform to
ANSI/SMPTE 226M.
3. The videotape physical and technical recording characteristic shall
meet or exceed the parameters set forth in ANSI/SMPTE 244M, 247M, 248M and
SMPTE RP155 with reference to time, data, audio & control recording.
4. The tape shall not require the playback machine to drop into error
concealment mode due to defects on the tape or its surface.
2. ONE INCH SMPTE TYPE "C" SPECIFICATION:
1. The videotape shall meet the specifications in ANSI/SMPTE 25M.
2. The videotape reel size shall not exceed 90 minutes and shall meet the
parameters set forth in ANSI/SMPTE 24M - Current Revision, American
National Standard for Vision Recording - 1" Reel Dimensions.
3. At least 15 seconds of tape wrap shall be provided at the head of each
reel.
4. The videotape physical and technical recording characteristic shall
meet or exceed the parameters set forth in ANSI/SMPTE 20M.
5. The reference carrier frequencies, pre-emphasis and de-emphasis shall
conform to those specified in SMPTE RP86 - Current Revision, Video
Recording Parameters for 1" Type C Helical-Scan Video Tape Recording.
6. The reference levels and response parameters of the videotape recording
shall conform to ANSI/SMPTE 20M - Current Revision, American National
Standard for Video Recording - 1" Type C Recorders and Reproducers -
Frequency Response and Reference Level.
7. The tape shall be longitudinally oriented for helical recording.
"Dropouts" manifested as horizontal streaks shall be no more than one (1)
per ten-second interval or portion thereof.
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<PAGE>
8. The tape shall be a continuous medium without splices.
9. The tape shall be free, on its coated side, from indentations, creases,
scratches, and other imperfections. The edge of the tape shall be free
from nicks, tears, and similar defects.
3. LEADER:
1. At the head of the tape there shall be a leader, consisting of video
and audio conforming to ANSI/SMPTE 256M.
2. The video and audio test signals on the leader shall accurately
represent the program, commercial, public service or promotional material
in:
Video Level Differential Gain
Sync Level Differential Phase
Set-up Weighted Video Signal-to-Noise Ratio
Blanking Width SCH Phase
Chroma Level Audio Level
Chroma Phase Audio Phase
Audio Signal-to-Noise Ratio
3. A second video test signal of at least 10 seconds shall be included on
the leader, adjacent to the test signal specified in #1 above, and shall be
a modulated ramp or NTC-7 composite test signal. The audio associated with
this signal shall be a 10 kHz sine wave 10 dB below reference level.
4. The slate portion of the leader shall include the following:
Title of the program or commercial
Show or commercial title (episode)
Show or commercial I.D. (ISCI number)
Date of Transfer
Reel Number
Audio Mode (Stereo, Mono or Surround Sound)
Indication if material is Closed Captioned.
5. The signal timing parameters of the video test signal shall meet SMPTE
170M.
6. The test signal to commercial or program video or vertical interval
signal performance shall as follows:
VITS or PGM to test signal video ratio (plus or minus)2 IRE
VITS to PGM video ratio (plus or minus)2 IRE
VITS of PGM to test signal phase ratio (plus or minus)1 degree
VITS to PGM phase ratio (plus or minus)1 degree
7. The peak luminance level of the video test signal shall not exceed 100
IRE.
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<PAGE>
8. The peak video level of the color bar test signal shall not exceed 100
IRE.
9. The set-up level of the Color Bar test signal shall be 7.5 IRE.
10. The video weighted signal-to-noise ratio using CCIR unified weighting
filter shall be at least 54 dB when measured off the tape.
11. The audio signal-to-noise ratio of the 400 Hz test signal shall be at
least 55dB (D-2) or 46Db (1 inch type "C") when measured off the tape.
19. There shall be crystal black following the end of the program and
commercial material.
4. VIDEO:
1. The Video signal shall conform to the specifications in SMPTE 170M.
2. There shall be no false starts.
3. SCH phase (subcarrier to horizontal timing) shall be maintained
continuously across all edits (color-framed edits) and shall be maintained
(plus or minus)10 (degrees).
4. Commercial or program luminance level (maximum white level) shall
nominally be 100 IRE with an absolute maximum of 105 IRE as measured with
an IRE filter.
5. The Commercial or program video level (luminance and chrominance) shall
have an absolute maximum of 110 IRE.
6. The video signal color burst shall be 40 (plus or minus)1 IRE.
7. The video signal sync level shall be 40 IRE (plus or minus)1 IRE.
8. The set-up level shall be 7.5 IRE (plus or minus)2 IRE.
9. The differential phase of the video signal shall not exceed 4 degrees.
10. The differential gain of the video signal shall not exceed 4%.
11. Commercials must be exact length from start of message to end of
message, eg; 30 sec (less than or equal to 900 frames). Messages running
over length may be clipped at the end by ABC.
5. VERTICAL BLANKING INTERVAL:
1. The program and commercial video's vertical interval must
32
<PAGE>
be cleared of all extraneous signals.
2. If vertical interval signals are supplied, the only acceptable signals
and their locations are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Line 14 Both Fields - Vertical Interval Time Code
(See Time Code section later in this
document)
Line 15 Both Fields - VIR (Optional)
Line 16 Both Fields - Vertical Interval Time Code
(Optional)
(See Time Code section later in this
document)
Line 20 Filed 2 - NTC-7 Composite Test Signal
Line 21 Both Fields - Closed Captioning plus EDS (EIA60-8)
</TABLE>
6. AUDIO:
1. Tracks 1 and 2 of the videotape are to be used for program audio
signals.
2. Material produced with stereo audio shall be delivered with discrete
left on Track 1 and discrete right on Track 2.
3. Material produced with monophonic audio shall be delivered with an
identical monophonic mix on Tracks 1 and 2.
4. ABC does not accept any noise reduction encoded tracks.
5. All audio shall be in accordance with SMPTE RP148.
6. Monophonic sections within the stereo material shall be recorded in
phase and at an equal level on both tracks. This material must be in
phase (plus or minus)10 across the audio bandwidth.
7. No separate (third) monophonic track is required with stereo material.
8. The stereo material shall be monitored in mono to assure that no
cancellation or "buildup" effects occur.
9. Regarding creative post production techniques in mixing stereo
material, we advise that, as is now common practice in stereo mixing
for theatrical features, the dialogue be kept in the center position
(with possible rare exceptions).
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<PAGE>
10a D-2 FORMAT
Normal speech shall deflect the peak program meter from -4 to 0, where 0 is
peak program level. Loud passages will occasionally deflect the meter to
+1 for short durations with the majority of levels not exceeding 0.
Excursions beyond +1 should be infrequent and should not sustain more than
1 second. There is an absolute limit of +4 for momentary excursions.
Extended quiet passages (except for periods of dead silence) should deflect
the meter to a least -15.
10b ONE INCH FORMAT
Normal speech shall deflect the vu meter -10 to -2 vu. Loud passages will
occasionally deflect the meter to +1 vu for short durations with the
majority of levels not exceeding 0 vu. Excursions beyond +1 vu should be
infrequent and should not sustain more than 1 second. There is an absolute
limit of +4 vu for momentary excursions. Extended quiet passages (except
for periods of dead silence) should deflect the meter to at least -15.
11. It is not ABC's policy to equalize, compress or ride levels on program
audio. However, if the dynamic range of the audio signal exceeds
practical broadcast limits, or if the level limitations mentioned in
item 10 (above) are exceeded, it may be necessary to reduce the range
to that acceptable for the transmission and broadcast systems. The
adjustment will be made at the discretion of the operating engineer.
12. The maximum operating level (0) shall be in accordance with current
recommendations from SMPTE.
13. The frequency response shall be (plus or minus)2 dB from 50 Hz to 15
kHz on an interchange basis, with respect to 1kHz.
14. The signal-to-noise ratio shall be at least 55 dB (D-2) and 46 dB (1
inch type "C") unweighted with respect to the operating level.
15. Harmonic distortion shall be no greater than 1% at operating level and
shall not exceed 3% at 8 dB above this level.
16. The phase between tracks shall not exceed 10 degrees (D-2) or 20
degrees (1" type "C") over the audio bandwidth.
7. SURROUND SOUND:
1. All tapes which have the audio recorded in surround sound shall have
the following recorded between the head slate described below and the test
signals/tones which follow the head slate.
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<PAGE>
A. A head slate as described above in section 4 of the leader
description with indication that the material is recorded in surround
sound. This slate shall be at least fifty (50 seconds) long.
B. The audio associated with this head slate shall be as follows:
1. Ten (10) seconds of silence (46 db below operating level).
2. Ten (10) seconds of 1 kHz tone on both channels at reference
level.
3. Ten (10) seconds of 400 Hz tone on both channels at 8 dB
below reference level.
4. Ten (10) seconds of 10 kHz tone on both channels at 16 dB
below reference level.
5. Ten (10) seconds of Pink Noise on both channels at 10 dB
below reference level.
8. TIME CODE:
1. All tapes shall be recorded with SMPTE "drop frame" time code on the
designated time code channel. This time code shall be SMPTE Color Frame
Time Code. SMPTE 170M 4-Field Color Frame Sequence must be maintained.
The relation of code address numbers to the A or B characteristics Color
Video Frames is specified by SMPTE. An even code address identifies an A
Video Frame and an odd code address identifies a B Video Frame. In the
SMPTE 170M 4 field sequence, an even code address represents the video
frame beginning at line five of field one. An odd code address represents
the video frame beginning on line five of field three. Time Code
synchronized to color video frames according to the SMPTE 170M standard is
to be identified by a binary one encoded in flag bit 11.
2. The time code shall be recorded at peak program level (0).
3. All copies of identical material shall have identical time code.
4. The time code at the beginning of the program material shall start at
01:00:00:00. ABC requests that program producers provide frame-accurate
time code readings to identify the start of each "item" on ABC's program
format.
5. The time code shall be continuous.
6. VITC shall be on lines 14 and, optionally, additionally on line 16.
35
<PAGE>
7. All time code signals, whether audio or video shall be simultaneously and
identical.
8. Commercial suppliers shall supply the commercial's ISCI number in VITC
user bits.
9. LABELING OF REELS AND BOXES:
1. The label on the reel and the box shall include the following:
Title of the program or commercial.
Show or commercial title (episode)
Show or commercial I.D. (ISCI number)
Date of the transfer
Reel Number
Audio Mode (Stereo or Mono)
If Closed Captioned
Tape generation
2. All commercials and programs must be delivered broken down individually
on reels, not spools, in boxes.
10. ELECTRONIC LABELING OF TAPE:
1. ISCI in VITC user bits is the only allowed method.
11. OPERATING PARAMETERS:
1. TRANSMISSION:
a) Stereo
Both tracks of the stereo material will be aired to both channels of the
transmission system.
b) Mono
Both tracks of the mono material will be aired to both channels of the
transmission system.
2. INTEGRATION:
a) Stereo Program
If a stereo commercial is to be integrated into a stereo program, both
tracks of stereo commercial are integrated onto the respective tracks of
the stereo program.
If a mono commercial is to be integrated into a stereo program, both tracks
of the mono commercial will be integrated onto both tracks of the stereo
program.
b) Mono Program
36
<PAGE>
If a mono commercial is to be integrated into a mono program, the mono
commercial will have both tracks integrated into both tracks of a mono
program.
If a stereo commercial is to be integrated into a mono program, the stereo
commercial will have both tracks integrated respectively into both tracks
of the mono program.
37
<PAGE>
Appendix A
Material sent to the ABC Television Network for non-air uses may be sent on any
consumer/industrial formats. The audio tracks on these small format videotape
cassettes shall be as follows:
2 TRACK FORMATS
Track 1 Program Audio
Track 2 Time code or program audio
3 TRACK FORMATS
Track 1 Program Audio Left
Track 2 Program Audio Right
Track 3 Time Code
4 TRACK FORMATS
Track 1 Program Audio Left
Track 2 Program Audio Right
Track 3 FM Program Audio L
Track 4 FM Program Audio R
38
<PAGE>
Applicable to all Prime Time and non-Prime Time Programming. Credits which are
included on theatrical feature motion pictures are exempt from the terms of this
policy.
ABC expects this Credit Policy to be honored and will not acknowledge contrary
third party contractual agreements.
I. Time Limitations
A. Credits placed at the beginning of all programs regardless of
length.
1. Exclusive of all cast credits and the main program title,
credits placed at the beginning of the program may not
exceed a maximum of fifteen seconds (:15). Only credits for
Executive Producer (provided such individual has actually
performed services on the program - see item F), Producer,
Writer, Director, Creator, one discretionary credit card,
and, where required by collective bargaining agreements, the
Director of Photography, Art Director, and Film Editor are
acceptable for such use.
2. The use of any or all of the above credits at the beginning
of the program will be at the Producer's election. Those
credits not utilized at the beginning of the program may be
added to the end credit unit of the program in accordance
with items B2, C2, or D2. No credit may be placed over the
last Act or Tag.
B. Credits placed at the end of all programs sixty minutes in length
or less.
1. Exclusive of cast, credits placed at the end of the program
may not exceed a maximum of twenty-five seconds (:25), plus
a portion or all of the fifteen seconds (:15) not used at
the beginning of the program. Included in this category are
credits required by ABC Broadcast Standards and Practices
and/or collective bargaining agreements, discretionary
credits and such consideration credits as prizes,
transportation, wardrobe, etc.
2. The maximum time allowance for all program credits,
exclusive of cast, may not exceed forty seconds (:40).
C. Credits placed at the end of all programs longer than sixty
minutes, but not more than two hours in
39
<PAGE>
length.
1. Exclusive of cast, credits placed at the end of the program
may not exceed a maximum of forty-five seconds (:45), plus a
portion or all of the fifteen seconds (:15) not used at the
beginning of the program. Included in this category are
credits required by ABC Broadcast Standards and Practices
and/or collective bargaining agreements, discretionary
credits and such consideration credits as prizes,
transportation, wardrobe, etc.
2. The maximum time allowance for all program credits,
exclusive of cast, may not exceed sixty seconds (:60).
D. Credits placed at the end of all programs longer than two hours
in length.
1. Exclusive of cast, credits placed at the end of the program
may not exceed a maximum of sixty-five seconds (:65), plus a
portion or all of the fifteen seconds (:15) not used at the
beginning of the program. Included in this category are
credits required by ABC Broadcast Standards and Practices
and/or collective bargaining agreements, discretionary
credits and such consideration credits as prizes,
transportation, wardrobe, etc.
2. The maximum time allowance for all credits, exclusive of
cast, may not exceed eighty seconds (:80).
E. Unless viewer-involving action footage and dialogue is used, there shall be
no non-credit footage between superimposed credits. If approved, the action
footage and dialogue time without credits is not included in the above
limitations, but the additional time should be kept to approximately :15.
F. There may be no screen credit afforded to above-the-line staff personnel of
the Production Company unless they are performing services in traditional
above-the-line functions on the particular program. For example, there may
be no Executive in Charge of Production credit or Executive Producer credit
unless such persons have actually performed services on the program.
40
<PAGE>
G. There may not be more than one screen credit afforded to outside
services hired by the Production Company. For example, in the
case of a Production Consultant, ABC would prefer that the
consultant, rather than the firm, be credited, but not both.
H. On program telecast two or more times per week, credits may only
be given once per week. In those cases involving credits required
by collective bargaining agreements, the terms of such agreements
shall, of course, prevail.
I. For Children's Programming, the maximum time allowance for all
program credits, exclusive of cast, may not exceed thirty seconds
(:30).
II. Copyright Notices
-----------------
ABC prefers that the Producer's copyright notice be placed at the end of
the program.
III. Use of Production Company Credit(s), Logo(s)
--------------------------------------------
A Production Company shall be entitled to one (1) screen credit (or logo).
There may be no credit for additional Production Companies unless each
Production Company has a contractual co-production agreement with the
principal Production Company. ABC prefers that there be one (1) Production
Company logo in a program (but will approve up to three. In this case, the
end credit music must carry over the first two logos and the total maximum
length is eight seconds [:08]).
When multiple Production Companies are involved, and when not all of the
co-production companies receive a logo, these credits are to be placed
immediately preceding the logo(s) in the same graphic style and background
as the end credits and should contain the legend "in association with." If
more than one, these co-production company credits should be combined on
one card or as few cards as possible.
A single Production Company credit or logo is not to exceed five seconds
(:05) and is to be the last item in the closing credit unit. Production
Company credit(s) and logo(s) are included in the total running time
limitations as reflected in items IB, IC and ID.
