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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
MSH ENTERTAINMENT CORPORATION
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(Name of Small Business Issuer in its charter)
UTAH 94-3248713
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
244 WEST 54TH STREET, 12TH FLOOR, NEW YORK, NY 10019
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(Address of principal executive offices) (Zip Code)
(212) 977-9300
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(Registrant's telephone number, including area code)
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS BACKGROUND
MSH Entertainment Corporation ("MSH") is a diversified multi-media
technology/Internet entertainment content company that intends to create
properties for all media in all formats. To date its principal business has been
the production of animated programming for television. Through its acquisitions
and strategic alliances, MSH brings together an award-winning team of
professionals from the entertainment, Internet and high-technology worlds. MSH's
business plan is focused toward utilizing its in-house technology to further
enhance the creation, development, production and exploitation of both live
action and animated TV series and specials, toys, Internet related tie-ins,
movies, home video and in-house developed technology. MSH also intends to
participate in revenue generated from the ancillary merchandising of associated
products as well as proprietary computer software programs and music publishing
related to MSH's created works. Its relationships with a consortium of affiliate
companies, consultants, software programmers, motion picture and television
producers, toy manufacturers, artists, agents, directors and creative staff,
strengthen its position in the entertainment industry.
MSH is a Utah corporation formed in 1983. Its principal offices are
located at 244 West 54th Street, 12th Floor, New York, NY 10019, and its
telephone number is (212) 977-9300.
INDUSTRY BACKGROUND-ANIMATION
Animation, once a cottage industry labeled as nothing more than the
stepchild of live-action, has enjoyed a resurgence of activity in the past
several years. The success of "The Simpsons" in prime time in the late 1980's
opened the doors for animation series to successfully compete with major network
situation comedies. In 1990, the Warner Brothers/Steven Spielberg hit "Steven
Spielberg's Tiny Toon Adventures" pushed animated product to new heights in
television. The success of "Rugrats," airing on Nickelodeon, is another example
of the continuing success of animated programming. But the real credit for
bringing animation back to the television screen was the success of Disney
movies and videos. The huge success of such films as "The Little Mermaid",
"Beauty and the Beast", "The Lion King", "Toy Story", "Toy Story 2" and "Tarzan"
did more for television animation than any series up to this time. These films
caused audiences to develop a taste for quality animated product. Like popular
music, animation programming travels well, accounting for its worldwide
acceptance.
MSH'S BUSINESS STRATEGY
The continued advances in the computer and communications industries,
and the integration of these two industries with the entertainment industry, are
creating significant opportunities for growth. Based upon the pursuit of this
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growth opportunity, MSH has proceeded with acquiring capabilities to create,
develop, produce, license, distribute and merchandise television programs,
television series and original Internet created programming for both children
and family audiences and for the mature prime-time television and cable markets.
MSH also plans to pursue opportunities in children's toys and merchandising as
it relates to its own programming.
MSH has an ongoing commitment to create and produce quality Internet
and television programming for a wide variety of media. Its primary strategy is
to produce product for the television, toy and merchandising markets in the
United States, Europe and Asia, as well as sound track recordings, home videos,
Internet tie-ins and technology for those markets. MSH plans to retain an
ownership interest in the copyright of all its productions for the purpose of
building a potentially highly profitable library for future exploitation in all
media worldwide.
In order to implement these goals, MSH plans to enter into the arena of
children's and family television production, licensing and merchandising through
its majority owned subsidiary, KidsAndFamily Network, Inc.; has established a
music publishing company and record label; has acquired a minority interest in
and entered into various co-production agreements with Abrams/Gentile
Entertainment ("AGE"), a well-respected independent toy development and
merchandising company; has entered into a strategic alliance with one of the
industry's premier producers of animated television product, Film Roman; and has
acquired a minority interest in Aston Entertainment Group, which operates a
state-of-the-art 3D computer animation/post-production facility. MSH's strategy
for growth emphasizes the development of new products as well as selected
acquisitions and participation in strategic alliances, recognizing the
advantages of owning creative product which it can control and distribute in all
media and across all platforms.
DEVELOPMENT JOINT VENTURES AND STRATEGIC ALLIANCES
MSH views acquisitions and strategic alliance agreements as key
vehicles to the entry into new markets and the leveraging of its existing
infrastructure. MSH actively seeks strategic joint ventures to acquire rights,
develop, package and/or co-produce projects. By joining with a domestic or
international partner, MSH can allocate overheads as well as assign projects to
the joint venture from which it would derive revenues from the sale of the
project and as well as equity participation based on the success of each
project.
RELATIONSHIP WITH ABRAMS-GENTILE ENTERTAINMENT, INC. MSH has agreed to
purchase 20% of Abrams-Gentile Entertainment, Inc., a New York-based toy
development and merchandising company ("AGE"), and has produced and continues to
develop programming in conjunction with AGE. In addition, two of the three
principals of AGE, John and Anthony Gentile, serve as Creative Directors for MSH
and serve on MSH's Board of Directors. Over the years AGE has developed and
merchandised a number of successful toys, including "Skydancer," which became
the number one selling girl's action toy and displaced "Barbie" for a period of
time as the favorite toy among young girls. The toy was marketed worldwide by
Galoob, marketer of AGE's other toy lines, "Happy Ness" and "Dragon Flyz."
Additional AGE toy products include: Power Glove, Teen Talk Barbie, and Popcorn
Pretties
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for Mattel Toys; Nitro-Bat for Wham-O Toys; Baby Sweet Surprise, Bucky O'Hare,
Fazz and Visionaries for Hasbro/Kenner Toys; Creepy Crawlers, Incredible
Edibles, Everglo and Photo Doh for Toymax; Rambo for Coleco Toys; Drastic
Elastic, Comic Campus, Spiral Shop and Boomer Tube for Just Toys; the
personality dolls Marilyn Monroe, James Dean, Cher and Farrah Fawcett; and
licensed properties including Star Trek, Planet Of The Apes, Baywatch and Marvel
Super Heroes.
For television, AGE has produced over fifty hours of Saturday morning
animation, created and produced by John and Anthony Gentile, including
"Van-pires" (co-produced with MSH),"Visionaries" and "Bucky O'Hare". During the
1997/98 season, the "Van-pires" animation series was consistently ranked in the
top 5 syndicated animated series. In the theme park arena, AGE is a creative and
technical consultant to the proposed SCI-COM-CITY theme park in Osaka, Japan.
AGE is also the owner of certain technology known as BLINK
(Beeper-Linked Integrated Network),developed by John and Anthony Gentile, to
incorporate a low-cost paging system in conjunction with a custom data receiver
module known as Economic Data Receiver ("EDR"), which employs a proprietary
pager board to receive mass broadcasts digital data over established paging
systems. Such data, when received, may be synthesized into speech, displayed on
a liquid crystal display screen, or be utilized in any output manner required.
Through the use of acquired capcodes licensed to AGE by Skytel, the EDR is also
capable of transmitting and receiving two-way individualized data within the
same system, through subscriptions purchased by end users.
AGE plans to develop a "BLINKY" toy for Christmas 2000. No two will be
alike. Each will have a 5 channel select option built into a BLINK chip that
allows for customized BLINK options, allowing each toy to have its own
personality based on channel select. The personality can be playful, happy,
mischievous, sad, shy, etc. Blinky will be able to also change the channels on a
TV set, stereo and other IR devices. Each toy can be age graded so that the
content package is specific to an age group.
Totally devoted to its "owner" based on initial customization with a
one time download included (child's name, birthdate, favorite color or any
specific personalizations which will be kept in fresh memory). With a special
two-way, a child can officially register BLINKY for specific bouncebacks,
adoptions, etc. Additionally, the child can update in dedicated memory bank,
special dates and achievements as they occur. New content can be added or
changed as kids play, based on trigger of specific input devices designed into
BLINKY.
BLINKY can be designed with a special "Blink-link" so that a unique
channel broadcast can only be accessed when two BLINKYs are linked together
allowing for access to the secret broadcast channel (the 5th channel). Like
Furby, BLINKY can be designed as a totally self-contained character and
notification to the child of new data can be prompted through mechanical
activation (ears move, eyes blink), light activation (blinking LED prompt),
vibration activation (pager prompt) and audio activation (melody prompt).
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The BLINKY toy can also be designed as a character designed with a dual
personality. The first personality utilizes digital bank a bank of
non-synthesized speech and sound effects. The second personality receives and
processes synthesized speech and signals to the child that "double-talk" now has
new secrets to share with the child. In addition, by using a strategically
placed sensor on the BLINKY doll, an interactive game pattern can be created for
several games modes through a two switch A/B input.
Apart from its ownership of 20% of AGE, in 1998 MSH entered into an
agreement with Marty Abrams, the owner of 50.1% of AGE, to acquire his interest
in AGE. The agreement originally called for a purchase price of $5,000,000,
consisting of cash and stock. The Agreement has been amended several times. To
date, MSH has paid Mr. Abrams approximately $2,400,000 in cash and has issued
him 3,500,000 shares, valued at approximately $1,200,000, for a total of
$3,600,000. MSH is in negotiations with Mr. Abrams toward the resolution of
these issues.
PC POWER GLOVE. MSH owns a 9.375% interest in Freedom Multimedia, LLC,
the developer of a patented virtual reality (VR) technology known as "PC Power
Glove." The original Power Glove was a revolutionary video game control device
developed by AGE and licensed to Mattel Toys, which marketed it for use with the
Nintendo Entertainment System in 1989. The original Power Glove was one of the
first VR products to be produced for the consumer market, and achieved worldwide
gross sales in excess of $80 million. Freedom Multimedia, LLC was organized by
AGE, MSH and others to sponsor development of a next-generation Power Glove,
with an interface device specifically designed for the PC market.
The newly designed Power Glove's "I-Touch" web-imbedded software, is
designed to permit "mouseless" Internet navigation, with the ability to touch,
rotate and navigate through 3D rooms and environments and eventually "feel"
items on the web. In addition, a range of PC peripherals will be developed that
both compliment and expand upon the unique hand recognition action of the Power
Glove, while exploiting the high level of brand recognition associated with the
Power Glove name. These features are to allow the PC Power Glove to exploit
opportunities in the PC marketplace.
The PC Power Glove is being designed and marketed for a number of
markets, including PC games, stand-alone video gaming systems, scientific
visualization, performance animation, CAD applications, virtual reality
applications, and industrial, training and education applications. Additionally,
the PC Power Glove is designed to utilize tracking technology, and will utilize
ultrasonics and patented conductive "flex sensors" to allow the unit to measure
six degrees of tracking.
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The Flex Sensor is a patented "soft switch" technology for use in all
phases of industries from toys to apparel to robotics to medical uses. Worldwide
cost effective applications allow as many as three hundred plus individual
"switches" to a single sensor. The "flex sensor" tracking will be accomplished
utilizing AGE's patented bend sensors located through the plastic housing
mounted on the top of the wrist and extending through the spandex glove on the
top of the hand. The conductive ink wrist sensor will have two byte (16 bit)
resolution and be responsible for one of the six degrees of tracking (pitch).
The special feedback sensors will give the user a taste of more state-of-the-art
glove sensor technologies. MSH believes that the Power Glove could become a
cornerstone of gaming and industrial VR applications in the personal computer
industry.
MAJORITY INTEREST IN KIDSANDFAMILY NETWORK, INC. In 1999 MSH created
and founded KidsAndFamily Network, Inc. as a majority-owned subsidiary.
KidsAndFamily Network is designed to be a business-to-business Internet
advertising and direct marketing services group designed to enable both
advertisers and Web publishers to capitalize on the many opportunities presented
by Internet advertising, direct marketing and electronic commerce.
The KidsAndFamily.net Network will be comprised of local and national
Web sites. It is designed to offer comprehensive advertising sales solutions for
both emerging and mature Web publishers and provide advertisers and direct
marketers with targeted ad delivery across the network. The mission of
KidsAndFamily.net is to deliver highly targeted, measurable and cost-effective
Internet advertising for advertisers and ad agencies, and to increase ad sales
and improve ad space inventory management for Web publishers.
KidsAndFamily.net will offer Web publishers a complete, turn-key
advertising revenue solution-from sales representation through performance
reporting. The network is to represent the most comprehensive opportunity
available to Web publishers operating in the "Family with Children" market.
KidsAndFamily.net will generate revenue by selling advertising placement and
promotions for its affiliated Web sites in an environment poised for growth.
FIRST-LOOK AGREEMENT WITH FILM ROMAN, INC. MSH has entered into a
"first-look" agreement with Film Roman, Inc., a Los Angeles-based animation
production company (producers of "The Simpsons" and "King of the Hill") for the
co-production of new children's animated series, specials, movies and the
creation of original toys and merchandising related to those programs. Under the
terms of the agreement, both companies will own a portion of the adjusted gross
profits from the television broadcast, toy and merchandising licensing rights of
each other's selected animated and live action properties produced under the
agreement. In addition, MSH will engage Film Roman for co-development funding
and deficit financing of some of the properties.
In June of 1999 MSH and Film Roman entered into an agreement with
actress Jane Seymour and her husband, film director James Keach, to produce an
animated program, "This One `N That One" Based on a popular series of
Penguin/Putnam children's books written by Seymour and Keach, "This One `N That
One" is inspired by the antic adventures of their three year-old twin boys, and
follows the adventures of a family of cats and the twin kittens of the litter
named "This One" and "That One".
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MINORITY INTEREST IN ASTON ENTERTAINMENT GROUP, INC. In October of 1999
MSH purchased 20% of the outstanding stock of Aston Entertainment Group, a
Sarasota, Florida-based animation production company ("Aston"), for cash and
shares of MSH. In January 2000, MSH entered into an agreement to purchase an
additional 15% of the outstanding stock of Aston, to bring its ownership of
Aston to 35%. Aston is a state-of-the-art 3D computer generated animation
facility with an advanced technology post-production facility and fully staffed
storyboard department. Ownership of a portion of Aston will permit MSH to
produce its animation projects at a reduced cost, with greater control over the
production and post-production phases. The alliance also calls for MSH and Aston
to develop and create animated television projects and establish a marketing and
promotion plan for Aston's existing products and intellectual properties.
STRATEGIC ALLIANCE WITH E-MARKETING PARTNERS. In 1999, MSH entered into
a strategic alliance with e-Marketing Partners, which serves as the agency of
record for the KidsAndFamily Network. E-Marketing Partners ("EMP") is an online
marketing consulting company specializing in developing Internet strategies,
increasing website traffic and usage, maximizing e-commerce opportunities, and
incubating Internet ventures. EMP was co-founded by interactive marketing
professionals from USWeb and by KidsAndFamily president, Bob Heyman, co-founder
of Cybernautics, a leading online marketing and web design firm that pioneered
the fields of Internet Audience Development, Online Direct Marketing and Online
PR.
STRATEGIC ALLIANCE WITH ETC GROUP, INC: In December, 1998, MSH entered
into an agreement with etc... group, inc., for corporate video and television
production. Established in 1993, etc...group, inc. offers clients a full
spectrum of marketing services including corporate positioning, corporate
identity, message platform, award winning design, print and broadcast
advertising, direct mail, trade shows and event management and video and film
productions. etc...group, inc. has been creating marketing Internet and intranet
communications for high-tech and multimedia clients since 1993. The etc...group
has an experienced team of professionals specializing in web-based
communications who are experts in leveraging a company's website, customer
database and electronic communications programs to build brand awareness,
product consideration and generate sales leads. Among its customers, etc..group,
inc. lists Lucent Technologies, Ascend Communications, Amdahl, Fujitsu, Sony,
Sprint, Cisco and Adaptec.
CONSULTING ARRANGEMENT WITH KING/FROMKIN PRODUCTIONS, INC. In November
1999 MSH entered into a "packaging/consulting" arrangement with King/Fromkin
Productions, Inc., a New York based talent agency/entertainment packaging
company specializing in motion pictures, television, literary and talent
development and packaging. Under the terms of the agreement, King/Fromkin is to
make its existing projects available to MSH for television and/or motion picture
production. King/Fromkin will also seek out and acquire entertainment properties
to package with talent and screenplays for possible productions for MSH. The
first project being readied under the agreement is "Lady Day At The Emerson Bar
and Grill", an off-Broadway play about the last 100 hours in the life of Billie
Holiday, will be co-produced by MSH as a theatrical feature film with a built in
sound track of 20 Billie Holiday recordings.
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STRATEGIC ALLIANCE WITH PETER PAN INDUSTRIES. In December of 1999, MSH
entered into a strategic alliance agreement with Peter Pan Industries ("PPI"),
the second largest distributor of children's home video product, next to Disney,
in North America. The strategic alliance with PPI will provide MSH its own
arms-length distribution division as a major component of MSH's corporate
structure. PPI will be used to distribute selected MSH produced products and its
animation children's library. PPI has close relationships and access to a large
base of buyers voicing specific programming needs that should translate into a
communications pipeline for MSH. PPI has access to all outlets available for
product today including Best Buy, Costco, Wal-Mart and Target, to maximize
MSH's distribution revenue potential in all markets around the world.
SOUND TRACK, RECORD AND MUSIC PUBLISHING
MSH has formed a separate music division, the MSH Music Group, which
consists of two publishing companies (one ASCAP, one BMI). MSH has also formed
its own record label, MSH Records and has entered into an agreement with Navarre
Corporation, the largest independent record distributor in North America, for a
total of 30 albums over a three year period.
The MSH Music Group has several albums completed, but plans to change
its focus to concentrate on publishing. MSH owns all or a portion of several
albums including the soundtrack from the "Van-Pires" TV series. The music was
written and performed by John Entwitsle, a founding member, the bassist and
arranger for the rock group "The Who". MSH has also acquired 106 original master
recordings of the Ike and Tina Turner music library, including nearly all their
hit songs, has recorded and co-owns an album by a new country artist and owns
Sheena Easton's latest album, to be released in 2000.
LICENSING AND MERCHANDISING
In addition to utilizing television to advertise products to children,
the creation of children's programming itself provides broad licensing and
merchandising opportunities. Characters developed in a popular children's
series, and often the series themselves, achieve a high level of recognition and
popularity among children, making them valuable assets for the licensing and
merchandising market, where they can provide attractive "branding"
opportunities. Merchandising of character-related products is conducted
principally through the grant of licenses to independent third parties who
manufacture products incorporating MSH's characters and distribute these
products through normal distribution channels. These licenses provide payment of
royalties to MSH based on specified percentages of the sale of licensed
products. The children's market is one of the fastest growing segments in
licensed merchandising sales, with over 70% of the $6 billion spent annually in
the United States on entertainment and character-related properties relating to
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children oriented products. There are currently an estimated 40 million children
in the United States between the ages of 2 and 11, with approximately 4.5
million children entering the marketplace annually, and the average annual
amount spent on toy purchases for a child up to ten years of age is generally
estimated at between $240 and $300.
Royalty payments in the merchandising industry typically range between
5% to 15% of gross sales. The marketing and sales duration of a popular
merchandising item is typically 18 months to 27 months. MSH intends to
capitalize on its created characters and properties by entering into licensing
agreements with manufactures and retailers of children's products.
TRADEMARK AND COPYRIGHT
Rights to scripts, television and movie productions, musical works,
sound recordings art work, photography, animated characters, toy designs and
creations, original merchandising, technology, software, computer programs and
other intellectual properties are granted legal protection under the trademark
and copyright laws of the United States and foreign countries. These laws
provide civil and criminal sanctions for unauthorized duplication, exhibition or
commercial exploitation of the property. All of MSH 's properties have secured
and maintain protection to the rights to all of its properties under the laws of
applicable jurisdictions including the United States Copyright Act of 1976.
MARKETING STRATEGY
MSH's primary strategy is to create, develop and produce products for
the television and Internet markets in the United States, Europe and Asia, as
well as home videos, toys and merchandising for those markets, as well as
in-house created entertainment based technology which will enhance the
capability to exploit MSH's internal properties. MSH will retain all or a
substantial portion of the copyright ownership of all its products for the
purpose of building a profitable library for exploration in all media worldwide.
With the growth of interest in various ancillary elements of a
property, MSH plans to incorporate these elements into each created property.
The integration of these ancillary elements into the project are referred to as
"synergistic" packaging. Synergistic packaging encompasses the arcs of video
rights; multiple productions for the establishment of "library" packages for
ultimate syndication sales; television series, live action and animation
television specials for networks, cable networks, syndication and the Internet;
character and product licensing; merchandising and promotional tie-ins and
considerations; corporate identity and sponsorship programs via product
placement; music soundtrack publishing; replay rights; music videos; literary
and educational publishing rights; and, in rare cases, the creation of theme
park rides and attractions based upon the subject and characters of a particular
project.
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TECHNOLOGY
JETHRO ANIMATION CONTROL SYSTEM. The increasing popularity of animated
programming has produced a significant challenge in producing quality shows in a
timely and cost efficient manner. Most domestic production entities today
contract with offshore animation production facilities to gain access to more
affordable animation. This often entails delays and limited creative control,
which equates to increased costs and missed delivery deadlines.
MSH has developed the Jethro Animation Control System ("Jethro"), a
system designed to alleviate the foregoing problems and deliver episodic
television programming of high quality at competitive prices using the INTEL MP
platform. Jethro enables the animation house to meet the broadcasters' delivery
demands by being able to monitor all resources, compare individual animators'
daily delivery against projected delivery quotas and alert the art director when
additional resources are needed to bring the ongoing work flow back on schedule.
Until now no piece of software existed that could run this kind of operation.
Jethro has been created as an episodic television delivery management system for
high-end animation projects. Jethro takes storyboards and breaks them down into
component parts and then assigns code sequences to each visual element. Those
code sequences are what the individual animators enter when they are working on
a scene that contains those characters at elements.
Jethro monitors not just the actual creation of elements but also the
rendering of each element and scene, and compares what is going on the schedule
on a minute to minute basis. The competitive advantage that Jethro gives is that
if additional resources need to be utilized, Jethro lets the art director know
exactly where to use them to ensure on-time delivery.
COMPETITION
The businesses in which MSH engages are highly competitive. Each of
MSH's primary business segments are subject to competition from companies which,
in most instances, have much greater production, distribution and capital
resources than those of MSH.
CONVENTIONAL PROGRAMMING. MSH competes with a wide variety of companies
that provide programming to television and other media, including major studios
such as Warner Bros. and The Walt Disney Company, broadcast and cable networks
that produce original programming such as Fox Family Worldwide, Inc. and
Nickelodeon, and animation production companies such as Hanna Barbera, Saban
Entertainment, Inc. and Klasky Cuspo.
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PERSONNEL. MSH competes on the basis of relationships and pricing for
access to a limited supply of creative personnel to produce its programs. MSH
competes with virtually all producers of entertainment content for such
resources, with particular competition from specialized animation companies such
as Hanna Barbera, Film Roman and Klasky Cuspo, for the services of writers,
producers, animators, actors and other creative personnel.
INTERNET. As KidsAndFamily Network, Inc. establishes its websites and
internet business, it will compete with companies with substantially greater
internet presence, financial, technical, marketing and other services, including
Yahoo, America Online, and other "portals", as well as websites designed for
children and families, such as those maintained by Disney and Fox.
More generally, MSH competes with various other leisure-time
activities such as home videos, movie theaters, personal computers and other
alternative sources of entertainment and information.
GOVERNMENT REGULATION
MSH's customers and potential customers who utilize domestic broadcast
television as a distribution source are subject to the provisions of the
Children's Television Act of 1990 and the rules issued by the FCC. These rules
require television broadcast station licensees to address the educational and
informational needs of children through programming specifically designed to
serve such needs, as well as through their overall programming. The FCC has
strongly encouraged broadcasters (through the license renewal process) to air at
least three hours per week of regularly-scheduled programs that have as a
significant purpose serving the educational and informational needs of children
aged 16 and under. Such programming must be specifically identified as
educational or informational programming. While MSH is not subject to the direct
jurisdiction of the FCC, these FCC requirements may influence the content of its
programming in order for it to place programs on FCC-licensed stations. In
addition, MSH may be subject to local content and quota requirements in the
international markets, which effectively prohibit or limit access to particular
markets.
The Children's Online Privacy Protection Act ("COPPA") prohibits web
sites from collecting personally identifiable information from children under
age 13 without prior parental consent. The Federal Trade Commission is expected
to adopt final rules implementing COPPA by late 1999. Websites provided by
KidsAndFamily Network may be subject to COPPA requirements. Congress may also
consider online privacy legislation that would apply to personal information
collected from teenagers and adults.
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EMPLOYEES
As of October 31, 1999, MSH had ten full time employees. MSH's
employees have never been covered by a collective bargaining agreement. MSH has
never experienced any work stoppages, slowdowns, or other serious labor problems
and considers its relations with its employees to be excellent.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL. MSH has formulated its business plans and strategies based on
certain assumptions of its management regarding the size of the market for the
products and services which MSH will be able to offer, MSH's anticipated share
of the market, and the estimated acceptance of MSH's products and programming.
MSH continues to believe its business plans and the assumptions upon which they
are based are valid. Although these plans and assumptions are based on the best
estimates of management, there can be no assurance that these assessments will
prove to be correct. No independent marketing studies have been conducted on
behalf of or otherwise obtained by MSH, nor are any such studies planned. Any
future success that MSH might enjoy will depend upon many factors, including
factors which may be beyond the control of MSH or which cannot be predicted at
this time. These factors may include technological changes, changing consumer
tastes, obsolescence, increased levels of competition, including the entry of
additional competitors and increased success by existing competitors, changes in
general economic conditions, increases in operating costs including cost of
supplies, personnel and equipment, reduced margins caused by competitive
pressures and other factors, and changes in governmental regulation imposed
under federal, state or local laws.
MSH's operating results may vary significantly due to a variety of
factors including changing customers profiles, the availability and cost of
programming and talent, the introduction of new programming and products by
competitors, the timing of MSH's advertising and promotional campaigns, pricing
pressures, general economic and industry conditions that affect customer demand,
and other factors.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.
Net sales for the year ended December 31, 1998 were $151,696, representing a
decrease of $21,553 compared with net sales for the year ended December 31,
1997. This decrease was due primarily to deteriorating revenues from East End
Productions, which MSH had acquired during the 1996 fiscal year Production costs
increased by $350,203, principally as a result of costs associated with the
production of the "Van-Pires" series during 1998. Net loss improved from
$(3,649,706) in 1997 to a net loss of $(3,209,954) in 1998, due primarily to a
non-recurring loss in the 1997 year relating to an acquired business.
TEN MONTHS ENDED OCTOBER 31, 1999 COMPARED TO TEN MONTHS ENDED OCTOBER
31, 1998. Net sales for the 1999 period were zero, represents a decrease of
$96,924 from the 1998 period. The decrease is principally due to the receipt of
revenues from the "Van-Pires" series in 1998, which revenues were not present in
1999. Product costs decreased by $786,818, also due to the "Van-Pires" series.
General and administrative expenses increased by $772,533, due to MSH's efforts
in establishing creative alliances, its negotiations concerning the acquisition
of interests in Abrams/Gentile Entertainment, Inc., Aston Entertainment Group,
Inc. and Freedom Multimedia, Inc., and the costs associated with the
establishment of KidsAndFamily Network, Inc.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1999, MSH had cash and cash equivalents of $31, 970 .
The principal source of liquidity has been sales of securities. Management
anticipates that additional capital will be required to finance MSH's
operations. MSH believes that expected cash flow plus the anticipated proceeds
from sales of securities will be sufficient to finance MSH's operations at
currently anticipated levels for a period of at least twelve months. However,
there can be no assurance that MSH will not encounter unforeseen difficulties
that may deplete its capital resources more rapidly than anticipated.
ITEM 3. DESCRIPTION OF PROPERTY.
MSH's headquarters are located in midtown Manhattan at 244 West 54th
Street, 12th Floor, New York, New York 10019. The space consists of
approximately 6,000 square feet, and is leased until September 30, 2006, at a
current rate of $10,000 per month, with annual increases and a contribution to
common area expenses. Approximately 50% of the space is subleased to
complementary entertainment companies, and the rent under these subleases
exceeds the rent payable by MSH.
MSH's Internet subsidiary, KidsAndFamily, Inc. is located in the San
Francisco Bay area at 85 Liberty Ship Way, Suite 105, Sausalito, California
94965, pursuant to a month-to-month sublease calling for monthly rent of $750.
As a result of its strategic alliance with Film Roman, MSH's Los
Angeles offices are located in the Film Roman building at 12020 Chandler
Boulevard, Suite 300, North Hollywood, California 91607. MSH and Film Roman have
a cooperative rental agreement whereby MSH and Film Roman each provide office
space to the other at no cost.
MSH's New York headquarters, along with maintaining a presence in Los
Angeles, and its Internet company in northern California, will provide adequate
space for offices and production facilities through this calendar year with
suitable additional space available to accommodate MSH's planned expansion in
year 2000 and beyond.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of October 31,
1999 with respect to the beneficial ownership of MSH's Common Stock, which
constitutes MSH's only outstanding class of voting securities, by (i) each
person who, to the knowledge of MSH, beneficially owned more than 5% of the
Common Stock, (ii) each director of MSH, (iii) the Named Executive Officers (as
defined in Item 6 below) and (iv) all executive officers and directors of MSH as
a group:
13
<PAGE>
AMOUNT OF PERCENT
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OF CLASS(2)
- --------------------------- -------------------------------------
Robert P. Maerz 10,100,000(1) 8.5%
244 West 54th Street
12th Floor, New York, NY 10019
Jonathan Stathakis 8,200,000(2) 6.9%
244 West 54th Street
12th Floor, New York, NY 10019
Andrew Steiner 5,000,000(3) 4.2%
244 West 54th Street
12th Floor, New York, NY 10019
Michael L. Welsh 1,440,000 1.2%
244 West 54th Street
12th Floor, New York, NY 10019
Bruce Ungerleider 16,728,541(4) 14.1%
511 66th Street North
St. Petersburg, FL 33710
John Gentile 4,485,715 3.8%
244 West 54th Street
9th Floor, New York, NY 10019
14
<PAGE>
Anthony Gentile 4,485,715 3.8%
244 West 54th Street
9th Floor, New York, NY 10019
David Pritchard 1,068,000 *
244 West 54th Street
9th Floor, New York, NY 10019
Al Morgan 200,000 *
244 West 54th Street
12th Floor, New York, NY 10019
Dennis Olle 200,000 *
Suite 1600, 2601 South Bayshore Drive
Miami, Florida 33133
Chuck Walker 1,137,500 *
808 Gladstell, # 613
Conroe, Texas 77304
Sam Cable 1,282,450 1.1%
808 Gladstell, # 613
Conroe, Texas 77304
All directors and executive officers 37,599,380 31.7%
as a group
- ------------------------------
(1) Includes 1,100,000 shares issuable upon exercise of currently exercisable
options.
(2) Includes 1,000,000 shares issuable upon exercise of currently exercisable
options.
(3) Includes 500,000 shares issuable upon exercise of currently exercisable
options.
(4) Consists of approximately 1,968,541 Shares of Common Stock and currently
exercisable warrants to acquire approximately 14,760,000 Shares, not all of
which have been issued.
* Less than 1%
15
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
- ----------------------------------------------------------------------
The following is a list of MSH's directors and executive officers,
their ages, and their positions and offices with MSH, and with its subsidiary,
KidsAndFamily Network, Inc.:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Robert P. Maerz 49 Chief Executive Officer, Chairman of the Board and
Co-Chairman of KidsAndFamily Network, Inc.
Jonathan G. Stathakis 53 President, Chief Operating Officer and a Director
Michael L. Welsh 49 Chief Financial Officer, Secretary/Treasurer and a Director
Andrew Steiner 36 President of KidsAndFamily Network, Inc.
John Gentile 40 Creative Director and a Director
Anthony Gentile 40 Creative Director and a Director
Ronald Tanet 59 Vice President Business Affairs
Fred E. Aurelio 75 Vice President-Controller
Robert Heyman 46 Director of KidsAndFamily Network, Inc.
David Pritchard 52 Co-Chairman of KidsAndFamily Network, Inc. and a
Director
16
<PAGE>
Al Morgan 78 Director
Dennis Olle 45 Director
Chuck Walker 43 Director
Sam Cable 56 Director
</TABLE>
Mr. Maerz has been the Chairman of the Board and the CEO of MSH since
August 1994, and has been involved with the film and television industry since
1990. Between1985 and 1988 Mr. Maerz was a registered representative for Harris
Financial Company; and Legg, Mason, Wood, Walker, Inc., both New York Stock
Exchange member firms He started his own investment company in 1988 and has been
instrumental in organizing and seeking financing for small companies. >From 1980
to 1984, Mr. Maerz was a principal in Talent Management Inc, a corporation that
represented musicians and athletes in contract negotiations with sports
franchises and record companies. Mr. Maerz served as the Executive Producer of
three motion pictures and was the Executive Producer of "Van-Pires," a 3D
computer graphic/live-action Saturday morning children's television series,
which appeared on UPN, WB and Fox Networks. Mr. Maerz received a certificate of
merit from the U.S. International Film and Video Festival for "Van-Pires." He is
a graduate of the University of North Florida and has a law degree from Woodrow
Wilson College of Law (Atlanta, Georgia).
Jonathan Stathakis has been President of MSH since 1996. With over 21
years in the entertainment industry, Mr. Stathakis began has career in the
television and film industries as a writer by writing episodes, story treatments
and scripts for numerous television specials, series and low budget feature
films. He has produced scores of television movies, TV specials and television
series. In Boston, Mr. Stathakis was nominated for an EMMY Award for his work as
the producer and co-writer of the series "Park Street Under" which served as the
basis for the series "Cheers", for WCVB-TV (ABC affiliate). He went on to
create, produce and write a number of TV series, specials and films, receiving 5
ACE Award nominations, winning 2 ACE Awards, plus winning a VIRA Award for Best
Children's Home Video of the Year, receiving 2 Honorable Mention at the Chicago
Children's Film Festival and a Certificate for Creative Excellence from the U.S.
International Film and Video Festival. Prior to joining MSH, Mr. Stathakis was
Vice-President of Acquisitions and Sales for Inter-American Productions, Inc.;
Executive Vice-President In Charge Of Production for Inter-Communications, Ltd.,
Executive Vice-President In Charge Of Operations and Production for Television
Theatre Company (TTC), Director of Movie Development for the CBN Producers
Group; Director of West Coast Operations for NorthStar Entertainment Group, the
in-house production arm and wholly owned subsidiary of The Family Channel;
President of Greenwich Films, Inc.; and Head of Acquisitions and Creative
17
<PAGE>
Director of Featureline Films (Vancouver). Mr. Stathakis was also a professional
photographer, shooting high profile concerts like Woodstock and worked for major
recording artists including Jimi Hendrix and The Grateful Dead. Mr. Stathakis'
credits as a producer include five made-for-pay-cable children's television
movies for MCA/Universal; 13 MTV concert specials; "Exit", a feature film for
IRS Media and Republic Pictures; "Yahoo BugaBoos," a pilot for a children's
series which was optioned by Sony's Columbia/TriStar Television; the children's
series "Jelly Bean Jungle" which aired Saturday morning on ABC and Fox network
stations; the animated series "Van-Pires," a syndicated series that aired on
Fox, UPN and WB Network ; plus a prime time drama series, "Vallas & Son," which
he created and wrote, optioned by Columbia Pictures Television. Mr. Stathakis is
a member of the National Academy of Television Arts & Sciences; the Association
of Independent Video & Filmmakers; the National Academy of Cable Programmers;
the Independent Feature Projects/West (IFP/West); the National Academy of
Program Television Executives; the Writers Guild of America, and the Producers
Guild of America.
Mr. Welsh is a Certified Public Accountant who served MSH as a
consultant prior to his being appointed its Chief Financial Officer,
Secretary/Treasurer and a director in 1999. Mr. Welsh is a graduate of LaSalle
University in Philadelphia, where he earned both his undergraduate (B.S.) and
graduate (M.B.A.) degrees. During his career as a Certified Public Accountant,
he has served as the chief financial officer and a member of the board of
directors for several corporations. Mr. Welsh has also been an assistant
professor and an instructor on the college level, teaching Advanced Accounting,
Auditing, Intermediate Accounting and Federal Individual and Corporate Taxation.
Mr. Welsh is on the Executive Committee of the World Boxing Association ("WBA"),
located in Turmero, Venezuela, and serves as its Corporate Auditor and
Vice-Chairman of Finance & Administration. He is a member of the American
Institute of Certified Public Accountants ("AICPA"); the Association of
Certified Fraud Examiners; Pennsylvania Area Chapter Association of Certified
Fraud Examiners; Division of CPA Firms-Private Companies Practice Section; Tax
Division of the AICPA, Management Advisory Services Division of the AICPA; and
the Federal Key Person Program of AICPA.
Mr. Steiner has been Co-President of KidsAndFamily Network, Inc. since
1999. Between 1997 and 1999 he was Executive Vice President of MSH. Prior to
that time he served as the Executive Vice-President of the entertainment
division at General Media International, where he was in charge of all
distribution and marketing for feature films, television programming,
sell-through home video and interactive gaming. Prior to joining General Media,
Mr. Steiner served as the vice-president of International Sales and Marketing at
Intercontinental Releasing Corporation, an independent motion picture
distribution company, where he was responsible for supervising the day-to-day
sales and distribution in the international marketplace.
John Gentile and Anthony Gentile have been Creative Directors and
members of the Board of Directors of MSH since 1999. They are founders and
principals of Abrams/Gentile Entertainment ("AGE"). At AGE they created and
18
<PAGE>
developed such innovative technological consumer base products as the Power
Glove, a virtual reality product for the home; The Flex Sensor, a patented low
cost "soft switch" with over 2000 degrees of angular displacement; and their
newest technological advance, BLINK (Beeper Linked Integrated Network), a new
communication system developed in conjunction with a leading pager manufacturer
and satellite carrier for the toy and entertainment industry. Together, they
have created, directed and produced over 175 half-hours of children's
programming, including the award-winning animated children's series "Happy Ness,
Secret Of The Loch," for the Family Channel; the animated series, "Sky-Dancers,"
based on the popular toy developed by them; the 3D computer animated/live-action
series "Van-Pires;" and the forthcoming "Micronauts" TV series. They also
developed and produced the prime time television sitcom, "DiResta" for UPN,
based on their off-Broadway hit play, "BEAT, A Subway Cop's Comedy." As writers
for television, they have scripted over a hundred episodes for several of their
animated series. As directors, their work includes over 75 half hours of
animation and live-action episodes and over 30 national commercials for a range
of toy products and companies such as Mattel, Hasbro, Galoob, Toymax and Just
Toys. Motion picture screenwriting credits include "G.I. JOE - The Movie," an
adaptation of Mark Helprin's Pulitzer Prize winning novel; "Winter's Tale" for
Warner Brothers; "Titan Rising" for Dino DeLaurentis; "Blowdown" for Blue
Mountain Productions; "Fatal Mission," released by Media Home Entertainment; and
the pilot for "Mighty Merlin" for KMG Entertainment. As authors, their novels
include The Judas Seed, published by Dell Books; the fantasy thriller, The Dead
Season; and their children's book, Family Tree. In the motion picture industry,
they have participated in motion picture design for such films as "Star Wars,"
"Saturday Night Fever," "Grease," "Carrie," "The Bad News Bears," "Escape From
Alcatraz," "Psycho II," "Moscow On The Hudson," "Rambo-First Blood," "Babes In
Toyland," "Hoosiers," "Peggy Sue Got Married," "Robo Cop," "Mississippi
Burning," "Colors," "No Way Out" and "New York, New York" among others. In
addition, they have produced motion picture trailers and promotional teasers for
such films as "Star Wars: The Empire Strikes Back,""And Justice For All,"
"Private Benjamin," " Barbarosa," "Silver Streak" and "The Border." Television
design credits include such productions as "Battlestar Galactica" for ABC; the
EMMY Award winning NBC mini series "Holocaust," "Shogun" and "Marco Polo;" and
the epic mini-series "ROOTS: The Next Generation."
Mr. Tanet is an attorney who has actively practiced law since 1967.
Since 1974 he has represented media companies throughout the United States, and
has been involved in handling labor problems for the Teamsters, Screen Actors
Guild (SAG) and AFTRA, as well as and procurement and negotiations for a number
of independent television companies. Mr. Tanet has also been an executive with
various real estate development firms, including Ladd Corporation and Dallas
Development Corporation, and was Chief Legal Counsel for Central American
Exploration Corporation. Mr. Tanet served as Executive Producer for "Fire On The
Bayou: The Neville Brothers" for A&M ; for a series of children's television
movies for MCA/Universal including "The Marvelous Land of Oz" (VERA Award for
Best Children's Home Video); "Puss N' Boots" (ACE Award winner); "The Red Shoes"
(ACE Award winner); "The Wind in The Willows" (ACE Award nomination). He was
also the Executive Producer of "Scrambled Feet" for Showtime; "Chicago Blues"
for RKO/Nederlander, "Alice In Wonderland" for MCA/Universal; and "O.Henry" for
19
<PAGE>
Pan American Films. Mr. Tanet developed and was Executive Producer for the
miniseries "Double-Crossed" for HBO, which won an ACE Award for Best Mini-Series
and was also nominated for an EMMY Award. He was also the Co-Executive Producer
of "Murder Among Friends", a movie-of-the-week for NBC, for which he was
nominated for an EMMY award. Mr. Tanet received a Bachelor of Science degree
from Louisiana State University in 1963, and a Doctor of Jurisprudence from
Loyola Law School in 1967.
Mr. Aurelio has served as Vice President and Controller of MSH since
1996. Prior to that time he was General Manager of East End Communications,
which was acquired by MSH in 1996. He is also the founding partner of Sierra
Resource Group, a San Francisco-based consulting firm.
Mr. Aurelio was Vice President of Corporate Development for Pan
American World Airways in New York City; President of Simi Winery in Sonoma
County, California; and Senior Vice-President and Chief Financial Officer of
Sky Chefs, Inc. (a subsidiary of American Airlines, Inc.).He attended Villanova
University and is a graduate of Ohio State University with a degree in
Accounting.
Mr. Heyman has been a director of KidsAndFamily Network, Inc. since its
organization in 1999, and served as its first President. Mr. Heyman was the
founder of Cybernetics, a leading internet design and marketing firm that merged
with U. S. Web, one of the world's largest internet web site builders. Mr.
Heyman is co-author of the best selling web-marketing book "Net Results - Web
Marketing That Works," published in 1998 by MacMillan & Co. As a partner in U.
S. Web, Mr. Heyman was instrumental in the creation of the fields of online
audience development, media buying and planning. Among the firm's clients were
AOL, Avon, Time-Warner, Paramount, Bristol-Myers, Universal Studios, U.S. West
and Macromedia. Prior to his involvement in the Internet, Mr. Heyman practiced
entertainment law, representing such performers as Maria Muldaur, Ray Manzarek
of The Doors, John Stewart, the New Riders Of The Purple Sage, The Jefferson
Airplane and Jefferson Starship. Mr. Heyman is also the co-author, along with
Marty Balin, lead singer of the Jefferson Starship, of the rock opera "Rock
Justice." Mr. Heyman is a Cum Laude graduate of Boston University. He received
his law degree from the University of California's Hastings College of Law, and
he earned his Masters in Education from Harvard University.
Mr. Pritchard has been a Director of MSH and Co-Chairman of its
subsidiary, KidsAndFamily Network, Inc. since 1999. Between 1997 and 1999 he was
President and Chief Executive Officer of Film Roman, Inc., one of the leading
independent animation studios in North America. In 1996, Mr. Pritchard founded
Little Fish Inc., where he developed and produced programming for Columbia
TriStar, TNT and HBO until joining Film Roman. In 1990, Mr. Pritchard founded
Popular Arts Entertainment which produced and developed numerous projects for
A&E, HBO, Comedy Central, as well as providing entertainment news coverage for
many different network shows. Prior to Mr. Pritchard's founding of Popular Arts,
he served as a Vice President of Corporate Affairs at HBO in New York.
20
<PAGE>
Mr. Morgan has been a director of MSH since 1995. He is a Professor of
Finance at South Connecticut State University. At one time Mr. Morgan was also a
consultant and a teacher at Hofstra University, School of Business before
becoming President of Peachtree Ventures, Inc. Mr. Morgan has been a Corporate
and Securities Analyst/Portfolio Manager for Lehman Brothers and Lehman
Corporation; Director of Development for Fairbanks Whitney Corp., now known as
Colt Industries; Manager of Research and New Business for Hill, Darling, Grimm
(NYSE); and a Partner and Manager of Research for Federman, Stonehill (NYSE).
Mr. Morgan has also served as a director of the following publicly traded
companies: In-Flight Movies, Inc., Magic Marker Pens, Inc., Resource America
Oil, and he was a director and principal shareholder of Transmedia Network, Inc.
Mr. Walker has been a director of MSH since 1994. He also served as
creative director of several of MSH's early feature films. Mr. Walker is a
professional dancer and choreographer, who has appeared in or directed numerous
stage and television dance productions, and has appeared as an actor in several
feature films.
Mr. Cable has been a director of MSH since 1994. He also served as
executive producer for several of MSH's early feature films. Mr. Cable has been
involved in the motion picture production and distribution business since
1990. Prior to that time he produced live boxing events and television
coverage of boxing.
ITEM 6. EXECUTIVE COMPENSATION.
- -------------------------------
The following table sets forth certain compensation paid by MSH and its
subsidiary, KidsAndFamily Network, Inc., during the years ended December 31,
1998, 1997 and 1996 to its Chief Executive Officer and each of the other most
highly compensated executive officers whose compensation exceeded $100,000 (the
"Named Executive Officers").
21
<PAGE>
<TABLE>
<CAPTION>
SHARES SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING LTIP OTHER
NAME YEAR SALARY BONUS COMPENSATION STOCK % OPTIONS PAYOUTS COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert P. Maerz 1996 76,000 54,000 250 50,000 none none
Chief Executive Officer
1997 85,000 21,250 30,000 250,000 30.49% 198,000 none none
1998 125,000 31,250 30,000 -0- none none
Jonathan G. Stathakis 1996 36,000 27,824 35,000 50,000 none none
President/Chief Operating
Officer 1997 85,000 56,250 30,000 50,000 6.10% 142,000 none none
1998 125,000 31,250 30,000 -0- none none
</TABLE>
Mr. Maerz is employed pursuant to an Employment Agreement expiring on
December 31, 2001. The Employment Agreement provides for annual compensation at
the rate of $175,000, plus $50,000 in living expenses.
Mr. Stathakis is employed pursuant to an Employment Agreement expiring
on December 31, 2001. The Agreement provides for annual compensation at the rate
of $175,000 plus $60,000 in living expenses.
Michael L. Welsh is employed pursuant to an Employment Agreement
expiring on January 1, 2002. The Agreement provides for annual compensation at
the rate of $175,000.
Andrew Steiner is employed pursuant to an Employment Agreement with
KidsAndFamily Network, Inc. expiring on December 16, 2002, with an option to
extend for two years. The Agreement provides for annual compensation at the rate
of $150,000.
22
<PAGE>
Fred Aurelio is employed pursuant to an Employment Agreement expiring
on December 31, 2001. The Agreement provides for annual compensation at the rate
of $125,000.
Mr. Pritchard is employed by KidsAndFamily Network, Inc., pursuant to
an Employment Agreement expiring on December 16, 2001. The Employment Agreement
provides for a base salary of $350,000 per year.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
During the fiscal year ended December 31, 1997, MSH paid Penn & Cobb
Productions, an affiliate of Jonathan Stathakis, $12,500 for script development
services.
During the fiscal year ended December 31, 1997, Robert P. Maerz
transferred 180,000 shares of Common Stock in satisfaction of certain
obligations of MSH
During the fiscal year ended December 31, 1998, MSH issued 250,000
shares of Common Stock to Penn & Cobb Productions for Consulting Services.
During the fiscal year ended December 31, 1998 Mr. Maerz, Jonathan
Stathakis, Chief Executive Officer of MSH, Andrew Steiner, a Vice President of
MSH, and Chuck Walker and Sam Cable, directors of MSH, transferred a n aggregate
of 1,909, 200 shares of Common Stock in satisfaction of approximately $500,000
in debt owed by MSH to third parties. In exchange for this transfer, MSH issued
3,892,000 shares of restricted stock to these individuals.
During the fiscal year ended December 31, 1998, Mr. Maerz, Mr. Walker,
Mr. Cable, and Al Morgan, a director of MSH, transferred 660,000 shares of
Common Stock to Marty Abrams in satisfaction of a portion of MSH's obligations
in connection with the pending purchase of shares of Abrams/Gentile
Entertainment, Inc. In exchange for this transfer of shares, MSH issued
1,350,000 shares of restricted stock to these individuals.
During the fiscal year ended December 31, 1998, MSH issued 250,000
shares of Common Stock to Barbara Lawrence, wife of Mr. Stathakis, for
consulting services.
During the period of ten months ended October 31, 1999, MSH issued
stock bonuses to the following officers and directors:
Name Position No. of Shares
---- -------- -------------
Robert P. Maerz Chief Executive Officer 3,700,000
Jonathan Stathakis President and Chief Operating 3,810,000
Officer
Andrew Steiner President, KidsandFamily Network, 1,627,500
Inc.
Fred E. Aurelio Vice-President/Controller 1,650,000
Michael Welsh Chief Financial Officer, 457,500
Secretary/Treasurer
ITEM 8. DESCRIPTION OF SECURITIES.
- -----------------------------------
MSH has only one class of stock outstanding, designated as "Common
Stock."
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the shareholders, including
the election of directors. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor. Upon a liquidation, dissolution or
winding-up of MSH, the holders of Common Stock will be entitled to share ratably
in the net assets of MSH legally available for distribution to stockholders
after the payment of all debts and other liabilities of MSH, subject to the
prior rights or other subscription rights and there are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and nonassessable.
23
<PAGE>
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
- -------------------------------------------------------------------------------
SHAREHOLDER MATTERS.
- -------------------
As of February 7, 2000, there were approximately 635 holders of MSH's
Common Stock. Until February 9, 2000 MSH's Common Stock was traded on the OTC
Bulletin Board under the symbol "MSHE". It is currently traded in the "pink
sheets". The following table sets forth the high and low bid prices for the
Common Stock as reported by the National Quotation Bureau. Bid quotations
represent high and low prices quoted between dealers, do not include
commissions, mark-ups, or mark-downs, and may not represent actual
transactions.
BID QUOTATIONS
--------------
HIGH LOW
---- ---
1997
First Quarter $ 2.38 $ .63
Second Quarter .63 .25
Third Quarter 2.59 .23
Fourth Quarter 1.78 .38
1998
First Quarter 1.06 .38
Second Quarter .91 .29
Third Quarter .79 .33
Fourth Quarter .83 .30
1999
First Quarter .69 .32
Second Quarter 1.30 .31
Third Quarter .51 .26
Fourth Quarter .44 .19
MSH has never declared or paid a cash dividend on its Common Stock and
does not expect to pay any cash dividends in the foreseeable future.
24
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
- --------------------------
MSH is a defendant in an action filed by Robert Pozner in the U.S.
District Court for the Southern District of New York. The action alleges breach
of contract, money had and received, and a claim for attorneys fees. The action
seeks to recover $200,000 and the value of 500,000 shares of MSH Common Stock as
of July 1997. The action is in a very preliminary stage, and MSH has not yet
filed a responsive pleading.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
- ------------------------------------------------------
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
- ------------------------------------------------
In February 1997, the Company issued (i) 8,000 shares to four employees
for services rendered, (ii) 502,000 shares to fifteen independent contractors
for services rendered, including animation services, web design services, public
relations services, and professional and consulting services, and (iii) 435,000
shares to twelve persons for cash.
In March 1997 the Company issued 220,538 shares to broker-dealers for
cash, and 6,000 shares to an individual for cash.
In April 1997 the Company issued 60,000 shares to two individuals for
cash, and 200,000 shares to a broker-dealer for cash.
In May 1997 the Company issued (i) 604,000 shares to approximately
twenty individuals for cash, and 800,000 shares to broker-dealers for cash.
In June 1997 the Company issued 100,000 shares to a broker-dealer for
cash.
In July 1997 the Company issued (i) 923,300 shares to fifteen
individuals for cash, (ii) 207,667 shares to independent contractors for various
services rendered, principally financial advisory services, and (iii) 448,000
shares to a broker-dealer for cash.
In August 1997 the Company issued (i)10,000 shares to two employees for
services rendered, (ii) 8,000 shares to an individual for cash, (iii) 48,000
shares to a broker-dealer for cash, (iv) 210,000 shares to two officers or
related persons for services, (v) 768,000 shares to thirteen independent
contractors for services rendered, including public relations services and other
consulting services,and (vi) 1,470,072 shares to ten lenders in satisfaction of
outstanding loans.
In September 1997 the Company issued (i) 1,500 shares to a related
person for services, (ii) 50,000 shares to a single lender in satisfaction of a
loan, (iii) 3,500 shares to three employees for services rendered, (v) 80,600
shares to twenty-five independent contractors for animation services, and (vi)
500,000 shares to an individual for cash.
In December 1997 the Company issued (i) 5,000 shares to one employee
for services rendered, (ii)18,233 shares to four individuals for cash, (iii)
901,333 shares to seventeen persons for services, including animation services,
web design services, public relations services, and professional and consulting
services, (iv)10,000 shares to a single lender in satisfaction of debt,
During the calendar year 1998, the Company issued 5,792,000 shares to
nine officers and directors, as stock bonuses, in cancellation of debt and in
lieu of salary.
In February 1998 the Company issued 250,000 shares to an individual for
cash, and 1,353,000 shares to fifty-one individuals, including officers, in
satisfaction of outstanding debt. Also, the Company issued 380,000 shares to
nine persons for services rendered.
25
<PAGE>
In April 1998, the Company issued (i) 260,000 shares to four
individuals for cash, (ii) 1, 304,000 shares to seventeen individuals in
cancellation of debt owed by the Company, and (iii) 510,000 shares to officers
to compensate them for shares transferred to others in satisfaction of
obligations of the Company. Also, the Company issued 200,000 shares to an
officer as a stock bonus, 300,000 shares to two persons related to officers for
services, and 230,600 shares to eight persons for services.
In May 1998 the Company issued 2,932,000 shares to seventy-two
individuals, including officers, in satisfaction of outstanding debt, and 55,000
shares to one individual for services.
In June 1998 the Company issued 557,000 shares to nineteen individuals
in satisfaction of outstanding debt.
In July 1998 the Company issued (i) 557,000 shares to nineteen
individuals in satisfaction of outstanding debt, (ii) 310,000 shares to four
individuals for cash, (iii) 25,000 shares to a related party for services, and
(iii) 150,000 shares for legal services.
In August 1998 the Company issued (i) 1,128,000 shares to twenty-three
individuals in satisfaction of outstanding debt, (ii) 375,000 shares to a
broker-dealer for cash, (iii) 65,000 shares to two individuals for cash, and
195,000 shares to five individuals for services.
In September 1998 the Company issued (i) 660,000 shares to officers to
compensate them for shares transferred by them in connection with an acquisition
by the Company, (ii) 2,389,000 shares to eight individuals (including officers
of the Company) in satisfaction of outstanding debt, and (iii) 775,000 shares to
two individuals for professional services.
In October 1998 the Company issued 1,350,000 shares to a broker-dealer
for cash, 282,000 shares to seven individuals in satisfaction of outstanding
debt, and 200,000 shares to an individual for services rendered..
In November 1998 the Company issued (i) 3,019,154 shares to forty
individuals in satisfaction of debt, (ii) 330,985 shares to individuals for
cash, (iii) 200,000 shares to a broker-dealer for cash, and (iv) 153,200 shares
to two individuals for services.
In December 1998 the Company issued 1,408,000 shares to fifteen
individuals, including officers, in satisfaction of outstanding debt, and
200,000 shares to three individuals for services.
During 1998 the Company issued 198,467 shares to seven individuals in
payment of interest due on outstanding debt.
MSH relied on the exemptions provided by Regulation D and Section 4(2)
under the Securities Act of 1933 for all of the foregoing offerings
During 1999 the Company issued 11,770,700 shares to officers and
directors as stock bonuses and in repayment of loans.
In February 1999, the Company issued 40,000 shares to an individual for
cash.
In April 1999 the Company issued 300,000 shares to an individual in
settlement of a claim.
In May 1999 the Company issued (i) 10,799,630 shares to twelve
individuals for services rendered and (ii) 6,943,400 shares to approximately
seventy-eight individuals for cash and cancellation of debt.
In July 1999 the Company issued 993,750 shares to sixteen individuals
for cash.
In August 1999 the Company issued (i) 262,500 shares to two independent
contractors for various services rendered, and (ii) 13,476,674 shares to
approximately 56 individuals for cash.
In December 1999 the Company issued (i) 571,748 shares to one company
in connection with an acquisition and (ii) 17,205,325 shares to forty-four
individuals for cash.
26
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- --------------------------------------------------
MSH's Articles of Incorporation eliminate the personal liability of its
directors for monetary damages to the fullest extent permitted by Utah law. The
Articles of Incorporation also authorize MSH to indemnify its agents (including
officers and directors) to the fullest extent permitted under Utah law. This
indemnification is intended to protect officers and directors from liability
except for (i) liability for acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, (ii) acts or omissions that
a director believes to be contrary to the best interest of MSH or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for the
director's duty to MSH or its shareholders in circumstances in which the
director was aware, or should have been aware, in the ordinary course of
performing a director's duties, or a risk of serious injury to MSH or its
shareholders, (v) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to MSH or its
shareholders, (vi) with respect to certain contracts in which a director has a
material financial interest and (vii) approval of certain improper distributions
to shareholders or certain loans or guarantees. This provision does not limit or
eliminate the rights of MSH or any shareholder to seek non-monetary relief such
as an injunction or rescission in the event of a breach of a director's duty of
care. In addition, MSH's Bylaws require MSH to indemnify its officers and
directors to the full extent permitted by law, including those circumstances in
which indemnification would otherwise be discretionary.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling MSH
pursuant to the Articles of Incorporation or the Bylaws, MSH has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
PART F/S
The Financial Statements listed below are filed as a part of this
Registration Statement on Form 10-SB.
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1998
Notes to Consolidated Financial Statements
Unaudited Consolidated Balance Sheet as of October 31, 1999
Unaudited Consolidated Statements of Operations for the period
of ten months ended October 31, 1999
Unaudited Consolidated Statements of Cash Flows for the
periods of nine months ended October 31, 1999.
Notes to Unaudited Consolidated Financial Statements
27
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
- --------------------------
See Item 2, below.
ITEM 2. DESCRIPTION OF EXHIBITS
- --------------------------------
2.1 Restated Articles of Incorporation of MSH
2.2 Bylaws of MSH
6.1 Employment Agreement dated January 1, 1999 between MSH and
Robert P. Maerz
6.2 Employment Agreement dated January 1, 1999 between MSH and
Jonathan Stathakis
6.3 Employment Agreement dated January 1, 1999 between MSH and
Michael L. Welsh
6.4 Employment Agreement dated January 1, 1999 between MSH and
Fred Aurelio
6.5 Employment Agreement dated June 1, 1999 between KidsAndFamily
Network, Inc. and Andrew Steiner.
6.6 Employment Agreement dated December 17, 1999 between
KidsAndFamily Network, Inc. and David Pritchard
6.7 Letter Agreement dated December 8, 1998 among MSH, Film Roman,
Inc., Jane Seymour, James Keach and JJK Publishing
6.8 Letter of Agreement dated November 19, 1998 between MSH and
etc...group, inc.
6.9 Master License Agreement dated July 1, 1997, between MSH and
Cannon Records
6.10 Van-Pires Master Toy License Agreement, dated September 21,
1998, between Abrams/Gentile Entertainment, Inc., MSH and
DeWilde Groups, Inc.
6.11 Consulting Agreement dated November 17, 1999 between MSH and
King/Fromkin Productions, Inc.
6.12 Agreement dated November 1, 1996 between Abrams/Gentile
Entertainment, Inc. and MSH
6.13 National Distribution and Warehousing Agreement, dated October
1, 1997 between Navarre Corporation and MSH
28
<PAGE>
6.14 Agreement, dated December 15, 1999 between John and Anthony
Gentile, Marty Abrams, Freedom Multimedia, LLC and Lenox
Capital Group, LLC
6.15 Strategic Alliance Agreement dated December 30, 1999 between
MSH and Peter Pan , Inc.
6.16 Stock Purchase Agreement, dated as of August 27, 1998, between
MSH and Martin Abrams
6.17 Letter Agreements, dated September 4, 1998, between MSH and
Martin Abrams
6.18 Letter Agreement, dated September 24, 1998, between MSH and
Martin Abrams
6.19 Letter Agreement, dated October 1, 1998, between MSH and
Martin Abrams
6.20 Letter Agreement, dated January 21, 1999, between MSH and
Martin Abrams
6.21 Letter Agreement, dated January 28, 1999, between MSH and
Martin Abrams
6.22 Letter Agreement, dated February 12, 1999, between MSH and
Martin Abrams
6.23 Letter Agreement, dated October 8, 1999, between MSH and Aston
Entertainment Group, Inc.
6.24 Letter Agreement, dated January 24, 2000 between MSH, Anthony
Asfur and Dale J. Sexton
6.25 Stock Option Agreement, dated January 24, 2000 between MSH,
Anthony Asfur and Dale J. Sexton
29
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the
Registrant has caused this Registration Statement on Form 10-KSB to be signed on
its behalf by the undersigned thereunto duly authorized, this 17th day of
March, 2000.
