<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1997
REGISTRATION NUMBER 333-26307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
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 S. 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 MINTZ & VANN LLP 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................... 1,725,000(2) $ 7.00 $ 12,075,000 $ 3,659.09
Common Stock Underlying Warrants............. 193,870 $ 1.00 $ 193,870 $ 64.00
Underwriter's Warrant........................ 1 $ 5.00 $ 5 --
Common Stock Underlying Underwriter's
Warrant.................................... 150,000 $ 9.80 $ 1,470,000 $ 445.00
------------
TOTAL........................................ $ 4,168*
==========================================================================================================================
</TABLE>
* $4,150 Previously paid.
(1) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
(2) Includes 225,000 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 OCTOBER 14, 1997
TEAM COMMUNICATIONS GROUP, INC.
1,500,000 SHARES
Team Communications Group, Inc. (the "Company") hereby offers 1,500,000
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 $5.50 and $7.00 per share. The offering
price of the Common Stock has been determined by negotiation between the Company
and H.J. Meyers & Co., Inc. ("H.J. Meyers" or 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 has been
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 shares of Common Stock underlying such
warrants are subject to a 12 month lock-up beginning on the date of this
Prospectus. 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 8.
------------------------
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 150,000 shares of
Common Stock at $8.75 per share (based upon an assumed initial public
offering price of $6.25 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 $ , including the Underwriter's non-accountable expense
allowance.
(3) The Company and Mr. Joseph Cayre (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 225,000 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 subject to prior sale when, and if delivered to and
accepted by the Underwriter, and subject to the right of the Underwriter to
reject any order in whole or in part. 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 , 1997.
------------------------
H.J. MEYERS & CO., INC.
The date of this Prospectus is October , 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.
<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 this 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, production and
distribution of a variety of television programming, including series, specials
and made-for-television movies for exploitation in the domestic and
international television 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 co-developed and is co-producing a reality
based five-day per week ("strip") syndicated series, called "Strange Universe,"
with 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 the production of a
series of 22 half hour episodes entitled "Amazing Tails," a reality based 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 is currently airing
on Discovery Communications newest channel, Animal Planet. The Company has
recently entered into an agreement with Discovery Communications for a second
season of 26 new episodes of Amazing Tails, which is currently in production.
The Company also has entered into a joint venture agreement with Interpublic for
the production, subject to certain criteria, of a minimum of four pilots over
the next year for non-fiction and light entertainment programming. 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.
In July 1996, the Company acquired the rights to produce 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 finance an initial 22 episodes of the series
with the Company. The Company has also entered into an agreement with Polygram
Television, L.L.C. ("PolyGram"), pursuant to which PolyGram will co-finance and
acquire television distribution rights to the series in the United States.
Miramax Film Corp. ("Miramax"), which acquired the theatrical sequel rights to
"Total Recall," has also acquired worldwide home video rights to the series from
the Company. Based upon the initial pre-sales of the series with PolyGram,
Miramax and various international broadcasters, the financial conditions
contained in the co-production agreement with Alliance have been satisfied. In
addition to reducing the Company's financial exposure, the Company anticipates
that by co-producing the series with Alliance, the series will qualify for
certain Canadian co-production and tax benefits. It is the intention of the
parties that each episode will be produced for approximately $1,100,000 per
episode, with the Company receiving a guaranteed producing fee of $25,000 per
episode, as well as 50% of the profits derived from the exploitation of
worldwide television, home video and merchandising rights to the series. The
Company expects to produce 22 one-hour episodes for this series in 1998, and Ron
Shusett, the
3
<PAGE> 5
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 also developing a wide variety of family, dramatic,
reality-based and children's programing including a new pre-school series,
tentatively entitled "LoCoMoTioN," which the Company hopes to place on domestic
and international television in 1998. Although no assurance can be given that
the Company will obtain a domestic timeslot, the Company is currently
interviewing potential female celebrities 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 335 half-hours of family and documentary series and
specials, and 156 hours of dramatic series.
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 consumers throughout the world. 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. Europe,
Latin America and the Pacific Rim are all experiencing similar growth with
respect to satellite and cable channels.
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 intends to acquire, co-produce and
co-finance other series, movies and specials from third party producers in order
to increase its programming library and self distribute this product on an
worldwide basis.
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 AND OREGON INVESTORS
Each purchaser of shares of Common Stock in California and Oregon 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 and Oregon 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>
FOR THE
PERIOD FROM
FOR THE SIX FOR THE SIX FOR THE FEBRUARY 27, 1995
MONTHS ENDED MONTHS ENDED YEAR ENDED TO
STATEMENT OF OPERATIONS DATA: JUNE 30, 1997 JUNE 30, 1996 DECEMBER 31, 1996 DECEMBER 31, 1995
------------- ------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues...................... $3,473,100 $3,314,600 $5,749,800 $1,245,300
Cost of revenues.............. 984,300 1,549,600 2,895,900 946,900
----------- ----------
Gross profit.................. 2,488,800 1,765,000 2,853,900 298,400
General and administrative
expenses.................... 987,400 976,300 2,323,800 1,288,200
Bad debt expense.............. 660,000 -- -- --
----------- ----------
Net income from operations.... 841,400 788,700 530,100 (989,800)
Interest expense.............. 523,400 152,500 582,700 42,700
Interest income............... 102,700 -- 58,300 --
Other income.................. -- -- 90,100 --
----------- ----------
Net income (loss) before
income taxes................ 420,700 636,200 95,800 (1,032,500)
Provision for income taxes.... -- -- -- --
----------- ----------
Net income (loss)............. $ 420,700 $ 636,200 $ 95,800 $(1,032,500)
=========== ==========
Net income (loss) per
share(1).................... $ 0.23 $ 0.35 $ 0.05 $ (0.57)
=========== ==========
Weighted average number of
shares outstanding(1)....... 1,821,800 1,821,800 1,821,800 1,821,800
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(2)
----------- ---------------
<S> <C> <C>
Liquidity capital (deficit)(3)........................... $(3,896,800) $ 3,595,340
Total assets............................................. 10,559,500 14,952,190
Notes payable(4)(5)...................................... 4,414,000 1,938,050
Accrued interest(4)(5)................................... 557,400 173,900
Shareholder loan and note payable(4)(5).................. 740,000 500,000
Accumulated deficit(5)................................... (516,000) (884,400)
Shareholders' equity..................................... 620,100 8,112,240
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for information
regarding the calculation of net income (loss) per share.
(2) As adjusted to reflect (i) the estimated net proceeds of the Offering, based
upon an assumed initial public offering price of $6.25 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 approximately 105,000 shares of Common
Stock upon the closing of the Offering, (iii) interest of approximately
$100,800 which accrued from July 1, 1997 through October 31, 1997 from the
debt to be repaid from the Offering, and (iv) the Extraordinary Loss (see
footnote 5 below). See "Use of Proceeds," "Capitalization" and "Description
of Securities."
(3) Represents (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, shareholder loan and note payable, and accrued interest.
(4) See Notes 5 and 7 of Notes to Consolidated Financial Statements.
5
<PAGE> 7
(5) An aggregate of $3,084,350 principal amount of indebtedness outstanding as
of June 30, 1997 will be repaid with the proceeds of the Offering. Since
said indebtedness was issued concurrently with warrants, the notes are
recorded on the Company's financial statements at a lesser value and a value
is ascribed to the warrants which management believes reflects the market
value of the warrants; this value is reflected as a debt issuance discount
and is amortized over the term of all such notes resulting in an effective
interest rate of approximately 25%. Upon repayment of such debt, the Company
will recognize an extraordinary loss equal to the value ascribed to such
warrants. While the entire $3,084,350 principal amount of indebtedness will
actually be repaid from the Offering, as adjusted reflects the repayment of
the recorded value of such debt as of October 31, 1997 -- a value of
$2,625,200 will be ascribed to said debt and a value of $368,400 will be
ascribed to the warrants, resulting in the recognition of extraordinary loss
of $368,400 (the "Extraordinary Loss") which becomes part of accumulated
deficit. To the extent that other debt issued with warrants is extinguished
upon the closing of the Proposed Bank Facility, the Extraordinary Loss for
the fiscal year ended December 31, 1997 will be increased.
6
<PAGE> 8
THE OFFERING
Common Stock Offered by the
Company............................. 1,500,000 shares
Common Stock Outstanding after this
Offering............................ 2,831,092(1) shares
Use of Proceeds..................... Repayment of loans, accrued interest on
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"
- ---------------
(1) Includes up to 199,748 shares which will be issued to a shareholder upon
satisfaction of certain contractual dilution rights. See "Certain
Transactions -- Transactions with Morris Wolfson and Others."
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, outstanding warrants to purchase 595,278 shares of Common
Stock, 173,000 stock options outstanding or 164,500 stock options 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 which occurred in April 1997. See "Management,"
"Description of Securities" and "Underwriting."
7
<PAGE> 9
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 years ended December 31, 1995
and December 31, 1996 and for the six months ended June 30, 1997 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. 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 fiscal year ended December 31, 1996
and the six months ended June 30, 1997, 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 the 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 June 30, 1997, the Company had an accumulated deficit of ($516,000)
and had a liquidity deficit of ($3,896,800), 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, 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 12
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 12 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
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
8
<PAGE> 10
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 the Offering, the Company will have approximately
$2,438,050 of indebtedness, which indebtedness is secured by substantially all
of the assets of the Company. The Company intends to enter into multiple lines
of credit with Mercantile National Bank (the "Proposed Bank Facility"), which
lines of credit would permit borrowings pursuant to specified borrowing bases
made up of the value of the library, accounts receivable and other assets,
including cash. The Company currently intends to repay the $2,438,050 of
indebtedness remaining after the Offering with proceeds from the Proposed Bank
Facility. No assurance can be given that the Proposed Bank 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; DEPENDENCE ON FOREIGN SALES. 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.
In addition to the foregoing, a substantial portion of the Company's
revenues are dependent on sales to sub-licensees and sub-distributors not
domiciled in the United States. The marketing and distribution efforts of these
entities could impact the ability of the Company to realize overages with
respect to its product. Moreover, the collectibility of receivables from these
customers is subject to all of the risks associated with doing business with
foreign companies including rapid changes in the political and economic climates
of such countries. Should the Company be involved in a protracted dispute with
respect to the manner in which its product is distributed, or should the Company
be forced to initiate collection activities in order to enforce the terms of the
applicable sub-license or sub-distributor agreement, the potential profitability
of any particular product may be adversely effected.
ACCOUNTS RECEIVABLE; RELIANCE ON SIGNIFICANT CUSTOMERS. Revenues for the
first six months of 1997 included approximately $3,241,000 from Beyond
Distribution Pty., Ltd., which accounted for 93% of the revenue for the six
months ended June 30, 1997. Revenues in fiscal 1996 included approximately
$680,000
9
<PAGE> 11
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
12% of the applicable revenues for the year ended December 31, 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. Alliance, which licenses a
variety of product from the Company's library for Canada, and King Records
Company, Ltd., which acquired various library products for Japan, are obligated
to pay the Company the sums of $764,100 and $996,300 respectively, or 13% and
17% of revenues, respectively, for fiscal 1996.
Revenues in fiscal 1996 also included the license from Interpublic of
$1,441,700 and the license from Eurolink of $618,400, both such licenses
relating to the series "Amazing Tails." Revenues attributed to the Interpublic
and Eurolink agreements respecting "Amazing Tails" constituted 25% and 11%,
respectively, of revenues during the year ended December 31, 1996. The Eurolink
receivable was written off as a bad debt expense in the six months ended June
30, 1997.
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 six months ended June
30, 1997 and the fiscal year ended December 31, 1996, respectively, the Company
incurred approximately $1,462,000 and $1,977,000, respectively, in development
costs associated with projects for which the Company is actively pursuing
production commitments, but which have not been set for principal photography.
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 are MIP-TV and MIPCOM-TV (the International Film and Program
Market for TV, Video, Cable & Satellite) which take place in France in the
second and fourth quarters, respectively. 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.
10
<PAGE> 12
DEPENDENCE UPON KEY PERSONNEL. The Company is, and will be, heavily
dependent on the services of Drew S. Levin, its Chairman of the Board, President
and Chief Executive Officer. 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 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 June 30, 1997 and
December 31, 1996, are approximately $1,462,000 and $1,977,000, respectively, in
television program costs in respect of projects which the Company is actively
pursuing production commitments but which have not been set for principal
photography. As of June 30, 1997, approximately $912,000 of this amount relates
to the acquisition of the rights to produce a television series based on the
feature film "Total Recall" and approximately $451,000 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 the Offering, a non-management shareholder of
the Company will receive approximately $240,000 for repayment of indebtedness.
Concurrently with, or shortly after the closing of the Offering, other
shareholders are also anticipated to receive approximately $1,743,900 to
eliminate all other shareholder debt, such amounts to be obtained from the
Proposed Bank 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 the 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 the 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
11
<PAGE> 13
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."
CONTINUED QUOTATION ON THE NASDAQ SMALLCAP MARKET; POSSIBLE ILLIQUIDITY OF
TRADING MARKET; POSSIBLE INABILITY OF H.J. MEYERS TO MAKE A MARKET IN THE
COMPANY'S COMMON 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. Nasdaq has recently promulgated new
rules which make continued listing of companies on the Nasdaq SmallCap Market
more difficult and has significantly increased its enforcement efforts with
regard to Nasdaq standards for such listing. 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 the
Offering to sell such Common Stock in the secondary market.
Any limitation on the ability of the Underwriter to make a market in the
Company's Common Stock could adversely effect the liquidity or trading price of
the Company's Common Stock, which could have a material adverse effect on the
market price of the Company's Common Stock. The Company believes that the
Chicago office of the Securities and Exchange Commission is conducting a
private, nonpublic investigation of H.J. Meyers, the Underwriter, pursuant to a
Formal Order of Investigation issued by the Commission as to whether H.J. Meyers
may have violated applicable securities laws and the rules and regulations
thereunder, with respect to sales of certain securities. The Company is
currently unable to assess the potential impact of the outcome of the Staff's
investigation on H.J. Meyers' ability to make a market in the Company's Common
Stock after the Offering or trading in the Company's securities.
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF SHARE CONSIDERATION; NO
DIVIDENDS ANTICIPATED. Assuming an initial public offering price of $6.25 per
share, purchasers of the shares of Common Stock offered
12
<PAGE> 14
hereby will experience immediate substantial dilution of $3.38 per share or 54%
of their investment, based upon the net tangible book value of the Company at
June 30, 1997. 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 $6.25 per share, between the
total consideration and the average price per share paid by the Company's
existing shareholders ($1,136,000 and $0.85, respectively), and that paid by new
investors in the Offering ($9,375,000 and $6.25, 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 the Offering, the Company will have outstanding
approximately 2,831,092 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 1,500,000 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 768,278 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, which are subject to a 12 month lock-up) 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 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 has
no formal policy with respect to such determinations, and may elect to release
such shares or decline to release 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 150,000 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 the 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 the 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
(the "Exchange Act"). Such forward-looking statements may be deemed to include
the Company's plans to produce "Total Recall" and "LoCoMoTioN" in 1997 and 1998,
and establish new strategic alliances and business relationships and acquire
additional libraries or companies. Such forward-looking statements also
13
<PAGE> 15
may include the Company's planned uses of the proceeds of the 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
this 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 1,500,000 shares
offered by the Company hereby at an assumed initial public offering price of
$6.25 per share, are estimated to be approximately $7,860,540, after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company currently intends to use the estimated net proceeds of the Offering as
follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
NET PROCEEDS OF NET PROCEEDS
------------- ---------------
<S> <C> <C>
Repayment of loans*........................... $ 3,084,350 39%
Accrued interest on loans..................... 383,500 5%
Acquisition of foreign distribution rights to
made for television movies.................. $ 2,000,000 26%
Acquisition of foreign distribution rights to
existing television series.................. $ 1,275,000 16%
Corporate overhead and general working
capital, including salaries and wages....... $ 1,117,690 14%
</TABLE>
- ---------------
* The Company currently has outstanding approximately $5,154,000 of
indebtedness. Approximately $3,084,350 of such indebtedness will be repaid
from the proceeds of the Offering as follows: $969,350 for repayment of the
10% convertible secured notes issued between February and April 1997 (the
"February 1997 Notes"), $900,000 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 $240,000 for repayment of indebtedness owed
to Joseph Cayre, a shareholder of the Company. The February 1997 Notes, the
February 1996 Notes and the June 1996 Notes are referred to herein as the
"Bridge Notes." The maturity date on the February 1996 Notes has been extended
until November 15, 1997 or the completion of an initial public offering. Prior
to effectiveness of the Offering, the balance of Company indebtedness (or
approximately $2,438,050) will be extended through June 30, 1998, although it
is anticipated that this balance will be repaid from the proceeds of the
Proposed Bank Facility. As described in footnote (2) to "Capitalization," the
ascribed value of the indebtedness to be repaid from the proceeds of the
Offering on the Company's financial statements is less than the outstanding
principal balance of said indebtedness. 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
loan proceeds which are being repaid through the funds being raised hereby
were used primarily by the Company for working capital, the acquisition of
library product and the acquisition of the right to produce television product
based on the feature film "Total Recall."
The Company believes that there are a number of libraries and single or
multiple television series, movies or special programming owned by unrelated
third parties of which the Company may be able to acquire either ownership of,
or long-term distribution rights to. At this date, the Company has not entered
into discussion with respect to any such acquisition with any such third
parties.
The Company anticipates that the net proceeds of the 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 12 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
14
<PAGE> 16
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. Pending use of the proceeds from the
Offering as set forth above, the Company intends to invest all or a portion of
such proceeds in short-term certificates of deposit, U.S. Government
obligations, money market investments and short-term investment grade
securities.
These contingencies could include a changing environment for the production
of syndicated television series and a deterioration in the anticipated pricing
structure with respect to the sales of the Company's products in certain foreign
territories. In addition, to the extent that favorable acquisition opportunities
present themselves, both with respect to the acquisition of product or entities
in allied fields, the use of proceeds contemplated hereunder may be varied
significantly.
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.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company (A) at June 30, 1997, and (B) as adjusted to reflect (i) the sale of
1,500,000 shares of Common Stock pursuant to the Offering at an assumed initial
public offering price of $6.25 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>
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Short-term debt(1)................................................. $ 4,442,700 $ 2,438,050
========== ===========
Long-term debt(2).................................................. 711,300 --
---------- -----------
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,
1,131,344 issued and outstanding actual, and 2,831,092 issued
and outstanding as adjusted................................... 1,000 1,000
Paid-in capital(2)............................................ 1,135,100 8,995,640
Accumulated deficit(2)........................................ (516,000) (884,400)
---------- -----------
Total shareholders' equity............................... 620,100 8,112,240
---------- -----------
Total capitalization............................................... $ 5,774,100 $10,550,290
========== ===========
</TABLE>
- ---------------
(1) See Notes 5 and 7 of Notes to Consolidated Financial Statements.
(2) An aggregate of $3,084,350 principal amount of indebtedness outstanding as
of June 30, 1997 will be repaid with the proceeds of the Offering. Since
said indebtedness was issued concurrently with warrants, the notes are
recorded on the Company's financial statements at a lesser value and a value
is ascribed to the warrants which management believes reflects the market
value of the warrants; this value is reflected as a debt issuance discount
and is amortized over the term of all such notes resulting in an effective
interest rate of approximately 25%. Upon repayment of such debt, the Company
will recognize an extraordinary loss equal to the value ascribed to such
warrants. While the entire $3,084,350 principal amount of indebtedness will
actually be repaid from the Offering, as adjusted reflects the repayment of
the recorded value of such debt as of October 31, 1997 -- a value of
$2,625,000 will be ascribed to said debt and a value of $368,400 will be
ascribed to the warrants, resulting in the recognition of the Extraordinary
Loss of $368,400 which becomes part of accumulated deficit. To the extent
that other debt issued with warrants is extinguished upon the closing of the
Proposed Bank Facility, the Extraordinary Loss for the fiscal year ended
December 31, 1997 will be increased.
16
<PAGE> 18
DILUTION
At June 30, 1997, the Company had an adjusted net tangible book value of
$620,100 or $.55 per share of Common Stock. After giving effect (i) to the sale
by the Company of 1,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $6.25 per share, and the initial application of
the estimated net proceeds therefrom, (ii) the issuance of an additional 199,748
shares to an investor upon satisfaction of certain contractual dilution rights
(See "Certain Transactions -- Transactions with Morris Wolfson and Others"),
(iii) the conversion of the Conversion Note and (iv) the Extraordinary Loss, the
net tangible book value of the Company at such date would have been
approximately $8,112,240 or $2.87 per share. This represents an immediate
increase in net tangible book value of $2.32 per share to the current
shareholders and an immediate dilution of $3.38 per share to new shareholders.
Dilution represents the difference between the initial public offering price
paid by purchasers in the Offering and the net tangible book value per share
immediately after completion of the Offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 6.25
Pro forma net tangible book value per share before the Offering............ $ 0.55
Increase in net tangible book value per share attributable to the sale
of the Common Stock offered hereby..................................... 2.32
-----
Adjusted net tangible book value per share after the Offering................ 2.87
-----
Dilution per share to new shareholders*...................................... $ 3.38
-----
</TABLE>
- ---------------
* Represents dilution of approximately 54% 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 the 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 47.0% $ 1,136,100 10.8% $0.85
New shareholders.................. 1,500,000 53.0 9,375,000 89.2 $6.25
--------- ------ ---------- ------
Total................... 2,831,092 100.0% $ 10,511,100 100.0%
========= ====== ========== ======
</TABLE>
- ---------------
(1) The information set forth above does not reflect 337,500 shares of Common
Stock reserved for issuance under the Company's stock option plans (of which
approximately 173,000 shares are issuable upon exercise of stock options
outstanding as of the date of this Prospectus) and 150,000 shares of Common
Stock issuable upon exercise of the Underwriter's Warrant. See
"Management -- Stock Option Plans" and "Underwriting."
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the period ended
December 31, 1995, the year ended December 31, 1996, the six months ended June
30, 1997 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, for 1995 and by
Stonefield Josephson, Inc., for 1996 and the six month period ended June 30,
1997, both independent accountants, as indicated in their respective reports
which are also included elsewhere in this Prospectus. Such selected consolidated
financial data should be read in conjunction with those Consolidated Financial
Statements and Notes thereto. For a discussion of the appointment of Stonefield
Josephson, Inc., see "Experts."
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FROM
SIX MONTHS FOR THE SIX FOR THE FEBRUARY 1995
ENDED MONTHS ENDED YEAR ENDED THROUGH
STATEMENT OF OPERATIONS DATA: JUNE 30, 1997 JUNE 30, 1996 DECEMBER 31, 1996 DECEMBER 31, 1995
------------- ------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................ $ 3,473,100 $ 3,314,600 $ 5,749,800 $ 1,245,300
Cost of revenues.................... 984,300 1,549,600 2,895,900 946,900
---------- ---------- ---------- -----------
Gross profits....................... 2,488,800 1,765,000 2,853,900 298,400
General and administrative
expenses.......................... 987,400 976,300 2,323,800 1,288,200
Bad debt expense.................... 660,000 -- -- --
---------- ---------- ---------- -----------
Net income from operations.......... 841,400 788,700 530,100 (989,800)
Interest expense.................... 523,400 152,500 582,700 42,700
Interest income..................... 102,700 -- 58,300 --
Other income........................ -- -- 90,100 --
---------- ---------- ---------- -----------
Net income (loss) before income
taxes............................. 420,700 636,200 95,800 (1,032,500)
Provision for income taxes.......... -- -- -- --
---------- ---------- ---------- -----------
Net income (loss)................... $ 420,700 $ 636,200 $ 95,800 $(1,032,500)
========== ========== ========== ===========
Net income (loss) per share......... $ 0.23 $ 0.35 $ 0.05 $ (0.57)
========== ========== ========== ===========
Weighted average number of shares
outstanding....................... 1,821,800 1,821,800 1,821,800 1,821,800
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(2)
----------- --------------
<S> <C> <C>
Liquidity capital (deficit)(3)................................... $(3,896,800) $ 3,595,340
Total assets..................................................... 10,559,500 14,952,190
Notes payable(4)(5).............................................. 4,414,000 1,938,050
Accrued interest(4)(5)........................................... 557,400 173,900
Shareholder loan and note payable(4)(5).......................... 740,000 500,000
Accumulated deficit(5)........................................... (516,000) (884,400)
Shareholders' equity............................................. 620,100 8,112,240
</TABLE>
18
<PAGE> 20
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for information
regarding the calculation of net income (loss) per share.
(2) As adjusted to reflect (i) the estimated net proceeds of the Offering, based
upon an assumed initial public offering price of $6.25 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 approximately 105,000 shares of Common
Stock upon the closing of the Offering, (iii) interest of approximately
$100,800 which accrued from July 1, 1997 through October 31, 1997 from the
debt to be repaid from the Offering, and (iv) the Extraordinary Loss (see
footnote 5 below). See "Use of Proceeds," "Capitalization" and "Description
of Securities."
(3) Represents (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, shareholder loan and note payable, and accrued interest.
(4) See Notes 5 and 7 of Notes to Consolidated Financial Statements.
(5) An aggregate of $3,084,350 principal amount of indebtedness outstanding as
of June 30, 1997 will be repaid with the proceeds of this Offering. Since
said indebtedness was issued concurrently with warrants, the notes are
recorded on the Company's financial statements at a lesser value and a value
is ascribed to the warrants which management believes reflects the market
value of the warrants; this value is reflected as a debt issuance discount
and is amortized over the term of all such notes resulting in an effective
interest rate of approximately 25%. Upon repayment of such debt, the Company
will recognize an extraordinary loss equal to the value ascribed to such
warrants. While the entire $3,084,350 principal amount of indebtedness will
actually be repaid from the Offering, as adjusted reflects the repayment of
the recorded value of such debt as of October 31, 1997 -- a value of
$2,625,200 will be ascribed to said debt and a value of $368,400 will be
ascribed to the warrants, resulting in the recognition of extraordinary loss
of $368,400 (the "Extraordinary Loss") which becomes part of accumulated
deficit. To the extent that other debt issued with warrants is extinguished
upon the closing of the Proposed Bank Facility, the Extraordinary Loss for
the fiscal year ended December 31, 1997 will be increased.
19
<PAGE> 21
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.
RESULTS OF OPERATIONS
The six months ended June 30, 1997 versus the six months ended June 30,
1996. Revenues for the six months ended June 30, 1997 were $3,473,100 compared
with $3,314,600 for the six months ended June 30,
20
<PAGE> 22
1996. Approximately 67% of revenues for the six months ended June 30, 1996 were
primarily from the completion and delivery of "Amazing Tails."
Cost of revenues was $984,300 for the six months ended June 30, 1997 as
compared to $1,549,600 for the six months ended June 30, 1996, such decrease
principally attributable to the decrease in amortization of product produced and
acquired by the Company.
Gross profit margin improved from 53% for the six months ended June 30,
1996 to 72% for the six months ended June 30, 1997, primarily because of the
profit margin on produced and acquired product.
General and administrative expenses were $987,400 for the six months ended
June 30, 1997 as compared to $976,300 for the six months ended June 30, 1996.
Bad debt expense was $660,000 for the six months ended June 30, 1997 as
compared to no bad debt expense for the six months ended June 30, 1996. The bad
debt expense was a result of the write off of the Eurolink receivable.
Interest expense was $523,400 for the six months ended June 30, 1997 as
compared to $152,500 for the six months ended June 30, 1996, reflecting the
issuance of Bridge Notes in the period.
Net income for the six months ended June 30, 1997 was $420,700 compared
with net income of $636,200 for the six months ended June 30, 1996. This
decrease relates primarily to the write-off of the Eurolink receivable.
Year ended December 31, 1996 versus the period from inception (February 27,
1995) to December 31, 1995. Revenues for the year ended December 31, 1996 were
$5,749,800 compared with $1,245,300 in the period from inception (February 27,
1995) through December 31, 1995 (the "95 Period"). The revenues from the 95
Period were primarily attributable to the completion and delivery of "Simply
Style." Revenues for the year ended December 31, 1996 included $1,441,700 from
the recognition of revenues from Interpublic for the completion of the series
"Amazing Tails," which revenues accounted for 25% of revenues 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 the Company's 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 12% of revenues in that
period. Finally, revenues in the period included $618,400 from Eurolink
respecting additional sales of "Amazing Tails." This sale was approximately 11%
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 revenues 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 revenues was $2,895,900 for the year ended December 31, 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 improved from 24% for the 95 Period to 50% for the year
ended December 31, 1996 primarily because the profit margin on "Amazing Tails"
and revenues recognized from the Giniger Entities was greater than the profit
margin on "Simply Style."
General and administrative expenses were $2,323,800 for the year ended
December 31, 1996 as compared to $1,288,200 for the 95 Period, resulting
primarily from increased personnel costs. As a percentage of revenues, however,
general and administrative expenses decreased from 103% to 40%. The debt
issuance costs were expensed and not capitalized because the expected maturity
dates were within one year. See "-- Liquidity and Capital Resources."
Interest expense was $582,700 as compared to $42,700 for the 95 Period
reflecting the issuance of Bridge Notes in the period.
Net income for the year ended December 31, 1996 was $95,800 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
21
<PAGE> 23
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 June 30,
1997, the Company had a liquidity deficit of ($3,896,800). Liquidity deficit is
defined as (i) cash and cash equivalents, accounts receivable (net), and the
amount due from officer less (ii) accounts payable, accrued expenses and other
liabilities, deferred revenues, accrued participations, notes payable,
shareholder loan and note payable and accrued interest.
Included in the Company's assets as of June 30, 1997, is approximately
$1,462,000 relating to projects under development but which have not been set
for principal photography. As of June 30, 1997, approximately $912,000 of this
amount relates to the acquisition of the rights to produce a television series
based on the feature film "Total Recall" and approximately $451,000 relates to
expenditures for "LoCoMoTioN."
Included in the Company's assets as of December 31, 1996, are approximately
$1,977,000 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 "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.
Development activity with respect to LoCoMoTioN began in September 1995 and with
respect to Total Recall in July 1996. 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 received a commitment letter from Mercantile National Bank
for multiple lines of credit of up to $8,175,000 (the "Proposed Bank Facility"),
which lines of credit would permit borrowings pursuant to specified borrowing
bases made up of the value of the library (including a value for "Total
Recall"), accounts receivable and other assets, including cash. The Company
currently intends to repay the $2,069,650 of indebtedness remaining after the
Offering with proceeds from the Proposed Bank Facility. The Proposed Bank
Facility will contain covenants relating to the Company's tangible net worth,
debt to equity ratio and profitability. No assurance can be given that the
Proposed Bank Facility will be entered into or that the Company will be able to
use proceeds from such facility as indicated herein.
The Company has financed its operations from its own sales and production
activities, loans from its shareholders aggregating $1,872,000, the sale of the
Bridge Notes aggregating $2,844,350, and the special financing obtained with
respect to "Total Recall" (the "Total Recall Financing") in the principal amount
of $650,000.
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 the
Offering and the pledge of certain assets to cover the unpaid amount due
thereunder. Prior to the effectiveness of the 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 December 31, 1997 or the closing of the Offering. The holder
of such note has the right to convert the principal amount into approximately
105,000 shares of the Company's Common Stock on a fully diluted basis through
the completion of the 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
22
<PAGE> 24
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 December
31, 1997. Prior to the effectiveness of the 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. This line of credit bears interest at 10%. 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 the 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 21,362 shares of Common Stock at an exercise
price of $.43 and a 15% net profit participation in the Company's interest in
the series. As of the date hereof, this amount has been completely repaid. See
"Certain Transactions" for a description of the consideration paid to the Morris
Wolfson Family Limited Partnership 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 the 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 the 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 the Offering or November 15, 1997. This offering was changed pursuant to its
original terms with respect to subsequent investors in June 1996 when the
Company completed the sale to 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 the 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 the Offering or December 31, 1997.
Prior to the effectiveness of the 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 other
bridge notes.
Assuming the repayment of short-term indebtedness as specified under the
caption "Use of Proceeds," at the conclusion of the Offering, the Company will
have approximately $2,438,050 of indebtedness, which indebtedness is due between
October 15, 1997 and December 31, 1997 and is secured by substantially all of
the assets of the Company.
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 at
least the next 12 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 Bank 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."
23
<PAGE> 25
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, production and distribution of a variety of television
programming, including series, specials and made-for-television movies for
exploitation in the domestic and international television 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," 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 reality based 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 airing on Discovery Communications newest
channel, Animal Planet. The Company has recently entered into an agreement with
Discovery Communications for a second season of 26 new episodes of Amazing
Tails, which is currently in production. The Company has entered into a joint
venture agreement with Interpublic for the production of a minimum of four
pilots over the next year for non-fiction and light entertainment programming.
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.
In July 1996, the Company has acquired the rights to produce 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 an initial 22 episodes of the series with the Company. The Company
has also entered into an agreement with PolyGram Television, L.L.C.
("PolyGram"), pursuant to which PolyGram will acquire television distribution
rights to the series in the United States. Miramax Film Corp. ("Miramax"), which
acquired the theatrical sequel rights to "Total Recall," has also acquired
worldwide home video rights to the series from the Company.
The Company is also developing a wide variety of family, dramatic,
reality-based and children's programming including a new pre-school series,
tentatively entitled "LoCoMoTioN," which the Company hopes to place on domestic
and international television in 1998. Although no assurance can be given that
the Company will obtain a domestic timeslot, the Company is currently
interviewing for female celebrities 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 335 half-hours of family and
documentary series and specials, and 156 hours of dramatic series.
24
<PAGE> 26
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 intends to acquire, co-produce and
co-finance other series, movies and specials from third party producers in order
to increase its programming library and self distribute this product on a
worldwide basis.
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. No specific acquisitions have
been identified and no assurance can be given that any transactions will be
affected or if such acquisitions are consummated that they will be successful.
In addition, a significant acquisition of product or another company could
require the Company to obtain additional financing. No assurance can be given
that such financing will be available or that it will be on terms that are
favorable to the Company.
The Company anticipates that the net proceeds of the 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 12
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 ("UPN"), and Warner Bros. ("WB") 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.
25
<PAGE> 27
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. It is the
Company's intention to expand the production of dramatic programming, over the
next 24 months, which programming if any, will be licensed, where the Company
does not have foreign partners, in foreign markets through the Company's sales
personnel. The Company has acquired the rights to produce a weekly dramatic
television series based on the motion picture "Total Recall," which generated
over $320 million 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 an initial 22 episodes of the series with the Company. The Company
has also entered into an agreement with PolyGram, pursuant to which PolyGram
will co-finance and acquire television distribution rights to the series in the
United States only. The domestic deal with Polygram includes a 22 episode
commitment in exchange for a license fee and a percentage of the net profits of
the series. Miramax, which acquired the theatrical sequel rights to "Total
Recall," has also acquired worldwide home video rights to the series from the
Company. Based upon the initial
26
<PAGE> 28
pre-sales of the series with Polygram, Miramax and various international
broadcasters, the financial conditions contained in the co-production agreement
with Alliance have been satisfied. In addition to reducing the Company's
financial exposure, the Company anticipates that by co-producing the series with
Alliance, the series will qualify for certain Canadian co-production and tax
benefits. The proceeds from the foreign distribution of the series, after
recoupment of production costs, will be allocated 50% to the Company and 50% to
Alliance. It is the intention of the parties that each episode will be produced
for approximately $1,100,000 per episode, with the Company receiving a
guaranteed producing fee of $25,000 per episode as well as 50% of the profits
derived from the exploitation of worldwide television, home video and
merchandising rights to the series. 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.