There may be no Distributor credit.
IV. Commercial Business Credit
There may not be any credit in the form of a logo for a commercial
business. These credits, if any, must be in the
41
<PAGE>
same type style as the other credits.
V. ABC Facilities Credit
Any program which is taped at an ABC facility in New York will have the
following credit included within the end credits of the program prior to
the production company logo:
Videotaped at
ABC Television Center
in New York
If a program is taped at an ABC facility in Hollywood, the credit would
read:
Videotaped at
ABC Television Center
in Hollywood
If the program is videotaped before a studio audience at an ABC Television
Center, and the producer wishes to make note of the fact, this wording
should be included within the above facilities credit.
Videotaped before
a studio audience at
ABC Television Center
in New York
If the program is live, the word "produced" should be substituted for
"videotaped."
VI. Audio Over End Credits
The audio that the producer provides over closing credits must lend itself
to voice-over announcements which will be added live at the time of air by
ABC. This means that the closing credit area must be free of any voice
over and/or clashing musical lyrics which could not be faded down for ABC
voice over announcements. We require instrumental music with no lyrics.
See Section "E" for policy exception to the above.
VII. Credit Approval
Program credits must be submitted to ABC for approval by Program
Administration and Broadcast Standards and Practices. If the program is
videotaped using ABC personnel, the credits must be further approved by
Broadcast Operations and Engineering.
REVISED: June 21, 1994
42
<PAGE>
ABC VIDEO ENTERPRISES DELIVERY REQUIREMENTS
ALSO
ATTACHED AND INCORPORATED IN THESE DELIVERY REQUIREMENTS
43
<PAGE>
To: MELANIE TOPP
From: MARGE PONCE
Date: SEPTEMBER 24, 1992
Subject: ABC VIDEO ENTERPRISES DELIVERY REQUIREMENTS
The following are ABC Video Enterprises requirements for all
Television programming: movies, series, cartoons, etc.
A. One (1) NTSC/PAL D2 Composite master videotape with a full English
stereo mix left on Channel one, a full English stereo mix right on
Channel Two, a fully filled foreign stereo music and effects left on
Channel Three, a fully filled foreign stereo music and effects right
on Channel Four, fully synchronized to picture with continuous drop
frame time code starting first frame of picture at 00:00:00:00 on the
address track. If any videotape of any Program delivered is not, in
ABCD's sole judgement, of acceptable technical quality, ABCD shall
have the right to require delivery of additional videotapes of the
Program until ABCD has approved such videotape.
B. Technical Requirements for D2 NTSC Videotape
1. Front Porch 1.6 us (microseconds) (plus or minus) .3 us
2. Back Porch 9.2 us (plus or minus) .2 us
3. Horizontal Sync 4.7 us (plus or minus) .1 us
4. Horizontal Blanking 10.8 us (plus or minus) .2 us
5. Vertical Blanking 21 lines
6. Video Level 100 ire
7. Black Level 7.5 ire
8. Burst Level 40 ire
9. Sync Level 40 ire (plus or minus) 6 ire
10. Audio Level 0 DB
11. Equalizing 2.3 us (plus or minus) 1 us
12. Vertical Pulse 27.1 us (plus or minus) 1 us
13. Burst Cycle 9 cycles (plus or minus) 1 cycle
14. Breezeway .6 us (plus or minus) .2 us
C. Technical Requirements for D2 PAL Videotape
1. Front Porch 1.5 us (plus or minus) .15 us
2. Back Porch 10.5 us (plus or minus) .15 us
3. Horizontal Sync 4.7 us (plus or minus) .1 us
4. Horizontal Blanking 12.0 us (plus or minus) .15 us
5. Vertical Blanking 25 lines
6. Video Level 100 ire
7. Black Level 0. ire
8. Burst Level 300 mv (microvolts) (plus or minus) .9 mv
9. Sync Level 300 mv (plus or minus) .9 mv
10. Audio Level 0 DB
11. Equalizing 2.3 us (plus or minus) 1 us
12. Vertical Pulse 27.3 us (plus or minus) 1 us
44
<PAGE>
13. Burst Cycle 10 cycles (plus or minus) 1 cycle
14. Breezeway .9 us (plus or minus) .1 us
D. Access to master dubbing track to manufacturer 1/2" Four-Track fully
filled foreign music and effects track.
E. One (1) D2 NTSC Videotape and one (1) DC PAL Videotape of Neutral
Title Backgrounds (Textless) for Main Titles and End Credits, Titles
that appear over Act One and ny location titles, subtitles or dates
that appear throughout the program.
F. One copy of complete credit list for Main Titles and End Credits with
full Production and Technical Credits. Location Titles, Subtitles or
date titles must be included with this list.
G. One (1) DAT cassette copy of all music from final mixed version. All
music must be audible for Music Clearance and Registration purposes.
H. One (1) copy of the music cue sheets of the Program, which shall
specify the author of each musical composition involved, the
publishing company and performing rights society controlling the
rights in each such piece of music and its specific location in the
Program, the location where the music was recorded and the names of
the composer and arranger.
I. One (1) copy of an English dialogue continuity of the Program.
J. One (1) CLEAN script as close as possible to an As-Broadcast Script.
K. Copies of all Program agreements and a schedule of residuals.
L. Laboratory access to any available print material.
If you have any questions, please call me at x4146.
cc: Jack Halsbond, NY
File
45
<PAGE>
EXHIBIT 10.42
HARVEY COMICS, INC.
100 Wilshire Boulevard
Suite 1460
Santa Monica, California 90401
310/451-3377
May 6, 1996 as of
April 15, 1996
VIA FACSIMILE AND U. S. MAIL
- ----------------------------
Jon Vein
Senior Vice President
Film Roman
12020 Chandler Boulevard
Suite 200
North Hollywood, California 91607
Re: "Richie Rich"
Dear Jon,
This letter will confirm the agreement between Film Roman and Harvey Comics,
Inc. ("Harvey") regarding the production of 13 animated episodes featuring
"Richie Rich" (the "Series"), on the terms and conditions set out below:
1. Harvey Services:
Harvey will provide Film Roman with its existing design package in black and
white and in color on Richie Rich, including characters, props, location and
effects design, for Film Roman's reference, along with "signature" sound
effects, if any. Harvey will be responsible for supplying a minimum of 2 six
minute animated shorts from its classic film library for inclusion in each
twenty-two minute, forty-four second episode, which includes the main title
("Harvey Elements").
2. Film Roman Services:
a) Film Roman will produce and be responsible for providing script,
storyboard, voice recording, layout, animation, music and post production
services, to produce the following on the Series ("Film Roman Elements"):
(i) 13 newly animated Richie Rich programs, each of between 6 and 7
minutes duration;
(ii) 13 thirty to forty-five second newly animated
<PAGE>
interstitials based on Richie Rich:
(iii) one Richie Rich opening title sequence, of approximately 60
seconds duration, including a title song;
b) Film Roman will be responsible for assembling the Harvey Elements and the
Film Roman Elements into 13 twenty-two minute, forty-four second episodes
which will include a title sequence with end credits.
c) Film Roman will deliver, according to Schedule A attached hereto, a set of
1 inch Masters to Claster Television and a set of Digital Beta Cam Masters
to Harvey at the respective addresses listed below:
Dana Feldman
Claster Television
9630 Deereco Road
Timonium, Maryland 21093
Jennifer Pritchard
The Harvey Entertainment Company
100 Wilshire Boulevard
Suite 1460
Santa Monica, California 90401
3. Harvey Approvals:
Harvey has the right of approval over all of the elements involved in the
production of the Series including, but not limited to: character
depiction, premise, script, storyboard, principal character voices and
theme song. Approval will be deemed given in each case in the absence of
Film Roman's receipt of comments from Harvey within 36 hours of each
submission. Approvals will be exercised reasonably.
4. Payment to Film Roman:
Payment shall be made according to the approved budget and cash flow as
shown on Exhibit B, attached hereto, at the beginning of each month.
Film Roman warrants and represents they will spend according to the
mutually approved budget. Any overages shall be the responsibility of Film
Roman unless approved by Harvey.
5. Copyright:
The Programs will be produced by Film Roman on a work for hire basis.
Harvey will own the copyright in the Programs, and will apply for
registration in the U.S. Copyright Office. A notice in substantially the
following form will be included in the end credits of each Program:
2
<PAGE>
(C) 1996 Harvey Comics, Inc., A Harvey Entertainment Company. All rights
reserved.
6. Work for Hire:
All materials supplied by Harvey to Film Roman are and shall remain the
property of Harvey. All services rendered by Film Roman shall be
considered a "work-made-for-hire" under the United States Copyright Act of
1976 as a work specially ordered or commissioned for use as part of a
contribution to the collective work, with Harvey being the sole author,
provided, however, to the extent that such work or results and proceeds
hereof is not deemed a work-made-for-hire under any jurisdiction, Film
Roman irrevocably assigns, transfer and conveys any such works and results
and proceeds, including any of Film Roman rights, to Harvey throughout the
world in any and all media and markets now known or hereafter devised, in
perpetuity. Film Roman further specifically waives any moral rights or
similar rights, if any, that Film Roman may have. All right, title and
ownership in the Series including, without limitation, all distribution
rights therein, belong to Harvey and all copyrights shall be in Harvey's
name. Film Roman agrees to follow the directions of Harvey in securing any
copyright protection which shall include the placement of any copyright
notice, as Harvey may direct. Film Roman shall have no rights whatsoever
in the Series, or in any of the Episodes thereof, or in any of the
production elements and/or Materials or in any other materials or services
relating to or arising from the production of the Series. Film Roman will
undertake prudent precautions to assure that said results and proceeds
shall be protected from unauthorized taking or copying. Any materials
which are sent to Film Roman or created by it shall be used only for the
purposes allowed hereunder. Film Roman shall return all cells, backgrounds
and other such elements requested by Harvey.
Any materials or the results of the services of Film Roman not returned by
Film Roman to Harvey shall be stored by Film Roman, at Harvey's expense,
until written instructions are received from Harvey to either destroy same
or ship same to Harvey, at Harvey's expense. If destruction is requested,
Film Roman shall furnish Harvey with an affidavit of destruction thereof.
7. Credits:
Opening credits - The Harvey Entertainment Company presents "Richie Rich"
The end credits of each Program will include the following single card
credits:
Jeffrey A. Montgomery - Executive Producer - First Position
Phil Roman - Executive Producer
3
<PAGE>
Gregory M. Yulish - Executive in Charge of Production
Jennifer Pritchard - Director of Production
Sid Jacobson - Story Editor
*Harvey Corporate Animated Logo
"Film Roman Production" and animated logo. In addition, customary credits
will be included for Film Roman's personnel, subject to Harvey's approval
not to be unreasonably withheld.
8. Special Provisions:
a) While employed by Film Roman Gary Conrad shall be engaged, through post
production, in producing capacities of the Series in the event Mr. Conrad
is no longer employed by Film Roman, then Harvey shall have approval rights
over the new producer, not to be unreasonably withheld. Film Roman will
produce substantially all the storyboards in Los Angeles.
b) It is of the essence of this agreement that the Film Roman produced
material shall be of at least the quality and cel count level of the Baby
Huey shorts produced by MCA in 1995. A VHS copy of the Baby Huey shorts is
included as Exhibit C.
c) Film Roman will be entitled to receive fifteen (15) full cel set-ups and
ten (10) reproductions for non-commercial use at the conclusion of
production of the Series.
9. Insurance:
Harvey will obtain an acceptable errors and omissions insurance policy in
respect of the Programs, with limits of at least $1,000,000 per occurrence
and $2,000,000 in the aggregate, and a deductible of no more than $10,000.
The policy will name Film Roman as an additional insured.
10. Further Productions:
During the term of this agreement, and for 1 year following delivery of the
Series, if Film Roman performs all material services hereunder, should
Harvey wish to have a third party produce further animated productions
based on the Series for syndicated, network or cable television, Film Roman
will have the right of First Negotiation/First Refusal for ten (10)
business days.
11. Warranties and Representations-Indemnification:
a) Harvey warrants and represents that Harvey is free to enter into and
fully perform this agreement, that the Property is original, that
Harvey has acquired all rights in and to the Property free of
encumbrances; that the Property will not violate or infringe any
trademark, tradename, copyright, agreement, patent, property right,
right of privacy, right of publicity, moral right or any
4
<PAGE>
other right whatsoever, and is not slanderous or libelous of any
person or entity; and that Harvey assumes responsibility for
continuing residual payments, in respect of SAG performers engaged by
Film Roman.
b) Film Roman warrants and represents that Film Roman is free to enter
into and fully perform this agreement; that except with respect to the
Property, as to which Film Roman makes no representation or warranty,
the Program and all elements thereof provided by Film Roman will be
original, or in the public domain, or Film Roman will acquire the
necessary rights to allow the exploitation of the Program as provided
in this agreement, that the Program will not violate or infringe any
tradename, copyright, agreement, patent, property right, right of
privacy, right of publicity, moral right or any other right
whatsoever, and will not be slanderous or libelous of any person or
entity.
c) Either party ("Indemnitor") will indemnify and hold harmless the other
("Indemnitee"), any licensee of the Indemnitee and the officers,
directors employees and agents of the foregoing from and against any
and all claims, damages, liabilities, costs and expenses, including
reasonable legal fees arising out of breach of the Indemnitor's
representations, warranties or obligations hereunder.
12. Relationship of the Parties:
Nothing contained herein will be deemed to create any association,
partnership or joint venture between Film Roman and Harvey.
13. Audit Rights:
Harvey has the right to audit Film Roman's books regarding the production
costs of the Series for a period of one (1) month following delivery of the
Series. Such must be exercised in a manner consistent with generally
accepted accounting principles upon ten (10) business days written prior
notice to Film Roman of a prospective audit which shall take place at Film
Roman's offices during regular business hours. Film Roman agrees to
provide Harvey with monthly cost runs detailing costs and expenses incurred
to date and expected cost of completion.
14. Arbitration:
In the event of any dispute arising out of or in connection with this
agreement, the parties hereby agree to submit such disputes to binding
arbitration in accordance with the rules of the International Chamber of
Commerce. A panel of three (3) arbitrators shall conduct the arbitration.
Such
5
<PAGE>
arbitrators shall be appointed in accordance with the rules of the place of
arbitration which shall be in the city of the party against whom the
arbitration is brought. The governing law shall be the laws of the State
of California of the United States of America.
15. If Film Roman becomes subject to the bankruptcy or similar debtor
protection laws of and country or if any secured creditor forecloses upon
any liens or similar security interest affecting its ability to produce
hereunder or if an injunction and/or judgment is issued ordering Film Roman
to stop production of the Series, Harvey may, in addition to such other
rights or remedies which it may have at law or otherwise under this
Agreement, terminate this Agreement in its entirety and thereafter, shall
be relieved of any obligations to Film Roman hereunder. Film Roman
acknowledges that its services rendered and the Film Roman Elements to be
provided hereunder are of a character which gives them a peculiar value,
for the loss of which Harvey may not be reasonably or adequately
compensated in damages, and a breach by Film Roman of the provisions of the
Agreement may cause Harvey irreparable injury and damage. Film Roman
therefore expressly agrees that Harvey shall be entitled to seek injunctive
and other equitable relief to prevent a breach of this Agreement or any
part hereof by Film Roman and to seek to secure its enforcement. Resort to
such equitable relief, however, shall not be construed to be a waiver of
any other rights or remedies which Harvey may have for damages or
otherwise. it is expressly understood and agreed that in the event it is
ultimately determined by a court that Harvey has committed a material
breach of this Agreement, the damage, if any, caused Film Roman thereby
would not be irreparable or otherwise sufficient to entitle Film Roman to
injunctive other equitable relief. Film Roman hereby acknowledges that its
rights and remedies in any such event shall be strictly limited to the
right, if any, to recover damages in an action at law, and Film Roman shall
not have either the right to rescind this Agreement or any of Harvey's
rights hereunder, or to enjoin any broadcast or exploitation of any Series
episode, or other dramatic version, based thereon or adapted therefrom.
16. The parties acknowledge that Harvey is under strict time requirements and
Harvey is entering into this Agreement with the understanding that Film
Roman can perform its obligations hereunder in a timely fashion.
Accordingly, time is of the essence of this Agreement.