MSH Entertainment Corporation
By: /s/ Robert P. Maerz
-----------------------------------------
Robert P. Maerz, Chief Executive Officer
30
<PAGE>
MSH ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
NEW YORK, NEW YORK
DECEMBER 31, 1998 AND 1997 AND FOR THE YEARS THEN ENDED
(TOGETHER WITH INDEPENDENT AUDITORS' REPORT)
<PAGE>
CONTENTS
--------
INDEPENDENT AUDITORS' REPORT 2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3 - 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT) 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7 - 8
NOTES TO FINANCIAL STATEMENTS 9 - 26
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors of
MSH Entertainment Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of MSH
Entertainment Corporation and subsidiaries (the "Company") as of December 31,
1998 and 1997 and the related consolidated statements of operations,
stockholders' deficit and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1998 and 1997 and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
BRIMMER, BUREK & KEELAN LLP
/S/ Brimmer, Burek & Keelan LLP
Certified Public Accountants
December 6, 1999
F-2
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
December 31,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash $ 849 $ 6,159
Accounts receivable - 1,744
Investment in Van-Pires 1,944,009 1,600,867
-------------- --------------
Total current assets 1,944,858 1,608,770
Property, plant and equipment - net 259,580 345,255
Other assets:
Film inventory and project costs - 36,500
Prepaid expenses - 400
Investment in AGE 830,500 -
Deposits 8,469 17,516
-------------- --------------
Total other assets 838,969 54,416
-------------- --------------
Total assets $ 3,043,407 $ 2,008,441
============== ==============
</TABLE>
F-3
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
December 31,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 816,888 $ 439,226
Due to stockholders 609,598 543,472
Convertible notes payable 907,750 840,000
Notes payable 721,149 928,500
Accrued expenses 77,120 20,831
Due to related parties - 591,600
-------------- --------------
Total current liabilities 3,132,505 3,363,629
Commitments and contingencies - Note 18
Stockholders' equity (deficit):
Preferred stock - par value $.05 per share
25,000,000 shares authorized, none issued
and outstanding - -
Common stock - $.001 par value, 50,000,000
shares authorized, 41,807,290 in 1998 and
19,003,484 in 1997 shares issued and outstanding 41,810 19,004
Additional paid-in capital 8,348,261 4,091,633
Accumulated deficit (8,434,169) (5,465,825)
-------------- --------------
(44,098) (1,355,188)
Less note receivable for stock issued (45,000) -
-------------- --------------
Total stockholders' equity (deficit) (89,098) (1,355,188)
-------------- --------------
Total liabilities and stockholders' equity $ 3,043,407 $ 2,008,441
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Year Ended
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net sales $ 151,696 $ 173,249
Costs and expenses:
Production costs 883,526 541,373
General and administrative expenses 2,044,859 2,409,679
Depreciation and amortization 93,448 73,639
Loss from acquired business - 708,941
-------------- --------------
Total costs and expenses 3,021,833 3,733,632
-------------- --------------
Loss from operations (2,870,137) (3,560,383)
Other income (expense):
Interest income - 3,185
Interest expense (98,207) (92,508)
-------------- --------------
Net loss $ (2,968,344) $ (3,649,706)
============== ==============
Net loss per share $ (.10) $ (.26)
============== ==============
Weighted average number of shares outstanding 29,839,653 14,010,768
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>
Common Stock Total
----------------- Additional Receivable Stockholders'
Preferred Number of Paid in Accumulated for Stock Equity
Stock Shares Amount Capital Deficit Issued (Deficit)
--------- ------------ ---------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 - 9,892,941 $ 9,893 $ 1,962,951 $ (1,816,119) $ (110,000) $ 46,725
Payment for receivable - - - - - 110,000 110,000
Sale of common stock - 4,372,071 4,373 1,229,730 - - 1,234,103
Common stock issued for services - 3,208,400 3,208 318,682 - - 321,890
Common stock issued for
debt cancellation - 1,530,072 1,530 580,270 - - 581,800
Net loss for 1997 - - - - (3,649,706) - (3,649,706)
--------- ------------ ---------- ------------ ------------- ------------ --------------
Balance at December 31, 1997 - 19,003,484 19,004 4,091,633 (5,465,825) - (1,355,188)
Receivable from sale of 241,667
shares of common stock - - - - (45,000) (45,000)
Sale of common stock - 3,140,985 3,142 431,816 - - 434,958
Common stock issued for services - 2,938,800 2,939 290,941 - - 293,880
Common stock issued for
debt cancellation - 15,355,554 15,357 2,692,793 - 2,708,150
Stock issued to settle payable - 510,000 510 591,090 - - 591,600
Interest paid in stock - 198,467 198 19,648 - - 19,846
Stock issued as deposit for
AGE transaction - 660,000 660 230,340 - - 231,000
Net loss for 1998 - - - - (2,968,344) - (2,968,344)
--------- ------------ ---------- ------------ ------------- ------------ --------------
Balance at December 31, 1998 - 41,807,790 $ 41,810 $ 8,348,261 $ (8,434,169) $ (45,000) $ (89,098)
========= ============ ========== ============ ============= ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Year Ended
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,968,344) $ (3,649,706)
Adjustments to reconcile net loss to net cash
used by operating activities:
Loss from acquired business - 708,941
Gain on sale of equipment (3,760) (797)
Depreciation and amortization 93,448 73,639
Write-off film inventory and project costs 36,500 -
Common stock issued for services 293,880 321,890
Common stock issued for interest 19,846 -
(Increase) decrease in:
Accounts receivable 1,744 (1,744)
Prepaid expenses 400 5,244
Interest receivable - 5,100
Deposits 9,047 11,532
Note receivable - 110,000
Increase (decrease) in:
Accounts payable 371,062 198,270
Accrued interest 77,120 -
Accrued expenses (22,086) (20,578)
Accounts payable to stockholder 371,376 670,823
-------------- --------------
Net cash used in operations (1,719,767) (1,567,386)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash payment for the purchase of property
and equipment and goodwill (4,013) (202,820)
Proceeds from sale of equipment - 8,000
Investment in Van-Pires (343,140) (1,369,413)
Purchase of movie rights - (15,500)
Investment in AGE (599,500) -
-------------- --------------
Net cash used in investing activities (946,653) (1,579,733)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 82,000 223,500
Principal payment on note payable (228,351) (249,999)
Proceeds from issuance of common stock 380.213 1,864,090
Proceeds from issuance of convertible notes payable 2,745,900 1,579,250
Repayment of convertible debt (20,000) (208,000)
Advances from stockholder loans - 207,233
Payments on shareholder loans (298,652) (274,830)
-------------- --------------
Net cash provided by financing activities 2,661,110 3,141,244
-------------- --------------
Net increase (decrease) in cash (5,310) (5,875)
Cash at beginning of year 6,159 12,034
-------------- --------------
Cash at end of year $ 849 $ 6,159
============== ==============
</TABLE>
F-7
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
NON CASH TRANSACTIONS:
Common stock issued for services rendered $ 293,880 $ 321,890
============== ==============
Common stock issued for interest $ 19,846 $ -
============== ==============
Common stock issued for receivable $ 45,000 $ -
============== ==============
Common stock exchanged for convertible notes payable $ 2,647,150 $ 553,500
============== ==============
Receivable canceled for services $ - $ 115,100
============== ==============
Expenses paid by shareholders $ 54,200 $ 51,794
============== ==============
Shareholder salaries accrued $ 419,000 $ 384,375
============== ==============
Common stock issued for AGE investment $ 231,000 $ -
============== ==============
Common stock issued to satisfy payable $ 591,600 $ -
============== ==============
Common stock issued to satisfy note payable $ 61,000 $ -
============== ==============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
MSH Entertainment Corporation (the "Company") is in the business of film and
television production, music and music publishing, software development, and
distribution. Its business operations include creating, developing, producing,
licensing, distribution and merchandising entertainment media products. In
addition to animated and live-action family and children's TV productions, the
Company's products include prime time drama series, music specials, record
albums, music publishing and related services.
The Company is also pursuing opportunities in children's toys and merchandising
in joint venture with Abrams/Gentile Entertainment, Inc. (AGE) as it is related
to Company produced programming. Prior to the acquisition discussed below, the
Company's primary business activity was the creation, development and production
of home video motion picture tapes primarily for sale internationally. The
Company did not benefit from widespread market acceptance of its home video
motion pictures.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements, the Company has incurred net losses of $2,968,344 and
$3,649,706 for the years ended December 31, 1998 and 1997, respectively. At
December 31, 1998 and 1997, the Company has a net working capital deficit of
$1,187,647 and $1,754,859, respectively, and a stockholders' (deficit) of
($89,098) and ($1,355,188), respectively which raises substantial doubt about
the Company's ability to continue as a going concern. Management has developed
plans intended to remedy these conditions. These plans include seeking other
sources of financing, acquisition of an existing operating company, actively
marketing existing projects, reducing operating costs and seeking a joint
venture partner. No assurances can be given as to the success of these plans.
The consolidated financial statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
ACQUISITION
On June 21, 1996 the Company acquired substantially all of the assets of East
End Communications, Inc., East End Productions, Inc. and J.B. Dubbs, Inc.
(collectively referred to as "East End") in a transaction accounted for as a
purchase. The primary business activity of East End was computer animation
programming and production (See Note 2).
F-9
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed in preparing the
accompanying consolidated financial statements is set forth below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MSH Entertainment
Corporation and its wholly owned subsidiary MSH Productions Inc., and Happy Zone
Entertainment Corporation. Happy Zone Entertainment Corporation is a 60% owned
subsidiary which has been inactive since its inception in 1996. MSH Productions,
Inc. is also inactive. All significant intercompany accounts and transactions
have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
HOME VIDEO AND MOTION PICTURE PROJECT COSTS
The Company follows the provisions of Statement of Financial Accounting
Standards No. 53 ("SFAS 53") with respect to motion pictures, television and
video project costs. Costs incurred in connection with motion picture,
television, music and video projects are capitalized. Such costs are charged to
production overhead if the project has been held for a three-year period and has
not been set for production or if it is abandoned. Production overhead is
allocated to the cost of projects currently set for, or in production. Although
certain projects are reported at zero value, they may still be actively marketed
by management after the three-year period. Project costs are stated at the lower
of cost or realizable value. Cost and related amortization of released projects
allocated to primary markets would be classified as current assets. Van-Pires,
an animated TV cartoon show was released to primary markets in the fall of 1997
for thirteen episodes and costs allocated to it are classified as a current
asset. All other capitalized costs are classified as noncurrent assets.
F-10
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
HOME VIDEO AND MOTION PICTURE PROJECT COSTS (CONTINUED)
Under FASB 53, project costs, which include accrued related participations and
residuals, would be amortized based on the ratio of revenue earned for the year
to management's estimate of total gross revenue to be earned. Each picture or
project in production is valued taking into account management's current
estimates of the ultimate revenue to be received from all sources, including
theatrical distribution, cable, pay, network and syndicated television licensing
and video and audio cassette and video and audio disc licensing. Such estimates,
which are based on such factors as the nature and popularity of the subject
matter and the expected rate structure in the various markets during the periods
the revenue from the project is estimated to be earned, are revised periodically
and estimated losses, if any are provided for in full.
REVENUE RECOGNITION
Revenues with respect to television and computer animation programming and
production are recognized when the film is accepted by a licensee and
collectibility of the license fee is reasonably assured.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the balance sheet carrying
amounts of existing assets and liabilities measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
F-11
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
Loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding. At December 31, 1998 and 1997 all common stock
equivalents were antidilutive.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Maintenance and repairs are charged
to expense as incurred. When items of property or equipment are sold or retired,
the related cost and accumulated depreciation is removed from the accounts and
any gain or loss is included in the results of operations.
Depreciation is calculated on a straight-line basis over the estimated useful
lives of the respective assets.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities with a maturity of three months or less to be cash
equivalents.
NOTE 2 - EAST END PURCHASE
On June 21, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of East End in a transaction accounted for as a
purchase. The purchase price was $1,305,903 and consisted of a cash payment of
$215,000 plus expenses and a note payable for $865,000. As a result of the
purchase, $1,150,836 in goodwill was recorded by the Company, which reflects the
adjustments necessary to allocate the purchase price to the fair value of assets
purchased and liabilities assumed. The Company subsequently determined the
goodwill was not recoverable and charged off net goodwill of $1,123,875 as
adjusted for related debt forgiveness during the year ended December 31, 1997 as
loss from acquired businesses.
The Company entered into a three-year employment agreement with the President of
East End. The employment agreement provides for an annual salary of $150,000. In
addition, the former President of East End received 400,000 shares of common
stock valued at $40,000 for services rendered in 1996.
F-12
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - EAST END PURCHASE (CONTINUED)
At December 31, 1996, the Company was in default with respect to the $865,000
note payable to the former President of East End which was payable in full on
December 1, 1996. On January 14, 1998 the Company entered into a settlement
agreement whereby the Company agreed to pay a total of $500,000, representing
accrued wages and interest and the remaining balance due on the $865,000 note
payable. In addition, as part of the settlement the employment agreement with
the former president of East End was terminated effective September 30, 1997.
The $500,000 payments were to be made at various intervals and at December 31,
1998 the balance was $375,000. The Company is currently negotiating to further
reduce the balance to $217,000 in exchange for assuming debts to two individuals
totaling approximately $158,000.
NOTE 3 - SIGNIFICANT PROJECTS
In 1996, the Company purchased the distribution rights to a script entitled
Vallas & Sons for $21,000 which the Company is attempting to market. In 1997, an
additional $15,500 was paid to retain the distribution right. Since the project
has not been released to primary markets, all related costs have been expensed.
In 1996, the Company began a joint venture with Abrams/Gentile Entertainment,
Inc. to co-produce the first thirteen episodes of an animated children's TV
cartoon entitled Van-Pires (See Note 10). The Company's share of costs of
Van-Pires is capitalized as investment in Van-Pires.
Film inventory costs consists of the following:
At December 31,
-----------------------------------
1998 1997
------------- --------------
Story rights $ - $ 36,500
============= ==============
Van-Pires $ 1,944,009 $ 1,484,829
============= ==============
F-13
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - INCOME TAXES
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:
At December 31,
-------------------------------
1998 1997
-------------- --------------
Net operating loss carryforwards $ 1,895,111 $ 1,286,600
Capital loss carryforward 13,171 13,171
-------------- --------------
Total gross deferred tax assets 1,908,282 1,299,771
Less valuation allowance 1,908,282 1,299,771
-------------- --------------
Net deferred tax assets $ - $ -
============== ==============
The net increase in the total valuation allowance for the years ended December
31, 1998 and 1997 was $608,511 and $717,661, respectively.
The Company has available at December 31, 1997, unused net operating loss
carryforwards that may provide future tax benefits and that expire as follows:
Unused Net
Year of Expiration Operating Loss
------------------ --------------
1999 $ 24,107
2008 200,541
2009 71,348
2010 221,516
2011 1,247,332
2012 3,649,706
2013 3,117,368
-------------
$ 8,531,918
=============
The Company had capital loss carryovers at December 31, 1998 of $35,000 which
will expire on December 31, 1999.
F-14
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - CONVERTIBLE NOTES PAYABLE
The Company received $2,745,900 from the sale of the convertible notes during
1998. The notes were convertible into the Company's common stock based upon one
share of stock for each dollar of debt. The debt holders were given various
multiples of that conversion, which ranged from 1-1 to 4-1, based upon the
amount and timing of their investment. Some of the larger debt holders were
given the option to use a lesser multiple than the one granted for the stock and
to also receive their original debt back in cash. The number of shares to be
issued to debt holders still outstanding at December 31, 1998 is 3,683,000. The
convertible notes payable are uncollateralized and are noninterest bearing.
Convertible notes payable consist of the following:
At December 31,
-----------------------------
1998 1997
------------- -------------
$ 907,750 $ 840,000
============= =============
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Non-interest bearing note payable to
individual, no maturity date stated. $ 146,149 $ 178,500
Demand note payable to individual bearing
interest at 9%. 200,000 200,000
Note payable to individual, matures
January 8, 1998. Senior to all existing
debt and collateralized by all of the
Company's assets. - 45,000
Demand note payable to individual
bearing interest at 10%. Collateralized
by certain Intellectual property rights
from the purchase of East End and
related entities and assets. 375,000 505,000
------------ ------------
$ 721,149 $ 928,500
============ ============
</TABLE>
F-15
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - STOCK OPTION PLANS AND WARRANTS
The Company has stock option plans under which certain individuals may be
granted options to purchase shares of Company common stock at the fair market
value at the time of the grant. Options generally vest immediately and expire
ten years from the date of the grant. A summary of information relative to the
Company's stock option plans follows:
Number Option Price
of Shares Per Share
Outstanding at December 31, 1997 3,900,000 .10
Granted - -
Exercised (100,000) .10
Canceled - -
------------ --------
Outstanding at December 31, 1998 3,800,000 .10
============ ========
The Company accounts for stock options in accordance with the provisions of
Statement No. 123, "Accounting for Stock-Based Compensation." As permitted by
the Statement, the Company has chosen to account for stock-based compensation
using the intrinsic value method. Accordingly, no compensation expense has been
recognized for the Company's stock-based compensation plans. Had the fair value
method of accounting been applied to the Company's stock option plans, which
requires recognition of compensation cost ratably over the vesting period of the
underlying equity instruments, net loss would have been unchanged in 1998 and
1997. The stock options granted in 1997 and 1996 under the minimum value method
of accounting had no fair value due to the financial condition of the Company.
The weighted-average remaining contractual life of options outstanding at
December 31, 1998 is 99 months and the weighted-average exercise price is $.25.
In addition, on November 4, 1996 the Company issued Intel Corporation a warrant
to purchase 1,000,000 shares of common stock at the lower of $1.75 or 75% of the
fair market value of common stock on the date of exercise. The warrant expired
on November 4, 1998. Intel Corporation paid the Company a nonrefundable payment
of $150,000 for this warrant. The payment has been reflected as additional
paid-in capital in the accompanying consolidated statements of stockholders'
deficit.
The Company issued AGE a warrant to purchase 1,000,000 shares of common stock at
the lower of $1.75 or 75% of the fair market value of the offering price to
underwriters (net of underwriting discounts) of the common stock pursuant to the
first underwritten public offering by the Company. The warrant expires on
October 8, 2000.
F-16
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - STOCK OPTION PLANS AND WARRANTS (CONTINUED)
UNGERLEIDER WARRANT
In April 1998 the Company borrowed $167,000 from Dr. Bruce Ungerleider which was
converted into 835,000 shares of MSH common stock.
In June 1998, the Company borrowed $500,000 from Dr. Bruce Ungerleider in
exchange for a convertible note and two warrants to purchase stock in the
Company. The note bears interest at the annual rate of 20% and is convertible
into MSH stock at a stock price of $.25 per share for one year from the date of
issue. In addition, the note is secured by 20% of any gross revenue earned by
the Company from its computer animation software generally referred to as
"Jethro". In addition, as an inducement to make the loan, Dr. Ungerleider is to
receive 1,000,000 shares of restricted stock in MSH, and 10% of the stock in
Happy Zone Entertainment (a subsidiary of MSH). Dr. Ungerleider also received an
additional warrant to purchase 1,300,000 shares of common stock exercisable on
the same terms as the Intel warrant which expired in November 1998. Due to the
expiration of the Intel warrant in November 1999, the warrant to Dr. Ungerleider
was reissued for 1,000,000 shares for a period of seven years from the issuance
at the price of $1.75 per share. The agreement provides for payment of the stock
at the time of exercise to be in cash or a combination of cash and cancellation
of any remaining balance of the debt. An alternative to the payment terms is to
exercise the warrant for a reduced amount of shares of common stock for no
payment based upon a formula. The formula takes the fair market value of stock
at the time of exercise less the exercise price divided by the fair market value
of the stock at the time of exercise multiplied times the 1,000,000 share
warrant.
The debt and warrant agreement also includes an antidilutive provision. If the
Company's issued and outstanding shares of common stock exceed 30,000,000
shares, Dr. Ungerleider has the right to receive warrants to purchase additional
shares to maintain his percentage of ownership in the company at a price of 15%
less than the selling price for all shares sold by the Company after the time
the total outstanding shares exceed 30,000,000. The percentage of ownership is
to be determined by adding all shares owned and shares represented by warrants
and convertible shares of Dr. Ungerlieder at the date of exercise divided by the
total outstanding shares as of the date of the loan.. The percentage is
anticipated to range from 10.5 % to 21.87%. The Company's number of common stock
shares issued and outstanding reached the 30,000,000 threshold approximately in
July 1998. At December 31, 1998, the amount of additional shares available under
the antidilutive feature to the agreement is approximately 2,481,512. To date,
no warrant has been issued for the antidilutive shares.
F-17
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - RELATED PARTY
During 1997, several shareholders agreed to exchange free trading shares for
restricted shares. Per the agreement, the free trading shares were valued at
$591,600 which included the market value of the shares, plus the related capital
gains tax. The free trading shares were used to satisfy debt obligations of the
Company. Replacement shares were not issued until 1998, so the value of the
transaction is included as due to related parties in the December 1997 financial
statements.
During 1998, the Company engaged in several similar transactions. A total of
$2,059,000 free trading shares were acquired in exchange transactions and
5,242,000 restricted shares were issued as replacements.
Due to stockholders consist of unsecured noninterest bearing demand promissory
notes.
NOTE 9 - INTEL AGREEMENT
In November, 1996, the Company executed an agreement with Intel Corporation to
cooperate in the development and distribution of a new animation management
technology (JETHRO) that will be used in the management of production of
episodic television shows. The system would update on a daily basis, workloads,
actual versus budget, and track the project. It would combine the software
technology developed by the Company with the microprocessor capability of Intel.
No activity has occurred to date on this joint venture.
NOTE 10 - VAN-PIRES/AGE AGREEMENT
In November, 1996, the Company entered into a strategic product development
agreement with Abrams/Gentile Entertainment, Inc. (AGE). Under the agreement,
the Company acquired the rights to produce a children's TV series entitled
Van-Pires and potential revenue from related toys and merchandising. AGE
received a warrant to purchase 1,000,000 shares of the Company's stock. The
agreement provided for AGE and the Company to initially commit $1,300,000 and
$650,000, respectively for the production of thirteen episodes of Van-Pires.
After AGE recouped its initial investment from the revenues received by AGE from
the broadcast of the series, video licenses and sales the Company will recoup
its costs and then share revenue from the licensing activities related to the
series as follows:
- 5% of net advertising revenue
- 1% of domestic net toy revenue
- 2% of international net toy revenue
- 2% of net merchandising revenue
F-18
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - VAN-PIRES/AGE AGREEMENT (CONTINUED)
The first 13 episodes were aired during 1998 in primary markets in the United
States.
As of December 1999, the Company has not received any revenue as a result of
this agreement, however, AGE has received approximately $2,000,000 which has
been offset against the AGE share of expenditures under the agreement. In
addition, the Company has received an advance of approximately $100,000 in 1999
toward the production of toys using the Van-Pires characters as a theme (See
Note 17).
NOTE 11 - EMPLOYMENT AGREEMENTS
During 1996, the Company entered into employment agreements with three officers
of the Company and the former president of East End. The employment agreements
were revised effective January 1, 1999 and include all four officers of the
Company. The employment agreements also provide for certain incentive
compensation fringe benefits and expense reimbursements.
NOTE 12 - BITSA AGREEMENT
On March 3, 1997, the Company entered into an agreement with BITSA Talent, Inc.
("BITSA") to provide musical compositions and lyrics for thirteen episodes of
the television series entitled "Van-Pires." Significant provisions of this
agreement are as follows:
- Payment of $100,000 to BITSA.
- Royalty payments of 16% of the soundtrack album suggested retail list
price of all copies sold. - Royalty payments of 50% of music video net
revenues. - Royalty payments of 60% of home video net revenues.
- Royalty payments of 60% of the Company's receipts of license fees, if
any, from third parties.
To date no revenues have been received under the BITSA contract.
NOTE 13 - INVESTMENT IN AGE AND FREEDOM MULTI MEDIA, INC.
The Company is in the process of negotiating an agreement with Anthony and John
Gentile whereby they will sell an amount (approximately 20%) of their ownership
in Abrams/Gentile Entertainment Inc. (AGE) and become members of the Board of
Directors of MSH and also become creative directors of MSH in exchange for
8,971,430 shares of MSH restricted stock. The allocation of the shares is
approximately 75% for their shares in AGE, 12.5% for becoming a Director and
12.5% for becoming a creative director in MSH. The shares of MSH with a value of
approximately $3,000,000 were issued in May 1999 to the Gentile's pending
finalization of the agreement.
F-19
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 13 - INVESTMENT IN AGE AND FREEDOM MULTI MEDIA, INC. (CONTINUED)
The Company would like to negotiate an agreement with Marty Abrams regarding
acquisition of his majority ownership in AGE. However, the Company and Mr.
Abrams have been unable to reach an agreement concerning the assets to be
included as part of the purchase agreement. As of December 31, 1999, the Company
has paid approximately $1,600,000 in cash toward this agreement. In addition,
through 1999, the Company has issued approximately 3,500,000 shares of MSH stock
valued at approximately $1,200,000. As of December 31, 1999, the stock and
payments total approximately $3,100,000. As of December 31, 1998, the Company's
investment was valued at $830,500.
In addition, the Company has agreed to purchase approximately 18% of Freedom
Multimedia, LLC (Freedom) for approximately $750,000. The balance of Freedom is
owned by AGE shareholders and will produce and manufacture the patented
"Flex-sensor" used in the Power Glove Virtual Reality (VR) Technology. The
Company currently has a joint venture agreement with AGE for the production of
the animated TV show entitled Van-Pires (See Note 10).
Freedom is in the process of negotiating with a third party to invest
approximately $5,000,000 for 50% of Freedom's stock. The proposed transaction
would reduce the ownership interest of MSH to approximately 9.375%. The invested
funds would be used to further develop and exploit the Power Glove.
AGE is a well-respected independent toy development and merchandising company.
MSH and AGE have co-produced the Van-Pires animated television series and are
working together on other creative projects in various joint venture
arrangements.
NOTE 14 - MUSIC DIVISION
In 1998, the Company created a music division that signed various contracts with
artists and agents to develop several single records and albums such as
Van-Pires (sound track), Cowboy Attitude (album), T. G. Sheppard Live (album)
Nothing on But The Radio (album), and Freedom (album). The Company does not
currently have a definite source of revenue for its music properties. All costs
associated with the music division have been expensed. The Company has expended
approximately $680,000 and $360,000 in 1998 and 1997, respectively on the music
division.
F-20
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 15 - AGREEMENT WITH ETC...GROUP
The Company entered into a strategic alliance with "etc...group" (etc) dated
November 19, 1998 whereby etc will provide video production services for jointly
developed projects. The revenue from such jointly developed projects are to be
split 60% for etc. and 40% for MSH with other arrangements for cost sharing
depending on the particular project.
NOTE 16 - CANNON RECORDS MASTER LICENSE AGREEMENT
The Company signed a master license agreement on July 1, 1997 with Cannon
Records whereby the Company obtained all rights to a list of approximately 106
Ike and Tina Turner recordings made prior to that date. The agreement called for
a payment $37,500 plus a 6% royalty and is for a term of ten years.
NOTE 17 - VAN-PIRES MASTER TOY LICENSE
The Company and AGE have signed a licensing agreement with DeWilde Groups, Inc.
(DeWilde) giving the rights to DeWilde to produce toys based upon the characters
in the TV animated series Van-Pires. The agreement is effective as of September
21, 1998 and provides for an advance royalty of $825,000 payable in four
payments starting in September, 1998 through April, 1999 plus an ongoing royalty
of 8 - 8.5 % based upon airing of the TV episodes. The Company received the
first advance of $100,000 in 1999. The project was subsequently delayed.
NOTE 18 - CONTINGENCY NAVARRE-AGREEMENT
The Company signed a distribution agreement on October 1, 1997 with Navarre
Corporation (Navarre) whereby Navarre acts as the distributor for various music
albums that MSH has developed. Navarre produces records, disks, tapes and other
forms of recording media and is the distributor of such items to retail outlets,
etc. Navarre is compensated based upon a sliding scale ranging from 42% to 50%
of retail plus an incentive percentage of from 0 to 7%. The Company received
income of $35,883 and $-0- in 1998 and 1997, respectively. All activity and
sales under the agreement ceased by the end of 1998.
The Company is contingently liable for sales by Navarre to retail outlets that
are returned unsold. The amount of the contingent liability at December 31, 1998
is estimated to be immaterial.
F-21
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 19 - LAWSUITS AND LEGAL PROCEEDINGS
GOLD
In June 1998 a judgment was filed in the amount of $26,754 in favor of Stuart
Gold for services provided to the Company with regard to the animated TV series
Van-Pires. The full amount of this liability has been recorded as of December
31,1998.
ZELLERMAIER
In July 1998, the Company settled a claim for breach of contract with Irwin
Zellermaier for a payment in the amount of $10,000.
SHEENA EASTON
In December 1998, the Company settled a claim by Sheena Easton/Skye Heart
regarding a recording contract for the amount of $100,000. The payment was made
by December 31, 1998.
FREDERICK GAULT
In April 1999, the Company settled a claim by Frederick Gault regarding services
pertaining to the development of Jethro for the amount of $30,000. The full
amount of this settlement has been recorded as of December 31, 1998.
WORLD-WIDE TELEVISION NEWS CORP
In April 1999, the Company settled a claim by Worldwide Television New Corp. for
the amount of $3,635 for services provided in connection with East End and
related entities.
OUTWEST ENTERTAINMENT
In 1998 the Company settled a claim by Outwest Entertainment (Outwest) in the
amount of $225,000 for services in connection with the development of various
music albums. The settlement calls for monthly payments of approximately $45,000
plus interest at the rate of 10% over six months. In addition to the agreement
to pay $225,000 the Company has transferred its rights in the albums produced by
T.G Sheppard to Outwest.
F-22
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 19 - LAWSUITS AND LEGAL PROCEEDINGS (CONTINUED)
POZNER
The Company is a defendant in an action filed by Robert Pozner alleging breach
of contract seeking to recover $200,000 and the value of 500,000 shares of MSH
common stock as valued at July 1997. The company has recorded a liability for
$200,000 due to Mr. Pozner and the Company's legal counsel has determined that
any additional amount potentially due is not quantifiable or probable at the
current time. The Company's legal counsel is in the process of filing responses
to the pleading and a counterclaim.
NOTE 20 - INCREASE IN AUTHORIZED COMMON SHARES
In February 1999, the Company increased the number of authorized common shares
from 50,000,000 to 150,000,000.
NOTE 21 - FINANCING
The Company has utilized various private placements, 504 offerings and
convertible debt issues for financing. The Company has relied on exemptions
provided by Regulation D and Section 4(2) under the Securities Act of 1933 for
its offerings.
NOTE 22 - INVESTMENT BANKING AGREEMENTS
LBC CAPITAL RESOURCES
In January 1998 the Company entered into an agreement with LBC Capital Resources
(LBC) for investment-banking services. An advance payment of $5,000 was made to
LBC to seek additional financing for the various acquisitions and projects that
the Company has planned. As of December 31, 1998 there has been no definite
financing arranged for the company through LBC and the agreement has terminated.
WALLSTREET M&A
The Company signed a two-year investment banking agreement with Wallstreet M&A
(Wallstreet) in June 1999 whereby Wallstreet is to obtain financing for various
acquisitions including AGE and to assist the Company in being listed on the
American Stock Exchange. The agreement provides for a monthly retainer of $5,000
and an initial payment of 100,000 shares of MSH restricted stock. In addition,
Wallstreet will receive an additional 120,000 shares of stock if they are
successful in achieving the listing on the American Exchange. To date, no
financing has been obtained by Wallstreet for MSH.
F-23
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 22 - INVESTMENT BANKING AGREEMENTS (CONTINUED)
FINOVA CAPITAL
The Company contracted with Finova Capital (Finova) in 1998 for financing the
purchase of a controlling interest in AGE. A retainer payment of $15,000 was
made to Finova. The efforts of Finova were unsuccessful and the agreement
terminated at the end of 1998.
NOTE 23 - ION AGREEMENT
In May 1998, the Company entered into a joint venture with AGE and ION
Entertainment Inc. for the production, development and marketing of a TV series
and related merchandise and toy line entitled "Warrior Woman". The revenues from
the project are to be shared pari passu by the parties with a projected budget
of $122,000 by ION and $133,000 by AGE/MSH. After the initial recoupment and
revenue sharing, the future revenues are to be split between ION and AGE/MSH on
the basis of 60% to ION and 40% to AGE/MSH for toys, merchandising and home
video and 70% for ION and 30% for AGE/MSH for television. The funds for the
project are to be deposited into a joint venture bank account maintained by MSH.
As of December 31, 1998, no material activity has occurred regarding this
project and the project is dormant. As of December 1999 ION has ceased
operations and the rights to the project revert to the Company.
NOTE 24 - THIS ONE N' THAT ONE
The Company has a joint venture agreement with AGE and Film Roman Inc. (FRI) to
develop, produce and distribute various TV, music, toy and merchandise projects
based upon a concept and books created by JJK Publishing (JJK) entitled This One
n' That One. The arrangement is to share in the costs and revenues of financing
and developing animated TV episodes, merchandise and toys. The project has had
early development activity with minimal cost expenditure as of December 1999.
The future date for airing this show has not currently been set.
F-24
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 25 - SUBSEQUENT EVENTS
FILMS
In 1999, the Company entered into negotiations with Film Roman regarding various
joint ventures for the production of several animated television series for
children.
OFFICES
During 1999, the Company signed a lease on approximately 6,000 square feet of
office space in New York City for approximately $10,300 per month which it has
remodeled and occupies approximately 2,000 square feet. The balance of the space
is being rented to other companies in the entertainment business. The Company
has moved its California operations from San Francisco to Sausalito, California,
where it is renting approximately 400 square feet from a related company, Kids
and Family, Inc. (KIDS) for $750 per month. KIDS is a company formed in 1999 to
be an online entertainment network for kids via the Internet and is a majority
owned subsidiary of MSH.
PRITCHARD CONSULTING AGREEMENT
The Company's subsidiary, KIDS has agreed to a consulting agreement with David
Pritchard commencing on December 12, 1999 for a period of one year renewable at
the discretion of the parties. The compensation is to be at the annual rate of
$350,000 plus an initial payment of one million shares of restricted MSH common
stock. Mr. Pritchard has also agreed to serve on the Board of Directors of MSH
and as a consultant for MSH.
KING/FROMKIN AGREEMENT
The Company has signed an agreement with King/Fromkin (King) as of November 17,
1999 whereby King will provide talent-packaging services to MSH. King is to
receive 100,000 shares of restricted MSH stock for these services initially and
an additional 100,000 shares one-year from the date of the agreement based upon
performance as determined by MSH. King may also act as co-producer or
co-executive producer for which he would receive additional compensation to be
determined on a project by project basis.
ASTON ACQUISITION
In October 1999, the Company agreed to purchase 20% of the common stock of Aston
Entertainment for $430,000 in cash and 1,535,714 shares of MSH common stock. In
addition, Aston has been granted an option to purchase 6,142,857 shares of MSH
Common stock for $.14 per share. The payments are to begin on October 22, 1999
and conclude in March 2000. In addition, certain principals in the Aston Company
have agreed to provide funding services directly to MSH and KIDS on a commission
basis. The Company is currently negotiating to increase its ownership in Aston
by an additional 15%.
F-25
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 26 - PROPERTY AND EQUIPMENT
The major components of property and equipment consist of the following as of
December 31:
1998 1997
------------ ------------
Office equipment $ 11,443 $ 14,995
Computer equipment 412,741 407,013
Production equipment - 3,210
Leasehold improvements 10,021 4,974
------------ ------------
434,205 430,192
Less: Accumulated depreciation (174,625) (84,937)
------------ ------------
$ 259,580 $ 345,255
============ ============
Depreciation expense charged to operations during 1998 and 1997 was $93,448 and
$73,639, respectively.
NOTE 27 - LEASE COMMITMENTS
The Company leases office space for its headquarters in San Francisco,
California. The lease commenced on June 27, 1997 and expired on June 27, 1998.
The lease required monthly payments of $8,468.
The Company also leases production facilities in Santa Monica, California for
$2,185 per month. The lease commenced on January 15, 1997, expires on January
14, 1999 and requires payments of $550 per month.
The Company also leased production space at two additional locations in San
Francisco, California. One lease was for the 6 months ended June 30, 1997 and
required monthly payments of $3,000. The other lease was for the year ended
December 31, 1997 and required monthly payments of $5,861.
In addition, the Company leased various production equipment under a master
lease agreement. This agreement terminates January 15, 1999. The monthly lease
payment is $2,419 and is capitalized as part of the Van-Pires project.
Rent expense for the years ended December 1998 and 1997 was $143,867 and
$170,487, respectively.
F-26
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
October 31, 1999 October 31, 1998
---------------- ----------------
Current assets:
Cash $ 31,970 $ 955
Accounts receivable 15,985 -
Investment in Van-Pires 1,944,007 1,944,007
---------------- ----------------
Total current assets 1,991,962 1,944,962
Property, plant and equipment - net 465,763 271,105
Other assets:
Investment in Aston 52,500 -
Due from Stockholder 452,763 -
Investment in AGE 6,823,250 597,300
Deposits 8,469 8,469
---------------- ----------------
Total other assets 7,336,982 605,769
---------------- ----------------
Total assets $ 9,794,707 $ 2,821,836
================ ================
F-27
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31, 1999 October 31, 1998
---------------- ----------------
Current liabilities:
Accounts payable $ 1,155,121 $ 894,165
Due to stockholders 1,252,264 570,159
Convertible notes payable 622,250 967,150
Notes payable 865,449 646,649
Accrued expenses 84,421 73,226
---------------- ----------------
Total current liabilities 3,979,505 3,151,349
Stockholders' equity (deficit):
Preferred stock - par value
$.05 per share 25,000,000 shares
authorized, none issued and outstanding - -
Common stock - $.001 par value,
150,000,000 shares authorized,
90,167,744 and 36,609,226 shares
issued and outstanding 90,170 36,609
Additional paid-in capital 16,772,795 7,683,987
Accumulated deficit (11,022,763) (8,005,109)
---------------- ----------------
5,840,202 (284,513)
Minority interest
Common stock 1,700 -
Accumulated deficit (1,700) -
---------------- ----------------
- -
---------------- ----------------
5,840,202 (284,513)
Less note receivable for
stock issued (25,000) (45,000)
---------------- ----------------
Total stockholders'
equity (deficit) 5,815,202 (329,513)
---------------- ----------------
Total liabilities and
stockholders' equity $ 9,794,707 $ 2,821,836
================ ================
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Ten Months Ended
---------------- ----------------
October 31, 1999 October 31, 1998
---------------- ----------------
Net sales $ - $ 96,924
Costs and expenses:
Production costs 66,053 852,871
General and administrative expenses 2,446,076 1,673,543
Depreciation and amortization 87,755 77,873
---------------- ----------------
Total costs and expenses 2,599,884 2,604,287
---------------- ----------------
Loss from operations (2,599,884) (2,507,363)
Other income (expense):
Interest income 33 -
Interest expense (26,778) (73,192)
Rent income 36,333 41,279
---------------- ----------------
Net loss before minority interest (2,590,296) (2,539,276)
Minority interest in net loss of KIDS 1,700 -
---------------- ----------------
Net loss $ (2,588,596) $ (2,539,276)
================ ================
Net loss per share $ (.04) $ (.09)
================ ================
Weighted average number of shares
outstanding 65,987,517 27,806,355
================ ================
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(DEFICIT)
FOR THE TEN MONTH PERIODS ENDED OCTOBER 31, 1999 AND 1998
(UNAUDITED)
<CAPTION>
Common Stock Total
--------------------------- Additional Receivable Stockholders'
Preferred Number of Paid in Accumulated for Stock Equity
Stock Shares Amount Capital Deficit Issued (Deficit)
----- ------------- --------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 - 19,003,484 $ 19,004 $ 4,091,633 $ (5,465,825) $ - $ (1,355,188)
Receivable from sale of 241,667
shares of common stock - - - - (45,000) (45,000)
Common stock issued for convertible
debt cancellation - 7,899,400 7,899 2,151,861 - - 2,159,760
Sale of common stock - 2,748,275 2,748 423,807 - - 426,555
Common stock issued for services - 2,560,600 2,561 253,499 - - 256,060
Common stock issued for debt
cancellation - 4,198,500 4,199 743,539 - - 747,738
Interest paid in common stock - 198,467 198 19,648 - - 19,846
Loss for the ten months ended
October 31, 1998 - - - - (2,539,284) - (2,539,284)
----- ------------- --------- ------------- ------------- --------- -------------
Balance at October 31, 1998 (Unaudited) - 36,608,726 36,609 7,683,987 (8,005,109) (45,000) (329,513)
Sale of common stock - 392,710 394 8,009 - - 8,403
Common stock issued for services - 378,200 378 37,442 - - 37,820
Common stock issued for debt
cancellation - 3,767,654 3,769 388,483 - - 392,252
Stock issued as deposit for
AGE transaction - 660,000 660 230,340 - - 231,000
Loss for the two months ended
December 31, 1998 - - - - (429,060) - (429,060)
----- ------------- --------- ------------- ------------- --------- -------------
</TABLE>
F-30
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE TEN MONTH PERIODS ENDED OCTOBER 31, 1999 AND 1998
(UNAUDITED)
<CAPTION>
Common Stock Total
--------------------------- Additional Receivable Stockholders'
Preferred Number of Paid in Accumulated for Stock Equity
Stock Shares Amount Capital Deficit Issued (Deficit)
----- ------------- --------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 - 41,807,290 $ 41,810 $ 8,348,261 $ (8,434,169) $ (45,000) $ (89,098)
Payment for receivable - - - - - 20,000 20,000
Sale of common stock - 21,023,324 21,023 3,566,670 - - 3,587,693
Common stock issued for debt
cancellation - 1,122,000 1,123 284,378 - - 285,501
Stock issued as deposit for
AGE transaction - 12,436,430 12,436 4,200,314 - - 4,212,750
Common stock issued for services - 13,778,700 13,778 373,172 - - 386,950
Net loss for the ten months ended
October 31, 1999 - - - - (2,588,596) - (2,588,596)
----- ------------- --------- ------------- ------------- --------- -------------
Balance at October 31, 1999 (Unaudited) - 90,167,744 $ 90,170 $ 16,772,795 $ (11,022,765) $ (25,000) $ 5,815,200
===== ============= ========= ============= ============= ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the Ten Months Ended
----------------------------------
October 31, 1999 October 31, 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,588,596) $ (2,539,286)
Adjustments to reconcile net loss to net cash
used by operating activities:
Write-off - film inventory and
project costs - 36,500
Gain (loss) on sale of equipment 12,475 (3,760)
Depreciation and amortization 87,755 77,873
Common stock issued for services 386,950 256,060
Common stock issued for interest - 19,846
(Increase) decrease in:
Prepaid expenses - 400
Interest receivable - -
Film inventory and project costs - -
Accounts receivable (15,985) 1,744
Deposits - 9,047
Note receivable - -
Increase (decrease) in:
Accounts payable 338,233 448,341
Accrued interest 18,000 77,120
Accrued expenses 655,967 (25,980)
Accounts payable to stockholder (24,000) 331,937
---------------- ----------------
Net cash used in operations (1,129,201) (1,310,158)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash payment for the purchase of property (306,414) 37
Proceeds from sale of equipment - -
Investment in Van-Pires - (343,140)
Purchase of movie rights - -
Investment in Aston (52,500) -
Investment in AGE (1,780,000) (597,300)
Collection on note receivable 20,000 -
---------------- ----------------
Net cash used in investing activities (2,118,914) (940,403)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 273,000 2,000
Principal payment on note payable (128,700) (222,851)
Proceeds from issuance of common stock 3,587,699 466,960
Proceeds from issuance of convertible notes payable - 2,317,900
Repayment of convertible debt - (20,000)
Advances from stockholder loans - -
Payments on shareholder loans (452,763) (298,652)
---------------- ----------------
Net cash provided by financing activities 3,279,236 2,245,357
---------------- ----------------
Net increase (decrease) in cash 31,121 (5,204)
Cash at beginning of period 849 6,159
---------------- ----------------
Cash at end of period $ 31,970 $ 955
================ ================
</TABLE>
F-32
<PAGE>
<TABLE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NON CASH TRANSACTIONS:
For the Ten Months Ended
----------------------------------
October 31, 1999 October 31, 1998
---------------- ----------------
<S> <C> <C>
Common stock issued for services rendered $ 386,950 $ -
================ ================
Common stock exchanged for convertible notes payable $ 285,500 $ 2,220,750
================ ================
Shareholder salaries accrued $ 604,165 $ -
================ ================
Stock issued for AGE transaction $ 4,212,750 $ -
================ ================
Receivable for stock $ - $ 45,000
================ ================
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
MSH Entertainment Corporation (the "Company") is in the business of film and
television production, music and music publishing, software development, and
distribution. Its business operations include creating, developing, producing,
licensing, distribution and merchandising entertainment media products. In
addition to animated and live-action family and children's TV productions, the
Company's products include prime time drama series, music specials, record
albums, music publishing and related services.
The Company is also pursuing opportunities in children's toys and merchandising
in joint venture with Abrams/Gentile Entertainment, Inc. (AGE) as it is related
to Company produced programming. Prior to the acquisition discussed below, the
Company's primary business activity was the creation, development and production
of home video motion picture tapes primarily for sale internationally. The
Company did not benefit from widespread market acceptance of its home video
motion pictures.
BASIS OF PRESENTATION
The accompanying consolidated financial statement has been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statement, the Company has incurred a net loss of $2,588,596 and
$2,539,276 for the ten months ended October 31, 1999 and October 31, 1998,
respectively. At October 31, 1999, the Company has a net working capital deficit
of $1,937,543 which raises substantial doubt about the Company's ability to
continue as a going concern. Management has developed plans intended to remedy
these conditions. These plans include seeking other sources of financing,
completing the acquisition of existing operating companies, actively marketing
existing projects, reducing operating costs and seeking a joint venture partner.
No assurances can be given as to the success of these plans. The consolidated
financial statement does not include any adjustments that might result should
the Company be unable to continue as a going concern.
ACQUISITION
On June 21, 1996 the Company acquired substantially all of the assets of East
End Communications, Inc., East End Productions, Inc. and J.B. Dubbs, Inc.
(collectively referred to as "East End") in a transaction accounted for as a
purchase. The primary business activity of East End was computer animation
programming and production (See Note 2).
F-34
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed in preparing the
accompanying consolidated financial statements is set forth below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MSH
Entertainment Corporation and its wholly owned subsidiary MSH Productions Inc.,
Kids and Family Network, Inc. (KIDS) and Happy Zone Entertainment Corporation.
KIDS is owned 83% by MSH and 17% by officers and directors of MSH. Happy Zone
Entertainment Corporation is a 60% owned subsidiary which has been inactive
since its inception in 1996. MSH Productions, Inc. is also inactive. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
HOME VIDEO AND MOTION PICTURE PROJECT COSTS
The Company follows the provisions of Statement of Financial Accounting
Standards No. 53 ("SFAS 53") with respect to motion pictures, television and
video project costs. Costs incurred in connection with motion picture,
television, music and video projects are capitalized. Such costs are charged to
production overhead if the project has been held for a three-year period and has
not been set for production or if it is abandoned. Production overhead is
allocated to the cost of projects currently set for, or in production. Although
certain projects are reported at zero value, they may still be actively marketed
by management after the three-year period. Project costs are stated at the lower
of cost or realizable value. Cost and related amortization of released projects
allocated to primary markets would be classified as current assets. Van-Pires,
an animated TV cartoon show was released to primary markets in the fall of 1997
for thirteen episodes and costs allocated to it are classified as a current
asset. All other capitalized costs are classified as noncurrent assets.
F-35
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
HOME VIDEO AND MOTION PICTURE PROJECT COSTS (CONTINUED)
Under FASB 53, project costs, which include accrued related participations and
residuals, would be amortized based on the ratio of revenue earned for the year
to management's estimate of total gross revenue to be earned. Each picture or
project in production is valued taking into account management's current
estimates of the ultimate revenue to be received from all sources, including
theatrical distribution, cable, pay, network and syndicated television licensing
and video and audio cassette and video and audio disc licensing. Such estimates,
which are based on such factors as the nature and popularity of the subject
matter and the expected rate structure in the various markets during the periods
the revenue from the project is estimated to be earned, are revised periodically
and estimated losses, if any are provided for in full.
REVENUE RECOGNITION
Revenues with respect to television and computer animation programming and
production are recognized when the film is accepted by a licensee and
collectibility of the license fee is reasonably assured.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the balance sheet carrying
amounts of existing assets and liabilities measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
F-36
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION ACQUISITION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
Loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding. At October 31, 1999, all common stock equivalents
were antidilutive.
NOTE 2 - EAST END PURCHASE
On June 21, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of East End in a transaction accounted for as a
purchase. The purchase price was $1,305,903 and consisted of a cash payment of
$215,000 plus expenses and a note payable for $865,000. As a result of the
purchase, $1,150,836 in goodwill was recorded by the Company, which reflects the
adjustments necessary to allocate the purchase price to the fair value of assets
purchased and liabilities assumed. The Company subsequently determined the
goodwill was not recoverable and charged off net goodwill of $1,123,875 as
adjusted for related debt forgiveness during the year ended December 31, 1997 as
loss from acquired businesses.
The Company entered into a three-year employment agreement with the President of
East End. The employment agreement provides for an annual salary of $150,000. In
addition, the former President of East End received 400,000 shares of common
stock valued at $40,000 for services rendered in 1996.
At December 31, 1996, the Company was in default with respect to the $865,000
note payable to the former President of East End which was payable in full on
December 1, 1996. On January 14, 1998 the Company entered into a settlement
agreement whereby the Company agreed to pay a total of $500,000, representing
accrued wages and interest and the remaining balance due on the $865,000 note
payable. In addition, as part of the settlement the employment agreement with
the former president of East End was terminated effective September 30, 1997.
The $500,000 payments were to be made at various intervals.
NOTE 3 - SIGNIFICANT PROJECTS
In 1996, the Company purchased the distribution rights to a script entitled
Vallas & Sons for $21,000 which the Company is attempting to market. In 1997, an
additional $15,500 was paid to retain the distribution right. Since the project
has not been released to primary markets, all related costs have been expensed.
In 1996, the Company began a joint venture with Abrams/Gentile Entertainment,
Inc. to co-produce the first thirteen episodes of an animated children's TV
cartoon entitled Van-Pires (See Note 10). The Company's share of costs of
Van-Pires is capitalized as investment in Van-Pires.
F-37
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 3 - SIGNIFICANT PROJECTS (CONTINUED)
Film inventory costs consists of the following:
1999 1998
---------------- ----------------
Van-Pires $ 1,944,007 $ 1,944,007
================ ================
NOTE 4 - NOTES PAYABLE
Notes payable consist of the following:
Demand note payable to individual
bearing interest at 9%. $ 200,000 $ 200,000
Loans payable to individuals. No
stated maturity. 290,449 71,649
Demand note payable to individual
bearing interest at 10%.
Collateralized by certain
Intellectual property rights from
the purchase of East End and
related entities and assets. 375,000 375,000
---------------- ----------------
$ 865,449 $ 646,649
================ ================
F-38
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 5 - STOCK OPTION PLANS AND WARRANTS
The Company has stock option plans under which certain individuals may be
granted options to purchase shares of Company common stock at the fair market
value at the time of the grant. Options generally vest immediately and expire
ten years from the date of the grant. A summary of information relative to the
Company's stock option plans follows:
Number Option Price
of Shares Per Share
Outstanding at December 31, 1997 3,750,000 .33
Granted - .33
Exercised - .33
Canceled - .33
----------- -------
Outstanding at October 31, 1998 3,750,000 .33
Granted - .33
Exercised - .33
Canceled - .33
----------- -------
Outstanding at October 31, 1998 3,750,000 .33
=========== =======
The Company accounts for stock options in accordance with the provisions of
Statement No. 123, "Accounting for Stock-Based Compensation." As permitted by
the Statement, the Company has chosen to account for stock-based compensation
using the intrinsic value method. Accordingly, no compensation expense has been
recognized for the Company's stock-based compensation plans. Had the fair value
method of accounting been applied to the Company's stock option plans, which
requires recognition of compensation cost ratably over the vesting period of the
underlying equity instruments, net loss would have been unchanged in 1999. The
stock options granted in 1997 and 1996 under the minimum value method of
accounting had no fair value due to the financial condition of the Company. The
weighted-average remaining contractual life of options outstanding at October
31, 1999 is 88 months and the weighted-average exercise price is $.25.
In addition, on November 4, 1996 the Company issued Intel Corporation a warrant
to purchase 1,000,000 shares of common stock at the lower of $1.75 or 75% of the
fair market value of common stock on the date of exercise. The warrant expired
on November 4, 1998. Intel Corporation paid the Company a nonrefundable payment
of $150,000 for this warrant. The payment has been reflected as additional
paid-in capital in the accompanying consolidated statements of stockholders'
deficit.
The Company issued AGE a warrant to purchase 1,000,000 shares of common stock at
the lower of $1.75 or 75% of the fair market value of the offering price to
underwriters (net of underwriting discounts) of the common stock pursuant to the
first underwritten public offering by the Company. The warrant expires on
October 8, 2000.
F-39
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 5 - STOCK OPTION PLANS AND WARRANTS (CONTINUED)
UNGERLEIDER WARRANT
In April 1998 the Company borrowed $167,000 from Dr. Bruce Ungerleider which was
converted into 835,000 shares of MSH common stock.
In June 1998, the Company borrowed $500,000 from Dr. Bruce Ungerleider in
exchange for a convertible note and two warrants to purchase stock in the
Company. The note bears interest at the annual rate of 20% and is convertible
into MSH stock at a stock price of $.25 per share for one year from the date of
issue. In addition, the note is secured by 20% of any gross revenue earned by
the Company from its computer animation software generally referred to as
"Jethro". In addition, as an inducement to make the loan, Dr. Ungerleider is to
receive 1,000,000 shares of restricted stock in MSH, and 10% of the stock in
Happy Zone Entertainment (a subsidiary of MSH). Dr. Ungerleider also received an
additional warrant to purchase 1,300,000 shares of common stock exercisable on
the same terms as the Intel warrant which expired in November 1998. Due to the
expiration of the Intel warrant in November 1999, the warrant to Dr. Ungerleider
was reissued for 1,000,000 shares for a period of seven years from the issuance
at the price of $1.75 per share. The agreement provides for payment of the stock
at the time of exercise to be in cash or a combination of cash and cancellation
of any remaining balance of the debt. An alternative to the payment terms is to
exercise the warrant for a reduced amount of shares of common stock for no
payment based upon a formula. The formula takes the fair market value of stock
at the time of exercise less the exercise price divided by the fair market value
of the stock at the time of exercise multiplied times the 1,000,000 share
warrant.
The debt and warrant agreement also includes an antidilutive provision. If the
Company's issued and outstanding shares of common stock exceed 30,000,000
shares, Dr. Ungerleider has the right to receive warrants to purchase additional
shares to maintain his percentage of ownership in the company at a price of 15%
less than the selling price for all shares sold by the Company after the time
the total outstanding shares exceed 30,000,000. The percentage of ownership is
to be determined by adding all shares owned and shares represented by warrants
and convertible shares of Dr. Ungerlieder at the date of exercise divided by the
total outstanding shares as of the date of the loan.. The percentage is
anticipated to range from 10.5 % to 21.87%. The Company's number of common stock
shares issued and outstanding reached the 30,000,000 threshold approximately in
July 1998. At October 31, 1999, the amount of additional shares available under
the antidilutive feature to the agreement is approximately 9,760,000. To date,
no warrant has been issued for the antidilutive shares.
F-40
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS
DUE FROM STOCKHOLDER
The Company's Chief Executive Officer has maintained an operating bank account
for the purpose of depositing investor funds and making various expenditures on
behalf of the Company. At October 31, 1999, the balance retained in that account
was shown as an due from Stockholder. The balance was used to pay various
Company expenses by the end of 1999. The Company also has recorded accrued
compensation to the CEO in excess of that amount which may be offset against the
funds retained in excess of expenses.
ADVANCES TO SHAREHOLDERS OF AGE
The Company is negotiating to purchase an interest in Abrams/Gentile
Entertainment Inc., as described in Note 11. Pursuant to the negotiations, the
Company has advanced approximately $2,300,000 in cash and $4,400,000 in stock to
the stockholders of AGE. At the current time, the amount of interest in AGE that
will be purchased by the Company is not determinable. Management is of the
opinion that at least 20% of AGE will be obtained as a result of these
negotiations. The amount of the advances that will be retained or applied to the
acquisition price is not determinable. Therefore, the entire advance has been
reflected as a non-current investment.
DUE TO STOCKHOLDERS AND OFFICERS
Due to stockholders consists of various loans from stockholders which are still
outstanding at October 31, 1999. In addition, officers have loaned minor amounts
to the Company during the year and have been repaid before October 31, 1999
without interest.
NOTE 7 - INTEL AGREEMENT
In November, 1996, the Company executed an agreement with Intel Corporation to
cooperate in the development and distribution of a new animation management
technology (JETHRO) that will be used in the management of production of
episodic television shows. The system would update on a daily basis, workloads,
actual versus budget, and track the project. It would combine the software
technology developed by the Company with the microprocessor capability of Intel.
No activity has occurred to date on this joint venture.
F-41
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 8 - VAN-PIRES/AGE AGREEMENT
In November, 1996, the Company entered into a strategic product development
agreement with Abrams/Gentile Entertainment, Inc. (AGE). Under the agreement,
the Company acquired the rights to produce a children's TV series entitled
Van-Pires and potential revenue from related toys and merchandising. AGE
received a warrant to purchase 1,000,000 shares of the Company's stock. The
agreement provided for AGE and the Company to initially commit $1,300,000 and
$650,000, respectively for the production of thirteen episodes of Van-Pires.
After AGE recouped its initial investment from the revenues received by AGE from
the broadcast of the series, video licenses and sales the Company will recoup
its costs and then share revenue from the licensing activities related to the
series as follows:
- 5% of net advertising revenue
- 1% of domestic net toy revenue
- 2% of international net toy revenue
- 2% of net merchandising revenue
The first 13 episodes were aired during 1998 in primary markets in the United
States.
As of December 1999, the Company has not received any revenue as a result of
this agreement, however, AGE has received approximately $2,000,000 which has
been offset against the AGE share of expenditures under the agreement. In
addition, the Company has received an advance of approximately $100,000 in 1998
toward the production of toys using the Van-Pires characters as a theme.
NOTE 9 - EMPLOYMENT AGREEMENTS
During 1996, the Company entered into employment agreements with three officers
of the Company and the former president of East End. The employment agreements
were revised effective January 1, 1999 and include all four officers of the
Company. The employment agreements also provide for certain incentive
compensation fringe benefits and expense reimbursements.
NOTE 10 - BITSA AGREEMENT
On March 3, 1997, the Company entered into an agreement with BITSA Talent, Inc.
("BITSA") to provide musical compositions and lyrics for thirteen episodes of
the television series entitled "Van-Pires." Significant provisions of this
agreement are as follows:
- Payment of $100,000 to BITSA.
- Royalty payments of 16% of the soundtrack album suggested retail
list price of all copies sold.
- Royalty payments of 50% of music video net revenues.
- Royalty payments of 60% of home video net revenues.
- Royalty payments of 60% of the Company's receipts of license
fees, if any, from third parties.
To date no revenues have been received under the BITSA contract.
F-42
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 11 - INVESTMENT IN AGE AND FREEDOM MULTI MEDIA, INC.
The Company is in the process of negotiating an agreement with Anthony and John
Gentile whereby they will sell an amount (approximately 20%) of their ownership
in Abrams/Gentile Entertainment Inc.(AGE) and become members of the Board of
Directors of MSH and also become creative directors of MSH in exchange for
8,971,430 shares of MSH restricted stock. The allocation of the shares is
approximately 75% for their shares in AGE, 12.5% for becoming a Director and
12.5% for becoming a creative director in MSH. The shares of MSH with a value of
approximately $3,000,000 were issued in May 1999 to the Gentile's pending
finalization of the agreement.
The Company is also in the process of negotiating an agreement with Marty Abrams
regarding acquisition of his majority ownership in AGE. As of December 31, 1999,
the Company has paid Abrams approximately $2,300,000 in cash toward this
agreement. In addition, through 1999, the Company has issued approximately
3,500,000 shares of MSH stock valued at approximately $1,200,000.
The stock and payments total approximately $6,800,000 and are reflected as an
investment as of October 31, 1999.
In addition, the Company has agreed to purchase approximately 18% of Freedom
Multimedia, LLC (Freedom) for approximately $750,000. The balance of Freedom is
owned by AGE shareholders and will produce and manufacture the patented
"Flex-sensor" used in the Power Glove Virtual Reality (VR) Technology. The
Company currently has a joint venture agreement with AGE for the production of
the animated TV show entitled Van-Pires (See Note 8).
Freedom is in the process of negotiating with a third party to invest
approximately $5,000,000 for 50% of Freedom's stock. The proposed transaction
would reduce the ownership interest of MSH to approximately 9.375%. The invested
funds would be used to further develop and exploit the Power Glove.
AGE is a well-respected independent toy development and merchandising company.
MSH and AGE have co-produced the Van-Pires animated television series and are
working together on other creative projects in various joint venture
arrangements.
F-43
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 12 - MUSIC DIVISION
In 1998, the Company created a music division that signed various contracts with
artists and agents to develop several single records and albums such as
Van-Pires (sound track), Cowboy Attitude (album), T. G. Sheppard Live (album)
Nothing on But The Radio (album), and Freedom (album). The Company does not
currently have a definite source of revenue for its music properties. All costs
associated with the music division have been expensed. The Company has expended
approximately $1,090,000 in the music division.
NOTE 13 - AGREEMENT WITH ETC...GROUP
The Company entered into a strategic alliance with "etc...group" (etc) dated
November 19, 1998 whereby etc will provide video production services for jointly
developed projects. The revenue from such jointly developed projects are to be
split 60% for etc. and 40% for MSH with other arrangements for cost sharing
depending on the particular project.
NOTE 14 - CANNON RECORDS MASTER LICENSE AGREEMENT
The Company signed a master license agreement on July 1, 1997 with Cannon
Records whereby the Company obtained all rights to a list of approximately 106
Ike and Tina Turner recordings made prior to that date. The agreement called for
a payment $37,500 plus a 6% royalty and is for a term of ten years.
NOTE 15 - LAWSUITS AND LEGAL PROCEEDINGS
OUTWEST ENTERTAINMENT
In 1998 the Company settled a claim by Outwest Entertainment (Outwest) in the
amount of $225,000 for services in connection with the development of various
music albums. The settlement calls for monthly payments of approximately $45,000
plus interest at the rate of 10% over six months. In addition to the agreement
to pay $225,000 the Company has transferred its rights in the albums produced by
T.G Sheppard to Outwest.
POZNER
The Company is a defendant in an action filed by Robert Pozner alleging breach
of contract seeking to recover $200,000 and the value of 500,000 shares of MSH
common stock as valued at July 1997. The company has recorded a liability for
$200,000 due to Mr. Pozner and the Company's legal counsel has determined that
any additional amount potentially due is not quantifiable or probable at the
current time. The Company's legal counsel is in the process of filing responses
to the pleading and a counterclaim.
F-44
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 16 - INCREASE IN AUTHORIZED COMMON SHARES
In February 1999, the Company increased the number of authorized common shares
from 50,000,000 to 150,000,000.
NOTE 17 - FINANCING
The Company has utilized various private placements, 504 offerings and
convertible debt issues for financing. The Company has relied on exemptions
provided by Regulation D and Section 4(2) under the Securities Act of 1933 for
its offerings.
NOTE 18 - INVESTMENT BANKING AGREEMENTS
WALLSTREET M&A
The Company signed a two-year investment banking agreement with Wallstreet M&A
(Wallstreet) in June 1999 whereby Wallstreet is to obtain financing for various
acquisitions including AGE and to assist the Company in being listed on the
American Stock Exchange. The agreement provides for a monthly retainer of $5,000
and an initial payment of 100,000 shares of MSH restricted stock. In addition,
Wallstreet will receive an additional 120,000 shares of stock if they are
successful in achieving the listing on the American Exchange. To date, no
financing has been obtained by Wallstreet for MSH.
NOTE 19 - ION AGREEMENT
In May 1998, the Company entered into a joint venture with AGE and ION
Entertainment Inc. for the production, development and marketing of a TV series
and related merchandise and toy line entitled "Warrior Woman". The revenues from
the project are to be shared pari passu by the parties with a projected budget
of $122,000 by ION and $133,000 by AGE/MSH. After the initial recoupment and
revenue sharing, the future revenues are to be split between ION and AGE/MSH on
the basis of 60% to ION and 40% to AGE/MSH for toys, merchandising and home
video and 70% for ION and 30% for AGE/MSH for television. The funds for the
project are to be deposited into a joint venture bank account maintained by MSH.
