- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
AVENUE ENTERTAINMENT GROUP, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 95-4622429
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11111 Santa Monica Blvd., Suite 2110
Los Angeles, California 90025
(Address of Principal Offices) (Zip Code)
(310) 996-6800
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
Common Stock, $0.01 par value American Stock Exchange
Securities to be registered under Section 12(g) of the Act:
(N/A)
(Title of Class)
<PAGE>
PART I
Item 1. Description of Business.
General
Avenue Entertainment Group, Inc., a holding company incorporated in the state of
Delaware on March 7, 1997 (the "Company"), is an independent entertainment
company which, through its two operating subsidiaries, develops and produces
motion pictures for theatrical exhibition, television and other ancillary
markets, both domestically and internationally.
Share Exchange and Reincorporation
Pursuant to a Share Exchange Agreement, dated as of September 30, 1996, among
Mr. Cary Brokaw ("Mr. Brokaw"), Avenue Pictures, Inc., a Delaware corporation
("Avenue Pictures"), and The CineMasters Group, Inc., a New York corporation
("CineMasters"), CineMasters acquired all of the outstanding capital stock of
Avenue Pictures from Mr. Brokaw, the sole shareholder of Avenue Pictures, in
exchange for 1,425,000 shares of CineMasters common stock ("CineMasters Common
Stock") (the "Business Combination"). In connection with the Business
Combination, National Patent Development Corporation, a Delaware corporation and
a significant shareholder of CineMasters ("National Patent"), made a capital
contribution valued at $815,000 to CineMasters in the form of registered
National Patent common stock in exchange for 407,500 shares of CineMasters
Common Stock. Prior to completion of the Business Combination, in August 1996,
certain affiliates and employees of National Patent and CineMasters contributed
$185,000 in cash to the capital of CineMasters in exchange for 123,338 shares of
restricted CineMasters Common Stock in a private placement transaction. In
furtherance of the Business Combination, CineMasters entered into a stockholders
agreement and certain employment agreements as are more fully described in "Item
6. Executive Compensation" and "Item 7. Certain Relationships and Related
Transactions" below.
Following the Business Combination, the Board of Directors and shareholders of
CineMasters approved a transaction pursuant to which (i) all of the assets of
the Wombat Productions division (the "Wombat Division") of CineMasters were
transferred, subject to all related liabilities and obligations, to its
newly-formed, wholly-owned Delaware subsidiary, Wombat Productions, Inc.
("Wombat"), (ii) CineMasters was merged with and into the Company (its
newly-formed, wholly-owned Delaware subsidiary) with the Company being the
surviving corporation in the merger (the "Reincorporation") and (iii) each
stockholder of CineMasters received an equal number of shares of the Company in
exchange for each share of capital stock of CineMasters held by such stockholder
immediately prior to the effective time of the Reincorporation (the "Effective
Time"). As a result of the Reincorporation, Avenue Pictures became a
wholly-owned subsidiary of the Company.
The Company intends to seek to list its shares of common stock on the American
Stock Exchange. There can be no assurance, however, that the Company shares will
meet the eligibility requirements for listing on the American Stock Exchange.
<PAGE>
Avenue Pictures
Avenue Pictures was founded by Cary Brokaw in 1991. Mr. Brokaw has extensive
experience in the motion picture industry. He began his career in the marketing
department at Twentieth Century Fox. He also served as executive vice president
at Cineplex Odeon and was president and chief executive officer of Island
Pictures.
Mr. Brokaw has particular experience in producing and releasing modestly
budgeted independent films which appeal to the more sophisticated theatergoer.
He has enjoyed success with such films as Choose Me, El Norte, Kiss of the
Spider Woman, The Trip to Bountiful, Mona Lisa and Spike Lee's first film, She's
Gotta Have It. Mr. Brokaw is responsible for the production and release of Gus
Van Sant's Drug Store Cowboy, James Foley's After Dark My Sweet, Michael
Lindsay-Hogg's The Object of Beauty, Jane Campion's Sweetie, and Jim Sheridan's
The Field. Mr. Brokaw was the producer of Robert Altman's The Player, the
celebrated and successful comedy which was nominated for five Academy awards,
including Best Picture. Mr. Brokaw also produced Robert Altman's Short Cuts,
which was nominated for several Academy Awards. More recently, Mr. Brokaw
produced Restoration, the Academy-Award winning and critically acclaimed epic
adventure directed by Michael Hoffman and released by Miramax Films. In 1996,
Mr. Brokaw produced Sony Pictures' Voices from a Locked Room, directed by
Malcolm Clarke and starring Jeremy Northam and Tushka Bergen.
Avenue Pictures is in the business of producing feature films, television films
and series for television. As set forth in greater detail below, Avenue Pictures
is currently active in developing and producing products in each of its three
areas of activity.
Business Approach
As an independent producer of feature films and television programming, Avenue
Pictures does not have sufficient capital to independently finance its own
productions. Accordingly, most of its financial resources are devoted to
financing development activities which include the acquisition of underlying
literary works such as books, plays or newspaper articles and commissioning of
screenplays based upon such underlying literary works. A key element in the
success of the development process is Mr. Brokaw's reputation in the
entertainment business and his access to and relationships with creative talent.
It is the ability to identify and develop attractive properties which is
instrumental to the success of independent producers such as Avenue Pictures. In
particular, the feature film industry relies heavily on independent producers to
identify projects which are then developed further or produced and distributed
by the major studios. Independent producers serve a similar function in the
television industry. Avenue Pictures employs a flexible strategy in developing
its motion picture and film properties. Wherever possible, it employs its own
capital and financial resources in developing a project to the point where it is
ready to go into production. Typically, this means putting together a "package"
which consists of the underlying property, a script that is ready for production
and key talent, including a director and principal cast. The benefit of
developing a project to this advanced stage is that Avenue Pictures will have
maximum leverage in
<PAGE>
negotiating production and financing arrangements with a distributor.
Nevertheless, there are occasions when Avenue Pictures benefits from the
financial assistance of a studio at an earlier stage. These occasions may be
necessary as a result of lengthy development of a script, the desirability of
commissioning a script by a highly paid writer, the acquisition of an expensive
underlying work or a significant financial commitment to a director or star.
Moreover, when developing a property for series television, it is almost
essential to involve a network at an earlier stage inasmuch as development and
production of a television series requires a much larger financial commitment
than production of a television movie.
In addition to the development and production strategies described above, Avenue
Pictures also considers various production financing alternatives which are
available whereby commitments from various end users such as independent
domestic distributors, foreign distributors, cable networks and video
distributors can be combined to finance a project without a major studio
financial commitment. Set forth below are Avenue Pictures' current projects in
the feature film, made-for-television and series television categories,
including a brief description of the financial arrangements which pertain to
each type of production.
Feature Films
Currently, Mr. Brokaw serves as the producer or executive producer of all Avenue
Pictures films with overall responsibility for their development, financing and
production arrangements. Avenue Pictures is paid a producing fee for both the
services of Mr. Brokaw and for Avenue Pictures' services in connection with the
development and production of each feature film, in addition to a negotiated
profit participation. The nature of the profit participation is a function of
Mr. Brokaw's standing as a producer and Avenue Pictures' relative bargaining
position with respect to each project. As set forth above, Avenue Pictures'
bargaining position is enhanced by the development and "packaging" of a project
to the fullest possible extent before seeking the financial assistance of a
studio or distributor.
Current feature film projects for Avenue Pictures include the following
titles: Graceland, Angels in America, The Moviegoer, Paying Up and The
Diviners.
Filming started on Graceland, an original screenplay developed by Avenue
Pictures, directed by David Winkler and starring Harvey Keitel and Bridget
Fonda, in March of 1997. The $11 million film has been fully financed by Largo
Entertainment Corp., a wholly owned subsidiary of JVC Entertainment, Inc.
("Largo"). Largo currently plans to distribute the film in foreign markets by
licensing the rights to most major territories and through a network of sales
representatives in other territories. In the domestic market, principally the
United States and Canada, Largo will explore opportunities to either license or
sell the film through a major distributor. After Largo receives a distribution
fee for its services and recoups its expenses and investment in the film plus
interest, Avenue Pictures will receive a profit participation of approximately
50% out of which all third party participants must be paid.
Avenue Pictures is negotiating an agreement with New Line Cinema to co-finance
the film Angels in America with the French based CIBY-2000.
<PAGE>
Director P.J. Hogan of Muriel's Wedding and the upcoming My Best Friend's
Wedding (Tri-Star), starring Julia Roberts, has agreed to direct the picture.
Because of the success of the Pulitzer Prize and Tony Award winning play,
several major actors have expressed an interest in joining the cast. Avenue
Pictures hopes to start filming in late 1997.
Tri-Star Pictures has agreed to finance the development of a film based upon the
Walker Percy novel, The Moviegoer. Actors Julia Roberts and Tim Robbins are
contractually committed to the film subject to approval of the final script and
choice of director.
Paying Up is an original screenplay currently in development at Paramount
Pictures. Michael Hoffman, the director of One Fine Day, has agreed to direct
the picture. The script for the movie, written by Nora Ephron, Beth Henly, Wendy
Wasserstein, Jon Robin Baitz, Terrence McNally, Richard Greenberg and Michael
Hoffman, is presently being rewritten. The screenplay was conceived with
multiple writers collaborating on six stories interwoven in a unique fashion so
that each writer contributes a story. Provided that development of the project
progresses satisfactorily, Avenue Pictures anticipates that the film will begin
production in the fall of 1997.
Woody Harrelson and Liv Tyler are both in negotiations with Avenue Pictures to
star in The Diviners. The Diviners is based on a play by Jim Leonard, who also
wrote the screenplay. Avenue Pictures has an option to acquire the screenplay.
Avenue Pictures is in the process of securing financing for the film.
Although Avenue Pictures continues to pursue vigorously the development and/or
production of these projects, there can be no assurance that each project will
be produced within the indicated time frame and budget due to the contingencies
of securing talent, financing and distribution.
In addition to these projects, Avenue Pictures is currently developing
approximately twelve additional projects. However, no assurance can be given as
to when or if any of these projects will be completed.
Made-for-Television/Cable Movies
Avenue Pictures has also successfully produced made-for-television movies and
movies for cable television. Movies produced for television include: In The Eyes
of a Stranger, which aired on CBS in the spring of 1992, See Jane Run, based on
the best-selling novel by Joy Fielding, starring Joanna Kerns (ABC) which aired
in January 1995, and A Stranger in Town, an adaptation of R.T. Marcus' play
starring Jean Smart and Gregory Hines, which aired on CBS in March of 1996. More
recently, Avenue Pictures produced The Almost Perfect Bank Robbery starring
Brooke Shields and Dylan Walsh for CBS, Two Mothers for Zachary for ABC starring
Valerie Bertinelli and Vanessa Redgrave and Tell Me No Secrets starring Lori
Loughlin and Bruce Greenwood which aired on ABC in January 1997.
For cable television, Avenue Pictures produced Amelia Earhart: The Final
Flight for Turner Network Television, starring Diane Keaton, Rutger Hauer and
Bruce Dern, and directed by Yves Simoneau which aired in June 1994. Avenue
<PAGE>
Pictures also recently completed the production of Path To Paradise for HBO,
which stars Peter Gallagher, Marcia Gray Hardin and Art Malik and is directed by
Leslie Libman and Larry Williams. Path to Paradise is scheduled to air in June
of 1997.
Typically, the domestic broadcaster of a made-for-television movie pays a
license fee which entitles it to a limited number of airings of the movie over a
designated period of time (generally 2-5 years). The initial network/cable
license fees generally range from $2.5 -$3.5 million dependent upon the
broadcaster and the nature and content of the programming. Producers such as
Avenue Pictures have historically been required to expend production costs in
excess of the initial domestic network/cable broadcast license fee. The practice
of incurring production costs in excess of the initial domestic network/cable
broadcast license fee is generally referred to as "deficit financing". This
deficit financing is generally recovered through sales of the
made-for-television movie in media and territories other than domestic
network/cable broadcasting, such as international free television, domestic
syndication (post initial broadcast license), domestic and international pay
television, and domestic and international home video. Unlike many television
producers who must seek licensing arrangements on a project-by-project basis to
cover its deficit financing, Avenue Pictures has entered into an output
agreement with Hallmark Entertainment ("Hallmark"). As a result, Avenue Pictures
has the ability to assemble financing more easily and can move forward more
efficiently with its television projects. Avenue Pictures retains 100% ownership
in its made-for-television movies subject to the rights licensed to the initial
domestic network/cable broadcaster and Hallmark.
As indicated above, pursuant to the Hallmark distribution agreement, Avenue
Pictures has granted Hallmark the right to license Avenue Pictures movies (i)
internationally and (ii) in the domestic market subsequent to the initial
network license period. The Hallmark agreement pertains to typical network
movies of the week, i.e. movies shown on ABC, CBS or NBC, of two hour length,
with license fees no less than $2.5 million. Hallmark is required to pay a
predetermined advance against its distribution rights for all such movies.
Avenue Pictures is not required to supply to Hallmark movies which it does not
fully own and control.
The Hallmark agreement does not cover television movies which Mr. Brokaw or
other Avenue Pictures executives produce pursuant to "for hire" arrangements
with programmers. In such producer-for-hire arrangements, Mr. Brokaw and Avenue
Pictures do not have financing responsibility or ownership for the films. Mr.
Brokaw receives a substantial producer's fee for such services. Mr. Brokaw has
provided services to HBO as a producer-for-hire on Path to Paradise. Mr. Brokaw
has also been asked to executive produce Sympathy for the Devil, an epic three
hour movie about the infamous drug lord Pablo Escobar for HBO. Sympathy for the
Devil, which is still in the development stage, is expected to begin principal
photography in the summer of 1997.
Avenue Pictures has approximately eight television movies in development,
including Don't Cry Now (ABC), based on Joy Fielding's best selling novel, and
Into the Light (CBS), which will star Jean Smart. Although Avenue Pictures is
actively pursuing these projects, there can be no assurance that
<PAGE>
each or any project will be produced due to Avenue Pictures' reliance upon the
network and cable programmers who must approve and order the films in order to
provide adequate financing.
Series Television
Currently, Avenue Pictures is in preproduction on one television series. In
conjunction with New Line Television, Avenue Pictures has developed a one-hour
pilot for a television series based upon the movie, The Player, for which Mr.
Brokaw will serve as Executive Producer. ABC has agreed to finance the pilot
with New Line Television. The series is the first pilot ordered by ABC for the
Fall 1997 television season. Principal photography of the pilot began in March
and will be delivered to ABC at the end of May or the beginning of June of 1997.
However, there can be no assurance that the pilot will result in a series. The
decision to produce a series based on the pilot is the exclusive decision of
ABC.
Avenue Pictures is also working on two other television series which are in the
developmental stage, including Street Life written by Joseph Cacaci, which is a
one hour series being developed with Warner Brothers Television.
Competition
The motion picture industry is extremely competitive. The competition comes from
both companies within the same business and companies in other entertainment
media which create alternative forms of leisure entertainment. Avenue Pictures
competes with several "major" film studios which are dominant in the motion
picture industry, as well as numerous independent motion picture and television
production companies, television networks and pay television systems for the
acquisition of literary properties, the services of performing artists,
directors, producers and other creative and technical personnel and production
financing. Many of the organizations with which Avenue Pictures competes have
significantly greater financial and other resources than does Avenue Pictures.
In addition, Avenue Pictures' films compete for audience acceptance with motion
pictures produced and distributed by other companies. As a result, the success
of Avenue Pictures' production is also heavily dependent on public taste, which
is both unpredictable and susceptible to change without warning.
A limited number of independent production companies are as actively involved in
the production of both feature films and television movies. The management of
Avenue Pictures believes that its established track record of high quality,
critically acclaimed films attracts some of the best writing, directing and
acting talent in the industry. In addition, Mr. Brokaw's years of experience in
the business and strong reputation further enhance the competitive edge of
Avenue Pictures.
Major Customers
Avenue Pictures' revenue has historically been derived from the production of a
relatively small number of programs. Given this fact, the limited number of
outlets for the Avenue Pictures productions, and the individually significant
license fees generated from certain of its sales, certain
<PAGE>
customers have historically accounted for a significant portion of Avenue
Pictures' revenue. Avenue Pictures derived approximately 78% and 16% of its
total revenue from ABC and Hallmark, respectively, for the year ended December
31, 1996 and 64% and 17% of its total revenue from Hearst Entertainment
Productions and Miramax, respectively, for the year ended December 31, 1995.
Employees
Avenue Pictures has eight full time employees and two part time employees.
Wombat
Wombat Productions, Inc. was formed in March 1997 to acquire all of the
assets of the Wombat Division of CineMasters, founded in 1969 by Gene Feldman
and his wife, Suzette St. John Feldman. Historically, Wombat's primary focus
has been the production of one hour motion picture profiles of Hollywood's
biggest stars which are aired by the major cable networks. Gene Feldman and
Suzette St. John Feldman have produced films together for over twenty years.
The following titles, produced since 1982, are included in the Wombat program
library:
Program Library- The Hollywood Collection
<PAGE>
- ------------------------------------------------------------------------------
"Hollywood's Children"
- ------------------------------------------------------------------------------
"The Horror Of It All"
"Ingrid"
"Marilyn Monroe: Beyond The Legend"
"Steve McQueen: Man On the Edge"
"Grace Kelly: The American Princess"
"Gregory Peck: His Own Man"
"William Holden: The Golden Boy"
"Vivien Leigh: Scarlett And Beyond"*
"Anthony Quinn: An Original"
"Robert Mitchum: The Reluctant Star"
"Michael Caine: Breaking The Mold"
"Shirley Temple: America's Little Darling"
"Clint Eastwood: The Man From Malpaso"
"Audrey Hepburn Remembered..."
"Mae West...And The Men Who Knew Her"
"The Story Of Lassie"
"Charlton Heston: For All Seasons"
"Roger Moore: A Matter of Class"
"Yul Brynner: The Man Who Was King"
"Ingrid Bergman Remembered"
"Burt Lancaster: Daring To Reach"
"Jack Lemmon: America's Everyman"
"Joan Crawford: Always The Star"
"Fred MacMurray: The Guy Next Door"
"Intimate Portrait: Shirley MacLaine
<PAGE>
*Turner Broadcasting System owns the copyright on "Vivien Leigh: Scarlett
and Beyond". All other copyrights are owned by Wombat.
Wombat is currently working on a profile of the life of actress Barbara Stanwyck
and is in the preliminary stages of putting together projects on Walter Matthau
and Gary Cooper. To date, Gene Feldman and Suzette St. John Feldman have
produced 27 film star biographies. Among their awards was a Cable Ace award for
a film on Robert Mitchum and an Emmy nomination for a program on Audrey Hepburn.
The process of preparing a biography generally takes four months from start to
finish. In preparing the biography, Wombat uses interview materials, film clips,
public domain films, trailers, still photos, archival materials and newsreels.
Wombat conducts interviews with the subject of the biography, if he or she is
still alive, and various family members, friends and associates of the
individual. Additional research on the figures involves the gathering and
reading of any publicly available information, including biographical and
autobiographical materials and interviews with biographers. Generally, all
interviewees sign releases and participate willingly in the compilation of
materials for the biography at no cost to Wombat.
Gene Feldman and his wife, Suzette St. John Feldman, do all research on the
figures as well as produce, write and direct the biographies. In addition,
Wombat employs a staff cameraperson/ editor and an associate producer. Budgets
for the films range from $200,000 to $250,000 per film. Once the film is
completed, Wombat submits the film to the principal licensee for its content and
technical approval.
Production Arrangements
A&E: Pursuant to an Agreement, dated as of December 5, 1994 and amended as of
June 27, 1996 and as of October 1, 1996, A&E Television Networks ("A&E")
commissioned the production of seven (7) one-hour motion picture profiles by
Wombat. A&E pays an advance on each program for which it receives an exclusive
five-year exhibition period per program in the United States and its territories
and possessions and, in the English language only, Canada, Mexico, Central
America and the Caribbean. In addition, A&E has two (2) successive options, each
to order up to five (5) additional programs. Wombat receives an increased
advance on the additional option programs. A&E has exercised its first option
for three (3) additional programs. A&E also has two (2) successive options to
extend the exhibition periods of their ordered programs for an additional
payment. To date, A&E has not exercised any of its extension options.
HBO: Pursuant to a Production and License Agreement, dated as of November 17,
1989, Wombat agreed to produce and deliver to HBO four (4) one-hour motion
picture biographical profiles depicting the lives of Clint Eastwood, Robert
Mitchum, Michael Caine and Anthony Quinn for a significant license fee per
program. As consideration for such license fee, HBO was granted the exclusive
perpetual right to distribute each program, without limitation, throughout the
United States and Canada and their respective territories, possessions and
commonwealths (collectively, the "HBO Territory"). Wombat may distribute such
films outside of the HBO Territory at any time after the first exhibition by
HBO. To the extent that HBO distributes any program by means of any program
service other than an HBO programming service, Wombat shall be entitled to
receive twenty percent (20%) of the net revenues (net of HBO's thirty-five
<PAGE>
percent (35%) distribution fee) derived from such distribution after HBO has
recouped $75,000 from the distribution of each program.
Lifetime: Pursuant to an Agreement, dated as of March 26, 1996, Lifetime
Productions, Inc. ("Lifetime") commissioned the production of, and agreed to
license from Wombat, the exclusive right to telecast and exhibit, the television
program titled "Intimate Portrait: Shirley MacLaine" for a production and
license fee. As consideration for such production and license fee, Lifetime was
granted exclusive basic cable telecast rights in the program for a period of
five (5) years from the date of Lifetime's initial telecast of each program in
the United States, its territories and possessions, Bermuda, the Bahamas and the
Caribbean Islands. In addition, Lifetime has two (2) exclusive irrevocable
options to extend the exclusivity period for an additional two (2) years for an
additional fee. To the extent that Wombat distributes the program as permitted
by the Agreement, Wombat shall be entitled to retain the first $50,000 of
proceeds and thereafter, a majority of the gross revenues.
PBS: Pursuant to a Production and Distribution Agreement, dated as of June 3,
1993, Wombat agreed to produce and deliver to Public Broadcasting Service
("PBS") the one-hour motion picture entitled "Audrey Hepburn Remembered" for a
license fee. As consideration for such license fee, PBS was granted the
exclusive right to distribute and broadcast the program via public television
stations throughout the United States and its territories and possessions
(collectively, the "License Area"). The rights granted to PBS consist of six (6)
public television releases during the thirty-seven month period commencing
August 1, 1993 (the "License Term"). PBS has rights of first negotiation and
last refusal with respect to the sale or license of any broadcast or cablecast
rights in the program in the License Area for any period commencing within three
(3) years after the expiration of the License Term. Wombat shares with PBS any
net revenues received from ancillary sales of the program and program elements.
Distribution Arrangements
Pursuant to a Distribution Agreement (the "Distribution Agreement"), dated July
1, 1995 and amended on April 28, 1996, between Wombat and Janson Associates,
Inc. ("Janson"), Janson was granted the sole and exclusive right, subject to the
production arrangements described above, to license substantially all of the
Wombat film library for all forms of television and video worldwide for a period
of ten (10) years, subject to automatic renewals in three (3) year increments.
In consideration of Janson's services under the Distribution Agreement, Janson
is entitled to retain a distribution fee, ranging from 25% to 40%, depending
upon whether such distribution is via domestic television network, syndication,
international television or home video, of the gross receipts derived from the
licensing of each program.
In addition, Janson is reimbursed for certain distribution expenses out of gross
receipts. The remaining balance is remitted to Wombat as its licensor royalty.
Competition
Wombat was one of the first production companies specializing in the
distribution of profiles of movie stars and has since established itself as a
market leader. Competitors include independent production companies and
subsidiaries of major studios. Although some of the Wombat competitors have the
advantage of being affiliated with established studios, and, as such, have
greater financial
<PAGE>
resources, Wombat has developed a reputation in the industry for producing
quality biographies with a personal touch.
Major Customers
Wombat has in the past substantially relied upon the financial commitments of
A&E and other United States television and cable companies to fund the
production of its programs and upon Janson for the worldwide distribution of its
programs. Wombat derived approximately 41%, 12% and 13% of the total revenues
from A&E for the five months ended December 31, 1996 and the years ended July
31, 1996 and July 31, 1995, respectively. In addition, Wombat derived
approximately 32%, 40% and 27% of its total revenues from Janson Associates for
the five months ended December 31, 1996 and the years ended July 31, 1996 and
July 31, 1995 respectively.
Employees
Wombat has four full time employees and one part time employee.
Business Strategy
The Company's primary goal is significant and sustained growth through an
increased level of development and production activity in both motion pictures
and television. Future revenues and profitability will depend on the Company's
ability to successfully develop and finance viable film and television
properties.
To achieve this goal, Avenue Pictures will expand its development and production
staff. The Company will also increase its level of development expenditure to
secure a greater number of exploitable film properties.
In order to increase its production activity in cable and long form television,
the Company will form exclusive arrangements with other established independent
producers to work within Avenue Television's aegis. Such relationships will
allow the Company to significantly increase its production activity and to more
fully capitalize on its favorable distribution relationships.
In series television, the Company will continue to explore development and
production opportunities based on its film properties, television properties and
writer relationships without committing significant financial resources to this
area of its business.
Wombat will continue to produce its film biographies and increase its level of
production by bringing in additional producers to satisfy the increasing demand
of A&E and the upcoming biography channel. A&E is interested in dramatized
biographical films, including some of Wombat's previously profiled subjects.
With budgets in the $3 million range, such films could significantly broaden
Wombat's production range and potential growth without any increase in financial
risk. The expanding international marketplace, as well as the enhanced brand
awareness of the Avenue Pictures/Wombat label, should expand the market and
potential licensing revenue for the Wombat library. However, no assurance can be
given additional production talent will be available when needed by the Company.
<PAGE>
Further, no assurance can be given that additional funding, whether from
financial markets or collaborative or other arrangements with corporate partners
or from other sources, will be available when needed or on terms acceptable to
the Company.
International Sales & Distribution
As the global market for entertainment programming continues to expand, the
Company foresees real opportunity in developing an international sales division.
With a relatively modest increase in operating costs the Company believes it can
dramatically increase both revenues and the control of its product overseas.
With its own sales organization the Company can optimize revenues from
programming both produced and acquired by the Company. The practice of
pre-selling films internationally significantly reduces financial risk and
increases both the cash flow and ability to finance this area of the Company's
business activity. Direct involvement in international sales also provides
favorable opportunities in the areas of co-production and co-financing which can
further benefit the Company. No assurance can be given that such co-production
and co-financing opportunities will be available to the Company.
The Company is committed to the development and production of high quality
entertainment programming which it believes has enduring value in all media. In
addition to increasing its level of development and production activity, the
Company intends to actively explore the creation of an international sales
division as a further means by which its revenues can be increased and its
operating base broadened. No assurance can be given that Company funds will be
available to create and develop an international sales division.
The Motion Picture Industry
General
The motion picture industry consists of two principal activities: production,
which involves the development, financing and production of motion pictures; and
distribution, which involves the promotion and exploitation of feature-length
motion pictures in a variety of media, including theatrical exhibition, home
video, television and other ancillary markets, both domestically and
internationally. The United States motion picture industry is dominated by the
"major" studios, including The Walt Disney Company, Paramount Pictures, Warner
Brothers, Universal Pictures, Twentieth Century Fox, Columbia/Tri-Star Pictures
and MGM/UA. The major studios are typically parts of large diversified
corporations that have strong relationships with creative talent, exhibitors and
others involved in the entertainment industry and whose non motion picture
operations provide a stable source of earnings and cash flow which offset the
variations in the financial performance of their new motion picture releases and
other aspects of their motion picture operations. The major studios have
historically produced and distributed the vast majority of high grossing
theatrical motion pictures released annually in the United States.
Independent Film
At the same time that films released by the major studios have become more
expensive, currently with average budgets exceeding $40 million (as reported by
<PAGE>
the Motion Picture Association of America ("MPAA"), low budget "independent
films" have successfully entered the market. Typically, such films are more
character driven than plot driven and originally they lacked major stars.
Miramax, originally an independent distributor (now owned by Disney), broke
ground in this area with films like "My Left Foot" and "The Piano."
Over the last several years there have been other notable "independent-type"
films such as "Four Weddings and A Funeral", "Pulp Fiction" and "The Crow."
Indeed, given the relatively small financial risk of producing and releasing
such films, all of the major studios have started or are studying the
feasibility of production and distribution units focusing on smaller,
independent-type films. The nominees for the 1996 Academy Awards illustrate the
growing importance of such films with four(1) out of the five nominees for Best
Picture considered to be "independent" films. The four films have been released
by the four leading distributors of such films, Miramax, Fine Line, October and
Gramercy. They were, with the exception of Miramax's "The English Patient" all
produced at budgets far below studio averages and without major stars.
The growth of this product and market segment should provide opportunities
for Avenue Pictures which is one of the pioneers in this area.
Motion Picture Production and Financing
The production of a motion picture begins with the screenplay adaptation of a
popular novel or other literary work acquired by the producer or the development
of an original screenplay having its genesis in a story line or scenario
conceived or acquired by the producer. In the development phase, the producer
typically seeks production financing and tentative commitments from a director,
the principal cast members and other creative personnel. A proposed production
schedule and budget are also prepared during this phase.
Upon completing the screenplay and arranging financing commitments,
pre-production of the motion picture begins. In this phase, the producer engages
creative personnel to the extent not previously committed; finalizes the filming
schedule and production budget; obtains insurance and secures completion
guaranties, if necessary; establishes filming locations and secures any
necessary studio facilities and stages; and prepares for the start of actual
filming. Principal photography (the actual filming of the screenplay) generally
extends from seven to twelve weeks, depending upon such factors as budget,
location, weather and complications inherent to the screenplay.
Following completion of principal photography in what is typically referred to
as post-production, the motion picture is edited; opticals, dialogue, music and
any special effects are added; and voice, effects and music sound tracks and
pictures are synchronized. This results in the production of a fully edited
negative from which release prints of the motion picture are made.
(1) The films nominated for Best Picture are "Jerry Maguire" (Tri_Star), "The
English Patient" (Miramax), "Shine" (FineLine), "Fargo" (Gramercy) and "Secrets
and Lies" (October).
<PAGE>
Production costs consist of acquiring or developing the screenplay, film studio
rental, principal photography, post-production and the compensation of creative
and other production personnel. Distribution expenses, which consist primarily
of the costs of advertising and preparing release prints, are not included in
direct production costs and vary widely depending on the extent of the release
and promotional markets. Average studio budgets currently exceed $30 million.
Average independents are far lower and are often less than $10 million. The
major studios generally fund production costs from cash flow generated by motion
picture and related activities or, in some cases, from unrelated businesses or
through off-balance sheet methods. Substantial overhead costs, consisting
largely of salaries and related costs of the production staff and physical
facilities maintained by the major studios, also must be funded. Independent
production companies generally avoid incurring overhead costs as substantial as
those incurred by the major studios by hiring creative and other production
personnel and retaining the other elements required for pre-production,
principal photography and post-production activities on a picture-by-picture
basis. Sources of funds for independent production companies include bank loans,
"pre-licensing" of distribution rights, equity offerings and joint ventures.
Independent production companies generally attempt to obtain all or a
substantial portion of their financing of a motion picture prior to commencement
of principal photography, at which point substantial production costs begin to
be incurred and require payment.
"Pre-licensing" of film rights is often used by independent film companies to
finance all or a portion of the direct production costs of a motion picture. By
"pre-licensing" film rights, a producer obtains amounts from third parties in
return for granting such parties a license to exploit the completed motion
picture in various markets and media. Production companies with distribution
divisions may retain the right to distribute the completed motion picture either
domestically or in one or more international markets. Other production companies
may separately license theatrical, home video, television and all other
distribution rights among several licensees.
In connection with the production and distribution of a motion picture, major
studios and independent production companies generally grant contractual rights
to actors, directors, screenwriters, owners of rights and other creative and
financial contributors to share in revenues or net profits (as defined in their
respective agreements) from a particular motion picture. Except for the most
sought-after talent, these third-party participants are generally payable after
all distribution fees, marketing expenses, direct production costs and financing
costs are recouped in full.
Major studios and independent film companies typically incur obligations to pay
residuals to various guilds and unions including the Screen Actors Guild, the
Directors Guild of America and the Writers Guild of America. Residuals are
obligations arising from the exploitation of a motion picture in markets other
<PAGE>
than the primary intended market for such picture. Residuals are primarily
calculated as a percentage of the gross revenues derived from the exploitation
of the picture in these secondary markets. The guilds and unions typically
obtain a security interest in all rights of the producer in the motion picture
which is usually subordinate to the financier of the motion picture, and the
completion bond company if any. The producer may transfer the residual
obligation to a distributor if the distributor executes the appropriate guild
assumption agreement.
Motion Picture Distribution
General
Distribution of a motion picture involves domestic and international licensing
of the picture for (a) theatrical exhibition, (b) non-theatrical exhibition,
which includes airlines, hotels and armed forces facilities, (c) videocassettes
and video discs, (d) television, including pay-per-view, pay, network,
syndication or basic cable and (e) marketing of the other rights in the picture
and underlying literary property, which may include books, merchandising and
soundtrack albums. In recent years, revenues from the licensing of rights to
distribute motion pictures in secondary (i.e., other than domestic theatrical)
markets, particularly home video and international theatrical pay and free
television, have increased significantly.
The distributor typically acquires rights from the producer to distribute a
motion picture in one or more markets and/or media. For its distribution rights,
the distributor generally agrees to pay to the producer a certain minimum
advance or guarantee upon the delivery of the completed motion picture, which
amount is to be recouped by the distributor out of revenues generated from the
distribution of the motion picture in particular media or territories. After the
distributor's distribution fee is deducted from the gross receipt of the
picture, the distributor recoups the amount advanced (if any) plus its
distribution costs.
Motion pictures may continue to play in theaters for up to six months following
their initial release. Concurrently with their release in the United States,
motion pictures generally are released in Canada and may also be released in one
or more other international markets. A motion picture is typically available for
distribution during its initial distribution cycle as follows:
Marketplace Months After
Initial Domestic Approximate
Theatrical Release
Release Period
Domestic theatrical......................... -----
4-6 months
International theatrical.................... ----- 6-12
months
Domestic home video (initial release)....... 4-6 months 6
months
Domestic pay-per-view....................... 6-9 months 2
months
International Video (initial release)....... 6-12 months 6-12 months
Domestic pay television..................... 12-15 months 18 months
International television (pay or free)...... 18-24 months 12-36 months
Domestic free television* .................. 30-33 months 1-5 years
- -----------------------
* Includes network, barter syndication, syndication and basic cable.
A substantial portion of a film's ultimate revenues are generated in a film's
initial distribution cycle (generally the first five years after the film's
initial domestic theatrical release). Commercially successful motion pictures,
however, may continue to generate revenues after the film's initial distribution
cycle from the relicensing of distribution rights in certain media, including
television and home video, and from the licensing of distribution rights with
respect to new media and technologies.
<PAGE>
Theatrical
The theatrical distribution of a motion picture involves the licensing and
booking of the motion picture to theatrical exhibitors, the promotion of the
picture through advertising and publicity campaigns and the manufacture of
release prints from the film negative. The size and success of the promotional
advertising campaign can materially affect the financial performance of the
film. Moreover, as the vast majority of these costs (primarily advertising
costs) are incurred prior to the first weekend of the film's domestic theatrical
release, there is not necessarily a correlation between these costs and the
film's ultimate box office performance. In addition, the ability to distribute a
picture during peak exhibition seasons, including the summer months and the
Christmas holidays, may affect the theatrical success of the picture.
The distributor and theatrical exhibitor generally enter into license agreements
providing for the exhibitor's payment to the distributor of a percentage of box
office receipts after deducting the exhibitor's overhead or a flat working
amount. The percentage generally ranges from 45-60% and may change for each week
the film plays in a specific theatre, depending on the success of the picture at
the box office and other factors. The balance ("gross film rentals") is remitted
to the distributor. The distributor then retains a distribution fee from the
gross film rentals and recoups the costs of distributing the film, which consist
primarily of advertising, marketing and production cost, and the cost of
manufacturing release prints. The balance of film rentals, if any, after
recouping any advance or minimum guarantee previously paid to producer and
interest thereon is then paid to the producer based on a predetermined split
between the producer and distributor.
Home Video
A motion picture typically becomes available for videocassette distribution
within four to six months after its initial domestic theatrical release. Home
video distribution consists of the promotion and sale of videocassettes to
local, regional and national video retailers which rent or sell videocassettes
to consumers primarily for home viewing. The market for videocassettes for home
use has expanded rapidly over the past ten years, although the rate of growth in
this market has slowed in recent years. Most films are initially made available
in videocassette form at a wholesale price of $55 to $60 and are sold at that
price primarily to video rental stores, which rent the cassettes to consumers.
Owners of films generally do not share in rental income. Following the initial
marketing period, selected films are remarketed at a wholesale price of $10 to
$15 or less for sale to consumers. These "sell-through" arrangements are used
most often with films that will appeal to a broad marketplace or to children.
Some films are initially offered at a price designed for sell-through rather
than rental when it is believed that the ownership demand by consumers will
result in a sufficient level of sales to justify the reduced margin on each
cassette sold. Home video arrangements in international territories are similar
to those in domestic territories except that the wholesale prices may differ.
<PAGE>
Television
Television rights are generally licensed first to pay-per-view for an exhibition
period within six to nine months following initial domestic theatrical release,
then to pay television approximately twelve to fifteen months after initial
domestic theatrical release, thereafter in certain cases to free television for
an exhibition period, and then to pay television again. These films are then
syndicated to either independent stations or basic cable outlets. Pay-per-view
television allows subscribers to pay for individual programs, including recently
released movies and live sporting, music and other events on a per use basis.
Pay television allows cable television subscribers to view such services as
HBO/Cinemax, Showtime/The Movie Channel or Encore Media Services offered by
their cable system operators for a monthly subscription fee. Since groups of
motion pictures are typically packaged and licensed for exhibition on television
over a period of time, revenues from these television licensing "packages" may
be received over a period that extends beyond five years from the initial
domestic theatrical release of a particular film. Motion pictures are also
"packaged" and licensed for television broadcast in international markets.
Non-Theatrical and Other Rights
Films may be licensed for use by airlines, schools, public libraries, community
groups, the military, correctional facilities, ships at sea and others. Musical
compositions contained in a film which have been commissioned for that film may
be licensed for sound recording, public performances and sheet music
publication. A soundtrack album may be released including music contained in a
film. Rights in motion pictures may be licensed to merchandisers for the
manufacturer of products such as video games, toys, T-shirts, posters and other
merchandise. Rights may also be licensed to create novelizations of the
screenplay and other related book publications.
International Markets
Motion picture distributors and producers derive revenue from international
markets in the same media as domestic markets. The growth of foreign revenues
has been dramatic, now accounting for more than 50% of the total revenues of
many films. The increase in revenues is currently being driven primarily from
the growth of television abroad. The increase in foreign television values and
foreign revenues is likely to continue. Although the increased level of foreign
values affects the revenues of most films, the effect is not uniform. Action
films and films with major stars benefit most from foreign revenues; films with
uniquely American themes with unknown actors benefit the least.
Regulation
Distribution rights to motion pictures are granted legal protection under the
copyright laws of the United States and most foreign countries, which laws
provide substantial civil and criminal sanctions for unauthorized duplication
and exhibition of motion pictures. Motion pictures, musical works, sound
recordings, art work, still photography and motion picture properties are
separate works subject to copyright under most copyright laws, including the
United States Copyright Act of 1976, as amended. The Company plans to take
appropriate and reasonable measures to secure, protect and maintain or obtain
agreements to secure, protect and maintain copyright protection for all Company
<PAGE>
pictures under the laws of applicable jurisdictions. Motion picture piracy is an
industry-wide problem. The MPAA operates a piracy hotline and investigates all
reports of such piracy. Depending upon the results of such investigations,
appropriate legal action may be brought by the owner of the rights. Depending
upon the extent of the piracy, the Federal Bureau of Investigation may assist in
these investigations and related criminal prosecutions.
Motion picture piracy is an international as well as a domestic problem. Motion
picture piracy is extensive in many parts of the world, including South America,
Asia (including Korea, China and Taiwan), the countries of the former Soviet
Union and other former Eastern bloc countries. In addition to the MPAA, the
Motion Picture Export Association, the American Film Marketing Association and
the American Film Export Association monitor the progress and efforts made by
various countries to limit or prevent piracy. In the past, these various trade
associations have enacted voluntary embargoes of motion picture exports to
certain countries in order to pressure the governments of those countries to
become more aggressive in preventing motion picture piracy. In addition, the
United States government has publicly considered trade sanctions against
specific countries which do not prevent copyright infringement of United States
produced motion pictures. There can be no assurance that voluntary industry
embargoes or United States government trade sanctions will be enacted. If
enacted, such actions could impact the amount of revenue that the Company
realizes from the international exploitation of its motion pictures depending
upon the countries subject to such action and the duration of such action. If
not enacted or if other measures are not taken, the motion picture industry
(including the Company) may continue to lose an indeterminate amount of revenues
as a result of motion picture piracy.
The Code and Ratings Administration of the MPAA assigns ratings indicating
age-group suitability for theatrical distribution of motion pictures. The
Company has followed and will continue to follow the practice of submitting its
pictures for such ratings.
United States television stations and networks, as well as foreign governments,
impose additional restrictions on the content of motion pictures which may
restrict in whole or in part theatrical or television exhibition in particular
territories. Management's current policy is to produce motion pictures for which
there will be no material restrictions on exhibition in any major territories or
media. This policy often requires production of "cover" shots or different
photography and recording of certain scenes for insertion in versions of a
motion picture exhibited on television or theatrically in certain territories.
There can be no assurance that current and future restrictions on the content of
the Company's pictures may not limit or affect the Company's ability to exhibit
certain of its pictures in certain territories and media.
Item 2......Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and related notes thereto.
<PAGE>
General
The Company is an independent entertainment company which, through its two
operating subsidiaries, (Avenue Pictures and Wombat) produces motion pictures
for theatrical exhibition, television and other ancillary markets, both
domestically and internationally.
Pursuant to Share Exchange Agreement, dated as of September 30, 1996, among Mr.
Brokaw, Avenue Pictures and CineMasters, CineMasters acquired all of the
outstanding capital stock of Avenue Pictures from Mr. Brokaw, the sole
shareholder of Avenue Pictures, in exchange for 1,425,000 shares of CineMasters
Common Stock. In connection with the Business Combination, National Patent made
a capital contribution valued at $815,000 to CineMasters in the form of
registered National Patent common stock in exchange for 407,500 shares of
CineMasters Common Stock.
The consolidated financial statements of the Company for the period ended
December 31, 1996 include the results of operations of Avenue Pictures from the
date of acquisition.
Following the Business Combination, the Board of Directors and shareholders of
CineMasters approved a transaction pursuant to which (i) all of the assets of
the Wombat Division of CineMasters were transferred, subject to all related
liabilities and obligations, to its newly-formed, wholly-owned Delaware
subsidiary, Wombat, (ii) CineMasters was merged with and into the Company (its
newly-formed, wholly-owned Delaware subsidiary) with the Company being the
surviving corporation in the merger and (iii) each stockholder of CineMasters
received an equal number of shares of the Company in exchange for each share of
capital stock of CineMasters held by such stockholder immediately prior to the
effective time of the Reincorporation. As a result of the Reincorporation,
Avenue Pictures became a wholly-owned subsidiary of the Company.
Revenues
Revenues for the five months ended December 31, 1996 were $3,509,000. The
revenues were derived from revenues generated by Avenue Pictures which was
acquired on September 30, 1996 and the operations of Wombat. Revenues from the
operations of Avenue Pictures from the acquisition date through December 31,
1996 amounted to approximately $2,727,000 and were primarily derived from the
completion and availability to ABC of the made-for-television movie "Tell Me No
Secrets". Revenues from Wombat operations for the five months ended December 31,
1996 were approximately $782,000. Of this amount approximately $454,000 was
derived from the completion and availability of four one hour motion picture
profiles to A&E and Lifetime. The remaining revenue was derived from licensing
of rights to Wombat programming in secondary markets. No revenues were derived
from the operations of Kaufman Films (Kaufman) during the five month period
ended December 31, 1996 due to the Kaufman termination (as more fully described
in Item 6- Employment Agreements and Arrangements).
Revenues increased approximately $168,000 or 9% for the year ended July 31, 1996
(fiscal 1996) compared to the year ended July 31, 1995 (fiscal 1995). The
increase can be attributed to an approximately $130,000 increase due to three
one hour motion picture profiles being completed and available in fiscal 1996 as
opposed to only two such profiles becoming available in fiscal 1995, a $130,000
increase from the licensing of rights in secondary markets, offset by an
approximate $92,000 decrease in revenues derived form the Kaufman operations.
<PAGE>
One customer, ABC, accounted for approximately 77% of total revenues during the
five months ended December 31, 1996. During fiscal 1996 and fiscal 1995 A&E
accounted for approximately 12% and 13% of total revenues and Janson Associates
accounted for approximately 40% and 27% of total revenues, respectively.
Cost of Revenues
Cost of Revenues for the five months ended December 31, 1996 was $2,752,000
which can be attributed to the film amortization relating to Avenue Pictures'
television product in the amount of $ 2,496,000 and approximately $256,000 from
Wombat's operations.
Cost of revenues decreased approximately $68,000 for fiscal 1996 compared to
fiscal 1995. The decrease can be primarily attributed to lower costs on
secondary licensing sales in fiscal 1996 for production with little or no
remaining capitalized production costs.
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses for the five months ended
December 31, 1996 was $662,000. Included in the five months ended December 31,
1996 expenses are $262,000 of S,G&A expenses related to Avenue Pictures
operations and were principally salaries and related benefits and occupancy
expenses. S,G&A expenses, exclusive of Avenue Pictures, for the five months
ended December 31, 1996 was approximately $400,000 and was primarily salary and
related benefits, occupancy costs and professional fees.
S,G&A expenses increased $135,000 or 23% for fiscal 1996 compared to fiscal
1995. The increase can be attributed to increases in S,G&A expenses related to
the Kaufman operations of approximately $65,000 and increases in various other
miscellaneous expenses aggregating approximately $70,000.
Other Income
During fiscal 1995, the Company sold an investment generating a profit of
$59,768. There were no similar items during fiscal 1996 or the five months ended
December 31, 1996.
Liquidity and Capital Resources
At December 31, 1996, the Company had $687,000 of cash and $696,000 of short
term investments.
During the five months ended December 31, 1996 the Company increased its cash by
$646,000. In addition short term investments increased by $696,000. This
resulted primarily from $621,000 of cash acquired in the acquisition of Avenue
Pictures and $966,000 relating to the issuance of common stock for cash and
marketable securities, offset by cash used in operating activities of $92,000.
The Company believes it has adequate capital resources to meet its short-term
needs covering at least twelve months. The Company expects to expand its
production activities. Management believes that the existing cash and short term
<PAGE>
investments are adequate to fund the Company's operations, however, management
may seek to raise additional funds, through the issuance of common stock or
issuance of debt, to expand the Company's business at a greater rate. However,
there are no guarantees that such funding will be available, or available under
terms which are acceptable to the Company. The Company's rate of growth and
investment in projects will be adjusted as necessary based on available
financing and existing capital resources.
Item 3......Description of Property.
The Company's philosophy on real estate investments is to lease required
properties and invest in the development of film and television properties. The
Company presently subleases for itself and Avenue Pictures on a month-to-month
basis approximately 3700 square feet of office space at its corporate
headquarters at 11111 Santa Monica Boulevard, Suite 2110, Los Angeles,
California 90025. The rent for such space is approximately $8,000 per month.
Wombat presently leases approximately 2,000 square feet of office space at 250
West 57th Street, Suite 2421, New York, New York, 10019 pursuant to a lease that
expires on April 30, 1999. Wombat's rent for such space is approximately $5,000
per month.
Management believes the properties herein described are adequate to handle
current and short term projected business.
<PAGE>
Item 4......Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information (on a pro forma basis, assuming
completion of the Reincorporation) as of December 31, 1996, with respect to the
beneficial ownership of the common stock of the Company, par value $0.01 per
share, (the "Common Stock") by (a) each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock, (b)
the directors and executive officers of the Company, individually, and (c)
directors and executive officers of the Company as a group.
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership* Percent of Class
Cary Brokaw ............................ .... 1,505,000(1) 39.8%
c/o Avenue Pictures, Inc. ..................
11111 Santa Monica Boulevard
Suite 2110
Los Angeles, CA 90025
National Patent ....................... . ... 1,060,500 28.7%
Development Corporation
9 West 57th Street
New York, New York 10019
Gene Feldman ............................... 385,000(2) 9.8%
c/o Wombat Productions, Inc. ...............
250 West 57th Street
Suite 2421
New York, New York 10019
Michael Feldman ............................ 62,300(3)(4) 1.2%
c/o Wombat Productions, Inc. ...............
250 West 57th Street
Suite 2421
New York, New York 10019
Suzette St. John Feldman ................... 37,500(5)(6) 1.0%
c/o Wombat Productions, Inc. ...............
250 West 57th Street
Suite 2421
New York, New York 10019
Sheri L. Halfon ............................ 15,100(7) **
c/o Avenue Pictures, Inc. ..................
11111 Santa Monica Boulevard
Suite 2110
Los Angeles, CA 90025
Doug Rowan ................................. -0- -0-
c/o Corbis Corporation
15395 SE 30th Place
Suite 300
Bellevue, WA 98007
James A. Janowitz .......................... -0-(8) -0-
c\o Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York
Directors and officers ..................... 2,004,900 49.1%
as a group (7 persons)
<PAGE>
_______ * As used in this Proxy Statement, "beneficial ownership" means the sole
or shared power to vote, or to direct the voting of the Company's Common Stock
or the sole or shared investment power with respect to such Common Stock.
** Represents less than 1% ownership of the Company's Common Stock.
(1) Includes vested options to purchase up to 60,000 shares of the Company's
Common Stock at a price of $1.70 per share, exercisable until September 30, 2006
and vested options to purchase up to 20,000 shares of Common Stock of the
Company at a price of $3.00, exercisable until March 10, 2007. Does not include
unvested options to purchase up to 240,000 shares of the Company's Common Stock
at a price of $1.70 per share, exercisable until September 30, 2006 and unvested
options to purchase up to 80,000 shares of Common Stock of the Company at a
price of $3.00 per share exercisable until March 10, 2007.
(2) Does not include 17,500 shares of Common Stock of the Company and 20,000
vested stock options which are owned by Mr. Feldman's wife, Suzette St. John
Feldman, as to which Mr. Feldman disclaims beneficial ownership and unvested
options to purchase up to 50,000 shares of Common Stock of the Company at a
price of $3.00 per share, exercisable until March 10, 2007. Also does not
include 48,000 shares of Common Stock of the Company which are owned by Mr.
Feldman's children, Lynne Feldman, Stephanie Edelstein and Zara Janson, as to
which Mr. Feldman disclaims beneficial ownership. Includes vested options to
purchase up to 200,000 shares of the Company Common Stock at a price of $0.32
per share, exercisable until August 11, 2000 and vested options to purchase up
to 25,000 shares of Common Stock of the Company at a price of $3.00 per share,
exercisable until March 10, 2007.
(3) Includes vested options to purchase up to 30,000 shares of the Company's
Common Stock at a price of $1.70 per share, which option is exercisable until
September 30, 2006 and vested options to purchase up to 15,000 shares of Common
Stock of the Company at a price of $3.00 per share, exercisable until March 10,
2007. Does not include unvested options to purchase up to 120,000 shares of the
Company's Common Stock at a price of $1.70 per share, exercisable until
September 30, 2006 and unvested options to purchase up to 60,000 shares of
Common Stock of the Company at a price of $3.00 per share, exercisable until
March 10, 2007.
(4) Michael Feldman is Gene Feldman's nephew.
(5) Includes vested options to purchase up to 20,000 shares of the Company's
Common Stock at a price of $0.32 per share, exercisable until August 11, 2000.
(6) Gene Feldman and Suzette St. John Feldman are husband and wife.
(7) Includes vested options to purchase up to 15,000 shares of Common Stock of
the Company at a price of $3.00 per share, exercisable until March 10, 2007.
Does not include vested options to purchase up to 60,000 shares of Common Stock
of the Company at a price of $3.00 per share, exercisable until March 10, 2007.
(8) Does not include 25,000 shares of Common Stock of the Company which are
owned by Pryor, Cashman, Sherman & Flynn, a law firm in which Mr. Janowitz is a
senior partner, as to which Mr. Janowitz disclaims beneficial ownership.
Except for the shares of Common Stock subject to the options described in
footnotes 1 through 3, 5 and 7 above, none of such shares is known by the
Company to be shares with respect to which such beneficial owner has the right
to acquire beneficial ownership. The Company believes the beneficial holders
listed above have sole voting and investment power regarding the shares shown as
being beneficially owned by them.
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following table sets forth the directors and officers of the
Company:
Name Age Position
Gene Feldman 70 Chairman of the Board,
President of Wombat
Cary Brokaw 45 President, Chief Executive
Officer and Director
Michael Feldman 29 Executive Vice President
and Director
Suzette St. John Feldman 65 Secretary, Vice President
of Wombat
Sheri L. Halfon 40 Senior Vice President,
Chief Financial Officer and
Director
Doug Rowan 58 Director
James A. Janowitz 50 Director
Gene Feldman has served as Chairman of the Board of the Company and President of
Wombat since their respective formations on March 7, 1997. Prior to the
Reincorporation, Gene Feldman served as Chairman of the Board of CineMasters and
President of the Wombat Division for more than the past five years. Gene Feldman
is a Class III Director whose term expires at the 2000 annual meeting of the
Company.
Cary Brokaw has served as President, Chief Executive Officer and Director of the
Company since its formation on March 7, 1997. Prior to the Reincorporation, Mr.
Brokaw served as President, Chief Executive Officer and Director of CineMasters
from September 30, 1996 and Chairman and Chief Executive Officer of Avenue
Pictures since its formation in 1991. Mr. Brokaw is a Class III Director whose
term expires at the 2000 annual meeting of the Company.
Michael Feldman has served as Executive Vice President and Director of the
Company since its formation on March 7, 1997. Prior to the Reincorporation,
Michael Feldman had served as Executive Vice President and Director of
CineMasters from September 30, 1996. Michael Feldman served as an officer of
General Physics Corporation from 1991 to 1996 and has been a Director of
International Business Development at National Patent since 1995. Michael
Feldman is a Class II Director whose term expires at the 1999 annual meeting of
the Company.
<PAGE>
Suzette St. John Feldman has served as Secretary of the Company and Vice
President of Wombat since their respective formations on March 7, 1997. Prior to
the Reincorporation, Ms. Feldman served as Secretary of CineMasters and Vice
President of the Wombat Division for more than the past five years.
Sheri L. Halfon has served as Senior Vice President, Chief Financial Officer and
Director of the Company since its formation on March 7, 1997. Prior to the
Reincorporation, Ms. Halfon served as Senior Vice President, Chief Financial
Officer and Director of CineMasters from September 30, 1996 and Senior Vice
President and Chief Financial Officer of Avenue Pictures since its formation in
1991. Ms. Halfon is a Class II Director whose term expires at the 1999 annual
meeting of the Company.
Doug Rowan has served as President and Chief Executive Officer of Corbis
Corporation, a company which is building a library of digital images, since
April 1994. Prior to his position at Corbis, Mr. Rowan served as Senior Vice
President of Worldwide Customer Operations of Ungermann-Bass, Inc., a networking
product company, from November 1993 to April 1994, and President of AXS, a
software corporation for the new digital content industry, from April 1, 1991
through December 31, 1992. Mr. Rowan is a Class I Director whose term expires at
the 1998 annual meeting of the Company.
James A. Janowitz has been a senior partner in the litigation department at
Pryor, Cashman, Sherman & Flynn and head of its motion picture group for more
than the past five years. Mr. Janowitz is a Class I Director whose term expires
at the 1998 annual meeting of the Company.
Directors of the Company are divided into three classes. At each annual meeting
of stockholders, directors are elected to succeed those directors whose terms
expire and are elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election. Under the Company's bylaws,
the number of directors constituting the entire Board of Directors shall be
fixed, from time to time, by the directors then in office, who may decrease or
increase the number of directors by majority action without soliciting
stockholder approval. The Company does not currently pay compensation to
directors for service in that capacity.
Item 6. Executive Compensation.
The following table sets forth the aggregate compensation paid or accrued to the
Company's executive officers for services rendered in 1996, 1995 and 1994:
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Securities Underlying
Name and Principal Position Year Salary Bonus Options/SARs
Cary Brokaw 19961 450,000 -0- 300,0002
President & Chief 19951 391,000 -0- -0-
Executive Officer 19941 415,000 -0- -0-
Gene Feldman 1996 150,000 -0- -0-
Chairman of the Board, 1995 101,115 4,225 200,000(3)
President of Wombat 1994 72,800 -0- -0-
- ------------------
1Prior to completion of the Business Combination on September 30, 1996, Mr.
Brokaw's compensation was paid directly by Avenue Pictures.
2Of the 300,000 stock options granted to Mr. Brokaw in 1996, only 60,000 are
currently vested.
3Of the 200,000 stock options granted to Mr. Feldman in 1995, all are currently
vested.
Option Grants in 1996
The following table sets forth certain information concerning stock option
grants during the year ended December 31, 1996 to the named executive officers
pursuant to the Avenue Entertainment Group, Inc. Stock Option and Long Term
Incentive Compensation Plan.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
% of Total Market Price
Number of Options of Underlying
Securities Granted to Exercise Security on
Underlying Employees Price Date of
Options in Fiscal ($ per Grant ($ per Expiration
Name Granted Year share) share) Date
Cary Brokaw 300,000 60 1.70 2.00 9/30/06
The following table sets forth information concerning the value of unexercised
options as of December 31, 1996 held by the executives named in the Summary
Compensation Table above. No options were exercised during 1996.
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year End Fiscal Year End
Exercisable (E)/ Exercisable (E)/
Name Unexercisable (U)_
Unexercisable (U)1
Cary Brokaw 60,000 (E) $100,800 (E)
240,000 (U) $403,200 (U)
Gene Feldman 200,000 (E) $612,000 (E)
- ------------------------
1Based upon a market price per share of Common Stock of $3.38, the price per
share of Common Stock on December 31, 1996.
The Avenue Entertainment Group, Inc. Stock Option and Long Term Incentive
Compensation Plan.
Introduction and Purpose.
Effective as of March 10, 1997, the Board of Directors of the Company adopted
and CineMasters, as sole stockholder of the Company, approved, The Avenue
Entertainment Group, Inc. Stock Option and Long Term Incentive Compensation Plan
(the "1997 Plan" or the "New Plan"). Pursuant to the terms of the 1997 Plan,
briefly summarized below, options to purchase shares of the Company's Common
Stock are awarded to eligible executive officers, key employees, directors and
consultants of the Company and its two wholly-owned subsidiaries, Wombat and
Avenue Pictures. The 1997 Plan enables the Company and its subsidiaries to
attract, retain and maximize the performance of executive officers, key
employees, directors and consultants. A maximum of 1,750,000 shares of the
Company's Common Stock (subject to adjustment) has been reserved for the
issuance of awards under the 1997 Plan.
Effective as of September 30, 1996, in connection with the Business Combination,
(i) options to purchase an aggregate of 217,500 shares of the CineMasters Common
Stock were granted to eligible persons, subject to stockholder approval of the
Reincorporation, and (ii) options to purchase an aggregate of 282,500 shares of
CineMasters Common Stock were granted under the Prior Plan. Such options were
granted to, among others, the following persons, in the following amounts, and
in the following manner: (i) Mr. Brokaw (300,000 shares of CineMasters Common
Stock, of which 242,500 shares were available under the Prior Plan) and (ii) Mr.
Michael Feldman (150,000 shares of CineMasters Common Stock, of which 30,000
shares were available under the Prior Plan). In addition, effective as of March
10, 1997, options to purchase an aggregate of 620,000 shares of CineMasters
<PAGE>
Common Stock were granted to eligible persons, subject to stockholder approval
of the Reincorporation. Such options were granted to, among others, the
following persons, in the following amounts: (i) Mr. Brokaw (100,000 shares of
CineMasters Common Stock), (ii) Gene Feldman (75,000 shares of CineMasters
Common Stock), (iii) Michael Feldman (75,000 shares of CineMasters Common Stock)
and (iv) Sheri L. Halfon (75,000 shares of CineMasters Common Stock). In
connection with the Reincorporation, options to purchase an aggregate of
1,432,500 shares of CineMasters Common Stock previously granted (including the
600,000 stock options previously granted pursuant to the Prior Plan) were
converted into options to purchase the same number of shares of the Company's
Common Stock pursuant to the 1997 Plan.
