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U.S. 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 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
MDI Entertainment, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 73-1515699
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(State or Other Jurisdiction of (I.R.S. Employer Incorporation
Organization) or Identification No.)
201 Ann Street
Hartford, Connecticut 06103
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(Address of Principal Executive Offices) (Zip Code)
(860) 527-5359
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share
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(Title of Class)
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(Title of Class)
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This Registration Statement on Form 10-SB contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
statements appear in a number of places in this Form 10-SB and include
statements regarding the intent, belief or current expectations of MDI
Entertainment, Inc. (together with its subsidiaries, the "Company") with respect
to (i) the Company's financing plans, (ii) trends affecting the Company's
financial condition or results of operations, (iii) the impact of competition,
and (iv) the expansion of certain operations. Investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that the actual results may differ
materially from those in the forward-looking statements as a result of various
factors. The information contained in this Form 10-SB, including, without
limitation, the information under "Risk Factors," "Management's Discussion and
Analysis or Plan of Operations" and "Description of Business" identifies
important factors that could cause or contribute to such differences. See
"Description of Business--Risk Factors--Cautionary Statements Regarding
Forward-Looking Statements."
PART I
Item 1. Description of Business.
MDI Entertainment, Inc. (the "Company") specializes in creating,
marketing and implementing entertainment-based promotions to North American
lotteries. The Company's principal business has been the scratch ticket
segment of the government lottery industry and the Company recently ran its
first on-line entertainment-based promotion, a lotto-type game featuring the
Company's licensed Harley-Davidson-Registered Trademark- logo. The Company's
lotteries feature well-known brand names and entertainment properties
licensed by the Company and designed to attract new lottery players while
providing a new experience for existing lottery players. The Company's
current promotions feature a wide variety of such brand names and
entertainment properties including Star Trek, Wheel of Fortune,-Registered
Trademark- Jeopardy,-Registered Trademark- Twilight Zone, The Rock and Roll
Hall of Fame and Museum, Times Square 2000, Harley-Davidson-Registered
Trademark- and Pepsi-Cola.-Registered Trademark- The scratch tickets feature
the licensed properties, usually displaying a scene and/or logo from the
entertainment-based and brand name properties. Prizes awarded in such
promotions typically include a number of "second chance" prizes related to
the licensed property, including collectible logo-bearing merchandise such as
Harley-Davidson-Registered Trademark- logoed T-shirts and caps, and other
related merchandise such as posters, money clips, telephones and, in the case
of Harley-Davidson,-Registered Trademark-Harley-Davidson 1200 Sportster
motorcycles. The Company derives most of its revenues from the sale to the
lotteries of such merchandise.
The Company offers a full range of services, including ticket and point
of sale design, prize structure development, promotional event planning, market
research, fulfillment services, customer service support and second chance
drawing assistance.
The Company also promotes non-lottery incentive programs to
supermarkets, financial institutions and hotels. The incentive programs include
the distribution of an incentive, such as a coupon, and the fulfillment of the
promise that the coupon represents (i.e. video, audio, talking book or CD title)
when it is redeemed. The Company does not currently derive significant revenues
from such programs.
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Industry Overview
Lotteries are operated by state, local and foreign governmental
authorities and their licensees in over 155 jurisdictions. Governments use
lotteries primarily as a means of generating non-tax revenues. In the United
States, lottery revenues frequently are designated for particular purposes, such
as education, economic development, conservation, transportation and aid to the
elderly. Many states have become increasingly dependent on lotteries as a
significant source of funding for these purposes.
While the specific amounts vary substantially from state to state,
industry reports estimate that approximately 50% of gross lottery revenues in
the United States is returned to the public in the form of prizes. Approximately
33% of such revenues is used to support specific public programs or is
contributed to the state's general fund. Typically, 5% to 6% of such revenues is
reserved for point-of-purchase commissions for the retailer, and the remainder
of such revenues is used to fund lottery operations, including the cost of
advertising.
Government lotteries can be categorized into two principal groups:
on-line games and "instant" or "scratch" ticket games. On-line varieties
generally refer to games such as lotto, sports pools, daily numbers and keno in
which players make their own selections. Instant ticket games consist of
preprinted tickets in which players scratch off a coating or pull off tabs to
determine whether they have purchased a winning ticket. Instant ticket games
generally have several tiers of cash prizes, ranging from $2.00 up to
$100,000.00. Occasionally instant ticket games provide for second chance
drawings that give scratch ticket purchasers a "second chance" to win prizes on
non-winning tickets. Second chance drawing prizes range from cash prizes or
spots as contestants on game shows to various types of merchandise and trips.
The Company is a leader in designing and marketing instant scratch
ticket games based on licensed brand names (such as
Harley-Davidson-Registered Trademark- or Pepsi-Cola-Registered Trademark-)
and entertainment properties (such as Star Trek). The Company attempts to
identify properties for licensing that have a large selection of logoed
products available that appeal to adults 18 years of age and older, and the
Company's instant ticket promotions typically include logo-bearing
merchandise related to such promotion as prizes. In certain of its lottery
promotions, merchandise is awarded as first prizes, such as Harley
Davidson-Registered Trademark-motorcycles. In most of the Company designed
games, second chance prizes typically include logo-bearing merchandise such
as posters, T-shirts, caps, jackets, watches, clocks, money clips,
telephones, playing cards, film cells, video and music collections, stadium
blankets, carryall bags, credit cards with prepaid credit, trips and
electronic games. The Company generates most of its revenues from the sale of
such merchandise to the government agency sponsoring the lottery.
Cooperative marketing partnerships are not new to the lottery
industry. Lotteries have been securing licensed brand names in exchange for
advertising for years in hopes of expanding the player base by attracting
non-players who have positive feelings about a particular brand. Licensing
the rights for trademarked entertainment material, however, is relatively
new. For the most part, the practice of purchasing the right to place a
popular brand name on a lottery ticket gained acceptance with the
introduction and subsequent sales success of the Monopoly-Registered
Trademark- game in 1989. Since then, lottery jurisdictions have secured a
wide variety of brands and properties for licensed lottery games. The rights
to use or license a particular property can be secured by a lottery directly
from the entity that owns the property or from companies like the Company.
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The popularity and success of lotteries has increased worldwide in
recent years, and the popularity of instant lotteries has increased at a rate
that is greater than that of lotteries generally, although there was a slight
decrease from 1997 to 1998. Lotteries typically introduce between 25 and 50 new
instant games a year. Currently, lotteries operate in 37 states, the District of
Columbia and all provinces of Canada as compared to 29 states and all provinces
of Canada as of June 30, 1989. Instant ticket games now comprise 45% of total
lottery sales in the United States as compared to 24% in 1989. Factors
contributing to the growth in the popularity and success of such games include
more sophisticated marketing techniques, the introduction of new state instant
ticket lotteries, lotteries offering multiple games simultaneously, increased
technological advances in the distribution of instant tickets, lotteries
offering a variety of instant ticket sale points (a $1.00 ticket, a $2.00
ticket, a $3.00 ticket, a $5.00 ticket and a $10.00 ticket with related
increases in the potential prize money) and higher prize pay-outs to lottery
consumers.
Lottery Promotions
The Company believes that to achieve and sustain growth in the
lottery business it must offer promotions which will attract new or lapsed
lottery players while maintaining or increasing play by current lottery
players. The Company's principal strategy is to enhance the entertainment
value and attractiveness of its promotions by licensing well known brand
names and entertainment properties and designing games based on such
properties. Such games are targeted to niche markets (such as Star Trek fans
or Harley-Davidson-Registered Trademark- motorcycle enthusiasts) to appeal to
new or infrequent players while also appealing to the core player base.
Licensed-Based Games
Over the past two years, the Company has secured rights to and
targeted specific properties for instant lottery theme games and promotions
that have broad appeal and significant brand loyalty and that enable the
Company to market collectible logo-bearing merchandise tied directly to the
property or brand. The properties are specifically selected because they
possess a substantial following that can aid a lottery in attracting new
players while at the same time providing a different experience for many
existing players. Included among the properties already licensed are Star
Trek, Wheel of Fortune,-Registered Trademark- Jeopardy,-Registered
Trademark-Twilight Zone, The Rock and Roll Hall of Fame and Museum, Times
Square 2000, Harley-Davidson-Registered Trademark- and Pepsi-Cola.-Registered
Trademark- The Company continually seeks to add to its licensed properties
and, to this end, has contacted, and continues to contact, potential
licensors.
The Company derives most of its revenues from the sale to the lotteries
of logo-bearing material (such as T-shirts, posters, hats, playing cards,
telephones, film cells, stadium blankets, carryall bags, money clips, jackets,
electronic games, watches, clocks, motorcycles and credit cards with prepaid
credit) used as second chance prizes. The Company typically orders such
merchandise directly from the licensor or its authorized representatives at
wholesale rates, thereby generating additional income for the licensor either
from direct sales or royalty income. Typically, the Company relies on third
parties for data entry and verification of the names and addresses on winning
tickets, and works with a third party fulfillment house to deliver prizes to
winning lottery players. Inventory of prizes is typically held and shipped to
prize winners by the fulfillment house. See "-Risk Factors-Dependance on
Suppliers."
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The Company's license agreements for the targeted properties
generally require the Company to pay the licensor between 10% to 20% of the
gross licensing fees received by the Company from contracts with the
lotteries. Certain agreements also require the Company to pay the licensor an
additional 20% of the gross royalty fees received by the Company from the
printing of the instant tickets, while certain other agreements increase the
percentage of the licensing fees instead. The agreements generally require an
initial payment upon signing, which is usually credited against other
payments that become due during the term of the license. While all the
licensing agreements grant the Company the right to market merchandise to the
lotteries, certain agreements require that a minimum amount of merchandise be
purchased. The term of the license agreements usually ranges between 1.5 to 3
years and are sometimes terminable upon the occurrence of certain events. The
licenses are typically exclusive for lottery scratch tickets, and such
exclusivity is generally for the United States and Canada. In some cases, the
licenses are limited to certain regions, such as the Pepsi-Cola-Registered
Trademark- license, which is limited to Wisconsin.
The Company has also obtained patents on playstyles or formats for
instant games based on existing games of chance or probability games. Such
games include Jacks Or Better,-Registered Trademark- Bonanza
Bingo,-Registered Trademark- Hold'Em Poker,-TM- Black Jack, Roulette and Draw
Poker. See "-Intellectual Property." Promotions associated with such games
generate revenues from licensing fees and royalties rather than from
merchandise sales. The Company does not currently derive significant revenues
from such games.
Contracts with Lotteries
The Company's contracts with the lotteries provide for services that
are tailored to the preferences of the lotteries and include ticket and point
of sale design, prize structure development, promotional event planning,
market research, customer service support, second chance drawing assistance
and fulfillment services. The lottery contracts generally provide the Company
with two sources of revenue which consist of (1) license and royalty fees for
the use of the entertainment properties and (2) mark-up on the sale and
fulfillment of collectible and logoed merchandise. See "-Lottery
Promotions-Licensed-Based Games."
The Company has had contracts with over two-thirds of all North
American lotteries, and currently has approximately 23 promotions that are in
progress or scheduled for introduction during 1998 in 16 state lotteries. Those
states in which the Company has or has previously had promotions are as follows:
<TABLE>
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State Promotions In Progress or No Current Promotions (But
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Scheduled for Introduction Promotions Previously Sold)
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<S> <C> <C>
Arizona X
Colorado X
Connecticut X
Delaware X
Florida X
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Georgia X
Idaho X
Illinois X
Indiana X
Iowa X
Kansas X
Louisiana X
Maryland X
Minnesota X
Missouri X
Montana X
New Hampshire X
New Jersey X
New York X
Ohio X
Oregon X
Pennsylvania X
South Dakota X
Texas X
Vermont X
Virginia X
Washington X
Wisconsin X
</TABLE>
In addition, the Company is considering expanding into other countries.
Government Regulation
Lotteries are not permitted in the various states and jurisdictions of
the United States unless expressly authorized by legislation in the subject
jurisdiction. Currently, 37 states and the District of Columbia have enacted
legislation to allow for the operation of a lottery. The operation of the
lotteries in each of these jurisdictions is strictly regulated. The formal rules
and regulations governing lotteries vary from jurisdiction to jurisdiction but
typically authorize the
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lottery, create the governing authority administering the lottery, dictate the
prize structure, establish allocation of revenues, determine the type of games
permitted, detail appropriate marketing structures, specify procedures for
selecting vendors and define the qualifications of lottery personnel.
To ensure the integrity of the lottery, state laws provide for
extensive background investigations of each of the lottery's vendors and their
affiliates, subcontractors, officers, directors, employees and principal
stockholders. These investigations generally require detailed disclosure on a
continuous basis with respect to the vendors, affiliates, subcontractors,
officers, directors, employees and principal stockholders and, in the event the
lottery deems any of such persons to be unsuitable, the lottery may require the
termination of such persons. The failure of any such persons associated with the
Company to obtain or retain approval in any jurisdiction could have a material
adverse effect on the Company. Generally, regulatory authorities have broad
discretion when granting such approvals. Although the Company has never been
disqualified from a lottery contract as a result of a failure to obtain any such
approvals, no assurance can be given that such approvals will be obtained or
retained in the future.
The Company has retained governmental affairs representatives in
various jurisdictions of the United States to monitor legislation, advise the
Company on contract proposals, and assist with other issues that may affect the
Company. The Company believes it has complied with all applicable state
regulatory provisions relative to disclosure concerning the activities of itself
and its advisors. The Company is not dependent on any such representative for
any material contract.
The Company has employed registered lobbyists and retained paid
consultants in certain states. Failure to comply with state regulatory
provisions relating to the activities of the Company's advisors could adversely
affect the Company's ability to bid successfully upon lottery contracts.
The international jurisdictions in which the Company intends to market
its products have similar legislation and regulations governing lottery
operations. In addition, restrictions are often imposed on foreign corporations
seeking to do business in such jurisdictions. Failure to comply with these
provisions could result in contract cancellation or the institution of legal
proceedings.
Laws and regulations of individual states and countries are subject to
change. There can be no assurance that any such change would not adversely
affect the Company. The failure of the Company to comply with such laws and
regulations could have an adverse impact on the operations of the Company.
Competition
The Company is aware of several other companies which design and
promote lottery games based on licensed brands. However, each is marketing to
a particular niche. Telecom Productions, Inc. licenses a variety of brand
name board games, including Monopoly,-Registered Trademark- Trivial
Pursuit-Registered Trademark- and Battleship.-Registered Trademark- Frost
Productions utilizes brand name puzzles and fortunes. Promo-Travel represents
a cruise line, casino and the casino game Let It Ride. Several other
companies made one-shot or sporadic licensing efforts. To date, the Company
has not faced substantial competition in attempting to acquire the rights to
any brand name or entertainment property. However, it is possible that as the
potential for increased revenues rise, new competitors may
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enter this market that have considerably greater financial and other resources,
experience and customer recognition than does the Company, and may compete with
the Company in both obtaining licenses to brand name or entertainment properties
and supplying lottery products to the lottery jurisdictions.
In addition, to the best of the Company's knowledge, no other company
has ever attempted to utilize merchandise with a licensed lottery game. The
Company has positioned itself to utilize such merchandise prizes. For the last
five years, a large portion of the Company's lottery business has been the
distribution of videos, compact discs and audio cassettes as second-chance
prizes. The Company has distributed nearly five million such prizes and has
experienced little to no competition in this area of the business. See "-Risk
Factors-Competition."
Intellectual Property
In 1996, the Company created its Licensed and Patented Games
division. To launch this division, the Company purchased the assets of a
games development company, Vegas Pull Tabs, Inc. d/b/a GameMakers and
Consultants. Those assets consisted primarily of (1) a U.S. patent for a
series of instant games; and (2) a U.S. patent application which was
subsequently granted for interactive bingo-like games and methods of play.
Due to this acquisition, the Company owns patents for certain game formats or
playstyles of Jacks Or Better,-Registered Trademark- Bonanza Bingo-Registered
Trademark- and Hold'Em Poker,-TM- (based on pre-existing games of chance)
Black Jack, Roulette and Draw Poker (based on pre-existing probability
games). The Company does not currently derive significant revenues form such
games, but may seek to develop them in the future.
Bonus Games, a Tennessee partnership ("BG"), is the owner of the
trademarked name Jacks Or Better. The Company has the exclusive use to the
trademark name as it pertains to scratch-off instant lottery tickets sold to
North American lotteries pursuant to an agreement with BG dated July 17,
1996. The agreement terminates on August 1, 2000. Stuart Entertainment, Inc.
("Stuart") is the owner of the trademarked name Bonanza Bingo. The Company
has the exclusive use to the trademark name as it pertains to scratch-off
instant lottery tickets sold to North American lotteries (excluding the
Canadian Province of Ontario) pursuant to an agreement with Stuart dated
September 24, 1996. The agreement terminates on December 31, 1999. There can
be no assurance that after such license agreements terminate, the Company
will be able to renew them on an exclusive basis, on favorable terms or at
all.
History and Organization
The Company is a Delaware corporation which was incorporated on
December 29, 1994 under the name, Puff Process, Inc. The name of the Company
was changed to MDI Entertainment, Inc. in connection with the purchase, in
August 1997, of both Media Drop-In Productions Inc., a Delaware corporation
("MDIP"), and MDI-Missouri, Inc., a Missouri corporation ("MDIM" and
collectively with MDIP, "MDI"), in exchange for 4,800,000 shares of its
common stock, $.001 par value per share (the "Common Stock"), and notes in
the aggregate principal amount of $300,000. The acquisition of MDI was
effected through reverse mergers with two wholly-owned subsidiaries of the
Company. MDIP was incorporated in Texas in 1986 and reincorporated in
Delaware in 1989. MDIM was incorporated in Missouri in 1995 to operate the
Company's Missouri lottery program. MDI-
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Texas, LLC ("MDIT"), a company of which MDIP owns 66.7%, was formed in 1995 to
operate the Company's Texas lottery program. MDIT is being collapsed into MDIP
now that the Texas lottery contracts have ended.
Steven M. Saferin, President, Chief Executive Officer and Director of
the Company, founded MDIP in 1986. Its initial mission was the production and
sale of quality drop-in or vignette programming (30-second programs produced in
a donut format to allow an advertiser to insert its commercial in the "hole" of
the donut). MDIP produced a series of vignettes which it sold to Fortune 500
companies, other nationally known companies and government agencies. In 1989,
MDIP began the development of its first video premium promotion.
MDIP began focusing on lottery promotions in 1987 when it marketed a
drop-in series titled "The New Millionaires" to state lotteries. In 1990 it
created and began marketing its Instant Entertainment Connection ("IEC") lottery
promotion. This promotion, tied to an instant or scratch ticket, allowed
lotteries to offer second-chance entertainment prizes (video tapes, compact
discs and audio cassettes) to players with non-cash winning tickets. To date,
this promotion has been utilized by 21 U.S. lotteries, with nearly 5 million
prizes distributed to lottery players in those states. The Company still markets
this promotion on a limited basis, although there are currently no IEC
promotions in progress or scheduled for introduction in the near future. In
1996, the Company changed its focus to concentrate on lotteries designed around
licensed brand names and entertainment properties, leveraging off of the
experience and reputation gained from the IEC promotions. See "-Lottery
Promotions."
Potential Expansion of Business
The Company is currently evaluating several unrelated opportunities in
the lottery industry. The Company's reputation in the industry results in it
receiving numerous unsolicited approaches for joint ventures and other business
relationships. The Company anticipates that over the next several years, it will
attempt to introduce additional unrelated products to the lottery industry, but
there can be no assurance that it will do so or that such efforts will be
successful.
The Company is beginning to analyze opportunities presented by its
current and potential products with international lotteries. With the exception
of Times Square 2000, none of the Company's current licenses permit it to market
the property outside the United States or, in one instance, North America. The
Company has had discussions with certain license holders about acquiring
international rights on a country-by-country basis. There can be no assurance
that such rights will be obtained. The Company is seeking full international
rights, if appropriate, for all new properties. In the next year, the Company
believes it will acquire international rights to several properties and commence
an international marketing effort.
The Company has also begun to investigate licensing opportunities
outside the lottery industry, but in gaming. Specifically, the Company opened
negotiations with license holders relative to licensing their properties for
slot machines. There can be no assurance that such negotiations will be
successful or, if successful, will result in the actual development and sale of
such slot machines.
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In July 1998, the Company entered into a Letter of Intent to establish
a joint venture with a company outside the lottery and gaming industry. The
joint venture would attempt to establish a nationwide network of alphanumeric
pagers and sell advertising on the various news, sports, business, entertainment
and other information slots available on about 70% of such pagers. The Company
is currently negotiating a definitive agreement. An initial test of the concept
has been conducted with one advertiser on a limited network of pagers.
Additional tests are scheduled in the second and third quarters of fiscal year
1999.
Employees
As of September 15, 1998, the Company had fourteen full-time employees and one
part-time employee, approximately five of whom were employed in the area of
sales and marketing, four in operations and six in administration. The Company's
employees are not represented by a union or governed by a collective bargaining
agreement.
Risk Factors
Cautionary Statements Regarding Forward-Looking Statements. Statements in this
Registration Statement on Form 10-SB under the captions "Description of
Business," "Management's Discussion and Analysis or Plan of Operations," and
elsewhere in this Form 10-SB, as well as statements made in press releases and
oral statements that may be made by the Company or by officers, directors or
employees of the Company acting on the Company's behalf, that are not statements
of historical fact, constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors,
including those described in this Form 10-SB under the caption "Risk Factors,"
that could cause the actual results of the Company to be materially different
from the historical results or from any future results expressed or implied by
such forward-looking statements. In addition to statements which explicitly
describe such risks and uncertainties, readers are urged to consider statements
labeled with the terms "believes," "belief," "expects," "plans," "anticipates,"
or "intends," to be uncertain and forward-looking. All cautionary statements
made in this Form 10-SB should be read as being applicable to all related
forward-looking statements wherever they appear. Investors should consider the
following risk factors as well as the risks described elsewhere in this Form
10-SB.
History of Losses. The Company has incurred net losses of $1,413,053 and
$2,118,893 for the fiscal years ended May 31, 1997 and 1998. There can be no
assurance that the Company will operate profitably in the near future or at all.
Net Worth. The Company had a negative net worth of $2,659,303, as of May 31,
1998. There is no assurance that the Company will be able to operate profitably
in the future or at all.
Additional Financing. As of May 31, 1998, the Company's current liabilities
exceeded its current assets by $2,970,607 and its total liabilities (including
deferred income) exceeded it total assets by $2,659,303. In order to complete
its current licensing plan, the Company will need additional financing. However,
there can be no assurance that the Company will obtain additional financing for
its future operations or capital needs on favorable terms, if at all.
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Reliance on Maintaining Rights. The success of the Company will be dependent
upon the Company maintaining its current licenses for the rights to use names
and well known logoed merchandise. Certain of such licenses are terminable if
Steven M. Saferin does not control at least 50% of the Company and will need to
be renegotiated if the Company plans to expand through the acquisition of new
companies through the issuance of stock or the issuance of securities to raise
additional equity capital. The terms of the current licenses are generally for
1.5 to 3 years, although they may be terminated sooner under certain
circumstances. There is no assurance that the current licenses will be renewed
once they expire.
Dependence on Suppliers. The Company supplies the lotteries with logoed
merchandise pursuant to its contracts. The Company obtains approximately 95% of
this merchandise from authorized representatives of the licensor. There can be
no assurance that the logoed merchandise will be available from such authorized
representatives when needed by the Company to satisfy its obligations to the
lotteries.
Reliance on Acquiring Rights. The Company's success is dependent on its ability
to obtain rights to use well known entertainment and other similar properties
for use on lottery tickets and related merchandise. There is no assurance that
the Company will continue to obtain such licenses on favorable terms or at all.
Reliance on Key Customers. The Company's licensing rights are, by design,
currently limited to United States or North American lotteries. There are
currently 37 United States lotteries and five additional Canadian lotteries. The
extremely limited potential customer base means that if any target lottery
refuses to purchase a particular promotion from the Company or if it only uses a
promotion once, there may be a significant negative impact on the Company's
revenue and earnings. The two state lotteries that purchased promotions
accounting for the highest percentage of the Company's revenues during fiscal
1998 were Wisconsin and New Jersey with 38% and 39%, respectively. There can be
no assurance that these lotteries will maintain the same level of promotions or
that other lotteries will increase promotions beyond current levels, if at all.
Fluctuating Revenues. The Company's revenues are derived on a
contract-by-contract basis from state lotteries. There are no regular on-going
sources of revenue at the present time and the Company continually creates and
markets new promotions to its lottery customers. Lotteries frequently move start
dates for promotions thereby causing gaps in the Company's cash flow. Moreover,
the useful life of a license is generally relatively short as the novelty of the
game or the popularity of the licensed material wanes over time. The Company may
depend on a particular promotion in any given year, and a decrease in sales of
the promotion or the loss of the underlying license would seriously impact the
Company's revenues and earnings.
Uncertain Market/Government Regulation. There is a growing concern in the United
States about the explosion of gaming. The creation of The National Gambling
Impact Study Commission and its expected report, may negatively impact state
lotteries and other gaming activities and hence the Company's business. No
assurance can be given that there will not be an adverse change in the lottery
laws of any jurisdiction in which the Company does business. In addition, the
Company cannot predict the nature of the regulatory process in any jurisdiction
that may authorize the use of instant tickets in the future. Any such regulatory
process may be burdensome to the Company and its customers or their key
personnel and could include requirements that the
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Company would be unable to satisfy. See "-Government Regulation."
Control By Management. The Company's officers and directors beneficially own
approximately 61% of the outstanding Common Stock and Steven M. Saferin owns
approximately 56%. The Certificate of Incorporation of the Company does not
provide for cumulative voting for the Board of Directors. As a result, Steven M.
Saferin and management have the ability to control the election of the directors
of the Company and the outcome of issues submitted to a vote of the stockholders
of the Company. See "Security Ownership of Certain Beneficial Owners and
Management."
Dependence on Key Executive. The Company's success depends to a significant
extent on the performance and continued service of Steven M. Saferin, an officer
and director of the Company. MDIP has entered into an employment agreement with
Mr. Saferin which expires on August 8, 2002 or three years from the date the
Company first files a registration statement with the Securities and Exchange
Commission (the "SEC"), whichever is later. The Company does not carry key man
insurance. See "Executive Compensation-Employment Agreements."
Competition. The Company acquires exclusive rights to license entertainment and
other properties to the U.S. lottery industry. To date, the Company has not
faced substantial competition in acquiring such rights. However there are
several organizations that also design and promote lottery games and promotions
based on licensed brands. One company has, to date, limited itself to board
games and another, puzzles and fortunes. There is no guarantee that either of
these companies would not more aggressively pursue the types of entertainment
properties the Company has targeted. In addition, it is possible that potential
licensors may design their own lottery games and seek to market them directly to
the lotteries, thus bypassing the Company. Another potential source of
competition are the printers of instant tickets who, to improve their own
competitive standing, might attempt to acquire licensing rights for various
properties to offer exclusively to their lottery customers and enhance their
competitive bidding for lottery printing contracts. See "-Competition."