As of December 31, 1998, no material activity has occurred regarding this
project and the project is dormant. As of December 1999 ION has ceased
operations and the rights to the project reverted to the Company.
F-45
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 20 - THIS ONE N' THAT ONE
The Company has a joint venture agreement with AGE and Film Roman Inc. (FRI) to
develop, produce and distribute various TV, music, toy and merchandise projects
based upon a concept and books created by JJK Publishing (JJK) entitled This One
n' That One. The arrangement is to share in the costs and revenues of financing
and developing animated TV episodes, merchandise and toys. The project has had
early development activity with minimal cost expenditure as of December 1999.
The future date for airing this show has not currently been set.
NOTE 21 - ASTON ACQUISITION
In October 1999, the Company agreed to purchase 20% of the common stock of Aston
Entertainment for $430,000 in cash and 1,535,714 shares of MSH common stock. In
addition, Aston has been granted an option to purchase 6,142,857 shares of MSH
Common stock for $.14 per share. The payments are to begin on October 22, 1999
and conclude in March 2000. In addition, certain principals in the Aston Company
have agreed to provide funding services directly to MSH and KIDS on a commission
basis. The Company is currently negotiating to increase its ownership in Aston
by an additional 15%. As of October 31, 1999, The Company had advanced $52,500
toward the Aston investment.
NOTE 22 - LEASES
During 1999, the Company signed a lease on approximately 6,000 square feet of
office space in New York City for approximately $10,300 per month which it has
remodeled and occupies approximately 2,000 square feet. The balance of the space
is being rented to other companies in the entertainment business. The Company
has moved its California operations from San Francisco to Sausalito, California,
where it is renting approximately 400 square feet from a related company, Kids
and Family, Inc. (KIDS) for $750 per month.
NOTE 23 - KIDS AND FAMILY NETWORK, INC.
Kids and Family Network, Inc. (KIDS) was formed in 1999 and is owned 83% by MSH
and 17% by officers and directors. KIDS is a company formed to be an online
entertainment network for kids via the Internet.
NOTE 24 - SUBSEQUENT EVENTS
PRITCHARD CONSULTING AGREEMENT
The Company's subsidiary, KIDS has agreed to a consulting agreement with David
Pritchard commencing on December 12, 1999 for a period of one year renewable at
the discretion of the parties. The compensation is to be at the annual rate of
$350,000 plus an initial payment of one million shares of restricted MSH common
stock. Mr. Pritchard has also agreed to serve on the Board of Directors of MSH
and as a consultant for MSH.
F-46
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 24 - SUBSEQUENT EVENTS (CONTINUED)
KING/FROMKIN AGREEMENT
The Company has signed an agreement with King/Fromkin (King) as of November 17,
1999 whereby King will provide talent-packaging services to MSH. King is to
receive 100,000 shares of restricted MSH stock for these services initially and
an additional 100,000 shares one-year from the date of the agreement based upon
performance as determined by MSH. King may also act as co-producer or
co-executive producer for which he would receive additional compensation to be
determined on a project by project basis.
NOTE 25 - PROPERTY AND EQUIPMENT
The major components of property and equipment consist of the following as of
October 31:
1999 1998
------------ ----------
Furniture and fixtures $ 16,407 $ 11,443
Office equipment 87,648 412,891
Computer equipment 404,788 -
Leasehold improvements 219,300 5,821
------------ ----------
728,143 430,155
Less: Accumulated depreciation (262,380) (159,050)
------------ ----------
$ 465,763 $ 271,105
============ ==========
Depreciation expense charged to operations during 1999 and 1998 was $87,755 and
$77,873, respectively.
NOTE 26 - LEASE COMMITMENTS
During 1998, the Company leased office space for its headquarters in San
Francisco, California. The lease commenced on June 27, 1997 and expired on June
27, 1998. The lease required monthly payments of $8,468. The Company also leases
production facilities in Santa Monica, California for $2,185 per month. The
lease commenced on January 15, 1997, expires on January 14, 1999. A portion of
the production facility was sublet at a rate of $1,000 per month.
In addition, the Company leased various production equipment under a master
lease agreement. This agreement terminates January 15, 1999. The monthly lease
payment is $2,419 and is capitalized as part of Van-Pires project.
F-47
<PAGE>
MSH ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(UNAUDITED)
NOTE 26 - LEASE COMMITMENTS (CONTINUED)
Rent expense for the years ended October 1999 and 1998 was $165,887 and
$120,723, respectively.
In January 1999, the Company signed a five year lease for office space in New
York. The lease requires monthly payments of $10,000 per month and will be
adjusted annually for changes in the CPI. The Company has sublet some of the
space and collects $10,400 in rent income per month under these subleases 30
percent of the income received under an 18 month sublease. The remaining rent
income is received pursuant to a three year sublease.
The Company also has a month to month agreement to rent office space in
Sausalito, California for $750 per month.
F-48
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MSH ENTERTAINMENT CORPORATION
Robert P. Maerz and Michael Welsh certify that:
1. They are the Chief Executive Officer and Secretary, respectively, of
MSH Entertainment Corporation, a Utah corporation.
2. Pursuant to Section 16-l0a-1007 of the Utah Revised Business
Corporation Act, the Articles of Incorporation of the corporation are hereby
amended and restated in their entirety to read as follows:
ARTICLE I
NAME
The name of the corporation is MSH Entertainment Corporation.
ARTICLE II
PURPOSES AND POWERS
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Utah Revised
Business Corporation Act and any amendments thereto.
ARTICLE III
AUTHORIZED SHARES
The Corporation is authorized to issue two classes of shares,
designated as "Common Stock" and "Preferred Stock". The number of shares of
Common Stock the corporation is authorized to issue is One Hundred Fifty Million
(150,000,000), and the number of shares of Preferred Stock the corporation is
authorized to issue is Twenty-Five Million (25,000,000). The classes, par value,
designations, preferences, voting rights, dividends, convertibility,
redeemability, and the right to participate in the proceeds of liquidation shall
be determined by the Board of Directors of the Corporation from time to time,
prior to the issuance of shares of Preferred Stock.
ARTICLE IV
OFFICER AND DIRECTOR LIABILITY
(a) Except as otherwise required by Utah law, the corporation shall
indemnify and advance expenses to its directors, officers, employees,
fiduciaries or agents and to any person who is or was serving at the
corporation's request as a director, officer, partner, trustee, employee,
fiduciary or agent of another domestic or foreign corporation or other person or
of an employee benefit plan (and their respective estates or personal
representatives) to the fullest extent as from time to time permitted by Utah
law.
<PAGE>
(b) The personal liability of the directors and officers of the
corporation to the corporation or its shareholders, or to any third person,
shall be eliminated or limited to the fullest extent as from time to time
permitted by Utah law.
(c) Any repeal or modification of this Article IV by the shareholders
of the Corporation shall not adversely affect any right or protection of any
person existing at the time of such repeal or modification.
3. The foregoing amendment and restatement has been approved by the
Board of Directors of the corporation.
4. The foregoing amendment and restatement has been duly approved by
the required vote of shareholders of the corporation in accordance with Section
16-lOa-1003 of the Utah Revised Business Corporation Act. The only outstanding
capital stock of the corporation is Common Stock. The total number of shares of
Common Stock outstanding is 44,728,290. The number of shares entitled to be cast
on the amendment is 44,728,290, and the total number of shares voted in favor of
the amendment and restatement is 23,294,516, which was sufficient for the
approval of the amendment and restatement.
We further declare under penalty of perjury under the laws of the State
of Utah that the matters set forth in this Certificate are true and correct of
our own knowledge.
Dated: May 3, 1999
/s/ Robert P. Maerz
--------------------------------------------
Robert P. Maerz, Chief Executive Officer
/s/ Michael L. Welsh
--------------------------------------------
Michael Welsh, Secretary
BYLAWS
OF
MSH ENTERTAINMENT CORPORATION
I. OFFICES
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake, County of Salt Lake. The corporation may have
such other offices, either within or without the State of Utah, as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
II. SHAREHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the shareholders shall
be held in January of each year, at such time on such day within such month as
shall be fixed by the Board of Directors, for the purpose of electing directors
and for the transaction of such other business as may come before the meeting.
SECTION 2. Special Meetings. Special meetings of the shareholders, for
any purposes, unless otherwise prescribed by statute, may be called by the
Chairman of the Board of Directors, the President or by the Board of Directors,
and shall be called by the President at the request of the holders of not less
than 30% of all outstanding shares of the corporation entitled to vote at the
meeting.
SECTION 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Utah, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
SECTION 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purposes or purpose
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten (10) nor more than sixty (60) days before the
date of the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the officer or other persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
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<PAGE>
SECTION 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period, not less than ten (10) days, but not to exceed, in any case,
fifty (50) days. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
(50) days and, in case of a meeting of shareholders, not less than ten (10) days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of shareholders.
SECTION 6. Voting Record. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make a complete record
of the shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof.
SECTION 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote represented in person or by proxy, shall constitute
a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
SECTION 8. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact.
SECTION 9. Voting of Shares. Each outstanding share entitled to vote
shall have the voting rights specified in the Articles of Incorporation of the
corporation.
SECTION 10. Informal Action by Shareholders. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof
III. BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors.
SECTION 2. Number, Tenure and Qualifications. The number of directors
of the corporation shall be seven (7). Each director shall hold office until the
next annual meeting of shareholders and until his successor shall have been
elected and qualified. Directors need not be residents of the State of Utah or
shareholders of the corporation.
SECTION 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Utah, for the holding of additional regular meetings
without other notice than such resolution.
2
<PAGE>
SECTION 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board of Directors,
the President or any two directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place, either within or
without the State of Utah, as the place for holding any special meeting of the
Board of Directors called by them.
SECTION 5. Notice. Notice of any special meeting shall be given at
least two (2) days previously thereto by written notice delivered personally or
mailed to each director at his business address or at least one (1) day
previously thereto by actual telephonic notice to each director. Such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid, if by mail, or at the time the call is
completed, if by telephone. Any director may waive notice of any meeting. The
attendance of a director of a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 6. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
SECTION 7. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 8. Action Without a Meeting. Any action required or permitted
to be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 9. Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of directors by the shareholders.
SECTION 10. Compensation. By resolution of the Board of Directors, each
director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
3
<PAGE>
IV. OFFICERS
SECTION 1. Number. The officers of the corporation shall be the
Chairman of the Board of Directors, a Chief Executive Officer, a President, one
or more Vice Presidents, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. Such other officers and assistant officers as
may be deemed necessary may be elected or appointed by the Board of Directors.
Any two or more offices may be held by the same person.
SECTION 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. Chairman of the Board of Directors. The Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors and,
subject to its direction, shall perform such acts on behalf of the corporation
as he or she determines are appropriate.
SECTION 6. Chief Executive Officer and President. The President and the
Chief Executive Officer shall be the principal executive officers of the
corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
corporation. The Chief Executive Officer shall, when present, preside at all
meetings of the shareholders and shall also preside at meetings of the Board of
Directors in the absence of the Chairman of the Board of Directors or at the
request of the Chairman. The Chief Executive Officer, and the President, either
acting alone, may sign any deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these Bylaws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or executed; and
in general shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to time.
SECTION 7. Vice President. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents, in the other
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may perform such other
duties as from time to time may be assigned to him or her by the President or by
the Board of Directors.
SECTION 8. Secretary. The Secretary (and any Assistant Secretary)
shall: (a) keep the minutes of the proceedings of the shareholders and of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporation records and of the seal
of the corporation; (d) keep a register of the address of each shareholder; (e)
sign with the President, or a Vice President, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the corporation; and (g) in general perform all of the duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him or her by the President or by the Board of Directors.
4
<PAGE>
SECTION 9. Treasurer. The Treasurer shall (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositories as shall be determined by the
Board of Directors; and (c) in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him or her by the President or by the Board of Directors.
SECTION 10. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or Treasurer or by the
President or the Board of Directors.
SECTION 11. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
SECTION 12. Signature of Checks. Payment for corporate debts made by
check or check vouchers may be signed by any of the officers of the corporation,
or otherwise as the Board of Directors may from time to time by resolution
direct.
V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or Vice President
and by the Secretary or an Assistant Secretary and sealed with the corporate
seal or facsimile thereof if such seal has been adopted by the Board of
Directors.
SECTION 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the
corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
5
<PAGE>
VI. DIVIDENDS
The Board of Directors may, from time to time, declare and the
corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and its Articles of Incorporation.
VII. CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
VIII. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the corporation under the provisions of these Bylaws or under the
provisions of the Utah Business Corporation Act, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
IX. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board of Directors or by the shareholders at any regular or
special meeting.
X. INDEMNIFICATION
To the full extent permitted by its Articles of Incorporation and by
the Utah Business Corporation Act, the Corporation shall indemnify (and advance
expenses to) its directors, officers and employees in connection with any
action, suit, or proceeding, civil or criminal, to which such persons are made
party by reason of being or having been a director, officer or employee of the
Corporation. Additionally, the Corporation shall provide such indemnification
of, and advancement of expenses to, such of its agents as the Board of Directors
of the Corporation shall, from time to time, deem necessary, required or
appropriate.
6
<PAGE>
CERTIFICATE OF ASSISTANT SECRETARY
OF
MSH ENTERTAINMENT CORPORATION
a Utah Corporation
The undersigned, Assistant Secretary of MSH Entertainment Corporation,
a Utah corporation, hereby certifies that attached hereto are the Bylaws of MSH
Entertainment Corporation, duly adopted by the Board of Directors of the
corporation, and such Bylaws are now in effect and have not been amended or
rescinded.
IN WITNESS WHEREOF, I have hereunto set my hand this __ day of
September, 1998.
/s/ Michael L. Welsh
------------------------------------------
Michael L. Welsh, Assistant Secretary
7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 1st
day of January, 1999, by and between MSH Entertainment Corporation, its
affiliates and subsidiaries (collectively the "Company"), as employer, and
Robert P. Maerz (the "Executive") as a key employee of the Company.
Preliminary Statements:
A. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company and
desires to assure the Company of the Executive's continued employment and to
compensate him therefore.
C. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
D. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
Agreements:
NOW, THEREFORE, in consideration of the promises and mutual covenants set forth
herein, the parties agree as follows:
1. Employment.
1.1 General. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, on the terms
and subject to the conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the Chairman-of-the-Board of Directors and the
Chief Executive Officer ("CEO") of the Company, and shall diligently perform all
the services as may be assigned to him by the Board, and shall exercise such
power and authority as may from time to time be delegated to him by the Board.
Executive shall have full control over all aspects of Company and will be
entitled to engage in all the activities of the Company's creative and business
activities. The Executive agrees to devote a reasonable amount of his time and
attention to the business and affairs of the Company, render such services to
the best of his ability, and use his best efforts to promote the interests of
the Company.
2. Term.
2.1 Initial Term. The initial term of this Agreement and the
employment of the Executive hereunder shall be for the three (3) year period
commencing on the date of the execution of this Agreement (the "Initial Term"),
unless sooner terminated in accordance with the terms and conditions hereof.
2.2 Renewal Terms. The Initial Term of this Agreement, and
the employment of the Executive hereunder, may be renewed and extended for an
additional two (2) years at the election of Executive and for such additional
periods as may be mutually agreed to by the Company and the Executive in a
written supplement to this Agreement signed by the Executive and the Company
(the "Written Supplement").
<PAGE>
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of One Hundred and Seventy-Five Thousand Dollars ($175,000.00)
(the "Base Salary") during the Initial Term of this Agreement, with such Base
Salary payable, in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. If the term of this
Agreement shall be renewed and extended as provided in Section 2.2 hereof, then
during such renewal term of his employment hereunder the Executive shall be paid
an increased base salary as set forth in the Written Supplement. Such base
salary shall be increased each year the amount of which shall be made as per
mutual agreement of the Executive and Company, to account for cost of living
increases and in no event will the increase be less than prevailing COLA Index
(U.S. Government "Cost of Living Allowance" Index) to account for cost of living
increases and shall be made regardless of any incentive compensation.
3.2 Incentive Compensation.
(a) In addition to the Base Salary, the Executive shall
be entitled to receive annual incentive compensation (the "Incentive
Compensation") based on performance which shall be no less than that of any
other key employee and shall be a percentage of the Company's adjusted gross
profits at the end of each calendar year during the term of the Executive's
employment hereunder.
(b) For purposes of this Agreement, the amount of the
Incentive Compensation payable with respect to any calendar year (net of any tax
or other amount properly withheld therefrom) shall be paid by the Company to
Executive upon completion of the year end audited financials which is not to
exceed One Hundred and Twenty Days (120) after the end of the calendar year;
provided, however, that any amount paid shall be subject to increase or decrease
based upon the results of review of the financial statements with respect to
such year.
4. Expense Reimbursement and Other Benefits.
4.1 Expense Reimbursement. The Executive shall be entitled to
reimbursement by the Company for all reasonable business expenses incurred by
him in connection with the performance of his duties hereunder, provided
however, that such entitlement is conditioned upon the Executive providing the
Company with appropriate documentation of such expenses in accordance with
Company policy and based on the guidelines currently set for the Company by
either the Chief Operating Officer and/or the Chief Financial Officer of the
Company.
4.2 Insurance. The Executive shall be entitled to
participation in all medical, hospitalization, disability and group life
insurance plans, and any and all other employee benefit plans, as are
hereinafter provided by the Company to its executives. Additionally, Executive
shall be provided with a "key man" insurance policy which shall an amount that
is no less than any other key executive of the Company, effective within a
reasonable time after receiving the results of a doctor's physical.
4.3 Vacation. The Executive shall be entitled to four (4)
weeks paid vacation per year in accordance with the Company's prevailing policy
for its executives; provided, however, that in no event may a vacation be taken
when to do so could reasonably be expected to materially and adversely affect
the Company's business.
<PAGE>
4.4 Automobile. The Company shall lease, in the Company's
name, an automobile ("Leased Vehicle") for the Executive's use during the term
of this Agreement. The Leased Vehicle shall be comparable to and shall not
exceed the monthly lease payment of Six Hundred and Twenty ($620) a month.
Additionally, Company shall provide a gasoline credit card which shall be used
for fuel related business expenses only, and shall not be used for any repairs
to the Leased Vehicle, that responsibility of the Executive. One monthly parking
space, estimated to be $283 per month, for the Executive shall be provided in an
indoor garage within walking distance to the office, for the term of this
Agreement. All business related tolls shall be reimbursed. In the event
Executive elects not to utilize a "leased vehicle" as outlined above, Company
shall pay Executive an amount equal to above to be utilized towards business
expenses to be determined by the Executive's sole discretion.
4.5 Living Allowance. Executive shall receive a living
allowance ("Living Allowance") commencing on the date of signing this Agreement
in the amount of Fifty Thousand Dollars ($50,000) annually. Said Living
Allowance shall be payable on the first day of each month thereafter in the
amount of Four Thousand One Hundred and Sixty-Seven Hundred Dollars ($4,167.00)
per month.
4.6 Corporate Credit Card. The Executive shall be provided
with an American Express Corporate charge card which shall be utilized solely
for Company business with full disclosure written on each customer's copy
receipt as to the nature of the business expenditure.
4.7 Board Of Directors. The Executive shall maintain his
position as the Chairman of the Board for the term of the Agreement and shall be
elected to each committee of the Board of Directors. Additionally, Executive
shall be considered key management, responsible for implementing and carrying
out the policies of the Company.
4.8 Stock Options. Executive shall be granted stock options
on the date hereof, the amount pursuant top the Option Agreement hereto and
shall participate in the stock-option plan of the Company whereby additional
stock options may be granted to Executive by the Board of Directors depending
upon the performance of the Executive and the Executive shall be entitled to
receive the maximum level of stock options granted any executive of the Company.
4.9 Retirement Fund. Company shall take part in the key man
retirement fund of the Company, which has been instituted for the Executive and
Company shall contribute to and maintain said fund for the duration of
Executive's employment hereunder.
4.10 Directors Insurance. Company shall provide Executive
with Director's and officer's insurance in the minimum amount of Two Million
Dollars ($2,000,000) within ten (10) business days after executing this
Agreement.
4.11 Right To Bind. Executive shall be granted signing rights
and approval rights on any and all legal documents and contracts of the Company,
it being agreed that any two (2) of the following individuals be the only
corporate officers allowed to sign for and bind the Company, they being the
Executive (Robert Maerz), Jonathan Stathakis, John Gentile, Anthony Gentile
and/or Mike Welsh.
4.12 Check Signing. Executive shall be one (1) of five (5)
executives granted check signing power, the others being Robert Maerz, Anthony
Gentile, Mike Welsh and Fred Aurelio; however, it being agreed to that all
checks over Ten Thousand Dollars ($10,000.00) have dual signatures, one of them
being the Chief Financial Officer of the Company, unless agreed to otherwise.
4.13 Legal Fees. The Company shall pay the legal fees of the
Executive, if any, incurred in connection with this Agreement, it being agreed
by the parties hereto that said legal fees shall not exceed $10,000.
<PAGE>
4.14. Producer. Executive shall be entitled to be a paid
producer, supervising producer and/or executive producer and/or writer fees from
any and all programs that the Executive's services are requested. Said fees
shall be set by the budgetary guidelines for each production and shall not
exceed industry standards and in many cases may be below industry standards. It
is not the intent of the Company to have the Executive produce specific
programs, but only those which the Executive may be requested to produce and/or
executive producer by a broadcaster, distributor, buyer, production partner
and/or joint venture partner.
4.15 Moving Expenses. Company shall pay the moving expenses
of the Executive from Executive's current place of residency to the required
place of residency in New York for the performance of the Executive's duties,
said moving expenses are not to exceed the total sum of Six Thousand Dollars
($6,000.00). If Executive elects to maintain a residence in both New York and
Los Angeles in conjunction with Executive's duties hereunder, Company shall only
be obligated to move the Executive's belongings, or partial belongings, whatever
the case may be, one time only and to one coast only.
4.16. Major Medical. Executive shall be provided with major
medical insurance unless Executive elects to retain his current insurance
whereby Company agrees to pay for same as long as the amount paid by Company
does not exceed any sum paid for major medical insurance for any senior
executive of the Company. Any amount over and above shall be borne by and be the
responsibility of the Executive.
4.17. Other Benefits. Notwithstanding the foregoing, the
Executive shall be entitled to any additional employee benefits which are no
less favorable than those currently in operation in the Company.
5. Termination.
5.1 Termination For Cause. The Company shall at all times
have the right, upon written notice with a reasonable opportunity to cure any
such breach by the Executive, to terminate the Executive's employment hereunder
for cause (as hereinafter defined). For purposes of this Agreement, the term
"Cause" shall mean (a) a willful breach by the Executive of any of the material
terms or provisions of this Agreement; (b) the charging or indictment of the
Executive in connection with a felony, (c) commission by the Executive of an act
or acts involving fraud, embezzlement, misappropriation, theft, breach of
fiduciary duty or dishonesty against property or personnel of the Company; or
(d) willful or reckless conduct by the Executive which the Board in good faith
determines could reasonably be expected to have a material adverse effect on the
business, assets, properties, results of operations, financial condition or
prospects of the Company. Upon any termination pursuant to this Section 5.1, the
Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability under this Agreement
(other than for the reimbursement for reasonable pre-approved business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.2 Disability. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, if the Executive shall, as the result of mental or
physical incapacity, illness or disability become unable to perform his duties
hereunder for in excess of ninety (90) calendar days in any twelve (12) month
period. Upon any termination pursuant to this Section 5.2, (a) the Company shall
pay to the Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the effective date of termination plus 12 months base salary,
(ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b),
an amount equal to the Incentive Compensation, if any, payable to him in respect
of the calendar year in which such termination occurs, prorated for the period
of service by the Executive from the beginning of the calendar year through the
date of termination, and (b) the Company shall have no further liability under
this Agreement (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
<PAGE>
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, (a) the Company shall pay to the estate of
the deceased Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the date of death, (ii) one year's living expenses, plus (ii) in
accordance with Section 3.2(b), an amount equal to the Incentive Compensation,
if any, payable to him in respect to the calendar year of the Company in which
such death occurs, prorated for the period of service by the Executive from the
beginning of such calendar year through the date of his death, and (b) the
Company shall have no further liability under this Agreement (other than for
reimbursement for reasonable pre-approved business expenses incurred prior to
the date of the Executive's death, subject, however, to the provisions of
Section 4.1). All stock ownership rights and stock-options vested at the time of
death shall inure to the Estate of Executive. Heirs of Executive shall have the
same time frame to exercise options as the Executive had, had he been still
living. Said stock, stock-options and/or warrants shall not entitle the heirs of
Executive to any management voting rights in the Company, but all beneficial and
financial rights shall vest in the heirs accordingly.
5.4 Resignation By Executive. Executive is required, and
agrees, to give the Company a two (2) month notice prior to such resignation or
voluntary termination of his employment, the purpose of which is to allow the
Company ample time to locate a senior management replacement for the Executive's
vacant position. Executive shall have the right to terminate for "good cause,"
for example, an occurrence whereby there is a change of control within the
Company and/or the Company defaults on any payment. Should the default not be
remedied after a 14 day cure period, Executive shall receive 10% of the Company
as liquidated damages.
6. Restrictive Covenants.
6.1 Non-competition. Except as provided in Section 1.2 and
with the Company's knowledge and acceptance that Executive has an ownership in
other projects previously created prior to the date of this Agreement between
Executive and other third parties, Executive, while employed by the Company and
during the Non-competition Period (as hereinafter defined), the Executive,
except as previously indicated, shall not, directly or indirectly, engage in or
have any interest in any sole proprietorship, partnership, corporation or
business or any other person or entity (whether as an employee, officer,
director, partner, agent, security holder, creditor, consultant or otherwise)
that directly or indirectly engages in any type of entertainment production,
business, marketing, computer or cell animation, graphics, distribution,
producing, writing, directing and/or manufacturing of any type of entertainment
product including, but not limited to, toys, records, videos, CD-ROM and
merchandising items anywhere throughout the universe. For purpose of this
Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's
employment is terminated pursuant to Section 5.4 above, the period beginning on
the effective date of resignation and ending one (1) year thereafter. Because
such mandatory restrictive covenants are being placed on the Executive, the
Company shall pay the Executive's base salary hereunder for a period of twelve
(12) months after termination of employment.
6.2 Nondisclosure. The Executive shall not divulge,
communicate, or use to the detriment of the Company or for the benefit of any
other person or persons, or misuse in any way, any confidential information,
trade secrets, secret information, confidential business information,
proprietary technology, internal financial statements or any and all other
sensitive data now known or hereafter acquired by the Executive with respect to
the business of the Company (which shall include, but not be limited to,
information concerning the Company's financial condition, prospects, customers,
sources of leads, methods of doing business, and the manner of design,
manufacture, financing, marketing and distribution of the Company's productions)
shall be deemed a valuable, special and unique asset of the Company that is
received by the Executive in confidence and as a fiduciary, and the Executive
shall remain a fiduciary to the Company with respect to all such information.
<PAGE>
6.3 Books and Records. All books, records and accounts
relating in any manner to the business, customers, suppliers or clients of the
Company and all other documents, disks, software or other items containing
confidential information relating to the Company, whether prepared by the
Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately, together
with any copies, to the Company on the termination of the Executive's employment
hereunder, or on the Company's request at any time.
6.5 Ownership of Inventions and Other Developments. Company
shall be entitled to own and control all proprietary technology and all
financial, operating and creative ideas, works, scripts, processes and
materials, including works of expression and copyrights in such works, that are
developed, written, or conceived by Executive during Executive's employment
hereunder to the extent that they relate to Company's current or potential
business. Accordingly, Executive will disclose, deliver, and assign to Company
all such created works, inventions, discoveries, improvements, trade secrets and
all works subject to copyright Executive agrees to execute all documents, patent
applications, and arrangements necessary to further document such ownership such
ownership and/or assignment and to take whatever other steps may be needed to
give Company the full benefit of them. Executive agrees that all copyrightable
materials generated or developed during the term of this Agreement shall be
considered works made for hire under the copyright laws of the United States and
that they shall, upon creation, be owned exclusively by the Company, and Company
shall be entitled to register and hold in its own name all copyrights in respect
to such materials. In regard to all properties conveyed or anticipated to be
conveyed under this Agreement, in the event Company is dissolved or unable to
meet its obligations under the stock purchase agreement, then all such works
shall revert to Executive and Executive shall have first right of refusal to
purchase all other works owned by Company.
7. Injunction. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. Bankruptcy. In the event of bankruptcy of the Company, Executive
shall have the first right of refusal, along with other key management, to
purchase and acquire the key assets, underlying patents and copyrights owned
and/or held by the Company at fair market value.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between and among the Executive, the
Company and/or any of their affiliates with respect to the subject matter
contained herein. Except for the obligation to pay any accrued but unpaid salary
due the Executive, all such prior agreements, understandings and arrangements
for the provision of services by the Executive to the Company and/or any of its
affiliates and the compensation of the Executive in any form shall automatically
terminate upon the consummation of the transactions contemplated by the Purchase
Agreement, and each party shall thereupon and thereby, without any further
action, release and forever discharge the other (and the other's affiliates)
from any and all liabilities and obligations of any nature arising out of or in
connection with any and all such prior agreements, understandings or
arrangements. This Agreement may not be modified in any way unless by a written
instrument signed by both the Company and the Executive.
<PAGE>
11. Notices. Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand, by facsimile or three (3) business
days after being deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, (I) if to the Company, to the
address of the Company's principal offices at 244 West 54th Street, 12th floor,
New York, New York, 10019, (ii) to the Executive, to his address as reflected on
the payroll records of the Company, or to such other address as either party
hereto may from time to time give notice of to the other.
12. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise; provided,
however, that under no circumstances may the Executive delegate his employment
obligations hereunder or any portion thereof.
13. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more words, phrases, sentences, clauses
or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
14. Waiver. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
15. Damages; Prevailing Party. Nothing contained herein shall be
construed to prevent the Company or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a result of its or
his breach of any term or provision of this Agreement. If there is any legal
action or proceeding to enforce or interpret any provision of this Agreement or
to protect or to establish any right or remedy of any party, the non-prevailing
party to such action or proceeding shall pay to the prevailing party all costs
and expenses, including reasonable attorney's fees and costs, incurred by such
prevailing party in such action or proceeding, in enforcing its judgment, and in
connection with any appeal from such judgment Reasonable attorney's fees and
costs incurred in enforcing any judgment or in connection with any appeal shall
be recoverable separately from and in addition to any other amount included in
such judgment. The prevailing party's rights under this Section 14 shall not
merge into any judgment and shall survive until all such fees and costs have
been paid.
16.Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
17. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
18. Subsidiaries. All reference to the "Company" in this Agreement,
including but not limited to those in Section 6, shall be deemed to include any
and all of the Company's direct and indirect subsidiaries to the extent the
context may require.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
By: /S/ Jonathan Stathakis By: /S/ Robert P. Maerz
-------------------------- ----------------------------
Company Executive
It's: Jonathan Stathakis, Pres. Robert P. Maerz
----------------------- ----------------------------
Print Name Print Name
12020 Chandler Bl. 11205 3rd Ave.
----------------------------- ----------------------------
Address Address
Ste. 300 Stone Harbor, NJ 08247
----------------------------- ----------------------------
Address Address
No. Hollywood, Ca 91607 Social Security # ###-##-####
----------------------------- ----------------------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 1st day of
January, 1999, by and between MSH Entertainment Corporation, its affiliates and
subsidiaries (collectively the "Company"), as employer, and Jonathan G.
Stathakis (the "Executive") as a key employee of the Company.
Preliminary Statements:
A. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company and
desires to assure the Company of the Executive's continued employment and to
compensate him therefore.
C. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
D. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
Agreements:
NOW, THEREFORE, in consideration of the promises and mutual covenants set forth
herein, the parties agree as follows:
1. Employment.
1.1 General. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, on the terms
and subject to the conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the President, Managing Director and Chief
Operating Officer ("COO") of the Company, and shall diligently perform all the
services as may be assigned to him by the Board, and shall exercise such power
and authority as may from time to time be delegated to him by the Board.
Executive shall have full control over all aspects of Company and will be
entitled to engage in all the activities of the Company's creative and business
activities. The Executive agrees to devote a reasonable amount of his time and
attention to the business and affairs of the Company, render such services to
the best of his ability, and use his best efforts to promote the interests of
the Company.
2. Term.
2.1 Initial Term. The initial term of this Agreement and the
employment of the Executive hereunder shall be for the three (3) year period
commencing on the date of the execution of this Agreement (the "Initial Term"),
unless sooner terminated in accordance with the terms and conditions hereof.
2.2 Renewal Terms. The Initial Term of this Agreement, and the
employment of the Executive hereunder, may be renewed and extended for an
additional two (2) years at the election of Executive and for such additional
periods as may be mutually agreed to by the Company and the Executive in a
written supplement to this Agreement signed by the Executive and the Company
(the "Written Supplement").
<PAGE>
Page 2 of 8 pages
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of One Hundred and Seventy-Five Thousand Dollars ($175,000.00)
(the "Base Salary") during the Initial Term of this Agreement, with such Base
Salary payable, in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. If the term of this
Agreement shall be renewed and extended as provided in Section 2.2 hereof, then
during such renewal term of his employment hereunder the Executive shall be paid
an increased base salary as set forth in the Written Supplement. Such base
salary shall be increased each year the amount of which shall be made as per
mutual agreement of the Executive and Company, to account for cost of living
increases and in no event will the increase be less than prevailing COLA Index
(U.S. Government "Cost of Living Allowance" Index) to account for cost of living
increases and shall be made regardless of any incentive compensation.
3.2 Incentive Compensation.
(a) In addition to the Base Salary, the Executive shall
be entitled to receive annual incentive compensation (the "Incentive
Compensation") based on performance which shall be no less than that of any
other key employee and shall be a percentage of the Company's adjusted gross
profits at the end of each calendar year during the term of the Executive's
employment hereunder.
(b) For purposes of this Agreement, the amount of the
Incentive Compensation payable with respect to any calendar year (net of any tax
or other amount properly withheld therefrom) shall be paid by the Company to
Executive upon completion of the year end audited financials which is not to
exceed One Hundred and Twenty Days (120) after the end of the calendar year
provided, however, that any amount paid shall be subject to increase or decrease
based upon the results of review of the financial statements with respect to
such year.
4. Expense Reimbursement and Other Benefits.
4.1 Expense Reimbursement. The Executive shall be entitled to
reimbursement by the Company for all reasonable business expenses incurred by
him in connection with the performance of his duties hereunder, provided
however, that such entitlement is conditioned upon the Executive providing the
Company with appropriate documentation of such expenses in accordance with
Company policy and based on the guidelines currently set for the Company by the
Chief Operating Officer and the Chief Financial Officer of the Company.
4.2 Insurance. The Executive shall be entitled to
participation in all medical, hospitalization, disability and group life
insurance plans, and any and all other employee benefit plans, as are
hereinafter provided by the Company to its executives. Additionally, Executive
shall be provided with a "key man" insurance policy which shall an amount that
is no less than any other key executive of the Company, effective within a
reasonable time after receiving the results of a doctor's physical.
4.3 Vacation. The Executive shall be entitled to four (4)
weeks paid vacation per year in accordance with the Company's prevailing policy
for its executives; provided, however, that in no event may a vacation be taken
when to do so could reasonably be expected to materially and adversely affect
the Company's business.
<PAGE>
Page 3 of 8 pages
4.4 Automobile. The Company shall lease, in the Company's
name, an automobile ("Leased Vehicle") for the Executive's use during the term
of this Agreement. The Leased Vehicle shall be comparable to and shall not
exceed the monthly lease payment of Six Hundred and Twenty ($620) a month.
Additionally, Company shall provide a gasoline credit card which shall be used
for fuel related business expenses only, and shall not be used for any repairs
to the Leased Vehicle, that responsibility of the Executive. One monthly parking
space, estimated to be $283 per month, for the Executive shall be provided in an
indoor garage within walking distance to the office, for the term of this
Agreement. All business related tolls shall be reimbursed. In the event
Executive elects not to utilize a "leased vehicle" as outlined above, Company
shall pay Executive an amount equal to above to be utilized towards business
expenses to be determined by the Executive's sole discretion.
4.5 Living Allowance. Executive shall receive a living
allowance ("Living Allowance") commencing on the date of signing this Agreement
in the amount of Sixty Thousand Dollars ($60,000) annually. Said Living
Allowance shall be payable on the first day of each month thereafter in the
amount of Five Thousand Dollars ($5,000.00) per month.
4.6 Corporate Credit Card. The Executive shall be provided
with an American Express Corporate charge card which shall be utilized solely
for Company business with full disclosure written on each customers copy receipt
as to the nature of the business expenditure.
4.7 Board Of Directors. The Executive shall maintain his
position as a member of the Board for the term of the Agreement and shall be
elected to each committee of the Board of Directors. Additionally, Executive
shall be considered key management, responsible for implementing and carrying
out the policies of the Company.
4.8 Stock Options. Executive shall be granted stock options
on the date hereof, the amount pursuant top the Option Agreement hereto and
shall participate in the stock-option plan of the Company whereby additional
stock options may be granted to Executive by the Board of Directors depending
upon the performance of the Executive and the Executive shall be entitled to
receive the maximum level of stock options granted any executive of the Company.
Executive has and shall maintain an Eight Percent Equity (8%) interest in
Company. Executive shall be granted additional options to, on a periodic basis,
maintain this ownership level.
4.9 Liquidity Event. Executive shall be granted a "Liquidity
Event" at least once per year to be able to sell stock as additional
compensation.
4.10 Retirement Fund. Company shall take part in the key man
retirement fund of the Company, which has been instituted for the Executive and
Company shall contribute to and maintain said fund for the duration of
Executive's employment hereunder.
4.11 Director's Insurance. Company shall provide Executive
with Director's and officer's insurance in the minimum amount of Two Million
Dollars ($2,000,000) within ten (10) business days after executing this
Agreement
4.12 Right To Bind. Executive shall be granted signing rights
and approval rights on any and all legal documents and contracts of the Company,
it being agreed that any two (2) of the following individuals be the only
corporate officers allowed to sign for and bind the Company, they being the
Executive, Robert Maerz and Michael Welsh.
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Page 4 of 8 pages
4.12 Check Signing. Executive shall be one (1) of four (4)
executives granted check signing power, the others being Robert Maerz, Mike
Welsh and Fred Aurelio: however, it being agreed to that all checks over Ten
Thousand Dollars ($10,000.00) have dual signatures, one of them being the Chief
Financial Officer of the Company, unless agreed to otherwise.
4.13 Legal Fees. The Company shall pay the legal fees of the
Executive, if any, incurred in connection with this Agreement, it being agreed
by the parties hereto that said legal fees shall not exceed $l0.000.
4.14. Producer. Executive shall be entitled to be a paid
producer, supervising producer and/or executive producer and/or writer fees from
any and all programs that the Executive's services are requested. Said fees
shall be set by the budgetary guidelines for each production and shall not
exceed industry standards and in many cases may be below industry standards. It
is not the intent of the Company to have the Executive produce specific
programs, but only those which the Executive may be requested to produce and/or
executive producer by a broadcaster, distributor, buyer, production partner
and/or joint venture partner.
4.15 Moving Expenses. Company shall pay the moving expenses
of the Executive from Executive's current place of residency to the required
place of residency in New York for the performance of the Executive's duties,
said moving expenses are not to exceed the total sum of Ten Thousand Dollars
($10,000.00). If Executive elects to maintain a residence in both New York and
Los Angeles in conjunction with Executive's duties hereunder, Company shall only
be obligated to move the Executive's belongings, or partial belongings, whatever
the case may be, one time only and to one coast only.
4.16. Major Medical. Executive shall be provided with major
medical insurance unless Executive elects to retain his current insurance
whereby Company agrees to pay for same as long as the amount paid by Company
does not exceed any sum paid for major medical insurance for any senior
executive of the Company. Any amount over and above shall be borne by and be the
responsibility of the Executive.
4.17. Other Benefits. Notwithstanding the foregoing, the
Executive shall be entitled to any additional employee benefits which are no
less favorable than those currently in operation in the Company.
5. Termination.
5.1 Termination For Cause. The Company shall at all times
have the right, upon written notice with a reasonable opportunity to cure any
such breach by the Executive, to terminate the Executive's employment hereunder
for cause (as hereinafter defined). For purposes of this Agreement, the term
"Cause" shall mean (a) a willful breach by the Executive of any of the material
terms or provisions of this Agreement; (b) the charging or indictment of the
Executive in connection with a felony; (c) commission by the Executive of an act
or acts involving fraud, embezzlement, misappropriation, theft, breach of
fiduciary duty or dishonesty against property or personnel of the Company; or
(d) willful or reckless conduct by the Executive which the Board in good faith
determines could reasonably be expected to have a material adverse effect on the
business, assets, properties, results of operations, financial condition or
prospects of the Company. Upon any termination pursuant to this Section 5.1, the
Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability under this Agreement
(other than for the reimbursement for reasonable pre-approved business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
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Page 5 of 8 pages
5.2 Disability. The Company shall at all times have the right
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability become unable to perform his duties hereunder
for in excess of ninety (90) calendar days in any twelve (12) month period. Upon
any termination pursuant to this Section 5.2, (a) the Company shall pay to the
Executive (I) immediately any unpaid amounts of his Base Salary accrued through
the effective date of termination plus 12 months base salary, (ii) one year's
living allowance, plus (ii) in accordance with Section 3.2 (b), an amount equal
to the Incentive Compensation, if any, payable to him in respect of the calendar
year in which such termination occurs, prorated for the period of service by the
Executive from the beginning of the calendar year through the date of
termination, and (b) the Company shall have no further liability under this
Agreement (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, (a) the Company shall pay to the estate of
the deceased Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the date of death, (ii) one year's living expenses, plus (ii) in
accordance with Section 3.2(b), an amount equal to the Incentive Compensation,
if any, payable to him in respect to the calendar year of the Company in which
such death occurs, prorated for the period of service by the Executive from the
beginning of such calendar year through the date of his death, and (b) the
Company shall have no further liability under this Agreement (other than for
reimbursement for reasonable pre-approved business expenses incurred prior to
the date of the Executive's death, subject, however, to the provisions of
Section 4.1). All stock ownership rights and stock-options vested at the time of
death shall inure to the Estate of Executive. Heirs of Executive shall have the
same time frame to exercise options as the Executive had, had he been still
living. Said stock, stock-options and/or warrants shall not entitle the heirs of
Executive to any management voting rights in the Company, but all beneficial and
financial rights shall vest in the heirs accordingly.
5.4 Resignation By Executive. Executive is required, and
agrees, to give the Company a two (2) month notice prior to such resignation or
voluntary termination of his employment, the purpose of which is to allow the
Company ample time to locate a senior management replacement for the Executive's
vacant position. Executive shall have the right to terminate for "good cause,"
for example, an occurrence whereby there is a change of control within the
Company and/or the Company defaults on any payment Should the default not be
remedied after a 14 day cure period, Executive shall receive 10% of the Company
as liquidated damages.
6. Restrictive Covenants.
6.1 Non-competition. Except as provided in Section 1.2 and
with the Company's knowledge and acceptance that Executive has an ownership in
other projects previously created prior to the date of this Agreement between
Executive and other third parties, Executive, while employed by the Company and
during the Non-competition Period (as hereinafter defined), the Executive,
except as previously indicated, shall not, directly or indirectly, engage in or
have any interest in any sole proprietorship, partnership, corporation or
business or any other person or entity (whether as an employee, officer,
director, partner, agent, security holder, creditor, consultant or otherwise)
that directly or indirectly engages in any type of entertainment production,
business, marketing, computer or cell animation, graphics, distribution,
producing, writing, directing and/or manufacturing of any type of entertainment
product including, but not limited to, toys, records, videos, CD-ROM and
merchandising items anywhere throughout the universe. For purpose of this
Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's
employment is terminated pursuant to Section 5.4 above, the period beginning on
the effective date of resignation and ending one (1) year thereafter. Because
such mandatory restrictive covenants are being placed on the Executive, the
Company shall pay the Executive's base salary hereunder for a period of twelve
(12) months after termination of employment.
<PAGE>
Page 6 of 8 pages
6.2 Nondisclosure. The Executive shall not divulge,
communicate, or use to the detriment of the Company or for the benefit of any
other person or persons, or misuse in any way, any confidential information,
trade secrets, secret information, confidential business information,
proprietary technology, internal financial statements or any and all other
sensitive data now known or hereafter acquired by the Executive with respect to
the business of the Company (which shall include, but not be limited to,
information concerning the Company's financial condition, prospects, customers,
sources of leads, methods of doing business, and the manner of design,
manufacture, financing marketing and distribution of the Company's productions)
shall be deemed a valuable, special and unique asset of the Company that is
received by the Executive in confidence and as a fiduciary, and the Executive
shall remain a fiduciary to the Company with respect to all such information.
6.3 Books and Records. All books, records and accounts
relating in any manner to the business, customers, suppliers or clients of the
Company and all other documents, disks, software or other items containing
confidential information relating to the Company, whether prepared by the
Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately, together
with any copies, to the Company on the termination of the Executive's employment
hereunder, or on the Company's request at any time.
6.5 Ownership of Inventions and Other Developments. Company
shall be entitled to own and control all proprietary technology and all
financial, operating and creative ideas, works, scripts, processes and
materials, including works of expression and copyrights in such works, that are
developed, written, or conceived by Executive during Executive's employment
hereunder to the extent that they relate to Company's current or potential
business. Accordingly, Executive will disclose, deliver, and assign to Company
all such created works, inventions, discoveries, improvements, trade secrets and
all works subject to copyright. Executive agrees to execute all documents,
patent applications, and arrangements necessary to further document such
ownership such ownership and/or assignment and to take whatever other steps may
be needed to give Company the full benefit of them. Executive agrees that all
copyrightable materials generated or developed during the term of this Agreement
shall be considered works made for hire under the copyright laws of the United
States and that they shall, upon creation, be owned exclusively by the Company,
and Company shall be entitled to register and hold in its own name all
copyrights in respect to such materials. In regard to all properties conveyed or
anticipated to be conveyed under this Agreement, in the event Company is
dissolved or unable to meet its obligations under the stock purchase agreement,
then all such works shall revert to Executive and Executive shall have first
right of refusal to purchase all other works owned by Company.
7. Injunction. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. Bankruptcy. In the event of bankruptcy of the Company, Executive
shall have the first right of refusal, along with other key management, to
purchase and acquire the key assets, underlying patents and copyrights owned
and/or held by the Company at fair market value.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
<PAGE>
Page 7 of 8 pages
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between and among the Executive, the
Company and/or any of their affiliates with respect to the subject matter
contained herein. Except for the obligation to pay any accrued but unpaid salary
due the Executive, all such prior agreements, understandings and arrangements
for the provision of services by the Executive to the Company and/or any of its
affiliates and the compensation of the Executive in any form shall automatically
terminate upon the consummation of the transactions contemplated by the Purchase
Agreement and each party shall thereupon and thereby, without any further
action, release and forever discharge the other (and the other's affiliates)
from any and all liabilities and obligations of any nature arising out of or in
connection with any and all such prior agreements, understandings or
arrangements. This Agreement may not be modified in any way unless by a written
instrument signed by both the Company and the Executive.
11. Notices. Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand, by facsimile or three (3) business
days after being deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, (I) if to the Company, to the
address of the Company's principal offices at 244 West 54th Street, 12th floor,
New York, New York, 10019, (ii) to the Executive, to his address as reflected on
the payroll records of the Company, or to such other address as either party
hereto may from time to time give notice of to the other.
12. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise; provided,
however, that under no circumstances may the Executive delegate his employment
obligations hereunder or any portion thereof.
13. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more words, phrases, sentences, clauses
or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
14. Waiver. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
15. Damages; Prevailing Party. Nothing contained herein shall be
construed to prevent the Company or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a result of its or
his breach of any term or provision of this Agreement. If there is any legal
action or proceeding to enforce or interpret any provision of this Agreement or
to protect or to establish any right or remedy of any party, the non-prevailing
party to such action or proceeding shall pay to the prevailing party all costs
and expenses, including reasonable attorney's fees and costs, incurred by such
prevailing party in such action or proceeding, in enforcing its judgment, and in
connection with any appeal from such judgment. Reasonable attorney's fees and
costs incurred in enforcing any judgment or in connection with any appeal shall
be recoverable separately from and in addition to any other amount included in
such judgment. The prevailing party's rights under this Section 14 shall not
merge into any judgment and shall survive until all such fees and costs have
been paid.
16. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
<PAGE>
Page 8 of 8 pages
17. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
18. Subsidiaries. All reference to the "Company" in this Agreement,
including but not limited to those in Section 6, shall be deemed to include any
and all of the Company's direct and indirect subsidiaries to the extent the
context may require.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
By:/S/ Robert P. Maerz By:/S/ Jonathan Stathakis
------------------------- -------------------------
Company Executive
It's: Chief Executive Officer Jonathan Stathakis
------------------------ -------------------------
Print Name Print Name
____________________________ _________________________
Address Address
____________________________ _________________________
Address Address
____________________________ Social Security # _______
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 1st day of
January, 1999, by and between MSH Entertainment Corporation, its affiliates and
subsidiaries (collectively the "Company") as employer, and Michael L. Welsh (the
"Executive") as key employee of the company.
PRELIMINARY STATEMENTS
A. The Executive possesses intimate knowledge of the business and
affairs of the company, its policies, methods and personnel
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success to the company
and desires to assure the Company of the Executives continued
employment and to compensate him therefor.
C. The board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the
Company
D. The Executive is willing to make his service, on the terms to serve
the Company's available to the Company on the terms and conditions
hereinafter set forth.
AGREEMENTS
NOW, THEREFORE, in consideration of the promises and mutual covenants set forth
herein, the parties agree as follows:
1. Employment.
1.1 General. The company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the
Company, on the terms and subject to the conditions set forth
herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the Chief Financial Officer
("CFO") and Treasurer and Secretary of the Company, and shall
diligently perform all the services as may be assigned to him
by the Board, and shall exercise such power and authority as
may from time to time be delegated to him by the Board. The
Executive shall have full control of the Company and will be
entitled to engage in all the activities of the Company's
business activities. The Executive agrees to devote a
reasonable amount of his time and attention to the business
and affairs of the Company, render such services to the best
of his ability, and use his best efforts to promote the
interests of the Company.
<PAGE>
2. Term.
2.1 Initial Term. The Initial Term of this Agreement and the
employment of the Executive hereunder shall be for the Three
(3) year period commencing on the date of the execution of
this Agreement (the "Initial Term"), unless sooner terminated
in accordance with the terms and conditions hereof.
2.2 Renewal Terms. The Initial Term of this Agreement, and the
employment of the Executive hereunder, may be renewed and
extended for an additional two (2) years at the election of
the Executive and for such additional periods as may be
mutually agreed to by the Company and the Executive in a
written supplement to this Agreement signed by the Executive
and the Company (the "Written Supplement").
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of One Hundred and Seventy Five Thousand
Dollars ($175,000) (the "Base Salary") during the Initial Term
of this Agreement, with such Base Salary payable, in
installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes.
If the term of this Agreement shall be renewed and extended as
provided in Section 2.2 hereof, then during such renewal term
of his employment hereunder the Executive shall be paid an
increased base salary as set forth in the Written Supplement.
Such base salary shall be increased each year the amount of
which shall be made as per mutual agreement of the Executive
and Company, to account for the cost of living increases and
in no event will the increase be less than prevailing COLA
Index (U.S. Government "Cost of Living Allowance" Index) to
account for cost of living increases and shall be made
regardless of any incentive compensation.
3.2 Incentive Compensation.
(a) In addition to the Base Salary, the Executive shall be
entitled to receive annual incentive compensation (the
"Incentive Compensation") based on performance which shall
be no less than that of any other key employee and shall be
a percentage of the Company's adjusted gross profits at the
end of each calendar year during the term of the Executive's
employment hereunder.
(b) For purposes of this Agreement, the amount of the
Incentive Compensation payable with respect to any calendar
year (net of any tax or other amount properly withheld
therefrom) shall be paid by the company to the Executive
upon completion of the year end audited
<PAGE>
financials which is not to exceed One Hundred and Twenty
Days (120) days after the end of the calendar year;
provided, however, that any amount paid shall be subject to
increase or decrease based upon the results of review of the
financial statements with respect to such year.
(c) In the event that the Executive's employment is
terminated upon the expiration of the Initial Term, the
Executive shall be entitled to payment to a prorate share of
the initial term Incentive Compensation, if any, that has
been or will be paid by the company for the period beginning
after the Initial Term to the date of termination.
4. Expense Reimbursement and Other Benefits.
4.1 Expense Reimbursement. The Executive shall be entitled to
reimbursement by the Company for all reasonable business
expenses incurred by him in connection with the performance of
his duties hereunder, provided that such entitlement is
conditioned upon the Executive providing the Company with
appropriate documentation of such expenses in accordance with
company policy set by the Chief Financial Officer.
4.2 Insurance. The Executive shall be entitled to
participation in all medical, hospitalization, disability and
group life insurance plans, and any and all other benefit
plans, as are presently and hereinafter provided by the
Company to its executives. Additionally, Executive shall be at
an amount that is no less than any other key executive of the
Company.
4.3 Vacation. The Executive shall be entitled to four (4)
weeks vacation paid per year in accordance with the Company's
prevailing policy for its key executives; provided, however,
that in no event may a vacation be taken when to do so could
reasonably be expected to materially and adversely effect the
company's business.
4.4 Corporate Credit Card. The Executive shall be provided
with a Corporate charge card which shall be utilized solely
for Company business with full disclosure of its business
purpose in accordance with company policy.
4.5 Working Facilities. The Company shall furnish the
Executive with an office, secretarial help and other
facilities and services suitable to his position and adequate
for his performance of his duties hereunder.
<PAGE>
4.6 Board Of Directors. The Executive shall be appointed to
full Board of Directors membership of the Company and where
possible on any and all current or future MSHE subsidiary
companies owned or formed by MSHE and/or those formed by the
Executive either individually or with non-MSHE personnel. The
Executive shall receive confirmation of the initial
appointment to the full Board of Directors of the Company in
the form of a Board resolution of no later than fourteen
business days after the signing of this agreement. The
Executive shall maintain a position on the Board and be
Chairman of the Audit Committee for the term of the Agreement.
Additionally, Executive shall be considered key management,
responsible for implementing and carrying out the policies of
the Company.
4.7 Stock Options. Executive shall be granted stock options on
the date hereof, the amount pursuant to the Option Agreement
hereto and shall participate in the stock -option plan of the
Company whereby additional stock options may be granted to
Executive by the Board of Directors depending upon the
performance of the Executive and the Executive shall be
entitled to receive the maximum level of stock options granted
any executive of the company. In addition, Executive shall be
entitled to shares and/or options of any and all new companies
and/or corporations formed by the Company. Executive shall
also be entitled to shares and/or options whereby Executive
assisted in the implementation of the forming of new
corporations in conjunction with others not associated with
the company. Executive at the signing of this Agreement has a
1.6% Equity interest in Company. Executive shall be granted
additional options on a periodic basis to maintain this
ownership level minimum.
4.8 Retirement Fund. Company shall take part in the key man
retirement fund of the Company, which has been instituted for
the Executive and Company shall contribute to and maintain
said fund for the duration of Executive's employment
hereunder.
4.9 Liquidity Event. Executive shall be granted and "Liquidity
Event" at least once per year, to sell stock as additional
compensation.
4.10 Automobile. The Company shall lease, in the company's
name, an automobile ("Leased Vehicle") for the Executive's use
during the term of this Agreement. The Leased Vehicle shall be
comparable to and shall not exceed the monthly lease payment
of Six Hundred and twenty ($620) a month. Additionally,
Company shall provide a gasoline credit card which shall be
sued for fuel related business expenses only, and shall not be
used for any repairs to the Leased Vehicle, that
responsibility of the Executive. One monthly parking space
estimated to be $283 per month, for the executive shall
<PAGE>
be provided in an indoor garage within walking distance to the
office, for the term of this agreement. All business related
tools shall be reimbursed. In the event Executive elects not
to utilize a "Leased Vehicle" as outlined above, Company shall
pay the Executive an amount equal to above to be utilized
towards business expenses to be determined by the Executive's
sold discretion.
4.11 Deleted and not applicable.
4.12 Retirement Fund. The Executive will participate in a Key
Man split dollar retirement investment fund and will be
maintained and funded quarterly for the duration of the
Executive's employment hereunder. Executive shall be provided
funding to this fund at an amount that is no less than any
other key executive of the Company.
4.13 Director Insurance. Company shall provide Executive with
Director's and Officer's insurance in the minimum of Two
Million Dollars ($2,000,000) million coverage within ten (10)
business days after executing this agreement.
4.14 Check Signing. Executive shall be one of the five
executives granted check signing authority, the others being
Robert P. Maerz, Anthony Gentile, John Gentile, and Fred
Aurelio; However, it being agreed to that all checks over Ten
Thousand Dollars ($10,000.00) have dual signatures and that
one of them be the Executive. In addition all funds received
and or disbursed by the company and/or subsidiaries be
received and/or disbursed in the company's New York City
office by the Executive.
4.15 Right to Bind. Executive shall be granted signing rights
and approval rights on any and all legal documents and
contracts of the Company, if being agreed that any two (2) of
the following individuals be the only corporate officers
allowed to sign for and bind the Company, they being the
Executive (Michael L. Welsh), Robert P. Maerz, Jonathan
Stathakis, John Gentile and/or Anthony Gentile.
4.17 Lodging and Travel. The Executive shall be entitled in
the performance of his duties on behalf of the Company while
working in New York City, New York to utilize the Warwick
Hotel located at 65 West 54th Street, NY, N.Y. or equivalent,
as a place of abode while away from his personal residence in
Cherry Hill, New Jersey. The Company shall pay all reasonable
business expenses incurred by him provided, however, that such
entitlement is conditioned upon the Executive providing the
Company with appropriate documentation of such expenses in
<PAGE>
accordance with Company policy. The Executive shall receive a
monthly travel allowance of $600.00 and shall be entitled to
reimbursement by Company for all reasonable business expenses
incurred by him in connection with any domestic and/or foreign
trade and/or convention related or otherwise, which are in
connection with his duties hereunder. Executive, at his option
and with proper notice shall be granted permission to maintain
an apartment in New York City. Said lease to be negotiated in
good faith and be the responsibility of the company.
4.18 Personal Expenses. The Company shall not pay the
Executive's personal expenses including, but not limited to,
insurance (except as noted in this agreement), legal and
accounting expenses.
4.19 Major Medical. Executive shall be provided with major
medical insurance unless Executive elects to retain his
current insurance whereby Company agrees to pay for same as
long as the amount paid des not exceed any sum paid for major
medical insurance for any senior Company executive. Any
additional amount shall be paid by and be the responsibility
of the Executive.
4.20 Legal Fees. The Company shall pay legal fees of the
Executive, if any, incurred in connection with this Agreement,
if being agreed by the parties hereto that said legal fees
shall not exceed $10,000.
5. Termination.
5.1 Termination For Cause. The Company shall at all times have
the right, upon written notice with a reasonable opportunity
to cure any such breach by the Executive, to terminate the
Executive's employment hereunder for cause (as hereinafter
defined). For purposes of this Agreement, the term "Cause"
shall mean (a) a willful breach by the Executive of any of the
material terms or provisions of this Agreement; (b) the
charging or indictment of the Executive in connection with a
felony; (c) commission by the Executive of an act or acts
involving fraud, embezzlement, misappropriation, theft, breach
of fiduciary duty or dishonesty against property or personnel
of the Company; or (d) willful or reckless conduct by the
Executive which the Board in good faith determines could
reasonably be expected to have a material adverse effect on
the business, assets, properties, results of operations,
financial condition or prospects of the Company. Upon any
termination pursuant to this section 5.1, the Executive shall
be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability
under this Agreement (other than for the reimbursement for
reasonable pre-approved business expenses incurred prior to
the date of termination, subject, however, to the provision of
Section 4.1).
<PAGE>
5.2 Disability. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the
Executive's employment hereunder, if the Executive shall, as
the result of mental or physical incapacity, illness or
disability become unable to perform his duties hereunder for
in excess of ninety (90) calendar days in any twelve (12)
month period. Upon any termination pursuant to this section
5.2 (a) the Company shall pay to the Executive (i) immediately
any unpaid amounts of his Base Salary accrued through the
effective date of termination plus 12 months base salary, plus
one year's living allowance plus (ii) in accordance with
section 3.2 (b), an amount equal to the Incentive
Compensation, if any, payable to him in respect of the
calendar year in which such termination occurs, prorated for
the period of service by the Executive from the beginning of
the calendar year through the date of termination, and (b) the
Company shall have no further liability under this Agreement
(other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however,
to the provisions of section 4.1).
5.3 Death. I the event of the death of the Executive during
the term of him employment hereunder, (a) the company shall
pay to the estate of the deceased Executive (i) immediately
any unpaid amounts of his Base Salary accrued through the date
of the death, plus one years living, plus (ii) in accordance
with section 3.2 (b), an amount equal to the Incentive
Compensation, if any, payable to him in respect to the
calendar year of the Company in which such death occurs,
prorated for the period of service by the Executive from the
beginning of such calendar year through the date of his death,
and (b) the Company shall have no further liability under this
Agreement (other than for reimbursement for reasonable
pre-approved business expenses incurred prior to the date of
the Executive's death, subject, however, to the provisions of
Section 4.1). All stock ownership rights and stock options
and/or warrants shall not entitle the heirs of Executive to
any management voting rights in the Company, but all
beneficial and financial rights shall vest in the heirs
accordingly.
5.3 Resignation By Executive. Executive is required, and
agrees, to give the Company a two (2) month notice prior to
such resignation or voluntary termination of his employment,
the purpose of which is to allow the Company ample time to
locate a senior management replacement for the Executive's
vacant position. Executive shall have the right to terminate
for "good cause", for example, an occurrence whereby there is
a change of control within the Company and/or the Company
defaults on any payment. Should the default not be remedied
after a 14 day cure period, Executive shall receive at a
minimum 1.6% of the Company as liquidated damages.
6. Restrictive Covenants.
<PAGE>
6.1 Non-competition. Except as provided in Section 1.2 and
with the Company's knowledge and acceptance that Executive and
other third parties, Executive, while employed by the Company
and during the Non-competition Period (as hereinafter
defined), the Executive, except as previously indicated, shall
not, directly or indirectly, engage in or have any interest in
any sole proprietorship, partnership, corporation or business
in any other person or entity (whether as an employee,
officer, director, partner, agent, security holder, creditor,
consultant, or otherwise) that directly or indirectly engages
in any type of entertainment production, business, marketing,
computer or cell animation, graphics, distribution, producing,
writing, directing and/or manufacturing of any type of
entertainment product including, but not limited to toys,
records, videos, CD-ROM and merchandising items anywhere
throughout the universe. For purpose of the Section 6.1, the
term "Non-competition Period" shall mean (a) the Executive's
employment is terminated pursuant to Section 5.4 above, the
period beginning on the effective date of resignation and
ending one (1) year thereafter. Because such mandatory
restrictive covenants are being placed on the Executive, the
Company shall pay the Executive's base salary hereunder for a
period of twelve (12) months after termination of employment.
