UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the quarter ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
Commission File Number: 001-12885
AVENUE ENTERTAINMENT GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4622429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
11755 Wilshire Blvd., Suite 2200
Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
(310) 996-6815
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period) that the Registrant
was required to file such reports and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ______
Number of shares outstanding of each of issuer's classes of common stock as of
August 6, 1999.
Common Stock 4,108,838
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page No.
Consolidated Condensed Balance Sheets -
June 30, 1999 (unaudited) and December 31, 1998 1
Unaudited Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended
June 30, 1999 and 1998 2
Unaudited Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 3
Unaudited Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis of Financial
Condition or Plan of Operations 7
PART II. OTHER INFORMATION 11
Signatures 12
<PAGE>
PART I. FINANCIAL INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
Consolidated Condensed Balance Sheets
June 30, December 31,
1999 1998
Assets (unaudited)
Cash $ 316,565 $ 427,240
Marketable securities 61,530 339,716
Accounts receivable 80,424 108,515
Income tax receivable 54,695 55,000
Films costs, net 1,092,921 1,091,646
Property and equipment, net 76,246 87,272
Other assets 34,054 29,766
Goodwill 2,033,769 2,174,029
----------- -----------
Total assets $3,750,204 $4,313,184
========== ==========
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $1,138,194 $1,024,862
Loan payable 127,500 127,500
Deferred compensation 207,506 145,006
Due to related party 109,477 94,481
---------- -----------
Total liabilities 1,582,677 1,391,849
---------- ----------
Stockholders' equity
Common stock, par value $.01 per share 41,088 41,088
Additional paid-in capital 6,433,946 6,415,196
Accumulated deficit (4,157,507) (3,384,949)
Note receivable for common stock (150,000) (150,000)
------------ -----------
Total stockholders' equity 2,167,527 2,921,335
----------- -----------
Total liabilities and stockholders' equity $3,750,204 $4,313,184
========== ==========
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------- ----------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
------- ------ ------- ----------
Operating revenues $ 198,736 $ 170,057 $ 376,405 $ 409,758
----------- ---------- ---------- ----------
Cost and expenses:
Film production costs 54,746 140,553 121,572 173,252
Selling, general & administrative
expenses 505,320 555,506 976,389 1,220,268
----------- --------- ---------- -----------
Total costs and expenses 560,066 696,059 1,097,961 1,393,520
----------- ---------- ---------- -----------
Unrealized gain (loss) on trading
securities (93,556) 205,628 (63,288) 205,628
Gain (loss) on sale of investments (9,477) 15,003
-------------- ----------------- ----------- ----------------
Loss before income tax (464,363) (320,374) (769,841) (778,134)
Income tax expense 716 2,155 2,717 7,456
--------------- ------------ ------------ ------------
Net loss $ (465,079) $ (322,529) $ (772,558) $ (785,590)
========== ========== ========== ==========
Basic and diluted loss per share $ (.11) $ (.08)$ (.19) $ (.19)
============== ============= ============== ============
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Six months
ended June 30,
1999 1998
Cash flows from operating activities:
Net loss $(772,558) $(785,590)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation 12,257 11,893
Amortization-film production costs 118,080 163,039
Amortization-goodwill 140,260 140,260
Loss on sale of Fixed Assets 465
Proceeds from disposal of Fixed Assets 1,360
Gain on sale of investments (15,003)
Unrealized gain (loss) on trading securities 63,288 (205,628)
Proceeds from sale of marketable securities 229,901 36,000
Deferred compensation 62,500
Stock compensation 18,750 18,750
Changes in assets and liabilities which
affect net income:
Accounts receivable 28,091 (30,287)
Film costs (199,355) (203,110)
Other assets (4,288) (19,601)
Accounts payable and accrued expenses (113,332) 11,627
Income taxes 305 27,000
Due to related party 14,996
--------- ---------
Net cash used in operating activities (107,619) (835,647)
--------- ---------
Cash flows from investing activities:
Purchase of equipment (3,056) (2,364)
-------- ----------
Net cash in investing activities (3,056) (2,364)
--------- ----------
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Consolidated Condensed Statements of Cash Flows (Continued)
(Unaudited)
Six months
ended June 30,
1999 1998
Cash flows from financing activities:
Sale of common stock $ $ 145,800
Principal payments of capital lease obligations (8,459)
----------- -----------
Net decrease in cash (110,675) (700,670)
Cash at the beginning of period 427,240 1,158,347
----------- -----------
Cash at end of period $ 316,565 $ 457,677
=========== ===========
Supplemental cash flow information:
Cash paid during the periods for:
Interest 4,432 $ 6,638
----------- -----------
Income taxes 2,717 $ 7,456
=========== ===========
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Notes to Consolidated CONDENSED Financial Statements
1. Summary of significant accounting policies
The Company
Avenue Entertainment Group, Inc. (the "Company") is principally engaged
in the development, production and distribution of feature films, television
series, movies-for-television, mini-series and film star biographies.