No Likelihood of Dividends. The Company has never paid any cash or other
dividends on its Common Stock. At present, the Company does not anticipate
paying dividends on its Common Stock in the foreseeable future and intends to
devote any earnings to the development of the Company's business. Investors who
anticipate the need for immediate income from their investment should refrain
from purchasing the Company's Common Stock.
Lack of Liquidity. The Company's Common Stock is not traded on The Nasdaq Stock
Market or any stock exchange. There can be no assurance that a stockholder would
be able to buy or sell shares when desired.
Indemnification and Exclusion of Liability of Directors and Officers. So far as
permitted by the Delaware General Corporation Law, the Company's Certificate of
Incorporation and By-Laws provide that the Company will indemnify its directors
and officers against expenses and liabilities they incur to defend, settle or
satisfy any civil or criminal action brought against them on account of their
being or having been Company directors or officers unless, in any such action,
they are adjudged to have acted with gross negligence or to have engaged in
willful misconduct. As a result of such provisions, stockholders may be unable
to recover damages
12
<PAGE>
against the directors and officers of the Company for actions taken by them
which constitute negligence or a violation of their fiduciary duties, which may
reduce the likelihood of stockholders instituting derivative litigation against
directors and officers and may discourage or deter stockholders from suing
directors, officers, employees and agents of the Company for breaches of their
duty of care, even though such action, if successful, might otherwise benefit
the Company and its stockholders.
Item 2. Management's Discussion and Analysis or Plan of Operation.
All statements contained herein that are not historical facts,
including but not limited to, statements regarding the Company's current
business strategy and the Company's plans for future development and operations,
are based upon current expectations. These statements are forward-looking in
nature and involve a number of risks and uncertainties. Generally, the words
"anticipates," "believes," "estimates," "expects" and similar expressions as
they relate to the Company and its management are intended to identify forward
looking statements. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are those set forth under the
caption "Description of Business-Risk Factors." The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which statements are made pursuant to the Private Litigation Reform Act of 1995
and, as such, speak only as of the date made.
The Company's principal business has been the scratch ticket segment
of the government lottery industry. The Company is a leader in designing and
marketing instant scratch ticket games based on licensed brand names and
entertainment properties and the Company's lottery promotions feature such
properties licensed by the Company. Prizes awarded in such promotions
typically include a number of "second chance" prizes related to the licensed
property, including collectible logo-bearing merchandise such as
Harley-Davidson-Registered Trademark- logoed T-shirts and caps, and other
related merchandise such as posters, money clips, telephones, playing cards,
film cells, stadium blankets, carryall bags, jackets, electronic games, video
and music collections, watches, clocks, credit cards with prepaid credit,
trips and, in the case of Harley-Davidson,-Registered
Trademark-Harley-Davidson 1200 Sportster motorcycles.
The Company developed its strategy of identifying such properties in
early 1996. Prior to that time, the Company had developed a series of promotions
that utilized popular videotapes, compact discs and audiocassettes as second
chance lottery prizes. Those promotions enabled the Company to develop an
expertise in sourcing and distributing products as second chance lottery prizes
and to develop a reputation with lottery personnel as a reliable organization
attuned to the special needs of lotteries and their players.
The financial results of the last two fiscal years are not indicative
of the results of the current 1999 fiscal year or, the Company believes, other
future years. As the Company cut back its video and music promotions during
fiscal years 1997 and 1998 in order to shift to its licensing strategy, revenue
from such promotions decreased at an accelerated rate. The Company's decision to
embark on its licensing strategy in mid-1996 did not result in any appreciable
revenues for the Company until the fourth quarter of fiscal year 1998. The
Company's shrinking revenues, combined with one-time charges in both fiscal
years 1998 and 1997, resulted in
13
<PAGE>
substantial losses for both of those years. It should be noted, however, that at
the conclusion of fiscal year 1998, the Company had over $2.9 million in
deferred revenues from license-based promotions, and that fourth quarter revenue
numbers were almost the equivalent of revenues for the rest of the fiscal year.
The Company expects first quarter fiscal year 1999 results to reflect a full
integration of its licensing strategy with significantly improved revenues,
income, margins and cash flow.
The Company derives over ninety-five percent (95%) of its revenues from
lotteries in two distinct ways. First, the Company will usually charge a Lottery
a license and royalty fee to utilize a particular licensed property as a lottery
game. License fees are a fixed assessment while royalties are a percentage of
the printing cost of the tickets. A typical license fee is $12,000, while a
typical royalty is ten percent (10%) of the manufacturing cost of tickets.
Manufacturing costs of tickets usually range from $10.00 per thousand to $30.00
per thousand. Actual costs depend on the size of the ticket and the quantity
printed. Ticket quantities range from about one million to as many as 60 million
with an average quantity of about five million. The Company's second source of
lottery revenue is the sale of logoed merchandise to the lottery as
second-chance prizes. The Company encourages each lottery to dedicate between 5%
to 10% of its prize fund for the purchase of merchandise related to the property
the lottery is utilizing. If the lottery is willing to purchase merchandise, the
Company may elect to waive license and royalty fees.
Typically, the Company purchases merchandise from other licensees of
the property at wholesale and resells the merchandise to the lottery at a price
that is designed to include overhead costs, profit, shipping and handling and
any marketing support the Company provides the lottery such as brochures,
posters or other advertising assistance for which there are no separate charges.
The Company's ability to maintain its projected earning stream is
dependent on its ability to maintain and secure licensed properties, sell these
properties to lotteries and the performance of the properties once they are
introduced as lottery games to players. The Company believes that revenues will
fluctuate as individual license-based promotions commence or wind down and
terminate. In addition, the Company's licenses (which are generally for 1.5 to 3
years) terminate at various times over the next several years. Moreover, the
useful life of a license is generally relatively short as the novelty of the
game or the popularity of the licensed material wanes over time. The timing of
agreements with the lotteries to run promotions, the acquisition of new licenses
and the commencement of new promotions is unpredictable. Accordingly, period to
period comparisons may not be indicative of future results.
14
<PAGE>
<TABLE>
<CAPTION>
Year Ended May 31
-----------------
1998 % 1997 %
---- - ---- -
<S> <C> <C> <C> <C>
Total revenue .................. $ 1,984,840 100.0 $ 4,019,407 100.0
Cost of revenues ............... 2,313,831 116.6 2,662,170 66.2
Gross (loss) profit ............ (328,991) (16.6) 1,357,237 33.8
Selling, general and
Administrative expenses ..... 1,797,631 90.6 2,717,652 67.6
Operating loss ................. (2,126,622) (107.2) (1,360,415) (33.8)
Interest expense ............... 51,821 2.6 76,634 1.9
Interest income ................ (36,894) (1.9) (28,040) (.7)
Other expense .................. 12,405 .6 15,757 .4
Minority interest .............. (31,936) (1.6) (27,916) (.7)
Loss before income taxes ....... (2,122,018) (106.9) (1,396,850) (34.7)
Income tax benefit .............
(expense) ..................... 3,125 .2 (16,203) (.4)
Net loss ....................... $(2,118,893) (106.7) $(1,413,053) (35.1)
</TABLE>
Year Ended May 31, 1998 Compared to Year Ended May 31, 1997
Results for the fiscal year ended May 31, 1998 ("FY 98") reflect a loss
of $2,118,893, compared to a loss for the fiscal year ended May 31, 1997 ("FY
97") of $1,413,053. The loss from FY 97 was primarily attributable to early
stages of phasing out the Company's Instant Entertainment Connection ("IEC")
video and music promotions and the early stages of development of the Company's
licensing strategy. The phase out accelerated in FY 98 as the Company completed
nearly all of its IEC promotions but was unable to generate substantial revenue
from licensing promotions until the fourth quarter of FY 98.
Total revenue for FY 98 was $1,984,840 as compared to $4,019,407 for FY
97, a decrease of $2,034,567 (103%). The overall decrease in revenue was
primarily attributable to the winding down and completion of the IEC promotions
with most of the lotteries.
Revenues for the Company's new licensed properties promotions increased
to $1,702,356 in FY 98 compared to $124,267 for FY 97 when the Company first
developed its licensed game
15
<PAGE>
strategy. Revenue for FY 98 does not include $2,906,047 from contracted
promotions of licensed properties with various lotteries as to which the Company
has already received payment because this revenue had not yet been earned as of
May 31, 1998. Such amount will be recorded as revenue upon the shipment of
contracted merchandise and is recorded on the balance sheet as a deferred
revenue liability, reflecting the Company's obligation to ship such merchandise.
Cost of revenues as a percentage of sales for FY 98 was $2,313,831
(116.6%) compared to $2,662,170 (66.2%) for the year ended May 31, 1997. The
major costs of revenue include merchandise awarded as prizes, fulfillment of the
prizes to lottery winners and project marketing costs associated with creating
and printing brochures, mailers, posters, and catalogs. The increase in cost of
revenues as a percentage of sales is attributable to a one-time accounting
write-off. See discussion in following paragraph.
The gross loss for FY 98 was $328,991 (16.6% of sales) compared to
gross profit for FY 97 of $1,357,237 (33.8% of sales). Gross profit (loss) for
both years was affected by one-time accounting write-offs and compliance with
recently issued accounting Pronouncements. For FY 98, the Company expensed
$786,000 of commissions related to an agreement for procurement services related
to video and audio entertainment media. The contract began in 1994 and was to be
paid on a formula basis over a number of years. Due to the strategic change in
the Company's business, which included the phase out of the IEC promotions, the
Company expensed the remainder of the contract obligation this year. Had the
Company not expensed the remaining commissions for procurement services, gross
profit would have been $457,009 (23.0% of sales) for FY 98.
Selling, general and administrative expenses for FY 98 were $1,797,631
(90.6% of sales) compared to $2,717,652 (67.6%) in FY 97. The major selling,
general and administrative expenses for the Company are salaries, consulting
fees, rent, convention and travel expenses. The increase as a percentage of
sales is primarily due to certain fixed or partially fixed costs which did not
decrease as revenues decreased in FY 98. However, compliance with SOP 98-5
"Reporting on the Costs of Start-up Activities" (see "-Recently Issued
Accounting Standards"), also resulted in $83,000 being charged all in FY 98.
Absolute dollars were higher in FY 97 due primarily to three items.
First, related party compensation under agreements no longer in existence
resulted in payments of $213,000 more than under the agreements the Company
currently has with certain officers and directors. Second, a $240,000 legal fee
settlement associated with the successful resolution of a potential lawsuit the
Company was prepared to file over a licensed property. Finally, compliance with
accounting Pronouncement SFAS No. 121 (see "-Recently Issued Accounting
Standards") resulted in a one-time charge to selling general and administrative
expenses of $281,000 for the write-off of costs in excess of net assets acquired
associated with the Company's purchase of assets in 1989. Had these charges not
occurred, SG&A would have been $1,983,652 (49.4%) for FY 97.
Interest expense decreased to $51,800 in FY 98 from $76,600 in FY 97.
This decrease was due to a reduction in short-term borrowing requirements in FY
98.
Interest income increased to $37,000 in FY 98 from $28,000 in FY 97
primarily due to investment of larger cash balances during FY 98.
16
<PAGE>
Other expense net for FY 98 was $12,400 compared to $15,800 for FY 97.
Expenses for both years were associated with the Company's efforts in going
public prior to the mergers and primarily represent legal expenses.
The minority interest of MDIT owned by third parties (66.7% owned by
MDIP and 33.3% owned by third parties) (the "Minority Interest") was reduced in
FY 98 by $31,900 as compared to $27,900 in FY 97 due to increases in net losses
of MDIT. These amounts are income to the Company as losses reduce the amount of
remaining accumulated Minority Interest obligations owed by the Company, as
shown on the balance sheet.
For the reasons set forth above, the Company had a loss before taxes of
$(2,122,018) for FY 98 as compared to a loss before taxes of $(1,396,850) for FY
97.
Liquidity And Capital Resources
As of May 31, 1998, the Company had cash of $960,400 compared to $8,200
as of May 31, 1997. The increase was due principally to receiving large contract
amounts for promotions launching in the fourth quarter of FY 98. On May 31,
1998, the Company had a net working capital deficit of $2,970,600. However,
$2,906,000 of this deficit is deferred revenue (i.e. revenue as to which the
Company received payment, but which is recorded as a deferred revenue liability
until the shipment of contracted merchandise). Accordingly, such liability will
not adversely impact cash flow and without such liability, the working capital
deficit would have been $64,600. On May 31, 1997, the net working capital
deficit was $708,400. The improvement in FY 98 is primarily due to increased
business activity and the billing and collection of contracts either totally or
partially in advance of contract performance.
The cash requirements of funding the Company's growth have historically
exceeded cash flow from operations. Accordingly, the Company has satisfied its
capital needs primarily through debt and equity financings, as well as cash flow
from operations.
The Company's outstanding indebtedness as of May 31, 1998 was $150,754,
represented by a variety of debt instruments which bear interest at fixed rates
ranging from 10% to 20% per annum.
Subsequent to May 31, 1998, the Company's indebtedness has not changed
other than from making scheduled principal payments since such date.
The Company does not have any material capital commitments and does not
currently anticipate making any substantial expenditures other than in the
normal course of business activity.
Recently Issued Accounting Standards
Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up
Activities." In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP"). The SOP is effective for financial statements for
fiscal years beginning after December 15, 1998 with earlier application allowed
in fiscal years for which annual statements have not been issued. The Company
has
17
<PAGE>
chosen an early adoption of this SOP and therefore, expensed $34,727 of
organizational costs incurred during fiscal 1998 as a component of selling,
general and administrative costs. In addition, included in amortization expense
is $48,269 of organization costs incurred in prior periods.
Statement of Financial Accounting Standards (SFAS No. 121) "Accounting
for the Impairment of Long-Lived Assets." In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangible assets to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The Company reviews it capitalized marketing costs annually to
determine if an impairment has occurred. The Company recognizes that an
impairment has occurred when the state's proposed lottery program is not
expected to result in a contract with positive cash flow. Effective June 1,
1996, MDI adopted SFAS No. 121 which identified an impairment of certain
capitalized marketing costs of $226,000. MDI recorded this impairment as a
component of the cost of revenues.
As a result of SFAS No. 121, MDI also recognized an impairment of
$281,000 in the value of the cost in excess of assets acquired during fiscal
1997.
Seasonality
The timing of new license based promotions with the lotteries may cause
the Company's results of operations to vary significantly from quarter to
quarter. Accordingly, period to period comparisons are not necessarily
meaningful and should not be relied on as indicative of future results.
Year 2000
Certain of the Company's computer systems and software interpret the
year 2000 as the year 1980 or some other date. The operating systems generally
employed by the Company include Windows 95 and DOS, all of which are Year 2000
compliant. The "SBT" Accounting and Operational software programs require
software updates or modifications to address the Year 2000 problem. The
Company's computer consultants will be installing modifications to address the
Year 2000 issue at no substantial charge to the Company. The Company anticipates
that installation of Year 2000 compliant software will be completed by the end
of the fiscal year ending May 1999. The Company does not believe that the Year
2000 problem will have a material adverse effect on the Company's operations,
however, no assurance can be given that the software updates will resolve the
problem on the contemplated schedule or at all.
Item 3. Description of Property.
The Company maintains its executive offices in approximately 3,400
square feet of space in Hartford, Connecticut pursuant to a lease expiring on
December 31, 1999. The Company does not have an option to renew. Monthly lease
payments average approximately $3,800 per month.
18
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Principal Stockholders
The following table sets forth information known to the Company, as of
September 25, 1998, regarding the beneficial ownership of the Company's voting
securities by (i) each person who is known by the Company to own of record or
beneficially more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors and the Named Executive Officers, as defined in Item 6, and
(iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated, each of the stockholders listed in the table below has sole
voting and dispositive power with respect to shares beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
Number of Shares
Name of Beneficial Owner (1) Beneficially Owned Percent of Class
- ---------------------------- ------------------ ----------------
<S> <C> <C>
Steven M. Saferin 4,366,124 56.0%
Agostino T. Galluzzo 433,876 5.6%
Kenneth M. Przysiecki 230,000 3.0%
Robert J. Wussler 300,000 3.7%
All directors and executive 4,896,124 60.6%
officers as a group (5 persons)
</TABLE>
(1) The address for Messrs. Saferin, Galluzzo, Przysiecki and Wussler is c/o
MDI Entertainment, Inc., 201 Ann Street, Hartford, Connecticut 06103
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Steven M. Saferin 50 President, Chief Executive Officer and
Director
Robert J. Wussler 62 Director
Kenneth M. Przysiecki 54 Chief Financial Officer, Secretary and
Director
Charles W. Kline 38 Vice President of Sales and Marketing
Robert R. Kowalczyk 51 Vice President and General Manager
</TABLE>
19
<PAGE>
Steven M. Saferin
Mr. Saferin has been the President, Chief Executive Officer and a member of the
Board of Directors of the Company since August 1997. Since January 1986, Mr.
Saferin has been President and Chief Executive Officer of MDIP, which today is a
wholly-owned subsidiary of the Company. In this capacity, Mr. Saferin has been
primarily responsible for product development, marketing and sales. Mr. Saferin
conceived and led MDIP's entry into the lottery industry and has since been the
key employee in revising, refining and creating new products and marketing
initiatives for the Company to offer to the lottery industry. Prior to founding
MDIP, Mr. Saferin was Director of Program Acquisitions at ESPN from 1982 to
1986. He supervised a 16 person department in the areas of product acquisition
and scheduling. From 1978 to 1982, Mr. Saferin was active in Cable television
franchising as a Vice President with both Viacom Communications and Warner Amex
Cable. In those capacities, be supervised Cable television franchising
activities in dozens of major markets. Prior to entering business, Mr. Saferin
was an Attorney-Advisor to the Cable Television Bureau of the Federal
Communications commission, as well as a member of the law department at Viacom
International, Inc. Mr. Saferin received a B.A. in journalism from American
University and received his J.D. after attending the Georgetown University and
the University of Maryland Schools of Law.
Robert J. Wussler
Mr. Wussler has been a member of the Board of Directors since August 1997. He
has been Chairman of the Board of Directors of U.S. Digital Communications,
Inc., (a telecommunications company) since March 1997 and President and Chief
Executive Officer since June 1998. He has also been President and Chief
Executive Officer of The Wussler Group, which owns several telecommunications
ventures, since February 1992. From June 1995 to June 1998, Mr. Wussler served
as President and Chief Executive Officer of Affiliate Enterprises, Inc., a
privately held company which acts as the syndication branch of 51 media
companies. Prior to his current activities he was the President and CEO of
Comsat Video, the international satellite telecommunications company from 1990
to 1993. Mr. Wussler is one of the founders of CNN (Cable News Network) having
founded the network when he was Senior Executive Vice President with Turner
Broadcasting from 1980 to 1990. During his tenure with Turner Broadcasting, he
was also President of the Atlanta Braves professional baseball team and the
Atlanta Hawks professional basketball team. Prior to joining the Turner
organization, Mr. Wussler was President of Columbia Broadcasting System (CBS)
Television, a position he attained from his start in the CBS mail room through
being the President of CBS Television. Mr. Wussler is also an independent
business consultant having directed such projects as the establishment of a
French-Kuwaiti television network in 1993 and the acquisition of MetroMedia
Enterprises. He was the founding Chairman of International TelCell which later
became a part of MetroMedia International Group in 1993. Mr. Wussler also
advised and guided the first African American professional basketball ownership
group in the finance, purchase, management and resale of the Denver Nuggets
franchise of the National basketball Association. Mr. Wussler also serves on the
Board of Directors of Beachport Entertainment Corp., The Translation Group, Ltd.
and EdNet Inc.
20
<PAGE>
Kenneth M. Przysiecki
Mr. Przysiecki has been Chief Financial Officer, Secretary and a member of the
Board of Directors of the Company since August 1997. Since August 1994, Mr.
Przysiecki has been Chief Financial Officer of MDIP. Prior to joining MDIP, Mr.
Przysiecki was involved in several business start-ups that required his
financial planning, negotiating and systems implementation skills. He was a
Senior Manager for Noreika, Rosenfeld and Hupp, a C.P.A. firm, from 1989- 1992
and was employed as Vice President of Finance for the Keeney Manufacturing
Company (a plumbing supply manufacturing company) from 1976 until 1988. He
received his C.P.A. while with Arthur Andersen & Co. from 1972 to 1976, and
received his B.S. in Business Administration from American International
College.
Charles W. Kline
Mr. Kline joined the Company as Vice President of Sales and Marketing in
February 1998. Prior to joining the Company, Mr. Kline was Executive Director of
the Pennsylvania State Lottery, the nation's sixth largest lottery from 1992 to
1997. As Executive Director, Mr. Kline oversaw the entire $1.7 billion sales
operation. During his five year tenure, Mr. Kline was credited with not only
reversing a 3-year slide in sales, but also engineering and implementing a
program that caused the lottery to undergo five consecutive years of sales
growth. Prior to this post, Mr. Kline served in a variety of key positions in
state government. Mr. Kline received a B.A. in Public Service and a Masters in
Public Administration, both from the Pennsylvania State University.
Robert R. Kowalczyk
Mr. Kowalczyk joined the Company as Vice President and General Manager in
November 1997. Prior to joining the Company from 1995 to 1997, Mr. Kowalczyk was
Vice President and Management Supervisor of Yaffe and Company Advertising of
Southfield, Michigan ("Yaffe"). At Yaffe, Mr. Kowalczyk supervised the $10
million advertising and promotions account and aided the product planning for
the Michigan State Lottery. Mr. Kowalczyk also supervised the agency's business
development and research functions, and participated in the account planning and
management for clients including health care, financial services and various
retail chains. Prior to his time in Michigan, Mr. Kowalczyk managed product
planning and marketing, research and the $32 million advertising and promotional
budgets for the Florida Lottery from 1991 to 1995. Under his direction, the
lottery reversed a decline in sales growth in that category. Previous to that,
Mr. Kowalczyk was the Marketing Director for the Ohio Lottery Commission from
1987 to 1991. He successfully expanded the entire lottery market by introducing
instant scratch-off game marketing strategies that have been emulated by
virtually every lottery in the years that followed. During his tenure, Ohio
Lottery sales increased an average of 16% per year, instant ticket sales
increased at 58% per year and profitability increased at the rate of 4% per
year. Mr. Kowalczyk received his Associate Degree from Lorain County Community
College and earned his Executive M.B.A. from the Weatherhead School of
Management, Case Western Reserve University, Cleveland, Ohio.
21
<PAGE>
Each director holds office until the Company's annual meeting of
stockholders and until his successor is duly elected and qualified. Officers are
elected by the Board of Directors and hold office at the discretion of the Board
of Directors. There are no family relationships between any of the directors or
executive officers of the Company.
Item 6. Executive Compensation.
The following table sets forth the annual and long-term compensation
for services in all capacities for the fiscal year ended May 31, 1998 paid to
Steven M. Saferin, the Company's President and Chief Executive Officer and a
director and to Kenneth M. Przysiecki, the Company's Chief Financial Officer and
Secretary and a director (together the "Named Executive Officers"). No other
executive officer received compensation exceeding $100,000 during the fiscal
year ended May 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term-Compensation
Annual Compensation Awards
---------------------------------------- ---------------------------------------
Securities
Underlying
Restricted Options/ Long-Term
Name and Fiscal Other Annual Stock SARs Incentive All Other
Principal Position Year Salary Bonus Compensation Award(s) (#) Plan Payouts Compensation
(1)(2)
- ------------------ ------ ------ ----- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven Saferin, 1998 $300,000(4) - $114,593 - - - $3,654(5)
President/CEO
and Director (3)
Kenneth M. 1998 $102,000 $2,500 $37,106 - - - $3,030(5)
Przysiecki,
Chief Financial
Officer, Secretary
and Director
</TABLE>
- ---------------------
(1) Represents revenue-based commissions accrued pursuant to employment
agreements. As of August 31, 1998, $271,441 of accrued commissions were owed to
Mr. Saferin and $6,181 of accrued commissions were owed to Mr. Przysiecki.
(2) Excludes prerequisites and other personal benefits, securities and
properties otherwise categorized as salary or bonuses which, in the aggregate,
did not exceed the lesser of either $50,000 or 10% of the total annual salary
reported for such person.
(3) The Chief Executive Officer of Puff Process, Inc. did not receive any
compensation.
(4) Excludes amounts paid to Mr. Saferin's mother and the company owned by his
spouse. Such amounts aggregated $110,000 in fiscal 1998.
(5) Represents amounts contributed pursuant to the Company's 401(k) Savings
Plan.
22
<PAGE>
Director Compensation
Directors did not receive compensation for serving on the Board of
Directors during the fiscal year ended May 31, 1998. The Company plans, however,
to compensate Robert Wussler, an outside director. In September 1998, Mr.
Wussler received stock options outside of the Plan (defined below) for 300,000
shares of Common Stock as compensation for his services as an outside director
of the Company.
Option and Award Plan
On September 22, 1998, the Board of Directors of the Company adopted
the Company's 1998 Stock Option and Award Plan (the "Plan"), subject to
stockholder approval. The Plan provides for the grant of stock awards and
options for up to 800,000 shares of Common Stock to those employees, officers,
directors, consultants or other individuals or entities eligible under the Plan
(as defined) to receive stock awards or options (each, a "Plan Participant").
Options may be either "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options. Incentive stock options may be granted only to employees
of the Company, while non-qualified options may be issued to non-employee
directors, consultants and others, as well as to employees of the Company. Stock
awards consist of the sale or transfer by the Company to a Plan Participant of
one or more shares of Common Stock which, unless otherwise determined by the
Board of Directors or committee administering the Plan, are subject to transfer
restrictions and the right of the Company to repurchase if certain conditions
specified in the award are not satisfied prior to the end of a restriction
period. The plan provides for automatic grants of non-qualified stock options to
purchase 150,000 shares of Common Stock to each non-employee director upon his
election or appointment to the Board of Directors at the fair market value of
the Common Stock on the date of the grant. Such options vest in equal
installments over three years. No Plan Participant may receive more than an
aggregate of 250,000 shares of Common Stock by grant of options and/or stock
awards during the term of the Plan.
The Plan is administered by the Board of Directors or a committee
thereof (the "Plan Administrator), which determines, among other things, those
individuals who receive options or awards, the time period during which the
options may be partially or fully exercised, the terms of the restrictions, if
any, on awards, the number of shares of Common Stock issued as an award or
issuable upon the exercise of each option and the option exercise price and the
award and repurchase prices.
The exercise price per share of Common Stock subject to an incentive
option may not be less than the fair market value per share of Common Stock on
the date the option is granted. The per share exercise price of the Common Stock
subject to a non-qualified option may be established by the Plan Administrator.
The aggregate fair market value (determined as of the date the option is
granted) of Common Stock for which any person may be granted incentive stock
options which first become exercisable in any calendar year may not exceed
$100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to such person, 10% or more of the total
combined voting power of all classes of stock of the Company (a "10%
Stockholder") shall be eligible to receive any incentive stock options under the
Plans, unless the exercise price is
23
<PAGE>
at least 110% of the fair market value of the shares of Common Stock subject to
the option, determined on the date of grant. Non-qualified options are not
subject to such limitation.