17. Long Form Agreement:
The parties to this Agreement may enter into a Long Form Agreement
incorporating the terms set forth in this agreement and adding other
standard terms and conditions customary in work for hire animation
agreements in the entertainment
6
<PAGE>
industry. Notwithstanding the parties' intention to create and execute a
Long Form Agreement, upon the execution of this Agreement by both parties
hereto, this Agreement shall immediately be in full force and effect, and
shall be fully binding on and enforceable by both parties to this
Agreement.
Please confirm your agreement to the foregoing by signing where indicated below.
Sincerely,
HARVEY COMICS. INC.
Agreed to and Accepted this 6 day of May 1996.
--- ---------
HARVEY COMICS, INC.
By: /s/ Authorized Signatory
-------------------------------
FILM ROMAN
By: /s/ Philip Roman
-------------------------------
By:
-------------------------------
7
<PAGE>
Schedule A
On the dates specified, Film Roman will deliver each Program and Promo on D2:
<TABLE>
<CAPTION>
Program No. Date of Shipment
<C> <S> <C>
Opening Title September 6, 1996
1. Episode One September 6, 1996
2. " Two September 13, 1996
3. " Three September 27, 1996
4. " Four October 4, 1996
5. " Five October 11, 1996
6. " Six October 18, 1996
7. " Seven October 25, 1996
8. " Eight November 1, 1996
9. " Nine November 8, 1996
10. " Ten November 15, 1996
11. " Eleven November 22, 1996
12. " Twelve November 29, 1996
13. " Thirteen December 6, 1996
</TABLE>
8
<PAGE>
EXHIBIT 10.43
January 29, 1992
Dixon Dern, Esq.
Dern and Donaldson
1901 Avenue of the Stars
Suite 400
Los Angeles, CA 90067
Re: FILM ROMAN - "The Simpsons"
Dear Dixon:
The following, together with Exhibits "A", "B", "C", "D", "E", "F" and "G" all
of which are attached hereto and incorporated herein by this reference,
constitutes a Memorandum of Agreement reciting the principal deal points agreed
between Twentieth Television, a division of Twentieth Century Fox Film
Corporation ("Fox") and Film Roman ("Animation Studio") with respect to the
services and materials to be supplied by Animation Studio in connection with the
production of the Fox 1/2 hour animated television series entitled "The
Simpsons" ("Series"):
1. ENGAGEMENT OF ANIMATION STUDIO: Fox hereby engages Animation Studio to
produce and deliver to Fox all animation required for each episode of the
Series produced for the 1992-93 broadcast season. All work, materials and
services supplied and performed by Animation Studio shall be "work made for
hire" as defined in Section 101 U.S.C., Title 17 - Copyrights.
2. TERM OF AGREEMENT: The term of this agreement ("Term") shall commence on
the date hereof and shall continue through delivery to Fox of all elements
of each episode of the Series produced for the 1992-93 broadcast season.
3. OPTION TO EXTEND THE TERM: Fox shall have 4 consecutive and dependent
options to extend the Term so as to engage the services of Animation Studio
on all of the terms and conditions herein for all episodes of the Series
produced during each of the following broadcast seasons: 1993-94; 1994-95;
1995-96; 1996-97. Each option shall be exercised by Fox giving Animation
Studio notice in writing within 5 business days of Fox's acceptance of an
order from FBC (or other buyer) for each such broadcast season. Fox agrees
that subject to Fox's acceptance of each order from FBC (or other buyer)
and conditioned upon Animation Studio's full performance of its material
obligations to Fox hereunder, including, but not limited to, the timely
delivery of each episode produced in full conformity with the quality
herein
<PAGE>
specified during each broadcast year, Fox shall exercise each of it's
options as set forth above.
4. BUDGET FOR THE 1992-93 BROADCAST SEASON: Attached hereto as Exhibit "A" is
a copy of the Budget prepared by Animation Studio to produce each of 22
half-hour episodes of the Series for the 1992-93 broadcast season. The
Budget, which totals the sum of $424,627 includes an allowance of $130,000
for the cost of supplying animation to be produced in Korea. This Budget
item described in the Budget as Account # 02-00, is herein after referred
to as "Overseas Cost". The Overseas Cost will be negotiated on an annual
basis. The actual cost so negotiated will be included in the animation
Budget for each subsequent broadcast season. To the extent that the actual
Overseas Cost exceeds or is less than the amount specified in Exhibit "A",
then Fox will pay such excess and will receive the benefit of such saving.
Exhibit "A" has been prepared following extensive discussions between Fox
and Animation Studio and in reference to the information contained in
Exhibits "B", "C", "D" and "E". To the extent that Animation Studio
realizes any savings or incurs any deficit with respect to any line items
in Exhibit "A", then such savings and such deficit shall solely be the
responsibility of Animation Studio. To the extent that Fox requires any
services, work or materials not incorporated as a line item in Exhibit "A"
and/or not reflected in Exhibits, "B", "C", and "D", then Fox will pay for
such extra items on a cost plus profit basis.
5. BUDGET INCREASES: In the event that Fox exercises the options pursuant to
Paragraph 3 above to extend the Term, then the Budget for each broadcast
season subsequent to the 1992-93 broadcast season shall, predicated upon
the production of 22 shows, increase by an amount equal to 4% of the Budget
for the previous broadcast season less the Overseas Cost. In the event
that less than 22 shows are to be produced the amount of the budget will be
negotiated in good faith.
6. UNFORESEEN CONTINGENCIES: Notwithstanding anything to the contrary in
Paragraphs 4 and 5 appearing, Fox shall pay increases and receive the
benefit of savings with respect to line items in the Budget where such
increases or savings are caused by industry-wide increases or savings not
presently known, increases or savings in shipping costs and custom and
freight duties, airfare increases and decreases, and increases and savings
which occur as a result of an event of force majeure.
7. PRODUCTION SCHEDULE: Attached hereto as Exhibit "B" is a document
consisting of a Memo from Richard Raynis to David Robinson dated January
29, 1992 and with reference to "The Simpsons" 1992-93 Animation Studio
Production Requirements and Schedule. Also attached as Exhibit "C" is a
copy of the Production Deadline Chart for season #4 dated "as of 1/17/92"
2
<PAGE>
and, as Exhibit "D", a long form production schedule providing details of
and deadlines for each stage of production of the Series. Animation Studio
agrees to produce the Series in accordance with Exhibits "B", "C" and "D".
Attached hereto as Exhibit "E" is a document consisting of a Memo from Joe
Boucher to Richard Raynis dated January 20, 1992, and with reference to
"Animation Studio Tape Delivery Requirements". Exhibit "E" amplifies the
Delivery Requirements set for in Exhibit "B" and Animation Studio agrees to
provide all of the elements set forth in Exhibit "E".
8. APPROVALS: Fox shall have approval over all key Creative Personnel, or
changes thereto, engaged by Animation Studio, including Directors,
Producers and Overseas Animation Companies. Fox will have approval over
all character, prop and background designs, color, storyboards and
animatic. Fox will also have approval over all credits accorded by
Animation Studio which are to appear on screen. Fox's creative controls
will be exercised by Gracie Films. Notwithstanding the foregoing, the
credit to be accorded Animation Studio will be as per Exhibit "G".
9. QUALITY OF ANIMATION: The animation to be produced and delivered by
Animation Studio to Fox shall be of the same quality as that which Fox has
licensed for exhibition during the first 3 broadcast seasons of the Series.
10. INDEMNITY: Fox shall indemnify Animation Studio from and against claims
against Fox where Animation Studio is named as a defendant and where the
adjudication of such claims does not find causes of action caused by the
acts of the Animation Studio Animation Studio hereby indemnifies Fox
against claims against Animation Studio where Fox is named as a defendant
but the adjudication does not find causes of action caused by the acts of
Fox.
11. CASH FLOW SCHEDULE: Attached hereto is Exhibit "F", a document consisting
of a Memo dated January 23rd, 1992 from Greg Arsenault to Bill Schultz with
reference to "The Simpsons" Cash Flow of 1992-93. Fox agrees to make
payment of the monies stated in Exhibit "F" at the times and in the amounts
specified herein.
12. ANCILLARY MARKETS: Fox agrees that, to the extent under Fox's control,
Animation Studio shall be engaged to provide animation services where
required in connection with the exploitation of the Series in ancillary
markets e.g. merchandising, advertising, phonographic records, etc...
The remaining terms of our agreement now consist of so-called "boiler plate"
provisions, which provisions shall be negotiated in good faith. Unless and
until such additional provisions are negotiated and reduced to a writing which
is agreed between the
3
<PAGE>
parties, this Memorandum of Agreement shall constitute the agreement between the
parties.
Very truly yours ACCEPTED AND AGREED:
/s/ David M. Robinson By /s/ Phil Roman
- ---------------------------- -------------------------------
DAVID M. ROBINSON for and on behalf
for and on behalf of of Film Roman.
Twentieth Television,
a division of Twentieth
Century Fox Film Corporation.
4
<PAGE>
AS PER THE AGREEMENT
BETWEEN
FOX AND FILM ROMAN
EXHIBIT "B"
JANUARY 29, 1992
5
<PAGE>
TO: DAVID ROBINSON
FROM: RICHARD RAYNIS
DATE: JANUARY 29, 1992
RE: "THE SIMPSONS" 1992/93 ANIMATION STUDIO PRODUCTION REQUIREMENTS AND
SCHEDULE
_____________________________________________________________________
The following is a list of production requirements of the animation studio. It
is predicated on a 22 episode commitment and the attached schedules.
1. Animation Studio will provide a supervising director, five directors, five
assistant directors, and five sheet timers predicated on the attached schedule,
"Simps48A". Animation Studio will also provide a sixth directing team for at
least one episode, and the necessary support for any clip episodes directed by
the Supervising Director. Fox and Gracie have approval of these individuals.
1a. Fox/Gracie will provide the Animation Studio with designs from the previous
seasons, including stock models, stock color keys, and any other materials from
the previous seasons which are useful or necessary for production.
2. Animation Studio will submit prop, character, and background designs for
approval. Upon receipt of designs, the Simpsons producers Matt Groening, Sam
Simon, Al Jean and Mike Reiss will have 72 hours to return their notes.
Animation Studio will implement changes and submit revised designs until all
designs have been approved. Animation Studio will work with producers to
resolve design problems and conflicts. Richard Raynis will be the final arbiter
on behalf of Gracie and Fox. Animation Studio will supplement designs with
whatever turnarounds, mouth charts, views, and other materials are required for
the animation.
3. If requested, Animation studio will submit to Matt Groening color prints of
the color keys of props, characters and backgrounds for his approval.
4. Animation Studio will submit to Matt Groening and Gracie the first draft
storyboard based on the final script. They must be given five days to return
notes on Act One of the storyboard, and seven days for notes on Acts Two &
Three. This turnaround period must include at least one weekend. If
storyboards cannot be delivered within normal working hours, the Animation
Studio will arrange delivery of storyboards to producers' homes. Animation
6
<PAGE>
Studio will compile the storyboard notes from the various Simpsons producers,
including Matt Groening, Sam Simon, Al Jean and Mike Reiss, and the episode
writer, and notify them of potential problems and conflicts. Richard Raynis
will be the final arbiter on behalf of Gracie and Fox. Once the storyboard
notes have been resolved, they will be incorporated into the show at the layout
stage.
5. Animation Studio will provide five layout teams.
6. Animation Studio will create an animatic of the layouts. The animatic will
be 2100 feet (35mm film) in length, presented on 3/4" video. Animation Studio
will attend the animatic screening at Gracie Films. The animatic will be
scheduled at producers' convenience. Up to one producer unable to attend the
screening will be provided a second tape of the animatic. They will then have
48 hours to submit notes. Animation Studio will compile notes given by Simpsons
producers and submit this list to Gracie within 48 hours of the animatic, or
within 48 hours of receiving additional notes. Matt Groening, Al Jean and Mike
Reiss will then sign off on the animatic retake list. Richard Raynis will
arbitrate conflicts.
7. Animation Studio will be responsible for all layout revisions or deletions
that are requested by the Simpsons producers as a result of the animatic. The
revisions will affect no more than half the scenes in the episode, provided that
the animatic is of a level of quality consistent with those of the previous
season. Included in the revisions will be up to 60 new scenes required as a
result of rewriting.
8. Within the parameters of "7, Animation Studio will incorporate up to 50 new
dialogue lines which will be written and recorded after the animatic. Gracie
will provide Animation Studio with a script of new dialogue within a week of the
animatic. The recording of the new lines will be delivered to the Animation
Studio within two weeks of the animatic and incorporated into the show before
shipping.
9. Animation Studio is responsible for meeting the delivery requirements of
the overseas studios. If any problems arise from Gracie's late delivery of
materials to the Animation Studio which may cause a delay in shipping materials
overseas, Animation Studio must notify Gracie, via Richard Raynis, so that
Gracie may take the necessary steps to avoid the delay, or elect to negotiate
with the Animation Studio for an overage or delay.
10. Animation Studio is responsible for the quality and the timely delivery of
the animation completed overseas. Animation Studio will provide an overseas
supervisor and cover all costs, including shipping, customs, travel, etc.,
relating to the overseas animation.
7
<PAGE>
11. Animation Studio will be responsible for getting all materials through
customs. They will also be responsible for duties and custom broker fees.
12. Animation Studio will edit, sync, and transfer to 3/4" video tape the 35mm
color work print. Animation Studio will attend the screening at Gracie
scheduled at the Simpsons producers' convenience, and be responsible for taking
and compiling animation retake notes given at the screening.
13. Animation Studio is responsible for calling all technical retakes, and any
charges related to technical retakes. Animation Studio will also compile a list
of all non-technical retakes, and calculate the charges. The preliminary retake
list, including charges, will be delivered to Gracie within 24 hours of the
initial color screening. Once Simpsons producers have determined which non-
technical retakes are necessary, and Richard Raynis has approved the charges in
writing, the Animation Studio will oversee and guarantee the production and
delivery of the retakes.
14. Animation Studio will assemble and transfer the 35mm negative and retakes.
The final telecine will be delivered on 1" video and 3/4" video. The 1" master
will include a synced composite dialogue track.
15. Animation Studio will deliver to Gracie Films the Take 1 telecine master no
later than five days from the scheduled Take 1 delivery from-overseas. The
retakes will be delivered as follows:
Take 2 1" to be delivered no later than 16 days from the scheduled Take 1
delivery date from overseas.
Take 3 1" to be delivered no later than 6 days from the scheduled Take 2
delivery date.
Take 4 1" to be delivered no later than 6 days from the scheduled Take 3
delivery date.
cc: Boucher, Joe
Cavanaugh, Valerie
Goldstein, Charlie
Groening, Matt
Jean, Al
Mendel, Mike
Reiss, Mike
Sakai, Richard
Schoenbrun, Mike
Simon, Sam
Sirkot, Denise
Tsumura, Ken
8
<PAGE>
AS PER THE AGREEMENT
BETWEEN
FOX AND FILM ROMAN
EXHIBIT "D"
JANUARY 29, 1992
<PAGE>
To: Richard Raynis
From: Joe Boucher
Date: 1/20/92
Subject: Animation Studio Tape Delivery Requirements
Copies: Mike Mendel
Ken Tsumura
Ed Massour
David Robinson
Animatic Screening
- ------------------
The animation studio should provide (1) 3/4" viewing, one-lite telecine transfer
to screen with the producers, and (1) 3/4" copy to leave with Gracie (address
track and visible time code if possible)
Color Screening
- ---------------
The animation studio should provide (1) 3/4" viewing one-lite telecine transfer
to screen with the producers, and (1) 3/4" copy to leave with Gracie (address
track and visible time code if possible)
1" Color Corrected Telecine Master
- ----------------------------------
The animation studio should deliver (1) scene-to-scene, color corrected 1"
Telecine Master with drop-frame time code and (1) 3/4" dub with visible and
----------
address track time code to Gracie.
- - The animation studio should also be responsible for making a 1" protection
of the master to use in color matching the retakes.
Gracie's 1" Master and 3/4" should be delivered to:
Attn: Vault
Laser-Pacific
Burbank, Ca. 91505
The animation studio should inform The Simpsons Post Production Staff of their
schedule prior to the delivery of any tapes.
Note: The synched composite dialogue track on all tapes should be on both
Channel 1 & 2.
Take 2's, 3's, & 4's
- --------------------
The 1" & 3/4" delivery requirements and specs for all telecined retakes are
identical to the above 1" Master and 3/4" and should also be delivered to the
Vault at Laser-Pacific.