The 1997 Plan provides for the grant of "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("Code") and "non-qualified stock options" ("NQSOs") to purchase shares
of Common Stock. In addition, stock appreciation rights, restricted stock awards
and stock bonus awards may be granted to eligible participants under the 1997
Plan with respect to shares of Common Stock.
ISO and NQSO options will be the awards most commonly granted under the 1997
Plan. In accordance with the requirements of the Code, the exercise price for
ISOs may not be less than one hundred (100%) percent of the fair market value of
shares of Common Stock on the date of grant (one hundred and ten (110%) percent
of fair market value in the case of ISOs granted to employees who hold more than
ten percent of the voting power of the issued and outstanding shares of Common
Stock). The exercise price for NQSOs may be equal to or less than one hundred
(100%) percent of the fair market value of shares of Common Stock on the date of
grant.
In general, options granted under the 1997 Plan do not have a term of more than
a ten-year period (five years in the case of an ISO granted to an employee
holding more than ten (10%) percent of the voting power of Common Stock).
Options generally terminate three months after the optionee's termination of
employment with the Company for any reason other than death, disability or
retirement, and are not transferable by the optionee other than by will or the
laws of descent and distribution.
Employment Agreements and Arrangements
Brokaw Employment Agreement. In connection with the Business Combination, Mr.
Brokaw entered into a five-year employment agreement ("Brokaw Employment
Agreement") with the Company pursuant to which, among other things, Mr. Brokaw
became the President and Chief Executive Officer of the Company. The Brokaw
Employment Agreement provides Mr. Brokaw with an annual base salary of $450,000
(which base salary may be paid from any Company source other than net cash flow
generated by Wombat), subject to annual increases equal to the then annual rate
of inflation. Mr. Brokaw is also eligible for annual bonuses based upon the
performance of Mr. Brokaw and the Company during the previous fiscal year. The
Brokaw Employment Agreement provides that the Company may only terminate Mr.
Brokaw's employment with the Company for "cause". The Company agreed to seek to
obtain "key-man" life insurance on his life. Pursuant to the Brokaw Employment
Agreement, Mr. Brokaw was granted options to purchase up to 300,000 shares of
Common Stock for an exercise price of $2.00 per share. Such stock options will
vest in equal installments over the first five (5) years of Mr. Brokaw's
employment with the Company and will be exercisable for a period of ten (10)
years from the date of grant. The Brokaw Employment Agreement provides for
accelerated vesting of all of Mr. Brokaw's stock options upon a "change of
<PAGE>
control" of the Company or upon a material breach of the Brokaw Employment
Agreement by the Company. As President and Chief Executive Officer of the
Company, Mr. Brokaw is entitled to certain customary perquisites, including
without limitation, a car allowance, term life insurance and reimbursement of
all reasonable travel and entertainment expenses. In addition, Mr. Brokaw is
entitled to participate in all employee benefit plans offered to executive
officers of the Company.
Gene Feldman Employment Agreement. In connection with the Business Combination,
Gene Feldman entered into a five-year employment agreement (the "Feldman
Employment Agreement") with CineMasters pursuant to which, among other things,
Gene Feldman became the Chairman of CineMasters and President of its Wombat
Division. The Feldman Employment Agreement provides Gene Feldman with an annual
base salary of $150,000 (provided that such base salary is funded solely out of
net cash flow generated by the Wombat Division of CineMasters), subject to
annual increases equal to the then annual rate of inflation. Gene Feldman is
also eligible for annual bonuses based upon the performance of Gene Feldman and
CineMasters during the previous fiscal year. The Feldman Employment Agreement
provides that CineMasters may only terminate Gene Feldman's employment with
CineMasters for "cause". CineMasters agreed to obtain "key-man" life insurance
on his life. As chairman of CineMasters and President of the Wombat Division,
Gene Feldman is entitled to certain customary perquisites, including without
limitation, a car allowance, term life insurance and reimbursement of all
reasonable travel and entertainment expenses. In addition, Gene Feldman is
entitled to participate in all employee benefit plans offered to executive
officers of CineMasters. In connection with the Reincorporation, the Gene
Feldman Employment Agreement was amended to indicate that Gene Feldman is the
Chairman of the Board of the Company and the President of Wombat.
Kaufman Termination Agreement. Pursuant to a Termination Agreement (the "Kaufman
Termination Agreement"), dated July 3, 1996 among CineMasters, Kaufman Films,
Inc. ("Kaufman Films") and Kevin Kaufman ("Mr. Kaufman"), CineMasters terminated
an employment agreement with Mr. Kaufman. In connection with the termination, an
option for 200,000 shares of CineMasters common stock granted to Kaufman Films
and an option for 250,000 shares of CineMasters common stock granted to Mr.
Kaufman were declared null and void. CineMasters delivered to Kaufman
Films/Kaufman five replacement certificates for an aggregate of 80,000 shares
(four for 18,000 and one for 8,000) of restricted CineMasters Common Stock (in
exchange for the 160,000 shares of CineMasters Common Stock previously held by
Kaufman Films) in the name of Kaufman ("Kaufman Stock"). Kaufman agreed not to
sell more than 18,000 shares of the Kaufman Stock in any one calendar quarter.
Kaufman continued to receive salary and benefits through July 31, 1996. Kaufman
has agreed to pay to CineMasters one-half of all net proceeds from sale by
Kaufman of second group of 18,000 shares of CineMasters Common Stock which is to
be sold within six (6) months after closing. CineMasters agreed that, through
September 30, 1997 or until such time earlier as Kaufman has sold all of the
Kaufman Stock, none of Gene Feldman, Jerome Feldman (the brother of Gene
Feldman) nor any affiliate or relative of either will, in the public market,
sell, transfer or assign any shares of CineMasters Common Stock.
Item 7. Certain Relationships and Related Transactions.
Gene Feldman Exit Option Agreement. In connection with the Business Combination,
Gene Feldman entered into an exit option agreement with CineMasters pursuant to
which, among other things, he was given an option, exercisable during the
<PAGE>
six-month period commencing on the date of termination of his employment, to
purchase the production assets of CineMasters for a cash purchase price equal to
the book value of such assets. This option does not include the CineMasters film
library. In addition, CineMasters retained the right to acquire any future
production of Mr. Feldman for nominal consideration, subject to (i) the rights
of Mr. Feldman to receive commercially reasonable producer fees, (ii) the
rights, if any, of A&E, as licensee, consistent with past practice, and (iii)
the distribution rights pursuant to the Distribution Agreement, dated July 1,
1995, as amended, between Janson and the Wombat Division. Upon the exercise of
such option, Gene Feldman will no longer be employed by CineMasters but will be
entitled to receive annual payments for the remainder of his life equal to the
lower of (i) twenty-five percent (25%) of the annual net income derived by
CineMasters from the original CineMasters library and (ii) $100,000. If Gene
Feldman shall die prior to the exercise of such option, Gene Feldman's wife,
Suzette St. John Feldman, shall following Gene Feldman's death have the right to
exercise such option and to receive such annual payments for a period of five
(5) years following the date of such exercise. If Gene Feldman shall die after
the exercise of such option but prior to the fifth (5th) anniversary of the date
of such exercise, Suzette St. John Feldman shall following Gene Feldman's death
be entitled to receive such annual payments for a period of five (5) years
following the date of Gene Feldman's death; provided, however, that such annual
payments shall be reduced from $100,000 to $75,000 following the fifth (5th)
anniversary of the date of Gene Feldman's exercise of such option. In addition,
if CineMasters shall determine to sell its library during the first five (5)
years following the exercise of such option by Gene Feldman, CineMasters shall
first offer to sell its library to Gene Feldman based upon a specific price and
upon specific terms. If Gene Feldman does not accept such offer within a
reasonable period of time, CineMasters will then have a limited period of time
in which to sell its library to a third party for a price and upon terms no less
favorable to CineMasters than those offered to Gene Feldman. In connection with
the Reincorporation, the Gene Feldman Exit Option Agreement was amended to
replace CineMasters with Wombat.
Stockholders Agreement. In connection with the Business Combination, Mr. Brokaw
entered into a stockholders agreement (the "Stockholders Agreement"), amended in
connection with the Reincorporation, with CineMasters and each of National
Patent, Gene Feldman, Jerome Feldman, Suzette St. John Feldman and Michael
Feldman (collectively, the "Feldman Group"), pursuant to which, among other
things, the Board of Directors of CineMasters was reconstituted such that Mr.
Brokaw and the Feldman Group each have three (3) designees on a six-person Board
of Directors and, except as may be mutually agreed upon, equal representation on
any committee of the Board of Directors. The Stockholders Agreement provides
that all extraordinary transactions (i.e., any merger or consolidation involving
CineMasters or any subsidiary, any public offering, any sale or other
disposition of a material portion of the assets of CineMasters and/or its
subsidiaries, any acquisition or investment in excess of $250,000, etc.) shall
require the prior approval of the Board of Directors of CineMasters. In
addition, the Stockholders Agreement provides that, except for ordinary course
(i) expenditures for office rent, (ii) expenditures for selling, general and
administrative expenses and (iii) out-of-pocket development expenditures not in
excess of $500,000 during each of the first two fiscal years following
consummation of the Business Combination, aggregate expenditures in excess of
$250,000 in any fiscal year will require the prior approval of the Board of
Directors of CineMasters. The Stockholders Agreement also provides each of Mr.
Brokaw and the members of the Feldman Group with reciprocal rights of first
negotiation and refusal and tag-along rights in the event that either party
wishes to dispose of some or all of his, her or its shares of Common Stock in a
privately-negotiated transaction. Mr. Brokaw has agreed until December 31, 1997
to maintain a balance of cash or cash equivalents (including the registered
shares of National Patent common stock held by the Company as described below)
for CineMasters of at least $500,000 and shall at all times thereafter maintain
<PAGE>
a balance of cash or cash equivalents for CineMasters of at least $300,000.
Pursuant to the Stockholders Agreement, $500,000 in cash or cash equivalents was
placed in a separate account with any withdrawal from such account requiring the
signatures of each of Mr. Brokaw and a representative from the Feldman Group.
The balance of such account will be reduced to $300,000 on December 31, 1997. In
connection with the Reincorporation, the Stockholders Agreement was amended to
replace CineMasters with the Company.
Transactions with National Patent Development Corporation. In connection with
the Business Combination, National Patent made a capital contribution valued at
$815,000 to CineMasters in the form of registered shares of National Patent
common stock in exchange for 407,500 shares of CineMasters Common Stock.
Distribution Agreement. On March 1, July 1, 1995 and April 28, 1996, CineMasters
entered into an agreement with Janson whereby Janson (the distributor) is
granted sole and exclusive rights to license essentially all the programs of the
Wombat Division for all forms of television and video worldwide. The distributor
also gained the exclusive right to execute all contracts for the exploitation of
these rights. The President of Janson is related to CineMasters' Chairman
through marriage. In connection with the Reincorporation, the agreement has been
modified to replace CineMasters with Wombat.
Transactions with Pryor, Cashman, Sherman & Flynn. As consideration for legal
services rendered in connection with the Business Combination, Pryor, Cashman,
Sherman, & Flynn was paid $75,000 in legal fees in 1996. As additional
consideration for such legal services, CineMasters issued 25,000 shares of
CineMasters Common Stock to the firm. Mr. Janowitz, a director of the Company,
is a senior partner at Pryor, Cashman, Sherman & Flynn.
Item 8. Description of Securities.
Common Stock
The Company's certificate of incorporation provides for the authorization of
15,000,000 shares of Common Stock, $.01 par value per share. As of March 7,
1997, 3,697,838 shares of CineMasters were outstanding. The holders of Common
Stock are entitled to one vote for each share held of record on all matters to
be voted on by stockholders. The holders of Common Stock are entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefor. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive pro rata all assets remaining legally available
for distribution to stockholders after liquidating distributions to the holders
of Preferred Stock and any future capital stock designated as being senior to
the Common Stock. The holders of Common Stock have no right to cumulate their
votes in the election of directors. The Common Stock has no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to such shares. All of the outstanding shares of
Common Stock are fully paid and non-assessable.
The Company's certificate of incorporation provides for the authorization of
1,000,000 shares of Class B Common Stock, $.01 par value per share. As of March
7, 1997, no shares of Class B Common Stock were outstanding. The holders of
<PAGE>
Class B Common Stock are entitled to ten (10) votes for each share of Class B
Common Stock held of record on all matters to be voted on by stockholders. Each
share of Class B Common Stock shall be convertible into one share of Common
Stock at any time. The designations, preferences, privileges and voting powers
of the shares of Class B Common Stock, and the restrictions and qualifications
thereof, are otherwise identical to those of the Common Stock.
Preferred Stock
The Company's certificate of incorporation provides for the authorization of
2,000,000 shares of Preferred Stock, $.01 par value per share. As of March 7,
1997, no shares were outstanding. Preferred Stock may be issued from time to
time in one or more classes or series, and the Board of Directors, without
further approval of the stockholders, is authorized to fix the dividend rights
and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking funds and any other rights, preferences,
privileges and restrictions applicable to each such class or series of Preferred
Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, delay or prevent a change of control of the
Company.
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
The Company's shares of Common Stock are eligible for trading on the
Over-the-Counter Bulletin Board. The following table sets forth, based on
information provided by market makers in the Common Stock, the high and low bid
prices for the Common Stock for the quarters indicated. The quotations represent
bid prices between dealers and do not include retail mark-up, mark-down or
commissions, and do not represent actual transactions.
1995 Low Bid High Bid
1st Quarter 1/2 1 1/4
2nd Quarter 3/8 1 1/4
3rd Quarter 1/4 1
4th Quarter 1/4 2
1996 Low Bid High Bid
1st Quarter 1 3/4 2 1/2
2nd Quarter 2 1/4 3 3/4
3rd Quarter 2 1/4 3 1/2
4th Quarter 1 3/4 3 1/2
As of March 7, 1997, there were 183 holders of record of Common Stock.
The Company anticipates that for the foreseeable future, earnings will be
retained for the development of its business. Accordingly, the Company does not
anticipate paying dividends on the Common Stock in the foreseeable future. The
payment of future dividends will be at the sole discretion of the Company's
Board of Directors and will depend on, among other things, future earnings,
capital requirements, the general financial condition of the Company and general
business conditions.
Item 2. Legal Proceedings.
None.
Item 3. Changes in and Disagreements With Accountants.
The Board of Directors has selected KPMG Peat Marwick LLP to audit the accounts
of the Company for the five months ending December 31, 1996 and the fiscal year
ended December 31(PI)1997. KPMG Peat Marwick LLP has no financial interest in
the Company or any of its subsidiaries, and neither it nor any member or
employee of the firm has had any connection with the Company or any of its
subsidiaries in the capacity of promoter, underwriter, voting trustee, director,
<PAGE>
officer or employee. The decision to engage KPMG Peat Marwick LLP did not result
from disagreements with the Company's prior accountants, Israeloff, Trattner &
Co..
Item 4. Recent Sales of Unregistered Securities.
Pursuant to a private placement transaction, in August 1996 certain affiliates
and employees of National Patent and CineMasters contributed capital in the
amount of $185,000 in exchange for 123,338 shares of CineMasters Common Stock.
On July 26, 1994, CineMasters acquired the net assets of Kaufman Films, Inc., a
media company specializing in the production of corporate commercial films. The
net assets were acquired in exchange for 160,000 shares of the CineMasters
Common Stock, valued at $0.25 per share and an option for the seller to acquire
an additional 200,000 shares at $0.25 per share which may be exercised no
earlier than two years from the closing nor more than five years from the
closing. In connection with the Kaufman Termination Agreement, such option was
declared null and void. In addition, CineMasters delivered to Kaufman Films/Mr.
Kaufman five replacement certificates for an aggregate of 80,000 shares (four
for 18,000 and one for 8,000) of restricted CineMasters Common Stock (in
exchange for the 160,000 shares of CineMasters Common Stock previously held by
Kaufman Films) in the name of Mr. Kaufman.
In connection with the Business Combination, CineMasters acquired all of the
outstanding capital stock of Avenue Pictures from Mr. Brokaw, the sole
shareholder of Avenue Pictures, in exchange for 1,425,000 shares of CineMasters
Common Stock.
In connection with the Business Combination, National Patent made a capital
contribution valued at $815,000 to CineMasters in the form of registered shares
of National Patent common stock in exchange for 407,500 shares of CineMasters
Common Stock.
In connection with the Business Combination, as additional consideration for
legal services provided, CineMasters issued 25,000 shares of CineMasters Common
Stock to the law firm of Pryor, Cashman, Sherman & Flynn.
Item 5. Indemnification of Directors and Officers.
Limitations on Directors and Officers Liability
The Company's Certificate of Incorporation limits the liability of directors to
the maximum extent permitted by Delaware law, which specifies that a director of
a company adopting such a provision will not be personally liable for monetary
damages for breach of fiduciary duty as a director, except for the liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law; or (iv) for any
transaction from which the director derived an improper personal benefit.
<PAGE>
The Company's Certificate of Incorporation provides for mandatory
indemnification of directors and authorizes indemnification for officers (and
others) in such manner, under such circumstances and to the fullest extent
permitted by the Delaware General Corporation Law, which generally authorizes
indemnification as to all expenses incurred or imposed as a result of actions,
suits or proceedings if the indemnified parties act in good faith and in a
manner they reasonably believe to be in or not opposed to the best interests of
the Company and the Amended and Restated Certificate of Incorporation provides
the right to such expenses in advance of the final disposition of any such
action, suit or proceeding. The Company believes that these provisions are
necessary or useful to attract and retain qualified persons as directors.
<PAGE>
THE CINEMASTERS GROUP, INC.
Consolidated Financial Statements
December 31, 1996, July 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
THE CINEMASTERS GROUP, INC.
Table of Contents
Page
INDEPENDENT AUDITORS' REPORT 38
FINANCIAL STATEMENTS
Consolidated Balance Sheet 40
Consolidated Statements of Operations 41
Consolidated Statements of Stockholders' Equity 42
Consolidated Statements of Cash Flows 43
Notes to Consolidated Financial Statements 45
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
The CineMasters Group, Inc.:
We have audited the accompanying consolidated balance sheet of The CineMasters
Group, Inc. as of December 31, 1996 and the related statements of operations,
stockholders' equity and cash flows for the five-month period 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 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 The CineMasters Group, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the five-month period then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Los Angeles, California
March 28, 1997
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
The CineMasters Group, Inc.:
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of The CineMasters Group, Inc. for the years ended July 31, 1996
and 1995. 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 results of operations and cash flows of The
CineMasters Group, Inc. for the years ended July 31, 1996 and 1995 in conformity
with generally accepted accounting principles.
Valley Stream, New York
October 10, 1996, except for note 9,
which is as of October 28, 1996.
<PAGE>
THE CINEMASTERS GROUP, INC.
Consolidated Balance Sheet
December 31, 1996
Assets
Cash $ 687,080
Short-term investment 696,150
Accounts receivable 149,483
Film costs, net (note 2) 1,998,326
Property and equipment, net (note 3) 117,492
Other assets 81,063
Goodwill (note 9) 2,735,069
-------------
Total assets $ 6,464,663
=============
Liabilities and Stockholders Equity
Accounts payable $ 284,784
Accrued expenses 457,426
Capitalized lease obligations (note 4) 40,451
Income taxes payable (note 6) 330,891
Advances from customers 577,730
-------------
Total liabilities 1,691,282
-------------
Commitments and contingencies (note 4)
Stockholders' equity:
Common stock, par value $.01 per share. Authorized
15,000,000 shares; issued and outstanding, 3,697,838 shares 36,978
Class B common stock, no par value. Authorized 1,000,000 shares; -
none issued
Additional paid-in capital 4,631,252
Retained earnings 224,001
Unrealized loss on marketable securities (118,850)
-------------
Total stockholders' equity 4,773,381
-------------
Total liabilities and stockholders equity 6,464,663
=============
See accompanying notes to consolidated financial statements.
<PAGE>
THE CINEMASTERS GROUP, INC.
Consolidated Statements of Operations
Five months
ended
December 31, Years ended July 31
-----------------------------
1996 1996 1995
------------- ------------- -------------
Operating revenues $ 3,508,967 1,961,333 1,793,190
------------- ------------- -------------
Costs and expenses:
Film production costs 2,752,307 1,103,291 1,170,629
Selling, general and 661,766 733,243 597,797
administrative expenses
------------- ------------- -------------
Total costs and expenses 3,414,073 1,836,534 1,768,426
------------- ------------- -------------
Income from operations 94,894 124,799 24,764
Gain on sale of investments (note 7) - - 59,768
------------- ------------- -------------
Income before income taxes 94,894 124,799 84,532
Income taxes (note 6) 74,945 51,230 28,452
------------- ------------- -------------
Net income $ 19,949 73,569 56,080
============= ============= =============
Earnings per common share (note 1)$ .01 .04 .03
============= ============= =============
Weighted average shares outstanding 3,321,251 1,788,525 1,795,000
============= ============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
THE CINEMASTERS GROUP, INC.
Consolidated Statements of Stockholders' Equity
Five months ended December 31, 1996 and years ended
July 31, 1996 and 1995
<TABLE>
Retained Unrealized
Common stock Additional earnings loss on
-----------------------------
Number of paid-in (accumulated marketable
shares Amount capital deficit) securities Total
------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1994, as 1,795,000 $ 17,950 703,423 (53,803 - 667,570
previously reported
Prior period adjustments (note 1) - - - 128,206 - 128,206
------------- ------------- ------------- ------------- -------------- -------------
Balance, August 1, 1994, as 1,795,000 17,950 703,423 74,403 - 795,776
restated
Net income - year ended July 31, - - - 56,080 - 56,080
1995
------------- ------------- ------------- ------------- -------------- -------------
Balance, July 31, 1995 1,795,000 17,950 703,423 130,483 - 851,856
Shares redeemed - net (note 8) (80,000) (800) (72,911) - - (73,711)
Issuance of stock (note 7) 123,338 1,233 183,767 - - 185,000
Net income - year ended July 31, - - - 73,569 - 73,569
1996
------------- ------------- ------------- ------------- -------------- -------------
Balance, July 31, 1996 1,838,338 18,383 814,279 204,052 - 1,036,714
Excercise of stock options 2,000 20 620 - - 640
Stock option compensation expense - - 9,375 - - 9,375
Issuance of common stock (note 9) 407,500 4,075 810,925 - - 815,000
Purchase of Avenue Pictures, Inc. 1,450,000 14,500 2,885,500 - - 2,900,000
(note 9)
Contribution of payable, net of - - 110,553 - - 110,553
tax (note 9)
Increase in unrealized loss - - - - (118,850) (118,850)
Net income - five months ended
December 31, 1996 - - - 19,949 - 19,949
------------- ------------- ------------- ------------- -------------- -------------
Balance, December 31, 1996 3,697,838 $ 36,978 4,631,252 224,001 (118,850) 4,773,381
============= ============= ============= ============= ============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
THE CINEMASTERS GROUP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Five months
ended
December 31, Years ended July 31
-----------------------------
1996 1996 1995
------------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 19,949 73,569 56,080
------------- ------------- -------------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation 10,046 51,232 32,565
Amortization - film production 2,624,627 351,801 326,626
costs
Amortization - goodwill 70,130 - -
Gain on sale of investments - - (59,768)
Stock option compensation 9,375 - -
Changes in assets and
liabilities which affect net
income:
Accounts receivable 302,398 (133,090) 95,036
Film costs (1,569,655) (592,995) (303,304)
Other assets 56,132 19,674 8,698
Accounts payable and accrued
expenses 101,083 (65,070) (28,186)
Income taxes payable - 13,550 9,820
Advances from customers (1,716,001) 311,000 (68,669)
Other - (11,000) 11,000
------------- ------------- -------------
Total adjustments (111,865) (54,898) 23,818
------------- ------------- -------------
Net cash provided
(used) by operating (91,916) 18,671 79,898
activities
------------- ------------- -------------
Cash flows from investing activities:
Purchase of equipment (5,731) (25,340) (53,630)
Proceeds from sale of marketable - - 60,000
securities
Cash acquired in purchase 620,714 - -
transaction
------------- ------------- -------------
Net cash provided
(used) by investing 614,983 (25,340) 6,370
activities
------------- ------------- -------------
(Continued)
</TABLE>
<TABLE>
THE CINEMASTERS GROUP, INC.
Consolidated Statements of Cash Flows, Continued
<CAPTION>
Five months
ended
December 31, Years ended July 31
-----------------------------
1996 1996 1995
------------- ------------- -------------
Cash flows from financing activities:
<S> <C>
Stock subscription $ 150,000 - -
Proceeds from the issuance of 640 35,000 -
common stock
Principal payments of capital
lease obligation (7,906) (35,613) (24,753)
Due to officers - (10,000) (35,000)
Repayment of loan payable (20,000) - -
------------- ------------- -------------
Net cash provided
(used) by financing 122,734 (10,613) (59,753)
activities
------------- ------------- -------------
Net increase (decrease) 645,801 (17,282) 26,515
in cash
Cash at beginning of year 41,279 58,561 32,046
------------- ------------- -------------
Cash at end of year $ 687,080 41,279 58,561
============= ============= =============
Supplemental cash flow information: Cash paid during the year for:
Interest $ 3,082 11,428 4,798
Income taxes 38,910 33,775 15,533
============= ============= =============
</TABLE>
Noncash transactions: During the year ended July 31, 1995, $87,498 of leased
assets and obligations was capitalized.
During the five months ended December 31, 1996, $815,000 of common stock was
issued for short-term investments, $184,255 of payables was contributed to
capital, net of a $73,702 tax liability, and Avenue Pictures, Inc. was acquired
resulting in the following:
Fair value of assets acquired $ 5,528,733
Liabilities assumed (2,662,066)
Common stock issued (2,866,667)
-------------
Net cash paid -
Cash acquired 620,714
-------------
Net cash acquired $ 620,714
=============
See accompanying notes to consolidated financial statements.
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements
December 31, 1996, July 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Description of Business
The CineMasters Group, Inc. (the Company), through its Wombat Production
Division, writes, produces and distributes film star biographies for
television and other markets. On September 30, 1996, the Company acquired
all of the outstanding capital stock of Avenue Pictures, Inc. (Avenue)
(note 9). Avenue is an independent producer of feature films and television
programming. Subsequent to July 31, 1996, the Company changed its year-end
to December 31.
Principles of Consolidation
The Company's financial statements include the accounts of all wholly owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Reclassifications
Certain reclassifications have been made to the July 31, 1996 and 1995
consolidated financial statements to conform to the current presentation.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with
original maturities, to the Company, of three months or less.
Short-Term Investment
Short-term investment consists of marketable equity securities. All
marketable securities are classified as available-for-sale. In accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," unrealized holding
gains or losses are reflected as an adjustment to stockholders' equity. At
December 31, 1996, short-term investment is comprised of registered shares
of National Patent Development Corporation, a stockholder of the Company.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Major expenditures for property
and those which substantially increase useful lives are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. When
assets are retired or otherwise disposed of, their costs and related
accumulated depreciation are removed from the accounts and resulting gains
or losses are included in income. Depreciation is provided by both
straight-line and accelerated methods over the estimated useful lives of
the assets.
Goodwill
Goodwill, representing the excess of the purchase price of Avenue Pictures,
Inc. over its net assets, is being amortized over a ten-year period.
Accumulated amortization at December 31, 1996 was $70,130.
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
In the event that the facts and circumstances indicate that the excess
purchase price over the net assets acquired may be impaired, an evaluation
of the continuing value would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with those assets
would be compared to its carrying value to determine if a write-down to
market or discounted cash flow is required.
Financial Instruments
The Company's financial instruments include cash, accounts receivable and
payable, and customer advances for which carrying amounts approximate fair
value.
Revenue and Cost Recognition
Revenues from feature film and television program distribution licensing
agreements are recognized on the date the completed film or program is
delivered or becomes available for delivery, is available for exploitation
in the relevant media window purchased by that customer or licensee and
certain other conditions of sale have been met pursuant to criteria
specified by SFAS No. 53, "Financial Reporting by Producers and
Distributors of Motion Picture Films." Retained earnings at August 1, 1994
have been restated to properly reflect the method of revenue recognition.
The correction had no effect on net income for fiscal 1995.
Production costs of released films are amortized based on the ratio of
revenues earned during the current period to management's estimate of total
revenues to be derived from the related productions. It is anticipated that
production costs will be amortized over various periods of generally up to
15 years although for certain films, the amortization period may be longer.
The market trend of each film is regularly examined to determine the
estimated future revenues and corresponding lives. Due to the nature of the
industry, management's estimates of future revenues may change within the
next year and the change could be material.
Revenues from producer-for-hire contracts are recognized on a
percentage-of-completion method, measured by the percentage of costs
completed to date to estimated total cost for each contract. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
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 reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Significant estimates include those related to valuation of
accounts receivable and inventories of released productions. It is at least
reasonably possible that the significant estimates used will change within
the next year.
Earnings per Common Share
Earnings per common share are computed based upon the weighted average
number of common shares and common stock equivalents (options) outstanding
during the year. Fully diluted earnings per share do not materially differ
from the earnings per share presented in the statements of operations.
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Concentration of Credit Risk
The Company's accounts receivable are due from companies in the
entertainment industry.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation", which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(2) Film Costs
Film costs are as follows:
December 31,
1996
-------------
Film costs $ 8,860,502
Less accumulated amortization (6,862,176)
-------------
$ 1,998,326
=============
(3) Property and Equipment
The major classes of property and equipment consist of the following:
December 31,
1996
-------------
Film equipment 4 years $ 31,391
Furniture and fixtures 10 years 15,642
Computer equipment 5 years 92,612
Equipment under capital lease 5 years 87,928
Leasehold improvements Lease term 20,489
-------------
248,062
Less accumulated depreciation and
amortization (including $29,075
attributable to equipment under (130,570)
capital leases)
-------------
$ 117,492
=============
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Depreciation expense was $10,046 for the five months ended December 31,
1996, $51,232 and $32,565, respectively, for the years ended July 31, 1996
and 1995.
(4) Commitments and Contingencies
Leases
The Company is obligated under a lease for office space, expiring April 30,
1999, which requires minimum annual rentals, plus increases based on real
estate taxes and operating costs.
Rent expense was $10,002, $56,340 and $67,803 for the five months ended
December 31, 1996 and the years ended July 31, 1996 and 1995, respectively.
These amounts are net of $9,127 for the five months ended December 31, 1996
and $45,142 and $24,842 for the years ended July 31, 1996 and 1995,
respectively, charged to production costs.
Minimum annual rental commitments at December 31, 1996 under the
noncancelable operating and capital leases are as follows:
Operating Capital
-------------- -------------
Year ending December 31:
1997 $ 42,938 35,865
1998 42,938 8,460
1999 14,313 -
-------------- -------------
Total minimum obligations $ 100,189 44,325
==============
Less amount representing interest 3,874
-------------
Present value of minimum
lease obligation $ 40,451
=============
Interest expense relating to the capital lease obligations was $2,806,
$11,428 and $4,798 for the five months ended December 31, 1996 and the
years ended July 31, 1996 and 1995, respectively.
Employment Agreements
Effective September 30, 1996, the Company entered into employment
agreements with its President and its Chairman providing for an annual
salary of $450,000, plus benefits (which base salary may be funded from any
Company source other than net cash generated by the Wombat Production
Division) and $150,000, plus benefits (provided that such base salary is
funded solely out of net cash flow generated by the Wombat Production
Division), respectively. Increases to base salaries and bonuses (limited to
twice the base salary) will be determined at the discretion of the
Compensation Committee of the Board of Directors.
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
(5) Stock Option Plan
In 1995, the Company adopted a Non-Qualified Stock Option Plan whereby
certain employees and related parties were granted non-qualified options to
purchase up to 600,000 shares of common stock of the Company. The options
may be exercised subject to continued employment and certain other
conditions. The options vest over a five-year period and expire five to ten
years from the date of grant. At December 31, 1996, 226,200 options are
exercisable.
Option activity was as follows:
Weighted
average
Number of exercisable
shares Exercise price
price
------------ ------------- ----------
Options granted during the year
ended July 31, 1996 417,500 $ .32 - 1.00 .48
------------
Outstanding at July 31, 1996 417,500 .32 - 1.00 .48
Options granted 500,000 1.70 1.70
Options exercised (2,000) .32 .32
------------
Outstanding at December 31, 1996 915,500 .32 - 1.70 1.29
============ ============= =========
Approximately 217,500 options granted during the five months ended December
31, 1996 were granted subject to stockholders' approval of an increase in
the number of shares available for stock options.
At December 31, 1996, the weighted average remaining contractual life of
all outstanding options was 8.1 years.
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (ABP)
Option No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 in accounting for its Plan, and accordingly, no compensation cost
has been recognized for its stock options granted at fair market value in
the consolidated financial statements. Compensation cost will be recorded
for options granted below fair market value.
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below:
December 31, July 31,
1996 1996
------------- ------------
Net income (loss) As reported $ 19,949 $ 73,569
Pro forma (138,461) (2,901)
Earnings (loss) per share As reported .01 .04
Pro forma (.05) (.01)
============= ============
Pro forma net income reflects only options granted in the five months ended
December 31, 1996 and the year ended July 31, 1996. Therefore, the full
impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period of
five years and compensation cost for options granted prior to August 1,
1994 is not considered.
At December 31, 1996 and July 31, 1996, the per share weighted-average fair
value of stock options granted was $1.58 and $.46, respectively, on the
date of grant using the modified Black-Scholes option-pricing model with
the following weighted-average assumptions: December 31, 1996 - expected
dividend yield 0%, risk-free interest rate of 6.5%, expected volatility of
73.2%, and an expected life of 9 years; July 31, 1996 - expected dividend
yield 0%, risk-free interest rate of 6.2%, expected volatility of 94.7%,
and an expected life of 2.9 years. There were no stock options granted in
the year ended July 31, 1995.
In October 1995, as part of a consulting agreement, the Company issued
options to acquire 100,000 shares of common stock at $1.00 per share (note
7). The options were immediately exercisable for a two-year period.
In July 1994, the Company issued options to acquire 200,000 shares of
common stock at $.25 per share to Kaufman Films, Inc. (Kaufman) in
conjunction with an acquisition (note 8). These options were subsequently
returned to the Company. This activity has been excluded from the table of
stock option activity above. These options were issued outside of the
Non-Qualified Stock Option Plan. Such options were subsequently canceled
(note 8).
(6) Income Taxes
Components of income taxes are as follows:
December 31, July 31
-----------------------------
1996 1996 1995
-------------- ------------- -------------
Federal $ 58,737 18,725 9,908
State and local 16,208 32,505 18,544
-------------- ------------- -------------
$ 74,945 51,230 28,452
============== ============= =============
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Reconciliation of the statutory Federal income tax rate to the Company's
effective tax rate is as follows:
December 31 July 31
-----------------------------
1996 1996 1995
-------------- ------------- -------------
Tax at Federal statutory $ 32,264 48,639 28,741
rate of 34%
Increase (decrease) in
taxes resulting from:
State and local income
taxes, net of Federal 10,697 21,453 12,239
income tax benefit
Surtax exemption - (11,580) (11,185)
Nondeductible goodwill 28,052 - -
amortization
Other 3,932 (7,282) (1,343)
------------- ------------- -------------
$ 74,945 51,230 28,452
============== ============= =============
(7) Related Party Transactions
Transactions with National Patent Development Corporation
In December 1987, the Company and National Patent Development Corporation
(NPDC) modified the agreement whereby the Company received 400,000 common
shares of Dento-Med in exchange for cancelation of its future royalty
interests. As of July 31, 1995, the Company has sold all of these shares.
The Company sold 15,000 shares in 1995, recognizing a gain of $59,768. The
Company previously sold 385,000 shares in the years 1988 to 1994. The
Chairman of The CineMasters Group, Inc. and the President of NPDC are
brothers.
In July 1996, the Company had a private placement in which it sold 123,338
shares of common stock at $1.50 per share to people affiliated with the
Company and NPDC. At July 31, 1996, 23,334 shares were paid. The remaining
subscribed shares were paid for subsequent to year-end.
In September 1996, NPDC made a capital contribution of $815,000 to the
Company (note 9).
Distribution Agreement
On March 1, 1994, the Company entered into an agreement with Janson
Associates whereby Janson Associates (the distributor) was granted sole and
exclusive rights to license essentially all the programs of the Company's
Wombat Production Division for all forms of television and video worldwide.
The distributor also gained the exclusive right to execute all contracts
for the exploitation of these rights. Included in operating expenses was
$277,764 and $197,913 in commissions incurred in 1996 and 1995. The
President of Janson Associates was a director of the Company and is related
to the Company's Chairman through marriage.
Consulting Agreement
In October 1995, the Company entered into a two-year agreement with a
financial consultant. The consultant will provide financial advisory and
investment banking related services. The agreement provides for monthly
payments of $4,000 per month, plus a two-year option to purchase 100,000
shares of the Company's common stock at an exercise price of $1.00 per
share. Either party may elect to terminate the agreement
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
upon 30 days written notice. Pursuant to its termination agreement with
Kaufman (note 8), Kaufman agreed to reimburse the Company $1,000 per month
for services of such consultant.
(8) Acquisition and Disposition of Kaufman Films, Inc.
On July 26, 1994, the Company acquired the net assets of Kaufman Films,
Inc. (Kaufman). Kaufman is a media company specializing in the production
of corporate and commercial films. The net assets were acquired in exchange
for 160,000 shares of the Company's class A common stock, valued at $.25
per share and an option for Kaufman to acquire an additional 200,000 shares
at $.25 per share which may be exercised no earlier than two years from the
closing nor more than five years from the closing. These options were not
ascribed a value.
On July 3, 1996, the Company entered into a termination agreement with
Kaufman. The agreement terminates an employment agreement dated July 26,
1994 with Kevin Kaufman and cancels the stock options granted to him and
Kaufman Films, none of which have been exercised. It also assigns the lease
at Leonard Street and returned certain acquired net assets to Kaufman. In
addition, Kaufman has returned 160,000 shares of the Company's stock and
the Company has replaced it with an aggregate of 80,000 shares of
restricted Class A common stock to Kevin Kaufman. Kevin Kaufman agreed to
provide the Company with one-half of the proceeds from the sale of 18,000
of such shares. Stockholders' equity was charged approximately $74,000 as a
result of this transaction.
(9) Acquisition of Avenue Pictures, Inc.
On October 28, 1996, the Company acquired Avenue Pictures, Inc. (Avenue),
effective September 30, 1996, in consideration for 1,425,000 shares of its
common stock which were ascribed a value of $2.00 per share. In connection
with the purchase, the Company intends to change its name to Avenue
Entertainment Group, Inc. In conjunction with the acquisition of Avenue,
NPDC, together with its affiliates, contributed $815,000 in the form of its
common stock in exchange for 407,500 shares of common stock ($2.00 per
share) of the Company prior to the consummation of this business
combination. In addition, accrued expenses due to the Chairman and
President of the Wombat Production Division amounting to $185,000 were
forgiven. The forgiveness, net of the related tax liability, was recorded
as a capital contribution. An additional 25,000 shares were issued to the
Company's legal counsel for services rendered to the Company and Avenue
relating to the acquisition. The portion of the legal fees relating to the
Company was capitalized as part of the transaction cost. The portion of the
legal fees relating to services provided to Avenue was expensed.
The pro forma results listed below are unaudited, reflect the acquisition
of Avenue using purchase accounting and assume the acquisition occurred at
the beginning of each of the periods:
Five months
ended
December 31, Year ended
1996 July 31, 1996
------------- --------------
Revenues $ 3,651,925 6,357,802
Net loss (58,055) (247,560)
Net loss per share (.02) (.07)
============= ==============
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would
have occurred had the Avenue acquisition been consummated as of the above
date, nor are they indicative of future operating results.
Postretirement Benefit
Pursuant to an agreement dated September 30, 1996, the Company is obligated
to pay its Chairman, his spouse, or estate, as the case may be, commencing
upon the termination of his employment, monthly payments of $8,333, for the
greater of five years or the remainder of his life. Under certain
circumstances, a reduced benefit may be payable to the Chairman's wife for
a period not to exceed five years from the date of his death.
The Company is accruing the $640,000 then present value of the expected
benefit payments at December 31, 2001, on a straight-line basis over the
term of the Chairman's employment contract, which covers the period
September 30, 1996 to December 31, 2001.
This agreement also gives the Chairman the option to purchase certain
assets of the Wombat Production Division of the Company at book value
following the termination of his employment, and a right of first refusal
if the Company wishes to sell the Wombat film library. The Company retained
the rights to acquire any future productions of the Chairman for normal
consideration, subject to reasonable producer fees, rights of licensees and
existing distribution rights.
(10) Significant Customers
Significant customers, exceeding 10% of revenue, were as follows:
Five months
ended
December 31,
1996 Years ended July 31,
------------- -----------------------------
1996 1995
-------------- -------------
ABC 77% -% -%
A&E - 12 13
Janson Associates - 40 27
============= ============== =============
(11) Preferred Stock
The Company has authorized 2,000,000 shares of preferred stock with a $.01
par value. No preferred stock has been issued.
<PAGE>
THE CINEMASTERS GROUP, INC.
Pro forma Financial Information
The following unaudited pro forma condensed consolidated statements of
operations for the five months ended December 31, 1996 and for the year ended
July 31, 1996 have been prepared giving effect to the Company's acquisition of
Avenue Pictures, Inc. (Avenue). On September 30, 1996, the Company issued
1,450,000 shares of its common stock in connection with the acquisition of 100%
of Avenue. The unaudited pro forma condensed consolidated statements of
operations for the periods noted present the results of operations of the
Company assuming the Merger has been consummated as of the beginning of the
periods indicated.
The unaudited pro forma condensed consolidated financial statements have been
prepared by the Company and all calculations have been made based upon
assumptions deemed appropriate. Certain of these assumptions are set forth under
the notes to the unaudited pro forma condensed consolidated financial
statements. The unaudited pro forma condensed consolidated financial statements
were prepared utilizing the accounting policies of the Company as outlined in
its historical financial statements and reflect preliminary allocations of the
purchase price which may be subject to further adjustments as the Company
finalizes the allocation of the purchase price in accordance with generally
accepted accounting principles.
The unaudited pro forma financial information does not purport to be indicative
of the results of operations which would have actually been obtained if the
acquisition had been consummated on the date indicated. In addition, the
unaudited pro forma financial information does not purport to be indicative of
results of operations or financial information which may be achieved in the
future.
The unaudited pro forma financial information should be read in conjunction with
the Company's historical financial statements and notes included herein.
<PAGE>
THE CINEMASTERS GROUP, INC.
Unaudited Pro forma Condensed Consolidated Statements of Operations
Five months ended December 31, 1996
<TABLE>
<CAPTION>
The
CineMasters Avenue
Group, Inc. Pictures, (1)
Inc.
------------- ---------------
Five months Two months
ended ended
December 31, September 30, Pro forma Pro forma
1996 1996 adjustments combined
------------- ------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues $ 3,508,967 142,958 - 3,651,925
------------- ------------- ------------- -------------
Costs and expenses:
Film production costs 2,752,307 9,538 - 2,761,845
Selling, general and
administrative expenses 661,766 143,840 45,584 (2) 873,190
22,000 (3)
------------- ------------- ------------- -------------
Total costs and 3,414,073 153,378 67,584 3,635,035
expenses
------------- ------------- ------------- -------------
Income (loss)
before income taxes 94,894 (10,420) (67,584) 16,890
Income taxes 74,945 - - 74,945
------------- ------------- ------------- -------------
Net income (loss) $ 19,949 (10,420) (67,584) (58,055)
============= ============= ============= =============
Loss per common share $ (.01) (.02)
============= =============
Weighted average shares
outstanding 3,321,251 3,263,421
============= =============
See accompanying notes to unaudited condensed consolidated statements of
operations.
</TABLE>
<PAGE>
THE CINEMASTERS GROUP, INC.
Unaudited Pro forma Condensed Consolidated Statement of Operations
Year ended July 31, 1996
<TABLE>
<CAPTION>
The
CineMasters Avenue Pro forma Pro forma
Group, Inc. Pictures, adjustments condensed
Inc.
------------- ------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues $ 1,961,333 4,396,469 - 6,357,802
------------- ------------- ------------- -------------
Costs and expenses:
Film production costs 489,782 3,537,339 - 4,027,121
Selling, general and
administrative expenses 1,346,752 771,752 273,507 (2)
110,000 (3) 2,502,011
------------- ------------- ------------- -------------
Total costs and 1,836,534 4,309,091 383,507 6,529,132
expenses
------------- ------------- ------------- -------------
Income (loss)
before income taxes 124,799 87,378 (383,507) (171,330)
Income taxes 51,230 25,000 - 76,230
------------- ------------- ------------- -------------
Net income (loss) $ 73,569 62,378 (383,507) (247,560)
============= ============= ============= =============
Earnings (loss) per common $ .04 (.07)
share
============= =============
Weighted average shares
outstanding 1,788,525 3,646,025
============= =============
See accompanying notes to unaudited condensed consolidated statements of
operations.
</TABLE>
<PAGE>
THE CINEMASTERS GROUP, INC.
Notes to Unaudited Pro forma Condensed Consolidated Statements of Operations
1. The acquisition was effective September 30, 1996. Avenue's results of
operations are included in CineMasters' consolidated results from that date.
Accordingly, Avenue s results for the two months ended September 30, 1996 are
included to reflect the pro forma results for the five months ended December
31, 1996.
2. To record amortization of goodwill.
3. To adjust executive compensation based on employment agreements entered
into and compensatory stock options issued in conjunction with the acquisition
of Avenue.
<PAGE>
AVENUE PICTURES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
Nine-month period ended September 30, 1996
and year ended December 31, 1995
(With Independent Auditors' Report Thereon)
<PAGE>
AVENUE PICTURES, INC. AND SUBSIDIARIES
Table of Contents
Page
INDEPENDENT AUDITORS' REPORT 60
FINANCIAL STATEMENTS
Consolidated Statements of Earnings 61
Consolidated Statements of Cash Flows 62
Notes to Consolidated Financial Statements 63
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Avenue Pictures, Inc.:
We have audited the accompanying consolidated statements of earnings and cash
flows of Avenue Pictures, Inc. and subsidiaries for the nine-month period ended
September 30, 1996 and year ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated statements of earnings and cash flows referred
to above present fairly, in all material respects, the results of their
operations and their cash flows for the nine-month period ended September 30,
1996 and year ended December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Los Angeles, California
March 28, 1997
<PAGE>
AVENUE PICTURES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Nine-month
period ended Year ended
September 30, December 31,
1996 1995
-------------- --------------
Revenue $ 4,361,854 654,853
-------------- --------------
Costs and expenses:
Film cost amortization 3,537,338 192
General and administrative 616,036 692,963
-------------- --------------
Total cost and expenses 4,153,374 693,155
-------------- --------------
Income (loss) from operations 208,480 (38,302)
Other income 4,750 10,400
-------------- --------------
Net income (loss) before taxes 213,230 (27,902)
Income tax expense 25,000 -
-------------- --------------
Net income (loss) $ 188,230 (27,902)
============== ==============
See accompanying notes to consolidated financial statements.
<PAGE>
AVENUE PICTURES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-month
period ended Year ended
September 30, December 31,
1996 1995
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 188,230 (27,902)
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of film costs 3,524,000 -
Depreciation and amortization 1,553 2,013
Gain on disposal of fixed assets (786) -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 2,521 (155,609)
Increase in film costs (5,197,855) (32,705)
Increase in other assets (85,784) (80)
Increase (decrease) in accounts payable and
accrued expenses 266,671 35,316
Increase (decrease) in due to stockholder (61,529) 190,027
Increase (decrease) in deferred income 1,981,731 -
-------------- --------------
Net cash provided by operating activities 618,752 11,060
-------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (11,598) -
Payments received from sale of fixed assets 2,500 -
-------------- --------------
Net cash used by investing activities (9,098) -
-------------- --------------
Increase in cash and cash equivalents 609,654 11,060
Cash and cash equivalents at beginning of period 11,060 -
-------------- --------------
Cash and cash equivalents at end of period $ 620,714 11,060
============== ==============
See accompanying notes to consolidated financial statements.
</TABLE>
AVENUE PICTURES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Nine-month period ended September 30, 1996
and year ended December 31, 1995
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated statements of earnings and cash flows include
the accounts of Avenue Pictures, Inc. and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated.
Description of Business
The Company is an independent producer of feature films and television
programming.
Cash and Cash Equivalents
The Company considers money market accounts and other highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Film Costs and Film Cost Amortization
Included in film costs are production, distribution and allocated overhead
costs expected to benefit future periods. Film costs are amortized on an
individual-film basis in the ratio that current period gross revenues bear
to management's estimate of total ultimate gross revenues from all sources.
Revenue estimates are reviewed annually and adjusted where appropriate.
The Company charges profit participation and talent residuals, if any, to
expense in the same manner as amortization of production costs, based on
the ratio of current period gross revenues to management's estimate of
total ultimate gross revenues. Payments for profit participations, when
applicable, are made in accordance with the participants' contractual
agreements.
Film costs are stated at the lower of unamortized cost or estimated net
realizable value. Losses which may arise because unamortized costs of
individual films exceed anticipated revenues are charged to income through
additional amortization.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,
ranging from three to five years.
Revenue Recognition
Revenues from feature film and television program distribution licensing
agreements are recognized on the date the completed film or program is
delivered or becomes available for delivery, is available for exploitation
in the relevant media window purchased by that customer or licensee and
<PAGE>
AVENUE PICTURES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
certain other conditions of sale have been met pursuant to criteria
specified by SFAS No. 53, "Financial Reporting by Producers and
Distributors of Motion Picture Films."
Producer fees received from production of films and television programs for
outside parties where the Company has no continuing ownership interest in
the project are recognized on a percentage-of-completion basis as
determined by applying the cost-to-cost method. The cost of such films and
television programs is expensed as incurred.
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes reflect the impact of "temporary
differences" between assets and liabilities for financial reporting
purposes as such amounts are measured by tax laws and regulations.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents. The Company has investment policies that limit investments to
money market accounts and other highly liquid investments with original
maturities of three months or less.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) Income Taxes
Components of income taxes for the nine-month period ended September 30,
1996 are as follows:
Federal State Total
------------- ------------- -------------
Current $ 10,000 15,000 25,000
============= ============= =============
Reconciliation of the Federal income tax rate to the Company's affiliation
tax rate is as follows:
Nine-month
period ended Year ended
September 30, December 31,
1996 1995
-------------- -------------
Tax at Federal statory
rate of 34% $ 73,000 16,000
State tax, net of Federal 15,000 4,000
benefit
Reduction valuation (74,000) (18,000)
allowance
Nondeductible expenses 11,000 (2,000)
-------------- -------------
$ 25,000 -
============== =============
<PAGE>
AVENUE PICTURES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Based on
the level of historical taxable income and projections of future taxable
income over the periods which the deferred tax assets are deductible,
management believes that it is not more likely than not that the Company
will realize the benefits of these deductible differences as of September
30, 1996. Accordingly, a valuation allowance has been provided for the
total gross deferred tax assets.
(3) Commitment
The Company has an operating lease for office space which can be terminated
by 90 days notification by the lessee or the lessor. Total rental expense
under the operating lease for the nine-month period ended September 30,
1996 and year ended December 31, 1995 was approximately $64,000 and
$82,000, respectively.
(4) Significant Customers
Significant customers exceeding 10% of revenue were as follows:
1996 1995
-------------- -------------
ABC 65% -%
Hallmark Entertainment 25 -
Hearst Entertainment - 64
Miramax - 17
============== =============
(5) Acquisition
Effective September 30, 1996, 100% of the Company's outstanding common
stock was acquired by The CineMasters Group, Inc.
<PAGE>
PART III
Item 1. Index to Exhibits
(2) Charter and By-Laws
(a) Restated Certificate of Incorporation
(b) By-laws
(6) Material Contracts
(a)(i) Share Exchange Agreement, dated as of September 30, 1996, among Cary
Brokaw, Avenue Pictures, Inc. and The CineMasters Group, Inc.
(a)(ii) Stockholders Agreement, dated as of September 30, 1996, among Cary
Brokaw, The CineMasters Group, Inc., National Patent Development Corporation,
Gene Feldman, Jerome Feldman, Suzette St. John Feldman and Michael Feldman.
(a)(iii) Exit Option Agreement, dated as of September 30, 1996, between The
CineMasters Group, Inc. and Gene Feldman.
(b)(ii)(1) Distribution Agreement, dated April 28, 1996, between Janson
Associates, Inc. and The CineMasters, Group, Inc.
(b)(ii)(2) Agreement, dated as of December 5, 1994, amended as of June 27,
1995 and as of October 1, 1996, between The CineMasters Group, Inc. and A&E
Television Networks.
(b)(ii)(3) Agreement, dated as of March 26, 1996, between Wombat
Productions, a division of The CineMasters Group, Inc., and Lifetime
Productions, Inc.
(b)(ii)(4) Production and License Agreement, dated as of November 17, 1989,
between Wombat Productions, a division of The CineMasters Group, Inc., and Home
Box Office, Inc.
(b)(ii)(5) Production and Distribution Agreement, dated as of June 3, 1993,
between Wombat Productions, a division of The CineMasters Group, Inc., and the
Public Broadcasting Service.
(c)(i) Avenue Entertainment Group, Inc. Stock Option and Long Term
Incentive Compensation Plan.
(c)(ii) Employment Agreement, dated as of September 30, 1996, among The
CineMasters Group, Inc., Avenue Pictures, Inc. and Cary Brokaw.
(c)(iii) Employment Agreement, dated as of September 30, 1996, among The
CineMasters Group, Inc., Avenue Pictures, Inc. and Gene Feldman.
(c)(v) Option Agreement, dated as of September 30, 1996, between The
CineMasters Group, Inc. and Cary Brokaw.
(c)(vi) Form of Option Grant Agreement, dated as of September 30, 1996,
between Avenue Entertainment Group, Inc. and the Optionee.
(c)(vii) Form of Option Grant Agreement, dated as of March 10, 1997,
between Avenue Entertainment Group, Inc. and the Optionee.
(c)(viii) Termination Agreement, With Accounts Receivable, dated July 3,
1996 among The CineMasters Group, Inc., Kaufman Films, Inc. and Kevin Kaufman.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant cause this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
AVENUE ENTERTAINMENT GROUP, INC.
(Registrant)
Date: April 9, 1997 By: /s/ Cary Brokaw
Name: Cary Brokaw
Title: President and Chief Executive Officer,
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Date: April 9, 1997 By: /s/ Cary Brokaw
Name: Cary Brokaw
Title: President and Chief Executive Officer,
Director
Date: April 9, 1997 By: /s/ Sheri L. Halfon
Name: Sheri L. Halfon
Title: Senior Vice President and
Chief Financial Officer, Director
Date: April 9, 1997 By: /s/ Gene Feldman
Name: Gene Feldman
Title: Chairman of the Board
Date: April 9, 1997 By: /s/ Michael Feldman
Name: Michael Feldman
Title: Director
Date: April 9, 1997 By: /s/ Doug Rowan
Name: Doug Rowan
Title: Director
Date: April 9, 1997 By: /s/ James A. Janowitz
Name: James A. Janowitz
Title: Director
Exhibit 2(a)
RESTATED
CERTIFICATE OF INCORPORATION
OF
AVENUE ENTERTAINMENT GROUP, INC.
Under Section 245 of the
General Corporation Law
The undersigned, being, respectively, the president and secretary,
hereby certify as follows:
FIRST: The name of the corporation is Avenue Entertainment Group, Inc.
SECOND: The date it filed its Certificate of Incorporation with the
Secretary of State is March 7, 1997.
THIRD: The Certificate of Incorporation is amended to effect one or more of
the following amendments as follows:
1. To change the number of shares the corporation has authority to issue.
FOURTH: The text of the Certificate of Incorporation, as amended
heretofore, is hereby restated as further amended to read as herein set forth in
full:
"FIRST: The name of the corporation is Avenue Entertainment Group, Inc.
(hereinafter referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is United Corporate Services, Inc., 15 East North Street,
Dover, Delaware, County of Kent, 19901. The name of the registered agent of the
Corporation at that address is United Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law.
FOURTH: A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eighteen million (18,000,000),
consisting of fifteen million (15,000,000) shares of common stock, par value one
cent ($0.01) per share (the "Common Stock"), one million (1,000,000) shares of
Class B common stock, par value one cent ($0.01) per share (the "Class B Common
Stock") and two million (2,000,000) shares of preferred stock, par value one
cent ($0.01) per share (the "Preferred Stock").
B. The designations, preferences, privileges and voting powers of the
shares of each class of common stock of the Corporation, and the restrictions or
qualifications thereof, are as follows:
1. a. The holders of the Common Stock and the holders of the Class B Common
Stock shall be entitled to the same rights and privileges, except as hereinafter
set forth, and shall share equally, share and share alike, in the distribution
of any funds which the Board of Directors may declare or set aside or pay out as
dividends and shall share equally, share and share alike, in the distribution of
all assets of the Corporation after the payment of its debts or liabilities in
the event of any liquidation, dissolution or winding up of the Corporation.
b. In any and all matters requiring the vote or consent of the stockholders
of the Corporation, each issued and outstanding share of the Common Stock shall
be entitled to one (1) vote and each issued and outstanding share of Class B
Common Stock shall be entitled to ten (10) votes.
c. In case the Corporation shall at any time (i) declare a stock dividend
upon its Common Stock payable in shares of its Common Stock or (ii) mark any
distribution upon its Common Stock payable in shares of Common Stock or (iii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, or (iv) subdivide its outstanding shares of Common Stock into a smaller
number of shares, then and in any of such events the Corporation shall make,
declare or effect a similar but ratable stock dividend or distribution or
subdivision on the shares of Class B Common Stock but payable in shares of Class
B Common Stock and only on a share for share basis.
d. Any holder of Class B Common Stock may at any time convert all or any of
the shares of such stock held by him or her into shares of Common Stock of the
Corporation at the rate of one (1) share of Common Stock for one (1) share of
Class B Common Stock, without any adjustment for dividends or otherwise, by
surrender to the Corporation at any office of the Corporation or at the office
of the Corporation's transfer agent thereof for cancellation of the certificate
or certificates representing the Common Stock so to be converted, and, upon such
surrender, shall be entitled to receive therefor one or more certificates for
the number of shares of Common Stock the Corporation shall be required to issue
on said conversion as hereinabove specified.
2. Shares of Common Stock and Class B Common Stock of the Corporation which
may be issued, from time to time, by the Corporation for such consideration,
wholly or partly, in cash, labor done, personal property, or real property or
leases thereof, as may be determined, from time to time, by the Board of
Directors, and such determination by the Board of Directors shall be final and
conclusive. All shares of Common Stock and Class B Common Stock of the
Corporation issued as herein provided shall be deemed fully paid stock and not
liable for any further call or assessment thereon, and the holder of such shares
shall not be liable for any further payments in respect thereto.
3. No holder of any of the shares of the stock of the Corporation of any
class shall be entitled, as such holder, to purchase or subscribe for any
unissued stock of any class or any additional shares of any class to be issued
by reason of any increase of the authorized capital stock of the Corporation of
any class, or bonds, certificates of indebtedness, debentures or other
securities convertible into stock of the Corporation, or carrying any right to
purchase stock of any class, but any such unissued stock or such additional
authorized issue of any stock or of other securities convertible into stock or
carrying any right to purchase stock may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms, corporations, or
associations and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its discretion.
C. The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware (such certificate being hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences,
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of the Preferred Stock, or
of any series thereof, unless a vote of any such holders is required pursuant to
the terms of any Preferred Stock Designation.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under
the direction of the board of directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of Incorporation
or the by-laws of the Corporation, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the by-laws so provide.
C. Special meetings of stockholders of the Corporation may be called only
by the Chairman of the Board or the President or by the board of directors
acting pursuant to a resolution adopted by a majority of the Whole Board. For
purposes of this Certificate of Incorporation, the term "Whole Board" shall mean
the total number of authorized directors whether or not there exist any
vacancies in previously authorized directorships.
SIXTH: A. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the number of
directors shall be fixed from time to time exclusively by the board of directors
pursuant to a resolution adopted by a majority of the Whole Board. The
directors, other than those who may be elected by the holders of any series of
Preferred Stock under specified circumstances, shall be divided into three
classes, with the term of office of the first class to expire at the
Corporation's first annual meeting of stockholders, the term of office of the
second class to expire at the Corporation's second annual meeting of
stockholders and the term of office of the third class to expire at the
Corporation's third annual meeting of stockholders. At each annual meeting of
stockholders, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the board of directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall, unless otherwise provided by law or by resolution
of the board of directors, be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No decrease
in the authorized number of directors shall shorten the term of any incumbent
director.
C. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
by-laws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any directors, or the entire board of directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least fifty percent (50%) of the voting power of all
of the then-outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class.
SEVENTH: The board of directors is expressly empowered to adopt, amend or
repeal by-laws of the Corporation. Any adoption, amendment or repeal of the
by-laws of the Corporation by the board of directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the by-laws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least fifty percent (50%) of the voting
power of all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to adopt, amend or repeal any
provision of the by-laws of the Corporation.
EIGHTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
NINTH: The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; provided, however, that, notwithstanding
any other provision of this Certificate of Incorporation or any provision of law
that might otherwise permit a lesser vote or no vote, but in addition to any
vote of the holders of any class or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least seventy-five percent (75%) of the voting power of all of
the then-outstanding shares of the capital of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal this Article NINTH, Section C of Article FIFTH,
Article SIXTH, Article SEVENTH, or Article EIGHTH."
FIFTH: The restated certificate was adopted by the Board of Directors and
authorized by the consent, in writing, setting forth the action so taken,
unanimously signed by the holders of all of the outstanding shares entitled to
vote thereon pursuant to Sections 228 and 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 25th day of
March, 1997.
AVENUE ENTERTAINMENT GROUP, INC.
/s/Cary Brokaw
President
ATTEST:
/s/Suzette St. John Feldman
Secretary
Exhibit 2(b)
AVENUE ENTERTAINMENT GROUP, INC.
BY-LAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
(1) An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months of the last annual meeting of stockholders.
(2) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of the notice provided for in these By-laws, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in these By-laws.
(3) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (2) of these
By-laws, the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principle executive offices of the Corporation
not less than sixty (60) days or more than ninety (90) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the tenth (10th)
day following the day on which public announcement of the date of such meeting
is first made. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(4) Notwithstanding anything in the second sentence of paragraph (3) of
these By-laws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by these By-laws shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
(5) Only such persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
these By-laws. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in these By-laws.
The chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in these By-laws and, if any proposed
nomination or business is not in compliance with these By-laws, to declare that
such defective proposed business or nomination shall be disregarded.
(6) For purposes of these By-laws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14, or 15 (d) of the Exchange Act.
(7) Notwithstanding the foregoing provisions of these By-laws, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in these By-laws. Nothing in these By-laws shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2. Special Meetings:
Notice. Special meetings of the stockholders, other than those required by
statute, may be called at any time by the Board of Directors pursuant to a
resolution approved by a majority of the whole Board of Directors. Notice of
every special meeting, stating the time, place and purpose, shall be given by
mailing, postage prepaid, at least ten (10) but not more than sixty (60) days
before each such meeting, a copy of such notice addressed to each stockholder of
the Corporation at his post office address as recorded on the books of the
Corporation. The Board of Directors may postpone or reschedule any previously
scheduled special meeting. Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting pursuant
to the Corporation's notice of meeting.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation). When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the place, date and
time thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or classes present in person or represented by proxy shall constitute
a quorum entitled to take action with respect to that vote on that matter. If a
quorum shall fail to attend any meeting, the chairman of the meeting may adjourn
the meeting to another place, date, or time.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board or, in his or her absence,
the Chief Executive Officer of the Corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order any meeting of
the stockholders and act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman appoints.
Section 6. Conduct of Business.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The chairman shall have the power to adjourn the meeting to another place, date
and time. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefore by a stockholder entitled to vote or by his or her proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting. The Corporation
may, and to the extent required by law, shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting may, and to the extent required by law, shall, appoint one or
more inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability. Every vote taken by ballots shall be counted by a duly appointed
inspector or inspectors. All elections shall be determined by a plurality of the
votes cast, and except as otherwise required by law, all other matters shall be
determined by a majority of the votes cast affirmatively or negatively.
Section 8. Special Voting Requirements.
Notwithstanding any provision contained in these By-laws to the contrary, a
majority vote of the entire Board of Directors shall be required to approve the
following actions: (a) any merger or consolidation involving the Corporation or
any subsidiary of the Corporation; (b) the sale by the Corporation of shares of
its common stock (the "Common Stock") pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), which shall have
been declared effective by the Securities and Exchange Commission with respect
to an underwritten public offering of any shares of the Common Stock, or the
consummation of a merger by the Corporation in which the stockholders of the
Corporation receive securities which are publicly traded (the "Public
Offering"); (c) any sale or disposition of a material portion of the assets of
the Corporation and/or its subsidiaries or the creation of consensual liens on a
material portion of the assets of the Corporation and/or its subsidiaries in any
single transaction or series of related transactions; (d) any acquisition or
investment by the Corporation and/or its subsidiaries in any single transaction
or series of related transactions which would exceed in the aggregate, $250,000,
other than in the ordinary course of business; (e) the entering into by the
Corporation of any material contract involving aggregate payments to or from the
Corporation in excess of $250,000, other than in the ordinary course of
business; (f) the incurrence of indebtedness in excess of $250,000, other than
in the ordinary course of business; (g) the termination of the employment of any
executive officer of the Corporation (other than the termination of the
employment of (i) Cary Brokaw, in which case Mr. Brokaw shall abstain from
voting on such action and such action shall require the approval of a majority
of the remaining Directors and at least one (1) of the Directors designated by
Mr. Brokaw or (ii) Gene Feldman, in which case Gene Feldman shall abstain from
voting on such action and such action shall require the approval of a majority
of the remaining Directors and at least one (1) of the Directors designated by
Gene Feldman, Jerome Feldman, Suzette St. John Feldman and Michael Feldman,
collectively); (h) any issuance of additional equity securities of the
Corporation, other than the issuance of shares upon the exercise of outstanding
options to purchase shares of Common Stock pursuant to the Corporation's 1995
Non-Qualified Stock Option Plan; (i) the adoption of any plan of liquidation of
the Corporation or any of its subsidiaries; (j) the dissolution of the
Corporation or any of its subsidiaries; (k) any action by the Corporation or any
of its subsidiaries to commence any suit, case, proceeding or other action (A)
under any existing or future law of any jurisdiction relating to bankruptcy,
insolvency, reorganization or relief of debtors seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or making a general
assignment for the benefit of its creditors; or (l) aggregate expenditures in
excess of $250,000 in any fiscal year, except for ordinary course (i)
expenditures of office rent, (ii) expenditures for selling, general and
administrative expenses and (iii) out-of-pocket development expenditures not in
excess of $500,000 during each of the 1997 and 1998 fiscal years. Anything
contained in this Section 8 to the contrary notwithstanding, Board approval
shall not be required for expenditures or commitments to production which are
funded either by non-recourse debt, such as negative pick-up borrowings, or by
cash flow or other binding commitments of distributors or responsible third
parties to pay for such production commitments or expenditures. In addition,
such borrowings, on a negative pick-up basis, shall also not require Board
approval regardless of their amount.
Section 9. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE II - BOARD OF DIRECTORS
Section 1. Number, Election and Term of Directors.
Subject to the rights of the holders of any series of preferred stock to
elect directors under specified circumstances, the number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies. The directors, other than
those who may be elected by the holders of any series of preferred stock under
specified circumstances, shall be divided, with respect to the time for which
they severally hold office, into three classes with the term of office of the
first class to expire at the Corporation's first annual meeting of stockholders,
the term of office of the second class to expire at the Corporation's second
annual meeting of stockholders and the term of office of the third class to
expire at the Corporation's third annual meeting of stockholders, with each
director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, commencing with the first
annual meeting, (i) directors elected to succeed those directors whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (ii) if authorized by a resolution of the Board of Directors,
directors may be elected to fill any vacancy on the Board of Directors,
regardless of how such vacancy shall have been created.
Section 2. Newly Created Directorships and Vacancies.
Subject to applicable law and to the rights of the holders of any series of
preferred stock with respect to such series of preferred stock, and unless the
Board of Directors otherwise determines, newly created directorships resulting
form any increase in the authorized number of directors or any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled only by a
majority vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the entire Board of Directors shall shorten the term of any incumbent director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by the President
or by two or more directors then in office and shall be held at such place, on
such date, and at such time as they or he or she shall fix. Notice of the place,
date, and time of each such special meeting shall be given each director by whom
it is not waived by mailing written notice not less than five (5) days before
the meeting or by telephone or by telegraphing or telexing or by facsimile
transmission of the same not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the total number of
the whole Board shall constitute a quorum for all purposes. If quorum shall fail
to attend any meeting, a majority of those present may adjourn the meeting to
another place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers
Subject to ARTICLE I, Section 8 of these By-laws, the Board of Directors
may, except as otherwise required by law, exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation, including,
without limiting the generality of the foregoing, the unqualified power: (1) To
declare dividends from time to time in accordance with law; (2) To purchase or
otherwise acquire any property, rights or privileges on such terms as it shall
determine; (3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith; (4) To remove any officer of the Corporation with or
without cause, and from time to time to devolve the powers and duties of any
officer upon any other person for the time being; (5) To confer upon any officer
of the Corporation the power to appoint, remove and suspend subordinate
officers, employees and agents; (6) To adopt from time to time such stock
option, stock purchase, bonus or other compensation plans for directors,
officers, employees and agents of the Corporation and its subsidiaries as it may
determine; (7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and (8) To adopt from time to time
regulations, not inconsistent with these By-laws, for the management of the
Corporation's business and affairs.
Section 9. Compensation of Directors.
Unless otherwise restricted by the certificate of incorporation, the Board
of Directors shall have the authority to fix the compensation of the directors.
The directors may be paid their expenses, if any, of attendance at each meting
of the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or paid a stated salary or paid other
compensation as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the whole Board, may
from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member of members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meting of the committee. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member. Section
2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
ARTICLE IV - OFFICERS
Section 1. Generally.
The officers of the Corporation shall consist of a President, one or more
Vice Presidents, a Secretary, a Treasurer and such other officers as may from
time to time be appointed by the Board of Directors. Officers shall be elected
by the Board of Directors, which shall consider that subject at its first
meeting after every annual meeting of stockholders. Each officer shall hold
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any number of offices may be held by the same
person. The salaries of officers elected by the Board of Directors or by such
officers as may be designated by resolution of the Board.
Section 2. President.
The President shall be the Chief Executive Officer of the Corporation.
Subject to the provisions of these By-laws and to the direction of the Board of
Directors, he or she shall have the responsibility for the general management
and control of the business and affairs of the Corporation and shall perform all
duties and have all powers which are commonly incident to the office of chief
executive or which are delegated to him or her by the Board of Directors. He or
she shall power to sign all stock certificates, contracts and other instruments
of the Corporation which are authorized and shall have general supervision and
direction of all of the other offices, employees and agents of the Corporation.
Section 3. Vice President.
Each Vice President shall have such powers and duties as may be delegated
to him or her by the Board of Directors. One (1) Vice President shall be
designated by the Board to perform the duties and exercise the powers of the
President in the event of the President's absence or disability.
Section 4.Treasurer.
The Treasurer shall have the responsibility for maintaining the financial
records of the Corporation. He or she shall make such disbursements of the funds
of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe.
Section 5. Secretary.
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He or
she shall have charge of the corporate books and shall perform such other duties
as the Board of Directors may from time to time prescribe.
Section 6. Delegation of Authority.
The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof.
Section 7. Removal.
Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other Corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other Corporation.
ARTICLE V - STOCK
Section 1. Certificate of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may, except as
otherwise required by law, fix a record date, which record date shall not
precede the date on which the resolution fixing the record date is adopted and
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of any meeting of stockholders, nor more than sixty (60) days
prior to the time for such other action as hereinbefore described; provided,
however, that if no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, recognized overnight delivery service or by sending such notice by
facsimile, receipt acknowledged, or by prepaid telegram or mailgram. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mails or by telegram or mailgram, shall be
the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before of after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance at any meeting shall constitute waiver of notice except attendance
for the sole purpose of objecting to the timeliness of notice.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section 3 of this ARTICLE VIII with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof ) was authorized by the Board of Directors
of the Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this ARTICLE VIII
shall include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and to
the advancement of expenses conferred in Sections 1 and 2 of this ARTICLE VIII
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
Section 3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this ARTICLE VIII is not paid in full by
the Corporation within sixty (60) days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
providing that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this ARTICLE VIII or otherwise shall be on the
Corporation.
Section 4. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses conferred
in this ARTICLE VIII shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, By-laws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article VIII with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE IX - AMENDMENTS
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors is expressly authorized to make, alter, amend and repeal
these By-laws subject to the power of the holders of capital stock of the
Corporation to alter, amend or repeal the By-laws; provided, however, that with
respect to the powers of holders of capital stock to make, alter, amend and
repeal By-Laws of the Corporation, notwithstanding any other provision of these
By-Laws or any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by law, these
By-Laws or any preferred stock, the affirmative vote of the holders of at least
seventy-five (75%) percent of the voting power of all of the then-outstanding
shares entitled to vote generally in the election of directors, voting together
as a single class, shall be required to make, alter, amend or repeal any
provision of these By-Laws.
Exhibit 6(a)(i)
SHARE EXCHANGE AGREEMENT
Dated as of September 30, 1996
Among
CARY BROKAW,
AVENUE PICTURES, INC.
and
THE CINEMASTERS GROUP, INC.
<PAGE>
TABLE OF CONTENTS
Page
I. EXCHANGE OF SHARES.....................................................1
1.01 Exchange of Shares...............................1
1.02 Closing..........................................1
II. RELATED MATTERS........................................................2
2.01 Employment Agreement.............................2
2.02 Stockholders Agreement...........................2
2.03 Capital Contribution.............................2
2.04 Gene Feldman Exit Option Agreement...............2
III. CONDITIONS TO CLOSING..................................................2
3.01 Conditions to Mr. Brokaw's Obligations...........2
3.02 Conditions To CineMasters'
Obligations....................................4
3.03 Frustration of Conditions.......................5
IV. REPRESENTATIONS AND WARRANTIES.........................................5
4.01 Representations and Warranties of
CineMasters....................................5
4.02 Representations and Warranties of Mr. Brokaw....16
V. COVENANTS ........................................................26
5.01 Mutual Covenants................................26
5.02 Covenants of CineMasters........................29
VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION......................30
6.01 Survival of Representations.....................30
6.02 Agreement of CineMasters to Indemnify...........30
6.03 Agreement of Mr. Brokaw to Indemnify............31
6.04 Conditions of Indemnification...................31
6.05 Tax Benefits; Insurance.........................32
6.06 Definition of Closing Price.....................32
VII. TERMINATION; AMENDMENT AND WAIVER.................................33
7.01 Termination of Agreement........................33
7.02 Effect of Termination...........................33
7.03 Amendment, Extension and Waiver.................33
-i-
<PAGE>
VIII. MISCELLANEOUS..................................................33
8.01 No Finders.................................33
8.02 Expenses; Taxes............................34
8.03 Further Assurances.........................34
8.04 Parties in Interest........................34
8.05 Entire Agreement...........................34
8.06 Headings...................................34
8.07 Notices....................................34
8.08 Governing Law..............................35
8.09 Counterparts...............................35
8.10 Consent to Jurisdiction....................35
8.11 Exhibits...................................36
EXHIBIT A - Form of Employment Agreement EXHIBIT B - Form of Stockholders
Agreement
EXHIBIT C - Form of Gene Feldman Exit Option Agreement
EXHIBIT D - Form of Opinion of Counsel to CineMasters
EXHIBIT E - Form of Opinion of Counsel to Avenue and Mr. Brokaw
-ii-
<PAGE>
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT (the "Agreement") made and entered into
as of the 30th day of September, 1996, among Cary Brokaw ("Mr. Brokaw"), the
sole shareholder of Avenue Pictures, Inc., a Delaware corporation ("Avenue"),
and The CineMasters Group, Inc., a New York corporation ("CineMasters").
W I T N E S S E T H
WHEREAS, Mr. Brokaw is the owner of 25 shares (the "Avenue Shares") of
common stock, no par value (the "Avenue Common Stock"), of Avenue, constituting
all of the issued and outstanding shares of capital stock of Avenue;
WHEREAS, CineMasters wishes to acquire the Avenue Shares in exchange
for 1,425,000 shares (the "CineMasters Shares") of common stock, par value $.01
per share (the "CineMasters Common Stock"), of CineMasters, representing a
significant minority equity position in CineMasters, upon the terms and
conditions set forth below; and
WHEREAS, Mr. Brokaw wishes to exchange the Avenue Shares for the
CineMasters Shares, upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the aforesaid and the respective
warranties, representations, covenants and agreements hereinafter set forth, the
parties, intending to be legally bound, agree as follows:
I. EXCHANGE OF SHARES
1.01 Exchange of Shares. Upon the terms and subject to the conditions
contained in this Agreement, at the closing provided for in Section 1.02 hereof
(the "Closing"), Mr. Brokaw shall exchange all of the Avenue Shares for, and
CineMasters shall issue to Mr. Brokaw, all of the CineMasters Shares (the "Share
Exchange").
1.02 Closing. The closing of the transactions contemplated by this
Agreement shall take place on the second business day following the satisfaction
or waiver of all of the conditions to Closing set forth in Article III hereof,
at 10:00 a.m., local time, at the offices of Pryor, Cashman, Sherman & Flynn,
410 Park Avenue, New York, New York 10022, or on such other date and at such
other time or place as the parties may mutually agree. The actual date of the
Closing is sometimes referred to herein as the "Closing Date".
II. RELATED MATTERS
2.01 Employment Agreement. On or prior to the Closing Date, Mr. Brokaw
shall enter into an Employment Agreement with CineMasters, which Employment
Agreement shall be substantially in the form of Exhibit A hereto (the
"Employment Agreement").
2.02 Stockholders Agreement. On or prior to the Closing Date, each of
National Patent Development Corporation, a Delaware corporation ("National
Patent"), Gene Feldman, Jerome Feldman, Suzette St. John Feldman and Michael
Feldman (collectively, the "Feldman Group"), shall enter into a Stockholders
Agreement with Mr. Brokaw and CineMasters (the "Stockholders Agreement"), which
Stockholders Agreement shall be substantially in the form of Exhibit B hereto.
2.03 Capital Contribution. On the Closing Date, National Patent,
together with certain of its affiliates, shall contribute $815,000 of assets to
the capital of CineMasters (the "Capital Contribution"). Such assets shall be in
the form of registered stock of a publicly-traded company with a valuation based
upon the closing sales price of such stock as of the last trading day prior to
the Closing Date. Such assets will be contributed to the capital of CineMasters
in exchange for shares of CineMasters Common Stock at a price per share of
$2.00.
2.04 Gene Feldman Exit Option Agreement. On or prior to the Closing
Date, Gene Feldman shall enter in an Exit Option Agreement with CineMasters (the
"Gene Feldman Exit Option Agreement"), which Gene Feldman Exit Option Agreement
shall be substantially in the form of Exhibit C hereto.
III. CONDITIONS TO CLOSING
3.01 Conditions to Mr. Brokaw's Obligations. The obligation of Mr.
Brokaw to consummate the Share Exchange is subject to the satisfaction at the
time of the Closing referred to in Section 1.02 hereof of the following
conditions (any or all of which may be waived by Mr. Brokaw in Mr. Brokaw's sole
discretion):
(a) No preliminary or permanent injunction or other order of
any court of competent jurisdiction preventing the consummation of the Share
Exchange shall be in effect.
(b) The representations and warranties of CineMasters made in
this Agreement shall be true and correct as of the date of this Agreement and as
of the time of Closing as though made as of such time. CineMasters shall have
performed in all material respects each and every covenant contained in this
Agreement required to be performed by it by the time of the Closing. CineMasters
shall have delivered to Mr. Brokaw a certificate dated the Closing Date and
signed by the Chairman of the Board of CineMasters confirming the foregoing.
(c) Mr. Brokaw shall have received from CineMasters a duly
executed counterpart of his Employment Agreement, dated as of the Closing Date,
substantially in the form of Exhibit A hereto.
(d) Mr. Brokaw shall have received from each member of the
Feldman Group and from CineMasters a duly executed counterpart of the
Stockholders Agreement, dated as of the Closing Date, substantially in the form
of Exhibit B hereto.
(e) National Patent, together with its affiliates, shall have
made the Capital Contribution.
(f) CineMasters shall have received from Gene Feldman, and
Gene Feldman shall have received from CineMasters, a duly executed counterpart
of the Gene Feldman Exit Option Agreement, dated as of the Closing Date,
substantially in the form of Exhibit C hereto.
(g) CineMasters shall not have suffered any material adverse
change in its business, assets, condition (financial or otherwise), prospects or
results of operations since July 31, 1995.
(h) Mr. Brokaw shall have received an opinion, dated the
Closing Date and addressed to Mr. Brokaw, of Andrea D. Kantor, Esq., Associate
General Counsel to National Patent, substantially in the form of Exhibit D
hereto.
(i) CineMasters shall have received any and all consents,
approvals, authorizations, exemptions or waivers set forth on Schedule 4.01(d)
hereto and Avenue shall have received any and all consents, approvals,
authorizations, exemptions or waivers set forth on Schedule 4.02(d) hereto, in
each case pursuant to instruments in form and substance reasonably satisfactory
to Mr. Brokaw.
(j) CineMasters shall have delivered to Mr. Brokaw (i) a
certificate of its corporate secretary or assistant secretary as to (I)
resolutions of its Board of Directors approving and authorizing the execution,
delivery and performance of this Agreement and each of the other agreements and
documents contemplated hereby (collectively, the "Related Documents") of which
CineMasters is a party, and (II) its Certificate of Incorporation and By-laws
and all amendments to date as being in full force and effect, with true, correct
and complete copies of such resolutions, Certificate of Incorporation and
By-laws attached thereto, (ii) an incumbency certificate of its officers
executing this Agreement and the Related Documents of which CineMasters is a
party and (iii) a certificate of good standing of CineMasters, dated as of a
recent date prior to the Closing, issued by the Secretary of State of New York
and of each other state in which CineMasters is qualified to do business.
(k) CineMasters shall have executed and delivered such other
information and documentation as Mr. Brokaw and his counsel shall reasonably
request, in form and substance reasonably satisfactory to Mr. Brokaw and his
counsel.
(l) The Board of Directors of CineMasters shall have been
reconstituted in accordance with Section 2(a) of the Stockholders Agreement.
3.02 Conditions To CineMasters' Obligations. The obligation of the
CineMasters to consummate the Share Exchange is subject to the satisfaction at
the time of the Closing of the following conditions (any or all of which may be
waived by CineMasters in its sole discretion):
(a) No preliminary or permanent injunction or other order of
any court of competent jurisdiction preventing the consummation of the Share
Exchange shall be in effect.
(b) The representations and warranties of Mr. Brokaw made in
this Agreement shall be true and correct as of the date of this Agreement and as
of the time of Closing as though made as of such time. Mr. Brokaw and Avenue
shall have performed in all material respects each and every covenant contained
in this Agreement required to be performed by Mr. Brokaw and Avenue by the time
of the Closing. Mr. Brokaw shall have delivered to CineMasters a certificate
dated the Closing Date confirming the foregoing.
(c) CineMasters shall have received from Mr. Brokaw a duly
executed counterpart of the Employment Agreement, dated as of the Closing Date,
substantially in the form of Exhibit A hereto.
(d) CineMasters shall have received from Mr. Brokaw a duly
executed counterpart of the Stockholders Agreement, dated as of the Closing
Date, substantially in the form of Exhibit B hereto.
(e) Avenue shall not have suffered any material adverse change
in its business, assets, condition (financial or otherwise), prospects or
results of operations since December 31, 1995.
(f) CineMasters shall have received an opinion, dated the
Closing Date and addressed to CineMasters, of Pryor, Cashman, Sherman & Flynn,
counsel to Mr. Brokaw, substantially in the form of Exhibit E hereto.
(g) Avenue shall have received any and all consents,
approvals, authorizations, exemptions or waivers set forth on Schedule 4.02(d)
hereto and CineMasters shall have received any and all consents, approvals,
authorizations, exemptions or waivers set forth on Schedule 4.01(d) hereto, in
each case pursuant to instruments in form and substance reasonably satisfactory
to CineMasters.
(h) Mr. Brokaw shall have delivered to CineMasters (i) a
certificate of the corporate secretary or assistant secretary of Avenue as to
(I) its Certificate of Incorporation and By-laws (or equivalent organizational
documents) and all amendments to date as being in full force and effect, with
true, correct and complete copies of such Certificate of Incorporation and
By-laws (or equivalent organizational documents) attached thereto and (ii) a
certificate for good standing of Avenue, dated as of a recent date prior to the
Closing, issued by the Secretary of State of California and of each other state
in which Avenue is qualified to do business.
(i) Mr. Brokaw shall have executed and delivered such other
information and documentation as CineMasters and its counsel shall reasonably
request, in form and substance reasonably satisfactory to CineMasters and its
counsel.
(j) The Board of Directors of CineMasters shall have been
reconstituted in accordance with Section 2(a) of the Stockholders Agreement.
3.03 Frustration of Conditions. No party may rely upon the failure of
any condition set forth in this Article III to be satisfied if such failure was
caused by such party's failure to act in good faith or to use its best efforts
to cause the Closing to occur.
IV. REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of CineMasters. CineMasters hereby
represents and warrants to Mr. Brokaw follows:
(a) Organization. CineMasters is a corporation duly organized,
validly existing and in good standing under the laws of the state of New York.
CineMasters has all requisite power and authority to enable it to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted. CineMasters is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except where the absence of such qualifications, individually or in
the aggregate, would not have a material adverse effect on the business, assets,
condition (financial or otherwise), prospects or results of operations of
CineMasters (a "CineMasters Material Adverse Effect"). A list of the
jurisdictions in which CineMasters is so qualified is set forth on Schedule
4.01(a) hereto. The stock certificate and transfer books and minute books of
CineMasters (all of which have been made available for inspection by Mr. Brokaw)
are true and complete.
(b) Authorization. Except to the extent that stockholder
approval is required to amend the CineMasters 1995 Non-Qualified Stock Option
Plan (the "1995 Plan"), CineMasters has all requisite power and authority to
enter into this Agreement and the Related Documents of which it is a party, and
to consummate the transactions contemplated hereby and thereby. Except to the
extent that stockholder approval is required to amend the 1995 Plan, all acts
and other proceedings required to be taken by CineMasters to authorize the
execution, delivery and performance of this Agreement and the Related Documents
of which it is a party, and the consummation of the transactions contemplated
hereby and thereby have been duly and properly taken.
(c) Valid and Binding Agreement. Each of this Agreement and
each of the Related Documents of which CineMasters is a party, constitutes a
valid and binding obligation of CineMasters, enforceable against CineMasters in
accordance with its terms, except that (i) such enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(d) No Violation. The execution and delivery of this Agreement
and the Related Documents of which it is a party by CineMasters does not, and
the consummation of the transactions contemplated hereby and thereby and
compliance with the terms hereof and thereof will not (subject to obtaining any
required consents, approvals, authorizations, exemptions or waivers set forth on
Schedule 4.01(d) hereto), conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under or result in the creation of any lien, claim,
encumbrance, security interest, option, charge or restriction of any kind upon
any of the properties or assets of CineMasters under, any provision of (i) the
Certificate of Incorporation or By-laws of CineMasters, (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment or
agreement to which CineMasters is a party or by which any of its properties or
assets are bound, or (iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to CineMasters or any of its property or assets,
excluding from the foregoing clauses (ii) and (iii) such conflicts, violations,
defaults, rights or restrictions which would not, individually or in the
aggregate, have a CineMasters Material Adverse Effect. No consent, approval,
license, permit, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, or any other
third party is required to be obtained or made by or with respect to CineMasters
or any of its affiliates in connection with the execution and delivery of this
Agreement or any of the Related Documents or the consummation of the
transactions contemplated hereby or thereby, other than as set forth on Schedule
4.01(d) hereto.
(e) The CineMasters Shares. CineMasters Shares, when issued
and delivered by CineMasters pursuant to this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable and will be free of
preemptive and subscription rights. Upon delivery to Mr. Brokaw at the Closing
of one or more certificates representing the CineMasters Shares to be acquired
by Mr. Brokaw and upon CineMasters' receipt of the Avenue Shares, good and valid
title to such CineMasters Shares will pass to Mr. Brokaw, free and clear of any
liens, claims, encumbrances, security interests, options, charges and
restrictions of any kind, except for (i) transfer restrictions contained in the
Stockholders Agreement and (ii) any liens, claims, encumbrances, security
interests, options, charges and restrictions that are caused by acts or
omissions on the part of Mr. Brokaw. No stock transfer taxes are due as a result
of the issuance of the CineMasters Shares.
(f) Capital Stock of CineMasters. (i) The authorized and
issued capital stock of CineMasters consists of (A) 5,000,000 shares of common
stock, par value $.01 per share, of which 1,838,338 shares are issued and
outstanding and no shares are held in CineMasters' treasury and (B) 10,000
shares of Class B Common Stock, no par value, none of which are issued and
outstanding. As of the date hereof, there are outstanding options (the
"Options") to purchase 317,500 shares of CineMasters Common Stock. All issued
and outstanding shares of capital stock of CineMasters have been duly authorized
and validly issued and are fully paid and nonassessable. No shares of capital
stock of CineMasters have been issued in violation of any preemptive or
subscription rights and no such shares are subject to any preemptive or
subscription rights.
(ii) Except as set forth in this Section 4.01(f), there are
no shares of capital stock or other equity securities of CineMasters outstanding
and there are no outstanding warrants, options, agreements, convertible or
exchangeable securities or other commitments pursuant to which CineMasters is or
may become obligated to issue, sell, purchase, return or redeem any shares of
capital stock or other securities of CineMasters. There are no equity securities
of CineMasters reserved for issuance for any purpose, except for 600,000 shares
of CineMasters Common Stock reserved for issuance upon exercise of the
outstanding Options.
(iii) Except as provided in the Gene Feldman Exit Option
Agreement and the Stockholders Agreement, there are no rights of first refusal,
tag-along rights or similar rights with respect to the capital stock of
CineMasters triggered by the execution and delivery of this Agreement or any of
the Related Documents or the consummation of the transactions contemplated
hereby or thereby.
(g) Equity Interests. Except as set forth on Schedule 4.01(g)
hereto, CineMasters does not directly or indirectly own any capital stock of or
other equity interests in any corporation, partnership or other entity or have
any direct or indirect equity interest in any business.
(h) Shareholder Reports; Financial Statements. CineMasters has
furnished to Mr. Brokaw true, correct and complete copies of its Annual Report
for the fiscal years ended July 31, 1993, 1994 and 1995 (collectively, the
"Annual Reports") and its Proxy Statements dated February 18, 1994, January 12,
1995 and March 25, 1996 (collectively, the "Proxy Statements") (all such Annual
Reports and Proxy Statements being collectively called the "Shareholder
Reports"). With respect to the Sections entitled "Principal Stockholders" and
"Election of Directors" in the Proxy Statement dated March 25, 1996, the
information contained therein was complete and correct in all material respects
as of its date and, as of its date, did not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements included within the Shareholder Reports (the "Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and present fairly the financial position of
CineMasters as at the dates thereof and the results of its operations and cash
flows for the periods then ended. Except as set forth in CineMasters' Annual
Report for the fiscal year ended July 31, 1995 or on Schedule 4.01(h) hereto,
there are no ongoing transactions between CineMasters and any affiliate thereof.
On August 31, 1996, certain affiliates and employees of National Patent
contributed $185,000 to the capital of CineMasters in exchange for 123,338
shares of CineMasters Common Stock. As of September 30, 1996, the accrued salary
and vacation pay of CineMasters was $185,000. No amounts have been paid with
respect to the obligations represented by such accruals since August 31, 1996
and such obligations represented by such accruals will be cancelled on or before
the Closing Date without the payment of any consideration by CineMasters.
(i) Undisclosed Liabilities. CineMasters does not have any
liabilities or obligations of any nature (whether accrued, absolute, contingent,
unasserted or otherwise), except (i) as disclosed in the Financial Statements,
(ii) for liabilities or obligations disclosed on Schedule 4.01(i) hereto or
(iii) for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since July 31, 1995, and not in violation
of this Agreement.
(j) Taxes. (i) For purposes of this Agreement, (A) "Tax" or
"Taxes" shall mean all Federal, state, county, local, foreign and other taxes,
assessments, duties or similar governmental charges of any kind whatsoever,
including, without limitation, corporate franchise, income, sales, use, ad
valorem, gross receipts, value added, profits, license, withholding, payroll,
employment, excise, property, customs and occupation taxes and including,
without limitation, any interest, penalties and additions imposed with respect
to such amounts and (B) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(ii) Except as set forth on Schedule 4.01(j) hereto:
(A) Since January 1, 1988, CineMasters, each predecessor of
CineMasters, and each consolidated, affiliated, combined, unitary or aggregate
group of which CineMasters or any such predecessor is or has been a member, has
timely filed with the appropriate Tax authorities all Tax returns, reports,
estimates, information returns and statements, including any related or
supporting information, ("Tax Returns"), required to be filed through the date
hereof and has paid all Taxes shown to be due with respect to the taxable
periods covered by such Tax Returns. All such Tax Returns are true, complete and
correct in all material respects. All other Taxes of CineMasters, or for which
CineMasters is or shall otherwise be directly or indirectly liable (including
amounts attributable to wage withholding), have either been timely paid or are
reflected as a liability on the Balance Sheet (as defined in Section 4.01(k)
hereof). No statute of limitations has been waived, nor any extension of time
agreed to, with respect to the assessment of any Tax of CineMasters, or for
which CineMasters is or may otherwise be directly or indirectly liable.
(B) There are no pending audits with respect to the Tax
Returns of CineMasters and any deficiencies resulting from any past audits have
been paid and no material issues were raised in writing by the relevant Tax
authority during any past audits that may apply to taxable periods after the
taxable period to which such audit related. No action or proceeding has been
brought or has been threatened to be brought by any Tax authority, nor has any
claim been asserted or threatened to be asserted by any Tax authority, with
respect to any Taxes of CineMasters, or for which CineMasters is or may
otherwise be directly or indirectly liable which could have a CineMasters
Material Adverse Effect.
(C) No Tax liens have been filed by any Tax authority
against any property or assets of CineMasters, except for liens that have been
satisfied or statutory liens for current Taxes not yet delinquent.
(D) There are no Tax sharing or Tax indemnity agreements to
which CineMasters is a party.
(k) Title to Assets. (i) Except as provided in the Gene
Feldman Exit Option Agreement, CineMasters has good and valid title to all
assets reflected on the balance sheet of CineMasters as at July 31, 1995
included in the CineMasters Annual Report for the fiscal year ended July 31,
1995 (the "Balance Sheet"), or thereafter acquired, except those since sold or
otherwise disposed of in the ordinary course of business consistent with past
practice and not in violation of this Agreement, in each case free and clear of
all liens, security interests, pledges, charges, encumbrances or restrictions of
any nature whatsoever, except:
(A) all such as are disclosed on Schedule 4.01(k) hereto;
(B) mechanics', carriers', workmen's, repairmen's or other
like liens arising or incurred in the ordinary course of business, liens arising
under original purchase price conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business and statutory
liens for current Taxes which are not yet delinquent;
(C) liens, security interests, pledges, charges,
encumbrances and restrictions which secure debt that is reflected as a liability
on the Balance Sheet and the existence of which is indicated in the notes
thereto; and
(D) other encumbrances, restrictions or imperfections of
title, if any, which other encumbrances, restrictions or imperfections of title
do not, individually or in the aggregate, materially impair the continued use
and operation of the assets to which they relate in the business of CineMasters
as presently conducted (the liens, security interests, pledges, charges,
encumbrances, restrictions and other imperfections of title described in clauses
(A), (B), (C) and (D) above are hereinafter referred to collectively as
"Permitted Liens").
(ii) All leased property of CineMasters is in the condition
required of such property by the terms of the lease applicable thereto during
the term of the lease and upon the expiration thereof.
(l) Intellectual Property. Schedule 4.01(l) sets forth a true
and complete list of all material patents, trademarks (registered or
unregistered), trade names, service marks, registered copyrights and
applications therefor and other material intellectual property rights, whether
or not subject to statutory registration or protection ("Intellectual Property
Rights") owned, used or filed by or licensed to CineMasters. Schedule 4.01(l)
hereto specifies for each Intellectual Property Right listed thereon whether
such right is owned or licensed and, in the case of licensed rights, lists the
relevant license agreement. With respect to registered trademarks, Schedule
4.01(l) hereto specifies all jurisdictions in which such trademarks are
registered or applied for and all registration and application numbers. Except
as disclosed on Schedule 4.01(l) hereto, CineMasters owns, free and clear of all
liens, security interests or encumbrances whatsoever, all Intellectual Property
Rights listed on Schedule 4.01(l) hereto as owned by CineMasters and, to the
best knowledge of CineMasters, has the right to use, without payment to any
other party, all other Intellectual Property Rights required to be listed on
Schedule 4.01(l) hereto, and the consummation of the transactions contemplated
hereby will not alter or impair any such rights. Except as disclosed on Schedule
4.01(l) hereto, no claims are pending or, to the best knowledge of CineMasters,
threatened by any person against CineMasters with respect to the ownership,
validity, enforceability or use of any Intellectual Property Rights or, to the
best knowledge of CineMasters, otherwise challenging or questioning the validity
or effectiveness of any of such rights.
(m) Insurance. CineMasters maintains policies of fire and
casualty, liability, errors and omissions and other forms of insurance in such
amounts, with such deductibles and against such risks and losses, as are
consistent with industry standards and will continue such insurance in effect
after the Closing. The insurance policies currently maintained with respect to
CineMasters and its assets and properties are listed on Schedule 4.01(m) hereto.
All such policies are in full force and effect, all premiums due and payable
thereon have been paid and no written or oral notice of cancellation or
termination has been received with respect to any such policy which was not
replaced on substantially similar terms prior to the date of such cancellation.
(n) Absence of Changes or Events. Except as disclosed on
Schedule 4.01(n) hereto, since July 31, 1995, there has not been any material
adverse change in the business, assets, condition (financial or otherwise),
prospects or results of operations of CineMasters. Except as disclosed on
Schedule 4.01(n) hereto, since July 31, 1995, (i) the business of CineMasters
has been conducted in the ordinary course and in substantially the same manner
as previously conducted and (ii) CineMasters has not taken any action that, if
taken after the date hereof, would constitute a breach of any of the covenants
set forth in Section 5.01(b) hereof.
(o) Employee and Labor Relations. Except as set forth on
Schedule 4.01(o) hereto, (i) no collective bargaining agreement presently covers
(nor has any, in the three years immediately preceding the date hereof, covered)
any employee of CineMasters, nor is any currently being negotiated by
CineMasters and, to the best knowledge of CineMasters, no attempt to organize
any group or all of the employees of CineMasters has been made or proposed; (ii)
there is no labor strike, dispute, slowdown or stoppage actually pending or, to
the best knowledge of CineMasters, threatened against or involving CineMasters;
(iii) CineMasters is in compliance in all material respects with all federal,
state and local laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice; (iv) there is no unfair labor practice complaint against
CineMasters pending or, to the best knowledge of CineMasters, threatened before
the National Labor Relations Board; (v) no charge or grievance with respect to
or relating to the employees of CineMasters is pending before the Equal
Employment Opportunity Commission or any state, local or foreign agency
responsible for the prevention of unlawful practices; (vi) CineMasters has not
received any notice of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws to conduct an
investigation of or relating to CineMasters with respect to its employee and, to
the best knowledge of CineMasters, no such investigation is in progress; (vii)
no private agreement restricts CineMasters from relocating, closing or
terminating any of its operations or facilities; and (viii) CineMasters has not
in the past five years experienced any work stoppage or other labor difficulty
or, to the best of its knowledge, committed any unfair labor practice.
(p) Fixed and Other Tangible Assets. Except as set forth on
Schedule 4.01(p) hereto, all fixed and other tangible assets of CineMasters (the
"CineMasters Fixed Assets") are (i) structurally sound, (ii) in good operating
condition and repair and (iii) not in need of maintenance or repairs, except for
ordinary, routine maintenance and repairs. During the past three years, there
has not been any significant interruption of the operations of CineMasters due
to inadequate maintenance of the CineMasters Fixed Assets.
(q) Licenses; Permits. All licenses, permits and
authorizations issued or granted by Federal, state, local or foreign
governmental authorities or agencies which are necessary or desirable for the
conduct of CineMasters' business are validly held by CineMasters, except for
such licenses, permits and authorizations the failure of which to hold would not
have a CineMasters Material Adverse Effect. CineMasters has complied in all
material respects with all requirements in connection therewith and the same
will not be subject to suspension, modification or revocation as a result of
this Agreement or any of the Related Documents or the consummation of the
transactions contemplated hereby or thereby.
(r) Litigation. Except as set forth on Schedule 4.01(r)
hereto, there is no legal proceeding, claim, or action of any nature pending or,
to the best knowledge of CineMasters, threatened, which questions or challenges
the validity of this Agreement or any of the Related Documents with respect to
CineMasters or any action taken or to be taken by CineMasters pursuant to this
Agreement or any of the Related Documents or in connection with the transactions
contemplated hereby or thereby. Except as set forth on Schedule 4.01(r) hereto,
there is no legal proceeding, claim, or action of any nature pending or, to the
best knowledge of CineMasters, threatened, which could have a CineMasters
Material Adverse Effect.
(s) Compliance With Law. The operations of CineMasters are in
compliance in all material respects with all applicable laws, regulations,
permits, authorizations and other governmental orders including, without
limitation, applicable safety (including OSHA), environmental, antipollution,
building, zoning or health laws, ordinances and regulations.
(t) Contracts. Except as set forth on Schedule 4.01(t) hereto,
CineMasters is not a party to any contract, commitment, arrangement or
understanding involving payments to or from CineMasters which exceed $75,000
over the remaining life of such contract and which are not cancelable without
penalty or premium by CineMasters on 60 days notice or less. All of the
contracts, commitments, arrangements and understandings listed on Schedule 4.01
(t) hereto (collectively, the "Contracts") are in full force and effect with no
material defaults by any party thereto and there are no oral or collateral
agreements modifying any of the Contracts. Except as set forth on Schedule
4.01(r) hereto, all of the Contracts are arms-length transactions between
unrelated parties entered into in the ordinary course of business.
(u) Employee Benefit Plans; ERISA.
(i) Schedule 4.01(u) hereto contains an accurate and
complete description of each employment, consulting, bonus, deferred
compensation, incentive compensation, severance or termination pay, disability
hospitalization or other medical, dental, vision, life or other insurance, stock
purchase, stock option, stock appreciation, stock award, pension, profit
sharing, 401(k) or retirement plan, agreement or arrangement, and each other
employee benefit plan or arrangement, whether formal or informal, written or
oral, tax-qualified under the Code or non-qualified, whether covered by the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or not,
maintained or contributed to by CineMasters covering its employees, former
employees, retirees or sales personnel (collectively, "Plans"). In addition,
Schedule 4.01(u) hereto contains an accurate and complete description of any
amounts payable, or which will become payable, under any former pension, profit
sharing, 401(k) or retirement plan, agreement or arrangement, to any
participant, beneficiary or any other third party. Any Plan maintained by
CineMasters that has subsequently been terminated, was terminated in compliance
with the requirements of the Code and ERISA and the liabilities under such plan
were fully satisfied. CineMasters does not have any formal plan or commitment,
whether covered by ERISA or not, to create any additional plan, agreement or
arrangement or to modify or change any existing Plan that would affect any of
its employees, former employees, retirees or sales personnel. CineMasters has
heretofore delivered to Mr. Brokaw true and complete copies of the Plans, the
trusts and other contracts (including any amendments to any of the foregoing)
relating to the Plans and all other relevant documents governing or relating to
the Plans in effect on the date hereof (including without limitation, the latest
summary plan description, the latest annual report (and all attachments) filed
with the Internal Revenue Service ("IRS") with respect to each of the Plans, and
the latest favorable determination letter issued by the IRS for each of the
Plans as applicable).
(ii) Except as set forth on Schedule 4.01(u) hereto,
CineMasters does not maintain, nor has it ever maintained, any "employee pension
benefit plan", as such term is defined in Section 3(2) of the ERISA, and the
rules and regulations promulgated thereunder, covering its employees, former
employees or retirees, including but not limited to, any non-qualified
retirement or deferred compensation plan. CineMasters does not maintain, nor has
it ever maintained or contributed to, a "multiemployer plan", as that term is
defined in Section 3(37) of ERISA. CineMasters is not currently responsible for
any "withdrawal liability" as that term is defined in Section 4201 of ERISA with
respect to any multi-employer plan. None of CineMasters, any of the Plans, any
trust created thereunder, or any trustee or administrator thereof has engaged in
a transaction involving any of the Plans in connection with which CineMasters or
any of the Plans, any such trust, or any trustee or administrator thereof, or
any other party dealing with the Plans or any such trust, could be subject to
either a civil penalty assessed pursuant to Section 502(i) of ERISA, or a tax
imposed by Section 4975 of the Code.
(iii) Full payment has been made of all amounts which
CineMasters is required to pay under the terms of the Plans as a contribution to
such Plans as of the last day of the most recent fiscal year of each of the
Plans ended prior to the date of this Agreement.
(iv) Each of the Plans is and has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to, ERISA and the Code. Except as set forth on
Schedule 4.01(u) hereto, each Plan subject to Section 401(a) of the Code has
received a favorable determination from the IRS that the Plan satisfies the
requirements of Section 401(a) of the Code for the Plan to be tax-qualified, and
no facts exist which could reasonably be expected to adversely affect the
tax-qualified status of any such Plan.
(v) There are no pending, or to the best knowledge of
CineMasters, threatened or anticipated claims, litigation, administrative
actions or proceedings against or otherwise involving any of the Plans or
related trusts, or any fiduciary thereof, by or on behalf of the Plans by any
employee or beneficiary covered under the Plans, or otherwise involving the
Plans. There is no judgment, decree, injunction, rule or order of any court,
governmental body, commission, agency or arbitrator outstanding against or in
favor of any Plan or any fiduciary thereof in that capacity. The assets of
CineMasters are not, and will not, either as a result of any circumstances
existing prior to the Closing Date or as a result of the consummation of the
transactions contemplated by this Agreement or any of the Related Documents, be
subject to any claims under any Plan maintained by CineMasters or in which
employees, former employees or retirees of CineMasters participate.
(vi) Except as set forth in Schedule 4.01(u) hereto, each
Plan that is an employee welfare benefit plan providing health benefits to
retirees may be terminated at any time after the Closing Date without liability
to CineMasters other than liabilities relating to claims incurred prior to the
effective date of the termination of such Plan.
(vii) CineMasters has not engaged in any transaction, failed
to make any required contribution, committed any act or omission or otherwise
incurred any liability for any excise tax under Sections 4971 through 4980B of
the Code, inclusive.
(v) Program Library. Except as contemplated hereby, or in the
Gene Feldman Exit Option Agreement CineMasters owns all right, title and
interest in and to the program library described on Schedule 4.01(v) hereto (the
"CineMasters Library"), free and clear of any and all liens, security interests
or encumbrances whatsoever. To the best knowledge of CineMasters, the use and
exploitation of the CineMaster Library does not and will not violate or infringe
upon any copyright, right of privacy, trademark, patent, trade name, performing
right or any literary, dramatic, musical, artistic, personal, private, several,
contract or copyright or any other right of any person or entity. The
CineMasters Library does not contain any libelous or slanderous material other
than to an extent which is not material.
(w) Disclosure. No representation or warranty expressly made
by CineMasters contained in this Agreement, and no statement contained in any
document, certificate or Schedule furnished or to be furnished by or on behalf
of CineMasters to Mr. Brokaw or Avenue or any of their representatives pursuant
to this Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate or Schedule.
4.02 Representations and Warranties of Mr. Brokaw. Mr.Brokaw
hereby represents and warrants to CineMasters follows:
(a) Organization. Each of Avenue and the active wholly-owned
subsidiaries of Avenue listed on Schedule 4.02(a) hereto (collectively, the
"Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of their respective states of incorporation. Schedule
4.02(a) sets forth a true and complete list of the respective states of
incorporation of Avenue and its Subsidiaries. Each of Avenue and its
Subsidiaries has all requisite power and authority to enable it to own, lease or
otherwise hold its respective properties and assets and to carry on its
respective business as presently conducted. Each of Avenue and its Subsidiaries
is duly qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership, leasing or holding of its
properties makes such qualification necessary, except where the absence of such
qualifications, individually or in the aggregate, would not have a material
adverse effect on the business, assets, condition (financial or otherwise),
prospects or results of operations of Avenue and its Subsidiaries, taken as a
whole (an "Avenue Material Adverse Effect"). A list of the jurisdictions in
which Avenue and/or its Subsidiaries is so qualified is set forth on Schedule
4.02(a) hereto. The stock certificate and transfer books and minute books of
Avenue and its Subsidiaries (all of which have been made available for
inspection by CineMasters) are true and complete.
(b) Authorization. Avenue has all requisite power and
authority to enter into this Agreement and the Related Documents of which they
are a party, and to consummate the transactions contemplated hereby and thereby.
All acts and other proceedings required to be taken by Avenue to authorize the
execution, delivery and performance of this Agreement and the Related Documents
of which they are a party, and the consummation of the transactions contemplated
hereby and thereby have been duly and properly taken.
(c) Valid and Binding Agreement. Each of this Agreement and
each of the Related Documents of which Avenue and/or Mr. Brokaw is a party,
constitutes a valid and binding obligation of Avenue and/or Mr. Brokaw,
enforceable against Avenue and/or Mr. Brokaw in accordance with its terms,
except that (i) such enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to or limiting creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(d) No Violation. The execution and delivery of this Agreement
and the Related Documents of which Avenue is a party by Avenue does not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the terms hereof and thereof will not (subject to obtaining any required
consents, approvals, authorizations, exemptions or waivers set forth on Schedule
4.02(d) hereto), conflict with, or result in any violation of or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under or result in the creation of any lien, claim,
encumbrance, security interest, option, charge or restriction of any kind upon
any of the properties or assets of Avenue and/or its Subsidiaries under, any
provision of (i) the Certificate of Incorporation or By-laws or comparable
governing instruments of Avenue and/or its Subsidiaries, (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment or
agreement to which Avenue and/or its Subsidiaries is a party or by which any of
their respective properties or assets are bound, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Avenue and/or
its Subsidiaries or any of their respective properties or assets, excluding from
the foregoing clauses (ii) and (iii) such conflicts, violations, defaults,
rights or restrictions which would not, individually or in the aggregate, have
an Avenue Material Adverse Effect. No consent, approval, license, permit, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or any other third party is required to be
obtained or made by or with respect to Avenue and/or its Subsidiaries or any of
their respective affiliates in connection with the execution and delivery of
this Agreement or any of the Related Documents or the consummation of the
transactions contemplated hereby or thereby, other than as set forth on Schedule
4.02(d) hereto.
(e) The Avenue Shares. Upon delivery to CineMasters at the
Closing of one or more certificates representing the Avenue Shares to be
acquired by CineMasters and upon Mr. Brokaw's receipt of the CineMasters Shares,
good and valid title to such Avenue Shares will pass to CineMasters, free and
clear of any liens, claims, encumbrances, security interests, options, charges
and restrictions of any kind except for any liens, claims, encumbrances,
security interests, options, charges and restrictions that are caused by acts or
omissions on the part of CineMasters. No stock transfer taxes are due as a
result of the transfer of the Avenue Shares.
(f) Capital Stock of Avenue and the Subsidiaries. (i) The
authorized capital stock of Avenue consists of 1,500 shares of common stock, no
par value of which 25 shares are issued and outstanding and held by Mr. Brokaw
and, no shares are held in Avenue's treasury. The authorized and issued capital
stock of each of the Subsidiaries consists of the shares of common stock and, if
applicable, the shares of preferred stock, set forth opposite the name of each
such Subsidiary on Schedule 4.02(f) hereto. All issued and outstanding shares of
capital stock of Avenue and each of the Subsidiaries have been duly authorized
and validly issued and are fully paid and nonassessable. No shares of capital
stock of Avenue or any of the Subsidiaries have been issued in violation of any
preemptive or subscription rights and no such shares are subject to any
preemptive or subscription rights.
(ii) Except as set forth in this Section 4.02(f), there are no
shares of capital stock or other equity securities of Avenue or any of the
Subsidiaries outstanding and there are no outstanding warrants, options,
agreements, convertible or exchangeable securities or other commitments pursuant
to which Avenue or any of the Subsidiaries is or may become obligated to issue,
sell, purchase, return or redeem any shares of capital stock or other securities
of Avenue or any of the Subsidiaries, respectively. There are no equity
securities of Avenue or any of the Subsidiaries reserved for issuance for any
purpose.
(iii) There are no rights of first refusal, tag-along rights or
similar rights with respect to the capital stock of Avenue or any of the
Subsidiaries triggered by the execution and delivery of this Agreement or any of
the Related Documents or the consummation of the transactions contemplated
hereby or thereby.
(iv) All of the issued and outstanding capital stock of each of
the Subsidiaries listed on Schedule 4.02(a) is owned by Avenue, free and clear
of any liens, claims, encumbrances, security interests, options, charges and
restrictions of any kind.
(g) Equity Interests. Except for its Subsidiaries and as set
forth on Schedule 4.02(g) hereto, Avenue does not directly or indirectly own any
capital stock of or other equity interests in any corporation, partnership or
other entity or have any direct or indirect equity interest in any business.
(h) Financial Statements. Mr. Brokaw has previously delivered
to CineMasters unaudited consolidated balance sheets of Avenue and its
Subsidiaries as at December 31, 1993, 1994 and 1995, and the related unaudited
consolidated statements of income and cash flows of Avenue for the twelve-month
periods then ended (collectively, the "Financial Statements"). Except as set
forth on Schedule 4.02(h) hereto, the Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto), are correct and complete in all material respects and present fairly
the consolidated financial position of Avenue and its Subsidiaries as at the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Except as set forth on Schedule 4.02(h) hereto,
there are no ongoing transactions between Avenue and its Subsidiaries, on the
one hand, and any affiliate thereof, on the other hand. As of August 31, 1996,
the accrued salary and vacation pay of Avenue was $211,710. No amounts have been
paid with respect to the obligations represented by such accruals since August
31, 1996 and such obligations represented by such accruals will be cancelled on
or before the Closing Date without the payment of any consideration by Avenue.
(i) Undisclosed Liabilities. Neither Avenue nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent, unasserted or otherwise), except (i) as disclosed in the
Financial Statements, (ii) for liabilities or obligations disclosed on Schedule
4.02(i) hereto or (iii) for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since December 31, 1995, and
not in violation of this Agreement.
(j) Taxes. (i) For purposes of this Agreement, (A) "Tax" or
"Taxes" shall mean all Federal, state, county, local, foreign and other taxes,
assessments, duties or similar governmental charges of any kind whatsoever,
including, without limitation, corporate franchise, income, sales, use, ad
valorem, gross receipts, value added, profits, license, withholding, payroll,
employment, excise, property, customs and occupation taxes and including,
without limitation, any interest, penalties and additions imposed with respect
to such amounts and (B) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(ii) Except as set forth on Schedule 4.02(j) hereto:
(A) Since January 1, 1988, Avenue, each predecessor of Avenue,
each of its Subsidiaries and each consolidated, affiliated, combined, unitary or
aggregate group of which Avenue, its Subsidiaries or any such predecessor is or
has been a member, has timely filed with the appropriate Tax authorities all Tax
returns, reports, estimates, information returns and statements, including any
related or supporting information, ("Tax Returns"), required to be filed through
the date hereof and has paid all Taxes shown to be due with respect to the
taxable periods covered by such Tax Returns. All such Tax Returns are true,
complete and correct in all material respects. All other Taxes of Avenue and its
Subsidiaries, or for which Avenue or any of its Subsidiaries is or shall
otherwise be directly or indirectly liable (including amounts attributable to
wage withholding), have either been timely paid or are reflected as a liability
on the Balance Sheet (as defined in Section 4.02(k) hereof). No statute of
limitations has been waived, nor any extension of time agreed to, with respect
to the assessment of any Tax of Avenue or any of its Subsidiaries, or for which
Avenue or any of its Subsidiaries is or may otherwise be directly or indirectly
liable.
(B) There are no pending audits with respect to the Tax Returns
of Avenue or any of its Subsidiaries and any deficiencies resulting from any
past audits have been paid and no material issues were raised in writing by the
relevant Tax authority during any past audits that may apply to taxable periods
after the taxable period to which such audit related. No action or proceeding
has been brought or has been threatened to be brought by any Tax authority, nor
has any claim been asserted or threatened to be asserted by any Tax authority,
with respect to any Taxes of Avenue or any of its Subsidiaries, or for which
Avenue or any of its Subsidiaries is or may otherwise be directly or indirectly
liable which could have an Avenue Material Adverse Effect.
(C) No Tax liens have been filed by any Tax authority against any
property or assets of Avenue or any of its Subsidiaries, except for liens that
have been satisfied or statutory liens for current Taxes not yet delinquent.
(D) There are no Tax sharing or Tax indemnity agreements to which
Avenue or any of its Subsidiaries is a party.
(k) Title to Assets. (i) Avenue and/or its Subsidiaries has good
and valid title to all of the assets reflected on the consolidated balance sheet
of Avenue and its Subsidiaries as at December 31, 1995 (the "Balance Sheet"), or
thereafter acquired, except those since sold or otherwise disposed of in the
ordinary course of business consistent with past practice and not in violation
of this Agreement, in each case free and clear of all liens, security interests,
pledges, charges, encumbrances or restrictions of any nature whatsoever, except:
(A) all such as are disclosed on Schedule 4.02(k) hereto;
(B) mechanics', carriers', workmen's, repairmen's or other like
liens arising or incurred in the ordinary course of business, liens arising
under original purchase price conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business and statutory
liens for current Taxes which are not yet delinquent;
(C) liens, security interests, pledges, charges, encumbrances and
restrictions which secure debt that is reflected as a liability on the Balance
Sheet and the existence of which is indicated in the notes thereto; and
(D) other encumbrances, restrictions or imperfections of title,
if any, which other encumbrances, restrictions or imperfections of title do not,
individually or in the aggregate, materially impair the continued use and
operation of the assets to which they relate in the business of Avenue as
presently conducted (the liens, security interests, pledges, charges,
encumbrances, restrictions and other imperfections of title described in clauses
(A), (B), (C) and (D) above are hereinafter referred to collectively as
"Permitted Liens").
(ii) All leased property of Avenue and its Subsidiaries is in the
condition required of such property by the terms of the lease applicable thereto
during the term of the lease and upon the expiration thereof.
(l) Intellectual Property. Schedule 4.02(l) sets forth a true and
complete list of all material patents, trademarks (registered or unregistered),
trade names, service marks, registered copyrights and applications therefor and
other material intellectual property rights, whether or not subject to statutory
registration or protection ("Intellectual Property Rights") owned, used or filed
by or licensed to Avenue and/or its Subsidiaries. Schedule 4.02(l) hereto
specifies for each Intellectual Property Right listed thereon whether such right
is owned or licensed and, in the case of licensed rights, lists the relevant
license agreement. With respect to registered trademarks, Schedule 4.02(l)
hereto specifies all jurisdictions in which such trademarks are registered or
applied for and all registration and application numbers. Except as disclosed on
Schedule 4.02(l) hereto, Avenue and/or its Subsidiaries owns, free and clear of
all liens, security interests or encumbrances whatsoever, all Intellectual
Property Rights listed on Schedule 4.02(l) hereto as owned by Avenue and/or its
Subsidiaries and, to the best knowledge of Avenue, has the right to use, without
payment to any other party, all other Intellectual Property Rights required to
be listed on Schedule 4.02(l) hereto, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights. Except as
disclosed on Schedule 4.02(l) hereto, no claims are pending or, to the best
knowledge of Avenue, threatened by any person against Avenue or any of its
Subsidiaries with respect to the ownership, validity, enforceability or use of
any Intellectual Property Rights or, to the best knowledge of Avenue, otherwise
challenging or questioning the validity or effectiveness of any of such rights.
(m) Insurance. Avenue maintains policies of fire and casualty,
liability and other forms of insurance in such amounts, with such deductibles
and against such risks and losses, as are consistent with industry standards and
will continue such insurance in effect after the Closing. The insurance policies
currently maintained with respect to Avenue and its Subsidiaries and their
respective assets and properties are listed on Schedule 4.02(m) hereto. All such
policies are in full force and effect, all premiums due and payable thereon have
been paid and no written or oral notice of cancellation or termination has been
received with respect to any such policy which was not replaced on substantially
similar terms prior to the date of such cancellation.
(n) Absence of Changes or Events. Except as disclosed on
Schedule 4.02(n) hereto, since December 31, 1995, there has not been any
material adverse change in the business, assets, condition (financial or
otherwise), prospects or results of operations of Avenue and its Subsidiaries,
taken as a whole. Except as disclosed on Schedule 4.02(n) hereto, since December
31, 1995, (i) the business of the Avenue and its Subsidiaries has been conducted
in the ordinary course and in substantially the same manner as previously
conducted and (ii) neither Avenue nor any of its Subsidiaries has taken any
action that, if taken after the date hereof, would constitute a breach of any of
the covenants set forth in Section 5.01(b) hereof.