6.2 Nondisclosure. The Executive shall not divulge,
communication, or use to the detriment of the Company or for
the benefit of any other person or persons, or misuse in any
way, any confidential information, trade secrets, secret
information, confidential business information, proprietary
technology, internal financial information or any and all
other sensitive data now known or hereafter acquired by the
Executive with respect to the business of the Company (which
shall include, but not limited to, information concerning the
Company's financial, marketing and distribution of the
Company's productions) shall be deemed a valuable, special and
unique asset of the Company that is received by the Executive
in confidence and as a fiduciary, and the Executive shall
remain a fiduciary to the Company with respect to all such
information.
6.3 Books and Records. All books and records accounts relating
in any manner to the business, customers, suppliers or clients
of the Company and all other documents, disks, software or
other items containing confidential information relating to
the Company, whether prepared by the Executive or otherwise
coming into the Executive's possession, shall be the exclusive
property of the Company and shall be returned immediately,
together with any copies, to the Company on the termination of
the Executive's employment hereunder, or on the Company's
request at any time.
6.4 Ownership of inventions and Other Development. Company
shall be entitled to own and control all proprietary
technology and all financial, operating and creative ideas,
works, scripts, processes and materials, including works of
expression and copyrights in such works,
<PAGE>
that are developed, written, or conceived by Executive during
Executive's employment hereunder to the extent that they
relate to Company's current or potential business.
Accordingly, Executive will disclose, deliver, and assign to
Company all such created works, inventions, discoveries,
improvements, trade secrets and all works subject to
copyright. Executive agrees to execute all documents, patent
applications, and arrangements necessary to further document
such ownership and/or assignment and to take whatever other
steps may be needed to give Company the full benefit of them.
Executive agrees that all copyrightable materials generated or
developed during the term of this Agreement (Shall be
considered works made for hire under the copyright laws of the
United States and that they shall, upon creation, be owned
exclusively by the Company, and Company shall be entitled to
register and hold in its own name all copyrights in respect to
such materials. In regard to all properties conveyed or
anticipated to be conveyed under this Agreement, in the event
Company is dissolved or unable to meet its obligations under
the stock purchase agreement, then all such works shall revert
to Executive and Executive shall have first right of refusal
to purchase all other work owned by Company.
7. Injunction. It is recognized and hereby acknowledged by the
parties hereto that a breach by the Executive of any of the
covenants contained in Section 6 of this Agreement will cause
irreparable harm and damage to the Company, the monetary
amount of which may be virtually impossible to ascertain. As a
result, the Executive recognizes and hereby acknowledges that
the Company shall be entitled to an injunction from any court
of competent jurisdiction enjoining and restraining any
violation of any or all of the covenants contained in Section
6 of the agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly,
and that such right to injunction shall be cumulative and in
addition to whatever other remedies the Company may possess.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
New York.
9. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the
subject matter hereof and, upon its effectiveness, shall
supersede all prior agreements, understandings and
arrangements, both oral and written, between and among the
Executive, the Company and/or any of their affiliates with
respect to the subject matter contained herein. Except for the
obligation to pay any accrued but unpaid salary due the
Executive all such prior agreements, understandings and
arrangements for the provision of services by the Executive to
the Company and/or any of its affiliates and the compensation
of the Executive in any form shall automatically terminate
upon the consummation of the transactions contemplated by the
Purchase Agreement, and each party shall thereupon and
thereby, without any further action, release and forever
discharge the other (and the other's affiliates) from any and
all liabilities and obligations of any nature arising out of
or in connection with any and all such prior agreements,
understandings or arrangements. This Agreement may not be
modified in any way unless by a written instrument signed by
both the Company and the Executive.
<PAGE>
11. Notices. Any notice required or permitted to be given
hereunder shall be deemed given when delivered by hand, by
facsimile or three (3) business days after being deposited in
the United States mail, by registered or certified mail,
return receipt requested, postage prepaid, if to the Company,
to the address of the Company's principal offices at 244 West
54th Street, 12th Floor, New York, Y 10019, (ii) to the
Executive, to his address as reflected on the payroll records
of the Company, or to such other address as either party
hereto may from time to time give notice of to the other.
12. Benefits: Binding Effect. This agreement shall be for the
benefit of and binding upon the parties hereto and their
respective heirs, personal representatives, legal
representatives, successors and, where applicable, assigns,
including without limitation, any successor to the Company,
whether by merger, consolidation, sale of stock, sale of
assets or otherwise, provided, however, that under no
circumstances may the Executive delegate his employment
obligations hereunder or any portion thereof.
13. Severability. The invalidity of any one or more of the
words, phrases, sentences, clauses or sections contained in
this agreement shall not affect the enforceability of the
remaining portions of this Agreement or any part thereof, all
of which clauses or sections contained in this Agreement are
inserted conditionally on their being valid in law, and, in
the event that any one or more words, phrases, sentences,
clauses or sections contained in this Agreement shall be
declared invalid, this Agreement shall be construed as if such
invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, or section or sections had not
been inserted. If such invalidity is caused by length of time
or size of area, or both, the otherwise invalid provision will
be considered to be reduced to a period or are which would
cure such invalidity.
14. Waiver. The waiver by either party hereto of a breach or
violation of any term or provision of this Agreement shall not
operate nor be construed as a waiver of any subsequent breach
or violation.
15. Damages, Prevailing Party. Nothing contained herein shall
be construed to prevent the Company or the Executive from
seeking and recovering from the other damages sustained by
either or both of them as a result of its or his breach of any
term or provision of this Agreement. If there is any legal
action or proceeding to enforce or interpret any provision of
this AGREEMENT or to protect or to establish any right or
remedy of any party, the non-prevailing party to such action
of proceeding shall pay to the prevailing party all costs and
expenses, including reasonable attorney's fees and costs,
incurred by such prevailing party in such action or
proceeding, in enforcing its judgment, and in connection with
any appeal from such judgment. Reasonable
<PAGE>
attorney fees and costs incurred in enforcing any judgment or
in connection with any appear shall be recoverable separately
from and in addition to any other amount included in such
judgment. The prevailing party's rights under section 14 shall
not merge into any judgment and shall survive until all such
fees and costs have been paid.
16. Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this agreement.
17. No Third Party Beneficiary. Nothing expressed or implied
in this Agreement is intended, or shall be construed, to
confer upon or implied in this Agreement is intended, or shall
be construed, to confer upon or give any person other than the
Company, the parties hereto and their respective heirs,
personal representatives, legal representatives, successors
and assigns, any rights or remedies under or by reason of this
Agreement.
18. Subsidiaries. All references to the "Company" in this
agreement, including but not limited to those in Section 6,
shall be deemed to include any and all of the Company's direct
and indirect subsidiaries to the extent the context may
require.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
BY: /s/Robert P. Maerz BY: /s/Michael L. Welsh
----------------------------- -----------------------------
MSH Entertainment Corporation Michael L. Welsh
Robert P. Maerz
Chairman and CEO
244 W. 54th Street 303 Wexford Drive
New York, NY 10019 Cherry Hill, NJ 08003
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this first (1st) day of
January, 1999, by and between MSH Entertainment Corporation, its affiliates and
subsidiaries (collectively the "Company"), as employer, and Fred Aurelio (the
"Executive") as a key employee of the Company.
Preliminary Statements:
A. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company and
desires to assure the Company of the Executive's continued employment and to
compensate him therefore.
C. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
D. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
Agreements:
NOW, THEREFORE, in consideration of the promises and mutual covenants set forth
herein, the parties agree as follows:
1. Employment.
1.1 General. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, on the terms
and subject to the conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the Vice-President/General Manager of the Company,
and shall diligently perform all the services as may be assigned to him by the
Board, and shall exercise such power and authority as may from time to time be
delegated to him by the Board. Executive shall have full control over all
aspects of Company and will be entitled to engage in all the activities of the
Company's creative and business activities. The Executive agrees to devote a
reasonable amount of his time and attention to the business and affairs of the
Company, render such services to the best of his ability, and use his best
efforts to promote the interests of the Company.
2. Term.
2.1 Initial Term. The initial term of this Agreement and the
employment of the Executive hereunder shall be for the three (3) year period
commencing on the date of the execution of this Agreement (the "Initial Term"),
unless sooner terminated in accordance with the terms and conditions hereof.
2.2 Renewal Terms. The Initial Term of this Agreement, and
the employment of the Executive hereunder, may be renewed and extended for an
additional two (2) years at the election of Executive and for such additional
periods as may be mutually agreed to by the Company and the Executive in a
written supplement to this Agreement signed by the Executive and the Company
(the "Written Supplement").
<PAGE>
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of One Hundred Twenty-Five Thousand Dollars ($125,000.00) (the
"Base Salary") during the Initial Term of this Agreement with such Base Salary
payable, in installments consistent with the Company's normal payroll schedule,
subject to applicable withholding and other taxes. If the term of this Agreement
shall be renewed and extended as provided in Section 2.2 hereof, then during
such renewal term of his employment hereunder the Executive shall be paid an
increased base salary as set forth in the Written Supplement. Such base salary
shall be increased each year the amount of which shall be made as per mutual
agreement of the Executive and Company, to account for cost of living increases
and in no event will the increase be less than prevailing COLA Index (U.S.
Government "Cost of Living Allowance" Index) to account for cost of living
increases and shall be made regardless of any incentive compensation.
3.2 Incentive Compensation.
(a) In addition to the Base Salary, the Executive shall
be entitled to receive annual incentive compensation (the "Incentive
Compensation") based on performance which shall be no less than that of any
other key employee and shall be a percentage of the Company's adjusted gross
profits at the end of each calendar year during the term of the Executive's
employment hereunder.
(b) For purposes of this Agreement, the amount of the
Incentive Compensation payable with respect to any calendar year (net of any tax
or other amount properly withheld therefrom) shall be paid by the Company to
Executive upon completion of the year end audited financials which is not to
exceed One Hundred and Twenty Days (120) after the end of the calendar year;
provided, however, that any amount paid shall be subject to increase or decrease
based upon the results of review of the financial statements with respect to
such year.
4. Expense Reimbursement and Other Benefits.
4.1 Expense Reimbursement. The Executive shall be entitled to
reimbursement by the Company for all reasonable business expenses incurred by
him in connection with the performance of his duties hereunder, provided
however, that such entitlement is conditioned upon the Executive providing the
Company with appropriate documentation of such expenses in accordance with
Company policy and based on the guidelines currently set for the Company by
either the Chief Operating Officer and/or the Chief Financial Officer of the
Company.
4.2 Insurance. The Executive shall be entitled to
participation in all medical, hospitalization, disability and group life
insurance plans, and any and all other employee benefit plans, as are
hereinafter provided by the Company to its executives.
4.3 Vacation. The Executive shall be entitled to four (4)
weeks paid vacation per year in accordance with the Company's prevailing policy
for its executives; provided, however, that in no event may a vacation be taken
when to do so could reasonably be expected to materially and adversely affect
the Company's business.
4.4 Automobile. Company shall lease an automobile for the
Executive's at a sum not to exceed of Six Hundred Dollars ($600). Additionally,
all business related toils and fuel shall be reimbursed to the Executive upon
presentation of verifiable receipts to the Company.
<PAGE>
4.5 Corporate Credit Card. The Executive shall be provided
with an American Express Corporate charge card which shall be utilized solely
for Company business with full disclosure written on each customer's copy
receipt as to the nature of the business expenditure.
4.6 Stock Options. Executive shall be granted stock options
on the date hereof, the amount pursuant top the Option Agreement hereto and
shall participate in the stock-option plan of the Company whereby additional
stock options may be granted to Executive by the Board of Directors depending
upon the performance of the Executive and the Executive shall be entitled to
receive the maximum level of stock options granted any executive of the Company.
4.7 Director's and Officer's Insurance. Company shall provide
Executive with Director's and officer's insurance in the minimum amount of Two
Million Dollars ($2,000,000) within ten (10) business days after executing this
Agreement.
4.8. Major Medical. Executive shall be provided with major
medical insurance unless Executive elects to retain his current insurance
whereby Company agrees to pay for same as long as the amount paid by Company
does not exceed any sum paid for major medical insurance for any senior
executive of the Company. Any amount over and above shall be borne by and be the
responsibility of the Executive.
4.9. Other Benefits. Notwithstanding the foregoing, the
Executive shall be entitled to any additional employee benefits which are no
less favorable than those currently in operation in the Company.
5. Termination.
5.1 Termination For Cause. The Company shall at all times
have the right, upon written notice with a reasonable opportunity to cure any
such breach by the Executive, to terminate the Executive's employment hereunder
for cause (as hereinafter defined). For purposes of this Agreement, the term
"Cause" shall mean (a) a willful breach by the Executive of any of the material
terms or provisions of this Agreement; (b) the charging or indictment of the
Executive in connection with a felony; (c) commission by the Executive of an act
or acts involving fraud, embezzlement misappropriation, theft breach of
fiduciary duty or dishonesty against property or personnel of the Company; or
(d) willful or reckless conduct by the Executive which the Board in good faith
determines could reasonably be expected to have a material adverse effect on the
business, assets, properties, results of operations, financial condition or
prospects of the Company. Upon any termination pursuant to this Section 5.1, the
Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability under this
Agreement.
5.2 Disability. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, if the Executive shall, as the result of mental or
physical incapacity, illness or disability become unable to perform his duties
hereunder for in excess of ninety (90) calendar days in any twelve (12) month
period. Upon any termination pursuant to this Section 5.2, (a) the Company shall
pay to the Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the effective date of termination plus 12 months base salary,
(ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b),
an amount equal to the Incentive Compensation, if any, payable to him in respect
of the calendar year in which such termination occurs, prorated for the period
of service by the Executive from the beginning of the calendar year through the
date of termination, and (b) the Company shall have no further liability under
this Agreement (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
<PAGE>
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, (a) the Company shall pay to the estate of
the deceased Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the date of death, (ii) one year's living expenses, plus (ii) in
accordance with Section 3.2(b), an amount equal to the Incentive Compensation,
if any, payable to him in respect to the calendar year of the Company in which
such death occurs, prorated for the period of service by the Executive from the
beginning of such calendar year through the date of his death, and (b) the
Company shall have no further liability under this Agreement (other than for
reimbursement for reasonable pre-approved business expenses incurred prior to
the date of the Executive's death, subject, however, to the provisions of
Section 4.1). All stock ownership rights and stock-options vested at the time of
death shall inure to the Estate of Executive. Heirs of Executive shall have the
same time frame to exercise options as the Executive had, had he been still
living. Said stock, stock-options and/or warrants shall not entitle the heirs of
Executive to any management voting rights in the Company, but all beneficial and
financial rights shall vest in the heirs accordingly.
5.4 Resignation By Executive. Executive is required, and
agrees, to give the Company a two (2) month notice prior to such resignation or
voluntary termination of his employment, the purpose of which is to allow the
Company ample time to locate a senior management replacement for the Executive's
vacant position. Executive shall have the right to terminate for "good cause,"
for example, an occurrence whereby there is a change of control within the
Company and/or the Company defaults on any payment. Should the default not be
remedied after a 14 day cure period, Executive shall receive 10% of the Company
as liquidated damages.
6. Restrictive Covenants.
6.1 Non-competition. Except as provided in Section 1.2 and
with the Company's knowledge and acceptance that Executive has an ownership in
other projects previously created prior to the date of this Agreement between
Executive and other third parties, Executive, while employed by the Company and
during the Non-competition Period (as hereinafter defined), the Executive,
except as previously indicated, shall not, directly or indirectly, engage in or
have any interest in any sole proprietorship, partnership, corporation or
business or any other person or entity (whether as an employee, officer,
director, partner, agent, security holder, creditor, consultant or otherwise)
that directly or indirectly engages in any type of entertainment production,
business, marketing, computer or cell animation, graphics, distribution,
producing, writing, directing and/or manufacturing of any type of entertainment
product including, but not limited to, toys, records, videos, CD-ROM and
merchandising items anywhere throughout the universe. For purpose of this
Section 6.1, the term "Non-competition Period" shall mean (a) the Executive's
employment is terminated pursuant to Section 5.4 above, the period beginning on
the effective date of resignation and ending one (1) year thereafter. Because
such mandatory restrictive covenants are being placed on the Executive, the
Company shall pay the Executive's base salary hereunder for a period of twelve
(12) months after termination of employment.
6.2 Nondisclosure. The Executive shall not divulge,
communicate, or use to the detriment of the Company or for the benefit of any
other person or persons, or misuse in any way, any confidential information,
trade secrets, secret information, confidential business information,
proprietary technology, internal financial statements or any and all other
sensitive data now known or hereafter acquired by the Executive with respect to
the business of the Company (which shall include, but not be limited to,
information concerning the Company's financial condition, prospects, customers,
sources of leads, methods of doing business, and the manner of design,
manufacture, financing, marketing and distribution of the Company's productions)
shall be deemed a valuable, special and unique asset of the Company that is
received by the Executive in confidence and as a fiduciary, and the Executive
shall remain a fiduciary to the Company with respect to all such information.
<PAGE>
6.3 Books and Records. All books, records and accounts
relating in any manner to the business, customers, suppliers or clients of the
Company and all other documents, disks, software or other items containing
confidential information relating to the Company, whether prepared by the
Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately, together
with any copies, to the Company on the termination of the Executive's employment
hereunder, or on the Company's request at any time.
6.5 Ownership of Inventions and Other Developments. Company
shall be entitled to own and control all proprietary technology and all
financial, operating and creative ideas, works, scripts, processes and
materials, including works of expression and copyrights in such works, that are
developed, written, or conceived by Executive during Executive's employment
hereunder to the extent that they relate to Company's current or potential
business. Accordingly, Executive will disclose, deliver, and assign to Company
all such created works, inventions, discoveries, improvements, trade secrets and
all works subject to copyright. Executive agrees to execute all documents,
patent applications, and arrangements necessary to further document such
ownership such ownership and/or assignment and to take whatever other steps may
be needed to give Company the full benefit of them. Executive agrees that all
copyrightable materials generated or developed during the term of this Agreement
shall be considered works made for hire under the copyright laws of the United
States and that they shall, upon creation, be owned exclusively by the Company,
and Company shall be entitled to register and hold in its own name all
copyrights in respect to such materials. In regard to all properties conveyed or
anticipated to be conveyed under this Agreement, in the event Company is
dissolved or unable to meet its obligations under the stock purchase agreement,
then all such works shall revert to Executive and Executive shall have first
right of refusal to purchase all other works owned by Company.
7. Injunction. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. Bankruptcy. In the event of bankruptcy of the Company, Executive
shall have the first right of refusal, along with other key management to
purchase and acquire the key assets, underlying patents and copyrights owned
and/or held by the Company at fair market value.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between and among the Executive, the
Company and/or any of their affiliates with respect to the subject matter
contained herein. Except for the obligation to pay any accrued but unpaid salary
due the Executive, all such prior agreements, understandings and arrangements
for the provision of services by the Executive to the Company and/or any of its
affiliates and the compensation of the Executive in any form shall automatically
terminate upon the consummation of the transactions contemplated by the Purchase
Agreement and each party shall thereupon and thereby, without any further
action, release and forever discharge the other (and the other's affiliates)
from any and all liabilities and obligations of any nature arising out of or in
connection with any and all such prior agreements, understandings or
arrangements. This Agreement may not be modified in any way unless by a written
instrument signed by both the Company and the Executive.
<PAGE>
11. Notices. Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand, by facsimile or three (3) business
days after being deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, (I) if to the Company, to the
address of the Company's principal offices at 244 West 54th Street, 12th floor,
New York, New York, 10019, (ii) to the Executive, to his address as reflected on
the payroll records of the Company, or to such other address as either party
hereto may from time to time give notice of to the other.
12. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise; provided,
however, that under no circumstances may the Executive delegate his employment
obligations hereunder or any portion thereof.
13. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more words, phrases, sentences, clauses
or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
14. Waiver. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
15. Damages; Prevailing Party. Nothing contained herein shall be
construed to prevent the Company or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a result of its or
his breach of any term or provision of this Agreement. If there is any legal
action or proceeding to enforce or interpret any provision of this Agreement or
to protect or to establish any right or remedy of any party, the non-prevailing
party to such action or proceeding shall pay to the prevailing party all costs
and expenses, including reasonable attorney's fees and costs, incurred by such
prevailing party in such action or proceeding, in enforcing its judgment, and in
connection with any appeal from such judgment. Reasonable attorney's fees and
costs incurred in enforcing any judgment or in connection with any appeal shall
be recoverable separately from and in addition to any other amount included in
such judgment. The prevailing party's rights under this Section 14 shall not
merge into any judgment and shall survive until all such fees and costs have
been paid.
16. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
17. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
18. Subsidiaries. All reference to the "Company" in this Agreement,
including but not limited to those in Section 6, shall be deemed to include any
and all of the Company's direct and indirect subsidiaries to the extent the
context may require.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
By: ____________________ By:___________________
Company Executive
It's:___________________ ______________________
Print Name Print Name
________________________ ______________________
Address Address
________________________ ______________________
Address Address
________________________ Social Security #____________
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 17th day of
December, 1999, by and between Kids And Family Network. Inc. its affiliates and
subsidiaries ( collectively the "Company"), as employer, and Andrew Steiner (the
"Executive") as a key employee of the Company.
Preliminary Statements:
A. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company and
desires to assure the Company of the Executive's continued employment and to
compensate him therefore.
C. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
D. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
Agreements:
NOW, THEREFORE, in consideration of the promises and mutual covenants set forth
herein, the parties agree as follows:
1. Employment.
1.1 General. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, on the terms
and subject to the conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement,
the Executive shall serve as the Co-President of the Company, and shall
diligently perform all the services as may be assigned to him by the Board, and
shall exercise such power and authority as may from time to time be delegated to
him by the Board. Executive shall have full control over all aspects of Company
and will be entitled to engage in all the activities of the Company's creative
and business activities. The Executive agrees to devote a reasonable amount of
his time and attention to the business and affairs of the Company, render such
services to the best of his ability, and use his best efforts to promote the
interests of the Company.
2. Term.
2.1 Initial Term. The initial term of this Agreement and the
employment of the Executive hereunder shall be for the three (3) year period
commencing on the date of the execution of this Agreement (the "Initial Term"),
unless sooner terminated in accordance with the terms and conditions hereof.
2.2 Renewal Terms. The Initial Term of this Agreement, and
the employment of the Executive hereunder, may be renewed and extended for an
additional two (2) years at the election of Executive and for such additional
periods as may be mutually agreed to by the Company and the Executive.
<PAGE>
Page 2 of 7 pages
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary
payable no less than quarterly, at the annual rate of One Hundred and Fifty
Thousand Dollars ($150,000.00) (the "Base Salary") during the Initial Term of
this Agreement subject to applicable withholding and other taxes. If the term of
this Agreement shall be renewed and extended as provided in Section 2.2 hereof,
then during such renewal term of his employment hereunder the Executive shall be
paid an increased base salary, such base salary shall be increased each year the
amount of which shall be made as per mutual agreement of the Executive and
Company, to account for cost of living increases and in no event will the
increase be less than prevailing COLA Index (U.S. Government "Cost of Living
Allowance" Index) to account for cost of living increases and shall be made
regardless of any incentive compensation.
3.2 Incentive Compensation.
(a) In addition to the Base Salary, the Executive shall
be entitled to receive annual incentive compensation (the "Incentive
Compensation") based on performance which shall be no less than that of any
other key employee and shall be a percentage of the Company's adjusted gross
profits at the end of each calendar year during the term of the Executive's
employment hereunder.
(b) For purposes of this Agreement the amount of the
Incentive Compensation payable with respect to any calendar year (net of any tax
or other amount properly withheld therefrom) shall be paid by the Company to
Executive upon completion of the year end audited financials which is not to
exceed One Hundred and Twenty Days (120) after the end of the calendar year;
provided, however, that any amount paid shall be subject to increase or decrease
based upon the results of review of the financial statements with respect to
such year.
4. Expense Reimbursement and Other Benefits.
4.1 Expense Reimbursement. The Executive shall be entitled to
reimbursement by the Company for all reasonable business expenses incurred by
him in connection with the performance of his duties hereunder, provided
however, that such entitlement is conditioned upon the Executive providing the
Company with appropriate documentation of such expenses in accordance with
Company policy and based on the guidelines currently set for the Company by the
Board.
4.2 Insurance. The Executive shall be entitled to
participation in all medical, hospitalization, disability and group life
insurance plans, and any and all other employee benefit plans, as are
hereinafter provided by the Company to its executives. Additionally, Executive
shall be provided with a "key man" insurance policy which shall an amount that
is no less than any other key executive of the Company, effective within a
reasonable time after receiving the results of a doctor's physical.
4.3 Vacation. The Executive shall be entitled to four (4)
weeks paid vacation per year in accordance with the Company's prevailing policy
for its executives; provided, however, that in no event may a vacation be taken
when to do so could reasonably be expected to materially and adversely affect
the Company's business.
4.4 Board Of Directors. The Executive shall serve as a member
of the Board of Directors of the Company for the term of the Agreement and shall
be elected to each committee of the Board of Directors. Additionally, Executive
shall be considered key management, responsible for implementing and carrying
out the policies of the Company.
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Page 3 of 7 pages
4.5 Stock Options. Executive shall be granted Five Hundred
Thousand (500,000) shares of Kids And Family Network stock on the date hereof,
and shall participate in the stock-option plan of the Company whereby additional
stock options may be granted to Executive by the Board of Directors depending
upon the performance of the Executive and the Executive shall be entitled to
receive the maximum level of stock options granted any executive of the Company.
4.6 Liquidity Event. Executive shall be granted a "Liquidity
Event" at least once per year to be able to sell stock as additional
compensation.
4.7 Retirement Fund. Company shall take part in the key man
retirement fund of the Company, which has been instituted for the Executive and
Company shall contribute to and maintain said fund for the duration of
Executive's employment hereunder.
4.8 Director's Insurance. Company shall provide Executive
with Director's and officer's insurance in the minimum amount of Two Million
Dollars ($2,000,000) within ten (10) business days after executing this
Agreement.
4.9 Right To Bind. Executive shall be granted signing rights
and approval rights on any and all legal documents and contracts of the Company,
it being agreed that any two (2) key corporate offices be allowed to sign for
and bind the Company, including the Executive, Robert Maerz and David Pritchard.
4.10. Major Medical. Executive shall be provided with major
medical insurance unless Executive elects to retain his current insurance
whereby Company agrees to pay for same as long as the amount paid by Company
does not exceed any sum paid for major medical insurance for any senior
executive of the Company. Any amount over and above shall be borne by and be the
responsibility of the Executive.
4.11. Other Benefits. Notwithstanding the foregoing, the
Executive shall be entitled to any additional employee benefits which are no
less favorable than those currently in operation in the Company.
5. Termination.
5.1 Termination For Cause. The Company shall at all times
have the right, upon written notice with a reasonable opportunity to cure any
such breach by the Executive, to terminate the Executive's employment hereunder
for cause (as hereinafter defined). For purposes of this Agreement, the term
"Cause" shall mean (a) a willful breach by the Executive of any of the material
terms or provisions of this Agreement; (b) conviction of the Executive in
connection with a felony; (c) commission by the Executive of an act or acts
involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty
or dishonesty against property or personnel of the Company; or (d) willful or
reckless conduct by the Executive which the Board in good faith determines could
reasonably be expected to have a material adverse effect on the business,
assets, properties, results of operations, financial condition or prospects of
the Company. Upon any termination pursuant to this Section 5.1, the Executive
shall be entitled to be paid his Base Salary to the date of termination and the
Company shall have no further liability under this Agreement (other than for the
reimbursement for reasonable pre-approved business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1).
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Page 4 of 7 pages
5.2 Disability. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, if the Executive shall, as the result of mental or
physical incapacity, illness or disability become unable to perform his duties
hereunder for in excess of ninety (90) calendar days in any twelve (12) month
period. Upon any termination pursuant to this Section 5.2, (a) the Company shall
pay to the Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the effective date of termination plus 12 months base salary,
(ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b),
an amount equal to the Incentive Compensation, if any, payable to him in respect
of the calendar year in which such termination occurs, prorated for the period
of service by the Executive from the beginning of the calendar year through the
date of termination, and (b) the Company shall have no further liability under
this Agreement (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, (a) the Company shall pay to the estate of
the deceased Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the date of death, (ii) in accordance with Section 3.2(b), an
amount equal to the Incentive Compensation, if any, payable to him in respect to
the calendar year of the Company in which such death occurs, prorated for the
period of service by the Executive from the beginning of such calendar year
through the date of his death, and (b) the Company shall have no further
liability under this Agreement (other than for reimbursement for reasonable
pre-approved business expenses incurred prior to the date of the Executive's
death, subject, however, to the provisions of Section 4.1). All stock ownership
rights and stock-options vested at the time of death shall inure to the Estate
of Executive. Heirs of Executive shall have the same time frame to exercise
options as the Executive had, had he been still living. Said stock,
stock-options and/or warrants shall not entitle the heirs of Executive to any
management voting rights in the Company, but all beneficial and financial rights
shall vest in the heirs accordingly.
5.4 Resignation By Executive. Executive is required, and
agrees, to give the Company a two (2) month notice prior to such resignation or
voluntary termination of his employment, the purpose of which is to allow the
Company ample time to locate a senior management replacement for the Executive's
vacant position. Executive shall have the right to terminate for "good cause,"
for example, an occurrence whereby there is a change of control within the
Company and/or the Company defaults on any payment. Should the default not be
remedied after a 14 day cure period, Executive shall receive 10% of the Company
as liquidated damages.
6. Restrictive Covenants.
6.1 Non-competition. Except as provided in Section 1.2 and
with the Company's knowledge and acceptance that Executive has an ownership in
other projects previously created prior to the date of this Agreement between
Executive and other third parties, Executive, while employed by the Company and
during the non-competition period (as hereinafter defined), the Executive,
except as previously indicated, shall not, directly engage in or have any
interest in an entity that directly competes with the Company For purpose of
this Section 6.1, the term "Non-competition Period" shall mean (a) the
Executive's employment is terminated pursuant to Section 5.4 above, the period
beginning on the effective date of resignation and ending six (6) months
thereafter. Because such mandatory restrictive covenants are being placed on the
Executive, the Company shall pay the Executive's base salary hereunder for a
period of six (6) months after termination of employment, except those endeavors
permitted in 4.10 herein. Should the Company default on any payment, Executive
is released from Non-competition. Executive hereby discloses for exclusion of
non-compete the following business ventures in which he is presently involved.
MSH Entertainment.
<PAGE>
Page 5 of 7 pages
6.2 Nondisclosure. The Executive shall not divulge,
communicate, or use to the detriment of the Company or for the benefit of any
other person or persons, or misuse in any way, any confidential information,
trade secrets, secret information, confidential business information,
proprietary technology, internal financial statements or any and all other
sensitive data now known or hereafter acquired by the Executive with respect to
the business of the Company (which shall include, but not be limited to,
information concerning the Company's financial condition, prospects, customers,
sources of leads, methods of doing business, and the manner of design,
manufacture, financing, marketing and distribution of the Company's productions)
shall be deemed a valuable, special and unique asset of the Company that is
received by the Executive in confidence and as a fiduciary, and the Executive
shall remain a fiduciary to the Company with respect to all such information.
6.3 Books and Records. All books, records and accounts
relating in any manner to the business, customers, suppliers or clients of the
Company and all other documents, disks, software or other items containing
confidential information relating to the Company, whether prepared by the
Executive or otherwise coming into the Executives possession, shall be the
exclusive property of the Company and shall be returned immediately, together
with any copies, to the Company on the termination of the Executive's employment
hereunder, or on the Company's request at any time.
6.5 Ownership of Inventions and Other Developments. Company
shall be entitled to own and control all proprietary technology and all
financial, operating and creative ideas, works, scripts, processes and
materials, including works of expression and copyrights in such works, that are
developed, written, or conceived by Executive during Executive's employment
hereunder to the extent that they directly relate to Company's current business.
Accordingly, Executive will disclose, deliver, and assign to Company all such
created works, inventions, discoveries, improvements, trade secrets and all
works subject to copyright. Executive agrees to execute all documents, patent
applications, and arrangements necessary to further document such ownership such
ownership and/or assignment and to take whatever other steps may be needed to
give Company the full benefit of them. In regard to all properties conveyed or
anticipated to be conveyed under this Agreement, in the event Company is
dissolved or unable to meet its obligations under the stock purchase agreement,
then all such works shall revert to Executive and Executive shall have first
right of refusal to purchase all other works owned by Company.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California
8. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between and among the Executive, the
Company and/or any of their affiliates with respect to the subject matter
contained herein. Except for the obligation to pay any accrued but unpaid salary
due the Executive, all such prior agreements, understandings and arrangements
for the provision of services by the Executive to the Company and/or any of its
affiliates and the compensation of the Executive in any form shall automatically
terminate upon the consummation of the transactions contemplated by the Purchase
Agreement, and each party shall thereupon and thereby, without any further
action, release and forever discharge the other (and the other's affiliates)
from any and all liabilities and obligations of any nature arising out of or in
connection with any and all such prior agreements, understandings or
arrangements. This Agreement may not be modified in any way unless by a written
instrument signed by both the Company and the Executive.
<PAGE>
Page 6 of 7 pages
9. Notices. Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand, by facsimile or three (3) business
days after being deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, (I) if to the Company, to the
address of the Company's principal offices at 244 West 54th Street, 12th floor,
New York, New York, 10019, (ii) to the Executive, to his address as reflected on
the payroll records of the Company, or to such other address as either party
hereto may from time to time give notice of to the other.
10. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise; provided,
however, that under no circumstances may the Executive delegate his employment
obligations hereunder or any portion thereof.
11. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more words, phrases, sentences, clauses
or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
12. Waiver. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
13. Damages; Prevailing Party. Nothing contained herein shall be
construed to prevent the Company or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a result of its or
his breach of any term or provision of this Agreement. If there is any legal
action or proceeding to enforce or interpret any provision of this Agreement or
to protect or to establish any right or remedy of any party, the non-prevailing
party to such action or proceeding shall pay to the prevailing party all costs
and expenses, including reasonable attorney's fees and costs, incurred by such
prevailing party in such action or proceeding, in enforcing its judgment and in
connection with any appeal from such judgment. Reasonable attorney's fees and
costs incurred in enforcing any judgment or in connection with any appeal shall
be recoverable separately from and in addition to any other amount included in
such judgment. The prevailing party's rights under this Section 14 shall not
merge into any judgment and shall survive until all such fees and costs have
been paid.
14. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
15. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
16. Subsidiaries. All reference to the "Company" in this Agreement,
including but not limited to those in Section 6, shall be deemed to include any
and all of the Company's direct and indirect subsidiaries to the extent the
context may require.
<PAGE>
Page 7 of 7 pages
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
By:________________________________ By:_____________________________
Company Executive
It's:______________________________ ________________________________
Print Name Print Name
___________________________________ ________________________________
Address Address
___________________________________ ________________________________
Address Address
Social Security #:______________
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 17th day of
December, 1999, by and between Kids And Family Network, Inc. its affiliates and
subsidiaries (collectively the "Company"), as employer, and David Pritchard (the
"Executive") as a key employee of the Company.
Preliminary Statements:
A. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company and
desires to assure the Company of the Executive's continued employment and to
compensate him therefore.
C. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
D. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
Agreements:
NOW, THEREFORE, in consideration of the promises and mutual covenants set forth
herein, the parties agree as follows:
1. Employment.
1.1 General. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, on the terms
and subject to the conditions set forth herein.
1.2 Duties of Executive. During the term of this Agreement the
Executive shall serve as the Co-Chairman-of-the-Board of the Company, and shall
diligently perform all the services as may be assigned to him by the Board, and
shall exercise such power and authority as may from time to time be delegated to
him by the Board. Executive shall have full control over all aspects of Company
and will be entitled to engage in all the activities of the Company's creative
and business activities. The Executive agrees to devote a reasonable amount of
his time until April, 2000, and thereafter Executive shall devote no less than
80% of his time and attention to the business and affairs of the Company, render
such services to the best of his ability, and use his best efforts to promote
the interests of the Company.
2. Term.
2.1 Initial Term. The initial term of this Agreement and the
employment of the Executive hereunder shall be for the two (2) year period
commencing on the date of the execution of this Agreement (the "Initial Term"),
unless sooner terminated in accordance with the terms and conditions hereof.
2.2 Renewal Terms. The Initial Term of this Agreement and the
employment of the Executive hereunder, may be renewed and extended for an
additional two (2) years at the election of Executive and for such additional
periods as may be mutually agreed to by the Company and the Executive.
<PAGE>
Page 2 of 7 pages
3. Compensation.
3.1 Base Salary. The Executive shall receive a base salary at
the annual rate of Three Hundred and Fifty Thousand Dollars ($350,000.00) (the
"Base Salary") during the Initial Term of this Agreement, subject to applicable
withholding and other taxes. If the term of this Agreement shall be renewed and
extended as provided in Section 2.2 hereof, then during such renewal term of his
employment hereunder the Executive shall be paid an increased base salary, such
base salary shall be increased each year the amount of which shall be made as
per mutual agreement of the Executive and Company, to account for cost of living
increases and in no event will the increase be less than prevailing COLA Index
(U.S. Government "Cost of Living Allowance" Index) to account for cost of living
increases and shall be made regardless of any incentive compensation.
3.2 Incentive Compensation.
(a) In addition to the Base Salary, the Executive shall
be entitled to receive annual incentive compensation (the "Incentive
Compensation") based on performance which shall be no less than that of any
other key employee and shall be a percentage of the Company's adjusted gross
profits at the end of each calendar year during the term of the Executive's
employment hereunder.
(b) For purposes of this Agreement, the amount of the
Incentive Compensation payable with respect to any calendar year (net of any tax
or other amount properly withheld therefrom) shall be paid by the Company to
Executive upon completion of the year end audited financials which is not to
exceed One Hundred and Twenty Days (120) after the end of the calendar year;
provided, however, that any amount paid shall be subject to increase or decrease
based upon the results of review of the financial statements with respect to
such year.
4. Expense Reimbursement and Other Benefits.
4.1 Expense Reimbursement. The Executive shall be entitled to
reimbursement by the Company for all reasonable business expenses incurred by
him in connection with the performance of his duties hereunder, provided
however, that such entitlement is conditioned upon the Executive providing the
Company with appropriate documentation of such expenses in accordance with
Company policy and based on the guidelines currently set for the Company by the
Chief Operating Officer and the Chief Financial Officer of the Company. Company
shall pre-pay $12,500 of expenses each quarter.
4.2 Insurance. The Executive shall be entitled to
participation in all medical, hospitalization, disability and group life
insurance plans, and any and all other employee benefit plans, as are
hereinafter provided by the Company to its executives. Additionally, Executive
shall be provided with a "key man" insurance policy which shall an amount that
is no less than any other key executive of the Company, effective within a
reasonable time after receiving the results of a doctors physical.
4.3 Vacation. The Executive shall be entitled to four (4)
weeks paid vacation per year in accordance with the Company's prevailing policy
for its executives; provided, however, that in no event may a vacation be taken
when to do so could reasonably be expected to materially and adversely affect
the Company's business.
4.4 Board Of Directors. The Executive shall maintain his
position as the CO-Chairman of the Board for the term of the Agreement and shall
be elected to each committee of the Board of Directors. Additionally, Executive
shall be considered key management, responsible for implementing and carrying
out the policies of the Company.
<PAGE>
Page 3 of 7 pages
4.5 Stock Options. Executive shall be granted One Million
(1,000,000) shares of MSH Common Stock and Five Hundred Thousand (500,000)
shares of KidsAndFamily Network stock on the date hereof and shall participate
in the stock-option plan of the Company whereby additional stock options may be
granted to Executive by the Board of Directors depending upon the performance of
the Executive and the Executive shall be entitled to receive the maximum level
of stock options granted any executive of the Company.
4.6 Liquidity Event. Executive shall be granted a "Liquidity
Event" at least once per year to be able to sell stock as additional
compensation.
4.7 Retirement Fund. Company shall take part in the key man
retirement fund of the Company, which has been instituted for the Executive and
Company shall contribute to and maintain said fund for the duration of
Executive's employment hereunder.
4.8 Directors Insurance. Company shall provide Executive with
Director's and officer's insurance in the minimum amount of Two Million Dollars
($2,000,000) within ten (10) business days after executing this Agreement.
4.9 Right To Bind. Executive shall be granted signing rights
and approval rights on any and all legal documents and contracts of the Company,
it being agreed that any two (2) of the following individuals be the only
corporate officers allowed to sign for and bind the Company, they being the
Executive (Robert Maerz), Jonathan Stathakis, John Gentile or Anthony Gentile.
4.10 Producer. Executive shall be entitled to be a paid
producer, supervising producer and/or executive producer and/or writer fees from
any and all programs that the Executive's services are requested. Said fees
shall be set by the budgetary guidelines for each production and shall not
exceed industry standards and in many cases may be below industry standards. It
is not the intent of the Company to have the Executive produce specific
programs, but only those which the Executive may be requested to produce and/or
executive producer by a broadcaster, distributor, buyer, production partner
and/or joint venture partner.
4.11. Major Medical. Executive shall be provided with major
medical insurance unless Executive elects to retain his current insurance
whereby Company agrees to pay for same as long as the amount paid by Company
does not exceed any sum paid for major medical insurance for any senior
executive of the Company. Any amount over and above shall be borne by and be the
responsibility of the Executive.
4.12. Other Benefits. Notwithstanding the foregoing, the
Executive shall be entitled to any additional employee benefits which are no
less favorable than those currently in operation in the Company.
5. Termination.
5.1 Termination For Cause. The Company shall at all times
have the right, upon written notice with a reasonable opportunity to cure any
such breach by the Executive, to terminate the Executive's employment hereunder
for cause (as hereinafter defined). For purposes of this Agreement, the term
"Cause" shall mean (a) a willful breach by the Executive of any of the material
terms or provisions of this Agreement; (b) the charging or indictment of the
Executive in connection with a felony; (c) commission by the Executive of an act
or acts involving fraud, embezzlement, misappropriation, theft, breach of
<PAGE>
Page 4 of 7 pages
fiduciary duty or dishonesty against property or personnel of the Company; or
(d) willful or reckless conduct by the Executive which the Board in good faith
determines could reasonably be expected to have a material adverse effect on the
business, assets, properties, results of operations, financial condition or
prospects of the Company. Upon any termination pursuant to this Section 5.1, the
Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability under this Agreement
(other than for the reimbursement for reasonable pre-approved business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.2 Disability. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, if the Executive shall, as the result of mental or
physical incapacity, illness or disability become unable to perform his duties
hereunder for in excess of ninety (90) calendar days in any twelve (12) month
period. Upon any termination pursuant to this Section 5.2, (a) the Company shall
pay to the Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the effective date of termination plus 12 months base salary,
(ii) one year's living allowance, plus (ii) in accordance with Section 3.2 (b),
an amount equal to the Incentive Compensation, if any, payable to him in respect
of the calendar year in which such termination occurs, prorated for the period
of service by the Executive from the beginning of the calendar year through the
date of termination, and (b) the Company shall have no further liability under
this Agreement (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject however, to the provisions of
Section 4.1).
5.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, (a) the Company shall pay to the estate of
the deceased Executive (I) immediately any unpaid amounts of his Base Salary
accrued through the date of death, (ii) in accordance with Section 3.2(b), an
amount equal to the Incentive Compensation, if any, payable to him in respect to
the calendar year of the Company in which such death occurs, prorated for the
period of service by the Executive from the beginning of such calendar year
through the date of his death, and (b) the Company shall have no further
liability under this Agreement (other than for reimbursement for reasonable
pre-approved business expenses incurred prior to the date of the Executive's
death, subject, however, to the provisions of Section 4.1). All stock ownership
rights and stock-options vested at the time of death shall inure to the Estate
of Executive. Heirs of Executive shall have the same time frame to exercise
options as the Executive had, had he been still living. Said stock,
stock-options and/or warrants shall not entitle the heirs of Executive to any
management voting rights in the Company, but all beneficial and financial rights
shall vest in the heirs accordingly.
5.4 Resignation By Executive. Executive is required, and
agrees, to give the Company a two (2) month notice prior to such resignation or
voluntary termination of his employment, the purpose of which is to allow the
Company ample time to locate a senior management replacement for the Executive's
vacant position. Executive shall have the right to terminate for "good cause,"
for example, an occurrence whereby there is a change of control within the
Company and/or the Company defaults on any payment. Should the default not be
remedied after a 14 day cure period, Executive shall receive 10% of the Company
as liquidated damages.
<PAGE>
Page 5 of 7 pages
6. Restrictive Covenants.
6.1 Non-competition. Except as provided in Section 1.2 and
with the Company's knowledge and acceptance that Executive has an ownership in
other projects previously created prior to the date of this Agreement between
Executive and other third parties, Executive, while employed by the Company and
during the Non-competition Period (as hereinafter defined), the Executive,
except as previously indicated, shall not, directly engage in or have any
interest in any entity that directly competes with the Company. For purpose of
this Section 6.1, the term "Non-competition Period" shall mean (a) the
Executive's employment is terminated pursuant to Section 5.4 above, the period
beginning on the effective date of resignation and ending six months thereafter.
Because such mandatory restrictive covenants are being placed on the Executive,
the Company shall pay the Executive's base salary hereunder for a period of
twelve six months after termination of employment, except those endeavors
permitted in 4.10 herein. Should the Company default on any payment, Executive
is released from Non-Competition. Executive hereby discloses for exclusion of
non-compete the following business ventures in which he is presently involved:
Brilliant Digital, Beacon, MSH Entertainment, Alta Mira, Special Projects and
Financing Venture.
6.2 Nondisclosure. The Executive shall not divulge,
communicate, or use to the detriment of the Company or for the benefit of any
other person or persons, or misuse in any way, any confidential information,
trade secrets, secret information, confidential business information,
proprietary technology, internal financial statements or any and all other
sensitive data now known or hereafter acquired by the Executive with respect to
the business of the Company (which shall include, but not be limited to,
information concerning the Company's financial condition, prospects, customers,
sources of leads, methods of doing business, and the manner of design,
manufacture, financing, marketing and distribution of the Company's productions)
shall be deemed a valuable, special and unique asset of the Company that is
received by the Executive in confidence and as a fiduciary, and the Executive
shall remain a fiduciary to the Company with respect to all such information.
6.3 Books and Records. All books, records and accounts
relating in any manner to the business, customers, suppliers or clients of the
Company and all other documents, disks, software or other items containing
confidential information relating to the Company, whether prepared by the
Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately, together
with any copies, to the Company on the termination of the Executive's employment
hereunder, or on the Company's request at any time.
6.5 Ownership of Inventions and Other Developments. Company
shall be entitled to own and control all proprietary technology and all
financial, operating and creative ideas, works, scripts, processes and
materials, including works of expression and copyrights in such works, that are
developed, written, or conceived by Executive during Executive's employment
hereunder to the extent that they relate to Company's current business.
Accordingly, Executive will disclose, deliver, and assign to Company all such
created works, inventions, discoveries, improvements, trade secrets and all
works subject to copyright. Executive agrees to execute all documents, patent
applications, and arrangements necessary to further document such ownership such
ownership and/or assignment and to take whatever other steps may be needed to
give Company the full benefit of them. In regard to all properties conveyed or
anticipated to be conveyed under this Agreement, in the event Company is
dissolved or unable to meet its obligations under the stock purchase agreement,
then all such works shall revert to Executive and Executive shall have first
right of refusal to purchase all other works owned by Company.
<PAGE>
Page 6 of 7 pages
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between and among the Executive, the
Company and/or any of their affiliates with respect to the subject matter
contained herein. Except for the obligation to pay any accrued but unpaid salary
due the Executive, all such prior agreements, understandings and arrangements
for the provision of services by the Executive to the Company and/or any of its
affiliates and the compensation of the Executive in any form shall automatically
terminate upon the consummation of the transactions contemplated by the Purchase
Agreement, and each party shall thereupon and thereby, without any further
action, release and forever discharge the other (and the others affiliates) from
any and all liabilities and obligations of any nature arising out of or in
connection with any and all such prior agreements, understandings or
arrangements. This Agreement may not be modified in any way unless by a written
instrument signed by both the Company and the Executive.
9. Notices. Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand, by facsimile or three (3) business
days after being deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, (I) if to the Company, to the
address of the Company's principal offices at 244 West 54th Street, 12th floor,
New York, New York, 10019, (ii) to the Executive, to his address as reflected on
the payroll records of the Company, or to such other address as either party
hereto may from time to time give notice of to the other.
10. Benefits; Binding Effect. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise; provided,
however, that under no circumstances may the Executive delegate his employment
obligations hereunder or any portion thereof.
11. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more words, phrases, sentences, clauses
or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
<PAGE>
Page 7 of 7 pages
12. Waiver. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
14. Damages; Prevailing Party. Nothing contained herein shall be
construed to prevent the Company or the Executive from seeking and recovering
from the other damages sustained by either or both of them as a result of its or
his breach of any term or provision of this Agreement. If there is any legal
action or proceeding to enforce or interpret any provision of this Agreement or
to protect or to establish any right or remedy of any party, the non-prevailing
party to such action or proceeding shall pay to the prevailing party all costs
and expenses, including reasonable attorney's fees and costs, incurred by such
prevailing party in such action or proceeding in enforcing its judgment, and in
connection with any appeal from such judgment. Reasonable attorney's fees and
costs incurred in enforcing any judgment or in connection with any appeal shall
be recoverable separately from and in addition to any other amount included in
such judgment. The prevailing party's rights under this Section 14 shall not
merge into any judgment and shall survive until all such fees and costs have
been paid.
15. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
16. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
17. Subsidiaries. All reference to the "Company" in this Agreement
including but not limited to those in Section 6, shall be deemed to include any
and all of the Company's direct and indirect subsidiaries to the extent the
context may require.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
By:/S/ Robert P. Maerz By:/S/ David Pritchard
---------------------- ------------------------
Company Executive
It's: Chairman & CEO David Pritchard
-------------------- ---------------------------
Print Name Print Name
244 W. 54th St. 29230 Sea Lion Place
- ------------------------- ---------------------------
Address Address
N.Y., N.Y. 10010
- ------------------------- ---------------------------
Address Address
Social Security #:____________
[LETTERHEAD]
FILM ROMAN, INC.
12020 CHANDLER BLVD.
SUITE 200
NORTH HOLLYWOOD, CALIFORNIA 91607
TELEPHONE 818 761 2544
FAX 818 985 2973
As of December 8, 1998
Ms. Jane Seymour
Mr. James Keach
JJK Publishing
c/a Gregg Homer, Esq.
Homer, Kirsch & Mitchell
2029 Century Park East, Suite #2750
Los Angeles, CA 90067
RE: "This One n' That One"
----------------------
Ladies and Gentlemen:
We are pleased to confirm the agreement ("Agreement") between JJK
Publishing ("Lender") f/s/o Jane Seymour and James Keach (collectively
"Artists"),on the one hand, and Abrams/Gentile Entertainment Group,
Inc. and MSH, Inc. (collectively "MSH") and Film Roman, Inc. ("FRI"),
on the other hand, regarding the development and possible production,
financing and distribution of one (1) or more Productions (as defined
herein) entitled "This One n' That One" based upon the concept and
books created and written by Artists as of the date hereof through the
term of this Agreement (such concept and books collectively referred to
herein as the "Property") and the exploitation of the Merchandising
Rights (as defined herein) to all of the foregoing. For good and
valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereby agree to the following terms and
conditions:
1. RIGHTS:
A. GRANT OF RIGHTS: Lender hereby grants and Lender hereby causes Artists
to respectively grant to FRI the exclusive right to develop and produce
(x) one (1) motion picture intended for initial domestic release on
Home Video (as defined herein) based on the Property with a total
running time of not less than forty (40) minutes and not more than one
hundred twenty (120) minutes including main and end titles (the
"Picture") and (y) one (1) or more Series (as defined herein) together
with all other rights respectively thereto of every kind and nature and
to exploit the Picture, the Series and any other productions hereunder
(collectively, the "Productions") subject to the Sequel Rights, Series
Rights and Artists' Reserved Rights (each as defined below) together
with a perpetual non-exclusive license to exploit any and all
trademarks in and to the Property in connection therewith and to
exploit any and all of the foregoing throughout the universe in
perpetuity in any and all media, whether now known or hereafter
devised, and to sublicense or otherwise authorize or permit third
parties to do likewise (collectively the "Rights"). Without limiting
the generality of the foregoing, FRI shall have the exclusive right to
advertise, broadcast, exhibit and otherwise exploit the Productions or
any part or parts thereof in perpetuity including, without limitation,
any cels comprising the Productions, by and in each and every of the
<PAGE>
This One n' That One
As of September 22, 1998
Page 2
following means and media: "Cinematic" (Theatrical, Non-Theatrical and
Public Video), "Home Video" (Rental, Sellthru, and Video On Demand),
"Television" (Free Television, Residential and Non-Residential
Pay-Per-View, Terrestrial, Basic and Free Cable and Satellite Pay-TV,
and Terrestrial, Cable and Satellite Free-TV) "Ancillary" (Airline,
Ship, Hotel, and Radio) together with the exclusive right to produce or
exploit Derivative Works based on or adapted or derived from or
inspired by the Productions or the Property, including, without
limitation, Remakes, Sequels, Spinoffs (subject to the terms herein);
"Multimedia" (Internet, Interactive Multimedia and Interactive
Networked Multimedia); Merchandising; (as more fully defined herein),
Live Performances; Soundtrack; Music Publishing; and Theme Park Works
and Location Based Entertainment Works; and Print Publishing to the
extent not reserved (the "Reserved Publication Rights") pursuant to
paragraph 1.E.1, below. MSH acknowledges and subject to Artists'
Reserved Rights, Lender acknowledges and hereby causes Artists to
acknowledge that the Productions hereunder and the respective results
and proceeds thereto is/are a work specially ordered or commissioned
for use as a motion picture and shall be, for copyright purposes,
considered a work made for hire for the benefit of FRI and FRI shall be
considered the sole author of the Productions and the respective
results and proceeds thereto for all purposes. To the extent that such
results and proceeds are not deemed works-for-hire, MSH and Lender
hereby irrevocably and exclusively grant assign and transfer; and
Lender hereby causes Artists to irrevocably and exclusively grant,
assign and transfer to FRI, all right, title and interest in and to all
results and proceeds of all the services provided by Lender, Artists
and MSH respectively hereunder (including, without limitation, all
copyrights and renewals and extensions to each of the Productions).
Lender hereby causes Artist to Agree to promptly provide FRI (subject
to FRI's reasonable approval) chain of title in and to the Property and
receipt of a fully executed so-called Publisher's Release from the
publishers signatory to the Putnam Agreement.
B. SEQUEL. SPIN-OFF AND REMAKE RIGHTS ("SEQUEL RIGHTS"): Provided that the
Picture ships at least two hundred thousand (200,000) Home Video units
during the Production Window (as defined below) then FRI shall have the
exclusive right to produce the first Sequel, Spin-off or Remake of the
Picture or other motion picture intended for initial domestic Home
Video release based upon the Property ("Second Production"), subject to
the same terms and conditions outlined herein. For purposes herein,
"Spin-Off' means one (1) or more additional motion pictures based upon,
adapted or derived from, or inspired by an existing motion picture(s)
or any part or parts therefrom or any element or elements thereof, and
in which a character, event or locale depicted in such existing motion
picture(s) is shown as a recurring subject of such additional motion
pictures. Provided that the Second Production ships at least three
hundred thousand (300,000) Home Video units during the Production
Window, then FRI shall have the exclusive right to produce the second
Sequel, Spin-off or Remake of the Picture or other motion picture
intended for initial domestic Home Video release based upon the
Property ("Third Production"), subject to the same terms and conditions
outlined herein. The parties acknowledge and agree that the termination
of FRI's Sequel Rights hereunder shall in no way affect FRI's
perpetual, proprietary and exploitation rights to any of the
<PAGE>
This One n' That One
As of September 22, 1998
Page 3
Productions theretofore produced pursuant to the terms herein or the
parties respective right to participations therefrom. Notwithstanding
the foregoing, if production commences on a Series during the
Production Window, the foregoing conditions precedent to FRI's
exploitation of the Sequel Rights necessary to for FRI to produce the
Second Production and Third Production shall be deemed satisfied.
C. TELEVISION SERIES: In addition to the foregoing, FRI shall have the
exclusive right to produce one (1) or more Television series,
Television series spin-offs, Television specials and/or Television
pilots or presentations (except as otherwise indicated, the foregoing
shall be defined herein as the terms are respectively understood in the
television entertainment industry and are collectively herein the
"Series") based on the Property if production of the Series commences
between the date hereof but prior to the expiration of the Production
Window as extended hereunder. The parties acknowledge and agree that
the terms and conditions herein shall apply to any Series produced
hereunder, including without limitation, the parties' respective
participations herein. Notwithstanding the foregoing, the parties agree
that the initial Series commitment from a broadcaster shall be for no
less than six episodes (except for Television specials, pilots or
presentations).
D. MERCHANDISING RIGHTS: In addition to the foregoing, FRI shall have the
exclusive right and license to manufacture merchandise items embodying
the Property and/or Productions together with the trademarks and
character names therewith or which otherwise relate thereto and to
distribute, advertise, promote, and exploit same throughout the
Universe, including without limitation, all merchandising, licensing
and promotional activities, commercial tie-ins or tie-ups and to
sublicense or otherwise authorize or permit third parties to do
likewise in connection with the Property, Productions or any element
thereof, (the "Merchandising Rights"). Notwithstanding the foregoing,
Merchandising Rights shall not include print publication rights, which
rights shall be reserved pursuant to paragraph 1.E.2., below. To the
extent that Artists wish to exploit the Reserved Publication Rights
(defined below) and such rights are not exploited through Putnam,
whether through the existing Putnam Agreement or otherwise, Artists
shall consider allowing such rights to be administered as part of
Merchandising Rights; provided, however, that Artists decision
concerning the disposition of such publishing rights shall be final.
The exploitation of the Merchandising Rights shall include, but not be
limited to, the following types of products/services: toys, games,
board games, hardcover and softcover books, activity books, hand held
video games, and apparel. The term of such rights shall be from the
date hereof through the period ending one (1) year following the
conclusion of the Production Window, at which time such rights shall
revert to Lender.
E. RESERVED RIGHTS:
1. LENDER'S RESERVED RIGHTS: FIRST NEGOTIATION/FIRST REFUSAL.
All rights in and to the Property not expressly granted to
FRI herein are reserved by Lender including, without
limitation, all theatrical length motion pictures intended
for initial domestic theatrical release based on the
<PAGE>
This One n' That One
As of September 22, 1998
Page 4
Picture and/or Property ("Theatrical Rights").
Notwithstanding the foregoing, if Lender wishes to license or
assign the Theatrical Rights to a third party distributor or
financier during the Production Window, then prior to
negotiating with said third party, Lender shall notify FRI of
its desire to so license or assign the Theatrical Rights and
FRI shall have a period of thirty (30) days following such
notice within which to negotiate exclusively with Lender in
order to reach agreement with regard therewith on terms no
less favorable than the terms and conditions herein ("First
Negotiation Right"). If no agreement is reached within such
thirty (30) day period, then Lender shall be free to
negotiate and conclude an agreement with a third party for
said licensing or assignment on terms no more favorable to
such other party than the terms presented to FRI. If Lender
negotiates terms with another party that are more favorable
to said other party than the terms presented to FRI then FRI
shall have a period of fifteen (15) days to match such terms
in writing. The First Negotiation Right provided hereunder
shall apply each time that Lender wishes to so license or
assign the Theatrical Rights on a continuing and rolling
basis; provided however that in the event that Lender ever
enters into an agreement with a third party hereunder, then
FRI shall have no further rights with respect to the
licensing or assignment of the Theatrical Rights.
2. ARTISTS' PRINT PUBLICATION RIGHTS. Reference is made to the
Putnam agreement by and between Lender and Putnam Publishing,
dated as of________ (the "Putnam Agreement"). Artists shall
retain, and FRI and MSH shall not participate in, any print
publication rights or revenues, whether derived from the
Putnam Agreement or otherwise (collectively, "Reserved
Publication Rights"). As set forth in paragraph 1.D., above,
to the extent that Artists wish to exploit the Reserved
Publication Rights and such rights are not exploited through
Putnam, whether through the existing Putnam Agreement or
otherwise, Artists shall consider allowing such rights to be
administered as part of Merchandising Rights; provided,
however, that Artists' decision concerning the disposition of
such Reserved Publication Rights shall be final.
Notwithstanding the foregoing, in order to facilitate the
maximum exploitation of the Productions and the Series,
Artists agree to use reasonable efforts to exercise any print
publication rights arising from the Putnam Agreement and to
request any publishers therein to do likewise in coordination
with FRI's release schedule for the Productions and Series.
FRI and MSH shall be entitled to purchase any books published
therefrom for no more than the wholesale cost thereof Lender
may use elements from materials created by FRI in connection
with the Reserved Rights without any required payment to FRI;
provided, however, if there are third party obligations
of which FRI notifies Lender in writing (such as residual
payments), then such use by Lender shall be subject to Lender
assuming such obligations.
F. REVERSION: The Rights granted hereunder are expressly conditioned upon
FRI commencing the earlier of either commencement of production of the
Picture or the Series (the "First Project") within nine (9) months from
the date of Lender's and Artists' execution and delivery of this
<PAGE>
This One n' That One
As of September 22, 1998
Page 5
Agreement to FRI; provided that in the event FRI commences production
of the First Project but fails to release the First Project within
three (3) years after commencement of production thereof then the
Rights shall revert to Lender free and clear of any claim, lien or
encumbrance except (i) FRI's continuing right to complete any
substantially or completely finished productions and exploit same
hereunder, and (ii) any accrued right to merchandising/licensing
revenue streams by FRI and MSH, and (iii) if Lender elects to produce a
Production utilizing materials developed (but never produced) by FRI,
FRI's lien and security interest in such Production for all of its
actual, direct, out-of-pocket development costs in said Production plus
interest calculated as set forth in paragraph 4, below, which shall be
payable to FRI no later than the commencement of principal photography,
if ever, of such Production. As set forth above, Lender may use
elements from materials created by FRI in connection with the Reserved
Rights without any required payment to FRI; provided, however, if there
are third party obligations of which FRI notifies Lender in writing
(such as residual payments), then such use by Lender shall be subject
to Lender assuming such obligations.
2. BUDGET OF THE PICTURE: The cash budget ("Budget") for the Picture shall
be no less than six hundred thousand dollars (US$600,000) including all
the individual items of cost and expense for the complete development,
production and delivery of the Picture excluding financing costs,
interest and interest reserve, completion guarantee fees, if any, and
contingency. Except as otherwise expressly stated in this Agreement,
the Budget shall not include any producer fees and no producer fees
shall be payable to the parties hereto.