<PAGE>
EXHIBIT 10.44
Dated as of March 7, 1996
LICENSOR: FILM ROMAN, INC.
12020 Chandler Blvd., Suite 200
North Hollywood, California 91607 USA
Attn.: Business Affairs Department
LICENSEE: LUK INTERNACIONAL S.A.
Rossello, 208, 3/(degrees)/, 1/a/
08008 Barcelona
Spain
Re: LICENSE AGREEMENT
Ladies/Gentlemen:
When executed by you ("LICENSEE") on the one hand, and by, FILM ROMAN, INC.
"LICENSOR"), on the other hand, the attached License Agreement will constitute
the Agreement between Licensor and Licensee concerning certain rights to the
Picture(s) set forth below in accordance with the terms and conditions hereof.
The following are the basic terms of the Agreement:
TITLE
("Picture/s"): 36 episodes of "BRUNO The Kid" animated series
TOTAL TIME: One-half hour commercial broadcast time per episode
TERRITORY: Spain and Andorra
LANGUAGE: Spanish, Catalan, Basque, Valencian and Galician
RIGHTS
LICENSED: As defined in the attached License Agreement
Cinematic Rights: Licensed:
Theatrical [ ] Yes [ X ] No
Non-Theatrical [ ] Yes [ X ] No
Public Video [ ] Yes [ X ] No
Schedule A
1
<PAGE>
Video Rights: Licensed:
Home Video [ ] Yes [ X ] No
Ancillary Rights: Licensed:
Airline [ ] Yes [ X ] No
Ship [ ] Yes [ X ] No
Hotel [ ] Yes [ X ] No
Television Rights: Licensed:
Pay TV }
Terrestrial }
Cable } SEE SPECIAL PROVISION BELOW
Satellite }
Free TV
Terrestrial [ X ] Yes [ ] No
Cable SEE SPECIAL PROVISION BELOW
Satellite SEE SPECIAL PROVISION BELOW
TERM: Ten (10) years commencing upon the earlier of (i)
expiration of Canal Plus Spain's exclusive Canal Plus
Rights (as defined in the Special Provisions paragraph (A)
below), if any, or (ii) January 1, 1999
NUMBER OF
BROADCAST
RUNS: Unlimited
LICENSE FEE: US$252,000.00 ($7,000.00 per episode)
ROYALTIES: N/A
PAYMENT TERMS: US$118,000.00 upon signature of this agreement;
US$59,000.00 on November 30, 1996; and
US$75,000.00 on January 31, 1997.
Schedule A
2
<PAGE>
TRANSMISSION
MATERIAL: Betacam SP PAL Masters with separate M&E soundtrack, English
scripts and publicity materials on Loan
Licensor shall be responsible for all costs of shipment in
connection with the delivery of the transmissions materials to
Licensee and Licensee shall be responsible for all costs of
shipment in connection with the return of such transmission
materials.
SPECIAL
PROVISIONS: (A) PAY TELEVISION RIGHTS:
Licensor has, or will, enter into a license agreement with Canal
Plus-Spain granting Canal Plus the exclusive Pay Television
Rights and Free Cable and Free Satellite Rights (as such terms
are defined in this License Agreement) (hereinafter referred to
as "Canal Plus Rights") in the Picture in the Territory. Upon
expiration of the Canal Plus term, including any extensions, if
any, Licensee shall be granted the exclusive Canal Plus Rights in
the Picture, at no additional cost, for the remaining period of
the Term hereunder, if any.
(B) DUB ACCESS:
If Licensor, or any of its licensees or assigns, requires access
to Licensee's Spanish, Catalan, Basque, Valencian and Galician
Language Tracks, Licensee and Licensor agree that the financial
terms of access shall be negotiated in good faith based on
reasonable and customary commercial terms between Licensee and
Licensor. The Licensee undertakes and agrees that it shall have
no rights whatsoever to exploit the dubbed tracks or versions
thereof except for its broadcast on Free Television (Terrestrial,
Cable and Satellite) during the Term as provided in this
Agreement. After the expiration of the Term, the Licensee shall
have no exploitation rights in the program, or in the Spanish,
Catalan, Basque, Valencian and Galician Language Tracks, or
versions thereof. At the end of the Term, if Licensor desires
to obtain ownership of the Spanish, Catalan, Basque, Valencian
and Galician Language Tracks created hereunder, Licensee agrees
to assign all rights in the Spanish, Catalan, Basque, Valencian
and Galician Language Tracks to Licensor for a fee which shall be
negotiated in good faith between Licensor and Licensee based on
reasonable and customary commercial terms. Additionally, if
Canal Plus has created a Spanish Language Track, Licensor agrees
to use its reasonable efforts to obtain access for Licensee to
the Canal Plus Spanish Language Track, and, if possible, free of
charge. In the event
Schedule A
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Canal Plus has not yet created the Spanish Language Track,
Licensor will use its reasonable efforts to have Canal Plus
access Licensee's Spanish Language Track at a cost to be
negotiated in good faith between Licensee and Canal Plus.
PAYMENT: Due in accordance with the provisions of the agreement shall be
paid to Licensor by wire transfer to:
FILM ROMAN, INC.
First Charter Bank
265 North Beverly Dr.
Beverly Hills, California 90210
Account#: 002-858-487
ABA #: 122239843 (on behalf of Film Roman, Inc.)
Licensee shall advise Licensor by fax (818/985-2973) when any
such remittance is sent. Timely payment by Licensee is the
essence of this agreement.
FILM ROMAN, INC. ("Licensor") LUK INTERNACIONAL S.A. ("Licensee")
By:________________________ By:________________________
An Authorized Signatory An Authorized Signatory
Schedule A
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<PAGE>
LICENSE AGREEMENT
This agreement ("Agreement") is made and entered into as of the date set
forth in Schedule "A" which is attached hereto and incorporated herein by
reference, by and between FILM ROMAN, INC., ("FRI") whose principal place of
business is located at 12020 Chandler Blvd., Ste. 200, North Hollywood,
California 91607, and FILMS BY JOVE ("FBJ") whose principal place of business is
located at 10736 Wrightwood Lane, Studio City, California 91604
(FRI and FBJ shall hereinafter be referred to collectively as "Licensor"), and
Licensee, whose name and principal place of business are set forth in Schedule
"A" (hereinafter, "Licensee").
In consideration of the mutual representations, warranties and covenants
herein contained and other good and valuable consideration, Licensor and
Licensee hereby agree as follows:
1. Definitions: As used herein the following terms shall have the following
meanings:
(A) The "Picture": The "Picture/s" is/are set forth in Schedule "A".
(B) "Master": "Master" means technically satisfactory material from
which duplicate Masters ("Sub-Masters") suitable for use in the manufacture of
broadcast devices can be made.
(C) "Territory": "Territory" shall include those territories set forth
in Schedule "A".
(D) "Term": The "Term" shall mean the period as set forth in Schedule
"A".
(E) "Language": The "Language" means the language set forth in
Schedule "A".
(F) "Delivery": "Delivery" as used herein shall mean the date the
complete Master or Sub-Master is either delivered or made available to the
Licensee for duplication.
(G) "Motion Picture": "Motion Picture" as used herein means an
audiovisual work consisting of a series of related images which, when shown in
succession, impart an impression of motion, with accompanying sounds, if any.
1
<PAGE>
(H) "Motion Picture Copy" "Motion Picture Copy" as used herein means
the embodiment of a Motion Picture in any physical form, including without
limitation film, tape, cassette, disc or computer storage. Where a specific
medium is limited to exploitation by a specific physical form, for example, to
exploitation of Videograms, then Motion Picture Copy with respect to such medium
is limited to such physical form.
(I) Cinematic Definitions:
(i) "Cinematic" means all forms of "Theatrical", "Non-Theatrical"
and "Public Video" exploitation of a Motion Picture Copy.
(ii) "Theatrical" means exploitation of a Motion Picture Copy
only for direct exhibition in conventional or drive-in theaters, licensed as
such in the place where the exhibition occurs, which are open to the general
public on a regularly scheduled basis and which charge an admission fee to view
the Picture.
(iii) "Non-Theatrical" means exploitation of a Motion Picture
Copy, whether embodied in a Videogram or otherwise, only for direct exhibition
before an audience by and at the facilities of either organizations not
primarily engaged in the business of exhibiting Motion Pictures, such as in
educational organizations, churches, restaurants, bars, clubs, trains,
libraries, Red Cross facilities, oil rigs, oil fields, or by and at the
facilities of governmental bodies such as in embassies, military bases, military
vessels, and other governmental facilities flying the flag of the licensed
territory. By way of clarification but not limitation, Non-Theatrical does not
include Public Video, Airline, Ship or Hotel exploitation.
(iv) "Public Video" means exploitation of a Motion Picture Copy
embodied in a videogram only for direct exhibition before an audience in a
"mini-theater", an "MTV theater" or like establishment which charges an
admission to use the viewing facility or to view the Videogram and which is not
licensed as a traditional motion picture theater in the place where the viewing
occurs.
(J) Video Definitions:
(i) "Video" means all forms of "Home Video" exploitation of a
Motion Picture.
(ii) "Home Video" means the exploitation of a Motion Picture Copy
embodied in a Videogram which is rented or sold to the viewer only for viewing
the embodied Motion Picture in private living accommodations where no admission
fee is charged with respect to such viewing. Home Video does not include the
public performance, diffusion, exhibition or broadcast of the Videogram.
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(K) Ancillary Definitions:
(i) "Ancillary" means all forms of "Airline", "Ship" and "Hotel"
exploitation of such Motion Picture.
(ii) "Airline" means exploitation of a Motion Picture Copy only
for direct exhibition in airplanes, where ever located, which are operated by an
airline flying the flag of any country in the licensed territory for which the
Airline exploitation is granted, but excluding airlines which are customarily
licensed from a location outside the licensed territory or which are only
serviced in but not do fly the flag of a country in the licensed territory.
(iii) "Ship" means exploitation of a Motion Picture Copy only for
direct exhibition in ocean going vessels, where ever located, which are operated
by an shipping line flying the flag of any country in the licensed territory for
which Ship exploitation is grated, but excluding shipping lines which are
customarily licensed from a location outside the territory or which are only
serviced in but do not fly the flag of a country in the licensed territory.
(iv) "Hotel" means exploitation of a Motion Picture Copy only for
direct exhibition in temporary or permanent living accommodation such as hotels,
motels, apartment complexes, co-operatives or condominium projects by means of
closed-circuit television systems where the telecast originates within or in the
immediate vicinity of such living accommodations.
(L) Television Definitions:
(i) "Television" means all forms of "Free TV" and "Pay TV"
exploitation of a Motion Picture.
(ii) "Free TV" means all forms of "Terrestrial Free TV", "Cable
Free TV", and "Satellite Free TV" exploitation of a Motion Picture.
(iii) "Terrestrial Free TV" means only standard over-the-air
broadcast by means of Hertzian waves of a Motion Picture Copy which is intended
for reception on a television receiver in private living accommodations without
a specific charge being made to the viewer for the privilege of viewing the
Motion Picture. For purposes of this definition, neither governmental television
receiver assessments or taxes will be deemed a charge to the viewer.
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<PAGE>
(iv) "Cable Free TV" means only the transmission by means of
coaxial, fiber-optic or comparable cable of a Motion Picture Copy for reception
on a television receiver in private living accommodations without a specific
charge being made to the viewer for the privilege of viewing the Motion Picture.
For purposes of this definition, neither governmental television receiver
assessments or taxes, nor the regular periodic service charges (other than a
charge paid with respect to Pay TV) paid by a subscriber to a cable television
system will be deemed a charge to the viewer.
(v) "Satellite Free TV" means only the up-link transmission of a
Motion Picture Copy to a satellite and its down-link transmission to a
terrestrial satellite reception dish for the purpose of viewing of the Motion
Picture on a television receiver in private living accommodations which is
located in the immediate vicinity of the reception dish without a specific
charge being made to the viewer for the privilege of viewing the Motion Picture.
For purposes of this definition, neither governmental television receiver
assessments or taxes will be deemed a charge to the viewer.
(vi) "Pay TV" means all forms of "Terrestrial Pay TV", "Pay-Cable
TV" and "Satellite Pay TV" exploitation of a Motion Picture. Pay TV does not
include any form of "pay-per-view" or "video on demand" telecast or other
exhibition.
(vii) "Terrestrial Pay TV" means only standard over-the-air
broadcast of any Motion Picture Copy by means of encoded Hertzian waves for
reception on a television receiver in private living accommodations by means of
a decoding device where a charge is made: (1) to the viewer for the right to use
the decoding device for viewing any special channel which transmits the Motion
Picture along with other programming; or (2) to the operator of a hotel, motel,
apartment complex, co-operative, condominium project or similar place located
distant from the place where such broadcast signal originated for the right to
use the decoding device to receive and retransmit the programming on such
channel throughout such place.
(viii) "Cable Pay TV" means transmission or retransmission of a
Motion Picture Copy by means of an encoded signal over coaxial or fiber-optic
cable for reception on a television receiver in private living accommodations by
means of a decoding device where a charge is made: (1) to the viewer for the
right to use the decoding device for viewing any special channel which transmits
the Motion Picture along with other programming; or (2) to the operator of a
hotel, motel, apartment complex, co-operative, condominium project or similar
place located distant from the place where such broadcast signal originated for
the right to use the decoding device to receive and retransmit the programming
on such channel throughout such place.
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<PAGE>
(ix) "Satellite Pay TV" means the up-link transmission of a
Motion Picture Copy by means of an encoded signal to a satellite and its down-
link transmission to a terrestrial satellite reception dish and a decoding
device for the purpose of viewing the Motion Picture on a television receiver in
private living accommodations which is located in the immediate vicinity of the
reception dish and decoding device where a charge is made: (1) to the viewer for
the right to use the decoding device for viewing any special channel which
transmits the Motion Picture along with other programming; or (2) to the
operator of a hotel, motel, apartment complex, co-operative, condominium project
or similar place located distant from the place where such broadcast signal
originated for the right to use the decoding device to receive and retransmit
the programming on such channel throughout such place.
2. Grant of Rights
(a) Subject to the limitations, terms and conditions set forth in
this Agreement, Licensor hereby grants to the Licensee the right, license and
privilege throughout the Territory during the Term to exploit the Picture
linearly in the Language, pursuant to the Rights set forth in Schedule "A" as
such rights are defined in Paragraph 1 above. Licensee shall not authorize or
permit any telecasts or videocassettes to be exported and/or exploited out of
the Territory. Licensee shall in addition have the right to use extracts from
the Picture not exceeding two (2) minutes in length on any manner and media for
the sole purpose of advertising and promoting the Picture hereunder.
(b) Licensee shall have the right to use and authorize others to use
the name, likeness (whether by photograph or otherwise) and voice of any person
who appears recognizably in the Picture, solely for the purpose of advertising,
publicizing or exploiting the Picture, provided that:
(i) Licensee shall, and shall cause its licensees to, strictly
abide by all relevant restrictions imposed upon Licensor of which notice is
given to Licensee with respect to the use of any person's name, likeness and/or
voice pursuant to this subparagraph 2(b);
(ii) The name, likeness and/or voice of any person shall not
be used as a direct or indirect endorsement of any product, service or
commodity;
(iii) No such advertising materials shall use more than two (2)
minutes of the Picture; and
(iv) Licensee agrees that copies of all such usage referred to
in subparagraph 2(b) shall be furnished to Licensor promptly after publication.
(c) Notwithstanding anything to the contrary contained herein, the
rights
5
<PAGE>
granted to Licensee hereunder do not include the right to use or permit the use
of any broadcast or telecast devices for viewing in any place of public assembly
where an admission fee or viewing fee is charged, for theatrical exhibition, or
for broadcast or exhibition in hotels, military camps and installations,
embassies, prisons, buses, oil rigs, aircraft, ships, educational institutions,
hospitals, or by other so-called "non-standard" means, not known or hereafter
devised, nor do the rights include so-called "on-line" services nor "video on
demand" services, unless approved in writing by Licensor.
(d) All rights to the Picture which have not been granted to Licensee
pursuant to this Paragraph 2 are hereby expressly reserved to Licensor, and
Licensor shall be entitled to exercise, exploit and/or dispose of any such
reserved rights throughout the world (including, without limitation, in the
Territory) at any time without prior notice or any obligation to Licensee
whatsoever.