As of the date hereof, television and home video pre-sales of approximately
$15 million have been made with respect to "Total Recall" for the United States
(Polygram), all of Asia and the Middle East, and parts of Europe, Latin America
and Canada. Still remaining for licensing are most of the European territories,
and parts of Latin America, among others.
The Company has entered into an agreement with the Family Channel for the
development of two MOWs, "Quake," a story about an earthquake in New York City,
and "Down Fall," a story about an avalanche in an exclusive ski resort. The
scripts for "Quake" and "Down Fall" have recently been completed and paid for by
the Family Channel, with the projects having been in development for
approximately six months. According to the terms of the agreement with the
Family Channel, upon the final approval of such projects, the Family Channel
will provide 85% of the financing necessary for the projects. The Company will
contribute the remaining 15% of the financing, in return for which the Company
will receive the Canadian rights in perpetuity as well as 35% of the net profits
worldwide in perpetuity.
The acquisition of the one hour dramatic series "Water Rats" (52 episodes
delivered for the first and 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 Mexico 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.
The Company has recently acquired Latin American home video and television
distribution rights to 78 hours of dramatic series from Beyond Distribution PTY
Ltd., a leading Australian production company. This brings the total hours of
dramatic programming licensed by the Company in Latin America to 156.
Live Action and Animated Children's Programming. To take advantage of what
it believes is a significant television market for children's 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 hopes to place the show on domestic and
international television in 1998. If the show is successful, it is anticipated
that it will provide the Company with licensing and merchandising opportunities.
The Company continues to acquire programming on an ongoing basis. As of
October 1996 the Company acquired certain additional foreign distribution rights
to three family movies from Feature Films for Families. As of December 19, 1996,
the Company acquired thirteen 1/2 hour episodes for international distribution
of the children's series "Jelly Bean Jungle."
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
27
<PAGE> 29
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," a 130 half-hour 5 day per week ("strip") syndicated
series being produced in association with United/Chris-Craft television stations
and Rysher Entertainment. A commitment for the production of a second 13-week
run (65 episodes) has been received from United/Chris Craft. "Amazing Tails," a
weekly series of 22 half hours featuring people and their pets, was initially
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. The Company has
recently entered into an agreement with Discovery Communications for a second
season of 26 new episodes of Amazing Tails, which is currently in production.
The Company has entered into a "first look" arrangement with Interpublic
pursuant to which the Company and Interpublic have agreed to fund, subject to
the conditions contained therein, a minimum of four non-fiction or light
entertainment pilots. Series which are developed from the pilots will be
co-financed by each entity, and Interpublic will use its best efforts to seek an
advertising sponsor for each series.
Current co-productions include "America's Scenic Railway Journeys," a six
hour documentary mini-series devoted to famous railway journeys. The Company has
co-produced this series with Oregon Public Television for the PBS Network and
has paid Oregon Public Television an advance for the international distribution
rights to the mini-series.
Syndicated Strip Shows. The Company is making a significant creative and
development effort to provide syndicated daily programming, especially talk
shows and reality series. The Company is currently developing a talk show
"strip" anticipated for the 1998 season entitled "Chrystal Rose." Ms. Rose is a
noted British talk show personality whose series was aired in the United
Kingdom's ITV Network. No assurance can be given that the Company will be able
to obtain sufficient station clearances to produce this show in the United
States. 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.
"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. The Company's current library includes 335 half hours of reality
based series, mini-series and specials and 156 hours of dramatic series
programming. This includes drama and non-fiction programming as well as Movies
of the 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-TV, Monte Carlo Television Festival, MIP-TV
and NATPE.
28
<PAGE> 30
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, including Mexico and Puerto Rico, 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 objectives encompasses the exploitation 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 and Alliance, the co-producer of "Total Recall," have
begun to focus on the marketing and merchandising rights that are 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, should it have
sufficient financing, the Company intends to develop from the series "Amazing
Tails" a pet "fan" club, with commercial tie-ins with its sponsors.
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 has completed 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.
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.
29
<PAGE> 31
EMPLOYEES
The Company currently employs 12 full time employees, five 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
Company was not served with any papers relating to the case, did not enter any
defense, and disputed the amounts allegedly owed to Plaintiff. The Company has
recently agreed to settle this litigation by paying $30,000 to Levy
Entertainment, Inc. ("Levy"). In addition, as part of the settlement, the
Company has agreed to pay Levy approximately $60,000 for 15 years of additional
rights in certain programs owned by Levy.
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
intends to file an answer to the complaint and to vigorously defend itself.
In May 1997, the Company filed and served a complaint in a matter styled
Team Communications Group, Inc. vs. Michael Jacobs. This action is against a
former employee for, inter alia, unfair competition and breach of fiduciary
duty. Mr. Jacobs filed a complaint on the same day, styled Jacobs vs. Team
Communications Group, Inc. alleging breach of employment contract, fraud, and
also seeking an accounting. The Company intends to vigorously pursue its action,
and to defend itself in the counter-suit. The two actions have been consolidated
by the Court.
In March 1997, the Company was served with a complaint in a matter styled
Ayckroyd vs. Barosse, et al., against all of the producers and production
entities involved in the development and production of the television series
"Strange Universe" (the "Series"). In this action, Peter Ayckroyd, a television
producer, alleges that proprietary ideas and concepts belonging to him were
incorporated into the Series without his permission. The Company intends to
vigorously defend this action.
30
<PAGE> 32
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
Todd C. Jackson 43 Senior Vice President, Domestic and International Sales
Michael Latiner 27 Vice President, Controller and Secretary
Bruce P. Vann 41 Nominated Director(1)(2)
Seth M. Willenson 50 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. Mr. Yamamoto intends to
resign upon effectiveness of the Offering and the reconstitution of the Board of
Directors, as described herein.
Eric Elias has served in the capacity as Senior Vice President, Business
and Legal Affairs since the Company's incorporation. Mr. Elias has previously
served as corporate counsel and general manager for a retail/wholesale leisure
electronics firm and for the past twelve years, has been in general private
practice, providing business and legal affairs services for similarly situated
television production entities.
Todd C. Jackson has been Senior Vice President, Domestic and International
Sales since May, 1997. From 1995, until he joined the Company, he served as
Senior Vice President, Worldwide Distribution for Kinnevik Media Properties,
Ltd. In 1993, Mr. Jackson founded California Concert Network, serving as its
President and Chief Executive Officer until Prime Ticket Network was acquired by
Liberty Media, a subsidiary of Tele-Communications, Inc. in May 1995. From 1989
to 1992, he served as Vice President, Program Distribution for Broadway Video
Entertainment, and prior to that was Vice President, International and Cable
Television at All American Television for two years. Mr. Jackson holds a Master
of Arts in Law and Diplomacy from The Fletcher School at Tufts University and
received his Bachelor of Arts from Northwestern University.
Michael Latiner has been Vice President, Controller and Secretary since
August 1997. From 1991 to 1994 Mr. Latiner was with Deloitte & Touche where he
was a member of the audit group. From 1994 to 1995 Mr. Latiner was with Price
Waterhouse where he was a member of the Entertainment, Media, and Communications
Group. From 1995 to 1997 Mr. Latiner was with 20th Century Fox where he served
as the Manager of Financial Reporting.
31
<PAGE> 33
Bruce P. Vann, who has agreed to become a member of the Board of Directors
upon the conclusion of the Offering and the completion of certain other matters
(including the appointment of a Chief Financial Officer and the placement of
directors and officers insurance), 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 Mintz & Vann
LLP, 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.
Seth Willenson, who has agreed to become a member of the Board of Directors
upon the conclusion of the Offering and the completion of certain other matters
(including the appointment of a Chief Financial Officer and the placement of
directors and officers insurance), has over 25 years experience in the
entertainment business. For the past 7 years, he has been the president of Seth
Willenson, Inc., a marketing and management consulting firm in Los Angeles,
California. Mr. Willenson has produced 9 films, including; "Jezebel's Kiss,"
"Delusion," "Gas, Food and Lodging," "Top Dog" and 'Pocahontas: The Legend." He
has lectured extensively on the entertainment business, including speaking at
The Sundance Film Festival, the Sundance Producer's Workshop, the University of
California at Los Angeles, the University of Southern California and The Aspen
Institute. Mr. Willenson was graduated from Cornell University in 1968 and
attended the Annenburg School of Communications at the University of
Pennsylvania.
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.
Although the Company's directors do not receive any compensation for their
services as directors, it is anticipated that, following the 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, President and 1996 $350,000 $45,000(2) (3) $15,000(4)
Chief Executive Officer 1995 $350,000 $ -- $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 the 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
$130,000 at September 30, 1997. See "Certain Transactions."
32
<PAGE> 34
(3) Pursuant to the terms of Mr. Levin's restated employment agreement, 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 shall be deemed fully vested.
(4) Mr. Levin was entitled to receive 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
Mr. Levin has entered into a new employment agreement with the Company (the
"Levin Agreement") providing for his services as President and Chief Executive
Officer effective January 1, 1997 through December 31, 2001. Pursuant to the
Levin Agreement, 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 Levin Agreement also provides
that certain unpaid bonus compensation owing to Mr. Levin will be applied to his
loan from the Company. See "Certain Transactions."
Mr. Paul Yamamoto entered into an employment agreement with the Company,
providing for his services as an Executive Vice President from January 20, 1997
to June 30, 1997, which agreement was amended as of October 4, 1997 (the
"Yamamoto Agreement"). Pursuant to the Yamamoto Agreement, Mr. Yamamoto's
compensation will be as follows: (a) from January 20, 1997 to June 30, 1997, it
will be based on an annual rate of $125,000 plus a performance bonus based on an
annual rate of up to $25,000 to be paid weekly; (b) from July 1, 1997 to
December 31, 1997, it will be based on an annual rate of $125,000 plus a
performance bonus at a rate of up to $50,000 to be paid weekly; and (c) from
January 1, 1998 to June 20, 1999, it will be based on an annual rate of
$200,000; this is in addition to a further bonus of 2 1/2% of the Company's
pre-tax profits up to $3,000,000 and then 4% thereafter pursuant to a formula
based upon specified earnings levels, payable annually at the end of each
calendar year. Mr. Yamamoto will also receive options to acquire 20,000 shares
of Common Stock per year at $1.00 per share, such options to vest over the
course of employment on terms no less favorable than granted to other employees.
Mr. Todd Jackson entered into an employment agreement with the Company,
providing for his services as Senior Vice President, Domestic and International
Sales from May 19, 1997 to May 18, 1999, which agreement was amended as of
October 4, 1997 (the "Jackson Agreement"). Pursuant to the Jackson Agreement,
Mr. Jackson's compensation will be as follows: (a) from May 19, 1997 to May 18,
1998, an annual salary of $100,000, plus a performance bonus of up to $75,000
per year, both payable weekly; and (b) from May 19, 1998 to May 18, 1999, an
annual salary of $200,000. In the event the Company elects to exercise its
option for a third year of the Jackson Agreement, Mr. Jackson will receive a
base salary of $225,000. In addition, Mr. Jackson will also receive a minimum
guaranteed bonus at the rate of $25,000 per year, based upon the pre-tax profits
of the Company. Mr. Jackson has also been given an option to terminate his
agreement if the Company has not consummated an initial public offering by
September 19, 1997. Since the Company did not consummate an initial public
offering by such date, Mr. Jackson has the right to terminate his agreement upon
60 days prior written notice. Mr. Jackson also will receive 10,000 stock options
per year of employment, such options to vest after each year of employment,
pursuant to the terms of the Company's employee stock option plan.
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
33
<PAGE> 35
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 Directors 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.
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.
34
<PAGE> 36
From time to time, Mr. Levin has borrowed funds from the Company on a
short-term basis. As of June 30, 1997, these borrowings amounted to
approximately $104,900. Any future borrowings by any officer of the Company will
require the approval of a majority of the disinterested members of the Board.
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 $240,000, respectively. Interest on the loans currently
accrues at the rate of 12% and 14%, respectively. Mr. Cayre has waived interest
that accrued on the loans prior to December 31, 1996. 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 $240,000 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 the 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. Mr.
Cayre will also be entering into a consulting agreement with the Company
pursuant to which he will be paid $200,000 through September 30, 1998. In
February 1996, in connection with a prior restructuring of this indebtedness,
Mr. Cayre received options to purchase 48,743 shares of Common Stock at a price
of $.43 per share.
TRANSACTIONS WITH MORRIS WOLFSON AND OTHERS
In January 1996, the Company entered into a transaction with AMAE Ventures,
an affiliate of Mr. Wolfson, pursuant to which AMAE Ventures acquired 4% of the
Company's outstanding Common Stock and lent to the Company the sum of $322,000,
which amount was used by the Company for general overhead purposes and bears
interest at 12%. This note is due on the earlier to occur of December 31, 1997
or the closing of the Offering. Interest on this line accrues at 10% per year.
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
the 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 December
31, 1997 or upon the closing of the Offering. In connection with such loan,
South Ferry #2 L.P. received 29,905 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 Chana Sasha Foundation
and others 6,408 shares of the Company's Common Stock with respect to such
extension of credit.
The terms of AMAE Ventures' original agreement with the Company, as
indicated above, enables such entity (or its investors) to receive up to an
additional 199,748 shares of Common Stock upon the completion of the Offering.
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 the Offering. The holders of
these notes, ACA Equities, D&M Investments and Gilbert Karsenty, 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 15%
net profit participation in the Company's interest in the series. This loan has
been repaid through an advance from Alliance.
35
<PAGE> 37
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 the
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.
LOAN FROM AFFIDA BANK
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 the 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
$0.43 in connection with this loan. Prior to the effectiveness of the 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. Affida Bank is domiciled in Switzerland, is a merchant bank and has an
arms length relationship with 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 the 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
Mintz & Vann LLP, 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 $71,000 during the first two quarters of
1997.
The Company believes that the foregoing transactions were on terms no less
favorable to the Company than those available from unaffiliated parties. It is
the Company's current policy that all transactions with officers, directors, 5%
shareholders and their affiliates will be entered into only if such transactions
are approved by a majority of the disinterested independent directors, and on
terms no less favorable to the Company than could be obtained from unaffiliated
parties and are reasonably expected to benefit the Company.
36
<PAGE> 38
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 30, 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).................................. 685,123 48.4% 23.5%
Joe Cayre(4)...................................... 263,617 19.1% 9.2%
Morris Wolfson(5)................................. 110,777 8.3% 4.0%
Aaron Wolfson(6).................................. 108,642 8.1% 3.8%
Abraham Wolfson(7)................................ 102,233 7.7% 3.6%
Affida Bank(8).................................... 82,305 6.2% 2.9%
Bruce P. Vann(9).................................. 14,273 1.1% *
Paul Yamamoto(10)................................. 10,000 * *
All officers and directors as a group (seven
persons, including nominee directors)........... 709,396 49.4% 24.2%
</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 249,488 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. Mr. Levin
has agreed to vote all shares held by him for a period of thirty six (36)
months following the closing of the Offering for election to the Company's
Board of Directors of one designee of H.J. Meyers reasonably acceptable to
the Company. See "Certain Transactions" and "Employment Agreements."
(4) 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 7.6% of the outstanding shares of
Common Stock of the Company after the Offering.
(5) Includes 59,966 shares to be issued upon conversion of certain convertible
debt upon the closing of the Offering. Does not include 210,875 shares
owned by Abraham and Aaron Wolfson, Mr. Morris Wolfson's brothers, of which
Mr. Morris Wolfson disclaims beneficial ownership. Also does not include
20,506 shares owned by Chana Sasha Foundation, of which Mr. Morris Wolfson
is the president, and of which Mr. Morris Wolfson disclaims beneficial
ownership.
(6) Includes 59,966 shares to be issued upon conversion of certain convertible
debt upon the closing of the Offering. Does not include 213,010 shares
owned by Morris or Abraham Wolfson, Mr. Aaron Wolfson's brothers, of which
Mr. Aaron Wolfson disclaims beneficial ownership.
(7) Includes 59,966 shares to be issued upon conversion of certain convertible
debt upon the closing of the Offering. Does not include 219,419 shares
owned by Morris or Aaron Wolfson, Mr. Abraham Wolfson's brothers, of which
Mr. Abraham Wolfson disclaims beneficial ownership.
(8) Includes options to purchase 3,268 shares of Common Stock at an exercise
price of $0.43 per share.
(9) Includes options to purchase 10,000 shares of Common Stock at an exercise
price of $1.00 per share.
(10) Includes options to purchase 10,000 shares of Common Stock at an exercise
price of $1.00 per share.
37
<PAGE> 39
CONCURRENT OFFERING BY SELLING SECURITYHOLDERS
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 Securityholders Shares may be sold on or about the effective
date of the Offering if a current prospectus relating to the Securityholder
Shares is in effect and the Securityholder Shares are qualified for sale. The
shares of Common Stock underlying any such warrants are subject to a 12 month
lock-up beginning on the date of this Prospectus. 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 the Selling
Securityholders. Sales of the Securityholder Shares or 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
38
<PAGE> 40
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 this Prospectus; (b) if the securities are sold in block
transactions and the purchaser wishes to resell, such arrangements would be
described in this 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 this Prospectus.
This 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 Securityholder
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, they 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 are they
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
39
<PAGE> 41
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."
WARRANTS
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 $0.97 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 the 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 Company has also issued 147,924 warrants to other consultants and
investors in connection with prior financings of the Company. Of these warrants,
21,362 are exercisable at $1.07 per share and 126,562 are exercisable at $0.43
per share.
The warrantholders 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.
40
<PAGE> 42
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) 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 the Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 150,000 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 $8.75 per share (based upon an assumed
initial public offering price of $6.25 per share). The Underwriter's Warrant
will not be saleable, transferable, assignable or hypothecatable 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 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 Underwriter's
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
41
<PAGE> 43
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 $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, if the holders
thereof do not otherwise notify the Company that they wish to redeem their
conversion feature, on the completion of the Offering. The June 1996 Notes are
secured by substantially all of the assets of the Company. To the extent not
otherwise repaid, 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 the Offering, their right to so convert.
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 the 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 the Offering, the Company will have outstanding
approximately 2,831,092 shares of Common Stock. Of these shares, 1,331,092 are
Restricted Shares. The 1,500,000 shares of Common stock that are sold by the
Company to the public in the 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 the
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 was amended and became effective on
April 29, 1997, beginning 90 days after the date of this Prospectus, a person
42
<PAGE> 44
(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), a person who is not deemed to have been an affiliate of the Company at
any time during the three months preceding a sale, and who has beneficially
owned 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 18 months 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 or Warrant
Shares will be eligible for sale immediately after the 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 or Regulation D 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.
43
<PAGE> 45
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. ........................ 1,500,000
</TABLE>
The Underwriter has advised the Company that it proposes to offer the
shares to the public at an offering price of between $5.50 and $7.00 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 completion 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 225,000 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 $281,250 at an
assumed initial public offering price of $6.25 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 the Offering,
estimated to total approximately $365,000.
At the closing of the Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 150,000 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, at an assumed initial offering price of $6.25,
will be $8.75 per share (140% of the initial public offering price). The
Underwriter's Warrant will not be saleable, transferable, assignable or
hypothecatable 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 shareholders of the Company. The holder or holders of the
Underwriter's
44
<PAGE> 46
Warrant can be expected to exercise it at a time when the Company would, in all
likelihood, be able to obtain 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 H.J.
Meyers under the terms of which H.J. Meyers has agreed to perform consulting
services related to corporate finance and will be paid a non-refundable fee of
$6,000 per month for 12 months. The Company has agreed to pay H.J. Meyers the
entire one year fee upon closing of the Offering.
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
the Offering, or subsequently acquired under any option, warrant or convertible
security owned prior to the Offering, for a period of 18 months 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 or Regulation D 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.
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.
In connection with the Offering, the Company has agreed that for a period
of 36 months from the closing of the Offering, H.J. Meyers shall have the right
to designate one member to the Company's Board of Directors, provided that the
designee is acceptable to the Company.
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 the 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.
Any limitation on the ability of the Underwriter to make a market in the
Company's Common Stock could adversely impact the liquidity or trading price of
the Company's Common Stock, which could have a material adverse impact on the
market price of the Company's Common Stock. The Chicago office of the Securities
and Exchange commission is conducting a private, nonpublic investigation of H.J.
Meyers, the Underwriter, pursuant to a Formal Order of Investigation issued by
the Commission. The investigation is focused on whether H.J. Meyers may have
violated applicable securities laws and the rules and regulations
45
<PAGE> 47
thereunder, with respect to sales of certain securities. The Company is
currently unable to assess the potential impact of the outcome of the Staff's
investigation on H.J. Meyers' ability to make a market in the Company's Common
Stock after the Offering or trading in the Company's securities.
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 Mintz & Vann LLP, 1900 Avenue of the Stars, Suite 1450, Los Angeles,
California 90067. Bruce P. Vann, a member of Kelly Lytton Mintz & Vann LLP, is a
nominee 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, December 31,
1996 and the six months ended June 30, 1997 included in the Prospectus have been
so included in reliance on the report of Price Waterhouse LLP, for 1995 and by
Stonefield Josephson, Inc., for 1996, both independent accountants, and are so
included in reliance upon their reports given on their respective authority as
experts in auditing and accounting.
On July 1, 1997, Price Waterhouse LLP (the "Prior Accountants") resigned as
independent accountants and withdrew their report on the Company's Financial
Statements for the year ended December 31, 1996. On or about August 7, 1997, the
Company agreed to accept the resignation of the Prior Accountants. In connection
with such decision, the Company appointed Stonefield Josephson, Inc. (the "the
Stonefield Firm" or "New Accountants") to audit the fiscal year ended December
31, 1996, and review and audit subsequent periods on a going forward basis. The
decision to accept the resignation of the Prior Accountants was approved by the
board of directors of the Company. There were no disagreements with Prior
Accountants on any matters of accounting principle or practices, financial
statement disclosure or auditing scope or procedure which if not resolved to the
Prior Accountant's satisfaction would have caused it to make reference to the
subject matter of the disagreement in connection with its report.
The Company's decision to restate its results relates to the existence of a
provision of a clause in a security agreement which was provided to the Prior
Accountants subsequent to the date of their audit opinion, which had the
potential of creating a contingency with respect to revenue from a related
licensing agreement which the Company had included in its 1996 financial
statements. In light of the Company's intention to restate its results for
fiscal 1996, the Company determined to appoint the New Accountants to complete
such audit as well as to audit the six month period ending June 30, 1997.
The Prior Accountants' opinion for 1995 contained an explanatory paragraph
relating to the ability of the Company to function as a going concern.
The engagement of the Stonefield Firm is effective as of August 7, 1997. No
discussion was made with the Stonefield Firm as to application of any specific
accounting principle. The Company has authorized the Prior Accountants to
respond fully to any inquiries of the New Accountants. A copy of the letter from
the
46
<PAGE> 48
Prior Accountants relating to this disclosure is attached as Exhibit 23.2 to the
Registration Statement of which this Prospectus is a part.
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 Web at http://www.sec.gov.
47
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Stonefield Josephson, Inc., Independent Auditors............................ F-2
Report of Price Waterhouse LLP, Independent Accountants............................... F-3
Consolidated Balance Sheet at December 31, 1995, December 31, 1996, and for the six
months ended June 30, 1997.......................................................... F-4
Consolidated Statement of Operations for the period from February 27, 1995 to December
31, 1995, for the year ended December 31, 1996, for the six months ended June 30,
1996 and for the six months ended June 30, 1997..................................... F-5
Consolidated Statement of Cash Flows for the period from February 27, 1995 to December
31, 1995, for the year ended December 31, 1996, for the six months ended June 30,
1996 and for the six months ended June 30, 1997..................................... F-6
Consolidated Statement of Cash Flows Supplemental Schedule of Non Cash Activities for
the period from February 27, 1995 to December 31, 1995, for the year ended December
31, 1996, for the six months ended June 30, 1996 and for the six months ended June
30, 1997............................................................................ F-7
Consolidated Statement of Shareholders' Equity (Deficit) for the period from February
27, 1995 to December 31, 1995, for the year ended December 31, 1996, and for the six
months ended June 30, 1997.......................................................... F-8
Notes to Consolidated Financial Statements............................................ F-9
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Team Communications Group, Inc.
We have audited the consolidated balance sheets of Team Communications
Group, Inc. and subsidiaries as of December 1, 1996 and June 30, 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year and six month period then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of its
operations and its cash flows for the year and six month period ended December
31, 1996 and June 30, 1997, respectively, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12, the Company
has had significant losses in the past, has been dependent on outside equity
investors to finance its operations, and certain notes payable are past due.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans with respect to these matters are described
in Note 12 to the financial statements. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
September 19, 1997
F-2
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS
May 28, 1996, except as to Note 10, which is as of September 27, 1996
To the Board of Directors and
Shareholders of DSL Entertainment 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 DSL Entertainment Group, Inc. and its subsidiaries at December 31,
1995 and the results of their operations and their cash flows 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
audit 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
audit provides 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-3
<PAGE> 52
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ------------- ------------
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 105,900 $ 214,300 $ 39,000
Trade receivables, less allowance for doubtful accounts
of $63,800, $63,800 and $0, respectively (Note 2)..... 5,831,800 3,342,100 53,100
Television program costs, less accumulated amortization
of $1,908,900, $1,599,691 and $490,600, respectively
(Note 3).............................................. 4,174,000 3,555,900 596,100
Due from officer (Note 5)............................... 104,900 11,300 42,200
Fixed assets, net (Note 2).............................. 35,400 42,100 18,200
Organizational costs and other assets (Note 2).......... 307,500 144,900 24,500
---------- -----------
Total assets.................................. $10,559,500 $ 7,310,600 $ 773,100
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities
(Note 2).............................................. $ 2,549,000 $ 1,220,200 $ 458,800
Deferred revenue (Note 2)............................... 255,200 4,500 498,000
Accrued participations (Note 2)......................... 1,423,800 1,428,400 126,100
Notes payable (Note 7).................................. 4,414,000 3,762,900 18,500
Accrued interest (Note 5 and 7)......................... 557,400 242,000 40,200
Shareholder loan and note payable (Note 5).............. 740,000 740,000 750,000
---------- -----------
Total liabilities............................. $ 9,939,400 $ 7,398,000 $ 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 0
Common stock, no par value; 18,000,000 shares
authorized; 1,131,344, 1,131,344 and 1,024,059
shares issued and outstanding (Note 2)........... 1,000 1,000 1,000
Paid in capital.................................... 1,135,100 848,300 0
Treasury stock receivable (Note 10)................ 0 0 (87,000)
Accumulated deficit................................ (516,000) (936,700) (1,032,500)
---------- -----------
Total shareholders' equity (deficit).......... 620,100 (87,400) (1,118,500)
---------- -----------
Total liabilities and shareholders' equity
(deficit)................................... $10,559,500 $ 7,310,600 $ 773,100
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 53
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE YEAR ENDED FEBRUARY 27, 1995
ENDED JUNE 30, 1997 ENDED JUNE 30, 1996 DECEMBER 31, 1996 TO DECEMBER 31, 1995
------------------- ------------------- ------------------ --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues (Note 2)..................... $ 3,473,100 $ 3,314,600 $5,749,800 $ 1,245,300
Cost of revenues...................... 984,300 1,549,600 2,895,900 946,900
---------- ---------- ---------- -----------
Gross profit.......................... 2,488,800 1,765,000 2,853,900 298,400
General and administrative expense.... 987,400 976,300 2,323,800 1,288,200
Bad debt expense...................... 660,000 -- -- --
---------- ---------- ---------- -----------
Net income from operations............ 841,400 788,700 530,100 (989,800)
Interest expense (Note 5)............. 523,400 152,500 582,700 42,700
Interest income....................... 102,700 -- 58,300 --
Other income.......................... -- -- 90,100 --
---------- ---------- ---------- -----------
Net income (loss) before income
taxes............................... 420,700 636,200 95,800 (1,032,500)
Provision for income taxes (Note 4)... -- -- -- --
---------- ---------- ---------- -----------
Net income (loss)..................... $ 420,700 $ 636,200 $ 95,800 $ (1,032,500)
========== ========== ========== ===========
Net income (loss) per share (Note
2).................................. $ 0.23 $ 0.35 $ 0.05 $ (0.57)
========== ========== ========== ===========
Weighted average number of shares
outstanding (Note 2)................ 1,821,800 1,821,800 1,821,800 1,821,800
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 54
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE YEAR ENDED FEBRUARY 27, 1995
ENDED JUNE 30, 1997 ENDED JUNE 30, 1996 DECEMBER 31, 1996 TO DECEMBER 31, 1995
------------------- ------------------- ------------------ --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................... $ 420,700 $ 636,200 $ 95,800 $ (1,032,500)
Adjustments to reconcile net income
to cash used for operating
activities:
Depreciation and amortization.... 6,700 6,600 15,600 4,500
Loss on TPEG settlement (Note
10)............................ -- 53,700 -- 180,000
Provision for doubtful accounts
receivable..................... 63,800 10,600
Amortization of television
program costs.................. 309,200 950,900 1,100,800 490,700
Additions to television program
costs.......................... (927,300) (2,982,100) (4,060,600) (1,045,800)
Amortization of notes payable
discount....................... -- -- 353,300 --
Changes in assets and
liabilities:
Increase in trade
receivables................. (2,489,700) (2,436,300) (3,352,900) (193,700)
Increase in organization costs
and other assets............ (162,600) (28,900) (123,000) (25,400)
Increase in accounts payable,
accrued expense and other
liabilities................. 1,328,800 1,920,400 939,500 280,800
Increase (decrease) in deferred
revenue..................... 250,700 (319,700) (343,500) 498,000
Increase in accrued
participations.............. (4,600) 472,500 1,302,300 126,100
Increase in accrued interest... 315,400 98,400 201,800 40,200
---------- ----------
Net cash used for operating
activities................ (952,700) (1,628,300) (3,807,100) (666,500)
---------- ----------
INVESTING ACTIVITIES:
Purchase of fixed assets............ (27,000) (36,900) (21,800)
Increase in due to officer.......... -- -- 175,000 --
Increase in due from officer........ (93,600) (113,000) (144,100) (42,200)
---------- ----------
Net cash used for investing
activities................ (93,600) (140,000) (6,000) (64,000)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from shareholder loan and
notes payable.................... -- 1,872,000 -- 750,000
Proceeds from issuance of note
payable and warrants............. 937,900 (10,000) 4,747,000 67,500
Principal payment on loan due to
stockholder...................... -- (18,500) (10,000) --
Principal payment of notes
payable.......................... -- -- (748,600) (49,000)
Issuance of common stock............ -- -- -- 1,000
---------- ----------
Net cash provided by
financing activities...... 937,900 1,843,500 3,988,400 769,500
---------- ----------
Net change in cash.................... (108,400) 75,200 175,300 39,000
Cash at beginning of period........... 214,300 39,000 39,000 --
---------- ----------
Cash at end of period................. $ 105,900 $ 114,200 $ 214,300 $ 39,000
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid....................... $ -- $ -- $ 15,100 $ 2,500
========== ==========
Income taxes paid................... $ -- $ -- $ 4,000 $ 2,400
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 55
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE SIX JUNE 30, 1996 FOR THE PERIOD FROM
MONTHS ENDED ------------- FOR THE YEAR ENDED FEBRUARY 27, 1995
JUNE 30, 1997 DECEMBER 31, 1996 TO DECEMBER 31, 1995
------------- (UNAUDITED) -------------------- ---------------------
<S> <C> <C> <C> <C>
TPEG settlement (Note 10):
Treasury stock receivable........... $ -- $ -- $ -- $ 87,000
Television program costs received... -- -- -- 41,000
Receivable assigned to TPEG......... -- -- -- 130,000
Assumption of payable associated
with settlement.................. -- -- -- 178,000
Extinguishment of TPEG settlement
payable by assignment of the
treasury stock receivable........... -- 178,000 178,000 --
Issuance of warrants in conjunction
with notes payable (Note 7):........ -- -- 602,700 --
Transfer of shares by principal
shareholder to notes payable holder
(Note 7)............................ -- -- 45,700 --
Issuance of shares in connection with
notes payable (Note 7).............. -- -- 84,200 --
Issuance of shares in connection with
services provided to Company........ -- -- 24,700 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 56
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<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)..... 79,708 0 84,200
Issuance of warrants in
connection with
private placements
(Note 7)............. 602,700
Issuance of shares in
connection with anti-
dilution provisions
of convertible
promissory note (Note
7)................... 4,292
Issuance of shares in
connection with
services provided to
the Company.......... 23,285 24,700
Net income for year
ended December 31,
1996................. 95,800
----- ----- --------- ------ -------- ----- ----------
Balance at 12/31/96.... 1,131,344 1,000 848,300 0 (936,700)
Issuance of warrants in
connection with
private placement.... 286,800
Net income for six
months ended June 30,
1997................. 420,700
----- ----- --------- ------ -------- ----- ----------
Balance at June 30,
1997................. 0 $ 0 1,131,344 $1,000 $1,135,100 $ 0 $ (516,000)
===== ===== ========= ====== ======== ===== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 57
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 one major customer accounted for approximately 91% of the
Company's total operating revenue for the six months ended June 30, 1997. Sales
to two major customers accounted for approximately 57% of the Company's total
operating revenue for the six months ended June 30, 1996. Sales to six major
customers accounted for approximately 81% of the Company's total operating
revenue for the year ended December 31, 1996. Sales to two major customers
accounted for approximately 73% of the Company's total operating revenue for
1995.
CASH
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts.
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.
F-9
<PAGE> 58
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 $23,400, $16,700 and $3,600 in
accumulated depreciation at June 30, 1997, December 31, 1996 and December 31,
1995, respectively.
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 $1,500, $2,600 and $900 in accumulated amortization at
June 30, 1997, December 31, 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, loans payable,
and deferred revenue approximated fair value as of June 30, 1997 and December
31, 1996 because of the relatively short maturity of these instruments. The
carrying value of long term accounts receivable and notes payable approximated
fair value as of June 30, 1997 and December 31, 1996 because the instruments are
valued at the Company's effective borrowing rate.
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 18,000,000. 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 89% and 72% of the trade receivable balance at June 30, 1997
and December 31, 1996, respectively, were represented by four 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).
F-10
<PAGE> 59
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
The Financial Accounting Standards Board (FASB) has issued a new statement
recently (FASB No. 128) which requires companies to report "basic" earnings per
share, which will exclude options, warrants, and other convertible securities.
The accounting and disclosure requirements of this statement are effective for
financial statements for fiscal years beginning after December 15, 1997, with
earlier adoption encouraged. Management does not believe that the adoption of
this pronouncement will have a material impact on the financial statements.
