<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1997
REGISTRATION NUMBER 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEAM COMMUNICATIONS GROUP, INC.
EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN THE CHARTER
<TABLE>
<S> <C> <C>
CALIFORNIA 3652 95-5419215
STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
TEAM COMMUNICATIONS GROUP, INC.
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(310) 442-3500
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES.)
------------------------
DREW LEVIN
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(310) 442-3500
(NAMES, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
BRUCE P. VANN, ESQ. THOMAS J. POLETTI, ESQ.
KELLY & LYTTON KATHERINE J. BLAIR, ESQ.
1900 AVENUE OF THE STARS, SUITE 1450 FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN
LOS ANGELES, CALIFORNIA 90067 9100 WILSHIRE BLVD., 8E
TELEPHONE NO: (310) 277-5333 BEVERLY HILLS, CALIFORNIA
FACSIMILE NO: (310) 277-5953 TELEPHONE NO: (310) 273-1870
FACSIMILE NO: (310) 274-8357
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: as soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED PER SHARE(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value................... 1,495,000(2) $ 7.50 $ 11,212,500 $3,700
Common Stock Underlying Warrants............. 193,870 $ 1.00 $ 193,870 $ 64
Underwriter's Warrant........................ 1 $ 5.00 $ 5 --
Common Stock Underlying Underwriter's
Warrant.................................... 130,000 $ 9.00 $ 1,170,000 $ 386
TOTAL........................................ $4,150
==========================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
(2) Includes 195,000 shares which may be purchased by the Underwriter to cover
over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED MAY 1, 1997
TEAM COMMUNICATIONS GROUP, INC.
1,300,000 SHARES
Team Communications Group, Inc. (the "Company") hereby offers 1,300,000
shares of Common Stock, no par value, ("Common Stock"). Prior to this offering
(the "Offering"), there has been no public market for the Common Stock of the
Company, and there can be no assurance that an active market will develop. The
offering price is expected to be between $6.50 and $7.50 per share. The offering
price of the Common Stock has been determined by negotiation between the Company
and H.J. Meyers & Co., Inc., (the "Underwriter"), and is not necessarily related
to the Company's asset value or any other established criterion of value. For
the method of determining the initial offering price of the Common Stock, see
"Risk Factors" and "Underwriting." Application is being made to have the Common
Stock approved for listing on the Nasdaq SmallCap Market under the symbol
"TMTV."
Simultaneously with the Offering made hereby, the Company is registering
shares of Common Stock issuable upon exercise of certain outstanding warrants
that may be resold from time to time in the future by certain securityholders
(the "Selling Securityholders"). The Company has covenanted to use its best
efforts to keep the Registration Statement of which this Prospectus is a part
effective in order to permit such resales, and it is expected that such resales
will be made from time to time in the over-the-counter market or otherwise. Such
resales are subject to prospectus delivery and other requirements of the
Securities Act of 1933, as amended. The Company will not receive any proceeds
from the market sales of the shares of Common Stock issuable upon exercise of
such warrants other than proceeds relating to the exercise price of such
warrants. See "Concurrent Offering by Selling Securityholders."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================
PROCEEDS TO
PRICE TO PUBLIC COMPANY(2)
UNDERWRITING
DISCOUNTS AND
COMMISSIONS(1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................... $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3)....................................... $ $ $
====================================================================================================
</TABLE>
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $ (or $ if
the Underwriter's over-allotment option described in footnote (3) is
exercised in full) and (ii) a warrant to purchase up to 130,000 shares of
Common Stock at $ per share, exercisable over a period of four years,
commencing one year from the date of this Prospectus (the "Underwriter's
Warrant"). In addition, the Company has agreed to indemnify the Underwriter
against certain civil liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $638,000, including the Underwriter's non-accountable expense allowance.
(3) The Company and a shareholder of the Company (the "Selling Shareholder")
have granted the Underwriter an option (together, the "Underwriter's
over-allotment option"), exercisable within 30 business days of the date of
this Prospectus, to purchase up to 195,000 additional shares of Common Stock
on the same terms and conditions as set forth above to cover
over-allotments, if any. If all such additional shares of Common Stock are
purchased, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be increased to $ , $ and $ , respectively,
and the proceeds to the Selling Shareholder will be $ . See
"Underwriting" and "Principal Shareholders."
The shares of Common Stock offered hereby are offered on a "firm commitment"
basis by the Underwriter when, and if delivered to and accepted by the
Underwriter, and subject to prior sale, withdrawal or cancellation of the offer
without notice. It is expected that delivery of the certificates representing
the shares of Common Stock will be made at the offices of H.J. Meyers & Co.,
Inc., 1895 Mt. Hope Avenue, Rochester, New York 14620 on or about .
------------------------
H.J. MEYERS & CO., INC.
The date of this Prospectus is , 1997.
<PAGE> 3
PICTURES
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
The Company intends to furnish its shareholders with annual reports containing
audited financial statements with a report thereon by independent accountants
and quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data appearing
elsewhere in the Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. This Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
Since its formation in February 1995, Team Communications Group, Inc. (the
"Company") has focused its efforts on the development and production of a
variety of television programming, including series, specials and
made-for-television movies for exploitation in television markets in the
domestic and international market. The Company derives substantially all of its
revenues from production fees earned in connection with Company-originated
productions, distribution fees from the exploitation of product acquired from
others, and the exploitation of Company-owned programming.
The Company's production activities have focused on (i) family programming
produced for U.S. cable and network television channels such as The Discovery
Channel, The Family Channel, USA Network, and the Public Broadcasting System
("PBS"), and (ii) "how-to" instructional series, such as "Simply Style," a
60-episode series which debuted during the third quarter of 1995 on The Learning
Channel. In addition, the Company helped develop a reality based weekly and
five-day per week ("strip") syndicated program, called "Strange Universe
Tonight," which United/Chris-Craft television stations and Rysher Entertainment
are co-producing in association with the Company. This series is currently
airing on United/Chris-Craft stations and a commitment for the production of a
second 13-week run (65 episodes) has been received from United/ Chris-Craft. The
Company has also recently completed the production of a series of 22 half hour
episodes entitled "Amazing Tails," a series focusing on extraordinary pets,
which has been financed in conjunction with Friskies Pet Foods, a division of
Nestles Food, and advertising leader The Interpublic Group of Companies
("Interpublic"). All episodes of this series have been produced and delivered to
Interpublic, and the series will air on The Discovery Channel in 1997. The
Company maintains a drama production unit which is developing and will produce
movies-of-the-week for exhibition on network television, cable or ad hoc
networks of independent stations which sometimes form to air special
programming.
The Company has acquired the rights to produce, and is actively developing,
a weekly dramatic television series based on the motion picture "Total Recall,"
which in 1990 grossed over $320 million in worldwide box office receipts. The
Company has entered into an agreement with Alliance Production Ltd.
("Alliance"), a leading Canadian production company, pursuant to which Alliance,
subject to certain conditions, will co-produce and co-finance the series with
the Company. By co-producing the series with Alliance, in addition to reducing
the Company's financial exposure, the Company hopes to qualify the production
for certain Canadian co-production and tax benefits. Alliance will act as the
foreign sales agent for the series, and proceeds from the exploitation of the
series, after recoupment of production costs, will be allocated 60% to the
Company and 40% to Alliance. It is the intention of the parties that each
episode will be produced for approximately $1,000,000 per episode, with the
Company receiving a producing fee of $25,000 per episode. The Company also owns
all related merchandising rights relating to the television series to be
produced, and expects to actively exploit these rights. The Company expects to
produce 22 one-hour episodes for this series in 1998, and Ron Shusett, the
writer of the original film as well as the feature film "Alien," has written the
basic treatment (i.e., story outline) for the pilot. The Company is negotiating
with Mr. Shusett regarding his potential participation as the lead writer for
the series.
The Company is also developing a wide variety of family and reality-based
programing including "Capture" focusing on aerial rescues of endangered species:
"K-9 Conquest," a pet game show and "Amazing Kids," an entertaining look at kids
through the eyes of kids. The Company is also developing a new children's
series, tentatively entitled "LoCoMoTioN," which the Company hopes to place on
PBS during the third quarter of 1997. Although no assurance can be given that
the Company will obtain a PBS timeslot, the
3
<PAGE> 5
Company is currently searching for a female celebrity to co-host this series,
which will introduce toddlers to dance and exercise through contemporary urban
music.
The Company also maintains an international sales force and currently has
distribution rights to over 300 half-hours of family and documentary series and
specials.
The global television market has experienced substantial growth since 1985
and the Company believes this market will continue to experience substantial
growth during the foreseeable future as state television monopolies end and
commercial broadcast outlets expand to provide increasingly varied and
specialized content to the consumer. In the United States alone, 60 new
television channels have commenced operation since 1985. Such growth has led to
the development and commercialization of specialized channels and distribution
outlets, which, in turn, has led to increased demand for top quality and cost
efficient programming in many categories and subjects.
The Company's operating strategy is to fulfill the demand for programming
by (i) expanding the activities of each of its operating divisions, (ii)
implementing strategic acquisitions of libraries and smaller production
companies and (iii) entering into joint ventures with, or acquisitions of,
unaffiliated third parties which are intended to lower the Company's financial
risk as it expands into related activities, such as direct marketing and
interactive programming.
The Company believes that there are business opportunities to acquire other
emerging companies, as well as more established production and distribution
entities, which are engaged in programming development, production, distribution
and other related media investments. While the number of distribution channels
has been increasing, the Company believes there are economic incentives,
including economies of scale and depth of financial and programming capability,
for programmers and distribution entities to consolidate. No assurance can be
given that the Company will be successful in obtaining the financing necessary
for these acquisitions or that the acquisitions will prove financially
successful.
The Company was incorporated under the laws of the State of California in
February 1995. The Company's executive offices are located at 12300 Wilshire
Boulevard, Suite 400, Los Angeles, California 90025, and its telephone number is
(310) 442-3500.
------------------------
NOTICE TO CALIFORNIA INVESTORS
Each purchaser of shares of Common Stock in California must meet one of the
following suitability standards: (i) a liquid net worth (excluding home,
furnishings and automobiles) of $250,000 or more and gross annual income during
1996, and estimated during 1997, of $65,000 or more from all sources or (ii) a
liquid net worth (excluding home, furnishing and automobiles) of $500,000 or
more. Each California resident purchasing shares of Common Stock offered hereby
will be required to execute a representation that it comes within one of the
aforementioned categories.
4
<PAGE> 6
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FROM INCEPTION
(FEBRUARY 1995)
THROUGH NINE MONTHS ENDED
STATEMENT OF OPERATIONS DATA: DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------ -------------------
<S> <C> <C>
Revenues........................................ $1,245,300 $ 3,877,200
Cost of revenues................................ 946,900 1,818,000
General and administrative expenses............. 1,288,200 1,650,300
Interest expense................................ 42,700 360,100
----------- ----------
Provision for income taxes...................... -- --
----------- ----------
Net income (loss)............................... $ (1,032,500) $48,800
=========== ==========
Net income (loss) per share(1).................. ($.73) $.05
=========== ==========
Weighted average number of shares
outstanding(1)................................ 1,417,345 1,417,345
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------
BALANCE SHEET DATA: ACTUAL PRO FORMA(2) AS ADJUSTED(3)
---------- ------------ --------------
<S> <C> <C> <C>
Total assets................................. $5,625,700 $6,591,535 $ 11,021,885
Long-term obligations........................ $ 544,800 $1,537,373 $ 357,153
Total liabilities............................ $5,963,300 $6,653,373 $ 4,047,444
Shareholders' equity (deficit)............... $ (337,600) $ (61,838) $ 6,974,441
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for information
regarding the calculation of net income (loss) per share.
(2) Reflects (i) the sale of $1,519,350 of bridge notes between October 1996 and
April 1997 and commissions and costs of $251,015 associated therewith, (ii)
repayment of $302,500 in respect of the "Total Recall" obligation in October
1996 and February 1997 and (iii) an aggregate valuation of $526,777 ascribed
to the warrants issued in connection with the aforementioned bridge notes.
(3) As adjusted to (i) reflect the estimated net proceeds of this Offering,
based upon an assumed initial public offering price of $7.00 per share,
after deducting Underwriter's discounts and commissions and estimated
offering expenses, (ii) the conversion of a note (the "Conversion Note") in
the principal amount of $322,000 into 105,000 shares of Common Stock upon
the closing of this Offering, as well as a loss of $26,458 on the
conversion, and (iv) an extraordinary loss (the "Extraordinary Loss") of
$864,690 to be incurred upon the closing of this Offering upon the
extinguishment of certain indebtedness with a portion of the proceeds of
this Offering. See "Use of Proceeds," "Capitalization" and "Description of
Securities."
THE OFFERING
Common Stock Offered by the
Company............................. 1,300,000 shares
Common Stock Outstanding after this
Offering............................ 2,631,092 shares
Use of Proceeds..................... Repayment of loans, acquisition of
foreign distribution rights to made for
television movies, acquisition of
foreign distribution rights to existing
television series and corporate
overhead and working capital, including
salaries and wages.
Proposed Nasdaq SmallCap Symbol..... "TMTV"
5
<PAGE> 7
RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BELOW.
------------------------
Except as otherwise specified, all information in this Prospectus (i)
assumes no exercise of the Underwriter's over-allotment option, the
Underwriter's Warrant or stock options outstanding or reserved for issuance
under the Company's stock option plans, (ii) assumes no conversion of
outstanding convertible notes except the Conversion Note and (iii) gives effect
to a 2.2776-for-1 reverse stock split which occurred in January 1997 and a
1.0277-for-1 reverse stock split to be effectuated prior to the closing of this
Offering. See "Management," "Description of Securities" and "Underwriting."
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, each prospective
investor should carefully consider the following factors in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby. No investor should participate in the Offering unless such investor can
afford a complete loss of his or her investment. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth in
the following risk factors and elsewhere in this Prospectus.
GOING CONCERN ASSUMPTION. The Company's independent accountants' report on
the Company's financial statements for the fiscal year ended December 31, 1995
and for the nine months ended September 30, 1996 contains an explanatory
paragraph indicating that the Company's losses raise substantial doubt as to the
Company's ability to continue as a going concern. There can be no assurance that
future financial statements will not include a similar explanatory paragraph if
the Company is unable to raise sufficient funds or generate sufficient cash flow
from operations to cover the cost of its operations. In this regard, it is
likely that the Company's financial statements for the fiscal year ended
December 31, 1996 will contain a similar qualification. The existence of such an
explanatory paragraph, which will state that there exists doubt as to the
Company's ability to operate as a going concern, may have a material adverse
effect on the Company's relationship with third parties who are concerned about
the ability of the Company to complete projects that it is contractually
required to develop or produce, and could also impact the ability of the Company
to complete future financings.
LIMITED OPERATING HISTORY; LIQUIDITY DEFICIT. The Company, which was formed
in February 1995, has a limited operating history. Accordingly, prospective
purchasers hereunder have limited information upon which an evaluation of the
Company's business and prospects can be based. Although the Company has
generated profitable operations during the first nine months of 1996, it has
experienced a negative cash flow from operations during such period. No
assurance can be given that the Company will continue to be profitable in the
foreseeable future or that it will be able to generate positive cash flow from
its operations. The Company will be unable to implement its business plan
without the proceeds of this Offering. Implementation of the Company's business
plan is subject to all the risks inherent in the establishment of a new business
enterprise, including potential operating losses. In addition, the Company will
be subject to certain factors affecting the entertainment industry generally,
such as sensitivity to general economic conditions, critical acceptance of its
products and intense competition. The likelihood of the success of the Company
must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the formation
of a new business; accordingly a purchase of the shares of Common Stock offered
hereby should be considered to be a highly speculative investment.
As of September 30, 1996, the Company had an accumulated deficit of
($983,700) and had a liquidity deficit of ($3,452,200), such deficit being
defined as (i) cash and cash equivalents plus accounts receivables (net), and
the amount due from officer less (ii) accounts payable, accrued expenses and
other liabilities, deferred revenue, accrued participations, notes payable, due
to officer, shareholder loan and note payable, and accrued interest.
ADDITIONAL CAPITAL REQUIREMENTS; ENCUMBRANCE OF ASSETS; NO ASSURANCE OF
FUTURE FINANCINGS. The entertainment industry is highly capital intensive.
Management believes that if the Offering is completed, the net proceeds thereof,
together with projected cash flow from operations, will be sufficient to permit
the Company to conduct its operations as currently contemplated for the next 24
months. Such belief is based upon certain assumptions, including assumptions
regarding (i) anticipated level of operations, (ii) the sales of the Company's
original and acquired programming and (iii) anticipated expenditures required
for the development and production of additional programming, including "Total
Recall." However, if anticipated operations require additional financing, or the
anticipated level of sales does not materialize, the Company will seek
additional financing during this 24 month period. There can be no assurance that
any additional financing will be available on acceptable terms, or at all, when
required by the Company. Moreover, if additional financing is not available, the
Company could be required to reduce or suspend its operations, seek an
7
<PAGE> 9
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to investors purchasing the shares of Common Stock
offered hereby. Certain of these transactions would require the approval of the
Underwriter if they occurred within 24 months from the effective date of this
Offering. The Company has in the past, and may continue to experience,
operational difficulties or delays in the development or production due to
working capital constraints. Any such difficulties or delays could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Going Concern Assumption,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and Note 12 of
Notes to Consolidated Financial Statements.
At the conclusion of this Offering, the Company will have approximately
$2,337,500 of indebtedness, which indebtedness is secured by substantially all
of the assets of the Company. The Company intends to enter into a secured line
of credit (the "Proposed Facility") with a third party bank, which line of
credit would permit borrowings pursuant to a specified borrowing base made up of
the value of the library, accounts receivable and other assets. The Company
currently intends to repay the $2,337,500 of indebtedness remaining after the
Offering with proceeds from the Proposed Facility. No assurance can be given
that the Proposed Facility will be entered into or that the Company will be able
to use proceeds from such facility as indicated herein.
COMPETITION. The entertainment industry is highly competitive. The Company
competes with, and will compete with, many organizations, including major film
studios, independent production companies, individual producers, and others,
including networks, who are seeking the rights to literary properties, the
services of creative and technical personnel, the financing for production of
film and television projects, and favorable arrangements for the distribution of
completed films. Many of the Company's present and future competitors are
organizations of substantially larger size and capacity, with far greater
financial, human and other resources and longer operating histories than the
Company. Moreover, the entertainment industry is currently evolving into an
industry in which certain multi-national, multi-media entities, including
Viacom/Paramount Pictures, The News Corporation, The Walt Disney Company/Cap
Cities-ABC, Time Warner/Turner Broadcasting and Westinghouse/CBS are anticipated
to be in a position, by virtue of their control over key film, magazine, and/or
television content, and their control of key network and cable outlets, to
dominate certain communications industries activities. These competitors have
numerous competitive advantages, including the ability to acquire and attract
superior properties, personnel and financing.
DEPENDENCE ON EMERGING MARKETS. A substantial portion of the Company's
revenues to date have been, and for the foreseeable future may be, derived from
the sale or license of its products to domestic television or cable networks
such as the WB Network, UPN, The Discovery Channel and The Learning Channel
which have been recently established, (i.e., not the traditional free network
markets of CBS, NBC, ABC and Fox) and the growing specialized pay market, as
well as the foreign television networks. The Company's success will depend in
large part upon the development and expansion of these markets. The Company
cannot predict the size of such markets or the rate at which they will grow. If
the television market serviced by the Company fails to grow, grows more slowly
than anticipated, or becomes saturated with competitors, the Company's business,
financial condition, and results of operations would be materially adversely
affected.
ACCOUNTS RECEIVABLE; RELIANCE ON SIGNIFICANT CUSTOMERS. Revenues in the
first nine months of 1996 included approximately $680,000 recognized from the
license and related guaranty from The Gemini Corporation and Mel Giniger and
Associates (collectively, the "Giniger Entities"), relating to the Company's
current library and certain future product for Latin America and Europe. The
revenues attributable to the guaranty (the "Giniger Guaranty") were 18% of the
applicable revenues in the first nine months of 1996. Should the Company be
unable to collect on the portion of the guaranty which was recognized in such
period the Company would be forced to incur a significant write-down of its
accounts receivable with respect to such account.
Revenues in the first nine months of 1996 also included the license from
Interpublic of $1,441,700 and the license from Eurolink of $595,000, both such
licenses relating to the series "Amazing Tails." Total
8
<PAGE> 10
revenues attributed to the Interpublic and Eurolink agreements respecting
"Amazing Tails" constituted 37% and 15%, respectively, of revenues during the
nine month period ended September 30, 1996.
Neither the revenues relating to the Giniger Guaranty nor the revenues
related to the production of "Amazing Tails" should be considered to be
recurring revenues. If the Company does not produce a series in fiscal 1997, or
obtain other significant foreign sales, the Company's revenues will be
materially reduced.
PRODUCTION RISKS. There can be no assurance that once the Company commits
to fund the production of a series licensed to a network, the network will order
and exhibit a sufficient number of episodes to enable the Company to syndicate
the series. Typically, at least 65 episodes of a series must be produced for it
to be "stripped" or syndicated in the daily re-run market. Networks generally
can cancel a series at stated intervals and, accordingly, do not commit in
advance to exhibit a series for more than a limited period. If a series is
canceled (or not carried for the period necessary to create enough episodes for
syndication purposes), there is a significant chance that the production costs
of the project will not be fully recovered. In that event, the financial
condition of the Company could be materially and adversely affected. Similar
risks apply even if a series is produced for a non-network medium. See
"Business -- Operations" for a discussion of the financing of series and how
deficits are potentially recouped. In addition, for the nine months ended
September 30, 1996, the Company incurred approximately $1,700,000 in development
costs associated with two projects it is currently developing. See "Risk
Factors -- Development Costs" for a discussion of the potential impact if such
costs were to be written off or otherwise amortized on an accelerated basis.
FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and results of
operations are significantly dependent upon the timing and success of the
television programming it distributes, which cannot be predicated with
certainty. Revenues may not be recognized for any particular program until such
program has been delivered to the licensee and is available (i.e., there are no
holdbacks) for exploitation in the market it has been licensed for. Production
delays may impact the timing of when revenues may be reported under generally
accepted accounting principles. Moreover, the sale of existing programming is
heavily dependent upon the occurrence of major selling markets, the most
important of which is MIPCOM in the fourth quarter. Finally, production
commitments are typically obtained from networks in the spring (second) quarter,
although production activity and delivery may not occur until subsequent
periods. As a result of the foregoing, the Company may experience significant
quarterly variations in its operations, and results in any particular quarter
may not be indicative of results in subsequent periods.
SPECULATIVE NATURE OF ENTERTAINMENT BUSINESS. Substantially all of the
Company's revenues are derived from the production and distribution of its
television series and made-for-television features. The entertainment industry
in general, and the development, production and distribution of television
programs, in particular, is highly speculative and involves a substantial degree
of risk. Since each project is an individual artistic work and its commercial
success is primarily determined by audience reaction, which is volatile and
unpredictable, there can be no assurance as to the economic success of any
entertainment property. Even if a production is a critical or artistic success,
there is no assurance that it will generate sufficient audience acceptance.
DEPENDENCE UPON KEY PERSONNEL. The Company is, and will be, heavily
dependent on the services of Drew S. Levin, its Chairman of the Board and
President. The loss of the services of Mr. Levin for any substantial length of
time would materially adversely affect the Company's results of operations and
financial condition. Mr. Levin is party to an employment agreement with the
Company which expires in the year 2002. See "Management -- Employment
Agreements." The Company has obtained a "key-man" insurance policy in respect of
Mr. Levin in the amount of $1,000,000.
In addition, the Company is highly dependent upon its ability to attract
and retain highly qualified personnel. Competition for such personnel is
intense. There can be no assurance that persons having the requisite skills and
experience will be available on terms acceptable to the Company or at all.
ABILITY TO MANAGE GROWTH. Subject to obtaining sufficient financing, the
Company intends to pursue a strategy which management believes may result in
rapid growth. As the Company's anticipated development, production and
distribution activities increase, it is essential that the Company maintain
effective controls and
9
<PAGE> 11
procedures regarding critical accounting and budgeting areas, as well as obtain
and/or retain experienced personnel. There can be no assurance that the Company
will be able to attract qualified personnel or successfully manage such expanded
operations.
DEVELOPMENT COSTS. Included in the Company's assets as of September 30,
1996, are approximately $1,700,000 in television program costs in respect of
projects which the Company is developing but which have not been set for
principal photography. Approximately $1,200,000 of this amount relates to the
acquisition of the rights to produce a television series based on the feature
film "Total Recall" and approximately $500,000 relates to expenditures in
respect of "LoCoMoTioN." The Company intends, consistent with the standards set
by the Financial Accounting Standards Board, including Statement of Financial
Accounting Standards ("SFAS") No. 53, to write off the costs of all development
projects when they are abandoned or, even if still being developed, if they have
not been set for principal photography within three years of their initial
development activity. In the event the Company is unable to produce either
"Total Recall" or "LoCoMoTioN," the Company would incur a significant write-down
with respect to the development costs of such projects, which, in turn, may
adversely effect ongoing financing activities.
REPAYMENT OF INSIDER DEBT; PROCEEDS OF OFFERING TO BENEFIT AFFILIATES OR
SHAREHOLDERS. Upon the closing of this Offering, a non-management shareholder of
the Company will receive approximately $250,000 for repayment of indebtedness.
Concurrently with, or shortly after the closing of this Offering, other
shareholders are also anticipated to receive $1,490,000 to eliminate all other
shareholder debt, such amounts to be obtained from the Proposed Facility. See
"Use of Proceeds" and "Certain Transactions."
PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER
PROVISIONS. Certain provisions of the Company's Articles of Incorporation and
Bylaws and certain other contractual provisions could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire control of the Company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. Certain of these provisions allow the
Company to issue preferred stock with rights senior to those of the Common Stock
without any further vote or action by the shareholders, and impose various
procedural and other requirements which could make it more difficult for
shareholders to affect certain corporate actions. These provisions could also
have the effect of delaying or preventing a change in control of the Company.
The issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to the holders of Common Stock or could adversely
affect the rights and powers, including voting rights, of the holders of the
Common Stock. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Common Stock. The Company has agreed that for
a two year period following the closing of this Offering it will not, without
the prior written consent of the Underwriter, issue any shares of preferred
stock.
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE;
VOLATILITY. Prior to this Offering, there has been no public market for the
Common Stock, and there can be no assurance that an active trading market will
develop for such securities or, if any such market develops, that it will be
sustained. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Underwriter and may not
necessarily bear any relationship to the Company's asset value, book value,
financial condition, or any other recognized indicia of value. No assurance can
be given that the initial offering price will be sustained or that, in the
absence of an active trading market, that shareholders will have sufficient
liquidity to readily dispose of their shares. The trading price of the Common
Stock could be subject to significant fluctuations in response to variations in
quarterly operating results, changes in earnings estimates by analysts following
the Company, if any, and general factors affecting the entertainment industry,
as well as general economic, political and market conditions, and other factors
and such factors could cause the market price of the Common Stock to fluctuate
substantially. Due to analysts' expectations of continued growth, if any, and
the high price/earnings ratio at which the Common Stock may trade, any shortfall
in expectations could have an immediate and significant adverse effect on the
trading price of the Common Stock. In addition the stock markets of the United
States have, from time to time, experienced significant price and volume
fluctuations that are unrelated or disproportionate to the operating performance
of any individual company. Such fluctuations could adversely affect the price of
the Company's Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Underwriting."
10
<PAGE> 12
CONTINUED QUOTATION ON THE NASDAQ SMALLCAP MARKET; POSSIBLE ILLIQUIDITY OF
TRADING MARKET; PENNY STOCK. The Company has applied for listing to have the
Common Stock quoted on the Nasdaq SmallCap Market upon consummation of the
Offering. However, there can be no assurance that the Company will be able to
satisfy the criteria for continued quotation on the Nasdaq SmallCap Market
following the Offering. Failure to meet the maintenance criteria in the future
may result in the Common Stock not being eligible for quotation in such market
or otherwise. In such event, a holder of the Company's Common Stock may find it
more difficult to obtain accurate quotations as to the market value of, the
Common Stock. Trading, if any, in the Common Stock would therefore be conducted
in the over-the-counter market on an electronic bulletin board established for
securities that do not meet the Nasdaq SmallCap Market Listing requirements, or
in what are commonly referred to as the "pink sheets." As a result, an investor
would find it more difficult to dispose of, or to obtain accurate quotations as
to the price of, the Company's Common Stock. In addition, if the Company's
Common Stock were removed from the Nasdaq SmallCap Market, the Common Stock
would be subject to so-called "penny stock" rules that impose additional sales
practice and market making requirements on broker-dealers, who sell and/or make
a market in such securities. Consequently, removal from the Nasdaq SmallCap
Market, if it were to occur, could affect the ability or willingness of
broker-dealers to sell and/or make a market in the Company's Common Stock and
the ability of purchasers of the Company's Common Stock to sell their securities
in the secondary market. In addition, if the market price of the Company's
Common Stock is less than $5.00 per share, the Company may become subject to
certain penny stock rules even if still quoted on the Nasdaq SmallCap Market.
While such penny stock rules should not affect the quotation of the Company's
Common Stock on the Nasdaq SmallCap Market, such rules may further limit the
market liquidity of the Common Stock and the ability of purchasers in this
Offering to sell such Common Stock in the secondary market.
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF SHARE CONSIDERATION; NO
DIVIDENDS ANTICIPATED. Assuming an initial public offering price of $7.00 per
share, purchasers of the shares of Common Stock offered hereby will experience
immediate substantial dilution of $4.34 per share or 62% of their investment,
based upon the net tangible book value of the Company at September 30, 1996. As
a result, the purchasers of the shares of Common Stock offered hereby will bear
a disproportionate part of the financial risk associated with the Company's
business while effective control will remain with the existing shareholders and
management. Also, there will be a substantial disparity based upon an assumed
initial public offering price of $7.00 per share, between the total
consideration and the average price per share paid by the Company's existing
shareholders ($747,000 and $0.56, respectively), and that paid by new investors
in this Offering ($9,100,000 and $7.00, respectively). See "Dilution."
The Company has not paid dividends since its inception and does not intend
to pay any dividends to its shareholders in the foreseeable future. No assurance
can be given that it will pay dividends at any time. The Company presently
intends to retain future earnings, if any, in the development and expansion of
its business. See "Dividend Policy."
SHARES ELIGIBLE FOR ADDITIONAL SALE; EXERCISE OF REGISTRATION RIGHTS. Sale
of substantial amounts of the Company's Common Stock in the public market or the
prospect of such sales could materially adversely affect the market price of the
Common Stock. Upon completion of this Offering, the Company will have
outstanding approximately 2,631,092 shares of Common Stock. Of these shares,
approximately 1,331,092 shares are restricted shares ("Restricted Shares") under
the Securities Act of 1933, as amended (the "Securities Act"). The 1,300,000
shares of Common Stock offered hereby will be immediately eligible for sale in
the public market without restriction on the date of this Prospectus, subject to
the lockups agreements set forth below. In addition, the Company has issued
options and warrants which entitle the holders thereof to purchase 932,778
shares of Common Stock (collectively referred to herein as the "Warrant Shares")
including 193,870 Warrant Shares which are being currently registered (the
"Registered Warrant Shares"). Holders of the Restricted Shares and the Warrant
Shares (other than the Registered Warrant Shares) are subject to lockup
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for certain periods of time of between
twelve (12) months and eighteen (18) months, after the date of this Prospectus
without the prior written consent of the Underwriter. The Underwriter may
release some or all of the shares from the lockup at its discretion from time to
time without notice to the public. The Underwriter
11
<PAGE> 13
has no formal policy with respect to such determinations, and may elect to
release such shares or decline to realize such shares as it may determine in its
sole and absolute discretion. Additionally, the Underwriter's Warrant may be
exercised at any time during the four year period beginning 12 months after the
closing of the Offering in which case up to 130,000 shares of Common Stock would
be eligible for sale in the public markets. The Company intends to file a
registration statement on Form S-8 under the Securities Act to register the sale
of approximately 337,500 shares of Common Stock reserved for issuance under its
1995 and 1996 Stock Plans. Shares of Common Stock issued upon exercise of
options after the effective date of the registration statement on Form S-8 will
be available for sale in the public market, subject in some cases to volume and
other limitations, including the lockup agreements referred to above. Sales in
the public market of substantial amounts of Common Stock (including sales in
connection with an exercise of certain registration rights by one or more
holders) or the perception that such sales could occur could depress prevailing
market prices for the Common Stock. See "Shares Eligible for Future Sale,"
"Underwriting" and "Description of Securities."
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time, should the Company
complete this Offering and a market price for its securities be established.
Should a market in the Company's securities develop, sales of substantial
amounts of Common Stock, or the perception that such sales may occur, could
adversely affect prevailing market prices for the Common Stock in the event a
market does develop.
FORWARD-LOOKING STATEMENTS. Although not applicable as a safe harbor to
limit the Company's liability for sales made in this Offering, this Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements may be deemed to include the Company's plans to
produce "Total Recall" and "LoCo-MoTioN" in 1997 and establish new strategic
alliances and business relationships and acquire additional libraries or
companies. Such forward-looking statements also may include the Company's
planned uses of the proceeds of this Offering. Actual results could differ from
those projected in any forward-looking statements for the reasons detailed in
the other sections of this "Risk Factors" portion of the Prospectus. The
forward-looking statements are made as of the date of this Prospectus and the
Company assumes no obligation to update the forward-looking statements, or to
update the reasons why actual results could differ from
those projected in the forward-looking statements.
USE OF PROCEEDS
The net proceeds of the Company from the sale of the 1,300,000 shares
offered by the Company hereby at an assumed initial public offering price of
$7.00 per share, are estimated to be approximately $7,552,000, after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company currently intends to use the estimated net proceeds of this Offering as
follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
NET PROCEEDS OF NET PROCEEDS
------------- ---------------
<S> <C> <C>
Repayment of loans*........................... $ 3,121,650 41%
Acquisition of foreign distribution rights to
made for television movies.................. $ 3,000,000 40%
Acquisition of foreign distribution rights to
existing television series.................. $ 1,275,000 17%
Corporate overhead and working capital,
including salaries and wages................ $ 155,350 2%
</TABLE>
- ---------------
* The Company currently has outstanding approximately $5,553,850 of
indebtedness. Approximately $2,894,350 of such indebtedness will be repaid
from the proceeds of this Offering as follows: $969,350 for repayment of the
10% convertible secured notes issued between February and April 1997 (the
"February 1997 Notes"), $700,000 for repayment of the 12% secured notes issued
between February and June 1996 (the "February 1996 Notes"), $975,000 for
repayment of the 10% convertible secured notes issued between June and October
1996 (the "June 1996 Notes"), and $250,000 for repayment of indebtedness
12
<PAGE> 14
owed to Joseph Cayre, a shareholder of the Company, together with
approximately $227,300 for accrued interest on the foregoing. The February
1997 Notes, the February 1996 Notes and the June 1996 Notes are referred to
herein as the "Bridge Notes." The maturity date for all of the foregoing debt
has been extended until June 30, 1997 or the completion of an initial public
offering. Prior to effectiveness of this Offering, the balance of Company
indebtedness (or approximately $2,337,500) will be extended through June 30,
1998, although it is anticipated that this balance will be repaid from the
proceeds of the Proposed Facility. The foregoing repayment schedule assumes
conversion of the Conversion Note as well as the waiver of all conversion
rights by the holders of Bridge Notes which have convertibility rights. See
"Risk Factors -- Additional Capital Requirements; Encumbrance of Assets; No
Assurance of Future Financings" and "Certain Transactions."
The Company anticipates that the net proceeds of this Offering, together
with projected cash flow from operations will be sufficient to permit the
Company to conduct its operations as currently contemplated for at least the
next 24 months. Such belief is based upon certain assumptions, including
assumptions regarding the sales of the Company's original programming and
anticipated expenditures required for the development and production of
additional programming, and there can be no assurance that such resources will
be sufficient for such purpose. The Company will be required to raise
substantial additional capital in the future in order to further expand its
production and distribution capabilities. There can be no assurances that
additional financing will be available, or if available, that it will be on
acceptable terms. In addition, contingencies may arise which may require the
Company to obtain additional capital prior to such planned expansion.
The foregoing use of proceeds are estimates only, and there may be
significant variations in the use of proceeds due to changes in current economic
and industry conditions, as well as changes in the Company's business and
financial conditions. The amount and timing of expenditures will vary depending
on a number of factors, including changes in the Company's contemplated
operations and industry conditions.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception and does not intend to pay any dividends in the foreseeable future.
The Company currently intends to retain earnings, if any, in the development and
expansion of its business. The declaration of dividends in the future will be at
the election of the Board of Directors and will depend upon the earnings,
capital requirements, cash flow and financial condition, general economic
conditions, and other pertinent factors, including any contractual prohibition
with respect to the payment of dividends.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company (A) at September 30, 1996, (B) pro forma to reflect (i) the sale of
$1,519,350 of Bridge Notes between October 1996 and April 1997 and commissions
and costs of $251,015 associated therewith, (ii) the repayment of $302,500 in
respect of the "Total Recall" obligation in October 1996 and February 1997, and
(iii) an aggregate valuation of $526,777 ascribed to the warrants issued in
conjunction with the aforementioned Bridge Notes and (C) as adjusted to reflect
(i) the sale of 1,300,000 shares of Common Stock pursuant to this Offering at an
assumed initial public offering price of $7.00 and the application of the
estimated net proceeds therefrom and (ii) the conversion of the Conversion Note
and the Extraordinary Loss. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Short-term debt(1)................................... $ 3,375,000 $ 3,072,500 $ 1,874,091
========== =========== ===========
Long-term debt(2).................................... $ 544,800 $ 1,537,373 $ 357,153
---------- ----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding
actual, pro forma and as adjusted...............
Common stock, no par value; 18,000,000 shares
authorized, 1,059,662 issued and outstanding
actual, 1,059,662 issued and outstanding pro
forma, and 2,631,092 issued and outstanding as
adjusted........................................ $ 1,000 $ 1,000 $ 1,000
Paid-in capital(3).............................. 645,100 1,171,877 9,410,877
Accumulated deficit(4).......................... (983,700) (1,234,715) (2,437,436)
---------- ----------- -----------
Total shareholders' equity (deficit)....... (337,600) (61,838) 6,974,441
---------- ----------- -----------
Total capitalization................................. $ 207,200 $ 1,475,535 $ 7,331,594
========== =========== ===========
</TABLE>
- ---------------
(1) Includes $969,350 principal amount of February 1997 Notes, $100,000
principal amount of June 1996 Notes, $300,000 principal amount of 10% notes
due December 1997 (the "Affida Bank Note") and $150,000 principal amount of
notes due December 1997. See notes 5 and 7 of Notes to Consolidated
Financial Statements.
(2) See notes 5 and 7 of Notes to Consolidated Financial Statements.
(3) The value ascribed to the warrants, which management believes reflects the
market value of the warrants, has been reflected as a debt issuance discount
and will be amortized over the term of all Bridge Notes resulting in an
effective interest rate of approximately 25%.
(4) The Extraordinary Loss will result upon the early extinguishment of certain
indebtedness which will be repaid from the net proceeds of this Offering, as
well as a loss of $26,458 upon conversion of the Conversion Note. See "Use
of Proceeds," "Capitalization" and "Description of Securities."
14
<PAGE> 16
DILUTION
At September 30, 1996, the Company had a pro forma net tangible book value
of $(61,838) or ($.04) per share of Common Stock. Pro forma net tangible book
value per share represents the Company's total tangible assets less its total
liabilities, divided by the number of shares of Common Stock outstanding after
giving effect to (a) the sale of $1,519,350 of Bridge Notes between October 1996
and through April 1997 and commissions and costs of $251,015 associated
therewith, (b) the repayment of $302,500 in respect of the "Total Recall"
obligation in October 1996 and February 1997 and (c) an aggregate valuation of
$526,777 ascribed to the warrants issued in conjunction with the aforementioned
Bridge Notes. After giving effect (i) to the sale by the Company of 1,300,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $7.00 per share, and the initial application of the estimated net
proceeds therefrom, (ii) the conversion of the Conversion Note and (iii) the
Extraordinary Loss, the net tangible book value of the Company at such date
would have been approximately $6,989,770 or $2.66 per share. This represents an
immediate increase in net tangible book value of $2.70 per share to the current
shareholders and an immediate dilution of $4.34 per share to new shareholders.
Dilution represents the difference between the initial public offering price
paid by purchasers in this offering and the net tangible book value per share
immediately after completion of this Offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 7.00
Pro forma net tangible book value per share before this Offering........... (.04)
Increase in net tangible book value per share attributable to the sale
of the Common Stock offered hereby..................................... 2.70
-----
Adjusted net tangible book value per share after this Offering............... 2.66
-----
Dilution per share to new shareholders*...................................... $ 4.34
-----
</TABLE>
- ---------------
* Represents dilution of approximately 62% to purchasers of Common Stock
offered hereto.
The following table sets forth, (i) the number of shares of Common Stock
purchased from the Company by new shareholders pursuant to this Offering and
acquired from the Company by the current shareholders of the Company (including
the shares to be obtained upon conversion of the Conversion Note), (ii) the
total consideration paid to the Company and (iii) the respective average
purchase price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
---------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Current shareholders............... 1,331,092 50.59% $ 747,000 7.6% $0.56
New shareholders................... 1,300,000 49.41 9,100,000 92.4 $7.00
--------- ------ ---------- ------
Total.................... 2,631,092 100.00% $ 9,847,000 100.00%
========= ====== ========== ======
</TABLE>
- ---------------
(1) The information set forth above does not reflect 375,000 shares of Common
Stock reserved for issuance under the Company's stock option plans (of which
approximately 128,000 shares are issuable upon exercise of stock options
outstanding as of the date of the Prospectus) and 130,000 shares of Common
Stock issuable upon exercise of the Underwriter's Warrant. See
"Management -- Stock Option Plans" and "Underwriting."
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the period ended
December 31, 1995 and the nine months ended September 30, 1996, and the
consolidated balance sheet data at such dates are derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus that
have been audited by Price Waterhouse LLP, independent accountants, as indicated
in their report which is also included elsewhere in this Prospectus. Such
selected consolidated financial data should be read in conjunction with those
Consolidated Financial Statements and Notes thereto.
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FROM INCEPTION
(FEBRUARY 1995)
THROUGH NINE MONTHS ENDED
STATEMENT OF OPERATIONS DATA: DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------ -------------------
<S> <C> <C>
Revenues........................................ $1,245,300 $ 3,877,200
Cost of revenues................................ 946,900 1,818,000
General and administrative expenses............. 1,288,200 1,650,300
Interest expense................................ 42,700 360,100
----------- ----------
Provision for income taxes...................... -- --
----------- ----------
Net income (loss)............................... $ (1,032,500) $48,800
=========== ==========
Net income (loss) per share..................... ($.73) $.05
=========== ==========
Weighted average number of shares outstanding... 1,417,345 1,417,345
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------
BALANCE SHEET DATA: ACTUAL PRO FORMA AS ADJUSTED
---------- ------------ --------------
<S> <C> <C> <C>
Total assets................................. $5,625,700 $6,591,535 $ 11,021,885
Long-term obligations........................ $ 544,800 $1,537,373 $ 357,153
Total liabilities............................ $5,963,300 $6,653,373 $ 4,047,444
Shareholders' equity (deficit)............... $ (337,600) $ (61,838) $ 6,974,441
</TABLE>
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following and elsewhere in this Prospectus. The
following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
GENERAL
The Company derives substantially all of its revenues from production fees
earned in connection with Company originated productions, distribution fees from
the exploitation of product acquired from others, and the exploitation of
Company-owned programming. The Company was incorporated in February 1995 and
commenced operations in March 1995.
The Company is engaged in developing concepts and acquiring literary and
other story properties, the most promising of which serve as the basis for the
production of series, pilot films, or made-for-television features. If a script
is accepted for production as a television feature or pilot, or if a pilot is
accepted for production as a series, the Company and the network or distributor
negotiate a license fee or distribution advance. This fee is a flat sum payment
through which the Company generally attempts to cover a significant portion of
its production costs and overhead. If programming is produced for an entity like
PBS, which does not pay significant license fees or distribution advances (and
in fact, may not pay any fee), the Company attempts to provide corporate
sponsors or agreements for the license of ancillary rights such as foreign or
home video distribution.
With respect to series for the networks or pay cable channels, the Company
generally attempts to negotiate significant license fees for both series and
movies of the week. In many cases, the Company may invest additional sums in
excess of network license fees to produce the best possible made-for-television
feature, as such features are an essential sales tool in gaining network
acceptance of a projected series, if applicable. In these cases, the Company
will attempt to cover the excess of production costs from working capital,
third-party financing, sales of the episodes in the foreign marketplace, or a
combination of these financing techniques. Where necessary or desirable, the
Company may seek to obtain funding in excess of network license fees from a
studio or a third party who will provide such financing in return for a share of
the profits from the syndication of such programming. Similarly, for television
series, the Company may invest amounts in excess of network license fees in
order to gain audience acceptance for the series and to enhance the potential
value of future syndication rights.
The Company recognizes revenues from licensing agreements covering
entertainment product when the product is available to the licensee for
telecast, exhibition or distribution, and other conditions of the licensing
agreements have been met in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 53 "Financial Reporting by Producers and Distributors of
Motion Picture Films."
The Company, as required by SFAS No. 53, values its film cost at the lower
of unamortized cost or net realizable value on an individual title basis. Film
costs represent those costs incurred in the development, production and
distribution of television projects. These costs have been capitalized in
accordance with SFAS No. 53. Amortization of film cost is charged to expense and
third party participations are accrued using the individual film forecast method
whereby expense is recognized in the proportion that current year revenues bear
to an estimate of ultimate revenues. These estimates of revenues are prepared
and reviewed by management. The Company anticipates that a majority of its
production or acquisition costs for its projects will be amortized within three
years from the completion or acquisition of such project, with the balance
amortized over an additional two years.
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RESULTS OF OPERATIONS
Nine months ended September 30, 1996 versus the period from inception
(February 27, 1995) to December 31, 1995. Revenues for the nine month period
ended September 30, 1996 were $3,877,200 compared with $1,245,300 in the period
from inception (February 27, 1995) through December 31, 1995 (the "95 Period").
The revenues from the prior period were primarily attributable to the completion
and delivery of "Simply Style." Revenues for the nine month period ended
September 30, 1996 included $1,441,700 from the recognition of revenue from the
completion of the series "Amazing Tails," which revenue accounted for 37% of the
revenue during such period, a revenue guarantee received from the sale of
certain library rights and revenue from the sales generated by the existing
library. Included in this amount are revenues of approximately $680,000 arising
from a license of a certain portion of its film library to the Giniger Entities,
with respect to the sale of a certain portion of the Company's library in
certain Latin America countries and Europe. These revenues were 18% of revenues
in that period. Finally, revenues in the period included $595,000 from Eurolink
respecting additional sales of "Amazing Tails." This sale was approximately 15%
of the Company's revenue during the period. Revenue from the Giniger Entities,
Eurolink, and the production of "Amazing Tails" should not be considered to be
recurring. If the Company does not produce a series in fiscal 1997, or obtain
other significant foreign sales, the Company's revenue will be materially
reduced. See "Risk Factors -- Accounts Receivable; Reliance on Significant
Customers" for a further discussion of the non-recurring nature of these
revenues, and recognition of future revenues from the Giniger Entities.
Cost of revenue was $1,818,000 for the period ended September 30, 1996 as
compared to $946,900 for the 95 Period, such increase being principally
attributable to the increase in amortization of the product produced and
acquired by the Company.
Gross profit margin has improved from 24% for the 95 Period to 53% for the
period ended September 30, 1996 primarily because the profit margin on "Amazing
Tails" and the revenue recognized from the Giniger Entities is greater than the
profit margin on "Simply Style."
General and administrative expenses were $1,650,300 for the period ended
September 30, 1996 as compared to $1,288,200 for the 95 Period, resulting
primarily from increased personnel costs and debt issuance costs associated with
the February, May and November 1996 offerings of the Company's Bridge Notes. As
a percentage of revenue, however, general and administrative expenses decreased
from 103% to 43%. The debt issuance costs were expensed and not capitalized
because the expected maturity dates were within one year. See "-- Liquidity and
Capital Resources."
Net interest expense was $360,100 as compared to $42,700 for the 95 Period
reflecting the issuance of Bridge Notes in the period.
Net income for the nine month period ended September 30, 1996 was $48,800
compared with a net loss of $1,032,500 incurred during the 95 Period, resulting
primarily from an increase in sales activity in 1996. The 95 Period had limited
sales activity, as the Company was in a start-up phase, but it included the
costs associated with the Company's initial exhibition at trade shows,
acquisition costs for programming and distribution, professional costs, and
increases in personnel to accommodate future production activities and
distribution.
LIQUIDITY AND CAPITAL RESOURCES
The entertainment industry is highly capital intensive. As of September 30,
1996, the Company had a liquidity deficit of ($3,452,200), such deficit being
defined as (i) cash and cash equivalents plus accounts receivables (net), and
the amount due from officer (ii) less accounts payable, accrued expenses and
other liabilities, deferred revenues, accrued participations, notes payable, due
to officer, shareholder loan and note payable and accrued interest.
Included in the Company's assets as of September 30, 1996, are
approximately $1,700,000 relating to projects which the Company is developing
but which have not been set for principal photography. Approximately $1,200,000
of this amount relates to the acquisition of the rights to produce a television
series based on the feature film "Total Recall" and approximately $500,000
relates to expenditures in respect of
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"LoCoMoTioN." The Company intends, consistent with the standards set by the
Financial Accounting Standards Board, including SFAS No. 53, to write off the
costs of all development projects when they are abandoned or, even if not
abandoned, if they have not been set for principal photography within three
years of their initial development activity. In the event the Company is unable
to produce either "Total Recall" or "LoCoMoTioN," the Company would incur a
significant write-down with respect to the development costs of such projects,
which, in turn, may effect ongoing financing activities.
The Company has financed its operations from its own sales and production
activities, loans from its shareholders aggregating $2,272,000, the sale of the
Bridge Notes aggregating $2,994,350, and the special financing obtained with
respect to "Total Recall" (the "Total Recall Financing") in the principal amount
$1,200,000.
A portion of the shareholder loans are from (i) Joseph Cayre (two loans
aggregating $750,000), (ii) Morris Wolfson, entities which may be affiliates of
Mr. Wolfson and other parties to which Mr. Wolfson disclaims a beneficial
ownership interest in or control of $822,000 (as more fully described below) and
(iii) Affida Bank ($300,000). The Cayre loans, which were made in February and
August 1995, bear interest at 14% and 10%, respectively, and are subject to an
agreement requiring the payment of $250,000 from the net proceeds of this
Offering and the pledge of certain assets to cover the unpaid amount due
thereunder. Prior to the effectiveness of this Offering, the Company anticipates
obtaining the consent from Mr. Cayre, subject to certain conditions, to extend
the maturity date of any remaining amounts due to him to June 30, 1998. See
"Certain Transactions -- Transactions with Joseph Cayre."
A loan in the principal amount of $322,000 was made in January 1996 from
AMAE Ventures, an affiliate of Mr. Wolfson, which was used by the Company for
general overhead purposes and bears interest at 12%. This note is due on the
earlier to occur of June 30, 1997 or the closing of this Offering. The holder of
such note has the right to convert the principal amount into 105,000 shares of
the Company's Common Stock on a fully diluted basis through the completion of
this Offering, and has indicated that it intends to convert such note. An April
1996 loan by South Ferry #2 L.P., a Delaware limited partnership, in the
principal amount of $500,000 was used for the pre-production of "LoCoMoTioN."
This loan bears interest at 10% and is currently due on June 30, 1998. Prior to
the effectiveness of this Offering, the Company anticipates obtaining an
extension of the maturity date of this obligation to June 30, 1998. Finally the
Chana Sasha Foundation, an entity controlled by Mr. Wolfson, extended the
Company a $400,000 line of credit on a secured basis in November 1996, which
credit line has been used and subsequently repaid by funds from the Company's
operations. See "Certain Transactions" for additional information regarding
these transactions.
The July 1996 proceeds from the sale of the notes in the Total Recall
Financing were used to acquire the rights to produce a television series based
on "Total Recall." These notes, which are secured by the Company's underlying
rights to the "Total Recall" series, bear interest at 10% and are due on the
earlier of the closing of this Offering or June 30, 1997. The holders of these
notes have agreed to extend the maturity date thereto through June 30, 1998. In
addition, the holders of these notes received an aggregate of 53,403 shares of
Common Stock, warrants to acquire 14,954 shares of Common Stock at an exercise
price of $.43 and a 13% net profit participation in the Company's interest in
the series. As of the date hereof, $502,500 has been repaid in respect to this
obligation. See "Certain Transactions" for a description of the consideration
paid to Mr. Wolfson in connection with this transaction.
In November 1996, the Company obtained a $300,000 loan from Affida Bank,
which loan carries interest at 8%, and matures upon the earlier of the closing
of this Offering or December 31, 1997. Affida Bank also received warrants to
acquire 25,634 shares of the Company's Common Stock at an exercise price of $.43
in connection with this loan. Prior to the effectiveness of this Offering, the
Company anticipates obtaining an extension of the maturity date of this
obligation to June 30, 1998. The proceeds of this loan were used for working
capital.
In February 1996, the Company commenced a private placement of its secured
notes and sold to accredited investors $900,000 in principal amount of secured
promissory notes which bear interest at 12% and are due at the earlier to occur
of this Offering or June 30, 1997. This offering was changed pursuant to its
original terms with respect to subsequent investors in June 1997 when the
Company completed the sale to
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accredited investors of $975,000 principal amount of secured notes which bear
interest at 10% and are due at the earlier of the closing of this Offering or
May 31, 1998. In December 1996, the Company obtained a $150,000 loan from an
outside investor, which loan carries interest at 10% and matures upon the
earlier of the closing of this Offering or December 31, 1997. Prior to the
effectiveness of this Offering, the Company anticipates obtaining an extension
of the maturity date of this obligation to June 30, 1998. The proceeds of this
loan were used for working capital. In February and March 1997, the Company
completed the sale of $969,350 of convertible secured notes to accredited
investors (the "February 1997 Notes"). Each of the foregoing notes are secured,
pro-rata and pari passu, by liens on substantially all of the Company's assets,
except that the February 1997 Notes are junior to the notes.
Assuming the repayment of short-term indebtedness as specified under the
caption "Use of Proceeds," at the conclusion of this Offering, the Company will
have approximately $2,337,500 of indebtedness, which indebtedness is due on June
30, 1998 and is secured by substantially all of the assets of the Company. The
Company intends to enter into a secured line of credit (the "Proposed Facility")
with a third party bank, which line of credit would permit borrowings pursuant
to a specified borrowing base made up of the value of the library, accounts
receivable and other assets. The Company currently intends to repay the
$2,337,500 of indebtedness remaining after the Offering with proceeds from the
Proposed Facility. No assurance can be given that the Proposed Facility will be
entered into or that the Company will be able to use proceeds from such facility
as indicated herein.
Management believes that if this Offering is completed, the net proceeds
thereof, together with projected cash flow from operations, will be sufficient
to permit the Company to conduct its operations as currently contemplated for at
least the next twenty four (24) months. Such belief is based upon certain
assumptions, including assumptions regarding (i) the sales of the Company's
original and acquired programming and (ii) anticipated expenditures required for
the development and production of additional programming, including "Total
Recall." After such time period, the Company has assumed that its operations
will be financed by cash flow from operations, proceeds from the Proposed
Facility (if obtained) and/or additional financings. See "Risk Factors -- Going
Concern Assumption", "-- Additional Capital Requirements; Encumbrance of
Existing Assets; No Assurance of Future Financing," "Capitalization" and
"Description of Securities."
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BUSINESS
The following Business section contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
GENERAL
Since its formation in February 1995, the Company has focused its efforts
on the development and production of a variety of television programming,
including series, specials and made-for-television movies for exploitation in
television markets in the domestic and international market. The Company derives
substantially all of its revenue from production fees earned in connection with
Company-originated productions, distribution fees from the exploitation of
product acquired from others, and the exploitation of Company-owned programming.
References to the Company after December 1995 refers to Team Communications
Group, Inc. (formerly known as DSL Entertainment, Inc.) and its wholly-owned
subsidiaries. In December 1995, two companies under common control of the
shareholders of the Company were contributed to the Company without additional
consideration. References to the Company prior to December 1995 refer to those
three entities on a combined basis.
The Company's development and production activities have focused on (i)
family programming produced for U.S. cable and network television channels such
as The Discovery Channel, The Family Channel, USA Network, and PBS, (ii)
"how-to" instructional series, such as "Simply Style," a 60-episode series which
debuted during the third quarter of 1995 on The Learning Channel, and (iii)
reality based weekly and five-day per week ("strip") syndicated programming,
such as "Strange Universe Tonight," which the Company is currently co-producing
with the United/Chris-Craft television stations and Rysher Entertainment. This
series is currently airing on United/Chris-Craft stations and a commitment for
the production of a second 13-week run (65 episodes) has been received from
United/Chris-Craft. The Company has also recently completed a production of a
series of 22 half hour episodes entitled "Amazing Tails," a series focusing on
extraordinary pets, which has been financed in conjunction with Friskies Pet
Foods, a division of Nestles Food, and advertising leader Interpublic. All
episodes of this series have been produced and delivered to Interpublic, and the
series is scheduled to air on The Discovery Channel in 1997. The Company also
maintains a dramatic development and production unit which is developing and
will produce movies-of-the-week for exhibition on network television, cable or
ad hoc networks of independent stations which sometimes form to air special
programming.
The Company has acquired the rights to produce, and is actively developing,
a weekly dramatic television series based on the motion picture "Total Recall,"
which in 1990 grossed over $320 million in worldwide box office receipts. The
Company has entered into an agreement with Alliance, a leading Canadian
production company, pursuant to which Alliance, subject to certain conditions,
will co-produce and co-finance the series with the Company. By co-producing the
series with Alliance, in addition to reducing the Company's financial exposure,
the Company hopes to qualify the production for certain Canadian co-production
and tax benefits. Alliance will act as the foreign sales agent for the series,
and proceeds from the exploitation of the series, after recoupment of production
costs, will be allocated 60% to the Company and 40% to Alliance. It is the
intention of the parties that each episode will be produced for approximately
$1,000,000 per episode, with the Company receiving a producing fee of $25,000
per episode. The Company also owns all related merchandising rights relating to
the television series to be produced, and expects to actively exploit these
rights. The Company expects to produce 22 one-hour episodes for this series in
1998, and Ron Shusett, the writer of the original film as well as the feature
film "Alien," has written the basic treatment (i.e., story outline) for the
pilot. The Company is negotiating with Mr. Shusett regarding his potential
participation as the lead writer for the series.
The Company is also developing a wide variety of family and reality-based
programing including "Capture" focusing on aerial rescues of endangered species:
"K-9 Conquest," a pet game show and "Amazing Kids," an entertaining look at kids
through the eyes of kids. The Company is also developing a new children's
series, tentatively entitled "LoCoMoTioN," which the Company hopes to place on
PBS during the third
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quarter of 1997. Although no assurance can be given that the Company will obtain
a PBS timeslot, the Company is currently searching for a female celebrity to
co-host this series, which will introduce toddlers to dance and exercise through
contemporary urban music.
The Company also maintains a fully staffed international sales force and
currently has distribution rights to over 300 half-hours of family and
documentary series and specials.
The global television market has experienced substantial growth since 1985
and the Company believes this market will continue to experience substantial
growth during the foreseeable future as state television monopolies end and
commercial broadcast outlets expand to provide increasingly varied and
specialized content to the consumer. In the United States alone, 60 new
television channels have commenced operation since 1985. Such growth has led to
the development and commercialization of specialized channels and distribution
outlets, which, in turn, has led to increased demand for top quality and cost
efficient programming in many categories and subjects.
The Company's operating strategy is to fulfill the demand for programming
by (i) expanding the activities of each of its operating divisions, (ii)
implementing strategic acquisitions of libraries and smaller production
companies, and (iii) entering into joint ventures with, or acquisitions of,
unaffiliated third parties which are intended to lower the Company's financial
risk as it expands into related activities, such as direct marketing and
interactive programming.
The Company believes that there are unique business opportunities to
acquire other emerging companies, as well as more established production and
distribution entities, which are engaged in programming development, production,
distribution and other related media investments. While the number of
distribution channels has been increasing, the Company believes there are
powerful economic incentives, including economies of scale and depth of
financial and programming capability, for programmers and distribution entities
to consolidate. No assurance can be given that the Company will be successful in
obtaining the financing necessary for these acquisitions or that the
acquisitions will prove financially successful.
The Company anticipates that the net proceeds of this Offering, together
with projected cash flows from operations, will be sufficient to permit the
Company to conduct its operations as currently contemplated for the next
twenty-four months. Such belief is based upon certain assumptions, including
assumptions regarding (i) the sales of the Company's original and acquired
programming, and (ii) anticipated expenditures required for the development and
production of additional programming, including "Total Recall." After such time
period, the Company has assumed that its operations will be financed by
internally generated funds and proceeds from additional financings. See "Risk
Factors -- Going Concern Assumption," "-- Additional Capital Requirements,
Encumbrance of Existing Assets; No Assurance of Future Financing,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Securities -- Notes."
OPERATIONS
The Company currently operates three principal divisions: (i) production;
(ii) distribution; and (iii) licensing, merchandising, and direct-marketing.
PRODUCTION
The production of television programming involves the development of a
creative concept into a television script or teleplay, the selection of talent
(including actors, directors, and other creative personnel), and the filming,
technical, and post-production work necessary to create a finished product ready
for exhibition. Such programming is generally produced for initial prime-time
exhibition on one of the major U.S. networks, which include CBS, NBC, ABC and
Fox, however, such programming may also be produced for new channels like United
Paramount, and Warner Bros. first-run pay television exhibition or directly for
syndication (i.e., independent or non-network) television, including PBS, as
well as a number of basic and pay cable channels or services, including HBO,
Showtime, the Disney Channel, The Learning Channel, The Discovery Channel, Arts
and Entertainment Network and the History Channel.
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The Company is engaged in developing concepts and acquiring literary and
other story properties, the most promising of which serve as the basis for the
production of series, pilot films, or made-for-television features. Once an idea
has been commissioned, it is presented to the network or other distributor for
acceptance. If a script is accepted for production as a television feature or
pilot, or if a pilot is accepted for production as a series, the Company and the
network or distributor negotiate a license fee or distribution advance. This fee
is a flat sum payment through which the Company generally attempts to cover a
significant portion of its production costs and overhead.
Entertainment companies in general attempt to finance the development costs
for television programming from their working capital and seek to cover a
substantial portion of their production costs, including overhead, through the
license fees. If programming is produced for an entity like PBS, which does not
pay significant license fees or distribution advances (and in fact, may not pay
any fee), the Company attempts to provide corporate sponsors or agreements for
the license of ancillary rights such as foreign or home video distribution. Even
without a fee or advance, the Company believes that it can defray a significant
portion of the production costs of PBS programming using these alternative
financing methods, thus availing itself of the key demographics of PBS
viewership, particularly in children's programming.
With respect to series for the networks or pay cable channels, the Company
generally attempts to negotiate significant license fees for both series and
movies of the week. In many cases, the Company may invest additional sums in
excess of network license fees to produce the best possible made-for-television
feature, as such features are an essential sales tool in gaining network
acceptance of a projected series, if applicable. In these cases, the Company
will attempt to cover the excess of production costs from working capital,
third-party financing, sales of the episodes in the foreign marketplace, or a
combination of these financing techniques. Where necessary or desirable, the
Company may seek to obtain funding in excess of network license fees from a
studio or a third party who will provide such financing in return for a share of
the profits from the syndication of such programming. Similarly, for television
series, the Company may invest amounts in excess of network license fees in
order to gain audience acceptance for the series and to enhance the potential
value of future syndication rights.
There can be no assurance, however, that once the Company commits to fund
production of a series licensed to a network, the network will order and exhibit
sufficient episodes to enable the Company to syndicate the series. Typically, at
least 65 episodes of a series must be produced for it to be "stripped" or
syndicated in the daily re-run market. Generally, networks can cancel a series
at stated intervals and, accordingly, do not commit in advance to exhibit a
series for more than a limited period. If a series is canceled (or not carried
for the period necessary to create enough episodes for syndication purposes),
there is a significant chance that the production costs of the project will not
be fully recovered. Similar risks apply even if the series is produced for a
non-network medium. The Company believes, however, that foreign pre-sales and
international co-production opportunities will provide sufficient options to
obtain production financing and additional revenue potential. Moreover, basic
cable channels continue to provide outlets of series of between 13 to 26
episodes per season.
The Company intends to focus its production activity in the following areas
or genres:
MOW ("Movies of the Week") and Mini-Series; Drama Series. The Company has
acquired the rights to produce a weekly dramatic television series based on the
motion picture "Total Recall," which generated over $320,000,000 in world-wide
box office receipts in 1990. The Company has entered into an agreement with
Alliance, a leading Canadian production company, pursuant to which Alliance,
subject to certain conditions, will co-produce and co-finance the series with
the Company. By co-producing the series with Alliance, in addition to reducing
the Company's financial exposure, the Company hopes to qualify the production
for certain Canadian co-production and tax benefits. Alliance will act as the
foreign sales agent for the series, and proceeds, after recoupment of production
costs, will be allocated 60% to the Company and 40% to Alliance. It is the
intention of the parties that each episode will be produced for approximately
$1,000,000 per episode, with the Company receiving a producing fee of $25,000
per episode. The Company does not intend to commence production of the series
until a domestic distribution agreement is concluded.
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It is the Company's intention to expand the production of dramatic
programming over the next 24 months, which programming will be licensed in the
foreign markets through the Company's sales personnel. As of the date hereof,
foreign pre-sales of approximately $200,000 have been made with respect to
"Total Recall" for all of Asia and the Middle East, and parts of Latin America.
Still remaining available for licensing are most of the European territories,
and the remaining territories in Latin America, among others. The Company is
currently attempting to negotiate an agreement with respect to the exploitation
of the series in the domestic market.
The acquisition of the one hour dramatic series "Water Rats" (26 episodes
delivered for the first season with the right to acquire 26 additional episodes
now being produced for the second season) and the one hour dramatic series
"Cover Story" (26 episodes delivered), both series from the Australian
production company Southern Star, is an example of the Company's strategy to
acquire this type of programming from third parties. The Company has the rights
for distribution in all Latin American countries, including Cuba and Puerto
Rico, and has cumulative sales of approximately $1 million for Mexican broadcast
television and pan-Latin American satellite broadcast television with the
majority of terrestrial broadcast rights remaining available for sale.
Live Action and Animated Children's Programming. To take advantage of what
it believes is a significant television market for childrens' programming, the
Company intends to develop and produce inventive and original shows, including
both animated series and live-action series. The Company has commenced
pre-production of "LoCoMoTioN," and is negotiating with PBS to obtain a
commitment to broadcast this series in the third quarter of 1997. If the show is
successful, it is anticipated that it will provide the Company with licensing
and merchandising opportunities.
Non-Fiction/Light Entertainment Programming. With the rapid expansion of
national cable and network programming outlets, consumer demand for non-fiction,
reality based docudrama programming has increased. Channels such as Fox, United
Paramount, the Warners' Brothers Network, TBS, The Discovery Channel, The
Learning Channel and Lifetime have found quality non-fiction programming to be a
mainstay of their programming portfolio. The Company intends to capitalize upon
its programming expertise developed by management prior to the formulation of
the Company, including the work by Mr. Levin in producing and distribution of
"Future Quest," a 22 episode, half-hour PBS-TV series which explores technology,
science and pop culture, to develop innovative programming of this genre.
"Future Quest" was hosted by film actor Jeff Goldblum and presents, on a weekly
basis, a gallery of futurists, scientists and social commentators. The show was
underwritten with a corporate grant from AT&T Corp. Other programming previously
produced by Mr. Levin and previously distributed by the Company in this genre
includes "Hollywood Stuntmakers," "FX Masters," "Legends of Hollywood" and
"Mysterious Forces Beyond."
The Company has an extensive development slate of new series which are
currently being pre-sold in the international marketplace. Such new programs
include "Strange Universe Tonight," a 40-week, 200 half-hour strip series being
produced in association with United/Chris-Craft television stations and Rysher
Entertainment. "Amazing Tails," a weekly series of 22 half hours featuring
people and their pets, was financed by a presale for approximately $1,441,700 to
Interpublic for domestic distribution and broadcast. To date, the Company has
also licensed "Amazing Tails" in the foreign territories of Japan for $300,000
and the U.K., France, Italy, Spain, Portugal and Greece for an additional
$595,000.
Future productions include "America's Scenic Railway Journeys," a six
episode, hour long series devoted to famous railway journeys. The Company
intends to co-produce this series with John Grant, a former executive with PBS.
Other series being developed by the Company include "Rivers" and "Time
Detectives," which are currently being considered as documentary mini-series for
PBS.
Syndicated Strip Shows. The Company is making a significant creative and
development effort to provide syndicated daily programming, especially game
shows. The Company has also successfully licensed formats for such game shows as
"Young Matchmakers,"which has been successfully launched on Holland's RTL4
channel, and is now being presented to domestic broadcasters.
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"How To"/Instructional Programming. From gardening and style to cooking and
home repair, "how to" and instructional programming is an expanding market in
which the Company has strived to develop, produce, and distribute a variety of
programs which both entertain and educate. "Simply Style," a 60 episode "strip"
created by the Company for The Discovery Channel and hosted by fashion expert
Leah Feldon, is the first such series produced by the Company. Mr. Levin has
previously produced "Laurie Cooks Light and Easy," 65 one-half hour episodes
previously distributed by the Company. Hosted by Laurie Burrows Grad, this daily
strip presented simple recipes prepared in a healthy manner. The show attracted
celebrities such as Jill St. John, Steve Sax, Dom Deluise, Wolfgang Puck,
Michael Tucker and Jill Eikenberry.
DISTRIBUTION
An active part of the Company's business is the presentation of its own
product and product acquired from third-party producers to the international
marketplace. This includes drama and non-fiction programming as well as Movies
of Week, and children's animation. With the rapid increase of networks and
channels, there is an expanding demand for top-quality programming. To access
these markets, the Company's distribution personnel attend such major
international trade shows as MIPCOM, Monte Carlo Television Festival, MIP and
NATPE.
In certain territories like Latin America, the Company uses subdistributors
like the Giniger Entities. The Company believes that these agents typically have
long-standing relationships in territories the Company would have difficulty
accessing or in obtaining favorable prices.
The Company has also recently entered into an agreement with Australia's
Southern Star to distribute its successful drama series "Water Rats" in Latin
America, through the Giniger Entities.
In addition, the Company has an active "format" business oversees, where it
represents and "reformats" successful foreign shows for the domestic
marketplace, and vice versa. The Company also currently represents several other
custom formats which are under consideration in numerous territories.
LICENSING, MERCHANDISING AND DIRECT MARKETING
The Company's strategic plan encompasses the development of additional
revenue streams through licensing and merchandising efforts. The Company hopes
to generate new profit centers from toy, publishing, CD-ROM, housewares,
stationary, video, apparel, and other product category licenses. Although no
assurance can be given that this strategy can be successfully implemented, the
Company has begun to focus on the marketing and merchandising rights that may be
available with respect to the "Total Recall" series.
The Company also intends to focus on certain types of instructional or "how
to" programming that can be translated into direct marketing opportunities. By
their design, aspects of each how to/instructional program can be extended into
a continuity club, infomercial, and retail products. For example, the Company
intends to develop from the series "Simply Style" a style file club, with
make-up and cosmetics options for women, an infomercial selling makeover
products, and a retail campaign to highlight products sold through "Simply
Style" direct marketing campaigns.
POSSIBLE ACQUISITIONS; JOINT VENTURES
The Company believes that there are numerous opportunities to acquire other
production and distribution companies, as well as existing programming
libraries. The Company believes that these acquisitions, if successful, will
result in synergistic opportunities, and may increase the Company's revenue and
income growth. No specific acquisition candidates have been identified, and no
assurance can be given that any transactions will be effected, or if effected,
will be successful.
The Company is also committed to establishing joint ventures with strategic
partners in order to expand the Company's operations without significantly
expanding its overhead. For example, the Company is completing a "first
negotiation" arrangement with Interpublic which would give Interpublic the first
opportunity to provide sponsorship, commercial underwriting, and financing of
the Company's children's and "how to" series.
25
<PAGE> 27
COMPETITION
The entertainment industry is highly competitive. The Company competes
with, and will compete with, many organizations, including major film studios,
independent production companies, individual producers and others, including
networks, who are seeking the rights to attractive literary properties, the
services of creative and technical personnel, the financing for production of
film and television projects and favorable arrangements for the distribution of
completed films. Many of the Company's present and future competitors are
organizations of substantially larger size and capacity, with far greater
financial and personnel resources and longer operating history than the Company.
Moreover, the entertainment industry is currently evolving into an industry in
which certain multinational, multi-media entities, including Viacom/Paramount
Pictures, The News Corporation/Twentieth Century Fox, The Walt Disney
Company/Cap Cities-ABC, Time Warner/Turner Broadcasting and Westinghouse/CBS are
anticipated to be in a position, by virtue of their control over key film,
magazine, and/or television content and their control of key network and cable
outlets, to dominate certain communications industries activities. These
competitors have numerous competitive advantages, including the ability to
acquire and attract superior properties, personnel and financing.
EMPLOYEES
The Company currently employs 11 full time employees, four of whom are
members of senior management. From time to time, as projects go into production,
temporary employees are employed.
PROPERTIES
The Company currently rents its office space at 12300 Wilshire Boulevard,
Los Angeles, California from an unaffiliated third party, pursuant to a 36 month
lease that commenced on May 15, 1995. The Company currently rents approximately
4,600 square feet at a monthly rate of $1.75 per square foot. Mr. Levin has
personally guaranteed the obligations under the lease. The Company believes that
its current offices are adequate for its requirements, and that additional
space, if required, is available throughout the Los Angeles area at reasonable
rates.
LEGAL PROCEEDINGS
In April 1997 the Company has been purportedly served with a judgment in
the amount of $85,540 in a matter styled Levy Entertainment, Inc. vs. DSL
Entertainment, Inc. filed in Franklin Superior Court, State of Vermont. The
plaintiff in this action has obtained a writ of attachment against the Company
in California and has attempted to levy against assets of the Company. The
Company was not served with any papers relating to the case, did not enter any
defense, and disputes the amounts allegedly owed to Plaintiff. The Company is
attempting to obtain counsel in Vermont to overturn the judgment. No assurance
can be given that the Company will be successful in seeking to have the
judgement reversed.
In April 1997 the Company was served with a complaint in a matter styled
Allen vs. Team Communications Group, Inc. filed in Superior Court for the
Central District of California. In the complaint, Allen, a former employee of
the Company, alleges that the Company has breached an agreement to pay her 2% of
the proceeds derived from any series she "brought" to the Company. The Company
will file an answer to the complaint and intends to vigorously defend itself.
26
<PAGE> 28
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, together with their
respective ages and positions with the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Drew S. Levin 43 President, Chief Executive Officer and Chairman of the Board
Paul Yamamoto 43 Executive Vice President and Director
Eric Elias 42 Senior Vice President, Business and Legal Affairs
Joe Kalada 31 Vice President, Corporate Finance and Director
Bruce P. Vann 41 Nominated Director(1)(2)
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Drew S. Levin has been President and Chairman of the Board of the Company
since its founding in 1995. From 1987 through 1994, he was President of DSL
Productions, Inc. ("DSP"), a privately held company that was sold to The
Producer's Entertainment Group, Inc. ("TPEG") in 1994. Through February 1995, he
continued to act as president of DSP, which operated as a subsidiary of TPEG.
Mr. Levin has produced and co-produced hundreds of hours of programming,
including "Pop Culture Meets Pure Science" for which Mr. Levin received an Emmy
Award, "Laurie Cooks Light & Easy," "Future Quest" and "Simply Style." Mr. Levin
has extensive experience in international co-productions, including co-producing
a domestic and international version of "Top of the Pops" with the BBC for the
CBS network.
Paul Yamamoto has been Executive Vice President since September 1996 and a
Director since December 1996. Mr. Yamamoto was a managing partner of the Favored
Artists Agency from 1989 through 1992. From 1992 through July 1995, Mr. Yamamoto
was self employed and ran his own management/production company. In August 1995,
Mr. Yamamoto became the executive vice president of the Larry Thompson
Organization, where he served until September 1996.
Eric Elias has been Senior Vice President, Business and Legal Affairs since
April 1996, having consulted with the Company since its incorporation through
April 1996. Mr. Elias has previously served as corporate counsel and general
manager for a retail/wholesale leisure electronics firm and for the past five
years, has been in general private practice, providing business and legal
affairs services for similarly situated television production entities.
Joe Kalada has been Vice President, Corporate Finance since July 1996 and a
director since December 1996. From 1987 to 1992, Mr. Kalada was with Price
Waterhouse where he was a member of the audit group. From 1992 to 1994, Mr.
Kalada was an accounting manager at Metro Goldwyn Mayer. In 1994, Mr. Kalada
became controller of Broadcast Equipment Rental Company where he was responsible
for accounting matters. After this company was sold, Mr. Kalada was Vice
President of Finance for Four Point Entertainment from 1994 to 1996. Mr. Kalada
is a certified public accountant.
Bruce P. Vann, who has agreed to become a member of the Board of Directors
upon the conclusion of this Offering, is a 1980 graduate of Duke Law School. Mr.
Vann is an attorney who has been in practice in Los Angeles for over 16 years.
From 1989 to 1994, Mr. Vann was a partner in the Los Angeles office of Keck,
Mahin & Cate. He is currently a partner in the firm of Kelly & Lytton, counsel
to the Company. Mr. Vann also serves as Senior Vice President, Business and
Legal Affairs of Largo Entertainment, Inc., a subsidiary of The Victor Company
of Japan. Mr. Vann is a member of the board of directors of J2 Communications.
Directors are elected for one year terms at the Company's annual meeting of
shareholders and serve until the due election and qualification of their
successors. Officers are appointed by the Board of Directors and serve at the
discretion of the Board.
27
<PAGE> 29
Although the Company's directors do not receive any compensation for their
services as directors, it is anticipated that, following this Offering,
non-management directors will receive a fee for each Board of Directors meeting
attended, plus reimbursement for expenses. Additionally, certain non-management
board members will receive mandatory stock option grants pursuant to the
Company's 1996 Directors Plan.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company for
the fiscal years ended December 31, 1995 and 1996, by the Company's Chief
Executive Officer (the "Named Officer"):
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION
- ----------------------------------------- ---- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Drew S. Levin
Chairman of the Board and 1996 $350,000 $45,000(2) (3) $15,000(4)
Chief Executive Officer 1995 $350,000 $ 0 $13,750(4)
</TABLE>
- ---------------
(1) Other than salary described herein, the Company did not pay the Named
Officer any compensation, including incidental personal benefits, in excess
of 10% of such individual's salary. No other executive officer of the
Company had a total annual salary and bonus which exceeded $100,000 during
fiscal 1995 or 1996.
(2) For the fiscal year ended December 31, 1996, Mr. Levin was entitled,
pursuant to the terms of his prior agreement, to a bonus equal to certain
producer's fees relating to the series "Amazing Tales." During such period
Mr. Levin received $45,000 and, pursuant to the terms of his new employment
agreement (which will be effective upon the closing of this Offering), has
agreed to apply the balance of such accrued but unpaid bonus ($175,000) to
repay certain loans made to him by the Company. See "Certain Transactions."
This amount ($175,000) will be reflected in Mr. Levin's compensation for
fiscal 1997. In the future, Mr. Levin will not receive production bonuses.
The loan balance was $186,000 at December 31, 1996 and approximately
$240,000 at March 31, 1997. Mr. Levin has agreed to repay the balance by
making semi-annual payments of $5,000 on each of July 1 and January 1. See
"Certain Transactions."
(3) Pursuant to the terms of Mr. Levin's restated employment agreement to be
entered into concurrently with the consummation of this Offering, Mr. Levin
will be granted options to acquire 85,000 shares of the Company's Common
Stock, exercisable at the Company's initial offering price. These options
vest in 1999.
(4) Mr. Levin was entitled to received a car allowance of $1,250 each month for
all or a portion of the year. In lieu of these payments, Mr. Levin applied
such amounts to reduce his loan balance.
EMPLOYMENT AGREEMENTS
Prior to the closing of this Offering, Mr. Levin has agreed to amend his
employment agreement with the Company (the "Levin Agreement") providing for his
services as President and Chief Executive Officer for a period through 2002. The
terms of such amendment are subject to the prior approval of the Underwriter.
Pursuant to the proposed amendment, Mr. Levin will receive a salary of $240,000,
plus $125,000 per annum as an advance against a pro-rata portion of producer's
fees earned by Mr. Levin. Producer's fees in excess of $125,000 will be retained
by the Company. Mr. Levin has agreed that any producer's fees relating to
Company produced programming shall be allocated to the Company. Pursuant to the
Levin Agreement, Mr. Levin will receive (i) from 5% to 7.5% of the Company's
pre-tax profit beginning in 1997 pursuant to a formula based on specified
earnings levels and (ii) options to acquire an aggregate of 85,000 shares of the
Company's Common Stock at a per share exercise price equal to the initial public
offering price, which options shall be deemed fully vested. The amended
employment agreement will also provide that certain unpaid bonus compensation
owing to Mr. Levin will be applied to his loan from the Company. See "Certain
Transactions."
28
<PAGE> 30
STOCK OPTION PLANS
On December 14, 1995, the Company's Board of Directors approved, and
recommended for adoption by the shareholders, who adopted such plans in March
1996, the 1995 Stock Option Plan and the 1995 Stock Option Plan for Non-Employee
Directors (collectively, the "1995 Plans"). As of the date hereof, 78,000
options were outstanding under the 1995 Plans. In January 1997, the Company's
shareholders voted to freeze the 1995 Plans and adopt two new plans, the Team
Communications Group, Inc. Stock Awards Plan (the "1996 Employee Plan") and the
Team Communications Group, Inc. Directors' Stock Option Plan (the "1996
Director's Plan," and together with the 1996 Employee Plan, the "1996 Option
Plans").
The following summary is qualified in its entirety by reference to the full
text of the 1996 Option Plans. Unless otherwise indicated, the summary is
applicable to each plan, as well as to the 1995 Plans.
The 1996 Plans. The 1996 Option Plans provide for the granting of awards of
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options ("NSOs"), and stock appreciation rights ("SARs") (awards of ISOs, NSOs,
and SARs are sometimes hereinafter collectively referred to herein as "Awards").
Purpose. The purpose of the 1996 Option Plans is to provide key employees,
officers, and directors with an additional incentive to promote the success of
the Company's business and to encourage employees to remain in the employ of the
Company.
Administration-Employee Plan. The 1996 Employee Plan is to be administered
by a committee of two or more directors of the Company; provided however, that
if the Company becomes subject to Section 12 of the Exchange Act, such directors
shall be "non-employee directors" as such term is used in Rule 16b-3 and, if
feasible, such directors shall be "Outside Directors;" and provided further that
if there are not at least two such "non-employee directors," any grants or
awards hereunder to an individual subject to Section 16 of the Exchange Act
shall also be approved by the Board of Directors of the Company. "Outside
Director" shall have the meaning set forth in Treasury Regulation
sec. 1.162-27(e)(3) as amended from time to time and as interpreted by the
Internal Revenue Service.
1996 Directors Plan. Directors who are not employees of the Company will,
on the effective date of this offering and each annual anniversary thereof,
receive options to purchase 2,500 shares of Common Stock. The option price per
share of Common Stock purchasable upon exercise of such stock options shall be
100% of the fair market value on the date of grant. Such options shall be
exercisable immediately on the date of grant by payment in full of the purchase
price in cash. The aggregate number of shares of Common Stock that may be
granted pursuant to the 1996 Directors Plan is 20,000.
1996 Employee Stock Plan. The aggregate number of shares of Common Stock
that may be granted under the 1996 Employee Plan is 180,000. The Employee Plan
provides for the authority by the Employee Plan Committee to grant ISOs to any
key employee of the Company or any affiliate of the Company and to determine the
terms and conditions of each grant, including without limitation, the number of
shares subject to each ISO. The ISO exercise price will also be determined by
the Committee and will not be less than the fair market value of the Common
Stock on the date of grant. The exercise price will not be less than 110% of
such fair market value and the exercise period will not exceed five years if the
participant was the holder of more than 10% of the Company's outstanding voting
securities.
The Manner of Exercise. The exercise price for options granted under the
1996 Option Plans may be paid in cash or shares of Common Stock, including
shares of Common Stock which the participants received upon the exercise of one
or more options provided that, with respect to ISOs, such shares have been held
by the participant for at least the greater of two years from the date the
option was granted or one year after the shares of Common Stock were transferred
to the participant.
The option exercise price may also be paid by the participant's delivery of
an election directing the Company to withhold shares of Common Stock from the
Common Stock otherwise due upon exercise of the option.
29
<PAGE> 31
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENT WITH DREW LEVIN; SHORT TERM BORROWINGS BY MR. LEVIN
See "Management -- Employment Agreements" for a description of the
arrangements between the Company and Mr. Levin relevant to his employment
agreement and the amendment thereof.
From time to time, Mr. Levin has borrowed funds from the Company on a
short-term basis. As of March 31, 1997, these borrowings amounted to
approximately $240,000; assuming the application of $175,000 of accrued but
unpaid production bonuses the remaining balance would be $65,000. Any future
borrowings by any officer of the Company will require the approval of a majority
of the disinterested members of the Board. Mr. Levin has agreed to repay
remaining balance beginning in 1997 by making semi-annual payments of $5,000 on
each of July 1 and January 1, together with accrued interest accruing at the
prime rate.
In connection with the Company's facilities, Mr. Levin has personally
guaranteed the obligations under the Company's lease. See
"Business -- Properties."
TRANSACTIONS WITH JOSEPH CAYRE
As of the date hereof, the Company was indebted to Joseph Cayre, one of its
original shareholders, in respect of loans made in April and August 1995 in the
amount of $500,000 and $250,000, respectively. Interest on the loans currently
accrues at the rate of 12% and 14%, respectively. Mr. Cayre's loans are
currently secured by Mr. Levin's shares and all of the assets of the Company.
Mr. Cayre and Mr. Levin have agreed, subject to documentation, that as of
the closing date of this Offering, Mr. Cayre will receive payment of $250,000 in
respect of the amounts owed to him, and the remaining debt, subject to adequate
collateralization (which may include cash collateral) shall be extended until
June 30, 1998. Subject to the foregoing, Mr. Levin and Mr. Cayre have also
agreed, to restructure Mr. Cayre's investment in the Company. Mr. Cayre agreed
that upon the closing of this Offering, Mr. Cayre's interest in the Company
would be reduced to 164,874 shares of the Company's Common Stock by transferring
to Mr. Levin 195,774 shares of the Company's common stock held by Mr. Cayre. In
February 1996, in connection with a prior restructuring of this indebtedness,
Mr. Cayre received options to purchase 48,743 shares of Common Stock of $.43 per
share.
TRANSACTIONS WITH MORRIS WOLFSON AND OTHERS
A loan in the principal amount of $322,000 was made in January 1996 from
AMAE Ventures, an affiliate of Mr. Wolfson, which was used by the Company for
general overhead purposes and bears interest at 12%. This note is due on the
earlier to occur of June 30, 1997 or the closing of this Offering. The holder of
such note has the right to convert the principal amount into 3% of the Company's
Common Stock on a fully diluted basis through the completion of this Offering,
and has indicated that it intends to convert such note. An April 1996 loan by
South Ferry #2 L.P., a Delaware limited partnership, in the principal amount of
$500,000 was used for the pre-production of "LoCoMoTioN." This loan bears
interest at 10% and is due on the earlier to occur of June 1997 or upon the
closing of this Offering. In connection with such loan, South Ferry #2 L.P.
received 29,606 warrants exercisable at $.43 per share. Finally the Chana Sasha
Foundation, an entity controlled by Mr. Wolfson, extended the Company a $400,000
line of credit on a secured basis in November 1996, which credit line has been
used and subsequently repaid by funds from the Company's operations. In addition
the Company issued to affiliates of Mr. Wolfson and others 6,408 shares of the
Company's Common Stock as an additional fee with respect to such extension of
credit.
The July 1996 proceeds from the sale of the notes in the Total Recall
Financing were used to acquire the rights to produce a television series based
on "Total Recall." These notes, which are secured by the Company's underlying
rights to the "Total Recall" series, bear interest at 10% and are due at the
first to occur of June 30, 1997 or the closing of this Offering. The holders of
these notes have agreed to extend the maturity date thereto through June 30,
1998. In addition, the holders of these notes received an aggregate of 53,403
shares of common stock, warrants to acquire 21,361 shares of Common Stock at an
exercise price of $.43 and a 13% net profit participation in the Company's
interest in the series. In addition to the foregoing,
30
<PAGE> 32
Mr. Wolfson and related entities received 17,089 shares in connection with the
Total Recall Financing and a 2% interest in the net profits of the series. As of
the date hereof, $502,500 has been repaid in respect to this obligation.
TPEG AGREEMENTS
Beginning in early 1995, The Producer's Entertainment Group, Inc. ("TPEG")
and Mr. Levin entered into a series of agreements (the "TPEG Agreements") which
provided among other things, (i) for the formation of the Company and the
retention by TPEG of a 19.9% ownership interest in the Company, (ii) the grant
to the Company of distribution rights to certain product produced by DSP
Productions, Inc. ("DSP"), (DSP was sold by Mr. Levin and other shareholders to
TPEG in 1994), (iii) the assignment to the Company of certain of DSP's entire
new production and development distribution portfolio, and (iv) production
financing for the series "Simply Style." Certain disputes arose between Mr.
Levin and Mr. Cayre, on the one hand, and TPEG on the other hand, which resulted
in the execution of a settlement agreement (the "TPEG Settlement Agreement")
with TPEG pursuant to which TPEG was obligated to complete the transfer of
"Simply Style" to the Company. The Company also agreed to repurchase from TPEG,
for $178,000, a sufficient number of Company shares to reduce TPEG's holding in
the Company to 5%, on a fully diluted basis through the completion of this
Offering. On June 28, 1996, the Company's Board of Directors determined that, in
light of the Company's liquidity position at that time and its inability to
complete the TPEG Settlement Agreement pursuant to its terms, it was advisable
to assign the obligation to effectuate the TPEG Settlement Agreement to Mr.
Levin. Consequently, Mr. Levin and a group of investors repurchased the entire
holdings of TPEG in the Company.
TRANSACTIONS WITH BRUCE P. VANN
Mr. Vann, who has agreed to become a member of the Board of Directors upon
the consummation of this Offering, is the holder of options to purchase 10,000
shares of Common Stock at a price of $1.00 per share which he acquired in
October 1996, plus 4,273 shares of Common Stock which he received in October
1996 in lieu of fees relating to the acquisition of "Total Recall." Kelly &
Lytton, where Mr. Vann is a partner, is counsel to the Company, has received
fees from the Company through December 31, 1996 of approximately $46,000, and
has received approximately $56,000 during the first quarter of 1997.
31
<PAGE> 33
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 31, 1997, as adjusted to
reflect the sale of the shares of Common Stock offered hereby and the conversion
of the Conversion Note, the ownership of the Common Stock by (i) each person who
is known by the Company to own of record or beneficially more than 5% of the
outstanding Common Stock, (ii) each of the Company's directors and (iii) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, the shareholders listed in the table have sole voting and investment
power with respect to the shares indicated.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED
NAME AND ADDRESS NUMBER ----------------------------------
OF BENEFICIAL OWNER(1) OF SHARES(2) BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------- ------------ --------------- --------------
<S> <C> <C> <C>
Drew S. Levin(3).................................. 681,371 51.2% 25.9%
Morris Wolfson (4)................................ 298,833 22.5% 11.4%
Joe Cayre (5)..................................... 263,617 19.8% 10.0%
Affida Bank(6).................................... 82,305 6.2% 3.1%
Joe Kalada(7)..................................... 18,333 1.4% *
Bruce P. Vann (8)................................. 14,273 1.1% *
Paul Yamamoto(9).................................. 8,333 * *
All officers and directors as a group (four
persons, including one nominee director)........ 722,310 54.3% 27.5%
</TABLE>
- ---------------
* Less than 1%
(1) Address is c/o Team Communications Group, Inc., 12300 Wilshire Boulevard,
Suite 400, Los Angeles, California 90025.
(2) Gives effect to the anti-dilution provisions of the sale of 2.5% of the
Company's Common Stock from Mr. Drew Levin to Mr. Morris Wolfson, Mr.
Abraham Wolfson, Mr. Aaron Wolfson and Mr. Edward Nagel and the conversion
of the Conversion Note computed on a fully diluted basis.
(3) Includes 195,774 shares which Mr. Cayre has agreed to transfer to Mr. Levin
pursuant to Mr. Levin's arrangements with Mr. Cayre. Mr. Levin has pledged
his shares and his options to Mr. Cayre pursuant to Mr. Cayre's loan
transaction with the Company. Includes options to acquire 85,000 shares of
Common Stock which the Company has agreed to grant to Mr. Levin concurrently
with the execution of his new Employment Agreement. See "Certain
Transactions" and "Employment Agreements."
(4) Includes 193,526 shares of Common Stock held by Mr. Wolfson's brothers,
which Mr. Wolfson has disclaimed beneficial ownership. Includes 94,566
shares of Common Stock to be issued upon conversion of certain convertible
debt upon the closing of this Offering.
(5) Includes options to purchase 48,743 shares of the Company's Common Stock at
an exercise price of $0.43 per share. Mr. Cayre has granted the Underwriter
a 30-day option to purchase up to 30,000 additional shares to cover
over-allotments, if any. If the Underwriter's over-allotment option is
exercised in full, Mr. Cayre will own 7.0% of the outstanding shares of
Common Stock of the Company after this Offering.
(6) Includes options to purchase 3,268 shares of Common Stock at an exercise
price of $0.43 per share.
(7) Represents options to purchase 18,333 shares of Common Stock at an exercise
price of $1.00 per share.
(8) Includes options to purchase 10,000 shares of Common Stock at an exercise
price of $1.00 per share.
(9) Represents options to purchase 8,333 shares of Common Stock at an exercise
price of $1.00 per share.
CONCURRENT OFFERING BY SELLING SECURITY HOLDERS
An additional 193,870 outstanding shares (the "Securityholder Shares") of
Common Stock issuable upon exercise of warrants held by the Selling
Securityholders have been registered pursuant to the registration statement
under the Securities Act, of which this Prospectus forms a part, for sale by
such holders. The
32
<PAGE> 34
Securityholders Shares may be sold on or about the effective date of this
offering if a current prospectus relating to such Shares is in effect and the
Shares are qualified for sale. The Company will not receive any proceeds from
the market sales of the Securityholder Shares, although it will receive the
proceeds from the exercise of the warrants held by Securityholders. Sales of the
Securityholder Shares the potential of such sales could have an adverse effect
on the market price of the Company's Common Stock. See "Risk Factors -- Shares
Eligible for Future Sale."