No stock option may be transferred by a Plan Participant other than by
will or the laws of descent and distribution, and, during the lifetime of a Plan
Participant, the option will be exercisable only by the Plan Participant. In the
event of termination of employment other than by death or disability, the Plan
Participant will have no more than three months after such termination during
which the Plan Participant shall be entitled to exercise the option, unless
otherwise determined by the Plan Administrator. Upon termination of employment
of a Plan Participant by reason of death or permanent disability, such Plan
Participant's options remain exercisable for one year thereafter to the extent
such options were exercisable on the date of such termination.
Options under the Plan must be issued within 10 years from the Plan's
effective date which is September 22, 1998. Incentive stock options granted
under the Plan, cannot be exercised more than 10 years from the date of grant.
Incentive stock options issued to a 10% Stockholder are limited to five-year
terms. All options granted under the Plan provide for the payment of the
exercise price in cash or by delivery to the Company of shares of Common Stock
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods. Therefore, a Plan Participant
may be able to tender shares of Common Stock to purchase additional shares of
Common Stock and may theoretically exercise all of such Plan Participant's stock
options with no investment.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the Company become available again for
issuance under the Plan.
As of September 25, 1998, no options to purchase shares of Common Stock
have been granted under the Plan. As of such date, options to purchase 300,000
shares of Common Stock have been issued outside of the Plan, none of which have
been exercised.
401(k) Savings Plan
In fiscal 1996, the Company adopted a 401(k) savings plan, whereby
participants can elect to defer up to a specified maximum of their compensation
and the Company will match their contribution up to 3% of the employee's base
salary. In fiscal 1998 and 1997, the Company contributed $9,429 and $15,037 to
the plan, respectively.
Employment Agreements
Steven M. Saferin
MDIP has entered into an employment agreement with Mr. Saferin, guaranteed by
the Company, which expires on the later of August 8, 2002 or three years from
the date the Company first files a registration statement with the SEC
registering all of the shares of common or preferred stock owned
24
<PAGE>
by Mr. Saferin, and the Company's shares are being traded on the New York Stock
Exchange, the American Stock Exchange or The Nasdaq Stock Market. See
"Description of Business-Risk Factors-Dependence on Key Executive." Pursuant to
his employment agreement, Mr. Saferin receives an annual base salary of
$300,000, which may be increased each year in an amount between 5% and 10% of
the salary of the immediately preceding year. In addition, Mr. Saferin is
entitled to a bonus equal to 2% of the gross revenues of the Company, up to a
maximum amount of $335,000 over the term of the agreement. The employment
agreement is terminable by MDIP for "good cause" and by Mr. Saferin for "good
reason" upon the occurrence of certain events. In the event that MDIP terminates
Mr.Saferin's employment without "good cause" or Mr. Saferin resigns for "good
reason," MDIP shall pay an amount equal to the present value sum of the salary
fixed at the salary rate on the date of termination or resignation which Mr.
Saferin would have received through August 7, 2002 had his employment not been
terminated. The agreement does not contain any terms regarding non-competition
with the Company after the termination of Mr. Saferin's employment.
Kenneth M. Przysiecki
MDIP, Mr. Saferin and the Company have entered into an employment agreement with
Mr. Przysiecki, as amended, on a year to year basis starting from October 1 of
each year. Pursuant to his employment agreement, Mr. Przysiecki receives an
annual base salary of $136,000. Mr. Przysiecki is entitled to a bonus equal to
0.5% of all trade revenue of the Company and its wholly owned entities (reduced
proportionately to reflect the Company's ownership interest if less than 100%).
Mr. Przysiecki's employment may be terminated by him or MDIP at any time upon
sixty days' prior written notice. However, if employment is terminated by MDIP
upon notice, or because of Mr. Przysiecki's death or disability, Mr. Przysiecki
is entitled to severance pay equal to one year of his current base salary. The
employment agreement provides that Mr. Przysiecki will not compete with MDIP in
North America for eighteen months after the termination of his employment. A
state court, however, may determine not to enforce such non-compete clause as
against public policy.
Item 7. Certain Relationships and Related Transactions.
Many of the following transactions occurred before, or as a result of,
the reverse mergers of MDIP and MDIM with and into the Company in August 1997.
Since July 1996, Elaine Saferin, the mother of Steven M. Saferin, the
Company's President and CEO, has been a part-time employee of MDIP. She is paid
$1,000 per month for assisting in corporate and bulk mailings and other related
tasks.
From September 1992 to February 1998, Steven M. Saferin owed MDIP
approximately $467,260 pursuant to loans from MDIP on September 1, 1992 and May
22, 1995. The interest rate on the debt was the applicable Federal mid-term rate
during the duration of the loan (6.56% for final quarter). The loans were
secured by personal real estate and were paid in full in February 1998.
Since August 1994, the Company's subsidiary, MDIP, has retained 1010
Productions, Inc. ("1010") to consult in the areas of trade show activities,
software development, systems design,
25
<PAGE>
purchasing and product fulfillment. The president and sole shareholder of 1010
is Linda Kesterson Saferin, spouse of Steven M. Saferin, and former employee,
officer and director of MDIP. 1010 is currently paid $8,167 per month plus
expenses and is retained until February 1, 2000 pursuant to its current
consulting agreement with the Company.
MDIT, a company of which MDIP owns 66.7%, and MDIM, a company of which
Mr. Saferin previously owned 91%, have paid MDIP an aggregate management fee of
$198,000 in fiscal 1998 and $1,020,000 in fiscal 1997, to operate the Texas and
Missouri lottery programs. MDIT is being collapsed into MDIP now that the Texas
lottery contracts have ended. MDIM is now a wholly owned subsidiary of the
Company.
MDIT has incurred a commission expense of $10,663 and $51,590 in fiscal
1998 and 1997, respectively, to Steven M. Saferin in connection with the Texas
lottery.
Steven M. Saferin loaned MDIP $50,000 in 1997 and $60,000 in 1998. The
loans bore interest at the Federal funds rate and were paid in full as of May
31, 1998.
In August 1997, Kenneth M. Przysiecki, the Company's Chief Financial
Officer, acquired 230,000 shares of Common Stock of the Company from Steven
M. Saferin, pursuant to his employment agreement dated April 30, 1996. He was
entitled to 5% of any stock received by Mr. Saferin as a result of a sale or
merger of MDIP.
On August 8, 1997, the Company executed a promissory note to Steven M.
Saferin in the amount of $273,000 in exchange for Mr. Saferin's agreement to the
reverse mergers of MDIP and MDIM with and into the Company. The note had an
annual interest rate of 10% (starting on December 7, 1997) and was to be paid in
thirty-six equal monthly installments. The note was paid in full by the Company
in February 1998. In addition, Mr. Saferin received 4,366,124 shares of Common
Stock of the Company in such mergers.
As a result of the reverse mergers of MDIP and MDIM with and into the
Company in August 1997, the Company executed a promissory note to Agostino T.
Galluzzo in the amount of $27,000. The note has an annual interest rate of 10%
(which started on December 7, 1997) and will be paid in thirty-six equal monthly
installments (beginning September 1998). Mr. Galluzzo was a minority stockholder
of MDIP and MDIM. The note has not been paid. In addition, Mr. Galluzzo received
433,876 shares of Common Stock of the Company in such mergers.
On June 1, 1998, Steven M. Saferin guaranteed the Company's $500,000
performance bond provided to the Wisconsin lottery.
On September 23, 1998, Steven M. Saferin guaranteed the Company's
$130,000 performance bond provided to the Louisiana lottery.
26
<PAGE>
Item 8. Description of Securities.
The Company is authorized to issue 200,000,000 shares of its Common
Stock, $.001 par value, of which 7,776,500 shares are outstanding as of
September, 1998. Each share of Common Stock is entitled to share pro rata in
dividends and distributions with respect to the Common Stock when, as and if
declared by the Board of Directors from funds legally available therefor. No
holder of any shares of Common Stock has any pre-emptive right to subscribe for
any of the Company's securities.
Upon dissolution, liquidation or winding up of the Company, the assets
will be divided pro rata on a share-for-share basis among holders of the shares
of Common Stock. All shares of Common Stock outstanding are fully paid and
nonassessable. Each stockholder of Common Stock is entitled to one vote per
share with respect to all matters that are required by law to be submitted to
shareholders. The stockholders are not entitled to cumulative voting in the
election of directors.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Price Range of Common Stock
The Common Stock commenced trading on the OTC Bulletin Board on August 8,
1997 under the symbol "MDIH." The following table sets forth, for the fiscal
periods indicated, the high and low bid prices of a share of Common Stock as
reported by the OTC Bulletin Board for periods on and subsequent to August 8,
1997. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
Fiscal Year 1998
1st Quarter (commencing August 8, 1997) ........... $2 7/8 $5/8
2nd Quarter ....................................... $2 1/8 $43/64
3rd Quarter ....................................... $1/2 $21/64
4th Quarter ....................................... $1/2 $9/32
Fiscal Year 1999
1st Quarter ....................................... $ 1 $1/4
</TABLE>
As of May 31, 1998, there were approximately 1,205 holders of record of the
Common Stock.
27
<PAGE>
The Company has not paid dividends on the Common Stock since inception
and does not intend to pay any dividends to its stockholders in the foreseeable
future. The Company currently intends to retain earnings, if any, for the
development of its business. The declaration of dividends in the future will be
at the election of the Board of Directors and will depend upon the earnings,
capital requirements, financial position of the Company, general economic
conditions, and other factors the Board of Directors deems relevant.
Item 2. Legal Proceedings.
The Company is involved in various lawsuits incidental to its business.
The Company believes that these proceedings, in the aggregate, will not have a
material adverse effect on the Company's operations or financial position.
Item 3. Changes in and Disagreements With Accountants.
Not Applicable.
Item 4. Recent Sales of Unregistered Securities.
In the past three years, the Company has made the following sales of
unregistered securities, all of which sales were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Section 3(b) hereof or as otherwise indicated herein.
In August 1997, the Company sold 451,500 shares of Common Stock at
$1.00 per share (an aggregate of $451,500) to International Buying Power
Corporation and Millenium Holdings Group, Inc. The Company believes that each
issuance and sale of such securities was exempt from registration pursuant to
Section 3(b) of the Securities Act and/or Rule 504 promulgated thereunder.
In November 1997, the Company sold 25,000 shares of Common Stock at
$0.01 per share (an aggregate of $250) to Millenium Holdings Group, Inc., a
consultant. The Company believes that the issuance and sale of such securities
was exempt from registration pursuant to Section 3(b) of the Securities Act
and/or Rule 504 promulgated thereunder.
Item 5. Indemnification of Directors and Officers.
Delaware General Corporation Law ("DGCL"), Section 102(b)(7), enables a
corporation in its original certificate of incorporation, or an amendment
thereto validly approved by stockholders, to eliminate or limit personal
liability of members of its Board of Directors for violations of a director's
fiduciary duty of care. However, the elimination or limitation shall not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or a knowing violation of a law, the payment of a
dividend or approval of a stock
28
<PAGE>
repurchase which is deemed illegal or an improper personal benefit is obtained.
DGCL, Section 145, permits a corporation organized under Delaware law to
indemnify directors and officers with respect to any matter in which a director
or officer acted in good faith and in a manner reasonably believed to be not
opposed to the best interests of the corporation, and, with respect to any
criminal action, had reasonable cause to believe the conduct was lawful.
The Company's Certificate of Incorporation includes the following language:
Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of
fiduciary duties unless the breach involves: (1) a director's duty of
loyalty to the corporation or its stockholders; (2) acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (3) liability for unlawful payment of dividends or
unlawful stock purchases or redemption by the corporation; or (4) a
transaction from which the director derived an improper personal
benefit.
The Company's By-Laws include the following language:
Each director and officer of this corporation shall be indemnified by
the corporation against all costs and expenses actually and necessarily
incurred by him or her in connection with the defense of any action,
suit or proceeding in which he or she may be involved or to which he or
she may be made a party by reason of his or her being or having been
such director or officer, except in relation to matters as to which he
or she shall be finally adjudged in such action, suit or proceeding to
be liable for negligence or misconduct in the performance of duty.
PART F/S
The Financial Statements and Notes thereto can be found beginning on
page F-1, "Index to Financial Statements," following Part III of this Form
10-SB.
PART III
Item 1. Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
<S> <C>
*2.1 Certificate of Incorporation of MDI Entertainment Inc.(f/k/a Puff Process
Inc.) dated December 29, 1994.
*2.2 By-Laws of MDI Entertainment, Inc. dated January 11, 1995.
29
<PAGE>
*3.1 Registration Rights Agreement dated August 8, 1997, between MDI
Entertainment Inc., Steven M. Saferin and Agostino T. Galluzzo.
*3.2 1998 Stock Option and Award Plan, dated September 22, 1998.
*6.1 Second Amended and Restated Employment Agreement dated August 8, 1997, as
amended, between Media Drop-In Productions and Steven M. Saferin.
*6.2 Employment Agreement dated April 30, 1996, as amended, between Media
Drop-In Productions, Inc., Kenneth Przysiecki and Steven M. Saferin.
*6.3 First Amended and Restated Consulting Agreement dated August 8, 1997,
between Media Drop-In Productions, Inc. and 1010 Productions, Inc.
*6.4 Lease dated June 1992, as amended, between Ann Street Limited Partnership
by Tunxis Management Co., II, and Media Drop-In Productions, Inc.
*27.1 Financial Data Schedule
</TABLE>
- --------------
* Filed herewith.
Item 2. Description of Exhibits
See Part III, Item 1. of this Registration Statement on Form 10-SB.
30
<PAGE>
MDI ENTERTAINMENT, INC. AND SUBSIDIARIES
----------------------------------------
(FORMERLY MEDIA DROP-IN PRODUCTIONS, INC. AND AFFILIATES)
---------------------------------------------------------
FINANCIAL STATEMENTS
--------------------
AS OF MAY 31, 1998 AND 1997
---------------------------
TOGETHER WITH
-------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Shareholders of
MDI Entertainment, Inc.:
We have audited the accompanying balance sheets of MDI Entertainment, Inc. and
Subsidiaries (formerly Media Drop-In Productions, Inc. and Affiliates) as of May
31, 1998 (consolidated) and 1997 (combined), and the related statements of
operations, shareholders' deficit and cash flows for the years then ended. These
financial statements referred to above are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MDI Entertainment, Inc. and
Subsidiaries as of May 31, 1998 and 1997 and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Hartford, Connecticut
July 21, 1998
F-2
<PAGE>
MDI ENTERTAINMENT, INC. AND SUBSIDIARIES
----------------------------------------
(FORMERLY MEDIA DROP-IN PRODUCTIONS, INC. AND AFFILIATES)
---------------------------------------------------------
BALANCE SHEETS
--------------
AS OF MAY 31, 1998 AND 1997
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
1998 1997
---- ----
(consolidated) (combined)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 960,398 $ 8,190
Accounts receivable 317,598 200,575
Inventories 417,651 132,974
Other current assets 30,203 52,429
Loan to officer (Note 8) - 456,023
---------- -----------
Total current assets 1,725,850 850,191
---------- -----------
PROPERTY AND EQUIPMENT, at cost:
Equipment 330,052 306,993
Furniture and fixtures 100,571 96,589
---------- -----------
430,623 403,582
Less: Accumulated depreciation (322,771) (274,075)
---------- -----------
107,852 129,507
---------- -----------
OTHER ASSETS:
Marketing costs (Note 2) 213,077 150,840
Organizational costs, net (Note 1) - 48,269
Other 52,643 5,242
---------- -----------
Total other assets 265,720 204,351
---------- -----------
$2,099,422 $ 1,184,049
---------- -----------
---------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
1998 1997
---- ----
(consolidated) (combined)
CURRENT LIABILITIES:
Deferred revenue (Note 1) $2,906,047 $ -
Financing arrangements (Note 3) 123,754 268,672
Accounts payable 346,491 521,306
Accrued expenses (Note 6) 1,320,165 674,309
Note payable to shareholder (Note 8) - 50,000
Taxes payable - 44,321
----------- -----------
Total current liabilities 4,696,457 1,558,608
OTHER LONG-TERM LIABILITIES 27,000 150,000
MINORITY INTEREST 35,268 67,176
----------- -----------
Total liabilities 4,758,725 1,775,784
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 5, 6 and 7)
SHAREHOLDERS' DEFICIT:
Common stock 7,777 2,010
Additional paid-in capital 348,348 90
Retained deficit (3,015,428) (511,847)
----------- -----------
(2,659,303) (509,747)
Treasury stock, at cost - (81,988)
----------- -----------
Total shareholders' deficit (2,659,303) (591,735)
----------- -----------
$ 2,099,422 $ 1,184,049
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MDI ENTERTAINMENT, INC. AND SUBSIDIARIES
----------------------------------------
(FORMERLY MEDIA DROP-IN PRODUCTIONS, INC. AND AFFILIATES)
---------------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
-----------------------------------------
<TABLE>
<CAPTION>
1998 % 1997 %
----------- ------ ----------- -----
(Consolidated) (Combined)
<S> <C> <C> <C> <C>
REVENUES $ 1,984,840 100.0 $ 4,019,407 100.0
COST OF REVENUES (Note 6) 2,313,831 116.6 2,662,170 66.2
----------- ------ ----------- -----
Gross (loss) profit (328,991) (16.6) 1,357,237 33.8
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 1) 1,797,631 90.6 2,717,652 67.6
----------- ------ ----------- -----
Operating loss (2,126,622) (107.2) (1,360,415) (33.8)
INTEREST EXPENSE, net (Note 3) 14,927 0.7 48,594 1.2
OTHER EXPENSE, net 12,405 .6 15,757 0.4
MINORITY INTEREST (Note 1) (31,936) (1.6) (27,916) (0.7)
----------- ------ ----------- -----
Loss before benefit (provision)
for income taxes (2,122,018) (106.9) (1,396,850) (34.7)
BENEFIT (PROVISION) FOR INCOME TAXES 3,125 0.2 (16,203) (0.4)
----------- ------ ----------- -----
Net loss $(2,118,893) (106.7) $(1,413,053) (35.1)
----------- ------ ----------- -----
----------- ------ ----------- -----
Basic Earnings (Loss) Per Common
Share (Note 1) $(.37) N/A
----- ----
----- ----
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
MDI ENTERTAINMENT, INC. AND SUBSIDIARIES
----------------------------------------
(FORMERLY MEDIA DROP-IN PRODUCTIONS, INC. AND AFFILIATES)
---------------------------------------------------------
STATEMENTS OF SHAREHOLDERS' DEFICIT
-----------------------------------
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
-----------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Par** Par*** Par Additional Retained
* Value Value Value Treasury Paid-In Earnings
Shares $.01 $1 $.001 Stock Capital (Deficit) Total
--------- ----- ------- ------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, May 31, 1996 .... 3,073 $ 10 $ 2,000 $ -- $ (81,988) $ 90 $ 901,206 $ 821,318
Net loss ............... -- -- -- -- -- -- (1,413,053) (1,413,053)
--------- ----- ------- ------- --------- --------- ----------- -----------
BALANCE, May 31, 1997 .... 3,073 10 2,000 -- (81,988) 90 (511,847) (591,735)
--------- ----- ------- ------- --------- --------- ----------- -----------
Redemption of old shares (3,073) (10) (2,000) -- 81,988 (90) (79,888) --
Issuance new shares .... 7,300,000 -- -- 7,300 -- 8,624 (304,800) (288,876)
--------- ----- ------- ------- --------- --------- ----------- -----------
Exchange transaction ... 7,296,927 (10) (2,000) 7,300 81,988 8,534 (384,688) (288,876)
Proceeds from sale of
common stock ......... 476,500 -- -- 477 -- 339,724 -- 340,201
Net loss ............... -- -- -- -- -- -- (2,118,893) (2,118,893)
--------- ----- ------- ------- --------- --------- ----------- -----------
BALANCE, May 31, 1998 .... 7,776,500 $ -- $ -- $ 7,777 $ -- $ 348,348 $(3,015,428) $(2,659,303)
--------- ----- ------- ------- --------- --------- ----------- -----------
--------- ----- ------- ------- --------- --------- ----------- -----------
</TABLE>
* - 200,000,000 shares authorized
** - 10,000 shares authorized, 1,073 shares issued and outstanding.
*** - 100,000 shares authorized, 2,000 shares issued and outstanding.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MDI ENTERTAINMENT, INC. AND SUBSIDIARIES
----------------------------------------
(FORMERLY MEDIA DROP-IN PRODUCTIONS, INC. AND AFFILIATES)
---------------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
-----------------------------------------
<TABLE>
<CAPTION>
1998 1997
-------------- -----------
(consolidated) (combined)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,118,893) $(1,413,053)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Minority interest (31,936) (27,916)
Depreciation and amortization 283,792 442,714
Impairment of marketing costs - 347,185
Impairment of costs in excess of net
assets acquired - 305,116
Change in assets and liabilities:
(Increase) decrease in accounts receivable (117,023) 99,369
(Increase) decrease in inventories, net (284,677) 257,237
Increase in marketing costs (249,064) (350,104)
Increase in other assets (25,175) (54,220)
Decrease in accounts payable (174,815) (77,953)
Increase in accrued expenses 690,031 556,728
(Decrease) increase in taxes payable (44,321) 10,521
Increase in deferred revenue 2,906,047 -
----------- -----------
Net cash provided by operating activities 833,966 95,624
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (27,041) (24,480)
----------- -----------
Net cash provided by (used for) investing
activities (27,041) (24,480)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of financing arrangements (344,918) (152,340)
Borrowings from long-term debt 200,000 -
Repayments of borrowings from stockholder (110,000) -
Borrowings from stockholder 60,000 50,000
Proceeds from sale of stock 340,201 -
----------- -----------
Net cash provided by (used for)
financing activities 145,283 (102,340)
----------- -----------
NET INCREASE (DECREASE) IN CASH 952,208 (31,196)
CASH, beginning of the year 8,190 39,386
----------- -----------
CASH, end of the year $ 960,398 $ 8,190
----------- -----------
----------- -----------
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 48,734 $ 76,634
Income taxes $ 1,317 $ 5,500
Non-cash items:
Reduction of loan to officer due to
note payable and commissions owed to him $ 456,023 $ -
Issuance of note in connection with exchange
transaction $ 300,000 $ -
Reduction of accrued expenses used to offset
loan to officer $ 183,023 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MDI ENTERTAINMENT, INC. AND SUBSIDIARIES
----------------------------------------
(FORMERLY MEDIA DROP-IN PRODUCTIONS, INC. AND AFFILIATES)
---------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MAY 31, 1998 AND 1997
---------------------
1. Summary of Significant Accounting Policies:
-------------------------------------------
Organization -
------------
MDI Entertainment, Inc. (formerly known as Puff Process, Inc.) (the
"Company") is a Delaware corporation incorporated on December 29, 1994
under the name Puff Process, Inc. In August 1997, the Company purchased
100% of the shares of Media Drop-In Productions, Inc., a Delaware
corporation (Media Drop-In Productions, Inc. has a 66.7% owned
subsidiary, MDI-Texas, Inc.,) and MDI-Missouri, Inc., a Missouri
corporation (herein collectively referred to as "MDI"), in exchange for
4,800,000 shares of the Company's common stock and notes payable to the
shareholders of MDI for an aggregate of $300,000. In connection with this
acquisition, the name of the Company was changed to MDI Entertainment,
Inc. All intercompany transactions have been eliminated in the
accompanying financial statements.
Since the Company had minimal assets, liabilities and no business
activities prior to its acquisition of MDI, this transaction has been
treated as a "reverse merger, with MDI as the successor corporation.
Therefore, these financial statements reflect the historical results of
MDI.
MDI's principal activity has been the development and sale of
entertainment based promotions to North American lotteries and is
uniquely positioned to create a wide variety of additional entertainment
promotions. MDI has established itself as a source for the creation,
supply and administration of entertainment based lottery promotions.
In 1996, MDI created its Licensed and Patented Games division ("LPG").
MDI capitalized on current trends in the lottery industry to base some
instant games on pre-existing games of chance and well known brands and
logos. MDI has acquired the rights to several well known entertainment
properties to license as lottery theme games and promotions. Included
among the properties already acquired are "Star Trek," "Wheel of
Fortune," "Jeopardy," "Twilight Zone," "Rock and Roll Hall of Fame and
Museum" and "Harley-Davidson."
Inventories -
-----------
Inventories represent merchandise used in the Company's fulfillment
operations. The inventory is stated at the lower of cost or market using
the first-in, first-out (FIFO) method.
F-7
<PAGE>
Property and equipment -
----------------------
Property and equipment are recorded at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. For assets sold or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is reflected in
income for the period.
Depreciation is calculated on a straight-line basis over the estimated
useful life of the asset. Furniture and fixtures are depreciated over
seven years and office equipment is depreciated over five years.
Organizational costs -
--------------------
Organizational costs were incurred in connection with the "reverse
merger". The costs consist of legal and other professional fees. On April
3, 1998, the Accounting Standards Executive Committee issued the
Statements of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities". The Company has chosen an early adoption of this SOP and
therefore, expensed $34,727 of organizational costs incurred during
fiscal 1998 as a component of selling, general and administrative costs
in the accompanying statement of operations. In addition, included in
amortization expense is $48,269 of organization costs incurred in prior
periods.
Long-lived assets -
-----------------
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangible assets to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The Company reviews its capitalized marketing costs annually to determine
if an impairment has occurred. The Company recognizes that an impairment
has occurred when the state's proposed lottery program is not expected to
result in a contract with positive cash flow. Effective June 1, 1996, MDI
adopted SFAS No. 121 which identified an impairment of certain
capitalized marketing costs of $226,000. MDI recorded this impairment as
a component of the cost of revenues in the accompanying statement of
operations.
As a result of SFAS No. 121, MDI also recognized an impairment of
$281,000 in the value of the cost in excess of assets acquired during
fiscal 1997.
Revenue recognition -
-------------------
Revenue is derived from various state lottery game contracts between MDI
and the state lotteries. MDI has agreed to provide second chance prize
packages consisting of grand prizes and various consolation prizes. MDI
also provides marketing support related to each of the games and obtains
the appropriate licenses for the right to use these properties. Most of
the lottery contracts require the lotteries to pay MDI upon signing of
the contract; therefore, MDI defers this revenue and recognizes the
revenue based on the terms of the applicable game.