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 approximately
199,748.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
On April 1, 1997, the Company adopted the provision of FASB No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair values of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of this statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
NOTE 3 -- TELEVISION PROGRAM COSTS:
Television program costs consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
In process and development................ $1,462,000 $1,977,000 $213,700
Released, less accumulated amortization... 2,712,000 1,578,900 382,400
---------- ---------- --------
Total television program
costs......................... $4,174,000 $3,555,900 $596,100
========== ========== ========
</TABLE>
Based on management's estimates of future gross revenue as of June 30,
1997, approximately 60% of the $2,598,000 in unamortized released television
program costs will be amortized during the three years ending June 30, 1999 and
80% will be amortized during the four years ending June 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 June 30, 1997 and December 31, 1996, the tax
provision is calculated on the consolidated basis.
F-11
<PAGE> 60
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INCOME TAXES: (CONTINUED)
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 are as follows for the periods ending:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Statutory federal tax (benefit)
rate............................... 34% 34% 34% (34)%
State income tax provision, net of
federal benefit.................... 0% 0% 0% 0%
Benefits of operating loss
carryforward....................... (34)% (34)% (34)% 0%
Increase in valuation reserve against
deferred tax asset................. 0% 0% 0% 34%
----- ---- - ---- - ---- -
Effective tax rate................... 0% 0% 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.
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net operating loss
(carryforward)................ $ 168,900 $ 216,315 $ 311,855 $ 348,225
Valuation allowance............. $(168,900) $(216,315) (311,855) (348,225)
-------- --------
Net deferred tax
asset............... $ 0 $ 0 $ 0 $ 0
======== ========
Total current and deferred taxes
payable....................... $ 0 $ 0 $ 0 $ 0
======== ========
</TABLE>
At June 30, 1997, December 31, 1996, and December 31, 1995 respectively,
the Company has a federal net operating loss carryforward of $496,521, $917,221,
and $990,858 respectively, which will begin to expire in 2010.
NOTE 5 -- RELATED PARTY TRANSACTIONS:
The due from officer balances of $104,900, $11,300, and $42,200 at June 30,
1997, December 31, 1996, and December 31, 1995 respectively, represent payments
made by the Company on behalf of and loans made to the President and principal
shareholder, less producer's fees earned by the president and principal
shareholder for services on a company production.
F-12
<PAGE> 61
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- RELATED PARTY TRANSACTIONS: (CONTINUED)
The shareholder loan and note payable balance are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, DECEMBER 31, 31,
1997 1996 1995
------------ ------------ --------
<S> <C> <C> <C>
Promissory notes:
12% secured promissory note due July 1, 1996(i)........... $500,000 $500,000 $500,000
14% secured promissory note due July 1, 1996(ii).......... 240,000 240,000 250,000
-------- -------- --------
$740,000 $740,000 $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 shareholder has
waived all accrued interest relating to this note totaling $121,300 and
$91,300 as of June 30, 1997 and as of December 31, 1996, 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 note is secured by all of the President
and principal shareholders' shares and the assets of the Company. The
shareholder has waived all accrued interest relating to this note totaling
$62,300 and $37,100 as of June 30, 1997 and December 31, 1996,
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.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
The Company has entered into a new employment agreement with the president
of the Company requiring payment, effective January 1, 1997 through December 31,
2001, of annual compensation of $240,000 plus $125,000 per annum as an advance
against a pro-rata portion of producer's fees earned by Mr. Levin.
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. For the year ended December 31, 1996, revenue of $680,000,
was recognized against this guarantee, which represents 11% of revenue for 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, at December 31, 1996, the Company only
recognized the portion of the guarantee for which the Giniger Entities have
entered into sales agreements with unaffiliated third parties for such rights
and for which program materials were available to the Giniger Entities. As of
June 30, 1997, all rights held by the Giniger Entities have been conveyed back
to the Company, and no revenue was recognized through this transaction as of
June 30, 1997.
The Company leases office space and certain office equipment. The total
lease expense was $48,200, $55,745, $113,700 and $82,200 for the periods ended
June 30, 1997, June 30, 1996, December 31, 1996 and
F-13
<PAGE> 62
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 June 30, 1997 and December 31,
1996:
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Private placements:
12% secured notes due November and December 1997(i)........ $ 900,000 $ 900,000
10% secured convertible notes due May 1998(ii)............. 773,900 657,000
10% secured convertible notes due February 1999(iii)....... 711,300
Promissory notes:
12% convertible secured promissory note due December 31,
1997(iv)................................................ 322,000 322,000
10% secured promissory note due December 1997(v)........... 500,000 500,000
10% secured promissory note due June 1997(vi).............. 0 885,000
8% secured note due December 1997(vii)..................... 281,300 239,900
10% secured note due December 1997(viii)................... 140,600 124,100
11% unsecured promissory note past due..................... 134,900 134,900
10% secured note due on October 1997(x).................... 650,000 0
---------- ----------
$ 4,414,000 $ 3,762,900
========== ==========
</TABLE>
- ---------------
(i) During February - June 1996, the Company participated in a private
placement offering. The Company sold 18 placement units to the following
investors: Matthew and Barbara Geisser, Central Scale Co., Vijaya Kani
Rehala, Vijay-Kumar Rekhala, M.D., United Congregation Mesorah, Samuel
Marinelli, Mildred Geiss, Jon Kastendieck, Bank Leumi-Affida Bank,
Cooperative Holding Corporation, Aaron Wolfson, Abraham Wolfson, Arielle
Wolfson, and LEVPOL. 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 $148,600 and $88,400
at June 30, 1997 and December 31, 1996 respectively. 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
F-14
<PAGE> 63
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NOTE PAYABLE: (CONTINUED)
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 November 15, 1997, as amended. The notes are secured by
substantially all of the assets of the Company. The fair value of the
notes and the carrying amount and fair value of the associated warrants
were determined by the market rate, approximately 25%, for a financial
instrument of this risk. The notes were discounted at this market rate,
the 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 to the following
investors: Wellington Corporation, Crescent Capital Company, LLC, Arthur
Steinberg IRA Rollover, Robert Steinberg IRA Rollover, Robert Ram
Steinberg, A Partnership, Heiko Theime, Alpha Ventures, Tuch Family Trust,
Third World Trust Company LTD., Alfred Ross, Fred Chanowski, Allen
Goodman, Felix Paige, Rogal America, Mark Levine, Joseph Sullivan, Robert
Gopen, Colony Financial Services, John Carberry, Daniel and Thalia
Federbush, and Michael Berlin. 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 December 31,
1996, the Company raised $975,000 and issued 83,308 warrants. Principal
and interest are due no later than May 31, 1998. The accrued interest
balance was $36,800 at December 31, 1996. 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 were determined by the
market rate, approximately 25%, for a financial instrument of this risk.
The notes were discounted at this market rate, the value of the warrants
amounted to $254,400 and is included in paid in capital.
(iii) During January 1997, the Company participated in a third private
placement offering. The Company sold 19.4 placement units to the
following investors: Alan Parness, Arab International Trust Co., Duck
Partners, LP, Gary and Paula Wayton, Michael Rosenbaum, RMK Financial
LLC, Robert Bain, Robert Frankel, Roger Triemstra, Roland McAbee, Swan
Alley Limited, and Van Moer Santerr & Cie. Each unit consisted of a
$50,000 senior 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 the 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. Each warrant entitles the holder to buy one share of common stock
at an exercise price of $.97. 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 June 30, 1997, the Company raised
$969,000 and issued 193,870 warrants. Principal and interest are due no
later than February 1999. The accrued interest balance was $32,700 at
June 30, 1997. 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 were determined by the market rate, approximately
25%, for a financial instrument of this risk. The notes were discounted
at this marekt rate, the value of the warrants amounted to $258,100 and
is included in paid-in capital.
(iv) In January 1996, the Company entered into an agreement with AMAE Ventures,
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
F-15
<PAGE> 64
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NOTE PAYABLE: (CONTINUED)
stock on a fully diluted basis through an initial public offering. The
note accrues interest at 12% per annum and is due December 31, 1997, as
amended. The note is secured by certain receivables and television
distribution rights. The accrued interest balance was $54,158 at June 30,
1997 and $36,200 at December 31, 1996. The fair value of the note and
carrying value and fair value of the associated shares were determined by
the market rate for a financial instrument of this risk.
(v) In April 1996, the Company entered into a $500,000 promissory note with
South Ferry #2, L.P., an outside investor, to finance a television
program. The note accrues interest at 10% per annum and is due on December
31, 1997, as amended. The accrued interest balance was $54,600 at June 30,
1997 and $29,600 at December 31, 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 methods based on the Company's borrowing rates, approximately
25%, for similar types of borrowing arrangements with comparable terms and
maturities.
(vi) In July 1996, the Company entered into a $1,200,000 promissory note with 3
outside investors, ACA Equities, V&M Investments and Gilbert Karsenty, 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 June 30,
1997, there had been $1,200,000 repaid in respect to this debt. As of
December 31, 1996 there has been $315,000 repaid in respect to this debt.
The accrued interest balance was $83,100 at June 30, 1997 and $47,800 at
December 31, 1996. There were 53,403 shares of common stock issued in
connection with the origination of this debt and 21,362 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 methods based on the Company's
borrowing rates, approximately 25%, for similar types of borrowing
arrangements with comparable terms and maturities.
(vii) In November 1996, the Company entered into a $300,000 promissory note
with Affida Bank. The note bears interest at 8% per annum, compounding
quarterly, and is due the sooner of an initial public Offering or
December 31, 1997. The accrued interest balance was $15,000 at June 30,
1997 and $2,800 at December 31, 1996. The note is secured by
substantially all of the assets of the Company. There were 25,634 Common
Stock Purchase warrants issued in connection with this note. Each warrant
entitles the note holder to buy one share of common stock at an exercise
price of $.43. The warrants are currently exercisable and terminate on
the earlier to occur of the third anniversary of the effective date of an
initial public offering or June 30, 2000. The note is secured by
substantially all of the assets of the Company. The carrying amount and
fair value of the notes and associated warrants were determined by the
market rate, approximately 25%, for a financial instrument of this risk.
The notes were discounted at this market rate, the value of the warrants
amounted to $66,000 and is included in paid in capital.
(viii) In December 1996, the Company entered into a $150,000 promissory note
with Phillip Tewel. The note bears interest at 10% per annum, compounding
quarterly, and is due the sooner of an initial public offering or
December 31, 1997. The accrued interest balance was $7,800 at June 30,
1997 and $400 at December 31, 1996. The note is secured by substantially
all of the assets of the Company. There were 29,191 Common Stock Purchase
warrants issued in connection with this note. Each warrant entitles the
note holder to buy one share of common stock at an exercise price of
$.43. The warrants are currently exercisable and terminate on the earlier
to occur of the third anniversary of the effective date of an initial
public offering or June 30, 2000. The note is secured by substantially
all of the assets of the Company. The carrying value of the warrants
amounted to $26,500 and is included in paid-in capital.
(ix) In September 1996, the Company entered into a $150,000 unsecured
promissory note with Time Life to repay an advance provided to the Company
in October 1995. The note bears interest at 11% per annum
F-16
<PAGE> 65
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NOTE PAYABLE: (CONTINUED)
from October 1995 and required payments such that the note would be repaid
by March 31, 1997. As of December 31, 1996, there was no accrued interest
balance. During 1996, the Company made a $15,125 principal payment and a
$15,125 interest payment. The holder of the note has not filed a notice of
default and the Company is negotiating an extension of the payment terms.
(x) In June 1997, the Company entered into a $650,000 secured promissory note
with Alliance. The note bears interest at the prime rate plus one per cent
per annum from June 1996 and required payments such that the note would be
repaid by October 18, 1997. As of June 30, 1997 there was $2,170 of accrued
interest. The note is secured by all the television rights and interest
owned with regards to the "Total Recall" project. The Company intends to
enter into a line of credit with Mercantile National Bank in order to repay
this outstanding note.
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>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
North America............. $ 180,000 $1,480,000 $2,221,900 $ 768,000
Europe.................... 307,100 994,600 1,332,900 185,000
South America............. 1,600,000 400,000 732,400 25,000
Asia...................... 136,000 300,000 1,306,500 196,300
Australia and Africa...... 1,250,000 140,000 156,100 71,000
---------- ----------
Total........... $3,473,100 $3,314,600 $5,749,800 $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 six months ended June 30, 1997 and the year ended December 31, 1996.
F-17
<PAGE> 66
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
A summary of the Key Employee Plan as of and for the six months ended June
30, 1997 and the year ended December 31, 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 June 30, 1997 and December 31,
1996............................................... 35,000
=======
Weighted-average fair value of options granted during
the year........................................... $ 1.14
=======
</TABLE>
The following table summarizes information about options outstanding at
June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
SHARES EXERCISABLE AT
JUNE 30, 1997 AND DATE
TOTAL SHARES EXERCISE PRICE DECEMBER 31, 1996 OPTIONS EXPIRE
- ------------ -------------- --------------------- --------------
<S> <C> <C> <C>
30,000 $ 1.00 10,000 July 1, 2006
5,000 $ 2.00 5,000 June 6, 2006
- ------------ -------
35,000 15,000
========= ===============
</TABLE>
The Company has elected, as permitted by FASB Statement No. 123,
"Accounting for Stock Based Compensation" ("FASB 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 FASB 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 20,934 warrants exercisable at $0.43 to two outside parties for services
provided in raising outside debt. The Company also issued 23,000 warrants
exercisable at $1.00 and 20,000 warrants exercisable at $2.50 to two outside
parties for services rendered to the Company. The Company recognized $5,000 in
compensation related to these warrants during the year ended December 31, 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
F-18
<PAGE> 67
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
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 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 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.
F-19
<PAGE> 68
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS: (CONTINUED)
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 1,500,000
shares of common stock at $5.50 to $7.00 per share.
The Company has received a commitment letter from Mercantile National Bank
for multiple lines of credit of up to $8,175,000 (the "Proposed Bank Facility"),
which lines of credit would permit borrowings pursuant to specified borrowing
bases made up of the value of the library (including a value for "Total
Recall"), accounts receivable and other assets, including cash. The Company
currently intends to repay the $2,069,650 of indebtedness remaining after the
Offering with proceeds from the Proposed Bank Facility. The Proposed Bank
Facility will contain covenants relating to the Company's tangible net worth,
debt to equity ratio and profitability. No assurance can be given that the
Proposed Bank Facility will be entered into or that the Company will be able to
use proceeds from such facility as indicated herein.
NOTE 12 -- GOING CONCERN:
The Company's financial statements for the six months ended June 30, 1997
and the year ended December 31, 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 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 has engaged 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-20
<PAGE> 69
======================================================
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.......................... 8
Use of Proceeds....................... 14
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 24
Management............................ 31
Certain Transactions.................. 34
Principal Shareholders................ 37
Concurrent Offering by Selling
Securityholders..................... 38
Description of Securities............. 39
Shares Eligible for Future Sale....... 42
Underwriting.......................... 44
Legal Matters......................... 46
Experts............................... 46
Additional Information................ 47
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>
======================================================
1,500,000 SHARES
TEAM COMMUNICATIONS GROUP, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
H.J. MEYERS & CO., INC.
, 1997
======================================================
<PAGE> 70
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.
Article 5 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)..................................... $ 4,168
NASD filing fee (actual).......................................... 1,874
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
Underwriter's non-accountable expense allowance(1)................ 281,250
Blue sky qualification fees and expenses.......................... 35,000
Miscellaneous..................................................... 14,708
--------
Total................................................... $ 647,000
========
</TABLE>
- ---------------
(1) $323,438 if the Underwriter exercises the over-allotment option in full.
II-1
<PAGE> 71
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 December 31, 1997 or the closing of the 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 the
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 the 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 the 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 December 31, 1997 or upon the closing of
the 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 the 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 under Rule 506 of
Regulation D of its Secured Notes in February and in May, 1996. In February
1996, the Company sold to 14 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 the Offering or November 15, 1997. In June through November
1996, the Company sold to 22 accredited investors $975,000 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
$969,000 of convertible secured notes to 13 accredited investors (the "February
1997 Notes") pursuant to Rule 506 of Regulation D. 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> 72
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 South Ferry #2, L.P. Indebtedness*
4.8 Restated Joe Cayre Agreement(2)
4.9 Agreement with AMAE Ventures, related note and Security Agreement(3)
4.10 Agreements re Total Recall Financing July 1996(3)
4.11 Agreements re LoCoMoTioN Financing(3)
4.12 1996 Employee Stock Option Plan(1)
4.13 1996 Directors Stock Option Plan(1)
4.14 Form of Consulting Agreement between H.J. Meyers & Co., Inc. and the
Company(2)
4.15 Specimen Certificate(2)
4.16 Form of Underwriter's Warrant(1)
5.0 Opinion and Consent of Kelly Lytton Mintz & Vann LLP regarding legality of
securities (to be filed by amendment)*
10.1 Agreement with Mel Giniger(3)
10.2 Agreement with Beyond Distribution PTY. Limited(2)
10.3 Interpublic Group of Companies Contract(3)
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(3)
10.6 Agreement with Alliance Production Ltd. re Total Recall*
10.7 Interpublic -- Team Co-financing Agreement(3)
10.8 Miramax Term Sheet(3)
10.9 Agreement with Leucadia Film Corp.(2)
10.10 Agreements with the Family Channel re Quake and Down Fall(2)
10.11 Agreements with Discovery Communications, Inc., re Amazing Tails II(2)
10.12 Employment Agreement, dated March 19, 1997, amended as of October 4, 1997,
between the Company and Todd C. Jackson(2)
10.13 Employment Agreement, dated as of January 20, 1997, amended as of October 4,
1997, between the Company and Paul Yamamoto(2)
10.14 Consulting Agreement, dated October 9, 1997, between the Company and Joseph
Cayre(2)
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 Price Waterhouse LLP to disclosure re Prior Accountants*
23.3 Consent of Bruce P. Vann, Esq. (Nominated Director)(1)
23.4 Consent of Seth M. Willenson (Nominated Director)(2)
24 Power of Attorney (included in the signature pages)
</TABLE>
- ---------------
* To be filed by Amendment.
(1) Previously filed.
(2) Filed herewith.
(3) Previously filed documents being filed herewith with conformed signatures.
II-3
<PAGE> 73
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> 74
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 Amendment No. 2
to the 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 14th day of October, 1997.
Team Communications Group, Inc.
By: /s/ DREW LEVIN
------------------------------------
DREW LEVIN
Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the 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, October 14, 1997
- --------------------------------------------- President, Chief Executive
DREW LEVIN Officer and Director
* Director October 14, 1997
- ---------------------------------------------
PAUL YAMAMOTO
/s/ MICHAEL LATINER Vice President, October 14, 1997
- --------------------------------------------- Controller and Secretary
MICHAEL LATINER
</TABLE>
*By: /s/ DREW LEVIN
---------------------------------
DREW LEVIN
Attorney-in-Fact
II-5
<PAGE> 75
TEAM COMMUNICATIONS GROUP, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM FEBRUARY 27, 1995 TO DECEMBER 31, 1995,
THE YEAR ENDED DECEMBER 31, 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------
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........... $ 63,800 $ 660,000 $ (660,000) $ 0 $ 63,800
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deducted from accounts receivable for
doubtful accounts and returns........... $ 0 $ 71,300 $ (7,500) $ 0 $ 63,800
</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> 76
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 South Ferry #2, L.P. Indebtedness*................
4.8 Restated Joe Cayre Agreement(2)..........................................
4.9 Agreement with AMAE Ventures, related note and Security Agreement(3).....
4.10 Agreements re Total Recall Financing July 1996(3)........................
4.11 Agreements re LoCoMoTioN Financing(3)....................................
4.12 1996 Employee Stock Option Plan(1).......................................
4.13 1996 Directors Stock Option Plan(1)......................................
4.14 Form of Consulting Agreement between H.J. Meyers & Co., Inc. and the
Company(2)...............................................................
4.15 Specimen Certificate(2)..................................................
4.16 Form of Underwriter's Warrant(1).........................................
5.0 Opinion and Consent of Kelly Lytton Mintz & Vann LLP regarding legality
of securities (to be filed by amendment)*................................
10.1 Agreement with Mel Giniger(3)............................................
10.2 Agreement with Beyond Distribution PTY. Limited(2).......................
10.3 Interpublic Group of Companies Contract(3)...............................
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(3).....................................
10.6 Agreement with Alliance Production Ltd. re Total Recall*.................
10.7 Interpublic -- Term Co-financing Agreement(3)............................
10.8 Miramax Term Sheet(3)....................................................
10.9 Agreement with Leucadia Film Corp.(2)....................................
10.10 Agreements with the Family Channel re Quake and Down Fall(2).............
10.11 Agreements with Discovery Communications, Inc., re Amazing Tails II(2)...
10.12 Employment Agreement, dated March 19, 1997, amended as of October 4,
1997, between the Company and Todd C. Jackson(2).........................
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <S> <C>
10.13 Employment Agreement, dated as of January 20, 1997, amended as of October
4, 1997, between the Company and Paul Yamamoto(2)........................
10.14 Consulting Agreement, dated October 9, 1997 between the Company and
Joseph Cayre(2)..........................................................
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 Price Waterhouse LLP to disclosure re Prior Accountants*
23.3 Consent of Bruce P. Vann, Esq. (Nominated Director)(1)...................
23.4 Consent of Seth M. Willenson (Nominated Director)(2).....................
24 Power of Attorney (included in the signature pages)......................
</TABLE>
- ---------------
* To be filed by Amendment.
(1) Previously filed.
(2) Filed herewith.
(3) Previously filed documents being filed herewith with conformed signatures.
<PAGE> 1
Exhibit 4.8
As of October 9, 1997
VIA FEDERAL EXPRESS AND TELECOPIER
Mr. Drew S. Levin
Team Communications Group, Inc.
12300 Wilshire Boulevard, Suite 400
Los Angeles, California 90025
RE: Drew S. Levin and Team Communication Group. Inc.
- Indebtedness Owing Joe Cayre
Dear Mr. Levin:
Reference is made to the obligations of Drew S. Levin ("Levin") and
Team Communications Group, Inc. (the "Company"), formerly known as DSL
Entertainment, Inc., pursuant to the terms and conditions of those certain (i)
Promissory Notes (together, the "Notes"), dated April 25, 1995 and August 10,
1995, made by the Company in favor of the undersigned, Joseph J. Cayre ("Cayre"
and, together with Levin and the Company, the "Parties"), in the amounts of
$500,000 and $250,000, respectively; (ii) Guaranty Agreements, dated as of
April 25, 1995 and August 10, 1995 (together, the "Guarantees"); (iii) the
Amended and Restated Security and Pledge Agreement, dated as of August 10, 1995
(the "Security and Pledge Agreement"); and (iv) the Amended and Restated
Assignment Agreement, dated as of August 10, 1995 (the "Assignment Agreement"),
each such agreement by and between Levin and Cayre; the terms and conditions of
the Amended and Restated Deed of Trust, dated as of August 10, 1995 by and
among Levin, his wife Laurie Levin and Cayre (the "Deed"). The Notes, the
Guarantees, the Security and Pledge Agreement, the Assignment Agreement, and
the Deed are collectively referred to herein as the "Loan Documents." Levin
and the Company have requested that Cayre extend the maturity dates of the
aforementioned obligations in connection with a proposed underwritten initial
public offering of shares of common stock of the Company. This letter is
intended to clarify the current status of the aforementioned obligations and to
modify and amend the Loan Documents as forth set forth below.
SECTION A. THE PARTIES AGREE AND CONFIRM THAT THE CURRENT STATUS OF (I)
THE COMPANY'S INDEBTEDNESS TO CAYRE UNDER THE NOTES, (II)
LEVIN'S DEBT TO CAYRE UNDER THE ASSIGNMENT AGREEMENT AND (III)
EACH OF CAYRE'S AND LEVIN'S STOCKHOLDINGS IN THE COMPANY IS AS
FOLLOWS:
1
<PAGE> 2
A.1. Under the Notes, the Company currently owes Cayre an
outstanding aggregate principal amount of $740,000 plus
accrued interest (which interest amount, as of August 31,
1997, is agreed to be $18,292.20). The outstanding aggregate
principal amount and accrued interest (calculated to the date
of repayment in full) under the Notes shall hereinafter be
referred to as the "Indebtedness." The Notes are currently
due and payable in full.
A.2. Under the Assignment Agreement, Levin, as an individual,
currently owes Cayre an outstanding principal amount of
$672,578.13 plus accrued interest (which was $117,650 as of
August 31, 1997). The outstanding aggregate principal amount
and accrued interest (calculated to the date of repayment in
full) under the Assignment Agreement shall hereinafter be
referred to as the "TPEG Reduction Amount." The TPEG
reduction amount shall be capped at $825,000 if and only if
the payments required by Section B hereof are made in full in
a timely manner.
A.3. The number of shares of Common Stock which have been issued by
the Company, including shares issued to each of Mr. Levin and
Mr. Cayre, are set forth on Schedule 1 attached hereto. The
shares of common stock owned by Mr. Levin, as set forth on
Schedule 1, are referred to herein as the "Levin Shares"; the
shares of common stock owned by Mr. Cayre, as set forth on
Schedule 1, are referred to as the "Cayre Shares."
A.4. Pursuant to the Guarantees, the Security and Pledge Agreement
and the Deed, Levin has collateralized the obligations under
his guarantee of the Notes and under the Assignment Agreement
with the Levin Shares and with his house.
SECTION B. IF THE COMPANY CONSUMMATES AN UNDERWRITTEN INITIAL PUBLIC
OFFERING (THE "IPO") ON OR BEFORE NOVEMBER 30, 1997:
B.1. At the closing of the IPO, the Company will concurrently therewith
(a) repay to Cayre the sum of $250,000, such
amount to be applied to principal outstanding under
the Notes; and
(b) place into escrow, with an escrow agent
acceptable to Cayre, cash in an amount sufficient to
cover the remaining indebtedness calculated under
the Notes through the first anniversary of the
closing of the IPO (such amount, being hereinafter
referred to as the "Escrow Proceeds", being an amount
equal to $705,942.00 plus accrued interest after
August 31, 1997 accruing at the respective rates of
interest as set forth in each of the Notes, through
and including June 30, 1998). The Company will use
its best efforts to secure, as soon as practicable
after the closing of the IPO, a credit facility from
a bank, the proceeds of which will be used to repay
the indebtedness under the Notes.
2
<PAGE> 3
Such credit facility shall not be used to repay any
other indebtedness of the Company until all
indebtedness under the Notes has been repaid in full.
On payment of the indebtedness under the Notes prior
to June 30, 1998, the Escrow Proceeds will be
released to the Company. If the Company has not
repaid the indebtedness under the Notes on or before
June 30, 1998, the Escrow Proceeds of the IP0 will be
released to Cayre in satisfaction of the Notes, which
will be due and payable on that date. The Company
agrees that immediately after the closing of the IP0,
the indebtedness under the Notes and the Company's
obligations to Cayre in connection therewith,
pursuant to this Section B.1, shall not be
subordinated to the Company's obligation to any other
creditor; and, the Company agrees to obtain (and
provide copies thereof to Cayre), prior to the
effectiveness of the IP0, agreements from each of its
other creditors to that effect.
B.2. As set forth on Schedule 2, immediately after the IP0, Cayre
will own 214,874 shares of the Company's common stock and will
have an immediately exercisable option to purchase an
additional 48,743 shares at an exercise price of $.43 per
share provided; however, that shares of common stock of the
Company beneficially owned by Levin at the time shall not
exceed 606,421 shares plus options for 85,000 shares which
will not begin to vest until 1998).
B.3. The Company will cause the underwriters to use their best
efforts to cause at least 30,000 of Cayre's shares in the
Company to be sold in the "Green Shoe." The net proceeds of
the sale of such shares shall be applied against the then
outstanding balance of the TPEG Reduction Amount.
B.4. (a) The Company will effect the registration (the
"Registration") under the Securities Act of 1933, as
amended (the "Securities Act"), of those shares of
the Company held by Cayre (including shares issuable
on exercise of the Warrants held by Cayre ("Warrant
Shares") which are not sold in the Green Shoe (the
"Registrable Securities") and cause a registration
statement covering the Registrable Securities to
become effective as soon as possible as permitted by
the underwriters, but in no event later than 18
months after the effectiveness of the IPO, and will
cause such registration statement to remain effective
for a period of at least 24 months. The Registration
shall be effected for sale on a continuous basis
pursuant to Rule 415 under the Securities Act.
Notwithstanding anything to the contrary contained in
this Section B.4 (a), Cayre agrees not to effect any
public sale or distribution of the Registrable
Securities for a period not to exceed 18 months (12
months in the case of Warrant Shares) from the
effectiveness of the IP0 (the "Holdback Period"), if
and to the extent requested in writing by the
managing underwriter or underwriters of the IP0;
provided, however, that in no event shall Cayre's
Holdback Period exceed the length of any holdback
period
3
<PAGE> 4
applicable to any other stockholder of the Company.
Levin may not sell any of his shares in the Company
prior to the sale by Cayre of at least 60,000 of his
shares of the Company's common stock (including any
shares sold in the Green Shoe). Notwithstanding
anything to the contrary in this Section B.4(a),
Levin may not sell more than 40,000 of his shares of
the Company's common stock until Cayre has sold all
of the Registrable Securities. Proceeds received by
Levin for sales in violation of this Agreement shall
be promptly remitted to Cayre and shall not reduce,
or be credited against, the indebtedness under the
Notes, the Guarantees or the TPEG Reduction Amount.
(b) The net proceeds of the sale of any
Registrable Securities shall be applied against the
then outstanding balance of the TPEG Reduction
Amount. If and only if the Registrable Securities
are available for public sale (i.e., they are
registered under the Securities Act or may be sold
(pursuant to the written opinion of counsel to the
Company who is experienced in securities law matters
and is reasonably acceptable to Cayre) pursuant to an
exemption under Rule 144 of the Securities Act), the
Holdback Period has terminated and no stop order has
been effected), and if Cayre elects to hold the
Registrable Securities for a period of 90 days or
longer after the Registrable Securities become and
remain available for public sale then the TPEG
Reduction Amount will be deemed reduced by an amount
equal to (x) the average, less 10%, of the last sale
price per share on the public market of the Company's
common stock for the 10 trading days preceding the
last day of such 90 day period, multiplied by (y) the
number of Registrable Securities held by Cayre at
such time.
B.5. The net proceeds of the sale of any of Cayre's shares of stock
of The Producers Entertainment Group, Ltd. (the "TPEG Shares")
shall be applied against the then outstanding balance of the
TPEG Reduction Amount. If and only if the TPEG Shares are
available for public sale (i.e., they are registered under the
Securities Act and no stop order has been effected), and if
Cayre elects to hold the TPEG Shares for a period of 90 days
or longer after the TPEG Shares become and remain available
for public sale, then the TPEG Reduction Amount will be deemed
reduced by an amount equal to (x) the average, less 10%, of
the last sale price per share on the public market of the
Company's common stock for the ten trading days preceding the
last day of such 90 day period, multiplied by (y) the number
of TPEG Shares held by Cayre at such time.
B.6. The Guarantees shall remain in effect and Cayre will continue
to hold the Deed of Trust on Levin's house until the TPEG
Reduction Amount (as may be reduced pursuant to Section B5)
and all indebtedness under the Notes are repaid in full.
4
<PAGE> 5
B.7. Immediately prior to the effectiveness of the IPO, and as a
condition to any delay in the maturity of the Notes, the
Company, Levin and Cayre will enter into a security agreement,
an escrow agreement, a registration rights agreement and all
such other agreements, and the Company and Levin shall provide
to Cayre all such documents, as Cayre shall deem to be
necessary to protect and enforce his rights under this Letter
Agreement, which agreements shall be in form satisfactory to
Cayre. Cayre will receive opinions of counsel to the Company
and Levin, each in form satisfactory to Cayre, as to the
enforceability of the agreements described in this Section B.7
and the status of the. indebtedness under the Notes pursuant
to the last sentence of Section B.1.
B.8. The terms of any amendments to any of the Loan Documents
entered into by the Parties after August 10, 1995 shall
terminate and become unenforceable.
SECTION C. IF THE COMPANY DOES NOT CONSUMMATE AN IPO ON OR BEFORE
NOVEMBER 30, 1997, OR, CAYRE HAS NOT OTHERWISE BEEN REPAID THE
AMOUNTS OWED TO CAYRE AS SET FORTH ABOVE BY THAT DATE:
C.1. Shareholdings will remain as in Schedule 1. Cayre shall be
entitled to retain all of the Levin Shares in the Company as
collateral until all indebtedness under the Notes and the TPEG
Reduction Amount are repaid in full.
C.2. Cayre will continue to hold the Deed of Trust on Levin's house
until all indebtedness under the Notes and the TPEG Reduction
Amount are repaid in full.
C.3. All indebtedness under the Notes and the TPEG Reduction Amount
will be immediately due and owing.
C.4. The terms of (i) Sections B and D of this Letter Agreement,
(ii) any amendments to any of the Loan Documents entered into
by the parties hereto after August 10, 1995 and (iii) any
other agreements entered into after August 10, 1995 by the
parties hereto relating to, and in connection with, the
subject matter of this Letter Agreement shall terminate and
become unenforceable as of November 1, 1997; provided however
that sections A and C hereof shall remain in full force and
effect.
C.5. Notwithstanding anything to the contrary contained in this
Agreement, the 249,488 shares of the Company's Common Stock
that Cayre transferred to Levin, as set forth in Footnote 3 of
Schedule 2 attached hereto, shall be immediately transferred
back to Cayre for consideration from Cayre of One Dollar
($1.00). Upon the transfer of such shares back to Cayre,
Cayre will own 464,362 shares of the Company's Common Stock
and will have an immediately exercisable option to purchase an
additional 48,743 shares of the Company's Common Stock at an
exercise price of $.43 per share.
5
<PAGE> 6
SECTION D. ADDITIONAL PROVISIONS:
D.1. Levin shall have an option, exercisable through December 31,
1997, to acquire 140,000 shares of Common Stock held by Cayre provided that he
repays to Cayre (the "Option Price") the sum of $559,000 (or such greater
number as is determined by adding $559,000 to the difference between $210,000
and the amount obtained by multiplying the number of shares, if any, Cayre is
permitted to sell in the "Green Shoe" times the sales price. By way of example
only, if Cayre sells 25,000 shares at $7.00, the Option Price would be
$594,000, such amount determined by adding $559,000 to the difference between
$210,000 and $175,000. If a payment contemplated by this section D.1 is
effected by Levin, pursuant to the procedures set forth in D.2 below, all
repayment obligations from Levin to Cayre in respect of the TPEG Reduction
Amount shall be deemed satisfied in full.
D.2 The intent to exercise the option referred to in D.1 above
must be made in writing on or before November 15, 1997 and it is subject to the
IPO being effectuated prior to such date. The closing for the share repurchase
so provided shall be within five business days from the date of the notice.
If the terms of this Letter Agreement are acceptable to you, please so
indicate by signing the enclosed copy of this Letter Agreement at the
appropriate place below and returning it to the attention of the undersigned.