(o) Employee and Labor Relations. Except as set forth on
Schedule 4.02(o) hereto, (i) no collective bargaining agreement presently covers
(nor has any, in the three years immediately preceding the date hereof, covered)
any employee of Avenue or any of its Subsidiaries, nor is any currently being
negotiated by Avenue or any of its Subsidiaries and, to the best knowledge of
Avenue, no attempt to organize any group or all of the employees of Avenue or
any of its Subsidiaries has been made or proposed; (ii) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the best knowledge
of Avenue, threatened against or involving Avenue or any of its Subsidiaries;
(iii) Avenue and each of its Subsidiaries is in compliance in all material
respects with all federal, state and local laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (iv) there is no unfair labor
practice complaint against Avenue or any of its Subsidiaries pending or, to the
best knowledge of Avenue, threatened before the National Labor Relations Board;
(v) no charge or grievance with respect to or relating to the employees of
Avenue or any of its Subsidiaries is pending before the Equal Employment
Opportunity Commission or any state, local or foreign agency responsible for the
prevention of unlawful practices; (vi) neither Avenue nor any of its
Subsidiaries has received any notice of the intent of any federal, state, local
or foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation of or relating to Avenue or any of its Subsidiaries
with respect to its employees and, to the best knowledge of Avenue, no such
investigation is in progress; (vii) no private agreement restricts Avenue or any
of its Subsidiaries from relocating, closing or terminating any of its
operations or facilities; and (viii) neither Avenue nor any of its Subsidiaries
has in the past five years experienced any work stoppage or other labor
difficulty or, to the best of its knowledge, committed any unfair labor
practice.
(p) Fixed and Other Tangible Assets. Except as set forth on
Schedule 4.02(p) hereto, all fixed and other tangible assets of Avenue and its
Subsidiaries (the "Avenue Fixed Assets") are (i) structurally sound, (ii) in
good operating condition and repair and (iii) not in need of maintenance or
repairs, except for ordinary, routine maintenance and repairs. During the past
three years, there has not been any significant interruption of the operations
of Avenue or any of its Subsidiaries due to inadequate maintenance of the Avenue
Fixed Assets.
(q) Licenses; Permits. All licenses, permits and
authorizations issued or granted by federal, state, local or foreign
governmental authorities or agencies which are necessary or desirable for the
conduct of Avenue's business or the conduct of any of its Subsidiaries' business
are validly held by Avenue and/or its Subsidiaries, except for such licenses,
permits and authorizations the failure of which to hold would not have an Avenue
Material Adverse Effect. Each of Avenue and its Subsidiaries has complied in all
material respects with all requirements in connection therewith and the same
will not be subject to suspension, modification or revocation as a result of
this Agreement or any of the Related Documents or the consummation of the
transactions contemplated hereby or thereby.
(r) Litigation. Except as set forth on Schedule 4.02(r)
hereto, there is no legal proceeding, claim, or action of any nature pending or,
to the best knowledge of Avenue, threatened, which questions or challenges the
validity of this Agreement or any of the Related Documents with respect to
Avenue or any of its Subsidiaries or any action taken or to be taken by Avenue
pursuant to this Agreement or any of the Related Documents or in connection with
the transactions contemplated hereby or thereby. Except as set forth on Schedule
4.02(r) hereto, there is no legal proceeding, claim, or action of any nature
pending or, to the best knowledge of Avenue, threatened, which could have an
Avenue Material Adverse Effect.
(s) Compliance With Law. The operations of Avenue and each of
its Subsidiaries are in compliance in all material respects with all applicable
laws, regulations, permits, authorizations and other governmental orders
including, without limitation, applicable safety (including OSHA),
environmental, antipollution, building, zoning or health laws, ordinances and
regulations.
(t) Contracts. Except as set forth on Schedule 4.02(t) hereto,
neither Avenue nor any of its Subsidiaries is a party to any contract,
commitment, arrangement or understanding involving payments to or from Avenue or
any of its Subsidiaries which exceed $75,000 over the remaining life of such
contract and which are not cancelable without penalty or premium by Avenue or
any of its Subsidiaries on 60 days notice or less. All of the contracts,
commitments, arrangements and understandings listed on Schedule 4.02(t) hereto
(collectively, the "Contracts") are in full force and effect with no material
defaults by any party thereto and there are no oral or collateral agreements
modifying any of the Contracts. Except as set forth on Schedule 4.02(t) hereto,
all of the Contracts are arms-length transactions between unrelated parties
entered into in the ordinary course of business.
(u) Employee Benefit Plans; ERISA.
(i) Schedule 4.02(u) hereto contains an accurate and complete
description of each employment, consulting, bonus, deferred compensation,
incentive compensation, severance or termination pay, disability hospitalization
or other medical, dental, vision, life or other insurance, stock purchase, stock
option, stock appreciation, stock award, pension, profit sharing, 401(k) or
retirement plan, agreement or arrangement, and each other employee benefit plan
or arrangement, whether formal or informal, written or oral, tax-qualified under
the Code or non-qualified, whether covered by the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or not, maintained or contributed to
by Avenue covering its employees, former employees, retirees or sales personnel
(collectively, "Plans"). In addition, Schedule 4.02(u) hereto contains an
accurate and complete description of any amounts payable, or which will become
payable, under any former pension, profit sharing, 401(k) or retirement plan,
agreement or arrangement, to any participant, beneficiary or any other third
party. Any Plan maintained by Avenue that has subsequently been terminated, was
terminated in compliance with the requirements of the Code and ERISA and the
liabilities under such plan were fully satisfied. Avenue does not have any
formal plan or commitment, whether covered by ERISA or not, to create any
additional plan, agreement or arrangement or to modify or change any existing
Plan that would affect any of its employees, former employees, retirees or sales
personnel. Avenue has heretofore delivered to Mr. Brokaw true and complete
copies of the Plans, the trusts and other contracts (including any amendments to
any of the foregoing) relating to the Plans and all other relevant documents
governing or relating to the Plans in effect on the date hereof (including
without limitation, the latest summary plan description, the latest annual
report (and all attachments) filed with the Internal Revenue Service ("IRS")
with respect to each of the Plans, and the latest favorable determination letter
issued by the IRS for each of the Plans as applicable).
(ii) Except as set forth on Schedule 4.02(u) hereto, Avenue does
not maintain, nor has it ever maintained, any "employee pension benefit plan",
as such term is defined in Section 3(2) of the ERISA, and the rules and
regulations promulgated thereunder, covering its employees, former employees or
retirees, including but not limited to, any non-qualified retirement or deferred
compensation plan. Avenue does not maintain, nor has it ever maintained or
contributed to, a "multiemployer plan", as that term is defined in Section 3(37)
of ERISA. Avenue is not currently responsible for any "withdrawal liability" as
that term is defined in Section 4201 of ERISA with respect to any multi-employer
plan. None of Avenue, any of the Plans, any trust created thereunder, or any
trustee or administrator thereof has engaged in a transaction involving any of
the Plans in connection with which Avenue, its Subsidiaries, or any of the
Plans, any such trust, or any trustee or administrator thereof, or any other
party dealing with the Plans or any such trust, could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA, or a tax imposed by
Section 4975 of the Code.
(iii) Full payment has been made of all amounts which Avenue is
required to pay under the terms of the Plans as a contribution to such Plans as
of the last day of the most recent fiscal year of each of the Plans ended prior
to the date of this Agreement.
(iv) Each of the Plans is and has been operated and administered
in all material respects in accordance with applicable laws, including but not
limited to, ERISA and the Code. Except as set forth on Schedule 4.02(u) hereto,
each Plan subject to Section 401(a) of the Code has received a favorable
determination from the IRS that the Plan satisfies the requirements of Section
401(a) of the Code for the Plan to be tax-qualified, and no facts exist which
could reasonably be expected to adversely affect the tax-qualified status of any
such Plan.
(v) There are no pending, or to the best knowledge of Avenue,
threatened or anticipated claims, litigation, administrative actions or
proceedings against or otherwise involving any of the Plans or related trusts,
or any fiduciary thereof, by or on behalf of the Plans by any employee or
beneficiary covered under the Plans, or otherwise involving the Plans. There is
no judgment, decree, injunction, rule or order of any court, governmental body,
commission, agency or arbitrator outstanding against or in favor of any Plan or
any fiduciary thereof in that capacity. The assets of Avenue are not, and will
not, either as a result of any circumstances existing prior to the Closing Date
or as a result of the consummation of the transactions contemplated by this
Agreement or any of the Related Documents, be subject to any claims under any
Plan maintained by Avenue or in which employees, former employees or retirees of
Avenue participate.
(vi) Except as set forth in Schedule 4.02(u) hereto, each Plan
that is an employee welfare benefit plan providing health benefits to retirees
may be terminated at any time after the Closing Date without liability to Avenue
or any of its Subsidiaries other than liabilities relating to claims incurred
prior to the effective date of the termination of such Plan.
(vii) Neither Avenue nor any of its Subsidiaries has engaged in
any transaction, failed to make any required contribution, committed any act or
omission or otherwise incurred any liability for any excise tax under Sections
4971 through 4980B of the Code, inclusive.
(v) Program Library. Avenue owns all right, title and interest in
and to the film library described on Schedule 4.02(v) hereto (the "Avenue
Library"), free and clear of any and all liens, security interests or
encumbrances whatsoever. To the best knowledge of Avenue, the use and
exploitation of the Avenue Library does not and will not violate or infringe
upon any copyright, right of privacy, trademark, patent, trade name, performing
right or any literary, dramatic, musical, artistic, personal, private, several,
contract or copyright or any other right of any person or entity. The Avenue
Library does not contain any libelous or slanderous material other than to an
extent which is not material.
(w) Disclosure. No representation or warranty expressly made by
Mr. Brokaw contained in this Agreement, and no statement contained in any
document, certificate or Schedule furnished or to be furnished by or on behalf
of Avenue or Mr. Brokaw to CineMasters or any of its representatives pursuant to
this Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate or Schedule.
V. COVENANTS.
5.01 Mutual Covenants. Each of the parties hereto hereby
covenants and agrees as follows:
(a) Access. Prior to the Closing, each of Avenue and
CineMasters will, upon reasonable notice, give the other party and such party's
representatives, employees, counsel and accountants reasonable access to its
personnel (including directors, officers, employees and independent
accountants), properties, books and records.
(b) Ordinary Conduct. Except as expressly permitted by the
terms of this Agreement or as set forth on Schedule 5.01(b) hereof, from the
date hereof until the Closing, each of Avenue and CineMasters will conduct its
business in the ordinary course in substantially the same manner as presently
conducted. In addition, except as expressly permitted by the terms of this
Agreement or as set forth on Schedule 5.01(b) hereto, CineMasters and Avenue
will not do any of the following prior to the Closing without the prior written
consent of the other party:
(i) amend its Certificate of Incorporation or By-laws or other
comparable governing instruments;
(ii) declare or pay any dividend or make any other distribution
to its stockholders, whether or not upon or in respect or any shares of its
capital stock;
(iii) grant to any officer or employee any increase in
compensation or benefits, except in the ordinary course of business consistent
with past practice or as may be required under existing agreements;
(iv) cancel any material indebtedness (individually or in the
aggregate), waive any claims or rights of substantial value or amend any
material term of any of its outstanding securities;
(v) make any change in any method of accounting or accounting
practice or policy other than those required by generally accepted accounting
principles;
(vi) acquire by merging or consolidating with, by purchasing a
substantial portion of the assets of, or in any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire any assets, except in the ordinary course
of business consistent with past practice;
(vii) sell, lease or otherwise dispose of any of its assets,
except in the ordinary course of business consistent with past practice;
(viii) amend, modify, terminate, extend, renew or restate any
Contract, other than in the ordinary course of business consistent with past
practice;
(ix) (A) pay or agree to pay any pension, retirement allowance or
other employee benefit not required or permitted by any Plan, whether past or
present; or (B) commit itself to any new or renewed Plan with or for the benefit
of any person, or to amend any of such Plans or any of such agreements in
existence on the date hereof;
(x) permit any of its insurance policies to be cancelled or
terminated or any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies are in full
force and effect providing coverage, in form, substance and amount equal to or
greater than the coverage under those canceled, terminated or lapsed for
substantially similar premiums; or
(xi) agree, whether in writing or otherwise, to do any of the foregoing.
(c) Notices of Certain CineMasters Events. CineMasters shall
promptly notify Mr. Brokaw of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement or any of the Related Documents;
(ii) any notice or other communication from any governmental
entity in connection with the transactions contemplated by this Agreement or any
of the Related Documents;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened, relating to or involving or
otherwise affecting CineMasters that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 4.01(r)
hereof or that relate to the consummation of the transactions contemplated by
this Agreement or any of the Related Documents;
(iv) the occurrence, or failure to occur, of any condition, event
or development that (A) causes any representation or warranty of CineMasters
contained in this Agreement to be untrue or inaccurate in any material respect,
at any time from the date hereof to the Closing Date or (B) would have been
required to be set forth or described in the Schedules hereto if existing or
known at the date of this Agreement; and
(v) any failure on the part of CineMasters to comply with or
perform in any material respect any agreement or covenant to be complied with or
performed by it hereunder; provided that the delivery of any notice pursuant to
this Section 5.01(c) shall not limit or otherwise affect the remedies available
hereunder to Mr. Brokaw.
(d) Notice of Certain Avenue Events. Mr. Brokaw shall promptly
notify CineMasters of:
(i) any notice of other communication from any person alleging
that the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement or any of the Related Documents;
(ii) any notice or other communication from any governmental
entity in connection with the transactions contemplated by this Agreement or any
of the Related Documents;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened, relating to or involving or
otherwise affecting Avenue or Mr. Brokaw that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
4.02(r) hereof or that relate to the consummation of the transactions
contemplated by this Agreement or any of the Related Documents;
(iv) the occurrence, or failure to occur, of any condition, event
or development that (A) causes any representation or warranty of Mr. Brokaw
contained in this Agreement to be untrue or inaccurate in any material respect,
at any time from the date hereof to the Closing Date or (B) would have been
required to be set forth or described in the Schedules hereto if existing or
known at the date of this Agreement; and
(v) any failure on the part of Avenue or Mr. Brokaw to comply
with or perform in any material respect any agreement or covenant to be complied
with or performed by it hereunder; provided that the delivery of any notice
pursuant to this Section 5.01(d) shall not limit or otherwise affect the
remedies available hereunder to CineMasters.
(e) Publicity. From the date hereof through the Closing Date, no
public release or announcement concerning the transactions contemplated hereby
shall be issued by any party without the prior consent or the other parties,
except as such release or announcement be required by law, in which case the
party required to make the release or announcement shall allow the other parties
reasonable time to comment on such release or announcement in advance of such
issuance.
(f) Reasonable Commercial Efforts. Subject to the terms and
conditions of this Agreement, each party will use reasonable commercial efforts
to cause the conditions set forth in Article III of this Agreement to be
satisfied and the Closing to occur.
(g) Tax-Free Reorganization. Each of the parties hereto covenants
and agrees that it will treat this Agreement, for federal income tax purposes,
as a tax-free reorganization under Section 368(a)(1)(B) of the Code. Following
the consummation of the transactions contemplated by the Agreement, none of the
parties hereto or any of their affiliates shall take or cause to be taken, a
position which, after consultation with counsel, it reasonably believes would
have a material adverse effect on the status of the Share Exchange as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
5.02 Covenants of CineMasters. CineMasters agrees, at its own expense,
to register the CineMasters Shares for resale under the Securities Act of 1933,
as amended, as soon as practicable following the date upon which CineMasters is
eligible to register the CineMasters Shares on Form S-3 (or any successor form
thereto), but in no event later than eighteen (18) months following the Closing
Date.
VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
6.01 Survival of Representations. The representations and warranties
made by CineMasters and Mr. Brokaw pursuant to this Agreement shall survive any
investigation at any time made by or on behalf of any party until the first
anniversary of the Closing Date, except for (i) the representations and
warranties of CineMasters set forth in subsections (e), (f), (i), (j), (r), (s),
(u) and (v) of Section 4.01 hereof and the representations and warranties of Mr.
Brokaw set forth in subsections (e), (f), (i), (j), (r), (s), (u) and (v) of
Section 4.02 hereof, which shall survive any investigation at any time made by
or on behalf of any party for the applicable statute of limitations period.
6.02 Agreement of CineMasters to Indemnify. CineMasters shall indemnify
Mr. Brokaw and each of his employees, representatives, agents, partners and
affiliates (and their respective officers, directors, employees,
representatives, agents, shareholders, partners and affiliates) and hold each of
them harmless from and against any reasonably incurred loss, liability, claim,
cost, damage or expense (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending any litigation or
proceeding, commenced or threatened, or any claim whatsoever (collectively,
"Litigation Expenses")) (collectively, "Losses") suffered or incurred by any
such indemnified party to the extent arising from (i) any breach of any
representation or warranty of CineMasters contained in this Agreement or in any
Schedule, certificate, instrument or other document delivered pursuant hereto or
(ii) any breach of any covenant or agreement of CineMasters contained in this
Agreement, provided, however, that CineMasters shall not have any liability
under this Section 6.02 (other than with respect to Litigation Expenses) unless
and until the aggregate of all Losses for which CineMasters would, but for this
proviso, be liable exceeds $75,000 on a cumulative basis, and then only to the
extent of any such excess; and provided, further, however, that such excess
amount for which CineMasters shall be liable shall not be more than $2,000,000
on a cumulative basis. Payments in respect of the indemnification provided in
this Section 6.02 shall be made promptly (and currently) as Losses shall be
incurred. The foregoing notwithstanding, CineMasters shall have the option to
make any payments due to Mr. Brokaw under the indemnification provisions of this
Section 6.02 in the form of shares of CineMasters Common Stock, which shares
shall be valued based upon the average "Closing Price" (as defined in Section
6.06 below) of such shares for the ten (10) consecutive trading days immediately
preceding the date that such indemnification payment is due to be made.
6.03 Agreement of Mr. Brokaw to Indemnify. Mr. Brokaw shall indemnify
CineMasters and its employees, representatives, agents, partners and affiliates,
officers, directors and stockholders, (and their respective officers, directors,
employees, representatives, agents, shareholders, partners and affiliates) and
hold each of them harmless from and against any Loss suffered or incurred by any
such indemnified party to the extent arising from (i) any breach of any
representation or warranty of Mr. Brokaw contained in this Agreement or in any
schedule, certificate, instrument or other documents delivered hereto or (ii)
any breach of any covenant or agreement of Mr. Brokaw or Avenue contained in
this Agreement or in any schedule, certificate, instrument or other documents
delivered hereto, provided, however, that Mr. Brokaw shall not have any
liability under this Section 6.03 unless and until the aggregate of all Losses
for which Mr. Brokaw would, but for this proviso, be liable exceeds $75,000 on a
cumulative basis, and then only to the event of any such excess; and provided,
further, however, that such excess amount for which Mr. Brokaw shall be liable
shall not be more than $2,000,000 on a cumulative basis. Payments in respect of
the indemnification provided in this Section 6.03 shall be made promptly (and
currently) as Losses shall be incurred. The foregoing notwithstanding, Mr.
Brokaw's liability under the indemnification provisions of this Section 6.03
(other than with respect to Litigation Expenses) shall be limited to the
CineMasters Shares that he will receive pursuant to this Agreement, which shares
shall be valued based upon the average Closing Price of shares of CineMasters
Common Stock for the ten (10) consecutive trading days immediately preceding the
date that such indemnification payment is due to be made.
6.04 Conditions of Indemnification. Each party indemnified pursuant to
Sections 6.02 or 6.03 hereof (an "indemnified party") agrees to give prompt
notice to the party required to indemnify such indemnified party (an
"indemnifying party") of the assertion of any claim, or the commencement of any
suit, action or proceeding, whether brought against such indemnified party or
brought by such indemnified party against the indemnifying party (each a
"Claim"), in respect of which indemnity may be sought by such indemnified party
under Section 6.02 or 6.03 hereof or in respect of which such indemnified party
may seek any other remedy against the indemnifying party under this Agreement;
provided, however, that the omission so to promptly notify the indemnifying
party with respect to a Claim brought against such indemnified party will not
relieve the indemnifying party from any liability which it may have to such
indemnified party under Section 6.02 or 6.03 hereof unless such failure
materially prejudices the indemnifying party with respect to the defense of such
Claim. If any indemnified party shall seek indemnity under Section 6.02 or 6.03
hereof, the indemnifying party, in the case of a Claim brought against such
indemnified party, shall be entitled to participate therein and, to the extent
that it wishes, to assume and direct the defense and settlement thereof with
counsel reasonably satisfactory to such indemnified party. After notice from the
indemnifying party to an indemnified party of its election to assume and direct
the defense and settlement of a Claim brought against such indemnified party,
the indemnifying party shall not be liable to such indemnified party (or any of
its affiliates) under Section 6.02 or 6.03 hereof for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation undertaken at the
request of the indemnifying party; except that such indemnified party shall have
the right to employ counsel to represent such party if, in the reasonable
judgment of such party, it is advisable for such party to be represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by such indemnified party. Notwithstanding the foregoing
provisions of this Section 6.04, the indemnifying party shall not, without the
prior written consent of an indemnified party (which consent shall not be
unreasonably withheld or delayed), effect any settlement of any pending or
threatened proceeding in respect of which such indemnified party is, or with
reasonable foreseeability, could have been a party and indemnity could have been
sought hereunder by such indemnified party for a Claim brought against such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability arising out of such proceeding
(provided that, whether or not such a release is required to be obtained, the
indemnifying party shall remain liable to such indemnified party in accordance
with Section 6.02 or 6.03 hereof, as applicable, in the event that a Claim is
subsequently brought against such indemnified party).
6.05 Tax Benefits; Insurance. In calculating the amount of any Losses
for which an indemnified party is entitled to indemnification under this Article
VI, any Tax Benefit (as hereinafter defined) received by such indemnified party
shall be applied against the amount of the Loss to reduce the amount payable by
the indemnifying party. "Tax Benefit" shall mean any tax savings to the
indemnified party (computed at the combined Federal, state and local tax rate
applied to the indemnified party in the immediately preceding taxable year)
resulting from any net increase in deductions, losses or credits or any net
decrease in income, gains or recapture of credits attributable to inclusion of
the claims or related indemnification payment, as the case may be, in any tax
return of the indemnified party plus any interest attributable to such
inclusion. In addition, in calculating the amount of any Losses for which an
indemnified party is entitled to indemnification under this Article VI, the
amount of any insurance proceeds received by the indemnified party relating to
or in connection with such Loss shall reduce the amount of any claim.
6.06 Definition of Closing Price. For purposes of this Article VI, the
"Closing Price" shall mean the closing sale price of the CineMasters Common
Stock on the date specified on the principal national securities exchange on
which the CineMasters Common Stock is listed or admitted to trading, or, if the
CineMasters Common Stock is not listed or admitted to trading on any national
securities exchange on such date, the average of the highest reported bid and
lowest reported asked prices as furnished by the National Association of
Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is
not longer reporting such information. If there is no reported bid and asked
price for the CineMasters Common Stock, the "Closing Price" shall be the fair
market value of the Common Stock on the date specified, as determined in good
faith by CineMasters and Mr. Brokaw, or, if CineMasters and Mr. Brokaw cannot
agree, by an independent appraiser mutually selected by CineMasters and Mr.
Brokaw.
VII. TERMINATION; AMENDMENT AND WAIVER
7.01 Termination of Agreement. This Agreement may be terminated
at any time prior to the Closing:
(a) By mutual written agreement of the parties hereto; or
(b) By CineMasters or Mr. Brokaw if the Closing shall not have
occurred on or before October 31, 1996.
7.02 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void and
there shall be no liability on the part of any party hereto (or any of their
respective officers or directors), except (i) based upon obligations set forth
in Sections 8.01 and 8.02 hereof and (ii) to the extent that failure to satisfy
the conditions of Article III hereof results from the negligent, intentional or
willful breach, violation or non-compliance by any party hereto of any covenant,
agreement, obligation, representation or warranty contained in this Agreement or
any other agreement referred to herein.
7.03 Amendment, Extension and Waiver. The parties may amend this
Agreement at any time by an instrument in writing signed by each of the parties
hereto. Any agreement on the part of a party hereto to any waiver of compliance
with any of the agreements or conditions contained herein shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
VIII. MISCELLANEOUS
8.01 No Finders. Each of the parties hereto represents and warrants to
the other that there are no claims for brokerage commissions or finder's fees in
connection with the transactions contemplated by this Agreement. CineMasters, on
the one hand, and Mr. Brokaw and Avenue, on the other hand, will pay or
discharge, and will indemnify and hold the other harmless from and against any
and all claims or liabilities for brokerage commissions or finder's fees
incurred by reason of a breach of this representation.
8.02 Expenses; Taxes. CineMasters, on the one hand, and Avenue and Mr.
Brokaw, on the other hand, will each pay the fees and expenses incurred by it in
connection with this Agreement; provided, however, that CineMasters shall at
Closing pay the reasonable fees and expenses of Pryor, Cashman, Sherman & Flynn,
legal counsel to Mr. Brokaw and Avenue. All sales and transfer taxes and fees
incurred in connection with this Agreement with this Agreement and the
transactions contemplated hereby shall be borne by CineMasters.
8.03 Further Assurances. From time to time, at the request of any party
hereto and without further consideration, the other party or parties will
execute and deliver to such requesting party such documents and take such other
action as such requesting party may reasonably request in order to consummate
more effectively the transactions contemplated hereby.
8.04 Parties in Interest. This Agreement will be binding upon, inure to
the benefit of, and be enforceable by the respective successors and assigns of
the parties hereto and will inure to the benefit and be enforceable by the
parties indemnified hereunder.
8.05 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto and the other agreements, instruments and writings referred to herein or
delivered pursuant hereto contain the entire understanding of the parties with
respect to its subject matter. This Agreement supersedes all prior agreements
and understandings between the parties with respect to its subject matter.
8.06 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
8.07 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder will be in writing and will be deemed to have
been duly given if delivered personally or mailed (registered or certified mail,
postage prepaid, return receipt requested) or via facsimile or overnight courier
delivery as follows:
(a) If to CineMasters:
c/o National Patent Development Corporation
9 West 57th Street
New York, New York 10019
Attention: Mr. Jerome I. Feldman
and
The CineMasters Group, Inc.
250 West 57th Street
New York, New York 10019
Attention: Mr. Jerome I. Feldman
With a copy to:
National Patent Development Corporation
9 West 57th Street
New York, NY 10019
Attention: Andrea D. Kantor, Esq.
(b) If to Mr. Brokaw and Avenue:
c\o Avenue Pictures, Inc.
11111 Santa Monica Boulevard, Suite 2110
Los Angeles, California 90025
Attention: Mr. Cary Brokaw
With a copy to:
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attention: James A. Janowitz, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above.
8.08 Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
regard to conflicts of law principles thereof.
8.09 Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
8.10 Consent to Jurisdiction. Any legal action, suit or proceeding
arising out of or relating to this Agreement or the consummation of the
transactions contemplated hereby may only be instituted in any federal court of
the Southern District of New York or any state court located in New York County,
State of New York, and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of such courts, that the action,
suit or proceeding if brought in such courts, would be in an inconvenient forum,
that the venue of the action, suit or proceeding, if brought in any of such
courts, is improper or that this Agreement or the subject matter hereof may not
be enforced in or by such courts on jurisdictional grounds.
8.11 Exhibits. All exhibits and schedules attached hereto are hereby
incorporated by reference into, and made a part of, this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as of the date first above written.
THE CINEMASTERS GROUP, INC.
By:
Name:
Title:
AVENUE PICTURES, INC.
By:
Name:
Title:
Cary Brokaw
Exhibit 6(a)(ii)
STOCKHOLDERS AGREEMENT, dated as of September 30, 1996, by and among
Cary Brokaw ("Brokaw"), The CineMasters Group, Inc., a New York corporation (the
"Corporation"), and National Patent Development Corporation, a Delaware
corporation, Gene Feldman, Jerome Feldman, Suzette St. John Feldman and Michael
Feldman (collectively, the "Feldman Group"). Brokaw and each member of the
Feldman Group are sometimes collectively referred to herein as the
"Stockholders" and individually as a "Stockholder".
W I T N E S S E T H:
WHEREAS, on the date hereof, each of the Stockholders owns the
number of shares (collectively, the "Common Shares") of common stock, par value
$.01 per share (the "Common Stock") of the Corporation and the number of vested
stock options and unvested stock options of the Corporation set forth opposite
his, her or its name on Schedule I hereto; and
WHEREAS, pursuant to, and subject to the terms and conditions of,
that certain Share Exchange Agreement, dated as of the date hereof, by and among
the Corporation, Avenue Pictures, Inc. ("Avenue") and Brokaw (the "Share
Exchange Agreement"), the Corporation purchased all of the issued and
outstanding shares of Avenue and Avenue became a wholly-owned subsidiary of the
Corporation, and Brokaw, the sole shareholder of Avenue, was issued 1,425,000
shares of the Common Stock representing a significant minority equity interest
in the Corporation; and
WHEREAS, the parties hereto desire to, among other things, restrict
the sale, assignment, transfer, encumbrance or other disposition of the Common
Shares (or interests therein); and
WHEREAS, it is deemed to be in the best interests of the Corporation
and the Stockholders that provision be made for the continuity and stability of
the business and management of the Corporation;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Term of Agreement. (a) Except as otherwise provided herein, this
Agreement shall commence on the date hereof and shall continue in full force
and effect until the earliest to occur of any of the following events, at
which time this Agreement shall automatically terminate:
(i) The mutual consent in writing of each of the parties
hereto; or
(ii) The tenth anniversary of the date of this Agreement,
unless, at any time prior to such date or prior to the expiration of any
extension hereof, an instrument in writing is signed by each of the
parties hereto extending the duration of this Agreement for as many
additional years, not to exceed ten (10) years, as they desire.
(b) Nothing contained in this Section 1 shall affect or impair any
rights or obligations arising prior to or at the time of, or that may arise by
an event causing the termination of, this Agreement pursuant to Section 1(a)
hereof.
2. Voting Agreements; Election and Removal of Directors.
(a) Number of Directors. Each of the Stockholders agrees to take
such action, including the voting of the shares of Common Stock then owned or
controlled by such Stockholder, as may be necessary to cause to be elected a
Board of Directors of the Corporation (the "Board of Directors"), all in
accordance with the provisions of this Section 2. The Board of Directors shall
be reconstituted and shall consist of six (6) directors.
(b) Election of Directors. Subject to Section 2(e) below, each of
the Stockholders shall take such action as may be necessary to nominate and
elect to the Board of Directors (i) three (3) persons (each a "Brokaw Director"
and collectively, the "Brokaw Directors") designated by Brokaw and (ii) three
(3) persons (each a "Feldman Group Director" and collectively, the "Feldman
Group Directors") designated by the Feldman Group.
(c) Removal. Brokaw shall be entitled at any time and for any reason
(or for no reason) to remove any of the Brokaw Directors. The Feldman Group
shall be entitled at any time and for any reason (or for no reason) to remove
any of the Feldman Group Directors.
(d) Filling Vacancies. (i) If at any time a vacancy is created on
the Board of Directors by reason of the death, removal or resignation of any of
the directors of the Corporation ("Directors"), the Stockholders agree to take
such action, within twenty (20) days of such occurrences, to approve and elect
Director(s) designated to fill such vacancy or vacancies in the following
manner:
(A) If a vacancy is created by reason of the death,
removal or resignation of any of the Brokaw Directors, Brokaw shall have
the right to designate a nominee to be elected to fill such vacancy until
the next annual meeting of Stockholders of the Corporation; and
(B) If a vacancy is created by reason of the death,
removal or resignation of any of the Feldman Group Directors, the Feldman
Group shall have the right to designate a nominee to be elected to fill
such vacancy until the next annual meeting of Stockholders of the
Corporation.
(ii) If a vacancy is created in any manner other than as
specified in Section 2(d)(i) above, whether by expansion of the size of the
Board of Directors or otherwise, the Board of Directors agree to take such
action, within twenty (20) days of such occurrences, to approve and elect
Director(s) by a majority vote thereof.
(e) Covenant to Vote. Each of the Stockholders shall vote the shares
of Common Stock then owned or controlled by such Stockholder (i) at any annual
or special meeting of Stockholders of the Corporation called for the purpose of
voting on the election or removal of Directors or (ii) by consensual action of
Stockholders of the Corporation, with respect to the election or removal of
Directors in favor of the election of the Directors nominated or the removal of
the Directors designated in accordance with this Section 2.
(f) Committees of the Board of Directors. After the election of the
Directors designated in accordance with this Section 2, the Stockholders and the
Corporation shall take such action as shall be necessary to (i) establish an
independent advisory committee, the members of which shall be mutually selected
by Brokaw and the Feldman Group and (ii) except as may be otherwise mutually
agreed upon, appoint one Brokaw Director to any committee of the Board of
Directors for each Feldman Group Director appointed to any committee of the
Board of Directors such that the number of Brokaw Directors on any committee of
the Board of Directors shall be equal to the number of Feldman Group Directors
on such committee.
3. Restrictions on Sale or Other Disposition of Common Shares by
Stockholders.
(a) Restrictions on Transfer. Except for transfers otherwise
contemplated or permitted by this Agreement or otherwise consented to in writing
by each Stockholder who is a party to this Agreement, no Stockholder, either
directly or indirectly, shall sell, assign, mortgage, hypothecate, transfer,
pledge, create a security interest in or lien upon, encumber, give, place in
trust, or otherwise voluntarily or involuntarily dispose of (collectively
hereinafter sometimes referred to as "Transfer") any of the shares of Common
Stock now owned or hereafter acquired by such Stockholder. No transfer of any of
the shares of Common Stock in violation of the provisions of this Agreement
shall be made or recorded on the books of the Corporation and any such purported
transfer shall be void and of no force or effect.
(b) Permitted Transfers. Notwithstanding anything to the contrary
contained in Section 3(a) or in any other Section of this Agreement, each
Stockholder shall have the right at any time to Transfer his, her or its Common
Shares as follows:
(i) Each Stockholder who is a natural person shall have the
right to transfer any or all of the Common Shares owned by him or her for
no consideration or at a price to be determined in the sole discretion of
such Stockholder, provided that (A) the transfer is made in compliance
with the Securities Act of 1933, as amended (the "Securities Act") and
applicable state securities laws or pursuant to an exemption therefrom and
is to (I) his or her spouse, his or her issue, and/or a trust or trusts
for the benefit of himself or herself or his or her spouse and/or issue,
or (II) any corporation, partnership, trust or other entity which is
wholly-owned and controlled by such transferring Stockholder; provided,
however, that if at any time such transferee entity ceases to be
wholly-owned and controlled by such transferor Stockholder, all such
Common Shares so transferred shall revert immediately and automatically to
such transferor Stockholder without any action on the part of either the
transferor Stockholder, the transferee entity or the Corporation and (B)
whether the transfer is made during his or her lifetime or by testamentary
bequest in the event of his or her death, each transferee agrees in
writing, at the time of the transfer, to be bound by all of the provisions
of this Agreement which would be applicable to the transferring
Stockholder if he or she continued to own the Common Shares so
transferred.
(ii) Each Stockholder that is not a natural person shall have
the right at any time hereafter to transfer any or all of its Common
Shares to any Affiliate (as such term is defined under the Rules and
Regulations promulgated under the Securities Act), upon such terms as may
be agreed upon by such Stockholder and its transferee; provided, however,
that any such transfer shall be made in compliance with the Securities Act
and applicable state securities laws or pursuant to an exemption therefrom
and any such transferee shall acquire the Common Shares so transferred
subject to all the terms and conditions of this Agreement and shall agree
in writing, at the time of the transfer, to be bound by all of the
provisions of this Agreement which would be applicable to the transferring
Stockholder if it continued to own the Common Shares so transferred.
(iii) Subject to Section 5 hereof, each Stockholder shall have
the right at any time to transfer any or all of its Common Shares in
connection with a sale of shares of Common Stock registered under the
Securities Act or in accordance with the requirements of Rule 144 ("Rule
144") promulgated under the Securities Act, it being understood that such
transferee shall acquire the Common Shares so transferred free and clear
of all the terms, conditions and restrictions of this Agreement. For the
purposes of this Agreement, a "Public Offering" shall mean the sale by the
Corporation of shares of Common Stock pursuant to a registration statement
under the Securities Act, which shall have been declared effective by the
Securities and Exchange Commission with respect to an underwritten public
offering of any shares of Common Stock, or the consummation of a merger by
the Corporation in which the Stockholders receive securities which are
publicly traded.
(c) Notice. In the event of any transfer in accordance with the
provisions of Section 3(b), prompt written notice of the transfer shall be
delivered by the transferring Stockholder to the Corporation and each of the
other Stockholders, and, in the case of any transfer pursuant to Section 3
hereof, references herein to "Stockholder" or "Stockholders" shall include, from
and after the date of such permitted transfer, each such permitted transferee
(transferees acquiring Common Shares pursuant to Section 3(b)(i) or (ii) are
hereinafter sometimes referred to as "Permitted Transferees").
4. Right of First Refusal; Participation Rights.
(a) If any Stockholder receives a bona fide written offer to
purchase part or all of its Common Shares in a privately negotiated transaction
which it desires to accept, such Stockholder shall not sell, transfer, or
otherwise dispose of (the "Proposed Disposition") such Common Shares (the
"Disposition Securities") to a third party (the "Purchaser"), unless, prior to
such Proposed Disposition, such selling Stockholder shall have promptly reduced
the terms and conditions, if any, of the Proposed Disposition to a reasonably
detailed writing and shall have delivered written notice (the "Disposition
Notice") of such Proposed Disposition, to the other Stockholders. The
Disposition Notice shall contain an irrevocable offer to sell all, but not less
than all, the Disposition Securities to the other Stockholders upon the same
terms (including price) and subject to the same conditions, if any, as those
contemplated by the Proposed Disposition, and shall be accompanied by a true and
correct copy of the agreement embodying the terms and conditions, if any, of the
Proposed Disposition (which shall identify the Purchaser, the Disposition
Securities, the consideration and method of payment contemplated by the Proposed
Disposition, and all other terms and conditions, if any, of the Proposed
Disposition, it being hereby acknowledged, understood and agreed that if all or
any portion of the consideration contemplated by the Proposed Disposition shall
be in a form other than cash, the non-selling Stockholders' purchase price for
the Disposition Securities shall be the cash equivalent of such non-cash
consideration, as mutually determined in good faith by Brokaw and the Feldman
Group, or if Brokaw and the Feldman Group cannot agree, by an independent
investment bank or other securities valuation expert mutually selected by Brokaw
and the Feldman Group).
(b) Each non-selling Stockholder shall have the irrevocable right
and option (the "Purchase Option"), within thirty (30) days after receipt of the
Disposition Notice (the "Notice Period"), to accept such irrevocable offer as to
his, hers or its pro rata portion of the Disposition Securities which are
subject to the Proposed Disposition. If any non-selling Stockholder intends to
exercise such Purchase Option, it shall deliver to the selling Stockholder
written notice (an "Exercise Notice") of his, hers or its intent to exercise
his, hers or its Purchase Option (specifying the number) of the Disposition
Securities as to which he, she or it is accepting the irrevocable offer) prior
to expiration of the Notice Period.
A non-selling Stockholder's pro rata share of the amount of Common
Shares (including vested options to purchase shares of Common Stock pursuant to
the Corporation's 1995 Non-Qualified Stock Option Plan) subject to the
Disposition Notice shall be determined in proportion to the number of Common
Shares then held by all of the non-selling Stockholders (including vested
options to purchase shares of Common Stock pursuant to the Corporation's 1995
Non-Qualified Stock Option Plan).
(c) Within five (5) days following expiration of the Notice Period,
the selling Stockholder shall give a written notice (the "Remaining Shares
Notice") to the non-selling Stockholders setting forth the number of Disposition
Securities for which the Purchase Option is not being exercised (the "Remaining
Offered Securities"). Any non-selling Stockholder who exercised its Purchase
Option under Section 4(b) to purchase any of the Disposition Securities shall
have an option (the "Second Option") to purchase such amount of the Remaining
Offered Securities as the non-selling Stockholders shall agree upon or, failing
such agreement, that proportion of the Remaining Offered Securities which the
number of Common Shares (including vested options to purchase shares of Common
Stock pursuant to the Corporation's 1995 Non-Qualified Stock Option Plan) owned
by such non-selling Stockholder bears to the aggregate number of Common Shares
owned by all such non-selling Stockholders (including vested options to purchase
shares of Common Stock pursuant to the Corporation's 1995 Non-Qualified Stock
Option Plan). A non-selling Stockholder shall exercise the Second Option, if at
all, by giving a written second Exercise Notice to the selling Stockholder
within fifteen (15) days after the selling Stockholder has given its notice
relating to the Remaining Offered Securities.
(d) Unless otherwise agreed to by the selling Stockholder, all
Exercise Notices given by non-selling Stockholders shall be deemed rescinded if
Exercise Notices have not been timely given for all of the Disposition
Securities.
(e) If the non-selling Stockholders shall have given Exercise
Notices as to all of the Disposition Securities, all certificates for the
Disposition Securities shall be delivered to the purchaser(s) thereof at a
closing held within not more than thirty (30) days nor less than twenty (20)
days after the last such Exercise Notice is given (the "Closing Date") at the
offices of Pryor, Cashman, Sherman & Flynn located at 410 Park Avenue, New York,
New York 10022. At the Closing, each non-selling Stockholder who has elected to
exercise the Purchase Option shall deliver to the selling Stockholder in
immediately available funds the appropriate amount of the purchase price due
against the simultaneous delivery of certificates representing the Disposition
Securities so disposed of, duly endorsed in blank or accompanied by a stock
power or powers duly endorsed in blank, and in proper form for transfer,
together with any necessary stock-transfer stamps, and such Disposition
Securities shall be delivered free and clear of all liens, security interests
and encumbrances whatsoever.
(f) If all of the Disposition Securities are not intended to be
purchased by the non-selling Stockholders, then, within ten (10) days after the
earlier of (i) the expiration of the applicable periods in which non-selling
Stockholders could have exercised the Purchase Option or, if applicable, the
Second Option, or (ii) the non-selling Stockholders shall have declined in
writing to purchase all of the Remaining Offered Securities, the selling
Stockholder shall give notice to all non-selling Stockholders and the
Corporation of the Disposition Securities not intended to be purchased pursuant
to the operation of Sections 4(b), (c) and (d) (the "Purchase Notice"). For a
period of thirty (30) days after the date the Purchase Notice is given, the
selling Stockholder may, subject to Section 4(g) below, sell the Disposition
Securities to the Purchaser; provided, however, that such Disposition Securities
are sold to the Purchaser at a price not less than that contained in the
Disposition Notice and on terms and conditions, if any, not more favorable to
the Purchaser than those contained in the Disposition Notice. If the selling
Stockholder elects not to rescind Exercise Notices pursuant to Section 4(d)
hereof, the sale of the Disposition Securities to those non-selling Stockholders
shall take place at the closing of the sale of the balance of the Disposition
Securities to the Purchaser and, unless such non-selling Stockholders otherwise
agree, shall be conditioned upon the occurrence of said closing. If the selling
Stockholder wishes to sell all or any part of the Disposition Securities on
terms other than those set forth in the Disposition Notice or does not sell such
Disposition Securities on the terms and conditions contained in the Disposition
Notice within the aforementioned thirty (30) day period, it shall again be
obligated to make new offers and re-offers to the non-selling Stockholders, in
accordance with this Section 4, before it shall be permitted to Transfer its
Common Shares, or any part thereof, to any Person.
(g) Participation Right.
(i) Any non-selling Stockholder who does not exercise all or
any part of its Purchase Option, or if such Purchase Option is rescinded
pursuant to Section 4(d) above, may elect to participate (a Stockholder so
electing being herein a "Participating Stockholder") in the selling
Stockholder's sale of Common Shares to the Purchaser and any non-selling
Stockholders who have exercised their Purchase Option and are purchasing Common
Shares, in accordance with this Section 4(g);
(ii) Each such non-selling Stockholder shall have the right
(the "Participation Right") to Transfer, to the Purchaser and any non-selling
Stockholders who have exercised their Purchase Option and are purchasing Common
Shares, a number of Common Shares equal to the product of the number of Common
Shares proposed to be so sold to the Purchaser and any non-selling Stockholders
who have exercised their Purchase Option and are purchasing Common Shares times
a fraction, the numerator of which is the number of Common Shares owned by such
non-selling Stockholder (including vested options to purchase shares of Common
Stock pursuant to the Corporation's 1995 Non-Qualified Stock Option Plan) with
respect to which such non-selling Stockholder has exercised Participation Rights
and the denominator of which is the sum of the number of Common Shares to be so
sold and the number of Common Shares (including vested options to purchase
shares of Common Stock pursuant to the Corporation's 1995 Non-Qualified Stock
Option Plan) owned by all Participating Stockholders and with respect to which
Participation Rights are exercised.
The number of Common Shares to be sold by the selling Stockholder to the
Purchaser and any non-selling Stockholders who have exercised the Purchase
Option and/or the Second Option shall be reduced by the number of Common Shares
to be sold to the Purchaser and any non-selling Stockholders who have exercised
their Purchase Option and are purchasing Common Shares by a Participating
Stockholder pursuant to the exercise of a Participation Right;
(iii) The Participation Right shall be exercised, if at all,
by the Participating Stockholder giving written notice of its exercise of its
Participation Right to the selling Stockholder and each of the other non-selling
Stockholders within thirty (30) days after the Disposition Notice is given
pursuant to Section 4(a).
(iv) If the selling Stockholder would retain ownership of any
Disposition Securities by reason of the exercise of Participation Rights (such
remaining shares being herein the "Excluded Securities"), the selling
Stockholder may either (A) rescind all exercises of Participation Rights, reject
the offer to the Purchaser and retain ownership of the Disposition Securities,
or (B) negotiate with the Purchaser to purchase the Excluded Securities on the
terms and conditions contained in the Disposition Notice or on terms and
conditions less advantageous to the selling Stockholder. Any such sale of the
Excluded Securities to the Purchaser shall again be subject to the provisions of
Sections 3 and 4 of this Agreement. A transfer of Common Shares pursuant to the
exercise of a Participation Right shall not be subject to the provisions of
Section 3 or Section 4 of this Agreement.
5. Volume Limitations; "Piggy-back" Registration Rights.
(a) Volume Limitations. Until the fifth anniversary of the date
hereof, Brokaw and the Feldman Group will only be permitted to sell their
respective Common Shares into the public market at the Rule 144 permitted volume
level (i.e., during any three month period, the amount of Common Shares sold
shall not exceed the greater of (i) one percent (1%) of the outstanding shares
of Common Stock as shown by the most recent report or statement published by the
Corporation or (ii) the average weekly reported volume of trading during the
four calendar weeks preceding the date of the proposed sale).
"Piggy-back" Registration Rights. (i) If the Corporation shall
determine to register any shares of Common Stock either for its own account or
the account of a security holder or holders, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a Rule
145 (under the Securities Act) transaction, the Corporation shall (A) promptly
give to each Stockholder written notice thereof (which shall include a list of
the jurisdictions in which the Corporation intends to attempt to qualify such
securities under the applicable blue sky or other state securities laws) and (B)
include in such registration (and any related qualification under blue sky laws
or other compliance), and in any underwriting involved therein, all of the
Common Shares specified in a written request or requests made by any Stockholder
within thirty (30) days after receipt of the written notice from the Corporation
described in clause (A) above, except as set forth in clause (ii) below. Such
written requests may specify all or a part of a Stockholder's Common Shares.
(ii) Notwithstanding any other provision of this Section 5(b),
if the representative(s) of the underwriters advises the Corporation that
marketing factors require a limitation on the number of shares of Common Stock
to be underwritten or that the inclusion of other securities of the Corporation
or Common Shares may adversely affect the sales price (of the securities to be
registered) that may be obtained, then, Brokaw's Common Shares to be included in
the Public Offering will be excluded from such registration on a pari passu
basis with the Common Shares owned by members of the Feldman Group and included
in the Public Offering.
6. Additional Common Stock Acquired by Stockholders. All of the provisions
of this Agreement shall apply to all shares of Common Stock now owned or which
may be issued or transferred to a Stockholder or to his, hers or its transferee
in consequence of any additional issuance, purchase, exchange or
reclassification of any Common Stock, corporate reorganization or any other form
of recapitalization, or stock split or stock dividend or which are acquired by a
Stockholder in any other manner.
7. Condition Precedent to Permitted Dispositions. In addition to any other
conditions imposed by his Agreement, as a condition precedent to any Transfer by
any Stockholder of any Common Shares permitted pursuant to this Agreement other
than pursuant to Section 3(b)(iii) hereof, each purchaser, transferee or donee
shall agree in writing to be bound by all of the provisions and conditions of
this Agreement and shall become a Stockholder hereunder and no such purchaser,
transferee or donee shall be permitted to effect any Transfer which any
Stockholder was not permitted to make under this Agreement.
8. Special Voting Requirements. Except as otherwise provided
herein, a majority vote of the entire Board of Directors shall be required
to approve the following actions:
(a) any merger or consolidation involving the Corporation or
any subsidiary of the Corporation;
(b) a Public Offering;
(c) any sale or disposition of a material portion of the assets of
the Corporation and/or its subsidiaries or the creation of consensual liens on a
material portion of the assets of the Corporation and/or its subsidiaries in any
single transaction or series of related transactions;
(d) any acquisition or investment by the Corporation and/or
its subsidiaries in any single transaction or series of related transactions
which would exceed in the aggregate, $250,000, other than in the ordinary course
of business;
(e) the entering into by the Corporation of any material
contract involving aggregate payments to or from the Corporation in excess of
$250,000, other than in the ordinary course of business;
(f) the incurrence of indebtedness in excess of $250,000,
other than in the ordinary course of business;
(g) the termination of the employment of any executive
officer of the Corporation (other than the termination of the employment of (i)
Brokaw, in which case Brokaw shall abstain from voting on such action and such
action shall require the approval of a majority of the remaining Directors and
at least one (1) of the Brokaw Directors or (ii) Gene Feldman, in which case
Gene Feldman shall abstain from voting on such action and such action shall
require the approval of a majority of the remaining Directors and at least one
(1) of the Feldman Group Directors;
(h) any issuance of additional equity securities of the
Corporation other than the issuance of shares upon the exercise of outstanding
options to purchase shares of Common Stock pursuant to the Corporation's 1995
Non-Qualified Stock Option Plan;
(i) the adoption of any plan of liquidation of the
Corporation or any of its subsidiaries;
(j) the dissolution of the Corporation or any of its
subsidiaries;
(k) any action by the Corporation or any of its subsidiaries
to commence any suit, case, proceeding or other action (A) under any existing or
future law of any jurisdiction relating to bankruptcy, insolvency,
reorganization or relief of debtors seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or making a general assignment
for the benefit of its creditors; or
(l) aggregate expenditures in excess of $250,000 in any
fiscal year, except for ordinary course (i) expenditures of office rent, (ii)
expenditures for selling, general and administrative expenses and (iii)
out-of-pocket development expenditures not in excess of $500,000 during each of
the first two fiscal years following the consummation of the transactions
contemplated by the Share Exchange Agreement.
In the event that the Board of Directors is deadlocked with respect
to any fundamental corporate decision where the failure to act upon such
fundamental corporate decision is likely to result in the bankruptcy,
liquidation or dissolution of the Corporation within the foreseeable future
(each, an "Emergency Corporate Decision"), the dispute with respect to such
Emergency Corporate Decision (as well as any dispute with respect to whether the
issue in dispute involves an Emergency Corporate Decision) shall be submitted to
arbitration before the American Arbitration Association in accordance with the
Rules of the American Arbitration Association then pending. The arbitration
shall take place in the County and State of New York and the substantive law
applicable to the arbitration shall be that of the State of New York. The
arbitration award shall be final and binding upon the parties. Such award may be
confirmed in any court having jurisdiction and reduced to final judgment. The
Board of Directors may elect to use a single arbitrator and, failing to agree on
such person, the dispute shall be determined by a panel of three (3) neutral
arbitrators selected under the Rules of the American Arbitration Association.
All such other actions upon which the Board of Directors cannot reach a decision
shall not be taken by the Corporation.
Anything contained in this Section 8 to the contrary
notwithstanding, Board approval shall not be required for expenditures or
commitments to production which are funded either by non-recourse debt, such as
negative pick-up borrowings, or by cash flow or other binding commitments of
distributors or responsible third parties to pay for such production commitments
or expenditures. In addition, such borrowings, on a negative pick-up basis,
shall also not require Board approval regardless of their amount.
Each of the Stockholders shall take all actions necessary as
stockholders and directors (to the extent applicable) of the Corporation to
fully effectuate the terms and provisions of this Agreement.
9. Stockholder Covenants. Unless the Board of Directors approves
otherwise, Brokaw shall until December 31, 1997 maintain a balance of cash or
cash equivalents for the Corporation of at least $500,000.00 and shall at all
times thereafter maintain a balance of cash or cash equivalents for the
Corporation of at least $300,000.00. The parties hereto hereby agree that as
soon as practicable following the date hereof, $500,000.00 in cash or cash
equivalents shall be placed in a separate account, and any withdrawal from such
account shall require the signatures of Brokaw and a representative of the
Feldman Group. The balance of such account shall be reduced to $300,000 on
December 31, 1997. The parties hereto hereby acknowledge and agree that for
purposes of the first three sentences of this Section 9, NPDC Shares (as defined
below) shall be considered cash equivalents and shall be valued as of the date
they were contributed to the capital of the Corporation. Subject to the
restrictions set forth in this Section 9, if Brokaw determines at any time that
any or all of the 90,556 shares of common stock of National Patent Development
Corporation (the "NPDC Shares") held by the Corporation in its capital account
should be sold by the Corporation, Brokaw shall give written notice to Jerome
Feldman setting forth the number of NPDC Shares to be sold. During the 20
business day period after receipt of such notice, Jerome Feldman shall have the
exclusive right to determine the terms and conditions of the sale of such NPDC
Shares. If all of the NPDC Shares to be sold are not sold in such 20 business
day period, Brokaw shall have the exclusive right, during the next succeeding 20
business day period, to determine the terms and conditions of the sale of any
remaining NPDC Shares to be sold. If all of the NPDC Shares to be sold are not
sold in such second 20 business day period, the exclusive right of Brokaw to
determine the terms and conditions of the sale of any remaining NPDC Shares to
be sold shall terminate and any sale of such NPDC Shares shall again be subject
to the provisions of this Section 9.
10. Books of Account. The Corporation hereby covenants and agrees
with the Stockholders that the Corporation shall accurately and fairly
maintain its books of account in accordance with generally accepted
accounting principles.
11. Legend. Each certificate representing Common Shares owned by the
Stockholders or by any persons subject to the provisions of this Agreement shall
(in addition to any other legend(s)) have stamped, printed or typed thereon the
following legends (or a legend substantially similar thereto:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED OR
OFFERED FOR SALE OR TRANSFER IN THE ABSENCE OF SUCH
REGISTRATION OR ANY EXCEPTION THEREFROM UNDER SUCH ACT."
(b) "THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS SET
FORTH IN THE STOCKHOLDERS AGREEMENT, DATED AS OF SEPTEMBER 30
, 1996, AMONG THE CORPORATION AND ITS STOCKHOLDERS, COPIES OF
WHICH ARE MAINTAINED AND ARE AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE CORPORATION."
12. Agreement by the Corporation. No transfer of Common Shares made
in contravention of this Agreement shall be recognized by the Corporation, and
the Corporation will not at any time permit any transfer to be made on its books
or records of the certificates representing any shares of Common Stock of the
Stockholders or any other person subject to the provisions of this Agreement,
unless such transfer is made pursuant to and in accordance with the terms and
conditions of this Agreement.
13. Specific Performance. The Stockholders agree that inasmuch as the
Common Stock is closely held and the market therefor is limited, irreparable
damage would result if this Agreement is not specifically enforced. Therefore,
each of the parties hereto hereby consents that the restrictions on the transfer
of the Common Stock and the obligations to offer for sale Common Stock contained
in this Agreement shall be enforceable in a court of equity by a decree of
specific performance, and that injunctive relief may be granted to any party
hereto in connection therewith. Such remedies shall be cumulative and not
exclusive and shall be in addition to any other rights or remedies which any
party may have under this Agreement or otherwise.
14. Benefits of Agreement: Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns, legal representatives and heirs; this
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any other Person. The rights of the Stockholders hereunder shall
not be assignable except to the extent permitted in conjunction with a sale of
stock permitted in accordance with Section 3(a) hereof. The obligations of the
Stockholders hereunder shall be assumed by any of their transferees who shall be
required to become parties hereto.
15. Complete Agreement. This Agreement constitutes the complete
understanding among the parties with respect to its subject matter and
supersedes all existing agreements and understandings, whether oral or written,
among them and no alteration or modification of any of its provisions shall be
valid unless made in writing and signed by all of the parties hereto.
16. Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
17. Notices. All notices, offers, acceptances and other communications
required or permitted to be given or to otherwise be made to any party to this
Agreement shall be deemed to be sufficient if contained in a written instrument
delivered by hand, first class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, as follows:
(a) If to the Corporation:
c/o Avenue Pictures, Inc.
11111 Santa Monica Boulevard
Suite 2110
Los Angeles, California 90025
Attention: Mr. Cary Brokaw
with a copy to:
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attention: James A. Janowitz, Esq.
And a carbon copy to:
The CineMasters Group, Inc.
c/o National Patent Development Corporation
9 West 57th Street
New York, New York 10019
Attention: Mr. Jerome I. Feldman
and
The CineMasters Group, Inc.
250 West 57th Street
New York, New York 10019
Attention: Mr. Jerome I. Feldman
(b) If to any Stockholder, to the address of such Stockholder
as set forth in the stock transfer books of the Corporation.
All such notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and the next business day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery. Any party may change the address to which each
such notice or communication shall be sent by giving written notice to the other
parties of such new address in the manner provided herein for giving notice.
18. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
without giving affect to the provisions, policies or principles thereof
respecting conflict or choice of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original but all of which taken
together shall constitute one and the same agreement.
20. Severability. Any provision of this Agreement which is determined to
be illegal, prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such illegality, prohibition or
unenforceability without invalidating the remaining provisions hereof which
shall be severable and enforceable according to their terms and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first set forth above.
CARY BROKAW
NATIONAL PATENT
DEVELOPMENT CORPORATION
By:
Name:
Title:
GENE FELDMAN
JEROME FELDMAN
SUZETTE ST. JOHN FELDMAN
MICHAEL FELDMAN
THE CINEMASTERS GROUP, INC.
By:
Name:
Title:
<PAGE>
Schedule I
- -------------------------------------------------------------------------------
Number of Shares Number of Vested Number of
of Common Stock Stock Options Unvested Stock
Stockholder Owned by Owned by Options Owned by
Stockholder Stockholder Stockholder
- -----------------------------------------------------------------------------
Cary Brokaw ............... 1,425,000 60,000 240,000
National Patent
Development Corporation 1,060,500 0 0
Gene Feldman .............. 170,000 200,000 0
Jerome Feldman ............ 82,049 5,000 20,000
Suzette St. John Feldman
17,500 10,000 40,000
Michael Feldman ........... 15,400 30,000 120,000
TOTALS .................... 2,770,449 305,000 420,000
Exhibit 6(a)(iii)
AGREEMENT, dated as of September __, 1996, between The CineMasters Group,
Inc., a New York corporation with an address at 250 West 57th Street, Suite
2421, New York, NY 10019 ( CineMasters ), and Gene Feldman, with an address at
45 West 60th Street, New York, New York 10023 ( Feldman )
W I T N E S S E T H
WHEREAS, CineMasters, Cary Brokaw, and Avenue Pictures, Inc. ( Avenue )
are entering into a Share Exchange Agreement, dated as of the date hereof
(the Share Exchange Agreement ), pursuant to which Avenue will become a
wholly-owned subsidiary of CineMasters;
WHEREAS, Feldman and CineMasters are entering into an Employment
Agreement, dated as of the date hereof (the Employment Agreement ), pursuant to
which Feldman will be employed as Chairman of CineMasters and as President of
its Wombat Division;
WHEREAS, in connection with the Share Exchange Agreement and the
Employment Agreement, CineMasters and Feldman wish to set forth certain
additional agreements between them;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. Termination of Employment of Feldman.
(a) Upon the termination of employment of Feldman at CineMasters,
(i) Feldman (or his estate) shall have the option, exercisable during the
six-month period commencing on the date of termination of his employment, (A) to
purchase all of the assets of CineMasters listed on Schedule 1(a)(i) for a cash
purchase price equal to the book value of such assets as reflected on the most
recent regularly prepared balance sheet of CineMasters existing on the date such
option is exercised and (B) to assume all of the leases of CineMasters listed on
Schedule 1(a)(i) that are assignable. If Feldman (or his estate) shall exercise
the option to assume all of such leases, CineMasters and Feldman shall enter
into an assignment and assumption agreement pursuant to which (C) CineMasters
will (1) assign the assumed leases to Feldman (or his estate) and (2) agree to
hold Feldman (or his estate) harmless with respect to any obligations under the
assumed leases relating to the period prior to the date of the assignment and
assumption and (D) Feldman (or his estate) will (1) agree to assume the assumed
leases and (2) agree to hold CineMasters harmless with respect to any
obligations under the assumed leases relating to the period on or after the date
of the assignment and assumption.