F-8
<PAGE>
As of May 31, 1998, deferred revenue was as follows:
<TABLE>
<CAPTION>
Cash Revenue Deferred
Lottery Game Received Earned Revenue
---------- ------------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Wisconsin Wheel of Fortune $ 510,000 $ 255,000 $ 255,000
Wisconsin Star Trek 475,000 118,750 356,250
Wisconsin Harley Davidson 1,287,800 128,780 1,159,020
New Jersey Wheel of Fortune 400,000 120,000 280,000
New Jersey Star Trek 648,750 238,740 410,010
New Jersey Twilight Zone 300,000 266,667 33,333
Colorado Wheel of Fortune 200,000 200,000 -
Virginia Wheel of Fortune 255,000 - 255,000
South Dakota Harley Davidson 120,000 - 120,000
Maryland Harley Davidson 37,434 - 37,434
---------- ---------- ----------
Total $4,233,984 $1,327,937 $2,906,047
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Earnings per share -
------------------
Basic earnings per common share are based on the average number of common
shares outstanding during the year. Diluted earnings per common share
assumes, in addition to the above, a dilutive effect of common share
equivalents during the year. Common share equivalents represent dilutive
stock options using the treasury method. The Company had no common share
equivalents during 1998. The number of shares used in the earnings per
common share computation for 1998 was as follows:
<TABLE>
Basic
<S> <C>
Average common shares outstanding 5,791,351
</TABLE>
Earnings per share for 1997 is not applicable since the entities were not
consolidated at that time.
Use of estimates in preparation of financial statements -
-------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from
those estimates.
Reclassifications -
-----------------
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 presentation.
F-9
<PAGE>
2. Marketing Costs:
---------------
The Company capitalized costs associated with creating brochures,
mailers, posters, catalogs and video production costs in support of the
various lottery and program contracts. The costs are amortized based on
the percentage of completion of the applicable lottery program. Other
program costs (not lotteries) are amortized over twenty-four months.
The Company capitalizes costs associated with obtaining the exclusive
right to use and to sublicense the use of licensed properties, as defined
in the license agreements. These costs are amortized over the life of the
license.
At May 31, 1998, the following costs have been capitalized:
<TABLE>
<CAPTION>
Capitalized Accumulated Net
Costs Amortization Asset
----------- ------------ -----
<S> <C> <C> <C>
Australia Lottery $ 56,377 $ 35,500 $ 20,877
Wheel of Fortune 83,085 55,390 27,695
Star Trek License 85,000 25,654 59,346
Rock & Roll Hall of
Fame License 10,000 - 10,000
Harley Davidson License 100,000 4,841 95,159
-------- -------- --------
$334,462 $121,385 $213,077
-------- -------- --------
-------- -------- --------
</TABLE>
At May 31, 1997, the following costs have been capitalized:
<TABLE>
<CAPTION>
Capitalized Accumulated Net
Costs Amortization Asset
----------- ------------ -----
<S> <C> <C> <C>
Texas Lottery $462,065 $445,440 $ 16,625
Missouri Lottery 187,297 169,182 18,115
Louisiana Lottery 56,096 50,501 5,595
Australia Lottery 44,377 35,500 8,877
Ohio Lottery 4,628 - 4,628
Wheel of Fortune License 10,000 - 10,000
Twilight Zone License 5,000 - 5,000
Star Trek License 82,000 - 82,000
-------- -------- --------
$851,463 $700,623 $150,840
-------- -------- --------
-------- -------- --------
</TABLE>
F-10
<PAGE>
3. Financing Arrangements:
-----------------------
Notes payable consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Term note payable bearing no interest;
principal of $16,666 payable monthly
through November 30, 1998. $100,000 $ -
Term notes payable bearing interest
at 20%; principal and interest
of $12,199 payable monthly through
December 15, 1997. 23,754 165,863
-------- --------
$123,754 $165,863
-------- --------
-------- --------
</TABLE>
The notes payable are secured by liens on substantially all of the
Company's assets.
The $23,754 term note due December 15, 1997 was paid subsequent to
yearend 1998.
During 1997, the Company had an agreement with a lending institution to
borrow funds against accounts receivable. Interest was payable at an
interest rate that approximated 18%. Interest paid for the year ended May
31, 1997 was $56,289. These short-term borrowings were secured by liens
on accounts receivable and inventories of MDI.
4. Income Taxes:
-------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for
Income Taxes" which requires that a deferred tax liability or asset be
recognized for the estimated future tax effects attributable to temporary
differences between the Company's financial statements and its tax
return. SFAS 109 provides for recognition of a deferred tax asset for all
future deductible temporary differences that, more likely than not, will
provide the Company a future benefit. As of May 31, 1998 and 1997, MDI
had a deferred tax asset of approximately $1,731,500 and $1,319,000,
respectively, primarily as a result of net operating loss carryforwards.
MDI has established a valuation allowance for the full amount of this
deferred tax asset. No provision for deferred taxes was recorded because
there was no significant item which would result in a deferred tax
liability.
MDI has a net operating loss carryforward amounting to approximately
$3,500,000 and $3,000,000 at May 31, 1998 and 1997. These carryforwards
expire beginning in 2006.
F-11
<PAGE>
The tax expense recorded by the Company for the years ended May 31, 1998
and 1997 was primarily minimum state income taxes.
5. Commitments:
------------
The Company leases office equipment, office space and vehicles under
long-term leases which expire during the next one to four years. Rent
expense totaled $87,359 and $86,483 in 1998 and 1997, respectively. The
following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of May 31, 1998:
<TABLE>
<S> <C>
1999 $59,816
2000 34,354
2001 2,221
2002 2,221
-------
$98,612
-------
-------
</TABLE>
MDI has agreed to provide the Wisconsin Lottery (the Lottery) a
performance bond acceptable to the Lottery in the amount of $500,000. The
Company has also provided a $130,000 performance bond to the Louisiana
Lottery.
6. Commission Agreement:
---------------------
In December, 1994, MDI entered into a commission agreement (the
Agreement) with a media company to assist in the procurement of video and
audio entertainment media. The term of the Agreement was from December
15, 1994 through December 14, 1997. Commissions of 5.33% are required to
be paid on monthly cash receipts in excess of $337,500. If at the end of
the term, the aggregate cash collections were less than $27,300,000, then
the media company could renew the Agreement for an additional year or
periods of one year until MDI reaches $27,300,000. There were no
commissions paid to the media group in fiscal 1998 or 1997.
MDI could elect not to renew this agreement and will then be required to
deliver to the media group a promissory note in the amount of $808,250,
less previously paid commissions, bearing interest at a rate of 3% above
prime rate, payable over 24 months. MDI has renewed the Agreement through
December 14, 1998. However, since MDI has significantly reduced the
utilization of this media company, they have accrued the $786,287 minimum
fee owed to them and charged it to cost of revenues for the year ended
May 31, 1998.
F-12
<PAGE>
7. Contingencies:
--------------
The Company is involved in various lawsuits incidental to its business.
The Company and its outside counsel believe that these proceedings, in
the aggregate, will not have a material adverse effect on the Company's
operations or financial position.
8. Related Party Transactions:
---------------------------
MDI made a loan to the President of the Company which was due August 31,
1997. This note receivable was offset against the commissions owed to
this officer and a note payable which resulted from the reverse merger
(see Note 1).
The President of the Company loaned MDI $50,000 in 1997 and $60,000 in
1998. Both loans were paid in full as of May 31, 1998.
The Company has incurred commission and wage expense of $114,593 and
$300,000, respectively, to the President of the Company, in accordance
with his Employment Agreement. The agreement allows a $300,000 salary for
the 12 month period through February 28, 1998. On March 1, 1998, and each
anniversary thereafter, the employee's salary may be increased based on
5% or an equation based on the consumer price index. In no event shall
the increase exceed 10% in any one year. In addition, this shareholder
receives a bonus equal to 2% of gross revenues of the Company (not to
exceed $335,000 over the term of the Employment contract). The contract
began August 8, 1997 and terminates the later of March 1, 2002 or 3 years
from the date the Company files a registration statement with the
Securities and Exchange Commission registering the shares of common
stock.
The Company has retained 1010 Productions, Inc. (1010) to consult in the
areas of trade shows, software development, systems design, purchasing
and product fulfillment. The president and sole shareholder of 1010 is
the wife of the president of the Company. 1010 is currently paid $8,167
per month plus expenses and is retained until February 1, 2000 pursuant
to a consulting agreement.
9. Employee Benefit Plan:
----------------------
In fiscal 1996, the Company adopted a 401(k) savings plan, whereby
participants can elect to defer up to a specified minimum of their
compensation and the Company will match their contribution up to 3% of
the employee's base compensation. In fiscal 1998 and 1997, the Company
contributed $9,429 and $15,037 to the plan, respectively.
F-13
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
MDI Entertainment, Inc.
--------------------------------
(Registrant)
<S> <C> <C>
Date: 9/28/98 By: /s/ Steven M. Saferin
------------------------- ----------------------------------
Name: Steven M. Saferin
Title: President, Chief Executive
Officer and Director
Date: 9/28/98 By: /s/ Kenneth M. Przysiecki
------------------------- ----------------------------------
Name: Kenneth M. Przysiecki
Title: Chief Financial Officer,
Secretary and Director
Date: 9/28/98 By: /s/ Robert J. Wussler
------------------------- ----------------------------------
Name: Robert J. Wussler
Title: Director
</TABLE>
<PAGE>
STATE OF DELAWARE Exhibit 2.1
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/29/1994
944259584 - 2465597
CERTIFICATE OF INCORPORATION
OF
PUFF PROCESS INC.
FIRST: The name of this corporation is PUFF PROCESS INC.
SECOND: Its registered office in the state of Delaware is to be located at Three
Christina Centre, 201 N. Walnut Street, Wilmington DE 19801, new Castle County.
The registered agent in charge thereof is The Company Corporation, address "same
as above".
THIRD: The nature of the business and, the objects and purposes proposed to be
transacted, promoted and carried on, are to do any or all the things herein
mentioned as fully and to the same extent as natural persons might or could do,
and in any part of the world, viz: The purpose of this corporation is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The amount of the total authorized capital stock of this corporation is
divided into 20,000,000 shares of stock at $.001 par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Vanessa Foster, Three Christina Centre, 201 N. Walnut Street; Wilmington DE
19801
SIXTH: The Directors shall have power to make and to alter or amend the By-Laws;
to fix the amount to be reserved as working capital, and to authorize and cause
to be executed, mortgages and liens without limit as to the amount, upon the
property and franchise of the Corporation. With the consent in writing, and
pursuant to a vote of the holders of a majority of the capital stock issued and
outstanding, the Directors shall have the authority to dispose, in any manner,
of the whole property of this corporation.
The By-Laws shall determine whether and to what extent the accounts and books of
this corporation, or any of them shall be open to the inspection of the
stockholder; and no stockholder shall have any right of inspecting any account,
or book or document of this Corporation, except as conferred by the law or the
By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings and
keep the books, documents, and papers of the Corporation outside of the State
of Delaware, at such places as may be from time to time designed by the
By-Laws or by resolution of the stockholders or directors, except as
otherwise required by the laws of Delaware.
Its is the intention that the objects, purposes and powers specified in the
Third paragraph hereof shall, except where otherwise specified in said
paragraph, be nowise limited or restricted by reference to or inference from the
terms of any other clause or paragraph in this certificate of
<PAGE>
incorporation, that the objects, purposes and powers specified in the Third
paragraph and in each of the clauses or paragraphs of this charter shall be
regarded as independent objects, purposes and powers.
SEVENTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a director's duty of loyalty to the
corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law;(3) liability
for unlawful payments of dividends or unlawful stock purchase or redemption by
the corporation; or (4) a transaction from which the director derived an
improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of
the State of Delaware, do make, file and record this Certificate and do certify
that the facts herein are true, and I have accordingly hereunto set my hand.
/s/ Vanessa Foster
DATED: December 29, 1994 ------------------
<PAGE>
BY-LAWS OF Exhibit 2.2
PUFF PROCESS INC.
ARTICLE I
Offices
The principal office of the corporation shall be located in the State of
New York in the County of Monroe. The corporation may have such other offices,
either within or outside the state, as the Board of Directors may designate or
as the business of the corporation may require from time to time. The registered
office of the corporation may be, but need not be, identical with the principal
office, and the address of the registered office may be changed from time to
time by the Board of Directors.
ARTICLE II
Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
held at 4:00 o'clock PM. on the Third Tuesday in the month of January in each
year, beginning with the year 1995. If the day fixed for the annual meeting
shall be a legal holiday, such meeting shall be held on the next succeeding
business day.
Section 2. Special Meetings. Special meetings of the shareholders, for any
purpose, unless otherwise prescribed by statute, may be called by 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 one-tenth of all the outstanding shares
of the corporation entitled to vote at the meeting.
Section 3. Place of Meeting. The Board of Directors may designate any place
as the place for any annual meeting or for any special meeting called by the
Board of Directors. A waiver of notice signed by all shareholders entitled to
vote at a meeting may designate any place as the place for such meeting. If no
designation is made, or if a special meeting shall be called otherwise than by
the Board, the place of meeting shall be the registered office of the
corporation.
Section 4. Notice of Meeting. Written or printed notice stating the place,
day and hour of the meeting, and, in case of a special meeting, the purposes for
which the meeting is called, shall be delivered not less than ten nor more than
fifty 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 persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting, except that if the authorized capital stock is to be increased at least
thirty days notice shall be given. 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
<PAGE>
thereon prepaid. If requested by the person or persons lawfully calling such
meeting, the secretary shall give notice thereof at corporate expense.
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 may provide
that the stock transfer books shall be closed for any stated period not
exceeding fifty days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. 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
days, and, in case of a meeting of shareholders, not less than ten 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. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof except where the
determination has been made through the closing of the stock transfer books and
the stated period of the closing has expired.
Section 6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
For a period of ten days prior to such meeting, this list shall be kept on file
at the principal office of the corporation and shall be subject to inspection by
any shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
Section 7. Quorum. Fifty One Percent (51%) 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 quorum 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. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
2
<PAGE>
If a quorum is present, the affirmative vote of a majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by law or the articles of incorporation.
Section 8. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or his or her duly authorized
attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 9. Voting of Shares. Each outstanding share, regardless of class,
shall be entitled to one vote, and each fractional share shall be entitled to a
corresponding fractional vote on each matter submitted to a vote at a meeting of
shareholders. Cumulative voting shall not be allowed.
Section 10. Voting of Shares by Certain Holders. Neither treasury shares,
nor shares of its own stock held by the corporation in a fiduciary capacity, nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of Directors of such other corporation is held by this
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe or, in
the absence of such provision, as the Board of Directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him or her, either in person or by proxy, without a transfer of such
shares into his or her name. Shares standing in the name of a trustee may be
voted by him or her, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him or her without a transfer of such shares
into his or her name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority to do so
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Section 11. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so
3
<PAGE>
taken, shall be signed by all of the shareholders entitled to vote with respect
to the subject matter thereof. Such consent shall have the same force and effect
as a unanimous vote of the shareholders.
ARTICLE III
Board of Directors
Section 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors, except as otherwise provided by
statute or the articles of incorporation.
Section 2. Number, Tenure and Qualifications. The number of Directors of
the corporation shall be not less than three nor more than five, unless a lesser
number is allowed by statute. Directors shall be elected at each annual meeting
of shareholders. Each director shall hold office until the next annual meeting
of shareholders and thereafter until his or her successor shall have been
elected and qualified.
Directors need not be residents of this state or shareholders of the
corporation. Directors shall be removable in the manner provided by statute.
Section 3. Vacancies. Any director may resign at any time by giving written
notice to the president or to the secretary of the corporation. Any vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the remaining Directors though not less than a quorum. A director
elected to fill a vacancy shall be elected for the unexpired term of his or her
predecessor in office. Any Directorship to be filled by the affirmative vote of
a majority of the Directors then in office or by an election at an annual
meeting or at a special meeting of shareholders called for that purpose, and a
director so chosen shall hold office for the term specified in Section 2 above.
Section 4. 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 for the holding of additional regular
meetings without other notice than such resolution.
Section 5. Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the president or any two Directors. The person
or persons authorized to call special meetings of the Board of Directors may fix
any place as the place for holding any special meeting of the Board of Directors
called by them.
Section 6. Notice. Notice of any special meeting shall be given at least
seven days previous thereto by written notice delivered personally or mailed to
each director at his or her business address, or by notice given at least two
days previously by telegraph. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when
4
<PAGE>
the telegram is delivered to the telegraph company. Any director may waive
notice of any meeting. The attendance of a director at 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. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice of waiver of notice of such
meeting.
Section 7. Quorum. A majority of the number of Directors fixed by Section 2
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 8. 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 9. Compensation. By resolution of the Board of Directors, any
director may be paid any one or more of the following: expenses, if any, of
attendance at meetings; a fixed sum for attendance at each meeting; or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 10. Informal Action by Directors. Any action required or permitted
to be taken at a meeting of the Directors 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 entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of the
Directors.
ARTICLE IV
Officers and Agents
Section 1. General. The officers of the corporation shall be a president,
one or more vice presidents, a secretary and a treasurer. The salaries of all
the officers of the corporation shall be fixed by the Board of Directors.
One person may hold any two offices, except that no person may
simultaneously hold the offices of president and secretary.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected by the Board of Directors annually at the first meeting of the
Board held after each annual meeting of the shareholders.
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.
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Section 4. Vacancies. A vacancy in any office, however occurring, may be
filled by the Board of Directors for the unexpired portion of the term.
Section 5. President. The president shall:
(a) subject to the direction and supervision of the Board of Directors, be
the chief executive officer of the corporation;
(b) shall have general and active control of its affairs and business and
general supervision of its officers, agents and employees; and
(c) the president shall have custody of the treasurer's bond, if any.
Section 6. Vice Presidents. The vice presidents shall:
(a) assist the president; and
(b) shall perform such duties as may be assigned to them by the president
or by the Board of Directors.
Section 7. Secretary. The secretary shall:
(a) keep the minutes of the proceedings of the shareholders and the Board
of Directors;
(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 corporate records and of the seal of the
corporation and affix the seal to all documents when authorized by the Board of
Directors;
(d) keep at its registered office or principal place of business a record
containing the names and addresses of all shareholders and the number and class
of shares held by each, unless such a record shall be kept at the office of the
corporation's transfer agent or registrar;
(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,
unless the corporation has a transfer agent; and
(g) in general, perform all duties incident to the office as 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.
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Section 8. Treasurer. The treasurer shall:
(a) be the principal financial officer of the corporation;
(b) perform all other duties incident to the office of the treasurer and,
upon request of the Board, shall make such reports to it as may be required at
any time;
(c) be the principal accounting officer of the corporation;
and
(d) have such other powers and perform such other duties as may be from
time to time prescribed by the Board of Directors or the president;
ARTICLE V
Stock
Section 1. Certificates. The shares of stock shall be represented by
consecutively numbered certificates signed in the name of the corporation by its
president or a vice president and the secretary, and shall be sealed with the
seal of the corporation, or with a facsimile thereof. No certificate shall be
issued until the shares represented thereby are fully paid.
Section 2. Consideration for Shares. Shares shall be issued for such
consideration, expressed in dollars (but not less than the par value thereof, if
any) as shall be fixed from time to time by the Board of Directors. Such
consideration may consist, in whole or in part of money, other property,
tangible or intangible, or in labor or services actually performed for the
corporation, but neither promissory notes nor future services shall constitute
payment or part payment for shares.
Section 3. Transfer of Shares. Upon surrender to the corporation or to a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and such documentary stamps as may be required by law, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate. Every such transfer of stock shall be
entered on the stock book of the corporation which shall be kept at its
principal office, or by its registrar duly appointed.
Section 4. Transfer Agents, Registrars and Paying Agents. The Board may at
its discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock bond, debenture or other security of the
corporation.
ARTICLE VI
Indemnification of Officers and Directors
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Each director and officer of this corporation shall be indemnified by the
corporation against all costs and expenses actually and necessarily incurred by
him or her in connection with the defense of any action, suit or proceeding in
which he or she may be involved or to which he or she may be made a party by
reason of his or her being or having been such director or officer, except in
relation to matters as to which he or she shall be finally adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty.
ARTICLE VII
Miscellaneous
Section 1. Waivers of Notice. Whenever notice is required by law, by the
articles of incorporation or by these bylaws, a waiver thereof in writing signed
by the director, shareholder or other person entitled to said notice, whether
before or after the time stated therein, or his or her appearance at such
meeting in person or (in the case of a shareholders' meeting) by proxy, shall be
equivalent to such notice.
Section 2. Seal. The corporate seal of the corporation shall be in the form
impressed on the margin hereof.
Section 3. Fiscal Year. The fiscal year of the corporation shall be as
established by the Board of Directors.
Section 4. Amendments. The Board of Directors shall have power to make,
amend and repeal the bylaws of the corporation at any regular meeting of the
Board or at any special meeting called for the purpose.
APPROVED:
/s/ Shirley Diamond
DATED: JANUARY 11, 1995 ---------------------------
Director: Shirley Diamond
/s/ Morris Diamond
---------------------------
Director: Morris Diamond
/s/ Suzanne Luxenberg
---------------------------
Director: Suzanne Luxenberg
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REGISTRATION RIGHTS AGREEMENT Exhibit 3.1
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into this
8th day of August, 1997, by and between MDI ENTERTAINMENT, INC., a Delaware
corporation ("Company") and STEVEN M. SAFERIN and AGOSTINO T. GALLUZZO.
WITNESSETH:
WHEREAS, Media Drop-In Productions, Inc., a Delaware Corporation ("MDI"),
the MDI Stockholders, the Company and certain related parties entered into an
Agreement and Plan of Reorganization of even date herewith (the "Merger
Agreement") pursuant to which the Company has issued to the MDI Stockholders
4,800,000 shares of the common stock of the Company, and;
WHEREAS, the Company desires to grant to the MDI Stockholders, and the MDI
Stockholders desires to accept, certain registration rights concerning such
shares upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following words and phrases
shall have the meanings set forth below:
(a) Holders. Holders shall mean the MDI Stockholders, their heirs,
personal representatives and assigns.
(b) Shares. Shares shall mean and include any and all shares of common
stock of the Company issued pursuant to the Merger Agreement, and any other
shares issued in respect of any stock split, stock dividend,
reclassification, recapitalization or similar event.
(c) Registration. "Register", "Registered", and "Registration" shall
mean a registration of shares of common stock of the Company (the "Common
Stock") effected by preparing and filing a Registration Statement in
compliance with the Securities Act of 1933, as amended (the "Act") and the
order declaring the effectiveness of such Registration Statement.
(d) Terms not otherwise defined in this Agreement shall have the
meaning ascribed to them in the Merger Agreement.
<PAGE>
ARTICLE II
REGISTRATION RIGHTS
2.1 Requests for Registration.
(a) If at any time after the Closing Date, if at such time the Company
is a reporting company under the Securities Exchange Act of 1934, (but not
within ninety (90) days of a registration pursuant to Section 2.2), the
Holders of a majority of the then outstanding Shares request(s) that the
Company file a Registration Statement under the Act, the Company shall
promptly give written notice of the proposed registration to all other
Holders of Shares and shall use its best efforts to cause such Shares as are
specified in the original request and such Shares as are requested to be
included by Holders not initiating the request to be registered under the
Act for public sale in accordance with the disposition specified in the
notice from the requesting Holders.
(b) The Company is obligated to effect only two registrations under
Section 2.1. A demand for registration made pursuant to Section 2.1(a)
hereof must represent an aggregate minimum offering amount of $250,000 (the
"Minimum Offering Amount").
All stock certificates representing Shares shall bear a legend to the effect
that such shares represented thereby are subject to the registration rights set
forth in this Agreement.
The securities so registered shall be sold through underwriters acceptable
to the Company and the Holders of Shares, which acceptances shall not be
unreasonably withheld; and the Company and the Holders of Shares shall use their
best efforts to effect firm commitment underwriting arrangements. If the Holders
of Shares submit to the Company a list of potential underwriters, the Company
shall be deemed to have accepted all such underwriters unless within fourteen
(14) days after the receipt of such list, the Company shall have objected in
writing to any such underwriters and set forth its reasons therefor.
(c) If at the time of receipt of the request under this Section 2.1 the
Company has publicly announced its intention to register any of its
securities for a public offering under the Act, no registration of Shares
shall be initiated under this Section 2.1 until ninety (90) days after the
effective date of such registration unless the Company is no longer
proceeding diligently to effect such registration, whether such registration
is for the sale of securities for the Company's account or for the account
of others.
2.2 Company Registration.
(a) Whenever the Company proposes to register any of its Common Stock
under the Act for a public offering for cash, whether as a primary or
secondary offering (or pursuant to registration rights granted to holders of
other securities of the Company), the Company shall, each
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such time, give each of the Holders of the then outstanding Shares written
notice of its intent to do so. Upon the written request of Holders of a
majority of the then outstanding Shares given within thirty (30) days after
receipt of any such notice, the Company shall use its best efforts to cause
to be included in such registration all of the Shares which such Holders
requested to be registered; provided (i) the Holders agree (A) to sell the
Shares in the same manner and on the same terms and conditions as the other
Common Stock which the Company proposes to register if in connection with a
sale of such shares through underwriters, or (B) on terms and conditions
comparable to those normally applicable to offerings of common stock in
reasonably similar circumstances if sold in the open market without any
underwriters, and (ii) if the registration is to include Common Stock to be
sold for the account of the Company, the proposed managing underwriter does
not advise the Company that in its opinion the inclusion of the Holders'
Shares is likely to have a material adverse affect on the marketing of the
offering by the Company or the price it would receive, in which case the
rights of the Holders of the then outstanding Shares shall be as provided in
Section 2.6 hereof.
(b) The Company is obligated to effect only two registrations under
Section 2.2(a).
2.3 Obligations of the Company. Whenever required under Section 2.1 or 2.2
to use its best efforts to effect the registration of any of the Shares, or to
effect registration pursuant to Section 2.12, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission (the
"SEC") a Registration Statement (which, in the case of all underwritten
public offerings, shall be on Form S-1 or other form of general
applicability satisfactory to the managing underwriter) with respect to such
Shares and use its best efforts to cause such Registration Statement to
become and remain effective for the period of distribution contemplated
thereby; provided, however, that in connection with any proposed
registration intended to permit an offering of any securities from time to
time (i.e., a so called "shelf registration"), the Company shall in no event
be obligated to cause any such registration to remain effective for more
than one hundred eighty (180) days;
(b) Prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith
as may be necessary to permit the disposition of all securities covered by
such Registration Statement for the period of distribution contemplated
thereby and to comply with regulations regarding the method of distribution;
(c) Furnish to the Holders such number of copies of the Registration
Statement and prospectus, including the preliminary Registration Statement
and prospectus, in conformity with the requirements of the Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Shares, owned by them;
(d) Use its best efforts to register and qualify the securities covered
by such Registration Statement under such other securities or Blue Sky laws
of such jurisdictions as shall be
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reasonably requested by the Holders or the managing underwriter for the
distribution of the securities covered by the Registration Statement,
provided that the Company shall not be required in connection therewith or
as a condition thereto to qualify generally to do business as a foreign
corporation or to file a general consent to service of process in any such
states or jurisdictions, and further provided that (anything herein to the
contrary notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification therein of the
securities be borne by selling shareholders, then such expenses shall be
payable by selling shareholders pro rata, to the extent required by such
jurisdiction;
(e) Immediately notify each selling Holder under the Registration
Statement and each underwriter, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained in the
Registration Statement, as then in effect, would include an untrue statement
of a material fact or would omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and, at the request of any such selling Holder, the Company will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered
to the purchasers of such registerable securities, such prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading;
(f) Use its best efforts (if the offering is underwritten) to furnish,
at the request of any selling Holder, on the date that Shares are delivered
to the underwriters for sale pursuant to such registration: (i) an opinion
dated such date of counsel representing the Company, addressed to the
underwriters and to each selling Holder, to such effect as may reasonably be
requested by counsel for the underwriters or by the selling Holder or its
counsel, and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to
each selling Holder, covering such financial matters with respect to the
registration as the underwriters or the selling Holders may reasonably
request;
(g) Make available for inspection by any underwriter participating in
any distribution pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by an underwriter, all financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by such underwriter or attorney, accountant
or agent in connection with the Registration Statement; and
(h) The period of distribution of Shares in a firm commitment or best
efforts underwritten public offering shall be deemed to extend until each
underwriter has completed the distribution of all securities purchased by
it, and the period of distribution of Shares in any other registration shall
be deemed to extend until the sale of all Shares covered thereby.