Very truly yours,
[SIG]
Joseph J. Cayre
Agreed and Accepted as of
this 9th day of October 1997
DREW S. LEVIN:
/S/ DREW S. LEVIN
_________________________________
Drew S. Levin
TEAM COMMUNICATIONS GROUP, INC.
By: /S/ DREW S. LEVIN
--------------------------------
Title:_____________________________
6
<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: /s/ Drew S. Levin
------------------------------
Its: President
-----------------------------
AGREED AND ACCEPTED:
/s/ A. Wolfson
- ----------------------------
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.
- 2 -
<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.
- 3 -
<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
- 4 -
<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
- 5 -
<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: /s/ Drew S. Levin
---------------------------------------------
DREW LEVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
- 7 -
<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:
2
<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
3
<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.
4
<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
5
<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
6
<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,
7
<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: /s/ Drew S. Levin
-------------------------------
Name: Drew S. Levin
---------------------------
Title: President
--------------------------
Accepted and acknowledged by:
/s/ A. Wolfson
- -------------------------------
AMAE Ventures
"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: /s/ 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: /s/ Morris Wolfson
-------------------------------
Morris Wolfson
By: /s/ Manon Shalhov
-------------------------------
ACA Equities
By: /s/ David Devor
-------------------------------
D & M Investment Corp.
By: /s/ Gilbert Karsenty
-------------------------------
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: /s/ Drew S. Levin
Its: President and Chief Executive Officer
AGREED AND ACCEPTED:
By: /s/ MORRIS WOLFSON
----------------------------
Morris Wolfson
By: /s/ MANON SHALHOV
----------------------------
ACA Equities
By: /s/ DAVID DEVOR
----------------------------
D & M Investment Corp.
<PAGE> 12
November 20, 1996
Page 4
By: /s/ GILBERT KARSENTY
---------------------------------
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: /s/ DREW S. LEVIN
--------------------------------------
Drew S. Levin
President and Chief Executive Officer
Accepted and acknowledged by:
"Secured Party"
12
<PAGE> 25
/s/ MORRIS WOLFSON
- -------------------------------
Morris Wolfson
/s/ MANON SHALHOV
- -------------------------------
ACA Equities
/s/ DAVID DEVOR
- -------------------------------
D & M Investment Corp.
/s/ GILBERT KARSENTY
- -------------------------------
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: /s/ DREW LEVIN
-------------------------------------------
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": DSL Entertainment Group
By: /s/ DREW LEVIN
Its: President
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On July 10, 1996, before me, Pam Scott, Notary Public, personally
appeared Drew Levin 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.
/s/ PAM SCOTT
------------------------------
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,
/S/ DREW S. LEVIN
- ------------------------
Drew S. Levin
DSL/ee
Agreed to and accepted:
South Ferry #2, L.P.
Date:_________ By: /S/ A. WOLFSON
-------------------------------
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,
/s/ ERIC S. ELIAS
- -------------------------
Eric S. Elias
Business Affairs
Accepted and agreed:
South Ferry #2, L.P.
By: /s/ M. WOLFSON Date:
---------------------- -----------------
<PAGE> 1
EXHIBIT 4.14
FINANCIAL CONSULTING AGREEMENT
This Financial Consulting Agreement (the "Agreement") is made as of
________, 1997 by and between Team Communications Group, Inc., a California
corporation having its business address at 12300 Wilshire Boulevard, Suite 400,
Los Angeles, California 90025 (hereinafter the "Company"), and H. J. Meyers &
Co., Inc., a New York corporation having its principal place of business at
1895 Mt. Hope Avenue, Rochester, New York 14620 (hereinafter "Consultant").
In consideration of the mutual promises contained herein and on the
terms and conditions hereinafter set forth, the Company and Consultant agree as
follows:
1. Provision of Services.
(a) Consultant agrees, to the extent reasonably requested
by the President of the Company and reasonably required in the conduct of the
business of the Company, as determined by the Consultant, to place at the
disposal of the Company its judgment and experience and to provide business
development services to the Company including the following:
(i) assist the Company in its public equity
marketing efforts;
(ii) provide access to the Consultant's retail sales
force through roadshow stops and conference
calls;
(iii) provide research coverage from the Consultant's
Research Department; and
(iv) advise with regard to stockholder relations and
public relations matters.
All such services shall at all times be at the request of the
Company.
(b) Consultant agrees to use its best efforts at all times
in the furnishing of advice and recommendations, and for this purpose
Consultant shall at all times maintain or keep available for the Company an
adequate organization of personnel or a network of outside professionals for
the performance of its obligations under this Agreement.
2. Compensation. In consideration for services to be rendered under
this Agreement, the Company and Consultant hereby agree that the Company shall
pay a non-refundable fee equal to $6,000 per month for twelve (12) months,
payable in full upon the execution of this Agreement.
<PAGE> 2
The Company agrees to reimburse Consultant for its expenses incurred by
the Consultant in connection with its services hereunder. All expenses shall be
approved in advance by the Company in writing.
3. Expenses Payment Schedule. Consultant will invoice the Company
for its actual expenses for each month within fifteen (15) days of the end of
the month. Payment of invoices will be due upon receipt.
4. Liability of Consultant. In furnishing the Company with
management advice and other services as herein provided, neither Consultant nor
any officer, director or agent thereof shall be liable to the Company or its
creditors for errors of judgment or for anything except willful malfeasance,
bad faith or gross negligence in the performance of its duties or reckless
disregard or its obligations and duties under the terms of this Agreement.
It is further understood and agreed that Consultant may rely upon
information furnished to is reasonably believed to be accurate and reliable and
that, except as herein provided, Consultant shall not be accountable for any
loss suffered by the Company by reason of the Company's action or non-action on
the basis of any advice, recommendation or approval of Consultant, its
partners, employees or agents.
5. Status of Consultant. Consultant shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
Agreement, shall have no authority to act for or represent the Company.
6. Other Activities of Consultant. The Company recognizes that
Consultant now renders and may continue to render management and other services
to other companies which may or may not have policies and conduct activities
similar to those of the Company. Consultant shall be free to render such advice
and other services and the Company hereby consents thereto. Consultant shall
not be required to devotes its full time and attention to the performance of
its duties under this Agreement, but shall devote only so much of its time and
attention as it deems reasonable or necessary for such purposes.
7. Control. Nothing contained herein shall be deemed to require
the Company to take any action contrary to its Certificate of Incorporation or
By-Laws, or any applicable statute or regulation, or to deprive its Board of
Directors of their responsibility for any control of the conduct or the affairs
of the Company.
8. Term. Consultant's retention hereunder shall be for a term of
one year commencing upon the execution of this Agreement.
2
<PAGE> 3
9. Miscellaneous. This Agreement sets forth the entire agreement
and undertaking between the parties and supersedes all prior discussions,
agreements and understandings of every and any nature between them. This
Agreement shall be construed and interpreted according to the laws of the State
of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers or representatives duly authorized the day and
year first above written.
TEAM COMMUNICATIONS GROUP, INC.
By:
-------------------------
Name:
Title:
H. J. MEYERS & CO., INC.
By:
-------------------------
Name:
Title:
3
<PAGE> 1
EXHIBIT 4.15
---------- ----------
NUMBER SHARES
[TEAM LOGO]
TC
---------- ----------
COMMON STOCK COMMON STOCK
TEAM COMMUNICATIONS GROUP, INC.
Incorporated under the laws of the State of California
See Reverse for Certain Definitions See Reverse for Certain Definitions
CUSIP 87815F 10 8
This Certifies that
is the record holder of
FULLY PAID SHARES OF THE COMMON STOCK, NO PAR VALUE, OF
TEAM COMMUNICATIONS GROUP, INC.
hereinafter designated "the Corporation", transferable on the share register of
the Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed or assigned. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[Signature] [Signature]
[SEAL]
President and Chief Executive Officer Secretary
Countersigned and Registered
U.S. STOCK TRANSFER CORPORATION
(Glendale, California)
Transfer Agent and Registrar
By
Authorized Signature
<PAGE> 2
TEAM COMMUNICATIONS GROUP, INC.
COMMON STOCK
FOR VALUE RECEIVED _______________________ HEREBY SELL, ASSIGN AND
TRANSFER UNTO
Please insert Social Security or other
identifying number of assignee
____________________________
____________________________________________________________________________
(Name and address of Transferee should be printed or typewritten)
_____________________________________________________________________________
_______________________________________________________________________ Shares
of the Common Stock represented by the within certificate and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-mentioned corporation
with full power of substitution in the premises.
Dated: ______________________ _____________________________________________
Signature
NOTICE: The signature of this assignment must correspond with name(s) as written
upon the face of the Certificate in every particular, without alteration or
enlargement or any change whatever.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT --
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right ____________ Custodian ____________
of survivorship and not as (Cust) (Minor)
tenants in common
under Uniform Gifts to Minors Act
__________________________________
(State)
Additional abbreviations may also be used though not in the above list.
Signature Guaranteed: ______________________________
By _________________________________________________
The signature(s) should be guaranteed by an eligible
guarantor institution, (Banks, Stockbrokers, Savings
and Loan Associations and Credit Unions) with
membership in an approved signature guarantee
medallion program, pursuant to S.E.C. Rule 17Ad-15.
<PAGE> 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,
/s/ ERIC S. ELIAS
- ---------------------
Eric S. Elias
Business Affairs
ESE/ja
Agreed to and Accepted:
Mel Giniger & Associates
By: /s/ MEL GINIGER Date: March 22, 1996
------------------ -----------------
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,
/s/ ERIC S. ELIAS
- -------------------------
Eric S. Elias
Business Affairs
ESE/ja
Agreed to and Accepted:
Mel Giniger & Associates
By: /s/ MEL GINIGER Date: March 22, 1996
-------------------- -------------------
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,
/s/ ERIC S. ELIAS
- -------------------------
Eric S. Elias
Business Affairs
ESE/ja
Agreed to and Accepted:
The Gemini Corporation
By: /s/ MEL GINIGER Date: March 20, 1996
-------------------- -----------------
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,
/s/ ERIC S. ELIAS
- -------------------------
Eric S. Elias
Business Affairs
ESE/ja
Agreed to and Accepted:
The Gemini Corporation
By: /s/ MEL GINIGER Date: March 20, 1996
-------------------- -------------------
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: /s/ DREW LEVIN
- --------------------------------
Mel Giniger & Associates
By: /s/ MEL GINIGER
-----------------------------
Gemini Corporation
By: /s/ MEL GINIGER
-----------------------------
2
<PAGE> 1
EXHIBIT 10.2
DATED the 15th day of JUNE 1997
BETWEEN
DSL ENTERTAINMENT GROUP INC
T/A TEAM ENTERTAINMENT GROUP
AND
BEYOND DISTRIBUTION PTY LIMITED
"BEYOND PACKAGE"
DISTRIBUTION AGREEMENT
Beyond Films Limited
53-55 Brisbane Street
Surry Hills NSW 2010
Phone: (02) 9281 1266
Fax: (02) 9281 1276
<PAGE> 2
THIS AGREEMENT is dated the 15th day of June 1997
PARTIES:
1. DSL ENTERTAINMENT GROUP INC trading as trading as TEAM ENTERTAINMENT
GROUP OF 12300 Wilshire Boulevard, Suite 400, California 90025 United
States of America ("Team").
2. BEYOND DISTRIBUTION PTY LTD (ACN 003 019 501) whose registered office is
at 53-55 Brisbane Street, Surry Hills NSW 2010 Australia ("Beyond").
WHEREAS:
The parties desire that Beyond appoints Team as the distributor of the Programs
specified in Schedule 1 in the Territory and for the License Period specified
in Schedule 2 of this Agreement (which expression includes the Schedules
hereto) and upon the terms and conditions set out hereunder:
NOW IT IS HEREBY AGREED THAT:
1. Beyond appoints Team as the exclusive distributor of the Programs in the
Territory for the Distribution Period.
2. During the Distribution Period, Team shall be entitled but not obliged
to cause the broadcast of the Programs throughout the Territory an
unlimited number of times by all means of television whether now known
or hereafter invented and whether free or pay ("the Television Rights").
3. Team shall be entitled to cause the broadcast of the Programs by local
broadcasters in each country comprising the Territory in both the
original language of the Programs and any official language of the
country within the Territory.
4. In consideration for the grant of the Television Rights by Beyond, Team
hereby agrees to pay Beyond by wire transfer to Beyond's nominated
account, seven equal monthly instalments of $US156,285.71 each,
commencing on 1 December 1997 being a total amount of $US1,094,000 ("the
Distribution Advance").
5. Beyond shall deliver to Team the Delivery Items set out in Schedule 3
hereto as soon as practicable and in accordance with Schedule 3 after
the signature of this Agreement ("Delivery").
Upon Team's receipt of the Delivery Items, it shall have a period of
time not to exceed thirty (30) days in which to check the technical
standard of the Delivery Items -- Picture Elements and ensure they are
in first class condition suitable for broadcast and shall review all
Delivery Items -- Documentation comprising requisite clearance materials
to ensure good chain-of-title has been established.
Beyond agrees to provide by way of loan to Team, all tape masters and
Team hereby agrees to return the tape masters to Beyond within forty
five (45) days of Team's receipt thereof. Any technically deficient tape
masters will be replaced by Beyond within thirty (30) days of notice of
such defect or deficiency.
6. Team shall be entitled to reformat or otherwise edit or alter the
Programs as it deems fit and to exploit the component segments
comprising the Programs within the
- --------------------------------------------------------------------------------
Page 1
<PAGE> 3
Television Rights it being acknowledged and agreed that Team shall in no
way denigrate from the editorial integrity of the Programs in carrying
out such reformatting or editing or delete or omit any credits which are
the contractual obligation of Beyond.
7. (a) Team shall submit a precis of any proposed agreement relating to
the exploitation of the Programs for approval by Beyond such
approval not to be unreasonably withheld prior to Team entering
into such an agreement and shall also, upon request, provide
Beyond with a copy of the agreement or proposed agreement or any
related agreement forthwith upon request. The precis shall
contain the following information:
(i) the name of the proposed sub-licensee;
(ii) the nature (including the territories and media) and
duration of the rights proposed to be granted;
(iii) full details of any other Program(s) being licensed or
sold in the same or any related acquisition;
(iv) the amount of the proposed advances (if any), fees,
commission, any other consideration whatsoever and the
terms of payment;
(v) any expenses proposed to be incurred; and
(vi) the proportion that moneys (or any other consideration)
paid for the Programs represent to the moneys (or any
other consideration) paid for any other Program(s) being
licensed or sold in the same or any related acquisition;
Upon receipt of all of the above information, Beyond shall have
five (5) working days to indicate whether or not it approves of
the above provided that if Beyond does not respond to Team
within five (5) working days Team is entitled to assume that
such terms are approved.
(b) Team shall represent the Programs actively in the Territory
consistent with good business judgment and sound commercial
practice and shall use best endeavours to obtain the best
possible price for the Programs (whether the Programs are sold
separately or as a package or with other programs) and shall use
its best endeavours to obtain similar obligations from
licensees, distributors or agents to whom its grants rights in
respect of the Programs;
(c) Team shall consult with Beyond in respect of its marketing plans
throughout the Territory;
(d) Team shall be entitled to receive a commission of 15% of Net
Proceeds (which expression means all proceeds actually received
by Team for distributing the Programs) ("Commission") received
to date. The Commission shall be inclusive of all costs,
expenses, commissions, licence fees or other fees deducted by
any sub licensees, agents or distributors as well as any taxes
(including withholding tax), levies or any other monies deducted
at source and Team shall not be entitled to any further payments
in respect of the same. Once Team has received the Commission on
Net Proceeds to date it shall not be entitled to the Commission
in respect of any further Net Proceeds which shall thereafter be
apportioned in accordance with Clause 7(e) and (f).
- --------------------------------------------------------------------------------
Page 2
<PAGE> 4
(e) After recoupment of its Commission, Team shall also be entitled
to recoup dubbing costs relating the Programs from Net Proceeds
provided those dubbing costs are approved in advance by Beyond.
Dubbing costs of $US22.00 per minute for dubbing those Programs
not already dubbed into Spanish and provided to Team by Beyond,
are pre-approved. Thereafter Team shall be entitled to retain
Net Proceeds until Team has recouped an amount equal to the
License Fee of $US1,094,000.
(f) Thereafter, Net Proceeds will then be apportioned between Beyond
and Team pro rata and pari passu in the proportion 50:50.
(g) Subject to clause 7(e) the costs of all foreign language
versions of the Programs shall be borne solely by Team. Team
shall indemnify and hold Beyond harmless from any claims, loss,
damage or expense arising out of or in connection with the
dubbing or subtitling of the Programs.
(h) Team shall ensure that copyright in all foreign language
versions of the Programs and in all subtitles created pursuant
to this clause shall vest in Beyond and in that regard Team
hereby assigns by way of present assignment of present and
future copyright all right, title and interest in the copyright
of all foreign language versions and/or subtitles created in
respect of the Programs.
(i) Beyond may on thirty (30) days written notice inspect the books
of Team relating to the Programs and make reasonable copies (at
Beyond's expense) of relevant passages of such books for further
examination and audit the books of Team through a reputable firm
of accountants once per year during the License Period. The
costs of such audit shall be at the expense of Beyond other than
where the audit discloses an underpayment of 5% of revenues in
which case the full costs of the audit shall be paid by Team.
The equivalent of any underpayment or overpayment disclosed by
such audit shall be remitted to Beyond within fourteen (14) days
of written notice by Beyond.
8. Beyond represents and warrants as follows:
(a) It is a properly registered corporation under the laws of New
South Wales and it is fully empowered to enter into this
Agreement in its own name and to grant the Television Rights to
Team.
(b) Team's use of the Television Rights shall in no way interfere
with or derogate from any rights of third parties with respect
to the Programs.
(c) Nothing contained in the Programs is defamatory or otherwise in
breach of any third party's rights including copyright.
(d) Beyond shall not hereafter grant to any third party any rights
in the Programs which conflict with the Television Rights during
the License Period.
9. Team's right to distribute the Programs shall terminate forthwith in
the event that:
(a) Team is in breach of this Agreement and (provided the breach is
one capable of remedy) the breach is not remedied within thirty
(30) days of written notice to Team; or
(b) Team is insolvent, goes into liquidation, receivership, makes
an arrangement with its creditors or the equivalent of one of
these events occurs in any jurisdiction.
- -------------------------------------------------------------------------------
Page 3
<PAGE> 5
10. The parties do hereby and shall at all times indemnify and save harmless
the other party from and against any and all claims, liabilities,
demands and causes of action or against any loss or damage or expenses
(including legal fees) suffered by them arising out of or relating to
any breach of the warranties contained in this Agreement or any act or
omission by the other party in relation to the Programs.
11. This Agreement enures to the benefit of and is binding upon each of the
parties and their respective successors and permitted assigns but
neither the rights nor the obligations of the parties under this
Agreement may be voluntarily novated or assigned, in whole or in part,
by any party to any person without the prior written consent of the
other PROVIDED THAT Beyond shall be entitled to assign or novate this
Agreement to any associated or subsidiary company and if requested Team
shall do any further act and execute any further agreement to give full
effect to this clause.
12. This Agreement shall be governed by the laws of New South Wales and
subject to the non-exclusive jurisdiction of the New South Wales courts.
Any dispute arising out of or in connection with this Agreement may also
be referred by the party alleging breach to arbitration in New South
Wales of a single arbitrator nominated by the President for the time
being of the Law Society of New South Wales.
________________________________________________________________________________
Page 4
<PAGE> 6
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto the
day and year first hereinbefore mentioned.
Signed for and on behalf of )
DSL ENTERTAINMENT )
GROUP INC trading as TEAM ) /s/ DREW LEVIN
ENTERTAINMENT ) ----------------------------------
in the presence of ) Authorised signatory of DSL
ENTERTAINMENT GROUP INC trading as
TEAM ENTERTAINMENT
/s/ ELLIE L. BOZZONE
- ---------------------------
Witness
Signed for and on behalf of )
BEYOND DISTRIBUTION PTY ) /s/ M. BORGLUND
LIMITED (ACN 003 019 501) ) ----------------------------------
in the presence of: ) Authorised signatory of BEYOND
DISTRIBUTION PTY LIMITED
/s/
- ---------------------------
Witness
________________________________________________________________________________
Page 5
<PAGE> 7
SCHEDULE 1
THE PROGRAMS
- --------------------------------------------------------------------------------
Page 6
<PAGE> 8
BEYOND LIBRARY
BACKLASH
2 HOURS
BACKLASH - a taut drama of mystery and intrigue, set in the spectacular scenery
of the Australian outback. The story of a hardened street wise cop and a young
female rookie who take a prisoner back to a small outback town to stand trial.
The prisoner is beautiful black girl, charged with murder. They decide to take
a short cut and the unlikely trio get stranded in the outback. They soon come
to the realisation that someone, or something, has been following them.
DEAR CARDHOLDER
2 HOURS
A romantic comedy about an office clerk-cum-computer whiz who gets caught in a
whirlwind of easy credit, romance and huge debt.
JILTED
2 HOURS.
A contemporary love story; set on a wild and isolated island. He is working at a
small tourist resort escaping from a torn past. She is running from a failed
marriage. Neither wants to take another chance. Yet, despite themselves, they
do.
KIDEO!
13 x HALF HOURS
KIDEO! is a challenging television series unique in its approach to show
children 6-12 years of age that basic facts ARE to be questioned and science IS
fun. KIDEO! encourages children to think and do as much for themselves as
possible. The 13 half hour episodes cover everyday facts of life and include a
diverse range of topics such as Gravity, the Sun, Navigation, Ecology and Art.
There are various characters who present the questions and demonstrate the
answers in a practical and entertaining way. KIDEO! proves it's cool to be
clever.
GLAD RAGS
13 x HALF HOUR
Lizzie Forbes is a 13-year-old with a vivid imagination who lives with her
mother above their costume hire shop "Glad Rags". When a crooked property
developer tries to take over their building, Lizzie and her young neighbours
outwit him at every turn.
BURNED BRIDGE
13 x 1 HOUR
STARRING CATE BLANCHETT, THE LEAD IN GILLIAN ARMSTRONG'S OSCAR AND LUCINDA
BURNED BRIDGE deal with the mystery surrounding the death of an Aboriginal girl
and the doubts concerning the guilt of her boyfriend, convicted of her murder.
It is also a love story between the two people convinced of his innocence -
their growing relationship must survive hostility from both the white and black
communities and the obstacles of their different backgrounds, attitudes and
cultures.
<PAGE> 9
BEYOND LIBRARY
Set in a small coastal town against the turmoils of murder, mystery and romance,
Burned Bridge also follows the people from this seaside community and their
battle to restructure their own way of life. Their struggle to restore their
self-esteem towards a positive future, despite the obstacles in their path.
MERCURY
2 HOUR TELEMOVIE LEAD INTO 12 X ONE HOUR SERIES
STARRING GEOFFREY RUSH, 1997 BEST ACTOR ACADEMY AWARD WINNER
MERCURY is set in the cut-throat world of print journalism, centering on the
quality Sunday broadsheet - The Sunday Mercury. About real people and real
journalists in the 90's, the series follows the reporters as they chase the
stories - on the streets, in the political back rooms and in the newsroom.
Mercury enters the world of a tribal group obsessed with one thing: getting
their stories in the paper.
NAKED
6X1 HOUR SERIES
PRODUCED BY JAN CHAPMAN, AWARD WINNING PRODUCER OF THE PIANO
STARRING HUGO WEAVING, STAR OF PRISCILLA, QUEEN OF THE DESERT
NAKED - STORIES OF MEN is a six part anthology series produced by Jan Chapman,
the award-winning producer of The Piano. Produced for the ABC (Australian
Broadcasting Corporation), this is a series in which men reveal themselves. Six
writers were commissioned to write about something which each believed to be
absolutely truthful and heartfelt, and to lay their emotions bare. The result
is a series which is emotional, surprising, sometimes funny, and subjective -
a celebration of modern men's real lives with all their complexities. It is a
chance for men to make unmediated expressions of their private worlds - a true
insight into what it means to be a man in the 1990's.
BREAD AND ROSES
4x1 HOUR MINI SERIES
BREAD AND ROSES is the story of Sonja Davies, a courageous woman who triumphs
against overwhelming odds to make an extraordinary life.
Set in New Zealand and spanning 20 years, this moving drama begins during World
War II when Sonja falls in love with a young American soldier who is sent away
to fight in the Pacific. Pregnant and unwed, Sonja learns that he will not
return and once her daughter Penny is born, she returns to nursing to support
her new life.
Sonja becomes ill and during her recuperation in hospital she rekindles a
relationship with an old boyfriend, Charlie, who devotes himself to helping her
recover. They marry and are reunited with Penny to become a family. In
building their future together, Sonja and Charlie experience great difficulties
with short sighted officialdom and become active in local politics. A pacifist
by inclination, Sonja finds her political strength amongst women and those with
socialist principles, and she struggles to ensure that others will share in the
peace and prosperity of a post war New Zealand.
Bread And Roses is a four hour mini-series that combines power and
confrontation in politics, love and commitment in relationships - Sonja is a
woman who has a passion to survive.
THE RIVER KINGS
<PAGE> 10
BEYOND LIBRARY
4x1 hours
A spectacular four hour drama for audiences of all ages. Set in the 1920s
amongst the lower reaches of the wide and languid River Murray. The River King
is a powerful and emotional story of a boy working on the old river steamers -
battling to survive and struggling to reunite his family. A funny, sad,
romantic series peopled with rich, warm, humorous characters and filled with
images of great comedy, great drama and tragedy.
TYPHON'S PEOPLE
4X1 HR.
STARRING GREG WISE, LEAD IN SENSE IN SENSIBILITY
In the shadowy world of genetic research some secrets can be worth more than
life itself. Just as he is about to unveil his results, scientist David Typhon
is assassinated. International powers zero in on his closely-guarded research
station in remote New Zealand.
Half a world away, Cato Macgill is irresistibly drawn to trace the threads
which link him, body and soul, to Typhon's bizarre experiment. Who are these
perfect children, these eerily perfect people? What sinister powers do they
possess? And how is he connected to them? Aided by the beautiful and mysterious
Maia Macgill sets out on a deadly quest to uncover the haunting truth about
Typhon's People.
RAW FM
2 HOUR TELEMOVIE LEAD INTO 12 X ONE HOUR
A DRAMA SERIES WITH 90'S MUSIC
AND 90'S ATTITUDE
99.9 Raw FM is a community radio station created for youth by
youth. It's about a group of young people and their music, having to deal with
fame, power, authority and the search for personal identity. It's a drama . . .
with attitude.
<PAGE> 11
SCHEDULE 2
THE TERRITORY
LATIN AMERICA which means Anguilla, Antigua, Argentina, Aruba, Bahamas,
Barbados, Barbuda, Belize, Bermuda, Bolivia, Brazil, British Virgin Islands,
Cayman Islands, Chile, Columbia, Costa Rica, Cuba, Dominica, Dominican
Republic, Ecuador, El Salvador, French Guyana, Grenada, Grenadines, Guadeloupe,
Guatemala, Guyana, Haiti, Honduras, Jamaica, Martinique, Mexico, Montserrat,
Netherlands Antilles, Nicaragua, Panama, Paraguay, Peru, Puerto Rico, St.
Christopher, St. Lucia, St. Kitts & Nevis, St. Vincent, Surinam, Trinidad and
Tobago, Turks and Caicos Islands, Uruguay, US Virgin Islands and Venezuela;
Save for in respect of the following Programs where the following Latin
American countries are excluded for the period of time and for the Television
Rights indicated:
TYPHON'S PEOPLE (SERIES)
Costa Rica Free TV until 3/12/97
Venezuela Free TV until 7/4/99
TYPHON'S PEOPLE (TELEMOVIE)
Bolivia Free TV until 31/8/01
BREAD & ROSES
Costa Rica Free TV until 3/12/97
Venezuela Free TV until 7/4/99
THE LICENCE PERIOD
Five years commencing on 15 June 1997 and ending on 14 June 2002.
________________________________________________________________________________
Page 7
<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
1
<PAGE> 2
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.
2
<PAGE> 3
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
3
<PAGE> 4
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: /s/ DREW LEVIN
--------------------------------
Interpublic Group of Companies
By: /s/ RICHARD VILLANTE
--------------------------------
4
<PAGE> 5
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.
5
<PAGE> 6
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
6
<PAGE> 7
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
7
<PAGE> 8
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
8
<PAGE> 9
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
9
<PAGE> 10
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
10
<PAGE> 11
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.
11
<PAGE> 12
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.
12
<PAGE> 1
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>
i
<PAGE> 3
<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>
ii
<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.
1
<PAGE> 5
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
2
<PAGE> 6
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,
3
<PAGE> 7
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
4
<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
5
<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
6
<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.
7
<PAGE> 11
(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
8
<PAGE> 12
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
9
<PAGE> 13
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
10
<PAGE> 14
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
11
<PAGE> 15
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
12
<PAGE> 16
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%).
13
<PAGE> 17
(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.
14
<PAGE> 18
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.
15
<PAGE> 19
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
16
<PAGE> 20
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
17
<PAGE> 21
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.
18
<PAGE> 22
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: /s/ HUNT BARNETT
-------------------------------
Authorized Signatory
By: _______________________________
Authorized Signatory
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
19
<PAGE> 23
LANDLORD:
TCW REALTY FUND VA (CALIFORNIA) HOLDING COMPANY,
a California corporation
By: /s/ C. A. LEUTY
-------------------------------
Authorized Signatory
By: /s/ JOEL MARKLING
-------------------------------
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: /s/ C. A. LEUTY
---------------------------------
Authorized Signatory
By: /s/ JOEL MARKLING
---------------------------------
Authorized Signatory
By: WESTMARK REALTY ADVISORS L.L.C.,
a Delaware limited liability company,
as General Partner
By: /s/ C. A. LEUTY
----------------------------------
Authorized Signatory
By: /s/ JOEL MARKLING
-----------------------------------
Authorized Signatory
20
<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.
B-1
<PAGE> 25
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
<PAGE> 26
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
<PAGE> 29
LANDLORD:
TCW REALTY FUND VA (CALIFORNIA) HOLDING COMPANY,
a California corporation
By: /s/ C. A. LEUTY
--------------------------------
Authorized Signatory
By: /s/ JOEL MARKLING
-------------------------------
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: /s/ C. A. LEUTY
---------------------------------
Authorized Signatory
By: /s/ JOEL MARKLING
---------------------------------
Authorized Signatory
By: WESTMARK REALTY ADVISORS L.L.C.,
a Delaware limited liability company,
as General Partner
By: /s/ C. A. LEUTY
-----------------------------
Authorized Signatory
By: /s/ JOEL MARKLING
------------------------------
Authorized Signatory
C-2
<PAGE> 30
Agreed and Accepted as of _____________________, 1995
TENANT:
DSL ENTERTAINMENT GROUP, INC.
a California corporation
By: /s/ HUNT BARNETT
-------------------------------
Authorized Signatory
By: _______________________________
Authorized Signatory
C-3
<PAGE> 31
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.
D-1
<PAGE> 32
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: May 9, 1995 /s/ DREW LEVIN
-----------------------
Drew Levin
Dated: _________ __, 1995 ______________________
Laurie S. Levin
F-3
<PAGE> 1
EXHIBIT 10.7
April 2, 1997
Mr. Richard Villante
President, Allied Communication Group
Interpublic G.O.C.
1271 Avenue of the Americas
New York, NY 10020
RE: INTERPUBLIC GROUP OF COMPANIES/ TEAM ENTERTAINMENT
GROUP "COOPERATIVE VENTURE" PROPOSAL
Dear Mr. Villante:
The following sets forth the terms of the agreement between Interpublic
Group of Companies ("IPG") and TEAM Entertainment Group ("TEAM") with respect to
the production of a minimum of four (4) pilots over the next one (1) year
period:
1. All non-fiction and light entertainment programming (including
specials) developed at TEAM will be subject to this agreement.
2. TEAM will grant IPG a "first-look" right to all new projects.
3. TEAM and IPG will each commit to fund at least two (2) of the pilots
during the course of the first year of theagreement. TEAM agrees to
fund the initial two (2) pilots, and IPG will fund the latter two (2)
pilots within sixty (60) days of TEAM's funding of the second pilot.
IPG's obligation to fund will only be contingent on disapproval of
subject matter, limited to such matter being unreasonably offensive or
inappropriate. In the event that IPG elects not to fund the requisite
number of pilots within the term, the rights to the initial two (2)
pilots will revert to TEAM.
4. Each one-half (1/2) hour pilot will have a budget not to exceed Fifty
Thousand Dollars ($50,000), each one (1) hour pilot will have a budget
not to exceed Ninety Thousand Dollars ($90,000) which the parties will
respectively contribute towards development and production of each
pilot. TEAM will guarantee the budgets for the projects.
5. TEAM will deficit finance any pilot costs in excess of the
above-specified limits, up to a cap of Seventy-Five Thousand Dollars
($75,000) per one-half (1/2) hour and One Hundred Twenty-Five Thousand
Dollars ($125,000) per one (1) hour.
6. Each project pilot funded by TEAM and IPG will be owned jointly by IPG
and TEAM, with net profits to be divided equally between TEAM and IPG
in perpetuity, reducible for advertiser participation, down to a floor
of thirty-three and one-third percent (33-1/3%) each. Copyright will be
held jointly.
7. Subject to series sales to bona fide domestic and international
licensees, TEAM and IPG will be equally responsible for funding
production dollars for the budgets of such series. If TEAM funds any
overages or deficit, TEAM will recoup such funding in first priority.
8. Net profits will be defined as gross revenue less actual costs of the
agreed-upon budget of each series, and less TEAM's mutually approved
production and distribution fees.
9. Once a finished pilot is delivered to IPG, IPG will agree to use its
best efforts to secure an advertising sponsor and broadcast commitment,
and assist in merchandising and other exploitation of each project.
<PAGE> 2
Mr. Richard Villante
April 2, 1997
Page 2
10. TEAM will be responsible for production and creative control.
11. Accounting of net profits in either event will be quarterly during
production of a particular series, and annually thereafter. The
different pilots/series will not be cross-collateralized.
12. Subject to mutual agreement, this agreement will renew each year, for
an additional minimum of four (4) pilots.
13. TEAM will distribute each project worldwide (including the U.S., after
the conclusion of the initial domestic end-user license), for a
distribution fee of forty percent (40%) including all costs, except
foreign language tracks.
14. Separate and apart from this agreement, TEAM and IPG will further
cooperate on the development, promotion, placement and production of a
two (2) hour "block" of programming for the Animal Planet cable
service.
All other usual and customary terms and conditions for an agreement of
this nature will thereafter be included in a long-form version, incorporating
the above terms and conditions.
As Mr. Levin has not yet seen this draft, we must reserve his right to
make additional comments.
Please review the above and if it is acceptable, we will thereafter
prepare a version of this letter for counter-signature.
Thank you very much.