<PAGE>
(ii) CineMasters shall pay Feldman (or, as set forth in Section
1(b), his spouse or estate) monthly payments (the Monthly Payments ) of
$8,333.33 (or, with respect to any Monthly Payment made prior to the sale or
transfer by CineMasters of all or any portion of the CineMasters Library (as
defined in the Share Exchange Agreement), such lesser amount as may be
determined pursuant to Section 1(d)) for the greater of (A) five years and (B)
the remainder of his life.
(b) If Feldman shall die prior to the receipt of all of the Monthly
Payments, the remaining Monthly Payments shall be made to the person who was his
spouse on the date of his death (the Spouse ) if she shall be living or if she
shall not be living to the estate of Feldman.
(c) If (i) the employment of Feldman at CineMasters shall terminate for
any reason other than death and Feldman shall die less than five years after the
date of such termination and (ii) the Spouse shall be living at the time the
last Monthly Payment is made, the Spouse shall be entitled to receive additional
monthly payments (the Additional Monthly Payments ) of $6,250 (or, with respect
to any Additional Monthly Payment made prior to the sale or transfer by
CineMasters of all or any portion of the CineMasters Library, such lesser amount
as may be determined pursuant to Section 1(d)) for the lesser of (iii) the
period commencing the first month that no Monthly Payment is payable and ending
five years after the date of Feldman s death and (iv) the remainder of her life.
(d) Notwithstanding Sections 1(a)(ii) and 1(c), no Monthly Payment or
Additional Monthly Payment made prior to the sale or transfer by CineMasters of
all or any portion of the CineMasters Library shall exceed 25% of the Average
Monthly Net Income Ceiling as set forth on the most recent Accountant s
Certificate (as such terms are hereinafter defined) received by the recipient of
the Monthly Payments or Additional Monthly Payments. Promptly after each
issuance of CineMasters s audited financial statements, CineMasters s
independent public accountants shall (i) calculate the average monthly net
income (which shall be determined without deduction for general and
administrative expenses) earned by CineMasters from the CineMasters Library
during the most recent fiscal year covered by such audited statements (the
Average Monthly Net Income Ceiling ) and (ii) furnish a certificate (the
Accountant s Certificate ) setting forth such calculation to CineMasters and the
recipient of the Monthly Payments or Additional Monthly Payments. The recipient
of the Monthly Payments or Additional Monthly Payments shall have the right, at
any time not more than one year after the receipt of each Accountant s
Certificate, to have his representative verify that the Average Monthly Net
Income Ceiling set forth in such Accountant s Certificate has been properly
calculated, and if it is determined that an error has been made, an adjusting
payment shall be made promptly. This Section 1(d) shall be of no further force
or effect on and after such date as CineMasters shall sell or transfer all or
any portion of the CineMasters Library.
2. Sale of the CineMasters Library.
(a) CineMasters shall not sell any portion of the CineMasters Library
prior to the rightful termination of the employment of Feldman at CineMasters.
<PAGE>
(b) Subject to the terms and conditions of this Section 2(b), CineMasters
hereby grants to Feldman (or his estate) a right of first offer with respect to
the sale of the CineMasters Library during the five-year period (the First Offer
Period ) commencing on the date of termination of the employment of Feldman at
CineMasters. Each time CineMasters proposes to offer for sale or sell the
CineMasters Library during the First Offer Period, CineMasters shall first offer
to sell the CineMasters Library to Feldman (or his estate) in accordance with
the following provisions:
(i) CineMasters shall deliver a notice (the Notice ) to Feldman (or his
estate) stating its bona fide intention to sell the CineMasters Library and
setting forth the price and other terms and conditions on which it proposes to
sell.
(ii) During the 30-day period commencing on the date of receipt of the
Notice, Feldman (or his estate) may elect to purchase the CineMasters Library
for the price and on the other terms and conditions set forth in the Notice (if
the stated price includes any property other than cash, such stated price shall
be deemed to be the amount of any cash included in the stated price plus the
fair market value of the other property included in the stated price).
(iii) If Feldman (or his estate) does not elect to purchase the
CineMasters Library for the price and on the other terms and conditions set
forth in the Notice, CineMasters may, during the 90-day period following the
30-day period referred to in Section 2(b)(ii), offer for sale and sell the
CineMasters Library to any person or persons for a price and on other terms and
conditions no less favorable to CineMasters than those set forth in the Notice.
(iv) If CineMasters does not sell the CineMasters Library within the
90-day period referred to in Section 2(b)(iii), the right to sell the
CineMasters Library pursuant to Section 2(b)(iii) shall expire and the right of
first offer set forth in this Section 2(b) shall again apply.
(c) During the First Offer Period, CineMasters shall not sell less than
all of the CineMasters Library to any person or persons.
3. Rights to Future Productions.
(a) In the event that Feldman (or his estate) exercises the option set
forth in Section 1(a)(i) and Feldman (or his estate) thereafter completes any
production, Feldman (or his estate) shall deliver a notice to CineMasters
describing such production in reasonable detail. CineMasters shall have the
right, during the 30-day period commencing on the date of receipt of such
notice, to acquire, for nominal consideration, all right, title, and interest of
Feldman (or his estate) in and to such production, subject to (i) the rights of
Feldman (or his estate) to receive commercially reasonable producer fees, (ii)
the rights, if any, of A&E Television Networks, as licensee, consistent with
past practice, and (iii) the distribution rights of Janson Associates, Inc.
pursuant to the Distribution Agreement, dated July 1, 1995, between Janson
Associates, Inc. and Wombat Productions (a division of CineMasters).
<PAGE>
(b) If CineMasters shall exercise its right pursuant to Section 3(a) to
acquire all right, title, and interest of Feldman (or his estate) in and to any
production, CineMasters shall pay to Feldman (or, after his death, to the Spouse
if she shall be living or if she shall not be living to the estate of Feldman)
an amount equal to 25% of the net income earned by CineMasters with respect to
such production. Promptly after each issuance of CineMasters s audited financial
statements, CineMasters s independent public accountants shall (i) calculate the
aggregate amount required to be paid pursuant to this Section 3(b) with respect
to the most recent fiscal year covered by such audited statements and (ii)
furnish a certificate setting forth such calculation to CineMasters and the
person entitled to receive such payment. CineMasters shall pay such amount to
the person entitled thereto not more than ten business days after receipt of
such certificate. The person entitled to receive such payment shall have the
right, at any time not more than one year after the receipt of each such
certificate, to have his representative verify the calculation set forth in such
certificate, and if it is determined that an error has been made, an adjusting
payment shall be made promptly.
4. Modification.
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements between
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party.
5. Notices.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth in the preamble to this Agreement
(or to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 5). Notice to the estate of
Feldman shall be sufficient if addressed to Feldman as provided in this Section
5. Any notice or other communication given by certified mail shall be deemed
given at the time of certification thereof, except for a notice changing a
party's address which shall be deemed given at the time of receipt thereof.
6. Waiver.
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
<PAGE>
7. Binding Effect.
The provisions of this Agreement shall be binding upon and inure to the
benefit of Feldman and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of CineMasters and its successors.
8. Third Party Beneficiaries.
This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement, except
(a) as provided in Section 7 and (b) the Spouse shall be a third party
beneficiary of this Agreement.
9. Headings.
The headings in this Agreement are solely for the convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
10. Counterparts; Governing Law.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument. It shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
The CineMasters Group, Inc.
By_____________________
-----------------------
Gene Feldman
Exhibit 6(b)(ii)(1)
[LETTERHEAD OF JANSON ASSOCIATES]
April 28, 1996
Mr. Gene Feldman, President
Wombat Productions
250 West 57th Street
Suite #2421
New York, NY 10019
Dear Gene:
LETTER AGREEMENT
We hereby agree that the following programs, already produced or scheduled to be
produced for the Lifetime Television Network, shall be added to Exhibit A 1 of
the Distribution Agreement between our companies, dated July 1, 1995, effective
immediately.
Ingrid Bergman Remembered 1 x 50'
Intimate Portrait: Shirley MacLaine 1 x 50' or 1 x 45'
ACCEPTED AND AGREED:
For Janson Associates For Wombat Productions
/s/ Stephen Janson /s/ Gene Feldman
Stephen Janson Gene Feldman
Date: April 28, 1996 Date: 5/2/96
Best regards,
/s/ Stephen Janson
Stephen Janson
President
<PAGE>
3) The statements in connection with the Rights contained in this clause shall
remain true for the Term of the Agreement and for the term of all licenses
entered into pursuant to this Agreement.
4) The Program does not contain material of any nature that is
defamatory of any person, firm or corporation.
5) Licensor has obtained all permissions, consents, rights and releases
necessary for the exercise of Distributor's rights hereunder, and Distributor's
exercise of such rights shall not infringe upon the rights of any person, firm
or corporation, nor shall it give rise to the payment of any sums to any third
party by Distributor or Distributor's licensees. Furthermore, Licenser has paid,
or will pay, any residual, royalty or reuse fees that are payable or may become
payable by Distributor's exercise of its rights hereunder.
6) Licensor has not, nor will it, enter into any Agreement in conflict with the
rights granted to Distributor under this Agreement.
7) Licensor has affixed to the Videotape Master and/or Film
negative appropriate notices of copyright.
B) Licensor shall indemnify Distributor and hold it and its licensees harmless
from and against all costs, claims, damages, liabilities and expenses, including
reasonable legal expenses, howsoever arising from any breach of any
representation or warranty made by Licensor hereunder, or from the use or
exploitation of any Rights granted hereunder.
4. DISTRIBUTOR'S OBLIGATIONS:
A) The Distributor agrees to use prudent business efforts during the Term of the
Agreement to effect distribution of the Program throughout the Territory.
Notwithstanding the foregoing, Distributor makes no representations with respect
to the level of income that may be obtained for the Program.
B) Distributor shall not make or authorize others to make any deletions of
credits, titles or copyright notices, or any such changes that would diminish
the Program's editorial integrity.
5. MATERIALS:
Licensor shall, at its own expense, and promptly upon execution of this
Agreement, provide the Distributor with the following materials.
<PAGE>
A) Twenty (20) VHS videocassettes of each title for screening and
promotional purposes.
B) A music cue sheet of the Program, in customary form setting forth for each
musical composition contained within the Program the title, type of use,
duration of use and the names of the composer, lyricist, publisher, copyright
proprietor and performing rights society, if any.
C) A transcript of the Program, including narration and dialogue
on camera.
D) A selection of black & white still photographs and color slides
from the Program.
E) One (1) new and unused Digital Betacam or D2 Videotape copied from the
original videotape master of the Program, with no commercials or commercial
blacks, and with an international audio track composed of the following
elements: On one channel: Full audio mix (if stereo, full mix stereo left on one
channel and full mix stereo right on a second channel) On another channel: Music
& Effects (the M&E track, also known as the Mix Minus Narration Track),
including synch-sound on-camera dialogue. On another channel: Time code (SMPTE
for NTSC videotapes; EBU for PAL videotapes)
6. DISTRIBUTOR'S RIGHTS:
Distributor shall have the following rights in and to the Program to:
A) Add Distributor's logo to the front and/or end of the Program.
B) Advertise and promote and authorize others to advertise and
promote the Program, including the participation of all persons
appearing in or rendering services to the Program.
C) To edit the Program, or to authorize others to edit the
Program, as may be required for exhibition time periods or by
local censorship laws.
D) Translate, or authorize others to translate, the Program into
other languages by subtitling or dubbing.
7. FEES, ROYALTIES & EXPENSES:
A) In consideration of Distributor's services hereunder, Distributor shall
retain as a "Distributor's Fee," a percentage of the gross receipts derived from
the licensing of the Program, according to the following schedule:
Domestic (United States) Television
Network:
(Commercial, cable, satellite, and PBS National) 25%
Syndication:
(PBS or commercial stations, PBS station consortia) 35%
International Television and Video (when licensing direct) 35%
International Television and Video
(when using a sub-agent or representative) 40%
Footage (non-exclusive right) 40%
B) Distributor shall deduct the following expenses ("Distribution Expenses"), if
incurred, from revenue derived from the licensing of the Program: cost of
duplication and conversion of videotapes and cassettes used for promotional and
licensing purposes; shipment and customs charges incurred in the delivery and
return of videotapes and cassettes used for promotional and licensing purposes,
the annual Errors & Omissions Liability Insurance premium (see Clause 8 below),
and the costs of promotion. Such promotion may include print advertisements in
trade magazines, artwork, design and printing costs related to the production of
ads or promotional literature (flyers, ads, posters, catalogs, brochures, etc.),
screenings and receptions held specifically for the Program, and an allocation
of the Distributor's overall promotion expenses incurred for the rental of
exhibition and screening room space at such annual television program markets as
MIP-TV, MIPCOM, MIP-Asia, and NATPE. Such promotional expenses shall not include
the costs of travel, hotel accommodations, or meals, for either the
Distributor's personnel or their guests.
<PAGE>
C) From all revenue received by Distributor in U.S. dollars from
all uses of the Program, Distributor shall first deduct the
Distribution Fees, and then the Distribution Expenses. The
balance remaining shall be "Licensor's Royalties."
8. Errors & Omissions Liability Insurance:
In order to fulfill standard television licensing requirements
with its licensees, Distributor shall add the Program
<PAGE>
EXHIBIT A 1
Program Title Series Title (if any) Running Time
(Year of Production)
Hollywood's Children 58' The Horror of It All 58' Ingrid 70' or 60' Marilyn
Monroe - Beyond the Legend 60' Steve McQueen - Man on the Edge 60' Grace Kelly
An American Princess 60' Cary Grant - The Leading Man 60' Gregory Peck - His Own
Man 60' William Holden - The Golden Boy 60' Anthony Quinn - An Original 60'
Robert Mitchum - The Reluctant Star 60' Michael Caine - Breaking the Mold 60
Shirley Temple - America's Little Darling 60' Clint Eastwood - Man From Malpaso
60' Audrey Hepburn Remembered 60' Mae West...And the Men Who Knew Her 57' The
Story of Lassie 60' Charlton Heston - For All Seasons 50' or 45' Roger Moore - A
Matter of Class 50' or 45' Yul Brynner: A Biography (wt) (to be produced for
A&E) 50' or 45' Burt Lancaster: A Biography (wt) (to be produced for A&E)50' or
45' Jack Lemmon: A Biography (wt) (to be produced for A&E) 50' or 45' Joan
Crawford: A Biography (wt) (to be produced for A&E) 50' or 45' Fred MacMurray: A
Biography (wt) (to be produced for A&E)50' or 45'
<PAGE>
EXHIBIT A 2
Program Title Series Title (if any) Running Time
(Year of Production)
William Holden - The Golden Boy 60'
Anthony Quinn - An Original 60'
Robert Mitchum - The Reluctant Star 60'
Michael Caine - Breaking the Mold 60'
Exhibit 6(b)(ii)(2)
As of December 5, 1994
Wombat Productions
A Division of The CineMasters Group, Inc.
c/o Janson Associates, Inc.
Plaza West
88 Semmens Road
Harrington Park, NJ 07640
Attention: Mr. Stephen Janson
RE: BIOGRAPHY: CHARLTON HESTON AND ROGER MOORE
Ladies and Gentlemen:
This will acknowledge and confirm the terms pursuant to which Wombat
Productions, a division of CineMasters Group, Inc. ("Producer") and A&E
Television Networks ("A&E") have agreed with respect to the above-named two (2),
one (1) hour programs ("Program(s)") to be co-produced by Producer with A&E for
exhibition over the A&E television networks ("Networks").
1. TERM
The Term of the Agreement shall commence on the date hereof and continue
for so long as A&E shall have any right in any Program.
2. EXHIBITION PERIOD / COMMENCEMENT DATE
A&E shall have the right to exhibit each of the Programs
for a period of five (5) years commencing on the earlier of the first telecast
or the date four (4) months after delivery of each Program (pay or play).
3. OPTION TO EXTEND EXHIBITION PERIOD
A&E shall have an irrevocable option exercisable by written notice no
later than August 31, 1999 to extend the Exhibition Period for an additional two
(2) years and ten (10) playdates.
4. OPTION TO ORDER ADDITIONAL PROGRAMS
A&E shall have an irrevocable option exercisable by written notice no
later than September 1, 1995 to order up to two (2) additional programs
("Optional Program(s)") on all applicable terms set forth herein.
5. TERRITORY
Those areas capable of receiving transmissions from a satellite
transponder carrying the Networks, limited to the United States, its territories
and possessions (including Puerto Rico, Guam and the U.S. Virgin Islands), and,
in the English language only, Canada, Mexico, Central America and the Caribbean.
6. MEDIA
A&E shall have the right to transmit the Programs in television formats
including, but not limited to cable, microwave, multipoint distribution service
(MDS), satellite master antenna television system (SMATV), direct broadcast
satellite (DBS), and transmission directly to so-called "backyard" TVRO
receiving dishes, and including simulcasting of the Programs' stereophonic sound
tracks over FM radio.
<PAGE>
7. PLAYDATES
Twenty-five (25) for each Program. A Playdate shall consist of any
exhibition(s) of a Program occurring within a twenty-four (24) hour period.
8. PREMIERE
Producer warrants and represents that A&E's initial exhibition hereunder
shall constitute each Program's premiere over standard television and
non-standard television formats (including "superstation" distant signal
carriage such as WTBS) throughout the world.
9. EXCLUSIVITY
Each Program shall be exclusive to A&E in the United States and its
territories and possessions (including Puerto Rico, Guam and the U.S. Virgin
Islands) and Canada (in the English language only) over standard television and
non-standard television (including "superstation" distant signal carriage such
as WTBS) from the date hereof until the expiration of the Term.
With respect to Mexico, Central America and the Caribbean, each Program
shall be non-exclusive during the Term.
10. CREATIVE RIGHTS
A&E shall have its standard rights of prior creative approval with respect
to all key elements of each Program including but not limited to the subject of
each Program, host, principal performers, narrator, director, writer, scripts,
credits and rough cut.
Gene Feldman and Suzette Winter are pre-approved as co-writers and
co-directors of the Programs.
11. CREDITS
A&E shall receive the following permanent credit within each Program,
"Produced by Wombat Productions in association with Janson Associates and A&E
Network." In addition, each Program shall conclude with a graphic (to be
furnished by A&E) stating "This has been a presentation of A&E Network."
12. EDUCATORS' RIGHTS
A&E shall have the right to authorize educators to tape and retain each
Program for the duration of the Exhibition Period.
<PAGE>
13. FINANCIAL COMMITMENT
The total sum of Two Hundred Forty Thousand Dollars
($240,000).
In the event A&E exercises its options to order any Optional Program(s),
the Financial Commitment shall be One Hundred Twenty Thousand Dollars ($120,000)
for each Optional Program.
In the event A&E exercises its options to extend the Exhibition Period,
A&E shall pay Twenty Thousand Dollars ($20,000) for the extension of the
Exhibition Period for each
Program.
14. PAYMENT SCHEDULE
a. The Financial Commitment shall be payable as follows:
Twenty-Four Thousand Dollars ($24,000) within fifteen (15) business days
of mutual execution of this Agreement;
Thirty Thousand Dollars ($30,000) within fifteen (15) business days of
commencement of principal photography of each of the Programs (Sixty Thousand
Dollars ($60,000 total), which has occurred on or about November 15, 1994 with
respect to both Programs;
Forty-Two Thousand Dollars ($42,000) within fifteen (15) business days of
completion of production of each of the Programs (Eighty-Four Thousand Dollars
($84,000) total) and delivery and approval by A&E of the rough cut, currently
scheduled to occur on or about January 11, 1995 with respect to CHARLTON HESTON
and on or about March 31, 1995 with respect to ROGER MOORE; and
Thirty-Six Thousand Dollars ($36,000) within six (6) weeks of delivery to
A&E and technical acceptance of the Delivery Materials for each Program as
defined herein (Seventy-Two Thousand Dollars ($72,000) total) subject to
delivery of the E&O Certificate to A&E's Legal & Business Affairs Department as
set
forth herein.
b. In the event A&E exercises its option to order any Optional Program(s),
the Financial Commitment therefor shall be payable Twelve Thousand Dollars
($12,000) within fifteen (15) business days of the exercise of the option, and
the balance shall be payable according to the same schedule as provided for each
of the Programs
c. In the event A&E exercises its option to extend the Exhibition Period
for any Program(s), the fee therefor shall be payable within fifteen (15)
business days of the exercise of the option.
d. All payments due the Producer hereunder shall be made to and in the
name of Janson Associates, Inc., and such payment shall fully discharge A&E's
payment obligations hereunder.
15. EDITING AND NARRATION
Producer shall edit the Programs to conform to A&E's programming format as
set forth in Schedule A attached hereto and made a part hereof.
A&E shall have the right to edit each Program further for any and all
purposes whatsoever including, without limitation, formatting and scheduling, to
insert commercials and to conform with A&E's standards and practices. A&E shall
also have the right to renarrate each Program.
16. FOOTAGE RIGHTS
Producer shall obtain the rights for A&E to use all of the archival
material, television and movie clips, music, interview material and any other
material not specifically created for inclusion in the Programs ("Third Party
Material") for all the purposes described herein for the Term ("Minimum
Rights").
Without limiting the foregoing, Producer warrants and represents that A&E
shall have the rights to use all of the Third Party Material in non-standard
television throughout the Territory for the Term, including any extensions of
the Exhibition Period ("Minimum Rights") without payment by A&E to any third
parities whatsoever.
Producer shall deliver to A&E a full and complete written summary of the
usage and extent of Third Party Material, together with copies of all agreements
relating thereto ("Rights Bible"), not later than delivery of each Program.
17. PROFIT PARTICIPATION
Producer shall have the right to distribute the Programs in any and all
media (including videograms) outside of the Territory, and shall pay A&E Seven
Percent (7%) of Producer's gross receipts derived therefrom, in perpetuity.
"Gross Receipts" shall be all amounts paid for exploitation of the Programs,
including videogram advances and royalties, less any and all residual and rights
payments made by Producer with respect to the distribution of each Program
outside the Territory, except for the first One Hundred Thousand Dollars
($100,000) of gross receipts for each Program. Each Program shall be accounted
for separately, and there shall be no cross collateralization.
18. VIDEOGRAMS
A&E shall have the right to purchase finished videograms of each Program
from Producer for direct marketing by A&E in the Territory at a price not to
exceed Forty-Five Percent (45%) of their suggested retail price.
The term "videogram" as used herein shall mean video cassette, video disc,
and all other video device forms and configurations.
19. DELIVERY MATERIALS
Producer agrees to deliver the materials listed below to A&E on or before
May 15, 1995:
* One (1), first-generation, master, one-inch (1"), Type C, NTSC color
videotape of each Program with continuous drop-frame time code, and whenever
available, stereo sound, to be delivered to Modern Telecommunications, Inc. at 1
Dag Hammarskjold Plaza, "C" Level, New York, NY 10017 to the account of the A&E
TELEVISION NETWORKS.
* A script, if available, and music cue sheets for each
Program.
The Programs shall be in accordance with the technical specifications set
forth in Schedule C attached hereto and made a part hereof.
Timely delivery of the Programs is of the essence of this Agreement.
<PAGE>
20. PROMOTIONAL MATERIALS
Upon the earlier of mutual execution of this Agreement or delivery of the
Delivery Materials, Producer shall provide A&E with promotional materials
including color or black-and-white slides, transparencies, and photographs with
captions; brochures; program logos; a synopsis and description of each Program;
a complete list of cast and credits; and biographies of key Program performers
and the host, if any.
21. INDEMNIFICATION
Producer warrants and represents that it has the right to enter into this
Agreement, to grant all rights granted herein, to perform all of Producer's
obligations hereunder and that A&E's exercise of its rights hereunder,
including, without limitation, the exhibition, promotion, publicity and
advertising use of any Program or any part thereof as licensed herein shall not
violate the rights of any third party.
Producer shall indemnify and hold harmless A&E from and against any
claims, damages, liabilities, costs and expenses, including but not limited to
reasonable counsel fees, relating to the Programs or arising from exhibition of
any Program over the Networks, any breach of any warranty or representation made
by Producer herein, and any promotional use of any Program or any elements
thereof in any manner in any media (but not as direct endorsement of any
product), including, without limitation, clips, photographs and music.
22. E&O INSURANCE
Producer shall procure and maintain in full force and effect with respect
to the Programs, a policy of standard Producer's Liability (errors and
omissions) insurance for the first year of the Term and Distributor's Liability
insurance for the balance of the Term in annual renewals, all naming A&E as an
additional insured, all issued by a nationally recognized insurance carrier, and
with minimum limits of at least $1,000,000 for any single occurrence and
$3,000,000 for all claims in the aggregate, which polic(y)(ies) may not be
canceled without thirty (30) days' prior written notice to A&E.
Please sign below and indicate your acceptance of the foregoing and return all
copies of the Agreement to A&E to the attention of the Vice President, Legal and
Business Affairs, A&E Television
Networks.
Sincerely,
A&E TELEVISION NETWORKS ACCEPTED AND AGREED:
By: /s/ Seymour H. Lesser WOMBAT PRODUCTIONS
Seymour H. Lesser A DIVISION OF THE CINEMASTERS
Executive Vice President & GROUP, INC.
Chief Administrative By: /s/ Gene Feldman
Officer Gene Feldman, President
13-2648369
Federal ID Number
<PAGE>
AMENDMENT
As of June 27, 1995
Wombat Productions
A Division of The CineMasters Group, Inc.
c/o Janson Associates, Inc.
Plaza West
88 Semmens Road
Harrington Park, NJ 07640
Attention: Mr. Stephen Janson
RE: AMENDMENT TO AGREEMENT AS OF DECEMBER 5, 1994
Ladies and Gentlemen:
Reference is made to the agreement between Wombat Productions, a division of
CineMasters Group, Inc. ("Producer") and A&E Television Networks ("A&E") dated
as of December 5, 1994 ("Agreement"). Producer previously co-produced Programs
for A&E entitled CHARLTON HESTON and ROGER MOORE ("Programs 1 & 2").
Producer and A&E have agreed and do hereby agree that the Agreement shall be
amended as follows:
1. Paragraph 4 of the Agreement is hereby deleted and the
following is substituted in its place and stead:
"4. PROGRAM ORDER AND OPTIONS TO ORDER ADDITIONAL PROGRAMS
A&E hereby orders and Producer agrees to produce and
deliver the following five (5) Programs ("Programs 3 - 7"), each one (1) hour in
length under the Agreement:
YUL BRYNNER
BURT LANCASTER
JACK LEMMON
JOAN CRAWFORD
FRED MACMURRAY
A&E shall have two (2) successive dependent options, each to order up to
five (5) additional programs, ("Program(s) 8 - 12" and Program(s) 13 -17"), to
be exercised no later than the date of delivery of the next-to-last Program of
the previous group of Programs set forth above."
2. Paragraph 3 of the Agreement is hereby deleted and the
following is substituted in its place and stead:
"3. OPTIONS TO EXTEND PROHIBITION PERIODS
A&E shall have two (2) successive dependent options to
extend the Exhibition Period for each of Programs 1 - 7 and 8 - 17, if any are
ordered pursuant to Paragraph 4 hereof.
The first extension shall be for two (2) Additional years (and ten (10)
additional Playdates) ("First Extension"), exercisable for Programs 1 & 2 no
later than January 31, 2000 and for Programs 3 - 17 no later than four years
after the commencement of the Exhibition Period for each Program.
The second extension shall be for three (3) additional years thereafter,
(and fifteen (15) additional Playdates) ("Second Extension"), exercisable for
Programs 1 - 17 no later than the end of the first year of the First Extension."
3. Paragraph 13 of the Agreement is hereby deleted and the
following shall be substituted in its place and stead:
"13. FINANCIAL COMMITMENT
For Programs 1 and 2, the Financial Commitment shall be the total sum of
Two Hundred Forty Thousand Dollars ($240,000), receipt of which is hereby
acknowledged by Producer.
For Programs 3 - 7, the Financial Commitment shall be One Hundred Twenty
Thousand Dollars ($120,000) per Program for a total of Six Hundred Thousand
Dollars ($600,000).
In the event A&E exercises its options, or any of them, to order any of
Programs 8 - 12, the Financial Commitment shall be One Hundred Twenty-Five
Thousand Dollars ($125,000) per Program.
In the event A&E exercises its options, or any of them, to order any of
Programs 13 - 17, the Financial Commitment shall be One Hundred Thirty Thousand
Dollars ($130,000) per Program.
In the event A&E exercises any of its options to extend the Exhibition
Period for any Program (for either the First Extension or the Second Extension),
the Financial Commitment for each such extension for each Program shall be
Twenty Thousand Dollars ($20,000)."
4. A new subparagraph 14.aI. shall be added to the Agreement
after subparagraph 14.a, as follows:
"(14. PAYMENT SCHEDULE)
aI. The Financial Commitment for Programs 3 - 7 shall be
payable as follows:
Sixty Thousand Dollars ($60,000) within fifteen business days of mutual
execution of this Amendment;
Thirty Thousand Dollars ($30,000) within fifteen (15) business days of
commencement of principal photography of each Program (One Hundred Fifty
Thousand Dollars ($150,000 total) for Programs 3 - 7);
Forty-Two Thousand Dollars ($42,000) within fifteen (15) business days of
completion of production and delivery and technical approval by A&E of the rough
cut of each Program (Two Hundred Ten Thousand Dollars ($210,000) total for
Programs 3 - 7); and
Thirty-Six Thousand Dollars ($36,000) within six (6) weeks of delivery to
A&E and technical acceptance of the Delivery Materials for each Program offered
hereunder as defined herein subject to delivery of the E&O Certificate to A&E's
Legal & Business Affairs Department as set forth herein (One Hundred Eighty
Thousand Dollars ($180,000) total for Programs 3 - 7)."
5. Subparagraph 14.b of the Agreement is hereby deleted and
the following is substituted in its place and stead:
"(14. PAYMENT SCHEDULE)
b. In the event A&E exercises any of its options to order any of
Program(s) 8 - 12, the Financial Commitment therefor shall be payable Twelve
Thousand Dollars ($12,000) per Program ordered, within fifteen (15) business
days of the exercise of the option, and the balance shall be payable according
to the same schedule as provided under Subparagraphs 14.a and 14.aI for Programs
1 - 7, except that the payment due within fifteen (15) business days of
completion of production and delivery and technical approval of the rough cut
shall be Forty-Seven Thousand Dollars ($47,000) per Program.
In the event A&E exercises any of its options to order any of Program(s)
13 - 17, the Financial Commitment therefor shall be payable Twelve Thousand
Dollars ($12,000) per Program ordered, within fifteen (15) business days of the
exercise of the option, and the balance shall be payable according to the same
schedule as provided under Subparagraphs 14.a and 14.aI for Programs 1 - 7,
except that the payment due within fifteen (15) business days of completion of
production and delivery and technical approval of the rough cut shall be
Fifty-Two Thousand Dollars ($52,000) per Program.
6. A new Paragraph 17A shall be added to the Agreement
following Paragraph 17, as follows:
"17A. A&E FRANCHISED CHANNELS
Producer shall retain the right to license to television in all
territories except the United States and its territories and possessions and
Canada (and Producer shall also retain the right to license to television in
Canada in the French language), provided however, that notwithstanding the
provisions of Paragraphs 5 and 17 hereof, A&E shall have the right to license
the non-exclusive television exhibition of any Program on any A&E franchised
channel, in any country in which it operates:
(a) in the event that Producer has not theretofore licensed the television
exhibition in such country, no earlier than two (2) years after delivery of such
Program to A&E, or
(b) in the event that Producer has licensed the
television exhibition:
(i) in Great Britain: no earlier than six (6) years
after delivery of such Program to A&E, and
(ii) in all other countries and territories: no
earlier than four (4) years after delivery of such Program to A&E.
The term "A&E franchised channel" shall mean any television program
service owned, controlled, programmed or operated solely or jointly by A&E or
which A&E has licensed the Networks' name(s) and/or format(s) in any language.
Notwithstanding the possible expiration of the Exhibition Period for any
Program, or the failure of A&E to extend the Exhibition Period for such Program,
A&E may license such Program on any A&E franchised channel(s) for up to four (4)
years and twenty (20) Playdates.
If required for A&E to exercise its rights under this provision, Producer
shall deliver a master videotape for any such Program with separate M&E track
for dubbing, and A&E shall have the right to dub the Program(s) into foreign
languages.
Producer shall give A&E prompt notice of any television licenses it has
entered into for any of the Programs, for any Territories for which A&E shall
make a written request, in order to facilitate A&E's exercise of its rights
hereunder without violating the rights of Producer or of any such television
licensee."
7. Paragraph 18 of the Agreement shall be amended by deleting the phrase
"Forty-five Percent (45%)" and substituting the phrase "Forty Percent (40%)" in
its place and stead.
8. The introductory clause of Paragraph 19 of the Agreement is
hereby deleted and the following is substituted in its place and
stead:
"(19. DELIVERY MATERIALS
Producer agrees to deliver the materials listed below to A&E for Programs
1 and 2 on or before May 15, 1995. Producer agrees to deliver the materials
listed below for Programs 3 - 7 according to the following schedule:
Title: Delivery Date:
YUL BRYNNER August 18, 1995
BURT LANCASTER November 3, 1995
JACK LEMMON February 26, 1996
JOAN CRAWFORD June 3, 1996
FRED MACMURRAY August 24, 1996
The Delivery Dates for Programs 8 - 12 and for Programs 13 - 17 shall be
at approximately twelve (12) week intervals to be determined by A&E in
consideration of A&E's scheduled exhibition dates and the Producer's reasonable
production requirements."
9. The parties agree to set dates certain for the exercise of all options
hereunder consistent with the schedules of delivery and Commencement Dates
provided herein.
10. The limits of liability of the insurance requirements of Paragraph 22 of the
Agreement shall apply to each Program individually and separately.
Except as specifically amended herein, all the terms and conditions of the
Agreement are hereby ratified and confirmed.
If the foregoing is acceptable to Producer, please indicate Producer's approval
by signing in the space provided below and returning a copy of this amendment to
the attention of the Vice President of Business Affairs and General Counsel, A&E
Television
Networks.
Sincerely,
A&E TELEVISION NETWORKS ACCEPTED AND AGREED:
By: /s/ Seymour H. Lesser WOMBAT PRODUCTIONS, A
Seymour H. Lesser DIVISION OF THE CINEMASTERS,
Executive Vice President GROUP, INC.
Chief Financial and By: /s/ Gene Feldman
Administrative Officer Gene Feldman, President
13-2648369
Federal ID Number
<PAGE>
[Letterhead of A&E Television Networks]
November 8, 1996
Mr. Stephen Janson
Wombat Productions
A Division of the CineMasters Group, Inc.
c/o Janson Associates, Inc.
Plaza West
88 Semmens Road
Harrington Park, NJ 07640
RE: BIOGRAPHY(R)- PROGRAMS 8 - 10
Dear Steve,
I am pleased to return to you a fully executed copy of the amendment to the
agreement between us for the above referenced programs.
Best regards,
Sincerely,
/s/ Nancy McGeorge
Nancy McGeorge
Attach.
<PAGE>
AMENDMENT
As of October 1, 1996
Wombat Productions
A Division of The CineMasters Group, Inc.
c/o Janson Associates, Inc.
Plaza West
88 Semmens Road
Harrington Park, NJ 07640
Attention: Mr. Stephen Janson
RE: BIOGRAPHY(R) PROGRAMS 8 - 10
Ladies and Gentlemen:
Reference is made to the agreement between Wombat Productions, a division of
CineMasters Group, Inc. ("Producer") and A&E Television Networks ("A&E") dated
as of December 5, 1994 ("Agreement"), as amended as of June 27, 1995
("Amendment").
Pursuant to Paragraph 1 of the Amendment, A&E hereby exercises its option to
require Producer to produce three (3) additional Programs ("Programs 8 - 10")
for the BIOGRAPHY(R) series on all of the terms and conditions of the Agreement
and Amendment.
Producer and A&E have agreed and do hereby agree that the Agreement and
Amendment shall be further amended as follows:
1. SUBJECT MATTER & DELIVERY DATE
A&E hereby approves the following subject matter and delivery dates:
Program: Subject Matter: Delivery Date:
8 Barbara Stanwick 2/28/97
9 Walter Matthau To Be Determined By A&E
10 Warren Beatty To Be Determined By A&E
Any change of the Subject Matter for any of the above referenced Programs
shall be subject to the prior approval of A&E.
2. BIOGRAPHY(R) is a registered trademark and servicemark of A&E, and Producer
acknowledges that it has no right, title or interest in BIOGRAPHY, except as
expressly set forth herein.
Except as specifically amended herein, all the terms and conditions of the
Agreement are hereby ratified and confirmed.
<PAGE>
If the foregoing is acceptable to Producer, please indicate Producer's approval
by signing in the space provided below and returning a copy of this amendment to
the attention of the Vice President & General Counsel, A&E Television Networks.
Sincerely,
ACCEPTED AND AGREED:
A&E TELEVISION NETWORKS
WOMBAT PRODUCTIONS A Division of the
CineMasters Group, Inc.
By: /s/ Anne S. Atkinson
Anne S. Atkinson
Vice President &
General Counsel By: /s/ Gene Feldman
Gene Feldman, President
Print Name & Title
Exhibit 6(b)(ii)(3)
LIFETIME PRODUCTIONS, INC.
309 West 49th Street
New York, NY 10019
As of March 26, 1996
VIA OVERNIGHT MAIL
WOMBAT Productions
A Division of The CineMasters Group, Inc.
c/o Janson Associates, Inc.
88 Semmens Road
Harrington Park, NJ 07640
Attn: Stephen Janson
Re: INTIMATE PORTRAIT: SHIRLEY MACLAINE
Ladies/Gentlemen:
I am pleased to confirm our arrangement whereby Lifetime Productions, Inc.
("Lifetime") has commissioned the production of, and will license from WOMBAT
Productions ("Licensor"), the exclusive right to telecast and exhibit, a special
television program presently titled "INTIMATE PORTRAIT: SHIRLEY MACLAINE" (the
"Program"):
Production & License Fee:
Fee: $120,000
Option Advance: Option Advance (non-refundable): $10,000
In the event Lifetime exercises either option pursuant to
option paragraph (b) hereof, the sum of $5,000 from the amount set forth above
shall be applied against the applicable option price.
Payment Terms:
25% upon execution hereof; 25% upon commencement of principal photography;
25% upon completion of principal photography; 25% upon delivery and acceptance
of the Program.
Exhibition Rights Granted:
(a) Basic cable television rights, which shall include, but are not
limited to, distribution by means of wire & microwave distribution, home earth
station ("TVRO"), satellite master
<PAGE>
antenna television ("SMATV"), direct broadcast satellite ("DBS"") and
multipoint, multichannel distribution services ("MDS" and "MMDS"), and any other
medium now known or hereafter developed for the distribution of basic cable
programming services. Lifetime shall have the right to sublicense or assign its
exhibition rights in the License Territory (as herein defined) to an
owned-and-operated, managed or controlled basic programming service of Lifetime.
(b) Lifetime will have creative approval rights in connection with all
elements of the Program, including, but not limited to, approval of the writer,
script, music, executive producer, line producer, director, etc. For purposes of
this subparagraph, Lifetime expressly acknowledges the following personnel have
been approved for the following positions and credits: GENE FELDMAN as executive
producer, line producer, director and writer; and SUZETTE WINTER as writer and
producer;
(c) The Program shall be produced pursuant to Lifetime's Production Packet
(a copy of which has been supplied to you) and the instructions and direction of
Lifetime's programming executives. Licensor will make all on-screen end credits
in white over black. Licensor will prepare the opening and closing graphics
(including bumper graphics) the Program and Licensor will edit in such graphics,
and cut the Program to Lifetime's format requirements.
(d) Lifetime will have final approval of the rough cut
and final cut of the Program.
License Period and Options:
(a) License period: Five (5) years from the date of
Lifetime's initial telecast of each Special.
(b) Lifetime shall have two (2) exclusive irrevocable options, each
exercisable by no later than ninety (90) days prior to the conclusion of the
initial period or extended period, as the case may be, of the Program, to extend
the term for an additional two (2) years. The fee for each extension period
shall be $15,000 subject to reduction as described above.
License Territory:
U.S., its territories & possessions, Bermuda, the Bahamas, and the
Caribbean Islands.
Exhibition Days:
Unlimited.
Exclusivity:
Lifetime will have exclusive basic cable telecast rights in the Program in
the License Territory and the Program will be exclusive to Lifetime against all
other forms of television, including without limitation, traditional pay cable
tv (e.g., HBO, Showtime), pay-per-view tv (including video on demand), free
over-the-air tv, superstations (e.g., WTBS), direct broadcast satellite, and any
medium that would permit television reception or viewing within residences of
any kind.
<PAGE>
Distribution Rights & Net Profit Participation:
(a) Licensor shall control all the distribution and
exploitation to the Program. During the term hereof, Licensor may not exercise
such distribution rights in the License Territory without Lifetime's prior
written approval which shall not be unreasonably withheld. Licensor shall advise
Lifetime on a monthly basis with respect to all distribution and/or exploitation
agreements entered into during the previous month. Lifetime shall have the
approval, not to be unreasonably withheld, in the event of any such distribution
and/or exploitation agreement which provides for any revenue participation on
the part of any third party.
(b) Licensor shall be entitled to retain the first $50,000 of proceeds
from the exercise of the distribution rights described above. Thereafter the
revenues shall be divided as follows: 66 2/3% of adjusted gross revenues to
Licensor; 33 1/3% of adjusted gross revenues to Lifetime. For the purpose
hereof, adjusted gross revenues shall be understood to mean gross proceeds
however received, from the exploitation of the Program in whatever medium, less
actual distribution fees and out-of-pocket expenses. Lifetime shall have prior
approval of any additional profit participants, contingent or deferred
compensation participants, etc. Lifetime shall be entitled to audit Licensor's
books and records with respect to its distribution and exploitation efforts, but
not more than once per calendar year, at the site where Licensor retains such
books and records. Licensor shall submit quarterly reports of revenues to
Lifetime within 30 days after the close of each calendar quarter.
(c) Licensor shall use a title other than "INTIMATE PORTRAIT" or "INTIMATE
PORTRAITS" in distributing Program hereunder.
Miscellaneous:
(a) Delivery of the Program shall be on one-inch (1") type C format
masters which shall conform to Lifetime's technical standards attached hereto as
Exhibit A. In addition, Licensor will supply Lifetime with one (1) one-half inch
(1/2") and one (1) three-quarter inch (3/4") screening copies of each cut of the
Special.
The approved final cut of the Program shall be delivered to Lifetime no
later than October 1, 1996.
b) Licensor represents and warrants that the Program shall be an original
program for Lifetime and will not have, any exhibitions in the License Territory
prior to Lifetime's License Period.
(c) Lifetime may edit the Program without restriction for purposes of
timing, standards & practices, and commercial insertions.
(d) Licensor will obtain and maintain in full force and effect for a
period of one (1) year from the date of first telecast, a producer's errors and
omissions policy and thereafter, during the term of this Agreement, a
distributor's errors and omissions policy for the Special, each with limits of
at least $1,000,000 for any single party's claim arising out of a single
occurrence and $3,000,000 for all claims in the aggregate.
Warranties:
In connection with each Special, Licensor warrants and represents for the
benefit of Lifetime:
<PAGE>
(a) That Licensor has and will maintain, at its sole cost and expense, the
sole and exclusive rights to enter into and perform this Agreement and grant to
Lifetime all the rights granted hereunder;
(b) That Licensor will secure and maintain, all performance and
synchronization licenses for all music contained in the Program, sufficient to
enable Lifetime to exploit or cause the exploitation of the Program in
accordance with the terms of this Agreement;
(c) That there are no agreements, nor shall Licensor enter into any
agreements, which would prevent the fulfillment of this Agreement or which might
or shall impair or diminish the value of any right granted to Lifetime;
(d) That Lifetime will not be obligated to make any payments to anyone
other than as expressly specified in this Agreement in connection with the
exercise of the rights granted to Lifetime herein;
(e) That the Program shall be suitable technically for the uses thereof
permitted hereunder, and that any materials provided by Licensor to Lifetime
shall be of quality consistent with network broadcast television;
(f) That neither the Program and any of the materials supplied by Licensor
hereunder, nor the production or any use hereunder of the Program and/or such
material(s) and/or of 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;
(g) That there are no claims, lawsuits, or other proceedings pending,
outstanding or threatened, adversely affecting, or which will in any way
prejudice Lifetime's rights hereunder; and
(h) That the Program shall conform with Lifetime's standards and practices
policies of which Licensor is advised prior to delivery of the Program.
Indemnities:
(a) Licensor shall at all times indemnify, defend and hold harmless
Lifetime, its subsidiaries, parent companies, the officers, directors,
employees, licensees and agents of each of the foregoing, and their heirs,
executors, administrators, successors and assigns, against and from any and all
claims, damages, liabilities, costs and expenses (including reasonable counsel
fees and disbursements) arising out of:
(i) any use as herein contemplated of the Program and/or any
materials or elements thereof furnished by Licensor, including the credit and
billing requirements thereof, or the exercise by Lifetime of any rights granted
to it by Licensor;
(ii) any breach or alleged breach by Licensor of any representation,
warranty, obligation or other provision hereof.
Lifetime may, at its election, assume the defense of any such claim,
demand or litigation.
(b) Lifetime shall indemnify and hold harmless Licensor, its subsidiaries
and parent companies, its officers, directors, employees, agents and licensees,
and their heirs, executors,
<PAGE>
administrators, successors and assigns of each of them, against and from any and
all claims, damages, liabilities, costs and expenses (including reasonable
counsel fees and disbursements), arising out of:
(i) the use of any material in the Program which is
furnished, as between Lifetime and Licensor, by Lifetime or any
other indemnitee specified in subparagraph (a) above; or
(ii) any breach or alleged breach by Lifetime of any representation,
warranty, obligation or other provision hereof.
(c) Lifetime in the case of subparagraph (a), or Licensor, in the case of
subparagraph (b), will promptly notify the other party ("Indemnitor") of any
such claim or litigation to which the respective subparagraph shall apply.
Indemnitor will assume the defense of any claim or litigation, in which event
Indemnitor's obligations with respect thereto shall be limited to holding the
respective indemnitee harmless from any loss, damage or cost caused by or
arising out of any settlement or interlocutory or appealable judgment, decree or
order, or any final judgment, in connection with any such claim or litigation;
provided, that each indemnitee shall have the right to participate in the
defense at its own cost; and further provided that in no event shall either
party settle or compromise a third-party claim without the consent of the other
party hereto.
Special Provisions:
Licensor shall own the copyright in the Program. However, Lifetime shall
own the copyright in any segments, materials or elements that it creates for
incorporation into the Program including but not limited to the "INTIMATE
PORTRAIT" materials.
The foregoing is subject to the execution of a formal contract incorporating
provisions consistent with Lifetime's standard production agreements, including,
but not limited to, those relating to name and likeness, force majeure,
confidentiality, governmental compliance and breach.
If the foregoing is acceptable to you, this letter, when fully executed, shall
constitute a binding agreement between the parties, and such formal contract
when executed, if ever, shall replace this offer letter and agreement.
Very truly yours, Agreed To and Accepted:
Lifetime Productions, Inc. Wombat Productions
By: __________________ By: /s/ Gene Feldman
Senior Vice President
Business & Legal Affairs
<PAGE>
Exhibit A
Part of the Agreement dated as of July 13, 1995 between Lifetime
Productions, Inc. and Wombat Productions
Specification for One-Inch (1") Type "C" Recording
Any Master tape and all videotape copies shall have:
(a) VIDEO
(1) Signal to noise ratio of at least 46db pp (47 db pp
for 1")
(2) Low frequency linearity 2% blanking to white (3) Differential phase no
greater than 3o at 3.58 MHz (4o
for 1")
(4) Differential gain 3% max. blanking to white (4% for
1")
(5) Transient response (2T sine 2 pulse) Max K factor 1%
(6) Moire, -40db max. (color bars 75% amplitude 3.58 MHz)
(7) Flat bandwidth to 4.5 MHz + .5db
(8) Color Jitter + 3ns. pp. max
(9) Zero recorded in velocity error or banding
(10) Zero recorded in head impact noise for 1"
(11) Horz. blanking not to exceed 12 us
(12) Vert. blanking not to exceed 21 lines
(13) At lease one minute NTSC standard bars at head of
tape,
with zero Vu tone for audio level check
(b) AUDIO
(1) Signal to noise at lease 55db
(2) Frequency response 50 to 15,000 Hz + 2db
(3) RMS distortion at 1000 Hz no more than 3%
(4) Wow and flutter (NAB weighted) no more than .05%
(c) TAPE
(1) Audio levels standard
(2) Video levels standard
(3) 10 Sec. blank leader before bars (4) Slate from master tape (5) High
quality tape stock with low dropout rate (6) No physical damage (7) Test
signals recorded on tape
* * * *
<PAGE>
[LETTERHEAD OF LIFETIME PRODUCTIONS, INC.]
VIA FACSIMILE AND OVERNIGHT MAIL As of July 13, 1995
WOMBAT Productions
A Division of The CineMasters Group, Inc.
c/o Janson Associates, Inc.
88 Semmens Road
Harrington Park, NJ 07640
Attn: Stephen Janson
Re: INTIMATE PORTRAIT: INGRID BERGMAN
Ladies/Gentlemen:
I am pleased to confirm our arrangement whereby Lifetime Productions, Inc.
("Lifetime") has commissioned the production of, and will license from WOMBAT
Productions ("Licensor"), the exclusive right to telecast and exhibit, a special
television program presently titled "INTIMATE PORTRAIT: INGRID BERGMAN" (the
"Program"):
Production & License Fee:
Fee: $120,000
Option Advance: Option Advance (non-refundable): $10,000
In the event Lifetime exercises either option pursuant to
option paragraph (b) hereof, the sum of $5,000 from the amount set forth above
shall be applied against the applicable option price.
Payment Terms:
25% upon execution hereof; 25% upon commencement of principal photography;
25% upon completion of principal photography; 25% upon delivery and acceptance
of the Program.
Exhibition Rights Granted:
(a) Basic cable television rights, which shall include, but are not
limited to, distribution by means of wire & microwave distribution, home earth
station ("TVRO"), satellite master antenna television ("SMATV"), direct
broadcast satellite ("DBS") and multipoint, multichannel distribution services
("MDS" and "MMDS"), and any other medium now known or hereafter developed for
the distribution of basic cable programming services. Lifetime shall have the
right to sublicense or assign its exhibition rights in the License Territory (as
herein defined) to an owned-and-operated, managed or controlled basic
programming service of Lifetime.
<PAGE>
(b) Lifetime will have creative approval rights in connection with all
elements of the Program, including, but not limited to, approval of the writer,
script, music, executive producer, line producer, director, etc. For purposes of
this subparagraph, Lifetime expressly acknowledges the following personnel have
been approved for the following positions and credits: GENE FELDMAN as executive
producer, line producer, director and writer; SUZETTE WINTER as writer and
producer; PAL LINDSTROM as associate producer and voiceover talent.
(c) The Program shall be produced pursuant to Lifetime's Production Packet
(a copy of which has been supplied to you) and the instructions and direction of
Lifetime's programming executives. Licensor will make all on-screen end credits
in white over black. Licensor will prepare the opening and closing graphics
(including bumper graphics) the Program and Licensor will edit in such graphics,
and cut the Program to Lifetime's format requirements.
(d) Lifetime will have final approval of the rough cut
and final cut of the Program.
License Period and Options:
(a) License period: Five (5) years from the date of
Lifetime's initial telecast of each Special.
(b) Lifetime shall have two (2) exclusive irrevocable options, each
exercisable by no later than ninety (90) days prior to the conclusion of the
initial period or extended period, as the case may be, of the Program, to extend
the term for an additional two (2) years. The fee for each extension period
shall be $15,000 subject to reduction as described above.
License Territory:
U.S., its territories & possessions, Bermuda, the Bahamas, and the
Caribbean Islands.
Exhibition Days:
Unlimited.
Exclusivity:
Lifetime will have exclusive basic cable telecast rights in the Program in
the License Territory and the Program will be exclusive to Lifetime against all
other forms of television, including without limitation, traditional pay cable
tv (e.g., HBO, Showtime), pay-per-view tv (including video on demand), free
over-the-air tv, superstations (e.g., WTBS), direct broadcast satellite, and any
medium that would permit television reception or viewing within residences of
any kind.
Distribution Rights & Net Profit Participation:
(a) Licensor shall control all the distribution and
exploitation to the Program. During the term hereof, Licensor may not exercise
such distribution rights in the License Territory without Lifetime's prior
written approval which shall not be unreasonably withheld. Licensor shall advise
Lifetime on a monthly basis with respect to all distribution and/or
<PAGE>
exploitation agreements entered into during the previous month. Lifetime shall
have the approval, not to be unreasonably withheld, in the event of any such
distribution and/or exploitation agreement which provides for any revenue
participation on the part of any third party.
(b) Licensor shall be entitled to retain the first $50,000 of proceeds
from the exercise of the distribution rights described above. Thereafter the
revenues shall be divided as follows: 66 2/3% of adjusted gross revenues to
Licensor; 33 1/3% of adjusted gross revenues to Lifetime. For the purpose
hereof, adjusted gross revenues shall be understood to mean gross proceeds
however received, from the exploitation of the Program in whatever medium, less
actual distribution fees and out-of-pocket expenses. Lifetime shall have prior
approval of any additional profit participants, contingent or deferred
compensation participants, etc. Lifetime shall be entitled to audit Licensor's
books and records with respect to its distribution and exploitation efforts, but
not more than once per calendar year, at the site where Licensor retains such
books and records. Licensor shall submit quarterly reports of revenues to
Lifetime within 30 days after the close of each calendar quarter.
(c) Licensor shall use a title other than "INTIMATE PORTRAIT" or "INTIMATE
PORTRAITS" in distributing Program hereunder.
Miscellaneous:
(a) Delivery of the Program shall be on one-inch (1") type C format
masters which shall conform to Lifetime's technical standards attached hereto as
Exhibit A. In addition, Licensor will supply Lifetime with one (1) one-half inch
(1/2" and one (1) three-quarter inch (3/4") screening copies of each cut of the
Special.
The approved final cut of the Program shall be delivered to Lifetime no
later than September 15, 1995.
b) Licensor represents and warrants that the Program shall be an original
program for Lifetime and will not have, any exhibitions in the License Territory
prior to Lifetime's License Period.
(c) Lifetime may edit the Program without restriction for purposes of
timing, standards & practices, and commercial insertions.
(d) Licensor will obtain and maintain in full force and effect for a
period of one (1) year from the date of first telecast, a producer's errors and
omissions policy and thereafter, during the term of this Agreement, a
distributor's errors and omissions policy for the Special, each with limits of
at least $1,000,000 for any single party's claim arising out of a single
occurrence and $3,000,000 for all claims in the aggregate.
Warranties:
In connection with each Special, Licensor warrants and represents for the
benefit of Lifetime:
(a) That Licensor has and will maintain, at its sole cost and expense, the
sole and exclusive rights to enter into and perform this Agreement and grant to
Lifetime all the rights granted hereunder;
(b) That Licensor will secure and maintain, all
performance and synchronization licenses for all music contained
<PAGE>
in the Program, sufficient to enable Lifetime to exploit or cause
the exploitation of the Program in accordance with the terms of
this Agreement;
(c) That there are no agreements, nor shall Licensor enter into any
agreements, which would prevent the fulfillment of this Agreement or which might
or shall impair or diminish the value of any right granted to Lifetime;
(d) That Lifetime will not be obligated to make any payments to anyone
other than as expressly specified in this Agreement in connection with the
exercise of the rights granted to Lifetime herein;
(e) That the Program shall be suitable technically for the uses thereof
permitted hereunder, and that any materials provided by Licensor to Lifetime
shall be of quality consistent with network broadcast television;
(f) That neither the Program and any of the materials supplied by Licensor
hereunder, nor the production or any use hereunder of the Program and/or such
material(s) and/or of 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;
(g) That there are no claims, lawsuits, or other proceedings pending,
outstanding or threatened, adversely affecting, or which will in any way
prejudice Lifetime's rights hereunder; and
(h) That the Program shall conform with Lifetime's standards and practices
policies of which Licensor is advised prior to delivery of the Program.
Indemnities:
(a) Licensor shall at all times indemnify, defend and hold harmless
Lifetime, its subsidiaries, parent companies, the officers, directors,
employees, licensees and agents of each of the foregoing, and their heirs,
executors, administrators, successors and assigns, against and from any and all
claims, damages, liabilities, costs and expenses (including reasonable counsel
fees and disbursements) arising out of:
(i) any use as herein contemplated of the Program and/or any
materials or elements thereof furnished by Licensor, including the credit and
billing requirements thereof, or the exercise by Lifetime of any rights granted
to it by Licensor;
(ii) any breach or alleged breach by Licensor of any representation,
warranty, obligation or other provision hereof.
Lifetime may, at its election, assume the defense of any such claim,
demand or litigation.
(b) Lifetime shall indemnify and hold harmless Licensor, its subsidiaries
and parent companies, its officers, directors, employees, agents and licensees,
and their heirs, executors, administrators, successors and assigns of each of
them, against and from any and all claims, damages, liabilities, costs and
expenses (including reasonable counsel fees and disbursements), arising out of:
(i) the use of any material in the Program which is
furnished, as between Lifetime and Licensor, by Lifetime or any
other indemnitee specified in subparagraph (a) above; or
<PAGE>
(ii) any breach or alleged breach by Lifetime of any representation,
warranty, obligation or other provision hereof.
(c) Lifetime in the case of subparagraph (a), or Licensor, in the case of
subparagraph (b), will promptly notify the other party ("Indemnitor") of any
such claim or litigation to which the respective subparagraph shall apply.
Indemnitor will assume the defense of any claim or litigation, in which event
Indemnitor's obligations with respect thereto shall be limited to holding the
respective indemnitee harmless from any loss, damage or cost caused by or
arising out of any settlement or interlocutory or appealable judgment, decree or
order, or any final judgment, in connection with any such claim or litigation;
provided, that each indemnitee shall have the right to participate in the
defense at its own cost; and further provided that in no event shall either
party settle or compromise a third-party claim without the consent of the other
party hereto.
Special Provisions:
Licensor shall own the copyright in the Program. However, Lifetime shall
own the copyright in any segments, materials or elements that it creates for
incorporation into the Program including but not limited to the "INTIMATE
PORTRAIT" materials.
The foregoing is subject to the execution of a formal contract incorporating
provisions consistent with Lifetime's standard production agreements, including,
but not limited to, those relating to name and likeness, force majeure,
confidentiality, governmental compliance and breach.
If the foregoing is acceptable to you, this letter, when fully executed, shall
constitute a binding agreement between the parties, and such formal contract
when executed, if ever, shall replace this offer letter and agreement.
Very truly yours, Agreed To and Accepted:
Lifetime Productions, Inc. Wombat Productions
By: __________________ By: /s/ Gene Feldman
Senior Vice President
Business & Legal Affairs
<PAGE>
Exhibit A
Part of the Agreement dated as of July 13, 1995 between Lifetime
Productions, Inc. and Wombat Productions
Specification for One-Inch (1") Type "C" Recording
Any Master tape and all videotape copies shall have:
(a) VIDEO
(1) Signal to noise ratio of at least 46db pp (47 db pp
for 1")
(2) Low frequency linearity 2% blanking to white (3) Differential phase no
greater than 3o at 3.58 MHz (4o
for 1")
(4) Differential gain 3% max. blanking to white (4% for
1")
(5) Transient response (2T sine 2 pulse) Max K factor 1%
(6) Moire, -40db max. (color bars 75% amplitude 3.58 MHz)
(7) Flat bandwidth to 4.5 MHz + .5db
(8) Color Jitter + 3ns. pp. max
(9) Zero recorded in velocity error or banding
(10) Zero recorded in head impact noise for 1"
(11) Horz. blanking not to exceed 12 us
(12) Vert. blanking not to exceed 21 lines
(13) At lease one minute NTSC standard bars at head of
tape, with zero Vu tone for audio level check
(b) AUDIO
(1) Signal to noise at lease 55db
(2) Frequency response 50 to 15,000 Hz + 2db
(3) RMS distortion at 1000 Hz no more than 3%
(4) Wow and flutter (NAB weighted) no more than .05%
(c) TAPE
(1) Audio levels standard
(2) Video levels standard
(3) 10 Sec. blank leader before bars (4) Slate from master tape (5) High
quality tape stock with low dropout rate (6) No physical damage (7) Test
signals recorded on tape
* * * *
Exhibit 6(b)(ii)(4)
PRODUCTION AND LICENSE AGREEMENT
THIS AGREEMENT, dated as of November 17, 1989 (the
"Agreement"), is between WOMBAT PRODUCTIONS, a division of
CorTech Communications, Inc. ("Producer"), and HOME BOX OFFICE,
INC. ("HBO"). (Capitalized terms used herein shall have the
meanings set forth herein.)