The Selling Securityholders and the number of Securityholder Shares held by
each are as listed below.
<TABLE>
<CAPTION>
SECURITYHOLDER
SELLING SECURITYHOLDERS SHARES
------------------------------------------------------------------------ --------------
<S> <C>
Alan Parnes............................................................. 5,000
Arab International Trust Co............................................. 10,000
Duck Partners, LP....................................................... 20,000
Gary & Paula Wayton..................................................... 10,000
Michael Rosenbaum....................................................... 20,000
RMK Financial LLC....................................................... 15,000
Robert Bain............................................................. 20,000
Robert Frankel.......................................................... 7,470
Roger Triemstra......................................................... 10,000
Roland McAbee........................................................... 6,400
Swan Alley (Nominees) Limited........................................... 20,000
Van Moer Santerre & Cie................................................. 50,000
-------
Total......................................................... 193,870
=======
</TABLE>
There are no other material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed within the past three years. The Company has been informed by the
Underwriter that there are no agreements between the Underwriter and any Selling
Securityholder regarding the distribution of the Securityholder Shares.
The sale of the Securityholder Shares by the Selling Securityholders may be
effected from time to time in transactions (which may include block transactions
by or for the account of the Selling Securityholders) in the over-the-counter
market or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers from whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
At the time a particular offer of Securityholder Shares is made by or on
behalf of a Selling Securityholder, to the extent required, a prospectus will be
distributed which will set forth the number of Securityholder Shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for any Securityholder shares purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
If any of the following events occurs, this Prospectus will be amended to
include additional disclosure before offers and sales of the Securityholder
Shares are made: (a) to the extent such securities are sold at a fixed price or
by option at a price other than the prevailing market price, such price would be
set forth in the Prospectus; (b) if the securities are sold in block
transactions and the purchaser wishes to resell, such
33
<PAGE> 35
arrangements would be described in the Prospectus; and (c) if the compensation
paid to broker-dealers is other than usual and customary discounts, concessions
or commissions, disclosure of the terms of the transaction would be included in
the Prospectus. The Prospectus would also disclose if there are other changes to
the stated plan of distribution, including arrangements that either individually
or as a group would constitute an orchestrated distribution of the
Securityholders Shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of Securityholder Shares may not simultaneously
engage in market making activities with respect to any securities of the Company
for a period of at least two (and possibly nine)business days prior to the
commencement of such distribution. Accordingly, in the event that the
Underwriter is engaged in a distribution of the Securityholder Shares, it will
not be able to make a market in the Company's securities during the applicable
restrictive period. However, the Underwriter has not agreed to nor is it
obligated to act as broker-dealer in the sale of the Securityholder Shares and
the Selling Securityholders may be required, and in the event that the
Underwriter is a market maker, will likely be required, to sell such securities
through another broker-dealer. In addition, each Selling Securityholder desiring
to sell Securityholder Shares will be subject to the applicable provisions of
the Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-6 and 10b-7, which provisions may limit the timing of the
purchases and sales of shares of the Company's securities by such Selling
Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities may be deemed underwriting
discounts and commissions under the Securities Act.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 18,000,000 shares of Common Stock,
no par value. Holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders. There is
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably, dividends when, as and
if declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution, or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
shares of Common Stock are validly authorized and issued, fully paid, and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 2,000,000 shares of Preferred
Stock. The Preferred Stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the Board of Directors,
without further action by shareholders and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights and sinking fund
provisions. The Company has no present plans for the issuance of shares of
Preferred Stock and any issuance of such Preferred Stock for a period of two
years from the date of this Prospectus will require the consent of the
Underwriter prior to such issuance. The issuance of any Preferred Stock could
adversely affect the rights of the holders of Common Stock and therefore, reduce
the value of the Common Stock. The ability of the Board of Directors to issue
Preferred Stock could also discourage, delay or prevent a takeover of the
Company. See "Risk Factors -- Preferred Stock; Possible Anti-Takeover Effects of
Certain Charter Provisions."
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<PAGE> 36
WARRANTS
GENERAL
In connection with the issuance of its prior secured notes, the Company
issued an aggregate of 447,354 warrants, each warrant entitling the holder
thereof to acquire one share of Common Stock; 224,293 warrants are exercisable
at an exercise price equal to $0.43 per share, 29,191 Warrants are exercisable
at an exercise price equal to $0.97 per share and 193,870 warrants are
exercisable at $1.00 per share, subject to adjustment as hereinafter provided.
The warrants may be exercised, at the option of the holder thereof, at any time
from the date of this Prospectus and terminating on the earlier to occur of the
third anniversary of the effective date of this Offering or June 30, 2000,
whichever is earlier (the "Termination Date"). Unless previously exercised, the
right to exercise the warrants will terminate on the Termination Date.
The warrant holders have the opportunity to profit from a rise in the
market price of the Common Stock without assuming the risk of ownership of the
shares of Common Stock issuable upon the exercise of the warrants, with a
resulting dilution in the interests of the Company's shareholders by reason of
exercise of warrants at a time when the exercise price is less than the market
price for the Common Stock. Further, the terms on which the Company could obtain
additional capital during the life of the warrants may be adversely affected.
The warrant holders may be expected to exercise their warrants at a time when
the Company would, in all likelihood, be able to obtain any needed capital by an
offering of Common Stock on terms more favorable than those provided for by the
warrants.
The holders of the warrants will not have any of the rights or privileges
of shareholders of the Company, including voting rights and rights to receive
dividends, prior to exercise of the warrants. The Company will reserve out of
its authorized but unissued shares a sufficient number of shares of Common Stock
for issuance on exercise of the warrants. The Common Stock issuable on exercise
of the warrants will be, when issued, duly authorized and validly issued, fully
paid, and nonassessable.
For a holder to exercise the warrants, there must be a current registration
statement in effect with the Commission and registration or qualification with,
or approval from, various state securities agencies with respect to the shares
or other securities underlying the warrants, or an opinion of counsel for the
Company that there is an exemption from registration or qualification.
Antidilution. In the event that the Company shall at any time (i) declare a
dividend, or make a distribution, on the outstanding Common Stock payable in
shares of its capital stock (ii) subdivide the outstanding Common Stock into a
greater number of shares of Common Stock, (iii) combine the outstanding Common
Stock into a smaller number of shares, or (iv) issue any shares of its capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then, in each case, the exercise price
per warrant share in effect at the time of the record date for the determination
of shareholders entitled to receive such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying such
exercise price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such action, and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action. Upon such adjustments to the exercise price,
the number of warrant shares issuable upon exercise of each warrant shall
simultaneously be adjusted by multiplying the number of warrant shares
theretofore issuable upon exercise of such warrant by the exercise price
theretofore in effect and dividing the product so obtained by the exercise
price, as adjusted.
Reorganizations. In the event of any reclassification, capital
reorganization or other similar change of outstanding Common Stock, any
consolidation or merger involving the Company (other than a consolidation or
merger which does not result in any reclassification, capital reorganization, or
other similar change in the outstanding Common Stock), or a sale or conveyance
to another corporation of the property of the Company as, or substantially as,
an entirety, each warrant will thereupon become exercisable only for the kind
and number of shares of stock or other securities, assets or cash to which a
holder of the number of shares of Common Stock issuable (at the time of such
reclassification, reorganization, consolidation, merger or sale)
35
<PAGE> 37
upon exercise of such warrant would have been entitled upon such
reclassification, reorganization, consolidation, merger or sale. In the case
above, the effect of these provisions would be that the holder of a warrant
would thereafter be limited to exercising such warrant at the exercise price in
effect at such time for the amount of cash per share that a warrant holder would
have received had such holder exercised such warrant and received Common Stock
immediately prior to the effective date of such cash merger or transaction.
Depending upon the terms of such cash merger or transaction, the aggregate
amount of cash so received could be more or less than the exercise price of the
warrant.
Exercise Procedure. Each holder of a warrant may exercise such warrant by
surrendering the certificate evidencing such warrant, with the subscription form
on the reverse side of such certificate properly completed and executed,
together with payment of the exercise price, to the Company at its executive
offices. Such offices will initially be located at 12300 Wilshire Blvd., Los
Angeles, California 90025. The exercise price will be payable by cash or by
certified or official bank check payable in United States dollars to the order
of the Company. If fewer than all of the warrants evidenced by a warrant
certificate are exercised, a new certificate will be issued for the remaining
number of warrants. Certificates evidencing the warrants may be exchanged for
new certificates of different denominations by presenting the warrant
certificates at the office of the Company.
UNDERWRITER'S WARRANT
At the closing of this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 125,000 shares
of Common Stock. The Underwriter's Warrant will be exercisable for a four-year
period commencing one year from the date of this Prospectus. The exercise price
of the Underwriter's Warrant will be $8.40 per share (based upon an assumed
initial public offering price of $7.00 per share). The Underwriter's Warrant
will contain anti-dilution provisions. The Underwriter's Warrant does not
entitle the Underwriter to any rights as a stockholder of the Company until such
Warrant is exercised and shares are purchased thereunder. The Underwriter's
Warrant and the shares of Common Stock thereunder may not be offered for sale
except in compliance with the applicable provisions of the Securities Act. The
Company has agreed that, if it shall cause to be filed with the Securities and
Exchange Commission either an amendment to the Registration Statement of which
this Prospectus is part or a separate registration statement, the Underwriter
shall have the right during the four-year period commencing on the date of this
Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the shares of Common Stock issuable upon its exercise
at no expense to the Underwriter. Additionally, the Company has agreed that,
upon written request by a holder or holders of 50% or more of the Underwriters
Warrant which is made during the period prior to the exercise of the
Underwriter's Warrant, the Company will, on two separate occasions, register the
Underwriter's Warrant and the shares of Common Stock issuable upon exercise
thereof. The initial such registration will be at the Company's expense and the
second such registration will be at the expense of the holder(s) of the
Underwriter's Warrant.
BRIDGE NOTES
To finance its working capital needs, the Company has issued three separate
series of bridge notes. In February 1997, the Company commenced the placement of
Units consisting off $50,000 principal amount of 10% Convertible Notes (the
"February 1997 Notes") and 10,000 common stock purchase warrants. The Company
sold an aggregate of $969,350 principal amount of the February 1997 Notes. The
principal amount of, and interest on, the February 1997 Notes shall be due and
payable on the earlier to occur of (i) five business days after the completion
of either a public offering of the Company's Common Stock (the "Initial Public
Offering") or (ii) the public or private placement of debt or equity securities
with gross proceeds to the Company in excess of $5,000,000 (together with an
Initial Public Offering, a "Financing Event") or the second anniversary of the
Closing Date (as defined therein). The February 1997 Notes are convertible into
shares of Common Stock (the "Conversion Shares") of the Company during the
period commencing 60 days after the Closing Date and continuing through the
effective date of the Initial Public Offering, at which time any February 1997
Notes not so converted will be repaid. The conversion price (the "Conversion
Price") is
36
<PAGE> 38
$5.00 per share, subject to an adjustment in certain events. The holders of
these notes will waive, prior to the effective date of this Offering, their
right to so convert.
In June 1996 the Company commenced the placement of Units consisting of
$50,000 principal amount of 10% Secured Convertible Notes (the "June 1996
Notes") and 10,000 common stock purchase warrants. The Company sold an aggregate
of $975,000 principal amount of the June 1996 Notes. The principal amount of,
and interest on, the June 1996 Notes shall be due and payable on the completion
of this offering. The June 1996 Notes are secured by substantially all of the
assets of the Company. The June 1996 Notes are convertible into shares of Common
Stock of the Company, beginning 12 months after the completion of an Initial
Public Offering, at a conversion price of $5.00 per share, subject to an
adjustment in certain events. The holders of these notes will waive, prior to
the effective date of this Offering, their right to so convert. It is
anticipated that after the closing of this Offering, approximately $200,000 of
the June 1996 Notes will extend repayment until June 1998.
In February 1996, the Company commenced the placement of Units consisting
of $50,000 principal amount of 12% Secured Notes (the "February 1996 Notes") and
10,000 common stock purchase warrants. The Company sold an aggregate of $900,000
principal amount of the February 1996 Notes. The principal amount of, and
interest on, the February 1996 Notes shall be due and payable on the second
anniversary of the initial closing date thereof, and were secured by
substantially all of the assets of the Company. These notes were not
convertible.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is U.S. Stock Transfer
Corporation, Glendale, California, which also is responsible for record keeping
functions in connection with the same.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Sales of substantial amounts of Common Stock of the
Company in the public market or the perception that such sales could occur could
materially adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this Offering, the Company will have outstanding
approximately 2,631,092 shares of Common Stock. Of these shares, 1,331,092 are
Restricted Shares and 932,778 are Warrant Shares. The 1,300,000 shares of Common
stock that are sold by the Company to the public in this Offering will be freely
tradeable without restriction under the Securities Act, unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act.
The remaining shares of Common Stock outstanding upon completion of this
Offering, determined as if all outstanding warrants have been exercised, will be
held by approximately 60 holders and will be "restricted securities" as that
term is defined in Rule 144 under the Securities Act ("Restricted Stock").
Restricted Stock may be sold in the public market only if registered or if
qualified for an exemption from registration under Rule 144 or 701 promulgated
under the Securities Act, which are summarized below, or other exemptions. Sales
of the Restricted Stock in the public market, or the availability of such shares
for sale, could materially adversely affect the market price of the Common
Stock. In general, under Rule 144, which goes into effect on April 29, 1997,
beginning 90 days after the date of this Prospectus, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Stock for at least
one year (including the holding period of any prior owner other than an
affiliate of the Company) would be entitled to sell within any three month
period a number of shares that does not exceed the greater of (i) one percent of
the number of shares of Common Stock then outstanding or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
filing of notice of such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. Under amended Rule 144(k), which
goes into effect on April 29, 1997, a person who is not deemed to have been an
affiliate of the Company at any time during the three months
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<PAGE> 39
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years (including the holding period of any prior owner except
an affiliate of the Company) is entitled to sell such shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144. Unless otherwise restricted, such shares of Restricted
Stock may therefore be sold immediately upon the completion of this Offering.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates of the Company to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that nonaffiliated shareholders may sell such shares in reliance on
Rule 144 without having to comply with the public information, volume limitation
or notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus before selling
such shares.
The holders of substantially all shares of Restricted Stock have entered,
or are anticipated to enter, into contractual "lock-up" agreements providing
that they will not offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of the shares of stock owned by them or that could be
purchased by them through the exercise of options to purchase stock of the
Company, for 12 months (as to the Warrant Shares) and 18 months (as to the
Restricted Shares) after the date of this Prospectus without the prior written
consent of the Underwriter.
Taking into account the lock-up agreements and the restrictions of Rules
144 and 701 described above, approximately no Restricted Shares will be eligible
for sale immediately after this Offering and approximately all Restricted Shares
will be eligible for sale beginning 18 months after the date of this Prospectus,
subject, in some cases, to the volume restrictions of Rule 144.
The Company has agreed that for a period of 12 months from the date of this
Prospectus, it will not sell any securities, with the exception of the shares of
Common Stock issued upon exercise of currently outstanding options, without the
Underwriter's prior written consent, which consent shall not be unreasonably
withheld. In addition, for a period of 24 months from the date of this
Prospectus, the Company will not issue any shares of Preferred Stock or sell or
issue any securities pursuant to Regulation S under the Securities Act without
the Underwriter's prior written consent.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering shares of Common Stock reserved for issuance under the
1995 Plans and the 1996 Plans. Based on the number of shares reserved for
issuance under such Plans, such registration statement would cover approximately
337,500 shares. Such registration statement will automatically become effective
upon filing. Accordingly, shares registered under such registration statement
will, subject to Rule 144 volume limitations applicable to affiliates of the
Company, be available for sale in the open market, subject to vesting
restrictions and the lock-up agreements described above.
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<PAGE> 40
UNDERWRITING
The Underwriter has agreed to purchase from the Company, subject to the
terms and conditions of the Underwriting Agreement between the Company and the
Underwriter, the number of shares of Common Stock set forth opposite its name.
The underwriting discount set forth on the cover page of this Prospectus will be
allowed to the Underwriter at the time of delivery to the Underwriter of the
shares so purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
NAME OF UNDERWRITER PURCHASED
------------------------------------------------ -------------
<S> <C>
H.J. Meyers & Co., Inc. ........................ 1,300,000
=========
</TABLE>
The Underwriter has advised the Company that it proposes to offer the
shares to the public at an offering price of $ per Share and that the
Underwriter may allow certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") a concession of not in excess
of $ per share. After commencement of the Offering, the public offering
price and concession may be changed.
Each of the Company and the Selling Shareholder has granted to the
Underwriter an option, exercisable during the 30 business-day period from the
date of this Prospectus, to purchase up to an aggregate of 195,000 additional
shares on the same terms set forth above. The Underwriter may exercise such
rights only to satisfy over-allotments in the sale of the shares.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the total proceeds of the Offering, or $273,000 at an
assumed initial public offering price of $7.00 per share (or $ payable
by the Company and $ payable by the Selling Shareholder if the
Underwriter exercises the over-allotment option in full). Of such
non-accountable expense allowance, $60,000 has been paid to date. In addition to
the Underwriter's commission and the Underwriter's non-accountable expense
allowance, the Company is required to pay the costs of qualifying the shares of
Common Stock, under federal and state securities laws, together with legal and
accounting fees, printing and other costs in connection with this Offering,
estimated to total approximately $365,000.
At the closing of this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 130,000 shares
of Common Stock. The Underwriter's Warrant will be exercisable for a four-year
period commencing one year from the date of this Prospectus. The exercise price
of the Underwriter's Warrant will be $ per share (120% of the initial
public offering price). The Underwriter's Warrant will not be transferable prior
to its exercise date except to officers of the Underwriter and members of the
selling group and officers and partners thereof. The Underwriter's Warrant will
contain anti-dilution provisions. The Underwriter's Warrant does not entitle the
Underwriter to any rights as a shareholder of the Company until such Warrant is
exercised and the shares of Common Stock are purchased thereunder. The
Underwriter's Warrant and the shares of Common Stock thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that, if it shall cause to be filed with
the Commission either an amendment to the Registration Statement of which this
Prospectus is a part or a separate registration statement, the Underwriter shall
have the right during the five-year period commencing on the date of this
Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the shares of Common Stock issuable upon its exercise
at no expense to the Underwriter. Additionally, the Company has agreed that,
upon written request by a holder or holders of 50% or more of the Underwriter's
Warrant which is made during the exercise period of the Underwriter's Warrant,
the Company will on two separate occasions, register the Underwriter's Warrant
and the shares of Common Stock issuable upon exercise thereof. The initial such
registration will be at the Company's expense and the second such registration
will be at the expense of the holder(s) of the Underwriter's Warrant.
For the period during which the Underwriter's Warrant is exercisable, the
holder or holders will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder or holders of the
Underwriter's Warrant can be expected to exercise it at a time when the Company
would, in all likelihood, be able to obtain
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<PAGE> 41
any needed capital from an offering of its unissued Common Stock on terms more
favorable to the Company than those provided for in the Underwriter's Warrant.
Such facts may materially adversely affect the terms on which the Company can
obtain additional financing. To the extent that the Underwriter realizes any
gain from the resale of the Underwriter's Warrant or the securities issuable
thereunder, such gain may be deemed additional underwriting compensation under
the Securities Act.
The Company has agreed to enter into a consulting agreement with the
Underwriter under the terms of which the Underwriter has agreed to perform
consulting services related to corporate finance and will be paid a
non-refundable fee of $3,000 per month for 12 months. The Company has agreed to
pay the Underwriter the entire one year fee upon closing.
Holders of all of the Company's capital stock outstanding prior to the
Offering are subject to lock-up agreements under which the holders of such
shares will agree not to sell or dispose of any shares owned by them prior to
this Offering, or subsequently acquired under any option, warrant or convertible
security owned prior to this Offering, for a period of 12 months (as to the
Warrant Shares) and 18 months (as to the Restricted Shares) after the date of
this Prospectus without prior written consent of the Underwriter.
The Company has agreed that for a period of 12 months from the date of this
Prospectus, it will not sell or otherwise dispose of any securities, with the
exception of the shares of Common Stock issued upon exercise of currently
outstanding options, without the Underwriter's prior written consent, which
consent shall not be unreasonably withheld. In addition, for a period of 24
months from the date of this Prospectus, the Company will not sell or issue any
securities pursuant to Regulation S under the Securities Act without the
Underwriter's prior written consent.
In addition, the Company has agreed that, for the three years following the
Offering, it will not implement a "poison pill" or other device designed to
prevent a hostile takeover of the Company, or increase the size of the Company's
Board of Directors, without the approval of those members of the Company's Board
of Directors who are not employees of the Company. Moreover, the Company has
agreed, for three years following the Offering, that it will not increase the
compensation of or introduce severance packages for, its directors and officers,
without the consent of the Compensation Committee of the Company's Board of
Directors.
On July 16, 1996, the National Association of Securities Dealers, Inc.
("NASD") issued a notice of acceptance of Acceptance, Waiver and Consent (the
"AWC") whereby the Underwriter was censured, and order to pay fines and
restitution to retail customers in the amount of $250,000 and approximately
$1.025 million, respectively. The AWC was issued in connection with claims by
the NASD that the Underwriter charged excessive markups and markdowns in
connection with the trading of four certain securities originally underwritten
by the Underwriter; the activities in question occurred during period between
December 1990 and October 1993. The Underwriter has informed the Company that
the fines and refunds will not have material adverse effect on the Underwriter's
operations and that the Underwriter has effected remedial measures to help
ensure that the subject conduct does nor recur.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The Underwriter has advised the Company that the Underwriter does not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the shares of
Common Stock. The initial public offering price has been negotiated among the
Company and the Underwriter. Among the factors considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, are estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
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<PAGE> 42
In connection with the Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may overallot the offering, creating a syndicate
short position. In addition, the Underwriter may bid for and purchase shares of
Common Stock in the open market to cover syndicate short positions or to
stabilize the price of the Common Stock. Finally, the underwriting syndicate may
reclaim selling concessions from syndicate members in the Offering, if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriter is not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
Certain legal matters in connection with the validity of the shares of
Common Stock being offered hereby will be passed upon for the Company by Kelly &
Lytton, 1900 Avenue of the Stars, Suite 1450, Los Angeles, California 90067.
Bruce P. Vann, a member of Kelly & Lytton, is a director of the Company and the
beneficial owner of 4,273 and options to acquire 10,000 shares of the Company's
Common Stock. Certain legal matters will be passed upon for the Underwriter by
Freshman, Marantz, Orlanski, Cooper & Klein, Beverly Hills, California.
EXPERTS
The consolidated financial statements as of December 31, 1995 and September
30, 1996 included in the Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, and are so included in
reliance upon the report given on their authority as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington D.C. 20549 a
Registration Statement on Form SB-2 (including all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is hereby made to the Registration Statement, including
exhibits, schedules and reports filed as a part thereof. Statements contained in
this Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement referred to herein set forth the material
terms of such contract or other document but are not necessarily complete, and
in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the principal
office of the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington D.C. 20549, and at the Commission's
Regional Offices located at The Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can also be obtained at
prescribed rates by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement,
including the exhibits and schedules thereto, can also be accessed through the
EDGAR terminals in the Commission's Public Reference Rooms in Washington,
Chicago and New York or through the World Wide Wed at http://www.sec.gov.
41
<PAGE> 43
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants................................................. F-2
Consolidated Balance Sheet at December 31, 1995 and September 30, 1996............ F-3
Consolidated Statement of Operations for the period from February 27, 1995 to
December 31, 1995 and the nine months ended September 30, 1996.................. F-4
Consolidated Statement of Cash Flows for the period from February 27, 1995 to
December 31, 1995 and for the nine months ended September 30, 1996.............. F-5
Consolidated Statement of Shareholders' Deficit for the period from February 27,
1995 to December 31, 1995 and for the nine months ended September 30, 1996...... F-7
Notes to Consolidated Financial Statements........................................ F-8
</TABLE>
F-1
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS
April 15, 1997
To the Board of Directors and
Shareholders of Team Communications Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' deficit and of cash
flows present fairly, in all material respects, the consolidated financial
position of Team Communications Group, Inc. at September 30, 1996 and December
31, 1995 and the results of their operations and their cash flows for nine
months ended September 30, 1996 and for the period from February 27, 1995 to
December 31, 1995 in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company's recurring losses from operations and limited
capital resources raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 12. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PRICE WATERHOUSE, LLP
F-2
<PAGE> 45
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Cash and cash equivalents......................................... $ 16,100 $ 39,000
Trade receivables, less allowance for doubtful accounts of $47,400
and $0, respectively (Note 2)................................... 2,323,400 53,100
Television program costs, less accumulated amortization of
$1,571,500 and $490,600, respectively (Note 3).................. 3,032,000 596,100
Due from officer (Note 5)......................................... 171,600 42,200
Fixed assets, net (Note 2)........................................ 45,900 18,200
Organizational costs and other assets (Note 2).................... 36,700 24,500
---------- -----------
Total assets............................................ $ 5,625,700 $ 773,100
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities (Note
2).............................................................. $ 1,148,500 $ 458,800
Deferred revenue (Note 2)......................................... 45,800 498,000
Accrued participations (Note 2)................................... 418,100 126,100
Notes payable (Note 7)............................................ 3,179,800 18,500
Accrued interest (Note 5 and 7)................................... 256,100 40,200
Due to officer (Note 5)........................................... 175,000 0
Shareholder loan and note payable (Note 5)........................ 740,000 750,000
---------- -----------
Total liabilities....................................... 5,963,300 1,891,600
---------- -----------
Commitments and contingencies (Notes 6 and 10)
Shareholders' deficit:
Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued and outstanding (Note 11).................. 0 0
Common stock, no par value; 18,000,000 shares authorized;
1,087,550 and 1,052,425 shares issued and outstanding (Note
2).......................................................... 1,000 1,000
Paid in capital.............................................. 645,100 0
Treasury stock receivable (Note 10).......................... 0 (87,000)
Accumulated deficit.......................................... (983,700) (1,032,500)
---------- -----------
Total shareholders' deficit............................. (337,600) (1,118,500)
---------- -----------
Total liabilities and shareholders' deficit............. $ 5,625,700 $ 773,100
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 46
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE NINE MONTHS ENDED FEBRUARY 27, 1995
SEPTEMBER 30, 1996 TO DECEMBER 31, 1995
------------------------- --------------------
<S> <C> <C>
Revenues (Note 2).................................... $ 3,877,200 $ 1,245,300
Cost of revenues..................................... 1,818,000 946,900
General and administrative expense................... 1,650,300 1,288,200
---------- -----------
Net income from operations........................... 408,900 (989,800)
Net interest expense (Note 5)........................ 360,100 42,700
---------- -----------
Net income (loss) before income taxes................ 48,800 (1,032,500)
Provision for income taxes (Note 4).................. 0 0
---------- -----------
Net income (loss).................................... $ 48,800 $ (1,032,500)
========== ===========
Net income (loss) per share (Note 2)................. $ 0.05 $ (0.73)
========== ===========
Weighted average number of shares outstanding (Note
2)................................................. 1,417,345 1,417,345
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 47
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE NINE MONTHS ENDED FEBRUARY 27, 1995
SEPTEMBER 30, 1996 TO DECEMBER 31, 1995
------------------------- --------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $ 48,800 $ (1,032,500)
Adjustments to reconcile net income to cash used
for operating activities:
Depreciation and amortization.................. 10,000 4,500
Loss on TPEG settlement (Note 10).............. 0 180,000
Provision for doubtful accounts receivable..... 47,400 10,600
Amortization of television program costs....... 1,080,900 490,700
Additions to television program costs.......... (3,516,800) (1,045,800)
Amortization of notes payable discount......... 136,900 0
Changes in assets and liabilities:
Increase in trade receivables................ (2,317,700) (193,700)
Increase in organization costs and other
assets.................................... (13,600) (25,400)
Increase in accounts payable, accrued expense
and other liabilities..................... 867,700 280,800
Increase (decrease) in deferred revenue...... (452,200) 498,000
Increase in accrued participations........... 292,000 126,100
Increase in accrued interest................. 215,900 40,200
---------- ----------
Net cash used for operating activities.... (3,600,700) (666,500)
---------- ----------
INVESTING ACTIVITIES:
Purchase of fixed assets.......................... (36,300) (21,800)
Increase in due to officer........................ 175,000 0
Increase in due from officer...................... (129,400) (42,200)
---------- ----------
Net cash provided by (used for) investing
activities.............................. 9,300 (64,000)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from shareholder loan and notes
payable........................................ 0 750,000
Proceeds from issuance of note payable and
warrants....................................... 3,797,000 67,500
Principal payment on loan due to stockholder...... (10,000) 0
Principal payment of notes payable................ (218,500) (49,000)
Issuance of common stock.......................... 0 1,000
---------- ----------
Net cash provided by financing
activities.............................. 3,568,500 769,500
---------- ----------
Net change in cash.................................. (22,900) 39,000
Cash at beginning of period......................... 39,000 0
---------- ----------
Cash at end of period............................... $ 16,100 $ 39,000
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................................... $ 0 $ 2,500
========== ==========
Income taxes paid................................. $ 0 $ 2,400
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 48
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE NINE MONTHS ENDED FEBRUARY 27, 1995
SEPTEMBER 30, 1996 TO DECEMBER 31, 1995
------------------------- ---------------------
<S> <C> <C>
TPEG settlement (Note 10):
Treasury stock receivable........................ $ 0 $ 87,000
Television program costs received................ $ 0 $ 41,000
Receivable assigned to TPEG...................... $ 0 $ 130,000
Assumption of payable associated with
settlement.................................... $ 0 $ 178,000
Extinguishment of TPEG settlement payable by
assignment of the treasury stock receivable...... $ 178,000 $ 0
Issuance of warrants in conjunction with notes
payable (Note 7):................................ $ 476,300 $ 0
Transfer of shares by principal shareholder to
notes payable holder (Note 7).................... $ 45,700 $ 0
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 49
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- -------------------- TREASURY
NUMBER NUMBER PAID IN STOCK ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT
--------- ------ --------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 27,
1995................... 0 $ 0 0 $ 0 $ 0 $ 0 $ 0
Common stock issued...... 1,024,059 1,000
TPEG settlement (Note
10).................... (87,000)
Net loss for period from
February 27, 1995 to
December 31, 1995...... (1,032,500)
----- ----- --------- ------ -------- ----- ----------
Balance at December 31,
1995................... 0 0 1,024,059 1,000 0 (87,000) (1,032,500)
Transfer of shares by
principal shareholder
to notes payable holder
(Note 7)............... 45,700
Exchange of treasury
stock receivable with
related party for
extinguishment of TPEG
settlement payable
(Note 10).............. 91,000 87,000
Issuance of shares in
connection with notes
payable (Note 7)....... 34,178 0 32,100
Issuance of warrants in
connection with private
placements (Note 7).... 476,300
Issuance of shares in
connection with anti-
dilution provisions of
convertible promissory
note (Note 7).......... 1,425
Net income for nine
months ended September
30, 1996............... 48,800
----- ----- --------- ------ -------- ----- ----------
Balance at September 30,
1996................... 0 $ 0 1,059,662 $1,000 $645,100 $ 0 $ (983,700)
===== ===== ========= ====== ======== ===== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 50
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF THE COMPANY:
Team Communications Group, Inc. (formerly known as DSL Entertainment Group,
Inc.) and its wholly owned subsidiaries (collectively, the "Company") are
primarily engaged in developing, producing, and distributing television series,
programs and specials, and made-for-television movies in the domestic and
foreign television markets. The Company's focus is on developing and producing
children's programming and reality based programming for PBS and alternative
cable channels such as the Learning Channel and the Discovery Channel.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated statements include the accounts of Team
Communications Group, Inc. and subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
Revenue Recognition
Revenue from licensing agreements covering entertainment product owned by
the Company is recognized when the entertainment product is available to the
licensee for telecast, exhibition or distribution, and other conditions of the
licensing agreements have been met in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 53, "Financial Reporting by Producers and
Distributors of Motion Picture Films." The portion of recognized revenue which
is to be shared with the producers and owners of the license program material
(participations payable and due to producers) is accrued as the revenue is
recognized. Deferred revenues consist principally of advance payments received
on television contracts for which program materials are not yet available for
broadcast or exploitation. Such amounts are normally repayable by the Company
only if it fails to deliver the related product to the licensee.
Sales to three major customers accounted for approximately 70% of the
Company's total operating revenue for the nine months ended September 30, 1996.
Sales to two major customers accounted for approximately 73% of the Company's
total operating revenue for 1995.
Television Program Costs
Television program costs are valued at the lower of unamortized cost or net
realizable value on an individual title basis. Television program costs
represent those costs incurred in the development, production and distribution
of television projects. These costs have been capitalized in accordance with
SFAS No. 53. Amortization of television program costs is charged to expense and
third-party participations are accrued using the individual film forecast method
whereby expense is recognized in the proportion that current year revenues bear
to an estimate of ultimate revenue. Such estimates of ultimate revenue are
prepared and reviewed by management, and estimated losses, if any, are provided
for in full. Development costs are reviewed by management and charged to expense
when abandoned or, even if still being actively developed, if not set for
principal photography within three years of initial development activity.
FIXED ASSETS
Fixed assets include office furnishings, fixtures and equipment. Office
furnishings, fixtures and equipment are depreciated over a useful life of five
years. All depreciation expense is calculated using Modified Accelerated Cost
Recovery System. Fixed assets are net of $12,800 and $3,600 in accumulated
depreciation at September 30, 1996 and December 31, 1995, respectively.
F-8
<PAGE> 51
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ORGANIZATIONAL COSTS AND OTHER ASSETS
The balance represents security deposits, prepaid expenses and the
unamortized portion of the original costs relating to the incorporation of the
Company. Organizational costs are amortized using the straight-line method over
five years and are net of $2,300 and $900 in accumulated amortization at
September 30, 1996 and at December 31, 1995, respectively.
UNCLASSIFIED BALANCE SHEET
In accordance with the provisions of SFAS No. 53, the Company has elected
to present an unclassified balance sheet.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, short term accounts receivable, accounts payable, and deferred
revenue approximated fair value as of September 30, 1996 because of the
relatively short maturity of these instruments. The carrying value of long term
accounts receivable approximated fair value as of September 30, 1996 because the
instrument is valued at the Company's effective borrowing rate. The fair value
of notes payable is described in Note 7 and shareholders' loan and note payable
in Note 5.
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
disclosure 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.
COMMON STOCK
In January 1996 the Company effected a 2,397.004 for one stock split for
shareholders of record on February 23, 1996. In addition, authorized shares were
increased from 1,000 to 20,000,000. In January and April of 1997, the Company
effected a 2.2776 and 1.0277 for one share reverse stock splits, respectively.
All share and per share data in the financial statements reflect the stock split
and subsequent reverse stock split for all periods presented.
CONCENTRATION OF CREDIT RISK
Approximately 58% of the trade receivable balance at September 30, 1996
were represented by five customers.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common shares
and common stock equivalents outstanding during each period, after retroactive
adjustment for the stock splits (see above). Pursuant to requirements of the
Staff of the Securities and Exchange Commission, shares related to stock sold
and options issued subsequent to February 6, 1996 have been shown as outstanding
for all periods presented. Fully diluted earnings per common and common
equivalent shares are not presented as such amounts are the same as primary
earnings per share.
F-9
<PAGE> 52
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The convertible debt was not included in the calculation of weighted
average shares because the President and principal shareholder has personally
guaranteed to the Company that he will assume any convertible debt where the
debt holder wishes to convert in exchange for his own personal shares. The total
number of shares that the convertible debt may convert into is 175,000.
NOTE 3 -- TELEVISION PROGRAM COSTS:
Television program costs consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
In process and development......................... $ 1,889,100 $213,700
Released, less accumulated amortization............ 1,142,900 382,400
---------- --------
Total television program costs........... $ 3,032,000 $596,100
========== ========
</TABLE>
Based on the management's estimates of future gross revenue as of September
30, 1996, approximately 50% of the $1,142,900 in unamortized released television
program costs will be amortized during the three years ending September 30, 1999
and 70% will be amortized during the four years ending September 30, 2000.
NOTE 4 -- INCOME TAXES:
During the period ended December 31, 1995, the Company generated a net loss
before taxes on a consolidated basis, however, since the individual subsidiaries
were not eligible for consolidation until December 31, 1995, the tax provision
is calculated on the individual companies, separately. One company's loss does
not offset another company's income, as the companies are not consolidated for
tax purposes. For the period ended September 31, 1996, the tax provision is
calculated on the consolidated basis.
Deferred tax expense results from temporary differences in the recognition
of expense for tax and financial statement reporting purposes.
A reconciliation of the difference between the statutory federal income tax
rate and the Company's effective income tax rate applied to income (loss) before
income taxes was as follows for the period ended September 30, 1996 and the
period ended December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Statutory federal tax (benefit) rate............... 34% (34)%
State income tax provision, net of federal
benefit.......................................... 0% 0%
Benefits of operating loss carryforward............ (34)% 0%
Increase in valuation reserve against deferred tax
asset............................................ 0% 34%
----- ---- -
Effective tax rate................................. 0% 0%
===== =====
</TABLE>
The Company accounts for taxes under SFAS No. 109, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
F-10
<PAGE> 53
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INCOME TAXES: (CONTINUED)
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Net operating loss (carryforward).................. $ 259,128 $ 348,225
Valuation allowance................................ (259,128) (348,225)
-------- --------
Net deferred tax asset................... $ 0 $ 0
======== ========
Total current and deferred taxes payable........... $ 0 $ 0
======== ========
</TABLE>
At September 30, 1996, Team Communications Group, Inc. has a federal net
operating loss carryforward of $762,140 which will begin to expire in 2010.
NOTE 5 -- RELATED PARTY TRANSACTIONS:
The due from officer balances of $171,600 and $42,200, at September 30,
1996 and December 31, 1995, respectively, represent payments made by the Company
on behalf of and loans made to the President and principal shareholder.
The due to officer balance of $175,000 at September 30, 1996 represent
producer's fees earned by the president and principal shareholder for services
on a company production.
The shareholder loan and note payable balance are comprised of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Promissory notes:
12% secured promissory note due July 1, 1996(i)..... $500,000 $ 500,000 $500,000 $ 500,000
14% secured promissory note due July 1, 1996(ii).... 240,000 240,000 250,000 250,000
-------- -------- -------- --------
$740,000 $ 740,000 $750,000 $ 750,000
======== ======== ======== ========
</TABLE>
- ---------------
(i) In April 1995, the Company entered into a $500,000 promissory note with a
shareholder. The notes accrued interest at 10% through December 31, 1995
and at 12% thereafter. The note and all unpaid interest was due by July 1,
1996. The Company did not make the required payment and has received a
notice of default. The Company is negotiating a wavier and extension of the
payment terms. The note is secured by all of the President and principal
shareholders' shares and the assets of the Company. The carrying value
approximates fair value because of the short maturity. The note had an
accrued interest balance of $80,500 and $31,500 at September 30, 1996 and
December 31, 1995, respectively.
(ii) In August 1995, the Company entered into a $250,000 promissory note with a
shareholder. The notes accrued interest at 12% through November 1, 1995 and
at 14% thereafter. The note and all unpaid interest was due by July 1,
1996, as amended. The Company did not make the required payment and has
received a notice of default. The Company is negotiating a wavier and
extension of the payment terms. The note is secured by all of the President
and principal shareholders' shares and the assets of the Company. The
carrying value approximates fair value because of the short maturity. The
note has an accrued interest balance of $28,700 and $9,000 at September 30,
1996 and December 31, 1995, respectively. The Company issued 48,743
warrants exercisable at $0.43 in connection with the extension of the
maturity date of the loan to July 1, 1996.
Interest expense to related parties was $71,500 and $42,700 for the periods
ended September 30, 1996 and December 31, 1995, respectively.
F-11
<PAGE> 54
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
The Company has entered into an employment agreement with the president of
the Company requiring payment of annual compensation of $250,000 for a period of
seven years commencing February 1995 and ending February 2002. The employment
agreement also provides for bonus compensation. Several additional agreements
provide for the payment by the Company of certain profit participation based
upon the profits from specific programs, individual subsidiaries or the Company
as a consolidated entity, as provided in the applicable agreements.
The Company has obtained a distribution guarantee from Mel Giniger &
Associates for the Latin American territories and The Gemini Corporation for the
European territories (collectively the "Giniger Entities"). This guarantee
relates to the Company's current library and certain future product for Latin
America and Europe. Revenue of $680,000, was recognized against this guarantee
which represents 18% of revenue for the first nine months of 1996. The Company
believes that the Giniger Entities ability to deliver on this distribution
guarantee is predicate on its licensing the Company's product to unaffiliated
third parties. As such, the Company only recognized the portion of the guarantee
for which the Giniger Entities has entered into sales agreements with
unaffiliated third parties for such rights and for which program materials were
available to the Giniger Entities.
The Company leases office space and certain office equipment. The total
lease expense was $88,400 and $84,400 for the nine months ended September 30,
1996 and for the period ended December 31, 1995, respectively. The various
operating leases to which the Company is presently subject require minimum lease
payments for the years ending December 31, as follows:
<TABLE>
<S> <C>
1997.............................................. $110,300
1998.............................................. 44,600
1999.............................................. 5,600
2000.............................................. 4,600
2001.............................................. 0
--------
$165,100
========
</TABLE>
The Company has been purportedly served with a judgment in the amount of
$85,540 in a matter styled Levy Entertainment, Inc. vs. DSL Entertainment, Inc.
filed in Franklin Superior Court, State of Vermont. The plaintiff in this action
has obtained a writ of attachment against the Company in California and has
attempted to levy against assets of the Company. The Company was not served with
any papers relating to the case, did not enter any defense, and disputes the
amounts allegedly owed to Plaintiff. The Company is attempting to obtain counsel
in Vermont to overturn the judgment. No assurance can be given that the Company
will be successful in seeking to have the judgment reversed.
NOTE 7 -- NOTE PAYABLE:
Notes payable consists of the following at September 30, 1996:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ----------
<S> <C> <C>
Private placements:
12% secured notes due June 1997(i).............................. $ 839,400 $ 839,400
10% secured convertible notes due May 1998(ii).................. 544,800 584,100
Promissory notes:
12% convertible secured promissory note due June 1997(iii)...... 295,600 295,600
10% secured promissory note due June 1997(iv)................... 500,000 491,500
10% secured promissory note due June 1997(v).................... 1,000,000 982,900
---------- ----------
$3,179,800 $3,193,500
========== ==========
</TABLE>
F-12
<PAGE> 55
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NOTE PAYABLE: (CONTINUED)
- ---------------
(i) During February - June 1996, the Company participated in a private placement
offering. The Company sold 18 placement units. Each unit consisted of a
$50,000 note payable with interest of 12% per annum, compounded quarterly,
and 6,408 Common Stock Purchase warrants. The accrued interest balance was
$59,500 at September 30, 1996. Each warrant entitles the holder to buy one
share of common stock at an exercise price of $0.43. The warrants are
exercisable commencing two business days following the effective date of the
registration statement relating to an initial public offering and
terminating on the third anniversary of that date. Through this private
offering, the Company raised $900,000 and issued 115,351 warrants. Principal
and interest are due no later than June 30, 1997, as amended. The notes are
secured by substantially all of the assets of the Company. The carrying
amount and fair value of the notes and associated warrants was determined by
the market rate for a financial instrument of this risk. The carrying value
of the warrants amounted to $127,600 and is included in paid in capital.
(ii) During June - October 1996, the Company participated in a second private
placement offering. The Company sold 19.5 placement units. Each unit
consisted of a $50,000 senior convertible note payable with interest of 10%
per annum, compounded quarterly, and 4,272 Common Stock Purchase warrants.
The notes are convertible at their principal amount into common stock of
the Company at any time one year after the initial public offering through
maturity at the conversion price of $5.00 per share subject to adjustment
in certain circumstances. Each warrant entitles the holder to buy one share
of common stock at an exercise price of $0.43. The warrants are exercisable
commencing two business days following the effective date of the
registration statement relating to an initial public offering and
terminating on the third anniversary of that date. As of September 30,
1996, the Company raised $875,000 and issued 74,764 warrants. Subsequent to
September 30, 1996, the Company raised $100,000 and issued 8,544 warrants.
Principal and interest are due no later than May 31, 1998. The accrued
interest balance was $12,400 at September 30, 1996. The notes are secured
by substantially all of the assets of the Company. The fair value of the
note was estimated using discounted cash flow analysis at an interest rate
of 12%. The carrying value of the warrants amounted to $348,700 and is
included in paid in capital.
(iii) In January 1996, the Company entered into an agreement with an outside
investor. The Company received $322,000 in exchange for (i) a convertible
secured promissory note, convertible into 3% of the Company's outstanding
stock on a fully diluted basis through an initial public offering and (ii)
the transfer from the principal shareholder of 4% of the Company's issued
and outstanding stock on a fully diluted basis through an initial public
offering. The note accrues interest at 12% per annum and is due June 30,
1997, as amended. The note is secured by certain receivables and
television distribution rights. The accrued interest balance was $26,500
at September 30, 1996. The carrying value of the note and associated
shares was determined by the market rate for a financial instrument of
this risk. The carrying value of the shares amounted to $45,700 and is
included in paid in capital.
(iv) In April 1996, the Company entered into a $500,000 promissory note with an
outside investor to finance a television program. The note accrues interest
at 10% per annum and is due on June 30, 1997, as amended. The accrued
interest balance was $21,900 at September 30, 1996. The note is secured by
certain assets and rights associated with the television program. There
were 29,906 warrants (exercisable at $0.43 per warrant) issued in
connection with this note. The fair value of the note was estimated using
discounted cash flow analysis at an interest rate of 12%.
(v) In July 1996, the Company entered into a $1,200,000 promissory note with
outside investors to acquire the television rights to "Total Recall." The
note accrues interest at 10% per annum and is due on June 30, 1997, as
amended. As of September 30, 1996 there has been $200,000 repaid in respect
to this debt and there were repayments of $115,000 after September 30, 1996.
The accrued interest balance was $26,600 at September 30, 1996. The note is
secured by the rights that were acquired. There were 34,178 shares of
F-13
<PAGE> 56
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NOTE PAYABLE: (CONTINUED)
common stock issued in connection with the origination of this debt. An
additional 36,314 shares and 21,361 warrants (exercisable at $0.43 per
warrant) were issued to extend the loan. The outside investors are also
entitled to 15% of any net profits earned from the exploitation of these
rights. The fair value of the notes was estimated using discounted cash flow
analysis at an interest rate of 12%.
NOTE 8 -- GEOGRAPHIC INFORMATION:
The Company operates in a single industry segment, the development,
production and distribution of television programming. All of the Company's
operations are conducted in the United States.
A summary of the Company's revenues by geographic area is presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
United States....................................... $1,451,800 $ 768,000
Europe.............................................. 1,061,000 185,000
South America....................................... 679,300 25,000
Asia................................................ 529,000 196,300
Australia and Africa................................ 156,100 71,000
---------- ----------
Total..................................... $3,877,200 $1,245,300
========== ==========
</TABLE>
NOTE 9 -- STOCK OPTION PLANS:
The Company has established stock option plans for its employees and
consultants (the "1995 Stock Option Plan") and for its non-employee directors
(the "1995 Stock Option Plan for Non-Employee Directors").
The 1995 Stock Option Plan allows for options (including Incentive Stock
Options) to be granted to employees and consultants at less than fair market
value at date of grant. These options may be immediately exercisable and expire
over a period determined by the Stock Option Committee of the Board of Directors
(the "Committee"). The Committee is comprised of two members of the Board of
Directors. The total number of options available to grant under this plan is
270,000.
The 1995 Stock Option Plan for Non-Employee Directors allows for a set
number of immediately exercisable options to be granted at fair market value to
non-employee members of the Board of Directors. The total number of options
available to grant under this plan is 67,500. There were no options granted
exercised, forfeited, expired or outstanding pursuant to the Director Plan for
the nine months ended September 30, 1996.
A summary of the Key Employee Plan as of and for the nine months ended
September 30, 1996 is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
KEY EMPLOYEE PLAN SHARES EXERCISE PRICE
----------------------------------------------------- ------- ----------------
<S> <C> <C>
Outstanding as of January 1, 1996.................... -- --
Granted............................................ 35,000 $ 1.14
Exercised.......................................... -- --
Forfeited/Expired.................................. -- --
-------
Outstanding as of September 30, 1996................. 35,000
=======
Weighted-average fair value of options granted during
the year........................................... $ 1.14
=======
</TABLE>
F-14
<PAGE> 57
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
The following table summarizes information about options outstanding at
September 30, 1996:
<TABLE>
<CAPTION>
SHARES EXERCISABLE AT DATE
TOTAL SHARES EXERCISE PRICE SEPTEMBER 30, 1996 OPTIONS EXPIRE
- ------------ -------------- --------------------- --------------
<S> <C> <C> <C>
30,000 $ 1.00 5,000 July 1, 2006
5,000 $ 2.00 5,000 June 6, 2006
- ------------ -------
35,000 10,000
========= ===============
</TABLE>
The Company has elected, as permitted by FASB Statement No. 123,
"Accounting for Stock Based Compensation" ("FAS 123"), to account for its stock
compensation arrangements under the provisions of Accounting Principles Board
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of such pronouncement.
The fair value for these options was estimated at the date of grant using the
binomial option pricing model with the following weighted average assumptions:
risk-free interest rate of 6.33%, no dividend yield, expected lives of two and a
half years, and volatility of 0%.
For purposes of pro forma disclosure, the estimated fair value of the
options is zero, hence neither proforma net income on earnings per share are
presented.
During the period, the Company issued 21,362 warrants exercisable at $1.07
and 14,953 warrants exercisable at $0.43 to two outside parties for services
provided in raising outside debt. The Company recognized $5,000 in compensation
related to these warrants during the period ended September 30, 1996.
In January 1997, the Company's shareholders voted to freeze the 1995 Stock
Option Plans and adopt two new plans, the Team Communications Group, Inc. Stock
Awards plan (the "1996 Employee Plan") and the Team Communications Group, Inc.
Directors' Stock Option Plan (the "1996 Director's Plan").
The 1996 Directors Plan allows Directors who are not employees of the
Company, on the effective date of an initial public offering and each annual
anniversary thereof, to receive options to purchase 2,500 shares. The option
price per share of Common Stock purchasable upon exercise of such stock options
shall be 100% of the fair market value on the date of grant. Such options shall
be exercisable immediately on the date of grant by payment in full of the
purchase price in cash. The aggregate number of shares of Common Stock that may
be granted pursuant to the 1996 Directors Plan is 20,000.
The aggregate number of shares of Common Stock that may be granted under
the 1996 Employee Plan is 180,000. The Employee Plan provides for the authority
by the Employee Plan Committee to grant ISO's to any key employee of the Company
or any affiliate of the Company and to determine the terms and conditions of
each grant, including without limitation, the number of shares subject to each
ISO. The ISO exercise price will also be determined by the Committee and will
not be less than the fair market value of the Common Stock on the date of grant.
The exercise price will not be less than 110% of such fair market value and the
exercise period will not exceed five years if the participant was the holder of
more than 10% of the Company's outstanding voting securities.
NOTE 10 -- TPEG SETTLEMENT:
The Company was a cross complainant and a defendant in an action entitled
The Producer's Entertainment Group ("TPEG") v. Drew S. Levin. In the action,
which arose from disputes over the February 1995 separation agreements between
TPEG and Drew S. Levin, the Company and TPEG sought, among other
F-15
<PAGE> 58
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- TPEG SETTLEMENT: (CONTINUED)
things, damages and a court order regarding the copyright interest in the series
"Simply Style." Effective December 1995, this action was settled, pending final
payment as per the terms of the TPEG Litigation Settlement Agreement. Pursuant
to the TPEG Litigation Settlement Agreement TPEG agreed to (i) transfer to the
Company all rights, title and interest to the series "Simply Style;" and (ii)
sell back to the Company a sufficient number of shares of the Company's common
stock, such that TPEG would own five percent of the Company's common stock
issued and outstanding. In connection with the TPEG settlement agreement, the
Company agreed to pay TPEG $258,000, of which $130,000 was paid by the
assignment of a certain receivable. The Company incurred an additional $50,000
obligation to TPEG when it was unable to pay the remaining balance as of
February 28, 1996.
The resulting balance was payable on June 30, 1996. The Company's agreement
to repurchase 152,585 shares of the Company's common stock (14.9% of the
Company's common stock issued and outstanding) resulted in a treasury stock
receivable as of December 31, 1995. After giving value to the other elements of
the settlement, the treasury stock was attributed a value of $87,000 or $0.10
per share.
The Company recorded a loss on the settlement of $180,000. On June 27, 1996
the Company assigned to its President and principal shareholder the rights and
obligations pursuant to the TPEG Settlement Agreement. The President and
principal shareholder paid the final payment due on June 30, 1996 and received
the 14.9% of outstanding common stock pursuant to the settlement agreement. In
conjunction with the assignment, the President and principal shareholder sold
79,037 of the 152,585 shares acquired in this transaction to an outside investor
for $185,000. The President and principal shareholder subsequently agreed to
acquire the remaining five percent owned by TPEG. In conjunction therewith, the
President and principal shareholder arranged for the sale of one-half of this
stock to an outside investor. This stock was sold on the agreement that the
President and principal shareholder, through transfers from his personal stock
holdings, would see that this holding represents 2.5% of the Company's common
stock on a fully diluted basis.
NOTE 11 -- SUBSEQUENT EVENTS:
In November 1996, the Company entered into a $300,000 promissory note with
a shareholder. The note bears interest at 8% and is due the sooner of an initial
public offering or December 31, 1997. There were 25,634 common stock purchase
warrants (exercisable at $0.43 each) issued in connection with this note.
In December 1996, the Company entered into a $150,000 promissory note with
an outside investor. The note bears interest at 10% and is due the sooner of an
initial public offering or December 31, 1997. There were 29,191 common stock
purchase warrants (exercisble at $0.97 each) issued in connection with this
note.
In January 1997, the Company commenced a private placement offering. The
Company is offering for sale 18 placement units. Each unit consists of a $50,000
convertible note payable with interest of 10% per annum, payable at six month
intervals, and 10,000 common stock purchase warrants The notes are convertible
at their principal amount into common stock of the Company at any time before an
initial public offering at the conversion price of $5.00 per share, subject to
adjustment in certain circumstances. The maturity date of the notes will be no
later than two years. The warrants are exercisable commencing at the close of
this private placement and terminate three years after an initial public
offering.
In January 1997, the Board of Directors reduced the authorized common stock
shares from 20,000,000 to 18,000,000 and authorized 2,000,000 shares of
preferred stock. All references in the financial statements to number of shares
of the Company's common stock and preferred stock have been retroactively
restated.
The Company has signed a letter of intent with an underwriter for the sale
of its common stock to the public. The underwriter expects to sell 1,300,000
shares of common stock at $6.50 to $7.50 per share.
F-16
<PAGE> 59
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- GOING CONCERN:
The Company's financial statements for the nine months ended September 30,
1996 have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company has an accumulated deficit of $337,600 as
of September 30, 1996. The Company expects to incur substantial expenditures to
produce television programs and/or acquire distribution rights to television
programs produced by third parties. The Company's working capital plus limited
revenue from the licensing of its current inventory of television programs will
not be sufficient to fund the Company's ongoing operations, including completing
projects that the Company is contractually required to develop or produce.
Management recognizes that the Company must generate additional resources
to enable it to continue operations. Management's plans include the sale of
additional equity securities. Towards this goal management is seeking an
underwriter to assist in the initial public offering of the Company's common
stock. However, no assurance can be given that the Company will be successful in
raising additional capital. Further, there can be no assurance, assuming the
Company successfully raises additional equity, that the Company will achieve
profitability or positive cash flow.
F-17
<PAGE> 60
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 12
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Data............... 16
Management's Discussions and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 21
Management............................ 27
Certain Transactions.................. 30
Principal Securityholders............. 32
Concurrent Offering by Selling
Securityholders..................... 32
Description of Securities............. 34
Shares Eligible for Future Sale....... 37
Underwriting.......................... 39
Legal Matters......................... 41
Experts............................... 41
Additional Information................ 41
Index to Consolidated Financial
Statements.......................... F-1
------------------------
UNTIL , 1997 (25 CALENDAR DAYS
AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
=============================================
</TABLE>
======================================================
1,300,000 SHARES
TEAM COMMUNICATIONS GROUP, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
H.J. MEYERS & CO., INC.
, 1997
======================================================
<PAGE> 61
PART II
EXHIBITS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Directors of the Company are presently entitled to indemnification as
expressly authorized under Section 317 of the California General Corporation Law
("Section 317") and the Bylaws of the Company (which generally authorize the
Company to indemnify its Agents where such indemnification is authorized by
Section 317). Section 317 provides a detailed statutory framework covering
indemnification of any agent of a corporation who is threatened to be made a
party to any legal proceeding by reason of his or her actions on behalf of the
corporation.
[ ] of the Company's Articles of Incorporation (exhibit 3.1)
provides that a director will not be liable for monetary damages arising out of
the director's breach of his or her fiduciary duties to the Company and the
shareholders to the fullest extent permissible under the California Law.
Liability for breach of a director's fiduciary duty arises when the director has
failed to exercise sufficient care in reaching decisions or otherwise attending
to his responsibilities as a director and in other circumstances. Article V does
not eliminate these duties; it only eliminates monetary damage awards occasioned
by a breach of these duties. Accordingly, a breach of fiduciary duty is still a
valid basis for a suit seeking to stop a proposed transaction from occurring.
However, after a transaction has occurred, the Shareholders do not have a claim
against directors for monetary damages based on a breach of fiduciary duty, even
if that breach involves negligence on the part of the directors. Additionally,
as a practical matter, equitable remedies such as rescission may not be
available after a transaction has already been consummated or in other
circumstances.
The Company intends to enter into indemnification agreements with the
Company that attempt to provide the maximum indemnification allowed under the
California Law. The Indemnification Agreements will make mandatory
indemnification which is permitted by California Law in situations in which the
Indemnitee would otherwise be entitled to indemnification only if the Board of
Directors, the Shareholders, independent legal counsel retained by the Company
or a court in which an action was or is pending made a discretionary
determination in a specific case to award such indemnification. However, in part
because the California Law was only recently enacted, the extent to which the
indemnification permitted by the California Law may be expanded by
indemnification agreements is unsettled and has yet to be the subject of any
judicial interpretation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered are as follows (estimated except as noted):
<TABLE>
<S> <C>
SEC registration fee (actual)..................................... $ 4,150
NASD filing fee (actual).......................................... 2,175
Nasdaq SmallCap Market listing fee (actual)....................... 20,000
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 90,000
Accounting fees and expenses...................................... 90,000
Transfer agent and registration fees and expenses................. 10,000
Underwriters non-accountable expense allowance(1)................. 273,000
Blue sky qualification fees and expenses.......................... 35,000
Miscellaneous..................................................... 13,675
--------
Total................................................... $ 638,000
========
</TABLE>
- ---------------
(1) $313,950 if the Underwriter exercises the over-allotment option in full.
II-1
<PAGE> 62
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
1. A loan in the principal amount of $322,000 was made in January 1996 from
AMAE Ventures, an affiliate of Mr. Wolfson, which was used by the Company for
general overhead purposes and bears interest at 12%. This note is due on the
earlier to occur of June 30, 1997 or the closing of this Offering. The holder of
such note has the right to convert the principal amount into 3% of the Company's
common stock on a fully diluted basis through the completion of this Offering,
and has indicated that it intends to convert such note.
2. Mr. Cayre and Mr. Levin have agreed, subject to documentation, that as
of the closing date of this Offering, Mr. Cayre will receive payment of $250,000
in respect of the amounts owed to him, and the remaining debt, subject to
adequate collateralization (which may include cash collateral) shall be extended
until June 30, 1998. Subject to the foregoing, Mr. Levin and Mr. Cayre have also
agreed, to restructure Mr. Cayre's investment in the Company. Mr. Cayre agreed
that upon the closing of this Offering, Mr. Cayre's interest in the Company
would be reduced to 164,874 shares of the Company's Common Stock by transferring
to Mr. Levin 195,774 shares of the Company's common stock held by Mr. Cayre. In
February 1996, in connection with a prior restructuring of this indebtedness,
Mr. Cayre received options to purchase 48,743 shares of Common Stock of $.43 per
share.
3. In June 1996, South Ferry #2, L.P., an entity controlled by Mr.
Wolfson's brother, advanced to the Company the sum of $500,000 in respect of
"LoCoMoTioN" in consideration of which such entity received options to acquire
29,906 shares of Common Stock at $.43 per share. This loan bears interest at 10%
and is due on the earlier to occur of June 30, 1997 or upon the closing of this
Offering.
4. The Chana Sasha Foundation, an entity controlled by Mr. Wolfson,
extended the Company a $400,000 line of credit on a secured basis in November
1996, which credit line has been used and subsequently repaid by funds from the
Company's operations In October 1996 Mr. Wolfson extended the Company
approximately $400,000 of credit on a secured basis in November 1996, which
credit line has been used and subsequently repaid by funds from the Company's
operations. Mr. Wolfson received 6,408 shares of the Company's Common Stock with
respect to such extension of credit.
5. The July 1996 proceeds from the sale of the notes in the Total Recall
Financing were used to acquire the rights to produce a television series based
on "Total Recall." These notes, which are secured by the Company's underlying
rights to the "Total Recall" series, bear interest at 10% and are due at the
first to occur of June 30, 1997 or this Offering. The holders of these notes
have agreed to extend the maturity date thereto through June 30, 1998. In
addition, the holders of these notes received an aggregate of 53,403 shares of
common stock , warrants to acquire 14,954 shares of Common Stock at an exercise
price of $.43 and a 13% net profit participation in the Company's interest in
the series. As of the date hereof, $502,500 has been repaid in respect to this
obligation. Mr. Wolfson received 8,544 shares of the Company's Common Stock and
2% of the net profits of the series with respect to the Total Recall Financing.
6. The Company commenced two private placements of its Secured Notes in
February and in May, 1996. In February 1996, the Company sold to accredited
investors $900,000 in principal amount of secured promissory notes which bear
interest at 12% and are due at the earlier to occur of this Offering or June 30,
1997. In June through November 1996, the Company sold to accredited investors
$1,025,000 principal amount of secured notes which bear interest at 10% and are
due at the earlier of this Offering or May 31, 1998. An aggregate of 198,659
warrants to purchase a like number of shares of Common Stock at an exercise
price of $.43 per share were issued in connection with such placements. The
holders of these notes have waived all conversion rights with respect thereto.
7. In October 1996, the Company obtained a loan from Affida Bank in the
amount of $300,000 and, in connection therewith, issued warrants to acquire
29,191 shares of Common Stock at an exercise price of $.97 per share.
8. In January, February and March 1997, the Company completed the sale of
$969,350 of convertible secured notes to accredited investors (the "February
1997 Notes"). Each of the foregoing notes are secured, pro-rata and pari passu,
by liens on substantially all of the Company's assets, except that the February
1997 Notes are junior to the prior notes. An aggregate of 193,970 warrants to
purchase a like number of shares of Common Stock at an exercise price of $1.00
per share were issued in connection with such placements.
II-2
<PAGE> 63
9. In October 1996, Bruce P. Vann received 4,273 shares of Common Stock
lieu of fees relating to the acquisition of "Total Recall."
The above securities were offered by the Registrant in reliance upon an
exemption from registration under either (i) Section 4(2) of the Securities Act
as transactions not involving any public offering or (ii) Rule 701 under the
Securities Act. No underwriters were involved in connection with the sales of
securities referred to in this Item 15.
ITEM 27. (a) EXHIBITS
<TABLE>
<S> <C>
1.0 Form of Underwriting Agreement(1)
3.1 Articles of Incorporation.(1)
3.2 By-laws of the Company.(1)
4.1 Form of Warrant Agreement March 1996(1)
4.2 Form of Warrant Agreement May 1996(1)
4.3 Form of Warrant Agreement February 1997(1)
4.4 Form of Convertible Note March 1996 and related Security Agreement(1)
4.5 Form of Convertible Note May 1996 and related Security Agreement(1)
4.6 Form of Convertible Note February 1997(1)
4.7 Extensions relating to Wolfson Indebtedness*
4.8 Restated Joe Cayre Agreement*
4.9 Agreement with AMAE Ventures and related note(1)
4.10 Agreements re Total Recall Financing July 1996(1)
4.11 Agreements re LoCoMoTioN Financing(1)
4.12 1996 Employee Stock Option Plan(1)
4.13 1996 Directors Stock Option Plans(1)
4.14 Form of Consulting Agreement between H.J. Meyers & Co., Inc. and the
Company*
4.15 Specimen Certificates*
4.16 Form of Underwriter's Warrant(1)
5.0 Opinion and Consent of Kelly & Lytton regarding legality of securities (to
be filed by amendment).*
10.1 Agreement with Mel Ginger(1)
10.2 Eurolink Contract(1)
10.3 Interpublic Group of Companies Contract(1)
10.4 Employment Agreement, dated as of June 1, 1997, between the Company and Drew
Levin.(1)
10.5 Lease between the Company and TCW.(1)
10.6 Agreement with Alliance Production Ltd. re Total Recall*
11 Statement re: Computation of per share earnings(1)
21 Subsidiaries of the Registrant(1)
23.1 Consent of experts and named counsel*
23.2 Consent of Nominated Director(1)
24 Power of Attorney (included in the signature pages)
</TABLE>
- ---------------
* To be filed by Amendment.
(1) Filed herewith.
II-3
<PAGE> 64
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriter at the
closing specified in the underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the California General Corporation Law, the Articles of
Incorporation of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim of or
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration Statement
or any material change to such information in the registration
Statement."
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 65
SIGNATURES
In accordance with the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable ground to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Los Angeles, State of California, on this 29th day of
April, 1997.
Team Communications Group, Inc.
By: /s/ DREW LEVIN
------------------------------------
DREW LEVIN
Chairman of the Board, President,
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MAY BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Drew S. Levin, as true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that said attorney-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- ------------------------------ ---------------
<S> <C> <C>
/s/ DREW LEVIN Chairman of the Board, April 29, 1997
- --------------------------------------------- President, Chief Executive
DREW LEVIN Officer and Director
/s/ PAUL YAMAMOTO Director April 29, 1997
- ---------------------------------------------
PAUL YAMAMOTO
/s/ JOE KALADA Director and April 29, 1997
- --------------------------------------------- Chief Financial Officer
JOE KALADA
</TABLE>
II-5
<PAGE> 66
TEAM COMMUNICATIONS GROUP, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM FEBRUARY 27, 1995 TO DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
OTHER
BALANCE ADDITIONS DEDUCTIONS ADJUSTMENTS BALANCE AT
AT BEGINNING CHARGED FROM DURING END OF
DESCRIPTION OF PERIOD TO INCOME RESERVE PERIOD PERIOD
- ------------------------------------------- ------------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Deducted from accounts receivable for
doubtful accounts and returns............ $0 $47,400 $ 0 $ 0 $ 47,400
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deducted from accounts receivable for
doubtful accounts and returns............ $0 $10,600 $(10,600) $ 0 $ 0
</TABLE>
S-1
<PAGE> 67
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <S> <C>
1.0 Form of Underwriting Agreement(1)........................................
3.1 Articles of Incorporation(1).............................................
3.2 By-laws of the Company(1)................................................
4.1 Form of Warrant Agreement March 1996(1)..................................
4.2 Form of Warrant Agreement May 1996(1)....................................
4.3 Form of Warrant Agreement February 1997(1)...............................
4.4 Form of Convertible Note March 1996 and related Security Agreement(1)....
4.5 Form of Convertible Note May 1996 and related Security Agreement(1)......
4.6 Form of Convertible Note February 1997(1)................................
4.7 Extensions relating to Wolfson Indebtedness*.............................
4.8 Restated Joe Cayre Agreement*............................................
4.9 Agreement with AMAE Ventures and related note(1).........................
4.10 Agreements re Total Recall Financing July 1996(1)........................
4.11 Agreements re LoCoMoTioN Financing(1)....................................
4.12 1996 Employee Stock Option Plan(1).......................................
4.13 1996 Directors Stock Option Plans(1).....................................
4.14 Form of Consulting Agreement between H.J. Meyers & Co., Inc. and the
Company*.................................................................
4.15 Specimen Certificates*...................................................
4.16 Form of Underwriter's Warrant(1).........................................
5.0 Opinion and Consent of Kelly & Lytton regarding legality of securities
(to be filed by amendment).*.............................................
10.1 Agreement with Mel Ginger(1).............................................
10.2 Eurolink Contract(1).....................................................
10.3 Interpublic Group of Companies Contract(1)...............................
10.4 Employment Agreement, dated as of June 1, 1997, between the Company and
Drew Levin.(1)...........................................................
10.5 Lease between the Company and TCW(1).....................................
10.6 Agreement with Alliance Production Ltd. re Total Recall*.................
11 Statement re: Computation of per share earnings(1).......................
21 Subsidiaries of the Registrant(1)........................................
23.1 Consent of experts and named counsel*....................................
23.2 Consent of Nominated Director(1).........................................
24 Power of Attorney (included in the signature pages)......................
</TABLE>
- ---------------
* To be filed by Amendment.
(1) Filed herewith.
<PAGE> 1
EXHIBIT 1.0
TEAM COMMUNICATIONS GROUP, INC.
12300 Wilshire Boulevard, Suite 400
Los Angeles, California 90025
UNDERWRITING AGREEMENT
_________________, 1997
H.J. Meyers & Co., Inc.
1895 Mt. Hope Avenue
Rochester, New York 14620
Ladies and Gentlemen:
TEAM COMMUNICATIONS GROUP, INC., a California corporation (the
"Company"), proposes to issue and sell pursuant to this Underwriting Agreement
(the "Agreement"), an aggregate of 1,300,000 shares of Common Stock, no par
value per share (the "Shares"), commencing on the effective date of the
Registration Statement (the "Effective Date"). In addition, the Company proposes
to grant the option referred to in Section 2(b) to purchase all or any part of
an aggregate of 195,000 additional Shares.
The aggregate of 1,300,000 Shares, together with all or any part of the
195,000 you have the option to purchase, are herein called the "Shares." The
Common Stock of the Company to be outstanding after giving effect to the sale of
the Shares (including the 195,000 Underwriters have the option to purchase) is
herein called the "Common Stock."
You have advised the Company that you desire to purchase the Shares.
The Company confirms the agreements made by it with respect to the purchase of
the Shares by you, as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with you
that:
(a) A registration statement (File No. 333- ________) on Form
SB-2 relating to the public offering of the Shares, including a preliminary form
of prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act. "Preliminary
Prospectus" shall
1
<PAGE> 2
mean each prospectus filed pursuant to Rule 430 of the Rules and Regulations.
The registration statement (including all financial schedules and exhibits) as
amended at the time it becomes effective and the final prospectus included
therein are respectively referred to as the "Registration Statement" and the
"Prospectus", except that (i) if the prospectus first filed by the Company
pursuant to Rule 424(b) or Rule 430A of the Rules and Regulations or otherwise
utilized and not required to be so filed shall differ from said prospectus as
then amended, the term "Prospectus" shall mean the prospectus first filed
pursuant to Rule 424(b) or Rule 430A or so utilized from and after the date on
which it shall have been filed or utilized, and (ii) if such registration
statement or prospectus is amended or such prospectus is supplemented, after the
effective date of such registration statement and prior to the Option Closing
Date (as defined in Section 2(b)), the term "Registration Statement" shall
include such registration statement as so amended, and the term "Prospectus"
shall include the prospectus as so amended or supplemented, or both, as the case
may be.
(b) At the time the Registration Statement becomes effective
and at all times subsequent thereto up to the Option Closing Date (hereinafter
defined), (i) the Registration Statement and Prospectus will in all material
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made; provided, however,
that the Company makes no representations, warranties or agreements as to
information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of you specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus with respect to stabilization, the material set forth under the
heading "Under writing" and the identity of counsel to you under the heading
"Legal Matters" constitute the only information furnished in writing by you for
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with full power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good standing
in all other jurisdictions in which the nature of its business or the character
or location of its properties requires such qualification, except where failure
to so qualify is not reasonably likely to materially adversely affect the
Company's business, properties or financial condition.
(d) The authorized capital stock of the Company as of the
Effective Date was as set forth under "Capitalization" in the Prospectus. The
shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, as of the date specified
in the Prospectus no options, warrants or other rights to purchase, agreements
or other obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company have been granted or
entered into by the Company. The Shares and Underwriter's Warrant conform in all
material respects to all statements relating thereto contained in the
Registration Statement and Prospectus.
2
<PAGE> 3
(e) The Shares are duly authorized and, when issued, delivered
and paid for pursuant to this Agreement, will be duly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights of any
security holder of the Company. The certificates evidencing the Shares are and
will be in valid and proper legal form. The Underwriter's Warrant (as defined in
Section 11) will be exercisable for shares of Common Stock of the Company in
accordance with the terms of the Underwriter's Warrant and at the prices therein
provided for. The shares of Common Stock have been duly authorized and reserved
for issuance upon such exercise, and such shares, when issued upon such exercise
in accordance with the terms of the Underwriter's Warrant and when the price is
paid, shall be fully paid and non-assessable. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated in
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any securities of the
Company, except as described in the Registration Statement.
(f) This Agreement and the Underwriter's Warrant have been
duly and validly authorized, executed and delivered by the Company, and assuming
due execution by the other party or parties hereto and thereto, constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as rights to indemnity and
contribution hereunder may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally or by general equitable principles. The
Company has full power and lawful authority to authorize, issue and sell the
Shares to be sold by it hereunder on the terms and conditions set forth herein,
and no consent, approval, authorization or other order of any governmental
authority is required in connection with such authorization, execution and
delivery or with the authorization, issue and sale of the Shares or the
Underwriter's Warrant, except such as may be required under the Act or state
securities laws.
(g) Except as described in the Prospectus, the Company is not
in material violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement and the Underwriter's Warrant will not conflict with, or result in a
breach of, any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance pursuant
to the terms of, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets of the Company are
subject, which would have a material adverse effect on the business, properties
or financial condition of the Company, nor will such action result in any
violation of the provisions of the certificate of incorporation or the by-laws
of the Company, as amended, or any statute or any order, rule or regulation
applicable to the Company of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company, which would have a
material adverse effect on the business, properties or financial condition of
the Company.
(h) The Company owns no real property and, subject to the
qualifications stated in the Prospectus, the Company has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except such
as are not materially significant or important in relation to its business; all
of the leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee as described in the Prospectus
3
<PAGE> 4
are in full force and effect, and, except as described in the Prospectus, the
Company is not in default with respect to any of the terms or provisions of any
of such leases or subleases which would have a material adverse effect on the
business, properties or financial condition of the Company, and no claim has
been asserted by anyone adverse to rights of the Company as lessor, sublessor,
lessee or sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of the Company to continued possession of the
leased or subleased premises or assets under any such lease or sublease except
as described or referred to in the Prospectus, which would have a material
adverse effect on the business properties or financial condition of the Company;
and the Company owns or leases all such properties described in the Prospectus
as are necessary to its operations as now conducted and, except as otherwise
stated in the Prospectus, as proposed to be conducted as set forth in the
Prospectus.
(i) Price Waterhouse LLP statements filed and to be filed with
the Commission as a part of the Registration Statement, which are included in
the Prospectus, are with respect to the Company independent public accountants
as required by the Act and the Rules and Regulations.
(j) The financial statements and schedules, together with
related notes, set forth in the Prospectus or the Registration Statement present
fairly the financial position and results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved, provided, however, that the quarterly statements do
not contain all notes to such statements as are required under such principles
and such statements do not contain normal year end adjustments.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, the Company has not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which is material to the business of the Company, and there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any issuance of options, warrants or other rights to
purchase the capital stock of the Company or any adverse change or any
development involving, so far as the Company can now reasonably foresee, a
prospective adverse change in the condition (financial or other), net worth,
results of operations, business, key personnel or properties of it which would
be material to the business or financial condition of the Company, and the
Company has not become party to, and neither the business nor the property of
the Company has become the subject of, any material litigation whether or not in
the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now
pending nor, to the knowledge of the Company, threatened, any action, suit or
proceeding (including those related to environmental matters or discrimination
on the basis of age, sex, religion or race) to which the Company is a party
before or by any court or governmental agency or body, which, if adversely
determined, would result in any material adverse change in the condition
(financial or other), business prospects, net worth or properties of the
Company; and, except as set forth in the Prospectus, no labor disputes involving
the employees of the Company exist which, if adversely
4
<PAGE> 5
determined, would result in any material adverse change in the condition
(financial or otherwise), business prospects, net worth or property of the
Company.
(m) Except as disclosed in the Prospectus, the Company has
filed all necessary federal, state and foreign income and franchise tax returns
and has paid all taxes shown as due thereon; and there is no tax deficiency
which has been or to the knowledge of the Company might be asserted against the
Company which has not been adequately reserved for on the Company's balance
sheet.
(n) The Company has sufficient licenses, permits and other
governmental authorizations currently required for the conduct of its business
or the ownership of its property as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, mark registrations,
copy rights and licenses necessary for the conduct of such business and has not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best knowledge of the Company, none of the activities or
business of the Company is in violation of, or causes the Company to violate,
any law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or locality, the violation of which would have a
material adverse effect upon the condition (financial or otherwise), business
prospects, net worth or properties of the Company.
(o) The Company has not, directly or indirectly, at any time
(i) made any contributions to any candidate for foreign political office, or if
made, failed to disclose fully any such contribution made in violation of law,
or (ii) made any payment to any state, federal or foreign governmental officer
or official, or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable law. The
Company's internal accounting controls and procedures are sufficient to cause
the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(p) On the Closing Dates (as defined in Section 2(c)), all
transfer or other taxes (including franchise, capital stock or other tax, other
than income taxes imposed by any jurisdiction), if any, which are required to be
paid in connection with the sale and transfer of the Shares to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents of the Company which
are, under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Shares or to facilitate the sale or resale of
the Shares.
(s) The Company has no subsidiaries.
5
<PAGE> 6
(t) Except for this Agreement and other agreements with you,
the Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
2. Purchase, Delivery and Sale of the Shares.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties and agreements herein
contained, the Company agrees to issue and sell to you, and you agree to buy
from the Company at $_____ per Share at the place and time hereinafter
specified, the number of Shares set forth opposite your name in Schedule I
hereto (the "Firm Shares").
Delivery of the Firm Shares against payment therefor shall
take place at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue,
Rochester, New York 14620 (or at such other place as may be designated by
agreement between you and the Company) at ________a.m. York time on
_____________, 1997, or at such other time and date, not later than 10 business
days thereafter, as you may designate, such time and date of payment and
delivery for the Firm Shares being herein called the "First Closing Date." Time
shall be of the essence and delivery at the time and place specified in this
subsection (a) is a further condition to your obligations hereunder.
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants you an option to purchase all or any
part of an aggregate of 195,000 same price per Share as you shall pay for the
Shares being sold pursuant to the provisions of subsection (a) of this Section 2
(such additional Shares being referred to herein as the "Option Shares"). This
option may be exercised on one occasion within 30 business days after the
Effective Date upon notice by you to the Company advising it as to the amount of
Option Shares as to which the option is being exercised, the names and
denominations in which the certificates for such Option Shares are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by you but shall not be earlier than four
and not later than ten full business days after the exercise of said option, nor
in any event prior to the First Closing Date (although if such option is
exercised within one day after the Effective Date, the closing of the option
shall occur on the First Closing Date), and such time and date is referred to
herein as the "Option Closing Date." Delivery of the Option Shares against
payment therefor shall take place at the offices of H.J. Meyers & Co., Inc.,
1895 Mt. Hope Avenue, Rochester, New York 14620. Time shall be of the essence
and delivery at the time and place specified in this subsection (b) is a further
condition to your obligations hereunder.
The Option granted hereunder may be exercised only to cover
over-allotments in the sale by you of Firm Shares referred to in subsection (a)
above.
(c) The Company will make the certificates for the Shares to
be purchased by you hereunder available to you for checking at least one full
business day prior to the First Closing Date or the Option Closing Date (which
are collectively referred to herein as the "Closing Dates" and
6
<PAGE> 7
individually as a "Closing Date"), as the case may be. The certificates shall be
in such names and denominations as you may request, at least two full business
days prior to the relevant Closing Dates. Time shall be of the essence and the
availability of the certificates at the time and place specified in this
Agreement is a further condition to your obligations.
Definitive engraved certificates in negotiable form for the
Shares to be purchased by you hereunder will be delivered by the Company to you
for your account against payment of the purchase price by you, at your option,
by certified or bank cashier's checks in New York Clearing House funds or by
wire transfer, payable to the order of the Company.
In addition, in the event you exercise the option to purchase
from the Company all or any portion of the Option Shares pursuant to the
provisions of subsection (b) above, payment for such Option Shares shall be made
to or upon the order of the Company by you, at your option, by certified or bank
cashier's checks payable in New York Clearing House funds or by wire transfer,
at the offices of H.J. Meyers & Co., Inc. at the time and date of delivery of
such Option Shares as required by the provisions of subsection (b) above,
against receipt of the certificates for such Option Shares by you, registered in
such names and in such denominations as you may request.
It is understood that you propose to offer the Shares to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
3. Covenants of the Company.
The Company covenants and agrees with you that:
(a) Company will use its best efforts to cause the
Registration Statement to become effective and, upon notification from the
Commission that the Registration Statement has become effective, will so advise
you and will not at any time, whether before or after the Effective Date, file
any amendment to the Registration Statement or supplement to the Prospectus of
which you shall not previously have been advised and furnished with a copy or to
which you or your counsel shall have reasonably objected in writing or which is
not in compliance with the Act and the Rules and Regulations. At any time prior
to the later of (A) the completion by you of the distribution of the Shares
contemplated hereby (but in no event more than nine months after the Effective
Date) and (B) 25 days after the Effective Date, the Company will prepare and
file with the Commission, promptly upon your request, any amendments or
supplements to the Registration Statement or Prospectus which, in your
reasonable opinion, may be necessary or advisable in connection with the
distribution of the Shares.
Promptly after you or the Company is advised thereof, you will
advise the Company or the Company will advise you, as the case may be, and
confirm the advice in writing, of the receipt of any comments of the Commission,
of the effectiveness of any post-effective amendment to the Registration
Statement, of the filing of any supplement to the Prospectus or any amended
Prospectus, of any request made by the Commission for amendment of the
Registration Statement or for supplementing of the Prospectus or for additional
information with respect thereto,
7
<PAGE> 8
of the issuance by the Commission or any state or regulatory body of any stop
orders or other order suspending the effectiveness of the Registration Statement
or any order preventing or suspending the use of any preliminary prospectus or
the Prospectus, or of the suspension of the qualification of the Shares for
offering in any jurisdiction, or the institution of any proceedings for any of
such purposes, and will use its best efforts to prevent the issuance of any such
order and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
you and selected dealers to use the Prospectus in connection with the sale of
the Shares for such period not to exceed nine months from the Effective Date as
in the reasonable opinion of counsel for you the use thereof is required to
comply with the applicable provisions of the Act and the Rules and Regulations.
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with sales by an
underwriter or dealer, of any event of which the Company has knowledge and which
materially affects the Company or the Shares, or which in the opinion of counsel
for the Company or counsel for you should be set forth in an amendment to the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Shares, or in case it shall be necessary to amend or supplement the Prospectus
to comply with the Act or with the Rules and Regulations, the Company will
notify you promptly and forthwith prepare and furnish to you copies of such
amended Prospectus or of such supplement to be attached to the Prospectus, in
such quantities as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriters,
except that in case you are required, in connection with the sale of the Shares,
to deliver a Prospectus nine months or more after the Effective Date, the
Company will upon request of and at your expense, amend or supplement the
Registration Statement and Prospectus and furnish you with reasonable quantities
of prospectuses complying with Section 10(a)(3) of the Act.
(b) The Company will comply with the Act, the Rules and
Regulations and the Shares Exchange Act of 1934, as amended (the "Exchange Act")
and the rules and regulations thereunder in connection with the offering and
issuance of the Shares.
The Company will use its best efforts to qualify or register
the Shares for sale under the securities or "blue sky" laws of such
jurisdictions as you may have designated in writing prior to the execution
hereof and will make such applications and furnish such information to counsel
for you as may be required for that purpose and to comply with such laws,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent to service
process in any jurisdiction. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as you may reasonably request.
Legal fees for such
8
<PAGE> 9
qualifications shall be itemized based on the time expended and costs incurred,
shall be reasonable and shall not in any event exceed $35,000.00, exclusive of
filing fees (unless otherwise agreed). You shall supply copies of all
applications for the registration of Shares and related documents (except for
the Registration Statement and Prospectus) filed with the various states to the
Company's counsel, concurrently with their transmission to the various states,
and copies of all comments and orders received from the various states shall be
supplied to the Company's counsel. You have advised counsel for the Company in
writing of all states wherein the Offering has been registered for sale,
canceled, withdrawn or denied.
(c) The Company will instruct its transfer agent to provide
you with copies of the Depository Trust Company stock transfer sheets on a
weekly basis for a period of six weeks from the First Closing Date and on a
monthly basis thereafter for six additional months.
(d) The Company will use its best efforts to cause a
Registration Statement under the Exchange Act to be declared effective on the
Effective Date.
(e) For so long as the Company is a reporting company under
either Section 12(g), 13 or 15(d) of the Exchange Act, the Company, at its
expense, will furnish to its shareholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such fiscal
year, together with statements of income, shareholders equity and cash flows of
the Company and any subsidiaries as at the end of such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent accountants; (ii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iii) as soon as they
are available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission; and (iv) such other information of a
public nature as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
shareholders generally.
(g) The Company will deliver to you at or before the First
Closing Date one signed copy of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto. The Company will deliver to or upon your order, from time to time until
the Effective Date as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriters may reasonably
request. The Company will deliver to you on the Effective Date and thereafter
for so long as a Prospectus is required to be delivered under the Act, from time
to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as you may from time to time reasonably request.
(h) The Company will make generally available to its security
holders and deliver to you as soon as it is practicable to do so, but in no
event later than 90 days after the end of 12
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<PAGE> 10
months after its current fiscal quarter, an earnings statement (which need not
be audited) covering a period of at least 12 consecutive months beginning after
the Effective Date which shall satisfy the requirements of Section 11(a) of the
Act.
(i) The Company will apply the net proceeds from the sale of
the Shares substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus, and will file such reports with the Commission with respect to
the sale of the Shares and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
(j) The Company will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, preliminary Prospectus or Prospectus and take any other action, which
in the opinion of Freshman, Marantz, Orlanski, Cooper & Klein, counsel to you,
may be reasonably necessary or advisable in connection with the distribution of
the Shares and will use its best efforts to cause the same to become effective
as promptly as possible.
(k) Prior to the Effective Date, the Company will use its best
efforts to cause the shareholders holding the Warrant Shares (as defeined in the
Prospectus) and the Restricted Shares (as defeined in the Prospectus) to enter
into a written agreement with you, which, among other things, shall provide that
for a period of 12 and 18 months, respectively, following the closing date of
the offering, such shareholders will not sell, assign, hypothecate or pledge any
of the shares of Common Stock of the Company owned by them on the Effective
Date, or subsequently acquired by the exercise of any options or warrants or
conversion of any convertible security of the Company held by them on the
Effective Date directly or indirectly, except with your prior written consent
and such shareholders will permit all certificates evidencing those shares to be
stamped with an appropriate restrictive legend, and the Company will cause the
transfer agent for the Company to note such restrictions on the transfer books
and records of the Company.
(l) The Company shall, upon the initial filing of the
Registration Statement, make all filings required to obtain approval for the
quotation of the Shares on the Nasdaq Smallcap Market ("NASDAQ") and will use
its best efforts to effect and maintain the aforesaid approval for at least five
(5) years from the date of this Agreement. Within ten (10) business days after
the Effective Date, the Company shall cause the Company to be listed in the
Standard & Poor's Corporate Records and cause such listing to be maintained for
five years from the date of this Agreement.
(m) The Company represents that it has not taken, and agrees
that it will not take, directly or indirectly, any action designed to or which
has constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Shares or to facilitate the
sale or resale the Shares.
(n) During the period of the offering, and for a period of
twelve (12) months from the Effective Date, the Company will not sell or
otherwise dispose of any securities of the Company without your prior written
consent, which consent shall not be unreasonably withheld, except for shares of
Common Stock issuable upon exercise of options or warrants or conversion of
convertible securities outstanding on the Effective Date. For a period of
twenty-four (24) months from the
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<PAGE> 11
Effective Date, the Company will not issue, sell or otherwise dispose of any
securities of the Company pursuant to Regulation S under the Act without your
prior written consent.
(o) Prior to the Effective Date, the Company shall retain a
public relations firm acceptable to you, and shall continue to retain such firm,
or any alternate firm acceptable to you, for a minimum period of two (2) years.
(p) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Underwriter's Warrant outstanding from time to time.
(q) The Company shall deliver to you, at the Company's
expense, three (3) bound volumes in form and content reasonably acceptable to
you, containing the Registration Statement and all exhibits filed therewith, and
all amendments thereto, and all other material correspondence, filings,
certificates and other documents filed and/or delivered in connection with this
offering. The Company shall use its best efforts to deliver such volumes with
one hundred eighty (180) days of the First Closing Date.
(r) For a period of twenty-four (24) months from the closing
of the offering, the Underwriter shall have the right to designate an observer
to the Board of Directors provided that the designee is acceptable to the
Company. Such observer shall be entitled to reimbursements for all out-of-pocket
expenses incurred in attending such meetings and indemnified by the Company
against any claims arising out of his participation at Board meetings. The
Company shall hold at least four (4) meetings per year.
4. Conditions of Obligations of H.J. Meyers & Co., Inc.
Your obligations to purchase and pay for the Shares which you
have agreed to purchase hereunder are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 a.m., New York time,
on the date of this Agreement, or at such later time or on such later date as to
which you may agree in writing; on the Closing Dates, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that or any similar purpose shall have been instituted or shall
be pending or, to the knowledge of any Underwriter or to the knowledge of the
Company, shall be contemplated by the Commission; any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Freshman, Marantz, Orlanski, Cooper & Klein, counsel
to you; and no stop order shall be in effect denying or suspending effectiveness
of the Registration Statement nor shall any stop order proceedings with respect
thereto be instituted or pending or threatened under the Act.
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<PAGE> 12
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Bruce P. Vann, Esq., counsel for
the Company, in form and substance reasonably satisfactory to counsel for you,
to the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of California and is duly qualified or licensed to do
business as a foreign corporation in good standing in each other
jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where
failure to so qualify will not have a material adverse effect in the
business, properties or financial condition of the Company;
(ii) the authorized capitalization of the Company as
of the date of the Prospectus was as set forth in the Prospectus; all
of the shares of the Company's outstanding stock requiring
authorization for issuance by the Company's Board of Directors have
been duly authorized and validly issued, are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock of the Company, to
such counsel's knowledge, have not been issued in violation of the
preemptive rights of any shareholder and the shareholders of the
Company do not have any preemptive rights or other rights to subscribe
for or to purchase the Shares; except for the transfer restrictions
regarding "affiliates" contained in Rule 144 promulgated under the Act,
there are no restrictions upon the voting or transfer of any of the
Shares; the Common Stock and the Underwriter's Warrant conform in all
material respects to the respective descriptions thereof contained in
the Prospectus; the Shares to be issued as contemplated in the
Registration Statement and this Agreement have been duly authorized
and, when paid for in accordance with the terms of the Agreement, will
be validly issued, fully paid and non-assessable and free of preemptive
rights contained in the Company's certificate or articles of
incorporation or Bylaws, or any other document, instrument or agreement
known to counsel; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Underwriter's Warrant;
to such counsel's knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any registration rights or other rights,
other than those contemplated by the Underwriter's Warrant or described
in the prospectus or which have been waived or satisfied, for or
relating to the registration of the Shares;
(iii) this Agreement and the Underwriter's Warrant
(sometimes hereinafter collectively referred to as the "Underwriter
Agreements") have been duly and validly authorized, executed and
delivered by the Company, and assuming due execution and delivery of
this Agreement by you, such agreements are, or when duly executed will
be, the valid and legally binding obligations of the Company except as
enforceability may be limited by bankruptcy, insolvency, moratorium or
other laws affecting the rights of creditors, or by general equitable
principles; provided that no opinion need be expressed as to the
enforceability of the indemnity provisions contained in Section 6 or
the contribution pro visions contained in Section 7 of this Agreement;
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<PAGE> 13
(iv) the certificates evidencing the Shares are in
valid and proper legal form; the Underwriter's Warrant will be
exercisable for shares of Common Stock of the Company in accordance
with the terms of the Underwriter's Warrant and at the prices therein
provided for; the shares of Common Stock of the Company issuable upon
exercise of the Underwriter's Warrant have been duly authorized and
reserved for issuance upon such exercise, and such shares, when issued
upon such exercise in accordance with the terms of the Underwriter's
Warrant and when the price is paid shall be fully paid and
non-assessable;
(v) Such counsel knows of no pending or threatened
legal or governmental proceedings to which the Company is a party which
are required to be described or referred to in the Registration
Statement which are not so described or referred to;
(vi) The execution and delivery of this Agreement and
the Underwriter's Warrant and the incurrence of the obligations herein
and therein set forth and the consummation of the transactions herein
or therein contemplated will not result in a violation of, or
constitute a default under, the certificate or articles of
incorporation or by-laws of the Company, or in a violation of or
default under any obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness or in any of the material contracts, indentures,
mortgages, loan agreements, leases, joint ventures or other agreements
or instruments to which the Company is a party that are filed as
Exhibits to the Registration Statement or otherwise known to counsel;
(vii) The Registration Statement has become effective
under the Act, and to such counsels knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, no
proceedings for that purpose have been instituted or are pending
before, or threatened by, the Commission and the Registration Statement
and the Prospectus (except, in the case of both the Registration
Statement and any Amendment thereto, and the Prospectus and any
supplement thereto for the financial statements and notes and schedules
thereto, and other financial information or statistical data contained
therein, or omitted therefrom, as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Act and the Rules and Regulations;
(viii) All descriptions in the Registration Statement
and the Prospectus, and any amendment or supplement thereto, of
contracts and other documents are accurate and fairly present the
information required to be shown, and such counsel does not know of any
contracts or documents of a character required to be summarized or
described therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
(ix) No authorization, approval, consent or license
of any governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Shares by the Company, in connection with the execution,
delivery and performance of this Agreement or the Underwriter's Warrant
by the Company or in connection with the taking of any action
contemplated herein or therein, or the issuance of the Underwriter's
Warrant or the Shares underlying the Underwriter's Warrant, other than
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<PAGE> 14
registration or qualification of the Shares under applicable state or
foreign securities or blue sky laws (as to which such counsel need
express no opinion) and registration under the Act; and
(x) The statements in the Registration Statement
under the caption "Description of Capital Stock," to the extent that
such statements constitute a matter of law or legal conclusion have
been reviewed by such counsel and are correct in all material respects;
and
Such counsel has participated in the preparation of
the Registration Statement and the Prospectus and although such counsel has not
reviewed the accuracy or completeness of the statements contained in the
Registration Statement or Prospectus nothing has come to the attention of such
counsel that caused such counsel to have reason to believe that the Registration
Statement or any amendment thereto at the time it became effective contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any supplement thereto contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make statements therein in light of the circumstances under which they
were made not misleading (except, in the case of both the Registration Statement
and any amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes and schedules thereto and other financial
information and statistical data contained therein, as to which such counsel
need express no opinion);
In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and in rendering such opinion may either (i) rely as to all matters of law
other than the law of the United States or of the State of California upon
opinions of counsel satisfactory to you, in which case the opinion shall state
that they have no reason to believe that you and they are not entitled to so
rely or (ii) assume that the laws of any state other than the State of
California are identical to the laws of the State of California, in rendering
such opinion.