Sincerely,
/s/ Eric S. Elias
Eric S. Elias
Business Affairs
ESE:se
AGREED TO AND ACCEPTED:
Allied Communication Group
Interpublic Group of Companies
By: /s/ Richard Villante
_____________________________
Richard Villante
Its:
<PAGE> 1
EXHIBIT 10.8
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997
Table Of Contents
1. Definitions
1.1 Parties
1.2 Underlying Property
1.3 Series/Episodes
2. Series And Other Productions
2.1 Production Order
2.2 Acquisition/Option
2.3 First and Last
3. Payments
3.1 Per Episode Advance
3.2 Per Episode Payment Schedule
3.3 Per Unit Royalty
4. Production Parameters
4.1 Program Specs
4.2 Clearances
4.3 Delivery
4.4 Cutting/Editing
5. Home Video Distribution
5.1 Territory
5.2 Term
5.3 Initial Broadcast
5.4 Holdbacks
5.5 Home Video Marketing
5.6 Release Requirement
5.7 Residuals
6. Miscellaneous Provisions
<PAGE> 2
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997
Page 2
6.1 Reps And Warranties
6.2 Use By Miramax Of Literary Material
6.3 Actors
6.4 Formal Agreement
<PAGE> 3
TOTAL RECALL
Term Sheet
Miramax w/ Team Entertainment
1. DEFINITIONS
1.1 PARTIES: Team Communications Group, Inc.
doing business as TEAM
Entertainment Group("TEAM") and
Miramax Film Corp. ("Miramax").
1.2 UNDERLYING PROPERTY: All rights of whatever kind and
nature ever acquired by DSL
Entertainment, Inc. and/or any
successor including TEAM with
respect to motion picture "Total
Recall" and underlying rights
thereto.
1.3 SERIES/EPISODES: All episodes of any television
series based on Underlying
Property produced by, in
association with or under
authority of TEAM.
2. SERIES AND OTHER PRODUCTIONS
2.1 PRODUCTION ORDER: TEAM reps and warrants it has, or
prior to start of production and in
any event not later than December
31, 1997 will have, a pay-or-play
order for 22 episodes, intended for
broadcast by first run syndication
on free-over-the-air television or
on a network listed in section 4.1
hereof. TEAM has advised Miramax
that TEAM is partnered with
Alliance Productions, Ltd. which
may serve as a Canadian producer of
series.
<PAGE> 4
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997 Page 2
2.2 ACQUISITION/OPTION: Miramax to acquire all forms of
home video rights, now or hereafter
known, to first 26 episodes
broadcast during first TV season.
Miramax to have option to acquire
first season episodes produced but
not broadcast, and first season
episodes in excess of 26 episodes,
as well as successive annual
options to acquire subsequent
season episodes; each option to be
exercisable within ten business
days after notice from TEAM.
Episodes to be minimum 60 minutes
(less commercial time).
2.3 FIRST AND LAST: Miramax to have right of first
negotiation and first refusal with
respect to home video rights in all
other programs and productions
based on Underlying Property
produced by, in association with or
under authority of TEAM, including,
without limitation, television
movies and mini-series not
broadcast as part of a TV season;
such option to be in effect for
programs and productions commenced
during any TV season as to which
Miramax has home video rights to
series episodes, and for a 3 year
tail period after end of last TV
season for which Miramax has home
video rights.
3. PAYMENTS
<PAGE> 5
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997 Page 3
3.1 PER EPISODE ADVANCE: Miramax to pay to a designated
TEAM/Alliance joint account,
$118,182 per episode for first
season episodes, 5% bump in second
season, 10% bump in each of third
and subsequent years, all bumps to
be straight (that is, based on
first season hour episode price and
not compounded). Advance to be
recoupable against royalties and
fully cross collateralized
throughout the Territory among all
episodes. TEAM has advised Miramax
that for TEAM's purposes,
allocation of said $118,182 per
episode advance to be $65 K for
U.S. portion of Territory and
$53,182 for non-U.S. portion of
Territory. In each TV season, (x)
license fee for pilot longer than
60 minutes exhibited at start of
season to be at one hour price; (y)
license fee for any other episode
longer than 60 minutes and MOW's
broadcast to be pro-rated based on
basis of $118,182 per hour (or then
applicable hour price).
3.2 PER EPISODE
PAYMENT SCHEDULE: 7 business days after delivery of
each episode to Miramax, so long as
Miramax has received written
notification from TEAM of initial
U.S. broadcast of the first
episode. Payment shall be limited
to no more than thirteen (13)
episodes per quarter, and payment
for episodes in excess of thirteen
<PAGE> 6
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997 Page 4
(13) shall be 7 business days after
commencement of the next quarter.
3.3 PER UNIT ROYALTY: 25% of wholesale; 12 1/2% of
wholesale for sell-through ($29.95
or lower).
4. PRODUCTION PARAMETERS
4.1 PROGRAM SPECS: one hour; live action; photographed
on super 16 mm or 35 mm film; in
color; English language; Miramax to
have meaningful consultation re:
all story, creative and production
elements and personnel; if [co]-
financed under CAVCO, Canadian
production to be consistent with
applicable CAVCO guidelines then in
effect; broadcast of program to be
under title "Total Recall" or
substantially similar title;
initial U.S. broadcast to be on
first-run syndication, with
penetration of not less than 70% of
U.S. households, or any of
following networks: ABC, CBS, Fox,
NBC, UPN, TNT, WB, HBO or Showtime
networks; if initial U.S. broadcast
not on first-run syndication or is
on another network, Miramax to have
right to opt out of acquisitions
(or further acquisitions) under
this deal.
4.2 CLEARANCES: TEAM to clear all rights, including
music, on a flat, worldwide basis
for home video for Term set forth
in section 5.2 hereof.
<PAGE> 7
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997 Page 5
4.3 DELIVERY: Delivery schedule to include
(without limitation) chain of
title, E&O insurance, music
licenses, music cue sheet, video
transfer, access to all underlying
film or video and sound materials,
publicity materials, etc. Delivery
list to be negotiated in good faith
based on customary delivery for
agreements of this kind.
4.4 CUTTING/EDITING: Subject to contractual and guild
dubbing, doubling and cutting
rights restrictions, Miramax to
have right for home video release
to cut, edit and add material,
combine episodes into longer
programs, change story continuity
(all of foregoing after meaningful
consultation with TEAM), include
more than one episode on one video
device, dub, subtitle, release "out
take", "making of" and "best of"
videos, etc. Miramax to pay costs
of foregoing, including any guild
payments arising solely from
exercise of such cutting/editing
rights.
5. HOME VIDEO DISTRIBUTION
5.1 TERRITORY: Miramax to have home video
distribution rights throughout the
universe (other than Canada, Japan
and Spain). TEAM hereby grants the
rights to Canada to Miramax,
provided that: (a) such grant does
<PAGE> 8
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997 Page 6
not compromise Alliance's CAVCO
requirements to produce the series
as a Canadian content program, and;
(b) Alliance and Miramax, prior to
June 1, 1997, reach a mutually
acceptable (to Alliance and
Miramax) distribution agreement for
Canada. If no such agreement is
reached by June 1, 1997, the
aggregate Per Episode Advance set
forth in pragraph 3.1 herein, shall
be reduced by $150,000 (i.e.,
$6818.18 per episode, for 22
episodes) for the first and
subsequent seasons, to compensate
for the loss by Miramax of the
Canadian rights.
5.2 TERM: Distribution term for all episodes
hereunder will expire on the date
22 years after delivery to Miramax
of last episode hereunder. Miramax
to have first negotiation/first
refusal to extend Term.
5.3 INITIAL BROADCAST: Initial episode to be broadcast not
later than first quarter of 1999
television season, failing which
upon notice from TEAM of intended
initial broadcast date, Miramax to
have right to opt out of this deal.
5.4 HOLDBACKS: Miramax not to release an episode
on home video until 45 days after
initial U.S. TV broadcast.
<PAGE> 9
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997 Page 7
5.5 HOME VIDEO MARKETING: Miramax to have sole control of
home video marketing, subject to
meaningful consultation with TEAM.
Miramax to comply with billing
block, screen billing, paid
advertisement, name and likeness
(so long as Miramax's prior consent
has been obtained with respect to
such name and likeness
requirements, which consent shall
not be unreasonably withheld), and
other similar requirements of which
TEAM informs Miramax on a timely
basis. Miramax to have approval of
credits in or part of artwork title
on home video boxes.
5.6 HOME VIDEO
RELEASE REQUIREMENT: For each TV season in which minimum
of 22 60-minute episodes are
broadcast, Miramax to release in
U.S. minimum 6 episodes within 6
months after initial broadcast of
22nd episode. In each case of
coupling (2 or more episodes per
cassette), each coupled episode to
count toward the 6; similarly, in
each case of combination of more
than one episode into longer
programs, each episode which is
part of longer program to count
toward the 6. U.S. home video
release to be under Miramax,
Dimension or Buena Vista Home Video
labels.
5.7 RESIDUALS: To be paid by TEAM, except to
extent such residuals result solely
<PAGE> 10
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997 Page 8
from exercise of Miramax' cutting/
editing rights.
6. MISCELLANEOUS PROVISIONS
6.1 REPS AND WARRANTIES: TEAM and Miramax each to make
customary reps and warranties for
agreements of this kind.
6.2 USE BY MIRAMAX OF
LITERARY MATERIAL: Miramax to have royalty-free right
to use in and in connection with
Miramax's "Total Recall" motion
picture and related rights, any
literary material created for
program and not included in
Underlying Property, such as new
characters, themes, plots,
settings, dialogue and slogans (as
well as variations of existing
characters, themes, plots,
settings, dialogue and slogans
included in Underlying Property),
subject to guild obligations, if
any.
6.3 ACTORS: TEAM to use good faith efforts to
afford Miramax opportunity to
negotiate motion picture options
with program's principal cast, for
production during hiatus periods.
Under no circumstances will TEAM be
in breach of this agreement because
of its failure to obtain such
opportunity for Miramax.
6.4 FORMAL AGREEMENT: Although the parties intend to
enter in a formal agreement, this
<PAGE> 11
TOTAL RECALL TV SERIES/Term Sheet
As of March 18, 1997 Page 9
is a binding agreement and will
continue to be so unless and until
superseded by a formal agreement.
Agreed to and accepted:
TEAM Entertainment Group
By: /s/ Drew S. Levin
_______________________
Drew S. Levin
President/CEO
Miramax Film Corp.
By: /s/ Cary Granat
_______________________
Its:
<PAGE> 1
EXHIBIT 10.9
ACQUISITION AGREEMENT
DATE: May 15, 1997
LICENSORS: Leucadia Film Corp.
535 East South Temple
Salt Lake City UT 84102
(801) 521-1094 Fax (801) 524-1760
LICENSEE: TEAM Entertainment Group.
12300 Wilshire Boulevard Suite 400
Los Angeles CA 90025
(310) 442-3500
Fax (310) 442-3501
PROPERTY: A series of motion pictures more specifically set forth in the
attached schedules, 1 through 5, collectively referred to as
the "Property."
RIGHTS: As more specifically set forth in the attached schedules 1
through 5.
TERRITORY: As more specifically set forth in the attached schedules 1
through 5.
TERM: Fifteen (15) years, commencing upon the date of this agreement.
All contracts currently in place or entered into during the
terms of this agreement must expire by September 22, 2012. Team
Entertainment will supply Leucadia Film Corp. with a copy of all
contracts that Team enters into.
PURCHASE PRICE:
Total purchase price for all rights acquired hereunder
US$870,000 payable as follows:
a. US$87,000 on or before September 19, 1997.
b. US$435,000 upon delivery of all required materials to
Licensor's designated laboratory, and technical and quality
acceptance thereof by said laboratory, but in no event sooner
than October 31, 1997.
c. US$348,000 on or before December 15, 1997.
COPYRIGHT
OWNERSHIP:
Licensor will retain ownership of the copyright of the Property.
COPYRIGHT AND
TRADEMARK
REGISTRATION:
1
<PAGE> 2
Licensor will execute an Instrument of Transfer indicating Licensee's
exclusive distribution rights which may be recorded in the United
States Copyright or other pertinent office. The Licensor will
copyright the Series, if same has not already been accomplished, and
provide documentation of such registrations.
DISTRIBUTION
AND MARKETING
COSTS: All costs of distribution and marketing the Series within the
Licensee's Territory shall be borne by Licensee.
TITLE TO CREATIVE:
Licensee shall retain ownership to all and any creative work done
relative to advertising or marketing of the Property for which it
advances costs, even after the expiration of the term hereof, unless
the actual and verifiable cost of same has been repaid to Licensee by
Licensor, in which case title will revert to Licensor. Licensee will
not use such materials in derogation of Licensor's rights.
FOREIGN LANGUAGE
TRACKS: Licensor shall obtain and retain title to any and all foreign language
tracks made by Licensee during the Term hereof.
ACCESS TO
CREATIVE: Licensor shall have a right to the access and use of Licensee's
creative materials as they relate to the Property during the
Term hereof.
Licensee may have access to any creative materials owned and
previously produced by Licensor for purposes of marketing the
Property, in order to reduce its marketing costs.
CREDITS: Licensee shall use the credit block provided by Licensor as
contractually required in advertising. Licensor shall promptly advise
Licensee in writing of any such requirements.
REPRESENTATIONS
AND WARRANTIES:
1. Licensor controls, and throughout the Term hereof shall control,
performance, exhibition, advertising and all other rights granted to
Licensee hereunder in and to all literary, dramatic and musical
material contained in the Property or upon which the Property is based
and Licensor has obtained all necessary licenses and permissions as
may be required for the full and unlimited exercise of Licensee
throughout the Territory for the Term.
2. All obligations with respect to the Series and the production,
prior distribution and exploitation thereof, including but not limited
to, all salaries, royalties, license fees, service charges and
laboratory charges will be fully paid by Licensor and Licensor does
hereby indemnify Licensee therefor according to the
2
<PAGE> 3
Indemnifications provisions set forth herein. Licensee shall not have
any obligation for past, current or future salaries, royalties and
residuals.
3. All obligations with respect to the Property and the production
thereof, including but not limited to, all salaries, royalties,
license fees, service charges and laboratory charges were fully paid
and Licensor does hereby indemnify Licensee against any and all
residual or royalties payable therefor.
4. Licensor shall deliver, or cause to be delivered, at Licensee's
office, or such other place as Licensee may designate, all delivery
materials specified herein below in a timely fashion.
5. Licensor shall deliver the Property, and each portion thereof, to
Licensee free of liens in the Territory, and does specifically
represent and warrant that there are no liens on the Property and
Licensor will fully indemnify Licensee against any breach of these
representation.
6. Licensor have specifically obtained the requisite releases and
permission as to name, image, voice and likeness of talent appearing
in the Series and on any or all marketing and advertising materials
therefor.
NAME, IMAGE AND
LIKENESS: Licensor have secured permission to use the name, voice, image and
likeness of all talent (as long as same is not for promotion of a
particular consumer product) and directly represents it has the right
to license such usage to Licensor under the terms hereof, and subject
only to limitations of the written requirements submitted (if any) by
Licensor to Licensee simultaneous with the execution hereof.
INDEMNIFICATIONS:
Each party (the "Indemnifying Party") shall indemnify and hold the
other party, its affiliates and their respective employees, officers,
agents, attorneys, stockholders and directors, and their respective
successors, licensee and assigns ("Indemnified Parties") harmless from
and against (and shall pay, as incurred) any and all claims,
proceedings, actions, damages, costs, expenses and other liabilities
and losses of whatever kind or nature ("Claim(s)") incurred by,
threatened against, imposed or filed against any Indemnified Party
caused by any breach (or, with respect to third party claims, any
alleged breach by the Indemnifying Party of any representation,
material term, warranty or agreement hereunder. Neither party shall
settle, compromise or consent to the entry of any judgment in or
otherwise seek to terminate any pending or threatened Claim in respect
of which the Indemnified Party is entitled to indemnification
hereunder, without the prior written consent of the other party;
provided, however, that the Indemnifying Party shall be entitled to
settle any claim without the written consent of the Indemnifying Party
so long as such settlement only involves the payment of money by the
Indemnifying Party and in no way affects any rights of the Indemnified
Party.
3
<PAGE> 4
INSURANCE: Licensor will arrange to secure an Errors and Omissions policy of
insurance with respect to the Property which has limits of not less
than $1,000,000/$3,000,000, with a deductible of not more than
$?0,000. Licensor agrees that Licensee, and its customers shall be
named as an additional insured on said policy.
DELIVERY
MATERIALS: Timely delivery of technically satisfactory versions of the delivery
materials set forth in the attached schedule of delivery materials
shall constitute Delivery hereunder, which Delivery is a condition
precedent to all other terms and conditions of this Deal Memo.:
NOTICES: All notices hereunder shall be in writing, addressed to the party
as indicated below. Any written notice ("Notice") shall be effective
one day after delivery of same. A Notice may be communicated by
facsimile, with printed receipt for transmission thereof, by federal
express or other overnight courier service with proof of personal
delivery thereof, or by certified mail, return receipt requested
with proof of delivery thereof:
All Notices shall be sent to the addresses:
If to Licensee:
TEAM Entertainment Group
12300 Wilshire Boulevard Suite 400
Los Angeles CA 90025
(310)442-3500
Fax (310)442-3501
If to Licensor:
Leucadia Film Corp.
535 East South Temple
Salt Lake City, UT 84102
(801)521-1094
Fax (801)52-1760
With a copy to:
Tomorrow Film Corp.
1453 Third Street Promenade Suite 360
Santa Monica, CA 90401
(310)656-6300
Fax (310)656-6304
ARBITRATION
PROVISION: In the event of any dispute hereunder, the parties will submit the
issued in controversy to binding arbitration at an impartial hearing
conducted by an
<PAGE> 5
arbitration panel according to the American Film Marketing
Association and the rules thereby prescribed.
LIEN ON FILM
ELEMENTS UNTIL
RECOUPMENT: Licensee shall have a sole and first priority lien on the rights
granted under this agreement until such time as the purchase price
paid hereunder is recouped, at which time such lien will be
released.
ASSIGNMENT: The right to payment and/or recoupment hereunder may be assigned,
with prior written notice to Licensor, by Licensee, but the
obligations hereby undertaken may not be assigned by any party
without the prior written consent of all others.
FORCE MAJEURE:
Neither company nor distributor will be liable for failure to
perform its part of this agreement when the failure is due to fire,
flood, strikes, or other industrial disturbances, inevitable
accident, war, riot, insurrection, or other causes beyond the
reasonable control of the parties.
CANCELLATION FOR CAUSE:
Either party may cancel this agreement in the event the other party
is in default of any of the material provisions of this agreement,
and such default is not cured within thirty (30) days of receipt by
such other party of written notice from the party giving notice
specifying the nature of such default and corrective action that may
be taken, if any.
"Licensor:
LEUCADIA FILM CORPORATION
BY: /s/ MONTY MAGLEBY
-----------------------------------
"Licensee"
TEAM ENTERTAINMENT GROUP
BY: /s/ DREW LEVIN
------------------------------------
<PAGE> 6
SCHEDULE 1
AS OF MAY 1997
JAPAN
<TABLE>
<CAPTION>
TITLES RIGHTS
- ------ ------
<S> <C>
1. ADDRESS UNKNOWN VIDEO
AVAILABLE TV
2. BREAKING FREE VIDEO
AVAILABLE TV
3. COYOTE SUMMER VIDEO
AVAILABLE TV
4. JUST IN TIME VIDEO
AVAILABLE TV
5. JUST LIKE DAD VIDEO
AVAILABLE TV
6. THE GOODBYE BIRD VIDEO
AVAILABLE TV
7. THE PAPER BRIGADE VIDEO
AVAILABLE TV
8. THE WITCHING OF BEN WAGNER VIDEO
AVAILABLE TV
9. THE UNDERCOVER KID VIDEO
AVAILABLE TV
10. WINDRUNNER VIDEO
AVAILABLE TV
11. WISH UPON A STAR VIDEO
AVAILABLE TV
</TABLE>
<PAGE> 7
SCHEDULE 2
AS OF MAY 1997
UNITED KINGDOM
<TABLE>
<CAPTION>
TITLE RIGHTS
----- ------
<S> <C>
1. ADDRESS UNKNOWN AVAILABLE TV
2. BREAKING FREE AVAILABLE TV
3. COYOTE SUMMER AVAILABLE TV
4. JUST IN TIME AVAILABLE TV
5. JUST LIKE DAD AVAILABLE TV
6. THE GOODBYE BIRD AVAILABLE TV
7. THE PAPER BRIGADE AVAILABLE TV
8. THE WITCHING OF BEN WAGNER AVAILABLE TV
9. THE UNDERCOVER KID AVAILABLE TV
10. WINDRUNNER AVAILABLE TV
11. WISH UPON A STAR AVAILABLE TV
</TABLE>
<PAGE> 8
SCHEDULE 3
AS OF MAY 1997
SCANDINAVIA
<TABLE>
<CAPTION>
TITLE RIGHTS
----- ------
<S> <C>
1. Address Unknown Available TV
2. Breaking Free Available TV
3. Coyote Summer Available TV
4. Just in Time Available TV
5. Just Like Dad Available TV
6. The Goodbye Bird Available TV
7. The Paper Brigade Available TV
8. The Witching of Ben Wagner Available TV
9. The Undercover Kid Available TV
10. Windrunner Available TV
11. Wish Upon a Star Available TV
</TABLE>
<PAGE> 9
SCHEDULE 4
AS OF MAY 1997
FRANCE
<TABLE>
<CAPTION>
TITLES RIGHTS
------ ------
<S> <C>
1. Address Unknown Video
Available TV
2. Breaking Free Video
Available TV
3. Coyote Summer Video
Available TV
4. Just in Time Video
Available TV
5. Just Like Dad Video
Available TV
6. The Goodbye Bird Video
Available TV
7. The Witching of Ben Wagner Video
Available TV
8. Windrunner Video
Available TV
</TABLE>
<PAGE> 10
Schedule 5
As of May 1997
Spain
<TABLE>
<CAPTION>
TITLES RIGHTS
------ ------
<S> <C>
1. Just in Time Video
Available TV
2. Wish Upon a Star Video
Available TV
</TABLE>
<PAGE> 1
EXHIBIT 10.10
TELEVISION EMPLOYMENT AGREEMENT
-PRODUCING SERVICES-
Dated: as of May 21, 1997
PRODUCER: Family Development Corp.
12700 Ventura Blvd., 1st Floor
Studio City, CA 91604
Attn: Jeff Zella
ARTIST: Team Entertainment
12300 Wilshire Blvd., Suite 400
Los Angeles, CA 90025
Copy To: Eric Elias, Esq.
Team Entertainment
CONDITION PRECEDENT: Producer's engagement of Artist hereunder is subject
to Artist's compliance with the terms and provisions of the Federal Immigration
and Naturalization Act. In that regard, concurrently with the execution of this
Agreement Artist shall provide Producer with such proof of Artist's United
States citizenship or authorization to work in the United States as may be
required by the Immigration and Naturalization Service ("INS") and shall also
complete and return to Producer all forms required by the INS.
1. PRODUCTION: Whereas Producer is developing a proposed television motion
picture based on a treatment written by Michael Sloan ("Sloan") ("Underlying
Property") and tentatively entitled "Earthquake in New York" (the "Picture"), in
the event Producer elects to produce the Picture it shall do so in association
with Artist. Parties hereby acknowledge that it is our mutual intention to
produce the Picture such that it qualifies for the maximum Canadian tax credits
or other financial benefit, although Artist is responsible for producing the
picture regardless of its qualification for Canadian content or tax credits.
2. PRODUCTION FINANCING:
(a) Production Costs: Once the Picture is ordered for production, Producer
and Artist will develop the budget for the Picture; it being understood that the
budget for the Picture must be pre-approved in writing by Gus Lucas, President,
Family Channel or Neil Strum, Senior Vice President of Business & Legal Affairs
prior to commencement of pre-production ("Final Budget"). When the Final Budget
is completed and approved, it will be attached hereto as Exhibit "A" and
incorporated herein by this reference. The final shooting script will serve as
the basis for the Final Budget.
(b) Financing: In the event that the Final Budget is approved, Producer
shall finance eighty five percent (85%) of the Final Budget and Artist shall
finance fifteen percent (15%) of the Final Budget. Producer and Artist hereby
agree to simultaneously fund their proportionate share as funding is due at each
stage of production of the Picture.
1
<PAGE> 2
(c) Artist's Bonding Obligation: Artist shall guarantee and Bond the
Picture with a bonding company approved by Producer and Producer or Producer's
designee shall be named as a beneficiary on the Bond. The costs from said Bond
shall be included in the Final Budget.
3. EMPLOYMENT: Producer hereby engages Artist to render producing services
in connection with the Picture upon the terms and conditions herein set forth.
This Agreement is expressly conditioned upon and subject to Producer coming to
an agreement on optioning the Underlying Property and reaching an agreement for
the services of Michael Sloan as an executive producer on the Picture, such
agreement(s) shall be made available to Artist.
4. DEVELOPMENT SERVICES: Artist shall render customary supervisory services
in connection with the development of the Picture as reasonably required by
Producer. After final budget approval, any revisions of the budget will be by
mutual approval. Notwithstanding the foregoing, excluding revisions of the final
budget, Producer's decision in each instance shall be final and binding upon
Artist.
5. SERVICES DURING PRODUCTION: If Producer elects to produce the Picture
and Artist is available to render services as, when and where reasonably
required by Producer, Producer shall engage Artist as an executive producer of
the Picture on a pay-or-play basis. Said services shall be on an exclusive basis
commencing no less than four (4) weeks prior to commencement of principal
photography of the Picture, and continuing until completion of principal
photography of the Picture, and on a non-exclusive, in-person, first priority
basis at all other times until delivery of the answer print of the Picture to
the exhibitor of the Picture. Artist's services for Producer shall be those
customarily rendered in the aforesaid capacity in the television industry.
6. COMPENSATION: If the Picture is set for production (e.g., a director is
hired, a budget approved, a license fee agreed to, principal cast hired etc.),
and Artist is available to render services as, when and where reasonably
required by Producer, then, provided Artist is not in material default hereof,
Producer shall pay to Artist the following applicable amounts:
(a) Guaranteed Compensation: The sum of $175,000 which sum shall be
reducible on a dollar-for-dollar basis by all fees payable to any and all third
party line producer(s) and UPM(s) to a cap in reduction of $75,000. Said
compensation shall be payable 1/6 upon commencement of preproduction, 1/3 upon
commencement of principal photography, 1/3 upon completion of principal
photography and 1/6 upon delivery of the answer print of the Picture to the
exhibitor.
(b) Contingent Compensation: Artist shall be entitled to an amount equal
to 35% of 100% of the net proceeds derived from Producer's exploitation of the
Picture throughout the world, excluding Canada, reducible by all third party
participants to a hard floor of 27.5% of 100% of net proceeds. For the purposes
hereof, net proceeds shall be defined, computed, accounted for and paid in
accordance with Producer's standard definition with distribution advances,
costs, fees, interest and overhead recouped prior to sharing revenue. Said
definition is attached hereto as Exhibit "NP" and incorporated herein by this
reference and shall be subject to good faith negotiations within the customary
parameters of such distributor for net proceed participants of Artist's stature
and deals of this nature; provided, however, that there shall be no negotiation
with respect to overhead, distribution fees, production fees or interest.
7. CREDIT:
(a) In the event Artist renders all services required hereunder and is
not in material default of this Agreement, Artist shall receive credit as
executive producer on screen in the main titles of the Picture on a shared card
with Michael Sloan. In addition, if Artist receives the aforesaid credit, Artist
will also be entitled to the credit in the end titles of the Picture
2
<PAGE> 3
substantially as follows: "Team Entertainment in association with..." All other
matters with respect to the aforesaid credits shall be in Producer's sole
discretion.
(b) In the event Artist renders all services required hereunder and is
not in material default of this Agreement, Drew Levin shall receive credit as
executive producer in first position. All other matters with respect to the
aforesaid credits shall be in Producer's sole discretion.
(c) In the event Artist renders all services required hereunder and is
not in material default of this Agreement, Paul Yamamoto shall receive credit as
co-executive producer, and Meredith Metz shall receive credit as co-producer.
All other matters with respect to the aforesaid credits shall be in Producer's
sole discretion.
8. THEATRICAL RELEASE BONUS: In the event Artist renders all services
required hereunder and is not in material default hereof, Artist shall be
entitled to the following, subject to the conditions set forth:
(a) If the Picture has a Theatrical Exhibition in the domestic territory
prior to the Network Prime-Time Telecast thereof, Artist shall be entitled to an
additional sum equal to 100% of the compensation actually paid Artist pursuant
to paragraph 4(a), above, payable within thirty (30) days after the Initial
Release Date of the Picture, if any; or
(b) If the Picture has a Theatrical Exhibition in the domestic territory
subsequent to the Network Prime-Time Telecast thereof, Artist shall be entitled
to an additional sum equal to 50% of the compensation actually paid to Artist
pursuant to paragraph 4(a), above, payable within thirty (30) days after the
Initial Release Date, if any; and if the Picture has a Theatrical Exhibition in
the foreign territory prior or subsequent to the Network Prime-Time Telecast
thereof, Artist shall be entitled to an additional sum equal to 10% of the
compensation actually paid to Artist pursuant to paragraph 4(a), above, per
foreign territory, up to a maximum of 50%, payable within thirty (30) days after
the Initial Release Date of the Picture, if any.
(c) In no event shall Artist be entitled to receive more than the total
additional amount of a sum equal to 100% of the compensation actually paid to
Artist pursuant to paragraph 4(a), above, with respect to any Theatrical
Exhibition of the Picture.
9. SUBSEQUENT PRODUCTIONS: If the Picture, as released, was produced
substantially under the direct supervision of Artist in the capacity set forth
above, and if Artist receives credit in accordance with the provisions of
paragraph 5, above, and Artist has kept and performed all material covenants and
conditions to be kept and performed by Artist hereunder, then, in the event
that, within seven (7) years following the initial telecast of the Picture,
Producer desires to develop a Pilot, Remake or Sequel, then subject to the
approval of the network or financing company, Artists being actively employed in
the television (or theatrical, as the case may be) industry as a producer and
Artist's availability as, when and where requested by Producer, Producer agrees
to initially negotiate with Artist to render producing services such as those
described in this Agreement in connection with such Pilot, Remake or Sequel on
financial terms no less favorable to Artist than those set forth in this
Agreement. If (i) Producer and Artist do not reach a mutually acceptable
agreement for the rendition of such services by Artist within fifteen (15) days;
or (ii) Artist is not available to render such services as and when requested by
Producer; or (iii) the network or financing company does not approve Artist as
to render such services in connection with such Pilot, Remake or Sequel, or (iv)
Artist is not then actively working as a producer in the television (or
theatrical, as the case may be) industry, Producer shall have no obligation
whatsoever to Artist in connection therewith except as otherwise specifically
set forth herein.
3
<PAGE> 4
10. UNDERLYING PROPERTY: If Artist owns or controls any rights in or to the
Underlying Property, then, in consideration of Producer's entering into this
Agreement, Artist hereby assigns to Producer all of Artist's right, title and
interest in and to the Underlying Rights, and any part thereof, in perpetuity
throughout the universe in all media, and represents and warrants that Artist
has not assigned or licensed to any other party or in any manner encumbered or
hypothecated any right, title or interest in or to the Underlying Property nor
has Artist made any agreement with any third party to do so. In connection
therewith, Artist agrees to execute and deliver to Producer an assignment
attached hereto which Producer may file with the United States copyright office.
11. DISTRIBUTION:
(a) Producer shall have exclusive distribution rights in the Picture in
all media throughout the world excluding Canada ("Producer Territories").
(b) Artist shall have exclusive distribution rights in the Picture in
all media in Canada.
12. APPROVALS:
(a) Producer shall have approval over all material elements, including
but not limited to, principal cast members and director.
(b) Producer shall have prior approval over any third party production
entity Artist intends to use in connection with the Picture.
(c) Producer shall have prior approval over Artist's selection of the
Bond company in connection with the production for the Picture.
(d) Producer and Artist shall have mutual approval over the selection of
any third party line producer(s) and UPM(s).
(e) Producer and Artist shall have mutual approval over the selection of
the production company.
13. MUSIC:
(a) The parties agree that all music publishing rights in the Producer
Territories shall be owned and administered by MTM Music, Inc., Producer's music
publishing affiliate, and that all music revenues from the Producer Territories
shall be paid to Producer.
(b) The parties agree that all music publishing rights in Canada will be
administered by MTM Music, Inc. for the benefit of Artist, or its assigns,
affiliates, or subsidiaries.
(c) The parties agree that Producer shall have approval over all
composers and music for the Picture.
14. OWNERSHIP: All right, title and interest in and to the Picture, all work
and work product developed or produced under this agreement and all right, title
and interest in copyrights, trademarks and other intellectual property derived
from such work and work product are deemed to belong to Producer. Producer shall
solely and exclusively own throughout the world in
4
<PAGE> 5
perpetuity all rights of every kind and nature, including Remake and Sequel
Motion Picture Rights and the copyright, in and to any Motion Picture or other
production produced or developed hereunder and all the components thereof, and
all of the results and proceeds of Producer's services in whatever stage of
completion any Motion Picture or such results and proceeds must exist from time
to time, together with the rights generally known as the "moral rights of
authors" and the exclusive right to distribute and otherwise market and exploit
any Motion Picture or other production and all components thereof in any manner,
whether now or hereafter known or created. Artist acknowledges that all results
and proceeds of Artist's services on the Picture are being specially ordered by
Producer, shall be considered a "work-made-for-hire" for Producer, and
therefore, Producer shall be the author and copyright owner thereof. Any Motion
Picture or other productions produced hereunder shall be registered for
copyright in the name of Producer or its designee.
15. ADDITIONAL PROVISIONS: The following additional documents attached
hereto (if so indicated) are incorporated herein and made a part hereof, except
that, to the extent any provision(s) thereof conflict with any provision(s)
hereof, the provision(s) hereof shall prevail:
(a) Standard Terms and Conditions (the terms and conditions of which
shall be subject to such changes as are customary and agreed to in writing
between the parties after good faith negotiations within customary television
industry parameters for producers of Artist's stature; provided, however, that
there shall be no negotiation of terms relating to compensation, credit or grant
of rights).
(b) Certificate of Results and Proceeds
(c) Glossary
(d) I-9 Forms
(e) Exhibit "NP"
(f) Assignment
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PRODUCER
FAMILY DEVELOPMENT CORP.
By: /s/ NEIL STRUM
---------------------------------
Its: Sr. V.P.
-------------------------------
ARTIST:
TEAM ENTERTAINMENT
By: /s/ DREW S. LEVIN
------------------------------------
Its:
-----------------------------------
5
<PAGE> 6
TELEVISION EMPLOYMENT AGREEMENT
-PRODUCING SERVICES-
Dated: as of May 21, 1997
Revised as of June 30, 1997
PRODUCER: Family Development Corp.
12700 Ventura Blvd., 1st Floor
Studio City, CA 91604
Attn: Robert M. Melnik
ARTIST: Team Entertainment
12300 Wilshire Blvd., Suite 400
Los Angeles, CA 90025
Copy To: Eric Elias, Esq.