In consideration for the mutual promises herein contained and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. Program
(a) Producer shall produce and deliver to HBO four (4) television programs
each approximately sixty (60) minutes in length tentatively entitled "CRAZY
ABOUT THE MOVIES: BETTE DAVIS", "CRAZY ABOUT THE MOVIES: ROBERT MITCHUM", "CRAZY
ABOUT THE MOVIES: AUDREY HEPBURN", and "CRAZY ABOUT THE MOVIES: ANTHONY QUINN"
(each a "Program" and collectively, the "Programs"), respectively. Each Program
shall profile the life and career of a celebrity subject through clips of films,
newsreels, home movies and on-camera interviews; these subjects shall be Bette
Davis, Robert Mitchum, Audrey Hepburn and Anthony Quinn. In connection with each
Program, Producer shall deliver to HBO for HBO's approval a treatment for such
Program, including available clips and talent. If HBO approves such treatment,
clips and talent, Producer shall commence production on such Program upon
receipt of approvals necessary of the use of such clips and talent. In the event
that any subject is not approved by HBO for production, or is not available due
to restrictions on clips or talent approvals, Producer shall develop a
replacement subject to be approved by HBO.
(b) In the event that a subject approved by HBO is not available for
production due to restrictions on clips or talent approvals and such
restrictions are subsequently lifted or waived during the period within which
Producer is producing the Programs pursuant to this Agreement and for six month
thereafter (the "Option Period"), HBO shall have an exclusive option to engage
Producer to produce and deliver a program on such subject (an "Option Program");
such program shall be in a style similar to the Programs and shall be produced
on the same terms and conditions as are set forth herein. For two years
following the date of expiration of the Option Period, Producer shall not
produce, cause or permit the production of, any Option Program or any series
based upon the same subject as the Option Program without first negotiating with
HBO therefor for a period of no less than sixty (60) days with respect to any
such Option Program (each, a "Negotiation Period"). If after the termination of
any
<PAGE>
Negotiation Period no agreement is reached between HBO and Producer, Producer
shall have the right to enter into negotiations with any third party with
respect thereto; provided, that Producer shall not enter into any agreement with
any such third party without giving HBO the opportunity to enter into an
agreement with Producer therefor on terms and conditions at least as favorable
to HBO as those offered to or by Producer to or by any such third party. HBO
shall have ten (10) business days, from the date of receipt of written notice
from Producer of any such offer (containing the full material details in regard
thereto) in which to accept or reject said offer. If HBO fails to accept the
same within ten (10) business days, then and only then shall Producer be free to
enter into such agreement with said third party. If Producer does not enter into
such agreement, the preceding shall apply to any subsequent offer received or
made by Producer. HBO's failure to accept any offer shall not constitute a
waiver of first refusal with respect to subsequent offers.
(c) The Programs shall be accurate and truthful and shall be produced in
conformity with the professional standards of television journalism. The
Programs shall be in a style similar to that of "CRAZY ABOUT THE MOVIES: WILLIAM
HOLDEN" and of at least the same quality and have at least the same production
standards as domestic network television programming currently being produced,
taking into account the budget and format of the Programs.
(d) (i) Prior to commencing production of each Program, Producer shall
submit in writing, for HBO's sole approval all "above-" and major
"below-the-line" elements of such Program, including without limitation, the
subject, clips, narrator, celebrities, the executive producer, director, line
producer, associate producer, lighting director, director of photography,
writer, editor, art director, music coordinator, composer, unit production
manager, casting director, any performers, and any substitutes for elements
previously approved. HBO hereby approves Gene Feldman as producer and director
and Suzette Winter as co-producer.
(ii) HBO shall have the sole right to approve all stages of the
production and post-production of each Program, including without limitation the
following: (A) the narrative script of such Program (the "Script"), (B) the
detailed budget of such Program, which budget shall not be less than $350,000
(upon final approval by HBO, the "Budget"), (C) the final production and
delivery schedule (upon final approval by HBO, the "Schedule", specifying in
addition to the dates set forth below, the number of rehearsal days, shooting
days, the locations, the delivery dates for rough cuts and fine cuts, the
Delivery Date (as hereinafter defined), the format and production and post
production techniques of such Program and such other items as are customarily
included in a schedule, (D) selected footage, (E) the rough cut, (F) the fine
cut and (G) such completed Program. On or before a date to be mutually approved
by Producer and HBO (the "Delivery Date"), Producer shall deliver the videotape
(as hereinafter defined) of each Program.
Within ten (10) business days of such delivery to HBO of any materials, HBO
shall notify Producer whether HBO approves such
<PAGE>
materials. Producer shall make such changes and edits as are reasonably
requested by HBO in such materials at Producer's sole expense; provided,
however, that if HBO requests any changes in material previously approved by HBO
and Producer has made such changes in accordance with such requests, then HBO
shall pay all costs and expenses with any such additional change.
(e) On or before the relevant Delivery Date, Producer shall deliver to
such laboratory as HBO shall designate ("Laboratory") one videotape (the
"Videotape") meeting the technical standards set forth in the production packet
delivered by HBO to Producer and incorporated hereto by reference (the
"Production Packet"). HBO is not granted the right to own or exhibit any
Videotape. If any Videotape delivered to the Laboratory is not, in HBO's sole
judgment, of acceptable technical quality, HBO shall have the right to require
Producer to deliver any additional Videotapes to the Laboratory until HBO
approves such a Videotape. Timely delivery of the Videotape for each Program
meeting the technical standards of the quality set forth in this Agreement is of
the essence of this Agreement.
(f) All costs (including, without limitation, shipping and forwarding
charges and insurance) of transporting any Videotape shall be borne by Producer.
All costs of transporting and preparing the reproductions of any Videotape shall
be borne by HBO.
(g) (i) Producer shall obtain music performing rights ("Performing
Rights") for all musical compositions contained in each Program and controlled
by (A) Broadcast Music, Inc. ("BMI") or (B) any entity other than (1) the
American Society of Composers, Authors and Publishers ("ASCAP") or (2) SESAC
(the "Compositions"). Producer shall deliver to HBO no later than sixty (60)
days prior to the Delivery Date of each Program a music cue sheet for such
Program setting forth the title of each Composition, its running time, composer
and publisher, as well as a fee quote for the Performing Right pertaining
thereto. If such fee is deemed reasonable by HBO, Producer shall obtain the
Performing Right and HBO shall reimburse Producer for the cost thereof within
ten (10) days after receipt of copies of the agreement(s) for such Performing
Right(s). If the fee for any Composition is deemed unreasonable by HBO, Producer
shall not use such Composition in the Program.
(ii) With respect to any musical composition contained in a Program
and controlled by ASCAP or SESAC (the "Other Compositions"), Producer shall use
its best efforts to obtain Performing Right for such musical composition.
Producer shall deliver to HBO no later than sixty (60) days prior to the
Delivery Date of each Program a music cue sheet for such Program setting forth
with respect to each Other Composition its title, running time, composer,
publisher and performing right society, as well as a fee quote for each
Performing Right. If the fee for any such Other Composition is deemed reasonable
by HBO, HBO shall have the right to require Producer to promptly obtain the
Performing Right therefor. HBO shall reimburse Producer for the cost thereof
within ten (10) days after receipt of copies of the agreement for such
Performing Right. If Producer, after using best efforts, is unable to obtain fee
quotes for any of the Other Compositions, Producer shall so notify HBO not later
than 30 days prior to the Delivery Date; such notice shall also set forth (A)
<PAGE>
the names of persons or entities contacted by Producer to acquire the Performing
Rights and (B) the reasons for their refusal to negotiate for the acquisition of
such Performing Rights ("Memorandum of Best Efforts"). If (A) the fee quote for
any of the Other Compositions is deemed unreasonable by HBO or (B) Producer
shall have delivered to HBO the Memorandum of Best Efforts, Producer shall have
no further obligation with respect to obtaining such Performing Right for such
Other Composition, subject to the representations and warranties set forth in
Subsection 12(c), below.
(h) At any time during or after the production of a Program, HBO or its
representatives shall have the right to inspect the books and records of
Producer relating to a Program or the Programs and Producer shall make such
books and records available for inspection by HBO; such right of inspection
shall include the right to copy or extract portions of such books and records.
2. Distribution and Exhibition
(a) (i) HBO is hereby granted the irrevocable, sole and exclusive right to
cause to or to itself distribute, transmit, display, exhibit, exploit, project,
license, simulcast and perform each Program, or any portion thereof
(collectively "distribute" or "distribution", as applicable) by any and all
means, uses and media now or hereafter known, in any and all languages, without
limitation as to the number of exhibitions or Exhibition Days, including without
limitation, distribution by means of Non-Standard Television, Standard
Television, and for Ancillary Uses throughout the Territory in perpetuity, but
excluding Consumer Video Devices and Non-Theatrical Distribution.
(ii) HBO shall have the right to create or cause the creation of a
closed-captioned version of each Program and to cause its distribution
simultaneously with the distribution authorized pursuant to Subsection 2(a),
hereof.
(b) HBO may distribute each Program pursuant hereto as HBO may elect in
its sole discretion and without obtaining any approvals or consents from
Producer or any other person. HBO shall not be required to distribute any
Program; HBO shall have discharged fully its obligations hereunder by paying
Producer the sums herein provided in accordance herewith.
(c) Producer shall not, at any time, produce, cause or permit the
production of any other program similar in content to any Program for
distribution by means of Non-Standard Television, Standard Television or for
Ancillary Uses in the Territory.
(d) As used throughout this Agreement:
"Non-Standard Television" shall mean any and all forms of television
exhibition, whether now existing or developed in the future, other than
exhibitions by means of Standard Television, Consumer Video Devices and
Non-Theatrical Distribution. Non-Standard Television shall include, without
limitation, exhibition by means of cable, wire or fiber of any
<PAGE>
material, "over-the-air pay" or STV in any frequency band, any and all forms of
regular or occasional scrambled broadcast for taping, master antenna, satellite
master antenna, low power television, closed-circuit television, tape, cassette
and disc distribution (excluding Consumer Video Devices), video jukebox
distribution, single and multi-channel multi-point distribution service, direct
to TVRO satellite transmission, and radio (for purposes of simulcasts only), all
on a subscription, pay-per-view, license, rental, sale or any other basis.
"Standard television" shall mean television distributed by a UHF or
VHF television broadcast station, the video and audio portions of which are
intelligibly receivable without charge by means of standard home roof-top or
television set built-in antennas.
"TVRO" shall mean a television earth station capable of receiving
satellite transmissions.
"Ancillary Uses" shall mean any and all means of distribution of a
Program other than Non-Standard Television, Standard Television, Consumer Video
Devices and Non-Theatrical Distribution; Ancillary Uses include, without
limitation, film in all gauges, publications and sound recordings.
"Consumer Video Devices" shall mean distribution and/or exploitation
of a Program by any form of video device, now existing or hereinafter devised,
including video discs and video cassettes for exhibition by means of a playback
device which causes a visual image of the Program on the screen of a television
receiver or any comparable device, whether now existing or hereafter developed,
located in consumer homes, including, without limitation, distribution for sale
or rent, on a retail, subscription, club, mail order or other direct consumer
basis.
"Non-Theatrical Distribution" shall mean distribution of a Program
by any means or methods to educational and institutional organizations, airlines
for in flight distribution, ships-at-sea, remote corporate locations and U.S.
military bases.
"Exhibition Day" shall mean any 24-hour period during which a
Program is exhibited by means of Non-Standard Television one or more times at
the location and on the program service in question.
"First Exhibition" shall mean, with respect to each Program, the
earlier of (A) the first exhibition authorized by HBO for such Program by means
of Non-Standard Television and (B) six (6) months after the delivery to and
acceptance by HBO of the Videotape of such Program.
"Territory" means the United States and Canada and their respective
territories, possessions and commonwealths.
<PAGE>
3. Holdbacks and Restrictions
Producer shall not cause, authorize, license or permit any distribution,
promotion, publicity or advertisement of any Program, any portion thereof, or
any footage from any Program, in any form, by mean of Non-Standard Television,
Standard Television or Ancillary Uses in the Territory, other than by HBO
hereunder, at any time. Producer shall not cause, authorize, license or permit
any distribution, promotion, publicity or advertisement of the Program, or any
portion thereof, in any form:
(a) in the Territory, by means of Consumer Video
Devices, until six (6) months after the First Exhibition;
(b) outside the Territory, by means of Consumer
Video Devices, until six (6) months after the First Exhibition;
and
(c) outside the Territory, by means of Non-Standard Television,
Standard Television, Non-Theatrical Distribution or Ancillary Uses, until one
(1) day after the First Exhibition.
4. Payment
(a) Subject to and as full compensation for Producer's full
performance of all obligations and all rights granted to HBO hereunder, HBO
shall pay Producer, the aggregate amount of $275,000 for each Program (the
"License Fee"). The License Fee for each Program shall be payable by checks
delivered to Producer at the Producer's Address and shall be paid as follows:
(i) $50,000 not later than ten (10) days after notice to HBO
of the later occurring of (A) the commencement of pre-production and (B) receipt
of all necessary approvals for clips and talent;
(ii) $50,000 not later than ten (10) days
after notice to HBO of the commencement of principal photography;
(iii) $50,000 not later than ten (10) days after the later
occurring of (A) approval by HBO of the selected footage or (B) delivery to and
approval by HBO of the certificates of insurance (excluding the E&O Insurance)
required pursuant to this Agreement;
(iv) $50,000 not later than ten (10) days
after the delivery to and approval by HBO of the rough cut; and
(v) $75,000 not later than ten (10) days after the latest
occurring of delivery to HBO and/or to any other entity designated by HBO of (A)
the acceptable Videotape and HBO's approval thereof; (B) the Music Cue Sheet;
(C) an executed
<PAGE>
and notarized copy of the Memorandum of Exclusive License in the form of Exhibit
I hereto; and (D) any confirming quotes for any music synchronization licenses,
music master recording licenses, Performing Rights licenses (or any Memorandum
of Best Efforts) or stock film footage licenses for the Program; (E) a copy of
Producer's transmittal to the U.S. Copyright Office requesting registration of
the copyright in the Program; (F) the E&O Insurance Certificate; and (G)
Producer's compliance with all provisions set forth herein.
Notwithstanding the foregoing, with respect to the first Program
being produced by Producer hereunder ("CRAZY ABOUT THE MOVIES: ANTHONY QUINN)",
(A) Producer acknowledges that the $50,000 installment of License Fee payable
pursuant to (i) above has already been delivered to Producer by HBO and (B) in
lieu of the installment of License Fee payable pursuant to (iv) above, an
installment of $50,000 shall be payable not later than ten (10) days after the
execution and delivery of this Agreement by Producer.
(b) (i) If HBO distributes any Program by means of (A) Non-Standard
Television to any program service other than HBO programming service; (B)
Standard Television; or (C) for Ancillary Uses, HBO shall pay Producer an amount
equal to twenty percent (20%) of the Net Revenues derived from such distribution
after HBO has recouped $75,000 from the distribution of each of the Programs,
provided that such recoupment may be cross-collateralized over all four (4)
Programs. HBO shall not be entitled to any recoupment with respect to a Program
which is not distributed pursuant to this Subsection 4(b)(i).
(ii) Such aggregate amounts set forth in clause (i) above
(collectively, the "Profit Participation") shall be payable by check mailed to
Producer at Producer's Address no later than ninety (90) days after the end of
each semi-annual calendar period (each, an "Accounting Period") during which HBO
receives applicable receipts.
(c) With respect to the Program to be based on the life and career
of Bette Davis or a Program profiling a subject which is a replacement for Bette
Davis, Producer acknowledges that HBO has already advanced development fees in
the amount of $5,000; such amount shall be credited against the License Fee and
shall reduce the first installment of License Fee hereafter payable to Producer
in respect of such Program by $5,000. With respect to the Programs to be based
on the lives and careers of Robert Mitchum and Audrey Hepburn and any Programs
profiling subjects which are replacements for Mitchum or Hepburn, HBO may
advance $10,000 (the "Development Fund"). For each such Program, the amount of
any advance given to Producer from the Development Fund by HBO shall be credited
against the License Fee and shall reduce the first installment of License Fee
hereafter payable to Producer in respect of such Program by the amount of the
advance,
<PAGE>
provided that if HBO does not approve any such Program for production and
Producer subsequently produces such Program distribution by Standard or
Non-Standard Television, HBO shall be entitled to a refund of the amount
advanced or a credit in such amount against amounts payable by HBO to Producer
pursuant to this Agreement or pursuant to another project.
5. HBO's Subdistribution Rights - Producer's Profit
Participation
(a) As used herein:
"Net Revenues" means all monies received by HBO for the distribution
of any Program by means of Non-Standard Television to any program service other
than an HBO programming service, Ancillary Uses or Standard Television, after
deducting only the following:
(i) HBO's distribution fee of thirty-five percent (35%), which
fee shall subsume any agency commission, distribution or subdistribution fee
paid to any third party or parties pursuant to an agency, distribution or
subdistribution agreement.
(ii) All direct out-of-pocket costs and expenses in connection
with such distribution, including, but not limited to, shipping, dubbing,
editing, duplicating, transcribing, handling, translating, advertising,
promoting, custom fees or duties.
(b) If any Program is included with other programs in any package
for which a single price is collected, the Net Revenues attributable to such
Program shall be computed by multiplying the aggregate amount of Net Revenues
received from such package by a fraction, the numerator of which shall be the
Program running time and the denominator of which shall be the aggregate running
time of all programs in such package.
(c) Net Revenues shall be computed in U.S. dollars, and if paid to
HBO in any other currency shall be converted at the applicable rate of exchange
in effect when paid to HBO and shall not accrue hereunder until such payment has
been received by HBO in the Domestic Territory. If any jurisdiction requires
that taxes on such payments be withheld at the source, Producer's Profit
Participation shall be reduced accordingly. If any foreign receipts are frozen
or unremittable in the Territory, HBO shall notify Producer promptly thereof.
Upon Producer's written request and if permissible pursuant to the laws of such
country, HBO shall pay Producer, in such country and in its lawful currency, at
Producer's cost and expense, the Profit Participation amount due to Producer
hereunder. Subject to the foregoing, if HBO receives payment in a foreign
currency, HBO may, at Producer's expense, deposit any affected portion of the
Profit Participation in such foreign currency to Producer's account in a foreign
country. Any such transfer or deposit (as the case may be) and notice to
Producer shall discharge HBO of the Profit Participation obligation attributable
to such revenues.
(d) (i) HBO shall maintain accurate books and records respecting
such distribution. HBO shall deliver to Producer no later than ninety (90) days
after the end of each Accounting Period a written notice of (x) of the amounts
of Net Revenues received during such Accounting Period and the calculation
thereof or (y) that no Net Revenues were received during such Accounting Period.
Such books and records shall be available at HBO's offices during regular
business hours upon
<PAGE>
reasonable notice for inspection by one of the so-called "Big Eight" independent
public accounting firms designated by Producer (the "Auditor"), but not by the
CPA firm that is Producer's independent CPA firm or has been Producer's
independent CPA firm at any time within five (5) years prior to such audit.
(iii) Prior to any such examination Producer shall furnish to
HBO an executed copy of an agreement signed by Auditor which agreement provides
that the audit shall be conducted subject to all the limitations specified in
this subsection 5(d), and which agreement binds Auditor to such limitations.
(A) The audit of HBO shall be limited
to books and records relating to the basis for any payment to Producer hereunder
and under no circumstances shall the Auditor have the right to examine books and
records relating to HBO's business generally or with respect to any programming
licensed from other suppliers.
(B) Any information acquired during the
course of any audit shall be and remain confidential and, except as set forth in
subsections (E) and (F) below, shall not be disclosed to any third party
including Producer; except as otherwise required by law, governmental order or
regulation, or by any order of any court of competent jurisdiction, or as
specifically provided in this subsection 5(d).
(C) In no event shall Producer exercise
its audit rights hereunder more than once in any calendar year, and in no event
shall any audit continue for longer than thirty (30) consecutive days.
(D) If as a result of the audit Auditor
determines that any payment does not require any adjustment, under no
circumstances shall any information acquired during the course of the audit be
disclosed to Producer.
(E) If as a result of the audit the
Auditor discovers any discrepancy in calculation which in Auditor's reasonable
judgment should result in payments made in any calendar year which is the
subject of such audit being adjusted by less than five percent (5%) of the Net
Revenues paid for any such calendar year, then Auditor and HBO shall discuss in
good faith the adjusted payments, if any. If as a result of such discussion
Auditor and HBO resolve the differences between them, under no circumstances
will the Auditor reveal to Producer any information acquired during the course
of the audit other than the resolution.
(F) If as a result of the audit the
Auditor discovers any discrepancy in calculations which in the Auditor's
reasonable judgment should result in payments made during the calendar year
which is the subject of such audit being adjusted by more than five percent (5%)
of the Net Revenues paid for any such calendar year and if as a result of such
discovery HBO acknowledges that such discrepant calculation(s) were made in good
faith and HBO agrees to correct such payment as Auditor requires, then, under no
circumstances will Auditor reveal to
<PAGE>
Producer any information acquired during the course of the audit other than the
resolution. If, however, Auditor believes that such discrepant calculation was
not made in good faith or HBO does not agree to correct such payment, Auditor
may disclose only to the chief financial officer of Producer (who may disclose
such information to relevant individuals within his company) only as much
information acquired during the course of the audit as is necessary for Producer
to pursue its claim for an adjustment with the chief financial officer of HBO.
If the chief financial officers of the parties are unable to resolve the
dispute, each party shall be free to pursue its remedies at law and otherwise;
any information that is not so necessary shall not be disclosed and shall remain
confidential.
(e) In exercising its distribution rights hereunder, HBO shall have
the unconditional right to deal with any person, firm, corporation or other
entity, including, without limitation, any company or venture related to HBO or
its parent company, on such terms as HBO, in its sole judgment, deems fair and
reasonable under the circumstances. Any Program may be distributed under any
plan and in groups with other programs, whether or not HBO has any ownership
interest therein. HBO may distribute programs similar to or competitive with any
Program. HBO shall be the sole owner of the Net Revenues, none of which shall be
deemed held in trust for Producer, the relationship between Producer and HBO
hereunder being one of debtor-creditor.
(f) HBO shall have the right to have any Program dubbed and/or
subtitled in any language HBO deems appropriate for distribution pursuant
hereto. If Producer owns or controls any dubbed or subtitled versions of any
Program, Producer shall include such dubbed or subtitled version with Producer's
delivery of the Videotape of such Program. If HBO dubs or subtitles any Program:
(i) HBO shall cause any translator to assign any and all
rights in and to the translation to Producer, without charge or fee, and HBO
shall be responsible for all payments to such translator respecting HBO's
distribution; and
(ii) for the applicable territories, HBO shall at HBO's own
cost and expense modify any Program to include such additional copyright
information and notice as may be required.
6. Expenses
(a) (i) Producer shall pay all costs and expenses required
respecting the production of each Program and all rights and licenses necessary
for HBO's distribution of such Program hereunder by means of Non-Standard
Television, Standard Television and Ancillary Uses throughout the Territory,
including, without limitation, all residuals or reuse fees (and any pension,
health and welfare contributions applicable thereto) prescribed by any
applicable union or guild collective bargaining agreement (collectively,
"Residuals"); all above-the-line and below-the-line personnel engaged or
employed in connection with such Program; all underlying rights; music
synchronization
<PAGE>
rights, music performing rights, music master recording rights, still photo,
film and videotape footage rights in connection with such distribution and all
other material included in such Program; provided, however that HBO shall pay
all costs for (x) music synchronization rights commencing five (5) years after
the First Exhibition of such Program and (y) any E&O insurance commencing one
(1) year after the First Exhibition of such Program.
(ii) Producer shall pay all persons and/or entities providing
services in connection with each Program at least the minimum scale compensation
prescribed by any union or guild collective bargaining agreement applicable to
such Program and also shall make any required contributions to any such union or
guild's pension, health and welfare fund.
(b) If Producer is involved in any dispute with the Director's Guild
of America (the "DGA") with respect to DGA Residuals due for distribution of any
Program on any HBO programming service, Producer shall promptly notify HBO of
such dispute and forward to HBO a copy of any grievance letter or other written
demand for payment and shall otherwise keep HBO fully informed of the status of
such dispute. HBO shall be entitled, but shall not be obligated, (i) to
participate fully in any arbitration or other proceeding relating to such
dispute and (ii) to be represented by counsel of HBO's choosing. Nothing
contained herein shall be deemed or construed to limit in any way Producer's
obligation under Section 13, below, to indemnify HBO fully for all costs and
expenses (including all reasonable legal fees and expenses) incurred in
connection with any such dispute.
7. Copyright
Producer shall be the sole and exclusive owner of the Programs.
Producer shall include after the credits in the Programs a copyright notice,
clearly visible for at least three (3) seconds, in the following form: "(c)
[year of first exhibition] WOMBAT PRODUCTIONS All Rights Reserved." Producer
shall register or cause to be registered the copyright in the Program in the
United States Copyright Office, designating the Program and all constituent
elements thereof as works made for hire, and shall protect the copyright in the
Program throughout the Territory. Producer shall deliver to HBO an executed and
notarized Memorandum of Exclusive Rights, substantially in the form annexed
hereto as Exhibit I, upon delivery of the Videotape. Producer shall execute such
other assignments and instruments as HBO may from time to time deem reasonably
necessary or desirable to evidence, maintain, protect, enforce or defend its
right or title in or to any such materials. For such purpose only, HBO is hereby
irrevocably appointed the attorney-in-fact of Producer to execute, verify,
acknowledge and deliver any and all such assignments and instruments which
Producer shall fail or refuse to execute, verify, acknowledge or deliver.
<PAGE>
8. Publicity and Promotion
(a) With respect to each Program, for information purposes and to
advertise, promote and publicize such Program, any HBO highlight programming,
and the services of HBO (but not as an endorsement or indication of use of any
other product or service), HBO shall have the right at any time to use, and to
grant others the right to use:
(i) the title of each Program, Producer's name, the name of
any person rendering services on or appearing in such Program, as well as
Producer's and any such person's biography, photographs or likeness and recorded
voice, which shall be subject to any restrictions for which the Producer shall
give HBO written notice of prior to the Delivery Date for such Program; and
(ii) stills from each Program, photographs taken of and during
the production of such Program, clips from such Program and synopses of or
material from such Program.
(b) Producer shall deliver to HBO not later than five (5) days after
completion of taping of each Program a one-inch tape containing 10 to 15 minutes
of clips for such Program.
(c) Producer shall not announce, advertise, promote or publicize any
Program without the prior consent of HBO, other than pursuant to Producer's
exercise of its rights in accordance with Section 3, above.
(d) Not later than ten (10) days after completing videotaping of
each Program, or at such earlier time as HBO shall reasonably request, Producer
shall make available at no additional expense to HBO portions of such Program
(selected by HBO) for use in HBO's sole discretion in preparing on-air
promotional spots for such Program. At HBO's request, Producer shall cooperate
with HBO in the preparation of such on-air promotional spots and HBO shall, if
in HBO's judgment time permits, consult with Producer with respect to such
on-air promotional spots.
(e) Producer shall make available to HBO within five (5) days after
HBO's request therefor and in no event later than sixty (60) days prior to HBO's
proposed First Exhibition of each Program (as notified by HBO to Producer), for
HBO's use in connection with this Section, and at no additional cost, a
reasonable number of color transparencies and black and white stills, one press
kit and such other publicity and promotional materials and photographs of
persons appearing in such Program as are available or as are made available to
Producer.
(f) In addition to any rights to distribute each Program granted
pursuant to Section 2 of the Agreement, HBO shall have the right, and may grant
others the right in the Territory at any time to exhibit such Program and
portions thereof to affiliates, potential affiliates, potential subscribers, the
press, trade groups, specialized civic and community groups, and
<PAGE>
educational or other service institutions, but not to the general public, for
information purposes and to advertise, promote and publicize such Program and
the services of HBO.
9. Non-Delivery Remedies
(a) If Producer fails to deliver the Videotape for any Program to
HBO on or before the Delivery Date applicable to such Program, HBO, in addition
to any other remedies it may have in law or in equity, may elect to require
Producer either:
(i) to repay to HBO, out of first monies received by or
credited to Producer in connection with, or from any exploitation of, such
Program or from any insurance proceeds, any and all amounts paid to Producer
pursuant to this Agreement; or
(ii) to repay to HBO any amounts paid to Producer pursuant to
this Agreement which have not been expended by Producer on the actual production
of such Program by such termination date. Producer shall account to HBO in
writing within ten (10) days of such termination for any amounts so expended. In
such event, Producer shall promptly deliver all elements of such Program
produced by such date and all appropriate licenses of rights in such elements to
HBO. HBO shall be the sole licensee of such elements on the same terms and
conditions of this Agreement, except as shall be modified by the parties to
compensate HBO for any expenses incurred in connection with any additional
elements produced by HBO for use in connection with completing such Program.
(b) If Producer retains control of any Program or any elements
thereof pursuant to this Section, then for the period ending one year after such
termination date, Producer shall not produce, or cause or permit the production
of, any television program for distribution by means of Non-Standard Television
or Standard Television based on or adapted from any Program or any elements
thereof, without giving HBO the first opportunity to enter into an agreement
with Producer therefor on terms and conditions at least as favorable to HBO as
those offered to or by Producer to or by any third party. HBO shall have ten
(10) business days from the date of receipt of written notice from Producer of
any such offer (containing full details in regard thereto) in which to accept or
reject said offer. If HBO fails to accept the same within such ten business
days, then and only then shall Producer be free to enter into such agreement
with said third party. If Producer does not enter into such agreement, this
Subsection (b) shall apply to any subsequent offer received or made by Producer
during said one year period. HBO's failure to accept any offer shall not
constitute a waiver of first refusal with respect to subsequent offers.
10. Insurance
(a) Producer shall (at its own cost and expense)
procure and maintain, at all times during the production of each
<PAGE>
Program the following insurance policies (each of which shall name HBO as a
named insured and shall be issued by an insurance company reasonably acceptable
to HBO):
(i) workmen's compensation insurance adequate to comply with
all statutory requirements covering all persons employed by Producer in
connection with the Program, including if applicable, foreign worker's
compensation insurance (which policy shall include an employer liability
endorsement and a repatriation expense rider);
(ii) public liability insurance (including coverage for owned
and hired vehicle liability and hired aircraft liability, if aircraft is to be
used in connection with the production of the Program) having a combined single
limit of at least $1,000,000, per occurrence and $2,000,000 in the aggregate,
for bodily injuries to any number of persons arising out of the same accident
and for property damage; and
(iii) insurance (with a limit not less than the Program
production budget) covering (A) the theft, destruction or loss of the Videotape;
(B) the theft, destruction or loss of props, sets, wardrobe having a minimum
limit of the aggregate budgeted amount for such items; (C) the theft,
destruction or loss of all miscellaneous equipment having a minimum amount equal
to the replacement value of all equipment owned, rented, leased or loaned; (D)
additional expense having a minimum limit reasonably satisfactory to cover all
out of pocket expenses resulting from such a loss; (E) third party property
damage having a minimum limit of $250,000; (F) videotape; and (G) faulty stock,
camera and processing, having a minimum limit reasonably satisfactory to cover
all out-of-pocket expenses resulting from such loss.
(b) Producer shall (at its own cost and expense) procure and
maintain in full force and effect standard produce's liability (errors and
omissions) insurance issued by a nationally recognized insurance carrier
acceptable to HBO covering each Program with minimum limits of at least one
million dollars ($1,000,000) for any claim arising out of a single occurrence
and three million dollars ($3,000,000) for all claims in the aggregate (the "E
and O Insurance"). Such E and O Insurance:
(i) shall be written on either (A) an occurrence basis,
remaining in full force and effect during a period of two (2) years commencing
on the First Exhibition for such Program, or (B) a claims-made basis, covering
any claims made at any time during the twelve (12) month period commencing on
the First Exhibition for such Program;
(ii) may not be canceled without sixty (60)
days prior written notice to HBO;
(iii) shall not carry a deductible larger than
ten thousand dollars ($10,000) unless otherwise approved by HBO;
<PAGE>
(iv) shall cover the content of such Program and the title
thereof, including without limitation, Producer's representations and warranties
as set forth in subsections 12(a) and (b), below, and such coverage shall be so
stated on the certificate of insurance; and
(v) shall name HBO as an additional insured, its parent,
subsidiaries and related companies, its licensees and affiliates and its
officers, directors, agents and employees.
(c) Producer shall deliver to HBO valid insurance certificates (in
form and substance reasonably satisfactory to HBO) evidencing the insurance
coverage required hereby. Upon any cancellation of any insurance policy required
hereby, and prior to the effective date thereof, Producer shall deliver
replacement insurance to HBO issued by an insurance company acceptable to HBO.
11. Credits
Each Videotape delivered to the Laboratory shall contain only one
opening credit stating "CINEMAX Presents" and a final closing credit stating
"This Has Been A CINEMAX Presentation." No Program shall contain any commercial
announcements and any promotional or commercial credits. The closing credits
shall not include any logos (other than Producer's non-animated logo), graphics,
photographs, addresses, telephone numbers or voice-over mentions. No Program
shall contain any visual or audio promotional credits for the sale or
distribution of any Consumer Video Devices of the Program. HBO shall receive a
credit on the packaging of all Consumer Video Devices of any Program as follows:
"As First Seen on CINEMAX." Producer shall use its best efforts to ensure that
such a credit is also included on all paid advertising for any such Consumer
Video Devices of a Program.
12. Producer's Representations, Warranties and Covenants
Producer hereby warrants, represents and covenants to HBO as
follows:
(a) No Program nor any element thereof shall violate the right of
privacy or publicity of, or defame, or violate the copyright, trademark or
service mark, common law or other right (including, without limitation, any
literary, dramatic, comedic, musical or photoplay right) of any person, firm or
corporation or violate any other applicable law.
(b) (i) Producer has the right to enter into this Agreement, to
grant the rights herein granted and to perform fully all of its obligations and
agreements hereunder. Producer shall employ or engage writers who shall be the
sole authors of each Script and of all the material contained therein. All such
material shall be wholly original with such writers, and not copied in whole or
in part from any other work, or is duly licensed or is in the public domain.
Producer will enter into appropriate written agreements with all third parties
providing
<PAGE>
work in connection with each Program, which agreements shall provide that such
work is a work made for hire. Producer has acquired all rights necessary to
Producer's grant of rights to HBO hereunder and Producer is the sole owner of
all such rights, (and will at HBO's request deliver to HBO copies of all such
documents as evidence of Producer's acquisition of such rights) including,
without limitation, all copyrights, music synchronization rights, still photo,
film or videotape footage licenses or other appropriate licenses of all elements
of each Program or such constituent elements are owned by Producer or are in the
public domain.
(ii) Producer shall furnish to HBO, prior to delivery of each
Videotape, a Music Cue Sheet, setting forth with respect to each Composition
such Composition's running time, composer, publisher and performing rights
society.
(c) With respect to each Composition, the non-dramatic musical
performing rights necessary for exhibition of each Program hereto are: (i)
controlled by American Society of Composers, Authors and Publishers ("ASCAP") or
SESAC, (ii) in the public domain or (iii) owned by or licensed to Producer. HBO
may replace any musical composition in any Program if at any time during the
Copyright Term a performance license from any such performing rights society for
such Composition cannot be obtained or maintained as may be necessary for HBO's
distribution of such Program hereunder.
(d) The credits contained in each Program are complete and accurate
and omit no party or entity entitled to any credit for providing services on
such Program, nor is any credit provided therein inaccurate, improper or
insufficient.
(e) Producer shall cause to be conducted a copyright and trademark
clearance search of the title of each Program and that pursuant to such search
such title is available for use for the Program by means of Non-Standard
Television, Standard Television and Ancillary Uses in the Territory.
(f) None of the rights herein granted to HBO has been transferred to
any third party; said rights are free of any liens, claims and encumbrances
whatsoever in favor of any other party; and said rights have not been in any way
limited, diminished or impaired. There are no claims, litigation or other
proceedings pending or threatened which would adversely affect HBO's rights
hereunder.
(g) Producer shall announce, or cause to be announced, at each place
where videotaping will occur, that such videotaping is occurring and will notify
any audience there present that they may be seen on the Program.
(h) Each Videotape shall be delivered by Producer to HBO in
accordance with the Production Packet and shall be delivered on or before the
Delivery Date for each Program.
<PAGE>
(i) Program has obtained from all persons appearing in each Program
a release form, signed by each such person (and if a minor, also a parent or
legal guardian), such release form to be complete and to include all conditions
and statements necessary for HBO's full enjoyment and enforcement of its
distribution and promotion rights hereunder. HBO shall have the right to review
and approve any such release form, upon request.
13. HBO's Warranties
HBO hereby represents and warrants to Producer that it has the right
to enter into this Agreement and perform all of its obligations hereunder.
14. Indemnification
(a) Producer assumes liability for, and hereby agrees to indemnify,
defend, protect, save and hold harmless HBO from and against any and all claims,
actions, suits, costs, liabilities, judgments, obligations, losses, penalties,
expenses or damages (including, without limitation, reasonable legal fees and
expenses whether or not incurred in the course of litigation and whether or not
incurred by HBO in enforcing the terms of this Agreement against Producer) of
whatsoever kind and nature imposed on, incurred by or asserted against HBO,
arising out of any breach or alleged breach by Producer of any representation,
warranty, covenant or obligation made by Producer pursuant to the Agreement.
(b) HBO assumes liability for, and hereby agrees to indemnify,
defend, protect, save and hold harmless Producer from and against any and all
claims, actions, suits, costs, liabilities, judgments, obligations, losses,
penalties, expenses or damages (including, without limitation, reasonable legal
fees and expenses whether or not incurred in the course of litigation and
whether or not incurred by Producer in enforcing the terms of this Agreement
against HBO) of whatsoever kind and nature imposed on, incurred by or asserted
against Producer, arising out of any breach or alleged breach by HBO of any
representation, warranty, covenant or obligation made by HBO pursuant to the
Agreement.
(c) To seek or receive indemnification hereunder:
(i) the party seeking indemnification must have promptly
notified the other of any claim or litigation of which it is aware to which the
indemnification relates; and
(ii) the party seeking indemnification must have afforded the
other the opportunity to control with counsel retained at the indemnifying
party's cost and expense, any compromise, settlement, litigation or other
resolution or disposition of such claim or litigation.
<PAGE>
15. Independent Contractors
Producer and HBO are independent contractors with respect to each
other. Nothing herein shall create any association, partnership, joint venture
or agency relationship between them. Producer shall be fully responsible for all
persons employed by Producer in connection with Producer's performance
hereunder, including, without limitation, responsible for all compensation,
withholding taxes, worker's compensation insurance and other required payments
in connection with such employees, except as otherwise specifically and
explicitly provided herein.
16. Confidentiality
Neither Producer nor HBO shall disclose to any third party (other
than its respective employees, in their capacity as such), any information with
respect to the financial terms of this Agreement except: (a) to the extent
necessary to comply with law or the valid order of a court of competent
jurisdiction, in which event the party making such disclosure shall seek
confidential treatment of such information; (b) as part of its normal reporting
or review procedure to its parent company, its auditors, its attorneys and to
profit participants (and said parent company, auditors, attorneys and profit
participants agree to be bound by the provisions of this Section) and (c) in
order to enforce its rights pursuant to this Agreement. Any third party
disclosing such information hereunder shall give the other party hereto written
notice of the nature and scope of such disclosure, and the justification
therefore pursuant to this Section as promptly as possible and in any event
reasonably prior to any such disclosure being made.
17. Remedies
(a) If HBO breaches any provisions of this Agreement, the damage, if
any, caused Producer thereby will not be irreparable or otherwise sufficient to
entitle Producer to injunctive or other equitable relief. Producer's rights and
remedies in any such event shall be strictly limited to the right, if any, to
recover damages in an action at law. Producer shall not be entitled by reason of
any such breach to rescind this Agreement, or to restrain HBO's exercise of any
of the rights granted to HBO hereunder, or to enjoin or restrain the
distribution or exhibition of any version of the Program hereunder, or any
advertising, publicity or promotion in connection therewith. All remedies,
rights, undertakings, obligations and agreements contained in the Agreement
shall be cumulative and none thereof shall be in limitation of any other remedy,
right, undertaking, obligation or agreement of either party.
(b) Producer acknowledges and agrees that HBO's reputation and
success depend upon its ability to offer subscribers premium quality
entertainment which is not available on any other programming service during a
certain period as set forth herein, that each Program is an example of such
premium quality entertainment and that a breach by Producer of any provision of
this Agreement would cause HBO irreparable injury and damage. Producer,
therefore, agrees that in addition to any other right injunctive and other
equitable relief against Producer to prevent any breach of any aforesaid
provision by Producer. Resort by HBO to equitable relief, however, shall not be
construed as a waiver by HBO of any other rights or remedies HBO may have
against Producer for damages or otherwise.
<PAGE>
18. Claims
If HBO receives any claim for any Program that is inconsistent with
any of the representations, warranties and covenants made by Producer herein,
and HBO, in its sole discretion, deems itself placed in jeopardy of suffering
any liability as a result of such claim, HBO may notify Producer in writing
thereof and containing the full details of such claim as then known to HBO.
Thereafter, until the claim has been finally adjudicated or settled, HBO, in its
sole discretion, in addition to and without prejudice to any other right or
remedy HBO may have in law or in equity or under this Agreement, may withhold
all monies becoming due or payable to Producer pursuant to this Agreement, such
amount to be reasonably related to the amount of such claim. Upon the final
adjudication, settlement or other final disposition of such claim, HBO shall
disburse all such withheld funds to Producer or to any other party entitled
thereto, in accordance with the terms of any such adjudication, settlement or
other final disposition. Notwithstanding the foregoing, in the event that (i)
HBO has received a claim relating to any Program and has resultantly withheld
monies due or payable to Producer, (ii) such claim has not become an action
within six (6) months of the first withholding by HBO of monies due or payable
to Producer and (iii) HBO is not then in settlement discussions regarding such
claim, HBO shall disburse all such withheld funds to Producer.
19. Severability
Nothing contained in this Agreement shall be construed to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision of this Agreement and any statute, law, ordinance, order
or regulation contrary to which the parties hereto have no legal right to
contract, such statute, law, ordinance, order or regulation shall prevail;
provided, that, in such event (a) the provision of this Agreement so affected
shall be limited only to the extent necessary to permit compliance with the
minimum legal requirement, (b) no other provisions of this Agreement shall be
affected thereby, and (c) all such other provisions shall continue in full force
and effect. The parties shall negotiate in good faith to replace any invalid,
illegal, or unenforceable provision (the "Invalid Provision") with a valid
provision, the effect of which comes as close as possible to that of the Invalid
Provision.
<PAGE>
20. Miscellaneous
(a) Notices All notices and other communications between the parties
hereto shall be in writing and shall be deemed received when delivered in
person, by telex or telegram, or five (5) days after deposited in the United
States mails, postage prepaid, certified or registered mail addressed to the
other party at the address set forth below (or at such other address as such
other party may supply by written notice):
Producer ("Producer's Address"):
Wombat Productions, a division of CorTech Communications, Inc.
250 West 57th Street
Suite 2421
New York, NY 10019
Attention: Gene Feldman
cc: Devillier-Donegan Enterprises, Inc.
1608 New Hampshire Avenue, N.W.
Washington, D.C. 20009
HBO:
Home Box Office, Inc.
1100 Avenue of the Americas
New York, NY 10036
Attention: Senior Vice President, Business Affairs
cc: Senior Vice President and General Counsel
(b) Further Documents Each party hereto shall execute any and all
further documents or instruments which either party hereto may deem reasonably
necessary and proper to carry out the purposes of this Agreement.
(c) Prior Agreements, Waivers, and Amendments This Agreement
contains the full and complete understanding among the parties hereto,
supercedes all prior agreements and understandings, whether written or oral
pertaining thereto and cannot be modified except by a written instrument signed
by each party hereto. No waiver of any term or condition of this Agreement shall
be construed as a waiver of any other term or condition; nor shall any waiver of
any default under this Agreement be construed as a waiver of any other default.
<PAGE>
(d) Headings, Titles The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
(e) Governing Law This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, applicable to contracts
entered into and to be fully performed therein.
(f) Assignments Producer shall not assign any of its rights or
obligations hereunder without the prior written consent of HBO, and any
purported assignment without such prior written consent shall be null and void
and of no force and effect.
(g) Survival All representations and warranties contained herein or
made by Producer in connection herewith shall survive any independent
investigation made by HBO and the execution, delivery, suspension and
termination of this Agreement or any provision hereof.
(h) Reservation of Rights Any rights to the Programs which are not
expressly granted to HBO pursuant to the terms hereof are reserved by, and
remain with, Producer.
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Agreement as of the date first written above.
HOME BOX OFFICE, INC.
March 7, 1990 By _____________________
Date Name:
Title: Vice President
WOMBAT PRODUCTIONS, a division of CorTech
Communications, Inc.
February 16, 1990 By ______________________
Date Name:
Title: President
<PAGE>
EXHIBIT I
Memorandum of Exclusive Rights
KNOW ALL PERSONS BY THESE PRESENTS:
In consideration of Ten Dollars, receipt of which is hereby acknowledged,
paid by Home Box Office, Inc. ("HBO"), and for other good and valuable
consideration, the undersigned ("Producer") does hereby grant, assign and
license to HBO, its successors and assigns, the exclusive rights to distribute
the television program tentatively entitled "CRAZY ABOUT THE MOVIES:
_______________" (the "Program") for exhibition by means of Non-Standard
Television, Standard Television and Ancillary Uses throughout the Territory, in
perpetuity.
Producer shall not cause, authorize, license or permit any
distribution, promotion, publicity or advertisement of the Program, or any
portion thereof, in any form:
(i) in the Territory, by means of Consumer
Video Devices, until six (6) months after the First Exhibition;
(ii) outside the Territory, by means of
Consumer Video Devices, until six (6) months after the First
Exhibition;
(iii) outside the Territory, by means of Non-Standard
Television, Standard Television, Non-Theatrical Distribution or Ancillary Uses,
until one (1) day after the First Exhibition.
"Non-Standard Television" means any and all forms of
television exhibition, whether now existing or developed in the future, other
than exhibitions by means of Standard Television, Consumer Video Devices and
Non-Theatrical Distribution. Non-Standard Television shall include, without
limitation, exhibition by means of cable, wire or fiber of any material,
"over-the-air pay" or STV in any frequency band, any and all forms of regular or
occasional scrambled broadcast for taping, master antenna, satellite master
antenna, low power television, closed-circuit television, tape, cassette and
disc distribution (excluding Consumer Video Devices), video jukebox
distribution, single and multi-channel multi-point distribution service, direct
to TVRO satellite transmission, and radio (for purposes of simulcasts only), all
on a subscription, pay-per-view, license, rental, sale or any other basis.
<PAGE>
"Standard Television" means television distributed by a UHF or
VHF television broadcast station, the video and audio portions of which are
intelligibly receivable without charge by means of standard home roof-top or
television set built-in antennas.
"TVRO" means a television earth station capable
of receiving satellite transmissions.
"Ancillary Uses" means any and all means of distribution of
the Program other than Non-Standard Television, Standard Television, Consumer
Video Devices and Non-Theatrical Distribution; Ancillary Uses include, without
limitation, film in all gauges, theatrical motion picture exhibition,
publications, merchandising, commercial tie-ups, sound recordings, and radio
broadcasts (other than simulcasts).
"Consumer Video Devices" means any form of video device, now
existing or hereafter devised, including video discs and video cassettes for
exhibition by means of playback device causing a visual image of the Program on
the screen of a television receiver or any comparable device on video disc or
video cassette players or other similar devices whether now existing or
hereafter developed, located in consumer homes, including, without limitation,
distribution for sale or rent, on a retail, subscription, club, mail order or
other direct consumer basis.
"Non-Theatrical Distribution" means distribution of the
Program by any means or method to educational, institutional organizations,
airlines for in-flight and trains for in-transit distribution, ships-at-sea,
remote corporate locations and U.S. military bases.
"Exhibition Day" means any 24-hour period during which the
Program is exhibited by means of Non-Standard Television one or more times at
the location and on the program service in question.
"First Exhibition" means the first HBO authorized Non-Standard
Television exhibition of the Program.
"Territory" means the United States and Canada and their
respective territories, possessions and commonwealths.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these presents to be signed
by its duly authorized officer on the 16th day of February, 1990,
WOMBAT PRODUCTIONS, a division of CorTech
Communication, Inc.
By /s/ Gene Feldman
STATE OF NEW YORK )
: ss. :
STATE OF NEW YORK )
On the 16th day of February, 1990 before me personally came Gene Feldman,
to me known, who, being by me duly sworn, did depose and say that he resides at
250 West 57th Street, New York City; that he is the President of Wombat
Productions, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the board of
directors of said corporation.
Robert I. Freedman
Notary Public
Exhibit 6(b)(ii)(5)
PUBLIC BROADCASTING SERVICE
NATIONAL PROGRAM PRODUCTION AN DISTRIBUTION
AGREEMENT PROGRAM
Agreement made as of June 3, 1993 between Wombat Productions ("Producer"),
and the Public Broadcasting Service ("PBS"), a nonprofit corporation organized
under the laws of the District of Columbia.
WHEREAS, PBS is responsible for developing and delivering a national
program service to public television stations;
WHEREAS, the Station Independence Program ("SIP") of PBS is responsible for
assuring the production of high-quality television specials designed to maximize
public television stations' on-air fundraising efforts;
WHEREAS, Producer desires to produce a sixty-minute Program entitled
AUDREY HEPBURN REMEMBERED (w.t.)
for distribution to public television stations as a SIP fundraising special
("Program"); NOW, THEREFORE, the parties hereto mutually agree as follows:
1. Program Production
1.1 Producer agrees to produce the Program in accordance with (i) the
description thereof attached hereto as Exhibit A, (ii) the Program Budget,
attached hereto as Exhibit B and (iii) the PBS Production Cost Principles and
Procedures.
1.2 Producer will furnish and/or arrange for all necessary Program
elements, rights and permissions and for all personnel, services and facilities
required for acquisition or production and recording of the Program. Producer
will maintain, or will arrange to have maintained, a complete file of all
<PAGE>
funding agreements, production subcontracts, property acquisitions, rights
arrangements, talent contracts, employment agreements, clearance forms and other
agreements or documents related to Program production or acquisition and will
make copies of the same available to PBS upon reasonable request.
1.3 Program acquisition and production shall be under Producer's direct
supervision and co-production arrangements and subcontracts for substantial
Program production hereunder may not be made by Producer without prior PBS
approval. All expenditures in connection with the Program will be on Producer's
own behalf so that any obligations incurred by Producer with respect to the
Program will be at Producer's own risk without obligation of any kind on the
part of PBS to such obligee. Nothing herein shall be deemed to create any
association, partnership or joint venture between PBS and Producer with respect
to the Program or otherwise.
1.4 Producer acknowledges that SIP member stations have delegated to PBS
the responsibility of delivering to them programs designed not only to meet the
highest artistic and journalistic standards, but also to motivate viewers to
contribute to their local public television stations. Producer agrees that PBS
shall be entitled to participate in the pre-production, production and
post-production creative decision making process in order to ensure maximum
fundraising potential of the completed Program. Producer therefore agrees to
consult with PBS on Program production matters and agrees to give reasonable
good faith consideration to any suggestions made by PBS. As part of such
consultation, Producer agrees to provide PBS with scripts or script outlines as
requested by PBS; to invite an individual designated by PBS to attend principal
shooting and editing sessions upon request and to screen the rough and fine cuts
of the Program on a timely basis. All final creative and production decisions
<PAGE>
shall be made by Producer provided, however, that PBS shall have approval over
the format and placement in the Program of pledge breaks and the use of any
narration, text, or other Program material that makes specific reference to
talent or viewer support of public television.
1.5 Material changes from the Program Description in Exhibit A and in any
of the major items of the Program Budget cannot be made without the express
approval of PBS.
1.6 The Program shall bear a proper copyright notice in the name of
Producer, and Producer will take all steps necessary and appropriate within its
control to protect all copyright and other property rights.
2. Program Rights
2.1 Producer hereby grants to PBS the right to duplicate the Program as
desired and distribute the same by interconnection or recording for broadcast
and rebroadcast throughout the United States, its territories and possessions
(including Puerto Rico) ("License Area") over any and all public television
stations and state networks.
2.1.1 Producer grants to PBS the nonexclusive right to caption the Program,
to duplicate and to perform publicly the captions whether in open or closed
captioned format in any medium or form and under the same terms and conditions
under which PBS, pursuant to this Agreement or by separate agreement, shall
obtain the right to duplicate, distribute, broadcast or otherwise exhibit the
Program. To the extent PBS exercises the right to caption granted hereunder, the
captioning shall be considered a work made for hire, and, as such, Producer
shall own all rights in the captions, subject to the duplication and public
performing rights granted to PBS.
<PAGE>
2.1.2 Producer grants to PBS the nonexclusive right to describe the Program
on a separate audio channel as a special service for the visually impaired.
Producer further grants to PBS the nonexclusive right to duplicate and perform
publicly the descriptions in any medium or form and under the same terms and
conditions under which PBS, pursuant to this agreement or by separate agreement,
shall obtain the right to duplicate, distribute, broadcast or otherwise exhibit
the Program. To the extent PBS exercises its rights granted hereunder to add
descriptions to the Program, the addition of the descriptions shall be
considered a work made for hire, and, as such, Producer shall own all rights in
the descriptions, subject to the duplication and public performing rights
granted to PBS.
2.1.3 The rights granted pursuant to this paragraph shall consist of an
initial public television release and five additional releases during a
thirty-seven month period commencing on August 1, 1993, provided that the
Program has been delivered to PBS in accordance with this Agreement (the
"License Term"). Producer shall use its reasonable efforts to obtain additional
releases for a longer period of time. For the purposes hereof, a "public
television release" shall mean unlimited broadcasts over any and all public
television stations during a seven-day period commencing with each station's
first broadcast of the Program (either on a live or delayed basis) plus the
right to authorize educational institutions in the License Area to record the
Program off-air and to retransmit the Program over limited frequency, closed
circuit and playback facilities for educational purposes for seven (7) days
following any broadcast.
2.2 Except as otherwise specified in Exhibit A, Producer further grants to
PBS during the License Term, (i) the right to duplicate, distribute and
authorize broadcast, rebroadcast and cablecast of the Program on a nonsponsored,
sustaining basis over commercial television stations or cable channels in any
geographic area in the License Area not serviced by a public television station,
(ii) the right to duplicate, distribute and authorize cablecast of the Program
during the seven-day release period on a
<PAGE>
during the seven-day release period on a sponsored, sustaining basis over
non-pay cable channels programmed and operated by public television stations,
and (iii) the right to duplicate, distribute and authorize broadcast and
rebroadcast of the Program audio, whether separately or on a simulcast basis, on
public radio stations, and on commercial radio stations on a nonsponsored,
sustaining basis, in the license area.
2.3 The Program will be completely exclusive to PBS in the License Area
prior to and during the License Term. Producer agrees that it will not otherwise
license, authorize or permit the following uses of the Program in the License
Area prior to or during the License Term: (i) broadcast of the Program over
public or commercial television or radio stations; (ii)cablecast of the Program
over cable systems; or (iii) theatrical release of the Program. Producer further
agrees that there will be no broadcast, cablecast or theatrical release of the
Program in Canada prior to and during the License Term.
2.4 Producer shall share with PBS revenue generated from all ancillary
sales, license and other distribution of the Program, Program elements or
material derived from or based upon the Program, in accordance with Exhibit C.
PBS's right to share in Ancillary Revenue shall include, but not be limited to,
revenue generated from all domestic and foreign sale or license of the Program
and Program elements, and revenue generated form the sale or license of video
and/or audio recordings of the Program or elements thereof.
2.5 If Producer desires to sell or license broadcast or cablecast rights in
the Program for any period commencing within three years of the conclusion of
the License Term, PBS shall be entitled to a right of first negotiation and last
refusal which shall operate as follows: (a) Producer shall not engage in
negotiations with any third party for such rights before engaging in good faith
negotiations with PBS; (b) if no agreement is reached between Producer and PBS
after such negotiations, Producer may enter into negotiations with third
parties; provided, however that (c) if Producer offers any of the aforementioned
rights to a third party, Producer shall inform PBS in writing of the price and
terms on which Producer proposes to sell or license such rights to such third
party; and (d) PBS shall then have 20 days in which to meet such price and
terms, also in writing, failing which Producer shall be free to sell or license
such rights to a third party at a price and terms no more favorable to such
third party than those of which Producer notified PBS.
2.6 During the License Term, the Program concept and title will be
completely exclusive to PBS in the License Area and Producer will not otherwise
license or authorize any broadcast or cablecast of any Program or Series with
the same or similar concept or title in the License Area during the License Term
without prior approval from PBS.
2.7 All versions of the Program produced for PBS and licensed for non-PBS
exhibition, in addition to including the standard funding credit(s), shall
include the standard PBS logo. If, however, the distributor cannot agree to
distribute the Program with the PBS logo, Producer shall undertake to
incorporate into the closing production credits the following acknowledgment:
"This Program (or "AUDREY HEPBURN REMEMBERED") was originally produced for the
Public Broadcasting Service." PBS acknowledges that the inclusion of standard
funding credits in programs licensed for foreign broadcast is subject to
applicable foreign law and custom.
<PAGE>
2.8 All rights other than those specifically granted to PBS hereunder,
subject only to the limitations provided hereunder, are retained and reserved to
Producer for its own exercise. In no event will arrangements with respect to any
ancillary rights in the Program made by Producer materially interfere with the
rights granted to PBS hereunder.
3. Program Funding
3.1 PBS hereby agrees to pay Producer up to $250,000 (the "Program
Payment") towards the production of the Program in accordance with the Program
Budget contained in Exhibit B. Producer acknowledges having received an advance
against the PBS Program Payment in the amount of $25,000. The $225,000 balance
of the Program Payment will be paid in accordance with the payment schedule
contained in Exhibit D. The total budgeted production cost for the Program, in
accordance with the Program Budget, is $469,105 ("Total Budget").
3.2 Producer agrees that it will complete and deliver the Program in its
entirety, even if any funding from any source other than PBS is not forthcoming,
and regardless of whether or to what extent the final total costs of the Program
may exceed the Total Budget.
3.3 Producer agrees not to make substantial revisions in the Program Budget
or to apply funding to the production of the Program from third parties without
prior approval from PBS, which shall not be unreasonably withheld.
3.4 The Program Payment shall be paid in the manner and at the times
specified in Exhibit D. Payments made hereunder are subject to Producer's
compliance with the terms and conditions of this Agreement and to the delivery
and acceptance of the reports specified in paragraph 7.1 hereof. The payment
schedule specified in Exhibit D may be modified in the event that PBS makes a
<PAGE>
reasonable determination that Producer will not be financially able to perform
its obligations under this Agreement. Producer will notify PBS in a timely
manner if it is successful in its efforts to secure Program underwriting.
3.5 Producer agrees that all funds provided by PBS to Producer are provided
on a cost-reimbursement basis only, and that in no event will any portion of the
Program Payment (except for the production fee, if any) be disbursed or applied
by Producer for any purpose other than Program production and promotion
hereunder, it being understood that this provision allows all payments made
hereunder to be comingled with other production funds. No commitment, express or
implied, is assumed by PBS to provide any funds in excess of the Program Payment
or to extend or modify in any way the indicated scope of the Program.
3.6 Producer acknowledges that the Programs are being funded by PBS in
connection with the Station Independence Program and that the primary source of
the Program Payment is payments made to PBS by participating public television
stations. If defaults occur on stations' purchase obligations which
significantly affect payments made to PBS by purchasing stations, PBS and
Producer at PBS's election, agree to enter into good faith negotiations to
modify this agreement with respect to delivery, budget, payment schedule, and
other terms as may be necessary to accommodate any resulting delay or shortfall
in the Program Payment.
4. Program Delivery
4.1 Producer will deliver to PBS, at Producer's expense, all Program
materials in accordance with the schedule set forth in Exhibit E and at such
time(s) and place(s) as PBS may designate.
4.2 Producer shall use its best efforts to make VHS cassettes of the
Program available to stations for use as membership thank you gifts. The cost to
<PAGE>
the stations will be approximately $10 per cassette, plus shipping and handling.
4.3 The Program will conform to the PBS Technical Operating Specifications,
excerpts of which are attached hereto as Exhibit F, relating to technical
quality for interconnection, recording and broadcasting, stereo sound, color
standards, opening and closing credits and cues, and similar matters. Producer
will remake the Program to conform to amendments or alterations in the PBS
Technical Operating Specifications made after completion of production of the
Program at PBS's reasonable request and expense.