Generally, theatrical films are first distributed in the theatrical and
home video markets. Subsequently, theatrical films are made available for
worldwide television network exhibition or pay television, television
syndications and cable television. Generally, television films are first
licensed for network exhibition and foreign syndication or home video, and
subsequently for domestic syndication on cable television. The revenue cycle
generally extends 7 to 10 years on film and television product.
Basis of Presentation
The accompanying interim consolidated financial statements of the
Company are unaudited and have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-KSB for the year ended December 31, 1998. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at June 30, 1999, the
results of operations and its cash flows for the six months ended June 30, 1999
and 1998 have been included. The results of operations for the interim period
are not necessarily indicative of results which may be realized for the full
year.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Notes to Consolidated CONDENSED Financial Statements (Continued)
(Unaudited)
2. Film costs
Film costs consist of the following:
June 30, December 31,
1999 1998
In process or development $ 84,524 $ 2,076
Released, net of accumulated amortization
of $12,573,326 and $12,455,246, respectively 1,008,397 1,089,570
----------- ----------
$1,092,921 $1,091,646
3. Loan payable
On May 27, 1999, the Company entered into an unsecured demand note
which provides the Company with borrowings (the "Note") in the principal amount
of $150,000, at prime plus 1%, with Fleet Bank, National Association, which is
payable on demand, but in any event not later than May 27, 2000. At June 30,
1999 $127,500 was outstanding.
4. Subsequent event
In August 1999, the Company sold 480,192 shares of Common Stock and a
warrant to purchase 500,000 shares of common stock which expires August 2002
(the "Warrant") to certain investors pursuant to a private placement
transaction. The Company realized net proceeds of approximately $500,000. The
Warrant is exercisable at an exercise price of $2.00 per share. The shares of
Common Stock and the shares of Common Stock issuable upon exercise of the
Warrant cannot be sold, transferred, pledged or assigned for a one-year period.
The Company claimed an exemption from the registration requirements of the
Securities Act of 1933 (the "Act") pursuant to Rule 506 of Regulation D of the
Act.
<PAGE>
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 condensed financial statements and related notes
thereto.
Liquidity and Capital Resources
At June 30, 1999, the Company had approximately $317,000 of cash and
approximately $62,000 of marketable securities. Revenues have been insufficient
to cover costs of operations for the quarter ended June 30, 1999. The Company
has a working capital deficiency and has an accumulated deficit of $4,206,249
through June 30, 1999. The Company's continuation as a going concern is
dependent on its ability to ultimately attain profitable operations and positive
cash flows from operations. The Company's management believes that it can
satisfy its working capital needs based on its estimates of revenues and
expenses, together with improved operating cash flows, as well as additional
funding whether from financial markets, other sources or other collaborative
arrangements, such as the private placement transaction described in Note 4 to
the Notes to the Consolidated Condensed Financial Statements. The Company
believes it will have sufficient funds available to continue to exist through
the next year, although no assurance can be given in this regard. Insufficient
funds will require the Company to scale back its operations. The Independent
Auditor's Report dated April 14, l999 on the Company's consolidated financial
statements states that the Company has suffered losses from operations, has a
working capital deficiency and has an accumulated deficit that raises
substantial doubt about its ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that may result
from the Company's inability to continue as a going concern.