Team Entertainment
CONDITION PRECEDENT: Producer's engagement of Artist hereunder is
subject to Artist's compliance with the terms and provisions of the Federal
Immigration and Naturalization Act. In that regard, concurrently with the
execution of this Agreement Artist shall provide Producer with such proof of
Artists United States citizenship or authorization to work in the United States
as may be required by the Immigration and Naturalization Service ("INS") and
shall also complete and return to Producer all forms required by the INS.
1. PRODUCTION: Whereas Producer is developing a proposed television motion
picture based on a treatment written by Gregg Davis ("Davis") ("Underlying
Property") and tentatively entitled "Downfall" (the "Picture"), in the event
Producer elects to produce the Picture it shall do so in association with Artist
Parties hereby acknowledge that it is our mutual intention to produce the
Picture such that it qualifies for the maximum Canadian tax credits or other
financial benefit, although Artist is responsible for producing the picture
regardless of its qualification for Canadian content or tax credits.
2. PRODUCTION FINANCING:
(a) Production Costs: Once the Picture is ordered for production,
Producer and Artist will develop the budget for the Picture; it being understood
that the budget for the Picture must be pre-approved in writing by Gus Lucas,
President, Family Channel or Neil Strum, Senior Vice President of Business &
Legal Affairs prior to commencement of pre-production ("Final Budget"). When the
Final Budget is completed and approved, it will be attached hereto as Exhibit
"A" and incorporated herein by this reference. The final shooting script will
serve as the basis for the Final Budget.
(b) Financing: In the event that the Final Budget is approved, Producer
shall finance eighty five percent (85%) of the Final Budget and Artist shall
finance fifteen percent (15%) of the Final Budget. Producer and Artist hereby
agree to simultaneously fund their proportionate share as funding is due at each
stage of production of the Picture.
1
<PAGE> 7
(c) Artist's Bonding Obligation: Artist shall guarantee and Bond the
Picture with a bonding company approved by Producer and Producer or Producer's
designee shall be named as a beneficiary on the Bond. The costs from said Bond
shall be included in the Final Budget.
3. EMPLOYMENT: Producer hereby engages Artist to render producing services
in connection with the Picture upon the terms and conditions herein set forth.
This Agreement is expressly conditioned upon and subject to Producer coming to
an agreement on optioning the Underlying Property and reaching an agreement for
the services of Gregg Davis as an executive producer on the Picture, such
agreement(s) shall be made available to Artist.
4. DEVELOPMENT SERVICES: Artist shall render customary supervisory services
in connection with the development of the Picture as reasonably required by
Producer. After final budget approval, any revisions of the budget will be by
mutual approval. Notwithstanding the foregoing, excluding revisions of the final
budget, Producer's decision in each instance shall be final and binding upon
Artist.
5. SERVICES DURING PRODUCTION: If Producer elects to produce the Picture
and Artist is available to render services as, when and where reasonably
required by Producer, Producer shall engage Artist as an executive producer of
the Picture on a pay-or-play basis. Said services shall be on an exclusive basis
commencing no less than four (4) weeks prior to commencement of principal
photography of the Picture, and continuing until completion of principal
photography of the Picture, and on a non-exclusive, in-person, first priority
basis at all other times until delivery of the answer print of the Picture to
the exhibitor of the Picture. Artist's services for Producer shall be those
customarily rendered in the aforesaid capacity in the television industry.
6. COMPENSATION: If the Picture is set for production (e.g., a director is
hired, a budget approved, a license fee agreed to, principal cast hired etc.),
and Artist is available to render services as, when and where reasonably
required by Producer, then, provided Artist is not in material default hereof,
Producer shall pay to Artist the following applicable amounts:
(a) Guaranteed Compensation: The sum of $25,000 payable 1/6 upon
commencement of preproduction, 1/3 upon commencement of principal photography,
1/3 upon completion of principal photography and 1/6 upon delivery of the answer
print of the Picture to the exhibitor. The aforementioned sum shall be increased
by any savings to Producer as it relates to the Line Producer/UPM fees.
(Producer has agreed to pay a Line Producer/UPM fees of up to $75,000.)
(b) Contingent Compensation: Artist shall be entitled to an amount equal
to 35% of 100% of the net proceeds derived from Producer's exploitation of the
Picture throughout the world, excluding Canada, reducible by all third party
participants to a hard floor of 27.5% of 100% of net proceeds. For the purposes
hereof, net proceeds shall be defined, computed, accounted for and paid in
accordance with Producer's standard definition with distribution advances,
costs, fees, interest and overhead recouped prior to sharing revenue. Said
definition is attached hereto as Exhibit "NP" and incorporated herein by this
reference and shall be subject to good faith negotiations within the customary
parameters of such distributor for net proceed participants of Artist's stature
and deals of this nature; provided, however, that there shall be no negotiation
with respect to overhead, distribution fees, production fees or interest.
7. CREDIT:
(a) In the event Artist renders all services required hereunder and is
not in material default of this Agreement, Artist shall receive credit as
producer on screen in the main titles of the Picture on a separate card. In
addition, if Artist receives the aforesaid credit, Artist will also
2
<PAGE> 8
be entitled to the credit in the end titles of the Picture substantially as
follows: "Team Entertainment in association with..." All other matters with
respect to the aforesaid credits shall be in Producer's sole discretion.
(b) In the event Artist renders all services required hereunder and is
not in material default of this Agreement, Drew Levin shall receive credit as
executive producer in first position. All other matters with respect to the
aforesaid credits shall be in Producer's sole discretion.
(c) In the event Artist renders all services required hereunder and is
not in material default of this Agreement, Paul Yamamoto shall receive credit as
co-executive producer, and Meredith Metz shall receive credit as co-producer.
All other matters with respect to the aforesaid credits shall be in Producer's
sole discretion.
8. THEATRICAL RELEASE BONUS: In the event Artist renders all services
required hereunder and is not in material default hereof, Artist shall be
entitled to the following, subject to the conditions set forth:
(a) If the Picture has a Theatrical Exhibition in the domestic territory
prior to the Network Prime-Time Telecast thereof, Artist shall be entitled to an
additional sum equal to 100% of the compensation actually paid Artist pursuant
to paragraph 6(a), above, payable within thirty (30) days after the Initial
Release Date of the Picture, if any; or
(b) If the Picture has a Theatrical Exhibition in the domestic territory
subsequent to the Network Prime-Time Telecast thereof, Artist shall be entitled
to an additional sum equal to 50% of the compensation actually paid to Artist
pursuant to paragraph 6(a), above, payable within thirty (30) days after the
Initial Release Date, if any; and if the Picture has a Theatrical Exhibition in
the foreign territory prior or subsequent to the Network Prime-Time Telecast
thereof, Artist shall be entitled to an additional sum equal to 10% of the
compensation actually paid to Artist pursuant to paragraph 6(a), above, per
foreign territory, up to a maximum of 50%, payable within thirty (30) days after
the Initial Release Date of the Picture, if any.
(c) In no event shall Artist be entitled to receive more than the total
additional amount of a sum equal to 100% of the compensation actually paid to
Artist pursuant to paragraph 6(a), above, with respect to any Theatrical
Exhibition of the Picture.
9. SUBSEQUENT PRODUCTIONS: If the Picture, as released, was produced
substantially under the direct supervision of Artist in the capacity set forth
above, and if Artist receives credit in accordance with the provisions of
paragraph 7, above, and Artist has kept and performed all material covenants and
conditions to be kept and performed by Artist hereunder, then, in the event
that, within seven (7) years following the initial telecast of the Picture,
Producer desires to develop a Pilot, Remake or Sequel, then subject to the
approval of the network or financing company, Artist's being actively employed
in the television (or theatrical, as the case may be) industry as a producer and
Artist's availability as, when and where requested by Producer, Producer agrees
to initially negotiate with Artist to render producing services such as those
described in this Agreement in connection with such Pilot, Remake or Sequel on
financial terms no less favorable to Artist than those set forth in this
Agreement. If (i) Producer and Artist do not reach a mutually acceptable
agreement for the rendition of such services by Artist within fifteen (15) days;
or (ii) Artist is not available to render such services as and when requested by
Producer; or (iii) the network or financing company does not approve Artist as
to render such services in connection with such Pilot, Remake or Sequel, or (iv)
Artist is not then actively working as a producer in the television (or
theatrical, as the case may be) industry, Producer shall have no obligation
whatsoever to Artist in connection therewith except as otherwise specifically
set forth herein.
3
<PAGE> 9
10. UNDERLYING PROPERTY: If Artist owns or controls any rights in or to the
Underlying Property, then, in consideration of Producer's entering into this
Agreement, Artist hereby assigns to Producer all of Artist's right, title and
interest in and to the Underlying Rights, and any part thereof, in perpetuity
throughout the universe in all media, and represents and warrants that Artist
has not assigned or licensed to any other party or in any manner encumbered or
hypothecated any right, title or interest in or to the Underlying Property nor
has Artist made any agreement with any third party to do so. In connection
therewith, Artist agrees to execute and deliver to Producer an assignment
attached hereto which Producer may file with the United States copyright office.
11. DISTRIBUTION:
(a) Producer shall have exclusive distribution rights in the Picture in
all media throughout the world excluding Canada ("Producer Territories").
(b) Artist shall have exclusive distribution rights in the Picture in
all media in Canada.
12. APPROVALS:
(a) Producer shall have approval over all material elements, including
but not limited to, principal cast members and director.
(b) Producer shall have prior approval over any third party production
entity Artist intends to use in connection with the Picture.
(c) Producer shall have prior approval over Artist's selection of the
Bond company in connection with the production for the Picture.
(d) Producer and artist shall have mutual approval over the selection of
any third party line producer(s) and UPM(s).
(e) Producer and Artist shall have mutual approval over the selection of
the production company.
13. MUSIC:
(a) The parties agree that all music publishing rights in the Producer
Territories shall be owned and administered by MTM Music, Inc., Producer's music
publishing affiliate, and that all music revenues from the Producer Territories
shall be paid to Producer.
(b) The parties agree that all music publishing rights in Canada will be
administered by MTM Music, Inc. for the benefit of Artist, or its assigns,
affiliates, or subsidiaries.
(c) The parties agree that Producer shall have approval over all
composers and music for the Picture.
14. OWNERSHIP: All right, title and interest in and to the Picture, all work
and work product developed or produced under this agreement and all right, title
and interest in copyrights, trademarks and other intellectual property derived
from such work and work product are deemed to belong to Producer. Producer shall
solely and exclusively own throughout the world in perpetuity all rights of
every kind and nature, including Remake and Sequel Motion Picture Rights and the
copyright, in and to any Motion Picture or other production produced or
4
<PAGE> 10
developed hereunder and all the components thereof, and all of the results and
proceeds of Producer's services in whatever stage of completion any Motion
Picture or such results and proceeds must exist from time to time, together with
the rights generally known as the "moral rights of authors" and the exclusive
right to distribute and otherwise market and exploit any Motion Picture or other
production and all components thereof in any manner, whether now or hereafter
known or created. Artist acknowledges that all results and proceeds of Artist's
services on the Picture are being specially ordered by Producer, shall be
considered a "work-made-for-hire" for Producer, and therefore, Producer shall be
the author and copyright owner thereof. Any Motion Picture or other productions
produced hereunder shall be registered for copyright in the name of Producer or
its designee.
15. ADDITIONAL PROVISIONS: The following additional documents attached
hereto (if so indicated) are incorporated herein and made a part hereof, except
that, to the extent any provision(s) thereof conflict with any provision(s)
hereof, the provision(s) hereof shall prevail:
(a) Standard Terms and Conditions (the terms and conditions of which
shall be subject to such changes as are customary and agreed to in writing
between the parties after good faith negotiations within customary television
industry parameters for producers of Artist's stature; provided, however, that
there shall be no negotiation of terms relating to compensation, credit or grant
of rights).
(b) Certificate of Results and Proceeds
(c) Glossary
(d) Exhibit "NP"
(e) Assignment
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PRODUCER
FAMILY DEVELOPMENT CORP.
By: /s/ NEIL STRUM
----------------------------------
Its: Senior Vice President
---------------------------------
ARTIST:
TEAM
By: /s/ DREW LEVIN
---------------------------------
Its:
--------------------------------
5
<PAGE> 1
EXHIBIT 10.11
[LETTERHEAD]
September 5, 1997
Eric Elias
Team Entertainment
12300 Wilshire Blvd.
Suite 400
Los Angeles, CA 90025
Re: AMAZING TAILS II (Contract # TDO00l/PREPROD/APL/EO/CB/KW)
Dear Sirs:
This letter will confirm the agreement between Team Entertainment
("Producer") and DISCOVERY COMMUNICATIONS, INC. ("DCI") regarding certain
development and preliminary production activities to be performed by Producer
for a series twenty-six half-hour (30:00) magazine-format programs tentatively
entitled Amazing Tails II on the subject of people's pets and their impact on
human lives ("the Series").
Our agreement is as follows:
1. Producer agrees to undertake the following activities
("Production Activities") and prepare the following materials (the "Materials")
for DCI in connection with the production of the Program:
(a) Producer shall recruit and hire production staff to commence
photography and begin contracting for elements of the Series;
(b) a detailed production budget which shall include all
development and pre-production monies;
(c) a detailed production schedule;
(d) comprehensive research materials, promotional slides, all
film footage with regard to the Program and a select reel; and
(e) the Cost Report described in paragraph 2(c), below.
<PAGE> 2
Eric Elias
Team Entertainment
September 5, 1997
Page 2
All of the Production Activities will be performed and the Materials
will be prepared in accordance with the instructions of DCI. All of the
Materials shall be delivered to DCI no later than September 26, 1997. DCI shall
have creative and editorial approval over all aspects of the Production
Activities and the Materials. Producer agrees that time is of the essence with
respect to all of its obligations hereunder.
2. (a) In consideration for the services to be rendered, and the
rights granted, by Producer hereunder, DCI agrees to pay Producer, and Producer
agrees to accept, an advance (the "Advance") of Seventy-five Thousand Dollars
($75,000.00). The Advance shall be payable in full within ten (10) days of
mutual execution of this Agreement.
(b) The Advance 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 Activities and the production of the
Materials. Upon request from DCI, Producer shall provide DCI with proof that
all payments of the Advance have been deposited in the Production Account.
(c) Producer shall keep true, accurate and complete books of
accounting relating to the Production Activities, together with vouchers,
receipts and other records showing in detail all expenses and charges incurred
with respect to the Production Activities. Such books of account shall be kept
in accordance with generally accepted principles and practices in the television
industry. DCI shall have the right to audit Producer's books with respect to the
Production Activities. Upon completion of the Production Activities, Producer
shall provide DCI a detailed and complete accounting of all expenses incurred by
Producer in connection with the services rendered under this Agreement ("Cost
Report"). The Cost Report shall be submitted in the form attached hereto as
Exhibit B.
3. Producer will obtain and maintain throughout the Production
Activities (a) appropriate Worker's Compensation Insurance for its employees as
required by applicable law; (b) third party liability coverage insuring Producer
against all liability assumed by Producer under this Agreement and (c) customary
production insurance as
<PAGE> 3
Eric Elias
Team Entertainment
September 5, 1997
Page 3
required by DCI and set forth in the Budget. Within ten (10) days of this
Agreement, Producer will provide DCI with certificates of such insurance naming
DCI as an additional insured.
4. Producer will obtain written releases from any person appearing
in or providing material for inclusion in the Program, 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 material, in the Program, and in publicity
concerning the Program and DCI.
5. (a) The parties hereto are presently negotiating in good faith
the terms and conditions of a long form production agreement ("Production
Agreement") for the completion of the Series which Production Agreement shall
include representations, warranties, indemnities and other provisions which
shall be customary for DCI's transactions of a similar type to the Series. If
Producer and DCI enter into the Production Agreement, it is agreed the Advance
shall be credited towards the production budget payable to Producer for the
production of the Program. If the parties have not executed a production
agreement within sixty (60) days from the date of execution of this Agreement,
then DCI shall have no further right, title or interest in the Materials
developed under this Agreement, except that Producer shall reimburse DCI for the
full amount of the Advance out of first monies received by Producer, directly or
indirectly, in connection with the sale, transfer, assignment, license, option
or other disposition or exploitation of those Materials in whole or in part.
Such reimbursement shall be made promptly after Producer's receipt of such first
monies.
(b) In order to secure the refunding of the Advance to DCI as set forth above,
Producer hereby grants to DCI a Copyright Mortgage and Assignment to the
Materials, the Series (including, without limitation, all physical elements
thereof and the copyright therein) and all proceeds of any kind from the
exploitation thereof. Producer agrees that it will execute and deliver to DCI
all documents which DCI may require in order to perfect and maintain its
interest, and in the event that Producer does not execute and deliver such
documents, Producer hereby appoints DCI as its attorney-in-fact with the full
right and authority to execute and deliver such documents, such appointment
being irrevocable and deemed coupled with an interest.
(c) Producer acknowledges that DCI is the producer of history
and human adventure programming for cable television subscribers and that other
persons, including DCI employees, may have submitted or may hereafter originate
and submit
<PAGE> 4
Eric Elias
Team Entertainment
September 5, 1997
Page 4
similar or identical material which DCI may have the right to use and Producer
shall not be entitled to any compensation because of DCI's use of such other
similar or identical material.
6. Producer acknowledges and agrees that its services are being
rendered hereunder as an independent contractor. In connection therewith,
Producer agrees that it will comply with all obligations imposed upon
independent contractors or employers by any governmental entity, including,
without limitation, the withholding and payment of income taxes, the payment of
other payroll taxes and the provision of worker's compensation insurance (if
applicable).
7. Producer represents and warrants to DCI that:
(a) it has the full right and authority to enter into this
Agreement and to provide its services as set forth herein;
(b) the Materials and the use thereof by DCI shall not violate
any rights of any kind of any person, firm or corporation. Producer hereby
agrees to indemnify and hold harmless DCI and its successors, licensees,
assigns, officers, directors, employees and shareholders from any claims, suits,
demands, expenses (including, without limitation, reasonable attorney's Advances
and disbursements), losses and damages (including, without limitation, amounts
paid in settlement) arising from the breach of any of the Producer's
representations, warranties or obligations set forth herein; and
(c) the Production Activities shall be performed in accordance
with all applicable statutes, rules and regulations.
8. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland applicable to contracts made
and to be fully performed therein. Producer hereby consents to an submits to the
jurisdiction of the federal and state courts located in the State of Maryland,
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 Maryland. Service of process to either party may be made
by first class certified or registered mail by personal delivery or by overnight
air courier. Notice shall be deemed received within five (5) business days after
being given.
<PAGE> 5
Eric Elias
Team Entertainment
September 5, 1997
Page 5
(b) This Agreement constitutes the entire understanding between
the parties with respect to the subject matter hereof and may not be modified
except in a writing executed by both parties; provided however, that in the
event the Program is produced, a production contract will be executed and
contain the terms governing the rights and liabilities of the parties with
respect to the Program.
(c) Nothing in this Agreement shall be deemed to create a
partnership or joint venture between the parties. Neither party may pledge the
credit of the other or make binding commitments on behalf of the other.
(d) Producer may not assign this Agreement or any of its
obligations hereunder without the prior written consent of DCI, exercisable in
its sole discretion.
(e) This Agreement may be executed in counterparts and when
taken together, such counterparts shall constitute one (1) agreement
Please confirm your acceptance of the foregoing by executing this letter
in the space provided below, thereby constituting this a binding agreement
between us.
Sincerely,
DISCOVERY COMMUNICATIONS, INC.
By: /s/ C. BUNTING
----------------------------------
ACCEPTED AND AGREED:
TEAM ENTERTAINMENT
By: /s/ DREW S. LEVIN
-----------------------------------
<PAGE> 6
PART OF AGREEMENT BETWEEN DISCOVERY COMMUNICATIONS, INC.
AND TEAM ENTERTAINMENT
DATED AS OF SEPTEMBER 5,1997
EXHIBIT A
Cost Report
Exhibit A - 1 of 2
<PAGE> 7
SAMPLE COST REPORT
PROJECT TITLE
PRODUCTION COMPANY NAME
FOR PERIOD ENDING
<TABLE>
<CAPTION>
(OPTIONAL) TOTAL ESTIMATE
BUDGET CURRENT ACCRUED COSTS TO TOTAL EST'D (UNDER)/
ACCT# DESCRIPTION COSTS COSTS TO DATE COMPLETE FINAL COSTS BUDGET OVER BDGT
------- ---------- ------- --------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------
SUBTOTAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------
SUBTOTAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------
SUBTOTAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00
============================================================================
GRAND TOTAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
DEFINITIONS:
Current Costs: Costs incurred in the current month only, from the previous
month's end to the current month's end
Accrued Costs (Optional): Committed costs that have not been paid as of yet
Total Costs to Date: Current Costs + Accrued Costs + Total Costs to Date from
the previous cost report
Estimate to Complete: The amount left to spend before completion of that line
Total Estimated Final Costs: Total Costs to Date + Estimate to Complete
Budget: The budget amounts exactly as they appear in the final, approved budget
(Under)/Over Budget: Total Estimated Final Costs - Budget
Page 2 of 2
<PAGE> 8
AGREEMENT made September 19,1997 by and between TEAM ENTERTAINMENT GROUP
("Producer"), a ___________ corporation with offices at 12300 Wilshire
Boulevard, Suite 400, Los Angeles, California 90025, and DISCOVERY
COMMUNICATIONS, INC. ("DCI"), a Delaware corporation with offices at 7700
Wisconsin Avenue, Bethesda, Maryland 20814.
DCI and Producer desire to enter into an agreement regarding the
production of a series of twenty six (26) thirty commercial minute (30:00) films
on the subject of people and their pets, tentatively entitled Amazing Tails II
(the "Series") and the exploitation by DCI of such Series as set forth in this
Agreement.
Now therefore, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereto agree as follows:
I. Production and Delivery of the Series
The parties agree that the Series shall consist of twenty six (26)
thirty minute (30:00) programs (each, a "Program") and shall be photographed on
Beta SP, mastered on Digital Beta and delivered to DCI on Digital Beta. The
Series shall be produced in accordance with the production budget attached
hereto as Exhibit B (the "Production Budget") and the production schedule
attached hereto as Exhibit C (the "Production Schedule"). Producer agrees that
all of the Series Materials as outlined in Exhibit D attached hereto and made a
part hereof shall be delivered to DCI pursuant to the schedule set forth therein
(the "Delivery Schedule").
II. Production Fee
In consideration for the performance by Producer of its obligations
hereunder and in full discharge of all of DCI's obligations to Producer in
connection with the Series, DCI agrees to pay Producer, and Producer agrees to
accept, a "Production Fee" in the amount of One Million One Hundred Five
Thousand United States Dollars ($1,105,000). Producer acknowledges and agrees
that any overages, except for those overages previously approved by DCI will be
the responsibility of Producer. The Production Fee shall be payable according to
the schedule attached hereto as Exhibit E.
<PAGE> 9
III. Grant of Rights
A. DCI shall have the exclusive right, license and privilege to
exhibit, market, sublicense, distribute, transmit, perform and otherwise exploit
the Series, the Programs, elements and portions thereof, an unlimited number of
times as part of any DCI Programming Service on Television in the Territory
during the License Period and on Non-Standard Television in the Latin American
Territory during the Latin American License Period, including any extensions or
renewals thereof, and, in connection therewith, to use and perform all musical
compositions contained in each Program. As used herein:
i. "Standard Television" shall mean television distribution of
the Series by a UHF or VHF television broadcast station, the video and audio
portions of which are intelligibly receivable without charge by means of
standard roof top or television set built-in antennas; provided, for purposes of
this Agreement the broadcast like those in England by the BBC in which a license
fee, tax or similar charge is made for use of a television shall be considered
Standard Television. Without limiting the foregoing, Standard Television shall
include conventional, over-the-air television.
ii. "Non-Standard Television" means transmission of the Series
to individual or multiple receivers by all means of technology, whether now
existing or hereafter invented, other than Standard Television. "Non-Standard
Television" shall include, without limitation, transmission by means of cable,
direct broadcast satellite, LPTV, CATV, SMATV, MMDS, TVRO, microwave, wireless
cable, telephonic, scrambled UHF, super stations, and closed circuit television
systems;
iii. "Television" shall mean Standard and Non-Standard
Television as defined above.
iv. "DCI Programming Service" shall mean any programming service
in which DO has an ownership interest or controls or shares control of
programming decisions, or to which DCI supplies programming for exhibition in a
block under the Discovery Channel logo, or The Learning Channel logo, or any
other DCI logo or trademark;
iv. "Territory" shall mean the United States, ("U.S."), Canada
and their respective territories and possessions;
2
<PAGE> 10
v. "Latin American Territory" shall mean the following
countries: Anguilla, Antigua & Barbuda, Argentina, Aruba, Bahamas, Barbados,
Belize, Bermuda, Bolivia, Brazil, British Virgin Islands, Cayman Islands, Chile,
Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador,
Falkland Islands, French Guyana, Grenada, Guadeloupe, Guatemala, Guyana, Haiti,
Honduras, Jamaica, Martinique, Mexico, Montserrat, Netherlands Antilles,
Nicaragua, Panama, Paraguay, Peru, Puerto Rico, St. Lucia, St. Kitts & Nevis,
St. Vincent & Grenadines, Suriname, Trinidad & Tobago, Turks & Caicos Islands,
U.S. Virgin Islands, Uruguay, Venezuela
vi. "License Period" shall be for six (6) years commencing March
30,1998.
vii. "Latin American License Period" shall be for four (4) years
commencing June 29, 1998.
B. Except as authorized by DCI hereunder, neither the Series, nor any
Programs, elements or versions thereof, shall be exhibited on the following: 1)
any form of Standard or Non-Standard Television in the Territory prior to or
during the License Period; 2) any form of Non-Standard Television in the Latin
American Territory prior to or during the Latin American License Period; and, 3)
any form of Standard Television in the Latin American Territory prior to or
during the initial twelve (12) months of the Latin American License Period,
V. Credit
The parties agree that each Program shall contain a credit for DCI and
Producer on all versions of the Programs as follows:
PRODUCED BY TEAM ENTERTAINMENT GROUP FOR
ANIMAL PLANET
At its option and expense, DCI may substitute another DCI entity in the
production credit.
VI. 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.
3
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
DISCOVERY COMMUNICATIONS, INC.
By: /s/ C. BUNTING
TEAM ENTERTAINMENT GROUP -----------------------------
By: /s/ DREW S. LEVIN
----------------------
4
<PAGE> 12
PART OF AGREEMENT BETWEEN TEAM ENTERTAINMENT GROUP
AND DISCOVERY COMMUNICATIONS, INC.
DATED SEPTEMBER 19, 1997
EXHIBIT A
STANDARD TERM AND CONDITIONS
The following terms and conditions shall apply to the agreement to which
this Exhibit is attached (the "Agreement"):
1. The Series
1.1 Producer shall pay all costs incurred in connection with the
production of the Series. Producer acknowledges and agrees that delivery of
the Series and all Series Materials to DCI pursuant to the Delivery Schedule
is of the essence of this agreement. The Series shall meet the technical and
editing specifications set forth in Exhibits E and F hereof.
1.2 DCI shall have the right to creative and editorial input throughout,
and approval over, all aspects and phases of the pre-production, production,
post-production and editorial completion of the Series (the "Production
Activities"), including, without limitation, program and series titles,
scripts, rough cuts, fine cuts, music, graphics, on-air talent, voiceover
talent, production personnel (including, without limitation, the production
manager and production accountant) and changes to the Production Budget and/or
Schedule other than those which are minor in nature. At its option, DCI shall
have the right to have one or more representatives present during the
Production Activities. DCI shall designate one or more persons who shall be
DCI's representative(s) for the production of the Series and all DCI approvals
required herein. Materials submitted to DCI for approval pursuant to this
provision shall be clearly designated as items requiring DCI's approval and
shall not be submitted with any other materials. Any DCI approvals required
herein shall be exercised within five (5) business days of DCI's receipt of
the items to be approved. Notwithstanding the foregoing, DCI shall have a
reasonable amount of time to approve final delivery of the Series and all
Series Materials with silence not being deemed an approval.
1.3 The Series shall be delivered to DCI 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.
Exhibit A - Page 1 of 10
<PAGE> 13
1.4 Producer will obtain written releases from any person appearing in
or providing material for inclusion in 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 Series and DCI.
1.5 Producer will obtain all rights in any and all pre-existing and
original materials, including, without limitation, film and video footage,
music (including performance rights) graphics and photographs included in the
Series necessary to permit DCI to exercise its rights hereunder without
further payments of any kind to any third party. Material not fully cleared
pursuant to this provision shall, not be included in the Series unless
approved in writing by DCI. The Series Materials shall include a comprehensive
list of any materials in the Series not fully cleared as approved by DCI.
1.6 Producer agrees that all production personnel engaged by it in.
connection with the Series shall be experienced professionals qualified in all
respects to perform the work they are engaged to perform.
2. Credits
2.1 The style, form, size and placement of all credits included by
Producer in the Programs shall be subject to DCI's approval and shall not
exceed a total running length of thirty (30) seconds.
2.2 Producer acknowledges that DCI may require Producer to include
credits for DCI production personnel and sponsors in connection with the
Series.
2.3 Producer hereby acknowledges and agrees that no casual or
inadvertent failure by DCI to accord credit to Producer or any other person or
entity in connection with the Series shall be deemed a material breach of the
Agreement. Upon receipt of written notice of such failure to accord credit,
DCI shall take reasonable steps to cure such failure to accord credit.
3. Incidental Rights
3.1 Without limiting DCI's rights hereunder, Producer acknowledges and
agrees that DCI shall have the right to advertise, promote, and publicize 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 (including, without limitation, excerpts containing
elements
Exhibit A - Page 2 of 10
<PAGE> 14
licensed from third parties) of any Program (or special screenings of each
Program as part of DCI promotional events) or advertisements, publicity pieces
and promotional materials, in whole or in part, or materials created by DCI for
such Program (collectively called "publicity materials"). In connection
therewith, Producer will deliver to DCI at the above address the publicity
materials set forth in Exhibit D (including, without limitation, not less than
thirty (30) original stills fully cleared for all uses in any media throughout
the world in perpetuity), and such other information as described in Exhibit G
hereof. DCI may use and authorize others to use the publicity materials for the
purpose of advertising, promoting or publicizing the Series, the Programs or DCI
and/or DCI's affiliated programming services (including, without limitation,
the right to use the publicity materials in connection with industry awards
events which feature the Series or any of the Programs). Producer also agrees
that it will obtain from all personnel working on the production of the Series
(i) the right to use the name, voice and likeness of such personnel in
advertising, publicity and promotion for the Series, the Programs and/or DCI
and/or DCI's affiliated programming services (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 Series and the Programs, subject to such personnel's
availability and provided that DCI shall bear all expenses relating to such
uses.
3.2 DCI shall have editing rights with respect to each Program, including,
without limitation, the right to cut and dub each such Program, and to replace
or superimpose matter over the music and sound effects track, the full
sound-track and/or the visual portion of each such Program. Without limiting the
foregoing, Producer agrees that DCI shall have the right, at DCI's expense: (i)
to create new packaging elements (e.g. open, close, and other wraparound/
interstitial materials) for the Programs and in connection therewith, the right
to select a new title for each Program and/or the Series, the right to select a
host for the Programs, the right to renarrate the Programs and/or the right to
replace all, or portions, of the music in the Programs (collectively, these new
elements shall be referred to as "DCI's Program Elements"), and (ii) to edit or
make additions to the script as DCI deems necessary for the purpose of creating
the repackaged versions of the Programs. DCI's Program Elements shall be the
sole and exclusive property of DCI for all uses and purposes whatsoever.
3.3 DCI shall have the right to include each Program as part of an
anthology or series of programs under the Program's title or a title selected by
DCI.
Exhibit A - Page 3 of 10
<PAGE> 15
3.4 Producer hereby waives all its rights to attribution, integrity, or
any other droit moral in the Series and other Series Materials identified in
Exhibit D for any use to which they may be put by DCI.
3.5 DCI shall have the right to exploit the Programs throughout the
Territory in all languages. In connection therewith, DCI shall have the right to
add foreign language subtitles, create foreign language versions of each Program
and retitle the Programs in such languages.
4. Compensation
4.1 In making payment of the Production Fee provided in the Agreement, DCI
shall withhold, and Producer hereby authorizes DCI to withhold, all taxes that
may be required to be withheld including, but not limited to, any foreign,
United States, state or local taxes. To the extent that Producer may be entitled
to a reduction or elimination of such taxes under any treaty, statute,
regulation or other authority, it shall be the responsibility of Producer to
provide DCI with all necessary forms and information required or requested in
support of such reduction or elimination. If Producer fails to provide DCI with
any such forms or information, DCI shall withhold on the basis that the Producer
is not entitled to any reduction or elimination of the applicable withholding
tax under any treaty, statute, regulation or other authority. In the event DCI
fails to withhold any such amounts, Producer agrees to reimburse DCI for such
amounts that should have been withheld, or, at DCI's election, if there are
payments still to be made to Producer hereunder, DCI may deduct the amounts that
should have been withheld from such payments. In addition, if the failure to
withhold is the result of Producer's failure to provide accurate information to
DCI, Producer shall also reimburse DCI and indemnify DCI and its licensees,
assignees and affiliated companies, and the officers, directors, employees and
agents of such entities for any interest, additions to tax or penalties imposed
as a result of such failure to withhold. DCI shall also have the right to deduct
such amounts from future payments to be made to Producer hereunder.
4.2 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 Series. Upon
request from DCI, Producer shall provide DCI with proof that all payments of the
Production Fee have been deposited in the Production Account.
Exhibit A - Page 4 of 10
<PAGE> 16
4.3 Commencing with the date of the Agreement and continuing for a period
of at least two (2) years following delivery of the Series Materials to DCI,
Producer shall keep true, accurate and complete books of account relating to the
production of 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 Series. Such books of account shall be kept in accordance with
generally accepted accounting principles and practices in the television
industry. DCI shall have the right to audit Producer's books with respect to the
production of the Series. Commencing thirty (30) days after Producer's receipt
of the first payment of the Production Fee under this Agreement, Producer shall
provide DCI with a monthly statement ("Cost Report"), calculated in U.S. Dollars
setting forth: (i) all costs, expenses and claims then outstanding in connection
with the Series; (ii) the amount of funds then in the Production Account, and
(iii) the amounts theretofore drawn on the Production Account and the identity
of the account payees. Monthly bank statements for the Production Account shall
be submitted with each Cost Report. Upon completion and delivery of the Series
to DCI, Producer shall provide DCI with a final Cost Report detailing of all
expenses incurred in connection with the production of the Series, together with
a statement to the effect that all creditors have been paid. Each Cost Report
submitted hereunder shall be certified by Producer's chief financial officer as
being complete and accurate with respect to the information contained herein. In
the event Producer fails to provide DCI with the aforementioned Cost Reports,
DCI shall have the right to withhold any further payments to Producer until such
time as Producer provides DCI with the required information.
5. 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 Series and all elements thereof, nor
the exploitation thereof by DCI 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, tradename 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.