(c) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus, and other related
matters shall be reasonably satisfactory to or approved by Freshman, Marantz,
Orlanski, Cooper Klein, counsel to you, and you shall have received from such
counsel a signed opinion, dated as of the First Closing Date, with respect to
the validity of the issuance of the Shares, the form of the Registration
Statement and Prospectus (other than the financial statements and other
financial data contained therein), the execution of this Agreement and other
related matters as you may reasonably require. The Company shall have furnished
to counsel for you such documents as they may reasonably request for the purpose
of enabling them to render such opinion.
(d) You shall have received a letter on and as of the
Effective Date and again on and as of the First Closing Date, in each instance
describing procedures carried out to a date within five (5) days of the date of
the letter, from Price Waterhouse LLP, independent public accountants for the
Company, substantially in the form approved by you.
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<PAGE> 15
(e) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of such Closing Date, and the Company
shall have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statements of a material fact or 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; (iii)
there shall have been, since the respective dates as of which information is
given, no material adverse change in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the Effective Date and the
Company shall not have incurred any material liabilities nor entered into any
agreement not in the ordinary course of business other than as referred to in
the Registration Statement and Prospectus; and (iv) except as set forth in the
Prospectus, no action, suit or proceeding at law shall be pending or threatened
against the Company which would be required to be disclosed in the Registration
Statement, and no proceedings shall be pending or threatened against the Company
before or by any commission, board or administrative agency in the United States
or elsewhere, wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, property, condition (financial or
otherwise), results of operations or general affairs of the Company. In
addition, you shall have received, at the First Closing Date, a certificate
signed by the President and the principal financial or accounting officer of the
Company, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (e).
(f) Upon exercise of the option provided for in Section 2(b)
hereof, your obligations to purchase and pay for the Option Shares referred to
therein will be subject (as of the date hereof and as of the Option Closing
Date) to the following additional conditions:
(i) The Registration Statement shall remain effective
at the Option Closing Date, no stop order suspending the effectiveness
thereof shall have been issued, and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
reasonable satisfaction of Freshman, Marantz, Orlanski, Cooper & Klein,
counsel to you.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinion of Bruce P. Vann,. Esq., counsel
for the Company, dated as of the Option Closing Date, in form and
substance reasonably satisfactory to Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to you, which opinion shall be substantially
the same in scope and substance as the opinion furnished to you at the
First Closing Date pursuant to Section 4(b) hereof, except that such
opinion, where appropriate, shall cover the Option Shares rather than
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<PAGE> 16
the Firm Shares. If the First Closing Date is the same as the Option
Closing Date, such opinions may be combined.
(iii) At the Option Closing Date, there shall have
been delivered to you a certificate of the President and the Chairman
of the Board of the Company dated the Option Closing Date, in form and
substance reasonably satisfactory to Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to you, substantially the same in scope and
substance as the certificate furnished to you at the First Closing Date
pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date, there shall have
been delivered to you a letter in form and substance satisfactory to
you from Price Waterhouse LLP, dated the Option Closing Date and
addressed to you, confirming the information in their letter referred
to in Section 4(d) hereof as of the date thereof and stating that,
without any additional investigation required, nothing has come to
their attention during the period from the ending date of their review
referred to in said letter to a date not more than five (5) days prior
to the Option Closing Date which would require any change in said
letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option
Shares shall be reasonably satisfactory in form and substance to you,
and you and Freshman, Marantz, Orlanski, Cooper & Klein, counsel to
you, shall have been furnished with all such documents and certificates
as you may request in connection with this transaction in order to
evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of
the covenants or conditions contained therein.
(g) If any of the conditions herein provided for in this
Section shall not have been completely fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriters under this Agreement may be
cancelled at, or at any time prior to, each Closing Date by your notifying the
Company of such cancellation in writing or by telegram at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of any
Underwriter to the Company, except as otherwise provided herein.
5. Conditions of the Obligations of the Company.
The obligation of the Company to sell and deliver the Shares
is subject to the following conditions:
(a) The Registration Statement shall have become effective not
later than 9:00 a.m. New York time, on the date of this Agreement, or on such
later date or time as you and the Company may agree in writing.
(b) on the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
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<PAGE> 17
If the conditions to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Option Shares on
exercise of the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless you and
each person, if any, who controls you, within the meaning of the Act, from and
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys, fees), to which you
or such controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment thereof or supplement
thereto, (B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Shares under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, or any supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company through you specifically for use in the preparation of the Registration
Statement or any such amendment or supplement thereof or any such Blue Sky
Application or any such Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto and provided further, that the indemnity
agreement provided in this Section 6(b) with respect to any preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, charges, liabilities or litigation based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected has not been sent or
given to such person within the time required by the Act and the Rules and
Regulations thereunder. This indemnity will be in addition to any liability
which the Company may otherwise have.
(b) You agree to indemnify and hold harmless the Company, each
of its directors, each nominee (if any) for director named in the Prospectus,
each of its officers who have signed the Registration Statement, and each
person, if any, who controls the Company, within the meaning of the Act, from
and against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, shall include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys, fees) to which
the Company or any such director, nominee, officer or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue
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<PAGE> 18
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged untrue statement or omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company through you specifically for use in
preparation thereof. This indemnity agreement will be in addition to any
liability which you may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof,, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section . In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is any Underwriter
or a person who controls any Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party, and in your judgment, upon advice
of counsel, it is advisable for such Underwriter or controlling persons to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld.
7. Contribution.
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<PAGE> 19
In order to provide for just and equitable contribution under
the Act in any case in which (i) the indemnified party makes claims for
indemnification pursuant to Section 6 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of you,
then the Company and each person who controls the Company, in the aggregate, and
you shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that such Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Share appearing on the cover page of the Prospectus bears to the public offering
price per Share appearing thereon, and the Company shall be responsible for the
remaining portion, provided, however, that if such allocation is not permitted
by applicable law, then the relative fault of the Company and you and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or you, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriters
agree (a) that it would not be just and equitable if the respective obligations
of the Company and you to contribute pursuant to this Section 7 were to be
determined by pro rata or per capita allocation of the aggregate damages (even
if the Underwriters have to be treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Section 7 and (b) that
the contribution of any Underwriter shall not be in excess of its proportionate
share of the portion of such losses, claims, damages or liabilities for which
you are responsible. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. As used in
this paragraph, the word "Company" within the meaning of Section 15 of the Act.
Your obligations to contribute pursuant to this Section 7 are several in
proportion to their respective underwriting obligations and not joint. If the
full amount of the contribution specified in this paragraph is not permitted by
law, then you and each person who controls you shall be entitled to contribution
from the Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and you. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent.to the settlement; provided, however, that such
consent shall not be unreasonably withheld.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Shares to you is consummated, the Company will pay all costs and
expenses incident to the performance of
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<PAGE> 20
this Agreement by the Company, including but not limited to the fees and
expenses of counsel to the Company and of the Company's accountants; the costs
and expenses incident to the preparation, printing, filing and distribution
under the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), each Preliminary Prospectus
and the Prospectus, as amended or supplemented, the fee of the National
Association of Securities Dealers, Inc. ("NASD") in connection with the filing
required by the NASD relating to the offering of the Shares contemplated hereby;
all expenses, including reasonable fees (but not in excess of the amount set
forth in Section 3(b)) and disbursements of counsel to you, in connection with
the qualification of the Shares under the State Securities or Blue Sky Laws
which you shall designate; the cost of printing and furnishing to you copies of
the Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Warrant Agreement and the Blue Sky Memorandum; the cost of
printing the certificates representing the Shares, the expenses of Company due
diligence meetings and presentations, (but not of you or your counsel in
connection therewith) and the expense (which shall not exceed $10,000) of
placing one or more "tombstone" advertisements as directed by you. The Company
shall pay any and all taxes (including any transfer, franchise, capital stock or
other tax imposed by any jurisdiction) on sales to you hereunder. The Company
will also pay all costs and expenses incident to the furnishing of any amended
Prospectus or of any supplement to be attached to the Prospectus as called for
in Section 3(a) of this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall
at the First Closing Date pay to you the balance of a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds of the offering. In
the event the over-allotment option is exercised in part or in full, the Company
shall pay to you at the Option Closing Date an additional amount equal to three
percent (3%) of the gross proceeds received upon exercise of the overallotment
option. In the event the transactions contemplated hereby are not consummated
due to the Company's breach of this Agreement or any covenant, condition,
representation or warranty contained herein, the Company shall be liable for
your actual accountable out-of-pocket expenses, including legal fees, provided
however, that any portion previously paid by the Company that has not been
utilized by you in connection with the offering on an accountable basis shall be
refunded by you to the Company.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from any Underwriter or from any other person for
services as a finder in connection with the proposed offering, and the Company
agrees to indemnify and hold harmless you, and you agree to indemnify and hold
harmless, the Company from and against any losses, claims, damages or
liabilities, (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees), to which the indemnified party may become subject
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the claim of any person (other than an
employee of the party claiming indemnity) or entity that he or it is entitled to
a finder's fee in connection wit the proposed offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
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<PAGE> 21
9. Effective Date.
The Agreement shall become effective upon its execution,
except that you may, at your option, delay its effectiveness until the earlier
to occur of 10:00 A.M., New York time on the first full business day following
the Effective Date as you in your discretion shall first commence the initial
public offering by you of any of the Shares. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Shares, or the time when the Shares are first
generally offered by you to dealers by letter or telecopier, whichever shall
first occur. This Agreement may be terminated by you at any time before it
becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13,
14 and 15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13,
14 and 15, may be terminated at any time prior to the First Closing Date, and
the option referred to in Section 2(b), if exercised, may be cancelled, at any
time prior to the Option Closing Date, by you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by you for the
resale of the Shares agreed to be purchased hereunder, by reason of (i) the
Company having sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any labor dispute
or court or government action, order or decree, (ii) trading in securities on
the New York Stock Exchange or the American Stock Exchange having been suspended
or limited, (iii) material governmental restrictions having been imposed on
trading in securities generally which are not in force and effect on the date
hereof, (iv) a banking moratorium having been declared by federal of New York
State authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company, (vii) any material adverse change in the
financial or securities markets beyond normal fluctuations in the United States
having occurred since the date of this Agreement, or (viii) any material adverse
change having occurred, since the respective dates for which information is
given in the Registration Statement and Prospectus, in the earnings, business,
prospects or general condition of the Company, financial or otherwise, whether
or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10 or in
Section 9, the Company shall be promptly notified by you, by telephone or
facsimile transmission, confirmed by letter.
11. Underwriter's Warrant.
On the First Closing Date, the Company will issue to you, for
a consideration of $5.00 and upon the terms and conditions set forth in the form
of Underwriter's Warrant annexed as an exhibit to the Registration Statement, an
Underwriter's Warrant to purchase 130,000 Shares. In
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<PAGE> 22
the event of conflict in the terms of this Agreement and the Underwriter's
Warrant, the language of the Underwriter's Warrant shall control.
12. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and you, set forth in or made
pursuant to this Agreement will remain in full force and effect regardless of
any investigation made by or on behalf of you, the Company or any of its
officers or directors or any controlling persons and will survive delivery of
and payment for the Shares and the termination of this Agreement.
13. Notice.
All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed, delivered
or telecopied and confirmed to it at H.J. Meyers & Co., Inc., 1895 Mt. Hope
Avenue, Rochester, New York 14620-4596, with a copy sent to Thomas J. Poletti,
Esq. at Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard,
8th Floor East, Beverly Hills, California 90212-3480, or if sent to the Company,
will be mailed, delivered, or facsimiled and confirmed to Drew Levin, 12300
Wilshire Boulevard, Suite 400, Los Angeles, California 90025, with copy sent to
Bruce P. Vann, Esq., Kelley & Lytton, 1900 Avenue of the Stars, Suite 1450, Los
Angeles, California 90067.
14. Parties in Interest.
The Agreement herein set forth is made solely for your
benefit, the Company and, to the extent expressed, the Existing Shareholders,
any person controlling the Company, or you, and directors of the Company,
nominees for directors of the Company (if any) named in the Prospectus, the
officers of the Company who have signed the Registration Statement, and their
respective executors, administrators, successors and assigns, and no other
person shall acquire for have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include any purchaser, as such
purchaser, from you of the Shares.
15. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements made
and to be entirely performed within New York.
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<PAGE> 23
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Underwriting Agreement, whereupon it
will become a binding agreement between the Company and you in accordance with
its terms.
Very truly yours,
Team Communications Group, Inc.
Dated: __________, 1997 By:________________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
H.J. Meyers & Co., Inc.
Dated: _______, 1997 By:________________________________
Authorized Officer
<PAGE> 24
SCHEDULE I
Underwriting Agreement dated ________, 1997
Number of Firm
Shares
Underwriter to be Purchased
---------------
H.J. Meyers & Co., Inc. 1,300,000
24
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DSL ENTERTAINMENT GROUP, INC.
The undersigned certifies that:
1. He is the president and the secretary of DSL Entertainment
Group, Inc.
2. The Articles of Incorporation of this corporation are amended
and restated in their entirety to read as follows:
I
The name of this corporation is Team Communications Group, Inc.
II
The purpose of the corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of California, other than the banking business,
the trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
III
A. Capital Stock.
This corporation is authorized to issue two
classes of stock to be designated, respectively,
"Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized
to issue is 20,000,000 of which 18,000,000 shares
shall be Common Stock and 2,000,000 shares shall be
Preferred Stock. All Common and Preferred shares
shall have no par value.
B. Preferred Stock.
The Preferred Stock may be divided into such
number of series as the board of directors may
determine. The board of directors is authorized to
determine and alter the rights, preferences,
privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock,
and to fix the number of shares of any series of
Preferred Stock and the designation of any series of
Preferred Stock. The board of directors, within the
limits and restrictions stated in any resolution or
resolutions of the board of directors originally
fixing the number of shares constituting any series,
may increase or decrease (but not below the number of
shares of such series then outstanding) the number of
shares of any series subsequent to the issue of
shares of that series.
<PAGE> 2
C. Common Stock.
Upon the filing of these Amended and Restated
Articles of Incorporation, each outstanding share of
Common Stock is hereby converted into 0.439 share of
Common Stock. In lieu of the issuance of any
fractional shares that would otherwise result from
the reverse stock split effected by the preceding
sentence, the corporation shall pay any shareholder
that would otherwise receive a fractional share, cash
equal to the fair value of such fraction.
IV
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
V
The corporation is authorized to indemnify the directors and officers
of the corporation to the fullest extent permissible under California law.
3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the board of directors.
4. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders in
accordance with Section 902 of the California Corporations Code. The
total number of outstanding shares of the corporation is 2,672,525.
The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more
than 50%.
I further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of my own knowledge.
DSL ENTERTAINMENT GROUP, INC.
Date: January 21, 1997 By:__________________________________
Drew S. Levin, President
Date: January 21, 1997 By:__________________________________
Drew S. Levin, Secretary
- 2 -
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
DSL ENTERTAINMENT GROUP, INC.
A CALIFORNIA CORPORATION
Article I.
OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal
executive office of the corporation shall be located at such place as the Board
of Directors shall from time to time determine.
Section 2. OTHER OFFICES. Other offices may at any time
be established by the Board of Directors or the Chief Executive Officer at any
place or places where the corporation is qualified to do business.
Article II.
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of
Shareholders shall be held at the principal executive office of the corporation
or at any other place within or without the State of California which may be
designated either by the Board of Directors or by the Shareholders in
accordance with these Bylaws.
Section 2. ANNUAL MEETINGS. The annual meetings of
Shareholders shall be held on such date and time as shall be designated from
time to time by the Board of Directors or by the Shareholders in accordance
with these Bylaws. If the date set forth in these Bylaws falls upon a legal
holiday, then such annual meeting of Shareholders shall be held at the same
time and place on the next day thereafter ensuing which is not a legal holiday.
At such annual meetings, Directors shall be elected, and any other business may
be transacted which is within the powers of the Shareholders.
Section 3. SPECIAL MEETINGS. Special meetings of the
Shareholders, for the purpose of taking any action which is within the powers
of the Shareholders, may be called at any time by the Chairman of the Board or
the President or by the Board of Directors, or by the holders of shares
entitled to cast not less than ten percent of the votes at the meeting. Upon
request in writing that a special meeting of Shareholders be called for any
proper purpose, directed to the Chairman of the Board, President, Vice
President or Secretary by any person (other than the Board) entitled to call a
special meeting of Shareholders, the officer forthwith shall cause notice to be
given to the Shareholders entitled to vote that a meeting will be held at a
time requested by the person or persons calling the
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meeting, not less than thirty-five nor more than sixty days after receipt of
the request.
Section 4. NOTICE OF MEETINGS OF SHAREHOLDERS. Written
notice of each meeting of Shareholders, whether annual or special, shall be
given to each Shareholder entitled to vote thereat, either personally or by
mail or other means of written communication, charges prepaid, addressed to
such Shareholder at the address of such Shareholder appearing on the books of
the corporation or given by such Shareholder to the corporation for the purpose
of notice. If any notice addressed to the Shareholder at the address of such
Shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the Shareholder
at such address, all future notices shall be deemed to have been duly given
without further mailing if the same shall be available for the Shareholder upon
written demand of the Shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice
to all other Shareholders. If no address appears on the books of the
corporation or is given by the Shareholder to the corporation for the purpose
of notice, notice shall be deemed to have been given to such Shareholder if
sent by mail or other means of written communication addressed to the place
where the principal executive office of the corporation is located, or if
published at least once in a newspaper of general circulation in the county in
which the principal executive office is located.
All such notices shall be given to each Shareholder entitled
thereto not less than ten days nor more than sixty days before the meeting.
Any such notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any such notice in accordance with
the foregoing provisions, executed by the Secretary, Assistant Secretary or any
transfer agent of the corporation shall be prima facie evidence of the giving
of the notice.
All such notices shall state the place, date and hour of such
meeting. In the case of a special meeting such notice shall also state the
general nature of the business to be transacted at such meeting, and no other
business may be transacted thereat. In the case of an annual meeting, such
notice shall also state those matters which the Board of Directors at the time
of the mailing of the notice intends to present for action by the Shareholders.
Any proper matter may be presented at an annual meeting of Shareholders though
not stated in the notice, provided that unless the general nature of a proposal
to be approved by the Shareholders relating to the following matters is stated
in the notice or a written waiver of notice, any such Shareholder approval
will require unanimous approval of all Shareholders entitled to vote:
(a) A proposal to approve a contract or other transaction
between the corporation and one or more of its Directors or any corporation,
firm or association in which one or more of its Directors has a material
financial interest or is also a Director;
(b) A proposal to amend the Articles of Incorporation;
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<PAGE> 3
(c) A proposal to approve the principal terms of a
reorganization as defined in Section 181 of the General Corporation Law;
(d) A proposal to wind up and dissolve the corporation;
(e) If the corporation has preferred shares outstanding
and the corporation is in the process of winding up, a proposal to adopt a plan
of distribution of shares, obligations or securities of any other corporation
or assets other than money which is not in accordance with the liquidation
rights of the preferred shares.
The notice of any meeting at which Directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by management for election.
Section 5. QUORUM. The presence in person or by proxy
of the holders of a majority of the shares entitled to vote at any meeting
shall constitute a quorum for the transaction of business. The Shareholders
present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any
Shareholders' meeting, annual or special, whether or not a quorum is present,
may be adjourned from time to time by vote of a majority of the shares the
holders of which are either present in person or by proxy thereat, but in the
absence of a quorum, no other business may be transacted at any such meeting,
except as provided in Section 4 of this Article II.
When any Shareholders' meeting, either annual or special, is
adjourned for forty-five days or more, or if after the adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given to each Shareholder of record entitled to vote at the adjourned
meeting as in the case of an original meeting. Except as set forth in this
Section 6 of Article II, it shall not be necessary to give any notice of an
adjourned meeting or of the business to be transacted at an adjourned meeting,
other than by announcement of the time and place thereof at the meeting at
which such adjournment is taken.
Section 7. VOTING. At all meetings of Shareholders,
every Shareholder entitled to vote shall have the right to vote in person or by
proxy the number of shares standing in the name of such Shareholder on the
stock records of the corporation on the record date for such meeting. Shares
held by an administrator, executor, guardian, conservator, custodian, trustee,
receiver, pledgee, minor, corporation or fiduciary or held by this corporation
or a subsidiary of this corporation in a fiduciary capacity or by two or more
persons shall be voted in the manner set forth in Sections 702, 703, and 704
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<PAGE> 4
of the General Corporation Law. Shares of this corporation owned by this
corporation or a subsidiary (except shares held in a fiduciary capacity) shall
not be entitled to vote. Unless a record date for voting purposes is fixed
pursuant to Section 1 of Article V of these Bylaws, then only persons in whose
names shares entitled to vote stand on the stock records of the corporation at
the close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held, shall be
entitled to vote at such meeting, and such day shall be the record date for
such meeting. Votes at a meeting may be given by viva voce or by ballot;
provided, however, that all elections for Directors must be by ballot upon
demand made by a Shareholder at any election and before the voting begins. If
a quorum is present at the beginning of the meeting, except with respect to the
election of Directors (and subject to the provisions of Section 5 of this
Article II should Shareholders withdraw thereafter) the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on any
matter shall be the act of the Shareholders and shall decide any question
properly brought before the meeting, unless the vote of a greater number or
voting by classes is required by the General Corporation Law or the Articles of
Incorporation, in which case the vote so required shall govern and control the
decision of such question. Subject to the provisions of the next sentence, at
all elections of Directors of the corporation, each Shareholder shall be
entitled to cumulate his votes and give one candidate a number of votes equal
to the number of Directors to be elected multiplied by the number of votes to
which his shares are entitled, or to distribute his votes on the same principle
among as many candidates as he shall think fit. No Shareholder shall be
entitled to cumulate his votes unless the name of the candidate or candidates
for whom such votes would be cast has been placed in nomination prior to the
voting and any Shareholder has given notice at the meeting prior to the voting,
of such Shareholder's intention to cumulate his votes. The candidates
receiving the highest number of votes up to the number of Directors to be
elected shall be elected. Notwithstanding the foregoing, if the corporation
becomes a "listed corporation" within the meaning of Section 301.5 of the
California Corporations Code, cumulative voting shall be eliminated.
Section 8. WAIVER OF NOTICE AND CONSENT OF ABSENTEES.
The proceedings and transactions of any meeting of Shareholders, either annual
or special, however called and noticed and wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of such
meeting, or an approval of the minutes thereof. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by law or these Bylaws to be included in the
notice but which was not so included, if such objection is expressly made at
the meeting, provided however, that any person making such objection at the
beginning of the meeting or to the consideration of matters required to be but
not included in the notice may orally withdraw such objection at the meeting or
thereafter waive such objection by signing a written waiver thereof or a
consent to the holding of the meeting or the
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<PAGE> 5
consideration of the matter or an approval of the minutes of the meeting.
Neither the business to be transacted at nor the purpose of any annual or
special meeting of Shareholders need be specified in any written waiver of
notice except that the general nature of the proposals specified in subsections
(a) through (e) of Section 4 of this Article II, shall be so stated. All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 9. ACTION WITHOUT A MEETING. Directors may be
elected without a meeting by a consent in writing, setting forth the action so
taken, signed by all of the persons who would be entitled to vote for the
election of Directors, provided that, without notice except as hereinafter set
forth, a Director may be elected at any time to fill a vacancy not filled by
the Directors by the written consent of persons holding a majority of the
outstanding shares entitled to vote for the election of Directors.
Any other action which, under any provision of the General
Corporation Law may be taken at any annual or special meeting of the
Shareholders, may be taken without a meeting, and without notice except as
hereinafter set forth, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Unless the consents of all Shareholders entitled to vote have been
solicited in writing,
(a) Notice of any proposed Shareholder approval of, (i) a
contract or other transaction between the corporation and one or more of its
Directors or any corporation, firm or association in which one or more of its
Directors has a material financial interest or is also a Director, (ii)
indemnification of an agent of the corporation as authorized by Section 16, of
Article III, of these Bylaws, (iii) a reorganization of the corporation as
defined in Section 181 of the General Corporation Law, or (iv) the distribution
of shares, obligations or securities of any other corporation or assets other
than money which is not in accordance with the liquidation rights of preferred
shares if the corporation is in the process of winding up, without a meeting by
less than unanimous written consent, shall be given at least ten days before
the consummation of the action authorized by such approval; and
(b) Prompt notice shall be given of the taking of any
other corporate action approved by Shareholders without a meeting by less than
unanimous written consent, to those Shareholders entitled to vote who have not
consented in writing. Such notices shall be given in the manner and shall be
deemed to have been given as provided in Section 4 of Article II of these
Bylaws.
Unless, as provided in Section 1 of Article V of these Bylaws,
the Board of Directors has fixed a record date for the determination of
Shareholders entitled to notice of and to give such written consent, the record
date for such determination shall be the day on which the first written consent
is given. All such written consents shall be filed with the Secretary of the
corporation.
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<PAGE> 6
Any Shareholder giving a written consent, or the Shareholder's
proxy holders, or a transferee of the shares or a personal representative of
the Shareholder or their respective proxy holders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
Section 10. PROXIES. Every person entitled to vote or
execute consents shall have the right to do so either in person or by an agent
or agents authorized by a written proxy executed by such person or the duly
authorized agent of such person and filed with the Secretary of the
corporation, or the persons appointed as inspectors of election or such other
person as may be designated by the Board of Directors or the Chief Executive
Officer to receive proxies; provided, that no such proxy shall be valid after
the expiration of eleven months from the date of its execution, unless the
Shareholder executing it specifies therein the length of time for which such
proxy is to continue in force. Every proxy duly executed continues in full
force and effect until revoked by the person executing it prior to the vote
pursuant thereto. Except as otherwise provided by law, such revocation may be
effected by attendance at the meeting and voting in person by the person
executing the proxy or by a writing stating that the proxy is revoked or by a
proxy bearing a later date executed by the person executing the proxy and filed
with the Secretary of the corporation or the persons appointed as inspectors of
election or such other persons as may be designated by the Board of Directors
or the Chief Executive Officer to receive proxies.
Section 11. INSPECTORS OF ELECTION. In advance of any
meeting of Shareholders, the Board of Directors may appoint any persons as
inspectors of election to act at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, or if any persons so appointed
fail to appear or refuse to act, the Chairman of any such meeting may, and on
the request of any Shareholder or his proxy shall, make such appointment at the
meeting. The number of inspectors shall be either one or three. If appointed
at a meeting on the request of one or more Shareholders or proxies, the
majority of shares represented in person or by proxy shall determine whether
one or three inspectors are to be appointed.
The inspectors of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count
and tabulate all votes or consents, determine when the polls shall close,
determine the result and do such acts as may be proper to conduct the election
or vote with fairness to all Shareholders. In the determination of the
validity and effect of proxies the dates contained on the forms of proxy shall
presumptively determine the order of execution of the proxies, regardless of
the postmark dates on the envelopes in which they are mailed.
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The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously
as is practical. If there are three inspectors of election, the decision, act
or certificate of a majority is effective in all respects as the decision, act
or certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
Article III.
DIRECTORS
Section 1. POWERS. Subject to the General Corporation
Law and any limitations in the Articles of Incorporation relating to action
requiring Shareholder approval, and subject to the duties of Directors as
prescribed by the Bylaws, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the Board of Directors.
Section 2. NUMBER AND QUALIFICATIONS OF DIRECTORS. The
authorized number of Directors shall be not less than three nor more than five,
the exact number to be determined from time to time by the Board of Directors.
After the issuance of shares, this indefinite number may be changed only by an
amendment to the Articles of Incorporation or the Bylaws approved by the
affirmative vote or written consent of a majority of the outstanding shares
entitled to vote. If the number of Directors is or becomes five or more, an
amendment of the Articles of Incorporation or the Bylaws reducing the
authorized number of Directors to less than five cannot be adopted if the votes
cast against its adoption at a meeting or the shares not consenting in the case
of action by written consent are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote. Directors need not be residents of the
State of California nor Shareholders of the corporation.
Section 3. ELECTION AND TERM OF OFFICE. The Directors
shall be elected at each annual meeting of Shareholders, but if any such annual
meeting is not held or the Directors are not elected at any annual meeting, the
Directors may be elected at any special meeting of Shareholders held for that
purpose, or at the next annual meeting of Shareholders held thereafter. Each
Director shall hold office at the pleasure of the Shareholders until the next
annual meeting of Shareholders and until his successor has been elected and
qualified or until his earlier resignation or removal or his office has been
declared vacant in the manner provided in these Bylaws.
Section 4. RESIGNATION AND REMOVAL OF DIRECTORS. Any
Director may resign effective upon giving written notice to the Chairman of the
Board, the President, the Secretary or the Board of Directors of the
corporation, unless the notice specifies a later time for the effectiveness of
such resignation, in which case such resignation shall be effective at the time
specified. Unless such resignation specifies otherwise, its acceptance by the
corporation shall not be necessary to
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make it effective. The Board of Directors may declare vacant the office of a
Director who has been declared of unsound mind by an order of court or
convicted of a felony. Any or all of the Directors may be removed without
cause if such removal is approved by the affirmative vote of a majority of the
outstanding shares entitled to vote provided that no Director may be removed
(unless the entire Board is removed) when the votes cast against removal (or,
if such action is taken by written consent, the shares held by persons not
consenting in writing to such removal) would be sufficient to elect such
Director if voted cumulatively at an election at which the same total number of
votes were cast (or, if such action is taken by written consent, all shares
entitled to vote were voted) and the entire number of Directors authorized at
the time of the Director's most recent election were then being elected. No
reduction of the authorized number of Directors shall have the effect of
removing any Director before his term of office expires.
Section 5. VACANCIES. Vacancies on the Board of
Directors (except vacancies created by the removal of a Director) may be filled
by a majority of the Directors then in office, whether or not less than a
quorum, or by a sole remaining Director, and each Director elected in this
manner shall hold office until the next annual meeting of Shareholders and
until a successor has been elected and qualified or until his earlier
resignation or removal or his office has been declared vacant in the manner
provided in these Bylaws. A vacancy or vacancies on the Board of Directors
shall exist on the death, resignation or removal of any Director, or if the
Board declares vacant the office of a Director if he is declared of unsound
mind by an order of court or is convicted of a felony, or if the authorized
number of Directors is increased, or if the Shareholders fail to elect the full
authorized number of Directors to be voted for at any Shareholders meeting at
which an election of Directors is held. The Shareholders may elect a Director
at any time to fill any vacancy not filled by the Directors or which occurs by
reason of the removal of a Director. Any such election by written consent of
Shareholders shall require the consent of a majority of the outstanding shares
entitled to vote, except that any such election by written consent of
Shareholders to fill any vacancy which occurs by reason of the removal of a
Director shall require the unanimous consent of the outstanding shares entitled
to vote. If the resignation of a Director states that it is to be effective at
a future time, a successor may be elected to take office when the resignation
becomes effective.
Section 6. PLACE OF MEETINGS. Regular and special
meetings of the Board of Directors shall be held at any place within or without
the State of California which has been designated in the notice or written
waiver of notice of the meeting, or, if not stated in the notice or waiver of
notice or there is no notice, designated by resolution of the Board of
Directors or, either before or after the meeting, consented to in writing by
all members of the Board who were not present at the meeting. If the place of
a regular or special meeting is not designated in the notice or waiver of
notice or fixed by a resolution of the Board or consented to in writing by all
members of the Board not present at the meeting, it shall be held at the
corporation's principal executive office.
Section 7. REGULAR MEETINGS. Immediately following each
annual Shareholders' meeting, the Board of Directors shall hold a regular
meeting to elect officers and transact
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other business. Such meeting shall be held at the same place as the annual
meeting or such other place as shall be fixed by the Board of Directors. Other
regular meetings of the Board of Directors shall be held at such times and
places as are fixed by the Board. Call and notice of regular meetings of the
Board of Directors shall not be required and is hereby dispensed with.
Section 8. SPECIAL MEETINGS. Special meetings of the
Board of Directors for any purpose or purposes may be called at any time by the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary or any two Directors. Notice of the time and place of
special meetings shall be delivered personally or by telephone (including a
voice messaging system or other system or technology designed to record and
communicate messages), telegraph, facsimile, electronic mail or other
electronic means, or sent to the Director by mail. In case notice is given by
mail or telegram, it shall be sent, charges prepaid, addressed to the Director
at his address appearing on the corporate records, or if it is not on these
records or is not readily ascertainable, at the place where the meetings of the
Directors are regularly held. If notice is given by mail, it shall be deposited
in the United States mail at least four (4) days before the meeting. If notice
is given by telegraph, facsimile, electronic mail or other electronic means, it
shall be personally delivered to the recipient, or delivered to a common
carrier for transmission to the recipient, or actually transmitted by the
person giving the notice by electronic means to the recipient, at least 48
hours before the meeting. If notice is given in person or by telephone
(including a voice messaging system or other system or technology designed to
record and communicate messages), it shall be given to the recipient (including
the recipient s designated voice mailbox or address on such a system), or to a
person at the office of the recipient who the person giving notice has reason
to believe will promptly communicate it to the recipient, at least 48 hours
before the meeting. Such forms of communication, as provided in this Section,
shall be due, legal and personal notice to such Director.
Section 9. QUORUM. A majority of the authorized number
of Directors shall constitute a quorum of the Board for the transaction of
business, except to adjourn a meeting under Section 11. Every act or decision
done or made by a majority of the Directors present at a meeting duly held at
which a quorum is present is the act of the Board of Directors, unless the vote
of a greater number or the same number after disqualifying one or more
Directors from voting, is required by law, the Articles of Incorporation or
these Bylaws. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of Directors, provided that
any action taken is approved by at least a majority of the required quorum for
such meeting.
Section 10. WAIVER OF NOTICE OR CONSENT. The
transactions of any meeting of the Board of Directors, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present and if, either
before or after the meeting, each of the Directors not present or who, though
present, has prior to the meeting or at its commencement, protested the lack of
proper notice to him, signs a written waiver of notice, or a consent to holding
the meeting, or an approval of the minutes of the meeting. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes
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of the meeting. A notice or waiver of notice need not specify the purpose of
any regular or special meeting of the Board of Directors. Notice of a meeting
need not be given to any Director who signs a waiver of notice, whether before
or after the meeting, or who attends the meeting without protesting, prior to
or at its commencement, the lack of notice to such Director.
Section 11. ADJOURNMENT. A majority of the Directors
present, whether or not a quorum is present, may adjourn any meeting to another
time and place. If the meeting is adjourned for more than 24 hours, notice of
the adjournment to another time or place shall be given prior to the time of
the adjourned meeting to the Directors who were not present at the time of the
adjournment.
Section 12. MEETINGS BY CONFERENCE TELEPHONE, ELECTRONIC
VIDEO SCREEN EQUIPMENT, ETC. Members of the Board of Directors may participate
in a meeting through use of conference telephone, electronic video screen
communication or other communications equipment, so long as : (a) each member
participating in the meeting can communicate with all of the other members
concurrently; (b) each member is provided with the means of participating in
all matters before the Board of Directors, including the capacity to propose,
or to interpose an objection, to a specific action to be taken by the
corporation; and (c) the corporation adopts and implements some means of
verifying both of the following: (1) that a person communicating by telephone,
electronic video screen or other communication equipment is a Director entitled
to participate in such meeting and (2) that all statements, questions, actions
or votes were made by that Director and not by another person not permitted to
participate as a Director. Participation by Directors in a meeting in the
manner provided in this Section constitutes presence in person at such
meeting.
Section 13. ACTION WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors may be taken
without a meeting, if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board. Such
action by written consent shall have the same force and effect as a unanimous
vote of such Directors.
Section 14. FEES AND COMPENSATION. Directors and members
of committees shall receive neither compensation for their services as
Directors or members of committees or reimbursement for their expenses incurred
as Directors or members of committees unless these payments are fixed by
resolution of the Board. Directors and members of committees may receive
compensation and reimbursement for their expenses incurred as officers, agents
or employees of or for other services performed for the corporation as approved
by the Chief Executive Officer without authorization, approval or ratification
by the Board.
Section 15. COMMITTEES. The Board of Directors may, at
its discretion, by resolution adopted by a majority of the authorized number of
Directors, designate one or more committees, each of which shall be composed of
two or more Directors, to serve at the pleasure of the
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Board. The Board may designate one or more Directors as alternate members of
any committee, who may replace any absent member at any meeting of the
committee. The Board may delegate to any such committee, to the extent
provided in such resolution, any of the Board's powers and authority in the
management of the corporation's business and affairs, except with respect to:
(a) the approval of any action for which the General
Corporation Law or the Articles of Incorporation also requires approval by the
Shareholders;
(b) the filling of vacancies on the Board of Directors or
any committee;
(c) the fixing of compensation of Directors for serving
on the Board or on any committee;
(d) the amendment or repeal of Bylaws or the adoption of
new Bylaws;
(e) the amendment or repeal of any resolution of the
Board which by its express terms is not so amendable or repealable;
(f) a distribution to the Shareholders of the
corporation, except at a rate or in a periodic amount or within a price range
determined by the Board; and
(g) the appointment of other committees of the Board or
the members thereof.
The Board may prescribe appropriate rules, not inconsistent
with these Bylaws, by which proceedings of any such committee shall be
conducted. The provisions of these Bylaws relating to the calling of meetings
of the Board, notice of meetings of the Board and waiver of such notice,
adjournments of meetings of the Board, written consents to Board meetings and
approval of minutes, action by the Board by consent in writing without a
meeting, the place of holding such meetings, meetings by conference telephone
or similar communications equipment, the quorum for such meetings, the vote
required at such meetings and the withdrawal of Directors after commencement of
a meeting shall apply to committees of the Board and action by such committees.
In addition, any member of the committee designated by the Board as the
Chairman or as Secretary of the committee or any two members of a committee may
call meetings of the committee. Regular meetings of any committee may be held
without notice if the time and place of such meetings are fixed by the Board of
Directors or the committee.
Section 16. INDEMNIFICATION OF CORPORATE AGENTS.
(a) For the purposes of this section, "agent" means any
person who is or was a Director, officer, employee or other agent of this
corporation, or is or was serving at the request of this corporation as a
Director, officer, employee or agent of another foreign or domestic
corporation,
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partnership, joint venture, trust or other enterprise, or was a Director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of this corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under subdivision (d) or paragraph (3) of subdivision (e).
(b) This corporation shall have the power to indemnify
any person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this corporation to
procure a judgment in its favor) by reason of the fact that such person is or
was an agent of this corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of this corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of such person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to
be in the best interests of this corporation or that the person had reasonable
cause to believe that the person's conduct was unlawful.
(c) This corporation shall have the power to indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of this corporation
to procure a judgment in its favor by reason of the fact that such person is or
was an agent of this corporation, against expenses actually and reasonably
incurred by such person in connection with the defense or settlement of such
action if such person acted in good faith, in a manner such person believed to
be in the best interests of this corporation and its Shareholders.
No indemnification shall be made under this subdivision for
any of the following:
(1) In respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to this corporation
in the performance of such person's duty to this corporation and its
Shareholders, unless and only to the extent that the court in which such
proceeding is or was pending shall determine upon application that, in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for the expenses and then only to the extent that the
court shall determine.
(2) Of amounts paid in settling or otherwise
disposing of a pending action without court approval.
(3) Of expenses incurred in defending a pending
action which is settled or otherwise disposed of without court approval.
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(d) To the extent that an agent of this corporation has
been successful on the merits in defense of any proceeding referred to in
subdivision (b) or (c) or in defense of any claim, issue or matter therein, the
agent shall be indemnified against expenses actually and reasonably incurred by
the agent in connection therewith.
(e) Except as provided in subdivision (d), any
indemnification under this Section shall be made by this corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in subdivision (b) or (c), by any of
the following:
(1) A majority vote of a quorum consisting of
Directors who are not parties to such proceeding.
(2) If such a quorum of Directors is not
obtainable, by independent legal counsel in a written opinion.
(3) Approval of the Shareholders (Section 153 of
the California Corporations Code) with the shares owned by the person to be
indemnified not being entitled to vote thereon.
(4) The court in which such proceeding is or was
pending upon application made by this corporation or the agent or the attorney
or other person rendering services in connection with the defense, whether or
not such application by the agent, attorney or other person is opposed by this
corporation.
(f) Expenses incurred in defending any proceeding may be
advanced by this corporation prior to the final disposition of such proceeding
upon receipt of an undertaking by or on behalf of the agent to repay such
amount if it shall be determined ultimately that the agent is not entitled to
be indemnified as authorized in this Section. The provisions of subdivision
(a) of Section 315 of the General Corporation Law do not apply to advances made
pursuant to this subdivision.
(g) The indemnification provided by this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of
Shareholders or disinterested Directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, to the extent that such additional rights to indemnification are
authorized in the articles of this corporation. The rights to indemnity
hereunder shall continue as to a person who has ceased to be a Director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of the person. Nothing contained in this Section
shall affect any right to indemnification to which persons other than such
Directors and officers of this corporation may be entitled by contract or
otherwise.
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(h) No indemnification or advance shall be made under
this Section, except as provided in subdivision (d) or paragraph (3) of
subdivision (e), in any circumstance where it appears:
(1) That it would be inconsistent with a
provision of the articles, Bylaws, a resolution of the Shareholders or an
agreement in effect at the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or other amounts
were paid, which prohibits or otherwise limits indemnification.
(2) That it would be inconsistent with any
condition expressly imposed by a court in approving a settlement.
(i) This corporation shall have the power to purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such whether or not this corporation would have
the power to indemnify the agent against such liability under the provisions of
this section. The fact that a corporation owns all or a portion of the shares
of the company issuing a policy of insurance shall not render this subdivision
inapplicable if either of the following conditions are satisfied: (1) if
authorized in the articles of the corporation, any policy issued is limited to
the extent provided by subdivision (d) of Section 204 of the California
Corporations Code; or (2) (A) the company issuing the insurance policy is
organized, licensed, and operated in a manner that complies with the insurance
laws and regulations applicable to its jurisdiction of organization, (B) the
company issuing the policy provides procedures for processing claims that do
not permit that company to be subject to the direct control of the corporation
that purchased that policy, and (C) the policy issued provides for some manner
of risk sharing between the issuer and purchaser of the policy, on one hand,
and some unaffiliated person or persons, on the other, such as by providing for
more than one unaffiliated owner of the company issuing the policy or by
providing that a portion of the coverage furnished will be obtained from some
unaffiliated insurer or reinsurer.
Section 17. APPROVAL OF LOANS TO OFFICERS. The
corporation may, upon the approval of the board of directors alone, make loans
of money or property to, or guarantee the obligations of, any officer of the
corporation or its parent or subsidiary, whether or not a director, or adopt an
employee benefit plan or plans authorizing such loans or guaranties provided
that (i) the board of directors determines that such a loan or guaranty or plan
may reasonably be expected to benefit the corporation, (ii) the corporation has
outstanding shares held of record by 100 or more persons (determined as
provided in Section 605 of the California Corporations Code) on the date of
approval by the board of directors, and (iii) the approval of the board of
directors is by a vote sufficient without counting the vote of any interested
director or directors.
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Article IV.
OFFICERS
Section 1. OFFICERS. The officers of the corporation
shall be a Chairman of the Board or a President, or both, a Secretary and a
Chief Financial Officer. The corporation may also have, at the discretion of
the Board of Directors, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article IV.
Any two or more offices may be held by the same person.
Section 2. ELECTIONS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV, shall be chosen annually by the
Board of Directors, and each such officer shall serve at the pleasure of the
Board of Directors until the regular meeting of the Board of Directors
following the annual meeting of Shareholders and until his successor is elected
and qualified or until his earlier resignation or removal.
Section 3. OTHER OFFICERS. The Board of Directors may
appoint, and may empower the Chairman of the Board or the President or both of
them to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority
and perform such duties as are provided in the Bylaws or as the Board of
Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be
removed with or without cause either by the Board of Directors or, except for
an officer chosen by the Board, by any officer upon whom the power of removal
may be conferred by the Board (subject, in each case, to the rights, if any, of
an officer under any contract of employment). Any officer may resign at any
time upon written notice to the corporation (without prejudice however, to the
rights, if any, of the corporation under any contract to which the officer is a
party). Any such resignation shall take effect upon receipt of such notice or
at any later time specified therein. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective. Unless a resignation specifies otherwise, its acceptance by
the corporation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because
of death, resignation, removal, disqualification or any other cause shall be
filled in a manner prescribed in the Bylaws for regular appointments to the
office.
Section 6. CHAIRMAN OF THE BOARD. The Board of
Directors may, in its discretion, elect a Chairman of the Board, who, unless
otherwise determined by the Board of Directors, shall preside at all meetings
of the Board of Directors at which he is present and shall exercise and
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perform any other powers and duties assigned to him by the Board or prescribed
by the Bylaws. If the office of President is vacant, the Chairman of the Board
shall be the general manager and Chief Executive Officer of the corporation and
shall exercise the duties of the President as set forth in Section 7.
Section 7. PRESIDENT. Subject to any supervisory
powers, if any, that may be given by the Board of Directors or the Bylaws to
the Chairman of the Board, if there be such an officer, the President shall be
the corporation's general manager and Chief Executive Officer and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business, affairs and officers of the corporation.
Unless otherwise determined by the Board of Directors, he shall preside as
Chairman at all meetings of the Shareholders, and in the absence of the
Chairman of the Board, or if there be none, at all meetings of the Board of
Directors. He shall have the general powers and duties of management usually
vested in the office of President of a corporation; shall have any other powers
and duties that are prescribed by the Board of Directors or the Bylaws; and
shall be primarily responsible for carrying out all orders and resolutions of
the Board of Directors.
Section 8. VICE PRESIDENTS. In the absence or
disability of the Chief Executive Officer, the Vice Presidents in order of
their rank as fixed by the Board of Directors, or if not ranked, the Vice
President designated by the Board of Directors, shall perform all the duties of
the Chief Executive Officer, and when so acting, shall have all the powers of,
and be subject to all the restrictions on, the Chief Executive Officer. Each
Vice President shall have any of the powers and perform any other duties that
from time to time may be prescribed for him by the Board of Directors or the
Bylaws or the Chief Executive Officer.
Section 9. SECRETARY. The Secretary shall keep or cause
to be kept a book of minutes of all meetings and actions by written consent of
all Directors, Shareholders and committees of the Board of Directors. The
minutes of each meeting shall state the time and place that it was held and
such other information as shall be necessary to determine whether the meeting
was held in accordance with law and these Bylaws and the actions taken thereat.
The Secretary shall keep or cause to be kept at the corporation's principal
executive office, or at the office of its transfer agent or registrar, a record
of the Shareholders of the corporation, giving the names and addresses of all
Shareholders and the number and class of shares held by each. The Secretary
shall give, or cause to be given, notice of all meetings of Shareholders,
Directors and committees required to be given under these Bylaws or by law,
shall keep or cause the keeping of the corporate seal in safe custody and shall
have any other powers and perform any other duties that are prescribed by the
Board of Directors or the Bylaws or the Chief Executive Officer. If the
Secretary refuses or fails to give notice of any meeting lawfully called, any
other officer of the corporation may give notice of such meeting. The
Assistant Secretary, or if there be more than one, any Assistant Secretary, may
perform any or all of the duties and exercise any or all of the powers of the
Secretary unless prohibited from doing so by the Board of Directors, the Chief
Executive Officer or the Secretary, and shall have such other powers and
perform any other duties as are prescribed for him by the Board of Directors or
the Chief Executive Officer.
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Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account. The Chief Financial Officer shall
cause all money and other valuables in the name and to the credit of the
corporation to be deposited at the depositories designated by the Board of
Directors or any person authorized by the Board of Directors to designate such
depositories. He shall render to the Chief Executive Officer and Board of
Directors, when either of them request it, an account of all his transactions
as Chief Financial Officer and of the financial condition of the corporation;
and shall have any other powers and perform any other duties that are
prescribed by the Board of Directors or the Bylaws or the Chief Executive
Officer. The Assistant Treasurer, or if there be more than one, any Assistant
Treasurer, may perform any or all of the duties and exercise any or all of the
powers of the Chief Financial Officer unless prohibited from doing so by the
Board of Directors, the Chief Executive Officer or the Chief Financial Officer,
and shall have such other powers and perform any other duties as are prescribed
for him by the Board of Directors, the Chief Executive Officer or the Chief
Financial Officer.
Article V.
MISCELLANEOUS
Section 1. RECORD DATE. The Board of Directors may fix
a time in the future as a record date for the determination of the Shareholders
entitled to notice of and to vote at any meeting of Shareholders or entitled to
give consent to corporate action in writing without a meeting, to receive any
report, to receive payment of any dividend or other distribution, or allotment
of any rights, or to exercise rights in respect to any change, conversion, or
exchange of shares or any other lawful action. The record date so fixed shall
be not more than sixty days nor less than ten days prior to the date of such
meeting, nor more than sixty days prior to any other action for the purposes of
which it is fixed. When a record date is so fixed, only Shareholders of record
on that date are entitled to notice of and to vote at any such meeting, to give
consent without a meeting, to receive any report, to receive a dividend,
distribution, or allotment of rights, or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Articles
of Incorporation or Bylaws.
Section 2. INSPECTION OF CORPORATE RECORDS. The books
of account, record of Shareholders, and minutes of proceedings of the
Shareholders and the Board and committees of the Board of this corporation
shall be open to inspection upon the written demand on the corporation of any
Shareholder or holder of a voting trust certificate at any time during usual
business hours, for a purpose reasonably related to such holder's interests as
a Shareholder or as the holder of such voting trust certificate. Such
inspection by a Shareholder or holder of a voting trust certificate may be made
in person or by agent or attorney, and the right of inspection includes the
right to copy and make
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extracts.
A Shareholder or Shareholders holding at least five percent in
the aggregate of the outstanding voting shares of the corporation or who hold
at least one percent of such voting shares and have filed a Schedule 14A with
the United States Securities and Exchange Commission relating to the election
of Directors of the corporation shall have (in person or by agent or attorney)
the absolute right to inspect and copy the record of Shareholders' names and
addresses and share holdings during usual business hours upon five business
days' prior written demand upon the corporation and to obtain from the transfer
agent for the corporation, upon written demand and upon the tender of its usual
charges, a list of the Shareholders' names and addresses, who are entitled to
vote for the election of Directors, and their share holdings, as of the most
recent record date for which it has been compiled or as of a date specified by
the Shareholder subsequent to the date of demand. The list shall be made
available on or before the later of five business days after the demand is
received or the date specified therein as the date as of which the list is to
be compiled.
Every Director shall have the absolute right at any reasonable
time to inspect and copy all books, records and documents of every kind and to
inspect the physical properties of this corporation and any subsidiary of this
corporation. Such inspection by a Director may be made in person or by agent
or attorney and the right of inspection includes the right to copy and make
extracts.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or
endorsed by such person or persons and in such manner as, from time to time,
shall be determined by resolution of the Board of Directors. The Board of
Directors may authorize one or more officers of the corporation to designate
the person or persons authorized to sign such documents and the manner in which
such documents shall be signed.
Section 4. ANNUAL AND OTHER REPORTS. The board of
directors shall cause an annual report to be sent to the shareholders not later
than one hundred twenty (120) days after the close of the fiscal year adopted
by the corporation. Such report shall be sent at least fifteen (15) days (or,
if sent by third-class mail, thirty-five (35) days)before the annual meeting of
shareholders to be held during the next fiscal year. The annual report shall
contain (i) a balance sheet as of the end of the fiscal year, (ii) an income
statement, (iii) a statement of changes in financial position for the fiscal
year, and (iv) any report of independent accountants or, if there is no such
report, the certificate of an authorized officer of the corporation that the
statements were prepared without audit from the books and records of the
corporation. The foregoing requirement of an annual report shall be waived so
long as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
A Shareholder or Shareholders holding at least five percent of
the outstanding shares of any class of the corporation may make a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the current fiscal year ended
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more than thirty days prior to the date of the request and a balance sheet of
the corporation as of the end of such period. In addition, if no annual report
for the last fiscal year has been sent to Shareholders, a Shareholder or
Shareholders holding at least five percent of the outstanding shares of any
class of the corporation may make a written request to the corporation for an
annual report for the last fiscal year, which annual report shall contain a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accountants or, if there is no such report,
the certificate of an authorized officer of the corporation that such
statements were prepared without audit from the books and records of the
corporation. The statements shall be delivered or mailed to the person making
the request within thirty days thereafter. A copy of such statements shall be
kept on file in the principal executive office of the corporation for twelve
months and they shall be exhibited at all reasonable times to any Shareholder
demanding an examination of them or a copy shall be mailed to such Shareholder.
The corporation shall, upon the written request of any
Shareholder, mail to the Shareholder a copy of the last annual, semiannual or
quarterly income statement which it has prepared and a balance sheet as of the
end of the period.
The quarterly income statements and balance sheets referred to
in this Section shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation or the certificate of an
authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
Unless otherwise determined by the Board of Directors or the
Chief Executive Officer, the Chief Financial Officer and any Assistant
Treasurer are each authorized officers of the corporation to execute the
certificate that the annual report and quarterly income statements and balance
sheets referred to in this section were prepared without audit from the books
and records of the corporation.
Any report sent to the Shareholders shall be given personally
or by mail or other means of written communication, charges prepaid, addressed
to such Shareholder at the address of such Shareholder appearing on the books
of the corporation or given by such Shareholder to the corporation for the
purpose of notice or set forth in the written request of the Shareholder as
provided in this Section. If any report addressed to the Shareholder at the
address of such Shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver the report
to the Shareholder at such address, all future reports shall be deemed to have
been duly given without further mailing if the same shall be available for the
Shareholder upon written demand of the Shareholder at the principal executive
office of the corporation for a period of one year from the date of the giving
of the report to all other Shareholders. If no address appears on the books of
the corporation or is given by the Shareholder to the corporation for the
purpose of notice or is set forth in the written request of the Shareholder as
provided in this Section, such report shall be deemed to have been given to
such
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<PAGE> 20
Shareholder if sent by mail or other means of written communication addressed
to the place where the principal executive office of the corporation is
located, or if published at least once in a newspaper of general circulation in
the county in which the principal executive office is located. Any such report
shall be deemed to have been given at the time when delivered personally or
deposited in the mail or sent by other means of written communication. An
affidavit of mailing of any such report in accordance with the foregoing
provisions, executed by the Secretary, Assistant Secretary or any transfer
agent of the corporation shall be prima facie evidence of the giving of the
report.
Section 5. CONTRACTS, ETC., HOW EXECUTED. The Board of
Directors, except as the Bylaws or Articles of Incorporation otherwise provide,
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 6. CERTIFICATE FOR SHARES. Every holder of
shares in the corporation shall be entitled to have a certificate or
certificates signed in the name of the corporation by the Chairman of the Board
or the President or a Vice President and by the Chief Financial Officer or an
Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the Shareholder.
Any or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
Any such certificate shall also contain such legend or other
statement as may be required by Section 418 of the General Corporation Law, the
Corporate Securities Law of 1968, and any agreement between the corporation and
the issuee thereof, and may contain such legend or other statement as may be
required by any other applicable law or regulation or agreement.
Certificates for shares may be issued prior to full payment
thereof, under such restrictions and for such purposes, as the Board of
Directors or the Bylaws may provide; provided, however, that any such
certificates so issued prior to full payment shall state the total amount of
the consideration to be paid therefor and the amount paid thereon.
No new certificate for shares shall be issued in place of any
certificate theretofore issued unless the latter is surrendered and canceled at
the same time; provided, however, that a new certificate may be issued without
the surrender and cancellation of the old certificate if the certificate
theretofore issued is alleged to have been lost, stolen or destroyed. In case
of any such allegedly lost, stolen or destroyed certificate, the corporation
may require the owner thereof or the legal representative of such owner to give
the corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
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<PAGE> 21
Section 7. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS. Unless the Board of Directors shall otherwise determine, the
Chairman of the Board, the President, any Vice President, the Secretary and any
Assistant Secretary of this corporation are each authorized to vote, represent
and exercise on behalf of this corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of this
corporation. The authority herein granted to such officers to vote or
represent on behalf of this corporation any and all shares held by this
corporation in any other corporation or corporations may be exercised either by
such officers in person or by any person authorized so to do by proxy or power
of attorney or other document duly executed by any such officer.
Section 8. INSPECTION OF BYLAWS. The corporation shall
keep in its principal executive office in California, or if its principal
executive office is not in California, at its principal business office in
California, the original or a copy of the Bylaws as amended to date, which
shall be open to inspection by the Shareholders at all reasonable times during
office hours. If the corporation has no office in California, it shall upon
the written request of any Shareholder, furnish him a copy of the Bylaws as
amended to date.
Section 9. SEAL. The corporation shall have a common
seal, and shall have inscribed thereon the name of the corporation, the date of
its incorporation, and the words "INCORPORATED" and "CALIFORNIA".
Section 10. CONSTRUCTION AND DEFINITIONS. Unless the
context otherwise requires, the general provisions, rules of construction and
definitions contained in the General Corporation Law shall govern the
construction of these Bylaws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the singular
number includes the plural and the plural number includes the singular, and the
term "Person" includes a corporation as well as a natural person.
Article VI.
AMENDMENTS
Section 1. POWER OF SHAREHOLDERS. New Bylaws may be
adopted or these Bylaws may be amended or repealed by the affirmative vote of a
majority of the outstanding shares entitled to vote, or by the written assent
of Shareholders entitled to vote such shares, except as otherwise provided by
law or by the Articles of Incorporation.
Section 2. POWER OF DIRECTORS. Subject to the right of
Shareholders as provided in Section 1 of this Article VI to adopt, amend or
repeal Bylaws, Bylaws other than a bylaw or amendment thereof changing the
authorized number of Directors (except to fix the authorized number of
directors pursuant to a bylaw providing for a variable number of directors) may
be adopted,
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amended or repealed by the Board of Directors.
22
<PAGE> 23
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
That I am the duly elected and acting Secretary of
DSL Entertainment Group, Inc., a California corporation; and
That the foregoing Amended and Restated Bylaws,
comprising 22 pages, including the page containing this certificate, constitute
the Bylaws of such corporation as duly adopted by written consent of the Board
of Directors of the corporation duly taken on December 19, 1996 and approved by
the shareholders on January 17, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of such corporation this 30th day of January, 1997.
___________________________________
Drew S. Levin
Secretary
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<PAGE> 1
EXHIBIT 4.1
WARRANTS
NEITHER THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES ISSUABLE UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THIS WARRANT OR SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS
WARRANT OR SUCH SECURITIES, AS APPLICABLE, MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
DSL ENTERTAINMENT GROUP, INC.
WARRANTS FOR THE PURCHASE
OF
15,000 SHARES OF COMMON STOCK, WITHOUT PAR VALUE
MARCH __, 1996
THIS CERTIFIES that, for value received, ARIELLE WOLFSON (together
with all permitted assigns, the "Holder") is entitled to subscribe for, and
purchase from, DSL ENTERTAINMENT GROUP, INC., a California corporation (the
"Company"), upon the terms and conditions set forth herein, at any time or from
time to time during the period commencing on the date immediately following the
effective date (the "Initial Exercise Date") of the registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the initial public offering (the "Initial Public Offering") of the common
stock, without par value (the "Common Stock"), of the Company and terminating
at 5:00 p.m., New York City local time, on the third anniversary of the Initial
Exercise Date (the "Exercise Period"), 15,000 shares of Common Stock. This
Warrant is exercisable at an exercise price per share equal to $1.00 per share;
provided, however, that upon the occurrence of any of the events specified in
Section 5 hereof, the rights granted by this Warrant,
<PAGE> 2
including the number of shares of Common Stock to be received upon such
exercise, shall be adjusted as therein specified.
This Warrant, together with warrants of like tenor, constituting in
the aggregate warrants (the "Warrants") to purchase up to 420,000 shares of
Common Stock, have been offered and sold by the Company in an offering of
securities exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to the Confidential Private Placement
Memorandum, dated February 7, 1996 (the "Memorandum").
Each share of Common Stock issuable upon the exercise hereof shall be
hereinafter referred to as a "Warrant Share".
SECTION 1 EXERCISE OF WARRANT.
This Warrant may be exercised during the Exercise Period,
either in whole or in part, by the surrender of this Warrant (with the election
at the end hereof duly executed) to the Company at its office at 12300 Wilshire
Boulevard, Los Angeles, California 90025, 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
product of the Exercise Price and the number of Warrant Shares for which this
Warrant is being exercised.
SECTION 2 RIGHTS UPON EXERCISE; DELIVERY OF SECURITIES.
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, notwithstanding that the transfer books of the Company shall then be
closed or certificates representing the Warrant Shares with respect to which
this Warrant was exercised 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
representing the Warrant Shares issuable upon such exercise, registered in the
name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a Warrant evidencing the right of the Holder to purchase
the balance of the aggregate number of Warrant Shares purchasable hereunder as
to which this Warrant has not been exercised or assigned.
SECTION 3 REGISTRATION OF TRANSFER AND EXCHANGE.
Any Warrants issued upon the transfer or exercise in part of
this Warrant shall be numbered and shall be registered in a warrant register
(the "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
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<PAGE> 3
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 of transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. This Warrant shall be transferable
on the books of the Company only 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, her, 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.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of
the Securities Act and the rules and regulations thereunder.
SECTION 4 RESERVATION OF SHARES.
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 Warrants, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor. The Company
represents that all shares of Common Stock issuable upon exercise of this
Warrant are duly authorized and, upon receipt by the Company of the full
payment for such Warrant Shares, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof and will not be issued in violation of any preemptive or similar rights
of stockholders.
SECTION 5 ANTIDILUTION.
(a) In the event that the Company shall at any time after
the Initial Exercise Date (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price per Warrant Share in effect at the time
of the record date for the determination of stockholders entitled to receive
such dividend or distribution or of the effective date of such subdivision,
combination, or reclassification shall be adjusted so that it shall equal the
price determined by multiplying such Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such action, and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur and shall become effective
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<PAGE> 4
at the close of business on such record date or at the close of business on the
date immediately preceding such effective date, as applicable.
(b) All calculations under this Section 5 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be.
(c) In any case in which this Section 5 shall require
that an adjustment in the number of Warrant Shares 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 Warrant Shares, if any, issuable upon such
exercise over and above the number of Warrant Shares issuable upon such
exercise on the basis of the number of shares of Common Stock 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 of Common Stock 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 within 15 days thereafter 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 issuable and the Exercise Price thereof 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 of Common Stock 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 average closing sale price (or average of the closing bid and
asked prices, if closing sale price is not available) of Common Stock for the
10 trading days ending on and including the date of exercise of this Warrant.
(f) No adjustment in the Exercise Price per Warrant Share
shall be required if such adjustment is less than $.05; provided, however, that
any adjustments which by reason of this Section 5 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
(g) Whenever the Exercise Price payable upon exercise of
this Warrant is adjusted pursuant to subsection (a) above, the number of
Warrant Shares issuable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Warrant Shares theretofore issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
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<PAGE> 5
SECTION 6 RECLASSIFICATION; REORGANIZATION; MERGER.
(a) In case of any capital reorganization, other than in
the cases referred to in Section 5(a) hereof, or the consolidation or merger of
the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding shares of Common Stock or
the conversion of such outstanding shares of Common Stock into shares of other
stock or other securities or property), or in the 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 actions being
hereinafter collectively referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of this Warrant (in lieu of the number
of Warrant Shares theretofore deliverable) the number of shares of stock or
other securities or property to which a holder of the respective number of
Warrant Shares which would otherwise have been deliverable upon the exercise of
this Warrant would have been entitled upon such Reorganization if this Warrant
had been exercised in full immediately prior to such Reorganization. In case
of any Reorganization, appropriate adjustment, as determined in good faith by
the Board of Directors of the Company, shall be made in the application of the
provisions herein set forth with respect to the rights and interests of the
Holder so that the provisions set forth herein shall thereafter be applicable,
as nearly as possible, in relation to any shares or other property thereafter
deliverable upon exercise of this Warrant. Any such adjustment shall be made
by, and set forth in, a supplemental agreement between the Company, or any
successor thereto, and the Holder, with respect to this Warrant, and shall for
all purposes hereof conclusively be deemed to be an appropriate adjustment.
The Company shall not effect any such Reorganization unless, upon or prior to
the consummation thereof, the successor corporation, or if the Company shall be
the surviving corporation in any such Reorganization and is not the issuer of
the shares of stock or other securities or property to be delivered to holders
of shares of the Common Stock outstanding at the effective time thereof, then
such issuer, shall assume by written instrument the obligation to deliver to
the Holder such shares of stock, securities, cash, or other property as such
Holder shall be entitled to purchase in accordance with the foregoing
provisions. In the event of sale, lease, or conveyance or other transfer of
all or substantially all of the assets of the Company as part of a plan for
liquidation of the Company, all rights to exercise this Warrant shall terminate
30 days after the Company gives written notice to the Holder that such sale or
conveyance or other transfer has been consummated.
(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 a specified par value to no 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
or holders of this Warrant shall have the right thereafter to receive upon
exercise of this Warrant solely the kind and amount
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<PAGE> 6
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 Warrant Shares 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.
SECTION 7 NOTICE OF CERTAIN EVENTS.
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
(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, as 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 per Warrant Share;
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 15
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,
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<PAGE> 7
dissolution, or winding-up, or (iii) the date of such action which would
require an adjustment to the Exercise Price per Warrant Share.
SECTION 8 CHARGES AND TAXES.
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.
SECTION 9 PERIODIC REPORTS.
The Company agrees that following the Initial Exercise Date
and until all the Warrant Shares shall have been sold pursuant to Rule 144
under the Securities Act, it shall keep current in filing all reports,
statements, and other materials required to be filed with the Commission to
permit holders of the Warrant Shares to sell such securities under Rule 144
under the Securities Act.
SECTION 10 LEGEND.
Until sold pursuant to the provisions of Rule 144 or otherwise
registered under the Securities Act, the Warrant Shares issued on exercise of
the Warrants shall be subject to a stop transfer order and the certificate or
certificates representing the Warrant Shares shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED
UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THE SECURITIES, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR APPLICABLE STATE SECURITIES LAWS.
SECTION 11 LOSS; THEFT; DESTRUCTION; MUTILATION.
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<PAGE> 8
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 receipt by the Company of reasonably
satisfactory indemnification, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor, and denomination.
SECTION 12 STOCKHOLDER RIGHTS.
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.
SECTION 13 GOVERNING LAW.
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.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first above written.
DSL ENTERTAINMENT GROUP, INC.
BY: __________________________
DREW S. LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
[Seal]
______________________
Secretary
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<PAGE> 9
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, without par value, of DSL Entertainment Group, Inc., a California
corporation (the "Company"), 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_______________________
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<PAGE> 10
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.
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<PAGE> 11
ELECTION TO EXERCISE
To: DSL Entertainment Group.
12300 Wilshire Boulevard
Los Angeles, California 90025
The undersigned hereby exercises his, her, or its rights to purchase
shares of Common Stock, without par value ("the Common Stock"), of DSL
Entertainment Group, Inc. a California corporation (the "Company"), covered by
the within Warrant and tenders payment herewith in the amount of $_____ in
accordance with the terms thereof, and requests that certificates for the
securities constituting such shares of Common Stock be issued in the name of,
and delivered to:
(Print Name, Address, and Social Security or Tax Identification Number)
and, if such number of shares of Common Stock shall not constitute all such
shares of Common Stock covered by the within Warrant, that a new Warrant for
the balance of the shares of Common Stock covered by the within Warrant shall
be registered in the name of, and delivered to, the undersigned at the address
stated below.
Dated: __________________ Name________________________
(Print)
Address:
________________________
(Signature)
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<PAGE> 1
EXHIBITS 4.2
WARRANTS
NEITHER THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES ISSUABLE UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THIS WARRANT OR SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS
WARRANT OR SUCH SECURITIES, AS APPLICABLE, MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
DSL ENTERTAINMENT GROUP, INC.
WARRANTS FOR THE PURCHASE
OF
[10,000]SHARES OF COMMON STOCK, WITHOUT PAR VALUE
MAY __, 1996
THIS CERTIFIES that, for value received, _________________ (together
with all permitted assigns, the "Holder") is entitled to subscribe for, and
purchase from, DSL ENTERTAINMENT GROUP, INC., a California corporation (the
"Company"), upon the terms and conditions set forth herein, at any time or from
time to time during the period commencing on the date immediately following the
effective date (the "Initial Exercise Date") of the registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the initial public offering (the "Initial Public Offering") of the common
stock, without par value (the "Common Stock"), of the Company and terminating
at 5:00 p.m., New York City local time, on the third anniversary of the Initial
Exercise Date (the "Exercise Period"), [ ] shares of Common Stock. This
Warrant is exercisable at an exercise price per share equal to $1.00 per share;
provided, however, that upon the occurrence of any of the events specified in
Section 5 hereof, the rights
<PAGE> 2
granted by this Warrant, including the number of shares of Common Stock to be
received upon such exercise, shall be adjusted as therein specified.
This Warrant, together with warrants of like tenor, constituting in
the aggregate warrants (the "Warrants") to purchase up to 360,00 shares of
Common Stock, have been offered and sold by the Company in an offering of
securities exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to the Confidential Private Placement
Memorandum, dated May , 1996 (the "Memorandum").
Each share of Common Stock issuable upon the exercise hereof shall be
hereinafter referred to as a "Warrant Share".
SECTION 1 EXERCISE OF WARRANT.
This Warrant may be exercised during the Exercise Period,
either in whole or in part, by the surrender of this Warrant (with the election
at the end hereof duly executed) to the Company at its office at 12300 Wilshire
Boulevard, Los Angeles, California 90025, 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
product of the Exercise Price and the number of Warrant Shares for which this
Warrant is being exercised.
SECTION 2 RIGHTS UPON EXERCISE; DELIVERY OF SECURITIES.
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, notwithstanding that the transfer books of the Company shall then be
closed or certificates representing the Warrant Shares with respect to which
this Warrant was exercised 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
representing the Warrant Shares issuable upon such exercise, registered in the
name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a Warrant evidencing the right of the Holder to purchase
the balance of the aggregate number of Warrant Shares purchasable hereunder as
to which this Warrant has not been exercised or assigned.
SECTION 3 REGISTRATION OF TRANSFER AND EXCHANGE.
Any Warrants issued upon the transfer or exercise in part of
this Warrant shall be numbered and shall be registered in a warrant register
(the "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
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<PAGE> 3
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 of transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. This Warrant shall be transferable
on the books of the Company only 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, her, 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.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of
the Securities Act and the rules and regulations thereunder.
SECTION 4 RESERVATION OF SHARES.
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 Warrants, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor. The Company
represents that all shares of Common Stock issuable upon exercise of this
Warrant are duly authorized and, upon receipt by the Company of the full
payment for such Warrant Shares, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof and will not be issued in violation of any preemptive or similar rights
of stockholders.
SECTION 5 ANTIDILUTION.
(a) In the event that the Company shall at any time after
the Initial Exercise Date (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price per Warrant Share in effect at the time
of the record date for the determination of stockholders entitled to receive
such dividend or distribution or of the effective date of such subdivision,
combination, or reclassification shall be adjusted so that it shall equal the
price determined by multiplying such Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such action, and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur and shall become effective
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<PAGE> 4
at the close of business on such record date or at the close of business on the
date immediately preceding such effective date, as applicable.
(b) All calculations under this Section 5 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be.
(c) In any case in which this Section 5 shall require
that an adjustment in the number of Warrant Shares 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 Warrant Shares, if any, issuable upon such
exercise over and above the number of Warrant Shares issuable upon such
exercise on the basis of the number of shares of Common Stock 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 of Common Stock 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 within 15 days thereafter 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 issuable and the Exercise Price thereof 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 of Common Stock 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 average closing sale price (or average of the closing bid and
asked prices, if closing sale price is not available) of Common Stock for the
10 trading days ending on and including the date of exercise of this Warrant.
(f) No adjustment in the Exercise Price per Warrant Share
shall be required if such adjustment is less than $.05; provided, however, that
any adjustments which by reason of this Section 5 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
(g) Whenever the Exercise Price payable upon exercise of
this Warrant is adjusted pursuant to subsection (a) above, the number of
Warrant Shares issuable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Warrant Shares theretofore issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
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<PAGE> 5
SECTION 6 RECLASSIFICATION; REORGANIZATION; MERGER.
(a) In case of any capital reorganization, other than in
the cases referred to in Section 5(a) hereof, or the consolidation or merger of
the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding shares of Common Stock or
the conversion of such outstanding shares of Common Stock into shares of other
stock or other securities or property), or in the 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 actions being
hereinafter collectively referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of this Warrant (in lieu of the number
of Warrant Shares theretofore deliverable) the number of shares of stock or
other securities or property to which a holder of the respective number of
Warrant Shares which would otherwise have been deliverable upon the exercise of
this Warrant would have been entitled upon such Reorganization if this Warrant
had been exercised in full immediately prior to such Reorganization. In case
of any Reorganization, appropriate adjustment, as determined in good faith by
the Board of Directors of the Company, shall be made in the application of the
provisions herein set forth with respect to the rights and interests of the
Holder so that the provisions set forth herein shall thereafter be applicable,
as nearly as possible, in relation to any shares or other property thereafter
deliverable upon exercise of this Warrant. Any such adjustment shall be made
by, and set forth in, a supplemental agreement between the Company, or any
successor thereto, and the Holder, with respect to this Warrant, and shall for
all purposes hereof conclusively be deemed to be an appropriate adjustment.
The Company shall not effect any such Reorganization unless, upon or prior to
the consummation thereof, the successor corporation, or if the Company shall be
the surviving corporation in any such Reorganization and is not the issuer of
the shares of stock or other securities or property to be delivered to holders
of shares of the Common Stock outstanding at the effective time thereof, then
such issuer, shall assume by written instrument the obligation to deliver to
the Holder such shares of stock, securities, cash, or other property as such
Holder shall be entitled to purchase in accordance with the foregoing
provisions. In the event of sale, lease, or conveyance or other transfer of
all or substantially all of the assets of the Company as part of a plan for
liquidation of the Company, all rights to exercise this Warrant shall terminate
30 days after the Company gives written notice to the Holder that such sale or
conveyance or other transfer has been consummated.
(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 a specified par value to no 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
or holders of this Warrant shall have the right thereafter to receive upon
exercise of this Warrant solely the kind and amount
- 5 -
<PAGE> 6
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 Warrant Shares 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.
SECTION 7 NOTICE OF CERTAIN EVENTS.
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
(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, as 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 per Warrant Share;
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 15
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,
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<PAGE> 7
dissolution, or winding-up, or (iii) the date of such action which would
require an adjustment to the Exercise Price per Warrant Share.
SECTION 8 CHARGES AND TAXES.
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.
SECTION 9 PERIODIC REPORTS.
The Company agrees that following the Initial Exercise Date
and until all the Warrant Shares shall have been sold pursuant to Rule 144
under the Securities Act, it shall keep current in filing all reports,
statements, and other materials required to be filed with the Commission to
permit holders of the Warrant Shares to sell such securities under Rule 144
under the Securities Act.
SECTION 10 LEGEND.
Until sold pursuant to the provisions of Rule 144 or otherwise
registered under the Securities Act, the Warrant Shares issued on exercise of
the Warrants shall be subject to a stop transfer order and the certificate or
certificates representing the Warrant Shares shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED
UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THE SECURITIES, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR APPLICABLE STATE SECURITIES LAWS.
SECTION 11 LOSS; THEFT; DESTRUCTION; MUTILATION.
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<PAGE> 8
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 receipt by the Company of reasonably
satisfactory indemnification, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor, and denomination.
SECTION 12 STOCKHOLDER RIGHTS.
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.
SECTION 13 GOVERNING LAW.
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.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first above written.
DSL ENTERTAINMENT GROUP, INC.
BY: __________________________
DREW S. LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
[Seal]
______________________
Secretary
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<PAGE> 9
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, without par value, of DSL Entertainment Group, Inc., a California
corporation (the "Company"), 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_______________________
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<PAGE> 10
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.
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<PAGE> 11
ELECTION TO EXERCISE
To: DSL Entertainment Group.
12300 Wilshire Boulevard
Los Angeles, California 90025
The undersigned hereby exercises his, her, or its rights to purchase
shares of Common Stock, without par value ("the Common Stock"), of DSL
Entertainment Group, Inc. a California corporation (the "Company"), covered by
the within Warrant and tenders payment herewith in the amount of $_____ in
accordance with the terms thereof, and requests that certificates for the
securities constituting such shares of Common Stock be issued in the name of,
and delivered to:
(Print Name, Address, and Social Security or Tax Identification Number)
and, if such number of shares of Common Stock shall not constitute all such
shares of Common Stock covered by the within Warrant, that a new Warrant for
the balance of the shares of Common Stock covered by the within Warrant shall
be registered in the name of, and delivered to, the undersigned at the address
stated below.
Dated: __________________ Name________________________
(Print)
Address:
________________________
(Signature)
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<PAGE> 1
EXHIBIT 4.3
WARRANT AGREEMENT
TEAM COMMUNICATIONS GROUP, INC.
WARRANT AGREEMENT, dated as of __________, 1997, between Team
Communications Group, Inc., a California corporation (the "Company"), and the
parties set forth on Schedule 1 (the "Warrantholders").
The Company proposes to issue Warrants, in the form of Exhibit A (the
"Warrants"), which evidence the right of the Warrantholders to acquire shares of
the Company's Common Stock, no par value (the "Common Stock"), in accordance
with the terms contained herein and in the Warrants.
The parties, intending to be legally bound, hereby agree as follows:
SECTION 1. WARRANTS.
(a) Concurrently with the execution of this Agreement, the Company
shall issue and deliver to the Warrantholders the number of Warrants set forth
opposite their names on Schedule 1.
(b) Warrants shall be signed on behalf of the Company by its president
or chief financial officer who, in either case, shall be duly authorized to
sign.
SECTION 2. REGISTRATION AND REGISTRATION OF TRANSFERS.
(a) Warrants shall be registered in the name of the Warrantholders. The
Company may deem and treat each Warrantholder of Warrants as the absolute owner
thereof (notwithstanding any notation of ownership or other writing on the
Warrants made by anyone) for the purpose of any exercise thereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
(b) Subject to Section 5, the Company shall register the transfer of
any outstanding Warrants upon records to be maintained by it for that purpose,
upon surrender of Warrants to the Company at the address set forth in Section 13
or such other place designated by the Company in a writing delivered to the
Warrantholders, accompanied (if so required by it) by a written instrument or
instruments of transfer in form attached to the Warrant, duly executed by the
Warrantholder thereof or by the duly appointed legal representative thereof.
Upon any such registration of transfer, new Warrants evidencing such transferred
Warrants shall be issued to the transferee(s) and the surrendered Warrants shall
be canceled.
(c) Subject to Section 3, Warrants may be exchanged at the option of
the Warrantholder thereof, when surrendered to the Company at the address set
forth in Section 13 or such other place designated by the Company in a writing
delivered to the Warrantholders, for another Warrant or other Warrants of like
tenor and representing in the aggregate a like number of Warrants. Warrants
surrendered for exercise shall be canceled.
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<PAGE> 2
SECTION 3. EXERCISE.
(a) The Warrants issued hereunder may be exercised by the
Warrantholder, in whole or in part, during normal business hours on any business
day from and after the date hereof and terminating on the earlier to occur of
the third anniversary of the effective date of the sale of Common Stock sold
pursuant to an Initial Public Offering or June 30, 2000 (the "Warrant Term")
(the date and time of the earlier to occur of such events is the "Expiration
Date"), by surrender of such Warrantholder's Warrant to the Company at the
address set forth in Section 13 or such other place designated by the Company in
writing delivered to the Warrantholders, accompanied by a form of election to
purchase, in substantially the form attached as Exhibit A to the Warrant (or a
reasonable facsimile thereof), duly executed by such Warrantholder and
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company in the amount obtained by multiplying (a) the number
of shares of Common Stock designated in such election to purchase by (b) the
Exercise Price, and such Warrantholder shall thereupon be entitled to receive
the number of duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock determined as provided in Section 4.
(b) Each exercise of a Warrant shall be deemed to have been effected
when a Warrant shall have been surrendered to the Company as provided in Section
3(a) (accompanied by the items required by Section 3(c)), and at such time the
party in whose name any certificate for shares of Common Stock shall be issuable
upon such exercise as provided in Section 3(c) shall be deemed to have become
the holder of record thereof.
(c) As soon as practicable after each exercise of a Warrant, in whole
or in part, the Company, will cause to be issued in the name of and delivered to
the Warrantholder, the following:
(i) Certificates. A certificate or certificates for the number
of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock to which such Warrantholder shall be entitled upon such
exercise.
(ii) Warrant. In case such exercise is in part only, a new
Warrant of like tenor dated the date of the original Warrant, calling
in the aggregate on the face thereof for the number of shares of Common
Stock equal (without giving effect to any adjustment thereof) to the
number of such shares of Common Stock called for on the face of the
Warrant minus the number of such shares of Common Stock designated by
the Warrantholder upon such exercise as provided in Section 3(a).
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<PAGE> 3
(d) Any Warrant not exercised prior to 5:00 p.m., California time, on
the Expiration Date will become null and void, and all rights thereunder and all
rights in respect thereof under this Agreement will cease as of such time.
SECTION 4. ADJUSTMENT OF NUMBER OF WARRANTS, EXERCISE PRICE AND NUMBER OF
SHARES OF COMMON STOCK PURCHASABLE.
(a) The exercise price (the "Exercise Price"), the number of shares of
Common Stock purchasable upon the exercise of each Warrant (the "Purchase
Rate"), and the number of Warrants outstanding are subject to adjustment from
time to time as set forth in this Section 4. The initial Exercise Price of each
Warrant will be equal to $1.00 per share of Common Stock. The initial Purchase
Rate upon the exercise of any Warrant will be one share of Common Stock per
Warrant.
(b) In the event that any of the following shall occur:
(i) any reclassification or change in the outstanding shares
of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination or other transaction described in Section
4(c));
(ii) any consolidation or merger to which the Company is a
party (other than a merger in which the Company is the surviving
Company and which does not result in any reclassification of, or change
in, the outstanding shares of Common Stock or in which the holders of
shares of Common Stock are entitled to receive cash or property (other
than stock or other securities) with respect to, or in exchange for,
their shares of Common Stock); or
(iii) any sale or conveyance to another company of the
property of the Company as an entirety or substantially as an entirety
(other than a sale/leaseback, mortgage or other similar financing
transaction) which is effected in such a way that holders of shares of
Common Stock are entitled to receive stock or other securities with
respect to, or in exchange for, their shares of Common Stock,
then, in each such case, each Warrant will, effective as of the effective date
of any such reclassification, change, consolidation, merger, sale or conveyance,
be exercisable, upon the terms and conditions specified in this Agreement, for
the kind and amount of shares of stock and other securities which would have
been receivable upon such reclassification, change, consolidation, merger, sale
or conveyance by a Warrantholder of the number of shares of Common Stock which
would have been purchasable upon exercise of such Warrant immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance, and in
any such case, if necessary, the provisions set forth in this Section 4 with
respect to the rights and interests thereafter of the Warrantholder will be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities thereafter deliverable on the
exercise of the Warrants. The Company will not effect any such consolidation,
merger, sale or conveyance, unless prior to or simultaneous with the
consummation thereof, the successor company (if other than the
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<PAGE> 4
Company) resulting from such consolidation or merger or the company purchasing
(or receiving) such assets or other appropriate company or entity will assume
for the benefit of the Warrantholders, by written instrument duly executed and
delivered to the Warrantholders, the obligation to deliver to the Warrantholders
of each Warrant upon the exercise thereof such shares of stock or other
securities, as, in accordance with the provisions of this Agreement and the
Warrants, such Warrantholders may be entitled to purchase, and to perform the
other obligations of the Company under this Agreement.
(c) In the event the Company shall (i) declare a dividend, or make a
distribution, on the outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares of Common Stock, or (iii) combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, the Exercise Price in effect immediately after the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such dividend,
distribution, subdivision, combination or reclassification, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such dividend, distribution, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
specified above shall occur.
(d) Upon each adjustment of the Exercise Price as a result of the
calculations made in Section 4(c) the Purchase Rate will be adjusted by
multiplying the Purchase Rate immediately prior to such adjustment by the
Exercise Price in effect prior to adjustment of the Exercise Price and dividing
the product so obtained by the Exercise Price in effect after such adjustment of
the Exercise Price.
SECTION 5. REGISTRATION.
(a) The Company shall advise the Warrant Holder or its permitted
transferee, whether the Warrant Holder holds the Warrant or has exercised the
Warrant and holds the securities underlying the Units, by written notice at
least four weeks prior to the filing of any registration statement thereto under
the Act, or the filing of a notification on Form 1-A under the Act, for a public
offering of securities, except an initial public offering, covering any
securities of the Company, for its own account or for the account of others,
except for any registration statement filed on Form S-4 or S-8 (or other
comparable form), and will, during the Warrant Term, upon the request of the
Warrant Holder, include in any such new registration statement (or notification
as the case may be) such information as may be required to permit a public
offering of all or any of the Warrants or the Common Stock issuable upon the
exercise of such Warrants (the "Registrable Securities"). Specifically, the
Registrable Securities will be included in any initial public offering subject
to resale restrictions imposed by applicable lock-up agreements which the
Registrable Securities will be subject to as referenced in Section 7 herein. For
so long as the Warrants remain outstanding and as long as required by the Act
(so long as the Warrant Holder's ability to exercise any Warrant is not
adversely affected), the Company will file post-effective amendments to any such
registration
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<PAGE> 5
statement setting forth or otherwise incorporating certain information contained
in the then most recent quarterly report on Form 10-QSB or annual report on Form
10-KSB filed by the Company (each such post-effective amendment, a "Quarterly
Amendment"). The parties hereby agree that if at any time during the Warrant
Term the Company receives written notice from the Warrant Holder at least two
weeks prior to the filing of any such Quarterly Amendment indicating such
Warrant Holder's intention to offer Registrable Securities in such Quarterly
Amendment, the Company will include in such Quarterly Amendment such information
as may be required to permit a public offering of such Registrable Securities.
The delivery by the Warrant Holder of any such notice shall not constitute a
demand made pursuant to Section 5(b). The Company shall supply prospectuses and
such other documents as the Warrant Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities,
use its best efforts to register and qualify any of the Registrable Securities
for sale in such states (i) as such Warrant Holder designates and (ii) with
respect to which the Company obtained a qualification in connection with its
initial public offering; and do any and all other acts and things which may be
necessary or desirable to enable such Warrant Holder to consummate the public
sale or other disposition of the Registrable Securities, all at no expense to
the Warrant Holder (other than sales commissions, underwriting discounts or
commissions, or other expenses of such sale), and furnish indemnification in the
manner provided in Section 6 hereof. The Warrant Holder shall furnish
information and indemnification as set forth in Section 6.
(b) At any time after that date which is one year after the effective
date of the Company's initial public offering of its securities and during the
Warrant Term thereafter a 50% Warrant Holder (as defined below) may request, on
up to an aggregate of two occasions, that the Company register under the Act any
and all of the Registrable Securities held by such 50% Warrant Holder. Upon the
receipt of any such notice, the Company will promptly, but no later than four
weeks after receipt of such notice, file a post-effective amendment to any
current Registration Statement or a new registration statement pursuant to the
Act, so that such designated Registrable Securities may be publicly sold under
the Act as promptly as practicable thereafter and the Company will use
reasonable efforts to cause such registration to become and remain effective
(including the taking of such reasonable steps as are necessary to obtain the
removal of any stop order) within 120 days after the receipt of such notice,
provided, that such Warrant Holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request in
writing. The 50% Warrant Holder may, at its option, request the registration of
any of the securities underlying the Warrant in a registration statement made by
the Company as contemplated by Section 5(a) or in connection with a request made
pursuant to this Section 5(b) prior to acquisition of the Common Stock issuable
upon exercise of the Warrant. The 50% Warrant Holder may, at its option, request
such post-effective amendment or new registration statement during the described
period with respect to the Warrants and/or the Common Stock issuable upon the
exercise of the Warrants, and such registration nights may be exercised by the
50% Warrant Holder prior to or subsequent to the exercise of the Warrant. Within
ten days after receiving any such notice pursuant to this Section 5(b), the
Company shall give notice to any other Warrant Holders of the Warrants, advising
that the Company is proceeding with such post effective amendment or
registration statement and offering to include therein such securities
underlying that part of the Warrants held by the other Warrant Holders, provided
that they shall furnish the Company with such appropriate information (relating
to the intentions of such Warrant Holders) in connection therewith as the
Company shall reasonably
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<PAGE> 6
request in writing. All costs and expenses of the first post-effective amendment
or new registration statement filed in accordance with this Section 5(b) shall
be borne by the Company, except that the Warrant Holder(s) shall bear the fees
of their own counsel and any other advisors retained by them and any
underwriting discounts or commissions applicable to any of the securities sold
by them. All costs and expenses of the second such post-effective amendment or
new registration statement shall be borne by the Warrant Holder(s). The Company
will use its best efforts to maintain such registration statement or
post-effective amendment current under the Act for a period of at least six
months (and for up to an additional three (3) months if so requested by the
Warrant Holder(s)) from the Closing Date thereof. The Company shall supply
prospectuses, and such other documents as the Warrant Holder(s) may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states (i) as such Warrant Holder(s)
designate and (ii) with respect to which the Company obtained a qualification in
connection with its initial public offering and furnish indemnification in the
manner provided in Section 6 hereof. Notwithstanding the foregoing set forth in
this Section 5(b), the Company shall not be required to include in any
post-effective amendment or registration statement any Registrable Securities
which in the opinion of counsel to the Company (which opinion is reasonably
acceptable to counsel to the Warrant Holder) would be saleable immediately
without restriction under Rule 144 (or its successor) if the Warrant was
exercised pursuant to paragraph 3(a) herein.
(c) The term "50% Warrant Holder" as used in this paragraph 5 shall
mean the Warrant Holder(s) of at least 50% of the Warrants, and the Common Stock
issued upon exercise of the Warrants included in such Units, considered in the
aggregate.
Section 6. Indemnification.
(a) Whenever pursuant to paragraph 5 a post-effective amendment or
registration statement relating to any of the Warrants or Common Stock issuable
upon the exercise of the Warrants, is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Warrant Holder
of the securities covered by such registration statement, amendment or
supplement (such Warrant Holder being hereinafter called the "Distributing
Holder"), and each person, if any, who controls (within the meaning of the Act)
the Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities, or actions in respect thereof,
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement as declared
effective or any final prospectus constituting a part thereof or any amendment
or supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Distributing Holder or such controlling person or underwriter for any legal
or other expense reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon
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<PAGE> 7
an untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder or any other
Distributing Holder for use in the preparation thereof and provided further,
that the indemnity agreement provided in this Section 6(a) with respect to any
preliminary prospectus shall not inure to the benefit of any Distributing
Holder, controlling person of such Distributing Holder, underwriter or
controlling person of such underwriter from whom the person asserting any
losses, claims, charges, liabilities or litigation based upon any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state therein a material fact, received such preliminary prospectus,
if a copy of the prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected has not been sent or
given to such person within the time required by the Act and the Rules and
Regulations thereunder.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 6.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement hereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under
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<PAGE> 8
this paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
Section 7. Restrictions on Transfer.
The Warrantholders each agree, for itself and for each subsequent
holder of any Warrant, that such Warrants and the shares of Common Stock
issuable upon exercise of such Warrant may not be sold or transferred except in
compliance with the Securities Act of 1933 and that the certificates issued to
evidence the Warrants and the shares of Common Stock issued under the Warrants
shall bear the following legends:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR
OTHER DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES
UNDERLYING THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY OR A NO ACTION LETTER OR INTERPRETIVE
OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
THE HOLDER OF THIS WARRANT HAS AGREED NOT TO OFFER, SELL, CONTRACT TO
SELL, OR GRANT ANY OPTION TO PURCHASE OR OTHERWISE DISPOSE OF ANY OF
THE SECURITIES EVIDENCED BY THIS WARRANT FOR A PERIOD OF TWELVE MONTHS
FOLLOWING THE EFFECTIVE DATE OF AN INITIAL PUBLIC OFFERING (THE "IPO")
BY THE CORPORATION OF ITS EQUITY SECURITIES (OR SUCH LONGER PERIOD AS
MAY BE REQUIRED BY ANY FEDERAL OR STATE REGULATORY AGENCY) WITHOUT THE
PRIOR WRITTEN CONSENT OF THE MANAGING UNDERWRITER OF THE IPO.
provided that no certificate representing the shares of Common Stock shall be
required to bear the first legend provided above if (a) the securities
represented thereby are sold or transferred (i) in a public offering pursuant to
an effective registration statement under the Act or (ii) pursuant to Rule 144
under the Act.
Section 8. Payment of Taxes.
The Company will not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue of any Warrant or any
certificates for shares of Common Stock in a name other than that of the
Warrantholder of a Warrant surrendered upon the exercise of a Warrant, and the
Company will not be required to issue or deliver any certificate for any shares
of Common Stock unless and until the Warrantholder requesting the issuance
thereof has paid to the Company the amount of tax or will have produced evidence
that such tax has been paid to the appropriate taxing authority.
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<PAGE> 9
Section 9. Mutilated or Missing Warrants.
In the event any of the Warrants are mutilated, lost, stolen or
destroyed, the Company will, at the request of the Warrantholder thereof, issue
and deliver, in exchange and substitution for and upon cancellation of the
mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen
or destroyed, new Warrants of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the Company of such
loss, theft, or destruction of such Warrant and indemnity, if requested, also
satisfactory to them. Applicants for such substitute Warrants will also comply
with such other reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
Section 10. Reservation of Shares.
The Company will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued shares or
its authorized and issued shares held in its treasury, for the purpose of
enabling it to satisfy any obligation to issue shares of Common Stock upon
exercise of Warrants, the full number of shares of Common Stock deliverable upon
the exercise of all outstanding Warrants. All shares of Common Stock issued upon
the exercise of a Warrant shall, upon issuance, be free of preemptive rights and
duly authorized, validly issued, fully paid and nonassessable.