3. PRODUCTION WINDOW: The Production Window shall be the period during
which FRI shall have the right to commence principal photography of the
next Production hereunder and shall be calculated as commencing from
the date hereof as continued and extended pursuant to the subparagraphs
below subject to the terms and conditions herein and any period of
suspension for force majeure; it being acknowledged that the duration
of the Production Window shall be the longer of the Production Windows
as extended and continued therefrom. Notwithstanding the foregoing, FRI
may elect in writing to extend the Production Window an additional six
(6) months ("Production Window Extension") above and beyond the
extensions herein below provided however that if FRI fails to commence
production of a Production during the Production Window Extension then
FRI shall promptly pay Lender for Artists' benefit an amount equal to
One Hundred Fifty Thousand Dollars (US$150,000) upon the expiration
thereof.
A. PRODUCTIONS: If FRI produces the Picture during the term of
this Agreement, the Production Window shall continue for one
(1) year from the initial exploitation (e.g. initial release,
or "street date,") of the Picture (the "Initial
Exploitation"). If production commences on the Second
Production during the Production Window, the Production
Window shall continue until the earlier of one (1) year from
the Initial Exploitation of the Second Production or three
(3) years from commencement of production of the Second
Production. If production commences on the Third Production
during the Production Window, the Production Window shall
<PAGE>
This One n' That One
As of September 22, 1998
Page 6
continue until the earlier or additional one (1) year from
the Initial Exploitation of the Third Production or three (3)
years from commencement of production of the Third
Production.
B. SERIES: If production of a Series commences during the
Production Window, and provided further that the first
broadcast occurs within two (2) years after commencement of
production, then the duration of the Production Window shall
be determined as indicated below. For purposes herein, if the
applicable Series episodes are ordered for a given broadcast
season and actually produced, then production of said
episodes shall be deemed commenced upon commencement of said
broadcast season.
1. For thirteen (13) or fewer episodes in the aggregate
produced, the Production Window shall continue and
be extended until the earlier of one (1) year after
the date of the first broadcast of the last episode
of the Series or three (3) years from the
commencement of production of episode number 1.
2. For fourteen (14) through twenty-five (25) episodes
in the aggregate produced, the Production Window
shall continue and be extended until the earlier of
eighteen (18) months after the date of the first
broadcast of the last episode of the Series or three
and one half (3 1/2) years from the commencement of
production of episode number 14.
3. For twenty-six (26) through thirty-eight(38)
episodes in the aggregate produced, the Production
Window shall continue and be extended until the
earlier of thirty (30) months after the date of the
first broadcast of the last episode of the Series or
four and one half (4 1/2) years from the
commencement of production of episode number 26.
4. For thirty-nine (39) through fifty-one (51) episodes
in the aggregate produced, the Production Window
shall continue and be extended until the earlier of
three (3) years after the date of the first
broadcast of the last episode of the Series or five
(5) years from the commencement of production of
episode number 39.
5. For fifty-two (52) or more episodes in the aggregate
produced, the Production Window shall continue in
perpetuity.
C. TERMINATION: In the event that this Agreement is terminated
as a result of the expiration of the Production Window as may
be extended hereunder or otherwise, then the Rights hereunder
shall immediately revert to Lender but shall in no way affect
FRI's perpetual, proprietary and exploitation rights to any
of the Productions theretofore or substantially produced (the
"Vested Productions") and the right to exploit same pursuant
to paragraph 1, nor shall such termination affect FRI's or
MSH's right to participate in vested Merchandising Gross
Receipts as set forth in paragraph 5.(D) (ie, agreements
negotiated or substantially negotiated during the Production
<PAGE>
This One n' That One
As of September 22, 1998
Page 7
Window); the representations warranties and indemnities of
the respective parties hereto (which shall survive such
termination); and the parties' respective participations
hereunder in the Vested Productions subject to the terms
herein.
4. ADJUSTED GROSS RECEIPTS: Provided that Lender and/or Artists are not
in material default hereunder, FRI will make the following continuing
payments and recoupments from the Gross Receipts it actually receives
or is credited from the exploitation of the Rights on a non-cross
collateralized basis (and excluding any Merchandising Revenues FRI
receives or is credited pursuant to Paragraph 5. herein) in the
following order of priority: a distribution fee of twenty-five percent
(25%) (but only when FRI serves as the direct distributor of the
Productions to a third party end-user (e.g., to a broadcaster,
exhibitor, home video retailer); distribution costs with a ceiling of
seven and one-half percent (7.5%); actual production costs of the
Productions including FRI's overhead calculated at a rate often percent
(10%); all royalties, clearances, residuals, mutually approved
participations, payments or other sums, if any, that are payable to any
third party which renders services or grants rights with respect to the
Productions, or any of them; all costs of litigation, enforcement and
perfection of the Rights, and accrued interest on all the foregoing at
the rate charged to FRI by its bank for borrowing funds (irrespective
of whether or not funds are actually borrowed hereunder) not to exceed
prime plus two percent (2%). The remaining balance, if any, shall be
"Adjusted Gross Receipts" herein and FRI will pay Lender for Artists'
benefit, an amount equal to fifty percent (50%) of one hundred percent
(100%) of the Adjusted Gross Receipts, if any, arising from FRI's
exploitation of the Rights herein. The remaining fifty percent (50%) of
one hundred percent (100%) of the Adjusted Gross Receipts shall be
payable to FRI ("FRI's Share"). MSH and FRI agree to negotiate a
"split" of FRI's Share in good faith with MSH receiving from zero
percent (0%) to fifty percent 50% of FRI's Share, the prime factor in
such negotiations being the extent, if any to which MSH provides
financing for the respective Productions and/or Series, or any of them.
5. EXPLOITATION OF THE MERCHANDISING RIGHTS.
A. AGENT OF MERCHANDISING RIGHTS. MSH hereby agrees to act as
the exclusive agent for the exploitation of the Merchandising
Rights on behalf of FRI and Lender. In its capacity as agent,
MSH agrees to use best efforts to exploit the Merchandising
Rights by engaging third party licensees and production
partners who sell or manufacture products of good taste,
quality and image. MSH agrees to act on behalf of the parties
hereto in accordance with the terms of this Agreement in
dealings with actual and potential licensees of the
Merchandising Rights including the negotiation of license
agreements and production agreements and the respective
products and advertising in connection therewith.
B. QUALITY AND OTHER CONTROLS. MSH agrees to review products,
and the artwork, design, packaging and advertising related
thereto, to ensure that the development, manufacture,
appearance, quality and distribution of products exploiting
the Merchandising Rights is consistent with the name and
goodwill associated with the FRI, the Artists, the Property,
the and the Productions hereunder. Furthermore, MSH agrees to
monitor product quality levels with each licensee including
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This One n' That One
As of September 22, 1998
Page 8
periodic samples of the products to ensure that the products
adhere to the quality, and do not differ from the standards
outlined or the products approved by FRI.
C. STANDARD TERMS OF LICENSES. MSH hereby agrees to submit all
proposed licensees to FRI and Lender for review and input as
to industry, company, category and format (as such terms are
generally understood in the merchandising industry) prior to
entering into negotiations for a license with such proposed
licensee. MSH agrees to consult with FRI and Lender during
such negotiations and to provide copies of each such license
agreement (drafts and execution copies) to FRI and Lender for
their review and approval prior to execution thereof. In
accordance with the foregoing, all licensing and
merchandising agreements with third parties will be entered
into and executed directly between such third parties and
FRI. MSH will have the right during the term hereof to
negotiate licensing agreements with such third parties for
periods exceeding the term hereof (in accordance with
merchandising industry practices), but all material terms and
conditions of such licensing agreements including the
foregoing, will be subject to FRI's and Lender's prior
written approval. MSH will direct such third parties to pay
FRI all revenues of any kind from such third parties in
connection with the exploitation of the Merchandising Rights,
including without limitation, fees or advances paid by such
third parties.
D. MERCHANDISING GROSS RECEIPTS: Subject to the applicable party
not being in material breach of this Agreement and/or any
agreements concerning the Picture, the Series or the
Productions, then the following participations shall be paid
to the parties hereto: Lender shall collectively be entitled
to receive thirty three and one third percent (33.3%); and
FRI shall be entitled to receive thirty three and one third
percent (33.3%); and MSH shall be entitled to receive thirty
three and one third percent (33.3%) of the Adjusted Gross
Merchandising Revenues derived from the exploitation of the
Merchandising Rights granted hereunder except for those
receipts solely in connection with from the exploitation of
the storybook rights arising from the Reserved Publication
Rights for which FRI and MSH shall receive no participation.
The parties participation in the exploitation of the
Merchandising Rights shall be paid and accountable on a non-
cross collateralized basis and shall be paid to the parties
hereunder no later than thirty (30) days after FRI actually
receives the Adjusted Gross Merchandising Revenues. "Adjusted
Gross Merchandising Revenues" shall mean the gross proceeds
received by or credited to parties hereto or their respective
affiliated or related companies or individuals, in connection
with any and all merchandising, licensing and promotional
activities, including commercial tie-ins or tie-ups, of the
Property, Productions or another production or any element
thereof, after first deducting actual out of pocket
distribution costs incurred in connection with the
merchandising of the Property and the Productions (the
"Costs"). Any third party licensing fees shall be borne by
MSH. The Costs shall be subject to a ceiling of five percent
(5%) commencing one (1) year after the first units of such
merchandise are available to the general public (i.e., there
shall be no cap on Costs the first year). The term of MSH and
FRI's participation in the exploitation of the Merchandising
Rights shall terminate one (1) year following the conclusion
of the applicable Production Window as may be extended
<PAGE>
This One n' That One
As of September 22. 1998
Page 9
hereunder (excluding the Production Window Extension).
Notwithstanding the foregoing, MSH (or any agency which
replaces MSH per paragraph 5.E., below) shall continue to
receive the foregoing participations arising from any
agreements negotiated or substantially negotiated during the
Production Window (including any renewals thereof but
excluding any substantive improvements thereto after the
expiration of the Production Window).
E. MSH'S TERMINATION. In the event that FRI reasonably
determines on or before October 15, 1999, that MSH has failed
to substantially exploit the Merchandising Rights or has
otherwise defaulted on its obligations hereunder, then FRI
may elect in its sole discretion to terminate MSH services
hereunder. In such event, FRI, Lender and Artists shall have
no further obligation to MSH.
6. AUDIT RIGHTS. MSH and Lender shall have separate and independent
rights to examine, audit and copy all the books and records of FRI from
time to time for the purpose of determining FRI's compliance with the
terms and conditions of this Agreement. In connection therewith, FRI
shall render accounting statements to the parties hereto no less
frequently than quarterly within forty-five (45) days of the end of
each quarter during the Production Window and for one year thereafter,
and then semi-annually thereafter (on a calendar year or fiscal year
basis as FRI may determine) which accounting statements shall set forth
in reasonable detail the gross receipts actually collected during the
period covered, any deductions therefrom and the computation of the
participations hereunder, if any, payable with respect thereto.
Notwithstanding the foregoing, in the event of a syndication or cable
sale, FRI shall provide a special statement within 30 days of such
sale. Losses shown on any accounting statements shall be carried
forward and applied against such participations thereafter reflected on
subsequent statements. FRI may retain reasonable reserves to cover
anticipated losses or unforeseen expenses, provided that such reserves
shall be released as of the next accounting statement (subject to FRI's
rights to establish subsequent reasonable reserves). Any accounting
statement rendered to the parties hereto which is not contested by the
parties, or any of them, within twenty-four (24) months after rendition
thereof shall be deemed final and incontestible; the foregoing
incontestability shall include the parties' right to audit as well as
such parties' right to commence any legal proceeding or other action
based upon or arising out of such statement and the information
contained therein. FRI and Lender shall also have the foregoing audit
rights against MSH, to the extent, if at all, that MSH collects any
revenues from the exploitation of the rights granted hereunder.
7. DEVELOPMENT ACTIVITIES: Lender hereby causes Artists to acknowledge
that FRI may undertake development and pre-production activities in
connection with the Rights, including, without limitation, the
preparation and submission of treatments and/or screenplays based on
the Property. FRI shall be deemed to be the copyright holder and owner
of all right, title and interest in and to any materials, written,
outlined, composed or otherwise which are prepared on behalf of FRI
relating to the Property. MSH, Lender, and/or Artists shall not
control, own or hold any right, title or interest of any kind
whatsoever in or to any material written, outlined, composed, or
otherwise created by or under the authority of FRI. In connection
therewith, FRI may utilize the Property, may add to, subtract from,
<PAGE>
This One n' That One
As of September 22, 1998
Page 10
amend, alter or otherwise deal with the same, it being understood that
Artists and MSH waive any so-called "moral rights" with respect
thereto. Notwithstanding the foregoing, nothing contained herein shall
constitute any grant or transfer of Artists' Reserved Rights.
8. ARTISTS' DEVELOPMENT AND PRODUCTION SERVICES. Subject to professional
availability, Lender shall cause Artists to render, on a meaningful and
non-exclusive basis, all pre-production, production and post-production
services customarily rendered by producers of first-class productions
in the entertainment industry. The consideration payable to Lender for
the benefit of Artist pursuant to terms of this Agreement shall be
deemed to include the compensation for all development and production
services rendered or to be rendered by Artists hereunder.
9. ARTISTS' VOICE-OVER SERVICES. Subject to third party broadcaster,
distributor and/or financier approval and to Artists' availability, FRI
will engage Lender for the services of Artists and Lender shall cause
Artists to each render voice-over services on the Productions. In
consideration of such voice-over services, Lender for the benefit of
Artists, shall be paid the then applicable SAG scale plus ten percent
(10%).
10. NAME AND LIKENESS: Subject to Artists' respective reasonable approval,
Lender shall hereby causes Artists to grant to FRI the non-exclusive
right to the use of Artists' respective names and approved likenesses
(as well as the right to grant to others the right to use of Artists'
respective names and approved likenesses) in any manner in connection
with the exploitation of the Productions and Artists' respective
services or the products thereof.
11. RESIDUALS, MUSIC AND OTHER CLEARANCES: Residuals, music and other
clearances are all the responsibility of FRI subject to recoupment, if
at all pursuant to paragraph 4 herein. Without limiting the generality
of the foregoing, should FRI approve a SAG or ACTRA actor to voice a
character in the Productions, FRI shall be responsible for SAG or ACTRA
residuals resulting from and attributable to FRI's exploitation of the
Productions.
12. KEY MAN: It is understood that Artists are relying on the fact that
David Pritchard is an employee of FRI in their decision to bring the
rights to FRI. As such, the parties agree that should David Pritchard
cease to be a full-time employee of FRI, Lender shall have the right to
terminate (i) FRI's right to produce any subsequent production beyond
those which are already in production and (ii) FRI's and MSH's right to
participate in revenues derived from merchandising agreements secured
after such cessation date (as opposed to revenues derived from
agreements pred-dating such cessation) by providing FRI with written
notice to such effect within six (6) months of the cessation of Mr.
Pritchard's full-time employment with FRI; provided, however, if FRI is
an agreement whereby a third party has a right to order additional
episodes of the Series, FRI shall continue to have the right to produce
such additional episodes of such Series if so requested by such third
party within the applicable Production Window. Notwithstanding the
foregoing, if FRI's rights have vested per Paragraph 3, B. 5. herein,
this Key Man provision (i.e., Paragraph 12 herein) shall have no force
or effect.
<PAGE>
This One n' That One
As of September 22, 1998
Page 11
13. APPROVALS:
A. CREATIVE CONTROLS: Artists shall have the right to mutually
approve with FRI, MSH and any applicable broadcaster and/or
distributor of the Productions, all material development and
pre-production items, including character designs,
merchandise style guides and models, the title of the
Productions, the initial press release regarding the subject
matter of this Agreement, television pilot teleplay and
motion picture screenplays, animation style, story boards,
preliminary background designs and story premises and key
personnel, including the writer, producer, director and
composer (the "Production Approvals"). The parties hereby
approve Susan Amerikaner as writer of the screenplay for the
Picture. Lender/Artist shall also have the right to approve
all proto-types for merchandising, tie-ins, and other items
intended within the definition of Merchandising Rights. The
foregoing approval includes approval over packaging, labels
and tags, as well as advertising/publicity and promotional
materials. All other creative decisions shall be made by FRI,
with the understanding that MSH and Artists shall have
meaningful consultation with respect to all other material
creative items, including Series episodic scripts. The
parties' approvals hereunder shall not be unreasonably
withheld and such approvals shall be rendered as promptly as
reasonably practicable but no later than ten (10) business
days after the request for such approvals is received;
provided however that in the event the FRI is in production
on a Production hereunder, any Production Approvals related
to said Production must be rendered within forty-eight (48)
hours of such request. In the event that such approvals are
not received within the applicable period, then the party
shall be deemed to have affirmatively rendered such
approvals.
B. BUSINESS CONTROLS: Subject to the foregoing paragraph, FRI
shall have final approval over business controls with the
understanding that FRI will meaningfully consult with Artists
with respect to all material business decisions.
14. CREDIT: The following credits shall appear in the main titles (if
there are main titles, otherwise in the end titles), on a separate card
(or its equivalent), and in a size of type no smaller or less prominent
than that accorded to any other individual credit in connection with
the Productions. Said credit shall also appear in all paid advertising
issued by or under the control of FRI, subject to the standard
exclusions and exceptions of FRI and any distributor(s) of the
Productions; provided that said credit shall appear in all excluded and
excepted ads in which any other credit appears (other than a purely
award, congratulatory or nomination credit). Subject to the foregoing,
FRI shall determine, in its sole discretion, the manner, form, size,
style, nature and placement of any such credit. No casual or
inadvertent failure of FRI, and no failure by any third party, to
comply with the provisions of this paragraph shall be deemed to be a
breach of this agreement. Upon receipt of Owner's written notice
specifying any error or omission in any such credit obligations of FRI
as set forth above, FRI shall use good faith efforts to remedy such
error or omission on a prospective basis, it being understood in no
event shall FRI be required to alter or recall any prints or
advertising materials then in existence or to which FRI has irrevocably
committed.
<PAGE>
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Page 12
A. PRODUCTIONS: On any Productions produced hereunder Artists
shall be accorded shared executive producer credits in first
position to any other individual executive producer credits
on the productions and a credit substantially in the form of
"Based Upon A Book By" subject to applicable guild approvals.
Lender shall also be entitled to a production company credit
on all productions. Lender currently has designated "Catfish
Productions" as the company name for such credit. Such credit
shall be on a separate card, adjacent to all other production
company credits.
B. SERIES: If the Series is produced, Artists shall be accorded
shared executive producer credits and "created by" credits
and a credit substantially in the form of "Based Upon A Book
By" on each episode of the Series including any television
pilot(s) thereof, subject to applicable guild approvals.
Lender shall also be entitled to a production company credit
on all productions. Lender currently has designated "Catfish
Productions" as the company name for such credit. Such credit
shall be on a separate card, adjacent to all other production
company credits.
15. PUBLICITY AND PROMOTION. Artists shall in good faith consider rendering
reasonable promotional services in connection with the publicity and
promotion of the Productions and the Merchandising Rights. Artists'
decisions in connection with such activities shall be final. The
consideration payable to Lender for the benefit of Artists pursuant to
the terms of this Agreement shall be deemed to include any compensation
for all Promotional Services rendered or to be rendered by Artists
hereunder unless otherwise agreed or additional compensation is
required pursuant to the applicable collective bargaining agreement in
which case FRI shall be required to pay the minimum payment set forth
therein for such services. MSH hereby agrees and Lender hereby causes
Artists to agree not to issue (or cause to issue) any publicity
containing any derogatory mention of FRI, the Productions, or the
services of Artists or others in connection with the Productions. MSH
agrees and Lender hereby causes Artists to agree not to disclose any
confidential information with respect to FRI, MSH, or the Productions
(including, without limitation, the budget thereof or the terms of any
contracts for services of persons engaged in connection with the
Productions) without FRI's prior written consent (excluding any such
disclosure made by Artists to Artists' respective representatives in
confidence, by operation of law or to legally enforce the terms of this
Agreement).
16. REPRESENTATIONS AND WARRANTIES: Lender hereby causes Artists to
respectively represent and warrant that the results and proceeds of
Artists' services hereunder and the Property is or shall be original
with Artists respectively; except to the extent that such results and
proceeds are based upon material assigned or created by FRI, MSH or a
third party; to be used as the basis therefor, or is in the public
domain, and that to the best of their respective knowledge, such
results and proceeds do not and shall not defame or disparage any
person or entity or infringe upon or violate the rights of privacy,
publicity, or any other rights of any kind or nature whatsoever of any
person or entity, and is not the subject of any litigation or of any
claim that might give rise to litigation. Artists also represent and
warrant that Artists have taken all reasonable steps to protect any and
all proprietary rights in and to the Property, including, without
limitation, copyright and trademark registration thereof. Artists
jointly and severally agree to indemnify and hold harmless FRI, MSH,
and their respective employees, officers, agents, assigns and licensees
<PAGE>
This One n' That One
As of September 22, 1998
Page 13
against any and all liability, claims, costs, damages, and expenses
(including reasonable attorneys' fees arising out of or in connection
with any breach of the foregoing covenants, warranties and
representations. FRI shall indemnify Artists and MSH against any and
all loss or damage (including reasonable attorneys' fees) arising out
of any material added to the Productions by any of FRI's employees or
assigns (other than Artists and MSH, as applicable), arising out of
FRI's breach of its obligations under the Agreement or arising out of
the development, production, distribution, or other exploitation of the
Productions, other than claims for which the Artists and/or MSH are
obligated to indemnify FRI. MSH shall indemnify Artists and FRI against
any and all loss or damage (including reasonable attorneys' fees)
arising out of any material added to the Productions by any of MSH's
employees or assigns arising out of MSH's breach of its obligations
under the Agreement or arising out of the development, production,
distribution, or other exploitation of the Productions.
17. EXCLUSIVE ASSIGNMENT AND MORTGAGE OF COPYRIGHT: At FRI's request, MSH
agrees and Lender hereby causes Artists to agree to promptly execute
and deliver to FRI a short form assignment of rights consistent with
the terms of this Agreement in FRI's customary form.
18. ADDITIONAL DOCUMENTS: MSH agrees and Lender hereby causes Artists to
agree that they will, upon written request, execute all documents
reasonably necessary to effectuate the grant of Rights under this
Agreement including, without limitation, a Form PA copyright
registration to be filed in the United States Copyright Office. If
either MSH or Artists fail to properly execute any such document within
ten (10) business days following its receipt of a written request
therefor, then MSH hereby irrevocably appoints and Lender hereby causes
Artists to irrevocably appoint FRI as its attorney-in-fact, coupled
with an interest, and grants FRI full power and authority to do all
acts, and to execute, acknowledge, deliver, file, register and record
all documents in FRI's own name or the name and on behalf of MSH and
Artists (as applicable), and to authorize local counsel or others to do
any of the foregoing, as FRI believes reasonably necessary. MSH
ratifies and Lender hereby causes Artists to ratify and confirm all
actions taken by FRI pursuant to this grant of authority.
19. ARBITRATION: Any controversy or claim arising out of, or relating to,
this agreement, the breach thereof, or the coverage of this arbitration
provision shall be settled by arbitration before a retired judge (e.g.,
JAMS, Endispute or similar entity) pursuant to the provisions of
Section 1280, et seq. of the California Code of Civil Procedure (or
such substitute provisions therefor then in effect); provided, that any
arbitrator(s) selected shall have experience in or knowledge of such
industry in which the parties are engaged. In the vent the parties
hereto are unable to agree on the selection of such arbitrator within
thirty (30) days, then the presiding judge of the Los Angeles Superior
Court shall appoint such arbitrator. Any such arbitration shall be
conducted in Los Angeles, California. The arbitration of such issues,
including the determination of the amount of any damages suffered by
any party hereof by reason of the acts or omissions of another shall be
to the exclusion of any court of law except as set forth below. The
decision of the arbitrator shall be final and binding on all parties
and their respective heirs, executors, administrators, successors and
assigns. Any action to secure a judicial confirmation of the
arbitration award may be brought in any state or federal court of
competent jurisdiction.
<PAGE>
This One n' That One
As of September 22, 1998
Page 14
20. ASSIGNMENT: This agreement and all provisions hereof shall be binding
upon each of the parties and each of their successors, assigns,
executors, administrators, heirs and next of kin, and FRI shall have
the right to assign all or any rights granted to FRI hereunder to any
third party; provided however that in the event that FRI assigns this
Agreement to an entity other than a network, a major studio, a
mini-major studio (i.e., New Line, Artisan, Miramax, Brillstein-Grey
Entertainment and Castle Rock Entertainment) or an entity acquiring all
or substantially all of FRI's assets, FRI shall remain secondarily
liable hereunder. Artists, Lender and MSH may not assign this Agreement
without the written consent of FRI.
21. MISCELLANEOUS:
A. REMEDIES: In the event of breach or alleged breach of this
agreement by FRI, MSH, Lender and Artists' respective rights
herein shall be limited to those at law for damages. In no
event shall the foregoing parties have the right to seek or
obtain equitable relief.
B. COUNTERPART SIGNATURE: This document may be executed in
counterparts which, taken together, shall constitute the
whole of the agreement as between the parties.
C. ERRORS AND OMISSIONS: GENERAL LIABILITY. Artists shall be
named as additional insureds on any errors and omissions
coverage and/or general liability coverage respecting the
Productions subject to the terms, conditions, and limitations
of such coverage. Lender hereby causes Artists to
respectively acknowledge that there shall be no obligation
for FRI to obtain or maintain any such coverage(s) and that
such coverage(s) shall not in any way limit or restrict
Artists' respective representations and warranties hereunder.
D. MEMORANDUM OF AGREEMENT: The foregoing Agreement constitutes
a memorandum of agreement between the parties hereto
concerning the subject matter set forth above. The parties
hereto may at any time hereafter prepare and submit a more
formal agreement incorporating the terms set forth in this
Agreement as well as customary terms and conditions utilized
by the entertainment industry located in Los Angeles,
California for agreements of this type, including, without
limitation, periods of force majeure, suspension and
additional merchandising provisions which are incorporated
herein by this reference (subject to modification by good
faith negotiation within customary L.A. industry
entertainment parameters,) but unless and until such more
formal agreement is prepared and executed, this agreement
will be legally binding upon the parties hereto. The parties
hereto shall promptly review, negotiate and execute any such
more formal agreement. This Agreement and any more formal
agreements entered into by the parties hereto pursuant to the
provisions hereof shall be governed by and construed in
accordance with the laws of the State of California
applicable to contracts fully to be performed therein.
The foregoing constitutes the agreement between the parties hereto and may only
be modified by a writing signed by both parties.
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This One n' That One
As of September 22, 1998
Page 15
Please indicate your agreement with the foregoing by signing in the space
provided below.
Very truly yours,
FILM ROMAN, INC. ("FRI")
By:
---------------------------
Its:
---------------------------
//
//
REMAINING SIGNATURES ON NEXT PAGE
<PAGE>
This One n' That One
As of September 22, 1998
Page 16
AGREED AND ACCEPTED:
JJK PUBLISHING ("Lender") MSH INC. ("MSH")
By: /s/ James Keach By:
--------------------------- ---------------------------
Its: President Its: President
--------------------------- ---------------------------
ABRAMS/GENTILE ENTERTAINMENT, INC. ("MSH")
By:
---------------------------
Its: President
---------------------------
The undersigned hereby acknowledge that they have read and are familiar with
each and every provision of this Agreement and hereby endorse and approve same
and agree to be bound thereby and to perform all of the terms and conditions
insofar as same are to be performed by them in the same manner as if they had
executed this Agreement directly with FRI and MSH. Furthermore the undersigned
acknowledge that FRI and MSH would not have entered into this Agreement without
such endorsement and approval of the undersigned.
/s/ Jane Seymour /s/ James Keach
--------------------------- ---------------------------
JANE SEYMOUR ("Artist") JAMES KEACH ("Owner")
Date: Date:
---------------------- ----------------------
SS#: SS#:
---------------------- ----------------------
LETTER OF AGREEMENT
This Agreement dated this 19th day of November, 1998 by and between etc...group,
inc ("etc...") a creative services company and MSH Entertainment Corporation
("MSHE") a multi-faceted, publicly traded, entertainment company (collectively
the "Parties") concerning the formation of a strategic alliance between
etc... and MSH with respect to corporate video and corporate television
production;
WHEREAS, etc... warrants and represents that it is a creative services company
with ties to high tech Silicon Valley companies who need a boutique type
approach to a variety of corporate communications issues; and
WHEREAS, MSHE is desirous of entering the field of corporate video and corporate
television production;
NOW, THEREFORE, the Parties agree as follows:
1. The Parties shall form a strategic alliance (the
"Alliance") for etc... to serve as the corporate video and
corporate television production services company for the Alliance.
2. All corporate video production and commercial production for the
Alliance shall be handled by etc... and MSHE agrees to turn over
same to etc...
3. Any inquiries, bid request or jobs concerning any of the above that
are presented to MSHE will be turned over to etc...
4. Any inquiries, bid request or jobs concerning the multi-faceted
entertainment business as represented by MSHE (i.e., music library,
animation, recording studio, voice over studio and video dubbing,
film and theatrical entertainment) that come through etc... will be
turned over to MSHE.
5. etc... and MSHE will include each other in their corporate
collateral.
6. All jobs presented to etc... by MSHE (to be agreed upon and
defined) shall be divided 60% etc..., 40% MSHE.
7. For all jobs procured by etc... whether through the use of MSHE's
name or not, etc... agrees that when production budgets allow,
etc... will utilize MSHE's music library, animation facilities,
recording studio, voice over studio, voice talent and video dubbing
facility, and MSHE will be compensated at the standard fee
structure for these and all specialized services.
8. etc... shall have access to, and use of, MSHE's office facilities
in New York and Los Angeles on an as available basis.
9. MSHE shall have access to, and use of, etc... offices in San Jose,
California on an as available basis.
10. The term of this agreement shall be for twelve (12) months from the
date above, and can be renewed by mutual agreement of the Parties
for an additional eighteen (18) months, or longer.
If the understanding between the Parties is correctly reflected above, the
Parties agree to execute this letter of agreement and until such time a more
formal agreement is drafted and executed, subject to good faith negotiation,
this document shall serve as the agreement between the Parties.
Agreed To and Accepted: Agreed To and Accepted:
etc... group, inc MSH Entertainment Corporation
BY: /s/ Stan Harris BY: /s/ Jonathan Stathakis
---------------------------- ----------------------------
Stan Harris, President Jonathan Stathakis, President
MASTER LICENSE
AGREEMENT
As of July 1, 1997
THIS WILL CONFIRM the following agreement between CANNON RECORDS (hereinafter
referred to as "Licensor") and MSH MUSIC GROUP, a division of MSH ENTERTAINMENT
CORP. (hereinafter referred to as "Company") with respect to the manufacture,
marketing and distribution of recordings made from Licensor's recorded masters
identified in Schedule A attached hereto and incorporated herein by reference
(hereinafter referred to as the "Masters") featuring Ike Turner (hereinafter
individually referred to as "Turner") and the artist(s) identified in Schedule A
(hereinafter referred to in this context as the "Artist(s)"). The following when
accepted by Company will confirm the agreement as of this date as follows:
1. For the term hereof, Licensor hereby licenses, transfers and
assigns to Company irrevocably all right, title and interest in and to the
Masters, featuring the performance(s) of Turner and the Artist, including,
without limitation, the copyrights in the Masters and the right to secure such
copyrights and all renewals and extensions of such copyright, throughout the
world.
2. Concurrently with the execution of this Agreement, Licensor
shall deliver the Masters to Company. Upon delivery of the Masters to, and
acceptance by, Company, Company shall pay to Licensor the sum of Thirty Seven
Thousand Five Hundred ($37,500) Dollars as the license fee (hereinafter referred
to as the "License Fee") for the Masters hereunder. The License Fee shall be
deemed to be an advance hereunder and shall be recoupable from this Agreement
between Licensor and Company. Licensor directs that the payment provided for in
this Paragraph 2 shall be made to Joe Saraceno as agent for Licensor.
3. The term of this Agreement shall be for Ten (10) Years,
commencing July 1, 1997 and running through June 30, 2007 (hereinafter referred
to as the "Term"); provided, however, that Company may extend the Term hereof
for additional Ten (10) Year periods by paying Licensor, on or before the
expiration of the then current period of the Term, an additional License Fee
equal to the sum set forth above.
4. Licensor hereby grants to Company, subject to the payments
provided for herein and to due performance by Company of its other obligations
hereunder, and Company hereby accepts, the exclusive right during the Term
hereof in and to the Masters in the Territory, as defined below, to manufacture,
exploit, market and sell copies of the recordings.
5. In addition to the License Fee and as additional
consideration hereunder, for all the rights granted hereunder, Company agrees to
pay Licensor a base royalty equal to Six (6%) Percent.
(a) Any payment made pursuant to this Agreement
(excluding royalties) shall be deemed to be a non-returnable advance. Without
limiting the generality of the foregoing, and, notwithstanding the provision of
Paragraph 14, below, included among payments which shall be advances hereunder
shall be all amounts, if any, which may be paid by Company pursuant to the
requirement of any collective bargaining agreement between Company and any union
representing Turner and/or Artists, the musicians (including without limitation,
instrumentalists, leader, arrangers, orchestrators, copyists and contractors),
and vocalists for performances hereunder. Recording costs, if any, incurred in
connection with the recording of masters hereunder shall be deemed to be
non-returnable advances to Licensor and shall be charged against Licensor's
royalties under this Agreement.
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(b) The royalty rate indicated above is in respect to
records manufactured and sold by Company (or by any subsidiary, affiliate or
licensee), which contain only records manufactured from the Masters. Net sales
of any record shall be determined cumulatively on the aggregate number of such
records sold, for which Company has been paid, after deducting all returns,
rebates, credits, cancellations, and exchanges. In computing the number of
records manufactured and sold hereunder, Company shall have the right to deduct
returns and credits of any nature, including, without limitation, those on
account of a one hundred (100%) percent return privilege, defective merchandise,
exchange privilege, promotional credits, records not paid for, errors in
billing, usable overstock and errors in shipment. Company shall have the right
to maintain reasonable reserves against returns hereunder.
(c) As to records manufactured, sold or licensed for
distribution or manufacture outside of the United States of America, the royalty
rate payable to Licensor hereunder shall be one-half (1/2) of the otherwise
applicable base royalty rate which would have been payable to Licensor therefor
if such records had been manufactured or sold for distribution in the United
States, or one-half (1/2) of the royalty received by Company, whichever is
greater, on a territory to territory basis. The royalty for such records shall
be computed in the national currency, at Company's election, of the country of
manufacture, the country of sale, or the United States and shall be paid at the
same rate of exchange as Company is paid; provided, however, that royalties on
records sold for distribution outside of the United States shall not be due and
payable until payment therefor has been received by Company in the United States
and, provided, further, that if Company does not receive payment in United
States dollars and elects to accept payment in a foreign currency, Company may
deposit to Licensor's credit (and at Licensor's expense) in a depository
selected by Company all payments so received as royalties applicable to this
Agreement and shall notify Licensor thereof promptly. Such deposits as above
stated shall fulfill Company's obligations hereunder as to the record sales to
which such royalty payments are applicable.
(d) With respect to net sales of digital records
manufactured and sold under this Agreement, Licensor's royalty with respect to
each such record sold shall be equal to the greater of: (i) the same
dollars-and-cents (or other applicable currency) royalty amount payable with
respect to the same record in the comparable analog configuration (e.g., single,
EP, album, etc.) or (ii) Seventy-Five (75%) Percent of the otherwise applicable
base royalty rate in the applicable country for the configuration and price
category concerned.
(e) As to records sold through any direct mail order
operation or through any direct sales to consumer operation carried on by
Company, its subsidiaries, affiliates or licensees, including, without
limitation, any record clubs (herein collectively referred to as "record clubs")
as well as to any sales operation of the type commonly known as "TV/Key-Outlet
Merchandising" the royalty rate shall be one-half (1/2) of the otherwise
applicable base royalty rate computed in the same manner as Company's royalty is
computed. Notwithstanding anything set forth in this Agreement, no royalty shall
be payable to Licensor with respect to (i) records which are received by members
of any record club, either in an introductory offer in connection with joining
such record club or upon recommending that another join such record club and/or
as a result of the purchase of the required number of records including, without
limitation, records distributed as "bonus" and/or "free" records or (ii) records
for which the record club is not paid; provided, however, that Licensor shall be
paid on the greater of actual sales or fifty (50%) percent of the total number
of records manufactured from masters recorded hereunder distributed by such
record club. Notwithstanding anything to the contrary contained herein, if the
sum of the royalties so payable to Licensor under this Subparagraph 3.(e) shall
exceed one-half (1/2) of the net royalty which Company shall receive from
Company's licensee distributing such records, Licensor's royalty under this
Subparagraph 3.(e) shall be proportionately reduced so that the sum thereof
shall be equal to one-half (1/2) of said net royalty received by Company.
(f) The royalty rate in respect of the sale of
mid-priced records shall be three-fourths (3/4) of the otherwise applicable base
royalty rate as calculated in accordance with the foregoing provisions and the
royalty rate in respect of the sale of budget or low-priced records shall be
one-half (1/2) of the otherwise applicable base royalty rate as calculated in
accordance with the foregoing provisions, but in no event more than Fifty (50%)
Percent of the net amount received by Company therefrom.
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(g) Notwithstanding any other provision of this
Agreement, with respect to compact disc singles, analog singles, cassette
singles, EPs, twelve inch single records, or any so-called single record in any
configuration, the royalty rate hereunder for such single records shall be
three-fourths (3/4ths) the otherwise applicable base royalty rate.
(h) With respect to sales of videos hereunder, Company
shall pay Licensor a royalty which is the lesser of the royalty provided for
above or Fifty (50%) Percent of Company's "net receipts".
(i) With respect to so-called premium records, the
royalty payable to Licensor shall be one-half (1/2) of the otherwise applicable
base royalty based upon the price paid to Company, its subsidiaries, affiliates
or licensees for such records.
(j) With respect to all analog disc records and analog
cassette records sold hereunder, royalties on records included in albums,
jackets, cartridges, boxes or any other type of package or container (herein
collectively referred to as "container's") shall be based solely on the
applicable "royalty price" (as defined in Subparagraph (m) below) of such
records and containers less all taxes and also less a container charge equal to
twenty (20%) percent of the applicable royalty price; provided, however, that
the container charges in respect of all other records shall be twenty-five (25%)
percent of the applicable royalty price. In addition, if Company uses a
so-called "PPD" basis for the calculation for foreign royalties in any foreign
territory, then the foreign container deduction shall be used for such territory
rather than the deductions set forth herein.
(k) Royalties shall not be payable with respect to
the following: (i) records given away, invoiced on a "no charge" basis, or
furnished at a substantially reduced price to any customary recipient of free or
discounted promotional records, including, but not limited to, Licensor, a disc
jockey, a program director, a record reviewer, a radio or television station or
network, a motion picture company, a music publisher, Company's employees, an
individual producer, any performer on the record, an educational institution, a
library, or for charitable purposes; (ii) records distributed under a sales
program that are given away "free" or invoiced on a "no charge" basis as a bonus
and/or as a sales inducement to a customary participant in such sales programs,
including, but not limited to, a distributor, a sub-distributor, a dealer, or
any other person, and regardless whether such records are sold by such
participant or any other person; (iii) records cut out of Company's catalogue
and sold as discontinued merchandise; (iv) records sold as scrap or at a price
fifty (50%) percent or more below the regular price then in effect to
subdistributors; (v) records sold below cost; (vi) so-called "sampler" records
sold for one-half (1/2) of or less than one-half (1/2) of the then-current price
normally charged by Company with respect to samplers; and (vii) records licensed
or distributed or sold at a substantially reduced price for use by any
transportation carrier or transportation facility or for in-store background
music.
(l) If Company sells or licenses third parties to sell
records via electronic transmission, Licensor shall be paid royalties with
respect thereto at the lesser of (i) the otherwise applicable base royalty rate
payable in respect of net sales of the particular record, or (ii) Fifty (50%)
Percent of net royalties actually received by Company from such third parties.
(m) As used in this paragraph, the term "royalty
price" shall be deemed to be the applicable suggested retail list price of
records manufactured and sold pursuant to this Agreement. If Company should
alter the basis of its royalty computation to the applicable wholesale price of
records manufactured and sold pursuant to this Agreement, or if Company's
assignee or licensee bases its royalty computation upon the applicable wholesale
price of records instead of the applicable suggested retail list price, Company
shall have the right to change its accounting to Licensor hereunder by
increasing the applicable royalty rate by one hundred (100%) percent and basing
said increased rate on the applicable wholesale price and such applicable
wholesale price shall thereafter be deemed to be the "royalty price" as defined
in this Subparagraph 5.(m).
(n) In any instance when the "retail list price" or
"list category" of records (less container deductions and any taxes) is to be
utilized in computing any royalty hereunder, and, with respect to particular
records sold, there exists no such "suggested retail list price" or "list
category", and royalties are received by Company with respect to such particular
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records on the basis of a "constructed price" (such as a price agreed upon, or
based on a formula agreed upon, between the copyright society of the particular
country involved and recording industry of such country, for the purpose of
computing such royalty hereunder with respect to such particular records sold,
such "constructed price" (less container deductions and any taxes) shall be
utilized hereunder in lieu of the "suggested retail list price" or "list
category" (less container deductions and any taxes).
(o) Unless otherwise expressly provided for herein,
Licensor's royalties hereunder with respect to the computation of any sales of
records by third party licensees of Company shall be computed and paid upon the
same percentage of sales of records as such licensee utilizes in computing any
paying to Company Company's royalties with respect to such sales of records.
(p) For the licensing of Masters hereunder for use on
soundtracks (hereinafter referred to as a "master use"), Company shall pay
Licensor twenty five (25%) percent of Company's net receipts. Notwithstanding
the provisions to the contrary anywhere in this Agreement, Licensor agrees that
such master use licenses may be for a period in excess of the Term hereof and
that any such master use license shall be valid pursuant to the terms and
conditions of this Agreement.
(q) All monies, other than royalty payments hereunder,
payable to Licensor (or on Licensor's behalf at Licensor's request or at the
request of any party representing Licensor in any capacity whatsoever) shall
constitute advances recoupable from any royalties earned by Licensor hereunder
unless Company otherwise consents in writing.
(r) Company will compute royalties payable hereunder
within sixty (60) days after June 30 and after December 31 of each year for the
preceding six (6) month period and will render accountings for and pay such
royalties less any unrecouped advances against royalties due Licensor, within
said sixty (60) days. Royalties for records sold hereunder will not be due and
payable until payment therefor is received by Company.
6. During the Term hereof, Licensor grants to Company:
(a) The results and proceeds of all endeavors under
this Agreement, including the exclusive ownership in the Territory of all
masters, positives or negatives thereof and records manufactured therefrom and
the exclusive right to control and use the same and the performances embodied
therein in the Territory; the exclusive right to manufacture, advertise, sell,
lease, license or otherwise use or dispose of such records, whether based in
whole or in part upon such results and proceeds or to refrain from so doing, in
all fields of use throughout the Territory, upon such terms as Company may
approve; the right to perform publicly such records and the exclusive right to
permit public performances thereof in any medium and by any means whatsoever.
(b) The right to use and publish and to permit others
to use and publish Licensor's, Turner's and/or Artists' names, signatures,
likenesses, voice and sound effects, and biographical material concerning Turner
and Artists for advertising and trade purposes in connection with the recordings
made hereunder or to refrain therefrom.
(c) The right to release records recorded hereunder
under any trade name or mark, which records may include performances with or of
other artists, and to sell the records in albums, which albums may contain
pictures, prose and verse and records embodying performances by such other
artists.
(d) The right to copyright the Masters in Company's
name as the owner in the Territory and to secure any and all renewals of such
copyright; provided, however, if, on any date, the performances borne on any
master recording subject to this Agreement become property of the public domain
through no fault of Company in any territory of the world so that persons may
reproduce and/or exploit in such territory records of such performances without
license from and payment to Company, then, notwithstanding anything herein to
the contrary, no monies whatsoever shall accrue to Licensor hereunder in
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connection with records recorded hereunder sold in such territory on and after
said date insofar as such performances are concerned.
7. If the performance of Company's obligations hereunder is
delayed or becomes impossible or impracticable by reason of any act of God,
fire, earthquake, strike, labor disturbance, civil commotion, acts of
government, its agencies or officers, any order, regulation, ruling or action of
any labor union or association of artist musicians, composers or employees
affecting Company or the industry in which it is engaged, or delays in the
delivery of materials and supplies, Company may, upon notice to Licensor,
suspend its obligations hereunder for the duration of such delay, impossibility
or impracticability, as the case may be.
8. In consideration of the terms and conditions contained
herein, neither Licensor nor Turner will produce or perform any selection
contained in the Master for the purpose of making records (other than permitted
recordings) for anyone other than Company (i) for seven (7) consecutive years
after the date of this Agreement, or (ii) for five (5) consecutive years after
the release of the recordings, whichever is the later, but in no event more than
eight (8) years after the date of this Agreement.
9. Company agrees that on album jackets, liner notes, credits,
etc., Licensor shall receive an appropriate credit in connection with the use of
the Masters. Notwithstanding the foregoing, Company's inadvertent failure to
give such credit shall not be deemed a breach, provided that Company cures such
error or omission on all future runs of the affected product(s).
10. Licensor acknowledges that Turner's performances hereunder
and the Masters are of a special, unique, unusual, extraordinary and
intellectual character which gives them peculiar value, the loss of which cannot
be reasonably or adequately compensated in damages in an action at law, and that
a breach by Licensor and/or the Turner of any of the provisions of this
Agreement will cause Company irreparable injury. Licensor and the Turner
expressly agree that Company is entitled to injunctive and other equitable
relief to prevent a breach of this Agreement or any portions thereof, which
relief shall be in addition to any other rights or remedies, for damages or
otherwise, which Company may have.
11. In connection with the compositions contained in the
Masters:
(a) Except as provided for in Subparagraph 11.(b),
below, Company agrees to obtain all copyright licenses from the music publishers
for the compositions on the Masters.
(b) If Licensor or the Turner owns or controls any
composition included in the Masters, Licensor and/or the Turner will cause to be
granted by the publisher of the composition a mechanical license fee for the use
of the composition at a rate equal to three-quarters (3/4) of the minimum
statutory compulsory license fee for each recording manufactured, sold and not
returned.
(c) Company shall pay all copyright fees to music
publishers with respect to the compositions contained on the Masters which are
distributed. Company shall indemnify and hold Licensor harmless with respect to
all such fees charged or incurred as a result of Company's exploitation of the
Masters.
12. No breach of this Agreement by Company shall be deemed to
be material unless within three (3) months after Licensor learns of such breach,
Licensor serves written notice thereof on Company by registered mail and Company
does not remedy such breach within sixty (60) days after receipt of such notice.
The provisions of this Paragraph 10 shall also apply with regard to the
provisions of Subparagraph 5.(d), above.
13. Contemporaneously with the delivery of the Masters,
Licensor shall furnish Company, in writing, with the following:
(a) as appropriate, the label copy (including song
titles and any subtitles), names of composers, any show or movie credits,
complete publisher line, including the address and telephone number of each
publisher, affiliate (BMI, ASCAP, etc.), serial number, timings, any arranger
credits, any
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(h) The word "master" with a lower case "m" means
any recording which has been accepted by Company as satisfactory for the
production of records and which embodies performances by Turner or Artist.
(i) The word "Master" with a upper case "M" means the
masters identified in Schedule A.
(j) The words "master use" shall refer to the
licensing of Masters for use in and on soundtracks.
(k) The words "net receipts," "net royalties" and
similar terms mean royalties or flat payments received by Company that are
solely attributable to masters or videos hereunder, less all costs incurred by
Company in connection with the exploitation concerned (including, without
limitation, manufacturing and duplicating costs, advertising expenses,
mechanical royalties and other copyright payments, union or guild payments,
third party payments, etc.).
(1) The words "net sales" mean one hundred (100%)
percent of sales of records paid for and not returned, less returns and credits
of any nature received or granted at any time and reserves against anticipated
returns and credits.
(m) The words "recording costs" mean all costs
incurred by Company for and with respect to the production of masters, as
distinguished from manufacturing and distribution costs, including, without
limitation, the cost to Company of all instrumental musicians, vocalists,
conductors, arrangers, orchestrators, copyists, etc., all studio, tape, editing
mastering and other similar costs in connection with the production of the final
master, and all other costs and expenses incurred by Company in producing
masters hereunder, from time to time, and which are customarily recognized as
recording costs in the recording industry.
(n) The nouns "records" and "recordings" mean and
include all forms of recording and reproductions, now known or which may
hereafter become known, including, but not limited to CDs, cassettes and DATs,
manufactured or sold primarily for home use and/or school use and/or juke box
use and/or use on or in means of transportation whether embodying sound alone or
sound synchronized with visual images.
(o) The word "soundtracks" means the audio track on
any motion picture, television program, video, laser disc, CD-ROM, or any other
audio visual device, whether now known or hereafter devised.
(p) The word "selection" means a single musical work
(including a medley), story, poem, or similar work irrespective of length.
(q) The words "term of this Agreement" or "period of
this Agreement" or "term hereof" or "so long as this Agreement remains in force"
or words of similar connotation shall include the period of all renewals,
extensions, substitutions or replacements of this Agreement.
(r) The word "Term" means the initial period of this
Agreement and any extensions or renewals, extensions, substitutions or
replacements for the period during which this Agreement remains in force.
(s) The word "Territory" shall mean the entire
universe.
(t) The word "Turner" shall refer to Ike Turner.
15. With regard to the payment of royalties:
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(a) The applicable percent royalty shall be applied
against that portion (to the nearest cent) of the royalty computation price of a
given record which the selection performed by Turner and/or Artist thereon bears
to the aggregate of all selections on the said record.
(b) Licensor shall be deemed to have consented to all
royalty statements and all other accounts rendered by Company to Licensor and
the same shall be binding upon Licensor and not subject to any objection by
Licensor for any reasons whatsoever unless specific objection in writing stating
the basis thereof is given to Company within two (2) years after the date
rendered; and if Company gives Licensor notice in writing that Company denies
the validity of the objection unless suit is instituted within one (1) year
after Company gave Licensor such notice.
(c) Royalties accruing to Licensor hereunder shall be
less whatever taxes the laws of any jurisdiction require be withheld in
connection with such royalties.
(d) Company shall maintain books of account concerning
the sale of records hereunder. A certified public accountant on Licensor's
behalf may, at Licensor's sole expense, examine Company's books relating to the
sale of records hereunder (but excluding any of Company's books or records
relating to the manufacture of records hereunder) solely for the purpose of
verifying the accuracy thereof, only during Company's normal business hours and
upon reasonable written notice. Such audit (i) shall only be conducted after at
least thirty (30) days written notice to Company, (ii) shall be commenced at a
mutually convenient time, and (iii) shall be conducted at Licensor's sole cost
and expense by an independent certified public accountant designated by
Licensor. Such examination shall be made during Company's usual business hours
at the place where Company maintains the books and records that relate to the
royalties payable hereunder and that are necessary to verify the accuracy of the
royalty statements specified in Licensor's notice to Company, and Licensor's
examination shall be limited to the foregoing. Company's such books relating to
any particular royalty statement may be examined as aforesaid only within six
(6) months after the date due and Company shall have no obligation to permit
Licensor to so examine Company's books relating to any particular royalty
statement more than once. The rights herein above granted to Licensor shall
constitute Licensor's sole and exclusive rights to examine Company's books and
records.
(e) If Licensor is two or more individuals, Company
may issue payments hereunder in the name of all such individuals unless Licensor
shall give Company written instructions to the contrary.
16. Licensor hereby warrants and represents that Licensor has
the right to enter into this Agreement and to grant to Company all of the rights
and licenses herein granted. Licensor hereby warrants and represents that
Licensor owns the materials and rights in and to the Masters and that such
materials and rights are free of liens and claims, except as otherwise expressly
set forth herein. Licensor expressly warrants and represents that:
(a) that Licensor is the sole and worldwide owner of
the Masters as well as the sole and worldwide owner and holder of all right,
title and interest, intangible and intangible therein;
(b) that there are no liens or other encumbrances
against the Masters or any part thereof;
(c) that Licensor has the right, on behalf of Turner,
Artist, Licensor and all other persons who participated in or in connection with
the making of the Masters to sell same to Company and to grant Company the
rights to use same for records and other purposes described in this Agreement;
(d) that Turner, Artist and all other persons whose
performances are embodied in the Masters have been paid in full by Licensor or
the party granting the rights to Licensor and in amounts not less than
applicable union scale for services rendered by them in connection with the
Masters;
(e) that all costs incurred in the creation and
production of the Masters have been paid by Licensor or the party granting the
rights to Licensor;
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(f) that no records derived from the Masters have
been heretofore made, distributed or sold in the Territory;
(g) that, without limiting the generality of
Subparagraph 14.(d), above, the scale wages were paid for all music contained on
the Masters and the applicable contributions have been made to all applicable
funds. This representation and warranty is included for the benefit of the AFM
and AFTRA (among others) and may be enforced by the AFM or AFTRA or by such
person or persons may be designated;
(h) that Company's exercise of the rights granted
herein will not infringe upon any common law or statutory rights of any third
parties whatsoever, including, without limitation, any contractual rights,
copyrights or rights of privacy of any kind or nature nor violate any applicable
statute(s), law(s), order(s), rule(s) and/or regulations(s) whatsoever;
(i) that all royalty or other financial obligations to
Turner, Artists, producers or others for services performed in connection with
the recording of the Masters, shall be the sole responsibility of Licensor;
(j) that each person who rendered any service in
connection with, or who otherwise contributed in any way to the making of the
Masters, or who granted to Licensor the rights referred to in this Agreement,
had the full right, power and authority to do so, and was not bound by any
agreement which would restrict such person from rendering such services or
granting such rights.
(k) All recording costs and expenses with respect to
the making of the Masters have been paid as of the date when the Masters are
physically delivered to Company.
(l) that Licensor, Turner and/or Artist are not
currently a party to any agreement pursuant to which Licensor, Turner and/or
Artist have granted to any third party any right in and to any of the Masters in
the Territory; and
(m) that, except as expressly specified herein,
Company shall have no obligation whatsoever to, Turner, Artist, Licensor or any
third party for or in connection with the creation of the Masters and Company's
exercise of any rights therein.
17. Licensor represents and warrants that Licensor, Turner
and/or Artist are not a party to any agreement which prevents Licensor's
fulfilling all of Licensor's obligations hereunder or which impairs any rights
granted to Company hereunder.
(a) Licensor agrees to and does hereby indemnify, save
and hold Company harmless from loss or damage, including reasonable attorney's
fees, arising out of or connected with any claim by a third party which is
inconsistent with any of the warranties or representations made by Licensor in
this Agreement.
(b) Licensor will reimburse Company on demand for any
payment made by Company at any time after the date hereof in respect of any
liability or claim to which the foregoing indemnity applies.
18. All payments or notices which Company may be required or
permitted to make to Licensor may be made by depositing same, postage prepaid,
(for notices: Certified or Registered, Return Receipt Requested), in any mail
box, chute or other receptacle authorized by the United States Postal Service
for mail addressed to Licensor at the address set forth below Licensor's
signature or a such other single address as Licensor may designate by written
notice mailed to Company at the address set forth below Company's signature. The
date of service of any payment or notice so deposited shall be the date of
deposit. Copies of all notices to Company shall also be sent to Richard A.
Schulenberg, Esq., 2150 North Beverly Glen Boulevard, Los Angeles, California
90077-2404.
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19. Promptly upon Company's request, Licensor will execute and
deliver to Company any Instruments of Transfer and other documents necessary for
Company to secure copyright protection in the Masters and Licensor hereby
appoint Company as Licensor's agent and attorney-in-fact to sign any such
Instruments or other documents in Licensor's name and to make appropriate
disposition of them provided they are consistent with this Agreement.
20. Company shall have the irrevocable right to assign this
Agreement to any parent, subsidiary or successor-in-interest.
21. This Agreement sets forth the entire agreement between the
parties hereto with respect to the subject matter hereof, all prior negotiations
and understandings being merged herein, and no modification, amendment, waiver,
termination or discharge of this Agreement or any provisions hereof shall be
binding unless confirmed by a written instrument executed both by Company and
Licensor.
22. No waiver of any provision of or default under this
Agreement shall affect the right of Company thereafter to enforce such provision
or to exercise any right or remedy in the event of any other default, whether or
not similar.
23. This Agreement shall be deemed to have been made in the
State of California and its validity, construction, performance, breach and
operation shall be governed by the laws of California applicable to contracts to
be performed in California.
24. Nothing contained in this Agreement shall be deemed to
create a partnership or joint venture between the parties hereto, nor shall
either party be deemed to be the agent or employee of the other.
The parties hereto indicate their agreement and acceptance of
this agreement by signing in the spaces provided for below.
AGREED: AGREED:
"COMPANY" "LICENSOR"
MSH MUSIC GROUP, CANNON RECORDS
a division of MSH ENTERTAINMENT CORP.
By By /s/ Hy Mazrahi
------------------------------- -------------------------------
An Authorized Signer An Authorized Signer
3330 Ocean Park Boulevard c/o Hy Mazrahi
Suite 115 126 N. Almont Drive
Santa Monica, California 90405 Beverly Hill, California 90211
Soc. Sec. No. or Federal
I.D. No.: 127307691
Fax: ---------
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SCHEDULE A
----------
COMPOSITION(S) ARTIST
- -------------- ------
ORIGINAL LIST IKE AND TINA TURNER
- ------------- -------------------
JOE'S LIST:
- -----------
Beauty Is Just Skin Deep
Ain't Nobody's Business
Living for the City
Too Much Man for One Woman
Sugar Sugar
I've Got it Ready For You
I Had a Notion
I Want to Jump
Need Some Understanding
River Deep Mountain High
I Idolize You
Come Together
Shake Rattle "N" Roll
If you Can Hully Gully (I can Hully Gully too)
Stagger Lee
Something
Take You Higher
Twist "N" Shout
I Wish it Would Rain
I can't Believe What You Said
I Got a Man
Baby Baby Get it On
O My My (Can You Boogie)
I Wanna Take You Higher
Never Been To Spain Please sign & date
Keep on Using Me /s/ Hy Mizrahi
Stand By Me -------------------------
Loco Motion Hy Mizrahi
Philadelphia Freedom
Shake July 18, 1997
Nut Bush City Limit -------------------------
I'm Blue Dated
Took a Trip
Player Piano /s/ HM
1
<PAGE>
Ain't that a Shame
Knock on Wood
So Fine
Baby Take a Walk with me
I'm Ripe
Fun, Fun, Fun
Why I Sing the Blues
Oh Pee Pee Dog
Humpty Dumpty
Stormy Weather
Shame Shame Shame
Shake a Hand
Sweet Rhode Island Red
I Don't Want Nobody
Can't Have Your Cake and Eat it Too /s/ Hy Mizrahi
Jo Jo
Bootsie Whitclaw
Somethings On My Mind
Suffering the Blues
Too Many Tears in my Eyes
Why oh Why
You are My Sunshine
I'm Fed Up
Make Em Wait
You Got What You Want It
Smell Trouble
Rock Me Baby
It Sho Ain't Me
Mississippi Rollin Stone
I'm Looking For My Mind
Tina's Prayer
You're Still My Baby
Crazy Bout You Baby
I'm Gonna Cut You Loose
Pick Me Up
Rockin "N" Rollin Please sign & date
Fool For You /s/ Hy Mizrahi
Ya Ya -------------------------
I'm Falling In Love Hy Mizrahi
A Fool in Love
A Fool For You July 18, 1997
This Man's Crazy -------------------------
Good Good Lovin Dated
/s/ Hy
2
<PAGE>
Turn You Loose
Give Me a Chance
Golden Empire
Proud Mary
Soulful Vibes
The Wedding Vows (Live)
There's Nothing I Wouldn't Do
Take The Time
Another Day
Help Me Make It Through the Night
Poor Fool
You'll Always be my Baby
Movin On
Don't Fight it (feel it)
I Keep Still Missing You
All Over Now
Put on Your Tight Pants (High Heel Sneakers)
Don't Look Back
It's Mojo Queen
You can't Blame me
Its Gonna Work Out Fine
Kinda Strange
Tra La La
Please sign & date
/s/ Hy Mizrahi
-------------------------
Hy Mizrahi
July 18, 1997
-------------------------
Dated
/s/ Hy
3
VAN-PIRES MASTER TOY LICENSE AGREEMENT
This AGREEMENT made and effective this September 21, 1998 by and between ABRAMS
GENTILE ENTERTAINMENT, INC/MSH ENTERTAINMENT CORPORATION with its office at 244
West 54th Street, 9th Floor, New York, New York 10019 (known as "LICENSOR"),
DeWilde Groups Inc. A Calif Corp having its principal office at 328 So. Atlantic
Blvd, Suite 103, Monterey Park, Ca. 91754 ("LICENSEE").
WITNESSETH:
WHEREAS, LICENSOR is the owner of rights to an item currently being named or
referred to as VAN-PIRES and which is described in Exhibit A attached hereto and
made a part hereof ("ITEM"). The term ITEM also includes all technology,
know-how, trade secrets, patents, copyrights, and other tangible and intangible
property rights to the ITEM and all tangible embodiments thereof (e.g.,
blueprints, drawings, prototypes):
WHEREAS, LICENSEE is in the business of manufacturing and selling toys and toy
products; and
WHEREAS, LICENSEE is desirous of obtaining the sole and exclusive rights to
manufacture and sell the ITEM on a worldwide basis.
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration receipt of which is
hereby acknowledged, it is hereby agreed as follows:
1. GRANT. Subject to the provisions of this Agreement, LICENSOR hereby grants to
LICENSEE and its subsidiaries and affiliates, in the United States and the rest
of the world (`Territory"), the sole and exclusive right privilege and license,
in conjunction with any and all toy and toy-related products and services, to
manufacture, have manufactured, use, promote, advertise, distribute, rent
sublicense and/or sell the ITEM. This grant includes, but is not limited to, the
sole and exclusive right to manufacture, have manufactured, use, promote,
advertise, distribute, rent sublicense and/or sell the ITEM under any patents,
copyrights or trademarks or applications therefor, whether issued, pending or
hereafter filed, on the ITEM. LICENSEE shall have the right to sublicense the
rights granted to LICENSEE herein, pursuant to Paragraph 8 hereof.
2. WARRANTY. LICENSOR warrants that it has independently conceived and developed
the ITEM in the form submitted by LICENSOR to LICENSEE, (ii) it is the sole and
exclusive owner of the ITEM and all rights pertaining thereto, (iii) it has the
sole and exclusive right to grant the license in this Agreement, and (iv) to the
best of its knowledge the ITEM will not infringe any patent copyright,
trademark, trade secrets or other rights of any third party. LICENSOR further
warrants that it is under no obligation, either express or implied, to any other
person or entity that would result in any restriction of or interference with
LICENSEE's rights hereunder and that it is not engaged in any litigation,
dispute or conflict of any nature whatsoever nor has it received any claims
involving the ITEM or any rights thereto. LICENSOR agrees that during the term
of this Agreement it will not authorize or permit any other person or entity to
manufacture. distribute or sell in the Territory any product or item identical
or similar to the ITEM.