Results of Operations
For the quarter and six months ended June 30, 1999, the Company had a
loss before income taxes of approximately $464,000 and $770,000 compared to a
loss of $320,000 and $778,000 for the quarter and six months ended June 30,
1998. The loss for the period was primarily the result of reduced revenues
earned and unrealized losses on trading securities and losses on sales of
investments, both relating to the common stock of GP Strategies Corporation.
Revenues
Revenues for the three months ended June 30, 1999 were approximately
$199,000 compared to $170,000 for the three months ended June 30, 1998. The
revenues earned in 1998 were derived from the licensing of rights of the
"Hollywood Collection" in secondary markets through Janson Associates. The
revenues earned in 1999 were derived from the sale of the domestic rights to
"Betty Buckley, In Performance and In Person" to the Bravo Cable network for
$50,000, as well as licensing of rights of the "Hollywood Collection" in
secondary markets. In addition, the Company received a $44,000 production fee in
1999, relating to the motion picture "Wayward Son".
<PAGE>
Revenues for the six months ended June 30, 1999, were approximately
$376,000 compared to $410,000 for the six months ended June 30, 1998.
Film production costs
Film production costs for the three months ended June 30, 1999 were
$55,000 compared to $141,000 for the three months ended June 30, 1998.
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses for the three
months ended June 30, 1999 were $505,000 compared to $556,000 for the three
months ended June 30, 1998. The reduced S,G&A in 1999 is the result of efforts
to reduce expenses and personnel costs due to the reduced level of revenue.
Selling, general and administrative (S,G&A) expenses for the six months ended
June 30, 1999, were $976,000 compared to $1,220,000 for the six months ended
June 30, 1998.
Recent Accounting Developments
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company will adopt SFAS No. 133 by
January 1, 2000. The Company is currently evaluating the impact the adoption of
SFAS No. 133 will have on the consolidated financial statements.
Year 2000
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram and test systems for year 2000 compliance. The
Company operates its financial reporting systems through a personal computer
based accounting and general ledger package. The Company is in the process of
installing the required updates to the system to make the system year 2000
compliant. The Company believes that these updates will cost approximately
$5,000 and be complete by the end of the third quarter of 1999.
<PAGE>
The Company has also identified various ancillary programs that need to
be updated and has contracted with third parties for this work to be completed
within the next six months. It is expected that the cost of these modifications
will be approximately $5,000.
In addition, the Company is examining their exposure to the year 2000
in other areas of technology. These areas include telephone and E-mail systems,
operating systems and applications in free standing personal computers, local
area networks and other areas of communication. A failure of these systems,
which may impact the ability of the Company to service their customers which
could have a material effect on their results of operations. These issues are
being handled by the finance team at the Company by identifying the problems and
obtaining from service providers either the necessary modifications to the
software or assurances that the systems will not be disrupted. The Company
believes that the cost of the programming and equipment upgraded will not be in
excess of $7,500. In addition, certain personnel computers and other equipment
that is not year 2000 compliant will be upgraded through the Company's normal
process of equipment upgrades. The Company believes that the evaluation and
implementation process will be complete no later than the second quarter of
1999. Over the next year, the Company plans to continue to develop and implement
other information technology projects needed in the ordinary course of business.
The Company expects to finance these expenditures from working capital.
Therefore, the Company does not expect the year 2000 issue to have a material
adverse impact on its financial position or results of operations.
Like other companies, the Company relies on its customers for revenues
and on its vendors for products and services of all kinds; these third parties
all face the year 2000 issue. An interruption in the ability of any of them to
provide goods or services, or to pay for goods or services provided to them, or
an interruption in the business operations of our customers causing a decline in
demand for services, could have a material adverse effect on the Company in
turn.