(e) It is specifically agreed that Licensee shall have no right to
edit, re-sequence, alter the music in any way, dub (unless otherwise agreed to
herein), add to delete from or otherwise alter the Picture in any manner
whatsoever without obtaining Licensor's prior written consent. In the event
Licensee is authorized hereunder to create dubbed versions of the Picture, upon
Licensor's request Licensee shall make such version immediately available to
Licensor for purposes of creating copies thereof, such costs of reproduction to
be paid by Licensor. Notwithstanding the foregoing, Licensee may, at its own
cost, add its "logo" preceding the main title or following the end title.
3. Obligations of Licensee.
(a) Licensee shall use its best efforts, skill and ability in the
distribution, marketing and exploitation of the Picture hereunder.
(b) Licensee shall strictly comply with all contractual requirements
for advertising credit to persons who rendered services or furnished materials
in connection with the Picture of which Licensor notifies Licensee.
(c) Licensee shall be solely responsible for all marketing,
advertising and other costs incident to the rights granted hereunder.
(d) Any and all licenses or broadcast rights granted by Licensee shall
terminate and/or expire as of the expiration date of this agreement. No such
grant by Licensee shall survive the Term. Upon expiration of the Term:
(i) the Licensee shall at its own expense return the Programs to
the Licensor at the Licensor's original point of dispatch or such other address
as the Licensor nominates; or
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<PAGE>
(ii) at the option of the Licensor, the Licensee shall, if the
Programs are recorded on film, destroy the Programs and furnish the Licensor a
certificate of destruction thereof; or
(iii) at the option of the Licensor, the Licensee shall erase the
Program signals if recorded on videotape and furnish to the Licensor a
certificate of erasure thereof.
(e) The Licensee shall be responsible for the payment to the
appropriate performing rights collecting bodies or agencies of all royalties and
license fees payable to any composers, authors, music publishers and performing
rights societies by reason of Licensee's exercise of the Rights in accordance
with this Agreement.
(f) Unless otherwise provided, all credits will be given in respect
of the Picture in accordance with the usual practice in the film and television
industry and the Picture shall be telecast without any omission, editing or
abbreviation of the production credits as they appear on the Picture.
(g) The Licensee may make only such cuts or deletions as are
necessary to make the Picture conform to its time segment requirements and its
continuity and broadcast acceptance standards and may add commercial matter not
exceeding then (10) minutes in duration per twenty (20) minutes of the picture
provided it is clear to the television viewers that such commercial matter is
not part of the continuity of the Picture.
4. Delivery and Use of Materials.
Licensee shall purchase all materials, including but not limited to
pertinent advertising and publicity materials at Licensor's "Standard Proforma
Price", such price list to be provided promptly upon Licensee's request, and
Licensor shall deliver such Materials to the address specified herein. Unless a
definite schedule of telecasting the Picture is stipulated herein, Licensee
shall give Licensor not less than thirty (30) days prior written notice of the
scheduled date of each telecast where shipment is via air and reasonable prior
notice where shipment is other than via air. All reasonable costs of delivery of
such Materials, including, without limitation, packaging, shipping, insurance
and custom fees and duties, shall be the Licensee's sole responsibility.
(a) At the end of the exhibition period or, if the Materials
are on loan, within a reasonable time after the date of delivery of the
Materials, the Licensee, at Licensee's sole expense, shall return the Materials
to Licensor unless otherwise instructed.
(b) The Licensee shall refund to the Licensor any replacement
costs of any Material lost or damaged while in the possession of the Licensee.
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<PAGE>
(c) Unless the Licensee advises the Licensor within four (4) weeks
of the Material having been delivered to the Licensee of any technical or
quality or other defect in the Material that will prevent telecasting, the
Material shall be deemed fit for telecasting.
5. Distribution Guarantees.
(a) In full consideration for all rights, privileges and licenses
granted to Licensee, Licensee agrees to pay Licensor and Licensor agrees to
accept the License Fee and Royalties, if applicable, set forth in Schedule "A".
(b) Licensor will have the option to terminate this Agreement if 100%
payment has not been received from Licensee in accordance with the payment terms
as set forth in Schedule "A".
(c) All payments made hereunder and the requisite notice thereof
shall be forwarded to the account of Licensor as provided for in Paragraph 6 (b)
below.
6. Payments and Accountings.
A. Licensee shall use its best efforts to timely obtain all government
permits necessary to make payment to Licensor as and when required under this
Agreement. Notwithstanding anything to the contrary contained herein, there
shall be no deductions whatsoever from any payments made to Licensor hereunder
on account of bank charges, including without limitation, bank wire transfer
charges, costs of currency conversion or conversion taxes, it being the intent
hereof that any amounts payable to Licensor hereunder shall be free and clear of
any tax, levy or charge whatsoever, except with respect to any withholding tax
or similar tax which Licensee is obliged by law to deduct, subject to Paragraph
17 and 18 herein.
B. Payment shall be made in U.S. dollars at the address of Licensor by
bank wire transfer.
7. Titles and Substitution of Pictures.
Licensor reserves the right to change the title of any Picture
embraced by this Agreement. Licensor also reserves the right to substitute a
Picture of comparable quality for any Picture licensed hereunder because of
force majeure, unavailability or any threatened litigation in connection with
such Picture or to minimize possible damage from any pending, threatened, or
possible court action. In the event that Licensor is not in a position to make
such substitution and so notifies Licensee, then Licensee agrees that Licensor
may remove such Picture from this Agreement, and in such event the License Fee
shall be reduced by an amount equal to the License Fee applicable to such
Picture;
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<PAGE>
provided, however if a License Fee is not specified for a particular Picture,
Licensor may, in its sole, but reasonable discretion, allocate a portion of the
License Fee to such Picture.
8. Licensor's Warranties.
Licensor represents and warrants that it possesses the full right,
titles and interest to enter into and to perform this Agreement, and it will
not, so long as this Agreement remains in effect, grant to any other person,
firm or corporation any rights which it has exclusively granted to Licensee
hereunder. Licensor further represents and warrants that the Picture was made in
accordance with all relevant contracts, legislation and regulations, and
provided that Licensee complies with its obligations hereunder, Licensee shall
be able, without financial, legal or other liability, to fully and freely
exploit and exercise its right in the Picture(s) as granted hereunder.
9. Default by Licensee.
Subject to paragraph 15 hereof, in the event:
(a) Licensee shall fail to make all payments hereunder for any reason
and shall not make payments as aforesaid within ten (10) days after written
demand for same from Licensor; or
(b) Licensee shall make or attempt to make any assignment for the
benefit of creditors or make or attempt to make any composition with creditors,
or any action or proceeding under bankruptcy or insolvency law is taken by or
against Licensee, or Licensee shall effect or attempt to effect a voluntary or
compulsory liquidation of assets; or
(c) Licensee shall fail within twenty-one (21) days after written
demand by Licensor to remedy completely any other material act or failure
constituting a material breach of this Agreement; then, and in any such events,
Licensor may, in addition to (and without prejudice of any or all of its other
rights and remedies at law or otherwise it may possess) terminate the Term of
this Agreement by giving written notice to Licensee of such termination, without
refunding or rebating any amounts whatsoever to Licensee. The Licensor is hereby
entitled to retain (without in any way limiting Licensor's rights or remedies)
such amounts by way of partial liquidated damages.
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<PAGE>
10. Protection of Pictures.
Licensee shall take all reasonable and practicable steps necessary to
protect the copyright in the Picture, and all material delivered hereunder.
Subject to Licensor's prior approval with respect to the institution of any
legal proceeding, Licensee shall further take all legal action necessary to
protect the interest of Licensor and Licensee in the Picture and to restrain or
obtain redress from any third party from any unauthorized use of the Picture,
the broadcast or duplication thereof, or the doing of any act which infringes
upon the Picture or any Materials manufactured or delivered hereunder. Licensor
shall be free to participate in such action using counsel of its own choice, at
Licensor's expense, and Licensor's expenses thereof shall be repaid to Licensor
out of any recovery from such action, pro rata with the repayment to Licensee of
its expenses. If Licensee shall fail or refuse to take any of the foregoing
actions, then, in addition to any of the rights which Licensor shall have
hereunder, either at law or in equity, Licensor may (but shall not be obligated
to) take such action in Licensor's and/or Licensee's name, in which event any
recovery from such action undertaken by Licensor shall be the sole property of
Licensor. Licensee shall notify Licensor in writing of the occurrence of any
event relating to the provisions of this paragraph and all actions taken with
regard thereto.
11. Indemnification.
The parties hereto agree to defend, indemnify and hold each other and
the other's officers, directors, agents, employees, parents, subsidiaries,
affiliates, successors and assigns harmless from and against any and all
liability, loss, damage, costs or expense, including reasonable attorneys' fees,
paid or incurred by reason of any breach or alleged breach of the warranties,
representations or agreements contained herein reduced to final non-appealable
judgment or settled with the indemnitor's consent. The indemnitor shall receive
prompt written notice of any claim or action to which this indemnity applies and
shall be given the reasonable opportunity to defend against and/or settle such
claim or action.
12. Notices.
All notices, approvals, payments or documents which either party is
required to deliver hereunder shall be in writing and shall be personally
delivered, telexed, telecopied, telegraphed or mailed, postage prepaid, at the
address set forth in Schedule "A", or to such other address, as either party may
from time to time designate. All notices given by mail shall be deemed given
when received but in any event no later than five (5) days from the day of
deposit in the mail. All notices sent by telex, telecopy or telegraph shall be
deemed given when received but in no event later than one working day from the
date sent. All notices given by personal delivery shall be deemed given when
received.
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13. Assignability.
Licensee shall not assign or license this Agreement or any of its
rights hereunder or delegate any of its obligations hereunder, in whole or in
part, without the prior written consent of Licensor, provided, however,
Licensees may sub-license its rights hereunder to a reputable broadcaster in and
for the Territory, provided that such assignment and/or sub-license will not
relieve Licensee of any of its obligations hereunder. Licensor may at any time
freely assign this Agreement in whole or in part, or any of its rights
hereunder.
14. Relationship of Parties.
This Agreement shall not be deemed to create any partnership, joint
venture, agency, fiduciary or employment relationship between the parties, and
neither party shall hold itself out as the agent or partner of the other.
Neither party shall hold itself out contrary to the terms of this paragraph and
neither shall become liable for any representations, acts or omissions of the
other.
15. Force Majeure.
Neither party shall be deemed in default if the performance of
obligations hereunder is delayed or becomes impossible or impracticable by
reason of any Act of God, war, fire, earthquake, flood, accident, civil
commotion, strike or in general any industrial disturbance or shortage of raw
material or energy, act or refusal of any Government, union, guild or similar
body, their agencies or officers, or any other legitimate cause beyond the
control of the parties hereto. In the event the exploitation of the Picture
becomes impossible or impracticable because of any such event, the Term hereof
shall be automatically extended by the same period as such event continues,
provided that if such period exceeds three (3) months, either party shall at any
time thereafter be entitled to terminate this Agreement, during such event of
force majeure, by written notice to the other party.
16. Applicable Law.
This Agreement is entered into pursuant to the laws of the State of
California, and the United States of America, and shall be interpreted in
accordance with the laws applicable to agreements entered into and wholly
performed therein. Any controversy or claim arising out of or relating to this
Agreement or the validity, construction or performance of this Agreement, or the
breach thereof, shall be governed by such laws, and Licensee hereby consents to
binding arbitration in accordance with the American Arbitration Association in
Los Angeles, California.
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17. Blocked Currency and Foreign Exchange.
(a) Licensee shall promptly notify Licensor in writing if the
transmission of any gross receipts payable to Licensor is prevented by embargo,
blocked currency regulations or other restrictions. Provided that the laws of
the country in which such frozen funds exist permit the transfer of Licensor's
share of such funds to Licensor, then Licensor's share of gross receipts shall
be deposited in Licensor's name in any bank designated by Licensor in such
foreign country. Such deposit will be deemed proper payment to Licensor of the
monies due and payable to Licensor.
(b) If, in Licensor's judgment, the transfer of funds from the
Territory to the United States becomes economically inadvisable because of
prohibitive exchange rates, then Licensee agrees, upon Licensor's request, to
deposit Licensor's share of gross receipts in such foreign country in the manner
described in subparagraph (a) above.
18. Taxes.
Licensee agrees to assist Licensor with the application and completion of
all documents necessary to qualify Licensor for exemptions from taxes imposed on
the payment of fees for rights licensed hereunder.
19. Miscellaneous.
(a) No waiver of any default or breach of this Agreement by either
party shall be deemed a continuing waiver or a waiver of any other breach or
default, no matter how similar.
(b) Each of the parties acknowledges and agrees that the other has
not made any representations, warranties, or agreements of any kind, except as
may be expressly set forth herein.
(c) This Agreement constitutes and contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements, oral or written. Nothing herein contained
shall be binding upon the parties until this Agreement has been executed by an
officer of each party. This Agreement may not be changed, modified, amended or
supplemented, except in writing signed by both parties.
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<PAGE>
(d) The paragraph headings used in this Agreement are for convenience
only and shall have no legal effect whatsoever.
(e) If any part of this Agreement shall be declared invalid or
unenforceable by a court of competent jurisdiction, it shall not affect the
validity of the balance of this Agreement, provided, however, that if any
provision of this Agreement pertaining to the payment of monies to Licensor
shall be declared invalid or unenforceable, Licensor shall have the right, at
its option, to terminate this Agreement upon giving written notice to Licensee
of its election to do so.
(f) In the event of any action, suit or proceeding hereunder, the
prevailing party shall be entitled to recover its attorneys' fees and the costs
of said action, suit or proceeding.
FILM ROMAN, INC. ("Licensor")
By: /s/ Phil Roman
------------------------------------------
An Authorized Signatory
LUK INTERNACIONAL S.A. ("Licensee")
By: /s/ Authorized Signatory
-------------------------------------------
An Authorized Signatory
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EXHIBIT 10.45
Dated as of May 22, 1996
LICENSOR: FILM ROMAN, INC.
12020 Chandler Blvd., Suite 200
North Hollywood, California 91607 USA
Attn.: Business Affairs Department
LICENSEE: Canal Plus Spain
Sociedad de Television Canal Plus
Gran Via 32, Tercera Planta
28013 Madrid
Spain
Re: LICENSE AGREEMENT
Ladies/Gentlemen:
When executed by you ("LICENSEE") on the one hand, and by, FILM ROMAN, INC.
"LICENSOR"), on the other hand, the attached License Agreement will constitute
the Agreement between Licensor and Licensee concerning certain rights to the
Picture(s) set forth below in accordance with the terms and conditions hereof.
The following are the basic terms of the Agreement:
TITLE
("Picture/s"): 36 episodes of "BRUNO The Kid" animated series
TOTAL TIME: One-half hour commercial broadcast time per episode
TERRITORY: Spain
LANGUAGE: Spanish Dubbed
RIGHTS
LICENSED: As defined in the attached License Agreement
Cinematic Rights: Licensed:
Theatrical [_] Yes [ X ] No
Non-Theatrical [_] Yes [ X ] No
Public Video [_] Yes [ X ] No
Schedule A
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<TABLE>
<S> <C> <C> <C>
Video Rights: Licensed:
Home Video [ ] Yes [X] No
Ancillary Rights: Licensed:
Airline [ ] Yes [X] No
Ship [ ] Yes [X] No
Hotel [ ] Yes [X] No
Television Rights: Licensed:
Pay TV
Terrestrial [X] [ ] No }
Cable [X] [ ] No } SEE SPECIAL PROVISION BELOW
Satellite [X] [ ] No }
Free TV
Terrestrial [ ] Yes [X] No
Cable [ ] Yes [X] No
Satellite [ ] Yes [X] No
</TABLE>
TERM: One and one-half (1 1/2) years commencing on February 1,
1997 and ending on July 31, 1998
NUMBER OF
BROADCAST
RUNS: Three (3) runs on Canal Plus Spain and four (4) runs on
Minimax (collectively referred to as "Licensee").
Exclusive
LICENSE FEE: US$187,200.00 ($5,200.00 per episode)
ROYALTIES: N/A
PAYMENT TERMS: US$18,720.00 upon signature of this agreement;
US$56,160.00 upon acceptance of the materials;
US$56,160.00 upon commencement of the license period (or
February 1, 1997); and
US$56,160.00 three (3) months after commencement of the
license period (or April 30, 1997).