Section 11. Notices to Warrantholders.
(a) Upon any adjustment of the Exercise Price and Purchase Rate
pursuant to Section 4 hereof, the Company within twenty (20) days thereafter
will cause to be given to each of the registered Warrantholders at its last
address as appearing on the records of the Company written notice of such
adjustment by first-class mail. Where appropriate, such notice may be given in
advance and included as a part of the notice required to be mailed under the
other provisions of this Section 11.
(b) In case:
(i) the Company shall (A) declare a dividend or make a
distribution on the outstanding shares of Common Stock in shares of
Common Stock, (B) subdivide or reclassify the outstanding shares of
Common Stock into a greater number of outstanding shares of Common
Stock or (C) combine or reclassify the outstanding shares of Common
Stock into a smaller number of shares of Common Stock;
(ii) the Company proposes to take any action described in
clause (ii) or (iii) of the first sentence of Section 4(b) hereof or
any action which would require an adjustment of the Exercise Price
pursuant to Section 4 hereof; or
(iii) of the voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
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<PAGE> 10
then the Company will cause to be given to each of the Warrantholders at such
Warrantholder's last address appearing on the records of the Company, at least
20 days prior to such event (or in the event of a dividend or distribution the
payment thereof), by first-class mail a written notice stating (A) the date as
of which the Warrantholders of record of shares of Common Stock to be entitled
to receive any such shares of Common Stock, (B) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up is expected to become effective, and (C) the date as of which it is expected
that Warrantholders of record of shares of Common Stock will be entitled to
exchange their shares of Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure to give the notice
required by this Section 11 or any defect therein will not affect the legality
or validity of any distribution, right, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any action.
Section 12. No Voting Rights.
Nothing contained in this Agreement or in any Warrant shall entitle the
Warrantholders to any voting rights or other rights as a stockholder of the
Company.
Section 13. Notices to Company and Other Notices to Warrantholders.
All notices, consents and other communications under this Agreement,
other than notices pursuant to Sections 5 and 11 hereof, shall be in writing and
shall be deemed to have been duly given when (a) delivered by hand, (b) sent by
telecopier (with receipt confirmed), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by Express Mail, Federal Express or other express delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate as to itself by notice to the other parties):
(a) If to the Company:
Team Communications Group, Inc.
12300 Wilshire Boulevard
Los Angeles, California 90025
Attn: Drew S. Levin, President
Telecopy: (310) 442-3501
with a copy to:
Kelly & Lytton
1900 Avenue of the Stars
Suite 1450
Los Angeles, California 90067
Attention: Bruce P. Vann, Esq.
Telecopy: (310) 282-7031
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<PAGE> 11
(b) If to any Warrantholder, to it at its last address as it appears on
the records of the Company.
Section 14. Amendments.
This Agreement supersedes all prior agreements among the parties with
respect to its subject matter, is intended as a complete and exclusive statement
of the terms of this Agreement among the parties with respect thereto and cannot
be changed or terminated orally. The Company, together with the written consent
of the Warrantholders of at least 51% of the outstanding Warrants, may amend or
supplement this Agreement and all Warrantholders of Warrants shall be bound by
any amendment or supplement so approved.
Section 15. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company will bind and inure to the benefit of its successors and
assigns hereunder.
Section 16. Termination.
This Agreement will terminate at the close of business on the
Expiration Date. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date when all Warrants have been exercised and/or redeemed.
Section 17. Governing Law.
This Agreement and each Warrant issued hereunder will be deemed to be a
contract made under the laws of the State of California and for all purposes
will be construed in accordance with, and governed by, the internal laws of the
State of California.
Section 18. Benefits of This Agreement.
Nothing in this Agreement will be construed to give to any person,
Company or other entity other than the Company and the Warrantholders any legal
or equitable right, remedy or claim under this Agreement.
Section 19. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts will together constitute but one and the same instrument.
Section 20. Captions.
The captions in this Agreement are for convenience of reference only
and shall not be given any effect in the interpretation of this Agreement.
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<PAGE> 12
Section 21. Jurisdiction.
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of California, or, if it has or can acquire
jurisdiction, in the United States District Court for the Central District of
California, and each of the parties hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding, and waives any objection to venue laid therein.
Process in any such action or proceeding may be served anywhere in the world,
whether within or without the State of California.
Section 22. Severability.
The provisions of this Agreement are intended to be and shall be deemed
severable. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
were omitted.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers "hereunto duly authorized, as of the date
first above written.
TEAM COMMUNICATIONS GROUP, INC.
By:
Name:
Title:
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<PAGE> 13
EXHIBIT A
[FORM OF WARRANT]
THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR
OTHER DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES
UNDERLYING THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY OR A NO ACTION LETTER OR INTERPRETIVE
OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
THE HOLDER OF THIS WARRANT HAS AGREED NOT TO OFFER, SELL, CONTRACT TO
SELL, OR GRANT ANY OPTION TO PURCHASE OR OTHERWISE DISPOSE OF ANY OF
THE SECURITIES EVIDENCED BY THIS WARRANT FOR A PERIOD OF TWELVE MONTHS
FOLLOWING THE EFFECTIVE DATE OF AN INITIAL PUBLIC OFFERING (THE "IPO")
BY THE CORPORATION OF ITS EQUITY SECURITIES (THE "IPO EFFECTIVE DATE"),
OR SUCH LONGER PERIOD AS MAY BE REQUIRED BY ANY FEDERAL OR STATE
REGULATORY AGENCY, WITHOUT THE PRIOR WRITTEN CONSENT OF THE MANAGING
UNDERWRITER OF THE IPO.
No. W- Warrant to Purchase ____ Shares of Common Stock
WARRANT TO PURCHASE COMMON STOCK, NO PAR VALUE PER SHARE
OF TEAM COMMUNICATIONS GROUP, INC.
This Warrant certifies that _________________________, or registered
assigns thereof, is the registered holder of a Warrant (the "Warrant") to
purchase shares of Common Stock, no par value per share (the "Shares"), of Team
Communications Group, Inc., a California corporation (the "Company"). Each
Warrant evidenced hereby entitles the holder to purchase from the Company on or
before 5:00 p.m., California time, on the Expiration Date, one fully paid and
nonassessable share of Common Stock at the Exercise Price, upon surrender of
this Warrant and payment of the Exercise Price at the address of the Company as
set forth in Section 13 of the Warrant Agreement, dated as of ______, 1997,
between the Company and the holder hereof, among others (the "Warrant
Agreement"), or such other place specified in a writing by the Company delivered
to the Warrantholders, but only subject to the conditions set forth herein and
in the Warrant Agreement.
All capitalized terms used but not defined herein have the meanings set
forth in the Warrant Agreement.
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<PAGE> 14
Payment of the Exercise Price may be made in cash or by certified or
official bank check payable to the order of the Company.
This Warrant is part of a duly authorized issue of Warrants issued
pursuant to the Warrant Agreement, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the Warrantholders.
The Warrantholder of this Warrant may exercise this Warrant in whole or
in part, by surrendering the Warrant, with the form of election to purchase set
forth hereon properly completed and executed, together with payment of the
Exercise Price and any applicable transfer taxes at the office of the Company.
In the event that upon any exercise of this Warrant, the number of shares of
Common Stock purchased is less than the total number of shares of Common Stock
purchasable hereunder, there will be issued to the Warrantholder hereof or such
Warrantholder's assignee a new Warrant evidencing the number of shares of Common
Stock not purchased.
The Warrant Agreement also provides that in the event of certain
reclassifications or changes in outstanding shares of Common Stock, certain
consolidations or mergers to which the Company is a party and certain sales or
conveyances of the property of the Company as an entirety or substantially as an
entirety, each Warrant would thereupon become exercisable for the number of
shares of stock or other securities or property (including cash) which would
have been receivable upon such transaction by a Warrantholder of the number of
shares of Common Stock which would have been purchasable upon exercise of such
Warrant immediately prior to such transactions.
The Company may deem and treat the Warrantholder hereof as the absolute
owner(s) of this Warrant (notwithstanding any notation of ownership or other
writing hereon made by anyone), for the purpose of any exercise hereof, and of
any distribution to the Warrantholder(s) hereof, and for all other purposes, and
the Company will not be affected by any notice to the contrary.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of this ___ day of _____________ 1997.
TEAM COMMUNICATIONS GROUP, INC.
By:
Name:
Title:
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<PAGE> 15
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase shares of Common Stock and herewith
tenders in payment for such shares of Common Stock cash or a certified or
official bank check payable to the order of Team Communications Group, Inc. in
the amount of $______, all in accordance with the terms of the Warrant
Agreement, dated as of ____________ __, 1996, among Team Communications Group,
Inc. and certain other parties. The undersigned requests that a certificate for
such shares of Common Stock be registered in the name of _____________, whose
address is ______________, and that such certificate be delivered to , whose
address is ________________. If said number of shares of Common Stock is less
than all the shares of Common Stock purchasable hereunder, the undersigned
requests that a new Warrant representing Warrants to purchase the remaining
balance of the shares of Common Stock be registered in the name of ____________,
whose address is ______________, and that such certificate be delivered to
_____________, whose address is _________________.
Dated:
Signature: __________________________________________
(Signature must conform in all respects
to name of Warrantholder as specified
on the face of the Warrant)
Signature Guaranteed:
- 15 -
<PAGE> 16
[FORM OF ASSIGNMENT]
(To be executed by the Warrantholder if such Warrantholder desires
to transfer the Warrant)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
[all] [ ] of the Warrants evidenced by this Warrant, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
______________ Attorney, to transfer the within Warrant on the books of the
within-named Company, with full power of substitution.
Dated:
Signature: _____________________________________________
(Signature must conform in all respects
to name of Warrantholder as specified
on the face of the Warrant)
Signature Guaranteed:
- 16 -
<PAGE> 1
EXHIBIT 4.4
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED,
SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS.
THIS NOTE IS SECURED AS PROVIDED HEREIN.
DSL ENTERTAINMENT GROUP, INC.
12% SECURED REDEEMABLE NOTE
MARCH __, 1996
$100,000 PRINCIPAL AMOUNT NEW YORK, NEW YORK
DSL ENTERTAINMENT GROUP, INC., a California corporation (the
"Company"), for value received, hereby promises to pay to , with an address at [
], or registered assigns (the "Holder"), the principal amount of One Hundred
Thousand Dollars ($100,000) on the earlier to occur of the Maturity Date (as
defined below) and the Redemption Date (as defined below), and to pay interest
on the unpaid principal balance hereof at the rate (calculated on the basis of a
360-day year consisting of twelve 30-day months) of 12% per annum, compounding
quarterly, from the date hereof until the earlier to occur of the Maturity Date
and the Redemption Date. Accrued interest on the unpaid principal balance hereof
shall be payable on the earlier to occur of the Maturity Date and the Redemption
Date. In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
This Note is one of a series of Notes being issued by the Company
in an aggregate principal amount not to exceed $2,500,000.00 denominated "12%
Secured Redeemable Notes" (the "Notes") and the holder thereof is entitled to
the benefits of a Security Agreement, dated as of March 6, 1996 between the
Company and the individuals and entities who are (or will be) signatories to
such agreement. The Notes have been offered and sold by the Company in an
offering of securities exempt from registration under the Securities Act of
1933, as amended (the
<PAGE> 2
"Securities Act"), pursuant to the Confidential Private Placement Memorandum,
dated February 7, 1996 (the "Memorandum").
SECTION 1 PAYMENTS.
(a) Principal of, and any accrued and unpaid interest on, this
Note shall be due and payable in full on the earlier to occur of the Maturity
Date and the Redemption Date. The "Maturity Date" shall be December 31, 1996.
(b) Interest on this Note shall accrue from the date of issuance
hereof, to, but excluding the earlier to occur of the Maturity Date and the
Redemption Date and shall be payable in arrears. Accrued and unpaid interest not
paid when due and payable shall be capitalized.
(c) If the Maturity Date or the Redemption Date would fall on a
day that is not a Business Day (as defined below), the payment due on such date
will be made on the next succeeding Business Day with the same force and effect
as if made on the Maturity Date or Redemption Date, as the case may be.
"Business Day" means any day which is not a Saturday or Sunday and is not a day
on which banking institutions are generally authorized or obligated to close in
the City of New York, New York.
(d) The Company may, at its option, prepay all or any part of the
principal of this Note, without payment of any premium or penalty, upon 10 days
prior notice to the Holder. All payments on this Note shall be applied first to
accrued and unpaid interest hereon and the balance to the payment of principal
hereof.
(e) Payments of principal of, and interest on, this Note shall be
made by check sent to the Holder's address set forth above or to such other
address as the Holder may designate for such purpose from time to time by
written notice to the Company, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
(f) The obligations to make the payments provided for in this
Note are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment, or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit,
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of, and without any notice, diligence, act or
omission with respect to, the collection of any amount called for hereunder.
SECTION 2 RANKING OF NOTE.
(a) The payment of the principal of, and interest on, the Notes
is secured by a first lien on all of the Company's right, title, and interest in
and the assets identified in that certain Security Agreement, dated as of March
6, 1996, between the Company and the individuals and entities indicated therein.
(b) Until the payment in full of all amounts of principal of, and
interest on, the Notes, and all other amounts owing under the Notes, all
payments to be made with respect to the
- 2 -
<PAGE> 3
principal of, or interest on, and other amounts due with respect to indebtedness
other than, the Notes shall be made on a pari passu basis.
SECTION 3 COVENANTS.
The Company covenants and agrees with the Holder that, so long as
any amount remains unpaid on the Notes, unless the consent of the majority of
all of the Holders is obtained, the Company:
(a) shall not pay any dividend or make any distribution on, or
purchase, redeem, or retire, any shares of its capital stock or any warrants,
options, or other rights to reacquire any such shares, except that the Company
may pay dividends payable solely in shares of its capital stock.
(b) shall not change its primary line of business and shall use
the proceeds from the issuance of the Notes only as set forth in the Memorandum.
(c) shall not (i) enter into any merger or consolidation, (ii)
liquidate, wind up its affairs or dissolve, or (iii) except in the ordinary
course of business, convey, sell, lease, transfer or otherwise dispose of, or
purchase or acquire, any business, assets or other property.
(d) shall not, directly or indirectly, enter into any transaction
with or for the benefit of an affiliate (other than reasonable compensation, for
services as an officer, director, or employee).
(e) shall not in any manner increase the compensation of its
existing officers and directors from the levels in effect on the date of
issuance of this Note.
(f) shall deliver to each Holder:
(i) as soon as available, and in any event within 45 days
after the end of each of the first three quarterly fiscal periods of each fiscal
year of the Company, statements of income, retained earnings, and cash flow of
the Company, for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related consolidated
balance sheet of the Company and its subsidiaries as at the end of such period
setting forth in the case of each such statement in comparative form the
corresponding figures for the corresponding period in the preceding fiscal year,
accompanied by a certificate of the chief financial officer of the Company,
which certificate shall state that (A) such financial statements fairly present
in all material respects the financial position and results of operations of the
Company and its subsidiaries, all in accordance with generally accepted
accounting principles consistently applied, and (B) no Default (as hereinafter
defined) has occurred and is continuing or, if any Default has occurred and is
continuing, a description thereof in reasonable detail and of the action the
Company has taken or proposes to take with respect thereto;
(ii) as soon as available and in any event within 90 days
after the end of each fiscal year of the Company, consolidated statements of
income, retained earnings, and cash
- 3 -
<PAGE> 4
flow of the Company for such fiscal year, and the related consolidated balance
sheet of the Company and its subsidiaries as at the end of such fiscal year,
setting forth in the case of each such statement in comparative form the
corresponding figures for the preceding fiscal year, and accompanied by a
certificate of the chief financial officer of the Company stating that no
Default has occurred and is continuing or, if any Default has occurred and is
continuing, a description thereof in reasonable detail and of the action the
Company has taken or proposes to take with respect thereto;
(iii) promptly after the Company shall obtain knowledge of
such, written notice of all legal or arbitral proceedings, and of all
proceedings by or before any governmental or regulatory authority or agency, and
each material development in respect of such legal or other proceedings,
affecting the Company and its subsidiaries, except proceedings which, if
adversely determined, would not have a material adverse effect on the Company
and its subsidiaries taken as a whole; and
(iv) promptly after the Company shall obtain knowledge of
the occurrence of any Event of Default (as hereinafter defined) or any event
which with notice or lapse of time or both would become an Event of Default (an
Event of Default or such other event being a "Default"), a notice specifying
that such notice is a "Notice of Default" and describing such Default in
reasonable detail, and, in such Notice of Default or as soon thereafter as
practicable, a description of the action the Company has taken or proposes to
take with respect thereto.
SECTION 4 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when
and as the same shall become due and payable.
(b) A default in the payment of any interest accrued on any Note,
when and as the same shall become due and payable, which default shall continue
for five business days after the date fixed for the making of such interest
payment.
(c) A default in the performance, or a breach, of any of the
covenants of the Company contained in Sections 1 or 3 of this Note.
(d) A default in the performance, or a breach, of any other
covenant or agreement of the Company in this Note and continuance of such
default or breach for a period of 30 days after receipt of notice from the
Holder as to such breach or after the Company had or should have had knowledge
of such breach.
(e) Any representation, warranty, or certification made by the
Company pursuant to this Note shall prove to have been false or misleading as of
the date made in any material respect.
- 4 -
<PAGE> 5
(f) A final judgment or judgments for the payment of money in
excess of $50,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals, or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company shall
not, within such 60-day period, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(g) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment, or composition of, or in respect of,
the Company, under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, and the continuance of any such decree or order unstayed and in effect for
a period of 60 days; or the commencement by the Company of a voluntary case
under federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by it to the institution of bankruptcy or insolvency proceedings against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under federal bankruptcy law or any other applicable
federal or state law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator, or
similar official of the Company or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the admission
by it in writing of its inability to pay its debts generally as they become due,
or the taking of corporate action by the Company in furtherance of any such
action.
Notwithstanding the foregoing, no Event of Default shall be called
unless the holders of 75% of the outstanding Notes notify the Company that they
have accelerated the Notes as herein provided.
SECTION 5 REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default referred to in
Section 4(g), the principal amount then outstanding of, and the accrued and
unpaid interest on, this Note shall automatically become immediately due and
payable without presentment, demand, protest, or other formalities of any kind,
all of which are hereby expressly waived by the Company. Upon the occurrence of
an Event of Default referred to in Section 4(a) or (b), the Holder, by notice in
writing given to the Company, may declare the entire principal amount then
outstanding of, and the accrued and unpaid interest on, this Note to be due and
payable immediately, and upon any such declaration the same shall become and be
due and payable immediately, without presentation, demand, protest, or other
formalities of any kind, all of which are expressly waived by the Company. Upon
the occurrence of an Event of Default other than one referred to in Sections
4(a), (b), or (g), the Holders of not less than 50% in principal amount of the
then outstanding Notes (excluding any Notes held by or for the account of the
Company or any affiliate of the Company) may declare the principal amount then
outstanding of, and the accrued interest on, the Notes to be due and payable
immediately, and upon such declaration the same shall become due and payable
- 5 -
<PAGE> 6
immediately, without presentation, demand, protest, or other formalities of any
kind, all of which are expressly waived by the Company.
(b) The Holder may institute such actions or proceedings in law
or equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
SECTION 6 TRANSFER.
(a) Any Notes issued upon the transfer of this Note shall be
numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the Note
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 Note on the part
of any other person, and shall not be liable for any registration of transfer of
Notes 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 Note 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 Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the Holder
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Securities Act and the rules and
regulations thereunder.
(b) The Holder acknowledges that he has been advised by the
Company that this Note has not been registered under the Securities Act, that
this Note is being issued on the basis of the statutory exemption provided by
Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering,
and that the Company's reliance thereon is based in part upon the
representations made by the original Holder to the Company. The Holder
acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Securities Act and
the rules and regulations thereunder on the transfer of securities. In
particular, the Holder agrees that no sale, assignment, or transfer of this Note
shall be valid or effective, and the Company shall not be required to give any
effect to any such sale, assignment, or transfer, unless (i) such sale,
assignment, or transfer is registered under the Securities Act, it being
understood that this Note is not currently
- 6 -
<PAGE> 7
registered for sale and that the Company has no obligation or intention to so
register this Note, or (ii) this Note is sold, assigned, or transferred in
accordance with all the requirements and limitations of Rule 144 under the
Securities Act, it being understood that Rule 144 is not available at the time
of the original issuance of this Note for the sale of this Note and that there
can be no assurance that Rule 144 sales will be available at any subsequent
time, or (iii) such sale, assignment, or transfer is otherwise exempt from
registration under the Securities Act.
SECTION 7 MANDATORY REDEMPTION.
The Notes shall be mandatorily redeemable by the Company,
automatically and without any action on the part of the Company or any Holder
thereof and without notice, upon the closing of the initial public offering
under the Securities Act of the common stock, without par value, of the Company.
The Company shall redeem the Notes by paying to the Holders thereof an amount
equal to the outstanding principal of, and accrued an unpaid interest on, the
Notes from February __, 1996 to, but excluding, the date of the redemption
thereof (the "Redemption Date"). All Notes redeemed pursuant to this Section 7
or otherwise acquired by the Company shall be canceled.
SECTION 8 MISCELLANEOUS.
(a) 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 by Federal Express, Express Mail, or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex, or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 12300 Wilshire
Boulevard, Los Angeles, California 90025, Attention: President, (ii) if to the
Holder, at its address set forth on the first page hereof, or (iii) in either
case, to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 8(a). Notice to the estate of any
party shall be sufficient if addressed to the party as provided in this Section
8(a). 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. Any
notice given by other means permitted by this Section 8(a) shall be deemed given
at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Note (and upon surrender of this
Note if mutilated), the Company shall execute and deliver to the Holder a new
Note of like date, tenor, and denomination.
(c) No course of dealing and no delay or omission on the part of
the Holder in exercising any right or remedy shall operate as a waiver thereof
or otherwise prejudice the Holder's rights, powers, or remedies. No right,
power, or remedy conferred by this Note upon the Holder shall be exclusive of
any other right, power, or remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise, and all such remedies may
be exercised singly or concurrently.
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<PAGE> 8
(d) This Note may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be endorsed
upon this Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the State of
New York and shall be governed by, and construed in accordance with, the laws of
the State of New York, without giving effect to principles governing conflicts
of law.
(f) The Company irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of, or relating to, this
Note, any document or instrument delivered pursuant to, in connection with, or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint, or other process and agrees that service
thereof may be made in accordance with Section 8(a). Within 30 days after such
service, or such other time as may be mutually agreed upon in writing by the
attorneys for the parties to such action or proceeding, the Company shall appear
or answer such summons, complaint, or other process. Should the Company fail to
appear or answer within such 30-day period or such extended period, as the case
may be, the Company shall be deemed in default and judgment may be entered
against the Company for the amount as demanded in any summons, complaint, or
other process so served.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
DSL ENTERTAINMENT GROUP, INC.
BY: ___________________________
DREW S. LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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<PAGE> 9
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of April __, 1996, made by DSL
Entertainment Group, Inc., a California corporation ("Company" or "Debtor"),
in favor of the parties named hereto on Exhibit 1 (collectively, the "Secured
Party").
W I T N E S S E T H:
WHEREAS, the Company is offering to sell up to $1.8 million of
Convertible Secured notes (the "Notes"); and
WHEREAS, as condition to receiving amounts in respect of such
Notes, the Company shall have delivered to the Secured Party for its benefit,
this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein,
terms defined in the note are used herein as therein defined, and the following
terms shall have the following meanings (such meanings being equally applicable
to both the singular and plural forms of the terms defined):
"Affiliated Person" shall mean any Person which directly or indirectly
controls, is controlled by or is under common control with Company. For the
purposes of this definition, "control" (including with corresponding meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Collateral" shall have the meaning assigned to such term in Section 2
of this Security Agreement.
"Collateral Documents" shall mean all present and future notes,
security agreements, mortgages, deeds of trust, assignments, pledge agreements,
financial agreements, consents and other documents granting liens or other
security interests to Debtor and/or the Secured Party pursuant to this Security
Agreement including, without limitation, Copyright Mortgages, financing
statements, mortgages, subordination agreements, Laboratory Pledgeholder
Agreements, consents and/or waivers to be delivered pursuant to the various
Sections of Article V.
"Copyrights" shall mean all of Debtor's now owned or hereafter
acquired copyrights, copyright applications, copyright registrations and
copyrightable works and all renewals thereof and income, royalties, damages and
payments payable under or with respect thereto; together with any agreement
granting any right to use any copyright, copyright application, copyright
registration or copyrightable work.
<PAGE> 10
"Copyright Mortgages" shall mean the instruments of transfer pursuant
to which the Debtor (to the extent that Debtor is a copyright proprietor or
owns any rights under copyright) grants to Secured Party a copyright mortgage
and/or security interest in its interest in the United States, Canadian and/or
worldwide copyrights (including, but not limited to, the video cassette
distribution rights) to any Film Asset, substantially in the form of Exhibit A
attached hereto.
"Equipment" shall have the meaning set forth in Section 2(a) hereof.
"Event of Default" shall have the meaning set forth in Section 7.
"Film" shall mean any and every existing motion picture or
development project or other recording (or proposed recording) of moving images
by any means, manner, process or device now known or hereafter devised.
"Film Assets" shall mean all rights and interests granted to/acquired
or retained by Debtor in connection with or related to the distribution or
exploitation of, or otherwise respecting, any Film, owned by Debtor to be
designated pursuant to the Notes, but excluding all rights and interests in
connection with or related to the distribution or exploitation of, or otherwise
respecting any such Film outside of the Licensed Territory (as such term is
defined in the Notes), including, but not limited to: any distribution rights,
license rights, and rights as a sub-distributor or sub-licensee; all rights to
distribute, sub-license, copy, exhibit, transmit, broadcast, package, edit,
reformat, advertise or exploit a Film, in any and all media, and any
syndication, television or cable television rights; all of Debtor's copyrights
or interests in any copyright on or relating to such Film; and any of Debtor's
collateral, allied, subsidiary or merchandising rights appurtenant or related
to any Film, including but not limited to the following specific rights:
(a) all scenarios, screenplays and/or scripts at every
stage of the development of the Films;
(b) all common law and statutory copyright and other
rights in all literary and other properties ("Literary Properties") that form
the basis of the Films or which are or will be incorporated into the Films, all
component parts of the same Films consisting of the Literary Properties and
other properties, all motion picture rights in and to the story, all treatments
of said story and other literary material, together with all preliminary and
final screenplays used and to be used in connection with the Films, and all
other literary material upon which the Films are based or from which it is
adapted;
(c) all motion picture rights in and to all music and
musical compositions connected with the Films, including, without limitation,
all rights to record, re-record, produce, reproduce, or synchronize all of said
music and musical compositions in and in connection with motion pictures;
2
<PAGE> 11
(d) all exposed and/or delivered negative film, sound
tracks, positive prints, cutouts and trims connected with the Films, whether or
not in completed form or in some state of completion;
(e) all collateral, allied, subsidiary and merchandising
rights appurtenant or related to the Films now or hereafter owned or controlled
by Debtor, including, without limitation, the following rights: Literary
Properties, or the text or any part of the Literary Properties; all rights
throughout the world to broadcast, transmit and/or reproduce by means of
television (including, without limitation, free, commercially sponsored,
sustaining, subscription, cable and pay television) or by any process analogous
thereto, now known or hereafter devised, the Films; all rights to produce
primarily for television or similar use, by use of film or any other medium now
known or hereafter devised, a motion picture or series of motion pictures based
upon the Films, the Literary Properties, or any part thereof, including,
without limitation, any script, scenario or the like used in the Films; all
merchandising rights including, without limitation, all rights to use, exploit,
and license others to use and exploit any commercial tie-ups of any kind
arising out of or connected with the Literary Properties, the Films, the title
or titles of the Films, the characters of the Films or the Literary Properties,
or the names or characteristics of such characters and including further,
without limitation, any commercial exploitation in connection with or related
to the Films or the Literary Properties;
(f) all statutory copyrights, domestic and foreign,
obtained or to be obtained on the Films, together with any and all copyrights
obtained or to be obtained in connection with the Films or any underlying or
component elements of the Films, including, without limitation, all copyrights
on the property described in subparagraphs (a) through (e) of this definition,
together with the right to register for copyright, and all rights to renew or
extend such registration and the right to sue in the name of Debtor or in
Secured Party's name for past, present, or future infringements of copyrights;
(g) all insurance policies connected with the Films and
all proceeds which may be derived therefrom;
(h) all right to, and otherwise exploit and turn to account
the Films, the negatives, sound tracks, prints, and motion picture rights in
and to the Literary Properties, other literary material upon which the Films
are based or from which they are adapted, and such music and musical
compositions used or to be used in the Films;
(i) any and all sums, proceeds, money, products, profits,
or increases, and money profits or increases (as those terms are used in the
Uniform Commercial Code or otherwise) or other property obtained or to be
obtained from the distribution, exhibition, sale, or other uses or dispositions
of the Films or any part of the Films, including, without limitation, all
proceeds, profits, products, and increases, whether in money or otherwise, from
the sale, rental, or licensing of the Films and/or any of the elements of the
Films, including collateral, allied, subsidiary, and merchandising rights;
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(j) the dramatic, non-dramatic, stage, television, radio,
and publishing rights, title and interests in and to the Films, to the extent
owned by Debtor, and the rights to register for copyrights and renewals of same
therein;
(k) the title of the Films to the extent of Debtor's
right to use thereof, including, without limitation, rights protected pursuant
to any trademark, service mark, or unfair competition law, and/or the rules and
principles of law related to any other applicable statute, common law decision,
or other rule or principle of law;
(l) all of Debtor's rights which grant to any person any
right to acquire, produce, develop, reacquire, finance, release, sell,
distribute, lease, sublease, market, license, sublicense, exhibit, broadcast,
transmit, reproduce, publicize or otherwise exploit the Films or any rights in
the Films including, without limitation, all such rights pursuant to the any
distribution agreement or license agreement;
(m) with respect to the Films, all accounts and/or other
rights to payment which Debtor presently owns or which may arise in favor of
Debtor in the future, including, without limitation, any refund under a
completion guarantee, all accounts and/or rights to payment due from exhibitors
in connection with the distribution of the Films, and all accounts and/or
rights to payment arising from exploitation of any and all of the collateral,
allied, subsidiary, merchandising, and other rights in connection with the
Films;
(n) any and all "general intangibles" (as that term is
defined in the Uniform Commercial Code) of Debtor in connection with the Films
not elsewhere included in this definition, including, without limitation, any
and all general intangibles consisting of any right to payment which may arise
in the distribution or exploitation of any of the rights set out herein, and
any and all general intangible rights in favor of Debtor or Secured Party in
connection with the Films for services or other performances by any third
parties, including actors, writers, directors, individual producers, and/or any
and all other performing or non-performing parties or artists in any way
connected with the Films, any and all general intangible rights in favor of
Debtor or Secured Party relating to licenses of sound or other equipment in
connection with the Films, and licenses for photographic or other processes,
and any and all general intangibles related to the exhibition, distribution or
exploitation of the Films including general intangibles related to or which
grow out of the exhibition of the Films and the exploitation of any and all
other rights in the Films set out in this definition;
(o) any and all goods including inventory (as that term
is defined in the Uniform Commercial Code) which may arise in connection with
the creation, production, or delivery of the Films and which goods, pursuant to
any production or distribution agreement or otherwise, are owned by Debtor;
(p) each and all of the rights, regardless of
denomination, which arise in connection with the creation, production,
completion of production, delivery, distribution, or other
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exploitation of the Films, including, without limitation, any and all rights in
favor of Debtor and/or Secured Party, the ownership or control of which are or
may become necessary or desirable, in the opinion of Secured Party, in order to
complete production of the Films in the event that Secured Party exercises any
rights it may have to take over and complete production of the Films (which
shall be subject to the rights to take over and complete production of the
Films as Debtor may grant to other parties);
(q) any and all documents issued by any pledgeholder or
bailee with respect to the Films or with respect to any negatives, sound tracks
or prints (whether or not in completed form) connected therewith; and
(r) any and all rights of Debtor under contracts relating
to the production of the Films, including but not limited to all contracts
which have been delivered to Secured Party pursuant to this Security Agreement.
"General Intangibles" shall have the meaning set forth in Section
2(a)(viii).
"hereby," "herein," "hereof," "hereunder" and words of similar import
refer to this Security Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears.
"Permitted Liens" shall mean each of the following:
(i) Liens for taxes, assessments or governmental
charges or claims the payment of which is not at the time required;
(ii) Statutory liens of landlords and liens of
carriers, warehousemen, mechanics, materialmen, film laboratories, sound
studios and other liens imposed by law incurred in the ordinary course of
business for sums not yet delinquent or being contested in good faith;
(iii) Liens (other than any lien imposed by ERISA)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);
(iv) Any attachment or judgment Lien, unless the
judgment it secures shall, within 45 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall have been
discharged within 45 days after the expiration of any such stay;
(v) Leases or subleases granted to others not
interfering with the ordinary conduct of the business of Company;
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<PAGE> 14
(vi) Easements, rights-of-way, restrictions and
other similar charges or encumbrances not interfering with the ordinary conduct
of the business of Company; and
(vii) Liens in respect of the series "Simply
Style";
(viii) Liens granted to AMAE Ventures, Inc.; and
(ix) Liens granted to Joe Cayre, which are, in any
event, subordinated to the lien granted hereunder.
"Person" shall mean any entity, corporation, company, association,
partnership, joint venture, joint stock company, unincorporated organization,
trust, individual (including personal representatives, executors and heirs of a
deceased individual), nation, state, government (including governmental
agencies, departments, bureaus, boards, divisions and instrumentalities
thereof), trustee, receiver or liquidator.
"Proceeds" shall mean "proceeds," as such term is defined in section
9-306(1) of the UCC and, in any event, shall include, without limitation, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Company from time to time with respect to any of the Collateral, (ii) any
and all payments (in any form whatsoever) made or due and payable to Company
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental body, authority, bureau or agency (or any person acting under
color of governmental authority), (iii) any claim of Company against third
parties (A) for past, present or future infringement of any Patent or Patent
License in connection with the Collateral, or (B) for past, present or future
infringement or dilution of any Trademark or Trademark License in connection
with the Collateral, or for injury to the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any Trademark
License in connection with the Collateral, and (iv) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral.
"Secured Obligations" shall mean all of the unpaid principal amount
of, and accrued interest on, amounts owing by Company to Secured Party under
the Notes or this Security Agreement.
"Security Agreement" shall mean this Security Agreement, as the same
may from time to time be amended, modified or supplemented and shall refer to
this Security Agreement as in effect as of the date such reference becomes
operative.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by Company: (i) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter
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<PAGE> 15
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, and
(ii) all reissues, extensions or renewals thereof.
"UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Secured Party's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Grant of Security Interest. As collateral security for
the prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations and to
induce Secured Party to enter into the Notes and to make the Advances (as that
term is defined in the Notes) in accordance with the terms thereof, to the
extent necessary to enable Secured Party to exercise its rights under the
Notes, Company hereby assigns, conveys, mortgages, pledges, hypothecates and
transfers to Secured Party, for its benefit, and hereby grants to Secured
Party, for its benefit, a security interest in, all of Company's right, title
and interest in, to and under the following (all of which being hereinafter
collectively called the "Collateral"):
(a) shall mean all of the assets and property of every
kind of the Debtor, including all assets and property now owned and hereafter
acquired by the Debtor, whether tangible or intangible, wherever located or
situated, whether or not in possession of the Debtor, including but not limited
to: all of the Debtor's right, title and interest in and to every Film Asset
now owned or hereafter acquired, and all other assets and property whether now
owned or hereafter at any time acquired relating to any Film or any Film
Assets, including, but not limited to, all goods, accounts, contract rights,
general intangibles, equipment, ancillary rights, Copyrights, Physical
Properties, and the products thereof, proceeds thereon or income therefrom; all
common or preferred stock certificates, bonds or securities of every kind and
nature whatsoever owned by Debtor; all properties, rights and things of value
pertaining to any and all of the foregoing, and all products and proceeds of
and replacements for any and all of the foregoing, whether now in existence or
hereafter existing, made, acquired or produced; and further including, without
limitation, each and all of the following particular rights, assets and
properties of the Debtor:
(i) All machinery, electrical and electronic
components, equipment, fixtures, furniture, office machinery,
vehicles, trailers, implements and other tangible personal
property of every kind and description now owned or hereafter
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<PAGE> 16
acquired by Debtor (including without limitation, all video
recording, transposition, duplication, viewing and other
electronic equipment used in the Debtor's business, all cameras
and other photographic, sound recording and editing equipment,
projectors, film developing equipment and machinery), and all
goods of like kind or type hereafter acquired by Debtor in
substitution or replacement thereof, and all additions and
accessions thereto (collectively hereinafter referred to as the
"Equipment"), and all rents, proceeds and products on or of the
Equipment, including without limitation, the rights to
insurance proceeds covering the Equipment;
(ii) The following personal property, whether now
owned or hereafter acquired: all inventions, processes,
formulae, licenses, patents, patent rights, trademarks,
trademark rights, service marks, service mark rights, trade
names, trade name rights, logos, indicia, corporate and
company names, business source or business identifiers and
renewals and extensions thereof, domestic and foreign, whether
now owned or hereafter used, acquired or developed, and the
accompanying good will and other like business property rights
relating to any aspect of the Debtor's business, and the right
(but not the obligation) to register claim under trademark or
patent and to renew and extend such trademarks or patents and
the right (but not the obligation) to sue in the names of the
Debtor (or any of them) and/or in the name(s) of the Secured
Party for past, present or future infringement of trademark or
patent (the foregoing being referred to as "Intellectual
Property");
(iii) All inventory of the Debtor, including,
without limitation all merchandise, raw materials, components,
parts, supplies, work-in-process, finished products intended
for sale, lease or other disposition, and packing and shipping
materials of every kind, nature and description, wherever any
of the same may be located and whether now owned or hereafter
developed, manufactured or acquired by the Debtor;
(iv) All deposits, cash and cash equivalents of
the Debtor, and all drafts, checks, certificates of deposit,
notes, bills of exchange and other writings which evidence a
right to the payment of money;
(v) All leasehold interests and other rights and
interests of the Debtor respecting the use or ownership of, or
title to any real property, including fee interests,
easements, licenses, all other rights and interests of any
kind;
(vi) All Film Assets, all of the Debtor's right
title and interest in and to Physical Properties and all
contract rights relating to any Film Assets, any and all sums,
proceeds, money, products, profits or increases, including
money profits or increases (as those terms are used in the
Uniform Commercial Code or otherwise)
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<PAGE> 17
or other property obtained or to be obtained from the
exploitation of any Film Assets, rights and interests in and to
Physical Properties, and any other collateral, allied,
subsidiary and merchandising rights relating to any Film; and
any and all documents and the rights of the Debtor's thereunder
issued by any pledgeholder or bailee with respect to any
Physical Properties;
(vii) All insurance policies on which the Debtor is
named as an insured or additional insured or loss payee and
all proceeds which may be derived therefrom;
(viii) All contracts and accounts and/or other
rights to payment which the Debtor presently owns or which may
arise in favor of the Debtor in the future, including, without
limitation, any refund of the fees, advances or royalties paid
or prepaid, all accounts and/or rights to payment due from
third parties in connection with the distribution of
videocassette and from exploitation of any and all of the Film
Assets, including but not limited to all contracts and
accounts; and
(ix) Any and all "General Intangibles" (as that
term is defined in the applicable Uniform Commercial Codes)
not elsewhere included in this definition, including, without
limitation, any and all general intangibles consisting of any
right to payment of the Debtor which may arise in the
distribution or exploitation of any of the rights set out
herein, and any and all general intangible rights in favor of
the Debtor or the Secured Party for services or other
performances by any third parties. all of Company's right,
title, and interest in and to the Film Assets and further
including but not limited to related goods, accounts, contract
rights, general intangibles, equipment, copyrights,
trademarks, and any proceeds thereof or income therefrom. The
foregoing shall include, to the extent they are owned by
Company (it being understood that this definition does not
constitute a representation that each and all the various
rights listed are owned by Company), without limitation, the
scenario, screenplay or script upon which the Films are based,
all of the properties thereof, tangible and intangible,
whether now in existence or hereafter to be made or produced
and whether or not in possession of Company, and any rights
therein and thereto, of every kind and character, including,
without limiting the foregoing language, each and all of the
following particular rights and properties:
(b) To the extent granted under the Notes, the following
personal property, whether now owned or hereafter acquired,: (i) all of
Company's rights in and to the title of the Film Assets and the exclusive use
thereof including, without limitation, any and all rights protected pursuant to
trademark, service mark, unfair competition and/or other laws, rules or
principles of law or equity and (ii) all inventions, processes, formulae,
licenses, patents, patent rights, trademarks, trademark rights, service marks,
service mark rights, trade names, trade name rights,
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<PAGE> 18
logos, indicia, corporate and company names, business source or business
identifiers and renewals and extensions thereof, domestic and foreign, relating
to the Film Assets, whether now owned or hereafter acquired, and the
accompanying good will and other like business property rights, and the right
(but not the obligation) to register claim under trademark or patent and to
renew and extend such trademarks or patents and the right, but not the
obligation, to sue in the name(s) of Company or the Secured Party or both for
past, present or future infringement of trademark or patent; and
(c) To the extent granted under the Notes, all cash and cash
equivalents of Company derived from or relating to the Film Assets and all
drafts, checks, certificates of deposit, bills of exchange and other writings
relating to the Film Assets which evidence a right to the payment of money and
are not themselves security agreements or leases and are of a type which is in
the ordinary course of business transferred by delivery with any necessary
endorsement or assignment whether now owned or hereafter acquired.
3. Representations and Warranties
The Company hereby represents and warrants that:
(a) Except for the security interest granted to Secured
Party pursuant to this Security Agreement and other Permitted Liens,
Company is the owner of the Collateral in which it purports to grant a
security interest hereunder, having good and marketable title thereto,
free and clear of any and all Liens.
(b) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement
covering all or any part of the Collateral is on file or of record in
any public office, except such as may have been filed by Company in
favor of Secured Party, pursuant to this Security Agreement or such as
relate to other Permitted Liens.
(c) Provided that appropriate financing statements are
properly filed in all jurisdictions in which the Collateral is located,
this Security Agreement is effective to create a valid and continuing
first priority lien on and first priority perfected security interest in
the Collateral with respect to which a security interest may be
perfected by filing pursuant to the UCC in favor of Secured Party, prior
to all other Liens except Permitted Liens, and is enforceable as such as
against creditors of and purchasers from Company. All action necessary
or desirable to protect and perfect such security interest in each item
of the Collateral has been duly taken.
(d) Company's principal place of business and the place
where its records concerning the Collateral are kept is located at the
address of Company set forth in Section 11 below, and Company will not
change such principal place of business or remove such records without
notifying Secured Party in advance, by prior written notice.
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4. Covenants. Company covenants and agrees with Secured Party
that from and after the date of this Security Agreement and until the Secured
Obligations are fully satisfied:
(a) Financing Statements and Further Documentation.
Company will join with Secured Party in the execution and filing
of such financing statement or statements in the form and
content reasonably required by Secured Party. Secured Party
will advance (and recoup as distribution expenses) all costs of
filing any financing, continuation or termination statements
with respect to the security interest created by this Agreement,
together with costs and expenses of any lien search reasonably
required by Secured Party, during the term hereof. At any time
and from time to time, upon the written request of Secured
Party, Company will promptly and duly execute and deliver any
and all such further instruments and documents and take such
further action as Secured Party may reasonably deem desirable to
obtain the full benefits of this Security Agreement and of the
rights and powers herein granted, including, without limitation,
using its reasonable best efforts to secure all consents and
approvals necessary or appropriate for the assignment to Secured
Party, of any License or Contract held by Company or in which
Company has any rights not heretofore assigned, and the filing
of any financing or continuation statements under the UCC with
respect to the liens and security interests granted hereby.
Company also hereby authorizes Secured Party to file any such
financing or continuation statement without the signature of
Company to the extent permitted by applicable law.
(b) Maintenance of Records. Company will keep and
maintain at its own cost and expense satisfactory and complete
records of the Collateral, including, without limitation, a
record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the
Collateral. Prior to the occurrence of an Event of Default and
upon reasonable notice from Secured Party, Company shall permit
any representative of Secured Party to inspect such books and
records during normal business hours and will provide
photocopies thereof to Secured Party at Secured Party's expense.
(c) Indemnification. In any suit, proceeding or
action brought by Secured Party relating to the Collateral,
Company will save, indemnify and keep Secured Party harmless
from and against all expense, loss or damage suffered by reason
of any defense, set off, counterclaim, recoupment or reduction
of liability whatsoever of the obligor with respect thereto,
arising out of a breach by Company of any material obligation
with respect thereto, and all such obligations of Company shall
be and remain enforceable against and only against Company and
shall not be enforceable against Secured Party.
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(d) Compliance with Laws, etc. Company will
comply, in all material respects, with all acts, rules,
regulations, orders, decrees and directions of any governmental
authority, applicable to the Collateral or any part thereof or
to the operation of Company's business; provided, however, that
Company may contest any act, regulation, order, decree or
direction in any reasonable manner which shall not in the
reasonable opinion of Secured Party, adversely affect Secured
Party's rights hereunder or adversely affect the first priority
of its security interest in the Collateral.
(e) Payment of Obligations. Company will pay
promptly when due all charges imposed upon the Collateral or in
respect of its income or profits therefrom and all claims of any
kind (including, without limitation, claims for labor, material
and supplies) except as otherwise provided in the Notes.
(f) Compliance with Terms of Accounts, etc. In all
material respects, Company will perform and comply with all
obligations in respect of Accounts Receivable, Chattel Paper,
Contracts and Licenses and all other agreements to which it is a
party or by which it is bound.
(g) Limitation on Liens on Collateral. Company
will not create, permit or suffer to exist, and will defend the
Collateral against and take such other action as is necessary to
remove, any Lien on the Collateral except Permitted Liens.
(h) Limitations on Disposition. Company will not
sell, lease, transfer or otherwise dispose of any of the
Collateral, or attempt or contract to do so except in the
ordinary course of business.
(i) Continuous Perfection. Consistent with the
terms of the Notes, Company will not change its name, identity
or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith
seriously misleading within the meaning of section 9-402(7) of
the UCC (or any other then applicable provision of the UCC)
unless Company shall have given Secured Party at least thirty
(30) days' prior written notice thereof and shall have taken all
action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by Secured
Party to amend such financing statement or continuation
statement so that it is not seriously misleading.
5. Secured Party's Appointment as Attorney-in-Fact.
(a) Subject to Paragraph (b) below, Company hereby
irrevocably constitutes and appoints Secured Party and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and
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<PAGE> 21
authority in the place and stead of Company and in the name of Company
or in its own name, from time to time in Secured Party's discretion, for
the purpose of carrying out the terms of this Security Agreement, to
take any and all appropriate action and to execute and deliver any and
all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement and, without limiting
the generality of the foregoing, hereby gives Secured Party the power
and right, upon the occurrence of an Event of Default not otherwise
cured, on behalf of Company, without notice to or assent by Company to
do the following:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all moneys due and to
become due with respect to the Collateral and, in the name of
Company or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, acceptances or other
instruments for the payment of moneys due with respect to the
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
reasonably appropriate by Secured Party for the purpose of
collecting any and all such moneys due under any Collateral
whenever payable and to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise
deemed reasonably appropriate by Secured Party for the purpose
of collecting any and all such moneys due under any Collateral
whenever payable;
(ii) to pay or discharge taxes, liens, security
interests or other encumbrances levied or placed on or
threatened against the Collateral, to effect any insurance
called for by the terms of this Security Agreement and to pay
all or any part of the premiums therefor and the costs thereof;
and
(iii) (A) to direct any party liable for any payment
under any of the Collateral to make payment of any and all
moneys due, and to become due thereunder, directly to Secured
Party or as Secured Party shall direct (but only to the extent
of sums due to Secured Party from Company); (B) to receive
payment of and receipt for any and all moneys, claims and other
amounts due, and to become due at any time, in respect of or
arising out of any Collateral; (C) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other
Documents constituting or relating to the Collateral; (D) to
commence and prosecute any suits, actions or proceedings at law
or in equity in any court of competent jurisdiction to collect
the Collateral or any part thereof and to enforce any other
right in respect of any Collateral; (E) to defend any suit,
action or proceeding brought against Company with respect to any
Collateral; (F) to settle, compromise or adjust any suit, action
or proceeding described above and, in connection therewith, to
give such discharges or releases as Secured Party may deem
reasonably appropriate; (G) subject to the Notes, to license or,
to the extent permitted by an applicable license, sublicense,
whether general, special or
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<PAGE> 22
otherwise, and whether on an exclusive or non-exclusive basis,
any Patent or Trademark pertaining to the Collateral, on such
conditions, and in such manner, as Secured Party shall in its
discretion determine; and (H) generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though
Secured Party were the absolute owner thereof for all purposes,
and to do, at Secured Party's option and Company's expense, at
any time, or from time to time, all acts and things which
Secured Party reasonably deems necessary to protect, preserve or
realize upon the Collateral and Secured Party's Lien therein, in
order to effect the intent of this Security Agreement, all as
fully and effectively as Company might do.
(b) Secured Party agrees that, except upon the occurrence
and during the continuation of an Event of Default which is not
otherwise cured, it will not exercise the power of attorney or any
rights granted to Secured Party pursuant to this Section 5. Subject to
the foregoing sentence, Company hereby ratifies, to the extent permitted
by law, all that said attorneys shall lawfully do or cause to be done by
virtue hereof. The power of attorney granted pursuant to this Section 5
is a power coupled with an interest and shall be irrevocable until the
Secured Obligations are indefeasibly paid in full.
(c) The powers conferred on Secured Party hereunder are
solely to protect Secured Party's interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. Secured Party
shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers and neither it nor any of its
officers, directors, employees or agents shall be responsible to Company
for any act or failure to act, except for its own gross negligence or
willful misconduct.
(d) Company also authorizes Secured Party, at any time and
from time to time upon the occurrence and during the continuation of any
Event of Default which is not cured, to communicate in its own name with
any party to any contract relating to the Collateral with regard to the
assignment of the right, title and interest of Company in and under any
such contract hereunder and other matters relating thereto.
6. Performance by Secured Party of Company's Obligation. If Company
fails to materially perform or comply with any of its agreements contained
herein (and fails to so cure after notice thereof) and Secured Party, as
provided for by the terms of this Security Agreement, shall itself perform or
comply, or otherwise cause performance or compliance, with such agreement, the
reasonable expenses of Secured Party incurred in connection with such
performance or compliance, together with interest thereon at the rate then in
effect in respect of the Advances, shall be payable by Company to Secured Party
on demand and shall constitute Secured Obligations secured hereby.
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<PAGE> 23
7. Events of Default. Except as otherwise expressly
provided under the Notes or this Security Agreement, as the case may be, the
following conditions or events shall constitute an Event of Default:
(a) The rejection, termination or disaffirmance or the
attempted rejection, termination or disaffirmance by Company (or any
person or entity acting on Company's behalf or in Company's place and
stead) of the Notes or this Security Agreement; or
(b) Any representation or warranty which materially
adversely affects the rights of Secured Party in connection with this
Security Agreement or the Notes shall be false in any material respect
on the date as of which made; or
(c) Company shall fail, breach or default in the
performance of any of the Secured Obligations which failure, breach or
default materially adversely affects Secured Party's rights therein
(subject to any additional express cure rights provided for in the
Notes); or
(d) (i) A court having jurisdiction in the premises
shall enter a decree or order for relief in respect of Company
in an involuntary case under any applicable bankruptcy,
insolvency or any other similar law now or hereafter in effect,
which decree or order is not stayed; or any other similar relief
shall be granted under any applicable federal or state law; or
(ii) An involuntary case shall be commenced against
Company under any applicable bankruptcy, insolvency or similar
law now or hereafter in effect; or a decree or order of any
court having jurisdiction in the premises for the appointment of
a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Company or over all or
over a substantial part of its property, shall have been
entered; or there shall have been an involuntary appointment of
an interim receiver, trustee or other custodian of Company for
all or a substantial part of its property; or there shall have
been issued a warrant of attachment, execution or similar
process against any substantial part of the property of Company
and any such event in this clause (ii) shall have continued for
thirty (30) days unless dismissed, bonded or discharged; or
(e) Company shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case,
under any such law, or shall consent to the appointment of or taking
possession by a receiver or other custodian for all or a substantial
part of its property; or Company shall make any assignment for the
benefit of creditors; or Company shall fail or be unable or shall admit
in writing its inability to pay its debts as such debts become due; or
the Board of Directors of
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<PAGE> 24
Company (or any committee thereof) shall adopt any resolution or
otherwise authorize any action to approve any of the foregoing; or
(f) Company shall be dissolved or shall file a petition for
dissolution, unless Company's successor executes and delivers to Secured
Party a security agreement substantially similar in all respects to this
Security Agreement.
8. Remedies, Rights Upon Default.
(a) If any Event of Default shall occur and be continuing
and not otherwise timely cured, Secured Party may exercise in addition
to all other rights and remedies granted to it in this Security
Agreement and in any other instrument or agreement securing, evidencing
or relating to the Secured Obligations, all rights and remedies of a
secured party under the UCC. Without limiting the generality of the
foregoing, Company expressly agrees that in any such event Secured
Party, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place
of public or private sale) to or upon Company or any other person (all
and each of which demands, advertisements and/or notices are hereby
expressly waived to the maximum extent permitted by the UCC and other
applicable law), may forthwith collect, receive, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give an option or options to purchase, or sell or
otherwise dispose of and deliver said Collateral (or contract to do so),
or any part thereof, in one or more parcels at public or private sale or
sales, at any exchange or broker's board or at any of Secured Party's
offices or elsewhere at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk.
Secured Party shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of said Collateral so sold,
free of any right or equity of redemption, which equity of redemption
Company hereby releases. Company further agrees, at Secured Party's
request, to assemble the Collateral and make it available to Secured
Party at places which Secured Party shall reasonably select, whether at
Company's premises or elsewhere. Secured Party shall apply the net
proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, as provided in Section 8(d) hereof, Company
remaining liable, as expressly provided in the Notes only, for any
deficiency remaining unpaid after such application, and only after so
paying over such net proceeds and after the payment by Secured Party of
any other amount required by any provision of law, including Section
9-504(1)(c) of the UCC, need Secured Party account for the surplus, if
any, to Company. To the maximum extent permitted by applicable law,
Company waives all claims, damages, and demands against Secured Party
arising out of the repossession, retention or sale of the Collateral
except such as arise out of the gross negligence or wilful misconduct of
Secured Party. Company agrees that Secured Party need not give more
than ten (10) days' notice (which notification shall be deemed given
when mailed or delivered on an overnight basis, postage prepaid,
addressed to Company at its address referred to in Section 12 hereof) of
the time and place of any public
16
<PAGE> 25
sale or of the time after which a private sale may take place and that
such notice is reasonable notification of such matters. Company shall
remain liable, as expressly provided in the Notes only, for any
deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which Secured Party is entitled,
Company also being liable, as expressly provided in the Notes only, for
the reasonable fees of any attorneys employed by Secured Party to
collect such deficiency.
(b) Company also agrees to pay all costs of Secured Party,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies
hereunder to the extent Secured Party is adjudicated to be entitled to
such enforcement.
(c) Company hereby waives presentment, demand, protest or
any notice (to the maximum extent permitted by applicable law) of any
kind in connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be distributed
by Secured Party in the following order of priorities:
first, to Secured Party in an amount sufficient to pay
in full the reasonable expenses of Secured Party in connection
with such sale, disposition or other realization, including all
expenses, liabilities and advances incurred or made by Secured
Party in connection therewith, including, without limitation,
reasonable attorney's fees;
second, to Secured Party in an amount equal to the then
unpaid principal of and accrued interest and prepayment
premiums, if any, expressly due pursuant to the Notes; and
finally, upon payment in full of all of the obligations
outstanding and expressly due pursuant to the Notes, to pay to
Company, or its representatives or as a court of competent
jurisdiction may direct, any surplus then remaining from such
Proceeds.
9. Limitation on Secured Party's Duty in Respect of
Collateral. Secured Party shall use reasonable care with respect to the
Collateral in its possession or under its control. Secured Party shall not
have any other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of it or any income thereon or as
to the preservation of rights against prior parties or any other rights
pertaining thereto. Secured Party shall account for any moneys or other
property or rights received by it in respect of any foreclosure on or
disposition of the Collateral.
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<PAGE> 26
10. Reinstatement. This Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by
or against Company for liquidation or reorganization, should Company become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of Company's
assets, and shall continue to be effective or be reinstated, as the case may
be, if at any time payment and performance of the Secured Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount,
or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference", "fraudulent conveyance", or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only
by such amount paid and not so rescinded, reduced, restored or returned.
11. Notices. Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be delivered in person with
receipt acknowledged, or telecopied and confirmed immediately in writing by a
copy mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as hereafter set forth, or mailed by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to Secured Party, at
With a copy to:
(b) If to Company, at
DSL Entertainment Group, Inc.
12300 Wilshire Boulevard, Suite 400
Los Angeles, California 90025
Attn: Mr. Drew Levin
With a copy to:
Kelly & Lytton
1900 Avenue of the Stars, Suite 1450
18
<PAGE> 27
Los Angeles, California 90067
Attn: Bruce P. Vann, Esq.
The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every
notice, demand, request, consent, approval, declaration or other
communication hereunder shall be deemed to have been duly given
or served on the date on which personally delivered, with
receipt acknowledged, or the date of the telecopy transmission,
or three (3) Business Days after the same shall have been
deposited in the United States mail. Failure or delay in
delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons
designated above to receive copies shall in no way adversely
affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication.
12. Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. Secured Party shall
not by any act, delay, omission or otherwise be deemed to have waived any of
its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by Secured Party and then only to the extent therein set forth.
A waiver by Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which Secured Party
would otherwise have had on any future occasion. No failure to exercise nor
any delay in exercising on the part of Secured Party, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may
be exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument
in writing, duly executed by Secured Party and, where applicable by Company.
For the avoidance of doubt, the foregoing rights and remedies are all subject
to the terms and provisions of the Notes.
14. Successor and Assigns. This Security Agreement and all
obligations of Company hereunder shall be binding upon the successors and
assigns of Company, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, and all future holders
of instruments or agreements evidencing the Secured Obligations and their
respective successors and assigns. No sales of participation, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Secured
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<PAGE> 28
Obligations or any portion thereof or interest therein shall in any manner
affect the security interest granted to Secured Party hereunder.
15. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. SECURED PARTY AND COMPANY AGREE TO SUBMIT TO PERSONAL JURISDICTION
AND TO WAIVE ANY OBJECTION AS TO VENUE IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA. SERVICE OF PROCESS ON COMPANY OR SECURED PARTY IN ANY ACTION
ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT SHALL BE EFFECTIVE IF
MAILED TO SUCH PARTY AT THE ADDRESS LISTED IN SECTION 11 HEREOF AND IN THE
MANNER PROVIDED THEREUNDER. EACH PARTY AGREES NOTHING HEREIN SHALL PRECLUDE
THE OTHER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION.
16. Conflict of Terms. Except as otherwise explicitly
provided in this Security Agreement, a conflict or inconsistency, if any,
between the terms and provisions of this Security Agreement and the terms and
provisions of the Notes shall be controlled by the terms and provisions of the
Notes to the extent of such conflict or inconsistency.
17. Use and Protection of Patent and Trademark Collateral.
Notwithstanding anything to the contrary contained herein, unless an Event of
Default has occurred and is continuing and shall remain uncured, Secured Party
shall from time to time execute and deliver, upon the written request of
Company, any and all instruments, certificates or other documents, in the form
so requested, necessary or appropriate in the judgment of Company to permit
Company to continue to exploit, license, use, enjoy and protect the Patents and
Trademarks relating to the Collateral.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
on the date first set forth above.
DSL ENTERTAINMENT GROUP, INC.
By:
------------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
20
<PAGE> 29
Accepted and acknowledged by:
By:_________________________________________________
Name: __________________________________________
Title: __________________________________________
21
<PAGE> 1
EXHIBIT 4.5
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED,
SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS.
THIS NOTE IS SECURED AS PROVIDED HEREIN.
DSL ENTERTAINMENT GROUP, INC.
10% SECURED CONVERTIBLE NOTE
MAY __, 1996
$[ ] PRINCIPAL AMOUNT NEW YORK, NEW YORK
DSL ENTERTAINMENT GROUP, INC., a California corporation (the
"Company"), for value received, hereby promises to pay to [ ], or
registered assigns (the "Holder"), the principal amount of [ ] Dollars
($[ ]) on the earlier to occur of the Maturity Date (as defined below) and the
Redemption Date (as defined below), and to pay interest on the unpaid principal
balance hereof at the rate (calculated on the basis of a 360-day year consisting
of twelve 30-day months) of 10% per annum, compounding quarterly, from the date
hereof until the Maturity Date. Accrued interest on the unpaid principal balance
hereof shall be payable on the earlier to occur of the Maturity Date and the
Redemption Date. In no event shall any interest to be paid hereunder exceed the
maximum rate permitted by law. In any such event, this Note shall automatically
be deemed amended to permit interest charges at an amount equal to, but no
greater than, the maximum rate permitted by law.
This Note is one of a series of Notes being issued by the
Company in an aggregate principal amount not to exceed $1,800,000.00
denominated "10% Convertible Secured Notes" (the "Notes") and the holder
thereof is entitled to the benefits of a Security Agreement, dated as of May
__, 1996 between the Company and the individuals and entities who are (or will
be) signatories to such agreement. The Notes have been offered and sold by the
Company in an offering of securities exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
Confidential Private Placement Memorandum, dated May __, 1996 (the
"Memorandum").
<PAGE> 2
SECTION 1 PAYMENTS.
(a) Principal of, and any accrued and unpaid interest on,
this Note shall be due and payable in full on the earlier to occur of the
Maturity Date and the Redemption Date. The "Maturity Date" shall be May __,
1998.
(b) Interest on this Note shall accrue from the date of
issuance hereof, to, but excluding the earlier to occur of the Maturity Date
and shall be payable in arrears. Accrued and unpaid interest not paid when due
and payable shall be capitalized.
(c) If the Maturity Date would fall on a day that is not
a Business Day (as defined below), the payment due on such date will be made on
the next succeeding Business Day with the same force and effect as if made on
the Maturity Date or Redemption Date, as the case may be. "Business Day" means
any day which is not a Saturday or Sunday and is not a day on which banking
institutions are generally authorized or obligated to close in the City of New
York, New York.
(d) The Company may, at its option, prepay all or any
part of the principal of this Note, without payment of any premium or penalty,
upon 10 days prior notice to the Holder. All payments on this Note shall be
applied first to accrued and unpaid interest hereon and the balance to the
payment of principal hereof.
(e) Payments of principal of, and interest on, this Note
shall be made by check sent to the Holder's address set forth above or to such
other address as the Holder may designate for such purpose from time to time by
written notice to the Company, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
(f) The obligations to make the payments provided for in
this Note are absolute and unconditional and not subject to any defense,
set-off, counterclaim, rescission, recoupment, or adjustment whatsoever. The
Company hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit,
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of, and without any notice, diligence, act
or omission with respect to, the collection of any amount called for hereunder.
SECTION 2 RANKING OF NOTE.
(a) The payment of the principal of, and interest on, the
Notes is secured by a first lien on all of the Company's right, title, and
interest in and the assets identified in that certain
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<PAGE> 3
Security Agreement, dated as of May __, 1996, between the Company and the
individuals and entities indicated therein.
(b) These Notes rank pro-rata and pari pasu to the lien
of those certain $900,000 principal amount of 10% Secured Redeemable Notes.
(c) Until the payment in full of all amounts of principal
of, and interest on, the Notes, and all other amounts owing under the Notes,
all payments to be made with respect to the principal of, or interest on, and
other amounts due with respect to indebtedness other than, the Notes shall be
made on a pari passu basis.
SECTION 3 COVENANTS.
The Company covenants and agrees with the Holder that, so long
as any amount remains unpaid on the Notes, unless the consent of the majority
of all of the Holders is obtained, the Company:
(a) shall not pay any dividend or make any distribution
on, or purchase, redeem, or retire, any shares of its capital stock or any
warrants, options, or other rights to reacquire any such shares, provided
however, that the Company may pay dividends payable solely in shares of its
capital stock; and provided further, the Company shall entitled to repurchase
stock owned by The Producer's Entertainment Group, Inc. pursuant to the TPEG
Settlement Agreement (as that term is defined in the Private Placement
Memorandum of May 1, 1996 relating to these Notes), or otherwise or shares
owned by Joe Cayre.
(b) shall not change its primary line of business and
shall use the proceeds from the issuance of the Notes only as set forth in the
Memorandum.
(c) shall deliver to each Holder:
(i) as soon as available, and in any event within
45 days after the end of each of the first three quarterly fiscal periods of
each fiscal year of the Company, statements of income, retained earnings, and
cash flow of the Company, for such period and for the period from the beginning
of the respective fiscal year to the end of such period, and the related
consolidated balance sheet of the Company and its subsidiaries as at the end of
such period setting forth in the case of each such statement in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, accompanied by a certificate of the chief financial officer of the
Company, which certificate shall state that (A) such financial statements
fairly present in all material respects the financial position and results of
operations of the Company and its subsidiaries, all in accordance with
generally accepted accounting principles consistently applied, and (B) no
Default (as hereinafter defined) has occurred and is continuing or, if any
Default has occurred and is continuing, a description thereof in reasonable
detail and of the action the Company has taken or proposes to take with respect
thereto;
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<PAGE> 4
(ii) as soon as available and in any event within
90 days after the end of each fiscal year of the Company, consolidated
statements of income, retained earnings, and cash flow of the Company for such
fiscal year, and the related consolidated balance sheet of the Company and its
subsidiaries as at the end of such fiscal year, setting forth in the case of
each such statement in comparative form the corresponding figures for the
preceding fiscal year, and accompanied by a certificate of the chief financial
officer of the Company stating that no Default has occurred and is continuing
or, if any Default has occurred and is continuing, a description thereof in
reasonable detail and of the action the Company has taken or proposes to take
with respect thereto;
(iii) promptly after the Company shall obtain
knowledge of such, written notice of all legal or arbitral proceedings, and of
all proceedings by or before any governmental or regulatory authority or
agency, and each material development in respect of such legal or other
proceedings, affecting the Company and its subsidiaries, except proceedings
which, if adversely determined, would not have a material adverse effect on the
Company and its subsidiaries taken as a whole; and
(iv) promptly after the Company shall obtain
knowledge of the occurrence of any Event of Default (as hereinafter defined) or
any event which with notice or lapse of time or both would become an Event of
Default (an Event of Default or such other event being a "Default"), a notice
specifying that such notice is a "Notice of Default" and describing such
Default in reasonable detail, and, in such Notice of Default or as soon
thereafter as practicable, a description of the action the Company has taken or
proposes to take with respect thereto.
SECTION 4 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute
an event of default (an "Event of Default"):
(a) A default in the payment of the principal on any
Note, when and as the same shall become due and payable.
(b) A default in the payment of any interest accrued on
any Note, when and as the same shall become due and payable, which default
shall continue for five business days after the date fixed for the making of
such interest payment.
(c) A default in the performance, or a breach, of any of
the covenants of the Company contained in Sections 1 or 3 of this Note.
(d) A default in the performance, or a breach, of any
other covenant or agreement of the Company in this Note and continuance of such
default or breach for a period of 30 days after receipt of notice from the
Holder as to such breach or after the Company had or should have had knowledge
of such breach.
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<PAGE> 5
(e) Any representation, warranty, or certification made
by the Company pursuant to this Note shall prove to have been false or
misleading as of the date made in any material respect.
(f) A final judgment or judgments for the payment of
money in excess of $50,000 in the aggregate shall be rendered by one or more
courts, administrative or arbitral tribunals, or other bodies having
jurisdiction against the Company and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within 60 days from the date of entry thereof and the
Company shall not, within such 60-day period, or such longer period during
which execution of the same shall have been stayed, appeal therefrom and cause
the execution thereof to be stayed during such appeal.
(g) The entry of a decree or order by a court having
jurisdiction adjudging the Company a bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment, or composition of, or
in respect of, the Company, under federal bankruptcy law, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency,
or other similar law, and the continuance of any such decree or order unstayed
and in effect for a period of 60 days; or the commencement by the Company of a
voluntary case under federal bankruptcy law, as now or hereafter constituted,
or any other applicable federal or state bankruptcy, insolvency, or other
similar law, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under federal bankruptcy law or any
other applicable federal or state law, or the consent by it to the filing of
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator, or similar official of the Company or of any substantial
part of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Company
in furtherance of any such action.
Notwithstanding the foregoing, no Event of Default shall be called
unless the holders of 75% of the outstanding Notes notify the Company that they
have accelerated the Notes as herein provided.
SECTION 5 REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default referred to in
Section 4(g), the principal amount then outstanding of, and the accrued and
unpaid interest on, this Note shall automatically become immediately due and
payable without presentment, demand, protest, or other formalities of any kind,
all of which are hereby expressly waived by the Company. Upon the occurrence
of an Event of Default referred to in Section 4(a) or (b), the Holder, by
notice in writing given to the Company, may declare the entire principal amount
then outstanding of, and the accrued and unpaid interest on, this Note to be
due and payable immediately, and upon any such declaration the same shall
become and be due and payable immediately, without presentation, demand,
protest,
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<PAGE> 6
or other formalities of any kind, all of which are expressly waived by the
Company. Upon the occurrence of an Event of Default other than one referred to
in Sections 4(a), (b), or (g), the Holders of not less than 50% in principal
amount of the then outstanding Notes (excluding any Notes held by or for the
account of the Company or any affiliate of the Company) may declare the
principal amount then outstanding of, and the accrued interest on, the Notes to
be due and payable immediately, and upon such declaration the same shall become
due and payable immediately, without presentation, demand, protest, or other
formalities of any kind, all of which are expressly waived by the Company.
(b) The Holder may institute such actions or proceedings
in law or equity as it shall deem expedient for the protection of its rights
and may prosecute and enforce its claims against all assets of the Company, and
in connection with any such action or proceeding shall be entitled to receive
from the Company payment of the principal amount of this Note plus accrued
interest to the date of payment plus reasonable expenses of collection,
including, without limitation, attorneys' fees and expenses.
SECTION 6 TRANSFER.
(a) Any Notes issued upon the transfer of this Note shall
be numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the
Note 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 Note
on the part of any other person, and shall not be liable for any registration
of transfer of Notes 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 Note 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 Note or Notes to the person entitled thereto. This Note may be exchanged,
at the option of the Holder thereof, for another Note, or other Notes of
different denominations, of like tenor and representing in the aggregate a like
principal amount, upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Notes to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of
the Securities Act and the rules and regulations thereunder.
(b) The Holder acknowledges that he has been advised by
the Company that this Note has not been registered under the Securities Act,
that this Note is being issued on the basis of the statutory exemption provided
by Section 4(2) of the Securities Act or Regulation D promulgated thereunder,
or both, relating to transactions by an issuer not involving any public
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<PAGE> 7
offering, and that the Company's reliance thereon is based in part upon the
representations made by the original Holder to the Company. The Holder
acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Securities Act and
the rules and regulations thereunder on the transfer of securities. In
particular, the Holder agrees that no sale, assignment, or transfer of this
Note shall be valid or effective, and the Company shall not be required to give
any effect to any such sale, assignment, or transfer, unless (i) such sale,
assignment, or transfer is registered under the Securities Act, it being
understood that this Note is not currently registered for sale and that the
Company has no obligation or intention to so register this Note, or (ii) this
Note is sold, assigned, or transferred in accordance with all the requirements
and limitations of Rule 144 under the Securities Act, it being understood that
Rule 144 is not available at the time of the original issuance of this Note for
the sale of this Note and that there can be no assurance that Rule 144 sales
will be available at any subsequent time, or (iii) such sale, assignment, or
transfer is otherwise exempt from registration under the Securities Act.
SECTION 7 CONVERSION
Section 7.01. Conversion Privilege.
A Holder of a Note may convert it into shares of Common Stock
at any time prior to the Maturity Date. The number of shares issuable upon
conversion of a Note is determined as follows: Divide the principal amount
converted by the conversion price in effect on the conversion date. Round the
result to the nearest 1/100th of a share.
The initial conversion price is $1.00. The conversion price
is subject to adjustment. See Sections 7.06 through 7.12.
A Holder may convert a portion of a Security if the portion is
$1,000 or an integral multiple of $1,000. Provisions of this Note that apply
to conversion of all of a Security also apply to conversion of a portion of it.
"Common Stock" means Common Stock, no par value, of the
Company as it exists on the date of this Indenture or as it may be constituted
from time to time.
Section 7.02. Conversion Procedure.
To convert a Security a Holder must satisfy the requirements
in this Section 7. The date on which the Holder satisfies all those
requirements is the conversion date. As soon as practical, the Company shall
deliver a certificate for the number of full shares of Common Stock issuable
upon the conversion and a check for any fractional share. The person in whose
name the certificate is registered becomes a shareholder of record on the
conversion date.
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<PAGE> 8
No adjustment will be made for accrued interest on a converted
Note or for dividends or distributions on shares of Common Stock issued upon
conversion of a Security.
If a Holder converts more than on Note at the same time, the
number of full shares issuable upon the conversion shall be based on the total
principal of the Notes converted.
Upon surrender of a Note that is converted in part, the
Company shall authenticate for the Holder a new Note equal in principal amount
to the unconverted portion of the Note surrendered.
If the last day on which a Note may be converted is a Legal
Holiday in a place where the Company is located, the Note may be surrendered to
the Company on the next succeeding day that is not a Legal Holiday.
Section 7.03. Fractional Shares
The Company will not issue a fractional share of Common Stock
upon conversion of a Security. Instead the Company will deliver its check for
the current market value of the fractional share. The current market value of
a fraction of a share is determined as follows: Multiply the current market
price of a full share by the fraction. Round the result to the nearest cent.
The current market price of a share of Common Stock for the
purpose of this Section 7.03 shall be the last reported sales price regular
way on the last trading day prior to the conversion date or, in case no such
reported sale takes place on such day, the average of the closing bid and asked
prices regular way for such day, in each case on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if not listed or admitted to trading, the last sale price
regular way for the Common Stock as published by NASDAQ, or if such last sale
price is not so published NASDAQ or if no such sale takes place on such day,
the mean between the closing bid and asked prices for the Common Stock as
published by NASDAQ. In the absence of one or more such quotations, the
Company shall determine the current market price on the basis it considers
appropriate.
Section 7.04. Taxes on Conversion
If a Holder of a Note converts it, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion. The Holder, however, shall pay any such
tax which is due because the shares are issued in a name other than his.
Section 7.05. Company to Provide Stock
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<PAGE> 9
The Company shall reserve out of its authorized but unissued
shares of Common Stock or its shares of Common Stock held in treasury enough
shares of Common Stock to permit the conversion of the Notes.
All shares of Common Stock which may be issued upon conversion
of the Securities shall be fully paid and non-assessable.
In order that the Company may issue shares of Common Stock
upon conversion of the Notes, the Company will endeavor to comply with all
applicable Federal and State securities laws and will endeavor to list such
shares on each national securities exchange on which the Common Stock is
listed.
Section 7.06. Adjustment for Change in Capital Stock
If the Company:
(1) pays a dividend in shares of its Common
Stock;
(2) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(3) combines its outstanding shares of Common
Stock into a smaller number of shares;
(4) distributes to all holders of its Common
Stock shares of its capital stock other than Common Stock; or
(5) issues by reclassification of its shares of
Common Stock any shares of its capital stock,
then the conversion privilege and the conversion price in
effect immediately prior to such action shall be adjusted so that the Holder of
any Notes thereafter converted may receive the number of shares of capital
stock of the Company which he would have owned immediately following such
action if he had converted the Note immediately prior to such action.
For a dividend or distribution, the adjustment shall become
effective immediately after the record date for the dividend or distribution.
For a subdivision, combination or reclassification, the adjustment shall become
effective immediately after the effective date of the subdivision, combination
or reclassification.
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<PAGE> 10
If after an adjustment a Holder of a Note upon conversion of
it may receive shares of two or more classes of capital stock of the Company,
the Board of Directors shall determine the allocation of the adjusted
conversion price between or among the classes of capital stock. After such
allocation, the conversion prices of the classes of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Note.
Section 7.07. Adjustment for Rights Issue.
If the Company issues any rights or warrants to all holders of
shares of its Common Stock entitling them for a period expiring within 45 days
after the record date mentioned below to purchase shares of Common Stock (or
securities convertible into shares of Common Stock) at a price per share (or
having a conversion price per share) less than the current market price per
share on that record date, the conversion price shall be adjusted in accordance
with the formula:
N x P
---------
C' = C x O + M
------------------------
O + N
where
C' = the adjusted conversion price
C = the then current conversion price
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock offered.
P = the offering or conversion price per share of the
additional shares.
M = the current market price per share of Common Stock on
the record date. See Section 7.10.
The adjustment shall be made successively whenever any such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights or warrants. If all of the shares of Common Stock or securities
convertible into shares of Common Stock subject to such rights or warrants have
not been issued when such rights or warrants expire, then the conversion price
shall promptly be readjusted to the conversion price which would then be in
effect had the adjustment upon the issuance of such rights or warrants been
made on the basis of the actual number of shares of Common Stock (or securities
convertible into shares of Common Stock) issued upon the exercise of such
rights or warrants.
Section 7.08. Adjustment for Other Distributions
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<PAGE> 11
If the Company distributes to all holders of shares
of its Common Stock any of its assets or debt securities or any rights
or warrants to purchase securities of the Company, the conversion
price shall be adjusted in accordance with the formula:
C' = C x (O x M) - F
-----------------
O x M
where
C' = the adjusted conversion price
C = the then current conversion price
O = the number of shares of Common Stock outstanding on
the record date mentioned below.
M = the current market price per share of Common Stock on
the record date mentioned below. See Section 7.10.
F = the fair market value on the record date of the assets,
securities, rights or warrants distributed. The
Board of Directors shall determine the fair market value.
The adjustment shall be made successively whenever any such
distribution is made, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the
distribution.
This Section does not apply to cash dividends or cash
distributions paid out of consolidated current net income or retained earnings
as shown on the books of the Company. Also; this Section does not apply to
rights or warrants referred to in Section 7.07.
No adjustment in the conversion price need be made under
Section 7.07 or this Section for sales of shares of Common Stock pursuant to a
Company plan providing for reinvestment of dividends or interest.
Section 7.09. Voluntary Adjustment
The Company at any time may reduce the conversion price by any
amount.
Section 7.10. Current Market Price
In Sections 7.07 and 7.08 the current market price per share
of Common Stock on any date is the average of the daily closing prices for 30
consecutive trading days commencing 45 trading days before the date of such
computation. 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 average of the closing bid and asked prices regular way for such day, in
each case on the principal
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<PAGE> 12
national securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if not listed or admitted to trading, the last sale
price regular way for the Common Stock as published by NASDAQ, or if such last
sale price is not so published by NASDAQ or if no such sale takes place on such
day, the mean between the closing bid and asked prices for the Common Stock as
published by NASDAQ. In the absence of one or more such quotations, the Company
shall determine the current market price on the basis it considers appropriate.
Section 7.11. When Adjustment May Be Deferred.
No adjustment in the conversion price need by made unless the
adjustment would require an increase or decrease of at least 25c. in the
conversion price. Any adjustments which are not made shall be carried forward
and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
Section 7.12. When Adjustment Is Not Required.
Unless this Article provides otherwise, no adjustment in the
conversion price shall be made because the Company issues, in exchange for
cash, property or services, shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock, or securities
carrying the right to purchase shares of Common Stock or such convertible or
exchangeable securities.
Section 7.13. Notice of Adjustment.
Whenever the conversion price is adjusted, the Company shall
promptly mail to Noteholders a notice of the adjustment.
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<PAGE> 13
Section 7.14. Notice of Certain Transactions.
(a) In the event either Borrower while any
indebtedness represented by this Note remains outstanding shall:
(1) the Company takes any action which would require an
adjustment in the conversion price pursuant to Section 7.07 or 7.08 or clause
(4) or (5) of Section 7.06;
(2) the Company consolidates or merges with, or transfers
all or substantially all of its assets to, another corporation, and
shareholders of the Company must approve the transaction;
(3) there is a dissolution or liquidation of the Company,
or
(4) the Company proposes to repay the Notes
it shall give Holder prompt notice (an "Issuance Notice") of such transaction,
describing (i) the securities issued and sold or proposed to be issued and sold
(the "Issuance Securities"), (ii) the price at which the Issuance Securities
have been or are to be issued and sold (the "Issuance Price"), (iii) the
circumstances or terms under which the Issuance Securities have been or are to
be sold at the Issuance Price, and/or the prepayment date
(b) For a period commencing with receipt of the
Issuance Notice and continuing until the latter of (i) thirty (30) days after
the Issuance Notice or (ii) the completion of any proposed transaction, the
Holder shall have the right to convert the indebtedness, or any portion
thereof, then outstanding and represented by this Note (including any accrued
but unpaid interest) into shares of Common Stock at the Conversion Price.
Section 7.15. Consolidation, Merger or Sale of the Company.
If the Company is a party to a merger which reclassifies or
changes its outstanding Common Stock, the successor corporation shall enter
into a Note. The supplemental Note shall provide that the Holder of a Note may
convert it into the kind and amount of securities or assets which he would have
owned immediately after the consolidation, merger or transfer if he had
converted the Security immediately before the effective date of such
transaction. The supplemental Note shall provide for adjustments which shall
be as nearly equivalent as may be practical to the adjustments provided for in
this Article.
If this Section applies, Section 7.06 shall not apply.
SECTION 8 MISCELLANEOUS.
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<PAGE> 14
(a) 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 by Federal Express, Express Mail,
or similar overnight delivery or courier service or delivered (in person or by
telecopy, telex, or similar telecommunications equipment) against receipt to
the party to whom it is to be given, (i) if to the Company, at its address at
12300 Wilshire Boulevard, Los Angeles, California 90025, Attention: President,
(ii) if to the Holder, at its address set forth on the first page hereof, or
(iii) in either case, to such other address as the party shall have furnished
in writing in accordance with the provisions of this Section 8(a). Notice to
the estate of any party shall be sufficient if addressed to the party as
provided in this Section 8(a). 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. Any notice given by other means permitted by this
Section 8(a) shall be deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Note (and upon surrender
of this Note if mutilated), the Company shall execute and deliver to the Holder
a new Note of like date, tenor, and denomination.
(c) No course of dealing and no delay or omission on the
part of the Holder in exercising any right or remedy shall operate as a waiver
thereof or otherwise prejudice the Holder's rights, powers, or remedies. No
right, power, or remedy conferred by this Note upon the Holder shall be
exclusive of any other right, power, or remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise, and all such
remedies may be exercised singly or concurrently.
(d) This Note may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be endorsed
upon this Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the
State of New York and shall be governed by, and construed in accordance with,
the laws of the State of New York, without giving effect to principles
governing conflicts of law.
(f) The Company irrevocably consents to the jurisdiction
of the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of, or relating
to, this Note, any document or instrument delivered pursuant to, in connection
with, or simultaneously with this Note, or a breach of this Note or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint, or other process and agrees that
service thereof may be made in accordance with Section 8(a). Within 30 days
after such service, or such other time as may be mutually agreed upon in
writing by the attorneys for the parties to such action or proceeding, the
Company shall appear or answer such summons, complaint, or other process.
Should the Company fail to appear or answer within such 30-day period or such
extended period, as the case may be, the
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<PAGE> 15
Company shall be deemed in default and judgment may be entered against the
Company for the amount as demanded in any summons, complaint, or other process
so served.
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and dated the day and year first above written.
DSL ENTERTAINMENT GROUP, INC.
BY: ___________________________
DREW S. LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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<PAGE> 16
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of May __, 1996, made by DSL
Entertainment Group, Inc., a California corporation ("Company" or "Debtor"), in
favor of the parties named hereto on Exhibit 1 (collectively, the "Secured
Party").
W I T N E S S E T H:
WHEREAS, the Company is offering to sell up to $1.8 million of
Convertible Secured notes (the "Notes"); and
WHEREAS, as condition to receiving amounts in respect of such
Notes, the Company shall have delivered to the Secured Party for its benefit,
this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the note are used herein as therein defined, and the following terms
shall have the following meanings (such meanings being equally applicable to
both the singular and plural forms of the terms defined):
"Affiliated Person" shall mean any Person which directly or indirectly
controls, is controlled by or is under common control with Company. For the
purposes of this definition, "control" (including with corresponding meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Collateral" shall have the meaning assigned to such term in Section 2
of this Security Agreement.
"Collateral Documents" shall mean all present and future notes, security
agreements, mortgages, deeds of trust, assignments, pledge agreements, financial
agreements, consents and other documents granting liens or other security
interests to Debtor and/or the Secured Party pursuant to this Security Agreement
including, without limitation, Copyright Mortgages, financing statements,
mortgages, subordination agreements, Laboratory Pledgeholder Agreements,
consents and/or waivers to be delivered pursuant to the various Sections of
Article herunder.
"Copyrights" shall mean all of Debtor's now owned or hereafter acquired
copyrights, copyright applications, copyright registrations and copyrightable
works and all renewals thereof and income, royalties, damages and payments
payable under or with respect thereto; together with any agreement granting any
right to use any copyright, copyright application, copyright registration or
copyrightable work.
<PAGE> 17
"Copyright Mortgages" shall mean the instruments of transfer pursuant to
which the Debtor (to the extent that Debtor is a copyright proprietor or owns
any rights under copyright) grants to Secured Party a copyright mortgage and/or
security interest in its interest in the United States, Canadian and/or
worldwide copyrights (including, but not limited to, the video cassette
distribution rights) to any Film Asset, substantially in the form of Exhibit A
attached hereto
"Equipment" shall have the meaning set forth in Section 2(a) hereof.
"Event of Default" shall have the meaning set forth in Section 7.
"Film" shall mean any and every existing motion picture or development
project or other recording (or proposed recording) of moving images by any
means, manner, process or device now known or hereafter devised.
"Film Assets" shall mean all rights and interests granted to/acquired or
retained by Debtor in connection with or related to the distribution or
exploitation of, or otherwise respecting, any Film, owned by Debtor to be
designated pursuant to the Notes, but excluding all rights and interests in
connection with or related to the distribution or exploitation of, or otherwise
respecting any such Film outside of the Licensed Territory (as such term is
defined in the Notes), including, but not limited to: any distribution rights,
license rights, and rights as a sub-distributor or sub-licensee; all rights to
distribute, sub-license, copy, exhibit, transmit, broadcast, package, edit,
reformat, advertise or exploit a Film, in any and all media, and any
syndication, television or cable television rights; all of Debtor's copyrights
or interests in any copyright on or relating to such Film; and any of Debtor's
collateral, allied, subsidiary or merchandising rights appurtenant or related to
any Film, including but not limited to the following specific rights:
(a) all scenarios, screenplays and/or scripts at every stage
of the development of the Films;
(b) all common law and statutory copyright and other rights
in all literary and other properties ("Literary Properties") that form the basis
of the Films or which are or will be incorporated into the Films, all component
parts of the same Films consisting of the Literary Properties and other
properties, all motion picture rights in and to the story, all treatments of
said story and other literary material, together with all preliminary and final
screenplays used and to be used in connection with the Films, and all other
literary material upon which the Films are based or from which it is adapted;
(c) all motion picture rights in and to all music and
musical compositions connected with the Films, including, without limitation,
all rights to record, re-record, produce, reproduce, or synchronize all of said
music and musical compositions in and in connection with motion pictures;
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<PAGE> 18
(d) all exposed and/or delivered negative film, sound
tracks, positive prints, cutouts and trims connected with the Films, whether or
not in completed form or in some state of completion;
(e) all collateral, allied, subsidiary and merchandising
rights appurtenant or related to the Films now or hereafter owned or controlled
by Debtor, including, without limitation, the following rights: Literary
Properties, or the text or any part of the Literary Properties; all rights
throughout the world to broadcast, transmit and/or reproduce by means of
television (including, without limitation, free, commercially sponsored,
sustaining, subscription, cable and pay television) or by any process analogous
thereto, now known or hereafter devised, the Films; all rights to produce
primarily for television or similar use, by use of film or any other medium now
known or hereafter devised, a motion picture or series of motion pictures based
upon the Films, the Literary Properties, or any part thereof, including, without
limitation, any script, scenario or the like used in the Films; all
merchandising rights including, without limitation, all rights to use, exploit,
and license others to use and exploit any commercial tie-ups of any kind arising
out of or connected with the Literary Properties, the Films, the title or titles
of the Films, the characters of the Films or the Literary Properties, or the
names or characteristics of such characters and including further, without
limitation, any commercial exploitation in connection with or related to the
Films or the Literary Properties;
(f) all statutory copyrights, domestic and foreign, obtained
or to be obtained on the Films, together with any and all copyrights obtained or
to be obtained in connection with the Films or any underlying or component
elements of the Films, including, without limitation, all copyrights on the
property described in subparagraphs (a) through (e) of this definition, together
with the right to register for copyright, and all rights to renew or extend such
registration and the right to sue in the name of Debtor or in Secured Party's
name for past, present, or future infringements of copyrights;
(g) all insurance policies connected with the Films and all
proceeds which may be derived therefrom;
(h) all right to, and otherwise exploit and turn to account
the Films, the negatives, sound tracks, prints, and motion picture rights in and
to the Literary Properties, other literary material upon which the Films are
based or from which they are adapted, and such music and musical compositions
used or to be used in the Films;
(i) any and all sums, proceeds, money, products, profits, or
increases, and money profits or increases (as those terms are used in the
Uniform Commercial Code or otherwise) or other property obtained or to be
obtained from the distribution, exhibition, sale, or other uses or dispositions
of the Films or any part of the Films, including, without limitation, all
proceeds, profits, products, and increases, whether in money or otherwise, from
the sale, rental, or licensing of the Films and/or any of the elements of the
Films, including collateral, allied, subsidiary, and merchandising rights;
3
<PAGE> 19
(j) the dramatic, non-dramatic, stage, television, radio,
and publishing rights, title and interests in and to the Films, to the extent
owned by Debtor, and the rights to register for copyrights and renewals of same
therein;
(k) the title of the Films to the extent of Debtor's right
to use thereof, including, without limitation, rights protected pursuant to any
trademark, service mark, or unfair competition law, and/or the rules and
principles of law related to any other applicable statute, common law decision,
or other rule or principle of law;
(l) all of Debtor's rights which grant to any person any
right to acquire, produce, develop, reacquire, finance, release, sell,
distribute, lease, sublease, market, license, sublicense, exhibit, broadcast,
transmit, reproduce, publicize or otherwise exploit the Films or any rights in
the Films including, without limitation, all such rights pursuant to the any
distribution agreement or license agreement;
(m) with respect to the Films, all accounts and/or other
rights to payment which Debtor presently owns or which may arise in favor of
Debtor in the future, including, without limitation, any refund under a
completion guarantee, all accounts and/or rights to payment due from exhibitors
in connection with the distribution of the Films, and all accounts and/or rights
to payment arising from exploitation of any and all of the collateral, allied,
subsidiary, merchandising, and other rights in connection with the Films;
(n) any and all "general intangibles" (as that term is
defined in the Uniform Commercial Code) of Debtor in connection with the Films
not elsewhere included in this definition, including, without limitation, any
and all general intangibles consisting of any right to payment which may arise
in the distribution or exploitation of any of the rights set out herein, and any
and all general intangible rights in favor of Debtor or Secured Party in
connection with the Films for services or other performances by any third
parties, including actors, writers, directors, individual producers, and/or any
and all other performing or non-performing parties or artists in any way
connected with the Films, any and all general intangible rights in favor of
Debtor or Secured Party relating to licenses of sound or other equipment in
connection with the Films, and licenses for photographic or other processes, and
any and all general intangibles related to the exhibition, distribution or
exploitation of the Films including general intangibles related to or which grow
out of the exhibition of the Films and the exploitation of any and all other
rights in the Films set out in this definition;
(o) any and all goods including inventory (as that term is
defined in the Uniform Commercial Code) which may arise in connection with the
creation, production, or delivery of the Films and which goods, pursuant to any
production or distribution agreement or otherwise, are owned by Debtor;
(p) each and all of the rights, regardless of denomination,
which arise in connection with the creation, production, completion of
production, delivery, distribution, or other
4
<PAGE> 20
exploitation of the Films, including, without limitation, any and all rights in
favor of Debtor and/or Secured Party, the ownership or control of which are or
may become necessary or desirable, in the opinion of Secured Party, in order to
complete production of the Films in the event that Secured Party exercises any
rights it may have to take over and complete production of the Films (which
shall be subject to the rights to take over and complete production of the Films
as Debtor may grant to other parties);
(q) any and all documents issued by any pledgeholder or
bailee with respect to the Films or with respect to any negatives, sound tracks
or prints (whether or not in completed form) connected therewith; and
(r) any and all rights of Debtor under contracts relating to
the production of the Films, including but not limited to all contracts which
have been delivered to Secured Party pursuant to this Security Agreement.
"General Intangibles" shall have the meaning set forth in Section
2(a)(viii).
"hereby," "herein," "hereof," "hereunder" and words of similar import
refer to this Security Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears.
"Permitted Liens" shall mean each of the following:
(i) Liens for taxes, assessments or governmental
charges or claims the payment of which is not at the time required;
(ii) Statutory liens of landlords and liens of
carriers, warehousemen, mechanics, materialmen, film laboratories, sound studios
and other liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith;
(iii) Liens (other than any lien imposed by ERISA)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);
(iv) Any attachment or judgment Lien, unless the
judgment it secures shall, within 45 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall have been
discharged within 45 days after the expiration of any such stay;
(v) Leases or subleases granted to others not
interfering with the ordinary conduct of the business of Company;
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<PAGE> 21
(vi) Easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering with the ordinary conduct of the
business of Company; and
(vii) Liens in respect of the series "Simply Style";
(viii) Liens granted to AMAE Ventures, Inc.; and
(ix) Liens granted to Joe Cayre, which are, in any
event, subordinated to the lien granted hereunder.
"Person" shall mean any entity, corporation, company, association,
partnership, joint venture, joint stock company, unincorporated organization,
trust, individual (including personal representatives, executors and heirs of a
deceased individual), nation, state, government (including governmental
agencies, departments, bureaus, boards, divisions and instrumentalities
thereof), trustee, receiver or liquidator.
"Proceeds" shall mean "proceeds," as such term is defined in section
9-306(1) of the UCC and, in any event, shall include, without limitation, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Company from time to time with respect to any of the Collateral, (ii) any and
all payments (in any form whatsoever) made or due and payable to Company from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
body, authority, bureau or agency (or any person acting under color of
governmental authority), (iii) any claim of Company against third parties (A)
for past, present or future infringement of any Patent or Patent License in
connection with the Collateral, or (B) for past, present or future infringement
or dilution of any Trademark or Trademark License in connection with the
Collateral, or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License in
connection with the Collateral, and (iv) any and all other amounts from time to
time paid or payable under or in connection with any of the Collateral.