In addition, there is a risk, the probability of which the Company is
not in a position to estimate, that the transition to the year 2000 will cause
wholesale, perhaps prolonged, failures of electrical generation, banking,
telecommunications or transportation systems in the United States or abroad,
disrupting the general infrastructure of business and the economy at large.
The effect of such disruptions on the Company could be material.
The Company's various departments will communicate with their principal
customers and vendors about their year 2000 readiness, and expect this process
to be completed no later than the third quarter of 1999. None of the responses
received to date suggests that any significant customer or vendor expects the
year 2000 issue to cause an interruption in its operations which would have a
material adverse impact on the Company. However, because so many firms are
exposed to the risk of failure not only of their own systems, but of the systems
of other firms, the ultimate effect of the year 2000 issue is subject to a very
high degree of uncertainty.
<PAGE>
The Company believes that its preparations currently under way are
adequate to assess and manage the risks presented by the year 2000 issue, and
does not have a formal contingency plan at this time.
The statements in this section regarding the effect of the year 2000
and the Company's responses to it are forward-looking statements. They are based
on assumptions that the Company believes to be reasonable in light of its
current knowledge and experience. A number of contingencies could cause actual
results to differ materially from those described in forward-looking statements
made by or on behalf of the Company.
Forward-Looking Statements
This report contains certain forward-looking statements reflecting
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, including, but not limited to, the ability of
the Company to reverse its history of operating losses; the ability to obtain
additional financing and improved cash flow in order to meet its obligations and
continue to exist as a going concern; production risks; dependence on contracts
with certain customers; future foreign distribution arrangements; the risk that
the Company's preparations with respect to the risks presented by the year 2000
issue will not be adequate; and dependence on certain key management personnel.
All of these above factors are difficult to predict, and many are beyond the
control of the Company.
Market Risk Exposure
The financial position of the Company is subject to market risk associated with
interest rate movements on outstanding debt. The Company has debt obligations
with variable terms. The carrying value of the Company's variable rate debt
obligation approximates fair value as the market rate is based on prime.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Form of Warrant dated August 1999. Filed herewith.
<PAGE>
PART II. OTHER INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
June 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
AVENUE ENTERTAINMENT GROUP, INC.
DATE: August 16, 1999 BY: Gene Feldman
Chairman of the Board
DATE: August 16, 1999 BY: Cary Brokaw
President and Chief Executive
Officer, Director
DATE: August 16, 1999 BY: Sheri L. Halfon
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001023298
<NAME> AVENUE ENTERTAINMENT GROUP, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 316,565
<SECURITIES> 61,530
<RECEIVABLES> 135,119
<ALLOWANCES> 0
<INVENTORY> 1,092,291
<CURRENT-ASSETS> 1,605,505
<PP&E> 76,246
<DEPRECIATION> 174,653
<TOTAL-ASSETS> 3,750,204
<CURRENT-LIABILITIES> 1,582,677
<BONDS> 0
0
0
<COMMON> 41,088
<OTHER-SE> 2,126,439
<TOTAL-LIABILITY-AND-EQUITY> 3,750,204
<SALES> 376,405
<TOTAL-REVENUES> 376,405
<CGS> 121,572
<TOTAL-COSTS> 1,097,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (15,003)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (769,841)
<INCOME-TAX> (2,717)
<INCOME-CONTINUING> (772,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (772,558)
<EPS-BASIC> (.19)
<EPS-DILUTED> (.19)
</TABLE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR (2) THE COMPANY RECEIVES AN OPINION
OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED, OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
AVENUE ENTERTAINMENT GROUP, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1 500,000 Shares
THIS CERTIFIES that, for value received, ___________, (together with
any transferee, the "Holder"), is entitled to subscribe for and purchase from
Avenue Entertainment Group, Inc., a Delaware corporation (the "Company"), upon
the terms and conditions set forth herein, at any time or from time to time
before 5:00 P.M., New York time, on August __, 2002 (the "Exercise Period"),
500,000 shares of common stock, par value $.01 per share, of the Company (the
"Common Stock"), initially at a price of $2.00 per share (as adjusted as
provided herein, the "Exercise Price"). This Warrant is the warrant or one of
the warrants (collectively, including any warrants issued upon the exercise or
transfer of any such warrants in whole or in part, the "Warrants") to purchase
an aggregate of up to 500,000 shares of Common Stock issued to ____________ on
or about August __, 1999 (the "Original Issue Date"). As used herein the term
"this Warrant" shall mean and include this Warrant and any Warrant or Warrants
hereafter issued as a consequence of the exercise or transfer of this Warrant in
whole or in part.