<PAGE>
3. ROYALTY. LICENSEE shall pay LICENSOR a royalty at the rate of twelve percent
(12%) of the "Net Sales Price" on all FOB HK (Hong Kong) sales of the ITEM by
LICENSEE and its subsidiaries. "Net Sales Price" shall mean LICENSEE'S gross
selling price on sales of the ITEM actually received by LICENSEE, less
deductions for freight allowances, returns which are accepted and credited by
LICENSEE, and trade discounts and other allowances, provided such discounts and
allowances shall in no event exceed ten percent (10%).
In the event of domestic pricing (FOB US), LICENSEE shall pay LICENSOR a royalty
at the rate of six and one-half percent (6.5%) of the domestic "Net Sales Price"
on all sales of the ITEM by LICENSEE, up until such time the series commences
television broadcasting, then percentage shall revert to eight percent (8%)
being paid after the completion of the airing of the first thirteen (13)
episodes, of the domestic "Net Sales Price" on all sales of the ITEM by
LICENSEE.
4. ADVANCE. LICENSEE agrees to pay LICENSOR the sum of $825,000 U.S.
non-refundable as outlined below. Such sums being a recoupable advance against,
and to be credited against, royalty payments under Paragraph 3.
a. $100,000 upon the execution of this agreement.
b. $240,000 payable on December 15, 1998.
C. $360,000 payable on February 1, 1999.
d. $125,000 payable on April 1, 1999
5. TRADE OFFER. If the ITEM is not offered to the trade by LICENSEE at or before
the New York Toy Fair in February, 1999, this Agreement may be extended by
mutual agreement upon written notice thereof to the other party hereto within 30
days following the last day of said Toy Fair, and all rights originally granted
to LICENSEE hereunder shall remain with LICENSEE per a mutually agreed to term;
subject, however, to the provisions of Paragraph 13 hereof.
6. DESIGN. A mutually agreed to design fee shall be payable in addition to the
advance, for services requested by LICENSEE to be rendered by LICENSOR in regard
to additional products not already designed. Such amount will be payable and due
per a mutually agreed to amount and schedule. Any design fees payable under this
paragraph shall not be deemed an advance against royalties and no deductions
shall be applied to royalties due LICENSOR under Paragraph 3.
In the event, LICENSEE handles all design work then no additional design fees
would be due LICENSOR. LICENSOR agrees to supply at no additional fees,
reasonable supervision upon request of LICENSEE. LICENSEE has the right to
change the form, design, function arid performance of the ITEM and to produce
and sell it in its changed form,, provided, however, that all the provisions of
this Agreement shall apply to said changed form of the ITEM and LICENSOR shall
give written approval to LICENSEE on any such change.
7. TRADEMARKS/COPYRIGHTS. LICENSEE may, in its discretion, apply to the ITEM any
name(s) or trademarks that it selects. and the approved and appropriate patent
notices and/or trademark and copyright notices. It is acknowledged that the name
"VAN-PIRES" is the property of LICENSOR.
<PAGE>
8. SUBLICENSE.
(a) if LICENSEE so decides, LICENSEE may grant domestic sublicenses on the ITEM
utilizing AGE's best efforts to facilitate such sublicense and/or distribution
partners, if requested by LICENSEE, in the Territory upon any terms and
conditions which it wishes to grant and establish; provided, however, that
LICENSEE will not grant any rights to such sublicensee that are greater in scope
or duration than those granted to LICENSEE hereunder and provided further,
however, that in the event that LICENSEE does so grant sublicenses on the ITEM,
then in lieu of the royalty set forth in Paragraph 3 above, LICENSEE shall pay
to LICENSOR Fifty Percent (50%) of all royalties actually received by it from
any such sublicensee for the ITEM (net of all expenses incurred by LICENSEE in
connection therewith but such expenses will in no event exceed an amount equal
to ten percent (10%) of said royalty). Upon LICENSEE's request AGE will also
utilize best efforts in establishing any international sub-license or
distribution partners for the ITEM.
(b) LICENSOR retains the merchandising rights to the ITEM, and to the extent
these rights are exploited, that will be done by LICENSOR through its licensing
agent. If LICENSOR's licensing agent (or LICENSOR elects to merchandise through
its own licensing group) grants merchandising rights to a third party based on
trademarks, copyrights or characters directly related to and first introduced to
the public in connection with the ITEM, then said licensing agent (or LICENSOR)
shall pay LICENSEE two percent (2%) of the net royalty income actually received
by said licensing agent (or LICENSOR) from said third party.
9. INDEMNITY.
(a) LICENSOR agrees to indemnify and hold harmless LICENSEE and
its subsidiaries, affiliates and sublicensees, and its and their officers,
directors, employees and representatives, against any and all loss, damage,
cost, attorneys' fees and expense (including any settlements) arising out of any
claims, demands, actions or suits that may be instituted against LICENSEE or
such other indemnified parties (1) resulting from a breach or alleged breach of
a warranty or agreement hereunder by LICENSOR or (ii) alleging a superior right
in and to the ITEM and/or infringement of patent, copyright, trade secret or
other intellectual property or other rights, of any person or entity arising out
of the use, manufacture, advertising, promotion, distribution, rent, sublicense
and/or sale of the ITEM by LICENSEE.
(b) LICENSEE agrees to indemnify and hold harmless LICENSOR and its officers,
directors, employees and representatives, against any and all loss, damage, cost
attorneys' fees and expense (including any settlements) arising out of any
claims, demands, actions or suits that may be instituted against LICENSOR or
such other Indemnified parties for injury or property damage based on the use of
the ITEM as produced and sold by LICENSEE, its subsidiaries, affiliates and
sublicences, except to the extent that the loss, damage or injury resulted from
an inherent or latent feature of the ITEM as designed by LICENSOR and presented
to the LICENSEE.
<PAGE>
10. INFRINGEMENT. In the event of infringement by a third party of any patent
that may be issued on the ITEM, or any other protectible rights In the ITEM, and
upon notice thereof from LICENSEE, LICENSOR shall, within twenty (20) days,
notify LICENSEE of its election to prosecute or not to prosecute a suit for
infringement. If LICENSOR prosecutes said suit, it, may select legal counsel and
shall pay all the legal fees and costs of prosecution, subject to being
reimbursed therefor from any recovery in said suit. The balance of any recovery
shall be paid to LICENSOR and shall be divided equally between LICENSOR and
LICENSEE. If LICENSOR elects not to prosecute any infringement suit, LICENSEE
may do so after notice to LICENSOR of that intention. LICENSEE may select legal
counsel and shall bear all the legal fees and costs subject to reimbursement
therefor from any recovery in said suit. The balance of any recovery shall be
divided equally between LICENSOR and LICENSEE. The party who selects counsel and
pays legal fees will control the prosecution of such suit including any
settlement thereof, but the other party agrees to reasonably cooperate in
connection therewith.
11. REPORTS. LICENSEE shall, within forty-five (45) days following the end of
each calendar quarter, starting with the quarter in which sales of the ITEM
commence, submit to LICENSOR a report covering the sales of the ITEM during the
preceding quarter, and LICENSEE shall therewith transmit to LICENSOR payment of
the amount due under Paragraph 3, 8(a) or 8(b) hereof. Each such report shall be
deemed incontestable and binding upon LICENSOR upon the expiration of
twenty-four (24) months after the date of such report.
12. RECORDS. LICENSEE agrees to keep for a minimum of two (2) years, full and
accurate books of account, records and data concerning the manufacture and sales
of the ITEM in sufficient detail to enable the payments hereunder to LICENSOR to
be determined and verified. Subject to the last sentence of Paragraph 13 hereof,
LICENSOR has the right, at its own expense, to examine said books and records as
they pertain to the ITEM on prior written notice of at least ten (10) business
days, but not more often than once in any calendar year, for the purpose of
verifying the royalties paid pursuant to this Agreement. Any such examination by
LICENSOR shall be conducted a manner so as to not interfere with the business of
LICENSEE and shall not last longer than 30 days. LICENSOR's representatives
shall not disclose to any other person, firm or corporation any information or
data acquired as a result of any such examination; provided, however, that
nothing herein contained shall be construed to prevent LICENSOR and/or its duly
authorized representatives from testifying in any court of competent
jurisdiction with respect to the information or data obtained as a result of
such examination in connection with any action instituted to enforce the rights
of LICENSOR under the terms of the Agreement. Upon LICENSOR'S undertaking an
examination of the statements and records covering a given period of time, that
period of time and the __________________________________ relating ________ will
_________- to any subsequent for further questions, claims or examinations by
LICENSOR hereunder.
13. DEFAULT. If LICENSEE shall at any time breach this Agreement by failing to
make any material payment hereunder (including all such advance payments per
Paragraph 4 hereunder), or by failing to make any quarterly report required
under this Agreement, or by making an intentionally false quarterly report,
LICENSEE shall remedy or cure such default within fourteen (14) business days
after written notice thereof by LICENSOR. If such default is not cured within 14
business days then LICENSOR shall
<PAGE>
have the sole right to terminate this agreement and all rights hereunder shall
revert to LICENSOR. A bonafide dispute over royalty or other payments hereunder
shall not be or be deemed to be a breach or a material breach of this Agreement,
and LICENSOR's rights in such event shall be limited to an action at law for
money damages and shall not include any right of rescission, termination or
equitable relief.
14. CEASE SALES. It is understood and agreed that any time after commencement of
sales of the ITEM that if LICENSEE ceases the distribution and sale of the ITEM
for a period of six (6) consecutive months, except as provided in Paragraph 15
hereof, either party may give written notice to the other of its desire to
terminate this Agreement. If LICENSOR gives such notice and if LICENSEE does not
within sixty (60) days resume the distribution and sale of the ITEM (or if the
distribution and sale cannot be practicably resumed within such sixty (60) day
period, then if LICENSEE does not, within such period, undertake reasonably
satisfactory efforts toward commencing the resumption of such distribution and
sale) this Agreement and the license granted herein shall terminate as of the
end of that sixty (60) day period. However, nothing in this Agreement will be
construed as creating any obligation on or by LICENSEE to manufacture,
distribute or sell the ITEM during the term of this Agreement.
15. FORCE MAJEURE. In the event an act of government, war, civil
unrest, fire, flood, an Act of God, or labor trouble in the factories utilized
by LICENSEE, or labor trouble in the factory of those manufacturing parts for or
manufacturing all of the ITEM, or any other force majeure or other event beyond
LiCENSEE's control, prevents or delays the performance by LICENSEE of any of the
provisions of this Agreement, then such nonperformance or delay by LICENSEE
shall not be considered a breach of, or initiate any right to terminate, this
Agreement and such nonperformance or delay shall be excused while, but no longer
than, the conditions described herein prevail.
16. TERM/TERMINATION.
(a) This Agreement shall continue for a period of five (5) years from the date
hereof, unless sooner terminated under the provisions of this Agreement.
LICENSEE agrees that when this Agreement expires or is terminated, all rights to
the ITEM granted hereunder and to any patents or patent applications filed
hereunder shall revert to LICENSOR.
(b) LICENSEE may terminate this Agreement at any time and for any reason by
providing sixty (60) days prior written notice thereof to LICENSOR.
17. SELL-OFF. Upon any termination or expiration of this Agreement, LICENSEE,
its subsidiaries and affiliates and any of its or their sublicensees shall have
the right to sell or otherwise dispose of its existing completed inventory of
the ITEM, and to complete and sell or otherwise dispose of work-in-process ITEM
inventory, for a period of six (6) months thereafter. Any such sales shall be
subject to all of the provisions of this Agreement.
<PAGE>
18. ASSIGNMENT. LICENSEE may assign this Agreement or the rights granted by
LICENSOR hereunder with LICENSOR's prior written consent, which shall not be
unreasonably withheld. In addition, LICENSOR agrees that LICENSEE may assign
this Agreement, without such prior written consent to any subsidiary or
affiliate corporation so long as such assignee shall thereafter agree to be
bound by the provisions of this Agreement, or to a third party in the event of
the transfer of substantially all of the assets or business of LICENSEE, a
merger, reorganization or consolidation. No assignment pursuant to this
paragraph shall create any additional advance or guaranteed royalty.
19. MISCELLANEOUS.
a. NOTICES. All communications, notices and exchanges of information
contemplated herein or required or permitted to be given hereunder shall be in
writing and shall be deemed properly given when personally delivered or five (5)
calendar days after one of the parties deposits the same in the United States
mail, first class delivery, postage prepaid, or when one delivers it to an
established courier service, with fees prepaid, or transmits it by facsimile
(with hard copy to follow), addressed to the other party to the addresses set
forth at the beginning of this Agreement (or such other address of which such
party shall have given written notice).
b. BINDING EFFECT. Subject to the provisions of Paragraph 18, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their successors and assigns.
c. GOVERNING LAW. This Agreement shall be governed by and interpreted under the
laws of the State of California, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
d. ENTIRE AGREEMENT. This Agreement shall supersede any agreement heretofore
entered into by and between LICENSOR and LICENSEE on this ITEM, and shall be
deemed and construed to be the entire agreement and understanding between the
parties with respect to the subject matter hereof
e. CONFIDENTIAL. LICENSOR agrees to keep the terms and conditions of this
Agreement confidential and will not divulge such terms arid conditions to any
other person or entity without the prior written consent of LICENSEE.
f. AMENDMENT & WAIVER. This Agreement may only be amended, and any provision of
this Agreement may only be waived, in a writing executed by both of the parties
hereto, specifically setting forth such amendment or waiver, as the case may be.
The failure of either party to enforce any provision of this Agreement shall not
be construed to be a waiver of such a provision or the right of such party
thereafter to enforce such provision or any other provision of his Agreement.
<PAGE>
g. RELATIONSHIP OF PARTIES. Except as specifically otherwise provided herein,
neither party shall act or represent or hold itself out as having authority to
act as an agent or partner of the other party hereto, or in anyway bind or
commit the other party to any obligations or liabilities. Nothing contained in
this Agreement shall be construed as creating any partnership, joint venture,
agency, trust or other association of any kind between the parties hereto other
than as licensor and licensee.
h. SEVERABILITY. The illegality, invalidity or unenforceability of any part of
this Agreement shall not affect the legality, validity or enforceability of the
remainder of this Agreement if any part of this Agreement shall be found to be
legal, invalid or unenforceable, this Agreement shall be given such meaning as
would make this Agreement legal, valid and enforceable in order to give effect
to the intent of the parties.
i. COUNTERPARTS. This Agreement may be executed in counterparts, any one of
which need not contain the signatures of more than one party, but all of which,
taken together, shall constitute one and the same agreement.
j. HEADINGS. Paragraph and other headings in this Agreement are for reference
purposes only and do not affect the meaning of this Agreement.
IN WITNESS THEREOF, the parties have executed this Agreement as of the data
first above written.
ABRAMS GENTILE, INC. (Licensor) DEWILDE GROUPS INC.
By: /s/ John Gentile By: /s/ Nancy Luke
------------------------ ------------------------------
John Gentile Nancy Luke
Title: President Title: President
--------------------- -------------------
MSH ENTERTAINMENT, INC. BRANDON PENDER
By: /s/ Jonathan Stathikis By: /s/ signature
----------------------- ------------------------------
Jonathan Stathikis DEWILDE GROUPS INC., CEO
Title: President/ COO
--------------------
<PAGE>
EXHIBIT A
VAN-PIRES
The line of characters, vehicles and playsets as depicted in the television
series known as "VAN-PIRES" which include vehicles and figures with wings that
are designed to fly. The appearance of the wings are moveable vehicle panels or
character arms. The wings are designed with the necessary angle to act a
propellers when the toy is launched. The launcher appearance is that of a set or
prop as depicted in the TV series that is open in the center where the character
/ vehicle stands and is launched from. The character / vehicle is placed into
the hand-held launcher that has a retractable pull string on a constant force
spring mechanism. The child activates the launcher by pulling a ring attached to
the pull string.
The toy body is molded in rigid material, an ABS or similar properties material.
The wings are made from flexible material but maintain their shape to be able to
fly. The overall character / vehicle is symmetrically balanced to fly.
Non-flying characters and vehicles are also included as part of this license.
The items currently produced for tooling turnover within is Van-pire
introduction line include the following:
<TABLE>
<CAPTION>
<S> <C>
A. MotorvaterSKUs / Good Guys
1 Super Master Sculpt Axel 3 3/4" Flying Character with HotRod Launcher
1 Super Master Sculpt Snap 3 3/4" Flying Character with Van Launcher
1 Super Master Sculpt Nuke 3/34" Flying Character with TowTrunk Launcher
1 Super Master Sculpt Axel 6" Flying Spin Fig. with Slingshot Vanpire Launcher
1 Super Master Sculpt Snap 6" Flying Spin Fig. with Slingshot Vanpire Launcher
1 Master Mechanical of Motprvater Launcher for mechanism layout
1 Looks-like Mega Motorvater Van with Internet Launch Figure
6 Spray Op Masters Characters
5 Spray Op Masters Vehicles
B. Van-pire SKUs / Bad Guys
Super Master Sculpt Tracula 4" Flying Car Character with Engine Launcher A
Super Master Sculpt Ambula 4" Flying Car Character with Engine Launcher B
Super Master Sculpt Cardaver 4" Flying Character with Engine Launcher C
Super Master Sculpt Automaniac 4" character with Engine Launcher D
1 Master Mechanical; Figure (Mechanism Layout)
1 Master Mechanical Launcher (Mechanism Layout)
4 Spray Op Masters Characters
4 Spray Op Masters Launchers
</TABLE>
Agreement/
Page 1
CONSULTING AGREEMENT
This Memorandum of Agreement is made and entered into this 17th day of November,
1999 between MSH Entertainment Corporation, a public company incorporated in
Utah ("Company") and King/Fromkin Productions, Inc. ("CONSULTANT"), a private
company incorporated in New York, owned 50/50 by Archer King and David Fromkin
(collectively the "EXECUTIVES").
WITNESSETH:
WHEREAS, Consultant represents that he has expertise in the area of talent
contacts, literary experience, evaluating and packaging of entertainment and
literary properties, director, producer and writer relationships and the
intricacies of the entertainment business and is ready, willing and able to
provide consulting assistance to the Company on the terms and conditions set
forth herein; and
WHEREAS, Company, in reliance on Consultant's representations, is willing to
engage Consultant as an independent contractor, and not as an employee, on the
terms and conditions set forth herein with regards to motion films and videos of
all sorts;
NOW THEREFORE, in consideration of the obligations herein made and undertaken,
the parties, intending to be legally bound, covenant and agree as follows:
1. SERVICES: Consultant agrees to render services on a non-exclusive basis as a
Talent Packaging Consultant and Literary Consultant for Company and Consultant
accepts such engagement to provide consultation to Company regarding the
entertainment industry, relationships in The literary, theatrical, television
and music industry, the development, packaging, production and distribution of
motion pictures, Television movies and series.
2. TERMS: Consultant's services as a consultant shall commence The 17th day of
November, 1999 and shall continue for a period of One (1) year unless The term
is extended by both parties.
3. COMPENSATION: In consideration of the services rendered hereunder, Company
agrees to compensate Consultant for serving as a Consultant to the Company as
follows:
a. Executives shall receive One Hundred Thousand (100,000) shares of
Company common stock upon the execution of this Agreement. Said shares shall be
restricted under SEC Rule 144 and shall be divided equally between the
Executives.
b. One year from the date of signing of this Agreement, based upon
performance by Consultant, which shall be deemed to mean that Consultant was
directly responsible for arranging for packaging to the Company's acceptance,
two (2), or more of Company's projects and/or productions, Consultant shall
receive an additional One Hundred Thousand (100,000) shares of Common stock,
which shall be issued by Company to Consultant upon the date of renewal of this
Agreement.
<PAGE>
Agreement/
Page 2
c. For each project Consultant packages to the Company's acceptance,
Consultant shall also serve as the co-producer(s) or co-executive producer(s) of
the project and receive a salary for same in accordance with the budget for the
project, be it a theatrical motion picture and/or a made-for-television movie
and/or made-for-home video project.
d. "Packaging" shall be defined to mean identifying the literary
property, attaching name stars and providing, if requested a director.
e. For each project accepted by the Company hereunder, individual deal
memos shall be negotiated with Consultant on a project-by-project basis
outlining salaries, expenses, draws, etc.
4. OTHER SERVICES: Other services to be provided by Consultant, if any, shall
be as mutually agreed upon by Company and Consultant and under a separate
addendum to this Agreement.
5. INDEPENDENT CONTRACTOR: It is agreed and understood that Consultant's
relationship to Company is that of an independent contractor. Accordingly,
Consultant shall be responsible for payment of all taxes and insurance to its
own employees applicable under existing laws, including but not limited to,
social security taxes, and federal, state and city income taxes. Consultant
warrants that Consultant will make all necessary payments due appropriate
governmental agencies to comply with the foregoing and to indemnify Company
against any claims, liabilities, costs or expenses that may arise out of breach
of the foregoing.
6. PROFESSIONAL AND WORKMANLIKE MANNER: Consultant agrees to render all
services generally and customarily performed in similar capacities in a
professional and workmanlike manner in accordance with specifications furnished
by Company. Consultant shall promptly comply with all instructions, directions,
requests, rules and regulations of Company in connection with Consultant's
services to be rendered under this Agreement.
7. OWNERSHIP AND COPYRIGHT: Unless Company and Consultant shall agree to the
contrary in a written instrument as described in Paragraph 3. e. above,
specifically a deal memo negotiated between the Parties on a project-by-project
basis, all right, title and interest in any and all projects including all
elements thereof will at all times belong solely and exclusively to Company for
use in any manner or media it may make or authorize throughout the world in
perpetuity. Similarly, any and all materials, ideas, or other creative or
literary property and Consultant's adaptations and arrangements thereof
furnished by Consultant hereunder will belong solely and completely to Company
for any use it may thereafter see fit and Consultant's services shall be deemed
those of an employee for hire for copyright purposes.
8. NON-USE BY COMPANY: Company shall not be obligated to use, develop,
implement or act upon any consultation given to Company by Consultant.
<PAGE>
Agreement/
Page 3
9. DEATH OR DISABILITY OF CONSULTANT:
a. In the event of Consultant's death or disability while in the employ
of Company, this Agreement and the compensation due to Consultant pursuant to
Paragraph 3 hereof shall terminate upon the date of said death or disability and
Company shall thereafter be required to make payments only to Consultant or
Consultant's estate, as the case may be, for all amounts due to Consultant as
compensation for the services rendered hereunder through the date of death or
disability to the extent such amounts have accrued but have not been theretofore
paid.
b. Consultant shall be deemed disabled if, Consultant in the opinion of
Company, is unable to substantially perform the services required of Consultant
hereunder for a period in excess of 21 consecutive days or 21 days during any
90-day period. In such event, Consultant shall be deemed disabled as of such
21st day.
10. CONFIDENTIALITY: Consultant hereby acknowledges that during the term
thereof, Company may, from time to time, disclose to Contractor confidential
information pertaining to the business and affairs of Company and its clients,
including but not limited to, the customer lists and accounts and other similar
items indicating the source of income of Company. It is understood that
Consultant shall not, at any time during or after the term of this Agreement,
disclose to any third party or directly or indirectly make use of any such
confidential information, including but not limited to, the names, addresses and
telephone numbers of customers of Company other than in connection with, and in
furtherance of the business and affairs of Company. All documents and data
(whether written, printed or otherwise reproduced or recorded) containing or
relating to any such information, whether made or compiled by, or delivered or
made available to, or otherwise obtained by Company, shall be returned by
Consultant to Company at the time of the termination of this Agreement or upon
any earlier request by Company without Consultant retaining any copies, notes or
excerpts thereof.
11. ADDITIONAL INCENTIVE COMPENSATION: Company intends to implement an incentive
compensation program for its employees. The incentive compensation program shall
include the ability of Company's employees to receive additional shares of
Company stock through an ESOP, as well as incentive and non-qualified stock
options plans. To the degree possible Consultant may participate in these plans,
which shall be over and above the compensation proposed in Paragraph 3(b)
above, on the same basis as other employees is subject to the provisions
contained in Paragraph 17 hereunder.
12. SERVICES UNIQUE: It is agreed that the services to be rendered by Consultant
hereunder are of a special, unique, unusual, extraordinary and intellectual
character which gives them a peculiar value, the loss of which cannot be
reasonably adequately compensated in damages in an action at law and that a
breach by Consultant of any of the provisions contained herein shall cause the
Company irreparable injury and damage. Consultant expressly agrees that the
Company shall be entitled to injunctive or other equitable relief to prevent a
breach thereof. Resort to any such equitable relief shall not be construed as a
waiver of any of the rights or remedies which the company may have against
Consultant for damages or otherwise.
<PAGE>
Agreement/
Page 4
13. APPLICABLE LAW AND SEVERABILITY: This document shall, in all respects, be
governed by the laws of the State wholly performed within the State of New York.
Nothing contained herein shall be construed so as to require the commission of
any act contrary to law, and wherever there is any conflict between any
provision contained herein and any present or future statute, law, ordinance or
regulation contrary to which the parties have no legal right to contract, the
latter shall prevail but the provision of this document which is affected shall
be curtailed and limited only to the extent necessary to bring it within the
requirements of the law.
14. ATTORNEY'S FEES: In the event any action be instituted by a party to enforce
any of the terms and provisions contained herein, the prevailing party in such
action shall be entitled to such reasonable attorney's fees, costs and expenses
as may be fixed by the Court.
15. MODIFICATIONS OF AMENDMENTS: No amendment, change or modification of this
document shall be valid unless in writing and signed by all of the parties
hereto.
16. SUCCESSORS AND ASSIGNS: All of the terms and provisions contained herein
shall inure to the benefit of and shall be binding upon the parties hereto and
their respective heirs, personal representatives, successors and assigns.
17. ADDITIONAL PROVISIONS: As an independent contractor, Consultant may consult
with Consultant's financial and legal experts concerning the tax ramifications
of Consultant receiving stock and options. Company is not responsible for any
tax consequences that may be created by Consultant receiving shares and
exercising of options. If because of Consultant's status as an independent
contractor, Executives cannot qualify for Company's incentive program, then
other arrangements shall be instituted whereby Consultant shall be granted
shares and options of equivalent value under a separate mutually agreed upon
arrangement.
18. ENTIRE AGREEMENT: This document constitutes the entire understanding and
agreement of the parties with respect to the subject matter of this Agreement,
and any and all prior agreements, understandings or representatives are hereby
terminated and canceled in their entirety and are of no further force or effect.
<PAGE>
Agreement/
Page 5
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AGREED AND ACCEPTED
By: /s/
--------------------------------
MSH Entertainment, Inc.
Its: President/CEO
--------------------------------
Today's Date: 11/30/99
-----------------------
AGREED AND ACCEPTED
By: /s/ Archer King
-----------------------------------------------------
Archer King, President King/Fromkin Productions, Inc.
Archer King, Consultant
Social Security Number 08 -1 -3914
-----------------------------------
Today's Date: 11/30/99
---------------------------------------------
AGREED AND ACCEPTED:
By: /s/ David Fromkin
---------------------------------------
David Fromkin, Executives
Social Security Number ###-##-####
----------------------
Today's Date: November 29, 1999
-------------------------------
MSHE/AGE V.3
AGREEMENT
---------
This AGREEMENT made this 1st day of November, 1996 between MSH Entertainment
Corporation, Inc. (hereinafter referred to as "MSHE"), a Utah corporation
whose address is 768 Brannan Street, San Francisco, California 94103 and
Abrams/Gentile Entertainment, Inc. (referred to as "AGE"), whose address is 244
West 54th Street, 9th floor, New York, New York, 10019 (with MSHE and AGE being
collectively called "Parties").
WITNESSETH
----------
WHEREAS AGE warrants and represents that AGE owns all the rights, title and
interest, including all materials including, but not limited to, scripts, story
ideas, treatments, adaptations, trademarks, toy designs, merchandising and the
titles, characters, drawings, plots, themes and storylines for a proposed
television series and merchandising and toy line entitled "Vanpires"
(hereinafter the "Property"); and
WHEREAS the Parties desire to enter into a co-production arrangement
("Co-Production Agreement") as outlined herein for the purpose of producing the
Property; and
WHEREAS the Parties desire to produce thirteen (13) episodes of the Property to
be sold as a television series ("Series") and toy line and merchandising items
(collectively "Merchandising"); and
WHEREAS the Parties desire to establish each Party's rights in connection with
the Property and the proceeds derived from any sales, production and/or
distribution of the Property and share profits therefrom with each other as set
forth herein: and
WHEREAS, the Parties hereby agree as follows:
NOW THEREFORE, in consideration of the mutual promises contained herein, the
Parties agree as follows:
1. ADOPTION OF RECITALS: The Parties hereto adopt the above recitals as
being true and correct.
2. CO-PRODUCTION: The Parties are undertaking a co-production
("Co-Production") for the production of the Series.
3. TERM: The term of this Agreement shall be in perpetuity unless sooner
terminated by mutual agreement of the Parties and shall continue for:
a. the duration of any and all copyrights shared and/or owned by the
Co-Production; or
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<PAGE>
b. so long as the Parties shall be entitled to compensation with
respect to any Agreements and/or licenses to third parties in connection with
the Property and/or the Series, including all modifications, additions, options.
extensions, renewals, substitutions for, and replacement of such agreements,
directly or indirectly; and
c. for purposes herein, any agreements made, entered into or resumed
within six (6) months immediately following the termination of any particular
prior agreements with the Parties, shall be deemed a substitution or replacement
of such agreements; and
d. as used herein, the term "Agreements" means any and every written
agreement entered into, in existence, directly or indirectly relating to the
Property and/or the Series.
4. TITLE TO ASSETS: Except as provided below, any and all assets and all
forms of exploitation of the Property including, but not limited to, all
ancillary and allied rights thereto, including but not limited to toys, games,
merchandising, music rights, stage rights, television rights, radio broadcasting
rights, book publishing, motion pictures and all other rights including the
copyright (herein collectively referred to as the "Rights") shall be owned by
and title held by AGE.
5. CONCEPT: It is acknowledged that the Property is the creation of AGE,
and that the further creation of the Series shall be the contribution of AGE and
MSHE.
6. OWNERSHIP: All ownership rights including the underlying rights of the
Property and Series, rights of trademark and copyright and renewals thereof,
shall, except as noted herein, be in the name of AGE. The care, custody and
control of all master tapes produced hereunder shall remain with MSHE and at its
facility in San Francisco, unless otherwise instructed by AGE.
7. CAPITAL AND OTHER CONTRIBUTIONS: Each of the Parties have agreed to
contribute in cash and/or a combination of cash and services the following:
a. AGE:
(1). AGE shall provide cash and services of One Million Three
Hundred Thousand Dollars ($1,300,OOO.OO) for the production of the thirteen
(13) episodes of the Series, according to the schedule of payments as outlined
in the attached addendum ("Addendum").
(2). AGE shall be the Producer of the Series;
(3). AGE shall maintain creative control over the production of
the Series but agrees to engage in active and meaningful consultation with MSHE;
however, in the event of a dispute, the decision of AGE shall govern.
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<PAGE>
(4). AGE agrees to deliver to MSHE complete design work for the
Property on or about October 21, 1996.
(5). AGE agrees to the deliverables outlined in the attached
Addendum.
b. MSHE:
(1). MSHE shall be the co-producer of the Series;
(2). MSHE shall provide cash and services of Six Hundred and Fifty
Thousand Dollars ($650,000) for the production of the thirteen (13) episodes of
the Series, a schedule of payments as outlined in the attached Addendum;
(3). MSHB shall provide the necessary amount, expected to be up to
fifty (50) Intel computer work stations to properly implement the "Overlord"
animation system in order to produce the Series. The system must be installed
and functioning on a beta basis on or about November 21, 1996 and have produced
a test program acceptable and satisfactory to AGE, in its sole descretion, of
approximately two (2) minutes in duration, based on AGE storyboards, character
and background design. MSHE agrees to the deliverables schedule outlined in the
attached Addendum;
(4). In order to meet the above mentioned threshold, AGE shall
deliver to MSHE complete design work on or about October 21, 1996.
(5). The use of MSHE Communications' production facility,
(formally East End Communications) on a priority basis, at no additional cost,
for both the production and post-production of the Series;
(6). Arrangement of all necessary insurance for the production
including E&O insurance, in a manner subject to AGE's approval.
(7). All the necessary hardware and software to meet the creative
criteria of AGE and deliver 13 half hour episodes of high broadcast quality CGI
animation;
(8). MSHE shall arrange to have Chris Haigh available to work on
the episodes of the Series on a priority basis;
(9). MSHE shall cause to be opened and each Party shall deposit
its respective funds in a mutually agreed upon bank account solely for the
purpose of producing the Series. Any and all expenditures related to the
production of the Property shall be made from this account. Prior to the opening
of the account, AGE and MSHE shall each designate a signatory on the account,
subject to the approval of AGE. Additionally, MSHE will provide, if requested,
from time to time, detailed explanations of how MSHE intends to finance its
working capital needs both specifically related to the production contributions
and working capital for general corporate needs.
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<PAGE>
8. CONTROL OF THE PROPERTY: All decisions relating to the activities of the
Property, and any and all decisions with respect to third party contractual
Agreements, creative, business, financial and legal matters in connection with
the Property, and all subsidiary and ancillary rights thereto and all
exploitation thereof, shall be remain with AGE.
9. WARRANTS: MSHE shall issue warrants to AGE, for nominal consideration,
for the right to purchase up to one (1) million common shares of MSHE for a
period up to four (4) years from the execution date of this Agreement. The
warrants shall be covered in a separate agreement (the "Warrant Agreement").
10. INTEL: MSHE will execute a cooperation agreement with Intel, as
previously presented to AGE. Should MSHE be unable to complete such an
agreement or should MSHE complete an agreement that contradicts the spirit of
the role intended for Intel within this Agreement, AGE may in its own discretion
automatically terminate this Co-Production Agreement with MSHE by seven (7) days
written notice of same, and shall thereafter have no further obligation to MSHE.
11. PARTICIPATION: Subject to the production of the Series and to the
performance of MSHE's obligations hereunder, it is agreed to by the Parties
hereto that both AGE and MSHE shall be placed in first position to both fully
recoup, pari passu, their initial investments in the production of the Series
($1.3 million to AGE, and $650,000 to MSHE) from 100% of revenues received by
AGE from the domestic and foreign broadcast of the Series; video licenses and
sales: and CD-ROM licenses and sales. Thereafter, once both Parties have fully
recouped, MSHE shall receive an economic interest from the licensing activities
relating to the Property as follows:
a. Series - 5% of the net advertising sales revenue earned by AGE in
the U.S. from the broadcast of the Series:
Toys, domestic - 1% of the net Toy revenues earned by AGE in the
U.S.:
Toys, international - 2% of the net Toy revenues earned by AGE
internationally;
Merchandising - 2% of the net merchandising revenues earned by AGE
including, but not limited to, Video, CD-ROM and Foreign Broadcast
rights.
b. "Net revenue" is defined as those revenues actually received by AGE
after deduction of any fees paid to independent agents.
c. From time to time, and with proper notice to AGE, MSHE shall have
reasonable access to the books and records of AGE as they pertain to the
Property only.
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<PAGE>
12. "VANPIRES" CREDITS: Subject to the Production of the Series, and subject
to the performance of all obligations hereunder, MSHE shall be entitled to a
mutually agreed upon co-production credit on a separate card, and those persons
from MSHE who perform pre-approved, by AGE, services on the Series shall receive
a credit related to the services which they provided.
13. WARRANTIES. Indemnification:
a. AGE hereby warrants and represents that AGE:
(1). has the right and capacity to enter into this Agreement and
is not prevented by law or otherwise from so doing;
(2). owns the rights and the underlying rights to the Property and
is able by law to enter into this Agreement and can produce proof of same;
(3). has not entered into any other agreement whatsoever with
third parties which adversely effects the Parties' rights hereunder or is
inconsistent in any manner with any term set forth hereunder, and
(4). shall have authorized the signing party to execute this
Agreement on behalf of AGE.
b. AGE hereby indemnities and holds harmless MSHE from and against any
and all claims, liabilities, damages, and costs including but not limited to
reasonable attorney's fees and court costs arising from any breach by AGE of any
representations, warranty or agreement made by AGE hereunder.
c. MSHE hereby warrants and represents that MSHE:
(1) owns all the necessary rights to the Overlord Animation
System:
(2) has the right and capacity to enter into this Agreement and is
not prevented by law or otherwise from so doing;
(3) has not entered into any other agreement whatsoever with third
parties which adversely affects the Parties' rights hereunder or is inconsistent
in any manner with any term set forth hereunder: and
(4) shall have authorized the signing party to execute this
Agreement on behalf of MSHE.
5
confidential 10/31/96
<PAGE>
d. MSHE hereby indemnifies and holds harmless AGE from and against any
and all claims, liabilities, damages and costs including, but not limited to,
reasonable attorney's fees and court costs arising from any breach by MSHE of
any representations, warranty or agreement made by MSHE hereunder.
15. BUDGET: The budget for the Series shall be prepared by MSHE and AGE,
with AGE having final approval.
16. ADDITIONAL DOCUMENTS: Each Party hereto shall execute and deliver any
and all additional papers, documents and other instruments and shall do any and
all further acts and things reasonably necessary in connection with the
performance of his obligations hereunder to carry out the intent of the
Agreement.
17. MERCHANDISING: AGE shall have the exclusive right to merchandise the
Property including all toys, merchandising and games and any ancillary products
created or derived from the Property.
18. DEFAULT/TAKEOVER RIGHTS: MSHE acknowledges that AGE will be entering
into binding commitments to deliver fully produce episodes of the Series to
third parties and will incur substantial liability in the event of late-delivery
or non-delivery of Series episodes. Accordingly, it is agreed that in the event
that MSHE defaults in making delivery of technically satisfactory animation of
the Series episodes on the schedule set forth on the Addendum annexed hereto,
which default persists after seven (7) days written notice of default from AGE
to MSHE, then if such event, and without limiting AGE's other rights or remedies
under this Agreement or pursuant to law. AGE shall have immediate right to take
over further production of the Series episodes. In the event of such uncured
default, MSHE shall, upon AGE's written notice, deliver to AGE (or to any third
party designee) any and all program materials including, without limitation, any
computer programs and any pictorial or audio/visual works created, by computer
or otherwise, in the course of MSHE's producing the animation for the Series
episodes. Furthermore, in such event, MSHE shall make available to AGE (or AGE's
designee) the Overlord Software and will provide such technical personnel as may
be necessary to enable AGE (or its designee) to utilize such Overlord Software
to complete production and delivery of the animation for the Series episodes
uncompleted as of the time such default and takeover of production, if ever.
19. ENTIRE AGREEMENT: This Agreement and all the exhibits attached
represents the entire and complete Agreement among the Parties hereto with
respect to the subject matter hereof and supersedes all previous agreements,
understandings or representations whether oral or written, between the Parties
regarding the subject matter hereof.
20. NON-WAIVER: No delay or failure by a Party to exercise any right under
this Agreement, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
provided herein, and no waiver shall be effective unless made in writing.
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<PAGE>
21. CAPTIONS: The captions of the various paragraphs and sections of this
Agreement are intended to be used solely for convenience of reference and are
not intended and shall not be deemed for any purpose whatsoever to modify or
explain or to be used as an aid in the construction of any provision.
22. COUNTERPARTS: This Agreement may be executed in counterparts with each
original being deemed a whole and complete copy.
23. ASSIGNMENT: MSHE may not assign, sell, grant a security interest in, or
otherwise dispose of their interest in the Property unless agreed to in writing
by AGE.
24. AMENDMENTS: This Agreement cannot be amended, modified or changed in any
way whatsoever except by a written instrument duly signed by the Parties hereto.
25. AUTHORITY: The corporations which are Parties hereto warrant and
represent that they have the power and authority to enter into this Agreement.
26. VOID PROVISIONS: If any provision hereof as applied to any Party or to
any circumstance Shall be adjudged by a Court to be void or unenforceable, the
same shall in no way affect any other provisions hereof, the application of such
provision in any other circumstances or the validity or enforceability hereof.
27. SUCCESSORS AND ASSIGNS: Except where provided to the contrary, this
Agreement, and all provisions hereof, shall inure to the benefit of and be
binding upon the Parties hereto, their successors in interest, assigns,
administrators, executors, heirs and devisees.
28. GOVERNING LAW: This Agreement shall be construed in accordance with and
governed by the laws of the State of New York and consent to jurisdiction of the
Federal courts located in New York City with respect to resolution of any
disputes arising hereunder.
The Parties herein have fully read, understood and executed this Agreement
freely and voluntarily. By signing In the spaces provided below, the Parties
accept and agree to all the terms and conditions of this Agreement.
In Witness Whereof the Parties hereto have caused this Agreement to be duly
executed.
/s/Abrams Gentile /s/Robert Maerz
- ------------------------------------- --------------------------------
Abrams/Gentile Entertainment, Inc. MSH Entertainment Corporation
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<PAGE>
/s/ John Gentile /s/ Robert Maerz
- ------------------------------ ------------------------------
Print Name Print Name
Its President Its Chairman
-------------------------- --------------------------
Title Title
Date 11/1/96 Date 11/1/96
------------------------- -------------------------
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<PAGE>
9. AGE to deliver scripts, voice
tracks, and storyboards on one per week
weekly basis for episodes 3 beginning week
through 13. of 5/15/97
10. AGE to deliver full music mixing AGE & MSHE to
for episodes 3 through 13 to contribute $100M and
MSHE one week prior to the $50M per week,
delivery date of the broadcast one per week respectively, for nine
master (full audio mix) of each beginning week weeks beginning July
episode by MSHE to AGE. of 7/28/97 28, 1997.
11. MSHE to deliver broadcast
for episodes 3 through 13
(assumes all spot production one per week
activities completed by MSHE beginning week
at its facilities). of 8/3/97
/s/ Robert P. Maerz /s/Abrams Gentile
- ----------------------------------- -------------------------------------
MSH Entertainment Corporation, Inc. Abrams Gentile Entertainment, Inc.
<PAGE>
19. COUNTERPARTS.
For the convenience of the parties, any number of counterparts of this
Warrant may be executed by the parties hereto and each such executed
counterparts shall be, and shall be deemed to be, an original Instrument.
20. NO INCONSISTENT AGREEMENTS.
The Company will not on or after the date of this Warrant enter into any
agreement with respect to its accuracies which is Inconsistent with the rights
granted to the Holders of this Warrant or otherwise conflict with the provisions
hereof. The rights granted to the Holders hereunder do not in any way conflict
with and are not Inconsistent with the rights granted to holders of the
Company's securities under any other agreements, except rights that have been
waived.
21. SATURDAYS, SUNDAYS, AND HOLIDAYS.
If the Expiration Date falls on a Saturday, Sunday or legal holiday, The
Expiration Date shall automatically be extended until 5:00 p.m. the next
business day.
AGREED
ABRAMS GENTILE ENTERTAINMENT INC. MSH ENTERTAINMENT CORPORATION
/s/ John Gentile /s/ Robert Maerz
--------------------------- ------------------------------
Signature Signature
John Gentile Robert Maerz
--------------------------- ------------------------------
Printed Name Printed Name
President Chairman
-------------------------- --------------------------
Title Title
11/1/96 11/1/96
------------------------- -------------------------
Date Date
9
NAVARRE CORPORATION
NATIONAL DISTRIBUTION AND WAREHOUSING
AGREEMENT
This Agreement is entered into by the parties hereof as of the 1st day of
October, 1997.
NAVARRE CORPORATION ("NAVARRE") is an experienced wholesale distributor of
musical, literary, and artistic recordings on various recording media.
The company listed below ("LABEL") has released, and will release during the
term of this Agreement, certain Recordings for sale and distribution in the
United States through NAVARRE.
MSH MUSIC GROUP
- ---------------
LABEL Name
3330 Ocean Park Boulevard. Suite 115
- ------------------------------------
Street Address
Santa Monica. CA 90405
- ----------------------
City/State/Zip Code
DEFINITIONS:
- ------------
"Actual Price" shall mean the Base Price adjusted for Growth Incentive Rebates
and the discounts and rebates described in Section 2.1 hereto.
"Base Price" shall mean the price of the Recordings to NAVARRE, as set forth on
Schedule A hereto.
"Contract Year" shall mean each October 1 through September 30 during the term
of this Agreement.
"Recordings" means and includes all of LABEL's musical sound recordings on
various recording media (including but not limited to compact disks, cassettes
and DVD). A partial listing of the LABEL's catalog of Recordings is shown in
Schedule B to this Agreement.
1
<PAGE>
1. APPOINTMENT AND SCOPE.
----------------------
1.1 This Agreement will be effective as of October 1, 1997. The initial term
will be for approximately three years ending September 30. 2000. Therefore, this
Agreement will automatically renew for successive one year periods unless
terminated as provided in Section 11.
1.2 Except as described in Schedule 1.2 hereof, LABEL appoints NAVARRE as its
exclusive distributor in the United States for sales and the distribution of all
of LABEL's content or recordings, through all wholesale and retail sales
channels. LABEL represents that all of its current labels are listed on Schedule
A hereto. If LABEL markets its Recordings under more than one label, the current
labels as shown in Schedule A, and all additional labels created during the term
of this Agreement, are included under this appointment. This appointment
includes, without limitation, sales to retail outlets, one stops, rack jobbers,
military, wholesale clubs, and sales to subdistributors as provided by this
Agreement.
2. PRICING: PAYMENT.
-----------------
2.1 In consideration of the rights granted hereunder and the obligations and
covenants of the parties set forth herein, NAVARRE shall pay LABEL a variable
cost for each recording calculated in accordance with Schedule 2.1 hereto.
NAVARRE agrees that these prices will be no less favorable than the prices that
NAVARRE offers to any other labels.
2.2 The current suggested retail prices charged by LABEL for Recordings are
shown in Schedule 2.1. LABEL may change the suggested retail price on a
prospective basis by issuing new pricing sheets to NAVARRE to reflect price
changes and new releases.
2.3 NAVARRE will provide LABEL on a weekly basis with total shipments, by SKU,
and also carrying inventory figures through the last business day of the week
(normally Friday). This information will be transmitted in electronic form, by
title and customer, on the following business day (normally Monday). If
electronic link is not possible, hard copies of reports will be mailed each
Monday.
2.4 During the period September 1 through December 25 of each year, NAVARRE
shall be entitled to retain 20% of the Base Price of all copies of Christmas
Recordings sold by NAVARRE during such period as a reserve for returns. This
reserve will be reconciled and paid by NAVARRE to LABEL by April 30 of the
following year.
2.5 Invoices will be issued weekly by LABEL to NAVARRE from the net total on the
Weekly Invoice reports which correspond to each week ending Saturday. Payment
terms to LABEL are two percent (2%), sixty (60). Payments will be sent to the
LABEL at the end of each week, corresponding to the invoice which comes due on
its sixtieth day during that week.
2
<PAGE>
2.6 Within 30 days after the end of each Contract Year, any Growth Incentive
Rebate fee payable to LABEL or Charge shall be calculated in accordance with
Schedule 2.1 hereof. If additional money is owed to LABEL, NAVARRE shall pay it
within 60 days. If actual amount paid to LABEL for the calendar year is in
excess of the amount due LABEL hereunder, NAVARRE may, at its option, either (i)
require LABEL to remit the overage to NAVARRE within 60 days or (ii) deduct the
overpayment from the next distribution payment(s) that would otherwise be
payable to LABEL.
2.7 LABEL also agrees to participate in the following discount programs and
prices for such recordings shall be correspondingly reduced from the Base Price
described on Schedule 2.1:
(a) A minimum of two (2) of NAVARRE's three (3) scheduled sell in
programs (February/Winter, May/Spring, Fall Buy In). This participation will be
in the form of a discount passed on to NAVARRE for all of the LABEL's product
sold during the program period. LABEL's participation in such programs shall be
at a rate of up to six (6%) percent off of the Base Price at NAVARRE's
discretion. Any such discount in excess of six (6%) percent off of the Base
Price will have to be agreed to in advance by LABEL unless otherwise agreed in
writing by LABEL.
(b) Standard discounts for NAVARRE's sales to rack jobbers, which is
currently in the amount of five (5%) percent off of the Base Price.
(c) Standard discounts for NAVARRE's sales to military bases and
installations, which is currently in the amount of ten (10%) percent off of the
Base Price.
2.8 In the event that LABEL reduces the price of any product or offers the
product at a lower price, including raising the discount offered, to any other
party, LABEL shall promptly credit NAVARRE for the difference between the
invoice price charged to NAVARRE and the reduced price for each unit of product
held in inventory by NAVARRE on the date the reduced price is first offered.
LABEL will also credit NAVARRE for the difference between the invoice price
charged to NAVARRE and the reduced price for each unit of product held in
inventory by NAVARRE's or its customers on the date the reduced price is first
offered by LABEL if NAVARRE's customers request a credit resulting from LABEL's
price reduction. Should any of NAVARRE's customers request a price adjustment as
outlined in this section, NAVARRE shall provide for an independent third party
audit of that customer's inventory upon LABEL's reasonable request and at
LABEL's expense. NAVARRE will use commercially reasonable efforts to provide
inventory reporting of its customer's inventory. Any such price reduction shall
be taken into account in the calculation of amounts payable hereunder.
2.9 No payment or fees shall be payable to LABEL on copies of the Recordings
furnished free of charge by LABEL or NAVARRE to third parties for non-resale
purposes such as review, advertising, sample, publicity, promotion or like
purposes, or copies destroyed by fire or water, or on copies sold at or below
the cost of manufacture.
3
<PAGE>
2.10 LABEL shall be responsible for payment directly to the copyright
proprietors of any and all mechanical copyright royalties on any and all
compositions incorporated into the Recordings at the applicable statutory rates.
2.11 NAVARRE shall provide LABEL with an accounting of all amounts payable to
LABEL hereunder within thirty (30) days of the end of each Contract Year. All
such accountings rendered by NAVARRE will become final and binding on LABEL and
LABEL will neither have nor make any claim against NAVARRE with respect to such
statement unless prior to 90 days after the rendering of such statement LABEL
advises NAVARRE in writing of any objection to such statement, setting forth the
specific basis for objection, in which case such statement shall be binding in
all respects except those stated in such written objection.
2.12 LABEL shall have the right, at LABEL's expense, to engage an independent
certified public accountant, not then conducting or participating in an audit of
NAVARRE's books, to audit relevant portions of NAVARRE's books and records
pertaining to monies payable to LABEL hereunder that have not been rendered
incontestable, but not more than once in any twelve (12) month period, during
normal business hours and upon reasonable notice, and provided that such audit
will not be conducted on a contingent fee arrangement.
3. NAVARRE OBLIGATIONS.
--------------------
3.1 NAVARRE shall use its best efforts and time to promote and sell the
Recordings in the ordinary course of its business.
3.2 NAVARRE shall maintain suitable offices, warehousing facilities and adequate
staffing for the performance of its duties under this Agreement. NAVARRE shall
conduct its business in its own name and shall pay all of its own costs and
expenses.
3.3 NAVARRE shall respect the musical, dramatic, artistic and literary rights of
LABEL and the property rights of the LABEL, the artists, producers and others in
the Recordings, the trade names, trademarks, logos and other information
supplied with or that is a part of the Recordings or promotional materials for
the Recordings.
3.4 NAVARRE shall promptly pay LABEL according to the payment provisions of this
Agreement.
3.5 NAVARRE shall make available to LABEL manufacturing of all forms of CD's,
DVD and cassettes upon the pricing and terms established from time to time by
separate agreement between the parties.
4
<PAGE>
4. LABEL'S OBLIGATIONS.
--------------------
4.1 LABEL shall provide NAVARRE with a minimum of 30 releases during the term of
this contract.
4.2 LABEL shall accept orders from NAVARRE for the consignment of recordings,
and shall promptly deliver against those orders. Recordings will be supplied in
industry acceptable packaging with the appropriate UPC sticker or labeling.
4.3 LABEL shall provide NAVARRE with reasonable quantities of no-charge
promotional and advertising materials for the recordings, but in no event shall
LABEL be required to provide promotional goods, at no charge, in excess of
limitations on LABEL as provided in recording Agreements with Artists signed to
LABEL.
4.4 LABEL shall consign an inventory of recordings to NAVARRE sufficient to
allow both parties to comply with the terms of this Agreement.
4.5 If at any time, for any reason, LABEL has a debit balance with NAVARRE,
LABEL will pay NAVARRE the debit balance within sixty (60 days). If all or any
portion of the balance remains unpaid after 60 days, NAVARRE shall be entitled,
at its option, to (i) withhold future payments due LABEL until such debit
balance is paid, and/or (ii) liquidate any inventory of LABEL in the possession
or control of NAVARRE and/or (iii) apply any proceeds received from such
liquidation towards LABEL's debit balance and/or (iv) manufacture and sell
additional Recordings at prices determined by NAVARRE, in its discretion, in
quantities sufficient to fully repay all amounts owed by LABEL to NAVARRE and/or
(v) immediately terminate this Agreement without further notice.
4.6 All new pressings covered under the terms of this contract shall include the
statement "Distributed by Navarre Corporation, Minneapolis, MN 55428."
5. CONSIGNMENT OF INVENTORY.
-------------------------
5.1 LABEL will deliver on consignment to NAVARRE's warehousing facilities an
inventory of recordings requested by NAVARRE in amounts determined by NAVARRE.
LABEL and NAVARRE shall consult regarding the timing and size of manufacturing
orders for purposes of coordinating availability of adequate inventory in
accordance with the terms and conditions of this Agreement, but NAVARRE shall at
all times have the sole authority to determine the amount of inventory stored at
its premises, and any excess inventory shall be returned to LABEL or destroyed
pursuant to Section 7.2 hereof.
5
<PAGE>
5.2 NAVARRE assumes the risk of loss or damage to consigned recordings from the
time of delivery to NAVARRE, until sold or returned to LABEL. If NAVARRE
provides manufacturing services to LABEL pursuant to Section 2.7 of this
Agreement, NAVARRE shall assume the risk of loss of consigned goods from the
time that LABEL becomes liable to pay the cost of manufacturing such goods.
5.3 NAVARRE will pay all expenses incurred after delivery for the protection,
sale, warehousing and shipment of recordings.
5.4 LABEL will be responsible for payment of shipping costs for delivery of the
recordings to NAVARRE, and the LABEL shall pay for shipping costs for any
authorized returns to LABEL (returns will be shipped freight collect).
5.5 NAVARRE will keep books and records showing the transactions made pursuant
to this Agreement. NAVARRE's books and records supporting receipts of
recordings, shipments of recordings, and all charges applicable to LABEL will be
open to inspection upon reasonable advance notice by LABEL during NAVARRE's
normal business hours.
5.6 NAVARRE will provide LABEL with a physical inventory, supervised by
NAVARRE's CPA firm (currently Ernst & Young), every six months (January and July
unless otherwise agreed). LABEL shall also have the right to make its own
physical inspection of inventory, upon reasonable advance notice, during
NAVARRE's normal business hours.
5.7 The consigned recordings will be safely stored at NAVARRE's warehousing
facilities, and will not be removed except upon their sale or return. NAVARRE
will keep the inventory adequately insured at its expense against loss or
damage, and will have LABEL named as an additional insured.
5.8 Subject to Section 4.5 hereof, title to the consigned recordings shall be
and remain in LABEL until sold.
5.9 Shipment discrepancies between the invoice/bill-of-lading provided by LABEL
and any damage in transit will be promptly reported.
6. SALES BY NAVARRE.
-----------------
6.1 NAVARRE is authorized to sell the consigned inventory to its accounts in the
United States.
6.2 NAVARRE shall be free to establish, with respect to its agents and
distributors, the terms of sale, and cost prices at NAVARRE's discretion.
6
<PAGE>
6.3 LABEL will reorder recordings for delivery to NAVARRE, as reasonably
required to maintain adequate inventory, based on the shipping report issued
each week and the order requests issued to LABEL by NAVARRE.
7. RETURNS.
--------
7.1 All defective recordings, either identified upon receipt from LABEL, or
determined to be defective when returned from NAVARRE's customers or
subdistributors, will be reported to LABEL and placed at its disposition. LABEL
shall advise NAVARRE regarding the disposition of defective recordings within 14
days after receipt of notice of defects from NAVARRE. Otherwise, the defective
product will be destroyed, at NAVARRE's option. LABEL shall bear all expenses
regarding the destruction or other disposition of defective recordings.
7.2 Due to the nature of the consignment, NAVARRE may return for full credit up
to 100% of all conforming sound Recordings received from LABEL. Such returns
shall be limited to once per month, and shall be made with advance notice to
LABEL as to estimated arrival date. Upon advance notice of returns, LABEL shall
provide Return Authorization within seven (7) days of notice. NAVARRE shall bear
expense and risk of loss of return shipment. LABEL shall issue payment to
NAVARRE for such returned products if no balance is then outstanding. If at any
time LABEL refuses to accept returns from NAVARRE, NAVARRE may, at its option,
destroy the product or arrange for transportation and storage at another
location. All costs relating to destruction, transportation and storage of such
product shall be paid by LABEL.
7.3 LABEL shall issue an immediate credit for purchase price plus all return
freight charges for defective product, and products returned as defective by
NAVARRE customers. Upon LABEL recall of products due to defects, NAVARRE shall
provide reasonable assistance, at LABEL's expense, in such recall.
7.4 NAVARRE's right to return products shall survive the term and termination of
this Agreement. Should NAVARRE have a balance due upon reconciliation of the
account for product returns, freight chargebacks, advertising credits, or other
upon end of term or termination, LABEL shall issue payment therefor within
thirty (30) days of such term or termination. NAVARRE shall use best efforts to
return all unsold product within one hundred eighty (180) days of termination of
the Agreement.
7.5 NAVARRE will provide LABEL with a weekly customer returns report identifying
quantities and titles. All non-defective returns will be processed by NAVARRE,
and placed in inventory for resale or returned to LABEL.
7
<PAGE>
8. ADVERTISING AND MARKETING.
--------------------------
8.1 LABEL agrees to conduct marketing and promotional efforts supporting the
sale of recordings at its expense. This may include, but is not limited to,
advertising in trade and consumer publications, in-store or media promotions,
and promotions for radio airplay.
8.2 LABEL shall provide suitable advertising allowances that can be claimed by
NAVARRE or its customers.
8.3 LABEL shall provide to NAVARRE camera ready artwork, free of charge, to be
used in advertisements, and other suitable promotional materials for NAVARRE and
its customers. NAVARRE agrees to use its best efforts to safeguard these
materials and return them to LABEL at their request.
8.4 NAVARRE or its customers may produce their own advertisements or promotional
materials for LABEL's recordings, so long as such advertisements and promotional
material, or the use thereof, have been approved in advance, in writing, by
LABEL. Such approval will not be unreasonably withheld, with decisions being
made within five workings days of receipt of written request by NAVARRE.
9. INTELLECTUAL PROPERTY.
----------------------
9.1 LABEL grants to NAVARRE the right to use, in connection with sales of
Recordings the trademarks and trade names listed in Schedule 9.1. NAVARRE shall
have no right to remove or cover such marks on the products and the marks and
names shall remain the exclusive property of LABEL.
9.2 LABEL warrants that the recordings, the sale of recordings and the intended
use of recordings does not infringe the patent, copyright, trademark or trade
name of any third party. LABEL will indemnify and defend NAVARRE against all
damages and costs incurred by NAVARRE due to claims of infringement of any
patents, copyrights, trademarks, trade secrets, or other proprietary rights in
the manufacture or marketing of product. Upon claim of infringement, NAVARRE
may, at its option, immediately cease manufacture, sale and distribution of the
recordings. Also, LABEL may, at its expense and option, either procure the right
to continue using any part of product, replace same with non-infringing product,
or modify product to make it non-infringing; should LABEL be unable or unwilling
to replace, modify, or procure right to continued use of product within thirty
(30) days of claim notification, NAVARRE may, at its option, return product for
a full cash refund of all amounts paid by NAVARRE to LABEL for such Recordings.
8
<PAGE>
9.3 NAVARRE agrees to respect and abide by the terms and conditions of the
licensed or transferred use of applicable patents, copyrights, trademarks and
trade names for purposes of this Agreement. NAVARRE will indemnify and hold
LABEL harmless against claims by third parties respecting breaches of this
Agreement by NAVARRE.
10. REPRESENTATIONS AND WARRANTIES.
-------------------------------
10.1 As an inducement for NAVARRE to enter into this Agreement, LABEL hereby
warrants and represents to NAVARRE as follows:
(a) CORPORATE EXISTENCE. POWER AND AUTHORITY. LABEL is a corporation
duly organized and validly existing in the State of ______________, and is fully
qualified to do business and in good standing in the State of _____________, and
in every other jurisdiction wherein the nature of its businesses or the
character of its properties makes such qualification necessary, and has all
requisite power and authority to carry on its businesses as now conducted and as
presently proposed to be conducted. LABEL has full power and authority to
execute and deliver this Agreement, the Note, the Security Agreement and all
other documents contemplated herein and therein (collectively, the "Borrower
Documents") and to incur and perform its obligations hereunder and thereunder.
The Borrower Documents each constitute the legal, valid and binding obligations
of LABEL enforceable in accordance with their respective terms.
(b) LICENSES: ROYALTIES AND INFRINGEMENT. LABEL possesses adequate
licenses, permits, franchises, patents, copyrights, trademarks and trade names,
or rights thereto, to conduct its respective business substantially as now
conducted and as presently proposed to be conducted. There does not exist and
there is no reason to anticipate that there may exist, any liability to LABEL
with respect to any claim of infringement regarding any patent, copyright,
trademark, trade name or other intellectual property right relating to the
releases. LABEL is current on all license and royalty payments owned, including,
without limitation, artist royalties and mechanicals.
(c) DEFAULT. LABEL is not in default of a material provision under any
material agreement, instrument, decree or order to which it is a party or by
which it or its respective property is bound or affected.
(d) CONSENTS. No consent, approval, order or authorization of any
governmental authority or any third party is required in connection with the
execution and delivery of LABEL Documents, or any of the agreements or
instruments herein mentioned or the carrying out or performance of any of the
transactions required or contemplated hereby or thereby or, if required, such
consent, approval, order or authorization has been obtained by LABEL prior to
the date hereof.
9
<PAGE>
(e) OWNERSHIP. The shareholders, officers and directors of LABEL are
listed on Schedule 10.1(e) hereto. Except as described on Schedule 10.1(e), none
of the persons listed owns, controls, is employed by or affiliated with any
recording company or label other than LABEL.
11. TERMINATION.
------------
11.1 The initial term of this Agreement shall be three (3) years. Thereafter,
the Agreement shall automatically renew for additional one (1) year periods.
11.2 LABEL may terminate this Agreement, without cause, if it has been in effect
for a period of at least one year. LABEL must give NAVARRE at least ninety (90)
days advance written notice of termination. Upon such notice, NAVARRE shall not
be required to make further payments to LABEL for a period of one hundred eighty
(180) days after the date the termination is effective.
Upon termination by LABEL without cause, it shall pay to NAVARRE for the loss of
the rights granted under this Agreement, as liquidated damages and not as a
penalty, a dollar amount derived from the gross margins that would have been
realized by NAVARRE during the remaining term of this Agreement. For this
calculation, the "gross margin percentages" realized by NAVARRE from the
shipment and sale of recordings over the six month period preceding the giving
of notice will be used to determine the average gross margin dollars realized
per month. This dollar amount will then be multiplied by the months remaining in
the term of the Agreement. NAVARRE's invoice for this amount shall include
documentation to support its calculation. Payment shall be made within 30 days.