Exhibit A - Page 5 of 10
<PAGE> 17
(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 Series, and
Producer will not cause to be mentioned or identified in 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 Series shall be true and
accurate and shall be substantiated by adequate research in
keeping with generally accepted standards for first-class
documentary film makers.
(e) The Series shall be produced in accordance with all applicable
statutes, rules and regulations.
(f) Producer has itself or has obtained sufficient financial
resources to finance the portion of the Production Budget not
being paid by DCI. Upon DCI's request, Producer shall provide DCI
proof of such financing.
6. Indemnity
Producer shall at all times indemnify and hold harmless DCI, 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 counsel fees and
disbursements) arising out of any breach or alleged breach by Producer of any
representation, warranty or other provisions hereof. In the event of any claim
or service of process upon DCI involving the indemnification hereinbefore set
forth, DCI shall promptly notify the Producer of the claim. Producer will
promptly adjust, settle, defend or otherwise dispose of such claim at its sole
cost. If it so elects, DCI shall have the right at its sole cost to engage its
own counsel in connection with such claim. In the event that DCI determines
that Producer is not diligently and continuously defending any such claim, DCI
shall have the right, on its own behalf and as attorney-in-fact for Producer,
to adjust, settle, defend or otherwise dispose of such claim. Any costs
incurred by DCI in connection therewith shall be promptly reimbursed by
Producer, and if Producer fails to so reimburse DCI,
Exhibit A - Page 6 of 10
<PAGE> 18
DCI shall be entitled to deduct such amounts from any other sums payable to
Producer under the Agreement.
7. Insurance
Producer will obtain and maintain (a) throughout production of 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 commencement of
the License Period, a policy of Producers' (Errors and Omissions) liability
insurance applicable to the exhibition and distribution of 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
Series and insuring Producer against all liability assumed by Producer hereunder
and naming DCI as an additional insured. Within ten days of the date of this
agreement, Producer will provide DCI with a certificate of such Workers'
Compensation Insurance. Not later than thirty (30) days prior to the Delivery
Date, Producer will provide DCI with a certificate of Producers' liability
insurance, and such certificate will provide that the insurance may not be
canceled or altered without thirty (30) days' prior written notice to DCI.
8. 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.
9. 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
Exhibit A - Page 7 of 10
<PAGE> 19
accordance with the provisions of this paragraph shall be deemed to have
been given and effective when actually received.
10. Overbudget 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 Production Budget allocable to that phase of production by
more than ten percent (10%), or Producer is in breach of any of the
material provisions of this Agreement, DCI may require Producer to take all
steps which in the sole opinion of DCI are advisable to reduce actual or
projected expenditures or bring the projected costs within the Production
Budget including, but not limited to, revising the 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 DCI set forth
in the preceding sentence.
11. 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 DCI 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.
12. Miscellaneous
12.1 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 DCI is authorized to make any representations, warranties
or agreements except as specifically included herein, and Producer
acknowledges that it has not entered
Exhibit A - Page 8 of 10
<PAGE> 20
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.
12.2 Neither DCI, nor Producer shall disclose to any third party (other
than its respective employees, directors and officers, in their capacity as
such, on a need-to-know basis), any information with respect to the material
terms and provisions of this Agreement except: (i) to the extent necessary to
comply with law or the valid order of a court of competent jurisdiction, in
which event the party making such disclosure shall seek confidential treatment
of such information, (ii) to the extent necessary to comply with S.E.C. or
similar disclosure requirements, (iii) as part of its normal reporting or
review procedure, to its parent and affiliated companies, their banks,
auditors and attorneys and similar professionals, provided that such
companies, banks, auditors and attorneys and similar professionals agree to be
bound by the provisions of this paragraph, and (iv) in order to enforce its
rights pursuant to this Agreement,
12.3 If Producer is prevented from or materially hampered in producing
the Series by reason of any present or future statute, law, ordinance,
regulation, order, judgement 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 DCI 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.
12.4 This Agreement shall be construed and enforced in accordance with
the laws of the State of Maryland. Producer hereby consents to and submits to
the jurisdiction of the federal and state courts located in the State of
Maryland, and any action or suit under this Agreement may be brought in any
federal or state court with appropriate jurisdiction over the subject matter
established or sitting in the State of Maryland. Producer shall not raise in
connection therewith, and hereby waives, any defenses based upon venue, the
inconvenience of the
Exhibit A - Page 9 of 10
<PAGE> 21
forum, the lack of personal jurisdiction, the sufficiency of service of process
(as long as notice of such action or suit is furnished in accordance with
paragraph 9 hereof) or the like in any such action or suit brought in the State
of Maryland.
12.5 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 terms 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.
12.6 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, Producer hereby agrees as a fundamental term of
this Agreement that Producer's sole remedy for breach by DCI of any of its
obligations under this Agreement shall be an action at law for damages and
Producer acknowledges that such damages are fully adequate to compensate
Producer in the case of any breach by DCI or its assignees and/or licensees
hereunder. In no event shall Producer be entitled to rescission, injunctive or
other equitable relief. Producer shall also procure that all releases and
agreements from persons appearing in or providing material for inclusion in the
Series shall include a provision on the terms of the proceeding portion of this
paragraph 12.6 in favor of Producer, DCI and their assignees and/or licensees.
12.7 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, meaning 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.
12.8 Each of the rights and remedies granted to DCI under this Agreement
are cumulative and the exercise of one shall not limit, diminish or otherwise
affect DCI's right, concurrently or subsequently, to exercise any other rights
or remedies, and shall be in addition to such other rights and remedies as DCI
may have at law, in equity, under this Agreement or otherwise.
Exhibit A - Page 10 of 10
<PAGE> 22
PART OF AGREEMENT BETWEEN TEAM ENTERTAINMENT GROUP
AND DISCOVERY COMMUNICATIONS, INC.
DATED SEPTEMBER 19, 1997
EXHIBIT B
PRODUCTION BUDGET
[FIVE (5) PAGES TO FOLLOW]
Exhibit B - Page 1 of 6
<PAGE> 23
FINAL Page 1
Amazing Tails
Production Budget
Season II
TEAM Communications Group, Inc. Budget Date: 10-Sep-97
Executive Producer: Drew S. Levin Episodes: 26 Half Hours
Executive in charge: Rob Morhaim Total Budget: 1,732,135
Per Episode Cost: 66,621
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Acct. # Description amount Units x Rate Subtotal Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
600-00 PRODUCERS
- ---------------------------------------------------------------------------------------------------------------
600-01 Executive Producer 30 wks 2,000 60,000
- ---------------------------------------------------------------------------------------------------------------
60,000
-----------------------------------------------------------------------------------------------------------------------
600-01a DEVELOPMENT COSTS
- ---------------------------------------------------------------------------------------------------------------
Development Expenses allow 20,000 20,000
- ---------------------------------------------------------------------------------------------------------------
Options & Fees allow 1,000 1,000
-----------------------------------------------------------------------------------------------------------------------
Other allow 500 500 21,500
-----------------------------------------------------------------------------------------------------------------------
600-02 PRODUCER
- ---------------------------------------------------------------------------------------------------------------
Co-executive Producer 26 eps 1 4,000 104,000 (locked)
- ---------------------------------------------------------------------------------------------------------------
Series Producer 30 wks 1 2,000 60,000 (locked)
- ---------------------------------------------------------------------------------------------------------------
Line Producer 35 wk 2,000 70,000 (locked)
- ---------------------------------------------------------------------------------------------------------------
Coordinating Producer 30 wk 1,200 36,000 (locked)
- ---------------------------------------------------------------------------------------------------------------
Director field/Segment producers 26 eps 89 days 250 39,000
- ---------------------------------------------------------------------------------------------------------------
Story Editor 20 wk 2 1,200 48,000 (locked)
- ---------------------------------------------------------------------------------------------------------------
Fringe 0.18 64,260 421,260
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
600-03 PROD. OFFICE STAFF
- ---------------------------------------------------------------------------------------------------------------
Production Assistant 35 wk 500 17,500
- ---------------------------------------------------------------------------------------------------------------
Accountant 60 days 200 12,000
- ---------------------------------------------------------------------------------------------------------------
Fringe 0.18 5,310 34,810
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 600-00 537,570
- ---------------------------------------------------------------------------------------------------------------------------------
610-00 WRITERS
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
610-01 Researcher 25 wk 800 20,000
- ---------------------------------------------------------------------------------------------------------------
Fringe 0.18 3,600 23,600
- ---------------------------------------------------------------------------------------------------------------------------------
610-05 MIMEO & XEROX OF SCRIPTS
- ---------------------------------------------------------------------------------------------------------------
As-Broadcast scripts allow 5,800 5,800
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 610-00 29,400
- ---------------------------------------------------------------------------------------------------------------------------------
630-00 CAST
- ---------------------------------------------------------------------------------------------------------------
630-01 ON-CAMERA TALENT
- ---------------------------------------------------------------------------------------------------------------
Host 26 eps 1 1,000 26,000
- ---------------------------------------------------------------------------------------------------------------
Remote Guests/Interviews 30 intvw 300 9,000
- ---------------------------------------------------------------------------------------------------------------
Fringe 0.18 4,680 39,680
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 630-00 39,680
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
Amazing Tails
Season II Page 2
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Acct. # Description amount Units x Rate Subtotal Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
670-00 CASTING & OTHER STAFF
- ---------------------------------------------------------------------------------------------------------------------
670-04 ANIMAL TRAINER
- ---------------------------------------------------------------------------------------------------------------------
Animal Trainer 10 days 500 5,000
- ---------------------------------------------------------------------------------------------------------------------
Animals 10 days 500 5,000 10,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total for 670-00 10,000
- ----------------------------------------------------------------------------------------------------------------------------------
680-00 TRAVEL/LIVING EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
680-01 PRODUCERS TRAVEL
- ---------------------------------------------------------------------------------------------------------------------
Producer Travel 20 out of town stories ] 1,000 20,000
- ---------------------------------------------------------------------------------------------------------------------
Producer Lodging 20 out of town stories ] 500 10,000
- ---------------------------------------------------------------------------------------------------------------------
Producer Per diem 20 out of town stories ] 500 10,000 40,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total for 680-00 40,000
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ABOVE-THE-LINE 656,650
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Acct. # Description amount Units x Rate Subtotal Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
706-00 HOST TAPING
- ---------------------------------------------------------------------------------------------------------------------
706-01 HOST TAPING
- ---------------------------------------------------------------------------------------------------------------------
Video Crew (Wraps/Titles) 8 days 2 camera 3 man crew 2,300 18,400
- ---------------------------------------------------------------------------------------------------------------------
Venue Fee 8 days 400 3,200
- ---------------------------------------------------------------------------------------------------------------------
Makeup/Hair 8 days 350 2,800
- ---------------------------------------------------------------------------------------------------------------------
Wardrobe 8 days 350 2,800
- ---------------------------------------------------------------------------------------------------------------------
Teleprompter 8 days rental 500 4,000
- ---------------------------------------------------------------------------------------------------------------------
Catering 8 days 200 1,600
- ---------------------------------------------------------------------------------------------------------------------
Limo 2 days 200 400
- ---------------------------------------------------------------------------------------------------------------------
Props/Set Dressing 8 days rental 500 4,000 37,200
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Total for 706-00 37,200
- --------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
710,00 CAMERA
- ---------------------------------------------------------------------------------------------------------------------
710-02 REMOTE SHOOTING
- ---------------------------------------------------------------------------------------------------------------------
Remote Shooting Crews 89 days/avg of 1-2 stories day 1,600 142,400 142,400
- --------------------------------------------------------------------------------------------------------------------------------
Total for 710-00 142,400
- --------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
755-00 WARDROBE
- ---------------------------------------------------------------------------------------------------------------------
755-02 ALTERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Alterations allow 1,200 1,200
- ---------------------------------------------------------------------------------------------------------------------
755-03 CLEANING & DYING
- ---------------------------------------------------------------------------------------------------------------------
Cleaning allow 300 300
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
755-05 WARDROBE GENERAL PURCHASE
- ---------------------------------------------------------------------------------------------------------------------
Wardrobe purchase allow 1,000 2,000 3,500
- --------------------------------------------------------------------------------------------------------------------------------
Total for 750-00 3,500
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
Amazing Tails
Season II
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Acct. # Description amount Units x Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
765-00 POST PRODUCTION SOUND
- --------------------------------------------------------------------------------------------------------
765-01 AUDIO POST & SWEETENING
- --------------------------------------------------------------------------------------------------------
Audio Post & Sweetening 26 eps DATS and D88's NTSC 1,400 36,400 (Locked)
- --------------------------------------------------------------------------------------------------------
Narration Recording 10 days 1 host 500 5,000 41,400
- -----------------------------------------------------------------------------------------------------------------------------------
765-02 SOUND TAPE
- --------------------------------------------------------------------------------------------------------
AUDIO TAPE PURCHASES 26 EPS DATs and D88's NTSC 150 3,900 3,900
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 760-00 45,300
- -----------------------------------------------------------------------------------------------------------------------------------
775-00 LOCATION EXPENSES
- --------------------------------------------------------------------------------------------------------
775-01 SITE RENTALS/PERMITS
- --------------------------------------------------------------------------------------------------------
Permits, etc. allow 3,000 2,000
- -----------------------------------------------------------------------------------------------------------------------------------
775-18 MISC. LOCATION EXPENSES
- --------------------------------------------------------------------------------------------------------
Misc. Expenses 26 eps/runner,fedex 50 1,300 1,300
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 775-00 3,300
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL PRODUCTION 231,700
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
800-00 EDITING
- --------------------------------------------------------------------------------------------------------
800-01 EDITORS & ASSISTANTS
- --------------------------------------------------------------------------------------------------------
Off-line Editors 20 wk. 5 2,800 180,000
- --------------------------------------------------------------------------------------------------------
Assistant Editor 30 wk. 900 27,000
- --------------------------------------------------------------------------------------------------------
Post prod. supervisor 25 wks. 2,000 50,000
- --------------------------------------------------------------------------------------------------------
Fring 0.18 46,260 303,260
- -----------------------------------------------------------------------------------------------------------------------------------
800-07 EDITORIAL MESSENGER SERV.
- --------------------------------------------------------------------------------------------------------
Messenger allow 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
800-11 EDIT FACILITY/EQUIPMENT
- --------------------------------------------------------------------------------------------------------
Off-line machine rental Avid 30 wk 2 2,250 135,000 135,000
- -----------------------------------------------------------------------------------------------------------------------------------
800-20 FRINGES
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 800-00 438,260
- -----------------------------------------------------------------------------------------------------------------------------------
830-00 STOCK SHOTS
- --------------------------------------------------------------------------------------------------------
830-01 LAB PROCESSING
- --------------------------------------------------------------------------------------------------------
Tape trans./Motion cont. allow 800 800
- -----------------------------------------------------------------------------------------------------------------------------------
830-02 STOCK PHOTOGRAPHY
- --------------------------------------------------------------------------------------------------------
Stock Footage 26 eps 1 or 2 mins per show 600 15,600
- --------------------------------------------------------------------------------------------------------
Photo/Still purchase 26 eps 1 or 2 per show 100 2,600
- --------------------------------------------------------------------------------------------------------
Photo/Still purchase 26 eps 1 or 2 per show 100 2,600 20,800
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 830-00 21,600
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
AMAZING TAILS PAGE 4
SEASON 11
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Acct # Description amount Units x Rate Subtotal Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
832-00 VIDEO TAPE POST PROD.
- ----------------------------------------------------------------------------------------------------------------------
832-01 ON-LINE FACILITY & EDITOR
- ----------------------------------------------------------------------------------------------------------------------
ON-LINE 20 wk 9,000 180,000 180,000
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
832-03 MASTER & PROJECTION STK (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
Show Masters/protection 26 eps digital 2 100 5,200 5,200
- ------------------------------------------------------------------------------------------------------------------------------------
832-04 OTHER STOCK
- ----------------------------------------------------------------------------------------------------------------------
Field stock (Beta) 89 days 6 25 13,350 13,350
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 832-00 198,550
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL POST PRODUCTION 658,410
- ------------------------------------------------------------------------------------------------------------------------------------
910-00 ADMINISTRATIVE EXPENSES
- ----------------------------------------------------------------------------------------------------------------------
910-02 FURNITURE RENTAL
- ----------------------------------------------------------------------------------------------------------------------
Furniture 7 mo 100 700 700
- ------------------------------------------------------------------------------------------------------------------------------------
910-03 OFFICE SPACE RENTAL
- ----------------------------------------------------------------------------------------------------------------------
Office rental 7.5 mo negotiated as of 8/13/97 1,750 13,125 13,125
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
910-04 MISC. ADMIN. EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
Office Equipment allow 250 250
- ---------------------------------------------------------------------------------------------------------------------
Phone/fax 7.5 mo 1,000 7,500
- ---------------------------------------------------------------------------------------------------------------------
Messenger 7.5 mo 250 1,875
- ---------------------------------------------------------------------------------------------------------------------
Postage 7.5 mo 100 750
- ---------------------------------------------------------------------------------------------------------------------
Office supplies 7.5 mo 250 1,875
- ---------------------------------------------------------------------------------------------------------------------
Photocopy 7.5 mo 300 2,250
- ---------------------------------------------------------------------------------------------------------------------
Beta screening machine 7.5 mo 1.700 12,750
- ---------------------------------------------------------------------------------------------------------------------
Craft Service allow 300 300 27,550
- ------------------------------------------------------------------------------------------------------------------------------------
910-05 COMPUTER RENTAL/SOFTWARE
- ---------------------------------------------------------------------------------------------------------------------
Computer rental 7.5 mo 5 400 15,000
- ---------------------------------------------------------------------------------------------------------------------
Software allow 2,000 2,000 17,000
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
910-07 MUSIC
- ---------------------------------------------------------------------------------------------------------------------
Music/needle drop/composer fee allow 35,000 35,000 35,000
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 910-00 93,375
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
AMAZING TAILS PAGE 5
SEASON 11
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER 93,375
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ABOVE-THE-LINE 656,650
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL BELOW-THE-LINE 890,110
- ------------------------------------------------------------------------------------------------------------------------------------
ABOVE & BELOW-THE-LINE 1,546,760
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ABOVE BELOW & OTHER 1,640,135
- ------------------------------------------------------------------------------------------------------------------------------------
975-00 CONTINGENCY 0.00% 0
- ------------------------------------------------------------------------------------------------------------------------------------
990-00 INSURANCE see attached quote/3yrs E&O 46,000
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL BEFORE PRODUCTION FEE 1,686,135
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCTION FEE 7.00% 118,029
- ------------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL 1,732,135
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
PART OF AGREEMENT BETWEEN TEAM ENTERTAINMENT GROUP
AND DISCOVERY COMMUNICATIONS, INC.
DATED SEPTEMBER 19, 1997
EXHIBIT C
PRODUCTION SCHEDULE
[TEN (10) PAGES TO FOLLOW]
Exhibit C - Page 1 of 11
<PAGE> 29
FINAL
SEPTEMBER 1997 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
September 1
September 2
September 3
September 4
September 5
September 6
September 7
September 8
September 9
September 10
September 11
September 12
September 13
September 14
September 15
September 16
September 17
September 18
September 19
September 20
September 21
September 22
September 23
September 24
September 25
September 26
September 27
September 28
September 29 Field shoots begin
Office set up
Producers in
Researcher in
Story editor in
September 30 Field shoots
Page 2 of 11
<PAGE> 30
OCTOBER 1997 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
October 1 Field shoots
October 2 Field shoots
October 3 Field shoots
October 4
October 5
October 6 Field shoots
PA's in
October 7 Field shoots
October 8 Field shoots
October 9 Field shoots
October 10 Assistant editor in
Field shoots
October 11
October 12
October 13 Field shoots
off line editor 1 in
October 14 Field shoots
October 15 Field shoots
October 16 Field shoots
October 17 Field shoots
October 18
October 19
October 20 Field shoots
October 21 Field shoots
October 22 Field shoots
October 23 Field shoots
October 24 Field shoots
October 25
October 26
October 27 Field shoots
October 28 Field shoots
October 29 Field shoots
October 30 Field shoots
October 31 Field shoots
Page 3 of 11
<PAGE> 31
NOVEMBER 1997 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
November 1
November 2
November 3 Field shoots
Off-line
editor 2 in
November 4 Field shoots
November 5 Field shoots
November 6 Field shoots
November 7 Field shoots
November 8
November 9
November 10 Field shoots
November 11 Field shoots
November 12 Field shoots
November 13 Field shoots
November 14 Field shoots
November 15
November 16
November 17 Field shoots
Off-line editor 3 in
Off-line editor 4 in
November 18 Field shoots
November 19 Field shoots
November 20 Field shoots
November 21 Field shoots
November 22
November 23
November 24 Field shoots
November 25 Field shoots
November 26 Field shoots
November 27 Field shoots
November 28 Field shoots
November 29
November 30
Page 4 of 11
<PAGE> 32
DECEMBER 1997 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
December 1 Field shoots
December 2 Field shoots
December 3 Field shoots
December 4 Field shoots
December 5 Field shoots
December 6
December 7
December 8 Field shoots
Host wraps eps 1-13
Post Supervisor in
December 9 Field shoots
Host wraps eps 1-13
December 10 Field shoots
Host wraps eps 1-13
December 11 Field shoots
Host wraps eps 1-13
December 12 Field shoots
December 13
December 14
December 15 Field shoots
VO Narration record
December 16 Field shoots
VO Narration record
December 17 Field shoots
December 18 Field shoots
December 19 Field shoots
December 20
December 21
December 22 Hiatus
December 23 Hiatus
December 24 Hiatus
December 25 Hiatus
December 26 Hiatus
December 27
December 28
December 29 Hiatus
December 30 Hiatus
December 31 Hiatus
Page 5 of 11
<PAGE> 33
JANUARY 1998 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
January 1 Hiatus
January 2 Hiatus
January 3
January 4
January 5 Field shoots
Off-line editor 5 in
On-line eps 1-13
January 6 Field shoots
On-line eps 1-13
January 7 Field shoots
On-line eps 1-13
January 8 Field shoots
On-line eps 1-13
January 9 Field shoots
On-line eps 1-13
January 10
January 11
January 12 Field shoots
On-line eps 1-13
January 13 Field shoots
On-line eps 1-13
January 14 Field shoots
On-line eps 1-13
January 15 Field shoots
On-line eps 1-13
January 16 Field shoots
On-line eps 1-13
January 17
January 18
January 19 Field shoots
On-line eps 1-13
January 20 Field shoots
On-line eps 1-13
January 21 Field shoots
On-line eps 1-13
January 22 Field shoots
On-line eps 1-13
January 23 Field shoots
On-line eps 1-13
January 24
January 25
January 26 Field shoots
On-line eps 1-13
January 27 Field shoots
On-line eps 1-13
January 28 Field shoots
On-line eps 1-13
January 29 Field shoots
On-line eps 1-13
January 30 Field shoots
On-line eps 1-13
January 31
Page 6 of 11
<PAGE> 34
FEBRUARY 1998 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
February 1
February 2 Field shoots
On-line eps 1-13
February 3 Field shoots
On-line eps 1-13
February 4 Field shoots
On-line eps 1-13
February 5 Field shoots
On-line eps 1-13
February 6 Field shoots
On-line eps 1-13
February 7
February 8
February 9 Field shoots
On-line eps 1-13
February 10 Audio Sweetening
eps 1-13
Field shoots
On-line eps 1-13
February 11 Audio Sweetening
eps 1-13
Field shoots
On-line eps 1-13
February 12 Audio Sweetening
eps 1-13
Field shoots
On-line eps 1-13
February 13 Audio Sweetening
eps 1-13
On-line eps 1-13
February 14
February 15
February 16 Audio Sweetening
eps 1-13
On-line eps 1-13
February 17 Audio Sweetening
eps 1-13
On-line eps 1-13
February 18 Audio Sweetening
eps 1-13
On-line eps 1-13
February 19 Audio Sweetening
eps 1-13
On-line eps 1-13
February 20 Audio Sweetening
eps 1-13
On-line eps 1-13
February 21
February 22
February 23 Audio Sweetening
eps 1-13
On-line eps 1-13
February 24 Audio Sweetening
eps 1-13
On-line eps 1-13
February 25 Audio Sweetening
eps 1-13
On-line eps 1-13
February 26 Audio Sweetening
eps 1-13
On-line eps 1-13
February 27 Audio Sweetening
eps 1-13
On-line eps 1-13
Story editor out
February 28
Page 7 of 11
<PAGE> 35
MARCH 1998 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
March 1
March 2 Audio Sweetening eps 1-13
On-line eps 1-13
March 3 Audio Sweetening eps 1-13
On-line eps 1-13
March 4 Audio Sweetening eps 1-13
On-line eps 1-13
March 5 Audio Sweetening eps 1-13
On-line eps 1-13
March 6 Audio Sweetening eps 1-13
On-line eps 1-13
March 7
March 8
March 9 Audio Sweetening eps 1-13
On-line eps 1-13
March 10 Audio Sweetening eps 1-13
On-line eps 1-13
March 11 Audio Sweetening eps 1-13
On-line eps 1-13
March 12 Audio Sweetening eps 1-13
On-line eps 1-13
March 13 Audio Sweetening eps 1-13
off-line editor 1 out
On-line eps 1-13
March 14
March 15
March 16 Audio Sweetening eps 1-13
March 17 Audio Sweetening eps 1-13
March 18
March 19
March 20 deliver eps 1-13
March 21
March 22
March 23 Host wraps eps 14-26
March 24 Host wraps eps 14-26
March 25 Host wraps eps 14-26
March 26 Host wraps eps 14-26
March 27
March 28
March 29
March 30 VO & Narration record
March 31 VO & Narration record
Page 8 of 11
<PAGE> 36
APRIL 1998 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
April 1 Begins on line eps
14-26
VO & Narration
record
April 2 On-line eps 14 - 26
April 3 off-line editor 2
out
On-line eps 14 - 26
Researcher out
April 4
April 5
April 6 On-line eps 14 - 26
April 7 On-line eps 14 - 26
April 8 On-line eps 14 - 26
April 9 On-line eps 14 - 26
April 10 On-line eps 14 - 26
April 11
April 12
April 13 On-line eps 14 - 26
April 14 On-line eps 14 - 26
April 15 On-line eps 14 - 26
April 16 On-line eps 14 - 26
April 17 Off-line editor 3 out
Off-line editor 4 out
On-line eps 14 - 26
April 18
April 19
April 20 On-line eps 14 - 26
April 21 On-line eps 14 - 26
April 22 On-line eps 14 - 26
April 23 On-line eps 14 - 26
April 24 On-line eps 14 - 26
April 25
April 26
April 27 On-line eps 14 - 26
April 28 On-line eps 14 - 26
April 29 On-line eps 14 - 26
April 30 On-line eps 14 - 26
Page 9 of 11
<PAGE> 37
MAY 1998 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
May 1 On-line eps 14-26
May 2
May 3
May 4 On-line eps 14-26
May 5 On-line eps 14-26
May 6 On-line eps 14-26
May 7 On-line eps 14-26
May 8 Coordinating producer out
On-line eps 14-26
Series producer out
May 9
May 10
May 11 On-line eps 14-26
May 12 On-line eps 14-26
May 13 Audio Sweetening eps 14-26
On-line eps 14-26
May 14 Audio Sweetening eps 14-26
On-line eps 14-26
May 15 Audio Sweetening eps 14-26
On-line eps 14-26
May 16
May 17
May 18 Audio Sweetening eps 14-26
On-line eps 14-26
May 19 Audio Sweetening eps 14-26
On-line eps 14-26
May 20 Audio Sweetening eps 14-26
On-line eps 14-26
May 21 Audio Sweetening eps 14-26
On-line eps 14-26
May 22 Audio Sweetening eps 14-26
Off-line editor 5 out
On-line eps 14-26
May 23
May 24
May 25 Audio Sweetening eps 14-26
On-line eps 14-26
May 26 Audio Sweetening eps 14-26
On-line eps 14-26
May 27 Audio Sweetening eps 14-26
On-line eps 14-26
May 28 Audio Sweetening eps 14-26
On-line eps 14-26
May 29 Audio Sweetening eps 14-26
On-line eps 14-26
May 30
May 31
Page 10 of 11
<PAGE> 38
JUNE 1998 "AMAZING TAILS"
SEASON II
MONTHLY PLANNER
June 1 Audio Sweetening eps 14-26
On-line eps 14-26
June 2 Audio Sweetening eps 14-26
On-line eps 14-26
June 3 Audio Sweetening eps 14-26
On-line eps 14-26
June 4 Audio Sweetening eps 14-26
On-line eps 14-26
June 5 Audio Sweetening eps 14-26
On-line eps 14-26
June 6
June
June 8 Audio Sweetening eps 14-26
On-line eps 14-26
June 9 Audio Sweetening eps 14-26
On-line eps 14-26
June 10 Audio Sweetening eps 14-26
On-line eps 14-26
June 11 Audio Sweetening eps 14-26
June 12 Audio Sweetening eps 14-26
Line producer out
PA out
June 13
June 14
June 15 Audio Sweetening eps 14-26
June 16 Audio Sweetening eps 14-26
June 17 Audio Sweetening eps 14-26
June 18
June 19 Deliver eps 14-26
June 20
June 21
June 22
June 23
June 24
June 25
June 26
June 27
June 28
June 29
June 30
Page 11 of 11
<PAGE> 39
PART OF AGREEMENT BETWEEN TEAM ENTERTAINMENT GROUP
AND DISCOVERY COMMUNICATIONS, INC.
DATED SEPTEMBER 19, 1997
EXHIBIT D
PROGRAM MATERIALS
The Program Materials for the each Program in the Series shall consist
of elements and documentation listed below. Producer and DCI further agree
that DCI may require Producer to deliver certain other materials in addition
to the Program Materials specifically listed below (the "Additional Program
Materials"). Any and all Additional Program Materials will be delivered to DCI
by Producer and included as part of the Program Materials, provided that, if
and to the extent the cost of any Additional Program Materials cannot be
accommodated within DCI approved Production Budget, Producer shall give DCI
written notice of the incremental direct, out-of-pocket cost involved and
secure DCI's prior written approval before incurring such additional cost.
INCOMPLETE DELIVERY: To the extent that any materials or documents are
incomplete or fail to meet the material requirements specified herein, DCI
shall so notify Producer with reasonable specificity, and Producer shall
promptly thereafter correct all such deficiencies by making delivery to DCI of
the proper materials and documents required hereunder. Acceptance by DCI of
less than all of the items required for delivery of the program and/or release
of the program by DCI prior to delivery of all of the items required for
delivery of the program shall not be construed as a waiver by DCI of
Producer's obligation to deliver any item required hereunder. Under no
circumstances shall Producer be relieved of the obligation to deliver all of
the materials and documents required hereunder, nor shall DCI be deemed to
have waived any of said delivery requirements unless DCI shall so notify
Producer in writing designating the particular item or items which need not be
delivered by Producer to DCI. If Producer fails to correct the deficiency in
a timely manner and if DCI is required to correct the deficiencies directly,
DCI reserves the right take steps to recover those direct costs incurred by
withholding those direct costs from the final payment/production fee.
PROGRAM MATERIAL DELIVERY DATES:
A. Program Milestone Materials:
Al-A9: Due no later than October 6, 1997
A10-A11: Due no later than January 5, 1998
A12: Due no later than February 9, 1998
Exhibit D - Page 1 of 10
<PAGE> 40
B. Program Master Tapes:
Programs 1-13: Due no later than March 20, 1998
Programs 14-26: Due no later than June 19, 1998
C. Program Production Elements Binders
Programs 1-13: Due no later than April 6, 1998
Programs 14-26: Due no later than July 3,1998
D. Program Legal Binders:
Programs 1-13: Due no later than April 6, 1998
Programs 14-26: Due no later than July 3, 1998
E. Final Accounting Binder:
Due no later than July 3, 1998
A. PROGRAM MILESTONE MATERIALS:
1. CLEARANCE/RELEASE DOCUMENTS: Refer to Clause 2.4 and 2.5 of the contract
agreement. Legal counsel for the production company is required to have
provided the following documents to the production before the start of
principal photography. Confirmation of this legal review is required by
DCI.
a) Personal Appearance Releases
b) Talent Releases and contracts
c) Location Releases
d) Name Product/Logo Releases
e) Acquired Footage/Still Photography Clearance
f) Acquired Public Domain Documentation
2. PRODUCTION INSURANCE POLICIES AND CARNET: Copy of production's insurance
policy from the insurance company. Confirmation of Carnet documentation.
3. SEGREGATED PRODUCTION BANK ACCOUNT. Verification of one production bank
account and identification of two authorized signatories.
4. PRODUCTION CONTRACTOR AGREEMENTS: Confirmation of agreements for all
listed in the contracted budget. All contracts are to be fully executed
before any payment is made to that hire.
a) Personnel
b) Crew
c) Graphics
d) Music: Original and License source agreements
e) Equipment
Exhibit D - Page 2 of 10
<PAGE> 41
f) Facilities
5. BIOGRAPHIES/RESUMES/CV'S: BIOGRAPHIES AND PHOTOS (when available) on key
talent, producer, and director. Resumes /CV's and demo tapes (if
required) on all key departmental personnel.
6. PRODUCTION CONTACT SHEET. Current draft of all production personnel,
vendors and facilities relevant to the program's production including
name, address, telephone number and role. (This is for DCI internal
purposes only).
7. FORMAT LIST: Technical list of audiotape and videotape formats used in
production and post production process before principal photography
begins. Description of production and post-production process (i.e.
transfer formats, editing formats, mastering formats, delivery formats)
including a list of all audio and video formats indicating whether an
analog or digital signal pass is used.
8. MONTHLY COST REPORTING: Each month the following accounting documents
are to be produced by the program's production accountant and production
manager and sent to DCI Production Management for review:
a) Cost Report
b) Accompanying bank statements
c) Bank reconciliation
d) Check register
e) One Sheet Explanation of Variances.
f) Monthly Production Report
9. ACCOUNTING POLICY: Written policy for Travel and Entertainment
reimbursements invoice approval and payment process and petty cash sign
out and reconciliation.
10. PROMOTIONAL SLIDES: Minimum of 30, professional quality (a professional
photographer does not need to be hired), 35mm color slides, all
materials cleared for use in all media, all markets worldwide in
perpetuity. Said slides shall depict different scenes from the Program
and principal "players". Please follow the enclosed DCI Promotional
Stills Guidelines.
11. PRODUCTION SLIDES INFORMATION FORM: Producers are required to complete
the two page "Production Stills Information Sheet" for all
slides/stills.
Exhibit D - Page 3 of 10
<PAGE> 42
12. PROMOTIONAL SELECT REELS: BETACAM SP NTSC tape of A minimum of ten
minutes (or at the request of DCI) of broadcast quality footage (without
sound - non produced) required at milestones of production and post
production to be used by DCI in any medium to promote the program or DCI
All materials cleared for use in all media, all markets worldwide for
the license term.
13. ONE SHEET: Program description of 100 words or more for each episode.
B. PROGRAM MASTER TAPES:
A COMPLETED DCI RUNSHEET & TAPE EVALUATION REPORT MUST BE ENCLOSED WITH
EACH PROGRAM MASTER TAPE AND PROTECTION MASTER TAPE.