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
<PAGE>
1. This Warrant may be exercised during the Exercise Period, as to all
or any lesser whole number of Warrant Shares issuable hereunder, by the
surrender of this Warrant (with the election at the end hereof duly executed) to
the Company at its office as set forth in the form of election attached hereto,
or at such other place as is designated in writing by the Company, together with
a certified or bank cashier's check payable to the order of the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares
for which this Warrant is being exercised.
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant evidencing the
right of the Holder to purchase the balance of the Warrant Shares (or portions
thereof) subject to purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in part of
this Warrant shall be numbered and shall be registered in a Warrant Register as
they are issued. The Company shall be entitled to treat the registered holder of
any Warrant on the Warrant Register as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Warrant on the part of any other person, and shall not be
liable for any registration or transfer of Warrants which are registered or to
be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to bad faith.
This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Warrant Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent.
<PAGE>
(b) The undersigned agrees for the benefit of the Company that
the undersigned will not, prior to one year from the Original Issue Date,
without the prior written consent of the Company, offer, pledge, hypothecate,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly (collectively, "Dispose Of"), any of the Warrants or
Warrant Shares, except that the foregoing restriction shall not apply to (i) the
exercise of the Warrants or (ii) any Warrants or Warrant Shares Disposed Of at
death or, if the donee agrees to be bound by the same restriction, by gift. The
provisions of this Section 3(b) shall be binding upon the undersigned and the
successors, assigns, heirs, and personal representatives of the undersigned.
(c) The undersigned realizes that the Warrants and Warrant
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any foreign or state securities laws. The undersigned agrees that the
Warrants and Warrant Shares will not be Disposed Of except in compliance with
the Act, if applicable, and applicable foreign and state securities laws and the
restrictions set forth in Section 3(b). Purchasers of Warrants or Warrant Shares
can only Dispose Of the Warrants or Warrant Shares pursuant to registration
under the Act or pursuant to an exemption therefrom. The undersigned understands
that to Dispose Of the Warrants or Warrant Shares may require in some
jurisdictions specific approval by the appropriate governmental agency or
commission in such jurisdiction. The undersigned has been advised that, except
as provided in Section 9, the Company has no obligation, and does not intend, to
cause the Warrants or Warrant Shares to be registered under the Act or the
securities law of any other jurisdiction or to comply with the requirements for
any exemption under the Act, including but not limited to those provided by Rule
144 and Rule 144A promulgated under the Act, or under the securities law of any
other jurisdiction. The undersigned understands the legal consequences of the
foregoing to mean that the undersigned may have to bear the economic risk of its
investment in the Company for an indefinite period of time.