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2.4 Furnish Information. The selling Holders shall furnish to the Company
such information regarding them, the Shares held by them, and the intended
method of disposition thereof as the Company shall reasonably request to assure
compliance with Federal and applicable state securities laws.
2.5 Expenses of Demand Registration.
(a) All expenses incurred in connection with any demand registration,
whether pursuant to Section 2.1 or 2.12, including without limitation all
registration and qualification fees, printing and accounting fees, fees and
disbursements of counsel for the Company, and fees and disbursements of one
special counsel selected by and for the Holders (if different from counsel
for the Company) (the "Registration Expenses") shall be borne by the
Company; provided, however, that the Company shall not be required to pay
for any expense incurred on account of any registration proceeding begun
pursuant to Section 2.1 or 2. 12, as the case may be (unless such expenses
would have been incurred by the Company if registration proceedings had not
been commenced) if the Registration Statement is withdrawn at the request of
the Holders, unless the Holders shall agree to forfeit their remaining right
to a demand registration pursuant to Section 2.1. Each selling Holder shall
bear the fees and costs of its own counsel (if different from counsel for
the Company or the one special counsel for the Holders referred to above).
(b) In the case of any registration effected pursuant to Section 2.2,
the Company shall bear the Registration Expenses arising from the inclusion
of the shares in such a registration. Notwithstanding the foregoing, each
selling Holder shall at all times bear the fees and cost of its own counsel
(if different from counsel for the Company or the one special counsel for
the Holders referred to above).
2.6 Underwriting Requirements. In connection with any offering involving an
underwriting of Common Stock being issued by the Company under Section 2.2, the
Company shall not be required under Section 2.2 to include any of the Holders'
securities therein unless they accept and agree to the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
materially adversely affect the marketing of the offering by the Company. If the
total number of Shares which such selling Holders of the Company request to be
included in any offering exceeds the number of such shares which the
underwriters reasonably believe would not materially adversely affect the
marketing of the offering, the Company shall only be required to include in the
offering so many of the Shares of the selling shareholders as the underwriters
believe will not jeopardize the success of the offering (the Shares so included
to be apportioned pro rata among the selling Holders according to the total
number of shares of Common Stock requested to be included in such offering by
said selling Holders, or in such other proportions as shall mutually be agreed
to by such selling Holders), provided that no such reduction shall be made with
respect to any securities
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offered by the Company for its own account or any of the Shares being offered by
the Holders pursuant to a registration being effected pursuant to Section 2.1
herein.
2.7 Delay of Registration. So long as the Company has given any notice
required by Section 2.2 hereof, and except with respect to Section 2.3(e), no
Holder shall have any right to take any action to restrain, enjoin or otherwise
delay any registration as the result of any controversy which might arise with
respect to the interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any of the Shares are included in a
Registration Statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder against any losses, claims, damages or liabilities,
joint or several, to which they may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities or actions
in respect thereof arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in such Registration
Statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise out of
or are based upon the omission or alleged omission to state therein, or
allegedly necessary to make the statements therein not misleading; and will
reimburse each such Holder for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company nor
shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in connection with such Registration Statement preliminary
prospectus, final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder.
(b) To the extent permitted by law, each such Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed such Registration Statement, each person, if any, who controls
the Company within the meaning of the Act, and any underwriter for the
Company (within the meaning of the Act) against any losses, claims, damages,
or liabilities to which the Company or any such director, officer,
controlling person, or underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in such Registration
Statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or allegedly necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement,
preliminary prospectus, or amendments or supplements thereto, in reliance
upon and in conformity with written information
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furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person or underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action if it is
judicially determined that there were material misstatements or omissions.
(c) Promptly after receipt by an indemnified party under this Section
2.8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 2.8, notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the right to
participate in and to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to the
ability to defend such action, shall relieve such indemnifying party under
this Section 2.8, but the omission so to notify the indemnifying party will
not relieve such party of any liability which such party may have to any
indemnified party otherwise other than under this Section 2.8.
(d) If recovery is not available under the foregoing indemnification
provisions of this section, for any reason other than as specified therein,
the parties entitled to indemnification by the terms thereof shall be
entitled to contribution to liabilities and expenses, except to the extent
that contribution is not permitted under Section ll(d) of the Act. In
determining the amount of contribution to which the respective parties are
entitled, there shall be considered the relative benefits received by each
party from the offering of the securities staking into account the portion
of the proceeds of the offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect to
which the claim was asserted, the opportunity to correct and prevent any
statement of omission, and any other equitable considerations appropriate
under the circumstances; provided that in no event will any Holder be
required to contribute an amount in excess of the original cost that the
Company incurred arising from the inclusion of Holder's Shares in that
offering. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or
per capita allocation.
2.9 No-Action Letter or Opinion of Counsel in Lieu of Registration. If, at
the request of the Holders of a majority of the then outstanding Shares, the
Company shall have obtained from the SEC a "no-action" letter in which the SEC
had indicated that it will take no action if, without registration under the
Act, the Holders dispose of the Shares in the manner in which they propose to
dispose of such Shares, or if in the opinion of counsel for any Holder concurred
in by counsel for the Company, no registration under Rule 144 of the Act is
required in connection with such disposition, then the Holders shall be free to
sell without affecting their rights under Section 2, except as provided below.
Any and all expenses incurred in connection with obtaining a "no-action" letter
from the SEC shall be borne by the Company; provided, however, that in the event
that an additional "no-action" letter is sought by the Company at the request of
the Holders, such expenses incurred in connection therewith shall be borne by
the Holders.
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In the event that any Shares are sold pursuant to this Section 2.9, the
Holders of the Shares shall be considered to have used a demand registration
right for purposes of Section 2.1(b).
2.10 Reports Under the Securities Exchange Act of 1934. With a view to
making available to the Holders, the benefits of Rule 144 promulgated under the
Act, at such time that the Company becomes a reporting company under the
Securities Exchange Act of 1934, the Company shall (i) file with the SEC in a
timely manner all reports and other documents required to be filed by an issuer
of securities registered under the Act or the Securities Exchange Act of 1934,
as amended, (ii) maintain in effect the registration of its Common Stock under
Section 12 of the Securities Exchange Act of 1934, as amended, and (iii) so long
as any Holder owns any of the Shares, furnish in writing upon such Holder's
request the following information: (A) the Company's name, address and telephone
number, (B) the Company's Internal Revenue Service identification number, (C)
the Company's SEC file number, (D) the number of shares of Common Stock
outstanding as shown by the most recent report or statement published by the
Company, (E) the average weekly volume of trading in such shares reported on all
national securities exchanges during the four calendar weeks preceding the date
of receipt of request by the Holder, and (F) whether the Company has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months. With respect to a rule or
regulation of the SEC (other than Rule 144) which may at any time permit a
Holder to sell Common Stock to the public without registration, the Company
agrees to take such action as is reasonable to enable utilization of such rule.
2.11 Limitations on Subsequent Registration Rights. From and after the date
hereof, the Company will not, without the prior written consent of a majority in
interest of the Holders enter into any agreement with any holder or prospective
holder of any securities of the Company which allows such holder or prospective
holder of any securities of the Company to include such securities in any
registration filed under Sections 2.1 or 2.2 hereof, unless under the terms of
such agreement, such holder or prospective holder may include such securities in
any such registration only to the extent that the inclusion of his securities
will not diminish the amount of Shares which are included.
2.12 Registration on Form S-3. In addition to the rights provided to the
Holders pursuant to Section 2.1 hereof, if the Company is then qualified for the
registration of Shares under the Act on Form S-3 (or any similar form
promulgated by the SEC), the Holders of a majority of the outstanding Shares
will have the right to request registration of Shares on Form S-3. In such
event, the Company, as expeditiously as possible, will use its best efforts to
effect qualification and registration on said Form S-3 of all or such portion of
the Shares as any Holder shall specify; provided, however, that no more than two
(2) such Registration Statements need be filed in any twelve (12) month period,
that the anticipated aggregate minimum offering amount would exceed $500,000 and
that no registration of Shares shall be initiated under this Section 2.12 until
ninety (90) days after the effective date of a Registration Statement filed
pursuant to Sections 2.1, 2.2 or 2.12.
ARTICLE III
MISCELLANEOUS
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3.1 Agreement is Entire Contract. Except as specifically referenced herein,
this Agreement constitutes the entire contract between the parties hereto
concerning the subject matter hereof and no party shall be liable or bound to
the other in any manner by any warranties, representations or covenants except
as specifically set forth herein. Any previous agreement among the parties
related to the transactions described herein is superseded hereby. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto, and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
3.2 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Title and Subtitles. The titles of the sections of this Agreement are
for convenience and are not to be considered in construing this Agreement.
3.5 Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
addressed to a party at its address hereinafter shown below its signature or at
such other address as such party may designate by ten (10) days advance written
notice to the other party.
3.6 Finder's Fee. Each party hereto represents that it is not, and will not
be, obligated for any finder's fee or commission payable in cash in connection
with execution and delivery of this Agreement. Each of the Holders hereby agrees
to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
any such Holders or any of its employees or representatives is responsible.
The Company agrees to indemnify and hold harmless the Holders from any
liability for any commission and compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
3.7 Amendment of Agreement. Except as expressly provided herein, any
provision of this Agreement may be amended or waived on behalf of the Holders by
a written instrument signed
9
<PAGE>
by the Company and by those Holders holding at least a majority of the aggregate
of the Shares issued to the Holders pursuant to the Agreement.
3.8 Changes in Stock. If, and as often as, there are any changes in the
common stock of the Company by way of a stock split, stock dividend, combination
or reclassification, or through merger, consolidation, reorganization or
recapitalization or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the common stock also changed.
10
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
WITNESS/ATTEST MDI ENTERTAINMENT, INC.
/s/ Angela Mach /s/ Steven M. Saferin
By: (SEAL)
- ------------------------- ------------------------------
President
/s/ Barry Weiskopf /s/ Steven M. Saferin
By: (SEAL)
- ------------------------- ------------------------------
STEVEN M. SAFERIN
/s/ Kelly Quinn /s/ Agostino T. Galluzzo
By: (SEAL)
- ------------------------- ------------------------------
AGOSTINO T. GALLUZO
11
<PAGE>
Exhibit 3.2
MDI ENTERTAINMENT, INC.
1998 STOCK OPTION AND AWARD PLAN
APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS ON SEPTEMBER 22, 1998
SECTION 1. PURPOSE. The purpose of the MDI Entertainment, Inc. 1998 Stock
Option and Award Plan (the "Plan") is to provide a means whereby directors and
selected employees, officers, agents, consultants, and independent contractors
of MDI Entertainment, Inc., a Delaware corporation (the "Company"), or of any
parent or subsidiary (as defined in subsection 5.5 hereof and referred to
hereinafter as "Affiliates") thereof, may be granted incentive stock options
and/or nonqualified stock options to purchase shares of common stock, $.001 par
value ("Common Stock") and/or restricted stock awards in order to attract and
retain the services or advice of such directors, employees, officers, agents,
consultants, and independent contractors and to provide additional incentive for
such persons to exert maximum efforts for the success of the Company and its
Affiliates by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION. Subject to Section 2.3 hereof, the Plan shall be
administered by the Board of Directors of the Company (the "Board") or, in the
event the Board shall appoint and/or authorize a committee of two or more
members of the Board to administer the Plan, by such committee (the "Stock
Option and Award Committee"). The administrator of the Plan shall hereinafter be
referred to as the "Plan Administrator".
The foregoing notwithstanding, with respect to grants to be made to
directors: (a) the Plan Administrator shall be constituted so as to meet the
requirements of Section 16(b) of the Exchange Act and Rule 16b-3 thereunder,
each as amended from time to time, or (b) if the Plan Administrator cannot be so
constituted, no options or awards shall be granted under the Plan to any
directors.
2.1 PROCEDURES. The Board shall designate one of the members of the Plan
Administrator as chairman. The Plan Administrator may hold meetings at such
times and places as it shall determine. The acts of a majority of the members of
the Plan Administrator present at meetings at which a quorum exists, or acts
approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
2.2 RESPONSIBILITIES. Except for the terms and conditions explicitly set
forth herein, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options and stock awards to
be granted under the Plan, including, without limitation, selection of whether
an option will be an incentive stock option or a nonqualified stock option,
selection of restrictions to be placed on awarded stock (if any), selection of
the individuals to be granted options and/or awards, the number of shares to be
subject to each option and/or stock award, the option exercise price per share,
the purchase price and/or repurchase price of restricted stock (if any), the
timing of grants and all other terms and conditions of the options and stock
awards. Grants under the Plan need not be identical in any respect, even when
made simultaneously. The Plan Administrator may also establish, amend, and
revoke rules and regulations for the administration of the Plan. The
interpretation and construction by the Plan Administrator of any terms or
provisions of the Plan or any option or stock award issued hereunder, or of any
rule or regulation promulgated in connection herewith, shall be conclusive and
binding on all interested parties, so long as such
<PAGE>
interpretation and construction with respect to incentive stock options
corresponds to the requirements of Internal Revenue Code of 1986, as amended
(the "Code") Section 422, the regulations thereunder, and any amendments
thereto. The Plan Administrator shall not be personally liable for any action
made in good faith with respect to the Plan or any option or stock award granted
thereunder.
2.3 RULE 16b-3 AND SECTION 16(b) COMPLIANCE; BIFURCATION OF PLAN. It is the
intention of the Company that the Plan comply in all respects with Rule 16b-3
under the Securities Exchange Act of 1934 (the "Exchange Act") to the extent
applicable, and in all events the Plan shall be construed in favor of its
meeting the requirements of Rule 16b-3. If any Plan provision is later found not
to be in compliance with such Rule, such provision shall be deemed null and
void. Notwithstanding anything in the Plan to the contrary, the Board, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit, or
condition the use of any provision of the Plan to participants who are officers
and directors or other persons subject to Section 16(b) of the Exchange Act
without so restricting, limiting, or conditioning the Plan with respect to other
participants.
SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan shall
be the Common Stock, presently authorized but unissued or subsequently acquired
by the Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be awarded as a stock award and to be
delivered upon the exercise of all options granted under the Plan shall not
exceed in the aggregate 800,000 shares as such Common Stock was constituted on
the date the Plan was adopted by the Board. If any stock award shall be
forfeited to or repurchased by the Company or if any option granted under the
Plan shall expire, be surrendered, exchanged for another option, cancelled, or
terminated for any reason without having been exercised in full, the forfeit or
repurchased shares subject to such stock award or the unpurchased shares subject
to such option, as the case may be, shall thereupon again be available for
purposes of the Plan, including for replacement options or awards which may be
granted in exchange for such forfeit or repurchased stock awards or surrendered,
cancelled, or terminated options.
SECTION 4. ELIGIBILITY. An incentive stock option may be granted only to
any individual who, at the time the option is granted, is an employee of the
Company or any Affiliate thereof. A nonqualified stock option or stock award may
be granted to any director, employee, officer, agent, consultant, or independent
contractor of the Company or any Affiliate thereof, whether an individual or an
entity (each, a "Plan Participant").
A director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of a director as a
person to whom options may be granted, or in the determination of the number of
shares which may be covered by options granted to the director, the Plan
complies with the requirements of Rule 16b-3 under the Exchange Act.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS AND AWARDS. Options and awards
granted under the Plan shall be evidenced by written agreements which shall
contain such terms, conditions, limitations, and restrictions as the Plan
Administrator shall deem advisable and which are not inconsistent with the Plan.
No Plan participant may receive more than an aggregate of 250,000 shares of
Common Stock by grant of options and/or stock awards under the Plan.
Notwithstanding the foregoing, options and awards shall include or incorporate
by reference the following terms and conditions:
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5.1 OPTIONS
5.1.1 NUMBER OF SHARES AND EXERCISE PRICE.
(a) Upon first election or appointment to the Board, each non-employee
director will be granted a non-qualified option to purchase 150,000 shares of
Common Stock at the fair market value of the Common Stock on the date of such
election or appointment, with such option to vest in equal installments over a
three-year period, with the first installment vesting one year after the date of
such election or appointment; and
(b) Except as provided by subsection (a) hereof, the maximum number of
shares that may be purchased pursuant to the exercise of each option, and the
price per share at which such option is exercisable (the "exercise price"),
shall be as established by the Plan Administrator; provided, that the Plan
Administrator shall act in good faith to establish the exercise price which
shall be not less than 100% of the fair market value per share of the Common
Stock at the time of grant of the option with respect to incentive stock
options; and provided, further, that, with respect to incentive stock options
granted to greater than ten percent stockholders, the exercise price shall be as
required by Section 6 hereof.
5.1.2 TERM AND MATURITY. Subject to the restrictions contained in Section 6
hereof with respect to granting stock options to greater than ten percent
stockholders, the term of each stock option (subject to earlier termination upon
the occurrence of certain events as provided herein) shall be as established by
the Plan Administrator and, if not so established, shall be ten years from the
date of its grant, but in no event shall the term of any incentive stock option
exceed a ten-year period. To ensure that the Company or Affiliate will achieve
the purpose and receive the benefits contemplated in the Plan, any option or
stock award granted to any Plan Participant hereunder shall, unless the
condition of this sentence is waived or modified in the agreement evidencing the
option or by resolution adopted by the Plan Administrator, be exercisable or
shall, in the case of awards, be vested and not subject to forfeiture or
repurchase, according to the following schedule:
PERIOD OF PLAN PARTICIPANT'S
CONTINUOUS RELATIONSHIP
WITH THE COMPANY OR PORTION OF TOTAL OPTION
AFFILIATE FROM THE DATE WHICH IS EXERCISABLE OR
THE OPTION IS GRANTED AWARD WHICH IS VESTED
- ---------------------------- -----------------------
1 year 33%
2 years 67%
3 years 100%
5.1.3 EXERCISE. Subject to the vesting schedule described in subsection 5.2
hereof, each option may be exercised in whole or in part; provided, that only
whole shares may be issued pursuant to the exercise of any option. Subject to
any other terms and conditions herein, the Plan Administrator may provide that
an option may not be exercised in whole or in part for a stated period or
periods of time during which such option is outstanding; provided, that the Plan
Administrator may rescind, modify, or waive any such limitation (including by
the acceleration of the vesting schedule upon a change
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<PAGE>
in control of the Company) at any time and from time to time after the grant
date thereof. During a Plan Participant's lifetime, any incentive stock options
granted under the Plan are personal to such Plan Participant and are exercisable
solely by such Plan Participant. Options shall be exercised by delivery to the
Company of notice of the number of shares with respect to which the option is
exercised, together with payment of the exercise price in accordance with
Section 5.1.4 hereof.
5.1.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise price shall
be made in full at the time the notice of exercise of the option is delivered to
the Company and shall be in cash, bank certified or cashier's check, or personal
check (unless at the time of exercise the Plan Administrator in a particular
case determines not to accept a personal check) for shares of Common Stock being
purchased.
The Plan Administrator can determine in its sole discretion at the time the
option is granted in the case of incentive stock options, or at any time before
exercise in the case of nonqualified stock options, that additional forms of
payment will be permitted. To the extent permitted by the Plan Administrator and
applicable laws and regulations (including, without limitation, federal tax and
securities laws and regulations and state corporate law), an option may be
exercised by:
(a) delivery of shares of Common Stock of the Company held by a Plan
Participant having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator;
(b) delivery of a properly executed Notice of Exercise, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state, or local
withholding tax obligations that may arise in connection with the exercise;
(c) delivery of a properly executed Notice of Exercise, together with
instructions to the Company to withhold from the shares of Common Stock that
would otherwise be issued upon exercise that number of shares of Common Stock
having a fair market value equal to the option exercise price.
5.1.5 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all incentive
stock options granted under the terms of the Plan, to the extent that the
aggregate fair market value (determined at the time of the grant of the
incentive stock option) of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by the Plan
Participant during any calendar year (under the Plan and all other incentive
stock option plans of the Company, an Affiliate thereof or a predecessor
corporation) exceeds $100,000, such options shall be treated as nonqualified
stock options. The foregoing sentence shall not apply, and the limitation shall
be that provided by the Code or the Internal Revenue Service, as the case may
be, if such annual limit is changed or eliminated by (a) amendment of the Code
or (b) issuance by the Internal Revenue Service of (i) a Revenue ruling, (ii) a
Private Letter ruling to any of the Company, any Plan Participant, or any
legatee, personal representative, or distributee of any Plan Participant, or
(iii) regulations.
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<PAGE>
5.1.6 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE.
5.1.6.1 EXERCISE OF OPTIONS UNDER SECTIONS 5.1.4(A) AND (C). The value of
Common Stock received by the Plan Participant from an exercise under Sections
5.1.4(a) and 5.1(c) hereof shall be the fair market value as determined by the
Plan Administrator, provided, that if the Common Stock is traded in a public
market, such valuation shall be the average of the high and low trading prices
or bid and asked prices, as applicable, of the Common Stock for the date of
receipt by the Company of the Plan Participant's delivery of shares under
Section 5.1.4(a) hereof or delivery of the Notice of Exercise under Section
5.1.4(c) hereof, determined as of the trading day immediately preceding such
date (or, if no sale of shares is reported for such trading day, on the next
preceding day on which any sale shall have been reported).
5.1.6.2 EXERCISE OF OPTION UNDER SECTION 5.1.4(B). The value of Common
Stock received by the Plan Participant from an exercise under Section 5.1.4(b)
hereof shall equal the sales price received for such shares.
5.2. STOCK AWARDS.
5.2.1 NUMBER OF SHARES AND PRICE. The number of shares to be transferred or
sold by the Company to a Plan Participant shall be determined by the Plan
Administrator. The Plan Administrator shall determine the price, if any, at
which shares of restricted stock shall be sold to a Plan Participant, which may
vary from time to time and among Plan Participants and which may be below the
fair market value of such shares of Common Stock at the date of such sale. The
payment for such shares (if any) shall be in cash, bank certified or cashier's
check, or personal check (unless at the time of grant the Plan Administrator
determines not to accept a personal check or determines to accept some other
form of payment). The Plan Administrator may condition the effectiveness of any
grant upon the recipient's making satisfactory provisions for any federal, state
or local withholding tax obligations that may arise in connection with the grant
of the award or its vesting.
5.2.2 RESTRICTIONS. All shares representing stock awards transferred or
sold hereunder shall be subject to such restrictions as the Plan Administrator
may determine, including, without limitation any of the following:
(a) a prohibition against the sale, transfer, pledge or other encumbrance
of the shares of such stock, such prohibition to lapse at such time or times as
the Plan Administrator shall determine (whether in annual or more frequent
installments, at the time of the death, disability or retirement of the holder
of such shares, or otherwise);
(b) a requirement that the holder of shares of restricted stock forfeit, or
(in the case of shares sold to a Plan Participant) resell back to the Company at
his or her cost, all or a part of such shares in the event of termination of his
or her employment during any period in which such shares are subject to
restrictions;
(c) such other conditions or restrictions as the Plan Administrator may
deem advisable.
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<PAGE>
5.2.3 ESCROW. In order to enforce the restrictions imposed by the Plan
Administrator pursuant to Section 5.2.2, the Plan Participant receiving
restricted stock shall enter into an agreement with the Company setting forth
the conditions of the grant. Shares of restricted stock shall be registered in
the name of the Plan Participant and deposited, together with a stock power
endorsed in blank, with the Company. Each such certificate shall bear a legend
in substantially the following form:
The transferability of this certificate and the shares of Common Stock
represented by it are subject to terms and conditions (including conditions of
forfeiture) contained in the 1998 Stock Option and Award Plan of MDI
Entertainment, Inc., and an agreement entered into between the registered owner
and MDI Entertainment, Inc. A copy of the Plan and the Agreement is on file in
the office of the Secretary of MDI Entertainment, Inc.
5.2.4 END OF RESTRICTIONS. Subject to Section 8, at the end of any time
period during which the shares of restricted stock are subject to forfeiture and
restrictions on transfer, such shares will be delivered free of all restrictions
to the Plan Participant or to the Plan Participant's legal representative,
beneficiary or heir.
5.3 WITHHOLDING TAX REQUIREMENT. The Company or any Affiliate thereof shall
have the right to retain and withhold from any payment of cash or Common Stock
under the Plan the amount of taxes required by any government to be withheld or
otherwise deducted and paid with respect to such payment. No option may be
exercised unless and until arrangements satisfactory to the Company, in its sole
discretion, to pay such withholding taxes are made. At its discretion, the
Company may require a Plan Participant to reimburse the Company for any such
taxes required to be withheld by the Company and withhold any distribution in
whole or in part until the Company is so reimbursed. In lieu thereof, the
Company shall have the right to withhold from any other cash amounts due or to
become due from the Company to the Plan Participant an amount equal to such
taxes or retain and withhold a number of shares having a market value not less
than the amount of such taxes required to be withheld by the Company to
reimburse the Company for any such taxes and cancel (in whole or in part) any
such shares of Common Stock so withheld. If required by Section 16(b) of the
Exchange Act, the election to pay withholding taxes by delivery of shares of
Common Stock held by any person who at the time of exercise is subject to
Section 16(b) of the Exchange Act shall be made either six months prior to the
date the option exercise becomes taxable or at such other times as the Company
may determine as necessary to comply with Section 16(b) of the Exchange Act.
Although the Company may, in its discretion, accept Common Stock as payment of
withholding taxes, the Company shall not be obligated to do so.
5.5 NONTRANSFERABILITY.
(a) OPTION. Options granted under the Plan and the rights and privileges
conferred hereby may not be transferred, assigned, pledged, or hypothecated in
any manner (whether by operation of law or otherwise) other than by will or by
the applicable laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in Section 414(p) of the Code, or Title I of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall not be subject to execution, attachment, or similar
process. Any attempt to transfer, assign, pledge, hypothecate, or otherwise
dispose of any option under the Plan or of any right or privilege conferred
hereby, contrary to the Code or to the provisions of the Plan, or the sale or
levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void ab initio.
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<PAGE>
The designation by a Plan Participant of a beneficiary does not, in and of
itself, constitute an impermissible transfer under this subsection 5.6.1.