Schedule A
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TRANSMISSION
MATERIAL: Betacam SP PAL Masters with separate M&E soundtrack, scripts and
publicity materials on Loan
Licensor shall be responsible for all costs of shipment in
connection with the delivery of the transmissions materials to
Licensee and Licensee shall be responsible for all costs of
shipment in connection with the return of such transmission
materials.
SPECIAL
PROVISIONS: (A) PAY TERRESTRIAL:
Canal Plus Spain shall have the exclusive first run of the
Picture in the Territory beginning on February 1, 1997 and ending
on January 31, 1998.
(B) PAY CABLE AND SATELLITE:
Minimax shall have an exclusive six (6) months run of the Picture
in the Territory beginning on February 1, 1998 and ending on July
31, 1998. This period will be non-exclusive with terrestrial
Free TV.
(C) DUBBING AND DUB ACCESS:
Licensee agrees and undertakes the creation of the Spanish Dubbed
Language Tracks. If Licensor or any of its licensees or assigns
requires access to the Spanish Dubbed Language Tracks created by
Licensee, Licensee agrees to grant access to such tracks provided
that Licensor shall reimburse Licensee for fifty percent (50%) of
the actual dubbing costs incurred by Licensee for such tracks.
PAYMENT: Due in accordance with the provisions of the agreement shall be
paid to Licensor by wire transfer to:
FILM ROMAN, INC.
First Charter Bank
265 North Beverly Dr.
Beverly Hills, California 90210
Account#: 002-858-487
ABA #: 122239843 (on behalf of Film Roman, Inc.)
Schedule A
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Licensee shall advise Licensor by fax (818/985-2973) when any
such remittance is sent. Timely payment by Licensee is the
essence of this agreement.
FILM ROMAN, INC. ("Licensor") CANAL PLUS SPAIN ("Licensee")
By:________________________ By:________________________
An Authorized Signatory An Authorized Signatory
Schedule A
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LICENSE AGREEMENT
This agreement ("Agreement") is made and entered into as of the date set
forth in Schedule "A" which is attached hereto and incorporated herein by
reference, by and between FILM ROMAN, INC., ("FRI") whose principal place of
business is located at 12020 Chandler Blvd., Ste. 200, North Hollywood,
California 91607, and FILMS BY JOVE ("FBJ") whose principal place of business is
located at 10736 Wrightwood Lane, Studio City, California 91604
(FRI and FBJ shall hereinafter be referred to collectively as "Licensor"), and
Licensee, whose name and principal place of business are set forth in Schedule
"A" (hereinafter, "Licensee").
In consideration of the mutual representations, warranties and covenants
herein contained and other good and valuable consideration, Licensor and
Licensee hereby agree as follows:
1. Definitions: As used herein the following terms shall have the
following meanings:
(A) The "Picture": The "Picture/s" is/are set forth in Schedule "A".
(B) "Master": "Master" means technically satisfactory material from
which duplicate Masters ("Sub-Masters") suitable for use in the manufacture of
broadcast devices can be made.
(C) "Territory": "Territory" shall include those territories set
forth in Schedule "A".
(D) "Term": The "Term" shall mean the period as set forth in
Schedule "A".
(E) "Language": The "Language" means the language set forth in
Schedule "A".
(F) "Delivery": "Delivery" as used herein shall mean the date the
complete Master or Sub-Master is either delivered or made available to the
Licensee for duplication.
(G) "Motion Picture": "Motion Picture" as used herein means an
audiovisual work consisting of a series of related images which, when shown in
succession, impart an impression of motion, with accompanying sounds, if any.
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(H) "Motion Picture Copy" "Motion Picture Copy" as used herein means
the embodiment of a Motion Picture in any physical form, including without
limitation film, tape, cassette, disc or computer storage. Where a specific
medium is limited to exploitation by a specific physical form, for example, to
exploitation of Videograms, then Motion Picture Copy with respect to such medium
is limited to such physical form.
(I) Cinematic Definitions:
(i) "Cinematic" means all forms of "Theatrical", "Non-
Theatrical" and "Public Video" exploitation of a Motion Picture Copy.
(ii) "Theatrical" means exploitation of a Motion Picture Copy
only for direct exhibition in conventional or drive-in theaters, licensed as
such in the place where the exhibition occurs, which are open to the general
public on a regularly scheduled basis and which charge an admission fee to view
the Picture.
(iii) "Non-Theatrical" means exploitation of a Motion Picture
Copy, whether embodied in a Videogram or otherwise, only for direct exhibition
before an audience by and at the facilities of either organizations not
primarily engaged in the business of exhibiting Motion Pictures, such as in
educational organizations, churches, restaurants, bars, clubs, trains,
libraries, Red Cross facilities, oil rigs, oil fields, or by and at the
facilities of governmental bodies such as in embassies, military bases, military
vessels, and other governmental facilities flying the flag of the licensed
territory. By way of clarification but not limitation, Non-Theatrical does not
include Public Video, Airline, Ship or Hotel exploitation.
(iv) "Public Video" means exploitation of a Motion Picture Copy
embodied in a videogram only for direct exhibition before an audience in a
"mini-theater", an "MTV theater" or like establishment which charges an
admission to use the viewing facility or to view the Videogram and which is not
licensed as a traditional motion picture theater in the place where the viewing
occurs.
(J) Video Definitions:
(i) "Video" means all forms of "Home Video" exploitation of a
Motion Picture.
(ii) "Home Video" means the exploitation of a Motion Picture
Copy embodied in a Videogram which is rented or sold to the viewer only for
viewing the embodied Motion Picture in private living accommodations where no
admission fee is charged with respect to such viewing. Home Video does not
include the public performance, diffusion, exhibition or broadcast of the
Videogram.
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(K) Ancillary Definitions:
(i) "Ancillary" means all forms of "Airline", "Ship" and "Hotel"
exploitation of such Motion Picture.
(ii) "Airline" means exploitation of a Motion Picture Copy only for
direct exhibition in airplanes, where ever located, which are operated by an
airline flying the flag of any country in the licensed territory for which the
Airline exploitation is granted, but excluding airlines which are customarily
licensed from a location outside the licensed territory or which are only
serviced in but not do fly the flag of a country in the licensed territory.
(iii) "Ship" means exploitation of a Motion Picture Copy only for
direct exhibition in ocean going vessels, where ever located, which are operated
by an shipping line flying the flag of any country in the licensed territory for
which Ship exploitation is grated, but excluding shipping lines which are
customarily licensed from a location outside the territory or which are only
serviced in but do not fly the flag of a country in the licensed territory.
(iv) "Hotel" means exploitation of a Motion Picture Copy only for
direct exhibition in temporary or permanent living accommodation such as hotels,
motels, apartment complexes, co-operatives or condominium projects by means of
closed-circuit television systems where the telecast originates within or in the
immediate vicinity of such living accommodations.
(L) Television Definitions:
(i) "Television" means all forms of "Free TV" and "Pay TV"
exploitation of a Motion Picture.
(ii) "Free TV" means all forms of "Terrestrial Free TV", "Cable Free
TV", and "Satellite Free TV" exploitation of a Motion Picture.
(iii) "Terrestrial Free TV" means only standard over-the-air broadcast
by means of Hertzian waves of a Motion Picture Copy which is intended for
reception on a television receiver in private living accommodations without a
specific charge being made to the viewer for the privilege of viewing the Motion
Picture. For purposes of this definition, neither governmental television
receiver assessments or taxes will be deemed a charge to the viewer.
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(iv) "Cable Free TV" means only the transmission by means of coaxial,
fiber-optic or comparable cable of a Motion Picture Copy for reception on a
television receiver in private living accommodations without a specific charge
being made to the viewer for the privilege of viewing the Motion Picture. For
purposes of this definition, neither governmental television receiver
assessments or taxes, nor the regular periodic service charges (other than a
charge paid with respect to Pay TV) paid by a subscriber to a cable television
system will be deemed a charge to the viewer.
(v) "Satellite Free TV" means only the up-link transmission of a
Motion Picture Copy to a satellite and its down-link transmission to a
terrestrial satellite reception dish for the purpose of viewing of the Motion
Picture on a television receiver in private living accommodations which is
located in the immediate vicinity of the reception dish without a specific
charge being made to the viewer for the privilege of viewing the Motion Picture.
For purposes of this definition, neither governmental television receiver
assessments or taxes will be deemed a charge to the viewer.
(vi) "Pay TV" means all forms of "Terrestrial Pay TV", "Pay-Cable TV"
and "Satellite Pay TV" exploitation of a Motion Picture. Pay TV does not include
any form of "pay-per-view" or "video on demand" telecast or other exhibition.
(vii) "Terrestrial Pay TV" means only standard over-the-air broadcast
of any Motion Picture Copy by means of encoded Hertzian waves for reception on a
television receiver in private living accommodations by means of a decoding
device where a charge is made: (1) to the viewer for the right to use the
decoding device for viewing any special channel which transmits the Motion
Picture along with other programming; or (2) to the operator of a hotel, motel,
apartment complex, co-operative, condominium project or similar place located
distant from the place where such broadcast signal originated for the right to
use the decoding device to receive and retransmit the programming on such
channel throughout such place.
(viii) "Cable Pay TV" means transmission or retransmission of a Motion
Picture Copy by means of an encoded signal over coaxial or fiber-optic cable for
reception on a television receiver in private living accommodations by means of
a decoding device where a charge is made: (1) to the viewer for the right to use
the decoding device for viewing any special channel which transmits the Motion
Picture along with other programming; or (2) to the operator of a hotel, motel,
apartment complex, co-operative, condominium project or similar place located
distant from the place where such broadcast signal originated for the right to
use the decoding device to receive and retransmit the programming on such
channel throughout such place.
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(ix) "Satellite Pay TV" means the up-link transmission of a Motion
Picture Copy by means of an encoded signal to a satellite and its down-link
transmission to a terrestrial satellite reception dish and a decoding device for
the purpose of viewing the Motion Picture on a television receiver in private
living accommodations which is located in the immediate vicinity of the
reception dish and decoding device where a charge is made: (1) to the viewer for
the right to use the decoding device for viewing any special channel which
transmits the Motion Picture along with other programming; or (2) to the
operator of a hotel, motel, apartment complex, co-operative, condominium project
or similar place located distant from the place where such broadcast signal
originated for the right to use the decoding device to receive and retransmit
the programming on such channel throughout such place.
2. Grant of Rights
(a) Subject to the limitations, terms and conditions set forth in this
Agreement, Licensor hereby grants to the Licensee the right, license and
privilege throughout the Territory during the Term to exploit the Picture
linearly in the Language, pursuant to the Rights set forth in Schedule "A" as
such rights are defined in Paragraph 1 above. Licensee shall not authorize or
permit any telecasts or videocassettes to be exported and/or exploited out of
the Territory. Licensee shall in addition have the right to use extracts from
the Picture not exceeding two (2) minutes in length on any manner and media for
the sole purpose of advertising and promoting the Picture hereunder.
(b) Licensee shall have the right to use and authorize others to use the
name, likeness (whether by photograph or otherwise) and voice of any person who
appears recognizably in the Picture, solely for the purpose of advertising,
publicizing or exploiting the Picture, provided that:
(i) Licensee shall, and shall cause its licensees to, strictly abide
by all relevant restrictions imposed upon Licensor of which notice is given to
Licensee with respect to the use of any person's name, likeness and/or voice
pursuant to this subparagraph 2(b);
(ii) The name, likeness and/or voice of any person shall not be used
as a direct or indirect endorsement of any product, service or commodity;
(iii) No such advertising materials shall use more than two (2)
minutes of the Picture; and
(iv) Licensee agrees that copies of all such usage referred to in
subparagraph 2(b) shall be furnished to Licensor promptly after publication.
(c) Notwithstanding anything to the contrary contained herein, the rights
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granted to Licensee hereunder do not include the right to use or permit the use
of any broadcast or telecast devices for viewing in any place of public assembly
where an admission fee or viewing fee is charged, for theatrical exhibition, or
for broadcast or exhibition in hotels, military camps and installations,
embassies, prisons, buses, oil rigs, aircraft, ships, educational institutions,
hospitals, or by other so-called "non-standard" means, not known or hereafter
devised, nor do the rights include so-called "on-line" services nor "video on
demand" services, unless approved in writing by Licensor.
(d) All rights to the Picture which have not been granted to Licensee
pursuant to this Paragraph 2 are hereby expressly reserved to Licensor, and
Licensor shall be entitled to exercise, exploit and/or dispose of any such
reserved rights throughout the world (including, without limitation, in the
Territory) at any time without prior notice or any obligation to Licensee
whatsoever.
(e) It is specifically agreed that Licensee shall have no right to edit,
re-sequence, alter the music in any way, dub (unless otherwise agreed to
herein), add to delete from or otherwise alter the Picture in any manner
whatsoever without obtaining Licensor's prior written consent. In the event
Licensee is authorized hereunder to create dubbed versions of the Picture, upon
Licensor's request Licensee shall make such version immediately available to
Licensor for purposes of creating copies thereof, such costs of reproduction to
be paid by Licensor. Notwithstanding the foregoing, Licensee may, at its own
cost, add its "logo" preceding the main title or following the end title.
3. Obligations of Licensee.
(a) Licensee shall use its best efforts, skill and ability in the
distribution, marketing and exploitation of the Picture hereunder.
(b) Licensee shall strictly comply with all contractual requirements for
advertising credit to persons who rendered services or furnished materials in
connection with the Picture of which Licensor notifies Licensee.
(c) Licensee shall be solely responsible for all marketing, advertising and
other costs incident to the rights granted hereunder.
(d) Any and all licenses or broadcast rights granted by Licensee shall
terminate and/or expire as of the expiration date of this agreement. No such
grant by Licensee shall survive the Term. Upon expiration of the Term:
(i) the Licensee shall at its own expense return the Programs to the
Licensor at the Licensor's original point of dispatch or such other address as
the Licensor nominates; or
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(ii) at the option of the Licensor, the Licensee shall, if the
Programs are recorded on film, destroy the Programs and furnish the Licensor a
certificate of destruction thereof; or
(iii) at the option of the Licensor, the Licensee shall erase the
Program signals if recorded on videotape and furnish to the Licensor a
certificate of erasure thereof.
(e) The Licensee shall be responsible for the payment to the appropriate
performing rights collecting bodies or agencies of all royalties and license
fees payable to any composers, authors, music publishers and performing rights
societies by reason of Licensee's exercise of the Rights in accordance with this
Agreement.
(f) Unless otherwise provided, all credits will be given in respect of the
Picture in accordance with the usual practice in the film and television
industry and the Picture shall be telecast without any omission, editing or
abbreviation of the production credits as they appear on the Picture.
(g) The Licensee may make only such cuts or deletions as are necessary to
make the Picture conform to its time segment requirements and its continuity and
broadcast acceptance standards and may add commercial matter not exceeding then
(10) minutes in duration per twenty (20) minutes of the picture provided it is
clear to the television viewers that such commercial matter is not part of the
continuity of the Picture.
4. Delivery and Use of Materials.
Licensee shall purchase all materials, including but not limited to
pertinent advertising and publicity materials at Licensor's "Standard Proforma
Price", such price list to be provided promptly upon Licensee's request, and
Licensor shall deliver such Materials to the address specified herein. Unless a
definite schedule of telecasting the Picture is stipulated herein, Licensee
shall give Licensor not less than thirty (30) days prior written notice of the
scheduled date of each telecast where shipment is via air and reasonable prior
notice where shipment is other than via air. All reasonable costs of delivery of
such Materials, including, without limitation, packaging, shipping, insurance
and custom fees and duties, shall be the Licensee's sole responsibility.
(a) At the end of the exhibition period or, if the Materials are on loan,
within a reasonable time after the date of delivery of the Materials, the
Licensee, at Licensee's sole expense, shall return the Materials to Licensor
unless otherwise instructed.
(b) The Licensee shall refund to the Licensor any replacement costs of any
Material lost or damaged while in the possession of the Licensee.
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(c) Unless the Licensee advises the Licensor within four (4) weeks of the
Material having been delivered to the Licensee of any technical or quality or
other defect in the Material that will prevent telecasting, the Material shall
be deemed fit for telecasting.
5. Distribution Guarantees.
(a) In full consideration for all rights, privileges and licenses granted
to Licensee, Licensee agrees to pay Licensor and Licensor agrees to accept the
License Fee and Royalties, if applicable, set forth in Schedule "A".