4.4 The Program shall comply with the following PBS policies:
(a) PBS "National Program Funding Standards and Practices," incorporated
herein by reference;
(b) Statement of Policy on Program Standards, incorporated herein by
reference (attached as Exhibit G);
(c) Public Broadcasting Journalism Policy, incorporated herein by reference
(attached as Exhibit H);
(d) PBS Guidelines for On-Air Announcements Promoting Program-Related Goods
and Services (attached as Exhibit I);
(e) all other PBS policies existing at the effective date of this Agreement
and those thereafter duly promulgated by PBS; provided, however, that any of the
aforesaid policies promulgated or amended subsequent to the effective date of
this agreement which materially alter the obligations and responsibilities of
Producer hereunder will be deemed to be subject to paragraph 11.3 hereof. If
adoption of any such policy would require edits or modification to the completed
Program, Producer shall remake the Program to conform to the policy at PBS's
expense.
4.5 Producer warrants that the Program shall comply with applicable
provisions of the Communications Act of 1934, as amended, all applicable rules
<PAGE>
and regulations of the Federal Communications Commission (including Sections 317
and 508 of the Communications Act and Section 73.1212 of FCC rules and
regulations concerning payola and plugola, attached as Exhibit J) and all other
state and federal laws and regulations pertaining to the production,
duplication, distribution and broadcast of programs. In the event that
modifications to the Program may be required to achieve compliance with this
paragraph or that the Program may raise any other legal question relating to the
broadcast of the Program, Producer will give PBS detailed notification in
writing at least three weeks before delivery of the Program or as soon as
Producer is aware thereof, describing the problem and the proposed solution.
4.6 PBS shall retain any and all videotape stock for the Program delivered
pursuant hereto, which may either be erased, or archived after distribution
hereunder.
5. Program Distribution
5.1 PBS undertakes to distribute the Program for broadcast subject to its
available resources, established PBS practices and policies, and Producer's
compliance with all terms and conditions herein. Producer will not represent or
imply any intention on the part of PBS to distribute the Program without having
first received express notice from PBS that such representations may be made.
PBS shall have the right to schedule, reschedule or pre-empt the Program, after
having first notified Producer.
5.2 PBS will not (and will not authorize any television station to) make
any changes in the content of the Program, cut, edit or otherwise alter the
Program without notice to and consultation with Producer provided that nothing
in this paragraph shall prohibit PBS or any such station from interrupting the
Program -- in the event of any emergency or other eventuality of national or
local public importance -- to cover such emergency or eventuality. A public
<PAGE>
television station may, without prior notice to or consultation with Producer or
PBS, cut, edit or otherwise alter the Program only as provided in the PBS
station Users Agreement, which is attached hereto as Exhibit J.
6. Program Promotion
6.1 Producer will furnish PBS promotion and publicity materials as set
forth in Exhibit E and such other or additional materials that may be available
as PBS may reasonably request. PBS agrees that it shall use its reasonable
efforts to utilize all such materials for the promotion of the Program.
6.2 PBS may use and authorize others to use the Program title, the names,
voices, likenesses and biographies of all persons in connection with the Program
(including the right to excerpt portions of the Program or Program elements of
no longer than three minutes in length) for the purpose of advertising,
promoting or publicizing the Program or for institutional promotion. Producer
shall be responsible for obtaining the rights necessary to enable PBS to conduct
promotion in accordance with this paragraph, at no charge to PBS, and shall
notify PBS in writing and in advance of Program delivery whenever such rights
are not obtained.
6.3 Producer agrees to comply with the PBS "Promotion and Advertising
Guidelines," as contained in the PBS "National Program Funding Standards and
Practices," incorporated herein by reference.
7. Reports and Records
7.1 Producer shall provide PBS with interim production status reports and
financial reports as PBS may reasonably require during Program preparation and
production, including, without limitation, statements certified by Producer's
<PAGE>
chief financial officer as to the exact status of the Program for which payments
have been made to Producer but which has not yet been delivered to PBS. Within
one hundred and twenty (120) days after delivery of the Program hereunder, and
within one hundred and twenty (120) days after completion of the Program,
Producer shall submit final and complete financial reports to PBS for the
Program which will provide actual cost data directly comparable to the line
items of the Program Budget.
7.2 Producer shall provide to PBS reports specifying the amount of income
received by Producer from ancillary sales as set forth in Exhibit C. These
reports shall be provided within thirty days after December 31 of each year
hereafter beginning with the December 31 immediately following initial
distribution of the Program or related materials in any media and ending when
any two consecutive reports reflect that Producer has received no such income
for the periods covered by such reports; provided, however, that the reporting
obligations described above shall resume in the event that Producer receives
such income at any time thereafter. All such reports shall provide gross income
and cost of sales data and information relating to the priority distributions
pursuant to Exhibit C hereunder. The appropriate payments to PBS, if any, shall
accompany all such reports.
7.3 Producer will maintain auditable books, records, documents and other
evidence (hereinafter "records") pertaining to (a) the expenditure of any
portion of the Program Payment, (b) the source and value of all grants,
facilities, goods and services used in, and all costs and expenses incurred in
Program production hereunder to the extent and in such detail as will properly
reflect all costs, direct and indirect, of labor, materials, equipment, supplies
and services, and other costs and expenses for production of the Program
hereunder, and (c) gross sales, income and expenses relating to ancillary sales
<PAGE>
pursuant to Exhibit C. Such records will be maintained and be available for
inspection by PBS or its authorized agent at all reasonable times commencing
with the execution of this Agreement and, in the case of subparagraphs (a) and
(b), for a period of three years from the date of final payment hereunder, and
in the case of subparagraph (c), until three years from the date of final
payment to PBS pursuant to paragraph 7.2.
7.4 PBS shall have the right at its expense to undertake, or have
undertaken by an independent public accounting firm, an examination and audit of
all records which in PBS's judgment are necessary to determine distribution
income and Program expenses incurred by Producer under this Agreement.
8. Warranties and Indemnities
8.1 Producer represents and warrants that Producer is free to enter into
and fully perform this Agreement; that Producer has all of the rights necessary
to fully grant all the rights granted to PBS herein; that all of the rights,
releases, clearances and/or licenses with respect to all materials and elements
in, and all persons participating in, or performing services on, the Program
have been secured by Producer for duplication, distribution, broadcast and other
exhibition hereunder; that the duplication, distribution, broadcast and other
exhibition rights granted hereunder will not violate any copyright, trademark,
literary, artistic, musical or any other rights (including, but not limited to,
defamation or invasion of privacy of any person, firm or corporation), and will
not require any payment by PBS or those authorized to use or distribute the
Program to Producer or to any third party whatsoever, except to the extent that
PBS is responsible for the payment of non-dramatic music performance rights
fees.
<PAGE>
8.2 To the extent permitted by law, Producer shall indemnify and hold PBS,
its assigns and licensees authorized to use the Program hereunder, harmless from
and/or against any and all claims, damages, costs, liabilities and expenses,
including reasonable attorneys' fees, that may be suffered or incurred arising
out of the exercise of the rights granted hereunder, or out of the material
contained in the Program or related materials licensed or provided by Producer
or out of any breach of any representation, agreement or the foregoing
warranties made by Producer hereunder.
8.3 Producer shall secure a policy of liability insurance applicable to the
Program hereunder, acceptable to PBS, insuring Producer against the liabilities
assumed hereunder and naming PBS and public television stations as additional
insureds (including, but not limited to, copyright infringement, defamation,
invasion of privacy, unauthorized use of titles, ideas or characters) provided,
however, such policy shall not be required where applicable state or local laws
or regulations prohibit it and where PBS is notified in writing to this effect.
A copy of the policy shall be supplied to PBS prior to the initial public
television release of the Program.
8.4 PBS represents and warrants that PBS is free to enter into and fully
perform this Agreement and shall indemnify and hold Producer or its assigns,
harmless from and/or against any and all claims, damages, costs, liabilities and
expenses, including reasonable attorneys' fees, which may be suffered or
incurred arising out of any breach of any representation, agreement or the
foregoing warranty made by PBS hereunder.
8.5 PBS and Producer will promptly notify each other of any such claim of
which either has knowledge, and each will assist the other in defending against
any such claim, if so requested.
<PAGE>
9. Rescheduling and Cancellation of Program
9.1 If Producer fails to comply fully with the delivery schedule set forth
in Exhibit E, PBS shall have the right, after notice to Producer to reschedule
the Program and/or to modify any arrangements or understandings with respect to
promotion and advertising of the Program.
9.2 PBS will promptly review the Program and notify Contractor if, in PBS's
best judgment, the Program does not comply with paragraphs 4.3, 4.4 and 4.5, or
that such compliance would require modifications to the Program. If Producer and
PBS, after consultation, cannot resolve such issues raised by the Program, PBS
may reschedule the Program or redetermine the means of distribution. Where,
however, PBS determines that distribution or broadcast would involve a
substantial risk of legal liability, PBS may remove the Program from
distribution. Where, in PBS's judgment, modifications to the Program are
required to achieve compliance with paragraph 4.5, Producer shall be responsible
for delivery of such modified Program pursuant to the terms of this Agreement.
9.3 In the event that Producer fails to comply with the delivery schedule
or with paragraph 4.3, 4.4 and 4.5, PBS may charge Producer (by deductions from
the Program Payment or otherwise) a late delivery fee for handling late
delivered materials and for its reasonable and necessary costs in substituting
other promotional and advertising material for nondelivered or late-delivered
promotional and advertising material, or in achieving a correction of the
Program in order to comply with paragraphs 4.3, 4.4 and 4.5.
9.4 In addition to the foregoing, PBS reserves the right to cancel the
undelivered Program in the event of a material failure by Producer to deliver
the Program in compliance with this Agreement. In the event of cancellation
hereunder, Producer shall return to PBS forthwith any amount of the Program
<PAGE>
Payment previously received by Producer subject to paragraph 9.5 below.
9.5 If Producer is (or may be) unable to deliver the Program as a result of
fire, flood, hurricane, labor strike, earthquake, riot, war, acts of God, or
similar causes beyond the control of the Producer ("force majeure"), Producer
shall immediately notify PBS. PBS shall decide, after consultation with Producer
if the Program can be completed, and if so, by whom. Such consultation shall
include without limitation consideration of the following factors (to the extent
relevant to the particular situation): the point in the production process at
which the event of force majeure occurs, the length of the event of force
majeure, the potential delay in the production schedule, the amount of time
necessary to resolve any problems created by the event of force majeure, the
nature of the Program, the extent of the injury to Program materials,
facilities, and key production staff, PBS's need for timely delivery, the
timeliness of the subject matter of the Program, the oral and written
contractual obligations to Producer's coproducers and underwriters of the
Program, and any other information that PBS deems relevant. In addition to the
foregoing factors, PBS acknowledges a presumption in favor of having Producer
complete the Program. Producer shall have a reasonable time after the onset of
the force majeure event to demonstrate to PBS that it will be able to deliver
the Program in accordance with Exhibit E ("Demonstration Period"). PBS shall, on
the basis of the above factors, determine the length of the Demonstration
Period, which shall be no less than 30 business days, unless the event of force
majeure occurs less than 30 business days prior to the scheduled delivery date,
in which case it may be shorter, and PBS shall determine a reasonable
Demonstration Period. If, based on such consultation and evidence provided by
<PAGE>
Producer PBS reasonably determines that the Program will not be delivered in
accordance with Exhibit E and that timely delivery is necessary, PBS may, at its
option, (a) designate a person or entity acceptable to both Producer and PBS to
assume responsibility for completing the Program, or (b) if PBS determine that
having Producer or another party complete the Program would be impossible or
impractical, cancel the Program. In either event, (a) Producer shall only be
required to return to PBS the PBS share of the amount of the budgeted Program
costs not expended or irrevocably committed for budgeted Program costs hereunder
up to the amount already received by Producer and Producer shall have no further
liability for the undelivered Program; provided, however, that if Producer sells
or licenses the rights to any footage from the undelivered Program or recovers
any part of the Program Payment under any insurance policy, Producer shall pay
PBS a share of any such proceeds, based on the ratio of PBS funding to the
Program Budget, and (b) PBS shall not be obligated to make any further payments
under this Agreement. If, pursuant to the payment schedule in Exhibit D hereof,
PBS has paid Producer amounts insufficient to meet Producer's budgeted Program
costs already expended or irrevocably committed, PBS shall pay Producer PBS's
share of the difference between such amounts. If PBS designates another party to
complete production of the Program, the provisions of paragraph 9.7 hereof shall
apply.
9.6 In the event of cancellation hereunder, all Program segments completed
prior thereto shall be governed by the provisions of this Agreement.
9.7 In the event of material failure by Producer to deliver the Program in
compliance with this Agreement, PBS may, in lieu of exercising its right of
cancellation hereunder, designate a person or entity acceptable to both PBS and
Producer to assume responsibility for having the Program completed, in which
case Producer shall use its reasonable efforts to insure to the extent necessary
<PAGE>
that all production agreements, subcontracts, and funding arrangements for the
Program provide for assignment to PBS or its designees under the circumstances
described in this paragraph. In that case, Producer shall also furnish to PBS or
its designees at no charge all of Producer's work in progress for the Program,
and shall return to PBS or its designees any amount of the Program Payment not
properly attributable to work in progress hereunder. PBS shall retain the right
to cancellation hereunder in the event that efforts to have responsibility for
the completion of the Program assumed by a person or entity designated by PBS
should fail.
9.8 If PBS determines for any reason not to distribute either or both of
the Program, or if PBS fails to distribute any Program within one year of its
acceptance by PBS, then, at Producer's sole option, the rights to the Program
granted to PBS hereunder shall either (a) remain under License to PBS, or (b)
revert to Producer provided that Producer returns to PBS any amount of the
Program Payment properly attributable to such nondistributed Program.
9.9 Producer and PBS agree to consult, at each other's request, on all
actions taken under this paragraph.
10. Nondiscrimination
10.1 Producer will not discriminate against any employee or applicant for
employment because of race, color, religion, age, sex, national origin, or
physical or mental handicap. Producer will take affirmative action to ensure
that applicants are employed -- and that employees are treated during employment
- -- without regard to their race, color, religion, age, sex, national origin, or
physical or mental handicap.
10.2 Producer further agrees that it will comply with all laws and
regulations prohibiting discrimination on the basis of race, color, religion,
<PAGE>
age, sex, national origin, or physical or mental handicap that may be applicable
to Producer. These laws may include, but are not limited to: Title VII of the
Civil Rights Act of 1964 (42 U.S.C. 2000e); the Equal Pay Act of 1963 (29 U.S.C.
206); the Age Discrimination in Employment Act of 1964 (42 U.S.C. 2000d); and
Title IX of the Education Amendments.
11. Effects and Amendments
11.1 This Agreement shall be deemed to supersede and replace any previous
documents, correspondence, conversations or other written or oral understandings
between PBS and Producer related to the Program.
11.2 No waiver by either party of any breach hereunder shall be deemed a
waiver of any other subsequent breach.
11.3 This Agreement cannot be altered, amended, changed or modified in any
respect or particular unless each such alteration, amendment, change or
modification shall have been agreed to in writing, signed and delivered by each
such party hereto.
11.4 This Agreement shall be deemed to become effective upon signature by
the parties hereto.
12. Bankruptcy/Loss of Property
12.1 Producer shall immediately notify PBS, in writing, if: (i) Producer
files a voluntary petition in bankruptcy, a voluntary petition to reorganize its
business, or a voluntary petition to effect a plan or other arrangement with
creditors; and (ii) Producer files an answer admitting the jurisdiction of the
court and the material allegation of an involuntary petition filed pursuant to
the Bankruptcy Code, as amended; (iii) Producer makes an assignment for the
benefit of creditors, applies for or consents to the appointment of any receiver
or trustee of all or any part of its property; (iv) Producer institutes
<PAGE>
dissolution or liquidation proceedings with respect to its business; (v) a writ
or warrant of attachment, execution, distraint, levy, possession, or any similar
process is issued by any court against any property of Producer or (vi) any
lease or mortgage covering any significant portion of the property of Producer
is terminated other than in the ordinary course of business.
12.2 In the event that said petition, writ, or warrant or termination is
not dismissed or a stay of foreclosure obtained or said assignment, appointment,
or proceedings is not rescinded or terminated, within one hundred and twenty
(120) days of the issuance, making or commencement thereof, and the effect
thereof is to materially frustrate or impede Producer's ability to carry out its
obligation pursuant to, and the purposes of, this Agreement, then PBS may
terminate this Agreement on such terms and conditions as PBS may specify,
unless:
(a) within one hundred and twenty (120) days after his election or
appointment, any receiver or trustee of Producer or, within one hundred and
twenty (120) days of the commencement thereof, Producer itself as a
debtor-in-possession in connection with any such reorganization or similar
proceedings, shall have remedied any uncured failure to comply with any
provisions of this Agreement; and,
(b) within said one hundred and twenty (120) days, said receiver or
trustee, or Producer itself as a debtor-in-possession, shall have executed an
agreement, duly approved by PBS and the court having jurisdiction over the
premises, whereby said receiver or trustee or Producer in said capacity, assumes
all obligations and agrees to be bound fully by each and every provision of this
Agreement.
<PAGE>
13. Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that no rights under this Agreement may be assigned by either party (unless
specifically authorized hereunder) without the prior written consent of the
other party, which consent may not be unreasonably withheld. No assignment shall
relieve the assignor of any liability whatsoever.
14. Miscellaneous
14.1 This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.2 Unless otherwise provided herein or agreed to by the parties, any
notice, report or demand required or permitted by any provision of this
Agreement shall be in writing and shall be deemed to have been sufficiently
given or served for all purposes upon being sent by telegram, fax, mail, or
personally delivered to the respective parties hereto at the following addresses
or such other addresses as either party shall notify the other party of:
Public Broadcasting Service
1320 Braddock Place
Alexandria, VA 22314-1698
ATTENTION: Director, Program Business Affairs
WOMBAT Productions (Contractor)
250 West 57th Street
New York, NY 10019
ATTENTION: Gene Feldman
14.3 The relationship between the parties hereunder shall be as independent
contractors and neither shall have the authority to commit, bind, incur any
expenses, enter into any agreement or otherwise act, or represent to any third
party that it has authority to act, on behalf of the other, except as may be
expressly set forth herein. Nothing herein shall create any association,
<PAGE>
partnership, joint venture or the relationship of principal or agent between PBS
and the Producer.
14.4 The captions contained in this Agreement are for reference purposes
only and are not party of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
PUBLIC BROADCASTING SERVICE
BY: /s/Ann Blakey
Ann Blakey
Director
Program Business Affairs
WOMBAT PRODUCTIONS
BY: /s/Gene Feldman
Exhibit 6(c)(i)
THE AVENUE ENTERTAINMENT GROUP, INC. STOCK OPTION AND
LONG TERM INCENTIVE COMPENSATION PLAN
Adopted February ___, 1997
and Effective as of March ___, 1997
<PAGE>
THE AVENUE ENTERTAINMENT GROUP, INC. STOCK OPTION AND
LONG TERM INCENTIVE COMPENSATION PLAN
1. Purpose of the Plan.
This Avenue Entertainment Group, Inc. Stock Option and Long-Term Incentive
Compensation Plan is intended to promote the interests of the Company and its
shareholders by providing the Company's key employees, directors and
consultants, on whose judgment, initiative, and efforts the successful conduct
of the business of the Company depends, and who are responsible for the
management, growth, and financial success of the business, with appropriate
incentives and rewards to encourage them to continue in the employ of the
Company and to maximize their performance. This Plan shall supersede any other
stock option plans maintained by any subsidiary of the Company.
2. Definitions.
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors
of Avenue Entertainment Group, Inc.
(b) "Cause" shall mean, when used in connection with the termination of a
Participant's employment, the termination of the Participant's employment on
account of: (i) the willful and continued failure by the Participant
substantially to perform his or her duties and obligations to the Company (other
than any such failure resulting from incapacity due to physical or mental
illness), (ii) the willful violation by the Participant of (A) any federal or
state law or (B) any rule of the Company, which violation would materially
reflect on the Participant's character, competence, or integrity, (iii) a breach
by a Participant of the Participant's duty of loyalty to the Company such as
Participant's solicitation of customers or employees of the Company on behalf of
any other person, (iv) the Participant's unauthorized removal from the Company's
premises of any document (in any medium or form) relating to the Company, its
business, or its customers, provided, however, that no such removal shall be
deemed "unauthorized" if it is in furtherance of an individual's duties and
obligations to the Company and such removal is a common practice at the Company,
(v) the Participant's unauthorized disclosure to any person of any confidential
information regarding the Company, or (vi) the willful engaging by the
Participant in any other misconduct which is materially injurious to the
Company. For purposes of this Section 2(b), no
<PAGE>
act, or failure to act, on a Participant's part shall be considered "willful"
unless done, or omitted to be done, by the Participant in bad faith and without
reasonable belief that the action or omission was in the best interests of the
Company. Any rights the Company may have hereunder in respect of the events
giving rise to Cause shall be in addition to the rights the Company may have
under any other agreement with the participant or at law or in equity. If,
subsequent to the termination of a Participant's employment without Cause, it is
determined that the Participant's employment could have been terminated for
Cause, such Participant's employment shall, at the election of the Committee in
its sole discretion, be deemed to have been terminated for Cause.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(d) "Committee" shall mean the Compensation Committee of the Board;
provided, however, the Compensation Committee shall not take any action under
this Plan unless it is at all times composed solely of not less than three
"Non-Employee Directors" within the meaning of Rule 16b-3, as promulgated under
the Securities Exchange Act of 1934, as amended. In the event the Compensation
Committee is not composed of three Non-Employee Directors when the Company is
subject to the Securities Act, or, in the event the Committee is unable to act,
the Board shall take any and all actions required or permitted to be taken by
the Committee under this Plan and shall serve as the Committee.
(e) "Company" shall mean (i) Avenue Entertainment Group,
Inc., a Delaware corporation, (ii) its two wholly-owned
subsidiaries, The CineMasters Group, Inc. and Avenue Pictures,
Inc. and (iii) any other subsidiary that adopts this Plan.
(f) "Company Stock" shall mean the common stock, par value $.01 per share,
of Avenue Entertainment Group, Inc.
(g) "Disability" shall mean any physical or mental condition as a result
of which a Participant is disabled within the meaning of Section 422(c)(6) of
the Code.
(h) "Effective Date" shall mean the date as of which the Plan is approved
by a majority of the shareholders of Avenue Entertainment Group, Inc.
(i) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(j) "Fair Market Value" shall mean with respect to a share of Company
Stock the average closing price per share of Company Stock for the ten (10)
consecutive trading days ending two (2) trading days prior to the date of
determination. The closing
<PAGE>
price for each day shall be as reported in the Wall Street Journal, or, if not
reported therein, as reported in another newspaper of national circulation
chosen by the Board, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices regular way, on the New York Stock
Exchange Composite Tape, or if the Company Stock is not then listed or admitted
to trading on the New York Stock Exchange, on the largest principal national
securities exchange, or if the Company Stock is not so listed or admitted to
trading, then the average of the last reported sales prices for such shares in
the over-the-counter market, as reported on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or, if on any day such
stock is not quoted on NASDAQ, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization.
(k) "Incentive Award" shall mean an Option, a SAR, a Restricted Stock, or
Stock Bonus Award granted pursuant to the terms of the Plan.
(l) "Incentive Stock Option" shall mean an Option that is an "incentive
stock option" within the meaning of Section 422 of the Code and that is
identified as an Incentive Stock Option in the agreement by which it is
evidenced.
(m) "Issue Date" shall mean the date established by the Committee on which
certificates representing shares of Restricted Stock shall be issued by the
Company pursuant to the terms of Section 8(d) hereof.
(n) "Non-Qualified Stock Option" shall mean an Option that is not an
Incentive Stock Option.
(o) "Option" shall mean an option to purchase shares of Company Stock
granted pursuant to Section 6 hereof. Each Option, or portion thereof, shall be
identified as either an Incentive Stock Option or a Non-Qualified Stock Option
in the agreement by which such Option is evidenced.
(p) "Participant" shall mean an employee, officer, director or consultant
of the Company selected to participate in the Plan and to whom an Incentive
Award is granted pursuant to the Plan, and, upon his or her death, that person's
successors, heirs, executors, and administrators, as the case may be.
(q) "Person" shall mean a "person," such as term is used in Sections 13(d)
and 14(d) of the Exchange Act.
(r) "Plan" shall mean The Avenue Entertainment Group, Inc.
Stock Option and Long-Term Incentive Compensation Plan, as it may
be amended from time to time.
<PAGE>
(s) "Predecessor Plan" shall mean the 1995 Non-Qualified Stock Option Plan
of The CineMasters Group, Inc., as amended.
(t) "Restricted Stock" shall mean a share of Company Stock that is granted
pursuant to the terms of Section 8 hereof and that is subject to the
restrictions set forth in Section 8(c) hereof for as long as such restrictions
continue to apply to such share.
(u) "Retirement" shall mean a Participant's termination of employment
(other than by reason of death or Disability and other than a termination that
is (or is deemed to have been) for Cause) on or after the later of (i) the date
the Participant attains age 65 and (ii) the date the Participant has completed
five years of service with the Company.
(v) "Securities Act" shall mean the Securities Act of
1933, as amended.
(w) "SAR" shall mean a stock appreciation right granted pursuant to
Section 7 hereof.
(x) "Stock Bonus" shall mean a grant of a bonus payable in shares of
Company Stock pursuant to Section 9 hereof.
(y) "Vesting Date" shall mean the date established by the Committee on
which an Incentive Award may vest, with vesting to be time-based,
performance-based, or a combination, to be determined by the Committee in its
discretion.
3. Stock Subject to the Plan.
(a) Plan Awards.
Under the Plan, the Committee may, in its sole and absolute
discretion, grant any or all of the following types of Incentive Awards to a
Participant: an Option, a SAR, a Restricted Stock, or Stock Bonus Award;
provided, however, an Incentive Stock Option shall not be granted to a
Participant who is not then a common law employee of the Company.
(b) Individual Awards.
Subject to the restriction in Section 3(a) above, Incentive Awards
granted under this Plan may be made up entirely of one type of Incentive Award
or any combination of types of Incentive Awards available under the Plan, in the
Committee's sole discretion.
<PAGE>
(c) Aggregate Plan Share Reserve.
The total number of shares of Company Stock available for grants of
Incentive Awards under the Plan shall be 1,500,000 subject to adjustment in
accordance with Section 10 of the Plan. These shares may be either authorized
but unissued shares, newly issued shares, or reacquired shares of Company Stock.
If an Incentive Award or portion thereof shall expire or terminate for any
reason without having been exercised in full, the unexercised shares covered by
such Incentive Award shall be available for future grants of Incentive Awards
under the Plan.
4. Administration of the Plan.
The Plan shall be administered by the Committee. The Committee shall from
time to time designate the employees, officers, directors and consultants of the
Company who shall be granted Incentive Awards under this Plan. The Committee
shall determine the amount, type and all other terms and conditions of each
Incentive Award granted hereunder.
The Committee shall have the full authority and discretion to administer
the Plan, including authority to interpret and construe any provision of the
Plan and the terms of any Incentive Award issued under the Plan. The Committee
may also adopt any rules and regulations for administering the Plan as it may
deem necessary or appropriate. Decisions of the Committee shall be final and
binding on all parties.
The Committee may, in its absolute discretion, without amendment to the
Plan, (i) accelerate the date on which any Option or SAR granted under the Plan
becomes exercisable or otherwise adjust any of the terms of such Option or SAR
(except that no such adjustment shall, without the consent of a Participant,
reduce the Participant's rights under any previously granted and outstanding
Incentive Award), (ii) accelerate the Vesting Date or Issue Date of any share of
Restricted Stock issued under the Plan, or waive any condition imposed
thereunder, and (iii) otherwise adjust or waive any condition imposed on any
Incentive Award made hereunder.
In addition, the Committee may, in its absolute discretion and without
amendment to the Plan, grant Incentive Awards of any type to Participants on the
condition that such Participants surrender to the Committee for cancellation
such other Incentive Awards of the same or any other type (including, without
limitation, Incentive Awards with higher exercise prices or values) as the
Committee specifies.
<PAGE>
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee, in accordance with applicable laws.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company (and any participating
subsidiary) jointly and severally, shall indemnify and hold harmless each member
of the Committee and each other director or employee of the Company (or
subsidiary) to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission,
or determination unless such action, omission or determination was taken or made
by such member, director, or employee in bad faith and without reasonable belief
that it was in the best interests of the Company and its subsidiaries, as the
case may be.
5. Eligibility.
(a) General Rules.
The persons who shall be eligible to receive Incentive Awards
pursuant to the Plan shall be those employees, officers, directors and
consultants of the Company who are largely responsible for the management,
growth, and financial success of the business of the Company.
(b) Special Rules For Optionees Under Predecessor
Plan.
Each person who, on the Effective Date of the Plan holds an
outstanding non-qualified option granted under the Predecessor Plan to purchase
shares of common stock of The CineMasters Group, Inc. shall automatically be
eligible to receive a Non-Qualified Stock Option under this Plan upon surrender
and cancellation of the written grant agreement evidencing the grant of such
award under the Predecessor Plan. The Committee shall adopt such rules,
regulations and procedures necessary to effectuate the tax-free exchange of
option awards in accordance with the requirements of Section 424 of the Code.
6. Stock Option Awards.
The Committee may grant Options pursuant to the Plan. Such Options shall
be evidenced by agreements in such form as the Committee shall from time to time
approve. Options shall comply
<PAGE>
with and be subject to the following terms and conditions:
(a) Identification of Options.
All Options granted under the Plan shall be clearly identified in
the agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options or a combination of both.
(b) Exercise Price.
The exercise price of any Non-Qualified Stock Option granted under
the Plan shall be such price as the Committee shall determine which may be equal
to or less than the Fair Market Value of a share of Company Stock on the date
such Non-Qualified Stock Option is granted; provided, that such price shall not
be less than the minimum price required by law. The exercise price of any
Incentive Stock Option granted under the Plan shall not be less than 100% of the
Fair Market Value of a share of Company Stock on the date on which such
Incentive Stock Option is granted.
(c) Term and Exercise of Options.
(i) Each Option shall be exercisable on such date or dates,
during such period, and for such number of shares of Company Stock as shall be
determined by the Committee on the day on which such Option is granted and set
forth in the Option agreement with respect to such Option; provided, however,
that no Option shall be exercisable after the expiration of ten years from the
date such Option was granted; and, provided, further, that each Option shall be
subject to earlier termination, expiration, or cancellation as provided in the
Plan.
(ii) Each Option shall be exercisable in whole or in part and
the partial exercise of an Option shall not cause the expiration, termination,
or cancellation of the remaining portion thereof. Upon the partial exercise of
an Option, the agreement evidencing such Option, marked with such notations as
the Committee may deem appropriate to evidence such partial exercise, shall be
returned to the Participant exercising such Option together with the delivery of
the certificates described in Section 6(c)(v) hereof.
(iii) An Option shall be exercised by delivering a written
notice to the Company's principal office to the attention of its Secretary, no
less than three business days in advance of the effective date of the proposed
exercise. Such notice shall be accompanied by the agreement (or agreements)
evidencing the Option, shall specify the number of shares of Company Stock with
respect to which the Option is being exercised, and the effective date of the
proposed exercise, and
<PAGE>
shall be signed by the Participant. The Participant may withdraw such notice at
any time prior to the close of the business day immediately preceding the
effective date of the proposed exercise, in which case such agreement(s) shall
be returned to the Participant. Payment for shares of Company Stock purchased
upon the exercise of an Option shall be made on the effective date of such
exercise in any combination of the following:
(A) in cash, by certified check, bank
cashier's check, or wire transfer,
(B) subject to the approval of the
Committee, in shares of Company Stock owned by the Participant and valued at
their Fair Market Value on the effective date of such exercise, or
(C) subject to the approval of the
Committee pursuant to a "cashless exercise" by (I) authorizing the Company to
retain whole shares of Company Stock that otherwise would be issuable upon the
exercise of the Option and that have an aggregate Fair Market Value as of the
date of exercise equal to the exercise price of the Option or (III) pursuant to
procedures adopted by the Committee whereby the Participant, by a properly
written notice, directs (a) an immediate market sale or margin loan respecting
all or a part of the shares of Company Stock to which the Participant is
entitled upon exercise pursuant to an extension of credit by the Company to the
Participant of the exercise price, (b) the delivery of the shares of the Company
Stock from the Company directly to the brokerage firm, and (c) the delivery of
the exercise price from the sale or margin loan proceeds from the brokerage firm
directly to the Company.
Any payments in shares of Company Stock shall be effected by the delivery of
such shares to the Secretary of the Company, duly endorsed in blank or
accompanied by stock powers duly executed in blank, together with any other
documents and evidences as the Secretary of the Company shall require from time
to time.
(D) During the lifetime of a Participant, each Option granted
to him or her shall be exercisable only by him or her. No Option shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
(E) Certificates for shares of Company Stock purchased upon
the exercise of an Option shall be issued in the name of the Participant or his
or her beneficiary, as the case may be, and delivered to the Participant or his
or her beneficiary, as the case may be, as soon as practicable following the
effective date on which the Option is exercised.
<PAGE>
(iv) Limitations on Grant of Incentive Stock Options.
(A) The aggregate Fair Market Value of shares of Company Stock
with respect to which Incentive Stock Options granted hereunder are exercisable
for the first time by a Participant during any calendar year under the Plan and
any other stock option plan of the Company (or any "subsidiary corporation" of
the Company within the meaning of Section 424 of the Code) shall not exceed
$100,000. Such Fair Market Value shall be determined as of the date on which
each such Incentive Stock Option is granted. In the event that the aggregate
Fair Market Value of shares of Company Stock with respect to such Incentive
Stock Options exceeds $100,000, then Incentive Stock Options granted hereunder
to such Participant shall, to the extent and in the order in which they were
granted, automatically be deemed to be Non-Qualified Stock Options, but all
other terms and provisions of such Incentive Stock Options shall remain
unchanged.
(B) No Incentive Stock Option may be granted to an individual
if, at the time of the proposed grant, such individual owns stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or any of its "subsidiary corporations" (within the meaning of Section
424 of the Code), unless (I) the exercise price of such Incentive Stock Option
is at least 110% of the Fair Market Value of a share of Company Stock at the
time such Incentive Stock Option is granted and (II) such Incentive Stock Option
is not exercisable after the expiration of five years from the date such
Incentive Stock Option is granted.
(v) Effect of Termination of Employment.
(i) In the event the employment of a Participant with the
Company shall terminate (as determined by the Committee in its sole discretion)
for any reason other than Retirement, Disability, death or for Cause, (A)
Options granted to such Participant, to the extent that they were exercisable at
the time of such termination, shall remain exercisable until 90 days after the
date of such termination, on which date they shall expire, and (B) Options
granted to such Participant, to the extent that they were not exercisable, at
the time of such termination, shall expire at the close of business on the date
of such termination; provided, however, that no Option shall be exercisable
after the expiration of its term.
(ii) In the event that the employment of a Participant with
the Company shall terminate on account of the Retirement, Disability, or death
of the Participant, (A) Options granted to such Participant, to the extent that
they were exercisable at the time of such termination, shall remain exercisable
until the expiration of their term and (B) Options granted to such Participant,
to the extent that they were not exercisable at the time of such termination,
shall expire at the
<PAGE>
close of business on the date of such termination. The effect of exercising any
Incentive Stock Option on a day that is more than 90 days after the date of such
termination (or, in the case of a termination of employment on account of
Disability, on a day that is more than one year after the date of such
termination) will be to cause such Incentive Stock Option to be treated as a
Non-Qualified Stock Option.
(4) In the event of the termination of a Participant's employment
for Cause, all outstanding Options granted to such Participant shall
automatically expire at the commencement of business as of the date of such
termination.
7. SARs.
The Committee may grant SARs pursuant to the Plan, which SARs shall be
evidenced by agreements in such form as the Committee shall from time to time
approve. SARs shall comply with and be subject to the following terms and
conditions:
(a) Exercise Price.
The exercise price of any SAR granted under the Plan shall be
determined by the Committee in its discretion at the time of the grant of such
SAR.
(b) Benefit Upon Exercise.
(i) The exercise of a SAR with respect to any number of shares
of Company Stock shall entitle a Participant to a cash payment, for each such
share, equal to the excess of (A) the Fair Market Value of a share of Company
Stock on the exercise date over (B) the exercise price of the SAR (subject to
applicable withholding payment requirements).
(ii) All payments under this Section 7(b) shall be made as
soon as practicable, but in no event later than five business days, after the
effective date of the exercise.
(c) Term and Exercise of SARs.
(i) Each SAR shall be exercisable on such date or dates,
during such period, and for such number of shares of Company Stock as shall be
determined by the Committee and set forth in the SAR agreement with respect to
such SAR; provided,
<PAGE>
however, that no SAR shall be exercisable after the expiration of ten years from
the date such SAR was granted; and provided, further, however, that each SAR
shall be subject to earlier termination, expiration, cancellation as provided in
the Plan.
(ii) Each SAR may be exercised in whole or in part and the
partial exercise of a SAR shall not cause the expiration, termination, or
cancellation of the remaining portion thereof. Upon the partial exercise of a
SAR, the agreement evidencing such SAR, marked with such notations as the
Committee may deem appropriate to evidence such partial exercise shall be
returned to the Participant exercising such SAR together with the payment
described in Section 7(b) or 7(b)(ii) hereof.
(iii) A SAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no less than
three business days in advance of the effective date of the proposed exercise.
Such notice shall be accompanied by the applicable agreement evidencing the SAR,
shall specify the number of shares of Company Stock with respect to which the
SAR is being exercised and the effective date of the proposed exercise, and
shall be signed by the Participant. The Participant may withdraw such notice at
any time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case the
agreement evidencing the SAR shall be returned to the Participant.
(iv) During the lifetime of a Participant, each SAR granted to
him or her shall be exercisable only by him or her. No SAR shall be assignable
or transferable otherwise than by will or by the laws of descent and
distribution.
(d) (i) In the event that the employment of a Participant with the
Company shall terminate (as determined by the Committee in its sole discretion)
for any reason other than Retirement, Disability, death or for Cause, (A) SARs
granted to such Participant, to the extent that they were exercisable at the
time of such termination, shall remain exercisable until the day one month after
such termination, on which date they shall expire and (B) SARs granted to such
Participant, to the extent that they were not exercisable at the time of such
termination, shall expire at the close of business on the date of such
termination; provided, however, that no SAR shall be exercisable after the
expiration of its term.
(ii) In the event that the employment of a Participant with
the Company shall terminate on account of the Retirement, Disability, or death
of the Participant, (A) SARs granted to such Participant, to the extent that
they were exercisable at the time of such termination, shall remain exercisable
until the expiration of their term and (B) SARs granted to such Participant, to
the extent that they were not exercisable at the time of such termination, shall
expire at the close of business on the date of such termination.
<PAGE>
(iii) In the event of the termination of the Participant's
employment for Cause, all outstanding SARs granted to such Participant shall
automatically expire at the commencement of business as of the date of such
termination.
8. Restricted Stock.
The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of shares
of Restricted Stock shall comply with and be subject to the following terms and
conditions:
(a) Issue Date and Vesting Date.
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a Vesting Date or
Vesting Dates with respect to such shares. The Committee may divide such shares
into classes and assign a different Issue Date and/or Vesting Date for each
class. Except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence
of the Issue Date with respect to a share of Restricted Stock, a share of
Restricted Stock shall be issued in accordance with the provisions of Section
8(d) hereof. Provided that all conditions to the vesting of a share of
Restricted Stock imposed pursuant to Section 8(b) hereof are satisfied, and
except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence of the
Vesting Date with respect to a share of Restricted Stock, such share shall vest
and the restrictions of Section 8(c) hereof shall cease to apply to such share.
(b) Conditions to Vesting.
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions, not inconsistent with the
provisions hereof, to the vesting of such shares as it, in its absolute
discretion, deems appropriate. By way of example and not by way of limitation,
the Committee may require, as a condition to the vesting of any shares of
Restricted Stock, that the Participant or the Company achieve such performance
criteria as the Committee may specify at the time of the grant of such shares.
(c) Restrictions on Transfer Prior to Vesting.
Prior to the vesting of a share of Restricted Stock, no transfer of
a Participant's rights to such share, whether voluntary or involuntary, by
operation of law or otherwise, shall vest the transferee with any interest, or
right in, or with
<PAGE>
respect to, such share, but immediately upon any attempt to transfer such
rights, such share, and all the rights related thereto, shall be forfeited by
the Participant and the transfer shall be of no force or effect.
(d) Issuance of Certificates.
(i) Except as provided in Sections 8(c) or 8(f) hereof,
reasonably promptly after the Issue Date with respect to shares of Restricted
Stock, the Company shall cause to be issued a stock certificate, registered in
the name of the Participant to whom such shares were granted, evidencing such
shares, provided, that the Company shall not cause to be issued such stock
certificate unless it has received a stock power duly endorsed in blank with
respect to such shares. Each such stock certificate shall bear the following
legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS, AND CONDITIONS
(INCLUDING FORFEITURE PROVISIONS AND RESTRICTIONS AGAINST TRANSFER)
CONTAINED IN THE AVENUE ENTERTAINMENT GROUP, INC. STOCK OPTION AND
LONG-TERM INCENTIVE COMPENSATION PLAN AND INCENTIVE AWARD AGREEMENT
ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND AVENUE
ENTERTAINMENT GROUP, INC. A COPY OF THE PLAN AND AGREEMENT IS ON FILE IN
THE OFFICE OF THE SECRETARY OF AVENUE ENTERTAINMENT GROUP, INC.; C/O THE
CINEMASTERS GROUP, INC.; 250 WEST 57TH STREET; SUITE 2421; NEW YORK, NEW
YORK 10019.
Such legend shall not be removed from the certificate evidencing such shares
until such shares vest pursuant to the terms hereof.
(ii) Each certificate issued pursuant to Section 8(d)(i)
hereof, together with the stock powers relating to the shares of Restricted
Stock evidenced by such certificate, shall be deposited by the Company with a
custodian designed by the Company. The Company shall cause such custodian to
issue to the Participant a receipt evidencing the certificates held by it which
are registered in the name of the Participant.
(e) Consequences Upon Vesting.
Upon the vesting of a share of Restricted Stock pursuant to the
terms hereof, the restrictions of Section 8(c) hereof shall cease to apply to
such share. Reasonably promptly after a share of Restricted Stock vests pursuant
to the terms
<PAGE>
hereof, the Company shall cause to be issued and delivered to the Participant to
whom such shares were granted, a certificate evidencing such share, free of the
legend set forth in Section 8(d)(i) hereof, together with any other property of
the Participant held by the custodian pursuant to Section 8(d)(ii) hereof.
(f) Effect of Termination of Employment.
(i) In the event that the employment of a Participant with the
Company shall terminate for any reason other than Cause prior to the vesting of
shares of Restricted Stock granted to such Participant, a proportion of such
shares, to the extent not forfeited or cancelled on or prior to such termination
pursuant to any provision hereof, shall vest on the date of such termination.
The proportion referred to in the preceding sentence shall initially be
determined by the Committee at the time of the grant of such shares of
Restricted Stock and may be based on the achievement of any conditions imposed
by the Committee with respect to such shares pursuant to Section 8(b).
Such proportion may be equal to zero.
(ii) In the event of the termination of a Participant's
employment for Cause, all shares of Restricted Stock granted to such Participant
which have not vested as of the date of such termination shall immediately be
forfeited.
9. Stock Bonuses.
The Committee may grant Stock Bonuses in such amounts as it shall
determine from time to time. A Stock Bonus shall be paid at such time and
subject to such conditions as the Committee shall determine at the time of the
grant of such Stock Bonus. Certificates for shares of Company Stock granted as a
Stock Bonus shall be issued in the name of the Participant to whom such grant
was made and delivered to such Participant as soon as practicable after the date
on which such Stock Bonus is required to be paid.
10. Adjustment Upon Changes in Company Stock.
(a) Shares Available for Grants.
In the event of any change in the number of shares of Company Stock
outstanding by reason of any stock dividend or split, reverse stock split,
recapitalization, merger, consolidation, combination or exchange of shares or
similar corporate change, the maximum number of shares of Company Stock with
respect to which the Committee may grant Options, SARs,
<PAGE>
shares of Restricted Stock, and Stock Bonuses under Section 3 hereof shall be
appropriately adjusted by the Committee. In the event of any change in the
number of shares of Company Stock outstanding by reason of any other event or
transaction, the Committee may, but need not, make such adjustments in the
number of shares of Company Stock with respect to which Options, SARs, shares of
Restricted Stock, and Stock Bonuses may be granted under Section 3 hereof as the
Committee may deem appropriate.
(b) Outstanding Restricted Stock.
Unless the Committee in its absolute discretion otherwise
determines, any securities or other property (including dividends paid in cash)
received by a Participant with respect to a share of Restricted Stock, the Issue
Date with respect to which occurs prior to such event, but which has not vested
as of the date of such event, as a result of any dividend, stock split, reverse
stock split, recapitalization, merger, consolidation, combination, exchange of
shares, or similar corporate exchange will not vest until such share of
Restricted Stock vests and shall be promptly deposited with the custodian
designated pursuant to Section 8(d)(ii) hereof.
The Committee may, in its absolute discretion, adjust any grant of
shares of Restricted Stock, the Issue Date with respect to which has not
occurred as of the date of the occurrence of any of the following events, to
reflect any dividend, stock split, reverse stock split, recapitalization,
merger, consolidation, combination, exchange of shares, or similar corporate
change as the Committee may deem appropriate to prevent the enlargement or
dilution of rights of Participants under the grant.
(c) Outstanding Options and SARs - Increase
or Decrease in Issued Shares Without
Consideration.
Subject to any required action by the shareholders of the Company,
in the event of any increase or decrease in the number of issued shares of
Company Stock resulting from a subdivision or consolidations of shares of
Company Stock or the payment of a stock dividend on the shares of Company Stock,
or any other increase or decrease in the number of such shares effected without
receipt of consideration by the Company, the Company shall proportionally adjust
the number of shares of Company Stock subject to each outstanding Option and
SAR, and the exercise price per share of Company Stock of each such Option and
SAR.
(d) Outstanding Options and SARs - Certain Mergers.
Subject to any required action by the shareholders of
the Company, in the event that the Company shall be the surviving
<PAGE>
corporation in any merger or consolidation (except a merger or consolidation as
a result of which the holders of shares of Company Stock receive securities of
another corporation), each Option and SAR outstanding on the date of such merger
or consolidation shall pertain to and apply to the securities which a holder of
the number of shares of Company Stock subject to such Option or SAR would have
received in such merger or consolidation.
(e) Outstanding Options, SARs - Certain Other
Transactions.
In the event of a dissolution or liquidation of the Company; a sale
of substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving corporation; or
a merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Company Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of
such event, each Option and SAR outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option or SAR was granted an
amount in cash, for each share of Company Stock subject to such Option or SAR,
respectively, equal to the excess of (A) the value, as determined by the
Committee in its absolute discretion, of the property (including cash) received
by the holder of a share of Company Stock as a result of such event over (B) the
exercise price of such Option or SAR (subject to applicable withholding payment
requirements); or
(ii) provide for the exchange of each Option and SAR
outstanding immediately prior to such event (whether or not then exercisable)
for an option on or stock appreciation right with respect to, as appropriate,
some or all of the property for which such Option or SAR is exchanged and,
incident thereto, make an equitable adjustment as determined by the Committee in
its absolute discretion in the exercise price of the option or stock
appreciation right, or, if appropriate, provide for a cash payment to the
Participant to whom such Option or SAR was granted in partial consideration for
the exchange of the Option or SAR.
(f) Outstanding Options and SARs - Other Changes.
In the event of any change in the capitalization of the Company or a
corporate change other than those specifically referred to in Section 10(c),(d)
or (e) hereof, the Committee may in its absolute discretion, make such
adjustments in the number of shares subject to Options or SARs outstanding on
the date on which such change occurs and in the per share exercise price of
<PAGE>
each such Option and SAR as the Committee may consider appropriate to prevent
dilution or enlargement or rights.
(g) No Other Rights.
Except as expressly provided in the Plan, no Participant shall have
any rights by reason of any subdivision or consolidation of Company Stock, the
payment of any dividend, any increase or decrease in the number of shares of
Company Stock or any dissolution, liquidation, merger, or consolidation of the
Company or any other corporation. Except as expressly provided in the Plan, no
issuance by the Company of Company Stock, or securities convertible into shares
of Company Stock, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number of shares of Company Stock subject to an
Incentive Award or the exercise price of any Option or SAR.
11. Rights as a Stockholder.
No person shall have any rights as a stockholder with respect to any
shares of Company Stock covered by or relating to any Incentive Award granted
pursuant to this Plan until the date the person becomes the owner of record with
respect to such shares. Except as otherwise expressly provided in Section 10
hereof, no adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.
12. No Special Employment Rights; No Rights to Incentive Award.
Nothing contained in the Plan or any Incentive Award shall confer upon any
Participant any right with respect to the continuation of his or her employment
by the Company or interfere in any way with the right of the Company, subject to
the terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
<PAGE>
13. Securities Matters.
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any interests in the Plan or any shares of
Company Stock to be issued hereunder or to effect similar compliance under any
state laws. Notwithstanding anything herein to the contrary, the Company shall
not be obligated to cause to be issued or delivered any certificates evidencing
shares of Company Stock pursuant to the Plan unless and until the Company is
advised by its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental authority, and
the requirements of NASDAQ and any other securities exchange on which shares of
Company Stock are traded. The Committee may require, as a condition of the
issuance and delivery of certificates evidencing shares of Company Stock
pursuant to the terms hereof, that the recipient of such shares make such
covenants, agreements, and representations, and that such certificates bear such
legends, as the Committee, in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall be effective only
at such time as counsel to the Company shall have determined that the issuance
and delivery of shares of Company Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authority, and
the requirements of NASDAQ and any other securities exchange on which shares of
Company Stock are traded. The Committee may, in its sole discretion, defer the
effectiveness of any exercise of an Option granted hereunder in order to allow
the issuance of shares of Company Stock pursuant thereto to be made pursuant to
registration or an exemption from registration or other methods for compliance
available under federal or state securities laws. The Committee shall inform the
Participant in writing of its decision to defer the effectiveness of the
exercise of an Option granted hereunder. During the period that the
effectiveness of the exercise of an Option has been deferred, the Participant
may, by written notice, withdraw such exercise and obtain are fund of any amount
paid with respect thereto.
(c) All Company Stock issued pursuant to the terms of this Plan shall
constitute "restricted securities," as that term is defined in Rule 144
promulgated pursuant to the Securities Act, and may not be transferred except in
compliance with the registration requirements of the Securities Act or an
exemption therefrom.
(d) Certificates for shares of Company Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
<PAGE>
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERD FOR SALE, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE STATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICATE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Company Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
14. Withholding Taxes.
(a) Cash Remittance.
Whenever shares of Company Stock are to be issued upon the exercise
of an Option, the occurrence of the Issue Date or Vesting Date with respect to a
share of Restricted Stock or the payment of a Stock Bonus, the Company shall
have the right to require the Participant to remit to the Company in cash an
amount sufficient to satisfy federal, state, and local withholding tax
requirements, if any, attributable to such exercise, occurrence, or payment
prior to the delivery of any certificate or certificates for such shares. In
addition, upon the exercise of an SAR, the Company shall have the right to
withhold from any cash payment required to be made pursuant thereto an amount
sufficient to satisfy the federal state, and local withholding tax requirements,
if any, attributable to such exercise or grant.
(b) Stock Remittance.
Subject to Section 14(d) hereof at the election of the Participant,
subject to the approval of the Committee, when shares of Company Stock are to be
issued upon the exercise of an Option, the occurrence of the Issue Date or the
Vesting Date with respect to a share of Restricted Stock, or the grant of a
Stock Bonus, in lieu of the remittance required by Section 14(a) hereof, the
Participant may tender to the Company a number of shares of Company Stock
determined by such Participant, the Fair Market Value of which at the tender
date the Committee determines to be sufficient to satisfy the federal, state,
and local withholding tax requirements, if any, attributable to such
<PAGE>
exercise, occurrence, or grant and not greater than the Participant's estimated
total federal, state, and local tax obligations associated with such exercise,
occurrence, or grant.
(c) Stock Withholding.
The Company shall have the right, when shares of Company Stock are
to be issued upon the exercise of an Option, the occurrence of the Issue Date or
the Vesting Date with respect to a share of Restricted Stock or the grant of a
Stock Bonus, in lieu of requiring the remittance required by Section 14(a)
hereof, to withhold a number of such shares, the Fair Market Value of which at
the exercise date the Committee determines to be sufficient to satisfy the
federal, state, and local withholding tax requirements, if any, attributable to
such exercise, occurrence, or grant and is not greater than the Participant's
estimated total, federal, state, and local tax obligations associated with such
exercise, occurrence, or grant.
15. Amendment or Termination of the Plan.
The Board may at any time, or from time to time, suspend or terminate the
Plan in whole or in part, or amend it in such respects as the Board may deem
appropriate. No amendment, suspension or termination of this Plan shall, without
the Participant's consent, alter or impair any of the rights or obligations
under any Option theretofore granted to an Participant under the Plan. The Board
may amend this Plan, subject to the limitations cited above, in such manner as
it deems necessary to permit the granting of Incentive Awards meeting the
requirements of future amendments or issued regulations, if any, to the Code and
to the Exchange Act.
16. No Obligation to Exercise.
The grant to a Participant of an Option or a SAR shall impose no
obligation upon such Participant to exercise such Option or SAR.
17. Transfers Upon Death.
Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of
1
<PAGE>
the will and/or such evidence as the Committee may deem necessary to establish
the validity of the transfer and (b) an agreement by the transferee to comply
with all the terms and conditions of the Incentive Award that are or would have
been applicable to the Participant and to be bound by the acknowledgments made
by the Participant in connection with the grant of the Incentive Award. Except
as provided in this Section 17, no Incentive Award shall be transferable, and
shall be exercisable only by a Participant during the Participant's lifetime.
18. Expenses and Receipts.
The expenses of the Plan shall be paid by Avenue Entertainment Group, Inc.
and its participating subsidiaries. Any proceeds received by the Company in
connection with any Incentive Award will be used for general purposes.
19. Failure to Comply.
In addition to the remedies of the Company elsewhere provided for herein,
a failure by a Participant (or beneficiary) to comply with any of the terms and
conditions of the Plan or the agreement executed by such Participant (or
beneficiary) evidencing an Incentive Award, unless such failure is remedied by
such Participant (or beneficiary) within ten days after having been notified of
such failure by the Committee, shall be grounds for the cancellation and
forfeiture of such Incentive Award, in whole or in part, as the Committee, in
its absolute discretion may determine.
20. Adoption and Effective Date of Plan.
The Plan was adopted by the Board of Directors of Avenue
Entertainment Group, Inc. on February ___, 1997 and became
effective on the Effective Date.
21. Term of the Plan.
The right to grant Incentive Awards under the Plan will terminate upon the
expiration of ten years from the date the Plan was initially adopted.
<PAGE>
22. Applicable Law.
Except to the extent preempted by an applicable federal law, the Plan will
be construed and administered in accordance with the laws of the State of
Delaware, without reference to the principles of conflicts of law.
Exhibit 6(c)(ii)
CARY BROKAW
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement") is entered into as of
this 30th day of September, 1996 ("Effective Date"), by and between, The
CineMasters Group, Inc., a New York corporation (the "Company") and the owner of
all of the outstanding capital stock of Avenue Pictures, Inc. ("Avenue"), and
Cary Brokaw, an individual resident of the State of California (the
"Executive").
WHEREAS, the Company desires to employ the Executive as its President and
Chief Executive Officer and wishes to acquire and be assured of his services on
the terms and conditions hereinafter set forth; and
WHEREAS, the Executive desires to be employed by the Company as its
President and Chief Executive Officer and to perform and to serve the Company on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, agreements and covenants contained herein, the parties hereto agree as
follows:
1. Employment.
(a) Duties. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, as the President and Chief Executive
Officer of the Company and agrees to serve at the request of the Board of
Directors of the Company (the "Board of Directors"). The Executive shall be
responsible, subject to the direction of the Board of Directors, for such duties
and functions of a supervisory or managerial nature as may be directed from time
to time by the Board of Directors, provided that such duties are reasonable and
customary for a President and Chief Executive Officer. The Executive agrees that
he shall, during the term of this Employment Agreement, faithfully serve the
Company as a full-time employee and, except during reasonable vacation periods,
periods of illness and the like, devote his full business time, attention and
ability to his duties and responsibilities hereunder; provided, however, that
nothing contained herein shall be construed to prohibit or restrict the
Executive from (i) serving as a director of any corporation, with or without
compensation therefor; (ii) serving in various capacities in community, civic,
religious or charitable organizations or trade associations or leagues; or (iii)
attending to personal business or investment matters; provided that no such
service or activity permitted in this Section 1(a) shall materially interfere
with the performance by the Executive of his duties hereunder. The Executive
shall only report directly to the Board of Directors.
(b) Term. The Executive's term of employment shall commence on the
Effective Date and shall terminate at the close of business on December 31, 2001
the "Employment Term"), unless terminated earlier pursuant to Section 3 hereof.
(c) Location. Executive shall, during this Employment Term, have a primary
office located at the offices of the Company in Los Angeles, California.
2. Compensation.
(a) Salary. Subject to the provisions of Section 2(b) below, Executive
shall receive a base salary of $450,000.00 for each calendar year which shall be
pro-rated for the partial 1996 calendar year occurring within the Employment
Term. The Executive's base salary may be increased by the Compensation Committee
of the Board of Directors (the "Compensation Committee") in its discretion based
on the performance of the Executive and the Company. The annual salary payable
to the Executive pursuant to Section 2 hereof from time to time in effect is
hereinafter referred to as the "Base Salary."
(b) Special Base Salary Payment Provisions. In no event shall the
Executive's Base Salary be funded out of the "Wombat Division Net Cash Flow," as
defined in Section 2(c) below. In addition, Executive shall be subject to the
terms, conditions and restrictions set forth in that certain Stockholders
Agreement, dated as of the date hereof, among the Company and certain of its
shareholders. The Executive's Base Salary will be due and payable to him during
the Employment Term in accordance with the Company's customary payroll payment
practices but no less frequently than once each month ("Applicable Base Salary
Payment Date"). If the Company determines that it does not have sufficient funds
to pay the Executive's Base Salary on an ongoing basis, the Company shall (1)
promptly determine the dollar amount, if any, of the Base Salary that can be
funded out of the Company's funds each Applicable Base Salary Payment Date and
reduce the dollar amount of the Base Salary accordingly ("Reduced Base Salary"),
with the unpaid balance to be treated for all federal and state income tax
reporting purposes as deferred compensation; and (2) give notice to the Board of
Directors as provided in Section 10 hereof that the Company's funds are not
sufficient to pay 100% of the Executive's Base Salary on an ongoing basis;
provided that in the event that the Executive's Base Salary shall be reduced
pursuant to this Section 2(b), such reduction shall not be considered a breach
by the Company of this Employment Agreement. The notice to be provided shall
specify the dollar amount of the Reduced Base Salary and anticipated duration
for payment of the Reduced Base Salary. The Company shall cause the positive net
difference between the Base Salary and Reduced Base Salary to be accounted for
each Applicable Base Salary Payment Date ("Unpaid Base Salary"). As soon as
administratively feasible following the determination that the Company's funds
are sufficient to fund 100% of the Executive's Base Salary, the Executive shall
be paid 100% of his Base Salary on an ongoing basis. The Unpaid Base Salary (or
any portion thereof) shall be paid to the Executive as soon the Company has
sufficient funds to pay the same provided that such payment(s) do not cause the
Executive to be paid a Reduced Base Salary.
(c) Definition of "Wombat Division Net Cash Flow". For purposes of Section
2(b) hereof, the term "Wombat Division Net Cash Flow" shall mean (i) the gross
receipts and other miscellaneous revenue generated by the operations of the
Wombat Division of the Company reduced by (ii) all cash expenditures paid by the
Wombat Division and all cash expenditures paid by the Company that relate to the
operation of the Wombat Division including, without limitation, tax and debt
service payments made by the Company on behalf of, or allocable to, the Wombat
Division and its operations.
(d) Bonus. Executive shall be eligible for an annual bonus for each
calendar year during the term of the Employment Agreement based upon the
performance of the Executive and the Company for such calendar year; provided,
however, that for purposes of this Section 2(d) and Section 4(c)(v) hereof, the
period commencing on the Effective Date of this Employment Agreement and ending
on December 31, 1997 shall be deemed to be a "calendar year". The amount of the
annual bonus shall be determined in the discretion of the Compensation Committee
at the end of the calendar year to which such bonus relates; provided, however,
that the dollar amount of the bonus shall not exceed twice the Executive's Base
Salary for such calendar year. Any such annual bonus shall be determined and
paid to Executive within 90 days after the end of the calendar year to which it
relates.