(B) STOCK UNDERLYING OPTIONS. The Plan Administrator may provide in the
agreement granting the option that (a) the Plan Participant may not transfer or
otherwise dispose of shares acquired upon exercise of an option without first
offering such shares to the Company for purchase on the same terms and
conditions as those offered to the proposed transferee or (b) upon termination
of employment of a Plan Participant the Company shall have a six-month right of
repurchase as to the shares acquired upon exercise, which right of repurchase
shall allow for a maximum purchase price equal to the fair market value of the
shares on the termination date. The foregoing rights of the Company shall be
assignable by the Company upon reasonable written notice to the Plan
Participant.
(C) STOCK AWARDS. Subject to the restrictions imposed by the Plan
Administrator under Section 5.2.2 and the agreement entered into by the Plan
Participant and the Company, a Plan Participant receiving an award of stock may
sell, transfer, pledge or otherwise encumber such shares received under this
Plan.
5.6 TERMINATION OF RELATIONSHIP. If the Plan Participant's relationship
with the Company or any Affiliate thereof ceases for any reason other than
termination for cause, death, or total disability, and unless by its terms the
option sooner terminates or expires, then the Plan Participant may exercise, for
a three-month period, that portion of the Plan Participant's option which is
exercisable at the time of such cessation, but the Plan Participant's option
shall terminate at the end of the three month period following such cessation as
to all shares for which it has not theretofore been exercised, unless, in the
case of a nonqualified stock option, such provision is waived in the agreement
evidencing the option or by resolution adopted by the Plan Administrator within
90 days of such cessation. If, in the case of an incentive stock option, a Plan
Participant's relationship with the Company or Affiliate thereof changes from
employee to nonemployee (i.e., from employee to a position such as a
consultant), such change shall constitute a termination of a Plan Participant's
employment with the Company or Affiliate and the Plan Participant's incentive
stock option shall terminate in accordance with this subsection 5.6. If, in the
case of a restricted stock award, the Plan Participant's relationship with the
Company or any Affiliate thereof ceases for any reason and unless by its terms
the period during which shares of restricted stock were subject to forfeiture or
restrictions on transfer has expired, then the Plan Participant will be required
to resell back to the Company at his or her cost, or forfeit the shares
remaining subject to such forfeiture or restrictions.
If a Plan Participant is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Plan Participant shall thereupon have
no right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), fraud, misconduct, or disclosure of
confidential information. If a Plan Participant's relationship with the Company
or any Affiliate thereof is suspended pending an investigation of whether or not
the Plan Participant shall be terminated for cause, all Plan Participant's
rights under any option granted hereunder and the vesting of any restricted
stock award likewise shall be suspended during the period of investigation.
If a Plan Participant's relationship with the Company or any Affiliate
thereof ceases because of a total disability, the Plan Participant's option
shall not terminate or, in the case of an incentive stock
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<PAGE>
option, cease to be treated as an incentive stock option until the end of the
12-month period following such cessation (unless by its terms it sooner
terminates and expires). Likewise, unless otherwise determined by the Plan
Administrator, a prohibition against the sale, transfer, pledge or other
encumbrance of shares of restricted stock awarded pursuant to this Plan, will
not lapse by reason of the Plan Participant's disability until the end of the
12-month period following the cessation of the Plan Participant's relationship
with the Company or any Affiliate thereof and, unless the Plan Administrator
otherwise determines, the Plan Participant shall not continue to vest in any
restricted stock award during the period of disability. As used in the Plan, the
term "total disability" refers to a mental or physical impairment of the Plan
Participant which is expected to result in death or which has lasted or is, in
the opinion of the Company and two independent physicians, expected to last for
a continuous period of 12 months or more and which causes or is, in such
opinion, expected to cause the Plan Participant to be unable to perform his or
her duties for the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have furnished their
opinion of total disability to the Plan Administrator.
For purposes of this subsection 5.6, a transfer of relationship between or
among the Company and/or any Affiliate thereof shall not be deemed to constitute
a cessation of relationship with the Company or any of its Affiliates. For
purposes of this subsection 5.6, with respect to incentive stock options and
stock awards, employment shall be deemed to continue while the Plan Participant
is on military leave, sick leave, or other bona fide leave of absence (as
determined by the Plan Administrator). The foregoing notwithstanding, employment
shall not be deemed to continue beyond the first 90 days of such leave, unless
the Plan Participant's reemployment rights are guaranteed by statute or by
contract.
As used herein, the term "Affiliate" shall be defined as follows: (a) when
referring to a subsidiary corporation, "Affiliate" shall mean any corporation
(other than the Company) in an unbroken chain of corporations ending with the
Company if, at the time of the granting of the option, the stock possessing 50%
or more of the total combined voting power of all classes of stock of each of
the corporations other than the Company is owned by one of the other
corporations in such chain; and (b) when referring to a parent corporation,
"Affiliate" shall mean any corporation in an unbroken chain of corporations
ending with the Company if, at the time of the granting of the option, each of
the corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
5.7 DEATH OF PLAN PARTICIPANT. If a Plan Participant dies while he or she
has a relationship with the Company or any Affiliate thereof or within the
three-month period (or 12-month period in the case of totally disabled Plan
Participants) following cessation of such relationship, (i) any option held by
such Plan Participant, to the extent that the Plan Participant would have been
entitled to exercise such option, may be exercised within one year after his or
her death by the personal representative of his or her estate or by the person
or persons to whom the Plan Participant's rights under the option shall pass by
will or by the applicable laws of descent and distribution, and (ii) any stock
awarded under this Plan, to the extent that it has vested and the restrictions
against transfer have expired, shall be delivered to the Plan Participant's
legal representative, beneficiary or heir, free of all restrictions, unless
otherwise determined by the Plan Administrator.
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5.8 STATUS OF STOCKHOLDER. Neither the Plan Participant nor any party to
which the Plan Participant's rights and privileges under an option may pass
shall be, or have any of the rights or privileges of, a stockholder of the
Company with respect to any of the shares issuable upon the exercise of any
option granted under the Plan unless and until such option has been exercised.
Subject to the terms and conditions of the Plan, each Plan Participant receiving
restricted stock shall have all the rights of a stockholder with respect to
shares of stock during any period in which such shares are subject to forfeiture
and restrictions on transfer, including without limitation, the right to vote
such shares. Dividends paid in cash or property other than Common Stock with
respect to shares of restricted stock shall be paid to the Plan Participant
currently.
5.9 CONTINUATION OF EMPLOYMENT. Nothing in the Plan or in any option or
stock award granted pursuant to the Plan shall confer upon any Plan Participant
any right to continue in the employ of the Company or of an Affiliate thereof,
or to interfere in any way with the right of the Company or of any such
Affiliate to terminate his or her employment or other relationship with the
Company at any time.
5.10 MODIFICATION AND AMENDMENT OF OPTION OR AWARD. Subject to the
requirements of Section 422 of the Code with respect to incentive stock options
and to the terms and conditions and within the limitations of the Plan,
including, without limitation, Section 9 hereof, the Plan Administrator may
modify or amend outstanding options and stock awards granted under the Plan. The
modification or amendment of an outstanding option or stock award shall not,
without the consent of the Plan Participant, impair or diminish any of his or
her rights or any of the obligations of the Company under such option or award.
Except as otherwise provided herein, no outstanding option shall be terminated
without the consent of the Plan Participant. Unless the Plan Participant agrees
otherwise, any changes or adjustments made to outstanding incentive stock
options or awards granted under the Plan shall be made in such a manner so as
not to constitute a "modification" as defined in Section 424(h) of the Code and
so as not to cause any incentive stock option issued hereunder to fail to
continue to qualify as an incentive stock option as defined in Section 422(b) of
the Code.
SECTION 6. GREATER THAN TEN PERCENT STOCKHOLDERS.
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If incentive stock
options are granted under the Plan to employees who, at the time of such grant,
own greater than ten percent of the total combined voting power of all classes
of stock of the Company or any Affiliate thereof, the term of such incentive
stock options shall not exceed five years and the exercise price shall be not
less than 110% of the fair market value of the Common Stock at the time of grant
of the incentive stock option. This provision shall control notwithstanding any
contrary terms contained in an option agreement or any other document. The term
and exercise price limitations of this provision shall be amended to conform to
any change required by a change in the Code or by ruling or pronouncement of the
Internal Revenue Service.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in determining stock
ownership, an employee shall be deemed to own the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors, and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership estate, or trust shall be deemed to be owned
proportionately by or for its stockholders, partners, or beneficiaries. If an
employee or a person related to the employee
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owns an unexercised option or warrant to purchase stock of the Company, the
stock subject to that portion of the option or warrant which is unexercised
shall not be counted in determining stock ownership. For purposes of this
Section 6, stock owned by an employee shall include all stock owned by him or
her which is actually issued and outstanding immediately before the grant of the
incentive stock option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate number
and class of shares for which options and stock awards may be granted under the
Plan, the number and class of shares covered by each outstanding option and
stock award, and the exercise price, purchase price or repurchase price (if any)
per share thereof (but not the total price), and each such option and stock
award, shall all be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock of the Company resulting from a split or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1. EFFECT OF LIQUIDATION, REORGANIZATION, OR CHANGE IN CONTROL.
7.1.1 CASH, STOCK, OR OTHER PROPERTY FOR STOCK. Except as provided in
subsection 7.1.2 hereof, upon a merger (other than a merger of the Company in
which the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
reorganization (other than mere reincorporation or creation of a holding
company), or liquidation of the Company (each, an "event"), as a result of which
the stockholders of the Company receive cash, stock, or other property in
exchange for, or in connection with, their shares of Common Stock, (i) any
option granted hereunder shall terminate, but the time during which such option
may be exercised shall be accelerated as follows: the Plan Participant shall
have the right immediately prior to any such event to exercise such Plan
Participant's option in whole or in part whether or not the vesting requirements
set forth in the option agreement have been satisfied and (ii) the restrictions
on all shares of restricted stock awarded under this Plan shall lapse
immediately.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR EXCHANGE STOCK. If the
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
or reorganization (other than mere reincorporation or creation of a holding
company), all options granted hereunder shall be converted into options to
purchase shares of Exchange Stock unless the Company and corporation issuing the
Exchange Stock, in their sole discretion, determine that any or all such options
granted hereunder shall not be converted into options to purchase shares of
Exchange Stock but instead shall terminate in accordance with the provisions of
subsection 7.1.1 hereof. The amount and price of converted options shall be
determined by adjusting the amount and price of the options granted hereunder in
the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition, separation, or reorganization. Unless the Board determines
otherwise, the converted options shall be fully vested whether or not the
vesting requirements set forth in the option agreement have been satisfied.
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<PAGE>
7.2 FRACTIONAL SHARES. In the event of any adjustment in the number of
shares covered by an option or stock award, any fractional shares resulting from
such adjustment shall be disregarded and each such option or stock award shall
cover only the number of full shares resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL. Except as otherwise required for
the Plan to qualify for the exemption afforded by Rule 16b-3 under the Exchange
Act, all adjustments under this Section 7 shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding, and conclusive. Unless a Plan Participant agrees
otherwise, any change or adjustment to an incentive stock option shall be made
in such a manner so as not to constitute a "modification" as defined in Section
424(h) of the Code and so as not to cause the incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Section 422(b) of the Code.
SECTION 8. SECURITIES LAW COMPLIANCE. Shares shall not be issued with
respect to an option or stock award granted under the Plan unless the grant of
the stock award or the exercise of such option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended (the "Act"), the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance, including,
without limitation, the availability of an exemption from registration for the
issuance and sale of any shares hereunder. Inability of the Company to obtain
from any regulatory body having jurisdiction, the authority deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any shares
hereunder or the unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the Company of any
liability in respect of the nonissuance or sale of such shares as to which such
requisite authority shall not have been obtained.
As a condition to the exercise of an option or the award of any stock, if,
in the opinion of counsel for the Company, assurances are required by any
relevant provision of the aforementioned laws, the Company may require the Plan
Participant to give written assurances satisfactory to the Company at the time
of any such exercise or grant as to each or both of the following: (a) the Plan
Participant's knowledge and experience in financial and business matters (and/or
their employment of a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters)
and that such Plan Participant is capable of evaluating, either alone or with
the purchaser representative, the merits and risks of exercising the option or
acquiring the stock subject to the award and/or (b) that the shares are being
purchased only for investment and without any present intention to sell or
distribute such shares. The foregoing requirements shall be inoperative if the
issuance of the shares upon the exercise of the option or grant of stock award
has been registered under a then currently effective registration statement
under the Act.
At the option of the Company, a stop-transfer order against any shares may
be placed on the official stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold, or otherwise transferred
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
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<PAGE>
regulation, may be stamped on stock certificates in order to assure exemption
from registration. The Plan Administrator may also require such other action or
agreement by the Plan Participants as may from time to time be necessary to
comply with the federal and state securities laws or the rules of any national
securities exchange or inter-dealer quotation system on which the Common Stock
is traded. NONE OF THE ABOVE SHALL BE CONSTRUED TO IMPLY AN OBLIGATION ON THE
PART OF THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options or stock awards granted hereunder be listed on a national
securities exchange or on the NASDAQ National Market, all stock issued hereunder
if not previously listed on such exchange or market shall, if required by the
rules of such exchange or market, be authorized by that exchange or market for
listing thereon prior to the issuance thereof.
SECTION 9. USE OF PROCEEDS. The proceeds received by the Company from the
sale of shares pursuant to the exercise of options or sale of stock granted
hereunder shall constitute general funds of the Company.
SECTION 10. AMENDMENT AND TERMINATION.
10.1 BOARD ACTION. The Board may at any time suspend, amend, or terminate
the Plan, provided, that no amendment shall be made without stockholder approval
within 12 months before or after adoption of the Plan if such approval is
necessary to comply with any applicable tax or regulatory requirement, including
any such approval as may be necessary to satisfy the requirements for exemptive
relief under Rule 16b-3 of the Exchange Act or any successor provision. Rights
and obligations under any option or award granted before amendment of the Plan
shall not be altered or impaired by any amendment of the Plan unless the Company
requests the consent of the person to whom the option or award was granted and
such person consents in writing thereto.
10.2 AUTOMATIC TERMINATION. Unless sooner terminated by the Board, the Plan
shall terminate ten years from the earlier of (a) the date on which the Plan is
adopted by the Board or (b) the date on which the Plan is approved by the
stockholders of the Company. No option or award may be granted after such
termination or during any suspension of the Plan. The amendment or termination
of the Plan shall not, without the consent of the Plan Participant, alter or
impair any rights or obligations under any option or award theretofore granted
under the Plan.
SECTION 11. EFFECTIVENESS OF THE PLAN. The Plan shall become effective upon
adoption by the Board so long as it is approved by the holders of a majority of
the Company's outstanding shares of voting capital stock at any time within 12
months after the adoption of the Plan by the Board.
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<PAGE>
SECOND AMENDED AND RESTATED Exhibit 6.1
EMPLOYMENT AGREEMENT -----------
THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
(the "Agreement") is made as of this 8th day of August, 1997, by and between
MEDIA DROPIN PRODUCTIONS, INC., a Delaware corporation (the "Employer"), and
STEVEN M. SAFERIN (the "Employee").
WHEREAS, Employer and Employee entered into an Employment Agreement
dated August 27, 1993 (the "Original Agreement"), for Employee to act as
Employer's President and Chief Operating Officer; and
WHEREAS, Employer and Employee entered into an Amended and Restated
Employment Agreement November 1, 1995 (the "First Amended Agreement") for
Employee to act as Employer's President and Chief Executive Officer; and
WHEREAS, on or about the date hereof, the Employer has become a wholly
owned subsidiary of MDI Entertainment, Inc. (the "Parent"); and
WHEREAS, as a result of Employee's recent outstanding performance on
behalf of Employer, Employer desires to procure the services of Employee beyond
the current expiration of the First Amended Agreement; and
WHEREAS, Employee is willing to extend the term of his employment with
Employer upon the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Employment.
The Employer hereby hires the Employee and the Employee hereby accepts
such employment as the President and Chief Executive Officer to render the
Services on behalf of the Employer, subject to the supervision and direction of
the Board of Directors of the Employer.
2. Term.
The term of employment shall be for the period commencing on the date
of closing under the Agreement and Plan of Reorganization between the Employer,
the Parent and certain related entities and terminating on the later to occur of
(a) five (5) years from the date of commencement or (b) three (3) years from the
date Parent first files a registration statement with the Securities
<PAGE>
and Exchange Commission registering all of the shares of common or preferred
stock owned by Employee, and Employer's shares are being traded on the NYSE,
AMEX or NASDAQ (but excluding NASDAQ Bulletin Board or Small Cap). After the
initial term of employment as described above, this Agreement shall
automatically renew from year to year, unless either party gives the other
written notice of its intention not to renew this Agreement at least ninety (90)
days prior to the expiration of the original term or any annual renewal.
3. Duties.
The Employee hereby accepts employment by the Employer for the term and
upon the conditions set forth in this Agreement, and shall:
(a) During the term of this Agreement, the Employee shall
render to the very best of the Employee's ability, on behalf of and in the best
interest of the Employer, the Services to and for the Employer carrying on such
Services in accordance with reasonable policies and reasonable directives of the
Employer from time to time established.
(b) Devote such time, energy and skill reasonably necessary to
the performance of the Services for which the Employee is engaged, at such place
or places and during regular business days as well as the business hours during
the day necessary in order to accomplish the Services in the Employer's best
interests, and in accordance with the ethical standards of the Employer from
time to time established.
(c) The Employee shall faithfully and industriously assume and
perform with skill, care, diligence and attention all responsibilities and
duties connected with his employment on behalf of the Employer.
(d) The Employee shall have no authority to enter into any
contracts binding upon the Employer, which would create any obligations on the
part of the Employer, except as may be specifically authorized by the Employer.
(e) During the employment with the Employer, the Employee
shall not engage in or perform services of any nature in any capacity with any
business, including, but not limited to any such business or organization
competitive with the Employer. The Employee shall work at all times during the
period of employment hereunder in the best interests of Employer and for the
advancement of the Employer and never knowingly take action against the best
interests of the Employer.
4. Compensation
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<PAGE>
(a) Salary. For all services to be rendered by the Employee to
the Employer during the period from date of this Agreement through February 28,
1998, the Employer shall pay the Employee a salary of $300,000.00 per year
payable twice per month, in equal installments, during the term of employment,
with appropriate deduction therefrom for all federal, state and local
withholding taxes. The Employer shall evaluate the Employee's salary on n March
1, 1998 and on each anniversary thereafter, Employee's salary may be increased
to an amount equal to the greater of (i) the salary payable in the previous year
increased by five percent (5%) or (ii) the salary payable in the previous year
multiplied by a fraction, the numerator of which shall be the Consumer Price
Index (the "CPI") as of the last day of the previous twelve (12) month period
and the denominator of which shall be the CPI as of the last day of the second
previous twelve (12) month period (except that to determine the denominator for
the adjustment for the second year of this Agreement, the denominator shall be
the CPI as of the date of the Agreement). In no event, however, shall the salary
be increased by more than ten percent (10%) over the salary for the then
immediately preceding year. The adjusted salary thereby established shall
continue in effect as the salary until again adjusted as herein provided. As
used herein, the term "Consumer Price Index" or "CPI" shall mean the Consumer
Price Index for All Urban Consumers ("CPI-U"), Hartford, Connecticut, all items
(1982-1984 = 100) issued and published by the Bureau of Labor Statistics of the
United States Department of Labor. In the event that CPI Increases to use a
1982-1984 base rate of 100 as a basis for calculation, or if substantial changes
made in the terms or number of items contained in CPI-U, then CPI shall be
adjusted to the figure that would have been arrived at had the manner of
computing the CPI-U is in effect as of the date of this Lease not been altered.
If CPI-U is not available, the term Consumer Price Index shall mean (i) a
successor or substitute index to CPI-U, appropriately adjusted; or (ii) if such
a successor or substitute index is not available or may not lawfully be used for
the purposes herein stated, a reliable governmental or other non-partisan
publication selected by Employer evaluating the information theretofore used in
determining CPI-U. The Employer and Employee may, from time to time, reflect
increases and decreases in the Employee's compensation as may be mutually agreed
upon, in accordance with the foregoing, by evidencing such change in writing
signed by both parties.
(b) Incentive Compensation.
(i) The parties acknowledge that Employee has been
paid all bonuses Employee was entitled to under the terms of the Original
Agreement and First Amended Agreement.
(ii) Throughout the term of this Agreement, Employee
shall be entitled to a bonus equal to two percent of the gross income of
Employer or any Related Entity (as herein defined) of Employer. The bonus shall
be paid within thirty (30) days after the end of each calendar quarter based on
the gross income during that quarter. Related Entity as used in this
subparagraph (ii) shall include any subsidiary or affiliated company of
Employer. In the event of any dispute over the amount of the amount of gross
income in any quarter, the certified public accountant auditing Parent shall
resolve the dispute. Notwithstanding anything to the contrary,
3
<PAGE>
the maximum amount of incentive compensation payable pursuant to this paragraph
4(b) over the term of this Agreement shall be Three Hundred Thirty-Five Thousand
Dollars ($335,000.00). After Employee has received One Hundred Forty Thousand
Dollars ($140,000.00) of incentive compensation hereunder, Employer shall have
the right to withhold seventy-two percent (72%) of any payment due hereunder and
apply the same against the officer loan currently due from Employee to Employer
until the said officer loan is repaid.
5. Fringe Benefits.
The Employer only shall provide and furnish to the Employee, all fringe
benefits which Employer may from time to time generally make available to other
employees of the Employer, as determined by the Employer in its discretion,
including by way of example, health insurance comparable to the health insurance
being maintained for Employee's benefit prior to the date hereof, group
disability insurance and profit sharing plan. Employee shall additionally be
entitled to those fringe benefits listed on Exhibit B, attached hereto and made
a part hereof. Nothing herein contained shall create a contractual obligation on
the part of Employer to provide any particular fringe benefit to employees of
Employer holding comparable positions to that of Employee.
6. Records of the Employer.
The Employee, during the course of his employment with the Employer may
work on and be consulted with respect to matters for clients of the Employer.
All such matters are highly confidential. The Employee understands and agrees
that the Employee shall acquire no rights to any of this information. All
records, notes, memoranda, files, financial statements, client and client lists,
brochures, documents and all other similar material relating to the Employer or
the business of the Employer or those of its clients (hereinafter referred to as
the "Records") which shall come into the possession of the Employee, shall
remain and be deemed to be the property of the Employer. The Employee shall
promptly return any originals and all copies of the Records to the Employer upon
request. Upon cessation of employment for whatever reason, the Employee shall
promptly deliver to the Employer the Records in his possession or delivered to
or otherwise acquired by the Employee concerning the Employer or its clients.
7. Non-Disclosure.
Except with the prior written consent of the Employer, which consent is
within the sole discretion of the Employer, the Employee agrees that he will not
directly or indirectly, during the term of his employment, disclose or reveal
(except as Employee is required to disclose by court order, summons, subpoena or
similar process of law or to Employer's attorney in connection with the
foregoing) to or use for the Employee or others, the confidential information of
the Employer or its clients including, but not limited to proprietary
information, secrets, the lists of the
4
<PAGE>
Employer's clients, the lists of employees of the Employer, any secret or
confidential information or data regarding the business of the Employer, any
secret or confidential information or data concerning the clients or prospective
clients of the Employer. Such business methods and secrets shall include but are
not limited to programs, data systems, processes, computer programs, computer
systems, equipment and configurations, financial information, pricing policies,
names of employees, names of clients, any information contained on any Records
and all other business knowledge and techniques of the Employer.
8. Termination.
The employment of the Employee shall terminate for "good cause" upon
the occurrence of any one of the following conditions or events:
(a) By the death or disability of the Employee;
(b) In the event the Employee shall fail or refuse to
faithfully or diligently perform the provisions of this Agreement or the usual
customary duties of his employment and such failure is not corrected within
thirty (30) days of written notice from Employer;
(c) In the event that the Employee is convicted of a felony;
(d) The withholding by Employee of any fees or income
rightfully belonging to Employer.
For the purposes of subparagraph (a) hereof, "disability" shall mean a
physical or mental illness, which results in Employee not being able to carry
out his duties under this Agreement for a period of six (6) consecutive months.
As of the date of termination, Employer shall be responsible to pay to Employee
only such salary and incentive compensation as has been earned by Employee prior
to the date of termination and Employer shall have no further obligations to
Employee.
9. Employee Resignation
(a) The Employee may resign at any time for "good reason",
upon not less than thirty (30) days prior written notice to the Corporation
specifying in reasonable detail the reason therefor. For purposes of this
Section 9, "good reason" means any of the following:
(i) INTENTIONALLY DELETED.
(ii) The failure of the Employer, within ten (10)
business days after the Employee has provided written notice to the Board of
Directors of the Corporation (with a copy
5
<PAGE>
to the President of Parent.) requesting any payment of salary or material
reimbursable expenses due and owing to the Employee hereunder, to make said
payment to the Employee;
(iii) The Employer requires the Employee to be based
at any office or location more than 25 miles from the office at which the
Employee is based as of the date of this Agreement, except for travel reasonably
required in the performance and discharge of the Employee's tasks and duties
hereunder, and unless Employer and Employee agree that such requirement shall
not constitute "good reason";
(iv) Any failure by Parent to obtain the assumption
of this Agreement by any successor or parent;
(v) Any material change by the Employer in the
Employee's function, duties, or responsibilities from those contemplated herein,
without the prior written consent of the Employee; or
(vi) Any pattern or practice of harassment or other
conduct by the Board of Directors or senior management of Parent or the Board of
Directors of Employer intended to provoke the Employee's resignation, or which
modifies in any material adverse respect the manner in which the business of the
Employer is operated from the manner in which the Employer's business has been
operated prior to the date hereof;
(b) In the event that, on or before February 28, 2002, the
Employer terminates the Employee's employment without "good cause" or the
Employee resigns for "good reason", the Employer shall pay to the Employee or,
in the event of the Employee's death subsequent to the date of termination or
resignation, to the Employee's estate, in addition to the salary and benefits
earned by him prior to the date of termination (computed pro rata through the
date of termination) and all reimbursable expenses incurred through the date of
termination, an amount equal to the present value sum of the salary fixed at the
salary rate on the date of termination or resignation which the Employee would
have received through February 28, 2002 had his employment not been terminated
or had he not resigned ("Present Value Amount"). The Present Value Amount shall
be payable in twelve ( 12) consecutive, equal monthly payments, commencing on
the fifteenth day of the month immediately following the month in which the
termination or resignation occurred. In determining the Present Value Amount, a
discount factor equal to the Prime Rate of Citibank shall be used.
10. Indemnification.
The Employee agrees to indemnify, save and hold the Employer and its
officers, directors and stockholders harmless from any and all claims and
damages which may arise out of or result from or in connection with any breach
by the Employee of the provisions herein, including, but not limited to
reasonable attorney's fees and litigation and legal expenses, if Employer shall
prevail in such litigation, provided that if Employee shall prevail in such
litigation, then
6
<PAGE>
Employer shall pay Employee's reasonable attorney's fees and litigation and
legal expenses. For purposes of the obligations of Employee set forth in
paragraphs 1, 3(a), 3(b), and 3(c) hereof, Employee shall not be deemed to be in
breach of such obligations unless Employer shall have given Employee written
notice of the nature of such breach, and Employee shall have failed to cure the
breach within fifteen (15) days after receipt of such written notice.