(d) To enable the Company to enforce the transfer restrictions
contained in Sections 3(b) and 3(c), the undersigned hereby consents to the
placing of legends upon, and stop-transfer orders with the transfer agent of the
Common Stock with respect to, the Warrant Shares.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase all Warrant Shares granted pursuant to
the Warrants, such number of shares of Common Stock as shall, from time to time,
be sufficient therefor. The Company covenants that all Warrant Shares, when
issued upon receipt by the Company of the full Exercise Price therefor, shall be
validly issued, fully paid, nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the Original Issue
Date (i) declare a dividend on the outstanding Common Stock payable in shares of
its capital stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then, in each
case, the Exercise Price, and the number of Warrant Shares issuable upon
exercise of this Warrant, in effect at the time of the record date for such
dividend or of the effective date of such subdivision or combination, shall be
proportionately adjusted so that the Holder after such time shall be entitled to
receive the aggregate number and kind of shares which, if such Warrant had been
exercised immediately prior to such time, he would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision or
combination. Such adjustment shall be made successively whenever any event
listed above shall occur.
<PAGE>
(b) In case the Company shall at any time after the Original
Issue Date issue shares of Common Stock or rights, options, or warrants to
subscribe for or purchase Common Stock, or securities convertible into or
exchangeable for Common Stock (excluding shares, rights, options, warrants, or
convertible or exchangeable securities issued or issuable in or as a result of
any of the transactions with respect to which an adjustment of the Exercise
Price is provided pursuant to Section 5(a)), at a price per share (determined,
in the case of such rights, options, warrants, or convertible or exchangeable
securities, by dividing (x) the total amount received or receivable by the
Company (without deduction for any underwriting discount or commission,
placement fees, or expenses) in consideration of the sale and issuance of such
rights, options, warrants, or convertible or exchangeable securities, plus the
minimum aggregate consideration payable to the Company upon exercise,
conversion, or exchange thereof, by (y) the maximum number of shares covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the Current Market Price per share of Common Stock in effect immediately
prior to such issuance, then the Exercise Price shall be reduced on the date of
such issuance to a price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior to such issuance by a
fraction, (i) the numerator of which shall be an amount equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to such
issuance plus (B) the quotient obtained by dividing the aggregate consideration
received by the Company upon such issuance by such Current Market Price and (ii)
the denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such issuance. For the purposes of such
adjustments, the maximum number of shares which the holders of any such rights,
options, warrants, or convertible or exchangeable securities shall be entitled
to initially subscribe for or purchase or convert or exchange such securities
into shall be deemed to be issued and outstanding as of the date of such
issuance, and the consideration received by the Company therefor shall be deemed
to be the consideration received by the Company for such rights, options,
warrants, or convertible or exchangeable securities, plus the minimum aggregate
consideration or premiums stated in such rights, options, warrants, or
convertible or exchangeable securities to be paid for the shares covered
thereby. No further adjustment of the Exercise Price shall be made as a result
of the actual issuance of shares of Common Stock on exercise of such rights,
options, or warrants or on conversion or exchange of such convertible or
exchangeable securities. On the expiration or the termination of such rights,
options, or warrants, or the termination of such right to convert or exchange,
the Exercise Price shall be readjusted (but only with respect to Warrants
exercised after such expiration or termination) to such Exercise Price as would
have been obtained had the adjustments made upon the issuance of such rights,
options, warrants, or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such rights, options, or warrants or upon the
conversion or exchange of any such securities; and on any change of the number
of shares of Common Stock deliverable upon the exercise of any such rights,
options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by the
Company upon such exercise, conversion, or exchange, including, but not limited
to, a change resulting from the antidilution provisions thereof, the Exercise
Price, as then in effect, shall forthwith be readjusted (but only with respect
to Warrants exercised after such change) to such Exercise Price as would have
been obtained had an adjustment been made upon the issuance of such rights,
options, or warrants not exercised prior to such change, or securities not
converted or exchanged prior to such change, on the basis of such change. In
case the Company shall issue shares of Common Stock or any such rights, options,
warrants, or convertible or exchangeable securities for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then the "price per share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 5(b) shall be as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation. Notwithstanding the
<PAGE>
foregoing, no adjustment of the Exercise Price shall be made as a result of or
in connection with (A) the issuance of shares of Common Stock on conversion or
exercise of any convertible securities or options, warrants, or other rights to
acquire Common Stock outstanding or issued on the Original Issue Date or any
issuance on or after the Original Issue Date of options or shares of Common
Stock on exercise thereof issued pursuant to the Company's Stock Option Plan or
otherwise to officers, directors, employees, or consultants of the Company or of
a subsidiary in connection with their services to the Company or (B) the
issuance or exercise of any Warrants.