(b) Licensor will have the option to terminate this Agreement if 100%
payment has not been received from Licensee in accordance with the payment terms
as set forth in Schedule "A".
(c) All payments made hereunder and the requisite notice thereof shall be
forwarded to the account of Licensor as provided for in Paragraph 6 (b) below.
6. Payments and Accountings.
A. Licensee shall use its best efforts to timely obtain all government
permits necessary to make payment to Licensor as and when required under this
Agreement. Notwithstanding anything to the contrary contained herein, there
shall be no deductions whatsoever from any payments made to Licensor hereunder
on account of bank charges, including without limitation, bank wire transfer
charges, costs of currency conversion or conversion taxes, it being the intent
hereof that any amounts payable to Licensor hereunder shall be free and clear of
any tax, levy or charge whatsoever, except with respect to any withholding tax
or similar tax which Licensee is obliged by law to deduct, subject to Paragraph
17 and 18 herein.
B. Payment shall be made in U.S. dollars at the address of Licensor by
bank wire transfer.
7. Titles and Substitution of Pictures.
Licensor reserves the right to change the title of any Picture embraced by
this Agreement. Licensor also reserves the right to substitute a Picture of
comparable quality for any Picture licensed hereunder because of force majeure,
unavailability or any threatened litigation in connection with such Picture or
to minimize possible damage from any pending, threatened, or possible court
action. In the event that Licensor is not in a position to make such
substitution and so notifies Licensee, then Licensee agrees that Licensor may
remove such Picture from this Agreement, and in such event the License Fee shall
be reduced by an amount equal to the License Fee applicable to such Picture;
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provided, however if a License Fee is not specified for a particular Picture,
Licensor may, in its sole, but reasonable discretion, allocate a portion of the
License Fee to such Picture.
8. Licensor's Warranties.
Licensor represents and warrants that it possesses the full right, titles
and interest to enter into and to perform this Agreement, and it will not, so
long as this Agreement remains in effect, grant to any other person, firm or
corporation any rights which it has exclusively granted to Licensee hereunder.
Licensor further represents and warrants that the Picture was made in accordance
with all relevant contracts, legislation and regulations, and provided that
Licensee complies with its obligations hereunder, Licensee shall be able,
without financial, legal or other liability, to fully and freely exploit and
exercise its right in the Picture(s) as granted hereunder.
9. Default by Licensee.
Subject to paragraph 15 hereof, in the event:
(a) Licensee shall fail to make all payments hereunder for any reason and
shall not make payments as aforesaid within ten (10) days after written demand
for same from Licensor; or
(b) Licensee shall make or attempt to make any assignment for the benefit
of creditors or make or attempt to make any composition with creditors, or any
action or proceeding under bankruptcy or insolvency law is taken by or against
Licensee, or Licensee shall effect or attempt to effect a voluntary or
compulsory liquidation of assets; or
(c) Licensee shall fail within twenty-one (21) days after written demand by
Licensor to remedy completely any other material act or failure constituting a
material breach of this Agreement;
then, and in any such events, Licensor may, in addition to (and without
prejudice of any or all of its other rights and remedies at law or otherwise it
may possess) terminate the Term of this Agreement by giving written notice to
Licensee of such termination, without refunding or rebating any amounts
whatsoever to Licensee. The Licensor is hereby entitled to retain (without in
any way limiting Licensor's rights or remedies) such amounts by way of partial
liquidated damages.
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10. Protection of Pictures.
Licensee shall take all reasonable and practicable steps necessary to
protect the copyright in the Picture, and all material delivered hereunder.
Subject to Licensor's prior approval with respect to the institution of any
legal proceeding, Licensee shall further take all legal action necessary to
protect the interest of Licensor and Licensee in the Picture and to restrain or
obtain redress from any third party from any unauthorized use of the Picture,
the broadcast or duplication thereof, or the doing of any act which infringes
upon the Picture or any Materials manufactured or delivered hereunder. Licensor
shall be free to participate in such action using counsel of its own choice, at
Licensor's expense, and Licensor's expenses thereof shall be repaid to Licensor
out of any recovery from such action, pro rata with the repayment to Licensee of
its expenses. If Licensee shall fail or refuse to take any of the foregoing
actions, then, in addition to any of the rights which Licensor shall have
hereunder, either at law or in equity, Licensor may (but shall not be obligated
to) take such action in Licensor's and/or Licensee's name, in which event any
recovery from such action undertaken by Licensor shall be the sole property of
Licensor. Licensee shall notify Licensor in writing of the occurrence of any
event relating to the provisions of this paragraph and all actions taken with
regard thereto.
11. Indemnification.
The parties hereto agree to defend, indemnify and hold each other and the
other's officers, directors, agents, employees, parents, subsidiaries,
affiliates, successors and assigns harmless from and against any and all
liability, loss, damage, costs or expense, including reasonable attorneys' fees,
paid or incurred by reason of any breach or alleged breach of the warranties,
representations or agreements contained herein reduced to final non-appealable
judgment or settled with the indemnitor's consent. The indemnitor shall receive
prompt written notice of any claim or action to which this indemnity applies and
shall be given the reasonable opportunity to defend against and/or settle such
claim or action.
12. Notices.
All notices, approvals, payments or documents which either party is
required to deliver hereunder shall be in writing and shall be personally
delivered, telexed, telecopied, telegraphed or mailed, postage prepaid, at the
address set forth in Schedule "A", or to such other address, as either party may
from time to time designate. All notices given by mail shall be deemed given
when received but in any event no later than five (5) days from the day of
deposit in the mail. All notices sent by telex, telecopy or telegraph shall be
deemed given when received but in no event later than one working day from the
date sent. All notices given by personal delivery shall be deemed given when
received.
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13. Assignability.
Licensee shall not assign or license this Agreement or any of its rights
hereunder or delegate any of its obligations hereunder, in whole or in part,
without the prior written consent of Licensor, provided, however, Licensees may
sub-license its rights hereunder to a reputable broadcaster in and for the
Territory, provided that such assignment and/or sub-license will not relieve
Licensee of any of its obligations hereunder. Licensor may at any time freely
assign this Agreement in whole or in part, or any of its rights hereunder.
14. Relationship of Parties.
This Agreement shall not be deemed to create any partnership, joint
venture, agency, fiduciary or employment relationship between the parties, and
neither party shall hold itself out as the agent or partner of the other.
Neither party shall hold itself out contrary to the terms of this paragraph and
neither shall become liable for any representations, acts or omissions of the
other.
15. Force Majeure.
Neither party shall be deemed in default if the performance of obligations
hereunder is delayed or becomes impossible or impracticable by reason of any Act
of God, war, fire, earthquake, flood, accident, civil commotion, strike or in
general any industrial disturbance or shortage of raw material or energy, act or
refusal of any Government, union, guild or similar body, their agencies or
officers, or any other legitimate cause beyond the control of the parties
hereto. In the event the exploitation of the Picture becomes impossible or
impracticable because of any such event, the Term hereof shall be automatically
extended by the same period as such event continues, provided that if such
period exceeds three (3) months, either party shall at any time thereafter be
entitled to terminate this Agreement, during such event of force majeure, by
written notice to the other party.
16. Applicable Law.
This Agreement is entered into pursuant to the laws of the State of
California, and the United States of America, and shall be interpreted in
accordance with the laws applicable to agreements entered into and wholly
performed therein. Any controversy or claim arising out of or relating to this
Agreement or the validity, construction or performance of this Agreement, or the
breach thereof, shall be governed by such laws, and Licensee hereby consents to
binding arbitration in accordance with the American Arbitration Association in
Los Angeles, California.
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17. Blocked Currency and Foreign Exchange.
(a) Licensee shall promptly notify Licensor in writing if the transmission
of any gross receipts payable to Licensor is prevented by embargo, blocked
currency regulations or other restrictions. Provided that the laws of the
country in which such frozen funds exist permit the transfer of Licensor's share
of such funds to Licensor, then Licensor's share of gross receipts shall be
deposited in Licensor's name in any bank designated by Licensor in such foreign
country. Such deposit will be deemed proper payment to Licensor of the monies
due and payable to Licensor.
(b) If, in Licensor's judgment, the transfer of funds from the Territory to
the United States becomes economically inadvisable because of prohibitive
exchange rates, then Licensee agrees, upon Licensor's request, to deposit
Licensor's share of gross receipts in such foreign country in the manner
described in subparagraph (a) above.
18. Taxes.
Licensee agrees to assist Licensor with the application and completion of
all documents necessary to qualify Licensor for exemptions from taxes imposed on
the payment of fees for rights licensed hereunder.
19. Miscellaneous.
(a) No waiver of any default or breach of this Agreement by either party
shall be deemed a continuing waiver or a waiver of any other breach or default,
no matter how similar.
(b) Each of the parties acknowledges and agrees that the other has not made
any representations, warranties, or agreements of any kind, except as may be
expressly set forth herein.
(c) This Agreement constitutes and contains the entire agreement between
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous agreements, oral or written. Nothing herein contained shall
be binding upon the parties until this Agreement has been executed by an officer
of each party. This Agreement may not be changed, modified, amended or
supplemented, except in writing signed by both parties.
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(d) The paragraph headings used in this Agreement are for convenience only
and shall have no legal effect whatsoever.
(e) If any part of this Agreement shall be declared invalid or
unenforceable by a court of competent jurisdiction, it shall not affect the
validity of the balance of this Agreement, provided, however, that if any
provision of this Agreement pertaining to the payment of monies to Licensor
shall be declared invalid or unenforceable, Licensor shall have the right, at
its option, to terminate this Agreement upon giving written notice to Licensee
of its election to do so.
(f) In the event of any action, suit or proceeding hereunder, the
prevailing party shall be entitled to recover its attorneys' fees and the costs
of said action, suit or proceeding.
FILM ROMAN, INC. ("Licensor")
By:__________________________________________
An Authorized Signatory
CANAL PLUS SPAIN ("Licensee")
By:___________________________________________
An Authorized Signatory
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EXHIBIT 10.46
Dated as of 12/23/95
LICENSOR:
Film Roman, Inc.
12020 Chandler Blvd., Ste. 200
North Hollywood, California 91607 USA
Attn.: Business Affairs Department
LICENSEE: Television Espanola, S.A.
Po de la Castellana, 135
Madrid, Spain
Attn: D. Ramon Colom Esmatges
DIRECTOR TVE
Re: "FELIX THE CAT" SERIES; CO-PRODUCTION AGREEMENT
Gentlemen:
When executed by you ("LICENSEE") and by us, FILM ROMAN, INC. ("LICENSOR"), this
letter (Schedule "A") and the attached License Agreement will constitute the
Agreement between Licensor and Licensee concerning certain rights to the
Picture(s) set forth below in accordance with the terms and conditions hereof.
The following are the basic terms of the Agreement:
TITLES ("Picture/s"): Initial 26 episodes of "FELIX THE CAT" animated
television series, produced by Licensor
TOTAL TIME: One-half hour commercial broadcast time per episode
TERRITORY: Spain
LANGUAGE: Spanish and regional languages of Spain
RIGHTS/MEDIA: Television exhibition and home video.
TERM: Twelve (12) years from delivery of each episode
NUMBER OF BROADCAST RUNS: Unlimited
LICENSE FEE: Eight Hundred Seventy-Seven Thousand Five Hundred
Dollars ($877,500.00 USD)
PAYMENT TERMS: $87,750.00 USD upon signature of this agreement
$380,250.00 USD on delivery of the Pictures, but no
earlier than
<PAGE>
January 1, 1996
$31,500.00 per episode on delivery of
episodes 14-26 (total of $409,500.00 USD)
TRANSMISSION MATERIAL:
PAYMENT: Due in accordance with the provisions of the agreement shall be paid
to Licensor by wire transfer to:
FILM ROMAN, INC.
First Charter Bank
265 North Beverly Dr.
Beverly Hills, California 90210
Account#: 002-858-487
ABA #: 122239843 (on behalf of Film Roman, Inc.)
Licensee shall advise Licensor by fax (818/985-2973) when any such remittance is
sent. Timely payment by Licensee is the essence of this agreement. Banking
information to be provided prior to payment.
MERCHANDISING REVENUE: Licensor agrees to pay Licensee ten percent (10%) of the
net revenues received during the Term by Licensor that are specifically
attributable to exploitation within the Territory of merchandise exploited in
connection with the Pictures. Accountings shall be provided to Licensee within
sixty (60) days of each semi-annual period, identifying the revenues received by
Licensor and all fees, expenses, production costs, etc. incurred by Licensor in
connection therewith, during the semi-annual period. Simultaneously therewith,
Licensor shall remit any monies due hereunder.
FILM ROMAN, INC. ("Licensee")
By: /s/ Phil Roman By: /s/ Authorized Signatory
------------------------ -------------------------
An Authorized Signatory An Authorized Signatory
<PAGE>
This agreement ("Agreement") is made and entered into as of the date set
forth in Schedule "A" which is attached hereto and incorporated herein by
reference, by and between FILM ROMAN, INC., whose principal place of business is
located at 12020 Chandler Blvd., Ste. 200, North Hollywood, California 91607
(hereinafter, "Licensor"), and Licensee, whose name and principal place of
business are set forth in Schedule "A" (hereinafter, "Licensee").
In consideration of the mutual representations, warranties and covenants
herein contained and other good and valuable consideration, Licensor and
Licensee hereby agree as follows:
1. Definitions: As used herein the following terms shall have the
following meanings:
(a) The "Picture": The "Picture/s" is/are set forth in Schedule "A".
(b) "Master": "Master" means technically satisfactory material from
which duplicate Masters ("Sub-Masters") suitable for use in the manufacture of
broadcast devices can be made.
(c) "Territory": "Territory" shall include those territories set for in
Schedule "A".
(d) "Term": The "Term" shall mean the period as set forth in Schedule
"A".
(e) "Language": The "Language" means the language set forth in
Schedule "A".
(f) "Delivery": "Delivery" as used herein shall mean the date the
complete Master or Sub-Master is either delivered or made available to the
Licensee for duplication.
2. Grant of Rights
(a) Subject to the limitations, terms and conditions set forth in this
Agreement, Licensor hereby grants to the Licensee the right, license and
privilege throughout the Territory during the Term to exploit the Picture in the
Language, pursuant to the Rights set forth in Schedule "A" as those rights are
generally understood in the entertainment industry. Licensee shall not
authorize or permit any telecasts or videocassettes to be exported and/or
exploited out of the Territory. Licensee shall in addition have the right to
use extracts from the Picture not exceeding two (2) minutes in length on any
manner and media for the sole purpose of advertising and promoting the Picture
hereunder.
As used in Schedule "A", "television exhibition" shall include traditional pay
and free television transmitted via Hertzian waves, coaxial cable, or satellite.
As used herein, "home video device" means a device rented or sold to the viewer
intended only for
<PAGE>
viewing Pictures embodied therein in private living accommodations where no
admission fee is charged for such viewing, and does not include the public
performance, diffusion, exhibition or broadcast of Pictures embodied on the
video device. Notwithstanding the foregoing, "television exhibition" and "home
video device" shall not include exhibition via computer technology and other new
technologies, where a significant characteristic of such presentation is
consumer interactivity, non-linear programming, or the use of computer
information, storage, retrieval, management techniques and technology capable of
consumer interactivity, or which may be received by end users on optical or
magnetic disks through interactive television or through any other technology
hereafter developed, including by means of electronic delivery.
Notwithstanding the foregoing, and in the event that Licensor desires to
enter into an agreement with a third party (the "Distributor") for the worldwide
distribution of video devices embodying a Picture, Licensee agrees to provide
such Distributor the exclusive opportunity to negotiate with Licensee for such
home video rights within the Territory. Such right of first negotiation shall
inure to the Distributor for a period of sixty days commencing with Licensor's
notice to both Licensor and Distributor of Licensee's home video rights
hereunder. In the event an agreement is not entered into between Licensee and
Distributor during such sixty day period, Licensee may commence negotiations
with other parties to exploit the home video rights, and Licensee shall be
entitled to enter into an agreement with such other parties to exploit
Licensee's home video rights hereunder; provided, however, that Licensee shall
not be entitled to grant such other parties the home video rights on terms less
favorable than offered to Licensee by Distributor during the foregoing sixty day
period.