11. Enforceability.
The Employee acknowledges that the restrictions contained herein,
including those contained in Sections 6, 7, and 10 hereof, are reasonable, but
agrees that if any court of competent jurisdiction shall hold any such
restrictions unreasonable as to time, activities, or otherwise, such restriction
shall be deemed to be reduced to the extent necessary in the opinion of the
court to make it reasonable.
The covenants of the Employee set forth herein are the essence of this
Agreement; they shall be construed as independent of any other provisions in
this Agreement; and the existence of any claim or cause of action of the
Employee against the Employer, whether predicated on this Agreement or not,
shall not constitute a defense to the enforcement by the Employer.
12. Remedies.
The Employee acknowledges that a violation of any of the agreements or
covenants contained herein could cause irreparable injury to the Employer and
there may be no adequate remedy at law for such violation. In the event of a
breach or a threatened breach by the Employee of the provisions of this
Agreement, the Employer shall have the right, in addition to any other remedies
available to it at law or in equity, to enjoin the Employee or any Employee
representatives, agents, employees of the Employee or employer of the Employee,
in a court of equity from violating any of the provisions hereof.
This subsection shall not be construed to limit in any manner
whatsoever any other rights and remedies an aggrieved party may have by virtue
of any breach of this Agreement.
13. Construction.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the State of
Connecticut.
14. Notices.
All notices under this Agreement shall be in writing and shall be
deemed to have been duly given when mailed by certified mail, return receipt
requested to the Employer at its principal place of business and to the Employee
at his residence address then listed in the
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<PAGE>
Employer's Records, or to such other addresses as either of them, by written
notice to the other, may from time to time designate. Time shall be counted from
the date of mailing.
15. Entire Agreement.
This instrument contains the entire Agreement among the parties and
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided forth herein and no modifications shall be
binding upon the party affected unless set forth in writing and duly executed by
each party affected.
16. Severability.
In the event that one or more of the provisions of this Agreement shall
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
17. Headings.
The descriptive headings of the several sections and paragraphs of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
18. Singular, Plural and Gender.
Unless the context otherwise requires, whenever used in this Agreement,
the singular shall include the plural, the plural shall include the singular and
the masculine gender shall include the neuter and feminine gender, and vice
versa.
19. Survival.
The provisions of Sections 6 through 11 inclusive shall survive any termination
of this Agreement.
20. Representation.
Employer and Employee acknowledge that the Law Firm of Kaplan, Heyman,
Greenberg, Engelman & Belgrad, P.A., and Stanley S. Fine, Esquire solely
represent Employer and that Employee has been previously advised by counsel for
the Employer that he should obtain an independent attorney to represent him with
respect to this matter. Employee is hereby on notice and is again being advised
that he should obtain independent legal counsel.
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<PAGE>
IN WITNESS WHEREOF, the parties do hereby sign, seal and deliver this
Employment Agreement.
WITNESS:
/s/ Kenneth Przysiecki /s/ Steven M. Saferin
- -------------------------- ----------------------------
STEVEN M. SAFERIN
EMPLOYEE
WITNESS: MEDIA DROP-IN PRODUCTIONS, INC.
/s/ Steven M. Saferin
/s/ Kenneth Przysiecki By: (SEAL)
- -------------------------- -------------------------
President
.
EMPLOYER
GUARANTY
--------
MDI Entertainment, Inc., for the purpose of inducing Employee to enter
into this Agreement, joins in this Agreement and does hereby absolutely and
unconditionally guarantee to Employee, his personal representatives and heirs,
the performance of all covenants and agreements of Employer under this
Agreement, including but not limited to payment of all salary and Present Value
Amount due hereunder.
MDI ENTERTAINMENT, INC.
By: ------------------------------
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<PAGE>
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
(the "Amendment") is made as of this 21st day of September, 1998, by and between
MEDIA DROP-IN PRODUCTIONS, INC., a Delaware corporation (the "Employer"), and
STEVEN M. SAFERIN (the "Employee").
WHEREAS, Employer and Employee entered into an Employment Agreement dated
August 27, 1993 (the "Original Agreement"), for Employee to act as Employer's
President and Chief Operating Officer; and
WHEREAS, Employer and Employee entered into an Amended and Restated
Employment Agreement dated as of November 1, 1995 (the "First Amended
Agreement") for Employee to act as Employer's President and Chief Executive
Officer; and
WHEREAS, Employer and Employee entered into a Second Amended and Restated
Employment Agreement dated as of August 8, 1997 (the "Second Amended Agreement")
whereby Employee extended the term of his employment; and
WHEREAS, Employer and Employee desire to amend the Second Amended Agreement
to modify the provision relating to incentive compensation, upon the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Section 4(b)(ii) of the Second Amended Agreement is hereby modified by
deleting the word "gross income" and inserting the words "gross revenue
calculated in accordance with generally accepted accounting principles" in lieu
thereof.
2. Except as expressly provided herein, the Second Amended Agreement shall
remain in full force and effect as if the terms hereof were expressly
incorporated therein.
3. This Amendment may be executed in counterparts, each of which shall be
deemed an original and each of which when taken together shall constitute one
and the same instrument.
SEE ATTACHED SIGNATURE PAGE
<PAGE>
IN WITNESS WHEREOF, the parties do hereby sign, seal and deliver this
Amendment.
WITNESS:
/s/ Kenneth M. Przysiecki /s/ Steven M. Saferin (SEAL)
- ------------------------- ----------------------------
Steven M Saferin
EMPLOYEE
WITNESS: MEDIA DROP-IN PRODUCTIONS, INC.
/s/ Kenneth M. Przysiecki /s/ Steven M. Saferin (SEAL)
- ------------------------- ----------------------------
, President
EMPLOYER
MDI Entertainment, Inc., as Guarantor of the Seconded Amended Agreement,
joins in this Amendment and does hereby absolutely and unconditionally guarantee
to Employee, his personal representatives and heirs, the performance of all
covenants and agreements of Employer under this Agreement.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
---------------------
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<PAGE>
EMPLOYMENT AGREEMENT Exhibit 6.2
EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 30th day of April,
1996, by and between MEDIA DROP-IN PRODUCTIONS, INC, a Delaware corporation (the
"Employer"), KENNETH PRZYSIECKI (the "Employee") and STEVEN M. SAFERIN
("Saferin").
WHEREAS, Employer is engaged in the video and audio recording supply and
lottery promotion business (the "Business"); and
WHEREAS, Employee desires to offer his professional services as an Employee
of the Employer.
WHEREAS, Employer desires to hire Employee to perform those functions set
forth on Exhibit A attached hereto and made a part hereof (the "Services"), and
Employee desires to accept such employment upon the terms and conditions herein
contained.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Employment.
The Employer hereby hires the Employee and the Employee hereby accepts
such employment as the Chief Financial Officer of Employer to render the
Services on behalf of the Employer, subject to the supervision and direction of
the Board of Directors of the Employer. Employee additionally agrees to serve as
an officer of Employer, if so elected by the Board of Directors.
2. Term.
The term of employment shall be for the period of one (1) year
commencing on October 1, 1995 and terminating on September 30, 1996. The term of
employment shall thereafter continue from year to year accounting from October 1
of each year, unless either party gives the other sixty (60) days advance
written notice prior to the expiration of the then current annual term of its
intention to terminate employment.
3. Duties.
The Employee hereby accepts employment by the Employer for the term and
upon the conditions set forth in this Agreement, and shall:
(a) During the term of this Agreement, the Employee shall render to
the very best of the Employee's ability, on behalf of and in the best interest
of the Employer, the Services to and
<PAGE>
for the Employer carrying on such Services in accordance with reasonable
policies and reasonable directives of the Employer from time to time
established.
(b) Devote such time, energy and skill reasonably necessary to the
performance of the Services for which the Employee is engaged, at such place or
places and during regular business days as well as the business hours during the
day necessary in order to accomplish the Services~in the Employer's best
interests, and in accordance with the ethical standards of the Employer from
time to time established.
(c) The Employee shall faithfully and industriously assume and perform
with skill, care, diligence and attention all responsibilities and duties
connected with his employment on behalf of the Employer.
(d) The Employee shall have no authority to enter into any contracts
binding upon the Employer, which would create any obligations on the part of the
Employer, except as may be specifically authorized by the Employer.
(e) During the employment with the Employer, the Employee shall not
engage in or perform services of any nature in any capacity with any business,
including, but not limited to any such business or organization competitive with
the Employer. The Employee shall work at all times during the period of
employment hereunder in the best interests of Employer and for the advancement
of the Employer and never knowingly take action against the best interests of
the Employer.
4. Compensation.
(a) Salary.
For all services to be rendered by the Employee to the Employer during
the first twelve (12) months of the term of such employment, the Employer shall
pay the Employee a salary of Ninety-Six Thousand Dollars ($96,000.00) per year
(the "Base Salary"), payable twice per month, in equal installments, during the
term of employment, with appropriate deduction therefrom for all federal, state
and local withholding taxes. The Employer shall evaluate the Employee's salary
on an annual basis. The Employer and Employee may, from time to time, reflect
increases and decreases in the Employee's compensation as may be mutually agreed
upon, in accordance with the foregoing, by evidencing such change in writing
signed by both parties.
(b) Incentive Compensation.
(i) (a) Throughout the term of employment, Employee shall be
entitled to a bonus based on the number of tickets redeemed by Employer pursuant
to contracts with state lotteries (including both U.S. and foreign lotteries) to
operate Employer's second chance lottery games (a "Direct Redemption") or the
number of tickets redeemed by related entities of Employer,
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<PAGE>
who pay a management fee to Employer (an "Indirect Redemption"), provided that
in no event shall any bonus be paid on any tickets redeemed which constitute an
"over-redemption". With respect to every ticket redeemed as part of a Direct
Redemption or an Indirect Redemption, Employee shall be entitled to a bonus in
the amounts provided below. Employee shall also be entitled to a bonus based on
the number of tickets redeemed by Employer or related entities of Employer
pursuant to contracts with third parties, other than lotteries, to operate
promotions and the bonus shall be in the amounts as provided below.
(b) The terms under this subparagraph (i) shall be in the amounts in
accordance with the following schedule:
<TABLE>
<CAPTION>
CONTRACT YEAR BONUS PER TICKET
------------- ----------------
<S> <C>
October 1, 1995 - September 30, 1996 .015 (1 1/2 cents)
October 1, 1996 - September 30, 1997 .02 (2 cents)
October 1, 1997 - September 30, 1998 .025 (2 1/2cents)
October 1, 1998 - September 30, 1999 .03 (3 cents)
and each year thereafter commencing October 1.
</TABLE>
For tickets redeemed by Employer other than for U.S. State lotteries, the bonus
per ticket above will be based on each Three Dollars ($3.00) earned from tickets
redeemed, expressed in U.S. Currency, as the case may be. In calculating the
amount of bonus payable under this subparagraph (i), the following examples are
used: During the period of October 1, 1995 -September 30, 1996, Employer redeems
100,000 tickets in U.S. Lotteries and Employee's bonus shall be $1,500.00;
during the same time period, Employee's gross revenues from other than U.S.
Lotteries is $100,000.00, as expressed in U.S. currency, Employee's bonus shall
be $500.00.
(c) The bonus under this subparagraph (i) shall be paid within thirty
(30) days after the end of each fiscal quarter that Employee remains employed
hereunder based on the number of tickets redeemed during that quarter. Related
entity as used in this subparagraph (i) shall include any subsidiary or
affiliated company of Employer.
(ii) (a) In the event that during the term of employment, there
occurs (A) a sale of all or substantially all of the assets of the Employer (an
"Asset Sale"), (B) the sale by Steven M. Saferin ("Saferin") of more than
one-half (1/2) of all of the capital stock owned by Saferin in Employer or (C) a
merger or consolidation to which the Employer is a party with a party other than
another entity controlled by Saferin, then Employee shall be entitled to an
additional bonus in an amount equal to either (X) five percent (5%) of the gross
cash consideration received by the Employer in any Asset Sale or (Y) in the
event of a transaction described in (B) or (C) above, five percent (5%) of the
cash consideration received by Saferin in connection with the transaction. The
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<PAGE>
bonus under this subparagraph (ii) shall be paid within thirty (30) days
after closing of the transaction giving rise to the bonus, provided that any
part of the bonus attributable to cash consideration to be paid in installments
shall be paid within thirty (30) days of receipt of the installment. Employee
shall not have to continue to remain employed in order to receive any such
installment payment.
(a) The provisions of this subparagraph (ii) shall be applicable for a
period of one year following the termination of employment of Employee under
Section 9(b) or (d) below and Section 9(a) below if Employer is the party giving
written notice to Employee of its intention to terminate employment.
(b) Saferin agrees to pay Employee's bonus for the transaction
described in (B) or (C) above by retaining Employee as a consultant pursuant to
the terms of an agreement to be in the form attached hereto as Exhibit C.
(c) Saferin joins in as a party to this Agreement for the sole purpose
of obligating himself to the terms and conditions of this subparagraph (ii) as
they may apply to Saferin.
5. Fringe Benefits.
The Employer only shall provide and furnish to the Employee, all fringe
benefits which Employer may from time to time generally make available to other
employees of the Employer, as determined by the Employer in its discretion,
including by way of example, health insurance comparable to the health insurance
being maintained for Employee's benefit prior to the date hereof, group
disability insurance and profit sharing plan. Employee shall additionally be
entitled to those fringe benefits listed on Exhibit B, attached hereto and made
a part hereof. Nothing herein contained shall create a contractual obligation on
the part of Employer to provide any particular fringe benefit to employees of
Employer holding comparable positions to that of Employee.
6. Records of the Employer.
The Employee, during the course of his employment with the Employer may
work on and be consulted with respect to matters for clients of the Employer.
All such matters are highly confidential. The Employee understands and agrees
that the Employee shall acquire no rights to any of this information. All
records, notes, memoranda, files, financial statements, client and client lists,
brochures, documents and all other similar material relating to the Employer or
the business of the Employer or those of its clients (hereinafter referred to as
the "Records") which shall come into the possession of the Employee, shall
remain and be deemed to be the property of the Employer. The Employee shall
promptly return any originals and all copies of the Records to the Employer upon
request. Upon cessation of employment for whatever reason, the Employee shall
promptly deliver to the Employer the Records in his possession or delivered to
or otherwise acquired by the Employee concerning the Employer or its clients.
4
<PAGE>
7. Non-Disclosure.
Except with the prior written consent of the Employer, which consent is
within the sole discretion of the Employer, the-Employee agrees that he will not
directly or indirectly, during or after the term of his employment, disclose or
reveal (except as Employee is required to disclose by court order, summons,
subpoena or similar process of law or to Employer's attorney in connection with
the foregoing) to or use for the Employee or others, the confidential
information of the Employer or its clients including, but not limited to
proprietary information, secrets, the lists of the Employer's clients, the lists
of employees of the Employer, any secret or confidential information or data
regarding the business of the Employer, any secret or confidential information
or data concerning the clients or prospective clients of the Employer. Such
business methods and secrets shall include but are not limited to programs, data
systems, processes, computer programs, computer systems, equipment and
configurations, financial information, pricing policies, names of employees,
names of clients, any information contained on any Records and all other
business knowledge and techniques of the Employer.
8. Non-Competition.
(a) Employee agrees that, during the term of this Agreement and for
the period of eighteen (18) months following the expiration of this Agreement,
the voluntary termination by Employee or the termination under paragraphs 9(e)
through (i), inclusive, hereinbelow of Employee's employment, Employee will not
(i) solicit any North American lottery customers of Employer; (ii) directly or
indirectly request or advise any of such Employer's customers to withdraw,
cancel or curtail such party's business with Employer; (iii) directly or
indirectly induce any of such customers to patronize any business which is
competitive with Employer; or (iv) be engaged in, render service to or compete
in the lottery promotion business in connection with any lottery in North
America (the "Geographic Territory").
(b) Employee agrees that his promises herein made so to refrain from
engaging in the activities stated herein means that he will not, directly or
indirectly, either individual on his own account or as partner, employee, agent,
consultant, or salesperson of or for any person, firm, association or
corporation, or as officer, director or stockholder of any corporation, engage
in the activities described in subparagraph (a) hereof in the Geographic
Territory for the period provided.
9. Termination.
The employment of the Employee shall terminate upon the occurrence of
any one of the following conditions or events:
(a) At any time by written notice from either party to the other at
least sixty (60) days prior to the date that such termination is to be
effective;
(b) By the dissolution or liquidation of the Employer;
5
<PAGE>
(c) At the election of the Employer, upon a sale of all or
substantially all of the assets of Employer, or a change of the majority
ownership of the Employer from the ownership as of the date of this Agreement;
(d) By the death or disability of the Employee;
(e) In the event the Employee shall fail or refuse to faithfully or
diligently perform the provisions of this Agreement or the usual customary
duties of his employment and such failure is not corrected within ten (10) days
of written notice from Employer;
(f) In the event that the Employee conducts himself in an
unprofessional, unethical, immoral or fraudulent manner, and such conduct is not
corrected with ten (10) days of written notice from the Employer;
(g) In the event that the Employee is convicted of a felony;
(h) The withholding by Employee of any fees or income rightfully
belonging to Employer.
With the exception of subsection (a) set forth above, no prior notice is
required for the termination of the Employee's employment to become effective.
For the purposes of subparagraph (d) hereof, "disability" shall mean a physical
or mental illness, which results in Employee not being able to carry out his
duties under this Agreement for a period of six (6) consecutive months. As of
the date of termination, Employer shall be responsible to pay to Employee only
such salary and incentive compensation as has been earned by Employee prior to
the date of termination and Employer shall have no further obligations to
Employee. Notwithstanding the foregoing, in the event that Employee is
terminated under subparagraph (d) hereof or under subparagraph (a) hereof if
Employer is the party giving written notice to Employee of its intention to
terminate employment, then Employee shall be entitled to receive as severance
pay an amount equal to three (3) months of then current Base Salary for each
full year and one (1) month of such Base Salary for each four (4) months of a
partial year that Employee was employed by Employer prior to such termination,
provided that the maximum amount of severance pay shall equal one (1) year of
Employee's then current Base Salary. Severance pay shall be paid in equal
bi-monthly installments commencing with Employer's next pay period immediately
after termination of employment for a period equal to the number of months of
Base Salary that Employee is to receive as severance pay.
10. Death of Employee.
In the event that Employee shall die before receipt of any salary and
incentive compensation due hereunder, such salary and incentive compensation
shall be paid to the estate or heirs of Employee, as the case may be.
6
<PAGE>
11. Indemnification.
The Employee agrees to indemnify, save and hold the Employer and its
officers, directors and stockholders harmless from any and all claims and
damages which may arise out of or result from or in connection with arty breach
by the Employee of the provisions herein, including, but not limited to
reasonable attorney's fees and litigation and legal expenses, if Employer shall
prevail in such litigation, provided that if Employee shall prevail in such
litigation, then Employer shall pay Employee's reasonable attorney's fees and
litigation and legal expenses. For purposes of the obligations of Employee set
forth in paragraphs 1, 3(a), 3(b), and 3(c) hereof, Employee shall not be deemed
to be in breach of such obligations unless Employer shall have given Employee
written notice of the nature of such breach, and Employee shall have failed to
cure the breach within fifteen (15) days after receipt of such written notice.
12. Enforceability.
The Employee acknowledges that the restrictions contained herein,
including those contained in Sections 6, 7, 8 and 10 hereof, are reasonable, but
agrees that if any court of competent jurisdiction shall hold any such
restrictions unreasonable as to time, activities, or otherwise, such restriction
shall be deemed to be reduced to the extent necessary in the opinion of the
court to make it reasonable.
The covenants of the Employee set forth herein are the essence of this
Agreement; they shall be construed as independent of any other provisions in
this Agreement; and the existence of any claim or cause of action of the
Employee against the Employer, whether predicated on this Agreement or not,
shall not constitute a defense to the enforcement by the Employer.
13. Remedies.
The Employee acknowledges that a violation of any of the agreements or
covenants contained herein could cause irreparable injury to the Employer and
there may be no adequate remedy at law for such violation. In the event of a
breach or a threatened breach by the Employee of the provisions of this
Agreement, the Employer shall have the right, in addition to any other remedies
available to it at law or in equity, to enjoin the Employee or any Employee
representatives, agents, employees of the Employee or employer of the Employee,
in a court of equity from violating any of the provisions hereof.
This subsection shall not be construed to limit in any manner
whatsoever any other rights and remedies an aggrieved party may have by virtue
of any breach of this Agreement.
14. Construction.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the State of
Connecticut.
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<PAGE>
15. Notices.
All notices under this Agreement shall be in writing and shall be
deemed to have been duly given when mailed by certified mail, return receipt
requested to the Employer at its principal place of business and to the Employee
at his residence address then listed in the Employer's Records, or to such other
addresses as either of them, by written notice to the other, may from time to
time designate. Time shall be counted from the date of mailing.
16. Entire Agreement.
This instrument contains the entire Agreement among the parties and
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided forth herein and no modifications shall be
binding upon the party affected unless set forth in writing and duly executed by
each party affected.
17. Severability.
In the event that one or more of the provisions of this Agreement shall
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
18. Headings.
The descriptive headings of the several sections and paragraphs of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
19. Singular, Plural and Gender.
Unless the context otherwise requires, whenever used in this Agreement,
the singular shall include the plural, the plural shall include the singular and
the masculine gender shall include the neuter and feminine gender, and vice
versa.
20. Survival.
The provisions of Sections 6 through 12 inclusive shall survive any
termination of this Agreement.
IN WITNESS WHEREOF, the parties do hereby sign, seal and deliver this
Employment Agreement.
WITNESS:
/s/ Gail Hilliard /s/ Kenneth Przysiecki
8
<PAGE>
- --------------------------- ---------------------------(SEAL)
KENNETH PRZYSIECKI
EMPLOYEE
MEDIA DROP-IN PRODUCTIONS, INC.
/s/ Linda L. Saferin /s/ Steven M. Saferin
- --------------------------- ---------------------------(SEAL)
, President
EMPLOYER
/s/ Linda L. Saferin /s/ Steven M. Saferin
- --------------------------- ---------------------------(SEAL)
STEVEN M. SAFERIN
SAFERIN
9
<PAGE>
ADDENDUM
Reference: Section 4 (b) (ii) Incentive Compensation portion of Employment
Agreement Between Media Drop-In Productions, Inc. and Kenneth
Przysiecki dated April 30, 1996
It is agreed that consideration, as discussed in this section, includes
stock or stock options that may be granted to Steven Saferin in addition to or
in lieu of cash. As such, the Employee is entitled to 5% of the stock or stock
options as well. However, stock options conveyed to the Employee, if exercised
and no longer with the Company, will be revalued as of the last day of the
Employee's employment. Therefore the Employee will realize no greater gain then
he would if exercised his last day of employment (i.e. Option at $1.00 per
share, stock value as of last employment date is $3.00, stock price at option
date $6.00; therefore revised option price would be original option price of
$1.00 Plus spread between $3.00 and $6.00 or $4.00). Such gain shall be payable
on a pro rata basis as Steven Saferin sells his stock.
/s/ Gail Hilliard /s/ Kenneth Przysiecki
- ----------------------- ------------------------------
Kenneth Przysiecki
Employee
Media Drop-In Productions, Inc.
/s/ Linda L. Saferin
- ------------------------ By: /s/ Steven M. Saferin
--------------------------------
Steven M. Saferin, President
Employer
/s/ Linda L. Saferin /s/ Steven M. Saferin
- ----------------------- --------------------------------
Steven M. Saferin
Saferin
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Addendum
Date: April 2, 1998
To: Steve Saferin
From: Kenneth Przysiecki
Re: Addendum to Employment Agreement dated April 30, 1996
The following changes are made to Sections 4(a),4(b),4(c) and 4(c)(ii)(a):
4(a) Salary
Effective June 1, 1998 base compensation will change to One Hundred
Thirty Six Thousand Dollars ($136,000) per year.
4(b) Incentive Compensation subparagraph is deleted and replaced by the
following::
Effective June 1, 1998 a bonus will be calculated at one half percent
(.5%) of all trade revenue of MDI Entertainment and all wholly-owned
entities of MDI Entertainment. In the event MDI Entertainment owns less
than 100% of an entity such bonus shall be reduced proportionately to
reflect MDI's ownership interest. Example: Consolidated trade revenue
of wholly owned entities equals $3 million. Bonus would be $15,000.
Trade revenue of entities 50% owned by MDI equals $3 million. Bonus
would be $7,500.
4(c) This section is deleted and replaced by the following:
The bonus under this subparagraph 4(b) shall be paid within thirty (30)
days after the end of each fiscal quarter that Employee remains
employed hereunder.
4(c)(ii)(a) The first line of this section shall be changed to read:
In the event that during the term of employment "after the date of the
Addendum dated April 2, 1998" there occurs......
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All other provisions of this agreement remain in effect.
/s/ Kenneth Przysiecki 4/9/98
--------------------------------
Kenneth Przysiecki
Employee
MDI Entertainment, Inc.
By:/s/ Steven M. Saferin 4/9/98
---------------------------------
Steven M. Saferin, President
Employer
/s/ Steven M. Saferin 4/9/98
---------------------------------
Steven M. Saferin
Saferin
2
<PAGE>
FIRST AMENDED AND RESTATED Exhibit 6.3
CONSULTING AGREEMENT -----------
THIS FIRST AMENDED AND RESTATED AGREEMENT made this 8th day of August,
1997, by and between MEDIA DROP-IN PRODUCTIONS, INC. a Delaware corporation,
("MDI") and 1010 PRODUCTIONS, INC. ("Consultant").
RECITALS
WHEREAS, MDI is a corporation which desires to engage in the audio and
video recording supply and lottery and lodging promotion business (the
"Business"); and
WHEREAS, Consultant is knowledgeable regarding the Business as a result
of prior service with MDI; and
WHEREAS, Consultant is willing to act as a consultant for MDI, and MDI
desires the service of Consultant as a consultant, upon the terms and conditions
herein contained.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, MDI and Consultant agree as
follows:
1. Consulting Services. MDI hereby contracts for the services of
Consultant, as an independent contractor consultant, and Consultant agrees to
render such services, upon the terms and conditions herein contained. Nothing
herein contained shall require Consultant to maintain any fixed schedule or
minimum number of hours of work. The services to be rendered by Consultant are
as follows:
(a) During the term of this Agreement (as defined in Paragraph
2 below) Consultant shall perform the following services: (i) Consultant shall
be available at reasonable times for purposes of telephonic consultation with
MDI, its officers and directors,, with regard to the management and marketing of
the business of MDI and such other areas as MDI may request; (ii) when
reasonably requested, Consultant shall participate in meetings with the
management or the customers or suppliers of MDI, (iii) if requested by MDI,
Consultant shall attend the trade shows listed on Exhibit A, attached hereto and
incorporated herein and such other trade shows in which MDI participates, at the
expense of MDI, including Consultant's transportation, lodging and meal
expenses; and (iv) Consultant shall use reasonable efforts to maintain contacts
in the lottery industry which it has developed during prior service to MDI by
attendance at trade shows listed on Exhibit A, making sales calls to said
contacts and correspondence with said contacts.