(e) Options.
(i) Upon execution of this Employment Agreement, the Executive
shall receive options (the "Options") to purchase up to 300,000 shares of Common
Stock, $.01 par value per share, of the Company (the "Common Stock"), at an
exercise price per share equal to 85% of the average of the highest reported bid
and lowest reported asked prices of a share of Common Stock on the date of such
grant, which Options shall be issued pursuant to the Company's 1995
Non-Qualified Stock Option Plan (the "Stock Option Plan"), attached hereto as
Exhibit A, and, subject to the provisions of Section 2(e)(ii) below, shall vest
in equal annual installments during the Employment Term. The terms and
conditions of the Options granted to the Executive pursuant hereto are
memorialized in the written option grant agreement between the Company and the
Executive ("Option Grant Agreement"), attached hereto as Exhibit B, which shall
be executed by the Company and the Executive at the same time this Employment
Agreement is executed by the parties hereto. Such Options shall expire ten (10)
years from the date of grant.
(ii) The Options granted to the Executive will become fully vested
and immediately exercisable upon a "Change of Control" of the Company as such
term is defined in Section 4(d) hereof or upon a material breach of this
Employment Agreement by the Company.
(f) Expense Account and Reimbursements. During the Employment Term,
the Company shall provide the Executive with Company credit cards and a
reasonable business, travel and entertainment expense allowance for use by the
Executive in connection with the performance of his duties hereunder, it being
understood that the Executive shall submit verification of the nature and amount
of the expenses charged on Company credit cards or paid from such account in
accordance with the policies established by the Company.
(g) Benefits; General Rights. The Company shall provide the
Executive with all customary perquisites offered to other senior executives
employed by comparable employers in the same industry, including but not limited
to, an automobile allowance of $1,250.00 per month. The Company shall also
provide the Executive with a term life insurance policy on the life of the
Executive in the principal amount of $5,000,000.00, provided that the life of
the Executive can be insured at standard life insurance premium rates. The cost
to the Company of the Executive's term life insurance policy shall not exceed
$25,000.00 per annum. In the event that the cost of such term life insurance
policy exceeds $25,000.00 per annum, the principal amount of the policy shall be
reduced to the extent necessary to reduce the cost to the Company to $25,000.00.
The Company may obtain a "key man" life insurance policy insuring the life of
the Executive in the principal amount of $2,000,000.00. In the event the Company
elects to obtain "key man" life insurance, the Executive agrees to cooperate
with the Company in order to secure such coverage. The Executive shall also be
entitled to participate in all employee pension, savings, major medical,
hospitalization and health benefit plans offered to executive officers of the
Company (with all waiting periods for any welfare benefit plan coverage being
waived, provided that such waiting periods may be waived). The Executive shall
be entitled to four weeks paid vacation per year. The Executive shall also be
entitled to any other benefits provided by the Company to executive officers
generally, including, without limitation, first class travel and lodging
arrangements.
3. Termination of Employment; Events of Termination.
Notwithstanding the provisions of Sections 1 and 2 of this Employment
Agreement, the Executive's employment hereunder shall terminate on the earliest
of the following dates:
(a) The date of death of the Executive; or
(b) Ten days after the date on which the Company shall have given
the Executive notice of the termination of his employment by reason of his
physical or mental incapacity or disability on a permanent basis. For purposes
of this Employment Agreement, the Executive shall be deemed to be physically or
mentally incapacitated or disabled on a permanent basis if he is unable to
perform his duties hereunder for a period exceeding six (6) months in any twelve
(12) month period; or
(c) Ten days after the date on which the Company shall have given
the Executive notice of the termination of his employment for "Cause" or ten
days after the date on which the Executive shall have given the Board of
Directors notice of his voluntary resignation. For purposes of this Employment
Agreement, "Cause" shall mean (i) the Executive's conviction of a crime
constituting a felony under any federal or state law; (ii) the commission by the
Executive of fraud, embezzlement or an act of serious, criminal moral turpitude
that results in a conviction; (iii) the commission of an act by the Executive
constituting material financial dishonesty against the Company that results in a
conviction; or (iv) Executive's willful gross neglect in carrying out his
material duties and responsibilities under this Employment Agreement; provided
that the Executive will be given written notice of such willful gross neglect
and will be given an opportunity to cure such breach to the reasonable
satisfaction of the Board of Directors within thirty (30) days of receipt of
such written notice; or
(d) The date the Executive terminates his employment by tendering
his resignation to the Board of Directors following a "Change of Control" of the
Company. A "Change of Control" of the Company shall be deemed to have occurred
upon the happening of any of the following events:
(i) approval by the stockholders of the Company of a
transaction that would result in the reorganization, merger, or
consolidation of the Company with one or more other "Persons" within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 ("Securities Act"), other than a transaction
following which:
(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by Persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership interests in the
Company; and
(B) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by Persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company;
(iii) a complete liquidation or dissolution of the Company, or
approval by the stockholders of the Company of a plan for such liquidation or
dissolution;
(iv) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board of Directors of the Company do not
belong to any of the following groups:
(A) individuals who were members of the Company's Board of Directors
on the date of this Employment Agreement; or
(B) individuals who first became members of the Board of Directors
after the date of this Employment Agreement either:
(I) upon election to serve as a member of the Board of Directors of
the Company by affirmative vote of three-quarters of the members of such Board,
or of a nominating committee thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of the Company to serve as a
member of the Board of Directors of the Company, but only if nominated for
election by affirmative vote of three-quarters of the members of the Board of
Directors of the Company, or of a nominating committee thereof, in office at the
time of such first nomination; provided, however, that such individual's
election or nomination did not result from an actual or threatened election
contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of proxies or
consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of Directors of the
Company.
Notwithstanding the provisions of subsection 3(d)(i) through (iv)
above, for purposes of this Employment Agreement, a "Change of Control" of the
Company shall not be deemed to have occurred with respect to the Executive in
the event that either (x) the Executive, either in his capacity as a member of
the Board of Directors or as a stockholder of the Company or (y) a majority of
his Board nominees, approves or votes in favor of the transaction or event
resulting in a "Change of Control" of the Company under subsection 3(d)(i),
(ii), (iii) or (iv) above, provided that such "Change of Control" was contested
by a majority of the Board of Directors of the Company.
Any dispute with respect to a termination for "Cause" pursuant to clause
(iv) of Section 3(c) hereof shall be submitted to arbitration before the
American Arbitration Association in accordance with the Rules of the American
Arbitration Association then pending. The arbitration shall take place in the
County and State of New York and the substantive law applicable to the
arbitration shall be that of the State of New York. The arbitration award shall
be final and binding upon the parties. Such award may be confirmed in any court
having jurisdiction and reduced to final judgment. The Board of Directors may
elect to use a single arbitrator and, failing to agree on such person, the
dispute shall be determined by a panel of three (3) neutral arbitrators selected
under the Rules of the American Arbitration Association.
<PAGE>
4. Payments and Other Rights Upon Termination.
(a) Death or Disability. If the Executive's employment is terminated
due to death or disability pursuant to Sections 3(a) or (b) hereof, the
Executive (or, in the event of his death, his estate or beneficiaries) shall be
entitled to the Base Salary through the date of termination of employment for
the year in which death or disability occurs. Any vested Options not exercised
by the Executive prior to the termination of his employment due to death or
disability shall be exercisable by the Executive (or his estate or
beneficiaries) for the six (6) month period beginning on the date of the
Executive's termination of employment due to death or disability. Any non-vested
Options shall immediately expire on the date of the Executive's termination of
employment due to death or disability in accordance with Section 5 of the Stock
Option Plan.
(b) Termination of Employment for Cause or Voluntary Termination by
the Executive. If the Company terminates the Executive's employment for Cause or
in the event the Executive voluntarily terminates his employment prior to a
Change of Control, the Executive shall be entitled only to the Base Salary and
any accrued annual bonus that has been determined and awarded, but not paid,
through the date of the termination of his employment. Any vested Options not
exercised by the Executive prior to such employment termination shall be
exercisable by the Executive until the end of the ninetieth day following the
termination of his employment. In accordance with Section 5 of the Stock Option
Plan, any non-vested Options shall immediately expire on the date of the
termination of the Executive's employment pursuant to Section 3(c) hereof. It
shall constitute a breach of this Agreement by the Executive if the Executive
voluntarily terminates his employment prior to a Change of Control, and it shall
not constitute an election of remedies if the Company terminates the Executive's
employment for Cause, and in either such case the Company shall retain all
rights and remedies provided at law or in equity as a result of such breach or
termination for Cause.
(c) Change of Control. If the Executive terminates his employment
with the Company following a Change of Control of the Company pursuant to
Section 3(d) hereof, the Company shall pay and provide to the Executive (or, in
the event of his death, his estate or beneficiaries):
(i) his earned but unpaid compensation as of the date of the Change of
Control, such payment to be made upon the occurrence of a Change of Control;
(ii) the benefits to which he is entitled under Section 2(e)
and Exhibit B attached hereto, the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the Company's
officers and employees;
(iii) continued group life (if eligible), health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance benefits, in addition to that provided pursuant to Section
4(c)(ii), for the remaining unexpired Employment Term with such coverage to be
equivalent to the coverage to which he would have been entitled under such plans
as if he had continued working for Company during the remaining unexpired
Employment Term at his then current annual rate of Base Salary;
(iv) a lump sum payment on the date of a Change of Control in
an amount equal to the future Base Salary that the Executive would have earned
if he had continued working for the Company during the remaining unexpired
Employment Term at his then current annual rate of Base Salary (irrespective of
Section 2(b) hereof) without discount for early payment, and such lump sum
payment shall not be reduced in the event the Executive obtains other
employment. Such lump sum amount shall be paid in lieu of all other payments of
Base Salary provided for under this Employment Agreement in respect of the
period following a Change of Control; and
(v) bonus payments or other payments that would have been made
to the Executive under any cash bonus, long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Company as if he
had continued working for the Company during the remaining unexpired Employment
Term and had earned the maximum bonus or incentive award in each calendar year
that ends during the remaining unexpired Employment Term, such payments to be
equal to the product of:
(A) the maximum percentage rate at which a bonus or award was ever
paid or made to Executive by the Board of Directors pursuant to Section 2(d)
hereof or under such incentive compensation plan (as applicable); multiplied by
(B) the Base Salary that would have been paid to the Executive during
each such calendar year at his then current annual rate of Base Salary
(irrespective of Section 2(b) hereof); such payments to be made (without
discount for early payment) upon the occurrence of a Change of Control. In the
event that any payment made hereunder as a result of a Change of Control
constitutes an "excess parachute payment" as defined in Section 4999(b) of the
Internal Revenue Code of 1986, as amended or any successor provision thereto
("Code"), the Company shall pay to the Executive an additional amount (the
"Gross-up Payment") such that the net amount of such payment or other benefit
retained by the Executive, after deduction of any excise tax on the payment or
other benefits and any federal, state and local income tax and excise tax upon
the Gross-up Payment, shall be equal to the original amount of such payments or
other benefits.
5. Governing Law. This Employment Agreement shall be construed in
accordance with, and its validity, interpretation, performance and enforcement
and shall be governed by, the laws of the State of New York without regard to
conflicts of law principles thereof. The Executive and the Company hereby
irrevocably submit to the jurisdiction of any New York or Federal court sitting
in New York in any action or proceeding arising out of or relating to this
Employment Agreement, the Executive and the Company each hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such New York court or such Federal court.
6. Entire Agreement. This instrument contains the entire understanding and
agreement among the parties relating to the subject matter hereof, except as
otherwise referred to herein, and neither this Employment Agreement nor any
provisions hereof may be waived or modified, except by an agreement in writing
signed by the party against whom enforcement of any waiver or modification is
sought.
7. Counterparts. This Employment Agreement may be executed in counterparts,
each of which shall be deemed an original, and such counterparts shall together
constitute a single Employment Agreement.
8. Provisions Severable. In case any one or more of the provisions of this
Employment Agreement shall be invalid, illegal or unenforceable in any respect,
or to any extent, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. Furthermore, if any one or more of the provisions contained in this
Employment Agreement shall for any reason be determined by a court of competent
jurisdiction to be invalid and unenforceable, such provision or provisions shall
be construed so as to be enforceable to the extent compatible with then
applicable law.
9. Assignment of Rights by Executive. The Executive may not assign any
rights hereunder without the prior written consent of the Board of Directors.
Any such assignment in the absence of such written consent shall be void.
10. Notices. Any notice required or permitted to be given under the
provisions of this Employment Agreement shall be in writing and delivered by
courier or personal delivery, facsimile transmission (to be followed promptly by
written confirmation mailed by certified mail as provided below) or mailed by
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
The CineMasters Group, Inc.
c/o National Patent Development Corporation
9 West 57th Street
New York, New York 10019
Attention: Mr. Jerome I. Feldman
Facsimile Number: (212) 230-9545
and
The CineMasters Group, Inc.
250 West 57th Street
New York, New York 10019
Attention: Mr. Jerome I. Feldman
Facsimile Number:
With a copy to:
National Patent Development Corporation
9 West 57th Street
New York, New York 10019
Attention: Andrea C. Kantor, Esq.
Facsimile Number: (212) 230-9545
If to the Executive:
Mr. Cary Brokaw
c/o Avenue Pictures, Inc.
11111 Santa Monica Boulevard
Suite 2110
Los Angeles, California 90025
Facsimile Number: (310) 473-4376
<PAGE>
With a copy to:
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attention: James A. Janowitz, Esq.
Facsimile Number: (212) 326-0806
If delivered personally, by courier or facsimile transmission (confirmed as
aforesaid and provided written confirmation and receipt is obtained by the
sender), the date on which a notice is delivered or transmitted shall be the
date on which such delivery is made. Notices given by mail as aforesaid shall be
effective and deemed received upon the date of actual receipt or upon the third
business day subsequent to deposit in the U.S. mail, whichever is earlier.
Either party hereto may change its or his address specified for notices herein
by designating a new address by notice in accordance with this Section 10.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the within instrument
on the day and year first above written.
EXECUTIVE:
------------------------------
Cary Brokaw
THE CINEMASTERS GROUP, INC.
By: ______________________________
Name:
Title:
<PAGE>
EXHIBIT A
The CineMasters Group, Inc. 1995 Non-Qualified Stock Option Plan
[ A copy of this Option Plan has been provided to us. An amendment to increase
the Option Plan's current 600,000 share reserve by 650,000 shares to a new
aggregate amount of 1,250,000 shares is necessary in order for option grants to
be made to Mr. Brokaw and other principles in accordance with the terms of the
letter of intent between The CineMasters Group, Inc. and Avenue Pictures, Inc.
dated August 9, 1996. Accordingly, prior to the closing scheduled for September
25, 1996, the Board of Directors of The CineMasters Group, Inc. should adopt an
amendment to the Option Plan that provides for the Plan's share reserve to be
increased to a new aggregate amount of 1,250,000 shares. The amendment may be
adopted by resolution of the Company's Board of Directors subject to stockholder
approval which is required by New York corporate law.]
<PAGE>
EXHIBIT B
Option Grant Agreement
[See Attached PCS&F Draft of 9/17/96]
Exhibit 6(c)(iii)
GENE FELDMAN
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement") is entered into as of
this 30th day of September, 1996 ("Effective Date"), by and between, The
CineMasters Group, Inc., a New York corporation (the "Company") and the owner of
all of the outstanding capital stock of Avenue Pictures, Inc. ("Avenue"), and
Gene Feldman, an individual resident of the State of New York (the "Executive").
WHEREAS, the Company desires to employ the Executive as its Chairman and
as the President of its Wombat Division and wishes to acquire and be assured of
his services on the terms and conditions hereinafter set forth; and
WHEREAS, the Executive desires to be employed by the Company as its
Chairman and as the President of its Wombat Division and to perform and to serve
the Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, agreements and covenants contained herein, the parties hereto agree as
follows:
1. Employment.
(a) Duties. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, as the Chairman of the Company and as
the President of the Company's Wombat Division and agrees to serve at the
request of the Board of Directors of the Company (the "Board of Directors"). The
Executive shall be responsible, subject to the direction of the Board of
Directors, for such duties and functions of a supervisory or managerial nature
as may be directed from time to time by the Board of Directors, provided that
such duties are reasonable and customary for a President of a corporate
division. The Executive agrees that he shall, during the term of this Employment
Agreement, faithfully serve the Company as a full-time employee and, except
during reasonable vacation periods, periods of illness and the like, devote his
full business time, attention and ability to his duties and responsibilities
hereunder; provided, however, that nothing contained herein shall be construed
to prohibit or restrict the Executive from (i) serving as a director of any
corporation, with or without compensation therefor; (ii) serving in various
capacities in community, civic, religious or charitable organizations or trade
associations or leagues; or (iii) attending to personal business or investment
matters; provided that no such service or activity permitted in this Section
1(a) shall materially interfere with the performance by the Executive of his
duties hereunder. The Executive shall only report directly to the Board of
Directors.
(b) Term. The Executive's term of employment shall commence on the
Effective Date and shall terminate at the close of business on December 31, 2001
(the "Employment Term"), unless terminated earlier pursuant to Section 3 hereof.
(c) Location. Executive shall, during this Employment Term, have a primary
office located at the offices of the Company in New York, New York.
2. Compensation.
(a) Salary. Subject to the provisions of Section 2(b) below, Executive
shall receive a base salary of $150,000.00 for each calendar year which shall be
pro-rated for the partial 1996 calendar year occurring within the Employment
Term. The Executive's base salary may be increased by the Compensation Committee
of the Board of Directors (the "Compensation Committee") in its discretion based
on the performance of the Executive and the Company. The annual salary payable
to the Executive pursuant to Section 2 hereof from time to time in effect is
hereinafter referred to as the "Base Salary."
(b) Special Base Salary Payment Provisions. The Executive's Base Salary
shall be funded solely out of the "Wombat Division Net Cash Flow," as defined in
Section 2(c) below. The Executive's Base Salary will be due and payable to him
during the Employment Term in accordance with the Company's customary payroll
payment practices but no less frequently than once each month ("Applicable Base
Salary Payment Date"). If the Company determines that it does not have
sufficient funds to pay the Executive's Base Salary on an ongoing basis out of
the Wombat Division Net Cash Flow, the Company shall (1) promptly determine the
dollar amount, if any, of the Base Salary that can be funded out of the Wombat
Division Net Cash Flow each Applicable Base Salary Payment Date and reduce the
dollar amount of the Base Salary accordingly ("Reduced Base Salary"), with the
unpaid balance to be treated for all federal and state income tax reporting
purposes as deferred compensation; and (2) give notice to the Board of Directors
as provided in Section 10 hereof that the Wombat Division Net Cash Flow is not
sufficient to pay 100% of the Executive's Base Salary on an ongoing basis;
provided that in the event that Executive's Base Salary shall be reduced
pursuant to this Section 2(b), such reduction shall not be considered a breach
by the Company of this Employment Agreement. The notice to be provided shall
specify the dollar amount of the Reduced Base Salary and anticipated duration
for payment of the Reduced Base Salary. The Company shall cause the positive net
difference between the Base Salary and Reduced Base Salary to be accounted for
each Applicable Base Salary Payment Date ("Unpaid Base Salary"). As soon as
administratively feasible following the determination that the Wombat Division
Net Cash Flow is sufficient to fund 100% of the Executive's Base Salary, the
Executive shall be paid 100% of his Base Salary on an ongoing basis. The Unpaid
Base Salary (or any portion thereof) shall be paid to the Executive as soon the
Company has sufficient funds to pay the same provided that such payment(s) do
not cause the Executive to be paid a Reduced Base Salary.
(c) Definition of "Wombat Division Net Cash Flow". For purposes of Section
2(b) hereof, the term "Wombat Division Net Cash Flow" shall mean (i) the gross
receipts and other miscellaneous revenue generated by the operations of the
Wombat Division of the Company reduced by (ii) all cash expenditures paid by the
Wombat Division and all cash expenditures paid by the Company that relate to the
operation of the Wombat Division including, without limitation, tax and debt
service payments made by the Company on behalf of, or allocable to, the Wombat
Division and its operations.
(d) Bonus. Executive shall be eligible for an annual bonus for each
calendar year during the term of the Employment Agreement based upon the
performance of the Executive and the Company for such calendar year; provided,
however, that for purposes of this Section 2(d) and Section 4(c)(v) hereof, the
period commencing on the Effective Date of this Employment Agreement and ending
on December 31, 1997 shall be deemed to be a "calendar year". The amount of the
annual bonus shall be determined in the discretion of the Compensation Committee
at the end of the calendar year to which such bonus relates; provided, however,
that the dollar amount of the bonus shall not exceed twice the Executive's Base
Salary for such calendar year. Any such annual bonus shall be determined and
paid to Executive within 90 days after the end of the calendar year to which it
relates.
(e) Expense Account and Reimbursements. During the Employment Term, the
Company shall provide the Executive with Company credit cards and a reasonable
business, travel and entertainment expense allowance for use by the Executive in
connection with the performance of his duties hereunder, it being understood
that the Executive shall submit verification of the nature and amount of the
expenses charged on Company credit cards or paid from such account in accordance
with the policies established by the Company.
(f) Benefits; General Rights. The Company shall provide the Executive with
all customary perquisites offered to other senior executives employed by
comparable employers in the same industry, including but not limited to, an
automobile allowance of $500.00 per month. The Company shall also provide the
Executive with a term life insurance policy on the life of the Executive in the
principal amount of $1,000,000, provided that the life of the Executive can be
insured at standard life insurance premium rates. The Executive shall also be
entitled to participate in all employee pension, savings, major medical,
hospitalization and health benefit plans offered to executive officers of the
Company (with all waiting periods for any welfare benefit plan coverage being
waived, provided that such waiting periods may be waived). The Executive shall
be entitled to four weeks paid vacation per year. The Executive shall also be
entitled to any other benefits provided by the Company to executive officers
generally, including, without limitation, first class travel and lodging
arrangements.
3. Termination of Employment; Events of Termination.
Notwithstanding the provisions of Sections 1 and 2 of this Employment
Agreement, the Executive's employment hereunder shall terminate on the earliest
of the following dates:
(a) The date of death of the Executive; or
(b) Ten days after the date on which the Company shall have given
the Executive notice of the termination of his employment by reason of his
physical or mental incapacity or disability on a permanent basis. For purposes
of this Employment Agreement, the Executive shall be deemed to be physically or
mentally incapacitated or disabled on a permanent basis if he is unable to
perform his duties hereunder for a period exceeding six (6) months in any twelve
(12) month period; or
(c) Ten days after the date on which the Company shall have given
the Executive notice of the termination of his employment for "Cause" or ten
days after the date on which the Executive shall have given the Board of
Directors notice of his voluntary resignation. For purposes of this Employment
Agreement, "Cause" shall mean (i) the Executive's conviction of a crime
constituting a felony under any federal or state law; (ii) the commission by the
Executive of fraud, embezzlement or an act of serious, criminal moral turpitude
that results in a conviction; (iii) the commission of an act by the Executive
constituting material financial dishonesty against the Company that results in a
conviction; or (iv) Executive's willful gross neglect in carrying out his
material duties and responsibilities under this Employment Agreement; provided
that the Executive will be given written notice of such willful gross neglect
and will be given an opportunity to cure such breach to the reasonable
satisfaction of the Board of Directors within thirty (30) days of receipt of
such written notice; or
(d) The date the Executive terminates his employment by tendering
his resignation to the Board of Directors following a "Change of Control" of the
Company. A "Change of Control" of the Company shall be deemed to have occurred
upon the happening of any of the following events: (i) approval by the
stockholders of the Company of a transaction that would result in the
reorganization, merger, or consolidation of the Company with one or more other
"Persons" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 ("Securities Act"), other than a transaction following
which:
(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by Persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership interests in the
Company; and
(B) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by Persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company;
(iii) a complete liquidation or dissolution of the Company, or
approval by the stockholders of the Company of a plan for such liquidation or
dissolution;
(iv) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board of Directors of the Company do not
belong to any of the following groups:
(A) individuals who were members of the Company's Board of Directors
on the date of this Employment Agreement; or
(B) individuals who first became members of the Board of Directors
after the date of this Employment Agreement either:
(I) upon election to serve as a member of the Board of Directors of
the Company by affirmative vote of three-quarters of the members of such Board,
or of a nominating committee thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of the Company to serve as a
member of the Board of Directors of the Company, but only if nominated for
election by affirmative vote of three-quarters of the members of the Board of
Directors of the Company, or of a nominating committee thereof, in office at the
time of such first nomination; provided, however, that such individual's
election or nomination did not result from an actual or threatened election
contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of proxies or
consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of Directors of the
Company.
Notwithstanding the provisions of subsection 3(d)(i) through (iv)
above, for purposes of this Employment Agreement, a "Change of Control" of the
Company shall not be deemed to have occurred with respect to the Executive in
the event that either (x) the Executive, either in his capacity as a member of
the Board of Directors or as a stockholder of the Company or (y) a majority of
the Directors nominated by the Feldman Group (as defined in that certain
Stockholders Agreement, dated as of the date hereof, among the Company and
certain of its stockholders), approves or votes in favor of the transaction or
event resulting in a "Change of Control" of the Company under subsection
3(d)(i), (ii), (iii) or (iv) above, provided that such "Change of Control" was
contested by a majority of the Board of Directors of the Company.
Any dispute with respect to a termination for "Cause" pursuant to clause
(iv) of Section 3(c) hereof shall be submitted to arbitration before the
American Arbitration Association in accordance with the Rules of the American
Arbitration Association then pending. The arbitration shall take place in the
County and State of New York and the substantive law applicable to the
arbitration shall be that of the State of New York. The arbitration award shall
be final and binding upon the parties. Such award may be confirmed in any court
having jurisdiction and reduced to final judgment. The Board of Directors may
elect to use a single arbitrator and, failing to agree on such person, the
dispute shall be determined by a panel of three (3) neutral arbitrators selected
under the Rules of the American Arbitration Association.
4. Payments and Other Rights Upon Termination.
(a) Death or Disability. If the Executive's employment is terminated
due to death or disability pursuant to Sections 3(a) or (b) hereof, the
Executive (or, in the event of his death, his estate or beneficiaries) shall be
entitled to the Base Salary through the date of termination of employment for
the year in which death or disability occurs. Any vested options held but not
exercised by the Executive under the Company's 1995 Non-Qualified Stock Option
Plan ("Stock Option Plan") prior to the termination of his employment due to
death or disability shall be exercisable by the Executive (or his estate or
beneficiaries) for the six (6) month period beginning on the date of the
Executive's termination of employment due to death or disability. Any non-vested
options shall immediately expire on the date of the Executive's termination of
employment due to death or disability in accordance with Section 5 of the Stock
Option Plan.
(b) Termination of Employment for Cause or Voluntary Termination by
the Executive. If the Company terminates the Executive's employment for Cause or
in the event the Executive voluntarily terminates his employment prior to a
Change of Control, the Executive shall be entitled only to the Base Salary and
any accrued annual bonus that has been determined and awarded, but not paid,
through the date of the termination of his employment. Any vested options not
exercised by the Executive prior to such employment termination shall be
exercisable by the Executive until the end of the ninetieth day following the
termination of his employment. In accordance with Section 5 of the Stock Option
Plan, any non-vested options shall immediately expire on the date of the
termination of the Executive's employment pursuant to Section 3(c) hereof. The
Company shall retain all other rights and remedies provided at law or in equity
as a result of the termination of the Executive's employment by the Company for
Cause or by the Executive prior to a Change of Control.
(c) Change of Control. If the Executive terminates his employment
with the Company following a Change of Control of the Company pursuant to
Section 3(d) hereof, the Company shall pay and provide to the Executive (or, in
the event of his death, his estate or beneficiaries):
(i) his earned but unpaid compensation as of the date of the Change of
Control, such payment to be made upon the occurrence of a Change of Control;
(ii) the benefits to which he is entitled under the Company's Stock
Option Plan, if applicable, and the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the Company's
officers and employees;
(iii) continued group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance
benefits, in addition to that provided pursuant to Section 4(c)(ii), for the
remaining unexpired Employment Term with such coverage to be equivalent to the
coverage to which he would have been entitled under such plans as if he had
continued working for Company during the remaining unexpired Employment Term at
his then current annual rate of Base Salary;
(iv) a lump sum payment on the date of a Change of Control in an
amount equal to the future Base Salary that the Executive would have earned if
he had continued working for the Company during the remaining unexpired
Employment Term at his then current annual rate of Base Salary (irrespective of
Section 2(b) hereof) without discount for early payment, and such lump sum
payment shall not be reduced in the event the Executive obtains other
employment. Such lump sum amount shall be paid in lieu of all other payments of
Base Salary provided for under this Employment Agreement in respect of the
period following a Change of Control; and
(v) bonus payments or other payments that would have been made to the
Executive under any cash bonus, long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Company as if he
had continued working for the Company during the remaining unexpired Employment
Term and had earned the maximum bonus or incentive award in each calendar year
that ends during the remaining unexpired Employment Term, such payments to be
equal to the product of:
(A) the maximum percentage rate at which a bonus or award was ever
paid or made to Executive by the Board of Directors pursuant to Section 2(d)
hereof or under such incentive compensation plan (as applicable); multiplied by
(B) the Base Salary that would have been paid to the Executive during
each calendar year at his then current annual rate of Base Salary (irrespective
of Section 2(b) hereof); such payments to be made (without discount for early
payment) upon the occurrence of a Change of Control. In the event that any
payment made hereunder as a result of a Change of Control constitutes an "excess
parachute payment" as defined in Section 4999(b) of the Internal Revenue Code of
1986, as amended or any successor provision thereto ("Code"), the Company shall
pay to the Executive an additional amount (the "Gross-up Payment") such that the
net amount of such payment or other benefit retained by the Executive, after
deduction of any excise tax on the payment or other benefits and any federal,
state and local income tax and excise tax upon the Gross-up Payment, shall be
equal to the original amount of such payments or other benefits.
5. Governing Law. This Employment Agreement shall be construed in
accordance with, and its validity, interpretation, performance and enforcement
and shall be governed by, the laws of the State of New York without regard to
conflicts of law principles thereof. The Executive and the Company hereby
irrevocably submit to the jurisdiction of any New York or Federal court sitting
in New York in any action or proceeding arising out of or relating to this
Employment Agreement, the Executive and the Company each hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such New York court or such Federal court.
6. Entire Agreement. This instrument contains the entire understanding and
agreement among the parties relating to the subject matter hereof, except as
otherwise referred to herein, and neither this Employment Agreement nor any
provisions hereof may be waived or modified, except by an agreement in writing
signed by the party against whom enforcement of any waiver or modification is
sought.
7. Counterparts. This Employment Agreement may be executed in
counterparts, each of which shall be deemed an original, and such counterparts
shall together constitute a single Employment Agreement.
8. Provisions Severable. In case any one or more of the provisions of this
Employment Agreement shall be invalid, illegal or unenforceable in any respect,
or to any extent, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. Furthermore, if any one or more of the provisions contained in this
Employment Agreement shall for any reason be determined by a court of competent
jurisdiction to be invalid and unenforceable, such provision or provisions shall
be construed so as to be enforceable to the extent compatible with then
applicable law.
9. Assignment of Rights by Executive. The Executive may not assign any
rights hereunder without the prior written consent of the Board of Directors.
Any such assignment in the absence of such written consent shall be void.
10. Notices. Any notice required or permitted to be given under the
provisions of this Employment Agreement shall be in writing and delivered by
courier or personal delivery, facsimile transmission (to be followed promptly by
written confirmation mailed by certified mail as provided below) or mailed by
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
The CineMasters Group, Inc.
c/o National Patent Development Corporation
9 West 57th Street
New York, New York 10019
Attention: Mr. Jerome I. Feldman
Facsimile Number: (212) 230-9545
and
The CineMasters Group, Inc.
250 West 57th Street
New York, New York 10019
Attention: Mr. Jerome I. Feldman
Facsimile Number:
With a copy to:
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attention: James A. Janowitz, Esq.
Facsimile Number: (212) 326-0806
If to the Executive:
Mr. Gene Feldman
c/o The CineMasters Group, Inc.
250 West 57th Street
Suite 2421
New York, New York 10019
Facsimile Number: (212) 582-0585
With a copy to:
National Patent Development Corporation
9 West 57th Street
New York, New York 10019
Attention: Andrea D. Kantor, Esq.
Facsimile Number: (212) 230-9545
If delivered personally, by courier or facsimile transmission (confirmed as
aforesaid and provided written confirmation and receipt is obtained by the
sender), the date on which a notice is delivered or transmitted shall be the
date on which such delivery is made. Notices given by mail as aforesaid shall be
effective and deemed received upon the date of actual receipt or upon the third
business day subsequent to deposit in the U.S. mail, whichever is earlier.
Either party hereto may change its or his address specified for notices herein
by designating a new address by notice in accordance with this Section 10.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the within instrument
on the day and year first above written.
EXECUTIVE:
------------------------------
Gene Feldman
THE CINEMASTERS GROUP, INC.
By: ______________________________
Name:
Title:
Exhibit 6(c)(v)
EXHIBIT B
OPTION AGREEMENT dated September 30, 1996 between The CineMasters Group,
Inc., a New York corporation (the "Company") and Cary Brokaw, an executive of
the Company (the "Executive").
Pursuant to the Company's 1995 Non-Qualified Stock Option Plan, as amended
by Amendment No. 1 (collectively, the "Stock Option Plan") and in accordance
with Section 2(e) of the Employment Agreement attached hereto, the Company
desires to make available shares of its Common Stock, par value $.01 per share
(the "Common Stock"), for purchase by the Executive, and thereby to provide an
additional incentive to him to continue in the employ of the Company or its
subsidiaries and give him a greater interest as a shareholder in the success of
the Company.
NOW, THEREFORE, in accordance with the mutual covenants hereinafter set
forth and for good and valuable consideration, the parties hereby agree as
follows:
1. GRANT OF OPTIONS. The Company hereby grants, on the terms and
conditions set forth herein, to the Executive as a matter of separate agreement
and not in lieu of salary or any other compensation for services, the right and
option to purchase all or any part of an aggregate of 300,000 shares of Common
Stock, it being understood that 242,500 shares are currently available for grant
hereunder and the availability of the balance of such shares is subject to
approval of Amendment No. 1 by a majority of the stockholders of the Company
(the "Option").
2. PURCHASE PRICE. The purchase price of shares of Common Stock subject to
the Option shall be $_____ per share, being not less than 85% of the "market
value" (as defined in Section 8 of the Stock Option Plan) of the Common Stock on
the date of the grant of the Option.
3. TERM OF OPTION. The term of the Option shall be ten years from the date
hereof, subject to the provisions of the Stock Option Plan with respect to
termination of employment, death or disability of the Executive. Any portion of
the Option not exercised prior to the termination of the Option shall thereupon
become null and void.
4. ACCRUAL OF OPTION. Subject to the provisions of Section 5 hereof, the
Option shall become vested and exercisable as follows:
20% - effective immediately upon execution of this Option Agreement; 40%
- effective September 30, 1997; 60% - effective September 30, 1998; 80%
- effective September 30, 1999; and
100% - effective September 30, 2000.
5. ACCELERATED VESTING AND EXERCISE PROVISIONS. Effective immediately upon
the effective date of a "Change of Control" of the Company or in the event a
material breach of the Employment Agreement by the Company occurs, all shares of
Common Stock subject to the outstanding Option shall automatically become fully
vested and exercisable, and the Executive shall have the right to purchase all
or any portion of the shares of Common Stock subject to the Option that have not
been previously purchased. For all purposes of this Option Agreement and the
Stock Option Plan, the term "Change of Control" shall have the meaning assigned
to it in Section 4(d) of the Employment Agreement.
6. THE STOCK OPTION PLAN; STOCKHOLDER APPROVAL OF AMENDMENT No. 1. The
Option is subject to the terms of the Stock Option Plan (copy attached hereto)
and, to the extent necessary, contingent upon the approval of Amendment No. 1 to
the Plan by the stockholders of the Company on or prior to the date of the 1997
annual meeting of such stockholders. The Company hereby covenants and agrees
that it will promptly, and in any event no later than by the date of the 1997
annual meeting, obtain stockholder approval of Amendment No. 1 to the Stock
Option Plan, it being understood and agreed that since Amendment No. 1 increases
the shares of Common Stock available for the issuance of awards under the Plan,
the Company's delivery of such stockholder approval constitutes a material
condition of this Option Agreement and the Employment Agreement attached hereto.
Accordingly, the Company covenants and agrees that if, for any reason,
stockholder approval of Amendment No. 1 to the Stock Option Plan is not obtained
in a timely manner, the Company shall take any and all actions necessary,
including, but not limited to, paying additional compensation to the Executive,
in order to place the Executive in the same financial position (determined on a
net after-tax basis) that he would have been in had stockholder approval to
Amendment No. 1 been obtained in a timely manner.
7. WITHHOLDING TAX LIABILITY. The Executive agrees to deposit with the
Escrow Agent, if so requested by the Company at its sole discretion, an amount
sufficient to satisfy any withholding tax liability imposed as a result of the
exercise of all or any portion of the Option granted hereunder.
8. REGISTRATION OF SECURITIES. In accordance with the applicable
provisions and rules of the Securities Act of 1933, as amended ("Securities Act
"), and, in any event, as soon as practicable, the Company shall file or cause
to be filed a registration statement on SEC Form S-8 providing for the
registration under the Securities Act of the shares of the Company's Common
Stock underlying the Option. In addition, as soon as the Company becomes
eligible under the applicable provisions and rules of the Securities Act to file
a re-offer prospectus on SEC Form S-3 (or on any successor form thereto) with
respect to the Option, but in no event later than eighteen months following the
date hereof, it shall promptly file or cause to be filed pursuant to Rule 462(b)
of the Securities Act a post-effective amendment to the SEC Form S-8 then on
file with the Securities and Exchange Commission providing for the registration
of the shares of Common Stock covered by the Option for re-offer or re-sale by
the Executive.
9. EMPLOYMENT AGREEMENT. The Employment Agreement, attached hereto, forms
an integral part of the terms and conditions of this Option Agreement. Riders,
if any, attached hereto shall also form a part of the terms and conditions of
this Option Agreement.
IN WITNESS WHEREOF, the Company and the Executive have duly executed this
Option Agreement, all as of the day and year first above written.
THE CINEMASTERS GROUP, INC.
By: ____________________________
Gene Feldman
President
By: _____________________________
Cary Brokaw
Executive
Exhibit 6(c)(vi)
[OPTIONEE]
OPTION GRANT AGREEMENT
OPTION AGREEMENT dated September 30, 1996 between The CineMasters Group,
Inc., a New York corporation (the "Company") and [OPTIONEE], an executive of the
Company (the "Executive").
Pursuant to the Company's 1995 Non-Qualified Stock Option Plan, as amended
by Amendment No. 1 (collectively, the "Stock Option Plan"), the Company desires
to make available shares of its Common Stock, par value $.01 per share (the
"Common Stock"), for purchase by the Executive, and thereby to provide an
additional incentive to him to continue in the employ of the Company or its
subsidiaries and give him a greater interest as a shareholder in the success of
the Company.
NOW, THEREFORE, in accordance with the mutual covenants hereinafter set
forth and for good and valuable consideration, the parties hereby agree as
follows:
1. GRANT OF OPTIONS. The Company hereby grants, on the terms and
conditions set forth herein, to the Executive as a matter of separate agreement
and not in lieu of salary or any other compensation for services, the right and
option to purchase all or any part of an aggregate of [__________] shares of
Common Stock, [it being understood that [__________] shares are currently
available for grant hereunder and the availability of the balance of such shares
is subject to approval of Amendment No. 1 by a majority of the stockholders of
the Company] (the "Option").
2. PURCHASE PRICE. The purchase price of shares of Common Stock subject to
the Option shall be $1.70 per share, being not less than 85% of the "market
value" (as defined in Section 8 of the Stock Option Plan) of the Common Stock on
the date of the grant of the Option.
3. TERM OF OPTION. The term of the Option shall be ten years from the date
hereof, subject to the provisions of the Stock Option Plan with respect to
termination of employment, death or disability of the Executive. Any portion of
the Option not exercised prior to the termination of the Option shall thereupon
become null and void.
4. ACCRUAL OF OPTION. Subject to the provisions of Section 5 hereof, the
Option shall become vested and exercisable as follows:
20% - effective immediately upon execution of this Option Agreement; 40%
- effective September 30, 1997; 60% - effective September 30, 1998; 80%
- effective September 30, 1999; and
100% - effective September 30, 2000.
5. ACCELERATED VESTING AND EXERCISE PROVISIONS.
(a) Effective immediately upon the effective date of a "Change of Control"
of the Company, all shares of Common Stock subject to the outstanding Option
shall automatically become fully vested and exercisable, and the Executive shall
have the right to purchase all or any portion of the shares of Common Stock
subject to the Option that have not been previously purchased.
(b) For all purposes of this Option Agreement and the Stock Option Plan, a
"Change of Control" of the Company shall be deemed to have occurred upon the
happening of any of the following events: (i) approval by the stockholders of
the Company of a transaction that would result in the reorganization, merger, or
consolidation of the Company with one or more other "Persons" within the meaning
of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
("Securities Act"), other than a transaction following which:
(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by Persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership interests in the
Company; and
(B) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by Persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets of
theof the Company Company;
(iii) a complete liquidation or dissolution of the Company, or
approval by the stockholders of the Company of a plan for such liquidation or
dissolution;
(iv) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board of Directors of the Company do not
belong to any of the following groups:
(A) individuals who were members of the Company's Board of Directors
on the date hereof; or
(B) individuals who first became members of the Board of Directors
after the date hereof:
(I) upon election to serve as a member of the Board of Directors of
the Company by affirmative vote of three-quarters of the members of such Board,
or of a nominating committee thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of the Company to serve as a
member of the Board of Directors of the Company, but only if nominated for
election by affirmative vote of three-quarters of the members of the Board of
Directors of the Company, or of a nominating committee thereof, in office at the
time of such first nomination; provided, however, that such individual's
election or nomination did not result from an actual or threatened election
contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of proxies or
consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of Directors of the
Company.
Notwithstanding the provisions of subsection 5(b)(i) through (iv) above,
for purposes of this Option Agreement, a "Change of Control" of the Company
shall not be deemed to have occurred with respect to the Executive in the event
that the Executive approves or votes, either in his capacity as a member of the
Board of Directors or as a stockholder of the Company, in favor of the
transaction or event resulting in a "Change of Control" of the Company under
subsection 5(b)(i), (ii), (iii) or (iv) above provided that such "Change of
Control" was contested by a majority of the Board of Directors of the Company.
6. THE STOCK OPTION PLAN; STOCKHOLDER APPROVAL OF AMENDMENT No. 1. The
Option is subject to the terms of the Stock Option Plan (copy attached hereto)
and, to the extent necessary, contingent upon the approval of Amendment No. 1 to
the Plan by the stockholders of the Company on or prior to the date of the 1997
annual meeting of such stockholders. The Company hereby covenants and agrees
that it will promptly, and in any event no later than by the date of the 1997
annual meeting, obtain stockholder approval of Amendment No. 1 to the Stock
Option Plan, it being understood and agreed that since Amendment No. 1 increases
the shares of Common Stock available for the issuance of awards under the Plan,
the Company's delivery of such stockholder approval constitutes a material
condition of this Option Agreement. Accordingly, the Company covenants and
agrees that if, for any reason, stockholder approval of Amendment No. 1 to the
Stock Option Plan is not obtained in a timely manner, the Company shall take any
and all actions necessary, including, but not limited to, paying additional
compensation to the Executive, in order to place the Executive in the same
financial position (determined on a net after-tax basis) that he would have been
in had stockholder approval to Amendment No. 1 been obtained in a timely manner.
7. WITHHOLDING TAX LIABILITY. The Executive agrees to deposit with the
Escrow Agent, if so requested by the Company at its sole discretion, an amount
sufficient to satisfy any withholding tax liability imposed as a result of the
exercise of all or any portion of the Option granted hereunder.
8. REGISTRATION OF SECURITIES. In accordance with the applicable
provisions and rules of the Securities Act of 1933, as amended ("Securities Act
"), and, in any event, as soon as practicable, the Company shall file or cause
to be filed a registration statement on SEC Form S-8 providing for the
registration under the Securities Act of the shares of the Company's Common
Stock underlying the Option. In addition, as soon as the Company becomes
eligible under the applicable provisions and rules of the Securities Act to file
a re-offer prospectus on SEC Form S-3 (or on any successor form thereto) with
respect to the Option, it shall, to the extent necessary, promptly file or cause
to be filed pursuant to Rule 462(b) of the Securities Act a post-effective
amendment to the SEC Form S-8 then on file with the Securities and Exchange
Commission providing for the registration of the shares of Common Stock covered
by the Option for re-offer or re-sale by the Executive.
9. RIDERS. Riders, if any, attached hereto shall also form a part of the
terms and conditions of this Option Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have duly executed this
Option Agreement, all as of the day and year first above written.
THE CINEMASTERS GROUP, INC.
By: ____________________________
Gene Feldman
Title:
By: _____________________________
[OPTIONEE]
Executive
Exhibit 6(c)(vii)
[OPTIONEE]
OPTION GRANT AGREEMENT
OPTION AGREEMENT dated March 10, 1997 between The CineMasters Group, Inc.,
a New York corporation (the "Company") and [OPTIONEE], an executive of the
Company (the "Executive").
Pursuant to the Company's 1997 Stock Option and Long Term Incentive Plan (
the "Stock Option Plan"), the Company desires to make available shares of its
Common Stock, par value $.01 per share (the "Common Stock"), for purchase by the
Executive, and thereby to provide an additional incentive to him to continue in
the employ of the Company or its subsidiaries and give him a greater interest as
a shareholder in the success of the Company.
NOW, THEREFORE, in accordance with the mutual covenants hereinafter set
forth and for good and valuable consideration, the parties hereby agree as
follows:
1. GRANT OF OPTIONS. The Company hereby grants, on the terms and
conditions set forth herein, to the Executive as a matter of separate agreement
and not in lieu of salary or any other compensation for services, the right and
option to purchase all or any part of an aggregate of ________ shares of Common
Stock (the "Option").
2. PURCHASE PRICE. The purchase price of shares of Common Stock subject to
the Option shall be $3.00 per share, being not less than 85% of the "market
value" (as defined in Section 8 of the Stock Option Plan) of the Common Stock on
the date of the grant of the Option.
3. TERM OF OPTION. The term of the Option shall be ten years from the date
hereof, subject to the provisions of the Stock Option Plan with respect to
termination of employment, death or disability of the Executive. Any portion of
the Option not exercised prior to the termination of the Option shall thereupon
become null and void.
4. ACCRUAL OF OPTION. Subject to the provisions of Section 5 hereof, the
Option shall become vested and exercisable as follows:
20% - effective immediately upon execution of this Option Agreement; 40%
- effective March 10, 1998; 60% - effective March 10, 1999; 80% -
effective March 10, 2000; and
100% - effective March 10, 2001.
5. ACCELERATED VESTING AND EXERCISE PROVISIONS.
(a) Effective immediately upon the effective date of a "Change of Control"
of the Company, all shares of Common Stock subject to the outstanding Option
shall automatically become fully vested and exercisable, and the Executive shall
have the right to purchase all or any portion of the shares of Common Stock
subject to the Option that have not been previously purchased.
(b) For all purposes of this Option Agreement and the Stock Option Plan, a
"Change of Control" of the Company shall be deemed to have occurred upon the
happening of any of the following events: (i) approval by the stockholders of
the Company of a transaction that would result in the reorganization, merger, or
consolidation of the Company with one or more other "Persons" within the meaning
of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
("Securities Act"), other than a transaction following which:
(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by Persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership interests in the
Company; and
(B) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by Persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company;
(iii) a complete liquidation or dissolution of the Company, or
approval by the stockholders of the Company of a plan for such liquidation or
dissolution;
(iv) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board of Directors of the Company do not
belong to any of the following groups:
(A) individuals who were members of the Company's Board of Directors
on the date hereof; or
(B) individuals who first became members of the Board of Directors
after the date hereof:
(I) upon election to serve as a member of the Board of Directors of
the Company by affirmative vote of three-quarters of the members of such Board,
or of a nominating committee thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of the Company to serve as a
member of the Board of Directors of the Company, but only if nominated for
election by affirmative vote of three-quarters of the members of the Board of
Directors of the Company, or of a nominating committee thereof, in office at the
time of such first nomination; provided, however, that such individual's
election or nomination did not result from an actual or threatened election
contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of proxies or
consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of Directors of the
Company.
Notwithstanding the provisions of subsection 5(b)(i) through (iv) above,
for purposes of this Option Agreement, a "Change of Control" of the Company
shall not be deemed to have occurred with respect to the Executive in the event
that the Executive approves or votes, either in his capacity as a member of the
Board of Directors or as a stockholder of the Company, in favor of the
transaction or event resulting in a "Change of Control" of the Company under
subsection 5(b)(i), (ii), (iii) or (iv) above provided that such "Change of
Control" was contested by a majority of the Board of Directors of the Company.
6. STOCKHOLDER APPROVAL OF THE STOCK OPTION PLAN The Option is subject to
the terms of the Stock Option Plan (copy attached hereto) and, to the extent
necessary, contingent upon the approval of the Stock Option Plan by the
stockholders of the Company on or prior to the date of the 1997 annual meeting
of such stockholders. The Company hereby covenants and agrees that it will
promptly, and in any event no later than by the date of the 1997 annual meeting,
obtain stockholder approval of the Stock Option Plan, it being understood and
agreed that the Company's delivery of such stockholder approval constitutes a
material condition of this Option Agreement. Accordingly, the Company covenants
and agrees that if, for any reason, stockholder approval of to the Stock Option
Plan is not obtained in a timely manner, the Company shall take any and all
actions necessary, including, but not limited to, paying additional compensation
to the Executive, in order to place the Executive in the same financial position
(determined on a net after-tax basis) that he would have been in had stockholder
approval to the Stock Option Plan been obtained in a timely manner.
7. WITHHOLDING TAX LIABILITY. The Executive agrees to deposit with the
Escrow Agent, if so requested by the Company at its sole discretion, an amount
sufficient to satisfy any withholding tax liability imposed as a result of the
exercise of all or any portion of the Option granted hereunder.
8. REGISTRATION OF SECURITIES. In accordance with the applicable
provisions and rules of the Securities Act of 1933, as amended ("Securities Act
"), and, in any event, as soon as practicable, the Company shall file or cause
to be filed a registration statement on SEC Form S-8 providing for the
registration under the Securities Act of the shares of the Company's Common
Stock underlying the Option. In addition, as soon as the Company becomes
eligible under the applicable provisions and rules of the Securities Act to file
a re-offer prospectus on SEC Form S-3 (or on any successor form thereto) with
respect to the Option, it shall, to the extent necessary, promptly file or cause
to be filed pursuant to Rule 462(b) of the Securities Act a post-effective
amendment to the SEC Form S-8 then on file with the Securities and Exchange
Commission providing for the registration of the shares of Common Stock covered
by the Option for re-offer or re-sale by the Executive.
9. RIDERS. Riders, if any, attached hereto shall also form a part of the
terms and conditions of this Option Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have duly executed this
Option Agreement, all as of the day and year first above written.
THE CINEMASTERS GROUP, INC.
By: ____________________________
Cary Brokaw
President & Chief Executive Officer
By: _____________________________
[OPTIONEE]
Executive
Exhibit 6(c)(viii)
TERMINATION AGREEMENT
Termination Agreement dated July 3, 1996 (the "Effective Date") by and
between The CineMasters Group, Inc., 250 West 57th Street, Suite 2421, New York,
NY 10019 ("CineMasters"), Kaufman Films, Inc. ("KFI") and Kevin Kaufman, 53
Leonard Street, New York, New York 10013 ("Kaufman").
WHEREAS, CineMasters and KFI, a corporation wholly-owned by Kaufman,
entered into a Purchase Agreement dated as of July 26, 1994; and
WHEREAS, Kaufman and CineMasters entered into an Employment Agreement
dated as of July 26, 1994; and
WHEREAS, the parties are terminating the Employment Agreement and
modifying the Purchase Agreement in accordance with the terms herein contained
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and subject to the terms and conditions hereof, the
parties hereby agree as follows:
1. (a) The Employment Agreement is hereby terminated as of the Effective
Date. The parties agree that all matters contained in this Termination Agreement
will be effective on the Effective Date unless otherwise specifically set forth
herein.
(b) The option for 200,000 shares of CineMasters stock granted KFI
pursuant to paragraph 1.3(a) of the Purchase Agreement, and the option for
250,000 shares of CineMasters stock granted to Kaufman pursuant to Paragraph 3.3
of the Employment Agreement, none of which have heretofore been exercised, are
hereby declared null and void, as of the Effective Date.
2. The parties have scheduled a closing on Wednesday, August 7, 1996 at
11:00 o'clock in the a.m. (the "Closing Date") at the offices of Leavy
Rosensweig & Hyman. At the Closing:
(a) KFI will deliver to CineMasters (i) stock certificate #U523 for
160,000 shares of restricted CineMasters Class A Common Stock issued to KFI;
(ii) a stock power in blank with signature medallion guaranteed; (iii) a
corporate resolution of KFI approving the terms of this Termination Agreement,
and stating that Kaufman is authorized to execute this Termination Agreement;
and (iv) an affidavit of Kaufman stating that he is the sole shareholder of KFI;
(b) Kaufman will deliver to CineMasters a letter of resignation,
effective as of June 10, 1996, wherein Kaufman resigns as President and a
Director of CineMasters; and
(c) Kaufman and KFI will execute and deliver to CineMasters a
mutually agreeable general release in favor of CineMasters.
3. Simultaneously, at the Closing:
(a) CineMasters will deliver 5 replacement certificates for an
aggregate of 80,000 shares (4 for 18,000 shares and one for 8,000 shares) of
restricted CineMasters Class A Common Stock in the name of Kevin Kaufman (the
"Kaufman Stock"). It is understood that Kaufman may not sell more than 18,000
shares of the Kaufman Stock in any one calendar quarter. CineMasters will do all
things necessary to permit the continuing availability of sales of the Kaufman
Stock under SEC Rule 144 during all periods in which Kaufman holds Kaufman Stock
through September 30, 1997.
(b) CineMasters will deliver to KFI and Kaufman a corporate
resolution of CineMasters authorizing this Termination Agreement.
(c) CineMasters will deliver evidence that it has paid the June and
July rent for the premises (the "Premises) presently occupied by the Kaufman
Films Division of CineMasters. CineMasters will execute and deliver an
assignment of the lease between Gaffney-Kroese Electrical Supply Corp.
("Landlord") and CineMasters, as of January, 1995, for the Premises effective as
of August 1, 1996 and Kaufman will deliver to CineMasters a release in favor of
CineMasters executed by the Landlord, effective as of August 1, 1996.
(d) CineMasters will deliver to Kaufman a Bill of Sale and
Instrument of Assignment, and an Assignment of Copyright in a mutually agreeable
form, with respect to those tangible and intangible assets owned or leased by
CineMasters, set forth in Schedule A thereto.
(e) CineMasters will deliver to Kaufman payment for his 1994/95
fiscal year bonus in the amount of $4,364.00.
4. Kaufman will continue to receive the salary and benefits that he had
been receiving under the Employment Agreement through July 31, 1996.
5. As of the Effective Date, Kaufman will have the sole right to use the
name Kaufman Films or any variation thereof (the "Name"), except that
CineMasters may continue to use the Name to wind down the business of the
Kaufman Films Division of CineMasters. Within thirty (30) days from the Closing,
CineMasters will file a Certificate of Discontinuance of the Name in a mutually
agreeable form with the New York Secretary of State.
6. CineMasters will pay the fee of $500 per week to Dean Kempf for his
services through July 31, 1996. Provided that CineMasters has made all payments
pursuant to this Paragraph 6, Kaufman will be responsible for all payments and
obligations to Kempf after July 31, 1996 and will furnish CineMasters at the
Closing with a release from Kempf in a mutually agreeable form.
7. CineMasters will use reasonable best efforts to engage, as an
independent contractor, the services of Lou Ehrenkrantz, as financial advisor,
from July 1, 1996 through June 30, 1997 or until Kaufman has sold the Kaufman
Stock, whichever first occurs. If the Kaufman Stock has not been fully sold by
such date, CineMasters will use reasonable best efforts to continue
Ehrenkrantz's engagement, subject to the Kaufman contribution, until September
30, 1997, or the sale of all of the Kaufman Stock, whichever first occurs.
Kaufman will pay CineMasters the sum of one thousand ($1,000) dollars per month
for each month in which Mr. Ehrenkrantz is so engaged.
8. Kaufman will pay over to CineMasters one-half of all net proceeds from
the sale by Kaufman of the second group of 18,000 shares of CineMasters Common
Stock which is to be sold by Kaufman within six (6) months after the Closing.
Such amount will be paid to CineMasters within ten (10) days of Kaufman's
receipt of such proceeds.
9. Kaufman has delivered to CineMasters a budget, including productions
and overhead cost to wind down the Kaufman Films Division, including completion
and delivery of the Time-Warner and Martha Stewart jobs (annexed hereto as
Exhibit 9-1). CineMasters will pay for such winding down expenses in the
categories listed on Exhibit 9-1 (entertainment not to exceed $150) up to a
maximum of $66,672.79. Kaufman will be responsible for any costs, salaries, fees
or other charges incurred by the Kaufman Film Division of CineMasters in excess
of $66,672.79. Attached hereto as Exhibit 9-2 is a list of receivables of the
Division as of the Effective Date. Kaufman represents that with respect to all
such accounts receivable (i) the work for which the charges were made has been
completed and delivered and (ii) the clients have been invoiced for the amount
of the receivable. At CineMasters' request, Kaufman will cooperate with
CineMasters in the collection of any accounts receivable, including calling or
writing such clients.
10. Kaufman will complete all services and deliver all materials to
Time-Warner and Martha Stewart as required pursuant to the respective contracts
and/or purchase orders.
11. Through September 30, 1997, until such time earlier as Kaufman has
sold all of the Kaufman Stock, neither Gene Feldman, Jerry Feldman or any
affiliate or relative of either will, in the public market, sell, transfer, or
assign in any manner, any shares of CineMasters stock.
12. (a) The parties will mutually agree on a press release regarding the
matters contained herein and neither party will make disparaging remarks about
the other.
(b) The parties will keep the term of this Agreement confidential.
13. Kaufman will have the rights to those works in progress of the Kaufman
Films Division set forth in Exhibit 13. Kaufman will be solely responsible for
any costs of these projects incurred after the Effective Date.
14. CineMasters will retain all equipment on lease and being used by the
Kaufman Films Division of CineMasters. CineMasters will remove the equipment
from the Premises on or about July 31, 1996 upon Kaufman's completion of use of
the equipment for the Time-Warner and Martha Stewart projects. CineMasters will
inspect all equipment while on the Premises and notify Kaufman if any equipment
is defective and Kaufman will use his best efforts to cure such defects. Once
the equipment is removed from the Premises, Kaufman will have no further
liability for such equipment.
15. Miscellaneous. This Agreement shall inure to and be binding upon the
parties, their respective heirs, executors, administrators, and permitted
assigns. No delay or failure by any party to exercise any right under this
agreement, and no partial or single exercise of that right, shall constitute a
waiver of that or any other right. No waiver shall be valid unless in writing,
and shall not operate or be construed as a waiver of any subsequent breach. All
notices required or desired shall be in writing and delivered personally or by
certified mail, return receipt requested, or by recognized overnight delivery
service and forwarded to the parties at the addresses set forth above, or at
such other addresses as the parties may advise each other in writing. Copies of
all notices to CineMasters shall also be given to Robert I. Freedman, Esq., c/o
Leavy Rosensweig & Hyman, 11 East 44th Street, New York, New York 10017. Copies
of all notices to Kaufman or KFI shall be given to Tom Selz, Esq., Frankfurt,
Garbus, Klein & Selz, 488 Madison Avenue, New York, New York 10022. This
agreement shall be construed in accordance with, and governed by, the law of the
State of New York.
16. Entire Agreement. This Agreement, the Purchase Agreement, and the
Employment Agreement, are the complete agreements between the parties with
respect to the subject matter herein and supersede all representations,
agreements, and understandings, whether written or oral, previously made between
the parties relating to its subject matter. There are no other understandings
and agreements between the parties.
17. The telephone system in the Premises will remain in the Premises at no
cost.
IN WITNESS WHEREOF, the parties have executed this Agreement on July __,
1996.
THE CINEMASTERS GROUP, INC.
- ---------------------------
By:_________________________
Kevin Kaufman
KAUFMAN FILMS, INC.
By:_________________________