"Secured Obligations" shall mean all of the unpaid principal amount of,
and accrued interest on, amounts owing by Company to Secured Party under the
Notes or this Security Agreement.
"Security Agreement" shall mean this Security Agreement, as the same may
from time to time be amended, modified or supplemented and shall refer to this
Security Agreement as in effect as of the date such reference becomes operative.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by Company: (i) all trademarks, trade names, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter
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adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, and
(ii) all reissues, extensions or renewals thereof.
"UCC" shall mean the Uniform Commercial Code as the same may, from time
to time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Secured Party's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Grant of Security Interest. As collateral security for
the prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations and to
induce Secured Party to enter into the Notes and to make the Advances (as that
term is defined in the Notes) in accordance with the terms thereof, to the
extent necessary to enable Secured Party to exercise its rights under the Notes,
Company hereby assigns, conveys, mortgages, pledges, hypothecates and transfers
to Secured Party, for its benefit, and hereby grants to Secured Party, for its
benefit, a security interest in, all of Company's right, title and interest in,
to and under the following (all of which being hereinafter collectively called
the "Collateral"):
(a) shall mean all of the assets and property of every kind
of the Debtor, including all assets and property now owned and hereafter
acquired by the Debtor, whether tangible or intangible, wherever located or
situated, whether or not in possession of the Debtor, including but not limited
to: all of the Debtor's right, title and interest in and to every Film Asset now
owned or hereafter acquired, and all other assets and property whether now owned
or hereafter at any time acquired relating to any Film or any Film Assets,
including, but not limited to, all goods, accounts, contract rights, general
intangibles, equipment, ancillary rights, Copyrights, Physical Properties, and
the products thereof, proceeds thereon or income therefrom; all common or
preferred stock certificates, bonds or securities of every kind and nature
whatsoever owned by Debtor; all properties, rights and things of value
pertaining to any and all of the foregoing, and all products and proceeds of and
replacements for any and all of the foregoing, whether now in existence or
hereafter existing, made, acquired or produced; and further including, without
limitation, each and all of the following particular rights, assets and
properties of the Debtor:
(i) All machinery, electrical and electronic
components, equipment, fixtures, furniture, office machinery,
vehicles, trailers, implements and other tangible personal
property of every kind and description now owned or hereafter
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<PAGE> 23
acquired by Debtor (including without limitation, all video
recording, transposition, duplication, viewing and other
electronic equipment used in the Debtor's business, all cameras
and other photographic, sound recording and editing equipment,
projectors, film developing equipment and machinery), and all
goods of like kind or type hereafter acquired by Debtor in
substitution or replacement thereof, and all additions and
accessions thereto (collectively hereinafter referred to as the
"Equipment"), and all rents, proceeds and products on or of the
Equipment, including without limitation, the rights to
insurance proceeds covering the Equipment;
(ii) The following personal property, whether now
owned or hereafter acquired: all inventions, processes,
formulae, licenses, patents, patent rights, trademarks,
trademark rights, service marks, service mark rights, trade
names, trade name rights, logos, indicia, corporate and company
names, business source or business identifiers and renewals and
extensions thereof, domestic and foreign, whether now owned or
hereafter used, acquired or developed, and the accompanying good
will and other like business property rights relating to any
aspect of the Debtor's business, and the right (but not the
obligation) to register claim under trademark or patent and to
renew and extend such trademarks or patents and the right (but
not the obligation) to sue in the names of the Debtor (or any of
them) and/or in the name(s) of the Secured Party for past,
present or future infringement of trademark or patent (the
foregoing being referred to as "Intellectual Property");
(iii) All inventory of the Debtor, including, without
limitation all merchandise, raw materials, components, parts,
supplies, work-in-process, finished products intended for sale,
lease or other disposition, and packing and shipping materials
of every kind, nature and description, wherever any of the same
may be located and whether now owned or hereafter developed,
manufactured or acquired by the Debtor;
(iv) All deposits, cash and cash equivalents of the
Debtor, and all drafts, checks, certificates of deposit, notes,
bills of exchange and other writings which evidence a right to
the payment of money;
(v) All leasehold interests and other rights and
interests of the Debtor respecting the use or ownership of, or
title to any real property, including fee interests, easements,
licenses, all other rights and interests of any kind;
(vi) All Film Assets, all of the Debtor's right title
and interest in and to Physical Properties and all contract
rights relating to any Film Assets, any and all sums, proceeds,
money, products, profits or increases, including money profits
or increases (as those terms are used in the Uniform Commercial
Code or otherwise)
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<PAGE> 24
or other property obtained or to be obtained from the
exploitation of any Film Assets, rights and interests in and to
Physical Properties, and any other collateral, allied,
subsidiary and merchandising rights relating to any Film; and
any and all documents and the rights of the Debtor's thereunder
issued by any pledgeholder or bailee with respect to any
Physical Properties;
(vii) All insurance policies on which the Debtor is
named as an insured or additional insured or loss payee and all
proceeds which may be derived therefrom;
(viii) All contracts and accounts and/or other rights
to payment which the Debtor presently owns or which may arise in
favor of the Debtor in the future, including, without
limitation, any refund of the fees, advances or royalties paid
or prepaid, all accounts and/or rights to payment due from third
parties in connection with the distribution of videocassette and
from exploitation of any and all of the Film Assets, including
but not limited to all contracts and accounts; and
(ix) Any and all "General Intangibles" (as that term
is defined in the applicable Uniform Commercial Codes) not
elsewhere included in this definition, including, without
limitation, any and all general intangibles consisting of any
right to payment of the Debtor which may arise in the
distribution or exploitation of any of the rights set out
herein, and any and all general intangible rights in favor of
the Debtor or the Secured Party for services or other
performances by any third parties. all of Company's right,
title, and interest in and to the Film Assets and further
including but not limited to related goods, accounts, contract
rights, general intangibles, equipment, copyrights, trademarks,
and any proceeds thereof or income therefrom. The foregoing
shall include, to the extent they are owned by Company (it being
understood that this definition does not constitute a
representation that each and all the various rights listed are
owned by Company), without limitation, the scenario, screenplay
or script upon which the Films are based, all of the properties
thereof, tangible and intangible, whether now in existence or
hereafter to be made or produced and whether or not in
possession of Company, and any rights therein and thereto, of
every kind and character, including, without limiting the
foregoing language, each and all of the following particular
rights and properties:
(b) To the extent granted under the Notes, the following personal
property, whether now owned or hereafter acquired,: (i) all of Company's rights
in and to the title of the Film Assets and the exclusive use thereof including,
without limitation, any and all rights protected pursuant to trademark, service
mark, unfair competition and/or other laws, rules or principles of law or equity
and (ii) all inventions, processes, formulae, licenses, patents, patent rights,
trademarks, trademark rights, service marks, service mark rights, trade names,
trade name rights,
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<PAGE> 25
logos, indicia, corporate and company names, business source or business
identifiers and renewals and extensions thereof, domestic and foreign, relating
to the Film Assets, whether now owned or hereafter acquired, and the
accompanying good will and other like business property rights, and the right
(but not the obligation) to register claim under trademark or patent and to
renew and extend such trademarks or patents and the right, but not the
obligation, to sue in the name(s) of Company or the Secured Party or both for
past, present or future infringement of trademark or patent; and
(c) To the extent granted under the Notes, all cash and cash
equivalents of Company derived from or relating to the Film Assets and all
drafts, checks, certificates of deposit, bills of exchange and other writings
relating to the Film Assets which evidence a right to the payment of money and
are not themselves security agreements or leases and are of a type which is in
the ordinary course of business transferred by delivery with any necessary
endorsement or assignment whether now owned or hereafter acquired.
3. Representations and Warranties
The Company hereby represents and warrants that:
(a) Except for the security interest granted to Secured Party
pursuant to this Security Agreement and other Permitted Liens, Company is
the owner of the Collateral in which it purports to grant a security
interest hereunder, having good and marketable title thereto, free and
clear of any and all Liens.
(b) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering
all or any part of the Collateral is on file or of record in any public
office, except such as may have been filed by Company in favor of Secured
Party, pursuant to this Security Agreement or such as relate to other
Permitted Liens.
(c) Provided that appropriate financing statements are properly
filed in all jurisdictions in which the Collateral is located, this
Security Agreement is effective to create a valid and continuing first
priority lien on and first priority perfected security interest in the
Collateral with respect to which a security interest may be perfected by
filing pursuant to the UCC in favor of Secured Party, prior to all other
Liens except Permitted Liens, and is enforceable as such as against
creditors of and purchasers from Company. All action necessary or
desirable to protect and perfect such security interest in each item of
the Collateral has been duly taken.
(d) Company's principal place of business and the place where its
records concerning the Collateral are kept is located at the address of
Company set forth in Section 11 below, and Company will not change such
principal place of business or remove such records without notifying
Secured Party in advance, by prior written notice.
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<PAGE> 26
4. Covenants. Company covenants and agrees with Secured Party
that from and after the date of this Security Agreement and until the Secured
Obligations are fully satisfied:
(a) Financing Statements and Further Documentation.
Company will join with Secured Party in the execution and filing
of such financing statement or statements in the form and content
reasonably required by Secured Party. Secured Party will advance
(and recoup as distribution expenses) all costs of filing any
financing, continuation or termination statements with respect to
the security interest created by this Agreement, together with
costs and expenses of any lien search reasonably required by
Secured Party, during the term hereof. At any time and from time
to time, upon the written request of Secured Party, Company will
promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as Secured
Party may reasonably deem desirable to obtain the full benefits
of this Security Agreement and of the rights and powers herein
granted, including, without limitation, using its reasonable best
efforts to secure all consents and approvals necessary or
appropriate for the assignment to Secured Party, of any License
or Contract held by Company or in which Company has any rights
not heretofore assigned, and the filing of any financing or
continuation statements under the UCC with respect to the liens
and security interests granted hereby. Company also hereby
authorizes Secured Party to file any such financing or
continuation statement without the signature of Company to the
extent permitted by applicable law.
(b) Maintenance of Records. Company will keep and
maintain at its own cost and expense satisfactory and complete
records of the Collateral, including, without limitation, a
record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the
Collateral. Prior to the occurrence of an Event of Default and
upon reasonable notice from Secured Party, Company shall permit
any representative of Secured Party to inspect such books and
records during normal business hours and will provide photocopies
thereof to Secured Party at Secured Party's expense.
(c) Indemnification. In any suit, proceeding or action
brought by Secured Party relating to the Collateral, Company will
save, indemnify and keep Secured Party harmless from and against
all expense, loss or damage suffered by reason of any defense,
set off, counterclaim, recoupment or reduction of liability
whatsoever of the obligor with respect thereto, arising out of a
breach by Company of any material obligation with respect
thereto, and all such obligations of Company shall be and remain
enforceable against and only against Company and shall not be
enforceable against Secured Party.
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<PAGE> 27
(d) Compliance with Laws, etc. Company will comply, in
all material respects, with all acts, rules, regulations, orders,
decrees and directions of any governmental authority, applicable
to the Collateral or any part thereof or to the operation of
Company's business; provided, however, that Company may contest
any act, regulation, order, decree or direction in any reasonable
manner which shall not in the reasonable opinion of Secured
Party, adversely affect Secured Party's rights hereunder or
adversely affect the first priority of its security interest in
the Collateral.
(e) Payment of Obligations. Company will pay promptly
when due all charges imposed upon the Collateral or in respect of
its income or profits therefrom and all claims of any kind
(including, without limitation, claims for labor, material and
supplies) except as otherwise provided in the Notes.
(f) Compliance with Terms of Accounts, etc. In all
material respects, Company will perform and comply with all
obligations in respect of Accounts Receivable, Chattel Paper,
Contracts and Licenses and all other agreements to which it is a
party or by which it is bound.
(g) Limitation on Liens on Collateral. Company will not
create, permit or suffer to exist, and will defend the Collateral
against and take such other action as is necessary to remove, any
Lien on the Collateral except Permitted Liens.
(h) Limitations on Disposition. Company will not
sell, lease, transfer or otherwise dispose of any of the
Collateral, or attempt or contract to do so except in the
ordinary course of business.
(i) Continuous Perfection. Consistent with the terms of
the Notes, Company will not change its name, identity or
corporate structure in any manner which might make any financing
or continuation statement filed in connection herewith seriously
misleading within the meaning of section 9-402(7) of the UCC (or
any other then applicable provision of the UCC) unless Company
shall have given Secured Party at least thirty (30) days' prior
written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously
with such change if it is impossible to take such action in
advance) necessary or reasonably requested by Secured Party to
amend such financing statement or continuation statement so that
it is not seriously misleading.
5. Secured Party's Appointment as Attorney-in-Fact.
(a) Subject to Paragraph (b) below, Company hereby irrevocably
constitutes and appoints Secured Party and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact
with full irrevocable power and
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<PAGE> 28
authority in the place and stead of Company and in the name of Company or
in its own name, from time to time in Secured Party's discretion, for the
purpose of carrying out the terms of this Security Agreement, to take any
and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement and, without limiting
the generality of the foregoing, hereby gives Secured Party the power and
right, upon the occurrence of an Event of Default not otherwise cured, on
behalf of Company, without notice to or assent by Company to do the
following:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all moneys due and to
become due with respect to the Collateral and, in the name of
Company or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, acceptances or other
instruments for the payment of moneys due with respect to the
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
reasonably appropriate by Secured Party for the purpose of
collecting any and all such moneys due under any Collateral
whenever payable and to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise
deemed reasonably appropriate by Secured Party for the purpose of
collecting any and all such moneys due under any Collateral
whenever payable;
(ii) to pay or discharge taxes, liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, to effect any insurance called for by the terms of
this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
(iii) (A) to direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due, and
to become due thereunder, directly to Secured Party or as Secured
Party shall direct (but only to the extent of sums due to Secured
Party from Company); (B) to receive payment of and receipt for
any and all moneys, claims and other amounts due, and to become
due at any time, in respect of or arising out of any Collateral;
(C) to sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection
with accounts and other Documents constituting or relating to the
Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (E) to
defend any suit, action or proceeding brought against Company
with respect to any Collateral; (F) to settle, compromise or
adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as
Secured Party may deem reasonably appropriate; (G) subject to the
Notes, to license or, to the extent permitted by an applicable
license, sublicense, whether general, special or
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<PAGE> 29
otherwise, and whether on an exclusive or non-exclusive basis,
any Patent or Trademark pertaining to the Collateral, on such
conditions, and in such manner, as Secured Party shall in its
discretion determine; and (H) generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with
any of the Collateral as fully and completely as though Secured
Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Company's expense, at any time,
or from time to time, all acts and things which Secured Party
reasonably deems necessary to protect, preserve or realize upon
the Collateral and Secured Party's Lien therein, in order to
effect the intent of this Security Agreement, all as fully and
effectively as Company might do.
(b) Secured Party agrees that, except upon the occurrence and
during the continuation of an Event of Default which is not otherwise
cured, it will not exercise the power of attorney or any rights granted
to Secured Party pursuant to this Section 5. Subject to the foregoing
sentence, Company hereby ratifies, to the extent permitted by law, all
that said attorneys shall lawfully do or cause to be done by virtue
hereof. The power of attorney granted pursuant to this Section 5 is a
power coupled with an interest and shall be irrevocable until the Secured
Obligations are indefeasibly paid in full.
(c) The powers conferred on Secured Party hereunder are solely to
protect Secured Party's interests in the Collateral and shall not impose
any duty upon it to exercise any such powers. Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers,
directors, employees or agents shall be responsible to Company for any
act or failure to act, except for its own gross negligence or willful
misconduct.
(d) Company also authorizes Secured Party, at any time and from
time to time upon the occurrence and during the continuation of any Event
of Default which is not cured, to communicate in its own name with any
party to any contract relating to the Collateral with regard to the
assignment of the right, title and interest of Company in and under any
such contract hereunder and other matters relating thereto.
6. Performance by Secured Party of Company's Obligation. If Company fails
to materially perform or comply with any of its agreements contained herein (and
fails to so cure after notice thereof) and Secured Party, as provided for by the
terms of this Security Agreement, shall itself perform or comply, or otherwise
cause performance or compliance, with such agreement, the reasonable expenses of
Secured Party incurred in connection with such performance or compliance,
together with interest thereon at the rate then in effect in respect of the
Advances, shall be payable by Company to Secured Party on demand and shall
constitute Secured Obligations secured hereby.
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<PAGE> 30
7. Events of Default. Except as otherwise expressly provided under
the Notes or this Security Agreement, as the case may be, the following
conditions or events shall constitute an Event of Default:
(a) The rejection, termination or disaffirmance or the attempted
rejection, termination or disaffirmance by Company (or any person or
entity acting on Company's behalf or in Company's place and stead) of the
Notes or this Security Agreement; or
(b) Any representation or warranty which materially adversely
affects the rights of Secured Party in connection with this Security
Agreement or the Notes shall be false in any material respect on the date
as of which made; or
(c) Company shall fail, breach or default in the performance of
any of the Secured Obligations which failure, breach or default
materially adversely affects Secured Party's rights therein (subject to
any additional express cure rights provided for in the Notes); or
(d) (i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Company in an
involuntary case under any applicable bankruptcy, insolvency or
any other similar law now or hereafter in effect, which decree or
order is not stayed; or any other similar relief shall be granted
under any applicable federal or state law; or
(ii) An involuntary case shall be commenced against Company
under any applicable bankruptcy, insolvency or similar law now or
hereafter in effect; or a decree or order of any court having
jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Company or over all or over a
substantial part of its property, shall have been entered; or
there shall have been an involuntary appointment of an interim
receiver, trustee or other custodian of Company for all or a
substantial part of its property; or there shall have been issued
a warrant of attachment, execution or similar process against any
substantial part of the property of Company and any such event in
this clause (ii) shall have continued for thirty (30) days unless
dismissed, bonded or discharged; or
(e) Company shall have an order for relief entered with respect
to it or commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case, or to
the conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver or other custodian for all or a substantial part of its
property; or Company shall make any assignment for the benefit of
creditors; or Company shall fail or be unable or shall admit in writing
its inability to pay its debts as such debts become due; or the Board of
Directors of
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<PAGE> 31
Company (or any committee thereof) shall adopt any resolution or
otherwise authorize any action to approve any of the foregoing; or
(f) Company shall be dissolved or shall file a petition for
dissolution, unless Company's successor executes and delivers to Secured
Party a security agreement substantially similar in all respects to this
Security Agreement.
8. Remedies, Rights Upon Default.
(a) If any Event of Default shall occur and be continuing and not
otherwise timely cured, Secured Party may exercise in addition to all
other rights and remedies granted to it in this Security Agreement and in
any other instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party under the
UCC. Without limiting the generality of the foregoing, Company expressly
agrees that in any such event Secured Party, without demand of
performance or other demand, advertisement or notice of any kind (except
the notice specified below of time and place of public or private sale)
to or upon Company or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the maximum
extent permitted by the UCC and other applicable law), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give an option or
options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker's
board or at any of Secured Party's offices or elsewhere at such prices as
it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Secured Party shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of said
Collateral so sold, free of any right or equity of redemption, which
equity of redemption Company hereby releases. Company further agrees, at
Secured Party's request, to assemble the Collateral and make it available
to Secured Party at places which Secured Party shall reasonably select,
whether at Company's premises or elsewhere. Secured Party shall apply the
net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, as provided in Section 8(d) hereof, Company
remaining liable, as expressly provided in the Notes only, for any
deficiency remaining unpaid after such application, and only after so
paying over such net proceeds and after the payment by Secured Party of
any other amount required by any provision of law, including Section
9-504(1)(c) of the UCC, need Secured Party account for the surplus, if
any, to Company. To the maximum extent permitted by applicable law,
Company waives all claims, damages, and demands against Secured Party
arising out of the repossession, retention or sale of the Collateral
except such as arise out of the gross negligence or wilful misconduct of
Secured Party. Company agrees that Secured Party need not give more than
ten (10) days' notice (which notification shall be deemed given when
mailed or delivered on an overnight basis, postage prepaid, addressed to
Company at its address referred to in Section 12 hereof) of the time and
place of any public
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<PAGE> 32
sale or of the time after which a private sale may take place and that
such notice is reasonable notification of such matters. Company shall
remain liable, as expressly provided in the Notes only, for any
deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which Secured Party is entitled,
Company also being liable, as expressly provided in the Notes only, for
the reasonable fees of any attorneys employed by Secured Party to collect
such deficiency.
(b) Company also agrees to pay all costs of Secured Party,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies
hereunder to the extent Secured Party is adjudicated to be entitled to
such enforcement.
(c) Company hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be distributed by Secured
Party in the following order of priorities:
first, to Secured Party in an amount sufficient to pay
in full the reasonable expenses of Secured Party in connection
with such sale, disposition or other realization, including all
expenses, liabilities and advances incurred or made by Secured
Party in connection therewith, including, without limitation,
reasonable attorney's fees;
second, to Secured Party in an amount equal to the then
unpaid principal of and accrued interest and prepayment premiums,
if any, expressly due pursuant to the Notes; and
finally, upon payment in full of all of the obligations
outstanding and expressly due pursuant to the Notes, to pay to
Company, or its representatives or as a court of competent
jurisdiction may direct, any surplus then remaining from such
Proceeds.
9. Limitation on Secured Party's Duty in Respect of Collateral.
Secured Party shall use reasonable care with respect to the Collateral in its
possession or under its control. Secured Party shall not have any other duty as
to any Collateral in its possession or control or in the possession or control
of any agent or nominee of it or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto. Secured
Party shall account for any moneys or other property or rights received by it in
respect of any foreclosure on or disposition of the Collateral.
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<PAGE> 33
10. Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Company for liquidation or reorganization, should Company become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Company's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Secured Obligations, whether as a
"voidable preference", "fraudulent conveyance", or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
11. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other communication with respect to this Security Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be delivered in person with receipt
acknowledged, or telecopied and confirmed immediately in writing by a copy
mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as hereafter set forth, or mailed by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to Secured Party, at
With a copy to:
(b) If to Company, at
DSL Entertainment Group, Inc.
12300 Wilshire Boulevard, Suite 400
Los Angeles, California 90025
Attn: Mr. Drew Levin
With a copy to:
Kelly & Lytton
1900 Avenue of the Stars, Suite 1450
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<PAGE> 34
Los Angeles, California 90067
Attn: Bruce P. Vann, Esq.
The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every
notice, demand, request, consent, approval, declaration or other
communication hereunder shall be deemed to have been duly given
or served on the date on which personally delivered, with receipt
acknowledged, or the date of the telecopy transmission, or three
(3) Business Days after the same shall have been deposited in the
United States mail. Failure or delay in delivering copies of any
notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies
shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other
communication.
12. Severability. Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. Secured Party shall not by
any act, delay, omission or otherwise be deemed to have waived any of its rights
or remedies hereunder, and no waiver shall be valid unless in writing, signed by
Secured Party and then only to the extent therein set forth. A waiver by Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Secured Party would otherwise
have had on any future occasion. No failure to exercise nor any delay in
exercising on the part of Secured Party, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. None of the terms or provisions of this Security Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by Secured Party and, where applicable by Company. For the avoidance of
doubt, the foregoing rights and remedies are all subject to the terms and
provisions of the Notes.
14. Successor and Assigns. This Security Agreement and all
obligations of Company hereunder shall be binding upon the successors and
assigns of Company, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, and all future holders
of instruments or agreements evidencing the Secured Obligations and their
respective successors and assigns. No sales of participation, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Secured
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<PAGE> 35
Obligations or any portion thereof or interest therein shall in any manner
affect the security interest granted to Secured Party hereunder.
15. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED
IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF
LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. SECURED PARTY AND
COMPANY AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY OBJECTION AS
TO VENUE IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. SERVICE OF PROCESS
ON COMPANY OR SECURED PARTY IN ANY ACTION ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY AT THE ADDRESS
LISTED IN SECTION 11 HEREOF AND IN THE MANNER PROVIDED THEREUNDER. EACH PARTY
AGREES NOTHING HEREIN SHALL PRECLUDE THE OTHER FROM BRINGING SUIT OR TAKING
OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.
16. Conflict of Terms. Except as otherwise explicitly provided in
this Security Agreement, a conflict or inconsistency, if any, between the terms
and provisions of this Security Agreement and the terms and provisions of the
Notes shall be controlled by the terms and provisions of the Notes to the extent
of such conflict or inconsistency.
17. Use and Protection of Patent and Trademark Collateral.
Notwithstanding anything to the contrary contained herein, unless an Event of
Default has occurred and is continuing and shall remain uncured, Secured Party
shall from time to time execute and deliver, upon the written request of
Company, any and all instruments, certificates or other documents, in the form
so requested, necessary or appropriate in the judgment of Company to permit
Company to continue to exploit, license, use, enjoy and protect the Patents and
Trademarks relating to the Collateral.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
on the date first set forth above.
DSL ENTERTAINMENT GROUP, INC.
By:
-------------------------------
Name:
----------------------------
Title:
---------------------------
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<PAGE> 36
Accepted and acknowledged by:
By:
-------------------------------
Name:
----------------------------
Title:
---------------------------
21
<PAGE> 1
EXHIBIT 4.6
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
10% CONVERTIBLE SECURED NOTE
$ _______________ _____________ ___, 1997
Los Angeles, California
FOR VALUE RECEIVED TEAM COMMUNICATIONS GROUP, INC., a California
corporation ("Company"), promises to pay to______ ("Holder"), or its registered
assigns, the principal sum of Dollars ($ . ), or such lesser amount as shall
equal the outstanding principal amount hereof, together with interest from the
date of this Note on the unpaid principal balance at a rate equal to ten percent
(10.00%) per annum, computed on the basis of the actual number of days elapsed
and a year of 365 days. This Note is one of the "10% Notes" issued by the
Company in the private offering (the "Private Offering") described in the
Confidential Private Placement Memorandum (the "Memorandum") distributed by the
Company to the Purchaser, and pursuant to the Subscription Agreement completed
by the Purchaser (the "Subscription Agreement").
This Note is subject to the terms of that certain security agreement,
dated as of , which agreement sets forth the rights of the Noteholders relative
to a subordinated Lien against certain assets of the Company.
The following is a statement of the rights of Holder and the conditions
to which this Note is subject, and to which Holder, by the acceptance of this
Note, agrees:
1. DEFINITIONS. As used in this Note, the following
capitalized terms have the following meanings:
(a) "Articles" shall mean the Articles of
Incorporation of Company as amended and/or restated.
(b) "Closing Date" shall mean ________ __, 1997.
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<PAGE> 2
(c) "Company" includes the corporation initially
executing this Note and any Person which shall succeed to or assume the
obligations of Company under this Note.
(d) "Event of Default" has the meaning given in
Section 3 hereof.
(e) "Holder" shall mean the Person specified in the
introductory paragraph of this Note or any Person who shall at the time be the
registered holder of this Note.
(f) "Indebtedness" shall mean and include the
aggregate amount of, without duplication (a) all obligations for borrowed money,
(b) all obligations evidenced by bonds, debentures notes or other similar
instruments, (c) all obligations to pay the deferred purchase price of property
or services (other than accounts payable incurred in the ordinary course of
business determined in accordance with generally accepted accounting
principals), (d) all obligations with respect to capital leases, (e) all
guaranty obligations, (f) all obligations created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, and (g) all reimbursement and other payment
obligations, contingent or otherwise, in respect of letters of credit.
(g) "Lien" shall mean, with respect to any property,
any security interest, mortgage, pledge, lien, claim, charge or other
encumbrance in, of, or on such property or the income therefrom, including,
without limitation, the interest of a vendor or lessor under a conditional sale
agreement, capital lease or other title retention agreement, or any agreement to
provide any of the foregoing, and the filing of any financing statement or
similar instrument under the Uniform Commercial Code or comparable law of any
jurisdiction.
(h) "Majority in Interest" shall mean more than 50%
of the aggregate outstanding principal amount of the Notes issued in the Private
Offering.
(i) "Maturity Date" shall mean the earlier to occur
of (i) five business days after the completion of either a public offering of
the Company's Common Stock (the "Initial Public Offering") or (ii) the public or
private placement of debt or equity securities with gross proceeds to the
Company in excess of $5,000,000 (together with an Initial Public Offering, a
"Financing Event") or the second anniversary of the Closing Date.
(j) "Obligations" shall mean and include all loans,
advances, debts, liabilities and obligations, howsoever arising, owed by Company
to Holder of every kind and description (whether or not evidenced by any note or
instrument and whether or not for the payment of money), now existing or
hereafter arising under or pursuant to the terms of this Note and the other
Transaction Documents including all interest, fees, charges, expenses,
attorneys' fees and costs and accountants' fees and costs chargeable to and
payable by Company hereunder and thereunder, in each case, whether direct or
indirect absolute or contingent, due or to become due, and whether or not
arising after the commencement of proceeding under Title 11 of the United States
Code (11 U.S.C.
2
<PAGE> 3
Section 101 et seq., as amended from time to time (including post-petition
interest) and whether or not allowed or allowable as a claim in an' such
proceeding.
(k) "Person" shall mean and include an individual, a
partnership, a corporation (including a business trust), a joint stock company,
a limited liability company, an unincorporated association, a joint venture or
other entity or a governmental authority.
(l) "Transaction Documents" shall mean this Note,
each of the other Notes issued in the Private Offering, the Memorandum and the
Subscription Agreement.
2. PAYMENTS. Accrued interest on this Note shall be payable on
each of the dates six months and one year after the Closing. The principal
amount outstanding, plus any accrued but unpaid interest, shall be paid on the
Maturity Date.
3. EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an "Event of Default" under this Note and the other Transaction
Documents:
(a) Failure to Pay. Company shall fail to pay any interest or
other payment required under the terms of this Note or any other Transaction
Document on the date due and such payment shall not have been made within five
(5) days of the due date.
(b) Voluntary Bankruptcy or Insolvency Proceedings. Company
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of its
or any of its creditors, (iv) be dissolved or liquidated, (v) become insolvent
(as such term may be defined or interpreted under any applicable statute), (vi)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced
against it, or (vii) take any action for the purpose of effecting any of the
foregoing; or
(c) Involuntary Bankruptcy or Insolvency Proceedings.
Proceedings for the appointment of a receiver, trustee, liquidator or custodian
of Company or of all or a substantial part of the property thereof or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to Company or the debts thereof under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced
and an order for relief entered or such proceeding shall not be dismissed or
discharged within thirty (30) days of commencement.
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<PAGE> 4
4. RIGHTS OF HOLDER UPON DEFAULT. Upon the occurrence or
existence of any Event of Default (other than an Event of Default referred to in
Section 3(b) or 3(c)) and at any time thereafter during the continuance of such
Event of Default Holder may, with the written consent of a Majority in Interest
of the holders of the Notes issued in the Private Offering, by written notice to
Company, declare all outstanding Obligations payable by Company hereunder to be
immediately due and payable without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the other Transaction Documents to the contrary notwithstanding.
Upon the occurrence or existence of any Event of Default described in Section
3(b) or 3(c), immediately and without notice, all outstanding Obligations
payable by Company hereunder shall automatically become immediately due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived, anything contained herein or in the
other Transaction Documents to the contrary notwithstanding. In addition to the
foregoing remedies, upon the occurrence or existence of any Event of Default,
Holder may exercise any other right power or remedy granted to it by the
Transaction Documents or otherwise permitted to it by law, either by suit in
equity or by action at law, or both.
5. CONVERSION: MANDATORY REDEMPTION.
(a) Voluntary Conversion. Beginning on the date 60
days after the Closing, Holder has the right, at Holder's option, at any time,
to convert the outstanding principal amount of this Note, in accordance with the
provisions of Section 5(c) hereof, in whole or in part, into fully paid and
nonassessable shares of Common Stock of Company (the "Common Stock"). The number
of shares of Common Stock into which this Note may be converted ("Conversion
Shares") shall be determined by dividing the aggregate principal amount to be
converted by the Conversion Price (as defined below) in effect at the time of
such conversion. The "Conversion Price" shall be $5.00.
(b) Automatic Conversion. The entire outstanding
principal amount of this Note shall be automatically converted into shares of
Common Stock at the Conversion Price in effect at the time upon the earlier to
occur of any consolidation or merger of Company with or into any Person, or any
other corporate reorganizations in which Company shall not be the continuing or
surviving entity of such consolidation, merger or reorganization or any
transaction or series of related transactions by Company in which in excess of
50% of Company's voting power is transferred, or a sale of all or substantially
all of the assets of Company.
(c) Conversion Procedure.
(i) Conversion Pursuant to Section 5(a).
Before Holder shall be entitled to convert this Note into shares of Common
Stock, it shall surrender this Note, duly endorsed, at the office of Company and
shall give written notice by registered or certified mail, postage prepaid, to
Company at its principal corporate office, of the election to convert the same
pursuant to Section 5(a), and shall state therein the amount of the unpaid
principal amount of this
4
<PAGE> 5
Note to be converted and the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. Company shall, as soon
as practicable thereafter, issue and deliver at such office to Holder of this
Note a certificate or certificates for the number of shares of Common Stock to
which Holder shall be entitled upon conversion (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to Company), together with a replacement Note (if any principal amount
is not converted) and any other securities and property to which Holder is
entitled upon such conversion under the terms of this Note, including a check
payable to Holder for any cash amounts payable as described in Section 5(d). The
conversion shall be deemed to have been made immediately prior to the close of
business on the date of the surrender of this Note, and the Person or Persons
entitled to receive the shares of Common Stock upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(ii) Conversion Pursuant to Section 6(b).
If this Note is automatically converted, written notice shall be delivered to
Holder at the address last shown on the records of Company for Holder or given
by Holder to Company for the purpose of notice or, if no such address appears or
is given, at the place where the principal executive office of Company is
located, notifying Holder of the conversion to be effected, specifying the
principal amount of the Note to be converted, the date on which such conversion
is expected to occur and calling upon such Holder to surrender to Company, in
the manner and at the place designated, the Note. Upon such conversion of this
Note, Holder shall surrender this Note, duly endorsed, at the principal office
of Company. At its expense, Company shall, as soon as practicable thereafter,
issue and deliver to such Holder at such principal office a certificate or
certificates for the number of shares to which Holder shall be entitled upon
such conversion (bearing such legends as are required by applicable state and
federal securities laws in the opinion of counsel to Company), together with any
other securities and property to which Holder is entitled upon such conversion
under the terms of this Note, including a check payable to Holder for any cash
amounts payable as described in Section 5(d). Any conversion of this Note
pursuant to Section 5(b) shall be deemed to have been made immediately prior to
the closing of the issuance and sale of shares as described in Section 5(b) and
on and after such date the Persons entitled to receive the shares issuable upon
such conversion shall be treated for all purposes as the record Holders of such
shares and purchasers of such shares under the Transaction Documents and shall
be bound by the terms of the Transaction Documents.
(d) Fractional Shares; Interest; Effect
of Conversion. No fractional shares shall be issued upon conversion of this
Note. In lieu of Company issuing any fractional shares to Holder upon the
conversion of this Note, Company shall pay to Holder an amount equal to the
product obtained by multiplying the Conversion Price by the fraction of a share
not issued pursuant to the previous sentence. In addition, Company shall pay to
Holder any interest accrued on the amount converted and on the amount to be paid
to Company pursuant to the previous sentence. Upon conversion of this Note in
full and the payment of the amounts specified in this Section 5(d), Company
shall be forever released from all its obligations and liabilities under this
Note.
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<PAGE> 6
(e) Reservation of Stock Issuable Upon
Conversion. Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of this Note such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of the Note;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of the entire outstanding
principal amount of this Note, without limitation of such other remedies as
shall be available to the holder of this Note,.Company will use its best efforts
to take such corporate action as may, in the opinion of counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(f) Conversion Price Adjustments.
(i) Adjustments for Stock
Splits and Subdivisions. In the event Company should at any time or from time to
time after the date of issuance hereof fix a record date for the effectuation of
a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of this Note shall be appropriately decreased so that the number of shares
of Common Stock issuable upon conversion of this Note shall be increased in
proportion to such increase of outstanding, shares.
(ii) Adjustments for Reverse
Stock Splits. If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date of such combination, the
Conversion Price for this Note shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion hereof shall be
decreased in proportion to such decrease in outstanding shares.
(g) Mandatory Redemption.
(i) Repayment Obligation. The
Notes are subject to mandatory repayment of all unpaid principal and accrued but
unpaid interest on the Maturity Date.
(ii) Notice of Certain
Transactions.
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<PAGE> 7
(A) In the event that the Company, while any
indebtedness represented by this Note remains outstanding shall:
(1) takes any action which would require an adjustment in the
conversion price pursuant to the provisions of the Section 5 (f)
(2) initiates, whether voluntarily, or through the action of a
third party, an action to dissolve or liquidate the Company, or
(3) Proposes to engage in a transaction which would be a
Financing Event,
then, in such event, the Company shall give Holder prompt notice (an "Issuance
Notice") of such transaction, describing, if applicable. (i) the securities
issued and sold or proposed to be issued and sold (the "Issuance Securities"),
(ii) the price at which the Issuance Securities have been or are to be issued
and sold (the "Issuance Price"), (iii) the circumstances or terms under which
the Issuance Securities have been or are to be sold at the Issuance Price,
and/or the potential Maturity Date (if such date occurs by virtue of a Financing
Event.)
(b) For a period commencing with receipt of the
Issuance Notice and continuing until the latter of the Maturity Date, which
period may be not less than ten (10) business days after the Issuance Notice,
the Holder shall have the right to convert the indebtedness, or any portion
thereof, then outstanding and represented by this Note (including any accrued
but unpaid interest) into shares of Common Stock at the Conversion Price.
SECTION 6. REGISTRATION.
(a) The Company shall advise the Holder or its permitted transferee,
whether the Holder holds the Note or has converted the Note and holds the
securities underlying the Note, by written notice at least four weeks prior to
the filing of any new registration statement thereto under the Act, or the
filing of a notification on Form 1-A under the Act for a public offering of
securities, covering any securities of the Company, for its own account or for
the account of others, except for any registration statement filed on Form S-4
or S-8 (or other comparable form), and will, during the five (5) year period
from the Closing upon the request of the Holder, include in any such new
registration statement (or notification as the case may be) such information as
may be required to permit a public offering of all or any of the Common Stock
issuable upon the conversion of such Note (the "Registrable Securities").
Specifically, the Registrable Securities will be included in any initial public
offering subject to resale by applicable lock-up agreements which the
Registrable Securities will be subject to as referenced in Section 11 herein.
For so long as the Note remains outstanding and as long as required by the Act
(so long as the Holder's ability to convert any Note is not adversely affected),
the Company will file post-effective amendments to any such registration
statement setting forth or otherwise incorporating certain information contained
in the then most
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<PAGE> 8
recent quarterly report on Form 10-QSB or annual report on Form 10-KSB filed by
the Company (each such post-effective amendment, a "Quarterly Amendment"). The
parties hereby agree that if at any time during such five (5) year period the
Company receives written notice from the Holder at least two weeks prior to the
filing of any such Quarterly Amendment indicating such Holder's intention to
offer Registrable Securities in such Quarterly Amendment, the Company will
include in such Quarterly Amendment such information as may be required to
permit a public offering of such Registrable Securities. The delivery by the
Holder of any such notice shall not constitute a demand made pursuant to Section
6(b). The Company shall supply prospectuses and such other documents as the
Holder may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its best efforts to register and
qualify any of the Registrable Securities for sale in such states (i) as such
Holder designates and (ii) with respect to which the Company obtained a
qualification in connection with its initial public offering; and do any and all
other acts and things which may be necessary or desirable to enable such Holder
to consummate the public sale or other disposition of the Registrable
Securities, all at no expense to the Holder (other than sales commissions,
underwriting discounts or commissions, or other expenses of such sale), and
furnish indemnification in the manner provided in Section 7 hereof. The Holder
shall furnish information and indemnification as set forth in Section 7.
(b) At any time after the earlier of (i) that date which is one year
after the effective date the Company's initial public offering of its securities
and (ii) June 30, 1997, and during the four (4) year period thereafter a 50%
Holder (as defined below) may request, on up to an aggregate of two occasions,
that the Company register under the Act any and all of the Registrable
Securities held by such 50% Holder. Upon the receipt of any such notice, the
Company will promptly, but no later than four weeks after receipt of such
notice, file a post-effective amendment to any current Registration Statement or
a new registration statement pursuant to the Act, so that such designated
Registrable Securities may be publicly sold under the Act as promptly as
practicable thereafter and the Company will use reasonable efforts to cause such
registration to become and remain effective (including the taking of such
reasonable steps as are necessary to obtain the removal of any stop order)
within 120 days after the receipt of such notice, provided, that such Holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The 50% Holder may, at its
option, request the registration of any of the securities underlying the Note in
a registration statement made by the Company as contemplated by Section 6(a) or
in connection with a request made pursuant to this Section 6(b) prior to
acquisition of the Common Stock issuable upon conversion of the Note. The 50%
Holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Common
Stock issuable upon the conversion of the Note and such registration rights may
be exercised by the 50% Holder prior to or subsequent to the conversion of the
Note. Within ten days after receiving any such notice pursuant to this Section
6(b), the Company shall give notice to any other Holders of the Notes, advising
that the Company is proceeding with such post effective amendment or
registration statement and offering to include therein such securities
underlying that part of the Notes held by the other Holders, provided that they
shall furnish the Company with such appropriate information (relating to the
intentions of such Holders) in connection therewith as the
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<PAGE> 9
Company shall reasonably request in writing. All costs and expenses of the first
post-effective amendment or new registration statement filed in accordance with
this Section 6(b) shall be borne by the Company, except that the Holder(s) shall
bear the fees of their own counsel and any other advisors retained by them and
any underwriting discounts or commissions applicable to any of the securities
sold by them. All costs and expenses of the second such post-effective amendment
or new registration statement shall be borne by the Holder(s). The Company will
use its best efforts to maintain such registration statement or post-effective
amendment current under the Act for a period of at least six months (and for up
to an additional three (3) months if so requested by the Holder(s)) from the
Closing Date thereof. The Company shall supply prospectuses, and such other
documents as the Holder(s) may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities, use its best
efforts to register and qualify any of the Registrable Securities for sale in
such states (i) as such Holder(s) designate and (ii) with respect to which the
Company obtained a qualification in connection with its initial public offering
and furnish indemnification in the manner provided in Section 7 hereof.
Notwithstanding the foregoing set forth in this Section 6(b), the Company shall
not be required to include in any post-effective amendment or registration
statement any Registrable Securities which in the opinion of counsel to the
Company (which opinion is reasonably acceptable to counsel to the Holder) would
be saleable immediately without restriction under Rule 144 (or its successor) if
the Note was converted pursuant to paragraph 5 herein.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Notes, and the Common Stock issued upon
conversion of the Notes included in such Units, considered in the aggregate.
SECTION 7. INDEMNIFICATION.
(a) Whenever pursuant to paragraph 6 a post-effective amendment or
registration statement relating to any of the Common Stock issuable upon the
conversion of the Notes, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each Holder of the securities covered
by such registration statement, amendment or supplement (such Holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement as declared effective or any final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Distributing Holder or
such controlling person or underwriter for any legal or other expense reasonably
incurred by them in connection with investigating or defending any such loss,
claim,
9
<PAGE> 10
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder for use in the
preparation thereof and provided further, that the indemnity agreement provided
in this Section 7(a) with respect to any preliminary prospectus shall not inure
to the benefit of any Distributing Holder, controlling person of such
Distributing Holder, underwriter or controlling person of such underwriter from
whom the person asserting any losses, claims, charges, liabilities or litigation
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact, received such
preliminary prospectus, if a copy of the prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the time required by
the Act and the Rules and Regulations thereunder.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue-statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement hereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly
10
<PAGE> 11
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. NOTICES OF RECORD DATE, ETC. In the event of:
(a) Any taking by Company of a record of the holders
of any class of securities of Company for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend
payable out of earned surplus at the same rate as that of the last such cash
dividend theretofore paid) or other distribution or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(b) Any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or any
transfer of all or substantially all of the assets of Company to any other
Person or any consolidation or merger involving Company, or
(c) Any voluntary or involuntary dissolution,
liquidation or winding-up of Company,
Company will mail to Holder of this Note at least ten (10) days prior to the
earliest date specified therein, a notice specifying (A) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and the amount and character of such dividend, distribution or right; and
(B) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding-up is expected to
become effective and the record date for determining stockholders entitled to
vote thereon.
9. SUCCESSORS AND ASSIGNS. Subject to the restrictions on
transfer described in Sections 9 and 10 below, the rights and obligations of
Company and Holder of this Note shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the parties.
10. WAIVER AND AMENDMENT. Any provision of this Note may be
amended, waived or modified upon the written consent of Company and holders of a
Majority in Interest of all then outstanding Notes issued in the Private
Offering.
11. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION
HEREOF. With respect to any offer, sale or other disposition of this Note or
securities into which such Note may be converted, Holder will give written
notice to Company prior thereto, describing briefly the manner thereof, together
with a written opinion of Holder's counsel, to the effect that such offer, sale
or other distribution may be effected without registration or qualification
(under any federal or state law then
11
<PAGE> 12
in effect). Promptly upon receiving such written notice and reasonably
satisfactory opinion. if so requested, Company, as promptly as practicable,
shall notify Holder that Holder may sell or otherwise dispose of this Note or
such securities. all in accordance with the terms of the notice delivered to
Company. If a determination has been made pursuant to this Section 10 that the
opinion of counsel for Holder is not reasonably satisfactory to Company, Company
shall so notify Holder promptly after such determination has been made. Each
Note thus transferred and each certificate representing the securities thus
transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Act, unless in the
opinion of counsel for Company such legend is not required in order to ensure
compliance with the Act. Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions. Subject to the foregoing
transfers of this Note shall be registered upon registration books maintained
for such purpose by or on behalf of Company. Prior to presentation of this Note
for registration of transfer, Company shall treat the registered holder hereof
as the owner and holder of this Note for the purpose of receiving all payments
of principal and interest hereon and for all other purposes whatsoever, whether
or not this Note shall be overdue and Company shall not be affected by notice to
the contrary.
12. ASSIGNMENT BY COMPANY. Neither this Note nor any of the
rights, interests or obligations hereunder may be assigned, by operation of law
or otherwise, in whole or in part, by Company without the prior written consent
of Holder except in connection with an assignment in whole to a successor
corporation to Company, provided that such successor corporation acquires all or
substantially all of Company's property and assets and Holder's rights hereunder
are not impaired.
13. NOTICES. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duty given if personally delivered or mailed by registered or certified
mail, postage prepaid, or by recognized overnight courier or personal delivery
at the respective addresses of the parties as set forth on the register
maintained by Company. Any party hereto may by notice so given change its
address for future notice hereunder.
Notice shall conclusively be deemed to have been given when received.
14. PARI PASSU NOTES. Holder acknowledges and agrees that the
payment of all or any portion of the outstanding principal amount of this Note
and all interest hereon shall be pari passu in right of payment and in all other
respects to the other Notes issued in the Private Offering or pursuant to the
terms of such Notes. In the event Holder receives payments in excess of its pro
rata share of Company's payments to the holders of all of the Notes, then Holder
shall hold in trust all such excess payments for the benefit of the holders of
the other Notes and shall pay such amounts held in trust to such other holders
upon demand by Holders.
15. PAYMENT. Payment shall be made in lawful tender of the
United States.
16. DEFAULT RATE; USURY. In the event that any payment of
principal or interest provided for herein is not paid by Company when due
(including the entire unpaid balance of this
12
<PAGE> 13
Note in the event such amount is made immediately due and payable pursuant to
the terms hereof), then Company shall pay interest on the such amounts not paid
when due at a rate per annum equal to the rate otherwise applicable hereunder
plus two percent (2%). In the event any interest is paid on this Note which is
deemed to be in excess of the then legal maximum rate, then that portion of the
interest payment representing an amount in excess of the then legal maximum rate
shall be deemed a payment of principal and applied against the principal of this
Note.
17. EXPENSES; WAIVERS. If action is instituted to collect this
Note, Company promises to pay all costs and expenses, including, without
limitation, reasonable attorneys' fee, and costs, incurred in connection with
such action. Company hereby waives notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor and all other notices or
demands relative to this instrument.
18. GOVERNING LAW. This Note and all actions arising out of or
in connection with this Note shall be governed by and construed in accordance
with the laws of the State of California, without regard to the conflicts of law
provisions of the State of California, or of any other state.
13
<PAGE> 14
IN WITNESS WHEREOF, Company has caused this Note to be issued as of the
date first written above.
TEAM COMMUNICATIONS GROUP, INC.
By:
---------------------------------------
Title:
------------------------------------
14
<PAGE> 1
EXHIBIT 4.9
DSL ENTERTAINMENT, INC.
12300 Wilshire Boulevard, Suite 400
Los Angeles, California 90025
Dated as of January 22, 1996
VIA FACSIMILE 212 363-8459
AMAE Ventures
One State Street Plaza
29th Floor
New York, New York 10004
Dear Mr. Wolfson:
This will confirm the terms pursuant to which you ("Lender") have
agreed to make an investment in the Company.
1. Sale of Securities.
We have agreed to sell to you and you have agreed to purchase, for the
sum of $322,000, the following:
(a) The convertible secured promissory note in substantially the
form attached hereto as Exhibit 1 (the "Note"), which Note is convertible into
3% (subject to adjustment as set forth in the Note) of the Company's outstanding
common stock (the "Common Stock"), on a fully diluted basis (i.e., including any
shares which may be issued under any outstanding options, warrants or other form
of convertible security) (the "Conversion Shares"). The Note will be secured by
certain assets of the Company (the "Collateral") pursuant to the terms of the
Security Agreement and Pledge as well as the related assignment agreements,
attached hereto as Exhibit 2.
(b) 40 shares of the Company's common stock (the "Placement
Shares"), representing 4% of the Company's issued and outstanding Common Stock,
on a fully diluted basis. The Placement Shares and the Conversion Shares are
hereinafter referred to as the "Shares". The Shares and the Note are hereinafter
referred to as the "Securities".
2. Representations and Warranties of the Company: Covenants. The Company
hereby represents and warrants to Lender that:
<PAGE> 2
AMAE Ventures
As of January 22, 1996
Page 2
2.1 Organization, Corporate Powers.
2.1.1 Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California;
2.1.2 Company has the power and authority to own its
properties and assets; and
2.1.3 Company has the power to execute and deliver the Note,
to execute, deliver and perform this Agreement, the Note, and the Collateral
Security Documents (as defined below) and any other documents or instruments
furnished pursuant thereto and hereto, and to grant the security interests
contemplated hereby and by the Collateral Security Documents. For purposes of
this agreement, the term "Collateral Security Documents" shall mean the UCC-1
financing statements with respect to the Collateral, the Security Agreement, and
all assignments which are being executed and delivered concurrently herewith.
2.1.4 The Company currently has 1,000 shares of Common Stock
issued and outstanding. Other than the commitment to grant 50,000 options (which
options have not yet been formally issued), the Company currently does not have
any outstanding options, warrants or other securities convertible into Common
Stock. The Company has no outstanding preferred stock.
2.2 Authorization of Borrowing.
2.2.1 The execution, delivery and performance of this
Agreement, the Collateral Security Documents and any other documents or
instruments furnished pursuant thereto and hereto by Company, the borrowings
hereunder, the execution and delivery of the Note, and the grant by Company of
the security interests contemplated hereby and by the Collateral Security
Documents have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of the
United States, or of any state thereof, the Articles of Incorporation or Bylaws
of Company, or any provision of any indenture, agreement or other instrument to
which Company is a party or by which it or any of its properties or assets is
bound, or be in conflict with, result in a breach of, or constitute (with due
notice and/or lapse of time) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien, charge,
or encumbrance of any nature whatsoever upon any of the properties or assets of
Company.
2.2.2 Except as set forth in Section 2.7 below, all
authorizations, approvals, registrations or filings from or with any
governmental or public regulatory body or authority of the United States, or of
any state thereof required for the execution and delivery of the Note by
Company, and for the execution, delivery and performance by Company of this
Agreement, or the Collateral Security Documents and any other documents or
instruments furnished pursuant thereto
<PAGE> 3
AMAE Ventures
January 22, 1996
Page 3
and hereto have been duly obtained or made, or duly applied for and are in full
force and effect, and if any such further authorizations, approvals,
registrations or filings should hereafter become necessary, Company will use its
best efforts to obtain or make all such authorizations, approvals, registrations
or filings.
2.3 Validity and Binding Nature. This Agreement, the Note, the
Collateral Security Documents and each other document and instrument when duly
executed by Company and delivered to Lender hereunder will constitute legal,
valid and binding obligations of Company, enforceable against Company in
accordance with their respective terms.
2.4. Security Interests. This Agreement and the Collateral Security
Documents to be delivered on or prior to the date of the payment hereunder will
create and grant to Lender a valid and perfected first priority security
interest in the Collateral. Other than with respect to Permitted Encumbrances,
which must be junior in priority to the lien granted to Lender pursuant to the
Collateral Security Documents, no other lien shall be permitted on such
Collateral. For purposes of this agreement, "Permitted Encumbrances" shall mean
(i) SAG, DGA or other guild liens, and (ii) liens, if any, imposed by any
sub-licensee of sub-distributor only to secure rights licensed to any such
distributor. The Company will file all appropriate documents necessary to
effectuate the creation of such security interest granted to Lender.
2.5 Principal Place of Business. The principal place(s) of
administration and of the business of Company and the records relating to the
respective accounts and contract rights of Company are located at the address
set forth above.
2.6 Other Instruments. Except for this Agreement and the other
agreements contemplated hereby, Company is not a party to any agreement or
instrument materially and adversely affecting its ability to cause the
production and delivery of any of the Collateral described in the Collateral
Security Agreements, and Company is not in default in the performance,
observance or fulfillment of any material instrument or agreement to which it is
a party.
2.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transaction contemplated by this Agreement except for the filing pursuant to
Section 25102(f) of the California Corporation Securities Law of 1968, as
amended and the rule thereunder, which filing will be effected within 15 days of
the date hereof.
2.8 Delivery. The Company will deliver the Shares and any additional
shares which may be issued to Lender as a result of the provisions hereof, as
soon as practicable.
<PAGE> 4
AMAE Ventures
January 22, 1996
Page 4
2.9 Collateral The receivables constituting the Collateral are,
subject to completion and delivery of the applicable program related to each
such receivable, good and collectible in the ordinary course of business of the
Company in amounts equal to those at which such receivables were or are
reflected on Collateral Security Documents.
3. Representations and Warranties of the Investor. Lender hereby represents
and warrants that:
3.1. Authorization. This Agreement is made with Lender in reliance
upon Lender's representation to the Company that the Shares which are being (and
may be acquired in the future) pursuant to this Agreement will be acquired for
investment for Lender's own account not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Lender has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Lender further represents
that Lender does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participation's to such person or to
any third person, with respect to any of the Securities. Lender represents that
Lender has full power and authority to enter into this Agreement.
3.2. Disclosure of Information. Lender has had an opportunity to ask
questions and receive answers from the Company regarding the its business
prospects and financial condition. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of Lender to rely thereon.
3.3. Investment Experience. Lender is an investor in securities of
companies in the development stage and acknowledges that Lender can bear the
economic risk of this investment, including the risk of the loss of the entire
investment, and has such knowledge and experience in financial or business
matters that Lender is capable of evaluating the merits and risks of the
investment in the Securities.
3.4. Restricted Securities. Lender understands that the Securities
which are (and may in the future be) acquired hereunder will be characterized as
a "restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, Lender
represents that Lender is familiar with SEC Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
3.5. Legends. It is understood that the Shares which may be acquired
hereunder and issuable upon exercise, if ever, of Lender's option pursuant to
this Agreement may bear one or all of the following legends:
<PAGE> 5
AMAE Ventures
January 22, 1996
Page 5
(i) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(ii) Any legend required by the laws of the State of
California.
4. Dilution Protection. The number and kind of Shares issuable (or to be
issued hereunder)shall be subject to adjustment from time to time upon the
happening of certain events ("Adjustment Event"), as follows:
4.01 Additional Stock Issuances If the Company shall, at any time
through the completion of an underwritten offering of the Company's securities,
issue any shares of Common Stock, declare or pay to the holders of its
outstanding shares of Common Stock, a dividend payable in any kind of shares of
stock or other securities of the Company, or in property, or otherwise than in
cash, Lender shall be entitled to receive such additional share or shares of
stock or scrip representing fractions of a share or other securities or property
as such that Lender retains the same percentage interest in the Company as
provided for by this Agreement and the Note.
4.02 Recapitalization If the Company shall effect a recapitalization
of such character that the Common Shares covered hereby shall be changed into or
become exchangeable for a larger or smaller number of shares, then thereafter,
the number of Placement Shares issued hereunder, and the number of Conversion
Shares which Lender shall be entitled to purchase hereunder, shall be increased
or decreased, as the case may be, in direct proportion to the increase or
decrease in the number of Common Shares of the Company on a fully diluted basis
by reason of such recapitalization.
4.03 Reorganizations In case of any reorganization of the Company or
in case the Company (or any such other corporation) shall merge into or with or
consolidate with another corporation or convey all or substantially all of its
assets to another corporation or enter into a business combination of any form
as a result of which the shares of Common Stock are converted into other stock
or securities of the same or another corporation, then and in each such case,
the Lender shall be entitled to receive in lieu of the Shares or other
securities which Lender has, and/or would have been entitled to receive had he
exercised the conversion right, immediately prior thereto, such stock and
securities which such Lender would have owned immediately after such event with
respect to the Shares before such event.
<PAGE> 6
AMAE Ventures
January 22, 1996
Page 6
4.04 Notice The Company shall mail to the holder of this Certificate
at least twenty (20) days prior to any Adjustment Event a notice specifying the
date on which any such Adjustment Event is to occur together with a description
thereof. In each case of an adjustment in the Shares, the Company shall promptly
notify the Lender of such adjustment. Such notice shall set forth the facts upon
which such adjustment is based and state the number of additional shares to be
issued to Lender with respect to both the Placement Shares and the Conversion
Shares.
4.05 Intent It is the intent of the foregoing that the Shares issued
(or to be issued) hereunder are subject to "full ratchet" dilution protection
such that the Placement Shares shall represent 4% and the Conversion Shares
shall represent 3%, respectively, of the Company's outstanding Common Stock, on
a fully diluted basis, through the consummation of any Initial Public Offering
("IPO") of the Company's securities (including the shares issued in such IPO).
The Company shall, as appropriate, issue such additional shares of Common Stock
to Lender as may be necessary to effectuate the foregoing intent. After
consummation of such IPO, such Shares will be subject to dilution under the same
terms as all other shares of Common Stock.
5. Registration Rights
5.01 Piggyback Registration Right. In the event that the Company
files a Registration Statement under the Securities Act of 1933, as amended (the
"Act"), which relates to a current offering of securities of the Company, either
for the account of the Company or for the account of any other person or entity
(except a Registration Statement on Form S-8 solely for the purpose of
registering options, such Registration Statement and the prospectus included
therein shall also include the Shares, and any additional shares issued pursuant
to Section 4 above (which shall for all purposes be deemed to be included in the
Shares). The Company shall give written notice to Lender of its intention to
file such Registration Statement 30 or more days prior to the filing of such
Registration Statement. The delivery of such notice by the Company shall not in
any way obligate the Company to file such Registration Statement. The Company
may, at any time prior to the effective date thereof, determine not to offer the
securities to which such Registration Statement relates without liability to
Lender. Upon receipt of such notice, Lender may thereafter demand in writing
that the Company include is such Registration Statement the Shares owned by
Lender; provided that Lender agrees to any restrictions or cut-backs that the
underwriter may reasonably impose. In no event will Lender be subject to any
restriction more onerous than applied to any other shareholder.
5.02. Demand Registration. In the event that the Company does not file
a Registration Statement under the Securities Act of 1933 Statement within
twelve (12) months after the date of maturity of the Note executed pursuant to
this agreement that would effect the automatic piggyback registration of the
Shares issued or to be issued under this Agreement, or in the event that a
Registration Statement is filed but the Company was not able to include all of
the Shares issued (or
<PAGE> 7
AMAE Ventures
January 22, 1996
Page 7
to be issued) to Lender hereunder, then Lender may thereafter, on one occasion
only, demand in writing that the Company file a Registration Statement that will
include all or a portion thereof of the securities issued to Lender under this
Agreement. The Company will be obligated to effect such registration,
qualification or compliance within ninety (90) days after receipt of such
written notice.
6. Miscellaneous.
6.01 Consultation Regarding Underwriter Lender shall have the right
to approve, such approval not to be unreasonably withheld, the Company's
selection of an underwriter for its IPO. Approval will be deemed given unless
the Lender notifies the Company by the earlier of five business days from
receipt by the Company of a letter notifying the Lender of the Company's
proposed selection of an underwriter.
6.02 Entire Agreement This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings of the
parties, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof except as
specifically set forth herein. The parties hereby agree that this Agreement has
been executed and delivered in the State of New York and shall be construed,
enforced and governed by the laws thereof. Each party to this Agreement agrees
to perform any further acts and execute, acknowledge and deliver any documents
that may be reasonably required to carry out the intent and provisions of this
Agreement. This Agreement shall be binding on, and shall inure to the benefit
of, the parties to it and their respective heirs, legal representatives,
successor and assigns. In the event of a dispute hereunder, the prevailing party
shall be entitled to recover its attorneys' fees and costs.
<PAGE> 8
AMAE Ventures
January 22, 1996
Page 8
If the foregoing accurately sets forth our agreement, please sign in
the signature blank below.
Very truly yours,
DSL ENTERTAINMENT, INC.
By:
------------------------------
Its:
-----------------------------
AGREED AND ACCEPTED:
- ----------------------------
AMAE Ventures
<PAGE> 9
CONVERTIBLE SECURED PROMISSORY NOTE
THIS CONVERTIBLE SECURED PROMISSORY NOTE (THE "NOTE") HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR
OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS
NOTE MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE
MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SECURED AS PROVIDED HEREIN.
DSL ENTERTAINMENT GROUP, INC.
AS OF JANUARY 22, 1996
$322,000 PRINCIPAL AMOUNT LOS ANGELES, CALIFORNIA
DSL ENTERTAINMENT GROUP, INC. a California corporation (the
"Company"), for value received, hereby promises to pay to AMAE Ventures, with an
address at One State Street Plaza, 29th Floor, New York, New York 10004, or
registered assigns (the "Holder"), the principal amount of Three Hundred
Twenty-Two Thousand Dollars ($322,000) on the Maturity Date (as such term is
defined below), or such earlier date as may be provided herein, together with
interest on the unpaid principal balance hereof at the rate (calculated on the
basis of a 360-day year consisting of twelve 30-day months) of 12% per annum,
compounding quarterly. In no event shall any interest to be paid hereunder
exceed the maximum rate permitted by law. In any such event, this Note shall
automatically be deemed amended to permit interest charges (including the
default rate set forth in Section 2 below) at an amount equal to, but no greater
than, the maximum rate permitted by law.
This is the Note referred to in that certain letter agreement (the
"Letter Agreement"), by and between Holder and Company dated as of January 22,
1996. Capitalized terms not otherwise defined herein shall have the meaning set
forth in the Letter Agreement.
<PAGE> 10
SECTION 1 PAYMENTS.
(a) Subject to Section 5 below, interim payments shall be
due upon the receipt by the Company of any of the payments indicated in Schedule
1 hereto, which amounts are payable to the Company by the parties indicated on
such schedule, and which amounts, pursuant to the Security Agreement, shall be
paid directly to Lender. Notwithstanding the foregoing, any unpaid principal and
interest shall be due and payable on earlier to occur of (i) an Initial Public
Offering of the Company's outstanding Common Stock, or (ii) December 31, 1996,
(the "Maturity Date").at which time all interest and unpaid principal shall be
due and payable.
(a) Interest on this Note shall accrue from the date of
issuance hereof. Payments shall be applied first to any accrued interest and
then to principal.
(c) If the Maturity Date falls on a day that is not a
Business Day (as defined below), the payment due on such date will be made on
the next succeeding Business Day with the same force and effect as if made on
the Maturity Date. "Business Day" means any day which is not a Saturday or
Sunday and is not a day on which banking institutions are generally authorized
or obligated to close in the City of New York, New York.
(d) Subject to Section 5, the Company may, at its option,
prepay all or any part of the principal of this Note, without payment of any
premium or penalty, upon 10 days prior written notice to the Holder. All
payments on this Note shall be applied first to accrued and unpaid interest
hereon and the balance to the payment of principal hereof.
(e) Payments of principal of, and interest on, this Note
shall be made by check sent to the Holder's address set forth above or to such
other address as the Holder may designate for such purpose from time to time by
written notice to the Company, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
(f) The obligations to make the payments provided for in
this Note are absolute and unconditional and not subject to any defense,
set-off, counterclaim, rescission, recoupment, or adjustment whatsoever. The
Company hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit,
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of, and without any notice, diligence, act or
omission with respect to, the collection of any amount called for hereunder.
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<PAGE> 11
SECTION 2 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute
an event of default (an "Event of Default"):
(a) A default in the payment of the principal on the Note,
when and as the same shall become due and payable.
(b) A default in the payment of any interest accrued on the
Note, when and as the same shall become due and payable, which default shall
continue for five business days after the date fixed for the making of such
interest payment.
(c) A final judgment or judgments for the payment of money
in excess of $100,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals, or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company shall
not, within such 60-day period, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(d) The entry of a decree or order by a court having
jurisdiction adjudging the Company a bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment, or composition of, or
in respect of, the Company, under federal bankruptcy law, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency, or
other similar law, and the continuance of any such decree or order unstayed and
in effect for a period of 60 days; or the commencement by the Company of a
voluntary case under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under federal bankruptcy law or any other
applicable federal or state law, or the consent by it to the filing of such
petition or to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator, or similar official of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in furtherance
of any such action.
(e) A default is declared under the terms of the Letter
Agreement or Collateral Security Agreements.
(f) A sale of all or substantially all of the assets of the
Company, or a sale of common stock such that Drew S. Levin does not own in
excess of 30% of the Company's outstanding stock.
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<PAGE> 12
then, and in every such case, during the continuance of the Event of Default,
the Holder may, without presentment, demand or notice declare the principal of
this Note, together with all unpaid accrued interest thereon, to be immediately
due and payable, and upon any such declaration the same shall become and be
immediately due and payable, anything in this Note to the contrary
notwithstanding. The Holder, if not paid promptly at maturity or acceleration of
this Note, shall be entitled to, and the Borrowers covenant and agree to pay to
the Holder, such additional amount as shall be sufficient to cover the cost and
expenses of collection of this Note, including, without limitation, reasonable
attorneys' fees and costs. Upon an Event of Default, the Holder may take such
action as it deems desirable for the enforcement and collection of the principal
of, and unpaid accrued interest on, this Note, as well as all additional sums to
which the Holder may be entitled as aforesaid. The Holder's rights hereunder
shall be in addition to any other rights the Holder may have at law or in
equity. If an Event of Default has occurred under the Agreement, or this Note in
addition to any agreed upon charges, the principal balance of this Note shall
thereafter, at Holder's option, bear interest at five percent (5.00%) in
addition to the rate set forth in above, calculated over a year of 360 days.
SECTION 3 REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default, the
principal amount then outstanding of, and the accrued and unpaid interest on,
this Note shall automatically become immediately due and payable without
presentment, demand, protest, or other formalities of any kind, all of which are
hereby expressly waived by the Company.
(b) The Holder may institute such actions or proceedings in
law or equity as it shall deem expedient for the protection of its rights and
may prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
SECTION 4 SECURITY. This note shall be secured by the Collateral
described in those certain Collateral Security Agreements dated as of even date
hereof.
SECTION 5 CONVERSION.
(a) Subject to the adjustments provided in this Section 5,
at the Holder's election and anytime, Holder may convert the Note into an amount
of shares of the Company's Common Stock equal to 3% of the Company's Common
Stock, on a fully diluted basis, and shall be subject to the anti-dilution
protections set forth in the Letter Agreement of even date herewith. To the
extent that any principal payments are made in respect of the Note and retained
by the Holder, the right of Holder to convert the principal amount into the
Conversion Shares shall be reduced proportionately
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<PAGE> 13
based on the ratio between the amount of principal repayed to the original
principal amount of this Note. It is intended by the foregoing that to the
extent the principal amount has not been retired, that the Holder shall be
entitled to the dilution protection set forth in Section 4 of the Letter
Agreement including without limitation, such that Holder receives an appropriate
amount of Conversion Shares up to 3% of the Company's outstanding Common Stock,
computed on a fully diluted basis, upon the conclusion of an Initial Public
Offering.
(b) Notwithstanding anything in this Agreement to the
contrary, in order to preserve for Holder the conversion rights set forth above,
the following additional provisions shall apply:
(i) Prior to any optional prepayment of this Note,
Company will provide Lender 10 days written notice of such intent, in which case
Holder may notify Company in writing that it is electing to convert all (or the
portion subject to prepayment) of this Note into Shares of Common Stock as set
forth herein;
(ii) In the event of any payment associated with the
Collateral Security Agreements, the Company will use its best efforts (including
requiring any obligors with respect to the Collateral) to notify Holder that a
payment has been (or will be) made. In such event, Holder shall have 10 days
after receipt of such payment to return the like amount of cash to Company so as
to maintain the conversion rights set forth herein.
SECTION 6 MISCELLANEOUS.
(a) 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 by Federal Express, Express Mail, or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex, or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 12300 Wilshire
Boulevard, Suite 400, Los Angeles, California 90025 Attention: President, (ii)
if to the Holder, at its address set forth on the first page hereof, or (iii) in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 6(a). Any notice or other
communication given by certified mail shall be deemed given at the time of
receipt. Any notice given by other means permitted by this Section 6(a) shall be
deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Note (and upon surrender of
this Note if mutilated), the Company shall execute and deliver to the Holder a
new Note of like date, tenor, and denomination.
(c) No course of dealing and no delay or omission on the
part of the Holder in exercising any right or remedy shall operate as a waiver
thereof or otherwise prejudice the Holder's rights, powers, or remedies. No
right, power, or remedy conferred by this Note upon the Holder shall be
exclusive of any other right, power, or remedy referred to herein or now or
hereafter
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<PAGE> 14
available at law, in equity, by statute or otherwise, and all such
remedies may be exercised singly or concurrently.
- 6 -
<PAGE> 15
(d) This Note may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be endorsed
upon this Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the
State of New York and shall be governed by, and construed in accordance with,
the laws of the State of New York, without giving effect to principles governing
conflicts of law.
(f) The Holder irrevocably consents to the jurisdiction of
the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of, or relating
to, this Note, any document or instrument delivered pursuant to, in connection
with, or simultaneously with this Note, or a breach of this Note or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint, or other process and agrees that
service thereof may be made in accordance with Section 4(a). Within 30 days
after such service, or such other time as may be mutually agreed upon in writing
by the attorneys for the parties to such action or proceeding, the Company shall
appear or answer such summons, complaint, or other process. Should the Company
fail to appear or answer within such 30-day period or such extended period, as
the case may be, the Company shall be deemed in default and judgment may be
entered against the Company for the amount as demanded in any summons,
complaint, or other process so served.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
DSL ENTERTAINMENT GROUP, INC.
BY:
---------------------------------------------
DREW LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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<PAGE> 16
SECURITY AGREEMENT AND PLEDGE
SECURITY AGREEMENT, dated as of January 22, 1996, made by DSL
Entertainment Group , Inc. ("Company" or "Debtor"), in favor of Morris Wolfson
("Secured Party").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Letter Agreement, dated as
of the date hereof, between Company and Secured Party (the "Letter Agreement"),
as well as the related Convertible Securred Promissory Note (as such agreements
may from time to time be amended, modified or supplemented) (collectively the
"Financing Agreement"), Secured Party has agreed to advance to the Company the
summ of $322,000 for use by the Company as working capital (collectively, such
sums are referred to herein as the "Advances"); and
WHEREAS, Secured Party is willing to make the Advances but
only upon the condition, among others, that Company shall have executed and
delivered to Secured Party, for its benefit, this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the Financing Agreement are used herein as therein defined, and the
following terms shall have the following meanings (such meanings being equally
applicable to both the singular and plural forms of the terms defined):
"Affiliated Person" shall mean any Person which directly or indirectly
controls, is controlled by or is under common control with Company. For the
purposes of this definition, "control" (including with corresponding meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, if the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Collateral" shall have the meaning assigned to such term in Section 2
of this Security Agreement.
"Collateral Documents" shall mean all present and future notes
(including, without limitation, the Notes), security agreements, assignments,
pledge agreements,, consents and other documents granting liens or other
security interests to the Secured Party pursuant to this Agreement.
"Event of Default" shall have the meaning set forth in Section 7.
<PAGE> 17
"hereby," "herein," "hereof," "hereunder" and words of similar import
refer to this Security Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears.
"Proceeds" shall mean "proceeds," as such term is defined in section
9-306(1) of the UCC and, in any event, shall include, without limitation, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Company from time to time with respect to any of the Collateral, and (ii) any
and all payments (in any form whatsoever) made or due and payable to Company
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental body, authority, bureau or agency (or any person acting under color
of governmental authority).
"Secured Obligations" shall mean (i) all of the unpaid principal amount
of, and accrued interest on, amounts owing by Company to Secured Party under the
Financing Agreement or this Security Agreement.
"Security Agreement" shall mean this Security Agreement anf Pledge, as
the same may from time to time be amended, modified or supplemented and shall
refer to this Security Agreement as in effect of the date such reference becomes
operative.
"UCC" shall mean the Uniform Commercial Code as the same may, from time
to time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Secured Party's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations and to
induce Secured Party to enter into the Financing Agreement and to make the
Advances (as that term is defined in the Financing Agreement) in accordance with
the terms thereof, Company hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Secured Party, for its benefit, and hereby grants
to Secured Party, for its benefit, a security interest in, all of Company's
right, title and interest in, to the license agreements and receivables more
fully identified on Exhibit 1 attached hereto (all of which being hereinafter
collectively called the "Collateral").
3. Representations and Warranties
The Company hereby represents and warrants that:
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<PAGE> 18
(a) Except for the security interest granted to Secured
Party pursuant to this Security Agreement and other Permitted
Encumbrances, Company is the sole owner of each item of the Collateral
in which it purports to grant a security interest hereunder, having good
and marketable title thereto, free and clear of any and all Liens. No
material amounts payable under or in connection with any of its accounts
receivable or contracts are evidenced by Instruments which have not been
delivered to Secured Party.
(b) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement
covering all or any part of the Collateral is on file or of record in
any public office, except such as may have been filed by Company in
favor of Secured Party, pursuant to this Security Agreement or such as
relate to other Permitted Liens.
(c) Appropriate financing statements having been filed in
all jurisdictions in which the Collateral is located, this Security
Agreement is effective to create a valid and continuing first priority
lien on and first priority perfected security interest in the Collateral
with respect to which a security interest may be perfected by filing
pursuant to the UCC in favor of Secured Party, prior to all other Liens
except Permitted Liens, and is enforceable as such as against creditors
of and purchasers from Company (other than purchasers of Inventory in
the ordinary course of business) and as against any purchaser of real
property where any of the Equipment is located and any present or future
creditor obtaining a Lien on such real property. All action necessary or
desirable to protect and perfect such security interest in each item of
the Collateral has been duly taken.
(d) Company's principal place of business and the place
where its records concerning the Collateral are kept is located at the
address of Company set forth on the Financing Agreement, and Company
will not change such principal place of business or remove such records
unless it has taken such action as is necessary to cause the security
interest of Secured Party in the Collateral to continue to be perfected.
Company will not change its principal place of business or the place
where its records concerning the Collateral is kept without giving
thirty (30) days' prior written notice thereof to Secured Party.
4. Covenants. Company covenants and agrees with Secured
Party that from and after the date of this Security Agreement and until the
Secured Obligations are fully satisfied:
(a) Financing Statements and Further Documentation.
Company will join with Secured Party in the execution and filing
of such financing statement or statements in the form and
content reasonably required by Secured Party. Company will pay
all costs of filing any financing, continuation or termination
statements with respect to the security interest created by this
Agreement, together with costs and expenses of any lien search
required by Secured Party, during the term hereof, either as a
condition precedent to any Advance made by Secured Party to
Company hereunder. At any time and from time to time, upon the
written request of Secured Party, and at the sole expense of
Company, Company will promptly and duly execute
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<PAGE> 19
and deliver any and all such further instruments and documents
and take such further action as Secured Party may reasonably
deem desirable to obtain the full benefits of this Security
Agreement and of the rights and powers herein granted. Company
also hereby authorizes Secured Party to file any such financing
or continuation statement without the signature of Company to
the extent permitted by applicable law.
(b) Maintenance of Records. Company will keep and
maintain at its own cost and expense satisfactory and complete
records of the Collateral, including, without limitation, a
record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the
Collateral. Company will mark its books and records pertaining
to the Collateral to evidence this Security Agreement and the
security interests granted hereby. For Secured Party's further
security, Company agrees that Secured Party, shall have a
special property interest in all of Company's books and records
pertaining to the Collateral and, upon the occurrence and during
the continuation of any Default or Event of Default, Company
shall deliver and turn over any such books and records to
Secured Party or to its representatives at any time on demand of
Secured Party. Prior to the occurrence of a Default or an Event
of Default and upon reasonable notice from Secured Party,
Company shall permit any representative of Secured Party to
inspect such books and records and will provide photocopies
thereof to Secured Party.
(c) Indemnification. In any suit, proceeding or
action brought by Secured Party relating to the Collateral,
Company will save, indemnify and keep Secured Party and Secured
Party harmless from and against all expense, loss or damage
suffered by reason of any defense, set off, counterclaim,
recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by Company of any obligation
thereunder or arising out of any other agreement, indebtedness
or liability at any time owing to, or in favor of, such obligor
or its successors from Company, and all such obligations of
Company shall be and remain enforceable against and only against
Company and shall not be enforceable against Secured Party.
(d) Compliance with Laws, etc. Company will comply,
in all material respects, with all acts, rules, regulations,
orders, decrees and directions of any governmental authority,
applicable to the Collateral or any part thereof or to the
operation of Company's business; provided, however, that Company
may contest any act, regulation, order, decree or direction in
any reasonable manner which shall not in the sole opinion of
Secured Party, adversely affect Secured Party's rights hereunder
or adversely affect the first priority of its security interest
in the Collateral.
(e) Payment of Obligations. Company will pay
promptly when due all charges imposed upon the Collateral or in
respect of its income or profits therefrom and all claims of any
kind (including, without limitation, claims for labor, material
and supplies) except as otherwise provided in the Financing
Agreement.
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<PAGE> 20
(f) Continuous Perfection. Company will not change
its name, identity or corporate structure in any manner which
might make any financing or continuation statement filed in
connection herewith seriously misleading within the meaning of
section 9-402(7) of the UCC (or any other then applicable
provision of the UCC) unless Company shall have given Secured
Party at least thirty (30) days' prior written notice thereof
and shall have taken all action (or made arrangements to take
such action substantially simultaneously with such change if it
is impossible to take such action in advance) necessary or
reasonably requested by Secured Party to amend such financing
statement or continuation statement so that it is not seriously
misleading.
5. Secured Party's Appointment as Attorney-in-Fact.
(a) Upon the occurrence of an Event of Default (as defined
below) Company hereby irrevocably constitutes and appoints Secured Party
and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Company and in the name of Company
or in its own name, from time to time in Secured Party's discretion, for
the purpose of carrying out the terms of this Security Agreement, to
take any and all appropriate action and to execute and deliver any and
all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement and, without limiting
the generality of the foregoing, hereby gives Secured Party the power
and right, upon the occurrence of an Event of Default, on behalf of
Company, without notice to or assent by Company to do the following:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all moneys due and to
become due under any Collateral and, in the name of Company or
its own name or otherwise, to take possession of and endorse and
collect any checks, drafts, Financing Agreement, acceptances or
other Instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by Secured Party for the purpose of collecting any
and all such moneys due under any Collateral whenever payable
and to file any claim or to take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by
Secured Party for the purpose of collecting any and all such
moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, liens, security
interests or other encumbrances levied or placed on or
threatened against the Collateral, to effect any repairs or any
insurance called for by the terms of this Security Agreement and
to pay all or any part of the premiums therefor and the costs
thereof; and
(iii) (A) to direct any party liable for any payment
under any of the Collateral to make payment of any and all
moneys due, and to become due thereunder, directly to
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<PAGE> 21
Secured Party or as Secured Party shall direct; (B) to receive
payment of and receipt for any and all moneys, claims and other
amounts due, and to become due at any time, in respect of or
arising out of any Collateral; (C) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court
of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any
Collateral; (D) to defend any suit, action or proceeding brought
against Company with respect to any Collateral; (E) to settle,
compromise or adjust any suit, action or proceeding described
above and, in connection therewith, to give such discharges or
releases as Secured Party may deem appropriate; and (F)
generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully
and completely as though Secured Party were the absolute owner
thereof for all purposes, and to do, at Secured Party's option
and Company's expense, at any time, or from time to time, all
acts and things which Secured Party reasonably deems necessary
to protect, preserve or realize upon the Collateral and Secured
Party's Lien therein, in order to effect the intent of this
Security Agreement, all as fully and effectively as Company
might do.
(b) Secured Party agrees that, except upon the occurrence
and during the continuation of a Default or an Event of Default, it will
not exercise the power of attorney or any rights granted to Secured
Party pursuant to this Section 5. Company hereby ratifies, to the extent
permitted by law, all that said attorney shall lawfully do or cause to
be done by virtue hereof. The power of attorney granted pursuant to this
Section 5 is a power coupled with an interest and shall be irrevocable
until the Secured Obligations are indefeasibly paid in full.
(c) The powers conferred on Secured Party hereunder are
solely to protect Secured Party's interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. Secured Party
shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers and neither it nor any of its
officers, directors, employees or agents shall be responsible to Company
for any act or failure to act, except for its own gross negligence or
willful misconduct.
(d) Company also authorizes Secured Party, at any time and
from time to time upon the occurrence and during the continuation of any
Default or Event of Default, (i) to communicate in its own name with any
party to any contract with regard to the assignment of the right, title
and interest of Company in and under the contracts hereunder and other
matters relating thereto and (ii) to execute, in connection with the
sale provided for in Section 7 hereof, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the
Collateral.
6. Performance by Secured Party of Company's Obligation. If Company
fails to perform or comply with any of its agreements contained herein and
Secured Party, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the reasonable expenses of Secured Party incurred in connection
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<PAGE> 22
with such performance or compliance, together with interest thereon at the rate
then in effect in respect of the Loans, shall be payable by Company to Secured
Party on demand and shall constitute Secured Obligations secured hereby.
7. Events of Default. The following conditions or events shall
constitute an Event of Default:
(a) the failure to pay when due any amounts due under the
Financing Agreement: or
(b) The rejection, termination or disaffirmance or the
attempted rejection, termination or disaffirmance by Company (or any
person or entity acting on Company's behalf or in Company's place and
stead) of the Financing Agreement or this Agreement; or
(c) Any representation or warranty which materially
adversely affects the rights of Secured Party in connection with this
Agreement or the Financing Agreement shall be false in any material
respect on the date as of which made; or
(d) Company shall fail, breach or default in the performance
of any of the Secured Obligations which failure, breach or default
materially adversely affects Secured Party's rights therein (subject to
any express cure rights provided for in the Financing Agreement; or
(e) (i) A court having jurisdiction in the premises shall enter
a decree or order for relief in respect of Company in an
involuntary case under any applicable bankruptcy, insolvency or
any other similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be
granted under any applicable federal or state law; or
(ii) An involuntary case shall be commenced against
Company under any applicable bankruptcy, insolvency or similar
law now or hereafter in effect; or a decree or order of any
court having jurisdiction in the premises for the appointment of
a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Company or over all or
over a substantial part of its property, shall have been
entered; or there shall have been an involuntary appointment of
an interim receiver, trustee or other custodian of Company for
all or a substantial part of its property; or there shall have
been issued a warrant of attachment, execution or similar
process against any substantial part of the property of Company
and any such event in this clause (ii) shall have continued for
thirty (30) days unless dismissed, bonded or discharged; or
(f) Company shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
or shall consent to the entry of an order for relief in an involuntary
case,
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<PAGE> 23
or to the conversion of an involuntary case to a voluntary case, under
any such law, or shall consent to the appointment of or taking
possession by a receiver or other custodian for all or a substantial
part of its property; or Company shall make any assignment for the
benefit of creditors; or Company shall fail or be unable or shall admit
in writing its inability to pay its debts a such debts become due; or
the Board of Directors of Company (or any committee thereof) shall adopt
any resolution or otherwise authorize any action to approve any of the
foregoing; or
(g) Company shall be dissolved or shall file a petition for
dissolution, unless Company's successor executes and delivers to Secured
Party a security agreement substantially similar in all respects to this
Agreement.
8. Remedies, Rights Upon Default.
(a) If any Default or Event of Default shall occur and be
continuing, Secured Party may exercise in addition to all other rights
and remedies granted to it in this Security Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, Company expressly
agrees that in any such event Secured Party, without demand of
performance or other demand, advertisement or notice of any kind (except
the notice specified below of time and place of public or private sale)
to or upon Company or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the maximum
extent permitted by the UCC and other applicable law), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give an option
or options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker's
board or at any of Secured Party's offices or elsewhere at such prices
as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. Secured Party shall have the
right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or
any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Company hereby releases. Company
further agrees, at Secured Party's request, to assemble the Collateral
and make it available to Secured Party at places which Secured Party
shall reasonably select, whether at Company's premises or elsewhere.
Secured Party shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, as provided in
Section 8(d) hereof, Company remaining liable for any deficiency
remaining unpaid after such application, and only after so paying over
such net proceeds and after the payment by Secured Party of any other
amount required by any provision of law, including Section 9-504(1)(c)
of the UCC, need Secured Party account for the surplus, if any, to
Company. To the maximum extent permitted by applicable law, Company
waives all claims, damages, and demands against Secured Party arising
out of the repossession, retention or sale of the Collateral except such
as arise out of the gross negligence or wilful misconduct of Secured
Party. Company agrees that Secured Party need not give more than ten
(10) days'
8
<PAGE> 24
notice (which notification shall be deemed given when mailed or
delivered on an overnight basis, postage prepaid, addressed to Company
at its address referred to in Section 12 hereof) of the time and place
of any public sale or of the time after which a private sale may take
place and that such notice is reasonable notification of such matters.
Company shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all
amounts to which Secured Party, for its benefit and the ratable benefit
of Secured Party, is entitled, Company also being liable for the fees of
any attorneys employed by Secured Party to collect such deficiency.
(b) Company also agrees to pay all costs of Secured Party,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies
hereunder.
(c) Company hereby waives presentment, demand, protest or
any notice (to the maximum extent permitted by applicable law) of any
kind in connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be distributed
by Secured Party in the following order of priorities:
first, to Secured Party in an amount sufficient to pay
in full the reasonable expenses of Secured Party in connection
with such sale, disposition or other realization, including all
expenses, liabilities and advances incurred or made by Secured
Party in connection therewith, including, without limitation,
reasonable attorney's fees;
second, to Secured Party in an amount equal to the then
unpaid principal of and accrued interest and prepayment
premiums, if any, on the Financing Agreement; and
finally, upon payment in full of all of the obligations
outstanding under the Financing Agreement, to pay to Company, or
its representatives or as a court of competent jurisdiction may
direct, any surplus then remaining from such Proceeds.
9. Limitation on Secured Party's Duty in Respect of
Collateral. Secured Party shall use reasonable care with respect to the
Collateral in its possession or under its control. Secured Party shall not have
any other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of it or any income thereon or as
to the preservation of rights against prior parties or any other rights
pertaining thereto. Upon request of Company, Secured Party shall account for any
moneys received by it in respect of any foreclosure on or disposition of the
Collateral.
10. Reinstatement. This Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Company for liquidation or
9
<PAGE> 25
reorganization, should Company become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of Company's assets, and shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
11. Notices. Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be delivered in person with
receipt acknowledged, or telecopied and confirmed immediately in writing by a
copy mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as hereafter set forth, or mailed by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to Secured Party, at
Morris Wolfson
One State Street
29th Floor
New York, New York 10004
(b) If to Company, at
DSL Entertainment Group, Inc.
12300 Wilshire Boulevard
Suite 400
Los Angeles, Ca. 90025
With a copy to:
Kelly & Lytton
1900 Avenue of the Stars
Suite 1459
Los Angeles, California 90067
Attn: Bruce P. Vann, Esq.
The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every
notice, demand, request, consent, approval,
10
<PAGE> 26
declaration or other communication hereunder shall be deemed to
have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or the date of the
telecopy transmission, or three (3) Business Days after the same
shall have been deposited in the United States mail. Failure or
delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the
persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand,
request, consent, approval, declaration or other communication.
12. Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. Secured Party shall not
by any act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder, and no waiver shall be valid unless in writing,
signed by Secured Party and then only to the extent therein set forth. A waiver
by Secured Party of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which Secured Party would otherwise
have had on any future occasion. No failure to exercise nor any delay in
exercising on the part of Secured Party, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. None of the terms or provisions of this Security Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by Secured Party and, where applicable by Company.
14. Successor and Assigns. This Security Agreement and all
obligations of Company hereunder shall be binding upon the successors and
assigns of Company, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, and all future holders
of instruments or agreements evidencing the Secured Obligations and their
respective successors and assigns. No sales of participation, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Secured Obligations or any portion thereof or interest
therein shall in any manner affect the security interest granted to Secured
Party hereunder.
15. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH
11
<PAGE> 27
STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. AGENT, EACH SECURED PARTY
AND COMPANY AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY OBJECTION
AS TO VENUE IN THE COUNTY OF LOS ANGELES, STATE OF NEW YORK. SERVICE OF PROCESS
ON COMPANY, AGENT OR ANY SECURED PARTY IN ANY ACTION ARISING OUT OF OR RELATING
TO ANY OF THE LOAN DOCUMENTS SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY AT THE
ADDRESS LISTED IN SECTION 11 HEREOF. COMPANY HEREBY IRREVOCABLY APPOINTS CT
CORPORATION SYSTEM AS COMPANY'S AGENT FOR THE PURPOSE OF ACCEPTING THE SERVICE
OF ANY PROCESS WITHIN THE STATE OF CALIFORNIA. COMPANY AGREES NOTHING HEREIN
SHALL PRECLUDE AGENT, ANY SECURED PARTY OR COMPANY FROM BRINGING SUIT OR TAKING
OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.
16. Conflict of Terms. Except as otherwise explicitly
provided in this Security Agreement, a conflict or inconsistency, if any,
between the terms and provisions of this Security Agreement and the terms and
provisions of the Financing Agreement shall be controlled by the terms and
provisions of the Financing Agreement to the extent of such conflict or
inconsistency.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
on the date first set forth above.
DSL ENTERTAINMENT GROUP, INC.
By:
-------------------------------
Name:
---------------------------
Title:
--------------------------
Accepted and acknowledged by:
- -------------------------------
Morris Wolfson
"Secured Party"
12
<PAGE> 1
EXHIBIT 4.10
Dated as of July 8, 1996
Mr. Morris Wolfson
ACA Equities
D & M Investment Corp.
Mr. Gilbert Karsenty
c/o Mr. Morris Wolfson
One State Street Plaza 29th Floor
New York NY 10004
RE: "TOTAL RECALL"
Dear Mr. Wolfson:
This will confirm the terms pursuant to which ACA Equities, D & M
Investment Corp., and Mr. Gilbert Karsenty (collectively "Lender") have agreed
to make an investment in the Company.
1. Sale of Securities.
We have agreed to sell to Lender and Lender has agreed to purchase, for
the sum of $1,200,000.00, the following:
(a) The secured promissory note in substantially the form attached
hereto as Exhibit 1 (the "Note"), which Note is secured by certain assets of the
Company (the "Collateral" as defined in the Security Agreement and Pledge of
even date herewith) pursuant to the terms of the Security Agreement and Pledge
of even date herewith, as well as the related Copyright Mortgage.
(b) 60,000 shares of the Company's common stock (the "Shares").
13,333.3 of the shares will be delivered to ACA Equities, 23,333.3 of the shares
will be delivered to D & M Investment Corp., 3,333.3 of the shares will be
delivered to Mr. Gilbert Karsenty, and 20,000 shares will be delivered to The
Moris Wolfson Family Limited Partnership or their respective assigns. The Shares
and the Note are hereinafter referred to as the "Securities". The Company shall
have these Shares registered at the IPO, with such registration to be maintained
for a minimum two (2) years from the date of the IPO.
<PAGE> 2
Mr. Morris Wolfson
As of July 8, 1996
Page 2
(c) Twelve per cent (12%) of the Net Profits from any exploitation
of the Collateral, payable 3.33% to ACA Equities, 5.83% to D & M Investment
Corp., .83% to Mr. Gilbert Karsenty, and 2% to the Morris Wolfson Family Limited
Partnership, in first position prior to any third party participants. "Net
Profits" is herein defined as gross revenue received by Company in any way
related to the Collateral, including but not limited to sale or other
disposition, less actual production costs incurred by Company, directly related
to the Collateral. This participation shall be freely assignable.
2. Representations and Warranties of the Company: Covenants. The Company
hereby represents and warrants to Lender that:
2.1 Organization, Corporate Powers.
2.1.1 Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California;
2.1.2 Company has the power and authority to own its
properties and assets; and
2.1.3 Company has the power to execute and deliver the
Note, to execute, deliver and perform this Agreement, the Note, and the
Collateral Security Documents (as defined below) and any other documents or
instruments furnished pursuant thereto and hereto, and to grant the security
interests contemplated hereby and by the Collateral Security Documents. For
purposes of this agreement, the term "Collateral Security Documents" shall mean
the UCC-1 financing statements with respect to the Collateral, the Security
Agreement, and all assignments which are being executed and delivered
concurrently herewith.
2.1.4. The Company has no outstanding preferred stock.
2.2 Authorization of Borrowing.
2.2.1 The execution, delivery and performance of this
Agreement, the Collateral Security Documents and any other documents or
instruments furnished pursuant thereto and hereto by Company, the borrowings
hereunder, the execution and delivery of the Note, and the grant by Company of
the security interests contemplated hereby and by the Collateral Security
Documents have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of the
United States, or of any state thereof, the Articles of Incorporation or Bylaws
of Company, or any provision of any indenture, agreement or other instrument to
which Company is a party or by which it or any of its properties or assets is
bound, or be in conflict with, result in a breach of, or constitute (with due
notice and/or lapse of time) a default under any such indenture, agreement or
other instrument, or result
<PAGE> 3
Mr. Morris Wolfson
As of July 8, 1996
Page 3
in the creation or imposition of any lien, charge, or encumbrance of any nature
whatsoever upon any of the properties or assets of Company.