(c) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to the Holder a due bill or other
appropriate instrument evidencing the Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(d) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(e) The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon the exercise
of this Warrant. If any fraction of a share would be issuable on the exercise of
this Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price (as hereinafter defined) of such share of Common Stock on the date of
exercise of this Warrant.
<PAGE>
(f) The "Current Market Price" per share of Common Stock on
any date shall be the average of the daily closing prices for the 20 consecutive
trading days immediately preceding the date in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange (including, for
purposes hereof, the Nasdaq National Market or Small Cap System if such system
is then generally reporting last sale prices) on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the highest reported bid price
for the Common Stock as furnished by the National Association of Securities
Dealers, Inc. through Nasdaq or a similar organization if Nasdaq is no longer
reporting such information. If on any such date the Common Stock is not listed
or admitted to trading on any national securities exchange and is not quoted by
Nasdaq or any similar organization, the fair value of a share of Common Stock on
such date, as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error, shall be used.
6. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 5.
<PAGE>
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise of this Warrant solely the
kind and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
<PAGE>
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or conveyance
of property, described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of
the Company; or
(e) to take any other action which would cause an adjustment
to the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 10
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price.
<PAGE>
8. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
9. (a) The Company shall, (i) not later than one year from the Original
Issue Date, file and cause to become effective under the Act a registration
statement (the "Registration Statement") registering under the Act the resale of
the Warrant Shares and (ii) after the Registration Statement is declared
effective under the Act, furnish each Holder with such number of copies of the
prospectus included in the Registration Statement as such Holder may reasonably
request to facilitate the disposition of the Warrant Shares owned by such
Holder.
(b) If at any time during the period that any Holder owns any
Warrant Shares an event (an "Event") shall have occurred that has caused the
Registration Statement to contain an untrue statement of a material fact or to
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which they were made, the Company shall (i) give each Holder a notice (the
"No-Sell Notice") that an Event has occurred, (ii) promptly (or, if in the
reasonable judgment of the Company disclosure of the Event would be detrimental
to the Company, promptly after disclosure of the Event would not be detrimental
to the Company) take all commercially reasonable efforts to cause the
Registration Statement not to contain an untrue statement of a material fact or
to omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which they were made, and (iii) give each Holder a notice (the "Sell Notice")
when the Registration Statement does not contain an untrue statement of a
material fact or to omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made. No Holder shall not sell any
Warrant Shares pursuant to the Registration Statement after it has received a
No-Sell Notice until it has received a subsequent Sell Notice.
(c) It is a condition to the Company's obligations under this
Section 9 that, in connection with the Registration Statement, each Holder shall
furnish to the Company such information as the Company shall reasonably request.
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor, and denomination.
11. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
<PAGE>
12. This Warrant shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
Dated: August ___, 1999
AVENUE ENTERTAINMENT GROUP, INC.
By:_____________________________
President
- ------------------------------
Secretary
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ________________________________ hereby sells,
assigns, and transfers unto __________________ a Warrant to purchase __________
shares of Common Stock, par value $.01 per share, of Avenue Entertainment Group,
Inc. (the "Company"), together with all right, title, and interest therein, and
does hereby irrevocably constitute and appoint _________________________________
attorney to transfer such Warrant on the books of the Company, with full power
of substitution.
Dated: ________________________
---------------------------
(Signature)
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
<PAGE>
To: Avenue Entertainment Group, Inc.
11755 Wilshire Blvd.
Suite 2200
Los Angeles, CA 90025
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $_________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
(Print Name, Address, and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:_________________ Name________________________
(Print)
Address:__________________________________________________
---------------------------
(Signature)
<PAGE>