(b) Licensee shall have the right to use and authorize others to use
the name, likeness (whether by photograph or otherwise) and voice of any person
who appears recognizably in the Picture, solely for the purpose of advertising,
publicizing or exploiting the Picture, provided that:
(i) Licensee shall, and shall cause its licensees to, strictly
abide by all relevant restrictions imposed upon Licensor of which notice is
given to Licensee with respect to the use of any person's name, likeness and/or
voice pursuant to this subparagraph 2(b);
(ii) The name, likeness and/or voice of any person shall not be
used as a direct or indirect endorsement of any product, service or commodity;
(iii) No such advertising materials shall use more than two (2)
minutes of the Picture; and
(iv) Licensee agrees that copies of all such usage referred to in
subparagraph 2(b) shall be furnished to Licensor
<PAGE>
promptly after publication.
(c) Notwithstanding anything to the contrary contained herein, the
rights granted to Licensee hereunder do not include the right to use or permit
the use of any broadcast or telecast devices for viewing in any place of public
assembly where an admission fee or viewing fee is charged, for theatrical
exhibition, or for broadcast or exhibition in hotels, military camps and
installations, embassies, prisons, buses, oil rigs, aircraft, ships, educational
institutions, hospitals, or by other so-called "non-standard" means, not known
or hereafter devised, unless approved in writing by Licensor.
(d) All rights to the Picture which have not been granted to Licensee
pursuant to this Paragraph 2 are hereby expressly reserved to Licensor, and
Licensor shall be entitled to exercise, exploit and/or dispose of any such
reserved rights throughout the world (including, without limitation, in the
Territory) at any time without prior notice or any obligation to Licensee
whatsoever.
(e) It is specifically agreed that Licensee shall have no right to
edit, re-sequence, alter the music in any way, dub (unless otherwise agreed to
herein), add to delete from or otherwise alter the Picture in any manner
whatsoever without obtaining Licensor's prior written consent. In the event
Licensee is authorized hereunder to create dubbed versions of the Picture, upon
Licensor's request Licensee shall make such version immediately available to
Licensor for purposes of creating copies thereof, such costs of reproduction to
be paid by Licensor. Notwithstanding the foregoing, Licensee may, at its own
cost, add its "logo" preceding the main title or following the end title.
3. Obligations of Licensee.
(a) Licensee shall use its best efforts, skill and ability in the
distribution, marketing and exploitation of the Picture hereunder.
(b) Licensee shall strictly comply with all contractual requirements
for advertising credit to persons who rendered services or furnished materials
in connection with the Picture of which Licensor notifies Licensee.
(c) Licensee shall be solely responsible for all marketing,
advertising and other costs incident to the rights granted hereunder.
(d) Any and all licenses or broadcast rights granted by Licensee shall
terminate and/or expire as of the expiration date of this agreement. No such
grant by Licensee shall survive the Term. Upon expiration of the Term:
(i) the Licensee shall at its own expense return
<PAGE>
the Programs to the Licensor at the Licensor's original point of dispatch or
such other address as the Licensor nominates; or
(ii) at the option of the Licensor, the Licensee shall, if the
Programs are recorded on film, destroy the Programs and furnish the Licensor a
certificate of destruction thereof; or
(iii) at the option of the Licensor, the Licensee shall erase the
Program signals if recorded on videotape and furnish to the Licensor a
certificate of erasure thereof.
(e) The Licensee shall be responsible for the payment to the
appropriate performing rights collecting bodies or agencies of all fees in
respect of the broadcasting of the Picture in accordance with this Agreement.
(f) Unless otherwise provided, all credits will be given in respect of
the Picture in accordance with the usual practice in the film and television
industry and the Picture shall be telecast without any omission, editing or
abbreviation of the production credits as they appear on the Picture.
(g) The Licensee may make only such cuts or deletions as are necessary
to make the Picture conform to its time segment requirements and its continuity
and broadcast acceptance standards and may add commercial matter provided it is
clear to the television viewers that such commercial matter is not part of the
continuity of the Picture.
4. Delivery and Use of Materials.
Licensee shall purchase all materials, including but not limited to
pertinent advertising and publicity materials at Licensor's "Standard Proforma
Price", such price list to be provided promptly upon Licensee's request, and
Licensor shall deliver such Materials to the address specified herein. Unless a
definite schedule of telecasting the Picture is stipulated herein, Licensee
shall give Licensor not less than thirty (30) days prior written notice of the
scheduled date of each telecast where shipment is via air and reasonable prior
notice where shipment is other than via air. All reasonable costs of delivery
of such Materials, including, without limitation, packaging, shipping, insurance
and custom fees and duties, shall be the Licensee's sole responsibility.
(a) At the end of the exhibition period or, if the Materials are on
loan, within a reasonable time after the date of delivery of the Materials, the
Licensee, at Licensee's sole expense, shall return the Materials to Licensor
unless otherwise instructed.
(b) The Licensee shall refund to the Licensor any replacement costs of
any Material lost or damaged while in the possession of the Licensee.
<PAGE>
(c) Unless the Licensee advises the Licensor within two (2) weeks of
the Material having been delivered to the Licensee of any technical or quality
or other defect in the Material that will prevent telecasting, the Material
shall be deemed fit for telecasting.
5. Distribution Guarantees.
(a) In full consideration for all rights, privileges and licenses
granted to Licensee, Licensee agrees to pay Licensor and Licensor agrees to
accept the License Fee set forth in Schedule "A".
(b) Licensor will have the option to terminate this Agreement if 100%
payment has not been received from Licensee in accordance with the payment
schedule as set forth in Schedule "A".
(c) All payments made hereunder and the requisite notice thereof shall
be forwarded to the account of Licensor as provided for in Paragraph 6 (b)
below.
6. Payments and Accountings.
A. Licensee shall use its best efforts to timely obtain all government
permits necessary to make payment to Licensor as and when required under this
Agreement. Notwithstanding anything to the contrary contained herein, there
shall be no deductions whatsoever from any payments made to Licensor hereunder
on account of bank charges or conversion taxes, it being the intent hereof that
any amounts payable to Licensor hereunder shall be free and clear of any tax,
levy or charge whatsoever, except with respect to any withholding tax or similar
tax which Licensee is obliged by law to deduct, subject to Paragraph 17 and 18
herein.
B. Payment shall be made in U.S. dollars at the address of Licensor by
bank wire transfer.
7. Titles and Substitution of Pictures.
Licensor reserves the right to change the title of any Picture
embraced by this Agreement. Licensor also reserves the right to substitute a
Picture of comparable quality for any Picture licensed hereunder because of
force majeure, unavailability or any threatened litigation in connection with
such Picture or to minimize possible damage from any pending, threatened, or
possible court action. In the event that Licensor is not in a position to make
such substitution and so notifies Licensee, then Licensee agrees that Licensor
may remove such Picture from this Agreement, and in such event the License Fee
shall be reduced by an amount equal to the License Fee applicable to such
Picture.
8. Licensor's Warranties.
Licensor represents and warrants that it possesses the
<PAGE>
full right, titles and interest to enter into and to perform this Agreement, and
it will not, so long as this Agreement remains in effect, grant to any other
person, firm or corporation any rights which it has exclusively granted to
Licensee hereunder. Licensor further represents and warrants that the Picture
was made in accordance with all relevant contracts, legislation and regulations,
and provided that Licensee complies with its obligations hereunder, Licensee
shall be able, without financial, legal or other liability, to fully and freely
exploit and exercise its right in the Picture(s) as granted hereunder.
9. Default by Licensee.
Subject to paragraph 15 hereof, in the event:
(a) Licensee shall fail to make payments hereunder for any reason and
shall not make payments as aforesaid within ten (10) days after written demand
for same from Licensor; or
(b) Licensee shall make or attempt to make any assignment for the
benefit of creditors or make or attempt to make any composition with creditors,
or any action or proceeding under bankruptcy or insolvency law is taken by or
against Licensee, or Licensee shall effect or attempt to effect a voluntary or
compulsory liquidation of assets; or
(c) Licensee shall fail within twenty-one (21) days after written
demand by Licensor to remedy completely any other material act or failure
constituting a material breach of this Agreement;
then, and in any such events, Licensor may, in addition to (and without
prejudice of) any or all of its other rights and remedies at law or otherwise it
may possess, terminate the Term of this Agreement by giving written notice to
Licensee of such termination, without refunding or rebating any amounts
whatsoever to Licensee. The Licensor is hereby entitled to retain such amounts
by way of partial liquidated damages.
10. Protection of Pictures.
Licensee shall take all reasonable and practicable steps necessary to
protect the copyright in the Picture, and all material delivered hereunder.
Subject to Licensor's prior approval with respect to the institution of any
legal written proceeding, Licensee shall further take all legal action necessary
to protect the interest of Licensor and Licensee in the Picture and to restrain
or obtain redress from any third party from any unauthorized use of the Picture,
the broadcast or duplication thereof, or the doing of any act which infringes
upon the Picture or any Materials manufactured or delivered hereunder. Licensor
shall be free to participate in such action using counsel of its own choice, at
Licensor's expense, and Licensor's expenses thereof shall be repaid to Licensor
out of any recovery from such action,
<PAGE>
pro rata with the repayment to Licensee of its expenses. If Licensee shall fail
or refuse to take any of the foregoing actions, then, in addition to any of the
rights which Licensor shall have hereunder, either at law or in equity, Licensor
may (but shall not be obligated to) take such action in Licensor's and/or
Licensee's name, in which event any recovery from such action undertaken by
Licensor shall be the sole property of Licensor. Licensee shall notify Licensor
in writing of the occurrence of any event relating to the provisions of this
paragraph and all actions taken with regard thereto.
11. Indemnification.
The parties hereto agree to defend, indemnify and hold each other
harmless from and against any and all liability, loss, damage, costs or expense,
including reasonable attorneys' fees, paid or incurred by reason of any breach
or alleged breach of the warranties, representations or agreements contained
herein reduced to final non-appealable judgment or settled with the indemnitor's
consent. The indemnitor shall receive prompt written notice of any claim or
action to which this indemnity applies and shall be given the reasonable
opportunity to defend against and/or settle such claim or action.
12. Notices.
All notices, approvals, payments or documents which either party is
required to deliver hereunder shall be in writing and shall be personally
delivered, telexed, telecopied, telegraphed or mailed, postage prepaid, at the
address set forth in Schedule "A", or to such other address, as either party may
from time to time designate. All notices given by mail shall be deemed given
when received but in any event no later than five (5) days from the day of
deposit in the mail. All notices sent by telex, telecopy or telegraph shall be
deemed given when received but in no event later than one working day from the
date sent. All notices given by personal delivery shall be deemed given when
received.
13. Assignability.
Licensee shall not assign or license this Agreement or any of its
rights hereunder or delegate any of its obligations hereunder, in whole or in
part, without the prior written consent of Licensor, provided, however,
Licensees may sub-license its rights hereunder to a reputable broadcaster in and
for the Territory, provided that such assignment and/or sub-license will not
relieve Licensee of any of its obligations hereunder.
14. Relationship of Parties.
This Agreement shall not be deemed to create any partnership, joint
venture, agency, fiduciary or employment relationship between the parties, and
neither party shall hold itself out as the agent or partner of the other.
Neither party
<PAGE>
shall become liable for any representations, acts or omissions of the other
contrary to the provisions hereof.
15. Force Majeure.
Neither party shall be deemed in default if the performance of
obligations hereunder is delayed or becomes impossible or impracticable by
reason of any Act of God, war, fire, earthquake, flood, accident, civil
commotion, strike or in general any industrial disturbance or shortage of raw
material or energy, act or refusal of any Government, union, guild or similar
body, their agencies or officers, or any other legitimate cause beyond the
control of the parties hereto. In the event the exploitation of the Picture
becomes impossible or impracticable because of any such event, the Term hereof
shall be automatically extended by the same period as such event continues,
provided that if such period exceeds three (3) months, either party shall at any
time thereafter be entitled to terminate this Agreement, during such event of
force majeure, by written notice to the other party.
16. Applicable Law.
This Agreement is entered into pursuant to the laws of the State of
California, and the United States of America, and shall be interpreted in
accordance with the laws applicable to agreements entered into and wholly
performed therein. Any controversy or claim arising out of or relating to this
Agreement or the validity, construction or performance of this Agreement, or the
breach thereof, shall be governed by such laws, and Licensee hereby consents to
binding arbitration before the American Film Market in Los Angeles, California
or a city to be mutually agreed upon where the American Film Market conducts
arbitration.
17. Blocked Currency and Foreign Exchange.
(a) Licensee shall promptly notify Licensor in writing if the
transmission of any gross receipts payable to Licensor is prevented by embargo,
blocked currency regulations or other restrictions. Provided that the laws of
the country in which such frozen funds exist permit the transfer of Licensor's
share of such funds to Licensor, then Licensor's share of gross receipts in
Licensor's name in any bank designated by Licensor in such foreign country.
Such deposit will be deemed proper payment to Licensor of the monies due and
payable to Licensor.
(b) If, in the Licensor's judgment, the transfer of funds from the
Territory to the United States becomes economically inadvisable because of
prohibitive exchange rates, then Licensee agrees, upon Licensor's request, to
deposit Licensor's share of gross receipts in such foreign country in the manner
described in subparagraph (a) above.
<PAGE>
18. Taxes.
Licensee agrees to assist Licensor with the application and completion of
all documents necessary to qualify Licensor for exemptions from taxes imposed on
the payment of fees for rights licensed hereunder.
19. Miscellaneous.
(a) No waiver of any default or breach of this Agreement by either
party shall be deemed a continuing waiver or a waiver of any other breach or
default, no matter how similar.
(b) Each of the parties acknowledges and agrees that the other has not
made any representations, warranties, or agreements of any kind, except as may
be expressly set forth herein.
(c) This Agreement constitutes and contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements, oral or written. Nothing herein contained
shall be binding upon the parties until this Agreement has been executed by an
officer of each party. This Agreement may not be changed, modified, amended or
supplemented, except in writing signed by both parties.
(d) The paragraph headings used in this Agreement are for convenience
only and shall have no legal effect whatsoever.
(e) If any part of this Agreement shall be declared invalid or
unenforceable by a court of competent jurisdiction, it shall not affect the
validity of the balance of this Agreement, provided, however, that if any
provision of this Agreement pertaining to the payment of monies to Licensor
shall be declared invalid or unenforceable, Licensor shall have the right, at
its option, to terminate this Agreement upon giving written notice to Licensee
of its election to do so.
<PAGE>
(f) In the event of any action, suit or proceeding hereunder, the
prevailing party shall be entitled to recover its attorneys' fees and the costs
of said action, suit or proceeding.
FILM ROMAN, INC.
By: /s/ Phil Roman
------------------------------
An Authorized Signatory
TELEVISION ESPANOL, S.A. ("Licensee")
By: /s/ Authorized Signatory
-------------------------------
An Authorized Signatory
<PAGE>
EXHIBIT 11.1
PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Pro forma weighted average shares
outstanding................................. 1,713,000 1,713,000
Incremental effect of issuance of Convertible
Preferred Stock within one year prior to an
initial public offering at a price below the
offering price (i.e. cheap stock)........... 750,000 750,000
Incremental effect of issuance of warrants
and options within one year prior to an
initial public offering with an exercise
price below the offering price (i.e. cheap
stock) based on the treasury stock method
using the offering price.................... 1,430,535 1,430,535
----------- ---------
3,888,945 3,888,945
=========== =========
Pro forma net income (loss) attributable to
common stock ............................... $(2,000,000) $(953,660)
=========== =========
Pro forma net income (loss) per share........ $ (0.51) $ (0.25)
=========== =========
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Information" and to the use of our report dated May 16,
1996 with respect to Film Roman, Inc., in the Registration Statement (Form S-1
No. 333-03987) and related Prospectus, of Film Roman, Inc. for the
registration of 3,785,000 shares of its common stock.
ERNST & YOUNG LLP
Los Angeles, California
July 11, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated May 16, 1996 with respect to Film
Roman, Inc. (a Delaware corporation) in the Registration Statement (Form S-1
No. 333-03987) and related Prospectus of Film Roman, Inc. for the registration
of 3,785,000 shares of its common stock.
ERNST & YOUNG LLP
Los Angeles, California
July 11, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Information" and to the use of our report dated May 13,
1994, in the Registration Statement (Form S-1 No. 333-03987) and related
Prospectus, of Film Roman, Inc. for the registration of 3,785,000 shares of
its common stock.
TANNER, MAINSTAIN & HOFFER
Los Angeles, California
July 11, 1996