2.2.2 Except as set forth in Section 2.7 below, all
authorizations, approvals, registrations or filings from or with any
governmental or public regulatory body or authority of the United States, or of
any state thereof required for the execution and delivery of the Note by
Company, and for the execution, delivery and performance by Company of this
Agreement, or the Collateral Security Documents and any other documents or
instruments furnished pursuant thereto and hereto have been duly obtained or
made, or duly applied for and are in full force and effect, and if any such
further authorizations, approvals, registrations or filings should hereafter
become necessary, Company will use its best efforts to obtain or make all such
authorizations, approvals, registrations or filings.
2.3 Validity and Binding Nature. This Agreement, the Note, the
Collateral Security Documents and each other document and instrument when duly
executed by Company and delivered to Lender hereunder will constitute legal,
valid and binding obligations of Company, enforceable against Company in
accordance with their respective terms.
2.4. Security Interests. This Agreement and the Collateral Security
Documents (including a UCC-1 Financing Statement and a mortgage of copyright) to
be delivered and perfected on or about the date of the payment hereunder will
create and grant to Lender a valid and perfected first priority security
interest in the Collateral. Other than with respect to Permitted Encumbrances,
which must be junior in priority to the lien granted to Lender pursuant to the
Collateral Security Documents, no other lien shall be permitted on such
Collateral. For purposes of this agreement, "Permitted Encumbrances" shall mean
(i) SAG, DGA or other guild liens, (ii) liens, if any, imposed by any
sub-licensee of sub-distributor only to secure rights licensed to any such
distributor, and (iii) liens of any third party financier. The Company will file
all appropriate documents necessary to effectuate the creation of such security
interest granted to Lender. The Company will obtain a legal opinion that the
security interest is valid, binding and perfected.
2.5 Principal Place of Business. The principal place(s) of
administration and of the business of Company and the records relating to the
respective accounts and contract rights of Company are located at the address
set forth above.
2.6 Other Instruments. Except for this Agreement and the other
agreements contemplated hereby, Company is not a party to any agreement or
instrument materially and adversely affecting its ability to cause the
production and delivery of any of the Collateral described in the Collateral
Security Agreements, and Company is not in default in the performance,
observance or fulfillment of any material instrument or agreement to which it is
a
<PAGE> 4
Mr. Morris Wolfson
As of July 8, 1996
Page 4
party.
2.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transaction contemplated by this Agreement except for the filing pursuant to
Section 25102(f) of the California Corporation Securities Law of 1968, as
amended and the rule thereunder, which filing will be effected within 15 days of
the date hereof.
2.8 Delivery. The Company will deliver the Shares and any
additional shares which may be issued to Lender as a result of the provisions
hereof, as soon as practicable.
2.9 Collateral The receivables constituting the Collateral are,
subject to completion and delivery of the applicable program related to each
such receivable, good and collectible in the ordinary course of business of the
Company in amounts equal to those at which such receivables were or are
reflected on Collateral Security Documents.
3. Representations and Warranties of the Investor. Lender hereby
represents and warrants that:
3.1. Authorization. This Agreement is made with Lender in reliance
upon Lender's representation to the Company that the Shares which are being (and
may be acquired in the future) pursuant to this Agreement will be acquired for
investment for Lender's own account not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Lender has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Lender further represents
that Lender does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participation's to such person or to
any third person, with respect to any of the Securities. Lender represents that
Lender has full power and authority to enter into this Agreement.
3.2. Disclosure of Information. Lender has had an opportunity to
ask questions and receive answers from the Company regarding the its business
prospects and financial condition. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of Lender to rely thereon.
3.3. Investment Experience. Lender is an investor in securities of
companies in the development stage and acknowledges that Lender can bear the
economic risk of this investment, including the risk of the loss of the entire
investment, and has such knowledge and experience in financial or business
matters that Lender is capable of evaluating the merits and
<PAGE> 5
Mr. Morris Wolfson
As of July 8, 1996
Page 5
risks of the investment in the Securities.
3.4. Restricted Securities. Lender understands that the Securities
which are (and may in the future be) acquired hereunder will be characterized as
a "restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, Lender
represents that Lender is familiar with SEC Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
3.5. Legends. It is understood that the Shares which may be
acquired hereunder and issuable upon exercise, if ever, of Lender's option
pursuant to this Agreement may bear one or all of the following legends:
(i) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(ii) Any legend required by the laws of the State of
California.
4. Miscellaneous.
4.01 Consultation Regarding Underwriter Lender shall have the right
to approve, such approval not to be unreasonably withheld, the Company'
selection of an underwriter for its IPO. Approval will be deemed given unless
the Lender notifies the Company by the earlier of five business days from
receipt by the Company of a letter notifying the Lender of the Company's
proposed selection of an underwriter.
4.02 Entire Agreement This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings of the
parties, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof except as
specifically set forth herein.
4.03. Controlling Law. The parties hereby agree that this Agreement
has been executed and delivered in the State of New York and shall be construed,
enforced and governed
<PAGE> 6
Mr. Morris Wolfson
As of July 8, 1996
Page 6
by the laws thereof.
4.04 Further Acts. Each party to this Agreement agrees to perform
any further acts and execute, acknowledge and deliver any documents that may be
reasonably required to carry out the intent and provisions of this Agreement.
This Agreement shall be binding on, and shall inure to the benefit of, the
parties to it and their respective heirs, legal representatives, successor and
assigns. In the event of a dispute hereunder, the prevailing party shall be
entitled to recover its attorneys' fees and costs.
4.03 Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be delivered in person with receipt acknowledged,
or telecopied and confirmed immediately in writing by a copy mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed as hereafter set forth, or mailed by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
(a) If to Lender, at
ACA Equities
D & M Investment Corp.
Mr. Gilbert Karsenty
c/o Mr. Morris Wolfson
One State Street
29th Floor
New York, New York 10004
<PAGE> 7
Mr. Morris Wolfson
As of July 8, 1996
Page 7
With a copy to:
Eli Levitan, Esq.
One State Street
29th Floor
New York, New York 10004
(b) If to Company, at
DSL Entertainment Group, Inc.
12300 Wilshire Boulevard
Suite 400
Los Angeles, Ca. 90025
With a copy to:
Kelly & Lytton
1900 Avenue of the Stars
Suite 1459
Los Angeles, California 90067
Attn: Bruce P. Vann, Esq.
The giving of any notice required hereunder may be waived in writing by
the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or the date of the telecopy transmission, or three
(3) Business Days after the same shall have been deposited in the United States
mail. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
If the foregoing accurately sets forth our agreement, please sign in
the signature blank below.
Very truly yours,
DSL ENTERTAINMENT, INC.
By: Drew S. Levin
<PAGE> 8
Mr. Morris Wolfson
As of July 8, 1996
Page 8
Its: President and Chief Executive Officer
AGREED AND ACCEPTED:
By:
-------------------------------
Morris Wolfson
By:
-------------------------------
ACA Equities
By:
-------------------------------
D & M Investment Corp.
By:
-------------------------------
Mr. Gilbert Karsenty
<PAGE> 9
November 20, 1996
Mr. Morris Wolfson
ACA Equities
D & M Investment Corp.
Mr. Gilbert Karsenty
c/o Mr. Morris Wolfson
One State Street Plaza 29th Floor
New York NY 10004
RE: "TOTAL RECALL"
Gentlemen:
This will confirm the amendment to the terms pursuant to which ACA
Equities, D & M Investment Corp., and Mr. Gilbert Karsenty (collectively
"Holder") have advanced funds to DSL Entertainment Group, Inc. ("the Company").
1. Holder has previously entered into a Letter Agreement dated as of July 8,
1996, a Secured Promissory Note, a Copyright Mortgage and a Security Agreement
of even date therewith, (collectively "the Loan Agreements").
2. Holder hereby agrees to modify the Secured Promissory Note as follows:
(a) The maturity date as defined in section 1 (a)(i) is extended to the
sooner of March 1, 1997 or the completion of an initial public offering by the
Company.
(b) In addition to any and all required payments set forth in the Loan
Agreements, as additional events requiring the following pre-payment(s), Company
shall cause to be paid the sum of $115,000 to Holder (to be applied to the
portion of the Secured Promissory Note owed to D & M Investment Corp.) upon
receipt of $400,000 in financing pursuant to a financing agreement dated October
30, 1996, and Company shall further pay to Holder the sum of $250,000 upon the
closing of an additional $1,200,000 in bridge financing. In the event that a sum
less than $1,200,000 is received in any bridge or similar financing, the
mandatory $250,000 prepayment to holder will be reduced pro rata.
(c) These payments shall be applied first to accrued interest and
thereafter to reduction of the principal amount.
(d) Section 1(a)(iv) requiring the payment of any amounts received by
Company from the Interpublic Group of Companies in excess of actual production
costs to Holder is deleted in its
<PAGE> 10
November 20, 1996
Page 2
entirety.
3. Commencing as of March 15, 1997, in the event that any amount of interest or
principal remains unpaid, the Company will issue to Holder, as directed by
Morris Wolfson, twenty thousand (20,000) additional shares of the Company's
common stock, and an additional twenty thousand (20,000) shares on each monthly
anniversary thereafter that any such amount remains unpaid; provided that the
foregoing shall not limit any of the Holder's rights or remedies under the
Secured Promissory Note or the Loan Document. In addition, the Company hereby
irrevocably waives any and all rights and defenses it may have with respect to
the Collateral and the enforcement by Holder of its rights and remedies under
the Loan Documents in the event the Company fails to timely pay all outstanding
amounts under the Secured Promissory Note.
4. In consideration for extending the outside maturity date from September 30,
1996 to March 1, 1997, in addition to the sixty thousand (60,000) shares of the
Company's common stock issued to Holder pursuant to the July 8, 1996 letter
agreement, the Company agrees to issue to Holder:
(a) An additional fifty thousand (50,000) warrants to purchase shares of the
Company's common stock, at $1.00 per warrant, such warrants to be distributed as
follows:
20,000 D & M Investment Corp.
11,000 ACA Equities
4,000 Gilbert Karsenty
15,000 Chana Sasha Foundation
Such warrants will be on terms no less favorable than any other warrants
issued by the Company to date (including with respect to registration rights),
and shall be issued promptly, but not later than two (2) weeks from the last
execution date of this agreement; and
(b) An additional eighty five thousand (85,000) shares of the Company's common
stock (the "Shares"), which Shares will have the same rights (including
registration rights) as and be subject to the same restrictions as the shares
previously issued under the Loan Agreements. The Shares will be issued as
follows:
70,000 D & M Investment Corp.
10,000 ACA Equities
5,000 Gilbert Karsenty
Upon written notice, the Shares and/or warrants will be issued or reissued as
requested, and all rights under this agreement with respect thereto shall follow
such Shares and/or warrants.
5. As a clarification, the Net Profit participation set forth in section 1.(c)
of the Letter Agreement
<PAGE> 11
November 20, 1996
Page 3
dated as of July 8, 1996 is in perpetuity (i.e., even after the loan is repaid).
6. As an amendment, the Net Profit participation set forth in section 1.(c) of
the Letter Agreement dated as of July 8, 1996, is hereby increased by 3% from
12% to 15%, with 2% of the increase allocated to D & M Investment Corp., and 1%
of the increase allocated to ACA Equities. In no event shall Net Profits be less
than net profits as defined for DSL. DSL shall promptly pay Holder (but not less
frequently than at the end of each calendar quarter) the amount of such profit
participation received by DSL to date. The profit participation shall be freely
assignable by Holder. The Company shall execute and file any and all additional
documents requested by Holder with respect thereto.
7. All other terms and conditions of the Loan Agreements, will remain otherwise
unchanged and in full force and effect.
Please indicate agreement with and acceptance of the above by signing and
returning a copy of this letter to our office as soon as possible as we will be
proceeding and relying thereon. Thank you.
Very truly yours,
DSL ENTERTAINMENT, INC.
By: Drew S. Levin
Its: President and Chief Executive Officer
AGREED AND ACCEPTED:
By:____________________________
Morris Wolfson
By:____________________________
ACA Equities
By:____________________________
D & M Investment Corp.
<PAGE> 12
November 20, 1996
Page 4
By:____________________________
Mr. Gilbert Karsenty
<PAGE> 13
SECURITY AGREEMENT AND PLEDGE
SECURITY AGREEMENT, dated as of July 8, 1996, made by DSL
Entertainment Group, Inc. ("Company" or "Debtor"), in favor of ACA Equities,
D & M Investment Corp. and Mr. Gilbert Karsenty or their respective assign(s)
(collectively "Secured Party").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Letter Agreement, dated as of the
date hereof, between Company and Secured Party (the "Letter Agreement"), as well
as the related Secured Promissory Note (as such agreements may from time to time
be amended, modified or supplemented) (collectively the "Financing Agreement"),
Secured Party has agreed to advance to the Company the sum of $1,200,000.00 for
use by the Company as to purchase the television rights to the film "Total
Recall" (the "Asset") (collectively such sums are referred to herein as the
"Advances"); and
WHEREAS, Secured Party is willing to make the Advances but only upon
the condition, among others, that Company shall have executed and delivered to
Secured Party, for its benefit, this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in
the Financing Agreement are used herein as therein defined, and the following
terms shall have the following meanings (such meanings being equally applicable
to both the singular and plural forms of the terms defined):
"Affiliated Person" shall mean any Person which directly or indirectly
controls, is controlled by or is under common control with Company. For the
purposes of this definition, "control" (including with corresponding meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, if the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Collateral" shall have the meaning assigned to such term in Section 2
of this Security Agreement.
"Collateral Documents" shall mean all present and future notes
(including, without limitation, the Notes), security agreements, assignments,
pledge agreements, consents and other documents granting liens or other security
interests to the Secured Party pursuant to the Letter Agreement.
"Event of Default" shall have the meaning set forth in Section 7.
<PAGE> 14
"hereby," "herein," "hereof," "hereunder" and words of similar import
refer to this Security Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears.
"Proceeds" shall mean "proceeds," as such term is defined in section
9-306(1) of the UCC and, in any event, shall include, without limitation, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Company from time to time with respect to any of the Collateral, and (ii) any
and all payments (in any form whatsoever) made or due and payable to Company
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental body, authority, bureau or agency (or any person acting under color
of governmental authority)
"Secured Obligations" shall mean all of the unpaid principal, accrued
interest or other amounts owing by Company to Secured Party under the Letter
Agreement, the Secured Promissory Note or this Security Agreement, or any other
agreement.
"Security Agreement" shall mean this Security Agreement and Pledge, as
the same may from time to time be amended, modified or supplemented and shall
refer to this Security Agreement as in effect as of the date such reference
becomes operative.
"UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Secured Party's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations and to
induce Secured Party to enter into the Financing Agreement and to make the
Advances (as that term is defined in the Financing Agreement) in accordance with
the terms thereof, Company hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Secured Party, for its benefit, and hereby grants
to Secured Party, for its benefit, a security interest in, all of Company's
right, title and interest in, and to, the Asset and all related rights therein
(collectively called the "Collateral" and defined at greater length in Exhibit A
attached hereto, and incorporated herein by this reference).
3. Representations and Warranties
The Company hereby represents and warrants that:
2
<PAGE> 15
(a) The Company is the sole owner of each item of the Collateral in
which it purports to grant a security interest hereunder, having good and
marketable title thereto, free and clear of any and all Liens. No material
amounts payable under or in connection with any of its accounts receivable
or contracts are evidenced by Instruments which have not been delivered to
Secured Party.
(b) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any
part of the Collateral is on file or of record in any public office, except
such as may have been filed by Company in favor of Secured Party, pursuant
to this Security Agreement or such as relate to other permitted liens.
(c) Appropriate financing statements having been filed in all
jurisdictions in which the Collateral is located, this Security Agreement
is effective to create a valid and continuing first priority lien on and
first priority perfected security interest in the Collateral and is
enforceable as such as against creditors of and purchasers from Company.
All action necessary or desirable to protect and perfect such security
interest in each item of the Collateral has been duly taken.
(d) Company's principal place of business and the place where its
records concerning the Collateral are kept is located at the address of
Company set forth on the Financing Agreement, and Company will not change
such principal place of business or remove such records unless it has taken
such action as is necessary to cause the security interest of Secured Party
in the Collateral to continue to be perfected. Company will not change its
principal place of business or the place where its records concerning the
Collateral is kept without giving thirty (30) days' prior written notice
thereof to Secured Party.
4. Covenants. Company covenants and agrees with Secured Party that
from and after the date of this Security Agreement and until the Secured
Obligations are fully satisfied:
(a) Financing Statements and Further Documentation. Company will
join with Secured Party in the execution and filing of any additional
financing statement or statements in the form and content reasonably
required by Secured Party. Company will pay all costs of filing any
financing, continuation or termination statements with respect to the
security interest created by this Agreement, together with costs and
expenses of any lien search required by Secured Party. At any time and
from time to time, upon the written request of Secured Party, and at
the sole expense of Company, Company will promptly and duly execute
and deliver any and all such further instruments and documents and
take such further action as Secured Party may reasonably deem
desirable to obtain the full benefits of this Security Agreement and
of the rights and powers herein granted. Company also hereby
authorizes Secured Party to file any such financing or continuation
statement without the signature of Company to the extent permitted by
applicable law. Within ten (10) business days of Secured Party's
request, Company will provide Secured Party with
3
<PAGE> 16
irrevocable assignments which shall require the obligors with respect
to the Collateral to pay the amounts owing with respect thereto to a
bank account to be designated by Secured Party.
(b) Maintenance of Records. Company will keep and maintain at
its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and
all other dealings with the Collateral. Company will mark its books
and records pertaining to the Collateral to evidence this Security
Agreement and the security interests granted hereby. For Secured
Party's further security, Company agrees that Secured Party, shall
have a special property interest in all of Company's books and records
pertaining to the Collateral and, upon the occurrence and during the
continuation of any Default or Event of Default, Company shall deliver
and turn over any such books and records to Secured Party or to its
representatives at any time on demand of Secured Party. Prior to the
occurrence of a Default or an Event of Default and upon reasonable
notice from Secured Party, Company shall permit any representative of
Secured Party to inspect such books and records and will provide
photocopies thereof to Secured Party.
(c) Indemnification. In any suit, proceeding or action brought
by Secured Party relating to the Collateral, Company will save,
indemnify and keep Secured Party and Secured Party harmless from and
against all expense, loss or damage suffered by reason of any defense,
set off, counterclaim, recoupment or reduction of liability whatsoever
of the obligor thereunder, arising out of a breach by Company of any
obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from Company, and all such obligations of
Company shall be and remain enforceable against and only against
Company and shall not be enforceable against Secured Party.
(d) Compliance with Laws, etc. Company will comply, in all
material respects, with all acts, rules, regulations, orders, decrees
and directions of any governmental authority, applicable to the
Collateral or any part thereof or to the operation of Company's
business; provided, however, that Company may contest any act,
regulation, order, decree or direction in any reasonable manner which
shall not in the sole opinion of Secured Party, adversely affect
Secured Party's rights hereunder or adversely affect the first
priority of its security interest in the Collateral.
(e) Payment of Obligations. Company will pay promptly when due
all charges imposed upon the Collateral or in respect of its income or
profits therefrom and all claims of any kind (including, without
limitation, claims for labor, material and supplies) except as
otherwise provided in the Financing Agreement.
4
<PAGE> 17
(f) Continuous Perfection. Company will not change its name,
identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith
seriously misleading within the meaning of section 9-402(7) of the UCC
unless Company shall have given Secured Party at least thirty (30)
days' prior written notice thereof and shall have taken all action (or
made arrangements to take such action substantially simultaneously
with such change if it is impossible to take such action in advance)
necessary or reasonably requested by Secured Party to amend such
financing statement or continuation statement so that it remains
effective.
5. Secured Party's Appointment as Attorney-in-Fact.
(a) Upon the occurrence of an Event of Default (as defined below) Company
hereby irrevocably constitutes and appoints Secured Party and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Company and in the name of Company or in its own name, from time to
time in Secured Party's discretion, for the purpose of carrying out the terms of
this Security Agreement, to take any and all appropriate action and to execute
and deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby gives Secured Party the power
and right, upon the occurrence of an Event of Default, on behalf of Company,
without notice to or assent by Company to do the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any Collateral
and, in the name of Company or its own name or otherwise, to take
possession of and endorse and collect any checks, drafts, Financing
Agreement, acceptances or other Instruments for the payment of moneys due
under any Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
Secured Party for the purpose of collecting any and all such moneys due
under any Collateral whenever payable and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by Secured Party for the purpose of collecting any and
all such moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the terms of this
Security Agreement and to pay all or any part of the premiums therefor and
the costs thereof; and
(iii) (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due, and to become due
thereunder, directly to Secured Party or as Secured Party shall direct; (B)
to receive payment of and receipt
5
<PAGE> 18
for any and all moneys, claims and other amounts due, and to become
due at any time, in respect of or arising out of any Collateral; (C)
to commence and prosecute any suits, actions or proceedings at law or
in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (D) to defend any suit, action or
proceeding brought against Company with respect to any Collateral; (E)
to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges
or releases as Secured Party may deem appropriate; and (F) generally
to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though Secured Party were the absolute owner thereof for all purposes,
and to do, at Secured Party's option and Company's expense, at any
time, or from time to time, all acts and things which Secured Party
reasonably deems necessary to protect, preserve or realize upon the
Collateral and Secured Party's Lien therein, in order to effect the
intent of this Security Agreement, all as fully and effectively as
Company might do.
(b) Except as otherwise provided herein, Secured Party agrees that,
except upon the occurrence and during the continuation of a Default or an
Event of Default, it will not exercise the power of attorney or any rights
granted to Secured Party pursuant to this Section 5. Company hereby
ratifies, to the extent permitted by law, all that said attorney shall
lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this Section 5 is a power coupled with an interest and
shall be irrevocable until the Secured Obligations are indefeasibly paid in
full.
(c) The powers conferred on Secured Party hereunder are solely to
protect Secured Party's interests in the Collateral and shall not impose
any duty upon it to exercise any such powers. Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to Company for any act or failure
to act, except for its own gross negligence or willful misconduct.
(d) Company also authorizes Secured Party, at any time and from time
to time upon the occurrence and during the continuation of any Default or
Event of Default, (i) to communicate in its own name with any party to any
contract with regard to the assignment of the right, title and interest of
Company in and under the contracts hereunder and other matters relating
thereto and (ii) to execute, in connection with the sale provided for in
Section 7 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
6. Performance by Secured Party of Company's Obligation. If Company fails
to perform or comply with any of its agreements contained herein and Secured
Party, as provided for by the terms of this Security Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the reasonable expenses of Secured Party incurred in connection with
such performance or compliance, together with interest thereon at the rate then
in effect in
6
<PAGE> 19
respect of the Loans, shall be payable by Company to Secured Party on demand and
shall constitute Secured Obligations secured hereby.
7. Events of Default. The following conditions or events shall constitute
an Event of Default:
(a) the failure to pay when due any amounts due under the Letter
Agreement, the Secured Promissory Note or any other default thereunder: or
(b) The rejection, termination or disaffirmance or the attempted
rejection, termination or disaffirmance by Company (or any person or entity
acting on Company's behalf or in Company's place and stead) of the
Financing Agreement or this Agreement; or
(c) Any representation or warranty which materially adversely affects
the rights of Secured Party in connection with this Agreement or the
Financing Agreement shall be false in any material respect on the date as
of which made; or
(d) Company shall fail, breach or default in the performance of any
of the Secured Obligations which failure, breach or default materially
adversely affects Secured Party's rights therein (subject to any express
cure rights provided for in the Financing Agreement; or
(e) (i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Company in an involuntary
case under any applicable bankruptcy, insolvency or any other similar
law now or hereafter in effect, which decree or order is not stayed;
or any other similar relief shall be granted under any applicable
federal or state law; or
(ii) An involuntary case shall be commenced against Company under
any applicable bankruptcy, insolvency or similar law now or hereafter
in effect; or a decree or order of any court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over Company or over all or over a substantial part of its
property, shall have been entered; or there shall have been an
involuntary appointment of an interim receiver, trustee or other
custodian of Company for all or a substantial part of its property; or
there shall have been issued a warrant of attachment, execution or
similar process against any substantial part of the property of
Company and any such event in this clause (ii) shall have continued
for thirty (30) days unless dismissed, bonded or discharged; or
(f) Company shall have an order for relief entered with respect to it
or commence a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or shall consent to the entry
of an order for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or shall consent
to the appointment of or taking possession by a receiver or other custodian
for all or a substantial part of its property; or Company shall make any
assignment for the benefit of
7
<PAGE> 20
creditors; or Company shall fail or be unable or shall admit in writing its
inability to pay its debts a such debts become due; or the Board of Directors of
Company (or any committee thereof) shall adopt any resolution or otherwise
authorize any action to approve any of the foregoing; or
(g) Company shall be dissolved or shall file a petition for dissolution,
unless Company's successor executes and delivers to Secured Party a security
agreement substantially similar in all respects to this Agreement.
8. Remedies, Rights Upon Default.
(a) If any Default or Event of Default shall occur and be continuing,
Secured Party may exercise in addition to all other rights and remedies granted
to it in this Security Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the UCC or otherwise. Without limiting the
generality of the foregoing, Company expressly agrees that in any such event
Secured Party, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon Company or any other person (all and each of
which demands, advertisements and/or notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or at any of Secured
Party's offices or elsewhere at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. Secured
Party shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Company hereby releases. Company further
agrees, at Secured Party's request, to assemble the Collateral and make it
available to Secured Party at places which Secured Party shall reasonably
select, whether at Company's premises or elsewhere. Secured Party shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, as provided in Section 8(d) hereof, Company remaining
liable for any deficiency remaining unpaid after such application, and only
after so paying over such net proceeds and after the payment by Secured Party of
any other amount required by any provision of law, including Section 9-504(1)(c)
of the UCC, need Secured Party account for the surplus, if any, to Company. To
the maximum extent permitted by applicable law, Company waives all claims,
damages, and demands against Secured Party arising out of the repossession,
retention or sale of the Collateral except such as arise out of the gross
negligence or wilful misconduct of Secured Party. Company agrees that Secured
Party need not give more than ten (10) days' notice (which notification shall be
deemed given when mailed or delivered on an overnight basis, postage prepaid,
addressed to Company at its address referred to in Section 12 hereof) of the
time and place of any public sale or of the
8
<PAGE> 21
time after which a private sale may take place and that such notice is
reasonable notification of such matters. Company shall remain liable for
any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which Secured Party, for its benefit
and the ratable benefit of Secured Party, is entitled, Company also being
liable for the fees of any attorneys employed by Secured Party to collect
such deficiency.
(b) Company also agrees to pay all costs of Secured Party, including,
without limitation, reasonable attorneys' fees, incurred in connection with
the enforcement of any of its rights and remedies hereunder.
(c) Company hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Secured Party in
the following order of priorities:
first, to Secured Party in an amount sufficient to pay in full
the reasonable expenses of Secured Party in connection with such sale,
disposition or other realization, including all expenses, liabilities
and advances incurred or made by Secured Party in connection
therewith, including, without limitation, reasonable attorney's fees;
second, to Secured Party in an amount equal to the accrued
interest and prepayment premiums, if any, on the Financing Agreement;
third, to repay principal; and
finally, upon payment in full of all of the obligations
outstanding under the Financing Agreement, to pay to Company, or its
representatives or as a court of competent jurisdiction may direct,
any surplus then remaining from such Proceeds.
9. Limitation on Secured Party's Duty in Respect of Collateral.
Secured Party shall use reasonable care with respect to the Collateral in its
possession or under its control. Secured Party shall not have any other duty as
to any Collateral in its possession or control or in the possession or control
of any agent or nominee of it or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto. Upon
request of Company, Secured Party shall account for any moneys received by it in
respect of any foreclosure on or disposition of the Collateral.
10. Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Company for liquidation or reorganization, should Company become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Company's assets, and
9
<PAGE> 22
shall continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Secured Obligations, or any part thereof,
is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Secured Obligations,
whether as a "voidable preference", "fraudulent conveyance", or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Secured Obligations shall be reinstated and deemed reduced only by such amount
paid and not so rescinded, reduced, restored or returned.
11. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other communication with respect to this Security Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be delivered in person with receipt
acknowledged, or telecopied and confirmed immediately in writing by a copy
mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as hereafter set forth, or mailed by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to Secured Party, at
ACA Equities
D & M Investment Corp.
Mr. Gilbert Karsenty
c/o Mr. Morris Wolfson
One State Street
29th Floor
New York, New York 10004
With a copy to:
Eli Levitan, Esq.
One State Street
29th Floor
New York, New York 10004
(b) If to Company, at
DSL Entertainment Group, Inc.
12300 Wilshire Boulevard
Suite 400
Los Angeles, Ca. 90025
With a copy to:
Kelly & Lytton
10
<PAGE> 23
1900 Avenue of the Stars
Suite 1459
Los Angeles, California 90067
Attn: Bruce P. Vann, Esq.
The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or the date of the telecopy transmission, or three
(3) Business Days after the same shall have been deposited in the United States
mail. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
12. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. Secured Party shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Secured Party and then only to the extent therein set forth. A waiver by Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Secured Party would otherwise
have had on any future occasion. No failure to exercise nor any delay in
exercising on the part of Secured Party, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. None of the terms or provisions of this Security Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by Secured Party and, where applicable by Company.
14. Successor and Assigns. This Security Agreement and all
obligations of Company hereunder shall be binding upon the successors and
assigns of Company, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, and all future holders
of instruments or agreements evidencing the Secured Obligations and their
respective successors and assigns. No sales of participation, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Secured Obligations or any portion thereof or interest
therein shall in any manner affect the security interest granted to Secured
Party hereunder.
11
<PAGE> 24
15. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS,
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. AGENT, EACH SECURED
PARTY AND COMPANY AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY
OBJECTION AS TO VENUE IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. SERVICE OF
PROCESS ON COMPANY, AGENT OR ANY SECURED PARTY IN ANY ACTION ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY
AT THE ADDRESS LISTED IN SECTION 11 HEREOF. COMPANY HEREBY IRREVOCABLY APPOINTS
CT CORPORATION SYSTEM AS COMPANY'S AGENT FOR THE PURPOSE OF ACCEPTING THE
SERVICE OF ANY PROCESS WITHIN THE STATE OF NEW YORK. COMPANY AGREES NOTHING
HEREIN SHALL PRECLUDE AGENT, ANY SECURED PARTY OR COMPANY FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.
16. Conflict of Terms. Except as otherwise explicitly provided in
this Security Agreement, a conflict or inconsistency, if any, between the terms
and provisions of this Security Agreement and the terms and provisions of the
Financing Agreement shall be controlled by the terms and provisions of the
Financing Agreement to the extent of such conflict or inconsistency.
17. Counterparts. This agreement may be executed in counterparts, and
all of the counterparts, taken as a whole shall constitute the entire agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
or agent as of the date first set forth above.
DSL ENTERTAINMENT GROUP, INC.
By:
--------------------------------------
Drew S. Levin
President and Chief Executive Officer
Accepted and acknowledged by:
"Secured Party"
12
<PAGE> 25
- -------------------------------
Morris Wolfson
- -------------------------------
ACA Equities
- -------------------------------
D & M Investment Corp.
- -------------------------------
Mr. Gilbert Karsenty
13
<PAGE> 26
SECURED PROMISSORY NOTE
THIS SECURED PROMISSORY NOTE (THE "NOTE") HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR
(2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR APPLICABLE STATE SECURITIES LAWS.
THIS NOTE IS SECURED AS PROVIDED HEREIN.
DSL ENTERTAINMENT GROUP, INC.
AS OF JULY 8, 1996
$1,200,000.00 PRINCIPAL AMOUNT LOS ANGELES, CALIFORNIA
DSL ENTERTAINMENT GROUP, INC. a California corporation (the
"Company"), for value received, hereby promises to pay according to the attached
schedule A hereto, to ACA Equities, D & M Investment Corp., and Gilbert
Karsenty, with an address of: c/o Morris Wolfson, One State Street Plaza, 29th
Floor, New York, New York 10004, or registered assigns (the "Holder"), the
principal aggregate amount of One Million Two Hundred Thousand Dollars
($1,200,000.00) on the Maturity Date (as such term is defined below), or such
earlier date as may be provided herein, together with interest on the unpaid
principal balance hereof at the rate (calculated on the basis of a 360-day year
consisting of twelve 30-day months) of 10% per annum, compounding quarterly. In
no event shall any interest to be paid hereunder exceed the maximum rate
permitted by law. In any such event, this Note shall automatically be deemed
amended to permit interest charges (including the default rate set forth in
Section 2 below) at an amount equal to, but no greater than, the maximum rate
permitted by law.
This is the Note referred to in that certain letter agreement (the
"Letter Agreement"), by and between Holder and Company dated as of July 8, 1996.
Capitalized terms not otherwise defined herein shall have the meaning set forth
in the Letter Agreement.
<PAGE> 27
SECTION 1 PAYMENTS.
(a) (i) All unpaid principal and interest shall be due and payable on
the earlier to occur of (i) an Initial Public Offering of the Company's
outstanding Common Stock, or (ii) September 30, 1996, (the "Maturity Date").
(ii) In the event that any payments are made to Company for any co-production
rights, and/or distribution rights, whether U.S. or foreign, such sums shall be
paid to Lender towards any then unpaid principal, interest and other amounts
payable under this note. (iii) Any amounts Company receives pursuant to its
current convertible bridge loan private placement memorandum, in excess of
$1,300,000.00, (estimated total is $1,800,000.00) shall be paid to Lender
towards any then unpaid principal, interest and other amounts payable under this
note. (iv) Any amounts received by Company from the Interpublic Group of
Companies towards the production of the series "Amazing Tails" in excess of
actual production costs shall be paid to Lender towards any then unpaid
principal, interest and other amounts payable under this note.
(b) Interest on this Note shall accrue from the date of issuance
hereof. Payments shall be applied first to any costs or expenses, then to
accrued interest and then to principal.
(c) If the Maturity Date falls on a day that is not a Business Day
(as defined below), the payment due on such date will be made on the next
succeeding Business Day with the same force and effect as if made on the
Maturity Date. "Business Day" means any day which is not a Saturday or Sunday
and is not a day on which banking institutions are generally authorized or
obligated to close in the City of New York, New York.
(d) Subject to Section 5, the Company may, at its option, prepay all
or any part of the principal of this Note, without payment of any premium or
penalty, upon 10 days prior written notice to the Holder. All payments on this
Note shall be applied first to accrued and unpaid interest hereon and the
balance to the payment of principal hereof.
(e) Payments of principal of, and interest on, this Note shall be
made by check sent to the Holder's address set forth above or to such other
address as the Holder may designate for such purpose from time to time by
written notice to the Company, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
(f) The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment, or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit,
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of, and without any notice, diligence, act or
omission with respect to, the collection of any amount called for hereunder.
- 2 -
<PAGE> 28
SECTION 2 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
(a) A default in the payment of the principal on the Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest accrued on the Note,
when and as the same shall become due and payable, which default shall continue
for five business days after the date fixed for the making of such interest
payment.
(c) A final judgment or judgments for the payment of money in excess
of $100,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals, or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company shall
not, within such 60-day period, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment, or composition of, or in respect of,
the Company, under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, and the continuance of any such decree or order unstayed and in effect for
a period of 60 days; or the commencement by the Company of a voluntary case
under federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by it to the institution of bankruptcy or insolvency proceedings against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under federal bankruptcy law or any other applicable
federal or state law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator, or
similar official of the Company or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the admission
by it in writing of its inability to pay its debts generally as they become due,
or the taking of corporate action by the Company in furtherance of any such
action.
(e) A default is declared under the terms of the Letter Agreement or
Collateral Security Agreements.
(f) A sale of all or substantially all of the assets of the Company,
or a sale of common stock such that Drew S. Levin does not own in excess of 30%
of the Company's outstanding stock.
then, and in every such case, during the continuance of the Event of Default,
the Holder may, without presentment, demand or notice declare the principal of
this Note, together with all unpaid
- 3 -
<PAGE> 29
accrued interest thereon, to be immediately due and payable, and upon any such
declaration the same shall become and be immediately due and payable, anything
in this Note to the contrary notwithstanding. The Holder, if not paid promptly
at maturity or acceleration of this Note, shall be entitled to, and the
Borrowers covenant and agree to pay to the Holder, such additional amount as
shall be sufficient to cover the cost and expenses of collection of this Note,
including, without limitation, reasonable attorneys' fees and costs. Upon an
Event of Default, the Holder may take such action as it deems desirable for the
enforcement and collection of the principal of, and unpaid accrued interest on,
this Note, as well as all additional sums to which the Holder may be entitled as
aforesaid. The Holder's rights hereunder shall be in addition to any other
rights the Holder may have at law or in equity. If an Event of Default has
occurred under the Agreement, or this Note in addition to any agreed upon
charges, the principal balance of this Note shall thereafter, at Holder's
option, bear interest at five percent (5.00%) in addition to the rate set forth
in above, calculated over a year of 360 days, however the total rate of interest
will not exceed the maximum allowable legal rate of interest.
SECTION 3 REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default, the principal amount
then outstanding of, and the accrued and unpaid interest on, this Note shall
automatically become immediately due and payable without presentment, demand,
protest, or other formalities of any kind, all of which are hereby expressly
waived by the Company.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
SECTION 4 SECURITY. This note shall be secured by the Collateral described
in those certain collateral security agreements dated as of even date hereof.
SECTION 5 MISCELLANEOUS.
(a) 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 by Federal Express, Express Mail, or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex, or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 12300 Wilshire
Boulevard, Suite 400, Los Angeles, California 90025 Attention: President, (ii)
if to the Holder, at its address set forth on the first page hereof, or (iii) in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 6(a). Any notice or other
communication
- 4 -
<PAGE> 30
given by certified mail shall be deemed given at the time of receipt. Any notice
given by other means permitted by this Section 6(a) shall be deemed given at the
time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Note (and upon surrender of this Note
if mutilated), the Company shall execute and deliver to the Holder a new Note of
like date, tenor, and denomination.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers, or remedies. No right, power,
or remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power, or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) This Note may be amended only by a written instrument executed by
the Company and the Holder hereof. Any amendment shall be endorsed upon this
Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the State of New
York and shall be governed by, and construed in accordance with, the laws of the
State of New York, without giving effect to principles governing conflicts of
law.
(f) Company irrevocably consents to the jurisdiction of the courts of
the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of, or relating to, this
Note, any document or instrument delivered pursuant to, in connection with, or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint, or other process and agrees that service
thereof may be made in accordance with Section 4(a). Within 30 days after such
service, or such other time as may be mutually agreed upon in writing by the
attorneys for the parties to such action or proceeding, the Company shall appear
or answer such summons, complaint, or other process. Should the Company fail to
appear or answer within such 30-day period or such extended period, as the case
may be, the Company shall be deemed in default and judgment may be entered
against the Company for the amount as demanded in any summons, complaint, or
other process so served.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
DSL ENTERTAINMENT GROUP, INC.
BY: ___________________________
DREW LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
- 5 -
<PAGE> 31
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C>
ACA Equities $400,000
D & M Investment Corp. $700,000
Mr. Gilbert Karsenty $100,000
----------
Total $1,200,000
</TABLE>
- 6 -
<PAGE> 32
COPYRIGHT
MORTGAGE AND ASSIGNMENT
("Total Recall")
For good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned, DSL Entertainment Group, Inc., a California
corporation ("Grantor"), does hereby mortgage, assign, grant, convey and
transfer for security to ACA Equities, D & M Investment Corp., and Mr. Gilbert
Karsenty (collectively "Grantee"), and their successors and assigns, throughout
the world in perpetuity, all of Grantor's rights, title and interest of every
kind and nature, without limitation, in and to all copyrights and rights and
interests of every kind or nature in copyrights and works protectable by
copyright, whether now owned or hereafter created or acquired and all renewals
and extensions thereof, including without limitation all right, title and
interest in and to the television rights (as such rights are defined in the
purchase agreement dated May 1, 1996, between Grantor and Carolco Pictures,
Inc.) in and to the motion picture entitled "Total Recall" (the "Rights").
Grantor agrees that if any person, firm or corporation shall do or perform any
acts which the Grantee believes to constitute a copyright infringement of the
Rights, or constitute a plagiarism, or violate or infringe any right of the
Grantor or the Grantee therein or if any person, firm or corporation shall do or
perform any acts which the Grantee believes to constitute an unauthorized or
unlawful distribution, exhibition, or use thereof, then and in any such event,
the Grantee may and shall have the right to take such steps and institute such
suits or proceedings as the Grantee may deem advisable or necessary to prevent
such acts and conduct and to secure damages and other relief by reason thereof,
and to generally take such steps as may be advisable or reasonably necessary or
proper for the full protection of the rights of the parties. The Grantee may
take such steps or institute such suits or proceedings in its own name or in the
name of the Grantor or in the names of the parties jointly.
Grantor hereby irrevocably constitutes and appoints Grantee its lawful
attorney-in-fact to do all acts and things permitted or reasonably contemplated
by the terms hereof. Without limiting the generality of the foregoing, the
aforesaid conveyance and assignment includes all prior choses-in-action, at
law, in equity and otherwise, the right to recover all damages and other sums,
and the right to other relief allowed or awarded at law, in equity, by statute
or otherwise. ********** Grantor and Grantee have entered into a Loan and
Security Agreement dated as of February 12, 1996, as the same may hereinafter be
amended, supplemented, renewed, extended or replaced (the "Loan Agreement")
1
<PAGE> 33
relating to the mortgage and assignment for security in and to the aforesaid
rights and this Copyright Mortgage and Assignment is expressly made subject to
the terms and conditions contained in the Loan Agreement and related Promissory
Note.
"Grantor": Resurrection Incorporated Productions
By: _________________________
Its: ________________________
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ____________, 1996, before me, ______________________, Notary
Public, personally appeared _________________ personally known to me or proved
to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------
Notary Public
2
<PAGE> 1
EXHIBIT 4.11
April 19, 1996
Mr. Abraham Wolfson
South Ferry #2, L.P.
One State Street Plaza 29th Floor
New York NY 10004
RE: FINANCING OF MARY LOU'S FLIP FLOP SHOP
Dear Mr. Wolfson:
The following outlines the deal points we propose for South Ferry #2, L.P.
("South Ferry") to provide initial funding to DSL Entertainment Group, Inc. for
the development and preproduction of the series "Mary Lou's Flip Flop Shop" (the
"series").
1. South Ferry will provide funding in the amount of $500,000.00 payable on or
before April 22, 1996.
2. The principal amount advanced pursuant to the above will accrue interest at
the rate of ten per cent (10%) per annum.
3. The principal and accrued interest will be secured by a UCC-1 financing
statement in first position on the series and its elements, including
receivables and contract rights.
4. The principal will be due and payable upon the earlier of the conclusion of
the anticipated Initial Public Offering of DSL's common stock (the "IPO"), the
creation of a production distribution fund in excess of one million dollars or
December 31, 1996.
5. As further consideration for the funding by South Ferry, it will receive
50,000 warrants to purchase shares of DSL common stock at $1.00 each, with such
warrants and shares to be registered at the IPO, and thereafter subject to a
thirteen (13) month lockup.
In the event that DSL obtains alternate financing of the series at any time
after the $500,000 has been funded, it shall repay any amounts financed,
including accrued interest. South Ferry shall retain all other rights granted
under this agreement, including the above specified warrants.
7. This agreement is conditioned on Mr. Joe Cayre funding an equal amount
towards the production, and the money shall remain in escrow until DSL receives
Mr. Cayre's funding.
<PAGE> 2
Mr. Abraham Wolfson
November 14, 1996
Page 2
South Ferry will receive "most favored nations status" with Mr. Cayre for the
financing provided hereunder.
8. South Ferry shall further receive two (2%) of DSL's net profit participation,
as defined for DSL, in perpetuity.
This letter shall serve as a binding agreement until such time, if any, that it
is replaced by a more formal document incorporating the above terms and
conditions. This letter agreement will nevertheless be enforceable in all
respects by South Ferry. DSL will prepare to the satisfaction of South Ferry,
and execute, any and all other documents that South Ferry reasonably requests in
connection with this transaction
Please review the above, and indicate your understanding and acceptance by
signing a copy of this letter and returning it to our office.
Sincerely,
Drew S. Levin
DSL/ee
Agreed to and accepted:
South Ferry #2, L.P.
Date:_________ By:__________________________________________
Abraham Wolfson
<PAGE> 3
November 20, 1996
Mr. Abraham Wolfson
South Ferry #2, L.P.
One State Street Plaza 29th Floor
New York NY 10004
RE: FINANCING OF FLIP FLOP SHOP
Dear Mr. Wolfson:
Reference is made to the letter agreement between DSL Entertainment Group, Inc.
doing business as TEAM Entertainment ("TEAM") and South Ferry #2, L.P. ("South
Ferry") dated April 19, 1996 (the "Agreement") pursuant to which South Ferry
loaned the sum of $500,000.00 to finance the series titled "Mary Lou's Flip Flop
Shop." This letter is to amend that agreement and the promissory note of April
22, 1996 (the "Note") as follows:
1. DSL hereby grants South Ferry a first priority lien and security interest in
the "Series" (as defined below) as collateral security for all of DSL's
obligations to South Ferry, including the above-referenced loan. DSL shall
prepare, execute and file any and all documents and instruments necessary or
appropriate to perfect such security interest, all of which shall be in form and
substance satisfactory to South Ferry. For purposes of this letter, the "Series"
shall mean the television series titled "Mary Lou's Flip Flop Shop" and the
series titled "Acrobat Alley" (and any successor thereto), and if either of
these projects are not completed and profitable, the first children's television
project that DSL completes and is profitable, in any case together with any and
all rights (tangible and intangible), receivables, revenues and other proceeds
thereof.
2. DSL hereby agrees to increase the number of warrants to be issued by DSL to
South Ferry under the agreement by twenty thousand (20,000) warrants, such that
the DSL shall issue to South Ferry pursuant to the Agreement a total of seventy
thousand (70,000) warrants (the "Warrants").
3. The Warrants shall (i) have an exercise price per share of common stock (one
share per warrant) not to exceed $1.00. (ii) be exercisable for a period
commencing on the date hereof and ending no earlier than the third anniversary
of an initial public offering by DSL, (iii) be entitled to all of the rights and
benefits set forth in the Agreement, including registration rights, and (iv)
shall have the most favorable terms and conditions of any other warrants issued
by DSL (or which DSL has agreed to issue) prior to the date hereof. The Warrants
shall be delivered to South Ferry as soon as practicable, but in no event later
than two weeks after the last date of execution of this letter.
<PAGE> 4
Mr. Abraham Wolfson
November 20, 1996
Page 2
4. The profit participation described in paragraph 8 of the Agreement is hereby
modified to read as follows: DSL hereby transfers and grants to South Ferry a
profit participation equal to five percent (5%) of the Net Profits from any
exploitation of the Series, in first position prior to any third party
participants. "Net Profits" is herein defined as gross revenue received by DSL
in any way related to the Series, including by not limited to any sale or other
disposition, less actual production costs incurred by DSL directly related to
the Series; provided that in no event shall Net Profits be less than net profits
as defined for DSL. South Ferry shall be entitled to such profit participation
in perpetuity (i.e., even after the loan is repaid) and DSL shall promptly pay
to South Ferry (but not less frequently than at the end or each calendar
quarter) the amount of such profit participation to date. The profit
participation shall be freely assignable by South Ferry. DSL shall execute and
file any and all additional documents requested by South Ferry with respect
thereto.
5. The maturity date of the Note shall be amended to the sooner of the
completion of an initial public offering by TEAM, or April 1, 1997, and a
separate amendment to the Note will be prepared and executed.
The Agreement remains fully enforceable in accordance with its terms as modified
by this letter.
Please sign and return a copy of this letter and the enclosed note amendment to
our office at your earliest convenience. Thank you.
Sincerely,
Eric S. Elias
Business Affairs
Accepted and agreed:
South Ferry #2, L.P.
By:_________________________________ Date:___________
<PAGE> 1
EXHIBIT 4.12
TEAM COMMUNICATIONS GROUP, INC.
STOCK AWARDS PLAN
1. Purpose. The purpose of the Team Communications Group, Inc.
Stock Awards Plan (the "Plan") is to promote the long term financial interests
and growth of Team Communications Group, Inc. (the "Company") by (a) attracting
and retaining executive personnel, (b) motivating executive personnel by means
of growth-related incentives, (c) providing incentive compensation opportunities
that are competitive with those of other major corporations; and (d) furthering
the identity of interests of participants with those of the stockholders of the
Company.
2. Definitions. The following definitions are applicable to
the Plan:
"Affiliate" means any entity in which the Company has a direct or
indirect equity interest which is so designated by the Committee.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Committee" means a committee of two or more directors of the Company;
provided however, that if the Company becomes subject to Section 12 of the
Exchange Act, such directors shall be "non-employee directors" as such term is
used in Rule 16b-3 and, if feasible, such directors shall be "Outside Directors"
as defined herein; and provided further that if there are not at least two such
"non-employee directors," any grants or awards hereunder to an individual
subject to Section 16 of the Exchange Act shall also be approved by the Board of
Directors of the Company.
"common stock" means the common stock, no par value, of the Company or
such other securities as may be substituted therefor pursuant to paragraph 5(c).
The "fair market value" of the common stock shall be determined in
accordance with procedures established by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
1
<PAGE> 2
"Outside Director" shall have the meaning set forth in Treasury
Regulation ss.1.162-27(e)(3) as amended from time to time and as interpreted by
the Internal Revenue Service.
"Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Sections 42S(e) and (g) of the Code.
"participant" means any key employee of or consultant to the Company or
an Affiliate selected by the Committee.
"Rule 16b-3" means such rule adopted under the Exchange Act, or any
successor rule.
"Subsidiary" shall mean a subsidiary corporation, whether now or
hereafter existing, as defined in Sections 425(f) and (g) of the Code.
3. Limitation on Aggregate Shares. The number of shares of common
stock with respect to which awards may be granted under the Plan and which may
be issued upon the exercise or payment thereof shall not exceed, in the
aggregate, 180,000 shares (giving effect to the Company's proposed approximate
2.2776 for 1 reverse stock split of its common stock); provided, however, that
to the extent any awards expire unexercised or unpaid or are cancelled,
terminated or forfeited in any manner without the issuance of shares of common
stock thereunder, or if the Company receives any shares of common stock as the
exercise price of any award, such shares shall again be available under the
Plan. Such 180,000 shares of common stock may be either authorized and unissued
shares, treasury shares, or a combination thereof, as the Committee shall
determine. During any fiscal year of the Company, no participant shall be
granted an award hereunder with respect to more than 50,000 shares of common
stock(giving effect to the Company's proposed approximate 2.2776 for 1 reverse
stock split of its common stock). The number of shares set forth in this
paragraph are subject to equitable adjustment as provided in paragraph 5(c)
herein.
4. Awards. The Committee may grant to participants, in accordance
with this paragraph 4 and the other provisions of the Plan, stock options, stock
appreciation rights ("SARs"), restricted stock and other awards.
(a) Options.
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(i) Options granted under the Plan may be incentive stock
options ("ISOs") within the meaning of Section 422A of the Code or any successor
provision, or in such other form, consistent with the Plan, as the Committee may
determine. ISOs may only be granted to employee participants.
(ii) The option price per share of common stock shall be fixed
by the Committee at not less than (A) 100% of the fair market value of a share
of common stock on the date of grant as to ISOs and (B) the par value of a share
of common stock as to other options.
(iii) Options shall be exercisable at such time or times as the
Committee shall determine at or subsequent to grant.
(iv) Options shall be exercised in whole or in part by written
notice to the Company (to the attention of the Corporate Secretary) and payment
in full of the option price. Payment of the option price may be made, at the
discretion of the optionee, and to the extent permitted by the Committee, (A) in
cash (including check, bank draft, or money order), (B) in common stock (valued
at the fair market value thereof on the date of exercise), (C) by a combination
of cash and common stock or (D) with any other consideration.
(b) SARs.
(i) An SAR shall entitle its holder to receive from the
Company, at the time of exercise of such right, an amount equal to the excess of
the fair market value (at the date of exercise) of a share of common stock over
a specified price fixed by the Committee multiplied by the number of shares as
to which the holder is exercising the SAR. SARs may be in tandem with any
previously or contemporaneously granted option or independent of any option. The
specified price of a tandem SAR shall be the option price of the related option.
The amount payable may be paid by the Company in common stock (valued at its
fair market value on the date of exercise), cash or a combination thereof, as
the Committee may determine, which determination shall be made after considering
any preference expressed by the holder.
(ii) An SAR shall be exercised by written notice to the Company
(to the attention of the Corporate Secretary) at any time prior to its stated
expiration. To the extent a tandem SAR is exercised, the related option will be
cancelled and, to the
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extent the related option is exercised, the tandem SAR will be cancelled.
(c) Restricted Stock.
(i) The Committee may award to any participant shares of common
stock, subject to this paragraph 4(c) and such other terms and conditions as the
Committee may prescribe (such shares being called "restricted stock"). Each
certificate for restricted stock shall be registered in the name of the
participant and deposited, together with a stock power endorsed in blank, with
the Company.
(ii) There shall be established for each restricted stock award
a restriction period (the "restriction period") of such length as shall be
determined by the Committee. Shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as hereinafter
provided, during the restriction period. Except for such restrictions on
transfer and such other restrictions as the Committee may impose, the
participant shall have all the rights of a holder of common stock as to such
restricted stock. The Committee, in its sole discretion, may permit or require
the payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional restricted stock or otherwise invested. At
the expiration of the restriction period, the Company shall redeliver to the
participant (or the participant's legal representative or designated
beneficiary) the certificates deposited pursuant to this paragraph.
(iii) Except as provided by the Committee at the time of grant or
otherwise, upon termination of employment for any reason during the restriction
period all shares still subject to restriction shall be forfeited by the
participant.
(d) Other Awards.
(i) Other awards, including, without limitation, performance
shares, convertible debentures, other convertible securities and other forms of
awards measured in whole or in part by the value of shares, the performance of
the participant or the performance of the Company, may be granted under the
Plan. Such awards may be payable in common stock, cash or both, and shall be
subject to such restrictions and conditions, as the Committee shall determine.
At the time of such an award, the Committee shall, if applicable, determine a
performance period and performance goals to be achieved during the performance
period,
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subject to such later revisions as the Committee shall deem appropriate to
reflect significant unforeseen events such as changes in laws, regulations or
accounting practices, unusual or non-recurring items or occurrences. Following
the conclusion of each performance period, the Committee shall determine the
extent to which performance goals have been attained or a degree of achievement
between maximum and minimum levels during the performance period in order to
evaluate the level of payment to be made, if any.
(ii) A participant may elect to defer all or a portion of any
such award in accordance with procedures established by the Committee. Deferred
amounts will be subject to such terms and conditions and shall accrue such yield
thereon (which may be measured by the fair market value of the common stock and
dividends thereon) as the Committee may determine. Payment of deferred amounts
may be in cash, common stock or a combination thereof, as the Committee may
determine. Deferred amounts shall be considered an award under the Plan. The
Committee may establish a trust to hold deferred amounts or any portions thereof
for the benefit of participants.
(e) Cash Payments. SARs and options which are not ISOs may, in
the Committee's discretion, provide that in connection with exercises thereof
the holders will receive cash payments in amounts necessary to reimburse holders
for their income tax liability resulting from such exercise and the payment made
pursuant to this paragraph 4(e).
5. Miscellaneous Provisions.
(a) Administration. The Plan shall be administered by the
Committee. Subject to the limitations of the Plan, the Committee shall have the
sole and complete authority: (i) to select participants in the Plan, (ii) to
make awards in such forms and amounts as it shall determine, (iii) to impose
such limitations, restrictions and conditions upon such awards as it shall deem
appropriate, (iv) to interpret the Plan and to adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan,
(v) to correct any defect or omission or to reconcile any inconsistency in the
Plan or in any award granted hereunder and (vi) to make all other determinations
and to take all other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters within its
authority shall be
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conclusive and binding upon the Company and all other persons. All expenses
associated with the Plan shall be borne by the Company, subject to such
allocation to its Affiliates and operating units as it deems appropriate. The
Committee may, to the extent that any such action will not prevent the Plan from
complying with Rule 16b-3, delegate any of its authority hereunder to such
persons as it deems appropriate.
(b) Non-Transferability. Subject to the provisions of paragraph
5(f), and except as otherwise provided by the Committee at the time of grant or
otherwise, no award under the Plan, and no interest therein, shall be
transferable by the participant otherwise than by will or the laws of descent
and distribution. All awards shall be exercisable or received during the
participant's lifetime only by the participant or the participant's legal
representative. Any purported transfer contrary to this provision will nullify
the award.
(c) Adjustments Upon Certain Changes. In the event of a merger,
consolidation, reorganization, recapitalization, spinoff, stock dividend or
stock split, or combination or other increase or reduction in the number of
issued shares of common stock, or extraordinary cash dividend or any other
similar event, the Board of Directors or the Committee may, in order to prevent
the dilution or enlargement of rights under awards, make such adjustments in the
number and type of shares authorized by the Plan, the number and type of shares
covered by, or with respect to which payments are measured under, outstanding
awards and the exercise prices specified therein as may be determined to be
appropriate and equitable. The Committee may provide in the agreement evidencing
any award for adjustments to such award in order to prevent the dilution or
enlargement of rights thereunder or to provide for acceleration of benefits
thereunder in the event of a change in control, merger, consolidation,
reorganization, recapitalization, sale or exchange of substantially all assets
or dissolution of, or spinoff or similar transaction by, the Company.
(d) Tax Withholding. The Committee shall have the power to
withhold, or require a participant to remit to the Company, an amount sufficient
to satisfy any withholding or other tax due with respect to any amount payable
and/or shares issuable under the Plan, and the Committee may defer such payment
or issuance unless indemnified to its satisfaction. Subject to the consent of
the Committee, a participant may make an irrevocable election to have shares of
common stock otherwise issuable under an award withheld, tender back to the
Company shares of common
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stock received pursuant to an award or deliver to the Company previously
acquired shares of common stock having a fair market value sufficient to satisfy
all or part of the participant's estimated tax obligations associated with the
transaction. Such election must be made by a participant prior to the date on
which the relevant tax obligation arises. The Committee may disapprove of any
election and may limit, suspend or terminate the right to make such elections.
(e) Listing and Legal Compliance. The Committee may suspend the
exercise or payment of any award so long as it determines that securities
exchange listing or registration or qualification under any securities laws is
required in connection therewith and has not been completed on terms acceptable
to the Committee.
(f) Beneficiary Designation. Subject to paragraph 5(b),
participants may name, from time to time, beneficiaries (who may be named
contingently or successively) to whom benefits under the Plan are to be paid in
the event of their death before they receive any or all such benefit. Each
designation will revoke all prior designations by the same participant, shall be
in a form prescribed by the Committee, and will be effective only when filed by
the participant in writing with the Committee during the participant's lifetime.
In the absence of any such designation, benefits remaining unpaid at the
participant's death shall be paid to the participant's estate.
(g) Rights of Participants. Nothing in the Plan shall interfere
with or limit in any way the right of the Company to terminate any participant's
employment at any time, nor confer upon any participant any right to continue in
the employ of the Company for any period of time or to continue his or her
present or any other rate of compensation. No employee shall have a right to be
selected as a participant, or, having been so selected, to be selected again as
a participant.
(h) Amendment, Suspension and Termination of Plan. The Board of
Directors or the Committee may suspend or terminate the Plan or any portion
thereof at any time and may amend it from time to time in such respects as the
Board of Directors or the Committee may deem advisable; provided, however, that
no such amendment shall be made, without stockholder approval to the extent such
approval is required by law, agreement or the rules of any exchange upon which
the common stock is listed. No such
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amendment, suspension or termination shall impair the rights of participants
under outstanding awards without the consent of the participants affected
thereby or make any change that would disqualify the Plan, or any other plan of
the Company intended to be so qualified from the exemption provided by Rule
16b-3.
The Committee may amend or modify any award in any manner to the
extent that the Committee would have had the authority under the Plan to
initially grant such award. No such amendment or modification shall impair the
rights of any participant under any award without the consent of such
participant.
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EXHIBIT 4.13
TEAM COMMUNICATIONS GROUP, INC. DIRECTORS' STOCK OPTION PLAN
1. Purpose.
The purposes of the Plan are to enable the Company to attract and retain
the services of non-employee members of the Board and to provide them with
increased motivation and incentive to exert their best efforts on behalf of the
Company by enlarging their personal stake in the Company.
2. Definitions.
(a) As used in the Plan, the following definitions apply to the terms
indicated below:
"Board" means the Board of Directors of the Company or any committee
thereof authorized to exercise the powers of the Board of Directors.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Company" means Team Communications Group, Inc., a California
corporation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fair Market Value" of a Share on a given day means, if Shares are listed
on an established stock exchange or exchanges or quoted on the NASDAQ National
Market System, the highest closing or last sales price of a Share as reported on
such stock exchange or exchanges or system; or if not so reported, the average
of the bid and asked prices, as reported on the NASDAQ. If the price of a Share
shall not be so quoted, the Fair Market Value shall be determined by taking into
account all relevant facts and circumstances.
"Option" means a non-qualified option to purchase Shares under the terms
and conditions of the Plan as evidenced by an
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option certificate in such form not inconsistent with the Plan.
"Participant" means a director, eligible to participate in the Plan under
Section 4 hereof, to whom an Option is granted under the Plan.
"Plan" means Team Communications, Inc. Directors' Stock Option Plan,
including any amendments to the Plan.
"Shares" means shares of the Company's Common Stock, no par value, now or
hereafter owned by the Company as treasury stock or authorized but unissued
shares of the Company's Common Stock, subject to adjustment as provided in the
Plan; provided, however, that all references to Shares herein already give
effect to the Company's proposed approximate 2.2776 for 1 reverse stock split of
its Common Stock.
As used herein, the masculine includes the feminine, the plural includes
the singular, and the singular includes the plural.
3. Plan Adoption and Term.
A. The Plan shall become effective following its adoption by the
Board, but no Option granted under the Plan shall be exercisable unless and
until the Plan has been approved by the shareholders of the Company.
B. Subject to the provisions hereinafter contained relating to
amendment or discontinuance, the Plan shall continue in effect through and
including December 31, 2007. No Option may be granted hereunder after such date.
4. Eligibility; Automatic Grant.
Each director of the Company, who is not an employee of the Company or any
of its subsidiaries, in office as of the closing date of the Company's initial
public offering of its Shares (the "Effective Date") shall be eligible to
participate in the Plan
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and shall automatically receive, on the Effective Date, a non-qualified Option
to purchase 2,500 Shares. In addition, each person who is a director of the
Company on an annual anniversary date of the Effective Date (including and
terminating with the anniversary date in the year 2007) and who is not an
employee of the Company or any of its subsidiaries, shall be eligible to
participate in the Plan and shall automatically receive, on such anniversary
date, a non-qualified Option to purchase 2,500 Shares. The price per share at
which Shares may be purchased pursuant to any Option granted under the Plan
shall be the Fair Market Value of a Share on the date the Option is granted (the
"Date of Grant"). All Options granted under the Plan shall be evidenced by an
option certificate in such form not inconsistent with the Plan.
5. Stock Subject to the Plan.
Subject to adjustment as provided in Section 10 hereof, Options may be
issued pursuant to the Plan with respect to a number of Shares that, in the
aggregate, does not exceed 20,000 Shares. If, prior to the termination of the
Plan, an Option shall expire or terminate for any reason without having been
exercised in full, the unpurchased Shares subject thereto shall again be
available for the purposes of the Plan.
6. Duration of Options.
No Option granted hereunder shall be exercisable after the expiration of
ten years from the Date of Grant. All Options shall be subject to earlier
termination as provided elsewhere in the Plan.
7. Conditions Relating to Exercise of Options.
A. Options granted to Participants shall become exercisable in full
on the Date of Grant. Once exercisable, an Option may be exercised at any time
prior to its expiration, cancellation or termination as provided in the Plan.
Partial exercise is permitted from time to time provided that no partial
exercise of an Option shall be for a number of Shares having a purchase price of
less than $1,000 or for a fractional number of
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Shares.
B. No Option shall be transferable by a Participant otherwise than by
will or the laws of descent and distribution and Options shall be exercisable
during the lifetime of a Participant only by such Participant.
C. An Option shall be exercised by the delivery to the Company of a
written notice signed by the Participant, which specifies the number of Shares
with respect to which the Option is being exercised and the date of the proposed
exercise. Such notice shall be delivered to the Company's principal office, to
the attention of its Secretary, no less than three business days in advance of
the date of the proposed exercise and shall be accompanied by the applicable
option certificate evidencing the Option. A Participant may withdraw such notice
at any time prior to the close of business on the proposed date of exercise, in
which case the option certificate evidencing the Option shall be returned to him
or her.
D. Payment for Shares purchased upon exercise of an Option shall be
made at the time of exercise either in cash, by certified check or bank
cashier's check or, at the option of the Board, in Shares owned by the
Participant and valued at their Fair Market Value on the date of exercise, or
partly in Shares with the balance in cash or by certified check or bank
cashier's check. Any payment in Shares shall be effected by their delivery to
the Secretary of the Company, endorsed in blank or accompanied by stock powers
executed in blank.
E. Certificates for Shares purchased upon exercise of Options shall
be issued and delivered as soon as practicable following the date the Option is
exercised. Certificates for Shares purchased upon exercise of Options shall be
issued in the name of the Participant.
F. Notwithstanding any other provision in the Plan, no Option may be
exercised unless and until the Shares to be issued upon the exercise thereof
have been registered under the
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Securities Act of 1933 and applicable state securities laws, or are, in the
opinion of counsel to the Company, exempt from such registration. The Company
shall not be under any obligation to register under applicable federal or state
securities laws any Shares to be issued upon the exercise of an Option granted
hereunder, or to comply with an appropriate exemption from registration under
such laws in order to permit the exercise of an Option and the issuance and sale
of the Shares subject to such Option. If the Company chooses to comply with such
an exemption from registration, the Shares issued under the Plan may bear an
appropriate restrictive legend restricting the transfer or pledge of the Shares
represented thereby, and the Company may also give appropriate stop-transfer
instructions to the transfer agent to the Company.
G. Any person exercising an Option or transferring or receiving
Shares shall comply with all regulations and requirements of any governmental
authority having jurisdiction over the issuance, transfer, or sale of capital
stock of the Company, and as a condition to receiving any Shares, shall execute
all such instruments as the Company in its sole discretion may deem necessary or
advisable.
H. In the event that a Participant shall cease to be a director by
reason of such Participant's retirement, any outstanding Option held by such
Participant shall remain so exercisable but only for a period of three months
after commencement of such retirement, at the end of which time it shall
terminate (unless such Option expires earlier by its terms).
I. In the event that a Participant shall cease to be a director by
reason of such Participant's disability within the meaning of Section 22(e)(3)
of the Code, any outstanding Option held by such Participant shall remain so
exercisable but only for a period of one year after such date, at the end of
which time it shall terminate (unless such Option expires earlier by its terms).
J. In the event that a Participant shall cease to be a director by
reason of death (including death during an approved
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leave of absence or following a Participant's retirement or disability), any
Option then held by him or her which shall not have lapsed or terminated prior
to his or her death shall be or immediately become fully exercisable by the
executors, administrators, legatees, or distributees of his or her estate, as
may be appropriate, as to the total number of Shares subject thereto and shall
remain so exercisable but only for a period of one year after death, at the end
of which time it shall terminate (unless such Option expires earlier by its
terms).
K. In the event that a Participant shall cease to be a director
otherwise than as described in paragraphs (H), (I) and (J), any outstanding
Option held by such Participant shall terminate.
8. No Election Rights.
Nothing contained in the Plan or any Option shall confer upon any
Participant any right with respect to the continuation of his or her tenure as a
director of the Company or interfere in any way with the right of the Company's
shareholders or the Board, at any time, to terminate such tenure or to fail to
elect such Participant to the Board.
9. Rights of a Shareowner.
No person shall have any rights with respect to any Shares covered by or
relating to any grant hereunder of an Option until the date of issuance of a
certificate to him or her evidencing such Shares. Except as otherwise expressly
provided in the Plan, no adjustment to any Option shall be made for dividends or
other rights for which the record date occurs prior to the date such certificate
is issued.
10. Adjustment Upon Changes in Capital Stock.
A. Except as otherwise provided herein, if the capital stock of the
Company shall be subdivided or combined, whether by reclassification, stock
dividend, stock split, reverse stock
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split or other similar transaction, then the number of Shares authorized under
the Plan, the number of Shares then subject to or relating to unexercised
Options granted hereunder and the exercise price per Share will be adjusted
proportionately. A stock dividend shall be treated as a subdivision of the whole
number of Shares outstanding immediately prior to such dividend into a number of
Shares equal to such whole number of Shares so outstanding plus the number of
Shares issued as a stock dividend.
B. In the case of any capital reorganization or any reclassification
of the capital stock of the Company (except pursuant to a transaction described
in Paragraph A of this Section 10) (a "Reorganization"), appropriate adjustment
may be made in the number and class of shares authorized to be issued under the
Plan and the number and class of shares subject to or relating to Options
awarded under the Plan and outstanding at the time of such Reorganization.
C. Each Participant will be notified of any adjustment made pursuant
to this Section 10 and any such adjustment, or the failure to make such
adjustment, shall be binding on the Participant.
D. Except as expressly set forth herein, the number and kind of
Shares subject to Options awarded under the Plan, and the exercise prices of any
such Options, shall not be affected by any transaction (including, without
limitation, any merger, recapitalization, stock split, stock dividend, issuance
of stock or similar transaction) affecting the capital stock of the Company and
no Participant shall be entitled to any additional Options on account thereof.
11. Withholding Taxes.
A. Whenever Shares are to be issued upon the exercise of an Option,
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, prior to the delivery of any certificate
or certificates for such Shares.
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B. Notwithstanding Paragraph A of this Section 11, at the election of
a Participant when Shares are to be issued upon the exercise of an Option, the
Participant may tender to the Company a number of Shares, or the Company shall
withhold a number of such Shares, the Fair Market Value of which is sufficient
to satisfy the federal, state and local tax requirements, if any, attributable
to such exercise or occurrence.
12. Amendment of the Plan.
A. The Board may at any time and from time to time suspend,
discontinue, modify or amend the Plan in any respect whatsoever except that the
Board may not suspend, discontinue, modify or amend the Plan so as to adversely
affect the rights of a Participant with respect to any grants that have
heretofore been made to such Participant without such Participant's approval.
B. No amendment to or modification of the Plan which: (i) materially
increases the benefits accruing to Participants; (ii) except as provided in
Section 10 hereof, increases the number of Shares that may be issued under the
Plan; or (iii) modifies the requirements as to eligibility for participation
under the Plan, shall be effective without shareholder approval.
13. Miscellaneous.
A. It is expressly understood that the Plan grants powers to the
Board but does not require their exercise; nor shall any rights be deemed to
accrue under the Plan except as Options may be granted hereunder.
B. All expenses of the Plan, including the cost of maintaining
records, shall be borne by the Company.
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EXHIBIT 4.16
Warrant to Purchase 130,000
Shares of Common Stock
UNDERWRITER'S WARRANT
Dated: __________, 1997
THIS CERTIFIES THAT H.J. Meyers & Co., Inc. (herein sometimes called
the "Holder" or the "Underwriter") is entitled to purchase from TEAM
COMMUNICATIONS GROUP, INC., a California corporation (the "Company"), at the
price and during the period as hereinafter specified, up to One Hundred Thirty
Thousand (130,000) shares of Common Stock, no par value per share (the "Common
Stock") at a purchase price of $_____ per share, subject to adjustment as
described below, at any time during the four-year period commencing one (1) year
from the effective date of the Registration Statement (the "Effective Date").
This Underwriter's Warrant (the "Underwriter's Warrant") is issued
pursuant to an Underwriting Agreement between the Company and H.J. Meyers & Co.,
Inc. in connection with a public offering, through the Underwriters, of
1,300,000 shares of Common Stock as therein described (and up to 195,000
additional shares of Common Stock covered by an over-allotment option granted by
the Company to the Underwriters), and in consideration of $5.00 received by the
Company for the Underwriter's Warrant. Except as specifically otherwise provided
herein, the Common Stock issued pursuant to the Underwriter's Warrant shall bear
the same terms and conditions as described under the caption "Description of
Securities" in the Registration Statement on Form SB-2, File No.
333-_____________ (the "Registration Statement") except that the Holder shall
have registration rights under the Securities Act of 1933, as amended (the
"Act"), for issuance pursuant thereto, the Underwriter's Warrant and the Common
Stock issuable pursuant thereto, as more fully described in paragraph 6 herein.
1. The rights represented by the Underwriter's Warrant shall be
exercised at the price, subject to adjustment in accordance with Section 8
hereof (the "Exercise Price"), and during the periods as follows:
(a) During the period from the Effective Date to and through
___________, 1998 (the "First Anniversary Date"), inclusive,
the Holder shall have no right to purchase any Common Stock
hereunder, except that in the event of any merger,
consolidation or sale of substantially all the assets of the
Company as an entirety prior to the First Anniversary Date
(other than (i) a merger or consolidation in which the
Company is the continuing corporation and which does not
result in any reclassification or reorganization of an
outstanding shares of Common Stock or (ii) any
sale/leaseback, mortgage or other financing transaction), the
Holder shall have the right to exercise the Underwriter's
Warrant concurrently with
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such event and into the kind and amount of shares of stock
and other securities and property (including cash) receivable
by a holder of the number of shares of Common Stock into
which the Underwriter's Warrant were exercisable immediately
prior thereto.
(b) Between ___________, 1998 and __________, 2002, (five (5)
years from the Effective Date, i.e. the "Expiration Date")
inclusive, the Holder shall have the option to purchase
Common Stock hereunder at a price of $______ per share (120%
of public offering price per share of Common Stock).
(c) After the Expiration Date, the Holder shall have no right to
purchase any Common Stock hereunder.
2. (a) The rights represented by the Underwriter's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Underwriter's Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of shares of Common Stock specified in the above-mentioned purchase
form together with applicable stock transfer taxes, if any; and (iii) delivery
to the Company of a duly executed agreement signed by the person(s) designated
in the purchase form to the effect that such person(s) agree(s) to be bound by
the provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. The Underwriter's Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Underwriter's Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for shares of Common
Stock shall be issuable upon such exercise shall become the holder or holders of
record of such Common Stock at that time and date. The Common Stock and the
certificates for the Common Stock so purchased shall be delivered to the Holder
within a reasonable time, not exceeding ten (10) business days, after the rights
represented by this Underwriter's Warrant shall have been so exercised.
(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Underwriter's Warrant in whole or in
part by receiving shares of Common Stock equal to the value (as determined
below) of this Underwriter's Warrant, or any part hereof, upon surrender of the
Underwriter's Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to the Holder a
number of shares of Common Stock computed using the following formula:
X = Y(A-B)
------
A
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Where X = the number of shares of Common Stock to be issued to the
Holder;
Y = the number of shares of Common Stock to be exercised
under this Underwriter's Warrant (the "Shares");
A = the current fair market value of one share of Common
Stock;
B = the Exercise Price of the Underwriter's Warrant;
As used herein, current fair market value of Common
Stock shall mean with respect to each share of Common Stock
the average of the closing prices of the Company's Common
Stock sold on the principal national securities exchanges on
which the Common Stock is at the time admitted to trading or
listed, or, if there have been no sales of any such exchange
on such day, the average of the highest bid and lowest ask
price on such day as reported by NASDAQ, or any similar
organization if NASDAQ is no longer reporting such
information, either (i) on the date which the form of
election is deemed to have been sent to the Company (the
"Notice Date") or (ii) over a period of five (5) trading days
preceding the Notice Date, whichever of (i) or (ii) is
greater. If on the date for which current fair market value
is to be determined the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the current fair market value of
Common Stock shall be the highest price per share which the
Company could then obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined
in good faith by the Board of Directors of the Company,
unless prior to such date the Company has become subject to a
binding agreement for a merger, acquisition or other
consolidation pursuant to which the Company is not the
surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value to be
received by the holders of the Company's Common Stock for
each share thereof pursuant to the Company's acquisition.
3. The Underwriter's Warrant shall not be transferred, sold, assigned,
or hypothecated for a period of one year commencing on the Effective Date except
that it may be transferred to successors of the Holder, and may be assigned in
whole or in part to any person who is an officer of the Holder. This
Underwriter's Warrant must be executed immediately upon its transfer at any time
after one year from the Effective Date, and if not so executed, shall lapse. Any
such assignment shall be effected by the Holder by (i) executing the form of
assignment at the end hereof and (ii) surrendering the Underwriter's Warrant for
cancellation at the office or agency of the Company referred to in paragraph 2
hereof, accompanied by a certificate (signed by an officer of the Holder if the
Holder is a corporation) stating that each transferee is a permitted transferee
under this paragraph 3; whereupon the Company shall issue, in the name or
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<PAGE> 4
names specified by the Holder (including the Holder), a new Underwriter's
Warrant or Warrants of like tenor and representing in the aggregate rights to
purchase the same number of shares of Common Stock as are purchasable hereunder
at such time.
4. The Company covenants and agrees that all shares of Common Stock
which may be purchased hereunder will, upon issuance and delivery against
payment therefor of the requisite purchase price, be duly and validly issued,
fully paid and nonassessable. The Company further covenants and agrees that,
during the periods within which the Underwriter's Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of its Common Stock to provide for the exercise of the Underwriter's
Warrant.
5. The Underwriter's Warrant shall not entitle the Holder to any
voting rights or other rights, including without limitation notice of meetings
of other actions or receipt of dividends, as a shareholder of the Company.
6. (a) The Company shall advise the Holder or its permitted
transferee, whether the Holder holds the Underwriter's Warrant or has exercised
the Underwriter's Warrant and holds shares of Common Stock relating thereto, by
written notice at least four weeks prior to the filing of any new registration
statement thereto under the Act, or the filing of a notification on Form 1-A
under the Act for a public offering of securities, covering any securities of
the Company, for its own account or for the account of others, except for any
registration statement filed on Form S-4 or S-8 (or other comparable form), and
will, during the five (5) year period from the Effective Date, upon the request
of the Holder, include in any such new registration statement (or notification
as the case may be) such information as may be required to permit a public
offering of, all or any of the shares of Common Stock underlying the
Underwriter's Warrant (the "Registrable Securities").
(b) At any time during the four (4) year period beginning one (1)
year after the Effective Date, a 50% Holder (as defined below) may request, on
up to an aggregate of two occasions, that the Company register under the Act any
and all of the Registrable Securities held by such 50% Holder. Upon the receipt
of any such notice, the Company will promptly, but no later than four weeks
after receipt of such notice (subject to the last sentence of this Section
6(b)), file a post-effective amendment to the current Registration Statement or
a new registration statement pursuant to the Act, so that such designated
Registrable Securities may be publicly sold under the Act as promptly as
practicable thereafter and the Company will use reasonable efforts to cause such
registration to become and remain effective (including the taking of such
reasonable steps as are necessary to obtain the removal of any stop order)
within 120 days (subject to the provision of the last sentence of this Section 6
(b)) after the receipt of such notice, provided, that such Holder shall furnish
the Company with appropriate information in connection therewith as the Company
may reasonably request in writing. The 50% Holder may, at its option, request
the registration of any of the Common Stock underlying the Underwriter's Warrant
in a registration statement made by the Company as contemplated by Section 6(a)
or in connection with a request made pursuant to this Section 6(b) prior to
acquisition of the shares of Common Stock issuable upon exercise of the
Underwriter's Warrant. The 50% Holder may, at
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<PAGE> 5
its option, request such post-effective amendment or new registration statement
during the described period with respect to the Underwriter's Warrant or
separately as to the Common Stock, and such registration rights may be exercised
by the 50% Holder prior to or subsequent to the exercise of the Underwriter's
Warrant. Within ten days after receiving any such notice pursuant to this
subsection (b) of paragraph 6, the Company shall give notice to any other
Holders of the Underwriter's Warrant, advising that the Company is proceeding
with such post-effective amendment or registration statement and offering to
include therein the securities underlying that part of the Warrant held by the
other Holders, provided that they shall furnish the Company with such
appropriate information (relating to the intentions of such Holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of the first post-effective amendment or new registration
statement shall be borne by the Company, except that the Holder(s) shall bear
the fees of their own counsel and any other advisors retained by them and any
underwriting discounts or commissions applicable to any of the securities sold
by them. All costs and expenses of the second such post-effective amendment or
new registration statement shall be borne by the Holder(s). The Company will use
its best efforts to maintain such registration statement or post-effective
amendment current under the Act for a period of at least six months (and for up
to an additional three (3) months if so requested by the Holder(s)) from the
effective date thereof. The Company shall supply prospectuses, and such other
documents as the Holder(s) may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities, use its best
efforts to register and qualify any of the Registrable Securities for sale in
such states (i) as such Holder(s) designate and (ii) with respect to which the
Company obtained a qualification in connection with its initial public offering
and furnish indemnification in the manner provided in paragraph 7 hereof.
Notwithstanding the foregoing set forth in this paragraph 6(b), the Company
shall not be required to include in any registration statement any Registrable
Securities which in the opinion of counsel to the Company (which opinion is
reasonably acceptable to counsel to the Underwriters) would be saleable
immediately without restriction under Rule 144 (or its successor) if the
Underwriter's Warrant was exercised pursuant to paragraph 2(b) herein.
Notwithstanding anything to the contrary, if the Company shall furnish
to the Holders requesting a registration or filing of a post-effective amendment
pursuant to this Section 6 a certificate signed by the President of the Company
stating that, in the good faith judgement of the board of Directors of the
Company, it would be materially detrimental to the Company and its stockholders
for such registration statement or post-effective amendment to be filed and it
is therefore in the best interests of the Company to defer such filing, the
Company shall have a right to defer such filing for a period not to exceed 30
after the date on which the Company would be required to so file such
registration statement or post-effective amendment, provided, however, that the
Company shall not be entitled to provide such notice to such Holder or Holders
more than once in any 12-month period.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Underwriter's Warrant and/or the Common Stock
underlying the Underwriter's Warrant (considered in the aggregate).
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<PAGE> 6
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any Common Stock issued upon exercise of (or issuable upon the
exercise of any Warrants purchasable under) the Underwriter's Warrant is filed
under the Act, amended or supplemented, the Company will indemnify and hold
harmless each Holder of the Common Stock covered by such registration statement,
amendment or supplement (such Holder being hereinafter called the "Distributing
Holder"), and each person, if any, who controls (within the meaning of the Act)
the Distributing Holder, and each underwriter (within the meaning of the Act) of
such Common Stock and each person, if any, who controls (within the meaning of
the Act) any such underwriter, against any losses, claims, damages or
liabilities, joint or several, to which the Distributing Holder, any such
controlling person or any such underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities, or actions in
respect thereof, arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement as declared effective or any final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading and will reimburse the Distributing Holder or such controlling person
or underwriter for any legal or other expense reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished by such
Distributing Holder or any other Distributing Holder for use in the preparation
thereof and provided further, that the indemnity agreement provided in this
Section 7(a) with respect to any preliminary prospectus shall not inure to the
benefit of any Distributing Holder, controlling person of such Distributing
Holder, underwriter or controlling person of such underwriter from whom the
person asserting any losses, claims, charges, liabilities or litigation based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material fact, received such
preliminary prospectus, if a copy of the prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the time required by
the Act and the Rules and Regulations thereunder.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to
6
<PAGE> 7
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder for use in the preparation thereof; and will reimburse the Company or any
such director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. The Exercise Price in effect at the time and the number and kind of
securities purchasable upon the exercise of this Underwriter's Warrant shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, (iii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, or (iv) enter into any
transaction whereby the outstanding shares of Common Stock of the Company are at
any time changed into or exchanged for a different number or kind of shares or
other security of the Company or of another corporation through reorganization,
merger, consolidation, liquidation or recapitalization, then appropriate
adjustments in the number of Shares (or other securities for which such Shares
have previously been exchanged or converted) subject to this Underwriter's
Warrant shall be made and the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination, reclassification, reorganization, merger,
consolidation, liquidation or recapitalization shall be proportionately adjusted
so that the Holder of this Underwriter's Warrant exercised after such date shall
be entitled to receive the aggregate number and kind of Shares which, if this
7
<PAGE> 8
Underwriter's Warrant had been exercised by such Holder immediately prior to
such date, he would have been entitled to receive upon such dividend,
distribution, subdivision, combination, reclassification, reorganization,
merger, consolidation, liquidation or recapitalization. For example, if the
Company declares a 2 for 1 stock distribution and the Exercise Price hereof
immediately prior to such event was $8.40 per share and the number of Shares
purchasable upon exercise of this Underwriter's Warrant was 130,000 the adjusted
Exercise Price immediately after such event would be $4.20 per share and the
adjusted number of Shares purchasable upon exercise of this Underwriter's
Warrant would be 260,000. Such adjustment shall be made successively whenever
any event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the Exercise Price on a per share basis (the "Per
Share Exercise Price") on such record date, the Exercise Price shall be adjusted
so that the same shall equal the price determined by multiplying the Per Share
Exercise Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the number of shares
outstanding on the record date mentioned below and the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so issued (or the aggregate conversion price of the
convertible securities so issued) would purchase at the Per Share Exercise Price
in effect immediately prior to the date of such issuance, and the denominator of
which shall be sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional shares of Common Stock
so issued (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) In case the Company shall hereafter distribute to all holders
of its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above, then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Per Share Exercise
Price in effect immediately prior thereto by a fraction, the numerator of which
shall be the total number of shares of Common Stock then outstanding multiplied
by the current market price per share of Common Stock (as defined in Subsection
(e) below), less the fair market value (as determined by the Company's Board of
Directors) of said assets, or evidences of indebtedness so distributed or of
such rights or warrants, and the denominator of which shall be the total number
of shares of Common Stock outstanding multiplied by such current market price
per share of Common Stock.
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<PAGE> 9
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of the
Underwriter's Warrant is adjusted pursuant to Subsections (a), (b) or (c) above,
the number of Shares purchasable upon exercise of this Underwriter's Warrant
shall simultaneously be adjusted by multiplying the number of Shares issuable
upon exercise of this Underwriter's Warrant by the Exercise Price in effect on
the date hereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(e) For the purpose of any computation under Subsection (c) above,
the current market price per share of Common Stock at any date shall be deemed
to be the average of the daily closing prices of the Common Stock for 30
consecutive business days before such date. The closing price for each day shall
be the last sale price regular way or, in case no such reported sale takes place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or, if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which may by
reason of this Subsection (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything in
this Section 8 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal income tax
liability to the holders of the Common Stock or securities convertible into
Common Stock.
(g) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of the Underwriter's
Warrant to be mailed to the Holder, at its address set forth herein, and shall
cause a certified copy thereof to be mailed to the Company's transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
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<PAGE> 10
(h) In the event that at any time, as a result of an adjustment
made pursuant to the provisions of this Section 8, the Holder of the
Underwriter's Warrant thereafter shall become entitled to receive any shares of
the Company other than Common Stock, thereafter the number of such other shares
so receivable upon exercise of the Underwriter's Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Subsections (a) to (f), inclusive, above.
9. This Agreement shall be governed by and in accordance with the laws
of the State of New York without regard to conflict of laws provision.
10
<PAGE> 11
IN WITNESS WHEREOF, TEAM COMMUNICATIONS GROUP, INC. has caused this
Underwriter's Warrant to be signed by its duly authorized officers under its
corporate seal, and this Underwriter's Warrant to be dated _________, 1997.
TEAM COMMUNICATIONS GROUP, INC.
By: ____________________________
Name:
Title:
(Corporate Seal)
Attest:
______________________________
Name:
Title:
11
<PAGE> 12
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase there under, _______________ shares of no par value
Common Stock of TEAM COMMUNICATIONS GROUP, INC. and herewith makes payment of
$_______ therefor, and requests that the certificates for the shares of Common
Stock be issued in the name(s) of, and delivered to _________________, whose
address(es) is (are):
Dated: _______________, 19__
By:________________________________
___________________________________
___________________________________
Address
<PAGE> 13
TRANSFER FORM
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ______________________________ the right to purchase shares of
Common Stock represented by the foregoing Underwriter's Warrant to the extent of
________ shares of no par value Common Stock, and appoints _____________________
attorney to transfer such rights on the books of ____________ _________________,
with full power of substitution in the premises.
Dated: _______________, 19__
By:________________________________
___________________________________
___________________________________
In the presence of:
<PAGE> 1
EXHIBIT 10.1
March 22, 1996
Mr. Mel Giniger
Mel Giniger & Associates
11110 Ohio Avenue Suite 102 Via Telecopier (310)445-2594
West Los Angeles CA 90025
Re: Distribution Guarantee Agreement
Dear Mr. Giniger:
This letter is to outline the terms of the Distribution Guarantee
Agreement between DSL Entertainment Group, Inc. ("DSL") and Mel Giniger &
Associates ("MGA").
1. In exchange for the distribution rights as hereinafter defined, on the
existing DSL library (as set forth in Exhibit A attached hereto), MGA will
provide DSL with a twelve (12) month sales guarantee of $700,000.00, to run from
March 1, 1996 to February 28, 1997. This guarantee will be paid to DSL fifty
percent (50%) six (6) months from the date of this agreement, and the balance
shall be paid one (1) year from the date of this agreement.
2. The term of the distribution rights granted to MGA in exchange for the
guarantee set forth above will be five (5) years, subject to the right by DSL to
terminate this agreement with thirty days notice if, after the guarantee has
been recouped by MGA through revenue from sales, or early repayment by DSL, in
the event that there are less than $75,000.00 in gross sales during any six (6)
month period.
3. The distribution rights granted hereunder will be exclusive to MGA, with the
exception of DSL's right to simultaneously engage in sales efforts, however all
sales will be commissioned to MGA.
4. The parties will agree on a minimum sales price for each library item. All
sales agreements will be subject to full consultation with DSL up to the point
of recoupment of the guarantee, and thereafter acceptance by DSL.
5. All revenue will flow into an account controlled by DSL.
<PAGE> 2
Mr. Mel Giniger
March 22, 1996
Page 2
6. The territory granted under the distribution agreement will be all of Spanish
speaking Latin America and Brazil.
7. The sales guarantee will be recoupable by MGA from sales commissions, but not
refundable, except at DSL's option to repay any unearned balance on the
guarantee, buy back the distribution rights granted hereunder, and thereby
terminate this agreement. Such option shall be exercisable at any time after the
first anniversary date of this agreement, by the giving of written notice to MGA
of DSL's intention to do so.
8. The distribution fees will be capped at 20%, not inclusive of sub-agents
fees, and the costs will be capped at ten percent of gross sales.
9. This agreement will serve to memorialize the agreement between the parties,
until such time if any, as it is replaced with a more formal document.
Please review the above, and if it meets with your approval, please date, sign
and return a copy of this agreement to our office.
Thank you.
Sincerely,
Eric S. Elias
Business Affairs
ESE/ja
Agreed to and Accepted:
Mel Giniger & Associates
By:__________________________ Date: __________
Its:
<PAGE> 3
CURRENT DISTRIBUTION LIBRARY
As of May 1996
(1) FLIP FLOP SHOP hosted by Olympic gold medalist, Mary Lou Retton and produced
in association with PBS, consists of 26 half-hours of quality children's
programming. The series is filled with sing-along songs, games, stories,
adorable creatures, like Casey the Kangaroo and activities that will energize
young bodies and stimulate the imagination.
Completion: March 1996
(2) The AMAZING TAILS series is 26 half-hour, fun-filled episodes. This magazine
format show produced in the spirit of "America's Funniest Home Videos," will
revive your spirit and tickle your funny bone as it demonstrates the wonders of
animal intelligence and the mysterious animal-human bond. The series is in
production and will be complete in February of 1996.
(3) THE GREAT OUTDOORS features two award-winning series of exciting outdoor
adventures and wildlife profiles produced by PBS. The first series is "Rocky
Mountain Adventures," 50 half-hour episodes which explore outdoor adventures and
showcase incredible wildlife from the "heartland"; firefighting, rock climbing
and river rafting are only a few examples of what this exciting and entertaining
series brings you. The second series in THE GREAT OUTDOORS is "The Desert
Speaks." A breath-taking series of 54 half-hour episodes of mind-expanding
photography and stories from the great American desert. "The Desert Speaks" will
take viewers across many regions of the Southwest, including Mexico, in search
of answers to the important questions that face our desert lands today.
(4) The critically acclaimed series SNEAK PREVIEWS is 33 half-hour specials from
PBS. Hosted by movie critics, Jeffrey Lyons and Michael Medved, this series has
received applause all across the United States. Lyons and Medved bring the
audience on a tour of the best movies ever made and take a close look at how
Hollywood reflects the views of popular culture. DSL brings you the very best of
the series.
(5) The ROARING GLORY WARBIRD series, consisting of four 43-minute programs,
allows you to experience the breathtaking excitement felt by the daring young
pilots of American fighters and bombers during World War II.
(6) NEAT STUFF is 13 half-hours of fun entertainment for the whole family.
Produced for The Learning Channel in the United States, NEAT STUFF takes a look
at the unique memorabilia and collectibles that people around the world are
proud to show off.
(7) The VANISHING AMERICA series consists of 10 one-hour programs produced by
the PBS Network. Each hour focuses on a great American metropolis and brings the
past into view through a series of rare, classic footage, interviews and
heart-warming memories. Hours include:
New York, Chicago, Dallas, San Francisco, and more.
EXHIBIT A-1
<PAGE> 4
CONT.
(8) The DOWN THE ROAD AGAIN is a weekly half-hour odyssey across America with
top network journalist, Keith Morrison. This series consists of 26 half-hours
and is a preview of television for the 21st century. Refreshing stories from the
fabric of American rural and urban society are reported from the unique
perspective of Keith Morrison. Meet the colorful characters and experience what
makes America great.
(9) ADVENTURES FROM THE WILD WEST is a series of 68 half-hours of wildlife,
travel & adventure and environmental issues produced by PBS and distributed in
conjunction with Oregon Public Broadcasting. Come take a spectacular journey to
a land of mythical beauty where stark vistas meet lush valleys and arid deserts
give way to cascading waterfalls.
(10) The SQ. FOOT GARDENING is 70 half-hour episodes of "how-to" gardening
originally produced for PBS Network. For the urban lifestyle to the country
farm, this series has universal appeal. Rated #1 Gardener-extraordinaire, Mel
Bartholomew hosts this informative series and teaches viewers that with just a
little space and less effort, a green thumb is easily achieved.
(11) YVONNE'S COOKBOOK is the newest offering in the long line of successful
cooking shows from Richard Reid Productions. Yvonne E. White, world-renowned
African-American chef and party planner, who specializes in ethnic cuisine
(African, Creole, Southern, etc.) Has cooked for and rubbed elbows with the
stars of entertainment and sports. Now she's ready to cook for you (60 x 30:00).