LABEL shall have the right to audit NAVARRE's books and recordings to confirm
the accuracy of NAVARRE's calculation of a basis for this payment, provided that
LABEL shall place the amount of such payment in an escrow account pending
verification of the amount of the audit. As used herein, "gross margin
percentage" is defined as the sell price NAVARRE charges its customers minus the
Base Price NAVARRE pays LABEL (as defined in Schedule 2.1) divided by the sell
price NAVARRE charges its customers.
11.3 After one year, NAVARRE may terminate this Agreement, without cause, by
giving LABEL 90 days notice of its intent to terminate. Both parties agree to as
smooth a transition as possible.
10
<PAGE>
11.4 This Agreement may be terminated for cause upon the material breach by
LABEL or NAVARRE of any obligation created hereunder. Except as otherwise
provided in this Agreement, such termination shall be effected by the giving of
30 days written notice of the intent to terminate. The notice must give details
of the claimed breach, and the party given the notice shall have the 30 day
period to cure before the termination will be effective. If the breach by
NAVARRE or LABEL is payment to the other party, the party given the notice shall
have a 10-day period to cure before termination will be effective.
11.5 In the event either NAVARRE or LABEL files or becomes subject to a petition
in bankruptcy, or other assignment for the benefit of creditors, such event may
constitute a material breach and may be cause for termination of this Agreement
under the standard termination clause contained herein. In such event, all
consigned goods held by NAVARRE shall be delivered to LABEL, or held for LABEL's
benefit at a location designated by LABEL.
11.6 At the end of term or termination of this Agreement for any reason, NAVARRE
may return products in lieu of payment on account for one hundred eighty (180)
days. At the end of the one hundred eighty (180) days, NAVARRE may keep products
and pay LABEL therefor. Prices and payment schedule for such products shall be
as mutually agreed at that time. If LABEL and NAVARRE are unable to agree upon
such prices and payment schedule within ten (10) days following the expiration
of said one hundred eighty (180) day period, NAVARRE will return all products
for credit or if there is a balance owed to NAVARRE, LABEL shall pay NAVARRE
within thirty (30) days.
12. RELATIONSHIP 0F THE PARTIES.
----------------------------
12.1 Neither party to this Agreement is the employee, agent or legal
representative of the other for any purpose whatsoever.
13. GENERAL PROVISIONS.
-------------------
13.1 This Agreement shall be governed by the laws of the state of Minnesota. Any
dispute arising out of this Agreement shall be brought and prosecuted in a court
within Hennepin County Minnesota. For this purpose, LABEL, appoints the
Secretary of State of Minnesota as its agent for services of process in the
event that NAVARRE is unable to serve process on LABEL at its last known
business address.
13.2 This Agreement may be assigned by either party subject to the written
consent of both parties and said consent will not be unreasonably withheld. Said
assignment shall not unreasonably impair the rights of the non-assigning party
and shall not be on terms less favorable than the terms set forth in this
Agreement
11
<PAGE>
13.3 This Agreement supersedes all prior oral or written proposals and
communications between the parties related to this Agreement, and shall not be
modified, rescinded, waived or otherwise changed except with the written consent
of the parties. This contract sets forth the entire Agreement between the
parties with respect to the subject matter hereof.
13.4 Each party confirms that no inducements, promises or representations, not
written herein, caused it to enter into this Agreement.
The parties, by the actions of their authorized representatives, have executed
this Agreement, including the attached Schedules, as of the date first mentioned
above.
LABEL: NAVARRE:
/s/ Richard Schulenberg /s/ Guy M. Marsala
- -------------------------- ----------------------------
Signature Signature
Richard Schulenberg Guy M. Marsala
- -------------------------- ----------------------------
Typed/Printed Name Typed/Printed Name
President COO
- -------------------------- ----------------------------
Title Title
12
<PAGE>
LIST OF SCHEDULES
TO DISTRIBUTION AGREEMENT OF
October 1, 1997
BETWEEN
MSH MUSIC GROUP
AND
NAVARRE CORPORATION
A Current Labels
B LABEL's Catalog of Recordings
1.2 Scope of Exclusive Distribution
2.1 Actual Price
9.1 Trademark and Trade Names
10.1(e) Shareholders, Officers and Directors of LABEL
13
<PAGE>
SCHEDULE 2.1
TO DISTRIBUTION AGREEMENT
DATED OCTOBER 1, 1997
BETWEEN
MSH
AND
NAVARRE CORPORATION
Current Pricing:
Suggested Base Price Suggested Base Price
Retail $ to NAVARRE(1) Retail $ to NAVARRE(1)
-------- ------------- -------- -------------
3.49 1.46 16.98 8.84
4.98 2.08 17.98 9.15
5.98 2.39 18.98 9.72
6.98 3.12 19.98 10.19
7.98 3.74 23.98 11.96
8.98 4.26 25.98 12.69
9.98 4.89 27.98 13.94
10.98 5.30 29.98 14.98
11.98 6.34 30.98 15.44
12.98 6.81 31.98 15.96
13.98 7.38 32.98 16.43
14.98 7.80 33.98 16.95
15.98 8.37 39.98 19.97
(1) This pricing is based on an estimated Base Price before any discounts
described in Section 2.6 and exclusive of Growth Incentive Rebates or Charges.
Any discounts shall apply immediately but, with respect to Growth Incentive
Rebates or Charges, the Actual Price to NAVARRE shall be calculated on an annual
basis.
NAVARRE's Annual Net Payments Growth
to LABEL for Recordings Incentive Rebate
----------------------- ----------------
0-$2,000,000 0
$2,000,000 - $4,000,000 2%
$4,000,000 - $8,000,000 4%
$8,000,000 - $12,000,000 5%
$12,000,000 - $15,000,000 6%
$15,000,000 and over 7%
14
<PAGE>
SCHEDULE A
CURRENT LABELS
--------------
Current MSH Music Group Labels:
MSH RECORDS
MSH/OUTWEST RECORDS
(a children's label to be designated)
SCHEDULE B
LABEL'S CATALOG OF RECORDINGS
-----------------------------
Current MSH Music Group Recordings:
Van-Pires Soundtrack John Entwistle and guests
Nothin' On But The Radio T.G. Sheppard
Cowboy Attitude Misti Pierson
Freedom Sheena Easton (Licensed)
106 Ike and Tina Turner Masters
SCHEDULE 1.2
SCOPE OF EXCLUSIVE DISTRIBUTION
-------------------------------
Expressly excluded from this Distribution Agreement are distribution of
video product oilier than music videos, record clubs, and electronic
distribution of recorded product. All other distribution is as set forth in
Paragraph 1.2 of this Distribution Agreement.
SCHEDULE 9.1
TRADEMARK AND TRADE NAMES
-------------------------
Label is currently using the following trademarks and trade names:
MSH MUSIC GROUP
MSH ENTERTAINMENT CORP.
MSH RECORDS
MSH/OUTWEST RECORDS
SCHEDULE 10.1(e)
SHAREHOLDERS. OFFICERS AND DIRECTORS OF LABEL
---------------------------------------------
MSH Music Group is presently a division of MSH ENTERTAINMENT CORP., a
publicly traded Utah Corporation (NASDAQ). Shortly, MSH Music Group will be
incorporated separately as a wholly owned subsidiary of MSH ENTERTAINMENT CORP.
MSH ENTERTAINMENT CORP.
-----------------------
Chairman: Robert Maerz
President: Jonathan Stathakis
Executive Vice President: Andrew Steiner
Executive Vice President: Richard Schulenberg
MSH MUSIC GROUP (Pending)
-------------------------
Director: Robert Maerz
Director Jonathan Stathakis
Director: Richard Schulenberg
Chairman: Robert Maerz
MSH logo
December 15, 1999
John & Anthony Gentile
Marty Abrams
Freedom Multimedia, LLC
244 West 54th Street
New York, NY 10019
Lenox Capital Group, LLC
335 Central Avenue
Lawrence, NY 11559
Gentlemen:
As per the Transfer and Operating Agreements, you are hereby notified
that MSH Entertainment expects to complete its acquisition of up to
18.75% of the membership interests of Freedom Multimedia. We understand
that once Freedom is capitalized that this interest will be diluted to
9.375%.
We expect to pay the balance of the $375,000, plus interest, in the
following manner:
1. $50,000 upon acknowledgment of this agreement,
2. $50,000 on January 21, 2000;
3. $150,000 on Feb. 15th;
4. Balance due on March 15, 2000.
All payments, in whole or in part, shall be credited towards the
purchase of the membership interest on a pro rata basis (e.g., each one
dollar is equal to .000025 of an interest).
We are excited about the prospects for the Power Glove and look forward
to working with you in the future. Thank you very much.
Respectfully,
/s/ Robert Maertz
Robert Maertz
Chairman/CEO
<TABLE>
<S> <C>
244 W. 54th Street, 12th Floor, New York, NY 10019 TEL: 212.977,9300 FAX: 212.977.1600
12020 Chandler Blvd, Suite 300, North Hollywood, CA 91607 TEL: 518.752.6263 FAX: 818.752.1318
85 Liberty Ship Way, Suite 105, Sausalito, CA 94965-3313 TEL: 415.331.6743 FAX: 415.331.6741
</TABLE>
<PAGE>
MSH ENTERTAINMENT CORPORATION
330 Ocean Park Boulevard
Santa Monica, CA 90405
Freedom Multimedia, LLC
244 West 54th Street
New York, NY 10019
Lenox Capital Group, LLC
335 Central Avenue
Lawrence, NY 11559
Gentlemen:
Reference is made to the Membership Interest Purchase Agreement, dated
as of November 1, 1999 (the "Purchase Agreement), among Lenox Capital Group,
LLC. a Delaware limited liability company, as purchaser ("Lenox" and,
collectively with Lenox's members, employees, agents, representatives or
affiliates, including, without limitation, Michael Alpert, the "Lenox Group"),
Freedom Multimedia, LLC, a Delaware limited liability company, as seller
("Freedom"), and the members of the seller signatories thereto, including MSH
Entertainment Corporation ("MSH"), as principals.
MSH, for itself and on behalf of its agents, representatives, employees
and affiliates successors or assigns, confirms to each of Freedom and Lenox.,
and to their respective members, managers, officers and affiliates, the
following:
1. MSH hereby disclaims and relinquishes any interest it may hold in
Freedom in any capacity whatsoever, whether as a member, manager,
equity holder, creditor or otherwise, or pursuant to any
agreement of any nature whatsoever, whether written or oral.
2. MSH hereby confirms that it has no claim of any nature whatsoever
against or relating to Freedom and the Lenox Group which is
outstanding on the date hereof, whether matured or unmatured,
liquidated or unliquidated. fixed, contingent or otherwise and
hereby releases, acquits, and forever discharges Freedom and the
Lenox Group from any and all claims, expenses (including
attorneys' fees), debts, demands, costs, contracts, liabilities,
damages, including punitive damages, rights to payment,
compensation, sums of money, obligations, actions, and causes of
action of every nature (each individually a "Claim and
collectively the "Claims"),
<PAGE>
under any theory under the law, whether common, constitutional,
statutory or other, of any jurisdiction, foreign or domestic,
whether known or unknown, whether in law or in equity, which they
had or held, or have or hold or may claim to have or to hold by
reason of any and all matters from the beginning of time to the
present. whether brought or initiated by them on their behalf.
whether or not in their own names, including but not limited to.
those arising out of or relating to the Transfer, the Purchase
Agreement or otherwise or in any way associated with any dealings
between MSH and Freedom or the Lenox Group. For the purpose of
implementing a full and complete release and discharge of Freedom
and the Lenox Group, MSH expressly acknowledges that this
agreement is intended to include in its effect, without
limitation, Claims which they do not know of or suspect to exist
in their favor, that this agreement is intended to extinguish all
Claims, and that they hereby waive all such Claims. To the extent
MSH may be deemed for any reason to have Claims against Freedom
or Lenox on the date hereof, such Claims are hereby irrevocably
and unconditionally released.
3. MSH has no Claim against Freedom or the Lenox Group, outstanding
on the date hereof. MSH hereby agrees that it is no longer a
party to such Purchase Agreement, and will delivery such further
documentation as shall reasonably be requested by Freedom or
Lenox including, without limitation, an amendment to the Purchase
Agreement, to evidence the foregoing.
4. The execution and delivery of MSH of this letter agreement and
the performance by MSH of its obligations hereunder have been
duly authorized by all required corporate action on the part of
MSH and do not and shall not conflict with, or result in the
breach of or default under, the terms of the certificate of
incorporation of MSH, any agreement to which MSH is a party or
any statute, ordinance, judgment. order, decree, regulation or
rule of any court or governmental body affecting or relating to
MSH or its assets.
5. MSH shall indemnify and hold harmless each of Freedom and Lenox
and their respective directors, officers, members, shareholders,
representatives, agents and affiliates (collectively,
"Indemnified Parties") from and against any and all loss,
liability, obligation, damage, cost or expense (including,
without limitation, reasonable attorneys' fees and disbursements
and costs of investigation) directly or indirectly incurred or
suffered by or asserted against any Indemnified Party as a result
of the breach by MSH of any covenant, representation or warranty
contained herein or any claims made by any person or entity
against any Indemnified Party relating to or arising out of the
transactions contemplated by the Purchase Agreement or any other
contractual obligations of MSH, regardless of when a claim is
made.
6. MSH reaffirms that it is familiar with, and acknowledges, the
prior transfer of any and all rights relating to the "Power
Glove": all intellectual property relating thereto ___,
including, without limitation, the Bend Sensor Patent, the
PowerGlove Trademark and the PC PowerGlove Trademark and the
technology associated therewith (the "Transfer") from Abrams
Gentile Entertainment, Inc. ("AGE") to Freedom. Notwithstanding
anything to the contrary in any agreement to which MSH is a party
or by which it is bound, as the same may be amended from time to
time (an "MSH Agreement"), including, without limitation. Section
<PAGE>
8.2.1 of the Stock Purchase Agreement, dated August 27, 1998,
between MSH and Martin Abrams, as amended from time to time (as
so amended, the "MSH/Abrams Stock Purchase Agreement"). MSH
agrees that the Transfer is valid and enforceable and that MSH
has no, and will not raise any, objection thereto.
7. Notwithstanding anything to the contrary in any MSH Agreement,
including, without limitation, (i) the MSH/Abrams Stock Purchase
Agreement, (ii) any other stock purchase agreements entered into
between MSH and other stockholders of AGE, (iii) the Security
Agreement. dated August __ [NO DAY INSERTED], 1998, among MSH,
Martin Abrams and Up Up & Away America, Inc. ("UU&A"}, and (iv)
the Hallmark Loan Indemnity Agreement, dated September ___ [NO
DAY INSERTED], 1998, among MSH, Martin Abrams and UU&A, in the
event of any conflict between an MSH Agreement (including,
without limitation, Section 8.2.1 of the MSH/Abrams Stock
Purchase Agreement) and the provisions of this letter agreement,
any Transaction Document, the terms of this letter agreement
shall govern.
8. The foregoing constitutes the entire agreement among the parties
and may not be amended or terminated nor may any provision hereof
be waived except in a writing signed by the parties hereto. In
the event any provision contained herein shall be deemed overly
broad as to be unenforceable, such provision shall be deemed
limited to the maximum scope and duration as shall be
enforceable. In the event any provision hereof shall be deemed
wholly unenforceable, such provision shall be severed from the
remainder of this agreement without affecting the enforceability
of the remainder of this agreement. The parties agree that this
agreement shall be governed by the laws of the state of New York
with respect to contracts to be wholly performed within such
states and that any dispute will be resolved by the parties by
any court of competent jurisdiction located in the city of New
York, New York County or if in Federal court, in the District
Court for the Southern District of New York. Each of the parties
submits to the jurisdiction of the courts located in New York
State, waives the right of personal service (agreeing that
service to the address listed above by first class registered
mail shall constitute valid service for any action) and waive any
claim of forum non conveniens.
Very truly yours,
MSH ENTERTAINMENT CORPORATION
By: /s/ Robert P. Maerz
-----------------------------
Name: Robert P. Maerz
Title: Chairman & CEO
<PAGE>
11/15/99
November 15, 1999
Lenox Capital Group, LLC
335 Central Avenue
Lawrence, NY 11539
Re: Operating Agreement - Permitted Transfer to MSH
-----------------------------------------------
Gentlemen:
Reference is made to the Operating Agreement, of even date herewith,
among the undersigned, you and Freedom Multimedia, LLC (the "Operating
Agreement"). Capitalized terms used but not defined herein shall have meanings
given to them in the Operating Agreement.
This shall confirm our understanding as follows:
For a period of sixty (60) days from the date hereof, the undersigned
shall have the right, under undersigned's individual or collective sole
discretion, to transfer up to 18.75% of their Interests (collectively
representing 9.375% of all outstanding Interests in the date hereof) to MSH
Entertainment Corporation, a Utah corporation ("MSH"), provided that,
contemporaneously with any such transfer, the transferred Interests shall become
non-voting. Solely for purposes of such transfer, MSH shall be deemed to be a
Permitted Transferee under the Operating Agreement. Furthermore, any such
transfer shall be subject in all respects to the provisions of the operative
documents in effect at the time of such transfer, including but not limited to
the Operating Agreement, as the same may be amended from time to time, and shall
be conditioned upon MSH executing the foregoing documents and such other
documentation relating to the management of Freedom Multimedia, LLC and/or the
foregoing transfer as shall be requested by Freedom and you.
<PAGE>
Page 2
Please acknowledge your agreement to the foregoing by executing the
enclosed copy of this letter and returning it to the undersigned.
Very truly yours,
/s/ Martin Abrams
-----------------------------
Martin Abrams
/s/ John Gentile
-----------------------------
John Gentile
/s/ Anthony Gentile
-----------------------------
Anthony Gentile
AGREED:
LENOX CAPITAL GROUP, LLC
By:________________________
Name:______________________
Title:_____________________
<PAGE>
AGE logo
ABRAMS/GENTILE
ENTERTAINMENT, INC.
November 15, 1999
Robert Maerz
MSH Entertainment Corporation
244 West 54th Street
New York, NY 10019 /
Re: Freedom Multimedia / Power Glove Transfer
-----------------------------------------
This shall confirm the fact that the Abrams and Gentile members of
Freedom Multimedia, LLC have contracted with the Lenox partners of Freedom
Multimedia LLC to pre approve the transfer up to 18.75% of the Abrams and
Gentile Group Interest (collectively representing a total of 9.375% of all
outstanding Interests) for a period of sixty (60) days from the date hereof.
Notwithstanding the Lenox pre approval above, MSH must present to Freedom a plan
outling a payment schedule of the amount of $375,000 plus interest no later then
December 15th, 1999 as referenced in the fax of December 1st, 1999. Further, the
Abrams and Gentile members of Freedom Multimedia are under no obligation to
grant such right to MSH and such grant of any members Interest in Freedom
Multimedia, LLC shall be at the collective or individual members sole
discretion.
Please acknowledge your agreement to the foregoing by execution below.
Sincerely,
/s/ Martin Abrams
---------------------------
Martin Abrams
/s/ John Gentile
---------------------------
John Gentile
/s/ Anthony Gentile
---------------------------
Anthony Gentile
AGREED:
MSH Entertainment Corporation
By /s/ Robert Maerz
- -----------------------------
Robert Maerz
244 WEST 54TH STREET 9TH FLOOR, NEW YORK N.Y. 19019
TEL: (212) 757-0700 FAX: (212) 765-1987
STRATEGIC ALLIANCE AGREEMENT
The following, entered into this 30th day of December, 1999 shall
serve as the strategic alliance arrangement between Peter Pan, Inc. ("PPI") and
MSH Entertainment Corporation ("MSH"). The parties hereto agree as follows:
1. PPI will present to MSH selected properties including audio and
audio-visual works and performances, and/or other relevant projects in
the entertainment industry, for which PPI controls merchandising and
licensing rights.
2. These properties will be presented to MSH for the purpose of producing
toys or other merchandising products and/or procuring the same.
3 PPI will select the property (ies) for presentation to MSH. Such
selection process shall be done in PPI's sole discretion.
4. Upon presentation, PPI will inform MSH of the amount of time in which
MSH must respond. In no event shall this time period be less than ten
(10) days.
5. Each time PPI presents MSH with a property, and the parties agree to
jointly develop said property, each parties rights and
responsibilities will be memorialized in a deal memorandum. That deal
memorandum will be the only source for determining the rights and
obligations of the parties. The individual agreements will
incorporate, but may not be limited to, development costs, production
budgets, approvals, show bibles, design manuals, script re-writes,
design merchandising licenses, the business contributions and creative
materials incorporated into the audio visual productions from each of
the Parties and the division for the adjusted gross profits and
deficit financing.
6. The strategic alliance will be in force for some of the following
purposes:
i. PPI, may desire to have MSH re-conceptualize the property to
make it more "toyetic" and possibly expand the marketplace for
said Property;
ii. MSH may serve as the production entity producing the property;
iii. MSH may serve as the licensing agent for the property;
iv. MSH may arrange for the television distribution of the Property,
both domestically and foreign.
7. MSH will present to PPI selected properties for distribution which it
owns and controls. This includes, but is not limited to the AGE
library which is not previously or currently licensed. These
properties will be mutually selected by PPI and MSH/AGE.
<PAGE>
8. MSH will select the property(ies) for presentation to PPI. Such
selection process shall be done in MSH's sole discretion.
9 Upon presentation MSH will inform PPI of the amount of time in which
PPI must respond. In no event shall this time period be less than ten
(10) days.
10. Each time MSH presents PPI with a property, and the parties agree to
jointly develop said property, each parties rights and
responsibilities will be memorialized in a deal memorandum. That deal
memorandum will be the only source for determining the rights and
obligations of the parties. The individual agreements will
incorporate, but may not be limited to, development costs, production
budgets, approvals, show bibles, design manuals, script re-writes,
design merchandising licenses, the business contributions and creative
materials incorporated into the audio visual productions from each of
the Parties and the division for the adjusted gross profits and
deficit financing.
11. The parties agree that in all cases where an agreement has been
entered, both PPI and MSH shall use their best efforts to fulfill
their obligations and duties thereunder.
12 Both parties agree that, upon being presented with a property, idea,
or other proprietary information hereunder, they shall hold the same
in confidence. The parties further agree that they will have a duty of
confidentiality which will be binding whether or not an agreement is
actually entered into.
13. This agreement represents the entire understanding of the strategic
alliance between the parties.
AGREED TO ON BEHALF OF PPI
By: /s/ Date: 12/30/99
---------------------------------- --------
AGREED TO ON BEHALF OF MSH
By: /s/ Date: 12/30/99
---------------------------------- --------
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
MSH ENTERTAINMENT CORPORATION
AND
MARTIN ABRAMS
August 27, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") dated August 27, 1998 is
entered into by and between MSH Entertainment Corporation, a Utah corporation
("Buyer"), and Martin Abrams ("Seller");
RECITALS
A. Seller owns 44.01 shares of the Common Stock (the "Purchased
Shares") of Abrams\Gentile Entertainment, Inc., a New York corporation (the
"Company");
B. Seller desires to sell the Purchased Shares to Buyer and Buyer
desires to purchase the Purchased Shares from Seller, on the terms and
conditions set forth herein;
In consideration of the promises, representations, warranties and
agreements contained herein, the parties agree as follows:
1. PURCHASE AND SALE OF SHARES
1.1 TRANSFER OF SHARES. At the Closing (as that term is defined
herein), Seller agrees to sell, convey, assign, transfer and deliver the
Purchased Shares to Buyer, and Buyer agrees to purchase, acquire and accept the
Purchased Shares from Seller.
1.2 PURCHASE PRICE. As full consideration for the sale of the
Purchased Shares to Buyer, at or before the Closing Buyer shall deliver to
Seller $5,000,000 in cash and property (the "Purchase Price"), as follows:
1.2.1 $349,500 in cash, previously delivered to Seller (the
"Earnest Money Deposit");
1.2.2 $3,400,500 in cash, to be delivered at the Closing
(the "Closing Cash Payment");
1.2.3 300,000 newly issued shares of Common Stock of Buyer,
with an agreed value of $120,000 (or $.40 per share),
previously delivered to Seller (the "Pre-Closing
Shares"); and
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<PAGE>
1.2.4 2,825,000 newly issued shares of Common Stock of
Buyer, with an agreed value of $1,130,000 (or $.40
per share), to be delivered at the Closing (the
"Closing Shares");
1.3 PAYMENT OF PURCHASE PRICE. The Closing Cash Payment shall be paid
by Buyer to Seller at the Closing, at Buyer's election, by means of a wire
transfer or cashier's check. The obligation of Buyer with respect to issuance of
the Closing Shares shall be satisfied by delivery to Seller of a certificate
representing the Closing Shares, duly registered in the name of Seller and
executed and countersigned by duly authorized representatives of Buyer.
2. CLOSING.
2.1 TIME AND PLACE. The consummation of the purchase and sale of the
Shares (the "Closing") shall be held at 10:00 a.m. local time on September 4,
1998 at the offices of Rubin, Bailin, Ortoli, Mayer, Baker & Fry LLP, 405 Park
Avenue, New York, N.Y. 10022. If the Closing does not occur by the Closing Date,
and such failure is not a result of any material breach of this Agreement by
Seller, then Seller may retain, as liquidated damages, the Earnest Money Deposit
and the Pre-Closing Shares. In such event, Buyer and Seller shall each pay all
of its own costs and expenses, and neither Buyer nor Seller shall thereafter
have any further obligation to the other under this Agreement.
2.2 DELIVERIES AT THE CLOSING. At the Closing, the each of the parties
hereto shall deliver the various certificates, consents, instruments and
documents provided for in this Agreement, Seller shall deliver executed stock
certificates representing the Closing Shares and such other instruments which,
in the reasonable opinion of counsel to Buyer, are required for issuance of the
Shares to Buyer, and Buyer shall deliver the consideration for the Shares to
Seller.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Except as disclosed in a disclosure schedule delivered concurrently
herewith in which all exceptions are noted by specific reference to the Section
for which the exception is being made (the "Disclosure Schedule") Seller hereby
makes the following representations and warranties to Buyer, acknowledging that
Buyer is relying on such representations and warranties in entering into the
transactions contemplated by this Agreement. The representations and warranties
set forth in Sections 3.5 through 3.25 of this Agreement are to the best
knowledge of Seller after due inquiry:
2
<PAGE>
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, has all requisite corporate power and authority to own, operate and
lease its properties and carry on its business as now conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to so qualify would likely have a
material adverse effect upon it. Seller has delivered to Buyer complete and
accurate copies of the Articles of Incorporation and Bylaws of the Company, each
as amended to date.
3.2 SUBSIDIARIES. The Company does not own, directly or indirectly,
any shares of capital stock, or any right to acquire any shares of capital
stock, of, or any participation in, any corporation, partnership, joint venture
or other entity.
3.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 200 shares of common stock. As of the date hereof, there are 88
shares of common stock of the Company issued and outstanding all of which are
owned, beneficially and of record, free and clear of all liens, encumbrances,
security agreements, equities, options, claims, charges and restrictions, as
follows:
PERCENTAGE
NAME SHARES INTEREST
--------------- --------------- ---------------
Martin Abrams 44.01 50.01136
Anthony Gentile 20.64 23.45454
John Gentile 20.64 23.45454
Jenny Gentile 2.71 3.07954
Such Shares are duly and validly authorized and issued, are frilly
paid and nonassessable and are not now in violation of or subject to any
preemptive rights.
As of the date hereof, there are no warrants, options, calls,
commitments, or other rights to subscribe for or to purchase from the Company
any capital stock of either or any securities convertible into or exchangeable
for any shares of either, or any other securities or agreements pursuant to
which the Company is or may become obligated to issue any shares of its capital
stock, nor is there outstanding any commitment, obligation or agreement on the
part of the Company to repurchase, redeem or otherwise acquire any of the
outstanding shares of its capital stock. When purchased in accordance with the
terms of this Agreement, the Purchased Shares will constitute 50.01136% of the
outstanding capital stock and voting power of the Company immediately following
the Closing.
3
<PAGE>
3.4 TITLE TO SHARES; AUTHORIZATION. Seller has good and marketable
title to the Purchased Shares, free and clear of any liens, restrictions,
marital rights, options or encumbrances, and upon consummation of the purchase
contemplated herein, Buyer will acquire from Seller good and marketable title to
the Purchased Shares, free and clear of all liens, charges, options or other
encumbrances, excepting only such restrictions upon transfer, if any, as may be
imposed by Federal or state securities laws and restrictions imposed by the
Shareholders' Agreement among the shareholders of The Company. Seller has full
legal right, power and capacity to enter into, execute, deliver and perform this
Agreement and all attendant documents and instruments contemplated hereby,
without the consent of any person. This Agreement has been duly executed and
delivered and constitutes the legal, valid and binding obligation of Seller and
is enforceable with respect to Seller in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, priority or other laws or
court decisions relating to or affecting generally the enforcement of creditors'
rights or affecting generally the availability of equitable remedies. The
execution and delivery of this Agreement by Seller, and the consummation of the
transactions contemplated hereby by Seller in accordance with the terms hereof
shall not: (i) conflict with or result in a breach of, violation of, or default
under, (or constitute an event that with notice, lapse of time, or both, would
constitute a breach or default under) any of the terms, conditions or provisions
of the Articles of Incorporation or Bylaws of the Company, or any note, bond,
mortgage, indenture, license, lease, credit agreement or other agreement,
document, instrument or obligation to which Seller or the Company is a party or
by which any of their respective assets or properties are bound, (ii) violate
any judgment, order, injunction, decree, statute, rule or regulation applicable
to the Company or Seller, or any of their respective assets or properties, (iii)
permit any party to terminate any agreement or accelerate the maturity of any
debt or other obligation of the Company or Seller, (iv) create any lien, charge
or encumbrance on any property of the Company or Seller, or (iv) result in a
loss or adverse modification of any license, membership, franchise, permit or
other authorization granted to or otherwise held by the Company.
No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental body is required for the consummation by Seller of the
transactions contemplated by this Agreement.
3.5 FINANCIAL STATEMENTS. Seller has previously delivered to Buyer (i)
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<PAGE>
the audited balance sheets of the Company as of December 31, 1997 and 1996 (the
"Balance Sheets"), together with the related statements of income, retained
earnings, and changes in cash flow for each of the two years then ended,
certified by the Company's independent auditors, and (ii) the unaudited balance
sheet prepared on a cash basis of the Company as of June 30, 1998 (the
"Unaudited Balance Sheet"), together with the related statements of income and
retained earnings. (collectively the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods indicated, except as
otherwise set forth therein and the notes thereto; provided, however, that the
unaudited portions of the Financial Statements are subject to normal recurring
year-end audit adjustments, and they do not contain all footnotes required under
generally accepted accounting principles. The Audited Financial Statements
present fairly the financial condition and results of operations of the Company
as of the dates thereof and for the periods covered thereby.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
debt, liability, or obligation of any nature, whether accrued, absolute,
contingent, or otherwise, and whether due or to become due, that is not
reflected or reserved against in the Closing Balance Sheet or set forth in the
Disclosure Schedule, except for those that may have been incurred after the date
of the Closing Balance Sheet. All debts, liabilities, and obligations incurred
after the date of the Closing Balance Sheet were incurred in the ordinary course
of business, and are usual and normal in amount both individually and in the
aggregate.
3.7 ABSENCE OF SPECIFIED CHANGES. Since the date of the Closing
Balance Sheet, there has not been any:
(i) Transaction by the Company except in the ordinary course
of business as conducted on that date;
(ii) Capital expenditure by the Company exceeding $50,000;
(iii) Destruction, damage to, or loss of any asset of the
Company (whether or not covered by insurance) that materially and adversely
affects the financial condition, business, or prospects of the Company;
(iv) Labor trouble or other event or condition of any
character materially and adversely affecting the financial condition, business,
assets, or prospects of the Company;
5
<PAGE>
(v) Change in accounting methods or practices (including
without limitation, any change in depreciation or amortization policies or
rates) by the Company;
(vi) Revaluation by the Company of any of its assets;
(vii) Declaration, setting aside, or payment of a dividend or
other distribution in respect to the capital stock of the Company, or any direct
or indirect redemption, purchase, or other acquisition by the Company of any of
its shares of capital stock;
(viii) Increase in the salary or other compensation payable or
to become payable by the Company to any of its officers, directors, agents, or
independent contractors, or the declaration, payment, commitment or obligation
of any kind for the payment, by the Company, of a bonus or other additional
salary or compensation to any such person except to employees who are not
officers, in the ordinary course of business;
(ix) Sale or transfer of any asset or cancellation of any
claim of the Company, except in the ordinary course of business;
(x) Amendment or termination of any contract, agreement or
license to which the Company is a party;
(xi) Loan by the Company to any person or entity;
(xii) Mortgage, pledge, or other encumbrance of any asset of
the Company, except liens for taxes not yet due;
(xiii) Waiver, termination or release of any right or claim of
the Company;
(xiv) Material adverse change in the financial condition,
business, assets, or prospects of the Company;
(xv) Issuance or sale by the Company of any shares of is
capital stock of any class, or of any other of its securities; or
6
<PAGE>
(xvi) Any commitment by the Company to issue any shares of its
capital stock or other equity securities, or any options, rights to purchase, or
securities convertible into any capital stock or other equity securities of the
Company;
(xvii) Indebtedness incurred for borrowed money or commitment
to borrow money, or any guaranty or commitment to guaranty the indebtedness of
others entered into by the Company;
(xviii) Agreement by the Company to do any of the things
described in the preceding clauses (i) through (xvii).
The Company has within the times and in the manner prescribed by law,
including extensions, filed and will continue to file up through the Closing
Date all federal, state, local and other governmental (both domestic and
foreign) tax returns and similar reports required to be filed by it, and has
paid and will continue to pay up through the Closing Date all taxes shown
thereon which are due and payable including, without limitation, income tax. All
taxes, assessments and levies which the Company is required by law to withhold,
collect or pay, including, without limitation, federal and state employee income
tax withholding, have been withheld or collected and paid over to the proper
governmental authorities. The provisions for taxes reflected in the Financial
Statements are adequate for any and all federal, state, county, local and
foreign taxes for the periods ending on the date of the statements and for all
prior periods, whether or not disputed. To Seller's best knowledge, there are
not any present disputes as to taxes of any nature payable by the Company.
3.8 LEASE. The copy of the lease, dated November 13, 1996, between the
Company and Ascot Properties Co. (the "Lease") is true and accurate, and has not
been amended or modified.. The Company has received no notice that the landlord
under the Lease intends to cancel or terminate the Lease or to exercise or not
to exercise any option under the Lease. The Lease is in full force and effect as
of the date hereof, and the Company has performed all of its obligations, and is
not in default under, the Lease. All rent and other monies required to be paid
under the Lease have been duly and timely paid.
3.9 TANGIBLE PERSONAL PROPERTY. Schedule 3.9 hereto sets forth a
complete list of all items of tangible personal property owned or leased and
used by the Company in the current conduct of its business, where the net book
value as reflected in its Balance Sheet is $5,000 or more. The Company has good
and marketable title to, or in the case of leased equipment a valid leasehold
interest in, and is in possession of, all such items of personal property owned
or leased by it, free and clear of all title defects, mortgages, pledges,
7
<PAGE>
security interests conditional sales agreements, liens, restrictions or
encumbrances whatsoever. Included in Schedule 3.9 is a list of all outstanding
equipment leases and maintenance agreements to which the Company is party as
lessee and which individually provide for future lease payments in excess of
$1,000 per month, with the identities of the other parties to all such leases
and agreements shown thereon. All leases of tangible personal property to which
the Company is a party and which are material to the business of the Company are
fully effective in accordance with their respective terms, and there exists no
default on the part of the Company or any other party thereto. Each item of
capital equipment reflected in the Closing Balance Sheet which is used in the
current conduct of the Company's business is, and on the date of the Closing
will be, in good operating and usable condition and repair, ordinary wear and
tear excepted, and is and will be suitable for use in the ordinary course of the
Company's business and fit for its intended purposes.
3.10 LICENSES. Schedule 3.10 lists all licenses and permits held by
the Company. All such licenses and permits are fully in effect and constitute
all of the approvals, authorizations, consents, licenses, orders and other
permits of all governmental agencies, whether federal, state, local or foreign,
required to permit the operation of the Company `s business as presently
conducted and as proposed to be conducted. The Company is in compliance with the
terms of all such licenses and permits. None of such licenses, permits and
related approvals require the consent of any third party to the transactions
provided for herein and all of such licenses, permits and approvals will be in
full force and effect immediately after the Closing. Neither Seller nor the
Company has received any notice by any party that has granted the Company any of
the foregoing licenses or permits that it intends to restrict, cancel or
otherwise modify such license or permit, nor are Seller or the Company aware of
any facts which would indicate that any such party has any intention to take
such action.
3.11 ACCOUNTS RECEIVABLE. Schedule 3.11 sets forth a complete and
accurate report of all of the Company's accounts receivable outstanding as of a
date not more than 15 days prior to the date hereof. All such accounts
receivable arose from valid transactions, were recorded in the ordinary course
of business, and are not subject to any set-off or counter claim. No accounts
receivable are contingent upon the future performance of service or the future
delivery of products. The Company has not assigned, factored or otherwise
transferred any of its accounts receivable, or any interest therein, and holds
all rights, title and interest in and to said accounts receivable. All of the
accounts receivable reflected on Schedule 3. 11 are collectible in frill subject
to the "allowance for doubtful accounts" shown on the Schedule which is
sufficient to cover all doubtful accounts.
8
<PAGE>
3.12 CUSTOMERS AND VENDORS. INTENTIONALLY OMITTED
3.13 CONTRACTS AND COMMITMENTS. Schedule 3.13 hereto lists all
contracts, agreements, obligations and commitments, written or oral, expressed
or implied, to which the Company is a party or by which it is bound which
involve a commitment or liability in excess of $50,000 or for a term of more
than twelve months (other than obligations which are included in accounts
payable), and any union contracts, employee or consulting contracts, financing
agreements, debtor or creditor arrangements, licenses, franchises, leases other
than those described in Section 3.9, or bonus, health or stock option plans.
True and complete copies of all contracts and other agreements listed on
Schedule 3.13 have been made available to Buyer prior to the execution hereof.
As of the date hereof, there exist no circumstances which would affect the
validity or enforceability of any of the Company's contracts and other
agreements in accordance with their respective terms. The Company has performed
and complied in all material respects with all obligations required to be
performed by it to date under, and is not in default (without giving effect to
any required notice or grace period) under, or in breach of, the terms,
conditions or provisions of any of its contracts and other agreements. The
validity and enforceability of any contract or other agreement of the Company
has not been and shall not in any manner be affected by the execution and
delivery of this Agreement without any further action.
3.14 PROPRIETARY RIGHTS. The Company does not have any patents,
applications for patents, trademarks, applications for trademarks, trade names,
copyrights, licenses or service marks relating to its business except as set
forth in Schedule 3.14 hereto. The Company has the unrestricted right to use,
free and clear of any claims or rights of others, all trade secrets, customer
lists, computer programs, characters, likenesses, and processes reasonably
necessary to conduct its business as presently conducted. The continued use
thereof by the Company following the Closing will not conflict with, infringe
upon, or otherwise violate any rights of others. The Company has not used nor is
it making use of any confidential information or trade secrets of any present or
past employee or shareholder.
3.15 NO PENDING MATERIAL LITIGATION OR PROCEEDINGS. Except as set
forth on Schedule 3.15 hereto, there are no actions, suits or proceedings
pending or threatened against or affecting the Company or Seller (including
actions, suits or proceedings where liabilities may be adequately covered by
insurance) at law or in equity or before or by any federal, state, municipal or
other governmental department, commission, court, board, bureau, agency or
instrumentality, domestic or
9
<PAGE>
foreign, which might result in any material adverse change in the business,
properties or assets, or in the condition (financial or otherwise) of the
Company or Seller, or which question or challenge the sale of the Shares by
Seller to Buyer. Neither Seller nor the Company is subject to any voluntary or
involuntary proceeding under the United States Bankruptcy Code or has made an
assignment for the benefit of creditors.
3.16 INSURANCE. The Company maintains insurance with reputable
insurance companies on such of its equipment and properties as are usually
insured by companies similarly situated and to the extent customarily insured,
and maintains such other insurance against hazards, risks and liability to
persons and property as is customary for companies similarly situated. All such
insurance policies are in full force and effect. There are no outstanding unpaid
claims under any such policies which have gone unpaid for more than 60 days or
as to which the carrier has disclaimed liability. Neither Seller nor the Company
has received notice of cancellation or non-renewal of any such policies and the
transactions contemplated hereby will not permit any carrier to cancel any
existing policy. Neither Seller nor the Company has received notice from any of
the Company's carriers that any insurance premiums will be materially increased
in the future or that the insurance coverage currently in effect will not be
available in the future on substantially the same terms.
3.17 ARRANGEMENTS WITH PERSONNEL. No stockholder, director, officer
or employee of the Company is presently a party to any transaction with the
Company, including without limitation any contract, loan or other agreement or
arrangement providing for the furnishing of services by, the rental of real or
personal property from or to, or otherwise requiring loans or payments to, any
such stockholder, director, officer or employee, or to any member of the family
of any of the foregoing, or to any corporation, partnership, trust or other
entity in which any stockholder, director, officer or employee or any member of
the family of any of them has a substantial interest or is an officer, director,
trustee, partner or employee. There is set forth on Schedule 3.17 hereto a list
showing the name, title, date and amount of last compensation increase, and
aggregate compensation, including amounts paid or accrued pursuant to any bonus,
pension, profit sharing, commission, deferred compensation or other plans or
arrangements in effect as of the date of this Agreement, of each officer,
employee, agent or contractor of the Company whose salary and other
compensation, in the aggregate, received from the Company or accrued is at an
annual rate (or aggregated for the most recently completed fiscal year) in
excess of $100,000, as well as any employment agreements relating to any such
persons.
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<PAGE>
3.18 LABOR RELATIONS. The Company has no obligations under any
collective bargaining agreement or other contract with a labor union, under any
employment contract or consulting agreement, or under any executive's
compensation plan, agreement or arrangement, nor is any union, labor
organization or group of employees of the Company presently seeking the right to
enter into collective bargaining with the Company on behalf of any of its
employees. Seller has furnished Buyer with a copy of all written personnel
policies, including without limitation vacation, severance, bonus, pension,
profit sharing and commissions policies, applicable to any employees of the
Company.
3.19 COMPLIANCE WITH LAWS. The Company holds all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business as
presently conducted, has complied with all applicable statutes, laws,
ordinances, rules and regulations of all governmental bodies, agencies and
subdivisions having, asserting or claiming jurisdiction over it, with respect to
any part of the conduct of its business and corporate affairs, where the failure
to so comply might have consequences that could materially adversely affect the
Company's condition (financial or otherwise), business, assets, properties or
prospects.
3.20 BANK ACCOUNTS. Schedule 3.20 sets forth (i) the name of each
bank, trust company, securities or other broker or other financial institution
with which the Company has an account, credit line or safe deposit box or vault,
or otherwise maintains relations; (ii) the account number of each account
maintained thereat; (iii) the name of each person authorized by the Company to
draw thereon or to have access to any safe deposit box or vault; (iii) the names
of all persons authorized by proxy or otherwise to act on behalf of the Company;
and (iv) all outstanding powers of attorney and proxies held by Seller. None of
the foregoing proxies or powers of attorney are irrevocable.
3.21 EMPLOYEE BENEFIT PLANS. The plans described in Schedule 3.21
hereto are the only employee benefit plans (within the meaning of Section 3(1)
of ERISA), and the plans, programs, policies, practices, arrangements or
contracts (whether group or individual) providing for payments, benefits or
reimbursements to employees of the Company ("Employees") former Employees, their
beneficiaries and dependents under which such Employees, former Employees, their
beneficiaries and dependents are covered through an employment relationship with
the Company ("Benefit Plans"), and such Benefit Plans cover only those persons
indicated on Schedule 3.21. The Company is in full compliance with ERISA with
respect to the Benefit Plans and have performed all of its obligations under
such plans. No actions against the Company
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based on the Benefit Plans are pending or to the best of the Seller's knowledge
threatened (other than routine claims for benefits).
3.22 ENVIRONMENTAL QUALITY. To the best knowledge of Seller, the
Company has not used, generated, manufactured, installed, released, discharged,
stored or disposed of any "Hazardous Materials," as defined below. The term
"Hazardous Materials" shall mean any substance, material or waste which is
regulated by any local government authority, the State of New York, or the
United States Government, including, without limitation, any material or
substance which is (a) defined as a "hazardous waste," "hazardous material,"
"hazardous substance," "extremely hazardous waste" or "restricted hazardous
waste" under any provision of New York law, (b) petroleum, (c) asbestos, (d)
designated as a "hazardous substance" pursuant to Section 311 of the Clean
WaterAct, 33 U.S.C. ss. 1251 ET SEQ. (33 U.S.C. ss. 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. ss. 1317), (e) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 ET SEQ. (42 U.S.C. ss. 6903), or (f) defined as
a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 ET
SEQ. (42 U.S.C. ss.9601). All such real property at which the Company conducts
its business, to the best of its and the Shareholder's knowledge after due and
diligent inquiry and investigation, complies with all applicable Federal, state
and local laws, ordinances and regulations pertaining to air and water quality,
Hazardous Materials, waste, disposal or other environmental matters, including
the Clean Water Act, the Clean Air Act, the Federal Water Pollution Control Act,
the Solid Waste Disposal Act, the Resource Conservation Recovery Act, the
Comprehensive Environmental Response, Compensation, and Liability Act, and the
rules, regulations and ordinances of the city and county in which such Real
Property is located, the California Department of Health Services, the Regional
Water Quality Control Board, the State Water Resource Control Board, the
Environmental Protection Agency and all other applicable Federal, state,
regional and local agencies and bureaus.
3.23 BROKERAGE. Neither Seller nor the Company has any obligation to
any person or entity for brokerage commissions, finder's fees or similar
compensation in connection with the transactions contemplated by this Agreement,
and each party shall indemnify and hold the other party harmless against any
liability or expenses arising out of a breach of the foregoing representation.
3.24 ASSETS NECESSARY TO BUSINESS. The assets owned or leased by the
Company (all of which after the Closing Date will continue to be owned or leased
by the Company) are sufficient to carry on the business conducted by the
Company. All such
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assets are fit for the purposes for which they are being used and are in good
operating condition and repair, reasonable wear and tear excepted. The
transactions contemplated hereby will not deprive the Company of the benefits of
any assets used, or available for use in its business.
3.25 DISCLOSURE. Neither this Agreement, nor any certificate, exhibit,
or other written document or statement, furnished to Buyer by or on behalf of
Seller in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary to be stated in order to make the statements contained herein or
therein not misleading. Seller has no knowledge of any fact which has not been
disclosed in writing to Buyer which may reasonably be expected to materially and
adversely affect the business, properties, operations, and/or prospects of the
Company or the ability of Seller to perform all of his obligations under this
Agreement and/or any other agreement between Buyer and Seller to be entered into
pursuant to any provision of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
4.1 AUTHORITY. Buyer has full legal right, power and capacity to enter
into, execute, deliver and perform this Agreement and all attendant documents
and instruments contemplated hereby. This Agreement has been duly executed and
delivered and constitutes the legal, valid and binding obligation of Buyer and
is enforceable with respect to Buyer in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, priority or other laws or
court decisions relating to or affecting generally the enforcement of creditors'
rights or affecting generally the availability of equitable remedies.
4.2 NO VIOLATION OF AGREEMENTS. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereunder
by Buyer will violate or conflict with any judgment, order, decree, statute,
rule or regulation applicable to Buyer or its assets or properties.
4.3 BROKERAGE. Buyer has no obligation to any person or entity for
brokerage commissions, finder's fees or similar compensation in connection with
the transactions contemplated by this Agreement, and shall indemnify and hold
Seller harmless against any liability or expense arising out of such a claim
asserted against Seller by any party.
4.4 MSH SHARES. The Pre-Closing Shares are, and the Closing Shares,
when issued pursuant to this Agreement will be, duly authorized, fully-paid,
validly issued shares of Common Stock of Buyer.
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5. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to Closing of
each of the conditions set forth below, any or all of which may be waived by
Buyer in whole or in part without prior notice; provided, however, that no such
waiver or a condition shall constitute a waiver by Buyer of any other condition
or of any of its rights or remedies, at law or in equity, if Seller is in
default or breach of any of his representations, warranties or agreements
hereunder:
5.1 CONVEYANCE AND ASSIGNMENT. Seller shall have duly executed and
delivered to Buyer the certificates for the Shares duly endorsed for transfer
and such other instruments of transfer and conveyance as shall be necessary or
desirable, in the reasonable opinion of Buyer's counsel, to transfer
unencumbered and absolute ownership of the Shares to Buyer.
5.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Seller contained in this Agreement shall be accurate and
complete on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date and Seller
shall have delivered to Buyer a certificate to that effect executed by him and
dated as of the Closing Date.
5.3 PERFORMANCE OF AGREEMENTS. Each and all of the conditions
precedent and agreements of Seller subject to satisfaction on or before the
Closing Date pursuant to the terms of this Agreement shall have been performed
or satisfied and Seller shall have delivered to Buyer a certificate to such
effect executed by him and dated as of the Closing Date.
5.4 ACTIONS OR PROCEEDINGS. No action, suit or other proceeding before
a court, tribunal or other governmental agency or body shall have been
instituted or threatened to restrain or prohibit the consummation of the
transactions contemplated by this Agreement, or seeking to obtain substantial
damages in respect thereof, or involving a claim that consummation thereof would
result in the violation of any law, decree or regulation of any governmental
authority having appropriate jurisdiction, or in connection with any material
claim against any the Company or Seller not disclosed on the Schedules hereto.
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5.5 NO ADVERSE CHANGE. There shall have been no event which has
occurred or which has been disclosed to Buyer which has had or could be
reasonably expected to have a material adverse effect on the business, book
value, assets, properties, results of operations, financial condition or
prospects of the Company.
5.6 COURT ORDERS. No preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
government, regulatory or administrative agency or commission nor any statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would (a) make the acquisition or holding by
Buyer of the Shares illegal or impose material limitations on its ability to
exercise full rights of ownership with respect to such Shares or (b) otherwise
prevent the consummation of the transactions contemplated hereby.
5.7 EMPLOYMENT AGREEMENTS. All written and oral employment, consulting
and other agreements of any nature between Seller (or any parties related
thereto) and the Company (or any parties related thereto) shall have been
canceled without cost or charge to the Company, except as set forth in this
Agreement.
5.8 ADDITIONAL DOCUMENTS. Seller shall have delivered to Buyer such
documents and instruments as Buyer may reasonably request in connection with
this Agreement and the consummation of the transactions contemplated hereby.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction of each of the conditions
set forth below, any or all of which may be waived by Seller in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Seller of any other condition or of any of Seller's
rights or remedies, at law or in equity, if Buyer shall be in default or breach
of any of its representations, warranties or agreements under this Agreement:
6.1 PURCHASE PRICE. Buyer shall deliver the Purchase Price at the
Closing as provided in Section 1.2.
6.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Buyer contained in this Agreement shall be accurate and
complete on and as of the Closing Date with the same effect as through such
representations and warranties had been made on or as of such date and Buyer
shall have delivered to Seller a certificate to that effect signed by Buyer's
chief executive officer, and dated as of the Closing Date.
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6.3 PERFORMANCE OF AGREEMENTS. Each and all of the conditions
precedent and agreements of Buyer subject to satisfaction on or before the
Closing Date pursuant to the terms of this Agreement shall have been performed
or satisfied and Buyer shall have delivered to Seller a certificate to that
effect signed by Buyer's chief executive officer, and dated as of the Closing
Date.
7. INDEMNIFICATION
7.1 SELLER'S OBLIGATION TO INDEMNIFY. Seller agrees to indemnify,
defend and hold harmless Buyer, and its officers, directors, successor and
agents from and against all claims, demands, losses, liabilities, costs,
expenses, obligations, interest, penalties and damages, including, without
limitation, reasonable attorneys' fees and other costs and expenses of
investigating and defending any actions or threatened actions (collectively
"Claims"), which arise out of, are based upon, or are related to (i) any
material inaccuracy in or material breach of any representation, warranty or
agreement of Seller contained herein or in any other document delivered pursuant
hereto, or (ii) any claim by or through Linda Abrams or Howard Abrams relating
to the ownership of the Purchased Shares or the assets or properties of the
Company.
7.2 BUYER'S OBLIGATION TO INDEMNIFY. Buyer agrees to indemnify, defend
and hold harmless Seller, and his heirs, successor and agents from and against
all claims, demands, losses, liabilities, costs, expenses, obligations,
interest, penalties and damages, including, without limitation, reasonable
attorneys' fees and other costs and expenses of investigating and defending any
actions or threatened actions (collectively "Claims"), which arise out of, are
based upon, or are related to any material inaccuracy in or material breach of
any representation, warranty or agreement of Seller contained herein or in any
other document delivered pursuant hereto.
7.3 PROCEDURE. If any action or claim is brought or asserted against
an indemnified party in respect of which indemnity may be sought pursuant to the
preceding Section 7.1 or Section 7.2, the indemnified party shall promptly
notify the indemnifying parties in writing, and the indemnifying parties shall
assume the defense thereof, (including the employment of counsel reasonably
acceptable to the indemnified party) and the payment of all fees and expenses on
a current basis, including expenses incurred by the indemnified party in
connection with investigating, preparing to defend, or defending any such action
or claim prior to the tender of the
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same to the indemnifying parties. Should the indemnified party fail to promptly
notify the indemnifying parties of the claim or action, such failure shall not
affect the parties obligations to indemnify hereunder unless such failure has
materially prejudiced their ability to properly defend against the claim or
action.
The indemnified party shall have the right to employ separate counsel
reasonably acceptable to the indemnifying parties in any proceeding concerning
the action or claim and to participate in the defense thereof. The fees and
expense of such counsel incurred by the indemnified party following acceptance
of the defense of the action or claim shall be borne by such indemnified party
unless (a) the employment has been specifically authorized by the indemnifying
parties, (b) the indemnifying parties have failed to assume the defense and
employ counsel, or (c) the named parties to any such action (including any
impleaded parties) included both the indemnified party and the indemnifying
parties and the indemnified party has been advised by counsel that the
representation of the indemnified party and the indemnifying parties by the same
counsel would be inappropriate under applicable standards of professional
conduct due to actual or potential conflicts of interest between them.
The indemnified party shall not be liable for settlement of any action
or claim entered into without its prior written consent.
The indemnified party and the indemnifying parties shall cooperate
with each other in the defense of any claim or action, making available to each
other any books, records or other documents in their possession or control that
are necessary or appropriate for such defense.
7.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; LIMITATION ON
INDEMNITY. The representations and warranties contained in or made pursuant to
this Agreement shall survive the Closing and shall expire on the second
anniversary of the Closing, except that the representations and warranties
contained in Sections 3.1 through 3.4, and Sections 4.1 and 4.2 shall remain in
full force and continue indefinitely. If a claim for indemnity under Sections
7.1 or 7.2 of this Agreement has been asserted in writing prior to such
expiration, such representation or warranty shall continue indefinitely until
the applicable claim is finally resolved.
8. TRANSACTIONS PENDING CLOSING; ADDITIONAL AGREEMENTS
8.1 CONDUCT OF BUSINESS PENDING CLOSING. Except as provided herein,
Seller shall cause the Company to (i) conduct its business up to the Closing
according to and conforming with all applicable laws and regulations, (ii) to
operate and maintain
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its business in the normal and customary manner, (iii) not violate the terms of
any lease or contract connected with such its business, and (iv) not terminate
any employees, contracts, licenses, permits or agreements without Buyer's prior
written consent.
8.2 TRANSACTIONS PRIOR TO CLOSING; EXCLUDED ASSETS. It is contemplated
that certain assets of the Company shall be distributed or otherwise transferred
prior to, concurrently with or after the Closing, as follows:
8.2.1 POWER GLOVE. The Company shall transfer to Freedom
Multimedia, LLC, a Delaware limited liability company, (the
"Power Glove Company") all of its right title and interest
in and to the Power Glove product line and associated
technology, patents and trademarks (but excluding the
television, video, music and similar entertainment rights,
`which shall remain in the Company, or be licensed to the
Company pursuant to an exclusive, worldwide, royalty-free
license). The equity interests in the new entity shall be
allocated 43.75% to Seller, 37.5% to Anthony Gentile, John
Gentile and Jenny Gentile (collectively) and 1 8.7 5% to
Buyer, it being understood that voting control over Buyer's
interest will rest will Seller or Seller's designee. The
parties acknowledge that the Company has borrowed $300,000
from its Chase Credit line for development of the Power
Glove; upon organization of the Power Glove Company, all
cash remaining from such borrowing shall be transferred to
the Power Glove Company, and the Power Glove Company shall
issue a promissory note to the Company for $300,000, payable
upon such terms as the parties may mutually agree, but due
in any event within two years of the Closing. In the event
that the Power Glove Company shall cease operations or
development for a period of more than six months, the
members shall cause the Power Glove Company to use best
efforts to sell its assets and the first $300,000 raised
from such sale shall be utilized to repay its promissory
note to the Company. The parties shall negotiate in good
faith with respect to the terms of the organization of the
Power Glove Company. The operating agreement for the Power
Glove Company shall provide that the members shall have the
option (exercisable within 10 days) to avoid dilution of
their equity percentages in the Power Glove Company by
investing additional capital on the same basis (at the same
price per percentage interest) as is offered to new
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third party investors. Furthermore, if the assets or
business (or capital stock) of Up Up & Away America, Inc.
are merged into or contributed to the Power Glove Company as
part of the financing of such company, there will be an
independent valuation made of such assets or stock, and the
owners of the shares of Up Up & Away, Inc. shall receive
additional percentage interests in the Power Glove Company
based upon such valuation.
8.2.2 MICRONAUTS. The Company and Kaleidoscope Media Group
("KMG") are currently negotiating an agreement for the
production and distribution of an animated series based on a
Company property known as "Micronauts" (the "KMG
Agreement"), which provides for organization of a new entity
to exploit the property, and the Company and KMG are
currently negotiating with Wynn Entertainment, Inc. to
finance the series. It is anticipated that, if these
arrangements are consummated, Giocchi Preziosi ("GP") will
provide between $1.5 million and $2.4 million toward the
production, as an advance against toy royalties. If GP
provides such an advance, Seller will be entitled to receive
50% of all net proceeds received by the Company from
exploitation of the Micronauts series (i.e. net after
reimbursement to AGE of all amounts expended by it with
respect to the series) as well as a 50% ownership of all
series episodes retained by AGE.
8.2.3 OTHER PRODUCTS. The Company shall assign to Up Up &
Away America, Inc. all of its right, title and interest in
and to the License Agreement, dated February 4,1998, with
Irwin Toys/Canada, relating to "Snoring Snoopy", and all of
its right, title and interest to the product lines and
associated intellectual property known as "Kindergarten",
"Knitters", "Smunchies" and "POPS".
8.3 CONSULTING AGREEMENT. At the Closing, Seller shall execute and
deliver a one-year Consulting Agreement with Buyer in the form of EXHIBIT A
hereto.
8.4 REGISTRATION RIGHTS AGREEMENT. At the Closing, Buyer shall execute
and deliver a Registration Rights Agreement with Seller in the form of EXHIBIT B
hereto (the "Registration Rights Agreement").
8.5 HALLMARK LOAN INDEMNITY AGREEMENT. At the Closing, Buyer shall
execute and deliver a Hallmark Loan Indemnity Agreement with Seller in the form
of EXHIBIT C hereto.
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8.6 GAUMONT CLAIM. The parties acknowledge that Gaumont Multimedia has
asserted claims against the Company arising out of certain co-production
agreements between the Company and Gaumont Multimedia arising out of the
production and distribution of the "Sky Dancers" and "Dragon Flyz" animated
television series (the "Gaumont Claim"). If, on the Closing Date, the Gaumont
Claim has not been settled or otherwise disposed of to the satisfaction of
Buyer, then at the Closing Seller shall deposit with Buyer's counsel a
certificate representing 400,000 shares of Buyer's Common Stock (the "Escrowed
Shares") for the purpose of assisting in settlement of the Gaumont Claim. Buyer
shall use its best efforts to settle the Gaumont Claim, utilizing the Escrowed
Shares and its cash. If Buyer is able to settle the claim, it shall pay the full
settlement amount and shall be entitled to retain a portion of the Escrowed
Shares (valued at $.40 per share) equal in value to 50% of the settlement
amount, including attorneys' fees. If the Gaumont Claim is settled for a lesser
amount, then any remaining Escrowed Shares shall be promptly returned to Seller.
If, despite Buyer's best efforts to cause a settlement of the Gaumont Claim, an
action, arbitration or other proceeding is commenced by Gaumont Multimedia or
its affiliates relating to the Gaumont Claim within 180 days of the Closing
Date, then at the end of such 180 day period Buyer shall be entitled to retain
the Escrowed Shares, in full satisfaction of Seller's obligations with respect
to the Gaumont Claim.
8.7 ACCESS TO RECORDS. Between the date of this Agreement and the
Closing Date and during regular business hours, Seller shall cause the Company
to afford to Buyer and its employees, accountants, counsel and other authorized
representatives free and full access to the properties, books, records
(including tax returns filed and those in preparation), contracts, commitments
and affairs of the Company and shall furnish Buyer with such additional
financial and operating data and copies of all documents and other information
concerning the business, affairs, assets and properties of the Company as Buyer
may from time to time reasonably request. Notwithstanding the foregoing, any
such investigation made by Buyer pursuant to this Section 8.7 shall not affect
or otherwise diminish any of the representations and warranties of Seller
hereunder.
8.8 INCORPORATION OF SCHEDULES AND EXHIBITS. All schedules, exhibits
and other documents and written information required to be delivered pursuant to
this Agreement are incorporated into this Agreement by this reference and are
warranted by the party or parties which deliver the same to be accurate and
complete in all material respects. In the event that any material changes shall
occur with respect to any information disclosed in any schedule furnished by
Seller hereunder following the date of the delivery thereof and prior to the
Closing Date, Seller shall promptly notify Buyer thereof in writing.
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8.9 GOVERNMENTAL DOCUMENTS. If, after the date of Closing, in order
properly to prepare its tax returns or other documents or reports required to be
filed with governmental authorities or its financial statements, it is necessary
that a party to this Agreement be furnished with additional information relating
to the Company or Seller and such information is in possession of the other
party or any related party and can reasonably be furnished to the party in need
of such information, then the other party will, promptly upon request, furnish
such information to the party in need of such information.
8.10 COOPERATION. Each party will take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
it with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any other
party in connection with any such requirements imposed upon any of them in
connection with the consummation of the transactions contemplated by this
Agreement. Each party will take all reasonable actions necessary to obtain (and
will cooperate with any other party in obtaining) any consent, approval, order
or authorization of, or any registration, declaration or filing with, any
governmental entity, domestic or foreign, or other person, required to be
obtained or made by such party (or by any other party) in connection with the
taking of any action contemplated by this Agreement.
8.11 FULFILLMENT OF CONDITIONS TO CLOSING. Each party hereto shall
use its best efforts to cause the conditions to Closing to be fulfilled by the
Closing Date.