1. DIGITAL BETACAM NTSC STEREO MASTER (MONO COMPATIBLE), 26 x 25:00 minute
program with graphics, titles and credits**. Such version of each
program shall be at least (25:00) consecutive, seamless minutes in
length (with text graphics included). Time code on ASTC.
Audio: Channel 1: Full mix stereo left
Channel 2: Full mix stereo right
Channel 3: M&E w/dialogue, stereo left Final mix level - not
dipped for narration
Channel 4: M&E w/dialogue, stereo right Final mix level - not
dipped for narration
Final narration should be delivered on a separate DAT
NOTE: All Stereo shall be fully mono compatible. Fully mono compatible
means that when the left and right stereo channels are actively combined
to mono there is no discernible change in audio level or fidelity.
2. DIGITAL BETACAM NTSC STEREO PROTECTION MASTER (MONO COMPATIBLE).
Specifications as B-1. Ship Protection Masters for quality control (QC)
acceptance then ship Masters for qc acceptance.
3. DIGITAL BETACAM NTSC MONO MASTER, 26 x 25:00 minute program with
graphics, titles and credits**. Such version of each program shall be
at least (00:00) consecutive, seamless minutes in length (with text
graphics included). Time code on ASTC.
Exhibit D - Page 4 of 10
<PAGE> 43
Audio: Channel 1: Full mix
Channel 2: Music Final mix level - not dipped for narration
Channel 3: Effects Final mix Level - not dipped for narration
Channel 4: Dialogue Final mix level - not dipped for narration
Final narration should be delivered on separate DAT
4. DIGITAL BETACAM NTSC MONO PROTECTION MASTER. Specifications as B-1. Ship
Protection Masters for quality control (QC) acceptance then ship Masters
for QC acceptance.
5. **SEPARATE TEXTLESS MASTER 26 x 25:00 program without graphics, titles,
and credits. Specifications as B-1. Time code on ASTC.)
OR
**CLEAN COVER SHOTS for all graphics, titles or credits should be attached to
the end of each tape. A list of lower third graphics/super shots
with program running time reference which need title/text graphics
for all programs should be supplied.
6. SCRIPT TRANSCRIPTION TAPE: FIRST GENERATION VHS NTSC dub of program
master with visible time code (VTC). The transcription tape is to be
sent directly to the transcription vendor at the same time the master
is sent to DCI for QC.
7. GRAPHICS MASTER: DIGITAL BETACAM NTSC:
a) Full open should be a minimum of at least:15 seconds, including
a :02 pad to dissolve out. Title should resolve :02 seconds
before pad (i.e., if title is :15, resolve should end by :13).
b) Title Elements with matts - should be a keyable title not just a
type treatment.
c) Full open with clean resolve without title logo.
d) All background elements.
e) Any animated moves, including all layered pieces.
f) Any elements that could be used for promotions.
g) Credit bed - clean of text graphics/supers. Maximum length of
credits are :30 seconds.
8. VIEWING MASTER: FIRST GENERATION VHS OR 3/4" U-MATIC NTSC approval
copy of final master.
Exhibit D - Page 5 of 10
<PAGE> 44
9. MUSIC AND NARRATION DATS: Copies of original recordings of all
commissioned music on DAT and Midi file. Final Narration DAT.
10. SEPARATE AUDIO - One DA-88 or Three DAT Tapes. EXCEPT for FULL MIX
tracks, DA-88 or DAT tapes are to be delivered at FINAL MIX CONSTANT
LEVEL (i.e. will re-create final mix, without dips for narration, using
fixed pre-set fader positions) on separate tracks or as follows:
(DA-88/DATS must be in sync with matching time code to Edit Masters).
<TABLE>
<CAPTION>
(FOR STEREO MASTERS ONLY)
OR
-------------------------------------------------------------
AUDIO DAT DA-88
ASSIGNMENT -------
TAPE #1
STEREO
<S> <C> <C> <C> <C>
-------------------------------------------------------------
Full Mix Stereo Left TAPE #1 1
Channel 1
-------------------------------------------------------------
Full Mix Stereo Right Channel 2 2
-------------------------------------------------------------
Music Stereo Left TAPE #2 3
Channel l
-------------------------------------------------------------
Music Stereo Right Channel 2 4
-------------------------------------------------------------
Effects Stereo Left TAPE #3 5
Channel 1
-------------------------------------------------------------
Effects Stereo Right Channel 2 6
</TABLE>
C. PROGRAM PRODUCTION ELEMENT BINDER:
1. PROGRAM SCRIPT: Script will be supplied directly to DCI by DCI
Transcription Vendor.
2. EDIT DECISION LIST (EDL) AND EDL DISK: Typewritten hard copy and CMX
compatible DOS 3.5" computer disk. May also include AVID EDL output on
3.5" computer disk and hard copy.
3. SUGGESTED EDL: Producer's suggested edit list to bring the program to
DCI's time requirements.
Exhibit D - Page 6 of 10
<PAGE> 45
4. MUSIC CUE SHEETS: One copy of the music cue sheet detailing all music
contained in the program including the title of each composition, the
names of composers, publishers, and copyright owners, the usage (whether
instrumental, instrumental-visual, vocal-visual or otherwise), the place
and number of such uses in the program and running time for each cue,
the performing rights society involved, and any other information
customarily set forth in music cue sheets.
5. CHYRON LIST: List of all supered shots, lower third titles/identification
and text graphics for the program. The program running timecode reference
for the title/text graphics for master all versions.
6. CREDIT LIST: DCI APPROVED, AS BROADCAST CREDIT LIST for each episode of
the series. Denoting (*) all contractually obligated credits which have
received DCI's prior approval. Include all copyright information. Due
to time restrictions, DCI reserves the right to reduce
non-contractually obligated credits. (Credit roll is not to exceed :30
unless otherwise approved by DCI.)
7. PRODUCTION STILLS INFORMATION FORM: Copy of the two page "Production
Stills Information Sheet" for all slides/stills.
8. FINAL FORMAT LIST: As produced technical list of audiotape and
videotape formats used in production and post production. Description
of production and post-production process (i.e. transfer formats,
editing formats, mastering formats, delivery formats) including a list
of all audio and video formats indicating whether an analog or digital
signal pass.
9. PROGRAM MASTER INVENTORY LISTS: Typewritten inventories of all program
materials, field masters and master audio and video tapes elements
including a copy of all packing lists sent to DCI.
D. PROGRAM LEGAL BINDER:
1. MUSIC CUE SHEETS: Duplicate copy.
2. CHYRON LIST: Duplicate copy,
3. CREDIT LIST: Duplicate copy.
Exhibit D - Page 7 of 10
<PAGE> 46
4. INSURANCE DOCUMENTS: Final and original documents of all Production and
E&O Insurance policies.
5. BBCWA DECLARATION FORM: Completion and delivery to the BBCWA and DCI of
the Declaration Form for all BBC materials used within the program.
6. COPIES OF ACQUIRED MATERIALS/RELEASE DOCUMENTS: Copies of all Acquired
Materials/Release documents and corresponding log sheet. All clearances
are to be fully executed. All documents are to be cleared for the license
term. If a DCI waiver has been issued, copies of all DCI written waivers
are to be attached to the release. Foreign language releases require an
attached English translation: (See sample exhibits). Release
classification:
a) Personal Appearance Releases
b) Talent Releases and contracts
c) Location Releases
d) Name Product/Logo Releases
e) Acquired Footage/Still Photography Clearance
f) Acquired Public Domain Statement and Documentation
7. COPIES OF PRODUCTION CONTRACTOR AGREEMENTS: Copies of all third party
contracts for all listed in the contracted budget. All contracts are to
be fully executed.
a) Personnel
b) Crew
c) Graphics
d) Music: Original and License source agreements
e) Equipment
f) Facilities
8. LOG SHEETS: Required inventory of all documents. Completion of Log Sheets
for all Acquired Materials/Release/Contract documents organized by
classification and in the sequential order they appear in the program.
The legal document is to have the log/contract number, program title
and running timecode from the master on each document. Except for Archive
materials, once the release has been recorded on the log sheet, you do
not have to re-record the release on the log. Releases that were not used
within the program are still to be listed at the bottom of the Log Sheets,
however please indicate the time-code column "not used" or "out-take".
If any of the following clearance documents are not required for your
production
Exhibit D - Page 8 of 10
<PAGE> 47
you still required to complete a log sheet - Indicate "MATERIAL NOT
USED IN THIS PRODUCTION".
LOG SHEETS:
a) Personal Appearance Releases Log Sheet
b) Location Releases Log Sheet
c) Name Product/Logo Releases Log Sheet
d) Acquired Footage/Still Photography & Public Domain Clearance
e) Contractor Log Sheet
f) Talent Log Sheet
9. FINAL PRODUCTION CONTACT SHEET. Final contact sheet of all production
personnel, vendors and facilities relevant to the program's production
including name, address, telephone number and role. (This is for DCI
internal purposes only).
10. FINAL RESEARCH CONTACT SHEET: Includes all research contacts for all on
and off camera experts, trade organizations, fact checking used in the
production of the program and for script verification including name,
address, telephone number and role. (This is for DCI internal purposes
only.)
11. PROGRAM INFORMATION FACT SHEET: Completion of the Program Information
Fact Sheet Exhibit.
E. FINAL ACCOUNTING BINDER:
FINAL COST ACCOUNTING: Final documents are to certified as true and signed by
the program's production accountant, production manager and Executive Producer
as to the total and final cost of production. All documents are to be filed in
date order.
1. COST REPORTS AND FINAL COST REPORT: Copies of all monthly cost reports
including Final Cost Report.
2. FINAL MONTHLY PRODUCTION REPORTS: All original Production Reports
organized by date. Reports' correspond to the Final Production Schedule.
3. BANK STATEMENTS: Copies of all Bank Statements including final
Statement.
4. BANK RECONCILIATION: Copies of all Bank Reconciliation including Final
Reconciliation.
Exhibit D - Page 9 of 10
<PAGE> 48
5. ACCOUNTING POLICY: Duplicate copy of Travel and Entertainment
reimbursements invoice approval and payment process and petty cash sign
out and reconciliation policies.
SEND PROGRAM MATERIALS TO: GREGG WEIR/DCI VAULT OPERATIONS
DISCOVERY COMMUNICATIONS, INC.
REFERENCE: MICKEY MCKENZIE
7700 WISCONSIN AVENUE
BETHESDA, MARYLAND 20814-3579
(PLEASE FOLLOW THE REQUIRED DCI SHIPPING, LABELING AND INVENTORY
REQUIREMENTS FOR ALL SHIPMENTS.)
Exhibit D - Page 10 of 10
<PAGE> 49
AMAZING TAILS SEASON 2
PAYMENT SCHEDULE
ALL PAYMENTS HEREUNDER ARE SUBJECT TO SATISFACTORY COMPLETION OF THE APPLICABLE
PRODUCTION MILESTONE AND RECEIPT OF THE APPLICABLE COST REPORT, BANK STATEMENT
AND BANK RECONCILIATION.
<TABLE>
<CAPTION>
PAYMENT PRODUCTION PAYMENT PAYMENT DATE*
NUMBER MILESTONE AMOUNT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Producer hereby acknowledges receipt of $75,000.00
1 Payable upon execution of this Agreement by $159,260.00
both parties
2 Payable upon delivery to and approval by DCI $226,680.00 Not earlier than
of Story segment outlines 1-10, and Program October 15, 1997
Materials A1-A9.
3 Payable upon delivery to and approval by DCI $159,254.00 Not earlier than
of Story segment outlines 11-35, Scripts for January 6, 1998
host wraps for programs 1-13, Story segment
rough cuts of segments 1-25, rough cuts of
programs 1-13.
4 Payable upon delivery to and approval by DCI $156,600.00 Not earlier than
of Story segment outlines 36-50, Program February 3, 1998
materials A10-A11 for the series, fine cuts
of programs 1-3. and rough cuts of segments
26-35.
5 Payable upon delivery to and approval by DCI $74,318.00 Not earlier than
of Program material Al2 for the series. Story March 3, 1998
segment outlines 51-70, rough cuts of segments
36-60, and fine cuts of programs 4-7.
6 Payable upon delivery to and approval by DCI $79,627.00 Not earlier than
of Program material Al3, Story segment April 7, 1998
outlines 71-95, rough cuts of segments 61-75,
and fine cuts of programs 8-13.
7 Payable upon delivery to and approval by DCI $63,761.00 Not earlier than
of Program Materials binders and Legal binders May 5, 1998
for programs 1-13, Scripts for host wraps
14-26, and fine cuts of programs 14-16.
</TABLE>
<PAGE> 50
<TABLE>
<S> <C> <C> <C>
8 Payable upon delivery to and approval by DCI $110,500.00 Not earlier than
of fine cut, programs 17-26, master tapes, June 30, 1998
programs 14-26, Program Materials binders and
Legal binders, programs 14-26, Final
Accounting binder, and all series
materials.
TOTAL PRODUCTION FEE $1,105,000.00
</TABLE>
<PAGE> 51
PART OF AGREEMENT BETWEEN TEAM ENTERTAINMENT GROUP
AND DISCOVERY COMMUNICATIONS, INC.
DATED SEPTEMBER 19,1997
EXHIBIT F
NTSC TECHNICAL SPECIFICATIONS
VIDEO SPECIFICATIONS:
Video Program material shall be produced using industry standard and accepted
norms good practice and workmanship.
a) Master and source video tapes must meet industry standard or industry
accepted standards for tape format interchange.
b) Master and source video tapes must not have any visible video
impairments. Exception: Dropout count may not exceed one per running
minute
c) Vertical blanking should fall within FCC specifications.
(19 lines + or - 2 lines)
d) Horizontal blanking should fall within FCC specifications.
(10.9 + or - 0.2 microseconds, with the front and back porch 1.5 and
4.7, respectively)
e) Composite video white levels should not exceed 100 IRE units, and
program black levels should not extend below 7.5 IRE units. Neither the
program luminance whites or blacks should be clipped excessively.
f) Composite chroma levels should not exceed 110 IRE and may be clipped to
prevent transmission over modulation.
g) Horizontal and vertical synchronizing pulses, where applicable, must be
recorded in the program tape at a level of 40 IRE.
Control track (CTL) pulses must be continuous and contain color frame pulses.
The control track must be properly phased to the recorded video vertical
interval.
Each program shall be preceded with a minimum. of 1 minute of SMPTE or EIA color
bars (75% chroma amplitude) and a reference tone of 1000 or 400 Hz, followed by
a 15 second slate, a countdown and 2 seconds of black before start of program.
The tape must have a minimum of 30 seconds of black following the
Exhibit F - Page 1 of 3
<PAGE> 52
last program picture and audio. The program material must be representative of
the audio and video reference signals.
AUDIO SPECIFICATIONS:
Audio program material shall be produced using industry standard and accepted
norms good practice and workmanship.
a) The audio portion of the master and source audio and video tapes must be
produced so that no noise, static, dropouts or extraneous distortion is
recorded in the audio.
b) AUDIO CHANNELS - STEREO AUDIO MUST BE FULLY MONO COMPATIBLE, THE AUDIO
CHANNELS MUST BE IN THE PROPER PHASE. Dolby NR should not be encoded for
Digital or 1 inch tape formats. (Note: 1 inch refers to Type C format)
c) NOTE: FULLY MONO COMPATIBILITY MEANS THAT WHEN THE LEFT AND RIGHT STEREO
CHANNELS ARE ACTIVELY COMBINED TO MONO THERE IS NO DISCERNIBLE CHANGE IN
AUDIO LEVEL OR FIDELITY.
d) Timecode - SMPTE DROPFRAME-TIMECODE IS MANDATORY!
e) Program start timecode must read 01:00:00:00.
f) All time code references, i.e. vertical interval time code, (VITC),
longitudinal time code. (LTC) or audio sector time code on Digital
formats (ASTC) MUST match exactly.
g) Program audio must reflect reference tone level. Audio levels must be
consistent throughout the program.
h) Headroom: Transmission limiters clip at +8 dB. TRANSIENT AUDIO PEAKS
MUST NOT EXCEED +10 dB ABOVE REFERENCE TONE. Due to the inherent lag in
the VU meter movement, program audio that ranges form -5 to -2 VU will
roughly equal 10 dB of headroom and not exceed specifications for
limiting peak excursions.
NOTE: CONVERSELY WHEN MASTERING TO A DIGITAL FORMAT AND/OR USING A
"PEAK" METER, SET REFERENCE TONE TO 0 VU (USUALLY -20 dB, FULL SCALE).
AUDIO THAT PEAKS AT +8 TO +10 VU, ABOVE REFERENCE, WILL PUT THE AVERAGE
LEVEL NEAR 0 VU.
Exhibit F - Page 2 of 3
<PAGE> 53
i) Pre-emphasis: FM transmission modulators (USA) use the 75 microsecond
pre-emphasis curve. All signal processing must take into account the
pre-emphasis curve. Improper "Sweetening", i.e. excessive equalization
in the higher frequencies, can cause sibilance and severe distortion, if
the EIA 75 microsecond pre-emphasis curve is not used.
j) Audio compression: Program audio should have good dynamic range, within
the parameters listed above. Audio compression techniques used to
enhance the overall program loudness of the final mix should be avoided,
as this reduces the perception of audio quality by the listener.
Exhibit F - Page 3 of 3
<PAGE> 54
PART OF AGREEMENT BETWEEN TEAM ENTERTAINMENT GROUP
AND DISCOVERY COMMUNICATIONS, INC.
DATED SEPTEMBER 19, 1997
EXHIBIT G
TIME REQUIREMENTS
[TO BE PROVIDED BY DCI]
Exhibit G - Page 1 of 1
<PAGE> 55
PART OF AGREEMENT BETWEEN TEAM ENTERTAINMENT GROUP
AND DISCOVERY COMMUNICATIONS, INC.
DATED SEPTEMBER 19,1997
EXHIBIT H
PRODUCTION FACT SHEET
1. EXACT PROGRAM/SERIES TITLE:____________________________________________
2. LENGTH OF EACH EPISODE IN MINUTES __________ NUMBER OF EPISODES________
3. BROADCAST HISTORY:
*Country(s) and year where previously aired ___________________________
*Network(s) and year on which previously aired ________________________
*EXACT airdate of its World premiere, if outside the U.S.______________
4. PRODUCER________________________________________________________________
5. COUNTRY OF ORIGIN ________________________ YEAR PRODUCED _______________
6. PLEASE SEND FOLLOWING MATERIALS:
*Printed promotional material
*Host Biography
*Publicity Photos
*Series and episode description (100 words or more each)
7. AWARDS WON (Year and name of award. Category name where known): ________
________________________________________________
8. Who at your company should DCI contact with questions about information
on this form?
Name___________________________________ Phone __________________
9. HOST NAME:______________________________________________________________
l0. TALENT CONTACT (name and phone)_________________________________________
ll. COMPANION PRODUCTS (home video, books, premiums, etc.)__________________
________________________________________________________________________
12. WHO HOLDS THE COPYRIGHT? _________________________COPYRIGHT YEAR _______
13. OTHER MERCHANDISABLE INFO (Has producer or cinematographer won awards in
the past? Were there any distinguished experts involved in the
production? Did the production require technological or cinematic
innovations? Is there rare or unusual footage in the program? Will the
host be available for promotions? What inspired the making of the film?
________________________________________________________________________
14. Where should we refer viewers who want more information on your program?
________________________________________________________________________
**If you have any questions regarding this form please contact Patricia Daniels
in Internal Program Resources at 301-986-0444 ext. 5266.
Exhibit H - Page 1 of 1
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT WITH TODD C. JACKSON
March 19, 1997
Mr. Todd C. Jackson
720 Steiner Street
San Francisco CA 94117
Dear Mr. Jackson:
Following are the basic deal points of the offer of employment to you from TEAM
Entertainment Group ("TEAM"):
1. Start Date: May 19, 1997.
2. Initial Term: Two (2) years, through May 18, 1999
3. Second Term: At TEAM's option, May 19, 1999 through May 18, 2000. Such
option will be exercised by TEAM no less than 120 days prior to the end of the
Initial Term.
4. Title: Senior Vice President, Domestic and International Sales
5. Duties and Responsibilities: To include acquisition, sales and packaging of
internally produced and acquired product, running the day to day operations of
the division, traffic and conventions. You will report to Mr. Levin and the
board of directors. You will be provided with a shared assistant and a director
of sales, currently Lisa Veatch.
6. Compensation: (a) May 19, 1997 to May 18, 1998, salary payable at the rate
of $175,000 per year, in weekly installments on the Company's usual payroll
schedule.
(b) May 19, 1998 to May 18, 1999, salary payable at the rate of $200,000 per
year, in weekly installments on the Company's usual payroll schedule.
(c) In the event that TEAM elects to exercise its option for a third year, May
19, 1999 to May 18, 2000, salary payable at the rate of $225,000 per year, in
weekly installments on the Company's usual payroll schedule.
(d) You will also receive a minimum guaranteed bonus at the rate of $25,000 per
year ($2083.33 per month), or pro rata for portion employed thereof, such bonus
to be applicable against all sales commissions earned as set forth below. This
advance will further be carried over, and recoupable, from year to year of
employment. By way of example only, if by December 31, 1997, you have earned a
sales commission of $10,000, the difference of the 1997 minimum bonus (7/12 of
$25,000, or $14583.33) would be $4583.33, payable with the
<PAGE> 2
Mr. Todd Jackson
March 19, 1997
Page 2
commission payment. This $4583.33 would be carried over into the next year,
wherein you would still receive the minimum bonus, but in order to receive any
additional bonus, you would have to earn commission in excess of $29,583.33.
7. TEAM will further pay a yearly expense fee not to exceed $10,000 per year
(i.e. up to $834 per month) for preapproved expenses. This expense fee shall be
applicable against commissions earned as set forth below. Any additional
preapproved expenses shall be reimbursed for travel to conventions, sales trips
etc. All international and transcontinental travel will be business class.
Pre-approved expenses will be reimbursed within the normal payables cycle, not
to exceed 30 days;
8. Commission Structure: Commission will be payable as a bonus at the end of
each calendar year (i.e. December 31) payable within 45 days after the end of
each calendar year, earned at the following rates;
i) two and a half percent (2 1/2%) of the first two million dollars of
the sales divisions pre-tax profits;
ii) four percent (4%) of the next two million dollars of the sales
divisions pre-tax profits;
iii) five percent (5%) of the sales divisions pre-tax profits for all
profits exceeding four million dollars.
a) Pre-tax profits will be calculated as follows; on internally produced
product an imputed distribution fee of thirty percent (30%), and a cost cap
of five percent (5%) of gross sales; on acquired and other product, the
fee's and costs will be as negotiated on each such product; less, the costs
of the division (including salaries, trade-shows, expenses etc. and other
costs of sales)
9. Vacations: You will accrue two (2) weeks for the first year; three (3) weeks
for the second year; and four (4) weeks for all subsequent years.
10. Benefits: You will receive health insurance as it is provided to other
employees, commencing ninety (90) days after start of employment.
11. Exclusivity: You will be full time and exclusive to TEAM during the term of
employment and it has been agreed that you will perform as is reasonably
necessary, at TEAM's Los Angeles office. It is acknowledged that you will
continue with non-exclusive consultancy arrangements with Kinnevik Media
Properties Limited and Bill Graham Presents Inc. and with Cable Network Services
Inc., none of which shall interfere with your otherwise exclusive services to
TEAM.
12. Proprietary Information and Confidentiality: It is agreed that all
proprietary information, trade secrets and internal operations of TEAM,
including but not limited to the terms and conditions of this agreement, shall
remain confidential, except as the necessity arises to have this
<PAGE> 3
Mr. Todd Jackson
March 19, 1997
Page 3
agreement reviewed by attorneys, accountants or other professionals in the
ordinary and usual course of business. This confidentiality provision will
survive the term of employment.
13. Out Clause/Stock Options: It has been agreed that if TEAM does not
implement the anticipated Initial Public Offering (IPO) by September 19, 1997
then you will thereafter have the right to terminate this agreement with sixty
(60) days advance written notice. You will receive ten thousand (10,000) stock
option shares per year of employment, such options to vest after each year,
pursuant to the terms of the existing employee stock option plan.
Please review the above and indicate your acceptance thereof by signing, dating,
and returning a copy of this letter. We will thereafter prepare a more formal
employment agreement for signature. Thank you.
Sincerely,
/s/ Eric S. Elias
- ------------------------------------
Eric S. Elias
Business Affairs
Agreed to and accepted:
/s/ Todd C. Jackson Date: 3/21/97
- ------------------------------------ ------------
Todd C. Jackson
<PAGE> 4
AMENDMENT TO THE AGREEMENT WITH TODD C. JACKSON
October 4, 1997
Mr. Todd C. Jackson
720 Steiner Street
San Francisco CA 94117
Dear Mr. Jackson:
This is to confirm the following change to your employment agreement dated March
19, 1997.
Paragraph 6 is now amended to read as follows:
6. Compensation: (a) May 19, 1997 to May 18, 1998, salary payable at the rate
of $100,000 per year, in weekly installments on the Company's usual payroll
schedule, plus a performance bonus of up to $75,000 per year, payable in weekly
installments, along with your base salary.
(b) May 19, 1998 to May 18, 1999, salary payable at the rate of $200,000 per
year, in weekly installments on the Company's usual payroll schedule.
(c) In the event that TEAM elects to exercise its option for a third year, May
19, 1999 to May 18, 2000, salary payable at the rate of $225,000 per year, in
weekly installments on the Company's usual payroll schedule.
(d) You will also receive a minimum guaranteed bonus at the rate of $25,000 per
year ($2083.33 per month), or pro rata for portion employed thereof, such bonus
to be applicable against all sales commissions earned as set forth below. This
advance will further be carried over, and recoupable, from year to year of
employment. By way of example only, if by December 31, 1997, you have earned a
sales commission of $10,000, the difference of the 1997 minimum bonus (7/12 of
$25,000, or $14583.33) would be $4583.33, payable with the commission payment.
This $4583.33 would be carried over into the next year, wherein you would still
receive the minimum bonus, but in order to receive any additional bonus, you
would have to earn commission in excess of $29,583.33.
All other terms and conditions will remain the same. Please indicate your
understanding and acceptance of the above by signing and returning a copy of
this letter amendment as soon as possible.
Thank you.
Sincerely,
Eric S. Elias
Business Affairs
Agreed to and accepted:
____________________________________ Date:____________
Todd C. Jackson
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT WITH PAUL YAMAMOTO
January 23, 1997
As of January 20, 1997
Mr. Paul Yamamoto
838 South Barrington Avenue #102
Los Angeles CA 90049
Dear Mr. Yamamoto:
The following is to confirm the terms of your new employment agreement with TEAM
Communications Group, Inc. ("TEAM"). This agreement is intended to replace in
its entirety any and all preexisting such agreements. The new terms are as
follows:
1. Your title will be Executive Vice President; second in command, second in
overall salary; reporting to Drew Levin and the Board of Directors. You will be
first in line for an "inside" seat as member of the board of directors of TEAM.
2. Your services will be exclusive to TEAM, excepting only such custodial
services as are required to oversee the following projects:
A) The Literary Trust of the John T. Fante Estate
B) The works of Peter O'Donnell
C) The works of Bill Griffith
D) The Estate of Charles Bukowski
E) Black Sparrow Press
You will use your best efforts to bring any appropriate viable projects from the
above to TEAM for a first look and right of first refusal. When appropriate, you
will serve in an Executive Consultant or Executive Producer capacity on the
above mentioned projects, but your services on such will not materially
interfere with the performance of your services for TEAM or any of its
subsidiaries pursuant to this agreement. Additionally, your attachment to any
theatrical motion picture projects are excluded, subject to the same requirement
that such attachment will not materially interfere with the performance of your
services for TEAM or any of its subsidiaries pursuant to this agreement.
3. You will serve as head of all production divisions and operations. Your
responsibilities will include, but not be limited to, the development of
properties for long form television, acquiring existing or outside production
material, and assistance in the sale and placement of television and miniseries
projects at the networks, cable systems and syndicator.
<PAGE> 2
Mr. Paul Yamamoto
January 23, 1997
as of January 20, 1997
4. Compensation: Base Salary to be as follows:
a) From January 20th, 1997 - June 30th, 1997 at the annual rate of
$150,000
b) From July 1st, 1997 - December 31st, 1997 at the annual rate of
$175,000
c) From January 1st, 1998 - June 20th, 1999 at the annual rate of
$200,000
plus, as a bonus:
d) Two and a half percent (2 1/2%) of the company's pre-tax profits up
to 3 Million dollars;
e) Four percent (4%) thereafter with the same definition of pre-tax
profits as Drew Levin's, annually with the year ending December 31 of
each year.
5. Twenty thousand (20,000) stock options each year for the first two (2) year
of this agreement, at $1.00 per option. Such stock options will vest over the
course of employment with terms no less favorable than granted to any other
employees.
6. You will receive an assistant at a salary in a range of $40,000 per year,
office space (decorated conservatively and pre-approved by Drew Levin.), a
reserved parking space, reimbursement of all reasonable pre-approved business
expenses, three (3) weeks vacation per year for the first year of this
agreement, and four (4) weeks vacation per year thereafter, and health insurance
as it is provided to other comparable executives.
7. Term: January 20, 1997 to June 20, 1999.
8. Subject to third party veto, your on-air credit for movies produced under
your auspices will be co-executive producer, with size and placement to be
determined by TEAM.
9. All other points not discussed shall be negotiated in good faith at the
appropriate time.
Please indicate your acceptance of, and agreement with, all of the above terms
and conditions by signing the attached copy of this letter and returning it to
me. We will thereafter prepare a more formal agreement incorporating the above
and other usual and customary terms and conditions.
Thank you.
Best Regards,
/s/ Drew S. Levin
_____________________________
Drew S. Levin
DSL/ee
Agreed to and accepted:
/s/ Paul Yamamoto
Dated: January 31, 1997. ______________________________
Paul Yamamoto
<PAGE> 3
AMENDMENT TO THE AGREEMENT WITH PAUL YAMAMOTO
October 4, 1997
Mr. Paul Yamamoto
838 South Barrington Avenue #102
Los Angeles CA 90049
Dear Mr. Yamamoto:
This is to confirm the following change to your employment agreement dated
January 23, 1997, as of January 20, 1997.
Paragraph 4 is now amended to read as follows:
4. Compensation: Base Salary to be as follows:
a) From January 20th, 1997 - June 30th, 1997 at the annual rate of
$125,000 plus a performance bonus at an annual rate of up to $25,000, to be paid
weekly
b) From July 1st, 1997 - December 31st, 1997 at the annual rate of
$125,000 plus a performance bonus at an annual rate of up to $50,000, to be paid
weekly
c) From January 1st, 1998 - June 20th, 1999 at the annual rate of
$200,000 plus, in addition to (a)(b) and (c) above, as a further bonus:
d) Two and a half percent (2 1/2%) of the company's pre-tax profits up
to 3 Million dollars;
e) Four percent (4%) thereafter with the same definition of pre-tax
profits as Drew Levin's, payable annually with the year ending December 31 of
each year.
All other terms and conditions will remain the same. Please indicate your
understanding and acceptance of the above by signing and returning a copy of
this letter amendment as soon as possible. Thank you.
Sincerely,
/s/ ERIC S. ELIAS
Eric S. Elias
Business Affairs
Agreed to and accepted:
/s/ PAUL YAMAMOTO Date: October 4, 1997
- -----------------------
Paul Yamamoto
<PAGE> 1
EXHIBIT 10.14
October 9, 1997
Mr. Joseph Cayre
c/o Goodtimes Home Video Corporation
16 East 40th Street
New York, NY 10016
RE: Consulting Services Agreement
Dear Mr. Cayre:
This agreement is entered into by and between TEAM Communications
Group, Inc., doing business as TEAM Entertainment ("TEAM") of 12300 Wilshire
Boulevard, Suite 400, Los Angeles, CA 90025 ("TEAM") and Mr. Joseph Cayre
("Consultant").
Whereas TEAM is in the business of producing and distributing television
programs; and Consultant is in a similar media related business, and
TEAM desires to retain the services of Consultant as a consultant on various
matters, including advice and the benefit of Consultant's experience in
distributing television programming in various media; now the parties agree as
follows:
1. Term and Scope. As of this date, TEAM hereby engages, and Consultant
agrees to be engaged, to provide such various consulting services to TEAM, on a
nonexclusive basis, on such schedule as Consultant in his absolute and sole
discretion determines, to TEAM as regards the distribution of television
programming in various non-broadcast media and ancillary matters related to
such marketing and media. Consultant's obligation to provide such services
shall terminate on September 30, 1998.
2. Compensation. As a guaranteed minimum compensation for the agreement to be
so engaged, Consultant shall be entitled to receive two hundred thousand dollars
($200,000.00).
3. Payment. TEAM shall pay the sum of $200,000.00 to Consultant at the
earlier of the completion of the anticipated initial public offering of TEAM's
stock, or November 30, 1997.
4. Efforts Required. Consultant shall use reasonable efforts to be available
to provide the services for which he is hereby engaged.
5. Waivers. Neither this Agreement nor any term hereof may be changed,
waived, amended or terminated orally, but only by written act of both parties
(or, in respect of a waiver, the waiving party).
6. Assignment. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and legal representatives but
shall not be assignable by any party without the written consent of the other
party, which consent shall not be unreasonably withheld.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws
<PAGE> 2
Mr. Joseph Cayre
October 9, 1997
Page 2
of the State of New York.
8. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which, when taken
together, constitute one and the same instrument.
9. Section Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning and interpretation of this Agreement.
10. Enforceability. Any provision of this 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. To the extent permitted by applicable law, the parties
hereto hereby waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.
11. Additional Documents. The parties hereto will at any time after the date
hereof sign, execute and deliver or cause others so to do all such powers of
attorney, assignments, documents and instruments and do or cause to be done all
such other acts and things as may be necessary or proper to carry out the
transactions contemplated by this Agreement.
12. Entire Agreement. This Agreement constitutes the entire agreement among
the parties hereto and supersedes and cancels any prior agreement,
representations, warranties or communications, whether oral or written, among
the parties hereto relating to the transactions contemplated hereby or the
subject matter herein. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an agreement in
writing signed by the party against whom or which the enforcement of such
change, waiver, discharge or termination is sought.
Executed as of the date first above written:
TEAM Entertainment
By: /s/ DREW S. LEVIN
-----------------------------
Drew S. Levin
President/CEO
Agreed to and Accepted
/s/ Joseph Cayre
- --------------------------------
Joseph Cayre
<PAGE> 1
Exhibit 23.4
October 1, 1997
Drew S. Levin
Chairman of the Board
Team Communications Group, Inc.
12300 Wilshire Boulevard, Suite 400
Los Angeles, CA 90025
RE: REGISTRATION STATEMENT
Dear Mr. Levin:
This is to confirm that I hereby consent to have my name included in the
Registration Statement of the Initial Public Offering of Team Communications
Group, Inc. as a Nominated Director.
Thank you.
Sincerely,
[SIG]
Seth Willenson