EXHIBIT A-2
<PAGE> 5
March 22, 1996
Mr. Mel Giniger
Mel Giniger & Associates
11110 Ohio Avenue Suite 102 Via Telecopier (310)445-2594
West Los Angeles CA 90025
Re: Distribution Guarantee Agreement
Dear Mr. Giniger:
This letter is to outline the terms of the Distribution Guarantee
Agreement between DSL Entertainment Group, Inc. ("DSL") and Mel Giniger &
Assiociates ("MGA").
1. In exchange for a thirty (30) day right of first negotiation, to be conducted
in earnest good faith, for the foreign distribution rights in the territory set
forth below, on all prospective future DSL programming, excluding television
movies, MGA will provide DSL with a twelve (12) month noncontingent sales
guarantee of $50,000.00, to run from March 1, 1996 to February 28, 1997. This
guarantee will be paid to DSL in two equal installments, due the sooner of the
end of each of the first two (2) years of this agreement, or as the cash flow of
sales permits.
2. The term of this agreement and the first negotiation rights granted to MGA in
exchange for the guarantee set forth above will be five (5) years, subject to
the right by DSL to terminate this agreement with thirty days notice if, after
the guarantee has been recouped by MGA through revenue from sales, or early
repayment by DSL, in the event that there are less than $75,000.00 in gross
sales during any six (6) month period.
3. The right of first negotiation granted hereunder will be exclusive to MGA
during the term of this agreement.
4. All revenue will flow into an account controlled by DSL, and each agreement
for distribution of future product will be subject to the parties agreeing on an
allocation of some appropriate portion of the guarantee to each such product.
5. The right of first negotiation will be for the territory of all of Spanish
speaking Latin America and Brazil.
6. The sales guarantee will be recoupable by MGA from sales commissions as
allocated by
<PAGE> 6
Mr. Mel Giniger
March 22, 1996
Page 2
agreement of the parties, but not refundable, except at DSL's option to repay
any unearned balance on the guarantee, buy back the rights of first negotiation
granted hereunder, and thereby terminate this agreement. Such option shall be
exercisable at any time after the first anniversary date of this agreement, by
the giving of written notice to MGA of DSL's intention to do so.
7. The distribution fees will be capped at 20%, not inclusive of sub-agents
fees, and the costs will be capped at ten percent of gross sales.
8. This agreement will serve to memorialize the agreement between the parties,
until such time if any, as it is replaced with a more formal document.
Please review the above, and if it meets with your approval, please date, sign
and return a copy of this agreement to our office.
Thank you.
Sincerely,
Eric S. Elias
Business Affairs
ESE/ja
Agreed to and Accepted:
Mel Giniger & Associates
By:__________________________ Date: __________
Its:
<PAGE> 7
March 20, 1996
Mr. Mel Giniger
The Gemini Corporation
Condominio Almirante
Calle Taff 15 Suite 901
San Turce Puerto Rico 00911
Re: Distribution Guarantee Agreement
Dear Mr. Giniger
This letter is to outline the terms of the Distribution Guarantee
Agreement between DSL Entertainment Group, Inc. ("DSL") and The Gemini
Corporation ("Gemini").
1. In exchange for the distribution rights as hereinafter defined, on the
existing DSL library (as set forth in Exhibit A attached hereto), Gemini will
provide DSL with a twelve (12) month sales guarantee of $850,000.00, to run from
March 1, 1996 to February 28, 1997. This guarantee will be paid to DSL fifty
percent (50%) six (6) months from the date of this agreement, and the balance
shall be paid one (1) year from the date of this agreement.
2. The term of the distribution rights granted to Gemini in exchange for the
guarantee set forth above will be five (5) years, subject to the right by DSL to
terminate this agreement with thirty days notice if, (a) the guarantee has been
recouped by Gemini through revenue from sales, or (b) early repayment by DSL at
DSL's election, or (c) in the event that there are less than $75,000.00 in gross
sales during any six (6) month period.
3. The distribution rights granted hereunder will be exclusive to Gemini, with
the exception of DSL's right to simultaneously engage in sales efforts, however
all sales in the territory (as defined in paragraph 6 below) will be
commissioned to Gemini.
4. The parties will agree on a minimum sales price for each library item. All
sales agreements will be subject to full consultation with DSL up to the point
of recoupment of the guarantee, and thereafter acceptance by DSL.
5. All revenue will flow into an account controlled by DSL.
6. The territory granted under the distribution agreement will be all of Europe.
<PAGE> 8
7. The sales guarantee will be recoupable by Gemini from sales commissions, but
not refundable, except at DSL's option to repay any unearned balance on the
guarantee, buy back the distribution rights granted hereunder, and thereby
terminate this agreement. Such option shall be exercisable at any time after the
first anniversary date of this agreement, by the giving of written notice to
Gemini of DSL's intention to do so.
8. The distribution fees will be capped at 20%, not inclusive of sub-agents
fees, and the costs will be capped at ten percent of gross sales.
9. This agreement will serve to memorialize the agreement between the parties,
until such time if any, as it is replaced with a more formal document.
Please review the above, and if it meets with your approval, please date, sign
and return a copy of this agreement to our office.
Thank you.
Sincerely,
Eric S. Elias
Business Affairs
ESE/ja
Agreed to and Accepted:
The Gemini Corporation
By:__________________________ Date: __________
Its:
<PAGE> 9
CURRENT DISTRIBUTION LIBRARY
As of May 1996
(1) FLIP FLOP SHOP hosted by Olympic gold medalist, Mary Lou Retton and produced
in association with PBS, consists of 26 half-hours of quality children's
programming. The series is filled with sing-along songs, games, stories,
adorable creatures, like Casey the Kangaroo and activities that will energize
young bodies and stimulate the imagination.
Completion: March 1996
(2) The AMAZING TAILS series is 26 half-hour, fun-filled episodes. This magazine
format show produced in the spirit of "America's Funniest Home Videos," will
revive your spirit and tickle your funny bone as it demonstrates the wonders of
animal intelligence and the mysterious animal-human bond. The series is in
production and will be complete in February of 1996.
(3) THE GREAT OUTDOORS features two award-winning series of exciting outdoor
adventures and wildlife profiles produced by PBS. The first series is "Rocky
Mountain Adventures," 50 half-hour episodes which explore outdoor adventures and
showcase incredible wildlife from the "heartland"; firefighting, rock climbing
and river rafting are only a few examples of what this exciting and entertaining
series brings you. The second series in THE GREAT OUTDOORS is "The Desert
Speaks." A breath-taking series of 54 half-hour episodes of mind-expanding
photography and stories from the great American desert. "The Desert Speaks" will
take viewers across many regions of the Southwest, including Mexico, in search
of answers to the important questions that face our desert lands today.
(4) The critically acclaimed series SNEAK PREVIEWS is 33 half-hour specials from
PBS. Hosted by movie critics, Jeffrey Lyons and Michael Medved, this series has
received applause all across the United States. Lyons and Medved bring the
audience on a tour of the best movies ever made and take a close look at how
Hollywood reflects the views of popular culture. DSL brings you the very best of
the series.
(5) The ROARING GLORY WARBIRD series, consisting of four 43-minute programs,
allows you to experience the breathtaking excitement felt by the daring young
pilots of American fighters and bombers during World War II.
(6) NEAT STUFF is 13 half-hours of fun entertainment for the whole family.
Produced for The Learning Channel in the United States, NEAT STUFF takes a look
at the unique memorabilia and collectibles that people around the world are
proud to show off.
(7) The VANISHING AMERICA series consists of 10 one-hour programs produced by
the PBS Network. Each hour focuses on a great American metropolis and brings the
past into view through a series of rare, classic footage, interviews and
heart-warming memories. Hours include:
New York, Chicago, Dallas, San Francisco, and more.
EXHIBIT A-1
<PAGE> 10
CONT.
(8) The DOWN THE ROAD AGAIN is a weekly half-hour odyssey across America with
top network journalist, Keith Morrison. This series consists of 26 half-hours
and is a preview of television for the 21st century. Refreshing stories from the
fabric of American rural and urban society are reported from the unique
perspective of Keith Morrison. Meet the colorful characters and experience what
makes America great.
(9) ADVENTURES FROM THE WILD WEST is a series of 68 half-hours of wildlife,
travel & adventure and environmental issues produced by PBS and distributed in
conjunction with Oregon Public Broadcasting. Come take a spectacular journey to
a land of mythical beauty where stark vistas meet lush valleys and arid deserts
give way to cascading waterfalls.
(10) The SQ. FOOT GARDENING is 70 half-hour episodes of "how-to" gardening
originally produced for PBS Network. For the urban lifestyle to the country
farm, this series has universal appeal. Rated #1 Gardener-extraordinaire, Mel
Bartholomew hosts this informative series and teaches viewers that with just a
little space and less effort, a green thumb is easily achieved.
(11) YVONNE'S COOKBOOK is the newest offering in the long line of successful
cooking shows from Richard Reid Productions. Yvonne E. White, world-renowned
African-American chef and party planner, who specializes in ethnic cuisine
(African, Creole, Southern, etc.) Has cooked for and rubbed elbows with the
stars of entertainment and sports. Now she's ready to cook for you (60 x 30:00).
EXHIBIT A-2
<PAGE> 11
March 20, 1996
Mr. Mel Giniger
The Gemini Corporation
Condominio Almirante
Calle Taff 15 Suite 901
San Turce Puerto Rico 00911
Re: Distribution Guarantee Agreement
Dear Mr. Giniger
This letter is to outline the terms of the Distribution Guarantee
Agreement between DSL Entertainment Group, Inc. ("DSL") and The Gemini
Corporation ("Gemini").
1. In exchange for a thirty (30) day right of first negotiation, to be conducted
in earnest good faith, for the foreign distribution rights in the territory set
forth below, on all prospective future DSL programming, excluding television
movies and dramatic series, Gemini will provide DSL with a twelve (12) month
noncontingent sales guarantee of $150,000.00, to run from March 1, 1996 to
February 28, 1997. This guarantee will be paid to DSL in two equal installments,
due the sooner of the end of each of the first two (2) years of this agreement,
or as the cash flow of sales permits.
2. The term of this agreement and the first negotiation rights granted to Gemini
in exchange for the guarantee set forth above will be five (5) years, subject to
the right by DSL to terminate this agreement with thirty days notice if, (a) the
guarantee has been recouped by Gemini through revenue from sales, or (b) early
repayment by DSL at DSL's election, or (c) in the event that there are less than
$75,000.00 in gross sales during any six (6) month period.
3. The right of first negotiation granted hereunder will be exclusive to Gemini
during the term of this agreement.
4. All revenue will flow into a joint account, and each agreement for
distribution of future product will be subject to the parties agreeing on an
allocation of some appropriate portion of the guarantee to each such product.
5. The right of first negotiation will be for the territory of all of Europe.
<PAGE> 12
6. The sales guarantee will be recoupable by Gemini from sales commissions as
allocated by agreement of the parties, but not refundable, except at DSL's
option to repay any unearned balance on the guarantee, buy back the rights of
first negotiation granted hereunder, and thereby terminate this agreement. Such
option shall be exercisable at any time after the first anniversary date of this
agreement, by the giving of written notice to Gemini of DSL's intention to do
so.
7. The distribution fees will be capped at 20%, not inclusive of sub-agents
fees, and the costs will be capped at ten percent of gross sales.
8. This agreement will serve to memorialize the agreement between the parties,
until such time if any, as it is replaced with a more formal document.
Please review the above, and if it meets with your approval, please date, sign
and return a copy of this agreement to our office.
Thank you.
Sincerely,
Eric S. Elias
Business Affairs
ESE/ja
Agreed to and Accepted:
The Gemini Corporation
By:__________________________ Date: __________
Its:
<PAGE> 13
DISTRIBUTION GUARANTEE AMENDMENT
This amendatory agreement is entered into as of June 1, 1996, by and
between DSL Entertainment Group, Inc. of 12300 Wilshire Boulevard ("DSL"), Mel
Giniger & Associates of 11110 Ohio Avenue Suite 102, West Los Angeles CA 90025
("MGA") and The Gemini Corporation of Calle Taff 15, Suite 901, San Turce,
Puerto Rico 00911 ("Gemini").
Reference is made to two (2) Distribution Guarantee Agreements dated
March 22, 1996, between DSL and MGA providing for certain financial guarantees
in exchange for distribution rights to existing and future acquired or produced
television product(s) in the territories of Spanish speaking Latin America and
Brazil (the "MGA Agreements") and two Distribution Guarantee Agreements dated
March 20, 1996, between DSL and Gemini for certain financial guarantees in
exchange for distribution rights to existing and future acquired or produced
television product(s) in the territories contained within the European continent
(the "Gemini Agreements") (collectively the "Agreements"). It is the intention
of the parties to amend the Agreements as follows:
1. Exhibit A of the MGA Agreements is hereby amended to include the series
"Water Rats" (26 episodes season 1, 26 episodes season 2) and "Cover Story" (26
episodes).
2. By way of clarification of the Agreements, the guarantees are recoupable
after sales commission, not from sales commissions.
3. The Agreements are hereby amended to extend the date of the first required
payment of 50% due under the guarantees to the anniversary date of each
agreement.
4. Revenue generated from all sales of "Water Rats" and "Cover Story," from any
source in any territory, are to be applied first against the current library
Gemini Agreement guarantee, upon fulfillment of the this guarantee, such sales
will be next applied against the Gemini Agreement future library guarantee, and
upon fulfillment of the Gemini Agreement guarantees, any subsequent sales will
1
<PAGE> 14
thereafter be applied to the current library MGA Guarantee, and thereafter to
the MGA Agreement future library guarantee.
5. Copies of all agreements entered into under the Agreements will be forwarded
to DSL upon execution.
6. The MGA Agreements are hereby amended to expressly include such rights for
the distribution of the one hour dramatic series "Total Recall," to be produced
by DSL and a co-production entity, in the territory of Latin America, as are
available to DSL as a result of any co-production agreement to be entered into
between DSL and any co-production partner.
7. All other terms and condition of the Agreements not herein modified, shall
remain in full force and effect.
DSL Entertainment Group, Inc.
By: _______________________
Mel Giniger & Associates
By: _______________________
Gemini Corporation
By:_______________________
2
<PAGE> 1
EXHIBIT 10.2
AFMA(R) INTERNATIONAL
FREE TV LICENSE AGREEMENT
This International Free TV License Agreement is made as of September
12, 1996 between DSL Entertainment Group, Inc.("Licensor") of 12300 Wilshire
Boulevard, Suite 400, Los Angeles CA 90025 [tel/fax:] (310)442-3500/(310)442-
3501 and Eurolink - or order ("Licensee") of 7A Grafton Street, London W1X 3LA
[tel/fax:]011 44 0171 493 2496/011 44 0171 629 6207.
This Agreement is: [X] A new agreement;
[ ] A long form that replaces the deal memo regarding
the Programs;
[ ] An amendment to an existing agreement dated ________
Subject to timely payment of all monies due Licensor and Licensee's
full performance under this Agreement, Licensor licenses to Licensee, and
Licensee accepts from Licensor, the Licensed Rights in the Programs throughout
the Territory for the Term in the Authorized Languages subject to the Hold backs
as identified below on all the terms and conditions of this Agreement.
This Agreement consists of the following parts: this Cover Page; Table
of Contents; Deal Terms; Standard Terms; Schedule of Definitions; and the
following Attachment(s): [ ] Schedule of Programs;[] Access Letter;
[ ] Guaranty; and _____________________________________________________
IN WITNESS WHEREOF, Licensor and Licensee have executed this Agreement
as of the date first written above to constitute a binding contract between
them.
LICENSOR LICENSEE
By:____________________________ By:____________________________
Its: Its:
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Paragraph
<S> <C>
DEAL TERMS
Program(s) A.
Territory B.
Authorized Language(s) C.
Term And License Period D.
Licensed Station E.
Free TV Rights F.
Exclusivity G.
Licensor's Hold backs H.
License Fee I.
Payment J.
Delivery Terms K.
Additional Terms L.
STANDARD TERMS AND CONDITIONS
Definitions And Usage 1.
Program And Versions 2.
Licensed Rights And Reserved Rights 3.
Allied Rights 4.
Territory, Holdback Region And Licensed Station 5.
Term And License Period 6.
Payment Requirements 7.
Delivery And Return 8.
Telecast Obligations 9.
Music 10.
Suspension And Withdrawal 11.
Default And Termination 12.
Anti-Piracy Provisions 13.
Licensor's Warranties 14.
Licensee's Warranties 15.
Indemnities 16.
Assignment And Sublicensing 17.
Miscellaneous Provisions 18.
SCHEDULE OF LICENSING DEFINITIONS
Free TV Rights Definitions A.
Additional Definitions B.
</TABLE>
<PAGE> 3
AFMA(R) INTERNATIONAL
FREE TV LICENSE AGREEMENT
DEAL TERMS
Mention in these Deal Terms of any right not specifically licensed to
Licensee in the Licensed Rights Deal Terms does not grant to Licensee
expressly or by implication any right not specifically licensed to
Licensee in the Licensed Rights Deal Terms.
A. PROGRAM(S): 22 commercial 1/2 hours, "AMAZING TAILS"
[ ] As set forth on attached Schedule of Programs.
B. TERRITORY: United Kingdom, France, Italy, Spain, Portugal, Greece.
C. AUTHORIZED LANGUAGE(S): For each Program
[ ] Original Language; [X] Official Language(s) in Territory;
[X] as needed to service territories [ ] Dubbed Only [ ] Subtitled Only
[ ] Dubbed and Subtitled
D. TERM AND LICENSE PERIOD:
Subject to Paragraph 6.1. of the Standard Terms:
1. Term: The Term starts on September 1, 1996 and ends on:
a. The last Licensed Telecast of all Program(s), or
b. __________________________________________, or
c. Five (5) years from
[ ] the date of this Agreement
[ ] the first Licensed Telecast of any
Program.
[X] September 1, 1996
2. License Period: The period during which Licensee may
exploit the Licensed Right(s) in each Program starts on
the Availability Date for the Program and ends on the
earlier of the last Licensed Telecast for the Program or
end of the Term.
E. LICENSED STATION:
AFMA(R) Free TV License
Deal Terms DT-1
<PAGE> 4
In accordance with Paragraph 5.4. of the Standard Terms:
[ ] All broadcasters for the licensed Free TV Rights in the Territory;
or [X]Licensee
G. FREE TV RIGHTS: For each Program
<TABLE>
<CAPTION>
LICENSED RUNS PLAY DATES AVAILABILITY DATE
<S> <C> <C> <C>
Terrestrial [x]Yes [ ] No ___ [ ] To be advised (see Standard Terms P. 6.3.); or
[ ] as set forth on attached Schedule of Programs
Cable [x ] Yes [ ] No ___ [ ] To be advised (see Standard Terms P. 6.3.); or
[ ] as set forth on attached Schedule of Programs
Satellite [x ]Yes [ ] No ___ [ ] To be advised (see Standard Terms P. 6.3.); or
[ ] as set forth on attached Schedule of Programs
</TABLE>
The Availability Date for each Program is subject to Availability
Coordination within the Region in accordance with Paragraph 6.4. of the
Standard Terms.
F. EXCLUSIVITY:
The Licensed Rights, as defined in Paragraph 3.1. of the Standard
Terms, are:
[X] Exclusive except _______________________________________
[ ] Non-Exclusive except ___________________________________
H. LICENSOR'S HOLD BACKS:
In accordance with Paragraph 6.5. of the Standard Terms, the Hold backs
on Licensor's exploitation of any Reserved Rights in each Program will
be:
[X] None.
[ ] As set forth on the Schedule of Programs.
[ ] All Free TV in the Authorized Languages per Paragraph 6.5.1. of the
Standard Terms.
[ ] All Pay TV in the Authorized Languages per Paragraph 6.5.2. of the
Standard Terms.
[ ] ______________________________________________________________.
I. LICENSE FEE: US$660,000.00 (Total for all Programs)
The License Fee is a minimum net sum and no taxes or charges may be
deducted from it.
1. ALLOCATED:
[ ] As set forth on the attached Schedule of Programs, or
[X] US$30,000.00 [ ] per Run\Play date or [X] per Program,
all territor(ies)
2. PAYABLE:
AFMA(R) Free TV License
Deal Terms DT-2
<PAGE> 5
a. % (US$ .00) on execution of this Agreement;
b. 100% (US$660,000.00) in ten (10) equal monthly
installments starting on March 1, 1997
c. % (US$ .00) on notice of delivery.
J. PAYMENT:
Licensee will pay the License Fee and any other payments due Licensor
as follows:
1. WT - WIRE TRANSFER [Check as appropriate]
[X] License Fee Installments: [X]I.2.a; [ ]I.2.b; [X]I.2.c;
[ ] Materials Charges (Section K.4)
Licensee will pay the indicated installments of the License Fee or
other payments by wire transfer of unencumbered funds, free of any
transmission charges, to the following account:
DSL Entertainment Group, Inc.
California United Bank
18800 Wilshire Blvd. Suite 400
Los Angeles CA 90024
Acct.# 005-218-098
ABA #122239115.
2. LC - LETTER OF CREDIT [Check as appropriate]
[ ] License Fee Installments: [ ]I.2.a; [ ]I.2.b; [ ]I.2.c;
[ ] Materials Charges (Section K.4)
Issued By: ______________ Open Until:___________Renewable For:_______.
Licensee will pay the indicated installments of the License Fee or other
payments by an irrevocable Letter of Credit which meets the requirements
of Paragraph 7.2. of the Standard Terms. The Letter of Credit will be
issued by and remain open until the dates indicated above. The Letter
of Credit will be payable on presentation to Licensor's corresponding
bank of:
[Check all that apply]
[ ] SIGHT DRAFT in usual commercial form indicating payment due.
[ ] INVOICE for payments then due.
[ ] BILL OF LADING, such as an air waybill, evidencing shipment
to Licensee of the applicable Delivery Materials.
[ ] ACCESS LETTER substantially in the form attached for applicable
Delivery Materials.
3. OTHER:
[ ] License Fee Installments: [ ]I.2.a; [ ]I.2.b; [ ]I.2.c;
[ ] Materials Charges (Section K.4)
Licensee will pay the indicated installments of the License Fee or other
payments as follows:
K. DELIVERY TERMS:
1. PHYSICAL MATERIALS:
For each Program Licensor will make Delivery of the Physical
Materials:
[ ] As specified in Licensor's Delivery Notice per
Paragraph 8.1.; or
[X] By Delivering the following indicated items for the
original language version:
AFMA(R) Free TV License
Deal Terms DT-3
<PAGE> 6
<TABLE>
<CAPTION>
Item Delivery Method (Para. 8.1., Standard Terms)
<S> <C>
FEATURE LOW CONTRAST PRINT [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]35mm [ ]16mm
TRAILER LOW CONTRAST PRINT [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]35mm [ ]16mm
PRINT MASTER (2 TRACK) [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]35mm [ ]Stereo [ ]Mono
[ ]16mm [ ]Stereo [ ]Mono
NTSC (525) [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]1" [ ]D1 [ ]D2 [ ]D3
PAL (625) [ ]Physical [ ]Access [ ]Loan [ ]Satellite [ ]1" [ ]D1
[ ]D2 [ ]D3 [X] Betacam SP
</TABLE>
2. SUPPORT MATERIALS:
For each Program Licensor will make Delivery of the Support
Materials:
[X] As available
[ ] As specified in Licensor's Delivery Notice per Paragraph
8.1.; or [ ] By Delivering the following items:
[ ] Feature Spotting List [ ] Press Book
[ ] Trailer Spotting List [ ] Electronic Press Kit
[ ] Feature Continuity [ ] Synopsis
[ ] Trailer Continuity [ ] Radio Spots (No.__)
[ ] Main & End Credits [ ] B&W Stills (No.__)
[ ] Paid Ad Credit [ ] Color Stills (No.__)
[ ] Dub/Sub Restrictions [ ] Color Slides (No.__)
[ ] Music Cue Sheets [ ] TV Spots (No.____)
[ ] As-Broadcast Scripts
3. DATE FOR DELIVERY NOTICE:
Licensor will give Licensee a Delivery Notice for each Program no
later than:
[X] Before its Availability Date; or
[ ] ____________________________________
4. MATERIALS PAYMENT INSTRUCTIONS:
Licensee will pay for all Materials:
[ ] As specified in Licensor's Delivery Notice per Paragraph 8.1.;
[X] As follows: Licensee will pay US$100.00 per episode for masters
5. MATERIALS SHIPPING INSTRUCTIONS:
Licensor will ship all Materials to Licensee:
[ ] As specified in Licensor's Delivery Notice per Paragraph 8.1.;
[X] As follows: Freight collect
L. ADDITIONAL TERMS:
AFMA(R) Free TV License
Deal Terms DT-4
<PAGE> 7
1. GOVERNING LAW:
[X] California or [ ] _____________________________________
2. FORUM:
[X] Los Angeles County or [ ] _____________________________
3. ADDITIONAL DEAL TERMS:
None.
AFMA(R) Free TV License
Deal Terms DT-5
<PAGE> 8
AFMA(R) INTERNATIONAL
FREE TV LICENSING AGREEMENT
STANDARD TERMS AND CONDITIONS
1. DEFINITIONS AND USAGE
1.1. DEFINITIONS: Capitalized words and phrases are Defined Terms. If
not defined where they first appear, Defined Terms are defined in the Schedule
of Definitions or by industry custom and practice. 1.2. USAGE: The use of any
Defined Term or provision relating to rights not specifically licensed in the
Deal Terms does not grant such right to Licensee expressly or by implication.
2. PROGRAM(S) AND VERSIONS
2.1. PROGRAMS: A Program is each, and the Programs are every, motion
picture and television production identified in the Deal Terms. A Program may be
a single work (e.g., one theatrical feature) or a set of related works (e.g.,
episodes of a television series) each of which is called an "Episode." All
Episodes in each Program are treated identically except where otherwise provided
in this Agreement.
2.2. VERSIONS: Each Program is only licensed in a linear form for
continuous viewing from beginning to end. Licensor reserves all rights in all
formats and Versions of each Program other than its original linear form as
Delivered to Licensee and authorized dubbed, subtitled or edited Versions.
3. LICENSED RIGHTS AND RESERVED RIGHTS
3.1. LICENSED RIGHTS: The Licensed Rights in each Program mean the
right to telecast the Program on the Licensed Station in the Authorized
Languages for reception within the Territory during its License Period by the
form of Free TV designated in the Deal Terms.
3.2. LICENSE AND EXCLUSIVITY: Subject to the terms of this Agreement,
Licensor licenses to Licensee the Licensed Rights in each Program, exclusively
or non-exclusively as designated in the Deal Terms. Exclusivity for any Program
only applies to telecasting by the form of Free TV licensed in the Deal Terms
which originates within the Territory in the Authorized Languages during the
License Period. 3.3. RESERVED RIGHTS: All rights not licensed to Licensee are
Reserved Rights. Licensor may exploit the Reserved Rights in each Program
without restriction unless provided otherwise in this Agreement.
4. ALLIED RIGHTS
4.1. ADVERTISING: In advertising each Program, Licensee will comply
with all screen credits (if not already contained in the Program), advertising,
publicity & promotional requirements, and name & likeness restrictions
("Licensor's Requirements") supplied by Licensor at all times after their
receipt.
4.2. DUBBING, SUBTITLING AND EDITING: In creating an authorized dubbed,
subtitled or edited version of each Program and its trailers, Licensee will
comply with Licensor's Requirements at all times after their receipt. Each
Program must be telecast in its original continuity without alteration or cut
except as otherwise provided in this Agreement.
AFMA(R) Free TV License
Standard Terms ST-1
<PAGE> 9
4.3. EXERCISE OF ALLIED RIGHTS: Subject to Paragraph 4.1. & 4.2.
and the provisions of this Agreement, Licensee will have the non-exclusive right
at its expense for each Program:
4.3.1. To advertise, publicize, and promote the Licensed
Rights in the Program;
4.3.2. To use the name, voice and likeness of Persons
rendering materials or services to the Program but not as an
endorsement for any product or service other than the Program; 4.3.3.
To include before or after the Program the credit or logo of Licensee;
4.3.4. To change the title of the Program with Licensor's approval;
4.3.5. To dub or subtitle the Program in the Authorized Language(s);
4.3.6. To include commercial announcements in the Program under
Paragraph 9.4.
4.4. INADVERTENT FAILURE: An inadvertent failure to comply with
Licensor's Requirements will not be a material breach if Licensee uses
reasonable efforts to cure prospectively such failure.
4.5. LIMITATIONS: In exercising the Allied Rights Licensee may not: (i)
alter or delete any credit, logo, copyright notice or trademark notice on any
Program; or, (ii) begin advertising the availability of the Licensed Rights in
any Program before its Availability Date.
5. TERRITORY, HOLDBACK REGION AND LICENSED STATION
5.1. TERRITORY: The Territory is the countries or territories listed in
the Deal Terms as their political borders exist on the date of this Agreement.
The Territory excludes: (i) foreign countries' embassies, military & government
installations, and oil rigs & marine installations located within the Territory;
and (ii) the countries' noncontiguous possessions, embassies, military &
government installations, and oil rigs & marine installations located outside
their contiguous borders.
5.2. CHANGES IN BORDERS: If an area separates from a country in the
Territory, then the Territory will still include each separating area that
formed one political entity as of the date of this Agreement. If an area is
annexed by a country in the Territory, then Licensee will promptly give Licensor
Notice whether Licensee desires to exploit any Licensed Right in the new area.
Licensor grants Licensee a First Negotiation right to acquire the Licensed Right
in the new area for the remainder of the License Period for each affected
Program subject to rights previously granted to others in the area.
5.3. HOLDBACK REGION: The Holdback Region is the part of the world in
which the Territory is located. The Region is defined either in the Deal Terms
or in the AFMA Standard Definitions of Territories and Regions current as of the
date of this Agreement.
5.4. LICENSED STATION: The Licensed Station is the terrestrial
broadcaster, cable system, satellite broadcaster or other transmitting service
designated in the Deal Terms. Where the Deal Terms indicate "all broadcasters,"
this means all stations for the specific Free TV Rights licensed. For example,
if only Free TV Terrestrial Rights are granted, then "all broadcasters" means
all terrestrial broadcasters in the Territory, but does not include cable
systems or satellite broadcasters.
5.5. CHANGES IN LICENSED STATION: Licensee may only telecast a Program
over the transmitting facilities of the Licensed Station existing on the date of
this Agreement. If there is a material change in the household television
receivers capable of receiving such telecast (e.g., modified signal amplitude or
frequency, new transmitting tower, increase in subscribers, new satellite or
transponder, altered orbital position, or new transmission channels), then
Licensee will promptly give Licensor Notice of such change. Licensor grants
Licensee a First Negotiation right to exploit the Licensed Rights for the
remainder of the License Period for each affected Program over the new
facilities, taking into account rights previously granted to others and an
adjustment in the License Fee.
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6. TERM AND LICENSE PERIOD
6.1. TERM: The Term starts and ends on the dates in the Deal Terms
except in case of suspension per Paragraph 11. or early termination per
Paragraphs 11. or 12.
6.2. LICENSE PERIOD : The License Period is the time period in the Deal
Terms during which Licensee may exploit the Licensed Rights in each Program. A
License Period will not be extended because Licensee did not make all Licensed
Telecasts.
6.3. AVAILABILITY DATE: The Availability Date is the date set forth in
the Deal Terms when Licensee may first exploit the applicable Licensed Right in
a Program. Where any Availability Date is "to be advised," Licensor will advise
Licensee of such date promptly after it becomes known.
6.4. AVAILABILITY COORDINATION: Licensor may shorten or extend by up to
three (3) months any Availability Date to coordinate the exploitation of the
Program within the Region. Licensor will give Licensee Notice of any adjusted
Availability Date no later than two (2) months before the earlier of the old
Availability Date or new Availability Date. Licensor will use reasonable good
faith efforts to coordinate release patterns in the Region so that exploitation
of a Licensed Right outside the Territory will not unduly impact on its
exploitation within the Territory, and vice versa.
6.5. LICENSOR'S HOLDBACKS: The Licensor Holdbacks are the periods of
time, if any, set forth in the Deal Terms during which Licensor will not exploit
any Reserved Rights in a Program as follows:
6.5.1. Where some but not all Free TV Rights are licensed in a
Program, and if so indicated in the Licensor's Holdback section of the
Deal Terms, then Licensor will not telecast or authorize telecast in
the Authorized Languages originating within the Territory of the
remaining Free TV Rights in such Program during its License Period. For
example, if only Free TV Terrestrial Rights are licensed, then, if
indicated in the Deal Terms, Licensor will not telecast or authorize
telecast in the Authorized Languages originating within the Territory
of the Free TV Cable or Free TV Satellite Rights in the Program during
its License Period.
6.5.2. If so indicated in the Licensor's Holdback section of
the Deal Terms, Licensor will not telecast or authorize telecast in the
Authorized Languages originating within the Territory of the Pay TV
Rights in each Program during its License Period. 6.6. BROADCAST
OVERSPILL: Licensor does not grant exclusivity or holdback protection
against reception in the Territory of a broadcast of the Program
originating outside the Territory. Licensor only agrees that during the
License Period for each Program Licensor will not broadcast or
authorize a broadcast of the Program in an Authorized Language that
originates in the Region outside the Territory and is intended for
primary reception within the Territory, except this limitation will not
apply to broadcasts of the original unsubtitled English language
version of the Program.
7. PAYMENT REQUIREMENTS
7.1. LICENSE FEE: The License Fee is full payment for Licensee's
exploitation of the Licensed Rights in the Programs. Timely payment of the
License Fee is of the essence of this Agreement. The License Fee is payable
whether or not all Licensed Telecasts occur. Licensee will pay each installment
of the License Fee as specified in the Deal Terms. If all Licensed Telecasts for
a Program are completed before all its installments are paid, Licensee will pay
the remaining balance of its License Fee within ten (10) days of its last
Licensed Telecast.
7.2. LETTER OF CREDIT: If the Deal Terms indicate that a payment is to
be secured by a Letter of Credit, then Licensee will open the Letter of Credit
at a bank in the Territory designated by Licensor as a corresponding bank of
Licensor's bank. The Letter of Credit will be in the form of the Standard AFMA
Letter of Credit Form or
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other mutually approved form acceptable to Licensor's bank. While open, the
Letter of Credit will remain valid, negotiable, transferable, confirmed and
irrevocable; and it will be automatically renewable for any period specified in
the Deal Terms if Licensor has not fully negotiated it by its first expiry date.
All costs for a Letter of Credit will be borne solely by Licensee.
7.3. LIMITATION ON DEDUCTIONS: Licensee will not deduct from any
payment any bank charges, conversion costs, sales use or VAT taxes, remittance
or withholding taxes, "contingents", quotas or any other taxes, levies or
charges unless separately agreed in writing by Licensor.
7.4. BLOCKED FUNDS: If a Law prohibits remittance of monies to Licensor
then Licensee will immediately so notify Licensor and deposit such monies in
Licensor's name in a suitable depository designated by Licensor.
7.5. FINANCE CHARGE ON LATE PAYMENTS: A late payment will incur a
finance charge from the due date until payment in full at the lesser of three
hundred basis points over the 3-month LIBOR rate ("LIBOR+3") on the due date or
the highest legal contract rate.
7.6. EXCHANGE PROVISIONS, PAYMENT: All payments will be in United
States dollars or other freely remittable currency designated by Licensor. All
payments will be computed at the exchange rate prevailing on the date due at a
commercially reasonable bank designated by Licensor. For a late payment Licensor
will be entitled to the best exchange rate between the due date and the payment
date.
7.7. LIMITS ON SET-OFF: The License Fee will be separate and apart from
any other obligation between Licensor and Licensee, and Licensee will not
cross-collateralize, set-off, diminish or delay payment of the License Fee due
to any such obligations.
7.8. ROYALTY INCOME: Monies and royalties collected by a collecting
society, authors' rights organization, performing rights society or governmental
agency from compulsory licenses, cable retransmission income, Secondary
Broadcasts, music performance royalties, tax rebates, levies on blank Videograms
or hardware, rental or lending royalties, or the like, will be the property of
Licensor, who retains the sole right to apply for and collect these amounts.
8. DELIVERY AND RETURN
8.1. DELIVERY: Delivery of a Program means delivery to Licensee of the
Delivery Materials as provided in the Deal Terms and this Paragraph 8. The
Delivery Materials will be those specified in the Deal Terms or those available
based on the age and gauge of the applicable Program. The Delivery Materials
consist of the Physical Materials or Support Materials as the context requires.
8.2. DELIVERY NOTICE: Licensor will give Licensee a Delivery Notice
specifying when it will Deliver the Delivery Materials for each Program.
Licensee will immediately pay for the Delivery Materials and their cost of
shipment. Payment and shipment will be as specified in the Deal Terms or
Licensor's Delivery Notice. Licensee must accept all Delivery Materials within
two (2) months of Licensor's Delivery Notice.
8.3. PHYSICAL MATERIALS: Licensor will Deliver the Physical Materials
for each Program by the following methods as specified in the Deal Terms or
Licensor's Delivery Notice:
8.3.1. Physical Delivery to the Delivery Location specified in
the Deal Terms or the Delivery Notice.
8.3.2. Laboratory Access using the standard AFMA Access Letter
or other mutually approved access letter to the laboratory designated
by Licensor.
8.3.3. Loan Of Materials for a reasonable time to the Delivery
Location specified in the Deal Terms or the Delivery Notice for
manufacture of necessary exploitation materials at Licensee's expense.
8.3.4. Satellite Transmission commensurate with available
materials and equipment. Licensor
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will pay the initial uplink transmission costs; Licensee will pay the
downlink reception costs. Licensee's failure to receive a transmission
will not affect Licensee's obligations, although Licensor will attempt
to assist Licensee to receive a new transmission. Licensee will pay for
each missed satellite feed at Licensor's actual cost of transmission.
8.4. SUPPORT MATERIAL: Licensor will Deliver the Support Materials as
indicated in the Deal Terms or Licensor's Delivery Notice. Licensee must obtain
Licensor's approval before using its own support material.
8.5. EVALUATION AND ACCEPTANCE: The Delivery Materials for each Program
will be suitable for use as or in the manufacture of necessary exploitation
materials based on the age and gauge of the Program. The Delivery Materials will
be considered technically acceptable unless within ten (10) days of receipt
Licensee gives Notice specifying the technical defect. If Licensee's Notice is
accurate, Licensor will at its election either: (i) timely Deliver corrected or
replacement Delivery Materials; or (ii) exercise its right of suspension or
withdrawal under Paragraph 11.
8.6. OWNERSHIP: Legal ownership of all Delivery Materials will remain
with Licensor subject to Licensee's rights under this Agreement. Licensee will
exercise due care in safe-guarding all Delivery Materials while they are in
Licensee's possession.
8.7. LICENSEE CREATED MATERIALS: Licensor is at any time entitled to
acquire from Licensee, against payment, all alternate language tracks and dubbed
versions, masters, advertising and promotional materials, artwork and other
materials created by Licensee pursuant to this Agreement. Upon request after
their creation, Licensee will give Licensor Notice where these materials are
located and, upon payment, provide access to them. Licensor will immediately
become the copyright owner of all such materials, including all dubbed and
subtitled tracks, or, if such ownership is not allowed under a Law in the
Territory, then Licensee will grant Licensor, upon payment to be negotiated in
good faith in each case, a non-exclusive license to use them worldwide in
perpetuity. In all cases Licensee may only use such materials during the License
Period to exploit the Licensed Rights.
8.8. RETURN: Upon expiry of the License Period for each Program
Licensee will at Licensor's election either: (i) return its Delivery Materials
to Licensor at Licensee's expense; or (ii) destroy its Delivery Materials and
provide Licensor with a customary certificate of destruction.
9. TELECAST OBLIGATIONS
9.1. GENERAL: Each Program may only be telecast: (i) in the Authorized
Language(s); (ii) for no more than the Licensed Telecast(s); (iii) to nonpaying
audiences; (iv) over the existing telecasting facilities of the Licensed
Station; and (v) for reception on home television receivers in the Territory.
Licensee may not make a telecast intended for primary reception outside the
Territory or capable of reception by a more than insubstantial number of home
television receivers outside the Territory.
9.2. LICENSED TELECAST(S): For each Program the Licensed Telecast(s)
are the total of all Runs or Playdates licensed to Licensee in the Deal Terms.
9.3. USAGE REPORTS: On reasonable request and if reasonably available,
Licensee will promptly provide the title of each Program in each Authorized
Language, the identity of each person who prepared a dubbed or subtitled
version, and the date of each Licensed Telecast.
9.4. COMMERCIALS: Licensee may insert a customary number of commercial
announcements in each Program during each Licensed Telecast in the places
designated by Licensor, or, if none are designated, in places that do not
unreasonably interrupt the continuity of the Program.
9.5. SECONDARY BROADCASTS: Licensor reserves the right to authorize and
collect royalties for any Secondary Broadcast of each Program whether the
primary broadcast originates inside or outside the Territory.
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Licensor does not grant any exclusivity protection against Secondary Broadcasts
regardless of where the primary broadcast originated. If Licensees may grant or
withhold authorization for Secondary Broadcasts of their broadcasts, then
Licensee will abide by Licensor's reasonable requirements in this regard,
including restricting any Secondary Broadcast of any Program.
10. MUSIC
10.1. CUE SHEETS: To the extent required and available, Licensor will
timely supply Licensee with available music cue sheets for each Program.
10.2. SYNCHRONIZATION AND MECHANICAL: Licensor warrants that Licensor
controls all rights necessary to synchronize the music on each Program and to
make mechanical reproductions of the music in each Program. Licensor holds
Licensee harmless from any payments in this regard.
10.3. PERFORMANCE: Licensor warrants that the non-dramatic ("small")
performing rights in the music in each Program are either: (i) in the public
domain in the Territory; or (ii) controlled by Licensor sufficient to allow
Licensee to exploit them without additional payment; or (iii) available by
license from a music performing rights society in the Territory, in which case
Licensee will be responsible for obtaining a license at its own expense.
11. SUSPENSION AND WITHDRAWAL
11.1. LICENSOR'S RIGHT: Licensor may withdraw any Program or suspend
its License Period: (i) if Licensor determines in good faith that its
exploitation might infringe the rights of others or violate any Law; (ii) if
Licensor determines in good faith that its Delivery Materials are unsuitable for
exploitation; (iii) due to Force Majeure; or (iv) after an unsuccessful First
Negotiation under Paragraph 5.5.
11.2. EFFECT OF SUSPENSION: Licensee may not claim damages or lost
profits for a suspension. Instead, the License Period of the affected Program
will be extended during the suspension. If a suspension lasts more than three
(3) consecutive months, then either Party may terminate this Agreement for the
affected Program on ten (10) days' Notice and the Program will be treated as
withdrawn.
11.3. EFFECT OF WITHDRAWAL: If the Program is withdrawn Licensor must
either: (i) promptly substitute a Program of like quality mutually satisfactory
to Licensor and Licensee; or (ii) refund an equitable portion of the License Fee
attributable to any unused Licensed Telecast. Licensee's sole remedy will be to
receive this substitute or refund. Licensee may not collect any lost profits or
consequential damages for any withdrawn Program.
11.4. FORCE MAJEURE: Force Majeure means any fire, flood, earthquake,
or public disaster; strike, labor dispute or unrest; unavailability of any major
talent on the Program; unavoidable accident; breakdown of equipment;
non-performance or delay by any laboratory or supplier; lack of transportation;
embargo, riot, war, insurrection or civil unrest; any Act of God including
inclement weather; any act of legally constituted authority; or any other cause
beyond the reasonable control of Licensor.
12. DEFAULT AND TERMINATION
12.1. LICENSEE'S DEFAULT: Licensee will default if: (i) Licensee fails
to pay or to give reasonable assurances it will pay any installment of the
License Fee when due; (ii) Licensee becomes insolvent or fails to pay its debts
when due; (iii) Licensee seeks relief under any bankruptcy law or similar law
for protection of debtors, or allows a receiver or trustee to be appointed for
substantially all of its assets who is not removed within thirty (30) days; (iv)
Licensee breaches any material provision of this Agreement or any other
agreement with Licensor; or (v) Licensee attempts to make an assignment without
first obtaining Licensor's reasonable approval under Paragraph 17.1.
12.2. NOTICE TO LICENSEE: Licensor will give Licensee Notice of any
default. Licensee will then have ten
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(10) days to cure a monetary default and twenty (20) days to cure a non-monetary
default. If Licensee fails to do so, then Licensor may proceed against Licensee
for available relief, including suspending Delivery of any undelivered Programs,
terminating this Agreement for any Programs, or declaring all unpaid amounts
immediately payable for any Programs, but Licensor may not collect any lost
profits or consequential damages.
12.3. LICENSOR'S DEFAULT: Licensor will default if: (i) Licensor fails
to Deliver any Program in a timely manner after a reasonable request from
Licensee; (ii) Licensor makes an assignment for the benefit of creditors, or
seeks relief under any bankruptcy law or similar law for protection of debtors,
or allows a receiver or trustee appointed for substantially all of its assets
who is not removed within thirty (30) days; or (iii) Licensor breaches any
material provision of this Agreement. A default by Licensor is limited to the
affected Program, and Licensee may not terminate this Agreement unless Licensor
is in default for more than half of the Programs. No default by Licensor as to
any one agreement with Licensee will be a default as to any other agreement with
Licensee.
12.4. NOTICE TO LICENSOR: Licensee will give Licensor Notice of any
default. Licensor will then have ten (10) days to cure a monetary default and
twenty (20) days to cure a non-monetary default. If Licensor fails to do so,
then Licensee may proceed against Licensor for available relief, but Licensee
may not collect any lost profits or consequential damages.
12.5. ARBITRATION: All disputes under this Agreement will be resolved
by final and binding arbitration under the Rules for International Arbitration
of the American Film Marketing Association in effect when the arbitration is
filed (the "AFMA Rules"). Each Party waives any right to adjudicate any dispute
in any other court or forum except a Party may seek interim relief as allowed by
the AFMA Rules. The arbitration will be held in the Forum, or, if none is
designated, as determined by the AFMA Rules. The Parties will abide by any
decision in the arbitration and any court having jurisdiction may enforce it.
The Parties submit to the jurisdiction of the courts in the Forum to compel
arbitration or to confirm an arbitration award. The Parties agree to accept
service of process in accordance with the AFMA Rules.
13. ANTI-PIRACY PROVISIONS
13.1. NOTICE REQUIREMENTS: Licensee will include in each telecast of
each Program the copyright notice and reasonable anti-piracy warning supplied by
Licensor.
13.2. ENFORCEMENT: Licensee will take reasonable steps to protect the
copyright in each Program. Licensor may engage in any anti-piracy action using
its own counsel. Licensor's expenses will be reimbursed from any recovery
equally with Licensee's. If any Law allows Licensee to telecast a Program by
satellite throughout the Region regardless of the borders of countries in the
Territory, then Licensee will co-operate in any action to protect a Program
within the Region.
13.3. NEW TECHNOLOGY: If during the Term new technology in general
commercial use provides protection against piracy, then Licensee will use such
technology in a reasonable manner.
13.4. NO WARRANTY AGAINST PIRACY: Licensor makes no warranty against
the piracy of any program. No piracy of any Program will allow Licensee to
terminate this Agreement or reduce any amounts due Licensor.
14. LICENSOR'S WARRANTIES
14.1. LICENSOR AS PRINCIPAL: If Licensor is a principal, Licensor
warrants:
14.1.1. Licensor has full authority to execute and perform
this Agreement;
14.1.2. There are no existing or threatened claims or
litigation which would impair Licensee's exploitation of any Licensed
Right in any Program during its License Period;
14.1.3. For any exclusive Licensed Right, Licensor has not
licensed or encumbered the Licensed
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Right to another Person in the Territory during its License Period;
14.1.4. Each Program was produced by authors who are nationals
of or have their habitual residence in, or was first published or
simultaneously first published in, a country which at the time of such
production or publication was a signatory to the Berne Convention for
the Protection of Literary and Artistic Works or the Universal
Copyright Convention or the Buenos Aires Convention, and Licensor has
not done or omitted to do any act which would impair the copyright in
any Program within the Territory during its License Period; and
14.1.5. Licensee's exercise of any Licensed Right in a Program
will not: (i) defame, or hold in a false light, or infringe any privacy
or publicity or other personal right of any Person; or (ii) infringe
any copyright, trademark, right of ideas, or any other property right
of any Person.
14.2. LICENSOR AS AGENT: If Licensor is a sales agent, Licensor
warrants:
14.2.1. Licensor has full authority from its principal to
enter into this Agreement and Licensor's principal will be bound by
this Agreement;
14.2.2. To the best of Licensor's knowledge there are no
existing or threatened claims or litigation which would impair
Licensee's exploitation of any Licensed Right in any Program during its
License Period;
14.2.3. To the best of Licensor's knowledge there are no other
agreements licensing or encumbering any Licensed Right to another
Person in the Territory during its License Period; and
14.2.4. Licensor's principal has authorized Licensor to make
the warranties in Paragraph 14.1. to Licensee on the principal's
behalf.
15. LICENSEE'S WARRANTIES
15.1. LICENSEE AS PRINCIPAL: Licensee warrants:
15.1.1. Licensee has full authority to execute and perform
this Agreement;
15.1.2. There are no existing or threatened claims or
litigation which would impair Licensee's ability to perform under this
Agreement; and
15.1.3. Licensee will honor all restrictions on the exercise
of the Licensed Rights and the Allied Rights in each Program and will
not exploit any Licensed Right outside the Territory, before its
Availability Date or after its License Period.
15.2. LICENSEE AS ASSIGNOR: For an assignment under Paragraph 17.1.
Licensee also warrants:
15.2.1. The assignee will make all warranties in Paragraph 15.
directly to Licensor; and
15.2.2. If the assignee breaches any of those warranties,
Licensor may proceed against Licensee for such breach without first
exhausting any right or remedy against the assignee.
16. INDEMNITIES
16.1. BY LICENSOR: Licensor will indemnify and hold harmless Licensee,
including its officers, directors, partners, shareholders, employees, attorneys
and agents, from all claims, loss, liability, damages, judgments or expenses,
including reasonable attorneys' fees, but not including lost profits, due to
breach of Licensor's warranties. If Licensor is acting as an agent, these
indemnities are also made directly by Licensor's principal to Licensee, but
Licensee will look only to Licensor's principal to honor these indemnities with
regard to the principal's warranties.
16.2. BY LICENSEE: Licensee will indemnify and hold harmless Licensor,
including its officers, directors, partners, shareholders, employees, attorneys
and agents, from all claims, loss, liability, damages, judgments or expenses,
including reasonable attorneys' fees, but not including lost profits, due to
breach of Licensee's warranties.
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17. ASSIGNMENT AND SUBLICENSING
17.1. LICENSEE'S LIMITATIONS: Licensee may not assign or transfer this
Agreement, voluntarily or involuntarily, without Licensor's prior approval not
to be unreasonably withheld or delayed. A transfer of a controlling interest in
Licensee's stock or other evidence of ownership will be a transfer requiring
Licensor's approval. If Licensor does approve, this Agreement will be binding on
the authorized assignee or transferee, but will not release Licensee from its
obligations.
17.2. LICENSOR'S RIGHTS: Before Delivery of all Programs, Licensor may
not assign this Agreement without Licensee's prior approval not to be
unreasonably withheld or delayed except as provided in Paragraph 17.3. After
Delivery of all Programs, Licensor may freely assign this Agreement or any
rights under it, but no such assignment will relieve Licensor of its obligations
unless it is to a company which acquires all or substantially all of Licensor's
assets.
17.3. LICENSOR'S ASSIGNMENT FOR FINANCING: If Licensor pledges this
Agreement or assigns any payment to a lender, completion guarantor or other
Person, then Licensee will promptly on request execute a reasonable and
customary acknowledgment and consent to such assignment. Licensee will abide by
consistent written instructions from Licensor and such Person in making any
payments, and will not set off such payments against any other amounts or
claims.
18. MISCELLANEOUS PROVISIONS
18.1. SEPARABILITY: If this Agreement conflicts with any material Law
the Law will prevail.
18.2. NO WAIVER: No waiver of any breach will waive any other breach.
No waiver is effective unless in writing. The exercise of any right will not
waive any other right.
18.3. REMEDIES CUMULATIVE: All remedies are cumulative, and resort to
one will not preclude resort to any other at any time.
18.4. NOTICES: All Notices must be in writing and sent to a Party at
its address on the Cover Page by fax, telex, telegram or first class mail.
Notice will be effective when received. Either Party may change its place for
Notice by Notice duly given.
18.5. ENTIRE AGREEMENT: This Agreement contains the entire
understanding of the Parties regarding its subject matter. It supersedes all
previous written or oral negotiations, deal memos, understandings or
representations between the parties regarding its subject matter, if any.
18.6. MODIFICATION: A modification or amendment of this Agreement must
be in writing signed by both Parties.
18.7. TERMINOLOGY: "And" means all of the possibilities, "or" means any
or all of the possibilities in any combination, and "either...or" means only one
of the possibilities. "Including" means "including without limitation." "Must"
or "will" means a Party has the obligation to act or refrain from acting; "may"
means a Party has the right but not the obligation to act or refrain from
acting.
18.8. GOVERNING LAW: This Agreement will be governed by and interpreted
under the laws of the state or jurisdiction specified as Governing Law in the
Deal Terms.
18.9. FORUM: The Parties consent to the Forum in the Deal Terms as the
place to resolve disputes.
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AFMA(R) INTERNATIONAL
SCHEDULE OF LICENSING DEFINITIONS
A. FREE TV RIGHTS DEFINITIONS:
FREE TV means Terrestrial Free TV, Cable Free TV, and Satellite Free TV
exploitation of a Motion Picture. Free TV does not include any form of
PayPerView.
TERRESTRIAL FREE TV means over-the-air broadcast by Hertzian waves of a
Motion Picture Copy for reception on television receivers in private living
places without a charge to the viewer for the privilege of viewing the Motion
Picture, provided that for this purpose government television receiver
assessments or taxes (but not a charge for PayPerView or Pay TV) will not be
deemed a charge to the viewer.
CABLE FREE TV means the originating transmission by coaxial or
fiber-optic cable of a Motion Picture Copy for reception on television receivers
in private living places without a charge to the viewer for the privilege of
viewing the Motion Picture, provided that for this purpose neither government
television receiver assessments or taxes nor the regular periodic service
charges (but not a charge for PayPerView or Pay TV) paid by a subscriber to a
cable television system will be deemed a charge to the viewer.
SATELLITE FREE TV means the up-link broadcast to a satellite and its
down-link broadcast to terrestrial satellite reception dishes of a Motion
Picture Copy for viewing on television receivers in private living places
located in the immediate vicinity of their reception dishes without a charge to
the viewer for the privilege of viewing the Motion Picture, provided that for
this purpose government satellite dish or television receiver assessments or
taxes (but not a charge for PayPerView or Pay TV) will not be deemed a charge to
the viewer.
B. ADDITIONAL DEFINITIONS:
AFFILIATE means any Person, including any officer, director, employee
or partner of a Person controlled by, controlling or under common control with a
Party.
AVAILABILITY DATE means the first day after the end of the Holdback
Period for a Licensed Right. If the Availability Date refers to a category of
Licensed Rights, it refers to the first date on which Licensee may exploit any
Licensed Right in the category.
BROADCAST means the communication to the public of a Motion Picture by
means of wire, cable, wireless diffusion or radio waves that allows the Motion
Picture to be viewed on a television receiver. Broadcast means the same as
telecast or diffusion.
FIRST NEGOTIATION means that, provided that Licensee is then actively
engaged in the distribution business on a financially secure basis, Licensor
will negotiate with Licensee in good faith for a period of ten (10) days
regarding the matter for which Licensee has a First Negotiation right before
entering into negotiations regarding the matter with any other Person. If no
agreement is reached within this time period, then Licensor will be free to stop
negotiations with Licensee, withdraw the Picture and then to negotiate and
conclude an agreement regarding the proposed matter with any other Person on any
terms.
LAW means any statute or ordinance, whether municipal, state, national
or territorial, any executive, administrative or judicial regulation, order,
judgment or decree, any treaty or international convention, or any rule, custom
or practice with force of law.
MOTION PICTURE means an audiovisual work consisting of a series of
related images that, when shown in succession, impart an impression of motion,
with accompanying sounds, if any.
MOTION PICTURE COPY means the embodiment of a Motion Picture in any
physical form, including film, tape, cassette or disc. Where a specific medium
is limited to exploitation by a specific physical form, for example, to
Videograms, then Motion Picture Copy with respect to such medium is limited to
such physical form.
AFMA(R) Free TV License
Licensing Definitions SD-1
<PAGE> 18
PLAY DATE means one or more telecasts of the Picture during a
twenty-four (24) hour period over the non-overlapping telecast facilities of
the Licensed Station.
PARTY means either Licensor or Licensee.
PAY TV means transmission of a Motion Picture Copy by means of an
encoded signal for reception on television receivers where a charge is made: (i)
to viewers in private living places for use of a decoding device to view a
channel that broadcasts the Motion Picture along with other Picturing; or (ii)
to the operator of a hotel or similar temporary living place located distant
from where the broadcast signal originated for use of a decoding device to
receive a channel that broadcasts the Motion Picture and other Picturing and
retransmit it throughout the temporary living place for viewing in private
rooms.
PERSON means any natural person or legal entity.
RUN means one (1) telecast of a Picture during a twenty-four (24) hour
period over the non-overlapping telecast facilities of the Licensed Station. A
simultaneous telecast over interconnected local stations (i.e., on a network) is
one (1) telecast; a telecast over non-interconnected local stations whose
reception areas do not overlap is a telecast in each station's local broadcast
area.
SECONDARY BROADCAST means the simultaneous, unaltered and unabridged
retransmission by a cable, microwave or telephone system for reception by the
public of an initial transmission, by wire, or over the air, including by
satellite, of a Motion Picture intended for reception by the public.
TELECAST means any broadcast of a Motion Picture but only in accordance
with the specific Licensed Rights for such Motion Picture.
THEATRICAL RELEASE means the date on which the Picture is first
exhibited in theaters, including mini-theaters and MTV theaters, within the
Territory to the paying public, including screenings to qualify for awards
presentations by authority of Licensor.
VIDEO RELEASE means the date on which Videograms embodying the Picture
are first sold or rented to the paying public in the Territory by authority of
Licensor.
VERSION means an adaptation of a Motion Picture that is not
accomplished by merely mechanical reproduction or use of minimal originality but
instead uses original artistic or intellectual expression to create a new Work
in its own right which contains materials or expressions of authorship not found
in the original Motion Picture.
WORK means an original expression of authorship in the literary,
scientific or artistic domain whatever may be the mode or form of its
expression.
AFMA(R) Free TV License
Licensing Definitions SD-2
<PAGE> 1
EXHIBIT 10.3
LICENSE AND DISTRIBUTION AGREEMENT
Agreement made as of February 5, 1996 by and between DSL Entertainment
Group, Inc., ("Producer"), with offices at 12300 Wilshire Blvd. Suite 400, Los
Angeles, California 90025 and Allied Communications Group, Interpublic Group of
Companies ("IPG") with offices at 1271 Avenue of the Americas, New York NY
10020.
IPG and Producer have previously entered into an agreement regarding
the production of a demonstration program (the "Pilot") which, having been
ordered by IPG and delivered to IPG by Producer, shall serve as a prototype for
an initial series of twenty two (22) episodes to be ordered by IPG and produced
by Producer, entitled "Amazing Tails" (the "Series"). Now, IPG and Producer
desire to enter into an agreement for such order, delivery and the exploitation
by IPG of the Pilot and the Series subject to the terms and conditions herein.
Now therefore, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereto agree as follows:
1. Production and Delivery of the Pilot
The Pilot is approximately twenty five (25) minutes in length and
includes, without limitation, opening graphics and music. The Pilot has been
produced in accordance with its production budget ("the Pilot Production
Budget") and its production schedule (the "Pilot Production Schedule"),
delivered by Producer and accepted by IPG.
2. Production and Delivery of the Series.
IPG hereby notifies Producer that it wishes to have Producer produce
the Series. When produced, the Series shall consist of twenty two (22)
approximately twenty-five minute programs (each, a "Program"). The Series
shall be produced in accordance with the production budget to be approved by
IPG and attached hereto as Exhibit B (the "Series Production Budget") and the
production schedule to be approved by IPG and attached hereto as Exhibit C (the
"Series Production Schedule"). The on-camera hosts and narrators of the Series
shall be individuals agreed between the parties. Producer agrees that all of
the series materials shall be delivered to IPG pursuant to a schedule to be
agreed upon between the parties but no later than July 20, 1996 (the "Series
Delivery Schedule ").
3 Production Fee.
3.1 In consideration for the performance by Producer of its
obligations hereunder and in full discharge of all of IPG's obligations to
Producer in connection with production of the Series, IPG agrees to pay
Producer, and Producer agrees to accept, "Production Fees" in the amount of
$55,000 per program for the first order of twenty two (22) programs, an
aggregate amount of $1,210,000.00, payable as follows: $250,000 on or before
April 30, 1996, $480,000
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on or before June 30, 1996, $55,000 of which will be paid by IPG directly to
Compelling Content on behalf of Producer (such payment shall be without penalty
for payment made within sixty days of the due date) and $480,000 upon delivery
of the Series to IPG or its broadcaster designee.
3.2 Producer shall pay all costs and liabilities incurred in the
production of the Series promptly upon receipt of the Production Fees, and
Producer shall indemnify and hold IPG harmless from such costs and liabilities,
and deliver the Series to IPG or its broadcaster designee free and clear of any
such costs and liabilities.
4. Credit.
The parties agree that each Program shall contain a credit for
Producer and IPG as follows:
(i) DSL Entertainment Group, Inc. (with logo) (Producer's logo shall
remain full on screen for no less than three (3) seconds and up to five (5)
seconds, if time permits)]
[followed by IPG logo and Producer's copyright notice]; and
FOR PRODUCER: DREW S. LEVIN - EXECUTIVE PRODUCER
AUDREY LAVIN - PRODUCER
5. Additional Programs
5.1 Provided that Producer has fully satisfied its obligations to
IPG hereunder and is not in breach of any of the material provisions of
Agreement, IPG shall notify Producer if it wishes to have produced and
delivered to IPG a second set of a minimum of twenty two (22) programs in 1997
(the "1997 Season") and a third set of a minimum of twenty two (22) programs in
1998 (the "1998 Season"). Such notification shall be sent in writing to
Producer no later than December 1, 1996 with respect to the 1997 Season and
December 1, 1997 with respect to the 1998 Season. The parties hereto shall
thereafter negotiate exclusively in good faith for a period of thirty (30)
days, commencing upon Producer's receipt of the notice, the terms and
conditions of an agreement for the production by Producer of such programs,
provided, however that all of the terms and conditions of this Agreement shall
apply with respect to such additional programs except as follows:
(i) the Production Fee which shall be negotiated in good faith
between the parties but shall increase to no less than $71225.00 per program,
with respect to the 1997 Season, and to no less than $78,347.00 per program
with respect to the 1998 Season; and
(ii) the Delivery Dates, Production Schedules and Production
Budgets which shall be agreed between the parties.
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If the foregoing negotiations with respect to either such Season of programs
shall not materialize into an agreement between the parties in the time period
set forth above, Producer will be free to enter into negotiations with any
third party with respect to such Season of programs.
5.2 Provided that Producer has fully satisfied its obligations to
IPG hereunder and is not in breach of any of the material provisions of this
Agreement, IPG shall notify Producer if it desires to produce additional
programs in the Series beyond those programs referred to in paragraph 5.1
above, and the parties hereto shall thereafter exclusively negotiate in good
faith (on a year-to-year basis) for a period of thirty (30) days, commencing
upon Producer's receipt of such notice, which shall be given not later than
December 1, 1998, and the terms and conditions of an agreement for the
production by Producer of such programs for each applicable year of Series
production. Such terms and conditions, including production fees, shall not be
unreasonably different from the terms and conditions of this Agreement. If the
foregoing negotiations with respect to any program shall not materialize into
an agreement between the parties, Producer will be free to enter into
negotiations with any third party with respect to the production of such
additional programs in the Series and Producer shall have no further
obligations to IPG with respect to such additional programs or any subsequent
sets of programs to be produced in the Series.
6. Distribution.
6.1 IPG shall have the exclusive right until August 12, 1996 to
place the series with a domestic distributor. In the event that IPG does not
obtain an agreement from a domestic distributor within that time period,
Producer shall have the right to attempt to obtain a domestic distributor, or
provide domestic distribution itself. In any event, the selection of a
domestic distributor, including, if applicable, Producer, shall be subject to
the agreement of both parties, and shall be within the industry standards for
usual and customary terms and conditions, including, without limitation,
distribution fees.
6.2 Producer shall have the exclusive right in perpetuity to
distribute the pilot and the series in all foreign markets, for a fee of thirty
five percent (35%) of gross sales, plus ten per cent (10%) of gross sales to
cover costs of distribution. Producer shall account to IPG on a quarterly
basis, and will endeavor to advise IPG of foreign sales as soon as possible
after the conclusion of such sales to allow IPG to negotiate for the purchase
of commercial time, if available in each particular market. Producer will use
its best efforts to place the series in foreign markets with commercial
broadcasters. Notwithstanding the foregoing, in the event that IPG's
arrangements with Discovery Channel for broadcast of the Series in the United
States are not completed, IPG will receive recoupment of the production fees
paid by it before Producer receives its fee under this paragraph.
7. Net Profit Participation.
7.1 "Net Profits" shall be defined as all revenue from all
sources, less (in the
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following order):
- Distribution Fees and costs
- Recoupment by Producer of $7500.00 per program of the first
season, total $165,000
- Recoupment by IPG of the Pilot Production Budget and the
Production fees set forth above
- Any preapproved third party participants (if any)
7.2. After the first $650,000 of the Net Profits, which will be
retained by Producer, the balance of Net Profits shall be divided one third
(1/3) to IPG, one third (1/3) to IPG's client, Nestle's, and one third (1/3)
to Producer.
8. Allocation of "Spot" Prices.
8.1 IPG and Producer expressly agree that if the series is
syndicated on a barter basis, or commercial cable where advertising time is
available for purchase, the parties shall agree on the allocated price per
"spot", which price will reduce the total license fee to be recouped by IPG by
the total amount of the price allocated to such "spots."
9. Book Publishing.
9.1 IPG (or its designee, successor or assign) shall retain all book
publishing rights to the series, for so long as it shall continue to order
successive seasons of the series.
10. Standard Terms and Conditions.
The parties agree that the Standard Terms and Conditions attached hereto as
Exhibit A shall be deemed a part of this Agreement, provided that in the event
of any inconsistency between such Standard Terms and Conditions and the terms
hereof, the terms of this Agreement shall govern.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above. DSL Entertainment Group, Inc.
By:___________________________
Interpublic Group of Companies
By:___________________________
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PART OF AGREEMENT BETWEEN DSL ENTERTAINMENT GROUP, INC. AND ALLIED
COMMUNICATIONS GROUP, THE INTERPUBLIC GROUP OF COMPANIES.
EXHIBIT A
STANDARD TERMS AND CONDITIONS
The following terms and conditions shall apply to the agreement to
which this Exhibit is attached (the "Agreement"):
1 . Term
The term of the Agreement shall commence on the date hereof and
continue for a period coterminous with the continuing, ongoing production of
the Series by Producer for IPG.
2. The Series
2.1 Producer shall pay all costs incurred in connection with the
production of the Pilot and the Series. Producer acknowledges and agrees that
delivery of the Pilot and the Series and all Series Materials to IPG by the
applicable Delivery Date or upon the applicable Delivery Schedule is of the
essence of this agreement.
2.2 IPG shall have the right to creative and editorial input
throughout, and joint approval with Producer, over all aspects and phases of
the pre-production, production, post production and editorial completion of the
Pilot and the Series (the "Production Activities"), including, without
limitation, scripts, rough cuts, fine cuts, music, graphics, on-air talent,
voice-over talent, production personnel and changes to the Production Budget
and/or Schedule other than those which are minor in nature. IPG shall have the
final edit of the series, so long as any changes required at the final edit do
not increase the budget attached hereto. At its option, IPG shall have the
right to have a representative present during the Production Activities. IPG
shall designate one or more persons who shall be IPG's representative(s) for
the production of the Pilot and the Series and all IPG approvals required
herein. Any IPG approvals required herein shall be exercised within five (5)
business days of IPG's receipt of the items to be approved.
2.3 The Pilot and the Series shall be delivered to IPG free and
clear of any and all liens, claims, charges, security interests, licenses, use
agreements, collective bargaining agreements, residual or reuse obligations and
any other encumbrances of any type whatsoever subject only to the provisions of
paragraph 2.3.1 below.
2.4 Producer will obtain written releases from any person
appearing in or providing material for inclusion in the Pilot and the Series,
including a waiver of droit morale, whereby such person consents to use of his
or her name, voice or likeness, and/or his or her materials, in the Series, and
in publicity concerning the Pilot and the Series and IPG.
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2.5 Producer will obtain all rights in any and all pre-existing
elements, including, without limitation, pre-recorded film and video footage,
music (including performance rights) and photographs, licensed for inclusion in
the Pilot and the Series necessary to permit IPG to exercise its rights
hereunder.
3. Ownership Rights: Possession of Materials
3.1 Producer and IPG agree that for the purpose of ownership
pursuant to Section 201 of the U.S. Copyright Act (but not for tax or any other
purposes), the Pilot and the Series, the individual Programs and all associated
film footage, and all elements thereof and relating thereto including, without
limitation, concepts, outlines, development materials, treatments, scripts,
characters, titles, stills, original music, out takes and research materials,
shall be considered works created by Producer. IPG acknowledges that under the
terms of such arrangement, all such materials, all elements thereof and all
rights relating thereto are the sole and exclusive property of Producer, its
successors and assigns, absolutely, for all copyright terms and renewal terms
thereof throughout the world, and for all uses and purposes whatsoever.
Producer will not allow any liens or encumbrances to accrue against the Pilot,
the Series, the individual Program, or any of the elements thereof which may
have a negative impact on IPG's rights hereunder. IPG will have the right to
exhibit, license, distribute, sub- distribute and sell the Pilot, the Series,
the individual Programs and the elements thereof and to exploit all rights
therein (including, without limitation, publishing rights, music rights, and
home video and interactive rights) as set forth above in this agreement.
3.2 In the event the Pilot, the Series and other materials
identified in the preceding paragraph are found not to be works created by
Producer, IPG hereby assigns and transfers all right, title and interest in them
throughout the world, including, without limitation, the copyrights in all works
of authorship, to Producer for good and valuable consideration, receipt of which
IPG hereby acknowledges, and to effectuate such assignment, IPG hereby grants
Producer an irrevocable power of attorney.
4. Credits
4.1 Producer agrees that it will not enter into agreement of any
kind with any third party, other than production staff as are ordinarily
included in productions of this nature, which includes an obligation to accord
such third party a credit in connection with the Pilot or the Series without
the prior written consent of IPG, not be unreasonably withheld. All such third
party credits included by Producer in the Programs, including their style,
form, size and placement, shall be subject to IPG's approval, not to be
unreasonably withheld.
4.2 Producer acknowledges that IPG may require Producer to include
credits for IPG production personnel and sponsors in connection with the
Series. IPG hereby acknowledges and agrees that no casual or inadvertent
failure by Producer to accord such credits shall be deemed a
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material breach of this Agreement provided that Producer shall promptly cure
such failure to accord credit.
5. Incidental Rights
5.1 Without limiting IPG's rights hereunder, Producer acknowledges
and agrees that IPG shall have the right to advertise, promote and publicize
the Pilot, the Series and each Program in the Series in any media, or authorize
others to do so; such advertising, promotion and publicity may include, without
limitation, synopses or excerpts of any Program (or special screenings of each
Program as part of IPG promotional events) or pre-existing advertisements,
publicity pieces and promotional materials, in whole or in part, or materials
created by IPG for such Program (collectively called "publicity materials").
IPG may use and authorize others to use the publicity materials for the purpose
of advertising, promoting or publicizing the Pilot, the Series, the Programs or
IPG and/or IPG's affiliated sponsors or clients. Producer also agrees that it
will obtain from all personnel working on the production of the Pilot or the
Series (i) the right to use the name, voice and likeness of such personnel in
advertising, publicity and promotion for the Pilot and the Series, the Programs
and/or IPG and/or IPG's affiliated sponsors or clients (provided that no such
use will be made so as to constitute an endorsement of any other product or
service), and (ii) the right to use such personnel for publicity or promotional
purposes relating to the Pilot and the Series and the Programs, subject to such
personnel's availability and provided that IPG shall bear all expenses relating
to such uses.
6. Compensation
6.1 In making payment of the Production Fee provided in the
Agreement, IPG shall withhold, and Producer hereby authorizes IPG to withhold,
all taxes that IPG shall be required to withhold pursuant to any local, state,
federal or other government authority including, but not limited to, any
foreign, United States, state or local taxes.
6.2 The Production Fee shall be deposited by Producer in a
segregated account (the "Production Account") and shall not be co-mingled with
any other funds of Producer. The Production Account shall be deemed a trust
fund for the sole and exclusive benefit, and to pay the claims of, creditors of
Producer whose claims arise from the production and completion of the Pilot and
the Series. Upon request from IPG, Producer shall provide IPG with proof that
all payments of the Production Fee have been deposited in the Production
Account.
6.3 Commencing with the date of the Agreement and continuing for a
period of at least two (2) years thereafter, Producer shall keep true, accurate
and complete books of account relating to the production of the Pilot and the
Series, together with vouchers, receipts and other records showing in detail
all receipts and all expenses and charges incurred in the production of the
Pilot and the Series. Such books of account shall be kept in accordance with
generally accepted accounting principles and practices in the television
industry. IPG shall have the right to audit Producer's books with respect to
the production of the Pilot and the Series. Upon
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completion and delivery of the Pilot and the Series to IPG, Producer shall
provide IPG with a final accounting of all expenses incurred in connection with
the production of the Pilot and the Series, together with a statement to the
effect that all creditors have been paid.
7. Representations and Warranties
Producer hereby represents and warrants as follows:
(a) Producer has the full legal right to enter into this Agreement
and fully perform its duties and obligations hereunder. The person
executing the Agreement on behalf of Producer is fully empowered to so
execute the Agreement.
(b) Neither the production of the Pilot or the Series and all
elements thereof, nor the exploitation thereof by IPG or its
successors, licensees or assigns will violate any right of any kind of
any third party, including, without limitation, any copyright,
literary right, dramatic right, contract right, trademark, trade name
or right of privacy or publicity or give rise to any actionable claim
by any third party, including, without limitation, any claim for
libel, slander or defamation.
(c) Producer has not accepted or agreed to accept and will not
accept or agree to accept from any third party, whether directly or
indirectly, any money, service, or other valuable consideration for
the inclusion of any matter as a part of the Pilot or the Series, and
Producer will not cause to be mentioned or identified in the Pilot or
the Series any product, service, trademark or brand name except as may
be required for bona fide reporting or commentary.
(d) All statements of fact contained in the Pilot and the Series
shall be true and accurate and shall be substantiated by adequate
research in keeping with generally accepted standards for first-class
television production.
(e) The Pilot and the Series shall be produced in accordance with
all applicable statutes, rules and regulations.
8. Indemnity
Each party shall at all times indemnify and hold harmless the other
party, its affiliates, licensees, assignees and parent, subsidiary and
affiliated companies, and the officers, directors, shareholders, employees and
agents of all such entities against and from any and all claims, damages,
liabilities, costs and expenses (including, without limitation, reasonable
outside counsel fees and direct, verifiable out-of-pocket disbursements
incurred in connection with such proceedings) arising out of any breach or
alleged breach by it of any representation, warranty or other provisions
hereof. In the event of any claim or service of process upon a party involving
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the indemnification hereinbefore set forth, the party receiving such notice
shall promptly notify the other of the claim. The indemnifying party will as
expeditiously as possible under the circumstances adjust, settle, defend or
otherwise dispose of such claim at its sole cost. (The parties acknowledge
that the claim may be defended by a third party insurance carrier.). If it so
elects, the indemnified party shall have the right at its sole cost to engage
its own counsel in connection with such claim. In the event that the
indemnitee determines that the indemnitor is not diligently and continuously
defending any such claim, the indemnitee shall have the right, on its own
behalf and as attorney-in-fact for indemnitee, to adjust, settle, defend or
otherwise dispose of such claim. Any costs incurred by the indemnitee in
connection therewith shall be promptly reimbursed by the indemnitor, and if the
indemnitor fails to so reimburse the indemnitee, the indemnitee shall be
entitled to deduct such amounts from any other sums payable to the indemnitor
under the Agreement.
9. Insurance
Producer will obtain and maintain (a) throughout production of the
Pilot and the Series appropriate Workers' Compensation Insurance for its
employees as required by applicable law, and (b) for a period of three (3)
years from the first date of exhibition of the series, a policy of Producers'
(Errors and Omissions) liability insurance applicable to the exhibition and
distribution of the Pilot and the Series hereunder, having limits of at least
$1,000,000 per occurrence, $3,000,000 in the aggregate (with a deductible of no
more than $10,000) with respect to each loss or claim involving the same
offending act, failure to act, or matter, whether made by one or more persons
and regardless of frequency of repetition, relating to the Pilot or the Series
and insuring Producer against all liability assumed by Producer hereunder and
naming IPG as an additional insured.
10. Relationship of Parties
Nothing contained in this Agreement shall create any partnership or
joint venture between the parties. Neither party may pledge the credit of the
other or make binding commitments on the part of the other, except as otherwise
specifically agreed hereunder. This Agreement is not for the benefit of any
third party not a signatory hereto and shall not be deemed to give any right or
remedy to any such party whether referred to herein or not.
11. Notices
All notices, requests, consents, demands and other communications
hereunder shall be in writing delivered by any of the following: personal
delivery; first class certified or registered mail, return receipt requested;
U.S. Express mail, or an express overnight service (such as Federal Express),
addressed to the respective parties to the Agreement at the addresses set forth
in the Agreement or to such other person or address as a party hereto shall
designate to the other party hereto from time to time in writing forwarded in
like manner. Any notice, request, consent, demand or communication given in
accordance with the provisions of this paragraph
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shall be deemed to have been given and effective when actually received.
12. Over Budget Controls
If at any time the cost of the applicable phase of production (i.e.,
pre-production, principal photography or post-production) exceeds the portion
of the budget allocable to that phase of production by more than twenty percent
(20%), or Producer has committed an Event of Default (as defined in paragraph
14 below), IPG may require Producer to take all steps which in the sole, good
faith, opinion of IPG are reasonable and practical under the circumstances to
reduce actual or projected expenditures or bring the projected costs within the
budget including, but not limited to, revising the applicable Production
Budget, revising the Production Schedule, changing and/or eliminating location
sites, sets and/or construction and revising the script. Producer will fully
and faithfully comply with all of the requirements of IPG set forth in the
preceding sentence.
13. Default
If Producer defaults in the performance of any of its material
obligations hereunder and such default shall not be cured within ten (10) days
after written notice thereof to Producer, or if Producer becomes insolvent, or
if a petition under any bankruptcy law shall be filed by or against Producer
which petition, if filed against Producer, shall not have been dismissed within
thirty (30) days thereafter, or if Producer executes an assignment for the
benefit of creditors, or if a receiver is appointed for the assets of Producer,
or if Producer takes advantage of any insolvency or any other like statute (any
of the above acts are hereinafter called "Event of Default"), then IPG may, in
addition to any and all other rights which it may have against Producer,
terminate this Agreement by giving written notice to Producer at any time after
the occurrence of an Event of Default. Notwithstanding such termination, the
indemnities, warranties and representations set forth herein shall remain in
full force and effect.
14. Miscellaneous
14.1 This Agreement contains the entire understanding and
supersedes all prior understandings between the parties hereto relating to the
subject matter herein and this Agreement cannot be changed or terminated except
in a writing executed by both parties. No employee, agent or other
representative of IPG is authorized to make any representations, warranties or
agreements except as specifically included herein, and Producer acknowledges
that it has not entered into this Agreement in reliance upon any such
representation, warranty or agreement. This Agreement may not be assigned by
Producer. Each party will, upon the other's request, promptly furnish to the
other copies of such agreements or other documents as the other may reasonably
desire in connection with any provisions of this Agreement.
14.2 Except as may be required in connection with filings with
governmental agencies or courts or except as may be required under applicable
law, each party shall keep strictly
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confidential and shall not disclose to any other person or entity other than to
its officers and employees on a must-know basis, or to its respective lawyers
and accountants, the material terms and provisions of this Agreement. To the
extent that information with respect to this Agreement is revealed pursuant to
this paragraph, each party shall use its best efforts to ensure that each
person or entity receiving such information shall maintain it in confidence.
14.3 If Producer is prevented from or materially hampered in
producing the Pilot and/or the Series by reason of any present or future
statute, law, ordinance, regulation, order, judgment or decree, whether
legislative, executive or judicial (whether or not constitutional), act of God,
earthquake, flood, fire, epidemic, accident, explosion, casualty, lockout,
boycott, strike, labor controversy, riot, civil disturbance, war or armed
conflict, act of public enemy, embargo, or any similar event of force majeure
(all of the foregoing being deemed "force majeure"), such a failure to perform
by reason of such an event of force majeure shall not be deemed a breach of or
default under this Agreement and neither party shall be liable to the other
therefor. If there shall be any occurrence of any such event of force majeure
which continues in effect for a period of more than four (4) weeks, then IPG
shall have the right by notice to Producer to terminate this Agreement without
further liability to Producer, except for appropriate payment or adjustment in
regard to payments to be made hereunder. If IPG terminates this Agreement
pursuant to this paragraph, and subsequently elects to complete the production
of the Series, IPG acknowledges a presumption in favor of reinstating Producer
to complete the Series, if reasonable and practical to IPG so.
14.4 This Agreement shall be construed and enforced in accordance
with the laws of the State of California. IPG hereby consents to and submits
to the jurisdiction of the federal and state courts located in the State of
California, and any action or suit under this Agreement shall be brought in any
federal or state court with appropriate jurisdiction over the subject matter
established or sitting in the State of California.
14.5 In the event that any term, condition, covenant, agreement,
requirement or provision herein contained shall be held by any court to be
unenforceable, illegal, void or contrary to public policy, such term,
condition, covenant, agreement, requirement or provision shall be of no effect
whatsoever upon the binding force or effectiveness of any of the other hereof,
it being the intention and declaration of the parties hereto that had they or
either of them known of such unenforceability, illegality, invalidity or
contrariety to public policy, they would have entered into a contract, each
with the other, containing all of the other terms, conditions. covenants,
agreements, requirements and provisions hereof.
14.6 No waiver by either party of any breach hereof shall be deemed
a waiver of any preceding or succeeding breach hereof. Notwithstanding any
other provision of this Agreement, IPG's sole remedy for breach by Producer of
any of its obligations under this Agreement shall be an action at law for
damages and IPG acknowledges that such damages are adequate to compensate IPG
in the case of any breach by Producer hereunder. In no event shall IPG be
entitled to rescission, injunctive or other equitable relief.
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14.7 The headings of this Agreement or any paragraphs hereof are
inserted only for the purpose of convenient reference, and it is acknowledged
that they may not accurately or adequately describe the contents of the
paragraphs which they head. Such headings shall not be deemed to limit, cover,
or in any way affect the scope, or intent of this Agreement or any part
thereof, nor shall they otherwise be given any legal effect in the construction
of any provision hereof.
14.8 Each of the rights and remedies granted under this Agreement
are cumulative and the exercise of one shall not limit, diminish or otherwise
affect either parties right, concurrently or subsequently, to exercise any
other rights or remedies, and shall be in addition to such other rights and
remedies as each may have at law, in equity, under this Agreement or otherwise.
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of the 1st
day of January, 1997 by and between TEAM COMMUNICATIONS GROUP, INC, a California
company ("Company") and DREW S. LEVIN ("Executive"), in connection with
Company's engagement of Executive's personal services as President of Company.
1. EMPLOYMENT; DUTIES AND ACCEPTANCE:
(a) Employment by Company.
Company hereby engages Executive, and Executive
hereby agrees to provide to Company, his full-time services as President on the
terms and conditions of this Agreement. In such capacity Executive will report
to, and serve under the direction and subject to the control of Company's Board
of Directors. Throughout the Term (as hereinafter defined) of this Agreement,
Executive shall devote substantially all of his work time to the employment
described hereunder; and Executive shall not engage in or participate in the
operation or management of, or render any services to, any other business,
enterprise or individual, directly or indirectly.
(b) Acceptance of Employment by the Executive.
The Executive accepts such employment and shall
render the services described in Section 1.(a).
(c) Location of Employment:
Executive shall render his services at Company's offices in
Los Angeles, California; provided, however, that Executive agrees to render his
services at such other locations from time-to-time as the proper performance of
Executive's duties may reasonably require. Notwithstanding the foregoing,
Company's principal offices shall remain in Southern California and Executive
need not relocate to render his duties hereunder.
2. TERM:
The term of Executive's employment hereunder shall be for a
period of five (5) years commencing as of January 1, 1997 and ending on December
31, 2001 (the "Term") unless sooner terminated pursuant to Section 7 hereof
("Termination Sections"). The Term hereof shall be, at the option of Executive,
extended for one successive period for a period of three (3) years ending on
December 31 2004, such period commencing immediately upon the termination of the
prior period (the "Option Period").
3. COMPENSATION AND BENEFITS:
(a) Salary.
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During the Term, Executive shall receive a salary
(the "Annual Salary") at the rate of three hundred sixty five thousand Dollars
($365,000.00) per annum. Executive's Annual Salary shall be payable in fifty-two
(52) weekly payments per year. Such salary shall be less such deductions as
shall be required to be withheld by applicable law and regulations and shall be
prorated for any period that does not constitute a full twelve (12) month
period.
The Company, as represented by the Board of Directors
and Executive shall, in good faith, renegotiate the compensation payable to
Executive for the period commencing upon the expiration of the first two (2)
years of the Term through the end of the Term and for the Option Period, after
having given due consideration to the improvements in the profits of the Company
and cost of living increases, provided that in no event shall the Annual Salary
(as defined below) and Bonus (as defined below) payable to Executive be less
than the Annual Salary and Bonus payable during the initial two (2) year period
of the Term hereof and provided further that the increase of the Annual Salary
shall not be increased by more than ten (10%) percent per annum in any given
year through the remainder of the contract.
(b) Bonus.
(i) Beginning with the fiscal year for the period
ending December 31, 1997 (the twelve month period commencing January 1 and
ending December 31 hereinafter referred to as "Fiscal Year"), and continuing
thereafter for each such full or partial Fiscal Year of the Term hereof,
Executive shall receive a bonus in the sum calculated below based upon the "Net
Pre-Tax Earnings" of the Company (the "Bonus"). For any Fiscal Year of the
Company in which Net Pre-Tax Earnings are from one dollar ($1.00) up to, but not
not greater than, two million dollars ($2,000,000), Executive shall receive an
amount equal to five percent (5%) of such Net Pre-Tax Earnings of the Company.
For any Fiscal Year of the Company in which Net Pre-Tax Earnings of the Company
are greater than two million dollars ($2,000,000), Executive shall receive an
amount equal to seven and one half percent (7.5%) of such Net Pre-Tax Earnings
of the Company. For purposes hereof, the term "Net Pre-Tax Earnings" shall mean
that amount as determined by the Company's outside accountant in accordance with
generally accepted accounting principles and such amount shall specifically be
determined after the calculation of the Annual Salary.
(ii) Executive's Bonus shall be paid to Executive on
a quarterly basis, within thirty (30) days following the preparation and filing
of the company's quarterly statements (10Q or equivalents) of Company's accounts
for such relevant period. If such above described accounts are not finalized
within 30 days following the end of any fiscal quarter, then Company shall
within 30 days following the expiration of such 30 day period pay to Executive
his Bonus for such fiscal quarter based upon the most complete information then
available to Company at such date and any adjustment to such amount so paid
shall be made as soon as practical after the accounts are completed and approved
by Company.
(iii) Notwithstanding anything to the contrary
contained above, the Bonus shall be calculated prior to, and without regard to,
any other profit shares or bonus payable to other employees of the Company
employed by Company for such same fiscal quarter.
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(c) The Company shall be further obligated to cause to be
granted to Executive 85,000 options to purchase shares of the Companies common
stock under the companies employee stock option plan as in effect as of the date
of this agreement, such options to vest in full as of the date of this
agreement.
4. PARTICIPATION IN EXECUTIVE BENEFIT PLANS;
(a) Fringe Benefits.
Executive shall be permitted during the Term to
participate in any group life, medical, hospitalization, dental, and disability
plans, to the extent that Executive is eligible under the provisions of such
plans, and in any other plans and benefits, if any, generally maintained by
Company for executives of the stature and rank of Executive during the Term
hereof, each in accordance with the terms and conditions of such plans
(collectively referred to herein as "Fringe Benefits"); provided, however, that
Company shall not be required to establish or maintain any such Fringe Benefits.
(b) Vacation.
Executive shall accrue, in addition to sick days and
days in which Company is closed, paid vacation days at the rate of one and two
thirds (1-2/3) days per month up to a maximum of twenty (20) work days (four [4]
work weeks). Under no circumstances can Executive accrue more vacation than
twenty (20) work days (the "Ceiling"). Thus, once the maximum amount of paid
vacation time is accrued or earned, no further vacation time is accrued or
earned until after vacation is taken and the amount of Executive's accrued
vacation time goes below the Ceiling as stated above. At that point, Executive
will start to accrue vacation time again until Executive reaches the Ceiling.
Subject to the requirements of Executive's office, Executive shall be entitled
to annual vacation in accordance with the vacation policy of Company.
(c) Expenses.
(i) Company will reimburse Executive for actual and
necessary travel and accommodation costs, entertainment and other business
expenses incurred as a necessary part of discharging the Executive's duties
hereunder, subject to receipt of reasonable and appropriate documentation by
Company. Guidelines for reasonable and normal expenses will be determined by the
compensation committee of the board of directors.
(ii) Company shall pay all business related operating
expenses of Executive's automobile, at the rate of $.29 per mile.
5. CERTAIN COVENANTS OF EXECUTIVE:
Without in any way limiting or waiving any right or remedy
accorded to Company or any limitation placed upon Executive by law, Executive
agrees as follows:
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(a) Non-Compete.
Provided that Company is at all times relevant hereto,
carrying on the Business of the Company (as defined below), Executive agrees
that during the Term of this Agreement, and solely in the event that Executive
does not exercise his option to extend the Term hereof for the Option Period,
for an additional period of one (1) year after the Term hereof, Executive shall
not within the United States directly or indirectly, in any form, capacity or
manner, participate in activities which are competitive with the Business of the
Company (as defined below), or of those divisions, subsidiaries and affiliated
companies of Company (each of which, including Company, is referred to as a
"Protected Company") or have a direct monetary interest in or invest capital in
any competitive company of Company, whether such interest be by way of (i)
ownership, (ii) stock interest, (iii) financing, (iv) lending arrangements, or
(v) in any other form or of any other nature. Upon the execution of this
Agreement and during the Term hereof, Executive shall disclose to Company any
stock owned by him and his family in any company competitive with a Protected
Company; provided, however, Executive shall not be prohibited from investing in
any competitive company, as aforesaid, the stock of which is publicly traded so
long as his and his family's ownership collectively is nominal and for
investment purposes only. For purposes hereof, the term "Business of the
Company" shall mean television production and distribution. Notwithstanding the
foregoing, in the event that a court of competent jurisdiction determines that
the foregoing restriction is invalid, Executive hereby agrees to indemnify and
hold Company harmless from any and all damages, liabilities, costs, losses and
expenses (including legal costs and reasonable attorneys' fees) arising out of
or connected with any claim, demand or action which is based upon a breach by
Executive of the foregoing restriction. This section shall not be operative in
the event that Executive is terminated by the Company without cause.
(b) Confidential Information.
Executive agrees that, neither during the Term nor at
any time thereafter shall the Executive (i) disclose to any person, firm, or
corporation not employed by any Protected Company or not engaged to render
services to any Protected Company or (ii) use for the benefit of himself, or
others, any confidential information of any Protected Company obtained by the
Executive prior to the execution of this Agreement, during the Term or any time
thereafter, including, without limitation, "know-how" trade secrets, details of
supplier's, manufacturer's, distributor's contracts, pricing policies, financial
data, operational methods, marketing and sales information or strategies,
product development techniques or plans or any strategies relating thereto,
technical processes, designs and design projects, and other proprietary
information of any Protected Company; provided, however, that this provision
shall not preclude the Executive from (x) upon advice of counsel, making any
disclosure required by any applicable law or (y) using or disclosing information
known generally to the public (other than information known generally to the
public as a result of any violation of this Section 5.(b) by or on behalf of the
Executive).
(c) Property of Company.
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Any interest in trademarks, service marks,
copyrights, copyright applications, patents, patent applications, slogans,
developments and processes which the Executive, during the Term, may develop
relating to the Business of the Company in which the Company may then be engaged
and any memoranda, notes, lists, records and other documents (and all copies
thereof) made or compiled by the Executive or made available to the Executive
concerning the business of any Protected Company shall belong and remain in the
possession of any Protected Company, and shall be delivered to the Company
promptly upon the termination of the Executive's employment with Company or at
any other time on request.
(d) Executive will not, for a period of one (1) year after the
Term hereof, induce any person who is an executive, officer or agent of the
Company, to terminate their relationship with the Company.
6. OTHER PROVISIONS;
(a) Rights and Remedies Upon Breach.
If the Executive breaches, or threatens to commit a
breach of, any of the provisions of Section 5. hereof (the "Restrictive
Covenants"), the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the other and severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company at law or
in equity.
(b) Accounting.
The right and remedy to require the Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively "Benefits") derived or
received by the Executive as a result of any transactions constituting a breach
of any of the Restrictive Covenants, and the Executive shall account for and pay
over such Benefits to the Company.
(c) Severability of Covenants.
If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
(d) Blue-Pencilling.
If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision and, in its reduced form, such provision
shall then be enforceable.
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(e) Enforceability in Jurisdictions.
The parties intend to and hereby confer jurisdiction
to enforce the Restrictive Covenants upon the courts of any jurisdiction within
the geographical scope of such Restrictive Covenants. If the courts of any one
or more of such jurisdictions hold the Restrictive Covenants unenforceable by
reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect Company's right to
the relief provided in this Section 6 in the courts of any other jurisdiction
within the geographical scope of such Restrictive Covenants, as to breaches of
such Restrictive Covenants in such other respective jurisdictions, such
Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
(f) Executive agrees and understands that the remedy at law
for any breach by Executive of the provisions of Paragraph 5 hereof may be
inadequate and that damages resulting from such breach may not be susceptible to
being measured in monetary terms. Accordingly, it is acknowledged that upon
Executive's breach of any provision of Paragraph 5 hereof, the Company shall be
entitled to seek to obtain from any court of competent jurisdiction injunctive
relief to prevent the continuation of such breach. Nothing contained herein
shall be deemed to limit the Company's remedies at law or in equity for any
breach of the provisions of Paragraph 5 hereof which may be available to the
Company.