8.12 ASSISTANCE WITH AUDITS. Seller shall cause the Company, if
requested by Buyer, to give Buyer and its independent accountants access to (and
to cause access to be given by its independent public accountants) the work
papers of the Company and its accountants pertaining to the conduct of the
business of the Company in connection with the preparation of any financial
statements, internal reports or audits by Buyer, and to assist Buyer and its
independent accountants in understanding such work papers.
8.13 COLLECTION OF ACCOUNTS. After the date of Closing, Seller shall
cooperate with Buyer to collect for the account of the Company all accounts and
other collectible items reflected in the books and records of the Company.
Seller agrees promptly to transfer or deliver to the Company any cash or other
property received directly or indirectly by him in respect of any such accounts
and other items, including any
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amounts payable as interest. Seller agrees to cooperate fully in order to allow
the maintenance of records necessary to conduct the Company's business and
agrees to provide such reports and information to Buyer as are reasonably
requested and reasonably related to the business of the Company.
8.14 CHASE LINE OF CREDIT. Seller shall cooperate with Buyer and AGE
to maintain AGE's existing credit arrangements with Chase Manhattan Bank, and
shall take no action (or omit to take any action) (other than the transactions
contemplated hereunder) that would cause Chase Manhattan Bank to revoke, rescind
or reduce such credit.
8.15 POSSIBLE CONTINGENT ISSUANCE OF SHARES. If, on the first
anniversary of the date of the Closing, the aggregate Market Value (as defined
herein) of the Pre-Closing Shares and the Closing Shares is less than
$1,250,000, then within 30 days thereafter, Buyer shall issue to Seller such
additional number of fully paid, non-assessable shares of Common Stock of Buyer
as may be necessary to bring the aggregate Market Value (determined as of the
date of such first anniversary) of the Pre-Closing Shares, the Closing Shares,
and such additional shares, to $1,250,000. For the purposes of this Section, the
Market Value of the Common Stock shall be the average closing price (or the
average of the bid and asked price, if there is no reported closing price) of
the Common Stock of Buyer for the twenty trading days preceding such first
anniversary, as reported by any securities exchange on which Buyer's Common
Stock is listed, or on NASDAQ or the OTC Bulletin Board, as the case may be, if
not so listed. For the purposes of this calculation, Seller shall be deemed to
own all of the Pre-Closing Shares and the Closing Shares (including the Escrowed
Shares), adjusted for any stock splits, stock dividends or recapitalizations, on
such first anniversary, irrespective of whether Seller has disposed of all or a
portion thereof in the interim. This Section shall be of no further force or
effect if, prior to such anniversary, Seller either (i) sells or disposes of
some or all of the Pre-Closing Shares and/or Closing Shares for a net aggregate
consideration in excess of $1,250,000, or (ii) Seller becomes entitled to sell
the Pre-Closing Shares and the Closing Shares for a net aggregate consideration
in excess of $1,250,000 pursuant to the Registration Rights Agreement.
9. MISCELLANEOUS
9.1 EXPENSES AND TAXES. Each party shall bear and pay his, her or its
own expenses, including legal, accounting and other professional fees, and taxes
incurred in connection with the transactions referred to in this Agreement. The
party responsible under applicable law shall bear and pay in their entirety all
other taxes and registration and transfer fees, if any, payable by reason of the
sale and conveyance of the Shares.
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Each party will cooperate to the extent practicable in minimizing all taxes and
fees levied by reason of the sale or assignment of the Shares.
9.2 PUBLIC ANNOUNCEMENTS. Buyer will be responsible for the issuance
of press releases or trade releases, and the making of such other public
statements with respect to this Agreement and the transactions contemplated
hereby as may, in Buyer's reasonable judgment, be necessary or appropriate,
provided, however, that the initial such press release or public announcement
shall also be subject to Sellers prior approval which shall be exercised in a
reasonable manner, recognizing Buyer's obligations under the securities laws to
make full and fair disclosure to the public. Prior to Closing, Seller shall not
issue any press releases or trade releases or make any public statements with
respect to the transactions contemplated hereby.
9.3 ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement, together
with the related agreements, Schedules referenced herein and Exhibits hereto,
constitutes the final, exclusive and complete understanding of the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements, understandings and discussions with respect thereto. No variation or
modification of this Agreement and no waiver of any provision or condition
hereof, or granting of any consent contemplated hereby, shall be valid unless in
writing and signed by the party against whom enforcement of any such variation,
modification, waiver or consent is sought.
9.4 REPRESENTATIONS AND WARRANTIES. The representations and warranties
hereunder shall not be affected or diminished by any investigation at any time
by or on behalf of the party for whose benefit such representations and
warranties were made. All statements contained herein or in any schedule,
exhibit, certificate, list or other document delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties.
9.5 FURTHER ASSURANCES. The parties hereto shall use their best
efforts, and shall cooperate with one another, to secure all necessary consents,
approvals, authorizations, exemptions and waivers from third parties as shall be
required in order to consummate the transactions contemplated hereby, and shall
otherwise use their best efforts to cause such transactions to be consummated in
accordance with the terms and conditions hereof. At any time or from time to
time after the Closing Date, each party hereto, shall execute and deliver any
further instruments or documents and take all such further action as such
requesting party may reasonably request in order to consummate and document the
transactions contemplated hereby.
9.6 CAPTIONS. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the constructing or
interpretation of any provision of this Agreement.
23
<PAGE>
9.7 SECTION REFERENCES. Unless otherwise noted, all section references
herein are to sections of this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
9.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Seller, his successors and any assigns to which Buyer
consents in writing. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
9.10 PARTIES IN INTEREST. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
9.11 NOTICES. All notices, requests, demands and other communications
hereunder ("Notices") shall be in writing and shall be deemed to have been duly
given if delivered by hand, by facsimile, or by registered or certified mail,
postage prepaid, return receipt requested, but only upon receipt of such return
receipt, as follows:
If to Buyer: MSH Entertainment Corporation
3330 Ocean Park Boulevard
Suite 115A
Santa Monica, CA 90405
Attn: Robert P. Maerz
Fax No.: (310) 664-1190
With a copy to: Robert J. Zepfel, Esq.
Haddan & Zepfel LLP
4675 MacArthur Court, Suite 710
Newport Beach, CA 92660
Fax No.: (949) 752-6161
24
<PAGE>
If to Seller: Mr. Martin Abrams
c/o Abrams/Gentile Entertainment, Inc.
244 West 54th Street
New York, NY 10019
Fax No.: (212) 765-1987
With a copy to: Marc Bailin, Esq.
Rubin, Bailin, Ortoli, Mayer, Baker & Fry LLP
405 Park Avenue
New York, NY 10022-4405
Fax No.: (212) 826-9307
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt. All notices shall be deemed received on the date
of delivery or, if mailed, on the date appearing on the return receipt therefor.
9.12 LAW GOVERNING; VENUE. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of New York,
without regard to its choice-of-laws or conflicts-of-law rules.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of date first above written.
MSH Entertainment Corporation
By /s/ROBERT P. MAERZ
----------------------------------------
Robert P. Maerz, Chief Executive Officer
/s/MARTIN ABRAMS
----------------------------------------
Martin Abrams
25
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES:
3.9 Tangible Personal Property and Equipment Leases
3.10 Licenses and Permits
3.11 Accounts Receivable
3.12 Customers/Vendors
3.13 Contracts
3.14 Proprietary Rights
3.15 Litigation
3.17 Executive Compensation
3.20 Bank Accounts
3.21 Employee Benefit Plans
EXHIBITS:
A Consulting Agreement
B Registration Rights Agreement
C Hallmark Loan Indemnity Agreement
26
<PAGE>
ASSET LOCATION NOTE
The following AGE materials are located in lab storage at the
following facility:
Bonded Service Ltd. P. (201) 944-3700
504 Jane Street F. (201) 592-0727
Fort Lee, NJ 07024 Customer #3138
Materials stored:
<PAGE>
1. Visionaires - 13 Beta Masters
2. Bucky O'Hare - 13 Beta Master Episodes
Audio Masters
3. Happy Ness - 13 D2 Masters Episodes
Split Track Audio Masters
14 Dat Song Masters
4. Jelly Bean Jungle - 14 Digibeta Master Episodes
Split Track Audio Masters
5. Sky Dancer* - 14 D2 Master Episodes
Split Track Audio Masters
6. Dragon Flyz* - 13 D2 Master Episodes
Split Track Masters
7. Vanpires - 13 Digibeta Master Episodes
Split Track Masters
CG 1 Output Reels
14 Dat Song Masters
8. Audio/Video Promo Masters and Commercial Reels (Dz, Digibeta & Beta
Formats)
1 Guardian Angels 3 Bucky O'Hare
1 Micronauts 4 Visionaires
1 Hammer Storage Zone 2 Fazz
1 Radko Christmas 1 Suprize-a-Lots
1 Pappaazzi Samurai 1 Popcorn Pretties
1 Open Call 1 Men of Metal
1 Sci-Com City 1 NitroBat
1 Power Glove 1 Cave Man
1 Power Slam 1 Barbie Talk
8 Sky Dancers 2 Plastic Elastic
4 Dragon Flyz 3 Rambo
2 Jelly Bean Jungle 4 Happy Ness
1 Annie 1 Disney Bubble Camera
*Upon Settlement of Gaumont each series will have a total of 26 episodes each
for a total of 52 broadcast masters.
27
ABRAMS/GENTILE ENTERTAINMENT, INC.
244 West 54th street
New York, New York 10019
Dated September 4, 1998
MSH ENTERTAINMENT CORPORATION
330 Ocean Park Boulevard
Santa Monica, CA 90405
Attention: Robert Maerz, President
Dear Mr. Maerz:
Reference is made to that certain Stock Purchase Agreement (the
"Agreement") between the undersigned, MSH Entertainment Corporation ("Buyer")
and the undersigned, Martin Abrams ("Seller"). We understand from you and Mike
Welsh that you will not be able to close as required by the Agreement. This
letter will serve as notice or your material breach of the Agreement.
Notwithstanding your material breach, I am willing to extend the date
of the Closing to 3:00 pm on Tuesday, September 8, 1998 on the condition that
you confirm, by signing where indicated below, that your failure to close was
solely due to your failure to secure financing, and that neither Abrams/Gentile
Entertainment, Inc., John Gentile, Anthony Gentile, the undersigned nor any of
their affiliates, by their act or ommission, caused you to be unable to close
the transaction as required by Section 2.1 of the Agreement.
Kindly indicate your confirmation below.
/s/MARTIN ABRAMS
-----------------------------------
Martin Abrams
Agreed and Confirmed:
MSH ENTERTAINMENT CORPORATION
By: /s/ ROBERT MAERZ
-----------------------------------
Robert Maerz, Chairman
- 1 -
<PAGE>
ABRAMS/GENTILE ENTERTAINMENT, INC.
244 West 54th Street
New York, New York 10019
Dated September 4, 1998
MSH ENTERTAINMENT CORPORATION
330 Ocean Park Boulevard
Santa Monica, CA 90405
Attention: Robert Maerz, Chairman
Dear Mr. Maerz:
Reference is made to that certain stock Purchase Agreement (the
"Agreement") between the undersigned, MSH Entertainment Corporation ("Buyer")
and the undersigned, Martin Abrams ("Seller"). This agreement will modify the
Agreement; however, except as expressly provided herein, the terms and
conditions of the Agreement are hereby confirmed and ratified.
I am willing to extend the date of the Closing until 10 am on September
17, 1998 on the condition that you confirm the following, by signing where
indicated below:
1.) You, on behalf of yourself and ACE, hereby waive any claim against
me for underfunding of the AGE pension funds. You agree that my pension shall be
funded at $191,000, and I agree that funding for my pension will be limited to
$191,000, and I waive any rights I may have to require further funding of my AGE
pension. I will execute such other documents as you may request to confirm such
waiver. You agree that I will not be responsible for any other underfunding of
such pension funds for other employees. I agree that if you are required by law
to provide fundinq in excess of the aforesaid $191,000 with respect to my
pension in order to avoid reporting an underfunded pension, notwithstanding my
waiver, I shall reimburse you for such excess funding upon your request.
2.) I will cause Up Up & Away, Inc. to pay AGE $100,000 of the $293,400
receivables claimed by you to be due, such payment to be made no later than five
(5) business days following your notice to me that MSH has repaid the Hallmark
Loan in accordance with the terms of the Hallmark Loan Indemnity Agreement
delivered at the Closing. I hereby personally guarantee the payment of such
amount by AGE. At the Closing, I shall pay ACE $8,000 to settle the remaining Up
Up & Away, Inc. receivable, and you agree that neither I, Up Up & Away, Inc.,
nor any of our affiliates shall have further liability for the $293,400
receivables (other than as provided herein).
3.) You agree to provide me with 660,000 shares of free trading common
stock of MSH. The 660,000 shares will be provided to me pursuant to a private
transaction(s) under Rule 144, such shares to be provided by third party
stockholders selected by you
1
<PAGE>
at no expense to me. These 660,000 shares shall replace 660,000 of the
2,825,000 shares of the newly issued shares of restricted common stock of MSH
which are to be delivered pursuant to subsection 1.2.4 of the Agreement. All
such shares will be delivered to me no later than 10:00 am on October 19, 1998.
If you are unable to deliver all of such shares on or before such date, after
using your best efforts to do so, you shall pay me in cash for any undelivered
shares, at the rate of 37.5 cents per share. Notwithstanding the foregoing, I
may elect, at my discretion, at any time prior to the delivery of such shares to
me, to require you to pay me $247,500 in lieu of delivery of such shares.
4.) You agree to provide me with 400,000 shares of newly issued shares
of restricted common stock of MSH. These shares will be in addition to the
shares issuable pursuant to subsection 1.2.4 of the Agreement (as modified by
paragraph 3 above).
5.) You agree to pay us at the Closing, an additional cash payment
equal to (a) $900 times (b) the number of days between September 4, 1998 and the
date of Closing (including the day of Closing).
6.) You agree to pay me my salary for the full month of September.
7.) You agree to pay all costs payable under the lease on my AGE leased
car for the full term of said lease (approximately December 31, 1999).
8.) You agree that if the transaction does not close on September 17,
1998, you will arrange for the payment to me on that date of $150,000 or the
issuance by Berwind Financial to me of a letter of credit in the amount of
$150,000. Upon such payment you shall have a 40 day extension of the Closing
(until October 27, 1998). If the transaction is closed on or before October 27,
1998, such payment will not be deemed a part of the purchase price, but will be
deemed a payment for the extension, and I will be entitled to keep such payment
without limiting my claims for your failure to close pursuant to the terms of
the Agreement, as amended by this Agreement.
Kindly indicate your confirmation below.
/s/MARTIN ABRAMS
-----------------------------------
Martin Abrams
Agreed and Confirmed:
MSH ENTERTAINMENT CORPORATION
By: /s/ROBERT MAERZ
-----------------------------------
Robert Maerz, Chairman
2
ABRAMS/GENTILE ENTERTAINMENT, INC.
244 West 54th Street
New York, New York 10019
Dated September 24, 1998
MSH ENTERTAINMENT CORPORATION
330 Ocean Park Boulevard
Santa Monica, CA 90405
Attention: Robert Maerz, Chairman
Dear Mr. Maerz:
Reference is made to that certain Stock Purchase Agreement (the
"Agreement"), as amended by the letter agreement dated September 4, 1998 (the
"Amendment"), between the undersigned, MSH Entertainment Corporation ("Buyer")
and the undersigned, Martin Abrams ("Seller"). This agreement will modify the
Agreement and the Amendment; however, except as expressly provided herein, the
terms and conditions of the Agreement and the Amendment are hereby confirmed and
ratified.
I am willing to extend the date of the Closing until 3pm on September
30, 1998 on the condition that you confirm the following, by signing where
indicated below:
1.) You agree to pay me $150,000, by wire transfer received by me no
later than September 25, 1998. I agree that if you provide me with written
confirmation, satisfactory to me in my sole discretion, that such wire transfer
has been irrevocably initiated by 3 pm on September 25, 1998, I will deem
payment received, subject to my confirmation of actual receipt of such wire
transfer no later than September 28, 1998. You confirm that such payment is in
lieu of the payment due me pursuant to paragraph 8 of the Amendment, and that
such payment shall no longer be deemed a part of the purchase price for my
shares pursuant to the Agreement.
2.) Promptly following the Closing, you agree to cause AGE to transfer
and assign to Up, Up & Away, Inc. all of the rights held by AGE in the
intellectual property known as "Softcity", including the copyrights, trade marks
and trade dress rights in Softcity. I acknowledge that such assignment shall not
include the AGE's rights to receive money pursuant to AGE's current agreement
with Hasbro. I agree that, notwithstanding the transfer and assignment of
Softcity to Up, Up & Away, I shall cause Up, Up & Away to pay AGE 40% of the net
profits accruing to Up, Up & Away which arise from the exploitation of Softcity,
the terms of calculation and payment of such net profits to be negotiated
between us in good faith after the Closing.
1
<PAGE>
3.) Promptly following the Closing, you agree to cause AGE to grant Up,
Up & Away, Inc. an exclusive 2 year option to develop the intellectual property
known as "Paparazzi/Samurai". You and I agree that the terms of my right to
participate in the net proceeds of Paparazzi/Samurai shall be the same as are
applicable to the Micronauts property referred to in subparagraph 8.2.2 of the
Agreement.
4.) You agree to provide me with a producing credit on the AGE property
"Open Call", the size and placement of such credit to be consistent with
industry standards and subject to my reasonable approval.
5.) You agree that the personal guarantee granted by me to you pursuant
to Paragraph 2 of the Amendment is hereby released, and that I shall have no
further liability for such obligation of Up, Up & Away.
6.) Pursuant to our letter agreement to be executed as of the date of
the Stock Purchase Agreement, I am to be issued a warrant to purchase 500,115
shares of MSH common stock. You agree that the expiration date for such warrant
shall be November 30, 2000.
7.) You agree to increase the purchase price under the Agreement to
include an additional 500,000 shares of free trading common stock of MSH. These
500,000 shares will be provided to me pursuant to a private transaction(s) under
Rule 144, such shares to be provided by third party stockholders selected by you
at no expense to me. You agree to provide such shares to me no later than April
30, 1999.
8.) For purposes of clarification only, you acknowledge that the total
number of shares to be issued to me as part of the purchase price pursuant to
the Agreement, the Amendment and this agreement is as follows:
1.) 300,000 newly issued shares, receipt of which is
acknowledged (pursuant to the Agreement);
2.) 2,165,000 newly issued restricted shares, deliverable
at the Closing (pursuant to the Agreement);
3.) 660,000 shares of free trading common stock,
deliverable by no later than 10 am on October 19,
1998, and with respect to which I may elect to receive
cash, in my sole discretion (pursuant to the
Amendment);
2
<PAGE>
4.) 400,000 shares of newly issued restricted shares,
deliverable at the Closing (pursuant to the
Amendment); and
5.) 500,000 shares of free trading common stock,
deliverable on or after the Closing, but no later than
April 30, 1998 (pursuant to this Agreement).
Kindly indicate your confirmation below.
/s/MARTIN ABRAMS
-----------------------------------
Martin Abrams
Agreed and Confirmed:
MSH ENTERTAINMENT CORPORATION
By: /s/ROBERT MAERZ
-----------------------------------
Robert Maerz, Chairman
3
ABRAMS/GENTILE ENTERTAINMENT, INC.
244 West 54th Street
New York, New York 10019
Dated: October 1, 1998
MSH ENTERTAINMENT CORPORATION
330 Ocean Park Boulevard
Santa Monica, CA 90405
Attention: Robert Maerz, Chairman
Dear Mr. Maerz:
Reference is made to that certain Stock Purchase Agreement (the
"Agreement"), as amended by the letter agreements dated September 4, 1998 and
September 24, 1998 (the "Amendments"), between the undersigned, MSH
Entertainment Corporation ("Buyer") and the undersigned, Martin Abrams
("Seller"). This agreement will modify the Agreement and the Amendments;
however, except as expressly provided herein, the terms and conditions of the
Agreement and the Amendments are hereby confirmed and ratified.
I am willing to extend the date of the Closing until 3 pm on November
5, 1998 on the condition that you confirm the following, by signing where
indicated below:
1.) You agree to pay me $150,000, by wire transfer received by me no
later than October 8, 1998. I agree that if you provide me with written
confirmation, satisfactory to me in my sole discretion, that such wire transfer
has been irrevocably initiated by 3 pm on October 8, 1998, I will deem payment
received, subject to my confirmation of actual receipt of such wire transfer no
later than October 9, 1998. You confirm that such payment is a deferral of the
payment due me pursuant to paragraph 1 of the September 24, 1998 Amendment, and
that such payment is not to be deemed a part of the purchase price for my shares
pursuant to the Agreement.
2.) You agree to deliver to me, also on October 8, 1998, a Confession
of Judgment, in form satisfactory to my counsel, pursuant to which you agree to
pay me, in the event of your failure to close as required hereby, an amount
equal to interest due pursuant to Paragraph 5 of the September 4, 1998 Amendment
(the "Interest"), such interest to accrue through the date of execution of such
Confession of Judgment. I agree that if you make the $150,000 payment described
in Paragraph 1 above, but do not close on November 5, 1998, I will nonetheless
release you from any claims I may have against you which arise from your failure
to close, subject to the condition that you pay me the Interest due through
November 5, 1998, by wire transfer received by me no later than 3 pm on November
5, 1998. If you do not make such payment as required, such interest shall
continue to accrue as provided in the September 4, 1998 Amendment, and I shall
not be required to release you from any claims I may have against you which
arise from your failure to close.
1
<PAGE>
3.) You acknowledge that I, or one of my affiliates, will be paying
the next installment of the Hallmark Loan (defined in the Agreement), and you
agree to reimburse me (or to reimburse my affiliate) for such payment at the
Closing.
4.) You agree to deliver the 660,000 shares of free trading common
stock of MSH referred to in Paragraph 3 of the September 4 Amendment on October
19, 1998 to Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP, as escrow agent. At
the November 5, 1998 closing, you agree to instruct Rubin, Bailin to release
such shares to me. If you do not close, I agree to instruct Rubin, Bailin to
return such shares to you.
5.) You acknowledge that, after you make the $150,000 payment referred
to in Paragraph 1 above, I desire to be able to sell the shares of MSH I
currently own, and which I am currently unable to sell due to my possession of
insider information. You have agreed to release to the public the information
regarding the status of our arrangements sufficient to release me from the
restrictions imposed upon me as an insider. In that connection, you agree to
provide me with your indemnity, in form satisfactory to my counsel, regarding
any claims which may arise in connection with my sale of such shares,
notwithstanding such press release.
Kindly indicate your confirmation below.
/s/MARTIN ABRAMS
-----------------------------------
Martin Abrams
Agreed and Confirmed:
MSH ENTERTAINMENT CORPORATION
By: /s/ROBERT MAERZ
-----------------------------------
Robert Maerz, Chairman
2
MARTIN ABRAMS
c/o ABRAMS/GENTILE ENTERTAINMENT. INC.
244 WEST 54TH STREET
NEW YORK, NY 10019
January 21, 1999
MSH Entertainment Corporation
330 Ocean Park Blvd.
Santa Monica, CA 90405
Attn: Robert Maerz, Chairman
Dear Mr. Maerz:
Reference is made to that certain Stock Purchase Agreement (the
"Agreement") as amended by Letter Agreements dated September 4, 1998, September
24, 1998 and October 1, 1998 (the "Amendments") between the undersigned, MSH
Entertainment Corporation ("Buyer") and the undersigned, Martin Abrams
("Seller"). This Agreement will modify the Agreement and the Amendments;
however, except as expressly provided herein, the terms and conditions of the
Agreement and the Amendments are hereby confirmed and ratified, Seller has
agreed to extend the date of the Closing until 5 pm on January 27, 1999 on the
condition that MSH confirm the following, by signing where indicated below:
1. It is agreed that for a period of two (2) years after the date of
Closing in the transaction contemplated by the Agreement and the Amendments, Up
Up & Away (America), Inc. and Parico Investments Ltd., d/b/a Up Up & Away
(collectively referred to herein as "Up Up & Away") (or another entity, with the
same shareholders, designated by Seller) shall act as the exclusive
licensing/marketing agent for any and all toys created by Buyer or by
Abrams/Gentile Entertainment, Inc. ("AGE"), but only to the extent such toys are
related to properties in development with AGE prior to the date of Closing
(including without limitation any toys or toy concepts created by John or
Anthony Gentile), on the following basis:
(a) In those instances where toys or toy concepts arise as an
offshoot of a television, motion picture or other entertainment property, Up Up
& Away will receive 35% of the gross advances and royalties derived from the
sale or exploitation of any such toys or toy concepts, except that if advances
subject to this sentence are needed to fund production of a theatrical or
television show (live or animated), or video or electronic games, and any and
all visual productions for any delivery system, Up Up & Away shall receive only
8% of such advances, such reduction to be applicable only to advances actually
used for production expenses. In those instances where a toy or toy concept is
created separate and apart from an entertainment property, Up Up & Away will
receive 50% of the gross advances and royalties derived from such exploitation
of such toy or toy concept. For purposes of clarification, the parties
acknowledge that the exclusive arrangement described in this Paragraph 1 shall
not be applicable to (A) any arrangement proposed by a third party for which
there is already in place an arrangement for the licensing/marketing of toys or
toy concepts and (B) any revenues arising from sales of toys if such sales are
executed entirely in-house by MSH (e.g., internet, e-commerce or an internet
network).
1
<PAGE>
(b) With respect to all other merchandise licensing activities
conducted by MSH or its affiliates, Up Up & Away shall act as the exclusive
merchandise licensing agent with respect to any and all such properties and will
receive a licensing agent fee of 30% (domestic) and 40% (foreign), it being
understood that such fee shall include all fees payable to foreign agents.
(c) The fees payable to Up Up & Away hereunder shall at all
times be within the industry standard range of fees paid to licensing/marketing
agents, and if it is established that such fees are in excess of the industry
standard range, the parties agree that such fees shall be reduced so as to be
within such range.
(d) Up Up & Away agrees that if, in a change in control or
purchase of MSH by a third party, Seller is offered the opportunity to
participate in such purchase on the same terms as are applicable to the selling
shareholders of MSH or if Seller is, at the time of such change in control, no
longer a shareholder of MSH, MSH shall have the right to elect to terminate the
exclusive arrangement described in this Paragraph 1, it being agreed that such
termination shall not be applicable to current agreements or agreements for
which material negotiations have begun and which are executed within 6 months
following the change of control.
(e) Up Up & Away shall have the right to terminate the
exclusivity arrangement described in this subparagraph 1(a) upon 30 days prior
written notice to MSH. Such termination shall not affect agreements in force or
agreement fore which material negotiations have begun and which are executed
within 6 months following such termination.
(f) It is agreed that the fees payable to Up Up & Away
hereunder shall be payable for the full term (including any renewals or
extensions) of any applicable license, regardless of the termination of the
exclusivity arrangement described in this Paragraph 1.
2. MSH acknowledges that, for a period of five (5) years from the date
of Closing, neither it nor any affiliate will, enter into any co-production,
licensing, distribution or other business arrangement with the Canadian
production company known as Annex, or the production company known as Cambian if
the arrangement relates to the property known as "Hammer Horror", without the
prior written consent of Seller and without having first having negotiated and
signed an agreement with Seller confirming his right to receive 25% of the
advances, royalties or other compensation payable to MSH or any of its
affiliates, or on its or any of its affiliates' behalf in connection with any
such business arrangement, it being understood that Seller has been the
procuring cause of any such business relationship by virtue of his having
introduced those entities to MSH and AGE.
2
<PAGE>
3. MSH agrees that Up Up & Away shall be entitled to partition and
sublease, for a period of two (2) years, offices on the 9th floor which
constitute the front part of the space on such floor, at a monthly rent of which
is proportionate to the entire 9th Floor, payable on or before the 10th day of
each month. MSH further agrees that Up Up & Away shall be entitled to subdivide
such space so as to physically separate Up Up & Away's office space from the
rest of the 9th Floor office space, although Up Up & Away shall, if MSH
requests, subdivide so as to provide MSH with reasonable access to its space on
the 9th Floor through the space occupied by Up Up & Away. If the applicable
lease forbids such arrangement, Up Up & Away shall sublease MSH the back part of
the space on the same terms. MSH further agrees that if MSH/AGE proposes to
terminate its lease for the 9th Floor, MSH shall offer Up Up & Away the right to
take over the part of the space Up Up & Away is then occupying, subject to any
consent required by the Landlord.
4. MSH agrees that, commencing upon the closing of the transactions
contemplated hereunder, MSH (or any of its affiliates) shall enter into a
consulting arrangement with Ms. Jenny Gentile, pursuant to which MSH (or any of
its affiliates) will pay Ms. Gentile an annual consulting fee in the amount of
$120,000 per annum, (payable at the rate of $10,000 per month) for a period of
three (3) years, in consideration of Ms. Gentile's rendering marketing and
licensing consulting services to MSH and AGE and in further consideration of her
serving as a liaison between MSH/AGE and Up Up & Away. and in addition to any
consideration Ms. Gentile may receive for her shares of ACE. That consulting
agreement will further provide that, in the event of MSH's (or AGE's) default in
making any of the monthly payments due to Ms. Gentile thereunder, the balance of
the consulting fees for the unexpired portion of the three year term will
immediately accelerate and become due and payable. Finally, MSH agrees that Ms.
Gentile shall report directly to John Gentile in connection with her consulting
services. Seller agrees that if Ms. Gentile refuses to enter into such an
agreement, or renegotiates the terms of such an agreement, MSH/AGE shall not be
in breach of the Agreement. At Seller's request, MSH shall provide Seller with a
copy of Ms. Gentile's agreement with MSH/AGE so as to confirm its satisfaction
of the obligations hereunder.
5.) MSH agrees to provide Seller with 750,000 shares of newly issued
shares of restricted common stock of MSH. These shares will be in addition to
the shares issuable pursuant to subsection 1.2.4 of the Agreement (as modified
by the Amendments).
6.) Seller agrees that the interest payment required by Paragraph 5 of
the September 4, 1998 Amendment is hereby waived, and Seller agrees to return to
MSH, at the Closing, the Confession of Judgment previously delivered to Seller.
7.) You agree that if the Closing does not occur by January 26, 1999 as
provided herein, you authorize Rubin, Bailin, Ortoli, Mayer Baker & Fry, LLP, as
escrow agent for 660,000 shares of freely trading common stock of MSH, to
release to Seller such shares, and MSH agrees that such shares shall be Seller's
without further obligation to MSH and in addition to Seller's obligations under
the Agreement, as amended, and without limiting any of Seller's legal or
equitable rights against MSH for its breach of the Agreement, as amended. MSH
agrees that if the Closing does occur as provided herein, such shares shall be
released to Seller as additional consideration.
3
<PAGE>
8.) Unless and until the closing of MSH's acquisition of AGE, MSH will
not issue any further press releases or disseminate any other information, over
the Internet or otherwise, concerning Marty Abrams, AGE or the pending
transactions, without Marty Abrams' prior written consent.
9.) You acknowledge that I, or one of my affiliates has made the
September 30, 1998 and November 80, 1998 interest installments of the Hallmark
Loan (defined in the Agreement), and you agree to reimburse me (or to reimburse
my affiliate) for such payments at the Closing. In addition, you agree that you
will, at the Closing, pay $100,000 to Rubin, Bailin, Ortoli, Mayer, Baker & Fry
in escrow, such amount to be used to pay an additional payment of the Hallmark
Loan prior to February 20, 1999. If you fail to do so, you shall negotiate in
good faith with me so as to provide me with additional security acceptable to me
for the repayment of the Hallmark Loan, and I shall not be obligated to close
this transaction until such additional security is satisfactory to me.
Notwithstanding the foregoing I agree that prior to any such payment of the
Hallmark Loan. I will cooperate with you in your efforts to renegotiate the
terms of the Hallmark Loan. If you are unable to accomplish such renegotiation
by February 20, 1999, I am hereby authorized to instruct Rubin Bailin, et al. to
make the required payment.
10.) You agree to modify the Security Agreement, pursuant to which you
agreed that MSH's 18.75% membership interest in Freedom Multimedia LLC
("Freedom") was collateral for certain obligations, so as to provide that such
membership interest shall not be diluted below 18.75% of the total membership
interests in Freedom until such collateral is released as provided in the
Security Agreement, except in the event of a mutually agreed financing pursuant
to which all members of Freedom are diluted in proportion to their respective
interests. I agree that you shall, after the Closing, be entitled to appoint one
of the members of the Board of Managing Members of Freedom.
11.) You agree to modify the Security Agreement which governs the
collateral of 26 shares of the shares of AGE purchased by MSH to provide that
such collateral shall not be diluted below 29.54% of the total outstanding
equity of AGE until such collateral is released as provided in the Security
Agreement.
12.) MSH and Seller agree that instead of the escrow arrangement
described in subparagraph 8.6 of the Agreement, Seller has agreed to reduce the
number of newly issued restricted shares deliverable to Seller at the Closing by
400,000 shares, and MSH agrees that Seller shall have no obligation or liability
regarding the Gaumont claim.
13.) In light of my continued employment by AGE through the end of the
1998, and to ensure the funding of my pension fund interests, including my
$65,000 share of the $98,000 in aggregate underfunding of such pension funds,
Paragraph 1 of the September 4, 1998 Amendment to the Agreement is hereby
amended to read as follows:
"1.) You, on behalf of yourself and AGE, hereby waive any claim
against me for underfunding of the AGE pension funds. You agree that my
pension shall be funded at $256,000, and I agree that funding for my
pension will be limited to $256,000, and I waive any rights I may have
to require further funding of my AGE pension. I will execute such other
documents as you may request to confirm such waiver. You agree
4
<PAGE>
that I will not be responsible for any other underfunding of such
pension funds for other employees. I agree that if you are required by
law to provide funding in excess of the aforesaid $256,000 with respect
to my pension in order to avoid reporting an underfunded pension,
notwithstanding try waiver. I shall reimburse you for such excess
funding upon your request."
You agree that you shall make all payments required to satisfy such
obligations no later than the date such payments are required to be made by law
(taking into effect any extensions permitted by law).
14. You, on behalf of yourself and AGE, acknowledge and agree that:
(a) it has not been the intention of the intention of the parties for MSH to
acquire any direct or indirect interest in the company Up Up & Away, Inc., and
(b) if AGE owns any interest in the company Up Up & Away, Inc., all such
interests shall be transferred, prior to the Closing, or expeditiously after the
Closing, to the current shareholders of AGE, namely Martin Abrams, John Gentile,
Anthony Gentile and Jenny Gentile, and that any such transfer shall not be
subject to your approval or consent.
15. You and I agree that my right to participate in the net proceeds of
Space Cowboys (licensed from Gene Kirkwood) shall be the same as are applicable
to the Micronauts property referred to in subparagraph 8.2.2 of the Agreement.
16. You and I agree that all contracts entered into by you (or AGE)
with respect to any properties in connection with which I have a right to net
proceeds shall require that proceeds payable to you or on your behalf (or to AGE
or on AGE's behalf) including, without limitation, Micronauts, Samurai/Paparazzi
and Space Cowboys, shall be paid directly into an account held in our joint
names, and that payments shall be made directly from such account to you and me
immediately following credits thereof, upon authorization of both Mike Welsh (or
MSH's designated representative) on your behalf and me.
17. You agree that producer fees payable to AGE on Micronauts shall be
negotiated in good faith between Martin Abrams and John Gentile expeditiously
following the Closing.
18. I agree that the 500,000 shares of free trading common stock of MSH
deliverable pursuant to subparagraph 7 of the September 24, 1998 Amendment shall
be delivered on or before May 6, 1999.
19. You further acknowledge that you shall cause AGE to pay me the sum
of $175,000 at Closing, which sum represents my share of previously reported
taxable profits which I voluntarily elected to leave in AGE.
20. It is agreed tat with respect to any fees, royalties or other
payments due Seller pursuant to the Agreement shall be subject to Seller's right
to examine, or retain an accountant to examine Buyer's, or Buyer's affiliate's
books and records as same pertain to the applicable property. Seller shall
notify you in writing of his election to conduct such an audit. Any such
examination shall be for a reasonable duration, shall take place at Buyer's
offices during normal business hours not less than thirty (30) days following
Buyer's receipt of such notice from Seller.
5
<PAGE>
21. It is agreed that I shall have a right to approve all production
elements as well as the terms of all licensing or other agreements pertaining to
the Micronauts property.
22. For purposes of clarification only, you acknowledge that the total
number of shares to be issued to me as part of the purchase price pursuant to
the Agreement is as follows:
1.) 300,000 newly issued shares, receipt of which is
acknowledged (pursuant to 1.2.3 of the Agreement);
2.) 1,765,000 newly issued restricted shares, deliverable
at the Closing (pursuant to 1.2.4 of the Agreement, as
modified by Paragraph 3 of the 9/4/98 Amendment and
Paragraph 12 above);
3.) 660,000 shares of free trading common stock,
deliverable at the Closing (currently in escrow,
pursuant to Paragraph 3 of the 9/4/98 Amendment);
4.) 400,000 shares of newly issued restricted shares,
deliverable at the Closing (pursuant to Paragraph 4 of
the 9/4/98 Amendment);
5.) 500,000 shares of free trading common stock,
deliverable on or after the Closing, but no later than
May 8, 1998 (pursuant to Paragraph. 7 of the 9/24/98
Amendment and Paragraph 18 of this agreement); and
6.) 750,000 shares of newly issued restricted shares,
deliverable at the Closing (pursuant to Paragraph 5 of
this agreement).
Kindly indicate your confirmation below.
/s/MARTIN ABRAMS
-----------------------------------
Martin Abrams
AGREED AND CONFIRMED:
MSH ENTERTAINMENT CORPORATION
By: /s/ROBERT MAERZ
-----------------------------------
Robert Maerz, Chairman
6
MARTIN ABRAMS
c/o ABRAMS/GENTILE ENTERTAINMENT, INC.
244 WEST 54TH STREET
NEW YORK, NY 10019
January 28, 1999
MSH Entertainment Corporation
330 Ocean Park Blvd.
Santa Monica, CA 90405
Attn: Robert Maerz, Chairman
Dear Mr. Maerz:
Reference is made to that certain Stock Purchase Agreement (the
"Agreement") as amended by Letter Agreements dated September 4, 1998, September
24, 1998, October 1, 1998 and January 21, 1999 (the "Amendments) between the
undersigned, MSH Entertainment Corporation ("Buyer") and the undersigned, Martin
Abrams (`Seller"). This Agreement will modify the Agreement and the Amendments;
however, except as expressly provided herein, the terms and conditions of the
Agreement and the Amendments are hereby confirmed and ratified. Seller has
agreed to extend the date of the Closing until 2 pm on February 26, 1999, on the
condition that MSH confirm the following, by signing where indicated below:
1. Buyer shall immediately transfer and deliver to Seller the
2,915,000 shares of MSH that are deliverable at the Closing pursuant to the
Agreement. If the Closing occurs on or before February 26, 1999, such shares
shall be deemed delivered as part of the Closing. If the Closing does not occur
on or before 2 pm on February 26, 1999, Seller shall be entitled to retain such
shares, without limiting any of its legal or equitable rights against Buyer.
Buyer further agrees that if the Closing does not occur as aforesaid, Buyer
shall, on May 6, 1999, exchange 500,000 freely trading shares of MSH for 500,000
of the restricted shares delivered pursuant to this Paragraph.
2. If the Closing occurs as provided herein, Buyer agrees that, with
respect to the AGE property currently known as "Open Call", Abrams shall receive
35% of the net proceeds becoming payable to MSH, AGE or any of their affiliates
in connection with the exploitation of such property. For purposes of this
agreement, Buyer agrees that net proceeds shall be defined to mean gross
revenues less only out-of-pocket expenses paid to unrelated third parties which
directly relate to such exploitation.
Kindly indicate your confirmation below.
/s/MARTIN ABRAMS
-----------------------------------
Martin Abrams
AGREED AND CONFIRMED:
MSH ENTERTAINMENT CORPORATION
By: /s/ROBERT MAERZ
-----------------------------------
Robert Maerz, Chairman
1
MARTIN ABRAMS
c/o ABRAMS/GENTILE ENTERTAINMENT, INC.
244 WEST 54TH STREET
NEW YORK, NY 10019
February 12, 1999
MSH Entertainment Corporation
330 Ocean Park Blvd.
Santa Monica, CA 90405
Attn: Robert Maerz, Chairman
Dear Mr. Maerz:
Reference is made to that certain Stock Purchase Agreement (the
"Agreement") as amended by Letter Agreements dated September 4, 1998, September
24, 1998, October 1, 1998, January 21, 1999 and January 28, l999 (the
"Amendments") between MSH Entertainment Corporation (`Buyer") and Martin Abrams
(`Seller"). This Agreement will modify the Agreement and the Amendments;
however, except as expressly provided herein, the terms and conditions of the
Agreement and the Amendments are hereby confirmed and ratified. Notwithstanding
anything to the contrary contained in the Agreement and Amendments, the
transaction contemplated shall be structured as a forward triangular merger
under Internal Revenue Code Section 368(a)(2)(D) so that the issuance of shares
of MSH to Seller shall be treated as a tax-free exchange of stock. Seller has
agreed to Close as of Tuesday, February 16, 1999, on the condition that MSH
confirm the following, by signing where indicated below:
1. Buyer hereby authorizes Rubin Bailin Ortoli Mayer Baker & Fry to
release to Seller the 2,915,000 shares of MSH that are currently held in escrow
pursuant to the Agreement. Buyer confirms that Seller continues to have the
right to receive, on May 6, 1999, an additional 500,000 freely trading shares of
MSH.
2. Buyer further hereby authorizes Rubin Bailin Ortoli Mayer Baker &
Fry to release to Seller the $300,000 that is currently held in escrow, such
amount to be deemed a partial payment of the purchase price pursuant to the
Agreement.
3. (a) The Agreement is hereby amended to provide for the delivery of
the remainder of the purchase price as described below. Buyer agrees that,
notwithstanding the Closing, Buyer shall be deemed the beneficial owner of that
portion of the Purchased Shares indicated below only upon payment of the amounts
described below.
GRACE PERCENTAGE AND AGGREGATE NUMBER
PAYMENT DUE DUE DATE PERIOD OF PURCHASED SHARES OWNED
------------ -------- -------- -------------------------------
$ 300,000 2/12/99 0 days 6.90% ( 3.04 shares)
$l,200,000* 3/02/99 3 days 34.60% (15.23 shares)
$ 100,000 3/16/99 7 days 36.90% (16.24 shares)
$ 100,000 4/16/99 7 days 39.20% (17.25 shares)
$ 750,000** 4/29/99 7 days 56.54% (24.88 shares)
$ 100,000 5/16/99 7 days 58.84% (25.90 shares)
$ 100,000 6/16199 7 days 61.14% (26.91 shares)
$ 100,000 7/16/99 7 days 63.44% (27.92 shares)
$1,575,000 8/16/99 7 days 100% (44.01 shares)
- ----------------
*Includes the $175,000 payment Buyer further confirms that it shall cause AGE to
pay Seller as of the Due Date, which sum represents Seller's share of previously
reported taxable profits which Seller voluntarily elected to leave in AGE.
**Payment made to HC Crown Corp. pursuant to the Hallmark Loan.
1
<PAGE>
(b) Seller agrees that if Seller has not received an amount by
the end of business on or before a Due Date, Seller shall nonetheless have the
indicated grace period during which to make payment. If Seller does not receive
such payment by the end of business on the last day of the applicable grace
period, Buyer agrees that Seller shall have the right, upon written notice to
Buyer: (i) to require Buyer to sell back to Seller all of the Purchased Shares
then owned by Buyer at a price equal to 14% of the aggregate purchase amount
already paid to Seller pursuant to subparagraph 3(a) above, and (ii) to keep all
consideration, including, without limitation, cash and shares, previously
delivered by Buyer to Seller pursuant to the Agreement. Without limiting the
foregoing, and by way of example, if Buyer fails to make the 3/16/99 payment by
the end of the 7 day grace period, Seller shall have the right to repurchase the
15.23 shares then owned by Buyer at a price equal to $210,000. All payments
shall be made by wire transfer, to the account described in Exhibit A, or as
otherwise instructed by Seller, and shall not be deemed received until
confirmation is received by Seller from Seller's bank.
4. Buyer agrees to contribute to AGE working capital of not less than
$400,000 by no later than April 2, 1999.
5. Buyer agrees that until all of the payments described in
subparagraph 3(a) have been received, Seller shall have the exclusive right to
vote the Purchased Shares, notwithstanding Buyer's beneficial ownership in the
percentage shares actually paid for in accordance with subparagraph 3(a).
6. Buyer further confirms that Buyer shall, no later than April 29,
1999, repay Up Up & Away for the interest payments Seller has caused to be
theretofore made with respect to the Hallmark Loan since the execution of the
Agreement.
7. Buyer acknowledges and agrees that the terms of the consulting
agreements required to be entered into with Seller and Jenny Gentile pursuant to
the Agreement shall commence as of the date of the final payment required
pursuant to subparagraph 3(a) above.
8. Buyer hereby agrees to deliver to Seller, on or before August 16,
1999, 250,000 additional restricted shares of MSH, as additional consideration
for the Purchased Shares. Delivery of such additional shares shall be subject to
the grace period and default provisions described in subparagraph 3(b) above
which are applicable to the payments to be made pursuant to subparagraph 3(a)
above.
9. Buyer agrees to pay to Rubin Bailin Ortoli Mayer Baker & Fry, in
partial consideration of the legal fees incurred by Seller in connection with
the Agreement, an amount equal to $75,000, payable as follows: (a) $37,500 on or
before March 2,1999, (b) $12,500 on or before March 16, 1999, (c) $12,500 on or
before April 16, 1999 and (d) $12,500 on or before May 16, 1999.
10.) Buyer further agrees that Seller shall be entitled to receive 25%
of all net proceeds received by AGE, or any of its affiliates, from exploitation
of the "Blink" technology (i.e., the beeper technology that AGE showed at Toy
Fair 1999).
2
<PAGE>
11.) Buyer further agrees that until the final payments and deliveries
required by the Agreement and this Agreement have been made and delivered, Buyer
shall not issue any press releases regarding AGE, Seller or any of their
affiliates or properties, without Seller's prior written approval, such
agreement being a material term of this agreement.
12.) Annexed hereto as Exhibit B are copies of the Certificate of
Merger and the Agreement and Plan of Merger between AGE and AGE Acquisition
Corp. Buyer and Seller acknowledge and agree that it is their intention to cause
such documents to be executed and filed with the applicable authorities,
together with all other required documents, on or about the date of Closing, so
as to effect the merger described therein. In that connection, Buyer and Seller
further acknowledge and agree that references to the Purchased Shares shall be
deemed references to the shares of the surviving corporation referred to in such
merger documents, and Seller and Buyer shall have the same interests in such
shares of the surviving corporation as they each have in the Purchased Shares
referred to in the Agreement, the Amendments and the documents being executed
and/or delivered pursuant thereto.
Kindly indicate your confirmation below.
/s/MARTIN ABRAMS
-----------------------------------
Martin Abrams
AGREED AND CONFIRMED:
MSH ENTERTAINMENT CORPORATION
By: /s/ROBERT MAERZ
-----------------------------------
Robert Maerz, Chairman
3
October 8, 1999
Fax: (212) 977-1600
Robert Maerz
Chief Executive Officer
MSH Entertainment Corporation
244 W. 54th Street
New York, New York 10019
Re: Acquisition Agreement
Dear Bob,
Based on our discussions, the following shall serve as a Deal Memorandum
incorporating the agreed upon deal points between Aston Entertainment Group,
Inc., (Aston) and MSH Entertainment Corporation, (MSH), collectively the
(Parties) pertaining to an acquisition agreement between the companies.
1. Stock Purchase:
A. Aston has agreed to offer for sale 1,075,000 shares of common
stock representing twenty percent (20%) of its issued and
outstanding shares.
B. MSH has agreed to accept such offer and purchase 1,075,000
shares of Aston's Common Stock for the agreed upon purchase
price of $860,000.00.
C. The parties have agreed that the $860,000.00 will be paid as
follows: Fifty percent (50%) of the purchase price
representing $430,000.00 shall be paid in US currency and the
remaining fifty percent 50% of the purchase price representing
$430,000.00 shall be paid with the transfer of 1,535,714
shares of MSH Common Stock to Aston.
D. The parties have agreed that this transaction will be funded
as follows:
(1) The stock portion of this transaction shall commence on
the closing date of October 22, 1999, whereby, the stock
certificates shall be issued to the respective companies upon
authorization from the Board of Directors and Shareholders, if
necessary.
(2) The monetary funding of this transaction shall commence on
the closing date of October 22, 1999, whereby, MSH shall
initially provide a down payment to Aston of $75,000 with the
remaining $355,000 paid over the next sixty days as the funds
become available.
<PAGE>
2. Closing:
A. The parties agree that the closing date of this transaction
shall be October 22, 1999 or other such date as mutually
agreed upon.
B. The parties agree that the monetary funding portion of this
transaction will commence on October 22, 1999 or other such
date as mutually agreed upon with a down payment of $75,000,
with the balance paid on/or before December 22, 1999.
3. Acknowledgments:
A. Each party hereby acknowledges that they have been given
adequate time to perform the proper due diligence pertaining to
this transaction.
B. MSH acknowledges that they have reviewed Aston's annual
financial statements, and corporate records and are hereby
satisfied with the examinations of such.
4. Additional Documents:
A. Aston agrees to provide MSH with the following items on the
closing date of this transaction:
* A stock purchase agreement
* A letter of good standing from Aston' s Attorney pertaining
to the reorganization of the company
* A letter of good standing from the NY State tax board
* A statement showing the current status of payroll taxes
* The approval of the Board of Directors
B. MSH agrees to provide Aston with the following items on the
closing date of this transaction:
* A letter outlining the status pertaining to the filing of
Form SB2 with the SEC.
* A letter outlining the possibility of a restructure of MSH
Entertainment and how it effects the shareholders.
* A letter of assurance that MSH doesn't have any plans for a
reverse split of common stock.
* An anti-dilution agreement stating the following: if MSH
issues additional shares of common stock, or in the event
of a restructure of the company, or in the event of any
reverse split of shares, then Aston will have the option to
purchase additional shares of common stock at $.14 per
share in order to maintain its percentage ownership of
stock pursuant to this transaction.
* Copies of audited financial statements and outside
appraisals when available.
<PAGE>
5. Entire Understanding:
A. This document represents the entire and complete agreement
between the parties hereto with respect to the subject matter
hereof and supercedes all previous agreements, understandings
or representations whether oral or written between the parties
regarding the subject matter hereof and shall remain in effect
as The Agreement and be binding on the parties until such time
as a Stock Purchase Agreement is executed, if ever.
6. Captions:
A. The captions of the various paragraphs and sections of this
Agreement are intended to be used solely for convenience of
reference and are not intended and shall not be deemed for any
purpose whatsoever to modify or explain or to be used as an
aid in the construction of any provision.
7. Amendments and Changes:
A. This agreement cannot be amended, modified or changed in any
way whatsoever except by a written instrument duly signed by
the Parties hereto.
8. Authority:
A. The parties hereto warrant and represent hat they have the
power and authority to enter into this Agreement.
9. Governing Law:
A. This Agreement shall be construed in accordance with and
governed by the laws of the State of Florida and the Parties
hereto agree that in the event of any disputes under this
Agreement, said disputes shall be subject to arbitration and
be bound by the rules and regulations of the American
Arbitration Association with respect to resolution of any
disputes arising hereunder.
The Parties herein have fully read, understand and executed this Agreement
freely and voluntarily. By signing in the spaces provided below, the Parties
accept and agree to all the terms and conditions of this Agreement.
In Witness Whereof the Parties hereto have caused this Agreement to be duly
executed.
/s/ Anthony R. Asfur /s/ Robert P. Maerz
- ------------------------------- -------------------------------
Aston Entertainment Group, Inc. MSH Entertainment Corporation
/s/ 10/8/99 /s/ 10/8/99
- ------------------------------- -------------------------------
Today's Date Today's Date
January 24, 2000
Fax: (212) 977-1600
Robert Maerz
Chief Executive Officer
MSH Entertainment Corporation
244 W. 54th Street
New York, New York 10019
Re: Acquisition Agreement
Dear Bob,
Based on our discussions, the following shall serve as a Deal Memorandum
incorporating the agreed upon deal points between the Principals or Aston
Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH),
collectively the (Parties) pertaining to an acquisition agreement between the
companies.
1. Stock Purchase:
A. Aston's principals have agreed to offer for sale 806,250
shares of common stock representing fifteen percent (15%) of
its issued and outstanding shares.
B. MSH has agreed to accept such offer and purchase 806,250
shares of Aston Common Stock from said principals for the
agreed upon purchase price of $1,007,812.00.
C. The parties have agreed that the $1,007,812.00 will be paid as
follows: Twenty-five percent (25%) of the purchase price
representing $251,953.00 shall be paid in US currency and the
remaining seventy-five percent (75%) of the purchase price
representing $755,859.00 shall be paid with the transfer to
Aston's principals the amount of 2,099,608 shares of MSH
Common Stock (valued at $503,906.00) and the transfer to
Aston's principals of 125,976 shares of Kids&Family, Inc.
common shares (valued at $251,953.00).
If after one year from the principals investment in Kids & Family of
$251,953.00, Kids & Family has not made a public offering for its common shares
of stock, said Aston principal investor(s) shall have the right to convert all
or a portion thereof of said investment, into MSHE common stock. Said conversion
price of
<PAGE>
MSHB stock shall be at .24 per share. If after one year of the date herein, Kids
& Family has not made a public offering for its common shares of stock, and said
Aston principals investor(s) are satisfied with the investment in Kids & Family,
they may keep their investment in Kids & Family and said investment will start
to accrue interest immediately thereafter at 8% per annum.
D. The parties have agreed that this transaction will be funded
as follows.
(1) The stock portion of this transaction shall commence an
the closing dare of February 1, 2000, whereby, the stock
certificates shall be issued to the respective companies upon
authorization from the Board of Directors and Shareholders, if
necessary.
(2) The monetary funding of this transaction shall be paid to
Aston over the next sixty days as the funds become available.
2. Closing:
A. The parties agree that the closing date of this transaction
shall be February 1, 2000 or other such date as mutually
agreed upon.
B. The parties agree that the monetary funding portion of this
transaction shall be paid to Aston over the next sixty days as
the funds become available.
3. Acknowledgments:
A. Each party hereby acknowledges that they have been given
adequate time to perform the proper due diligence pertaining
to this transaction.
B. MSH acknowledges that they have reviewed Aston's annual
financial statements, and corporate records and are hereby
satisfied with the examinations of such and MSH has requested
that Aston provide audited financials fur the year ending
1999.
4. Additional Documents:
A. Aston agrees to provide MSH with the following items pursuant
to this transaction:
* A stock purchase agreement
* The approval of the Board of Directors
* Audited financial statements for year end 1999
B. MSH agrees to provide Aston with the following items pursuant
to this transaction:
* A letter of assurance that MSH doesn't have any plans
for a reverse split of common stock at this time
<PAGE>
* An anti-dilution agreement stating the following:
if MSH issues additional shares of common stock1
or in the event of a restructure of the company,
or in the event of any reverse split of shares,
then Aston will have the option to purchase
additional shares of common stock at .14 per share
in order to maintain its percentage ownership of
the stock pursuant to the date of this transaction.
* Copies of audited financial statements and outside
appraisals when available.
5. Entire Understanding:
A. This document represents the entire and complete agreement
between the parties hereto with respect to the subject matter
hereof and supersedes all previous agreements, understandings
or representations whether oral or written between the parties
regarding the subject matter hereof and shall remain in effect
as The Agreement and be binding on the parties until such time
as a Stock Purchase Agreement is executed, if ever.
6. Captions:
A. The captions of the various paragraphs and sections of this
Agreement are intended to be used solely for convenience of
reference and are not intended and shall not be deemed for any
purpose whatsoever to modify or explain or to be used as an
aid in the construction of any provision.
7. Amendments and Changes:
A. This Agreement cannot be amended, modified or changed in any
way whatsoever except by a written instrument duly signed by
the Parties hereto.
8. Authority:
A. The parties hereto warrant and represent that they have the
power and authority to enter into this Agreement.
9. Governing Law:
A. This Agreement shall be construed in accordance with and
governed by the laws of the State of Florida and the Parties
hereto agree that in the event of any disputes under this
Agreement, said disputes shall be subject to arbitration and
be bound by the rules and regulations of the American
Arbitration Association with respect to resolution of any
disputes arising hereunder.
The Parties herein have fully read, understood and executed this Agreement
freely and voluntarily. By signing in the spaces provided below, the Parties
accept and agree to all the tams and conditions of this Agreement.
<PAGE>
In Witness Whereof the Parties hereto have caused this Agreement to be duly
executed.
/s/ Robert P. Maerz /s/ 2/1/2000
- ------------------------------- -------------------------------
Robert P. Maerz - Chariman\CEO Today's Date
MSH Entertainment Corporation
/s/ Anthony R. Asfur /s/ 2/1/2000
- ------------------------------- -------------------------------
Anthony R. Asfur - Principal\CEO Today's Date
Aston Entertainment Group, Inc.
/s/ Dale J. Sexton /s/ 2/1/2000
- ------------------------------- -------------------------------
Dale J. Sexton - Principal\COO Today's Date
Aston Entertainment Group, Inc.
<PAGE>
Addendum to Acquisition Agreement
THIS ADDENDUM is made this 15th day of February, 2000 between Aston
Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH).
WHEREAS, it is agreed to by the parties that under section 1, Stock
Purchase, item C pursuant to the Acquisition Letter of Agreement dated January
24th, 2000, and executed on February 1st, 2000, shall be revised as follows:
The parties have agreed that the $1,007,812.00 will be paid as follows: Fifty
percent (50%) of the purchase price representing $503,906.00 shall be paid in US
currency and the remaining Fifty percent (50%) of the purchase price
representing $503,906.00 shall be paid with the transfer to Aston's principals
the amount of 2,099,608 shares of MSH Common Stock and the transfer to Aston's
principals of 125,976 shares of Kids&Family, Inc. common stock.
In Witness Whereof the Parties hereto have caused this Addendum to be duly
executed.
/s/ Anthony R. Asfur /s/ Robert P. Maerz
- ------------------------------- -------------------------------
Anthony R. Asfur Robert P. Maerz
Aston Entertainment Group, Inc. MSH Entertainment Corporation
January 24, 2000
Fax: (212) 977-1600
Robert Maerz
Chief Executive Officer
MSH Entertainment Corporation
244 W 54th Street
New York, New York 10019
Re: Stock Option Agreement
Dear Bob,
Based on our discussions the following shall serve as a Deal Memorandum
incorporating the agreed upon deal points between the Principals of Aston
Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH),
collectively the (Parties) pertaining to a stock purchase option agreement
between the parties.
1. Stock Purchase Option:
A. MSH has agreed to provide Aston and/or its associates with the
option to purchase up to 7,198,657 shares of MSH Common Stock
@ $.14 per share. The parties understand that the purchase of
said stock is subject to Rule 144 of the Securities and
Exchange Commission and that these shares are restricted from
sale until such time as the restrictions are lifted or become
free trading under Rule 144. The parties hereby agree that
within 60 days of the date MSH common stock becomes registered
under the Securities Exchange Act of 1934, MSH shall prepare
and file with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as
amended (the "Act"), to register the offer and sale to the
public of all said shares pursuant to this stock purchase
option that have been previously exercised.
B. MSH shall pay all expenses incurred by MSH in connection with
such registration, including without limitation (i) all
registration and filing fees, (ii) all printing expenses,
(iii) all fees and dispursements of counsel and independent
public accountants for the company, (iv) all Blue Sky fees and
expenses (including fees and expenses of company counsel in
connection with Blue Sky surveys), and (v) the entire expense
of any special audits incident to or required by any mach
registration; provided, however, that all underwriting
discounts and selling commissions applicable to the sales of
Shares in connection with any such registration shall be borne
by such Selling Shareholders.
<PAGE>
C. The parties agree that the stock purchase option shall expire
11 months from the execution date of this Deal Memorandum.
2. Entire Understanding:
A. This document represents the entire and complete agreement
between the parties hereto with respect to the subject matter
hereof and supersedes all previous agreements, understandings
or representations whether oral or written between the parties
regarding the subject matter hereof and shall remain in effect
as The Agreement and be binding on the parties until such time
as a Stock Purchase Agreement is executed, if ever.
3. Amendments and Changes:
A. This Agreement cannot be amended, modified or changed in any
way whatsoever except by a written instrument duly signed by
the Parties hereto.
4. Authority:
A. The parties hereto warrant and represent that they have the
power and authority to enter into this Agreement.
5. Governing Law:
A. This Agreement shall be construed in accordance with and
governed by tbe laws of the State of Florida and the Parties
hereto agree that in the event of any disputes under this
Agreement, said disputes shall be subject to arbitration and
be bound by the rules and regulations of the American
Arbitration Association with respect to resolution of any
disputes arising hereunder.
<PAGE>
The Parties herein have fully read, understood and executed this Agreement
freely and voluntarily. By signing in the spaces provided below, the Parties
accept and agree to all the tams and conditions of this Agreement.
In Witness Whereof the Parties hereto have caused this Agreement to be duly
executed.
/s/ Robert P. Maerz /s/ 2/1/2000
- ------------------------------- -------------------------------
Robert P. Maerz - Chariman\CEO Today's Date
MSH Entertainment Corporation
/s/ Anthony R. Asfur /s/ 2/1/2000
- ------------------------------- -------------------------------
Anthony R. Asfur - Principal\CEO Today's Date
Aston Entertainment Group, Inc.
/s/ Dale J. Sexton /s/ 2/1/2000
- ------------------------------- -------------------------------
Dale J. Sexton - Principal\COO Today's Date
Aston Entertainment Group, Inc.
<PAGE>
Addendum to Stock Option Agreement
THIS ADDENDUM is made this 15th day of February, 2000 between Aston
Entertainment Group, Inc., (Aston) and MSH Entertainment Corporation, (MSH).
WHEREAS, it is agreed to by the parties that under section 1, Stock
Purchase Option, pursuant to the Stock Purchase Letter of Agreement dated
January 24th, 2000, and executed on February 1st, 2000, the number of shares
shall be increased an additional 1,788,714 shares for a total number of shares
of 8,987,371.
In Witness Whereof the Parties hereto have caused this Addendum to be duly
executed.
/s/ Anthony R. Asfur /s/ Robert P. Maerz
- ------------------------------- -------------------------------
Anthony R. Asfur Robert P. Maerz
Aston Entertainment Group, Inc. MSH Entertainment Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 31,970
<SECURITIES> 0
<RECEIVABLES> 15,985
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<PP&E> 465,763
<DEPRECIATION> 0
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0
0
<COMMON> 90,170
<OTHER-SE> 5,750,032
<TOTAL-LIABILITY-AND-EQUITY> 9,794,707
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<CGS> 0
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<INTEREST-EXPENSE> 26,778
<INCOME-PRETAX> (2,588,596)
<INCOME-TAX> 0
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<NET-INCOME> (2,588,596)
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