7. TERMINATION:
(a) Termination Upon Death or Disability.
If during the Term, Executive should (i) die or (ii)
Executive becomes so physically or mentally disabled whether totally or
partially, that Executive is unable to perform the duties, functions and
responsibilities required hereunder for (aa) a period of three (3) consecutive
months or (bb) shorter periods aggregating to four (4) months within any period
of twelve (12) months ("Disability"), then in such event, Company may, at any
time thereafter, by written notice to Executive, terminate Executive's
employment hereunder. Executive agrees to submit to reasonable medical
examinations upon the request of Company. The existence of Executive's
disability for the purposes of this Agreement shall be determined by a reputable
physician selected by Company who is experienced in the relevant field of
medicine. If Executive's services are terminated, as aforesaid, Executive or the
designated beneficiary of Executive, shall be entitled to receive Executive's
base salary, accrued share of the Bonus for that Fiscal Year and unused vacation
(hereinafter collectively referred to as "Fringe Benefits"), if any, earned
through the date of Executive's termination and continuing thereafter for an
additional period of one year.
(b) Termination for Cause.
Company may terminate this Agreement and Executive's
employment hereunder, without any further obligation to Executive after the date
of termination (except as expressly provided herein) for "cause" which includes,
and shall be limited to, any of the following;
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(i) a material breach of this Agreement by Executive; (ii) the failure of
Executive to perform services and duties exclusively for Company (excluding any
passive income or unrelated activities); (iii) a material failure by Executive
to comply with any material rule or regulation of Company reasonably related to
his employment (which rule or regulation has been previously disclosed in
writing to Employer); (iv) Executive's willful insubordination; or (v)
Executive's commission of a felony. Any termination of Executive's services
hereunder shall be effected by notice in writing stating the reason therefor,
which notice shall be given to Executive as provided in Paragraph 11 hereof. To
the extent practicable, Executive shall have the opportunity to cure any breach
within forty five (45) days after receiving written notice thereof from Company.
The foregoing cure provision will not be applicable to conduct which had
previously been the subject of such notification. In the event Executive is
terminated for "cause", Company's obligations to Executive shall be limited to
the payment to Executive of the base salary through such effective date of
termination, Executive's accrued share of the Bonus for that Fiscal Year and all
of Executive's Fringe Benefits.
(c) Termination Without Cause.
If the Company terminates this Agreement without
cause by written notice to the Executive:
(i) Executive shall be entitled to receive from the Company within
seven (7) days from the effective date specified in the Company's notice of
termination, a lump sum payment equal to the Annual Salary, unpaid vacation pay,
unreimbursed business expenses, and any other monies payable to the Executive
under any employee benefit plan, in each case earned through the date of the
Executive's termination, and;
(ii) Executive shall have the right to obtain a transfer of any life
insurance policy existing for the benefit of Executive from and after the
effective date specified in the Company's notice of termination through the last
day of the Term, and
(iii) Executive will be paid, as due and scheduled under this
Agreement, as if Executive had not been terminated, one half of the balance of
the Annual Salary payable through the end of the then current term, with a
minimum payable of one (1) year's Annual Salary, and a maximum payable of two
(2) years' Annual Salary.
(d) No Duty to Mitigate.
In the event that Executive's services to Company are
terminated for any reason other than as provided in Paragraph 7(b) above prior
to the completion of the Term hereof, or in the event that Executive terminates
this Agreement based upon the Company's material failure to perform its
obligations hereunder, Executive shall have no duty, either express or implied,
to mitigate any damages hereunder and the Company shall remain liable for all
compensation (whether salary, bonus or other benefits) provided for under the
terms of this Agreement. Any compensation earned by Executive in any capacity
after the date of such termination shall not reduce or mitigate the amounts
payable by the Company hereunder. Nothing herein shall be deemed to imply that
the Company has the right to terminate Executive's services without cause.
(e) Designation of Beneficiary.
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The parties hereto agree that the Executive shall
designate, by written notice to the Company, a beneficiary to receive the
payments described in Section 7. in the event of his death and the designation
of any such beneficiary may be changed by the Executive from time to time by
written notice to the Company. In the event the Executive fails to designate a
beneficiary as herein provided, any payments which are to be made to the
Executive's designated beneficiary under Section 7. shall be made to the
Executive's widow, if any, during her lifetime. If the Executive has no
designees or widow, such payments shall be paid to the Executive's estate.
8. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES:
(a) Right to Enter Into Agreement.
Executive has the unfettered right to enter into this
entire Agreement on all of the terms, covenants and conditions hereof; and
Executive has not done or permitted to be done anything which may curtail or
impair any of the rights granted to Company herein.
(b) Breach Under Other Agreement or Arrangement.
Neither the execution and delivery of this Agreement
nor the performance by Executive of any of his obligations hereunder will
constitute a violation or breach of, or a default under, any agreement,
arrangement or understanding, or any other restriction of any kind, to which
Executive is a party or by which Executive is bound.
9. USE OF NAME:
Company shall have the right during the Term hereof to use
Executive's name, biography and approved likenesses in connection with Company's
business, including advertising their products and services; and Company may
grant such rights to others, but not for use as a direct endorsement.
10. ARBITRATION:
(a) Jurisdiction.
Any dispute whatsoever arising out of or referable to
this Agreement, including, without limitation, any dispute as to the rights and
entitlements and performance of the parties under this Agreement or concerning
the termination of Executive's employment or of this Agreement or its
construction or its validity or enforcement, or as to the arbitrator's
jurisdiction, or as to the arbitrability of any such dispute, shall be submitted
to final and binding arbitration in Los Angeles, California by and pursuant to
the Labor Arbitration Rules of the American Arbitration Association with
discovery proceedings pursuant to Section 1283.05 of the California Code of
Civil Procedure. The arbitrator shall be entitled to award any relief which
might be available at law or in
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equity, including that of a provisional, permanent or injunctive nature. The
prevailing party in such arbitration as determined by the arbitrator, or in any
proceedings in respect thereof as determined by the person presiding, shall be
entitled to receive its or his reasonable attorneys' fees incurred in connection
therewith.
11. NOTICES:
(a) Delivery.
Any notice, consent or other communication under this
Agreement shall be in writing and shall be delivered personally, telexed, sent
by facsimile transmission or overnight courier (regularly providing proof of
delivery) or sent by registered, certified, or express mail and shall be deemed
given when so delivered personally, telexed, sent by facsimile transmission or
overnight courier, or if mailed, two (2) days after the date of deposit in the
United States mail as follows: to the parties at the following addresses (or at
such other address as a party may specify by notice in accordance with the
provisions hereof to the other):
(i) If to Executive, to his address at:
Drew S. Levin
16715 Monte Alto Place
Pacific Palisades CA 90272
(ii) If to Company, to its address at:
TEAM Communications Group, Inc.
12300 Wilshire Boulevard Suite 400
Los Angeles CA 90025
(b) Change of Address.
Either party may change its address for notice
hereunder by notice to the other party in accordance with this Section 11.
12. COMPLETE AGREEMENT; MODIFICATION AND TERMINATION:
This Agreement contains a complete statement of all the
arrangements between the parties with respect to Executive's employment by
Company and supersedes all existing agreements between them concerning
Executive's employment. This Agreement may be amended, modified, superseded or
canceled, and the terms and conditions hereof may be waived, only by a written
instrument signed by the parties or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any such right or remedy, nor any single or partial
exercise of any such right or remedy preclude any other or further exercise
thereof or the exercise of any other right or remedy.
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13. GOVERNING LAW:
This Agreement shall be governed by and construed in
accordance with the law of the State of California applicable to agreements
entered into and performed entirely within such State.
14. HEADINGS:
The headings in this Agreement are solely for the convenience
of reference and shall not affect its interpretation.
WHEREFORE, the parties hereto have executed this Agreement as of the
day and year first above written.
TEAM COMMUNICATIONS GROUP, INC.
By: __________________________
Agreed to and Accepted:
- ------------------------
Drew S. Levin
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EXHIBIT 10.5
OFFICE LEASE
BETWEEN
TCW REALTY FUND VA (CALIFORNIA) HOLDING COMPANY, a California corporation
and
TCW REALTY FUND VB, a California limited partnership,
as Tenants in Common,
the Landlord,
AND
DSL ENTERTAINMENT GROUP, INC., a California corporation
the Tenant
Dated: April 25, 1995
For Premises Located
At 12300 Wilshire Boulevard
Los Angeles, California 90025
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PREMISES DEMISED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. INITIAL CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. REPAIRS & ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. FIRE OR CASUALTY DAMAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10. WAIVER AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
11. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
12. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
15. WAIVER AND SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
16. USE OF COMMON FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
17. SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
18. ENTRY OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
19. SUBSTITUTED PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
20. SUBORDINATION AND ATTORNMENT; NONDISTURBANCE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
21. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
22. BUILDING RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
23. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
24. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<TABLE>
<S> <C> <C>
25. LANDLORD'S REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
26. RIGHT OF LANDLORD TO CURE TENANT'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
27. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
28. BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
29. PROHIBITION AGAINST RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
30. TRANSFER OF LANDLORD'S INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
31. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
32. LANDLORD EXCULPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
33. BUILDING RENOVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
34. ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
35. SURRENDER OF THE PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
36. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
37. JOINT AND SEVERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
38. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
39. SUBMISSION OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
40. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
41. HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
42. LANDLORD'S RESERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
43. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
44. ACKNOWLEDGEMENT AND DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
45. DIRECTORY BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
46. OPTION TO RENEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
47. GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE> 4
OFFICE LEASE
This Lease is made as of April 25, 1995 (the "Date of Lease"), by TCW
REALTY FUND VA (CALIFORNIA) HOLDING COMPANY, a California corporation, and TCW
REALTY FUND VB, a California limited partnership, as tenants in common
(collectively, "LANDLORD"), and DSL ENTERTAINMENT GROUP, INC. ("TENANT").
Landlord and Tenant, intending to be legally bound, and in
consideration of their mutual covenants and all conditions of this Lease,
covenant and agree as follows.
BASIC LEASE PROVISIONS
1. DEFINED TERMS
In this Lease the following terms have the meanings set forth below.
1.1 PREMISES. Approximately 4,588 rentable square feet, known as
Suite 400 and located on the fourth floor of the Building, as outlined on
Exhibit A attached to and a part of this Lease.
1.2 BUILDING. The building containing approximately 45,638
rentable square feet, and all future alterations, additions, improvements,
restorations or replacements, with an address of 12300 Wilshire Boulevard, Los
Angeles, California 90025.
1.3 TERM. Thirty-six (36) months.
1.4 COMMENCEMENT DATE. May 15, 1995, subject to Article 3.
1.5 EXPIRATION DATE. Thirty-six (36) months after the
Commencement Date.
1.6 BASE RENT. $1.75 per rentable square foot of the Premises per
month, payable in equal monthly installments of $8,029.00. There shall be no
annual escalations of the Base Rent during the initial term of the Lease.
1.7 SECURITY DEPOSIT. $8,029.00.
1.8 BASE YEAR. The Base Year for calculation of Operating Costs
shall be calendar year 1995.
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1.9 TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS. 10.053% of
the Operating Costs as defined in Article 5 allocable to the Building, based
upon the rentable square feet of the Premises, compared to the total rentable
square feet of the Building.
1.10 PERMITTED USE. General Office purposes.
1.11 TENANT'S TRADE NAMES. Not applicable.
1.12 BROKER(S). LANDLORD'S: CB Commercial Real Estate
Group, Inc.
TENANT'S: Equis of California.
1.13 LANDLORD'S ADDRESS. TCW Realty Advisors
865 South Figueroa Street
Suite 3400
Los Angeles, California
90017-2543
Attention: Portfolio Manager
1.14 TENANT'S ADDRESS:
before occupancy: after occupancy: the Premises
9150 Wilshire Blvd., #205
Beverly Hills, CA 90212
1.15 PARKING. fourteen (14) spaces on an unreserved basis.
Exhibit A, Outline of Premises
Exhibit B, Tenant Work Letter
Exhibit C, Notice of Lease Term Dates
Exhibit D, Rules and Regulations
Exhibit E, Intentionally Omitted
Exhibit F, Guarantee of Lease
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2. PREMISES DEMISED
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the premises described in Section 1.1 ("Premises") on the terms and
conditions set forth in this Lease. As used in this Lease, the term "Project"
includes the Building, adjoining parking areas and garages, if any, and the
surrounding land and air space which are the site and grounds for the Building
and parking areas and garages.
3. TERM
The Term, Commencement Date and Expiration Date shall be as specified
in Sections 1.3, 1.4, and 1.5, respectively. However, the Commencement Date
shall be adjusted if necessary, and documented in the form of Exhibit C
attached hereto, to the date the Premises are "Ready for Occupancy," as that
term is defined in the Tenant Work Letter, attached hereto as Exhibit B, and
the Expiration Date shall be adjusted accordingly. For purposes of this Lease,
the term "Lease Year" shall mean each consecutive twelve (12) month period
during the Term, commencing on the Commencement Date. The terms and provisions
of this Lease shall be effective as of the Date of this Lease.
4. SECURITY DEPOSIT
Concurrent with Tenant's execution of this Lease, Tenant shall deposit
with Landlord in the amount set forth in Section 1.7, a security deposit for
the performance of all of Tenant's obligations under this Lease. Upon
expiration of the Term, Landlord shall (provided that Tenant is not in default
under this Lease) return the security deposit to Tenant, less such portion as
Landlord shall have appropriated to make good any default by Tenant. Landlord
shall have the right, but not the obligation, to apply all or any portion of
the security deposit to cure any Tenant default at any time, in which event
Tenant shall be obligated to restore the security deposit to its original
amount within ten (10) business days. Tenant hereby waives the provisions of
Section 1950.7 of the California Civil Code, and all other provisions of law,
now or hereafter in force, which provide that Landlord may claim from a
security deposit only those sums reasonably necessary to remedy defaults in the
payment of rent, to repair damage caused by Tenant or to clean the Premises, it
being agreed that Landlord may, in addition, claim those sums reasonably
necessary to compensate Landlord for any other loss or damage, foreseeable or
unforeseeable, caused by the act or omission of Tenant or any officer,
employee, agent or invitee of Tenant.
5. RENT
5.1 Tenant agrees to pay the Base Rent set forth in Section 1.6
for each month of the Term, payable in advance on the first day of each month
commencing with the Commencement Date, without any deduction or setoff
whatsoever. If the Commencement Date is not the first day of a month, or if
the Expiration Date is not the last day of a month, a prorated monthly
installment shall be paid at the then current rate for the fractional month
during which this Lease commences or terminates. At the time of execution of
this Lease, Tenant shall promptly pay the first month's rent due after the
expiration of any rent credit period.
In addition to Base Rent, Tenant shall pay Tenant's Proportionate
Share of Operating Costs for each calendar year to compensate for changes in
Landlord's Operating Costs. Landlord's Operating Costs for the Project shall
be determined for the Base Year specified in Section 1.8. The rentable area in
the Building and the rentable area in the Premises, and Tenant's Proportionate
Share of the Operating Costs are set forth in Article 1. Base Rent and
Tenant's Proportionate Share of Operating Costs are sometimes referred to
herein collectively as the "Rent."
"Operating Costs" shall be determined for each calendar year by taking
into account on a consistent basis all costs of management, maintenance, and
operation of the Project. Operating Costs shall include but not be limited to:
(i) the cost of supplying all utilities, the cost of operating, maintaining,
repairing, renovating and managing the utility systems, mechanical systems,
sanitary and storm drainage systems, and escalator and elevator systems, and
the cost of supplies and equipment and maintenance and service contracts in
connection therewith; (ii) the cost of licenses,
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certificates, permits and inspections and the cost of contesting the validity
or applicability of any governmental enactments which may affect Operating
Costs, and the costs incurred in connection with the implementation and
operation of a transportation system management program or similar program;
(iii) the cost of insurance carried by Landlord, in such amounts as Landlord
may reasonably determine; (iv) fees, charges and other costs, including
management fees, consulting fees, legal fees and accounting fees, of all
persons engaged by Landlord or otherwise reasonably incurred by Landlord in
connection with the management, operation, maintenance and repair of the
Project; (v) wages, salaries and other compensation and benefits of all persons
engaged in the operation, maintenance or security of the Building, and
employer's Social Security taxes, unemployment taxes or insurance, and any
other taxes which may be levied on such wages, salaries, compensation and
benefits; provided, that if any employees of Landlord provide services for more
than one building of Landlord, then a prorated portion of such employees'
wages, benefits and taxes shall be included in Operating Costs based on the
portion of their working time devoted to the Building; (vi) payments under any
easement, license, operating agreement, declaration, restrictive covenant, or
instrument pertaining to the sharing of costs by the Building; (vii) operation,
repair, maintenance and replacement of all systems, equipment or facilities
which serve the Building in the whole or in part; (viii) amortization
(including interest on the unamortized cost at a rate equal to the floating
commercial loan rate announced from time to time by Bank of America, a national
banking association, as its prime rate, plus 2% per annum) of the cost of
acquiring or the rental expense of personal property used in the maintenance,
operation and repair of the Building and Project; and (ix) all federal, state,
county, or local governmental or municipal taxes, fees, charges or other
impositions of every kind and nature, whether general, special, ordinary or
extraordinary because of or in connection with the ownership, leasing and
operation of the Project, including, without limitation, any assessment, tax,
fee, levy or charge in addition to, or in substitution, partially or totally,
of any assessment, tax, fee, levy or charge previously included within the
definition of real property tax, it being acknowledged by Tenant and Landlord
that Proposition 13 was adopted by the voters of the State of California in the
June 1978 election and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, conservation, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants; and (x) the cost of capital improvements or other costs incurred in
connection with the Project (A) which are intended as a labor-saving device or
to effect other economies in the operation or maintenance of the Project, or
any portion thereof, or (B) that are required under any governmental law or
regulation but which were not so required in connection with the Project at the
time that permits for the construction of the Building were obtained provided,
however, that each such permitted capital expenditure shall be amortized
(including interest on the unamortized cost) over its useful life as Landlord
shall reasonably determine. Landlord shall have the right, from time to time,
to equitably allocate some or all of the Operating Costs among different
tenants of the building (the "Cost Pools"). The amount of all taxes payable
under this Lease for the Base Year attributable to the valuation of the
Project, inclusive of tenant improvements, shall be known as "Base Taxes". If
in any comparison year subsequent to the Base Year, the amount of Base Taxes
decreases, then for purposes of all subsequent comparison years, including the
comparison year in which such decrease in all taxes payable under this Lease
occurred, the Base Year shall be decreased by an amount equal to the decrease
in Base Taxes. Such Cost Pools may included, but shall not be limited to, the
office space tenants of the Building and the retail space tenants of the
Building. If the Building is not fully occupied during all or a portion of the
Base Year or a subsequent calendar year, the variable components of the
Operating Costs as determined by Landlord shall be calculated as if the
Building had been 95% occupied for the full calendar year. The following are
not included in Operating Costs: property additions, alterations for tenants,
leasing commissions, advertising, depreciation, interest, income taxes and
administrative costs not specifically incurred in the management, maintenance
and operation of the Project. Notwithstanding the foregoing definition of
"Operating Costs," Tenant's Proportionate Share of Operating Costs shall not
include costs incurred by Landlord to remove or remediate any asbestos
materials from the Project.
For each calendar year beginning after the Base Year, Tenant shall pay
to Landlord on the first day of each and every month of this Lease one-twelfth
(1/12th) of the Landlord's reasonable estimate of Tenant's Proportionate Share
of the Operating Costs for that calendar year in excess of the actual Base Year
Operating Costs.
Within one hundred twenty (120) days after December 31 of each
calendar year, or as soon thereafter as
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<PAGE> 8
possible, the total of the Operating Costs for said calendar year just
completed shall be determined on an accrual basis by Landlord.
Landlord shall give Tenant notice of such determination, and Tenant
within thirty (30) days thereafter shall pay to Landlord Tenant's Proportionate
Share of the Operating Costs for such calendar year in excess of the Base Year
Operating Costs, less the payments made by Tenant to Landlord during such
calendar year for Operating Costs in excess of the Base Year Operating Costs,
or if Tenant has overpaid such amount, Landlord shall credit any excess paid
toward Tenant's next rental payment due. During the first and last years of
the Term, Tenant's Proportionate Share of the Operating Costs shall be adjusted
in proportion to the number of days of that calendar year during which this
Lease is in effect over the total days in that calendar year.
In addition to Tenant's Proportionate Share of Operating Costs, Tenant
shall reimburse Landlord upon demand for any and all taxes required to be paid
by Landlord when such taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises.
6. INITIAL CONSTRUCTION
Construction to be completed by Landlord will be in accordance with
Article 3. Landlord will not be obligated to construct or install any
improvements or facilities of any kind other than those called for in Article
3. Landlord agrees to commence and complete the Tenant Improvements (as
defined in Article 3). Upon termination of this Lease, Tenant shall deliver
the Premises to Landlord in good condition, normal wear and tear excepted.
7. REPAIRS & ALTERATIONS
(a) Landlord agrees to make all necessary repairs to the
exterior walls, exterior doors, windows and corridors of the Building.
Landlord agrees to keep the Building in a clean, neat and attractive condition.
Landlord agrees to keep all building standard equipment such as elevators,
plumbing, heating, air conditioning and similar equipment in good repair
(excluding, however, any plumbing in the Premises or any above
Building-standard heating, air conditioning or lighting equipment in the
Premises, which repair shall be Tenant's sole responsibility) but Landlord
shall not be liable or responsible for breakdowns or temporary interruptions in
service where reasonable efforts are used to restore service. Landlord agrees
to make repairs, if necessary, to interior walls, floors and ceilings installed
by Landlord resulting from any defects in construction.
(b) Tenant agrees that it will pay for the cost of all
repairs to the Premises not required to be made by Landlord and Tenant is
responsible for all redecorating, remodeling, alteration and painting required
by Tenant during the Term. Tenant will pay for any repairs to the Premises or
the Building made necessary by any negligence or carelessness of Tenant or its
employees or persons permitted in the Building by Tenant, and will maintain the
Premises in clean, neat and sanitary condition. Tenant covenants and agrees
not to suffer or permit any lien of mechanics or materialmen or others to be
placed against the Project, the Building or the Premises with respect to work
or services claimed to have been performed for or materials claimed to have
been furnished to Tenant or the Premises under this Article 7 or otherwise,
and, in case of any such lien attaching or notice of any lien, Tenant covenants
and agrees to cause it to be immediately released and removed of record or
Landlord, at its sole option, may immediately take all action necessary to
release and remove such lien. Tenant hereby waives and releases its right to
make repairs at Landlord's expense under Sections 1941 and 1942 of the
California Civil Code or under any similar law, statute, or ordinance now or
hereafter in effect.
(c) Tenant may not make any improvements, alterations,
additions or changes to the Premises (collectively, the "Alterations") without
first procuring the prior written consent of Landlord to such Alterations,
which consent shall be requested by Tenant not less than thirty (30) days prior
to the commencement thereof, and which consent shall not be unreasonably
withheld by Landlord. The construction of the initial improvements to the
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<PAGE> 9
Premises shall be governed by the terms of the Tenant Work Letter, attached
hereto as Exhibit B, and not the terms of this Article 7.
(d) Except to the extent Tenant requests and Landlord
designates otherwise at the time Landlord approves such alterations, all or any
part of the alterations (including without limitation, wall-to-wall carpet and
wiring), whether made with or without the consent of Landlord, shall, at the
election of Landlord, either be removed by Tenant at its expense before the
expiration of the Term or shall remain upon the Premises and be surrendered
therewith at the Expiration Date or earlier termination of this Lease as the
property of Landlord without disturbance or injury. If Landlord requires the
removal of all or part of any alterations, Tenant, at its expense, shall repair
any damage to the Premises or the Building caused by such removal. If Tenant
fails to remove the alterations upon Landlord's request, then Landlord may (but
shall not be obligated to) remove them and the cost of removal and repair of
any damage together with all other damages which Landlord may suffer by reason
of the failure of Tenant to remove alterations, shall be charged to Tenant and
paid upon demand.
(e) Tenant shall construct such Alterations and perform
such repairs in conformance with any and all applicable rules and regulations
of any federal, state, county or municipal code or ordinance and pursuant to a
valid building permit, issued by the applicable municipality, in conformance
with Landlord's construction rules and regulations. All work with respect to
any Alterations must be done in a good and workmanlike manner and diligently
prosecuted to completion to the end that the Premises shall at all times be a
complete unit except during the period of work. In performing the work of any
such Alterations, Tenant shall have the work performed in such manner as not to
obstruct access to the Building or the common areas for any other tenant of the
Building, and as not to obstruct the business of Landlord or other tenants in
the Building, or interfere with the labor force working in the Building. Upon
completion of any Alterations, Tenant agrees to cause a Notice of Completion to
be recorded in the office of the Recorder of the County of Los Angeles in
accordance with Section 3093 of the Civil Code of the State of California or
any successor statute, and Tenant shall deliver to the Building management
office a reproducible copy of the "as built" drawings of the Alterations.
(f) The charges for such work performed by a contractor
selected by Landlord shall be deemed Rent under this Lease, payable upon
billing therefor, either periodically during construction or upon the
substantial completion of such work, at Landlord's option. Upon completion of
such work, Tenant shall deliver to Landlord evidence of payment, contractors'
affidavits and full and final waivers of all liens for labor, services or
materials. Tenant shall pay to Landlord a percentage of the cost of such work
sufficient to compensate landlord for all overhead, general conditions, fees
and other costs and expenses arising from Landlord's involvement with such
work.
(g) In the event that Tenant makes any Alterations,
Tenant agrees to carry "Builder's All Risk" insurance in an amount approved by
Landlord covering the construction of such Alterations, and such other
insurance as Landlord may require, it being understood and agreed that all of
such Alterations shall be insured by Tenant pursuant to Article 9 of this Lease
immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord a
co-obligee.
8. FIRE OR CASUALTY DAMAGE
If the Premises or any portion of the Project is damaged by fire or
other cause without the fault or negligence of Tenant or its agents, Landlord
shall diligently, and as soon as practicable after Landlord has discovered the
full extent and nature of such damage, as well as the means necessary to repair
such damage, and subject to delays caused by events beyond Landlord's
reasonable control (including, without limitation, the settlement by Landlord
of all insurance and lender and ground lessor claims relating to such damage or
insurance proceeds relating thereto) (such date, including described extensions
and delays, to be collectively referred to as the "DAMAGE DISCOVERY DATE")
repair the damage at the expense of Landlord; provided, however, that Landlord
may elect not to rebuild and/or restore the Premises or portion of the Project,
and instead terminate this Lease by notifying Tenant in writing
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<PAGE> 10
of such termination within ninety (90) days after the Damage Discovery Date,
such notice to include a termination date for Tenant to vacate the Premises,
but Landlord may so elect only if the Building shall be damaged by fire or
other casualty or cause, whether or not the Premises are affected, and one or
more of the following conditions is present: (i) repairs cannot reasonably be
completed within two hundred (200) days after the Damage Discovery Date or the
Damage Discovery Date occurs during the last two (2) Lease Years; (ii) the
holder of any mortgage on the Building or ground lessor with respect to the
Project shall require that the insurance proceeds or any portion thereof be
used to retire all or a portion of the mortgage debt, or shall terminate the
ground lease, as the case may be; (iii) the damage is not fully covered, except
for deductible amounts, by Landlord's insurance policies; (iv) twenty percent
(20%) or more of the rentable floor area of the Project is unusable, damaged or
destroyed, or (v) in Landlord's sole and absolute discretion, twenty percent
(20%) or more of the rentable floor area of the Project is unmarketable. If
Landlord terminates this Lease, the Base Monthly Rent and Tenant's
Proportionate Share of increases in Operating Costs (collectively, "PERIODIC
RENT") shall be apportioned and paid to the date of termination. If Landlord
does not so elect to terminate this Lease but the damage required to be
repaired by Landlord is not repaired within two hundred (200) days from the
Damage Discovery Date, either Landlord or Tenant, within thirty (30) days from
the expiration of the two hundred (200) day period, may terminate this Lease by
written notice to the other party. During the period that the damaged portion
of the Premises is rendered untenantable by the damage, and provided the damage
is not the consequence or the fault or negligence of Tenant or its agents,
Periodic Rent shall be reduced by the ratio that the rentable square footage of
the Premises thereby rendered untenantable bears to the total rentable square
footage of the Premises, provided that (i) Tenant does not occupy or use such
untenantable portion of the Premises during such rent abatement period, and
(ii) Tenant shall, within ten days after any event purportedly giving rise to
rent abatement, give written notice to Landlord of Tenant's claim for rent
abatement and the basis therefor, including the date and nature of the damage,
the portion of the Premises so affected, and the date (if any) when Tenant
vacated the Premises or portion thereof as a result of the damage.
Notwithstanding the preceding provisions of this Section 8, there shall be no
rent abatement under the terms of this Section 8 if, under the terms of this
Section 8, the abatement would be for a period of ten days or less. All injury
or damage to the Premises or the Building resulting from the fault or
negligence of Tenant or its agents shall be repaired by Tenant, at Tenant's
expense, and Periodic Rent shall not abate. If Tenant shall fail to do so, or
if Landlord shall so elect, Landlord shall have the right to make repairs to
the standard tenant improvements, not including any tenant extras, Alterations,
or personal property, and any expense incurred by Landlord, together with
interest thereon at the rate specified in Section 25.3, shall be paid by Tenant
upon demand. The provisions of this Lease, including this Section 8,
constitute an express agreement between Landlord and Tenant with respect to any
and all damage to, or destruction of, all or any part of the Premises, the
Building or any other portion of the Project, and any statute or regulation of
the State of California, including, without limitation, Sections 1932(2) and
1933(4) of the California Civil Code, with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties, and any other statute or regulation, now or hereafter in effect,
shall have no application to this Lease or any damage or destruction to all or
any part of the Premises, the Building or any other portion of the Project.
9. INSURANCE
9.1 Tenant shall during the entire Term maintain the following
insurance coverage:
(a) Commercial General Liability Insurance for personal
injury and property damage claims arising out of Tenant's occupation or use of
the Premises and from its business operations, and including liability arising
under any indemnity set forth in this Lease in amounts of not less than $1
million for each occurrence and $2 million for all occurrences each year.
(b) Property damage insurance covering all Tenant's
furniture, trade fixtures, office equipment, merchandise and other property in
the Premises and all original and later-installed tenant improvements in the
Premises. This insurance should be an "all risk" policy covering the full
replacement cost of the items covered and including vandalism and malicious
mischief and ordinary and earthquake sprinkler leakage coverage.
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(c) The Tenant will maintain in force all required
workers' compensation or other similar insurance pursuant to all applicable
state and local statues and regulations.
Landlord shall have the right and option, but not the obligation, to maintain
any or all of the insurance which is required in Section 9.1 to be provided by
the Tenant if Tenant fails to maintain the insurance required in this Section
9.1. All costs of Tenant's insurance provided by the Landlord shall be
obtained at Tenant's expense.
9.2 The minimum insurance requirements set forth in this Lease
shall not limit the liability of Tenant under this Lease. The Landlord, and
any parties specified by the Landlord, shall be named as additional insureds
under the Tenant's insurance. All insurance companies providing insurance
pursuant to this Article shall be rated at least A-XII in Best's Key Rating
Guide and shall be otherwise reasonably acceptable to Landlord and licensed and
qualified to do business in the State of California. Insurance provided by the
Tenant shall be primary as to all covered claims and any insurance carried by
Landlord is excess and is non-contributing. Each Tenant's insurance policy
must not be cancelable or modifiable except upon thirty (30) days prior written
notice to Landlord and any specified mortgagee of Landlord. The insurance must
also contain a cross-liability endorsement or severability of interest clause
acceptable to Landlord. Copies of policies or original certificates of
insurance with respect to each policy shall be delivered to the Landlord prior
to the Commencement Date, and thereafter, at least thirty (30) days before the
expiration of each existing policy.
9.3 Landlord has the right at any time, but not the obligation, to
change, cancel, decrease or increase any insurance required or specified under
this Lease, but in no event shall any such increased amounts of insurance or
such other reasonable types of insurance be in excess of that required by
comparable landlords in the vicinity of the Building. Landlord at its option
may obtain any of the required insurance directly or through umbrella policies
covering the Building and other assets owned by Landlord.
9.4 Landlord and Tenant each release the other and their
respective agents and employees from all liability to each other, or anyone
claiming through or under them, by way of subrogation or otherwise, for any
loss or damage to property caused by or resulting from risks insured against
under this Lease, pursuant to insurance policies carried by the parties which
are in force at the time of the loss or damage. Landlord and Tenant will each
request its insurance carrier to include in policies provided pursuant to this
Lease an endorsement recognizing this waiver of subrogation. The waiver of
subrogation endorsement need not be obtained if it incurs an additional cost
for the affected policy, unless following written notice, the other party
elects to pay that additional cost to obtain the waiver of subrogation
endorsement.
10. WAIVER AND INDEMNIFICATION
To the extent not prohibited by law, Landlord, its partners, trustees,
ancillary trustees and their respective officers, directors, shareholders,
beneficiaries, agents, servants, employees, and independent contractors shall
not be liable for any damage either to person or property or resulting from the
loss of use thereof, which damage is sustained by Tenant or by other persons
claiming through Tenant. Tenant indemnifies and holds Landlord harmless from
all claims and all costs, including reasonable attorneys' fees, expenses and
liabilities, except those caused by Landlord's negligence, arising or resulting
from (a) any accident, injury, death, loss or damage to any person or to any
property including the person and property of Tenant and its employees, agents,
officers, guests, and all other persons at any time in the Building or the
Premises or the common areas, (b) the occupancy or use of the Premises by the
Tenant, or (c) any act or omission or negligence of Tenant or any agent,
licensee, or invitee of Tenant, or its contractors, employees, or any subtenant
or subtenant's agents, employees, contractors, or invitees.
11. USE OF PREMISES
The Premises are leased to Tenant for the sole purpose set forth in
Section 1.10 and Tenant shall not use or permit the Premises to be used for any
other purposes without the prior written consent of Landlord, and shall not
allow occupancy density of use of the Premises which is greater than the
average density of the other tenants of the
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Building. Tenant further covenants and agrees that it shall not use, or permit
any person or persons to use, the Premises or any part thereof for any use or
purpose contrary to the rules and regulations, attached hereto as Exhibit D, or
in violation of the laws of the United States of America, the State of
California, or the ordinances, regulations or requirements of the local
municipal or county governing body or other lawful authorities having
jurisdiction over the Building. Landlord shall not be responsible to Tenant
for the nonperformance of any of such rules and regulations by or otherwise
with respect to the acts or omissions of any other tenants or occupants of the
Building. Tenant shall comply with all recorded covenants, conditions, and
restrictions now or hereafter affecting the real property underlying the
Project.
12. SIGNS
Landlord retains absolute control over the exterior appearance of the
Building and Project and the exterior appearance of the Premises as viewed from
the public halls and public areas. Tenant will not install, or permit to be
installed, any drapes, furnishings, signs, lettering, advertising or any items
that will in any way alter the exterior appearance of the Building or the
exterior appearance of the Premises as viewed from the public halls and public
areas.
13. ASSIGNMENT AND SUBLETTING
13.1 Tenant shall not assign, transfer, mortgage or otherwise
encumber this Lease or sublet or rent (or permit a third party to occupy or
use) (collectively, a "Transfer") the Premises, or any part thereof, nor shall
any Transfer of this Lease or the right of occupancy be effected by operation
of law or otherwise, without the prior written consent of Landlord which shall
not be unreasonably withheld or delayed; provided, however, that the parties
hereby agree that it shall be deemed to be reasonable under this Lease and
under any applicable law for Landlord to withhold consent to any proposed
Transfer where, without limitation as to other reasonable grounds for
withholding consent, either the transferee is of a character or reputation or
engaged in a business which is not consistent with the quality of the Building,
or the transferee is either a governmental agency or instrumentality thereof,
or the transferee is not a party of reasonable financial worth and/or financial
stability in light of the responsibilities involved under this Lease on the
date consent is requested. For purposes of the foregoing prohibitions, a
transfer at any one time or from time to time of forty-nine percent (49%) or
more of an interest in Tenant (whether stock, partnership interest or other
form of ownership or control) by any person(s) or entity(ties) having an
interest in ownership or control of Tenant at the Date of Lease shall be deemed
to be a Transfer of this Lease. Notwithstanding the foregoing, however,
neither an assignment of the Premises to a transferee which is the resulting
entity of a merger or consolidation of Tenant with another entity, nor an
assignment or subletting of all or a portion of the Premises to an affiliate of
Tenant (an entity which is controlled by, controls, or is under common control
with, Tenant), shall be deemed a Transfer, provided that Tenant notifies
Landlord of any such assignment or sublease and promptly supplies Landlord with
any documents or information reasonably requested by Landlord regarding such
Transfer or transferee, and that such assignment or sublease is not a
subterfuge by Tenant to avoid its obligations under this Lease. If Landlord
consents to the proposed Transfer, the initial Tenant and any guarantor shall
remain liable under this Lease. Any Transfer without Landlord's written
consent shall be voidable by Landlord and, at Landlord's election, constitute
an "Event of Default," as that term is defined in Article 24 of this Lease.
Neither the consent by Landlord to any Transfer nor the collection or
acceptance by Landlord of rent from any assignee, subtenant or occupant shall
be construed as a waiver or release of the initial Tenant or any guarantor from
the terms and conditions of this Lease or relieve Tenant or any subtenant,
assignee or other party from obtaining the consent in writing of Landlord to
any further Transfer. Tenant hereby assigns to Landlord the rent and other
sums due from any subtenant, assignee or other occupant of the Premises and
hereby authorizes and directs each such subtenant, assignee or other occupant
to pay such rent or other sums directly to Landlord; provided, however, that
until the occurrence of an Event of Default, Tenant shall have the license to
continue collecting such rent and other sums.
If Landlord consents to a Transfer under this Section 13.1,
Tenant will pay Landlord's processing costs and attorneys' fees incurred in
giving such consent. If, for any proposed Transfer, Tenant contracts to
receive total rent or other consideration exceeding the total rent called for
hereunder after deduction (amortized over the
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term of the assignment or sublease) of Tenant's reasonable costs for tenant
improvements and free rent concessions (prorated by the ratio that the
assignment or sublease term and square footage bears to the term and square
footage of this Lease), Tenant will pay one-half of the excess to Landlord as
additional rent promptly upon receipt.
13.2 In the event of a proposed assignment or subletting, Landlord
shall also have the right, by notice to Tenant, to terminate this Lease in the
event of an assignment as to all of the Premises and, in the event of a
sublease, as to the subleased portion of the Premises and to require that all
or part, as the case may be, of the Premises be surrendered to Landlord for the
balance of the Term.
14. EMINENT DOMAIN
In the event any portion of the Premises is taken from Tenant under
eminent domain proceedings, Tenant shall have no right, title or interest in
any award made for such taking, except for any separate award for fixtures and
improvements installed by Tenant. If ten percent (10%) or more of the Premises
or Building shall be taken by power of eminent domain or condemned by any
competent authority for any public or quasi-public use or purpose, or if
Landlord shall grant a deed or other instrument in lieu of such taking by
eminent domain or condemnation, Landlord shall have the option to terminate
this Lease upon ninety (90) days notice, provided such notice is given no later
than one hundred eighty (180) days after the date of such taking, condemnation,
reconfiguration, vacation, deed or other instrument. Tenant hereby waives any
and all rights it might otherwise have pursuant to Section 1265.130 of the
California Code of Civil Procedure.
15. WAIVER AND SEVERABILITY
15.1 The consent of Landlord in any instance to any variation of
the terms of this Lease, or the receipt of Rent with knowledge of any breach,
shall not be deemed to be a waiver as to any breach of any Lease covenant or
condition, nor shall any waiver occur to any provision of this Lease except in
writing, signed by Landlord or Landlord's authorized agent. It is understood
and acknowledged that there are no oral agreements between the parties hereto
affecting this Lease and this Lease supersedes and cancels any and all previous
negotiations and understandings, if any, between the parties hereto and none
thereof shall be used to interpret or construe this Lease. This Lease and any
side letter or separate agreement executed by Landlord and Tenant in connection
with this Lease and dated of even date herewith contain all of the terms,
covenants and agreements of the parties relating in any manner to the Premises,
and shall be considered to be the only agreement between the parties hereto and
their representatives and agents.
15.2 If any term or provision of this Lease or any application
shall be invalid or unenforceable, then the remaining terms and provisions of
this Lease shall not be affected.
16. USE OF COMMON FACILITIES
All elevators, stairways, halls and areas for the common use of all
tenants in the Building shall be open to reasonable use at all reasonable times
by Tenant, its customers, clients and employees.
17. SERVICES
17.1 Landlord shall furnish to the Premises throughout the Term (i)
electricity, heating and air conditioning appropriate for the Tenant's use
between 8:00 a.m. and 6:00 p.m., Monday through Friday, and between 9:00 a.m.
and 1:00 p.m. on Saturday, except for legal holidays, observed by the federal
government, (ii) reasonable janitorial service, (iii) regular trash removal
from the Premises, (iv) hot and cold water from points of supply, (v) restrooms
as required by applicable code, and (vi) elevator service, provided that
Landlord shall have the right to remove such elevators from service as may be
required for moving freight or for servicing or maintaining the
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elevators or the Building. The cost of all services provided by Landlord shall
be included within Operating Costs, unless charged directly (and not as a part
of Operating Costs) to Tenant or another tenant of the Building. Landlord
agrees to furnish landscaping and grounds maintenance for the areas used in
common by the tenants of the Building. Services shall be furnished by Landlord
and reimbursed by Tenant as part of Operating Costs; however, Landlord shall be
under no responsibility or liability for failure or interruption in such
services caused by breakage, accident, strikes, repairs or for any other causes
beyond the control of Landlord, nor in any event for any indirect or
consequential damages; and failure or omission on the part of Landlord to
furnish service shall not be construed as an eviction of Tenant, nor work an
abatement of Rent, nor render Landlord liable in damages, nor release Tenant
from prompt fulfillment of any of the covenants under this Lease.
17.2 If Tenant requires or requests that the services to be
furnished by Landlord (except Building standard electricity and elevator
service) be provided during periods in addition to the periods set forth in
Section 17.1, then Tenant shall obtain Landlord's consent and, if consent is
granted, shall pay upon demand the cost of such excess consumption, the cost of
the installation, operation, and maintenance of equipment which is installed in
order to supply or meter such excess consumption, and the cost of the increased
wear and tear on existing equipment caused by such excess consumption.
Landlord may, from time to time during the Term, set a per hour charge for
after-hours service which shall include the cost of utility service, labor
costs, administrative costs and a cost for depreciation of the equipment used
to provide after-hours service.
17.3 All telephone, electricity, gas, heat and other utility
service furnished to the Premises shall be paid for by Tenant except to the
extent the cost is included within Operating Costs. Landlord reserves the
right to separately meter or monitor the utility services provided to the
Premises. The cost of any meter shall be borne by Tenant.
18. ENTRY OF LANDLORD
Landlord reserves the right to enter upon the Premises at all
reasonable times and reserves the right, during the last nine (9) months of the
Term, to show the Premises at reasonable times to prospective tenants and to
affix for lease/rent signs to the Building at the Landlord's discretion.
19. SUBSTITUTED PREMISES
Landlord reserves the right on thirty (30) days written notice to
Tenant to substitute other premises within the Building for the Premises for
all uses and purposes as though originally leased to Tenant by this Lease. The
substituted premises shall contain at least the same square footage as the
original Premises without increase of Rent. Landlord shall pay all reasonable
moving expenses of Tenant incidental to the substitution of premises.
20. SUBORDINATION AND ATTORNMENT; NONDISTURBANCE AGREEMENT
20.1 This Lease is subject and subordinate to all ground or
underlying leases and to any first mortgage(s) which may now or hereafter
affect those leases or the land and to all renewals, modifications,
consolidations, replacements and extensions thereof. This subordination shall
be self-operative; however, Tenant shall execute promptly any instrument that
Landlord or any first mortgagee may request confirming subordination. Tenant
hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to
execute any such instrument on behalf of Tenant. Before any foreclosure sale
under a mortgage, the mortgagee shall have the right to subordinate the
mortgage to this Lease, and, in the event of a foreclosure, this Lease may
continue in full force and effect and Tenant shall attorn to and recognize as
its landlord the purchaser of Landlord's interest under this Lease. Tenant
shall, upon the request of a mortgagee or purchaser at foreclosure, execute,
acknowledge and deliver any instrument that has for its purpose and effect the
subordination of the lien of any mortgage to this Lease or Tenant's attornment
to the purchaser.
20.2 At such time as Landlord attempts to obtain financing secured
by a mortgage or trust deed encumbering the Project, Landlord shall use
diligent efforts to obtain a written agreement (the "Non-Disturbance
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Agreement") from the lender (the "Lender") providing such financing providing
that so long as Tenant timely pays Rent due under this Lease, and is not
otherwise in default under this Lease, Lender will not disturb Tenant's
possession under this Lease. In no event shall Landlord be obligated in using
diligent efforts to obtain a Non-Disturbance Agreement: (i) to incur any costs
or expenses, including without limitation, attorneys' fees and costs; (ii) to
accept less favorable terms or conditions for any financing (as determined by
Landlord in its sole and absolute discretion) in order to obtain such
Non-Disturbance Agreement, (iii) pay any amount to the Lender, including
without limitation, attorneys' fees and costs which the Lender may otherwise
charge in connection with such Non-Disturbance Agreement; or (iv) amend this
Lease. The Non-Disturbance Agreement may be subject to such conditions and
limitations upon the rights of Tenant in the event of succession by Lender, and
upon the obligations of Lender, as Lender may deem appropriate. Tenant
acknowledges that Landlord may not compel Lender to sign any Non-Disturbance
Agreement nor to agree to any specific terms in any Non-Disturbance Agreement.
Consequently, Tenant agrees that Landlord's only obligation under this
subparagraph shall be to use diligent efforts to obtain a Non-Disturbance
Agreement as provided above, and if Landlord fails to obtain a Non-Disturbance
Agreement (or one which is acceptable to Tenant), such failure shall not
excuse Tenant from its obligations under any provision of this Lease,
including, without limitation, the provisions of Section 20.1, nor shall such
failure give rise to any claim, rental offset or deduction, or cause of action
by Tenant against Landlord, nor shall the Lease be terminated by reason
thereof.
21. ESTOPPEL CERTIFICATES
Tenant shall at any time upon not less than ten (10) days prior
written notice from Landlord execute, acknowledge and deliver to Landlord a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the Rent and other charges are paid in advance, if any, and
(ii) acknowledging that there are not, to Tenant's knowledge, any uncured
Landlord defaults, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Premises. Tenant's failure to deliver this statement
within such time shall be conclusive upon Tenant (i) that this Lease is in full
force, without modification except as may be represented by Landlord, (ii) that
there are no uncured defaults in Landlord's performance, and (iii) that not
more than one month's Base Rent has been paid in advance. If Landlord desires
to finance or refinance the Premises, or any part thereof, Tenant agrees to
deliver to any lender designated by Landlord such financial statements of
Tenant as may be reasonably required by that lender, including the past three
years' financial statements. All such financial statements shall be received
by Landlord in confidence and shall be used only for the specified purposes.
22. BUILDING RULES AND REGULATIONS
Tenant agrees to abide by all rules and regulations of the Building
imposed by Landlord. These regulations, presented as Exhibit D, are imposed
for the cleanliness, good appearance, proper maintenance, good order and
reasonable use of the Premises and the Building, and as may be reasonably
necessary for the proper enjoyment of the Building by all tenants and their
clients, customers and employees. The rules and regulations may be changed
from time to time by the Landlord on reasonable notice to Tenant.
23. NOTICES
All notices or other communications between the parties shall be in
writing and shall be deemed duly given, if delivered in person, or upon the
earlier of receipt, if mailed by certified or registered mail, or three (3)
days after certified or registered mailing, return receipt requested, postage
prepaid, addressed and sent to the parties at their addresses set forth in
Sections 1.13 and 1.14. Landlord and Tenant may from time to time by written
notice to the other designate another address for receipt of future notices.
24. EVENTS OF DEFAULT
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Each of the following shall constitute an "Event of Default:" (i)
Tenant fails to pay Rent or any other charge required to be paid under this
Lease when due, (ii) Tenant fails to observe or perform any other term,
condition or covenant binding upon or obligating Tenant within ten (10) days
after notice from Landlord, (iii) Tenant abandons the Premises; (iv) Tenant or
any guarantor makes or consents to a general assignment for the benefit of
creditors or a common law composition of creditors, or a receiver of the
Premises or all or substantially all of Tenant's or guarantor's assets is
appointed, (v) Tenant or any guarantor files a voluntary petition in any
bankruptcy or insolvency proceeding, or an involuntary petition in any
bankruptcy or insolvency proceeding is filed against Tenant or any guarantor
and is not discharged by Tenant or the guarantor within sixty (60) days, (vi)
any guarantor repudiates or breaches its guarantee in any way, or (vii) Tenant
fails to occupy the Premises within ten (10) business days after the Premises
are substantially completed.
25. LANDLORD'S REMEDIES
25.1 Upon the occurrence of an Event of Default, Landlord, at its
option, without further notice or demand to Tenant, shall have in addition to
all other rights and remedies provided in this Lease, at law or in equity, the
option to pursue any one or more of the following remedies, each and all of
which shall be cumulative and nonexclusive, without any notice or demand
whatsoever.
(a) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
the Premises or any part thereof, without being liable for prosecution or any
claim or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid
rent which has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount
by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental
loss that Tenant proves could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount
by which the unpaid rent for the balance of the Lease Term after the
time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
(iv) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, specifically
including but not limited to, brokerage commissions and advertising
expenses incurred, expenses of remodeling the Premises or any portion
thereof for a new tenant, whether for the same or a different use, and
any special concessions made to obtain a new tenant; and
(v) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time
to time by applicable law.
The term "rent" as used in this Section 25.1 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others, including, without limitation,
late charges and interest. As used in Sections 25.1(a)(i) and (ii), above, the
"worth at the time of award" shall be computed by allowing interest at the rate
set forth in Section 25.3, below, but in no case greater than the maximum
amount of such interest permitted by law. As used in Section 25.1(a)(iii)
above, the "worth at the time of award" shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).
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(b) Landlord shall have the remedy described in
California Civil Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes due, if lessee
has the right to sublet or assign, subject only to reasonable limitations).
Accordingly, if Landlord does not elect to terminate this Lease on account of
any default by Tenant, Landlord may, from time to time, without terminating
this Lease, enforce all of its rights and remedies under this Lease, including
the right to recover all rent as it becomes due.
25.2 Whether or not Landlord elects to terminate this Lease on
account of any default by Tenant, as set forth in this Article 25, Landlord
shall have the right to terminate any and all subleases, licenses, concessions
or other consensual arrangements for possession entered into by Tenant and
affecting the Premises or may, in Landlord's sole discretion, succeed to
Tenant's interest in such subleases, licenses, concessions or arrangements. In
the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
25.3 If Tenant fails to pay any Rent within five (5) days after the
Rent becomes due and payable, Tenant shall pay to Landlord a late charge of ten
percent (10%) of the amount of overdue Rent. Notwithstanding the preceding
sentence, Tenant shall not be required to pay a late charge for the first time
that Tenant fails to pay any Rent within five days after the Rent payment
became due; thereafter however, a late charge shall apply to any late payment
of Rent in accordance with the preceding sentence. In addition, any late Rent
payment shall bear interest from the date that Rent became due and payable to
the date of payment by Tenant at the interest rate of fifteen percent (15%) per
annum, provided that in no case shall such rate be higher than the highest rate
permitted by applicable law. Late charges and interest shall be due and
payable within two (2) days after written demand from Landlord.
26. RIGHT OF LANDLORD TO CURE TENANT'S DEFAULT
If an Event of Default occurs, then Landlord may (but shall not be
obligated to) make such payment or do such act to cure the Event of Default,
and charge the expense, together with interest, at the interest rate set forth
in Section 25.3, to Tenant. Payment for the cure shall be due and payable by
the Tenant upon demand; however, the making of any payment or the taking of
such action by Landlord shall not be deemed to cure the Event of Default or to
stop Landlord from the pursuit of any remedy to which Landlord would otherwise
be entitled.
27. COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about
the Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant
shall promptly comply with all such governmental measures, other than the
making of structural changes or changes to the Building's life safety system.
Should any standard or regulation now or hereafter be imposed on Landlord or
Tenant by a state, federal or local governmental body charged with the
establishment, regulation and enforcement of occupational, health or safety
standards for employers, employees, landlords or tenants, then Tenant agrees,
at its sole cost and expense, to comply promptly with such standards or
regulations. The judgment of any court of competent jurisdiction or the
admission of Tenant in any judicial action, regardless of whether Landlord is a
party thereto, that Tenant has violated any of said governmental measures,
shall be conclusive of that fact as between Landlord and Tenant.
28. BENEFIT
Subject to the provisions of Section 9 hereof, the rights, duties and
liabilities created hereunder shall inure to the benefit of and be binding upon
the parties hereto, their heirs, personal representatives, successors and
assigns.
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29. PROHIBITION AGAINST RECORDING
Except as provided in this Lease, neither this Lease, nor any
memorandum, affidavit or other writing with respect thereto, shall be recorded
by Tenant or by anyone acting through, under, or on behalf of Tenant, and the
recording thereof in violation of this provision shall make this Lease null and
void at Landlord's election.
30. TRANSFER OF LANDLORD'S INTEREST
Tenant acknowledges that Landlord has the right to transfer all or any
portion of its interest in the Project and Building and in this Lease, and
Tenant agrees that in the event of any such transfer and a transfer of the
security deposit, Landlord shall automatically be released from all liability
under this Lease and Tenant agrees to look solely to such transferee for the
performance of Landlord's obligations hereunder after the date of transfer.
Tenant further acknowledges that Landlord may assign its interest in this Lease
to a mortgage lender as additional security and agrees that such an assignment
shall not release Landlord from its obligations hereunder and that Tenant shall
continue to look to Landlord for the performance of its obligations hereunder.
31. FORCE MAJEURE
Any prevention, delay or stoppage due to strikes, lockouts, labor
disputes, acts of God, inability to obtain services, labor or materials or
reasonable substitutes therefore, governmental actions, civil commotions, fire
or other casualty, and other causes beyond the reasonable control of the party
obligated to perform (collectively, the "Force Majeure"), except with respect
to the obligations imposed with regard to Rent and other charges to be paid by
Tenant pursuant to this Lease, and Tenant's obligations under Articles 11 and
27 of this Lease notwithstanding anything to the contrary contained in this
Lease, shall excuse the performance of such party for a period equal to any
such prevention, delay, or stoppage and, therefore, if this Lease specifies a
time period for performance of an obligation of either party, that time period
shall be extended by the period of any delay in such party's performance caused
by a Force Majeure.
32. LANDLORD EXCULPATION
It is expressly understood and agreed that notwithstanding anything in
this Lease to the contrary, and notwithstanding any applicable law to the
contrary, the liability of Landlord hereunder (including any successor
landlord) and any recourse by Tenant against Landlord shall be limited solely
and exclusively to the interest of Landlord in and to the Project and Building,
and neither Landlord, nor any of its constituent partners, shall have any
personal liability therefor, and Tenant hereby expressly waives and releases
such personal liability on behalf of itself and all persons claiming by,
through or under Tenant.
33. BUILDING RENOVATIONS
Tenant hereby acknowledges that Landlord is currently renovating or
may during the Lease Term renovate, improve, alter, or modify (collectively,
the "Renovations") the Building and/or the Premises, which Renovations may
include, without limitation, (i) installing sprinklers in the Building common
areas and tenant spaces, (ii) modifying the common areas and tenant spaces to
comply with applicable laws and regulations, including regulations relating to
the physically disabled, and (iii) installing new carpeting, lighting, and wall
coverings in the building common areas. Tenant hereby agrees that such
Renovations shall in no way constitute a constructive eviction of Tenant nor
entitle Tenant to any abatement of Rent. Landlord shall have no
responsibility, or for any reason be liable, to Tenant for any injury to or
interference with Tenant's business arising from the Renovations, nor shall
Tenant be entitled to any compensation or damages from Landlord for loss of the
use of the whole or any part of the Premises or of tenant's personal property
or improvements resulting from the Renovations, or for any inconvenience or
annoyance occasioned by such Renovations.
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34. ATTORNEYS' FEES
If either party commences litigation against the other for the
specific performance of this Lease, for damages for breach hereof or otherwise
for enforcement of any remedy hereunder, the parties hereto agree to and hereby
do waive any right to a trial by jury and, in the event of any such
commencement of litigation, the prevailing party shall be entitled to recover
from the other party such costs and reasonable attorney's fees as may have been
incurred.
35. SURRENDER OF THE PREMISES
Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date or earlier termination of this Lease, in broom-clean condition
and in as good condition as when Tenant took possession, including, without
limitation, the repair of any damage to the Premises caused by the removal of
any of Tenant's personal property or trade fixtures from the Premises, except
for reasonable wear and tear and loss by fire or other casualty not caused by
Tenant or its agents. Any of Tenant's personal property left on or in the
Premises, the Building or the common areas after the Expiration Date or earlier
termination of this Lease shall be deemed to be abandoned, and, at Landlord's
option, title shall pass to Landlord under this Lease.
36. HOLDING OVER
In the event that Tenant shall not immediately surrender the Premises
to Landlord on the Expiration Date or earlier termination of this Lease, Tenant
shall be deemed to be a month to month tenant upon all of the terms and
provisions of this Lease, except the monthly Rent shall be one hundred fifty
percent (150%) of the monthly Rent in effect during the last month of the Term.
If Tenant shall hold over after the Expiration Date or earlier termination of
this Lease, and Landlord shall desire to regain possession of the Premises,
then Landlord may forthwith re-enter and take possession of the Premises
without process, or by any legal process in force in the State of California.
Tenant shall indemnify Landlord against all liabilities and damages sustained
by Landlord by reason of holding over.
37. JOINT AND SEVERAL
If there is more than one Tenant, the obligations imposed upon Tenant
under this Lease shall be joint and several.
38. GOVERNING LAW
This Lease shall be construed and enforced in accordance with the laws
of the State of California.
39. SUBMISSION OF LEASE
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or an option for lease, and it is not
effective as a lease or otherwise until execution and delivery by both Landlord
and Tenant.
40. BROKERS
Landlord and Tenant hereby warrant to each other that they have had no
dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 1.12 (the "Brokers"), and that they know of no other real
estate broker or agent who is entitled to a commission in connection with this
Lease. Each party agrees to indemnify and defend the other party against and
hold the other party harmless from any and all claims, demands, losses,
liabilities, lawsuits, judgments, and costs and expenses (including without
limitation reasonable attorneys' fees) with respect to any leasing commission
or equivalent compensation alleged to be owing on account of the indemnifying
party's dealings with any real estate
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broker or agent other than the Brokers. The terms of this Article 40 shall
survive the expiration or earlier termination of the Term.
41. HAZARDOUS MATERIALS
41.1 As used in this Lease, the term "Hazardous Material" means any
flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "infectious wastes", "hazardous materials" or "toxic substances" now
or subsequently regulated under any federal, state or local laws or regulations
including, without limitation, petroleum-based products, printing inks, acids,
pesticides, asbestos, PCBs and similar compounds, and including any different
products and materials which are subsequently found to have adverse effects on
the environment or the health and safety of persons.
41.2 Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Premises or the Project by Tenant, its agents, employees,
contractors, affiliates, sublessees or invitees. Tenant shall indemnify,
defend and hold Landlord harmless from all actions (including, without
limitation, remedial or enforcement actions of any kind, and administrative or
judicial proceedings and orders or judgments), costs, claims, damages,
(including punitive damages), expenses (including, attorneys', consultants' and
experts' fees, court costs) amounts paid in settlement, fines, forfeitures or
other civil, administrative or criminal penalties, injunctive or other relief,
liabilities or losses arising from a breach of this prohibition by Tenant, its
agents, employees, contractors, affiliates, sublessees or invitees. Upon
expiration or earlier termination of this Lease, Tenant shall cause any
Hazardous Materials arising out of or related to the use or occupancy of the
Premises by Tenant or its agents, affiliates, customers, employees, business
associates or assigns to be removed from the Premises and the Project and
properly transported for use, storage or disposal in accordance with all
applicable laws, regulations and ordinances.
42. LANDLORD'S RESERVATIONS
In addition to the other rights of Landlord under this Lease, Landlord
reserves the right (i) to change the street address and/or name of the Building
without being deemed to be guilty of an eviction, actual or constructive, or a
disturbance or interruption of the business of Tenant or Tenant's use or
occupancy of the Premises.
43. PARKING
Tenant shall receive the use of the number of parking spaces set forth
in Section 1.15 upon Tenant's compliance with all parking rules and regulations
and upon payment of prevailing parking rates as in effect from time to time,
provided however, if at any time during the Term, Tenant ceases to pay for one
or more of the parking spaces provided to Tenant under Section 1.15, then
Tenant shall have no further right to rent such unused spaces except as
provided in the following sentence. Tenant shall have the right to lease from
Landlord for the Tenant's use, additional spaces at the prevailing market rates
established from time to time by Landlord, as and when available to Tenant by
Landlord. The current parking rates charged by Landlord are $93.50 for
unreserved spaces and $132.00 for reserved spaces, inclusive of city parking
taxes
44. ACKNOWLEDGEMENT AND DISCLAIMER
Landlord does not make any representations, warranties, promises or
statements, express or implied, as to the possible impact of the January 17,
1994 earthquake, or any subsequent seismic activity, on the structural
integrity of the Building. Landlord has made available to Tenant copies of
written reports regarding the Building which Landlord received after the
January 17, 1994 earthquake from EQE International ("EQE"), and from John A.
Martin and Associates ("JAMA"). In addition, Landlord has disclosed to Tenant
that additional inspections and tests are being undertaken by JAMA at this
time. Written results of such tests will be available for Tenant's review
after receipt by Landlord from JAMA. The EQE and JAMA reports are available to
Tenant solely as an accommodation
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to Tenant with Tenant's express acknowledgement that Tenant will use the
reports at Tenant's own risk. The reports have been prepared by EQE and JAMA,
which are both outside consultants retained on Landlord's behalf, and the
reports are based solely upon work undertaken by or at the direction of EQE or
JAMA in accordance with a specific scope of work prepared by them. The reports
contain the professional opinions of EQE or JAMA, and do not contain any
opinions, warranties or representations by Landlord. Landlord makes no
representation or warranty with respect to, and takes no responsibility for,
the truth or accuracy of the information or conclusions in the reports, and the
Tenant expressly agrees that it has not relied on any representations,
warranties, promises or statements of Landlord. Tenant has agreed that (1)
Tenant will not release, deliver or disclose the reports to any third party
without Landlord's prior written consent, (2) Tenant will not rely on the
reports, (3) Tenant will use the reports solely at its own risk, and (4)
Tenant waives and relinquishes, and will indemnify, defend and agree to hold
Landlord, and any of its agents, representatives, advisors, trustees, partners,
shareholders or related entities, harmless from and against, any and all claims
Tenant, or any party claiming through Tenant, may believe it may have against
Landlord and Landlord's consultant arising out of (i) the delivery of the
reports to Tenant, (ii) any misuse of the reports, or (iii) any inaccuracy or
incompleteness of the reports.
45. DIRECTORY BOARD
At Landlord's cost, Landlord shall provide Tenant five lines on the
Building directory board.
46. OPTION TO RENEW
46.1 OPTION RIGHT. Tenant shall have one (1) option to extend the
Lease Term for a period of three (3) years (the "Option Term"), which
option shall be exercisable only by written notice delivered by Tenant
to Landlord as provided below, provided that, as of the date of
delivery of such notice, Tenant is not in default under this Lease and
Tenant has not previously been in default under this Lease more than
once. Upon the proper exercise of such option to extend, and provided
that, as of end of the initial Lease Term, Tenant is not in default
under this Lease and Tenant has not previously been in default under
this Lease more than once, the Lease Term shall be extended for a
period of three (3) years. The rights contained in this Section 46
shall be personal to Tenant and may be exercised by Tenant only (and
not by any assignee, sublessee or other transferee of Tenant's
interest in this Lease) and only if Tenant occupies the entire
Premises at the end of the initial Lease Term.
46.2 OPTION RENT. The Rent payable by Tenant during the Option Term
(the "Option Rent") shall be equal to the greater of (i) the initial
Base Rent described in Section 1.6, and (ii) the face or stated rent,
including all escalations and concessions such as free rent and tenant
improvements, being quoted by Landlord for space comparable in size,
location and quality to the Premises in the Building.
46.3 EXERCISE OF OPTION. The option contained in this Section 46
shall be exercised by Tenant, if at all, only in the following manner:
(i) Tenant shall deliver written notice to Landlord not more than
twelve (12) months nor less than nine (9) months prior to the
expiration of the initial Lease Term, stating that Tenant is
interested in exercising its option; (ii) Landlord, after receipt of
Tenant's notice shall deliver notice (the "Option Rent Notice") to
Tenant not less than seven (7) months prior to the expiration of the
initial Lease Term, setting forth the Option Rent; and (iii) if Tenant
wishes to exercise such option, Tenant shall, on or before the earlier
of (A) the date occurring six (6) months prior to the expiration of
the initial Lease Term, and (B) the date occurring thirty (30) days
after Tenant's receipt of the Option Rent Notice, exercise the option
by delivering written notice thereof to Landlord.
47. GUARANTEE
Landlord's execution of this Lease is conditioned upon its receipt of
a guarantee of Tenant's obligations under this Lease in the form of Exhibit F
hereto, executed by Drew Levin and Laurie S. Levin. The execution of such
guarantee is a material inducement to Landlord to enter into this Lease.
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IN WITNESS WHEREOF, the parties have executed, or caused this Lease to
be executed by their authorized agents.
TENANT:
DSL ENTERTAINMENT GROUP, INC.
a California corporation
By: ______________________________
Authorized Signatory
By: _______________________________
Authorized Signatory
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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<PAGE> 23
LANDLORD:
TCW REALTY FUND VA (CALIFORNIA) HOLDING COMPANY,
a California corporation
By: ______________________________
Authorized Signatory
By: _______________________________
Authorized Signatory
TCW REALTY FUND VB,
a California limited partnership,
as tenant in common
By: TCW ASSET MANAGEMENT COMPANY,
a California corporation,
as General Partner
By: ________________________________
Authorized Signatory
By: _________________________________
Authorized Signatory
By: WESTMARK REALTY ADVISORS L.L.C.,
a Delaware limited liability company,
as General Partner
By: __________________________
Authorized Signatory
By: __________________________
Authorized Signatory
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<PAGE> 24
EXHIBIT B
Wilshire Centre
DSL Entertainment Group, Inc.
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions
relating to the construction of the tenant improvements in the Premises. This
Tenant Work Letter is essentially organized chronologically and addresses the
issues of the construction of the Premises, in sequence, as such issues will
arise during the actual construction of the Premises. All references in this
Tenant Work Letter to Articles or Sections of "THIS LEASE" shall mean the
relevant portion of Articles 1 through 47 of the Standard Form Office Lease to
which this Tenant Work Letter is attached as Exhibit B and of which this Tenant
Work Letter forms a part, and all references in this Tenant Work Letter to
Sections of "this Tenant Work Letter" shall mean the relevant portion of
Sections 1 through 6 of this Tenant Work Letter.
SECTION 1
CONSTRUCTION DRAWINGS FOR THE PREMISES
Landlord shall construct tenant improvements in the Premises (the
"TENANT IMPROVEMENTS"). The Tenant Improvements shall consist of such physical
improvements to the Premises as Tenant shall reasonably request, provided the
Cost of Construction (as defined below) does not exceed the TI Allowance (as
defined below) and subject to Landlord's standards and requirements for the
Building. Tenant shall make all selections and decisions concerning the Tenant
Improvements as requested by Landlord no later than two days after execution of
this Lease by Tenant. After all such selections and decisions have been made,
Tenant shall make no changes or modifications to the Tenant Improvements
without the prior written consent of Landlord, which consent may be withheld in
Landlord's sole discretion if such change or modification would directly or
indirectly delay the "SUBSTANTIAL COMPLETION," as that term is defined in
Section 5.1 of this Tenant Work Letter, of the Premises or increase the cost of
designing or constructing the Tenant Improvements.
SECTION 2
OVER-ALLOWANCE AMOUNT
2.1 Grant of Allowance. Subject to the provisions of Section 6.7
below, Landlord grants Tenant an allowance for construction of the Tenant
Improvements in the amount of $19,950.00 (the "TI ALLOWANCE"). Tenant shall
not be required to pay any portion of the Cost of Construction unless Tenant's
acts or omissions (including, without limitation, changes or modifications to
the Tenant Improvements, or defaults by Tenant in the Lease) cause the Cost of
Construction to exceed the TI Allowance, in which case, Tenant shall, upon
demand from Landlord, pay such increased cost to Landlord.
2.2 Excess TI Allowance. Within fourteen days after completion of
the Tenant Improvements, Landlord shall inform Tenant of the amount, if any, by
which the TI Allowance exceeded the Cost of Construction of the Tenant
Improvements (the difference shall be referred to as the "EXCESS TI
ALLOWANCE"). If there is any Excess TI Allowance, Tenant shall be permitted to
use such amount for additional tenant improvements which Tenant wishes to make
to the Premises. Tenant shall inform Landlord in writing by August 31, 1995 of
the manner in which Tenant wishes to apply the Excess TI Allowance (if any),
such notice (the "ADDITIONAL TI NOTICE") to include all pertinent detail
concerning the nature and cost of such additional tenant improvements.
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2.3 Construction of Additional Tenant Improvements. The
construction of such additional tenant improvements shall be subject to the
pertinent provisions of Article 7 of the Lease, and shall be done through the
use of a contractor approved by Landlord. At Landlord's option, such
contractor shall contract directly with Landlord. If the Cost of Construction
of the additional tenant improvements requested by Tenant will exceed the
amount of the Excess TI Allowance, then Tenant shall be solely responsible for
such overage, and shall, upon demand from Landlord, pay the difference to
Landlord or other person designated by Landlord. If Tenant does not deliver
the Additional TI Notice within the period described above, then Tenant shall
be deemed to have waived Tenant's right to apply the Excess TI Allowance. The
Excess TI Allowance may not be used as a credit against any Rent due under the
Lease or for any other purposes except as expressly stated in this paragraph.
2.4 "Cost of Construction." "COST OF CONSTRUCTION" shall mean
the costs and expenses incurred in connection with the construction of the
Tenant Improvements and any other work required in connection therewith,
including without limitation, payments made to contractors, subcontractors,
materialmen and laborers performing work or supplying any goods, services,
supplies or equipment in connection with the Tenant Improvements; all
architectural and engineering fees and costs; fees and costs of other
consultants retained in connection with the Tenant Improvements; costs of all
construction materials and equipment, including but not limited to all
necessary mechanical systems; fees and costs for processing and obtaining
building permits, licenses, and inspection; costs of supervision of the
construction, whether by third parties or by Landlord; and such other costs as
customarily may be incurred in connection with the construction of the Tenant
Improvements. Notwithstanding the previous sentence, the Cost of Construction
shall not include the costs associated with the upgrading of the interior
partition and addition of a new door for fire safety purposes.
SECTION 3
CONTRACTOR'S WARRANTIES AND GUARANTIES
Landlord hereby assigns to Tenant all warranties and guaranties by the
contractor who constructs the Tenant Improvements (the "Contractor") relating
to the Tenant Improvements, and Tenant hereby waives all claims against
Landlord relating to, or arising out of the construction of, the Tenant
Improvements. Notwithstanding any estimate, projection or statement which may
have been made or may be made in the future by Landlord or any contractor,
representative or agent of Landlord, Landlord shall not be deemed to guarantee
the Cost of Construction of the Tenant Improvements, unless Landlord shall do
so in a writing signed by the persons signing this Lease on Landlord's behalf.
SECTION 4
TENANT'S INDEMNITY
Tenant indemnifies and holds Landlord harmless from all claims and all
costs, including reasonable attorneys' fees, expenses and liabilities, except
those caused by Landlord's negligence, arising or resulting from (a) any
accident, injury, death, loss or damage to any person or to any property
including the person and property of Tenant and its employees, agents,
officers, guests, and all other persons at any time in the Building or the
Premises or the common areas caused by Tenant, (b) the occupancy or use of the
Premises by the Tenant, or (c) any act or omission or negligence of Tenant or
any agent, licensee, or invitee of Tenant, or its contractors, employees, or
any subtenant or subtenant's agents, employees, contractors, or invitees.
SECTION 5
COMPLETION OF THE TENANT IMPROVEMENTS;
COMMENCEMENT DATE
B-2
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5.1 Ready for Occupancy. The Premises shall be deemed "READY FOR
OCCUPANCY" upon the Substantial Completion of the Premises. For purposes of
this Lease, "Substantial Completion" of the Premises shall occur upon the
completion of construction of the Tenant Improvements in the Premises, with the
exception of any punch list items and any tenant fixtures, work-stations,
built-in furniture, or equipment to be installed by Tenant or under the
supervision of Contractor.
5.2 Delay of the Substantial Completion of the Premises. Except as
provided in this Section 5.2, the Commencement Date shall occur as set forth in
Article 3 of the Lease and Section 5.1, above. If there shall be a delay or
there are delays in the Substantial Completion of the Premises or in the
occurrence of any of the other conditions precedent to the Commencement Date,
as set forth in Article 3 of the Lease, as a direct, indirect, partial, or
total result of:
5.2.1 Tenant's failure to timely approve any matter requiring
Tenant's approval;
5.2.2 A breach by Tenant of the terms of this Tenant Work
Letter or the Lease;
5.2.3 Tenant's request for changes in the Tenant
Improvements;
5.2.4 Changes in any of the Tenant Improvements because the
same do not comply with applicable laws;
5.2.5 Tenant's requirement for materials, components,
finishes or improvements which are not available in a commercially reasonable
time given the anticipated date of Substantial Completion of the Premises, as
set forth in the Lease, or which are different from, or not included in,
Landlord's standard improvement package items for the Building;
5.2.6 Changes to the base, shell and core work of the
Building in connection with the Tenant Improvements; or
5.2.7 Any other acts or omissions of Tenant, or its agents,
or employees;
then, notwithstanding anything to the contrary set forth in the Lease or this
Tenant Work Letter and regardless of the actual date of the Substantial
Completion of the Premises, the Commencement Date shall be deemed to be the
date the Commencement Date would have occurred if no Tenant delay or delays, as
set forth above, had occurred.
SECTION 6
MISCELLANEOUS
6.1 Tenant's Entry Into the Premises Prior to Substantial
Completion. Provided that Tenant and its agents do not interfere with
Contractor's work in the Building and the Premises, Contractor shall allow
Tenant to occupy the Premises beginning on May 13, 1995 although the Tenant
Improvements may not yet have been completed as of such date, provided however:
(a) Tenant acknowledges and agrees that the provisions of Section 4 hereof and
all provisions of the Lease shall apply to Tenant's use of the Premises during
any period prior to the Commencement Date, except that Base Rent shall not
accrue prior to the Commencement Date, (b) Tenant shall strictly comply with
all requirements of Landlord and Contractor concerning Tenant's use of the
Premises before Substantial Completion of the Tenant Improvements, and (c)
Tenant acknowledges and agrees that in addition to all other Construction Costs
in connection with the Tenant Improvements, the Construction Costs shall also
include any additional costs incurred by Landlord by reason of Tenant's use of
the Premises before Substantial Completion of the Tenant Improvements (which
additional costs are not included in any previous estimates given to Tenant by
B-3
<PAGE> 27
Landlord or others). Tenant further acknowledges that the Substantial
Completion of the Tenant Improvements may be delayed by reason of Tenant's
occupancy and use of the Premises prior to Substantial Completion.
6.2 Freight Elevators. Landlord shall, consistent with its
obligations to other tenants of the Building, make the freight elevator
reasonably available to Tenant in connection with initial decorating,
furnishing and moving into the Premises.
6.3 Tenant's Representative. Tenant has designated Drew Levin as
its sole representative with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Landlord, shall have full authority
and responsibility to act on behalf of the Tenant as required in this Tenant
Work Letter.
6.4 Landlord's Representative. Landlord has designated Bill
Bessolo as its sole representative with respect to the matters set forth in
this Tenant Work Letter, who, until further notice to Tenant, shall have full
authority and responsibility to act on behalf of the Landlord as required in
this Tenant Work Letter.
6.5 Tenant's Agents. All subcontractors, laborers, materialmen,
and suppliers retained directly by Tenant shall all be union labor in
compliance with the master labor agreements existing between trade unions and
the Southern California Chapter of the Associated General Contractors of
America.
6.6 Time of the Essence in This Tenant Work Letter. Unless
otherwise indicated, all references herein to a "number of days" shall mean and
refer to calendar days. In all instances where Tenant is required to approve
or deliver an item, if no written notice of approval is given or the item is
not delivered within the stated time period, at Landlord's sole option, at the
end of such period the item shall automatically be deemed approved or delivered
by Tenant and the next succeeding time period shall commence.
6.7 Tenant's Lease Default. Notwithstanding any provision to the
contrary contained in this Lease, if an event of default as described in
Article 24 of the Lease, or a default by Tenant under this Tenant Work Letter,
has occurred at any time on or before the Substantial Completion of the
Premises, then (i) in addition to all other rights and remedies granted to
Landlord pursuant to the Lease, Landlord shall have the right to cause
Contractor to cease the construction of the Premises (in which case, Tenant
shall be responsible for any delay in the Substantial Completion of the
Premises caused by such work stoppage as set forth in Section 5 of this Tenant
Work Letter), and (ii) all other obligations of Landlord under the terms of
this Tenant Work Letter shall be forgiven until such time as such default is
cured pursuant to the terms of the Lease.
B-4
<PAGE> 28
EXHIBIT C
NOTICE OF LEASE TERM DATES
To: DSL Entertainment Group, Inc.
12300 Wilshire Blvd., Suite 400
Los Angeles, California 90025
Re: Office Lease dated April 25, 1995 between TCW REALTY FUND VA
(CALIFORNIA) HOLDING COMPANY, a California corporation, and TCW REALTY
FUND VB, a California limited partnership, as tenants in common
(collectively, "LANDLORD"), and DSL ENTERTAINMENT GROUP, INC. ("TENANT")
concerning Suite 400 of the office building located at 12300 Wilshire
Boulevard, Los Angeles, California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise you
and/or confirm as follows:
1. The Premises are substantially completed, and the Term shall commence on
or has commenced on _______ __, 1995, for a term of thirty-six months
ending on __________________.
2. Rent commenced to accrue on ____________________, in the amount of
___________________.
3. If the Commencement Date is other than the first day of the month, the
first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the
full amount of the monthly installment as provided for in the Lease.
4. Your rent checks should be made payable to ___________________
_______________________ at___________________________________.
5. The exact number of rentable square feet within the Premises is
_________ square feet.
6. Tenant's Proportionate Share as adjusted based upon the exact number of
rentable square feet within the Premises is _________%.
C-1
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LANDLORD:
TCW REALTY FUND VA (CALIFORNIA) HOLDING COMPANY,
a California corporation
By: ______________________________
Authorized Signatory
By: _______________________________
Authorized Signatory
TCW REALTY FUND VB,
a California limited partnership,
as tenant in common
By: TCW ASSET MANAGEMENT COMPANY,
a California corporation,
as General Partner
By: ________________________________
Authorized Signatory
By: _________________________________
Authorized Signatory
By: WESTMARK REALTY ADVISORS L.L.C.,
a Delaware limited liability company,
as General Partner
By: __________________________
Authorized Signatory
By: __________________________
Authorized Signatory
C-2
<PAGE> 30
Agreed and Accepted as of _____________________, 1995
TENANT:
DSL ENTERTAINMENT GROUP, INC.
a California corporation
By: ______________________________
Authorized Signatory
By: _______________________________
Authorized Signatory
C-3
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EXHIBIT D
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the
nonperformance of any of said Rules and Regulations by or otherwise with
respect to the acts or omissions of any other tenants or occupants of the
Project.
1. Tenant shall not alter any lock or install any new or additional
locks or bolts on any doors or windows of the Premises without obtaining
Landlord's prior written consent. Tenant shall bear the cost of any lock
changes or repairs required by Tenant. Two keys will be furnished by Landlord
for the Premises, and any additional keys required by Tenant must be obtained
from Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at
all times except for normal ingress and egress to the Premises.
3. Landlord reserves the right to close and keep locked all
entrance and exit doors of the Building during such hours as are customary for
comparable buildings in the greater Los Angeles area. Tenant, its employees
and agents must be sure that the doors to the Building are securely closed and
locked when leaving the Premises if it is after the normal hours of business
for the Building. Any tenant, its employees, agents or any other persons
entering or leaving the Building at any time when it is so locked, or any time
when it is considered to be after normal business hours for the Building, may
be required to sign the Building register. Access to the Building may be
refused unless the person seeking access has proper identification or has a
previously arranged pass for access to the Building. Landlord and his agents
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, Landlord reserves
the right to prevent access to the Building or the Project during the
continuance thereof by any means it deems appropriate for the safety and
protection of life and property.
4. No furniture, freight or equipment of any kind shall be brought
into the Building without prior notice to Landlord. All moving activity into
or out of the Building shall be scheduled with Landlord and done only at such
time and in such manner as Landlord designates. No service deliveries (other
than messenger services) will be allowed between hours of 4:00 p.m. to 6:00
p.m., Monday through Friday. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy property brought into
the Building and also the times and manner of moving the same in and out of the
Building. Safes and other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such safe or property in any case. Any damage to any part of the
Building, its contents, occupants or visitors by moving or maintaining any such
safe or other property shall be the sole responsibility and expense of Tenant.
5. No furniture, packages, supplies, equipment or merchandise will
be received in the Building or carried up or down in the elevators, except
between such hours and in such specific elevator as shall be designated by
Landlord.
6. The requirements of Tenant will be attended to only upon
application at the management office for the Project or at such office location
designated by Landlord. Employees of Landlord shall not perform any work or do
anything outside their regular duties unless under special instructions from
Landlord.
7. Tenant shall not disturb, solicit, or canvass any occupant of
the Project and shall cooperate with Landlord and its agents of Landlord to
prevent the same.
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8. The toilet rooms, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or agents, shall
have caused it.
9. Tenant shall not overload the floor of the Premises, nor mark,
drive nails or screws, or drill into the partitions, woodwork or plaster or in
any way deface the Premises or any part thereof without Landlord's prior
written consent.
10. Except for vending machines intended for the sole use of
Tenant's employees and invitees, no vending machine or machines other than
fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord.
11. Tenant shall not use or keep in or on the Premises, the
Building, or the Project any kerosene, gasoline or other inflammable or
combustible fluid or material.
12. Tenant shall not without the prior written consent of Landlord
use any method of heating or air conditioning other than that supplied by
Landlord.
13. Tenant shall not use, keep or permit to be used or kept, any
foul or noxious gas or substance in or on the Premises, or permit or allow the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Project by reason of noise, odors, or
vibrations, or interfere in any way with other tenants or those having business
therein.
14. Tenant shall not bring into or keep within the Project, the
Building or the Premises any animals, birds, bicycles or other vehicles.
15. No cooking shall be done or permitted on the Premises, nor shall
the Premises be used for the storage of merchandise, for lodging or for any
improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' laboratory-approved equipment and microwave ovens may be used in
the Premises for heating food and brewing coffee, tea, hot chocolate and
similar beverages for employees and visitors, provided that such use is in
accordance with all applicable federal, state and city laws, codes, ordinances,
rules and regulations.
16. Landlord will approve where and how telephone and telegraph
wires are to be introduced to the Premises. No boring or cutting for wires
shall be allowed without the consent of Landlord. The location of telephone,
call boxes and other office equipment affixed to the Premises shall be subject
to the approval of Landlord.
17. Landlord reserves the right to exclude or expel from the Project
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in or on the
entrances, corridors, sidewalks, lobbies, halls, stairways, elevators, or any
common areas for the purpose of smoking tobacco products or for any other
purpose, nor in any way obstruct such areas, and shall use them only as a means
of ingress and egress for the Premises.
19. Tenant shall not waste electricity, water or air conditioning
and agrees to cooperate fully with Landlord to ensure the most effective
operation of the Building's heating and air conditioning system, and shall
refrain from attempting to adjust any controls.
D-2
<PAGE> 33
20. Tenant shall store all its trash and garbage within the interior
of the Premises. No material shall be placed in the trash boxes or receptacles
if such material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash in the
vicinity of the Building without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entry-ways and elevators provided for such purposes at such times as
Landlord shall designate.
21. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency.
22. Tenant shall assume any and all responsibility for protecting
the Premises from theft, robbery and pilferage, which includes keeping doors
locked and other means of entry to the Premises closed.
23. No awnings or other projection shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
curtains, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises without the prior written
consent of Landlord. All electrical ceiling fixtures hung in offices or spaces
along the perimeter of the Building must be fluorescent and/or of a quality,
type, design and bulb color approved by Landlord. Tenant shall abide by
Landlord's regulations concerning the opening and closing of window coverings
which are attached to the windows in the Premises, if any, which have a view of
any interior portion of the Building or Building common areas.
24. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Building shall not be covered or obstructed by Tenant, nor shall
any bottles, parcels or other articles be placed on the windowsills.
25. Tenant must comply with requests by Landlord concerning the
informing of their employees of items of importance to Landlord.
Landlord reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to
time be necessary for the management, safety, care and cleanliness of the
Premises, Building, and the Project, and for the preservation of good order
therein, as well as for the convenience of other occupants and tenants therein.
Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenants, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
tenant, nor prevent Landlord from thereafter enforcing any such Rules or
Regulations against any or all tenants of the Project. Tenant shall be deemed
to have read these Rules and Regulations and to have agreed to abide by them as
a condition of its occupancy of the Premises.
D-3
<PAGE> 34
EXHIBIT F
GUARANTEE OF LEASE
1. Guarantee. Drew Levin and his wife, Laurie S. Levin (collectively,
"Guarantor"), whose address is 101 S. Rockingham, Los Angeles, CA 90049, and
whose respective social security numbers are 101564-28-2183 and ###-##-####, as
a material inducement to and in consideration of TCW REALTY FUND VA
(CALIFORNIA) HOLDING COMPANY, a California corporation, and TCW REALTY FUND VB,
a California limited partnership, as tenants in common (collectively,
"LANDLORD"), entering into that certain lease (the "LEASE") dated as of April
25, 1995, with DSL Entertainment Group, Inc., a California corporation, as
Tenant, concerning office space located at Suite 400, 12300 Wilshire Boulevard,
Los Angeles, California, hereby unconditionally, irrevocably, absolutely and
jointly and severally, guarantees and promises to and for the benefit of
Landlord that Tenant shall perform all of its covenants under the Lease,
including but not limited to the payment of rent and all other sums now or
hereafter becoming due or payable under the Lease.
2. Standard Provisions. A separate action may be brought or prosecuted
against any Guarantor whether or not the action is brought or prosecuted
against any other Guarantor or Tenant. If Tenant defaults under the Lease,
Landlord may proceed immediately against Guarantor or Tenant, or both, or
Landlord may enforce against Guarantor or Tenant, or both, any rights that it
has under the Lease or against Guarantor pursuant to this Guarantee. If the
Lease terminates, Landlord may enforce any remaining rights thereunder against
Guarantor without giving previous notice to Tenant or Guarantor, and without
making any demand on either of them. This Guarantee shall not be affected by
Landlord's failure or delay to enforce any of its rights hereunder or under the
Lease. Guarantor hereby waives notice of or the giving of its consent to any
amendments which may hereafter be made to the terms of the Lease, and this
Guarantee shall guarantee the performance of the Lease as amended, or as the
same may be assigned from time to time. Guarantor waives the right to require
Landlord to (i) proceed against Tenant; (ii) proceed against or exhaust any
security that Landlord holds from Tenant; or (iii) pursue any remedy in
Landlord's power. Until all of Tenant's obligations to Landlord have been
discharged in full, Guarantor shall have no right of subrogation against
Tenant. Guarantor waives its right to enforce any remedies that Landlord now
has, or later may have, against Tenant. Guarantor waives any right to
participate in any security now or later held by Landlord. Guarantor waives
all presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of this
Guarantee, and waives all notices of existence, creation, or incurring of new
or additional obligations from Tenant to Landlord. Without limiting the
generality of the preceding waivers, Guarantor hereby expressly waives any and
all benefits under California Civil Code Sections 2809, 2810, 2819, 2845, 2849
and 2850. Guarantor waives all rights and defenses arising out of an election
of remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the guarantor's rights of subrogation and reimbursement against
the principal by the operation of Section 580d of the Code of Civil Procedure
or otherwise. If Landlord disposes of its interest in the Lease, "Landlord,"
as used in this Guarantee, shall mean Landlord's successors in interest and
assigns. At any time, upon five days written notice from Landlord, Guarantor
shall affirm in writing that this Guarantee has not been modified or cancelled
and remains in full force and effect (or if there have been any modifications,
attaching copies of the documents constituting or evidencing such
modifications, and stating that this
F-1
<PAGE> 35
Guarantee is in full force and effect as so modified). If Landlord is required
to enforce Guarantor's obligations by legal proceedings, Guarantor shall pay to
Landlord all costs incurred by Landlord (collectively, "Landlord's Fees and
Costs"), including, without limitation, Landlord's reasonable attorneys' fees
and all costs and other expenses incurred in any collection or attempted
collection or in any negotiations relative to the obligations hereby
guaranteed, or in enforcing this Guarantee against the undersigned,
individually and jointly. This Guarantee will continue unchanged by any
bankruptcy, reorganization, receivership or insolvency of the Tenant or any
successor or assignee thereof or by any disaffirmance or abandonment by a
trustee of Tenant. Guarantor's obligations under this Guarantee may not be
assigned and shall be binding upon Guarantor's heirs and successors. Guarantor
hereby agrees that Guarantor's liability under this Guarantee is a guarantee of
payment and a guarantee of performance of Tenant's obligations under the Lease,
and not a guarantee of collectibility, and such liability is not conditioned or
contingent upon the genuineness, validity, regularity or present or future
enforceability of the Lease. This Guarantee may not be modified, nor may any
rights of Landlord be waived except in a writing signed by Guarantor and
Landlord. This Guarantee embodies the entire agreement between Guarantor and
Landlord with respect to the matters set forth herein, and no prior or
contemporaneous agreement, understanding, inducement, promise, representation
or warranty, oral or written, concerning the subject matter hereof shall be
binding upon Guarantor or Landlord unless expressed herein. This Guarantee
shall be governed by the laws of, and may be enforced in the courts of, the
State of California.
3. Limitations on Guarantor's Liability. Guarantor's liability under
this Guarantee shall be reduced on the first, second and third anniversaries of
the Commencement Date of the Lease (as defined in the Lease) provided that: (a)
there is then (as of the date of such respective reduction) no Event of Default
(as defined in Article 24 of the Lease), (b) Guarantor is not then in default
of this Guarantee, and (c) there are no conditions or events which, with the
passage of time and/or the giving of notice by Landlord or others, would result
in an Event of Default, or would render Guarantor in default of this Guarantee.
If conditions (a) through (c) are each satisfied, then, subject to the last
sentence of this paragraph, the maximum liability of Guarantor shall be reduced
as follows: (a) on the first anniversary, the maximum liability of Guarantor
under this Guarantee shall be $85,000, (b) on the second anniversary, the
maximum liability of Guarantor under this Guarantee shall be $65,000, and (c)
on the third anniversary, the maximum liability of Guarantor under this
Guarantee shall be $45,000. If any of conditions (a) through (c) are not
satisfied on any respective anniversary date, then this Guarantee shall remain
in full force and effect without any further reduction in the maximum liability
of Guarantor. There shall be no additional reductions of Guarantor's liability
under this Guarantee whether or not Tenant properly exercises the option to
renew contained in Section 46 of the Lease. Notwithstanding the limitations on
Guarantor's liability contained in this paragraph, in addition to the
respective maximum liability of Guarantor under this paragraph, Guarantor shall
at all times remain liable for Landlord's Fees and Costs.
[SIGNATURES ON FOLLOWING PAGE]
F-2
<PAGE> 36
THE UNDERSIGNED GUARANTOR HEREBY ACKNOWLEDGES THAT IT WAS AFFORDED THE
OPPORTUNITY TO CAREFULLY READ THIS DOCUMENT AND ALL OTHER DOCUMENTS REFERRED TO
HEREIN AND TO REVIEW THEM WITH AN ATTORNEY OF ITS CHOICE BEFORE SIGNING THIS
DOCUMENT. THE UNDERSIGNED GUARANTOR FURTHER ACKNOWLEDGES HAVING READ AND
UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT BEFORE SIGNING IT.
Guarantor:
Dated: _________ __, 1995 ______________________
Drew Levin
Dated: _________ __, 1995 ______________________
Laurie S. Levin
F-3
<PAGE> 1
EXHIBIT 11
TEAM COMMUNICATIONS GROUP, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
NINE MONTHS ENDED FEBRUARY 27, 1995 TO
SEPTEMBER 30, 1996 DECEMBER 31, 1995
-------------------------- ---------------------------
PRIMARY FULLY-DILUTED PRIMARY FULLY-DILUTED
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net income (loss)............................ $ 48,800 $ 48,800 $(1,032,500) $ (1,032,500)
Adjustments to net income:
Add back amortization of discount on
convertible debt........................ 26,500 26,500 0 0
---------- ---------- ---------- ----------
Net income (loss), as adjusted............... 75,300 75,300 (1,032,500) (1,032,500)
---------- ---------- ---------- ----------
Shares:
Basic shares -- weighted average of common
shares outstanding...................... 1,017,276 1,017,276 1,017,276 1,017,276
Add shares, options and warrants for shares
which have been issued at less than
expected IPO price...................... 425,952 425,952 425,952 425,952
Less shares which can be purchased from
proceeds of options and warrants which
have been issued at less than expected
IPO price............................... (25,883) (25,883) (25,883) (25,883)
---------- ---------- ---------- ----------
Total shares....................... 1,417,345 1,417,345 1,417,345 1,417,345
========== ========== ========== ==========
Net earnings (loss) per share................ $ 0.05 $ 0.05 $ (0.73) $ (0.73)
========== ========== ========== ==========
</TABLE>
This calculation is submitted in accordance with the Securities Exchange
Act of 1934 although not required by footnote 2 to paragraph 14 of APB Option
No. 15 because the calculation of primary and fully diluted net income per
common and common equivalent share results in a dilution of less than 3%.
<PAGE> 1
EXHIBIT 21
TEAM COMMUNICATIONS GROUP, INC.
SUBSIDIARIES OF REGISTRANT
Longform Entertainment, Inc.
Simply Style Productions, Inc.
Amazing Tails, Inc.
Mary Lou's Flip Flop Shop, Inc.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF NOMINATED DIRECTOR
I hereby consent to the inclusion of my name as a nominated director
of Team Communications Group, Inc.
/s/ BRUCE P. VANN
--------------------------
Bruce P. Vann