In carrying out the foregoing, Consultant shall use its best efforts to
further MDI's interest and not to in any way, directly or indirectly, injure the
reputation of MDI.
<PAGE>
(b) Consultant shall faithfully and industriously assume and
perform with skill, care, diligence and attention all responsibilities and
duties imposed upon Consultant under this Agreement.
(c) Consultant shall have no authority to enter into any
contracts binding upon MDI, which would create any obligations on the part of
MDI, except as may be specifically authorized by MDI..
(d) During the term of this Agreement, Consultant shall not
engage and/or perform services of any nature in any capacity for any person,
corporation, partnership or other entity in the Business, provided that the
foregoing shall not in any way restrict or prohibit Consultant from engaging in
any other consulting services, employment or other gainful activity outside of
the Business.
(e) During the term of this Agreement, Consultant shall make
available Linda Kesterson-Saferin to provide the services to be performed under
this Agreement.
2. Term. This Agreement shall be binding and fully enforceable against
the parties immediately upon the execution hereof. The term of this Agreement
(the "Term") shall be for a period commencing on August 1, 1994 and this
Agreement shall terminate on February 29, 2,000 and shall be renewable by
Consultant for two additional one (1) year periods, upon thirty (30) days prior
written notice by Consultant. After the two (2) renewal terms described above,
this Agreement shall automatically renew from year to year, unless either party
gives the other written notice of its intention not to renew this Agreement at
least ninety (90) days prior to the expiration of the original term or any
annual renewal.
3. Compensation.
(a) Consulting Fee. For the consulting services to be rendered
hereunder, MDI shall pay to Consultant during the period from the date hereof
through February 28, 1998, a consulting fee in the amount of Ninety-Six Thousand
Dollars ($96,000.00) payable in equal semi monthly installments of Four Thousand
Dollars ($4,000.00). On March 1, 1998 and on each anniversary thereafter, the
consulting fee shall be increased to an amount equal to the greater of (i) the
salary payable in the previous year increased by five percent (5%) or (ii) the
consulting fee payable in the previous year multiplied by a fraction, the
numerator of which shall be the Consumer Price Index (the "CPI") as of the last
day of the previous twelve (12) month period and the denominator of which shall
be the CPI as of the last day of the second previous twelve (12) month period
(except that to determine the denominator for the adjustment for the second year
of this Agreement, the denominator shall be the CPI as of the date of the
Agreement). In no event, however, shall the consulting fee be increased by more
than ten percent (10%) over the consulting fee for the then immediately
preceding year. The adjusted consulting fee thereby established shall continue
in effect as the consulting fee until again adjusted as herein provided. As used
herein, the term "Consumer Price Index" or "CPI" shall mean the Consumer Price
Index for All Urban Consumers
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<PAGE>
("CPI-U"), Hartford, Connecticut, all items (1982-1984 = 100) issued and
published by the Bureau of Labor Statistics of the United States Department of
Labor. In the event that CPI-U ceases to use a 1982-1984 base rate of 100 as a
basis for calculation, or if substantial changes made in the terms or number of
items contained in CPI-U, then CPI-U shall be adjusted to the figure that would
have been arrived at had the manner of computing the CPI-U is in effect as of
the date of this Lease not been altered. If CPI-U is not available, the term
Consumer Price Index shall mean (i) a successor or substitute index to CPI-U,
appropriately adjusted; or (ii) if such a successor or substitute index is not
available or may not lawfully be used for the purposes herein stated, a reliable
governmental or other non-partisan publication selected by Employer evaluating
the information theretofore used in determining CPI-U. The Employer and Employee
may, from time to time, reflect increases and decreases in the Employee's
compensation as may be mutually agreed upon, in accordance with the foregoing,
by evidencing such change in writing signed by both parties.
(b) Consultant Expenses. MDI shall be responsible for all
reasonable expenses of Consultant in connection with the performance of services
under this Agreement. Consultant shall be reimbursed by MDI for out-of-pocket
expenses within thirty (30) days after submission of invoices therefore by
Consultant to MDI. In addition, MDI shall pay to Consultant an automobile
allowance in the amount of One Thousand Dollars ($1,000.00) per month.
4. Independent Contractor Status. Consultant shall perform services for
MDI pursuant to this Agreement as an Independent Contractor and will not for any
purposes be treated as an employee with respect to such services, including for
purposes of federal and/or state taxes. Consultant will pay its self-employment
and any and all income taxes and other taxes of any type or description
whatsoever without withholding or contribution by MDI. Accordingly, it is
recognized by both parties that there will be no withholding by MDI of any FICA,
FUTA or Federal or State income taxes, unless such withholding is required under
any existing or future internal revenue law with respect to payments to
independent contractors. Additionally, Consultant acknowledges that it shall not
be entitled to fringe benefits of any nature, as a result of her serving as a
Consultant pursuant to the terms of this Agreement, including, but not limited,
pension benefits, life insurance, health insurance, paid vacation, use of
company vehicles, or any other benefits similarly offered by MDI to its
employees. Consultant is under the control of MDI as to the result of
Consultant's work only and not as to the means by which such results are
accomplished. This Agreement shall not be construed as a partnership and neither
party hereto shall be liable for any obligation incurred by the other except as
provided elsewhere herein.
5. Records of MDI. Consultant, during the Term of this Agreement, may
work on and be consulted with respect to matters for customers of MDI. All such
matters are highly confidential. Consultant understands and agrees that
Consultant shall acquire no rights to any of this information. All records,
notes, memoranda, files, financial statements, client and customer lists,
brochures, documents and all other similar material relating to MDI or its
business or those of its customers shall remain and be deemed to be the property
of MDI. Consultant shall promptly return any originals and all copies of the
Records to MDI upon request. Upon the termination of this Agreement
3
<PAGE>
for whatever reason, Consultant shall promptly deliver to MDI the records in its
possession or delivered to or otherwise acquired by her concerning MDI or its
clients.
6. Non-Disclosure. Except with the prior written consent of MDI, which
consent is within the sole discretion of MDI, Consultant agrees that it will not
directly or indirectly, during or after the Term of this Agreement, disclose or
reveal (except as Consultant is required to disclose by court order, summons,
subpoena or similar process of law or to Consultant's attorney in connection
with the foregoing) to or use for itself or others, the confidential information
of MDI or its customers including, but not limited to proprietary information,
secrets, the lists of MDI's customers, the lists of employees of MDI, any secret
or confidential information or data regarding the business of MDI, any secret or
confidential information or data concerning the customers or prospective
customers of MDI. Such business methods and secrets shall include but are not
limited to programs, data systems, processes, computer programs, computer
systems, equipment and configurations, financial information, pricing policies,
names of employees, names of customers, any information contained on any Records
and all other business knowledge and techniques of MDI.
7. Indemnification. Consultant agrees to indemnify, save and hold MDI
and its officers, directors and stockholders harmless from any and all claims
and damages which may arise out of or result from or in connection with any
breach by Consultant of the provisions herein, including, but not limited to
MDI's reasonable attorney's fees and litigation and legal expenses, if MDI shall
prevail in such litigation, provided that if Consultant shall prevail in such
litigation, then MDI shall pay Consultant's reasonable attorney's fees and
litigation and legal expenses. For purposes of the obligations of Consultant set
forth in Paragraph 1 hereof, Consultant shall not be deemed to be in breach of
such obligations, unless MDI shall have given Consultant written notice of the
nature of such breach, and Consultant shall have failed to cure the breach
within fifteen (15) days after receipt of such written notice. MDI shall be
entitled to set-off against the payments due to Consultant under Paragraph 3
hereof, any amounts due from Consultant under this Paragraph 7.
8. Termination.
(a) MDI shall have the right to terminate this Agreement for
"good cause" upon the occurrence of any one of the following conditions or
events:
(i) By the death or disability of the Consultant;
(ii) In the event the Consultant shall fail or refuse
to faithfully or diligent perform the provisions of this Agreement and such
failure is not corrected within thirty (30) days of written notice from MDI;
(iii) In the event that the Consultant is convicted
of a felony;
(iv) The withholding by Consultant of any fees or
income rightfully belonging to MDI.
4
<PAGE>
For the purposes of said subsection (a)(i) above, "disability" shall
mean a physical or mental illness, which results in Employee not being able to
carry out her duties under this Agreement for a period of six (6) consecutive
months. As of the date of termination, MDI shall be responsible to pay to
Consultant only such fees and expenses due Consultant prior to the date of
termination and MDI shall have no further obligations to Consultant.
(b) Consultant shall have the right to terminate this
Agreement, in its sole discretion upon ninety (90) days prior written notice
(the "Termination Date") of termination to MDI. In such event, MDI shall pay
Consultant any fees and expenses due to Consultant through the Termination Date
within ten (10) days following the termination date.
(i) Consultant shall have the right to terminate
this Agreement at any time for "good reason" upon not less than thirty (30) days
prior written notice to MDI specifying in reasonable detail the reason
therefore. For purposes of this Section 9., "good reason" means any of the
following:
((a)) The failure of MDI, within ten (10)
business days after the Consultant has provided written notice to the Board of
Directors of MDI (with a copy to the President of Command Entertainment, Inc.)
requesting any payment of fees or reimbursable expenses due and owing to the
Consultant hereunder, to make said payment to the Consultant.
((b)) MDI requires the Consultant to be
based at any office or location more than twenty-five (25) miles from the office
at which Consultant is based as of the date of this Agreement, except for travel
reasonably required in the performance and discharge of the Consultant's tasks
and duties hereunder, and unless MDI and Consultant agree that such requirement
shall not constitute "good reason";
((c)) Any failure by MDI Entertainment, Inc.
("Parent") to obtain the assumption of this Agreement by any successor of
Parent;
((d)) Any material change by MDI in the
Consultant's function, duties, or responsibilities from those contemplated
herein, without the prior written consent of the Consultant;
((e)) Any pattern or practice of harassment
or other conduct by the Board of Directors or senior management of MDI or Parent
intended to provoke the Consultant's resignation, or which modifies in any
material adverse respect the manner in which the business of MDI is operated
from the manner in which MDI's business has been operated prior to the date
hereof;
(c) In the event that, on or before February 28, 2002, MDI
terminates the Consultant's services without "good cause" or Consultant
terminates the Agreement for "good
5
<PAGE>
reason", MDI shall pay to the Consultant or, in the event of the Consultant's
death subsequent to the date of termination or resignation, to the Consultant's
estate, in addition to the fees and reasonable expenses to Consultant prior to
the date of termination (computed pro rata through the date of termination), an
amount equal to the present value sum of the consulting fee fixed at the
consulting fee rate on the date of termination or resignation which the
Consultant would have received through February 28, 2002 had her services not
been terminated or had she not resigned ("Present Value Amount"). The Present
Value Amount shall be payable in twelve (12) consecutive, equal monthly payments
commencing on the fifteenth (15th) day of the month immediately following the
month in which the termination or resignation occurred. In determining the
present value amount, a discount factor equal to the prime rate as published in
The Wall Street Journal shall be used.
9. Default. MDI shall not be deemed to be in default of any of its
obligations to Consultant hereunder, unless and until Consultant shall have
given MDI written notice thereof and MDI fails to cure such default within
fifteen (15) days after receipt of such written notice.
10. Remedies. Consultant acknowledges that violation of any of the
agreements or covenants contained herein could cause irreparable injury to MDI
and there may be no adequate remedy at law for such violation. In the event of a
breach by Consultant of the provisions of this Agreement, MDI shall have the
right, in addition to any other remedies available to it at law or in equity, to
enjoin Consultant or any of Consultant's representatives, agents, employees of
Consultant or the employer of Consultant, in a court of equity from violating
any of the provisions hereof.
This Subsection shall not be construed to limit in any manner
whatsoever any other rights and remedies an aggrieved party may have by virtue
of any breach of this Agreement.
11. Miscellaneous.
(a) This Agreement shall be binding upon and the benefits
shall inure to the heirs, successors and assigns of the parties hereto, subject
to Paragraph 13 (c) below.
(b) All notices provided for under this Agreement shall be in
writing and shall be sufficient if sent by certified mail to the following
listed addresses of the parties hereto or to such other address as shall be
designed in writing to the other party:
MDI: c/o Steven M. Saferin, President
201 Ann Street
Hartford, CT 06013
With a copy to: Stanley S. Fine, Esquire.
Kaplan, Heyman, Greenberg, Engelman
& Belgrad, P.A.
20 S Charles Street, 10th Floor
Baltimore, MD 21201
6
<PAGE>
CONSULTANT: Linda Kesterson-Saferin
1010 Productions, Inc.
1 High Meadow Road
Bloomfield, CT 06002
(c) This Agreement is personal to the parties hereto and may
not be assigned, sold or otherwise conveyed by either of them, except as
follows: (i) MDI may assign or sell its rights hereunder in connection with a
sale of all or substantially all of the assets of MDI, provided that at the time
of such sale, MDI shall be required to satisfy all payment obligations to
Consultant under this Agreement, even if such payments are not yet due; and (ii)
Consultant shall be permitted to assign its rights hereunder to an entity
controlled at least fifty percent (50%) by Consultant, without the consent of
MDI.
(d) The failure of any party hereto to enforce at any time any
of the provisions or terms of this Agreement shall not be construed to be a
waiver of such provision or term, nor of the right of any party thereafter to
enforce such term or provision.
(e) This Agreement constitutes the entire Agreement between
MDI and Consultant regarding rendering consulting services, and there are no
agreements or understandings concerning such Agreement which arc not fully set
forth herein or in other agreements referenced herein.
(f) If any provision of this Agreement is invalid or
unenforceable in any jurisdiction, the other provisions herein shall remain in
full force and effect in such jurisdiction and shall be liberally construed in
order to effectuate the purpose and intent of this Agreement, and the invalidity
or unenforceability of any provision of this Agreement in any jurisdiction shall
not affect the durability of enforceability of any such provision in any other
jurisdiction.
(g) The titles of the paragraphs throughout this Agreement are
for convenience and reference only, and the words contained therein shall in no
way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this instrument.
(h) Whenever any provision in this Agreement assumes a right
or responsibility to MDI or Consultant after termination of this Agreement said
right or responsibility shall survive the termination of this Agreement.
(i) MDI and Consultant acknowledge that the law firm of
Kaplan, Heyman, Greenberg, Engelman & Belgrad, P.A. and Stanley S. Fine, Esquire
solely represent MDI and that Consultant has been previously advised by counsel
for MDI that she should obtain an independent attorney to represent her with
respect to this matter. Employee is hereby on notice and is again being advised
that she should obtain independent legal counsel.
7
<PAGE>
(j) The provisions of Paragraphs 5 through 7 inclusive and
Paragraph 11 shall survive any termination of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed, or caused to be
signed this Consulting Agreement as a document under seal as of the date of
first above written.
WITNESS: MEDIA DROP-IN PRODUCTIONS, INC.
/s/ Barry Weiskopf /s/ Steven M. Saferin
- ----------------------- By:
----------------------------------
Steven M. Saferin, President
10120 PRODUCTIONS, INC.
/s/ Barry Weiskopf /s/ Linda Kesterson-Saferin
- ----------------------- By:
----------------------------------
Linda Kesterson-Saferin, President
GUARANTY
--------
MDI Entertainment, Inc., for the purpose of inducing Consultant to
enter into this Agreement, joins in this Agreement and does hereby absolutely
and unconditionally guarantee to Consultant, her heirs, personal representatives
and assigns, the performance of all covenants and agreements of MDI under this
Agreement, including but not limited to payment of all fees, reimbursable
expenses and Present Value Amount due hereunder.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
-------------------------
9
<PAGE>
Exhibit 6.4
INDENTURE OF LEASE
BETWEEN
ANN STREET LIMITED PARTNERSHIP
AND
MEDIA DROP-IN PRODUCTIONS, INC.
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEMISED PREMISES.........................................................................................1
2. BUILDING AND IMPROVEMENTS................................................................................1
3. TERM.....................................................................................................2
4. COMMENCEMENT DATE........................................................................................2
5. USE......................................................................................................2
6. MINIMUM RENT.............................................................................................2
7. ADJUSTMENTS OF RENT FOR CHANGES IN REAL ESTATE TAXES, OPERATING COSTS....................................3
8. SECURITY DEPOSIT.........................................................................................6
9. LICENSE TO COMMON AREAS..................................................................................7
10. BUILDING OPERATIONS/UTILITIES............................................................................7
11. ADDITIONAL RENT..........................................................................................8
12. PLACE OF PAYMENTS........................................................................................9
13. NO PARTNERSHIP...........................................................................................9
14. TENANT'S INSTALLATION AND ALTERATIONS....................................................................9
15. COMPLIANCE WITH LAWS.....................................................................................9
16. SIGNS...................................................................................................10
17. ASSIGNMENT..............................................................................................10
18. REPAIRS. REPLACEMENTS AND RENEWALS......................................................................10
19. TENANT'S FAILURE TO REPAIR..............................................................................11
20. LIENS...................................................................................................11
21. LIABILITY AND INDEMNITY.................................................................................12
22. WAIVER OF SUBROGATION...................................................................................12
23. INSURANCE...............................................................................................13
24. INCREASE IN INSURANCE PREMIUMS..........................................................................14
25. DESTRUCTION.............................................................................................15
26. CONDEMNATION............................................................................................16
27. ACCORD AND SATISFACTION.................................................................................16
28. DEFAULT.................................................................................................17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
29. ACCESS TO PREMISES......................................................................................20
30. SUBORDINATION...........................................................................................21
31. ATTORNMENT..............................................................................................21
32. ATTORNEY-IN-FACT........................................................................................21
33. QUIET ENJOYMENT.........................................................................................22
34. FORCE MAJEURE...........................................................................................22
35. END OF TERM.............................................................................................22
36. HOLDING OVER............................................................................................23
37. NO WAIVER...............................................................................................23
38. NOTICES.................................................................................................23
39. RECORDING...............................................................................................24
40. PARTIAL INVALIDITY......................................................................................24
41. SUCCESSORS AND ASSIGNS..................................................................................24
42. ENTIRE AGREEMENT, ETC...................................................................................24
43. COVENANTS AND AGREEMENTS OF TENANT......................................................................24
44. LIMITATION OF LIABILITY.................................................................................25
45. CAPTIONS................................................................................................25
46. GOVERNING LAW: COMMERCIAL TRANSACTION AND WAIVER........................................................26
47. BROKERS.................................................................................................26
48. PARKING PRIVILEGES......................................................................................26
49. OPTION TO RENT..........................................................................................26
50. TENANT'S RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE...............................................27
</TABLE>
-ii-
<PAGE>
INDENTURE OF LEASE
THIS LEASE, ("Lease") made as of this day of June 1992 by and between ANN
STREET LIMITED PARTNERSHIP, a Connecticut limited partnership acting herein by
TUNXIS MANAGEMENT CO., II, its General Partner with its office in the Town of
New Britain, County of Hartford and State of Connecticut, (hereinafter referred
to as "Landlord"), and MEDIA DROP-IN PRODUCTIONS, INC., a Delaware corporation
with its office in the Town of Hartford, County of Hartford and State of
Connecticut, (hereinafter referred to as "Tenant").
W I T N E S S E T H
1. DEMISED PREMISES
(a) Landlord leases to Tenant and Tenant rents from Landlord those
certain premises located in the City of Hartford, County of Hartford, and State
of Connecticut, which premises are described as follows: approximately 3,379
square feet of space in a commercial building as shown and designated on that
certain area sketch or floor plan attached hereto as Exhibit "A", and made a
part hereof, (hereinafter called "Demised Premises") and located in the premises
known as 199-203 Ann Street, in said City of Hartford, County of Hartford and
State of Connecticut (hereinafter called "Entire Premises", or the "Building",
or the "Site").
(b) Use and occupancy by Tenant of the Demised Premises shall include
the use in common with Landlord and others of the common areas and facilities,
as hereinafter more fully provided. However, nothing herein shall be construed
to give Tenant exclusive rights in any Common Area.
(c) Nothing herein contained shall be construed as a grant or rental
by Landlord to Tenant of the roof and exterior walls of the Building of which
the Demised Premises form a part, or the walks and other common areas beyond the
Demised Premises.
(d) The Tenant shall accept the Demised Premises, improvements, and
all fixtures and equipment on or in the Demised Premises, in their existing
condition. No representation, statement or warranty, express or implied, has
been made by or on behalf of the Landlord as to such condition, or as to the use
to be made of such property. The taking of possession of the Demised Premises by
the Tenant shall be conclusive evidence that the Tenant accepts the same "as is"
and that the Demised Premises were in good condition at the time possession was
taken. In no event shall Landlord be liable for any defect in such Demised
Premises or for any limitation on its use.
2. BUILDING AND IMPROVEMENTS
(a) Any "HANDICAPPED" parking spaces shall be for the benefit of the
Entire Premises as it may be developed from time to time.
<PAGE>
(b) Landlord and Tenant agree that Landlord shall perform at its sole
cost and expense the Tenant finish work as detailed in Exhibit "B", attached
hereto and made a part hereof.
(c) Tenant shall be responsible at its sole cost and expense for its
own equipment needs including installation and wiring if required.
3. TERM
The term of this Lease shall be for five (5) years commencing on the
Commencement Date as provided in Paragraph 4 below and expiring at midnight on
the Termination Date, unless sooner terminated as hereinafter provided.
4. COMMENCEMENT DATE
The term of this Lease shall commence on the earlier of the date that
Tenant opens for business or two (2) weeks after the date that either a
temporary or permanent Certificate of Occupancy is issued for the Demised
Premises from the City of Hartford (the "Commencement Date"). The term of this
Lease shall expire sixty three (63) months after the Commencement Date (the
"Termination Date"), unless sooner terminated as provided in this Lease. In the
event that a Certificate of Occupancy has not been obtained by Landlord by
August 1, 1992, at Tenant's option, this Lease shall be terminated, Landlord
shall return all deposits made by Tenant and neither party shall have any claims
against the other.
5. USE
Tenant shall use the Demised Premises for general office purposes and
any use incidental thereto. All other uses or purposes are strictly prohibited.
Tenant shall not at any time use or occupy, or suffer or permit anyone to use or
occupy, the Demised Premises or do or permit anything to be done in the Demised
Premises which: (a) causes or is liable to cause injury to persons, to the
Building or its equipment, facilities or systems; (b) impairs or tends to impair
the character, reputation or appearance of the Building; (c) impairs or tends to
impair the proper and economic maintenance, operation and repair of the Building
or its equipment, facilities or systems; or (d) annoys or inconveniences or
tends to annoy or inconvenience other tenants or occupants of the Building.
6. MINIMUM RENT
(a) For the entire term of this Lease, the fixed minimum rent shall be
$240,753.78 payable by Tenant to Landlord, as follows:
(i) The fixed minimum rent during the first lease year of this
Lease shall be payable by Tenant at the annual rate of
TWENTY NINE THOUSAND FIVE HUNDRED SIXTY SIX AND 29/100
-2-
<PAGE>
($29,566.29) DOLLARS payable in advance in monthly
installments on the 1st day of each month as follows:
<TABLE>
<S> <C>
Month 1 through Month 3 No Rent Due
Month 4 through Month 6 $1,971.09
Month 7 through Month 12 $3,942.17
</TABLE>
(ii) The fixed minimum rent during the second and third lease
years of this Lease shall be payable by Tenant at the annual
rate of FORTY SEVEN THOUSAND THREE HUNDRED SIX AND 00/100
($47,306.00) DOLLARS payable in advance in equal monthly
installments of THREE THOUSAND NINE HUNDRED FORTY TWO AND
17/100 ($3,942.17) DOLLARS on the 1st day of each month.
(iii) The fixed minimum rent during the fourth lease year of this
Lease shall be payable by Tenant at the annual rate of FIFTY
ONE THOUSAND ONE HUNDRED SEVEN AND 37/100 ($51,107.37)
DOLLARS payable in advance in monthly installments on the
1st day of each month as follows:
<TABLE>
<S> <C>
Month 1 through Month 3 $3,942.17
Month 4 through Month 12 $4,364.54
</TABLE>
(iv) The fixed minimum rent during the fifth and sixth lease
years of this Lease shall be payable by Tenant at the annual
rate of FIFTY TWO THOUSAND THREE HUNDRED SEVENTY FOUR AND
50/100 ($52,374.50) DOLLARS payable in advance in equal
monthly installments of FOUR THOUSAND THREE HUNDRED SIXTY
FOUR AND 54/100 ($4,364.54) DOLLARS on the 1st day of each
month.
(b) The phrase "minimum rent" shall mean the fixed minimum rent above
specified without any set-offs or deductions whatsoever and without any prior
notice or demand by Landlord being required therefor.
7. ADJUSTMENTS OF RENT FOR CHANGES IN REAL ESTATE TAXES, OPERATING COSTS
It is understood that the minimum rent specified in Paragraph 6 does
not anticipate any increase in the amount of taxes on the Building or in the
actual expenses over the estimated cost of operations and maintenance thereof.
Therefore, in order that the minimum rent payable throughout the term of this
Lease shall reflect any such increase, Tenant agrees to pay, as Additional Rent,
any
-3-
<PAGE>
increases in Taxes and increases in actual Operating Expenses over the estimated
Operating Expenses as herein set forth. Certain terms are defined as follows:
"Tenant's Share": Tenant's Share of the increase in Taxes and Operating
Expenses is agreed to be 9.87%.
"Tenant's Special Share": Tenant's Special Share of the increases in the
Special Operating Costs will be determined on a monthly basis and shall be
expressed as a percentage determined by dividing the total square feet in the
Demised Premises as provided herein by the total rentable occupied square feet
in the Building.
"Base for Operating Expenses": See the Total set forth in the Pro Forma
Budget attached hereto as Exhibit C and made a part hereof.
"Base for Special Operating Expenses": See the cost per square foot set
forth in Exhibit D attached hereto and made a part hereof.
"Base for Taxes": Grand List of October 1, 1991.
"Taxes": (1) all real estate taxes, payable (adjusted after protest or
litigation, if any) for any part of the term of this Lease exclusive of
penalties on the Entire Premises, (2) any taxes which shall be levied in lieu of
any such taxes, (3) any special assessments for benefits on the Entire Premises,
and (4) the expenses of contesting the amount or validity of any such taxes,
charges or assessments, such expense to be applicable to the period of the item
contested.
"Operating Expenses": The aggregate of all expenses (excluding Taxes and
Special Operating Costs) paid or incurred by Landlord for the operation of the
Building and land to include, but not be limited to, the following:
(i) Insurance premiums paid by Landlord;
(ii) The cost of supplying the following services to the common
areas: water, power, heating, lighting, ventilation,
air-conditioning and cleaning;
(iii) Wages and salaries paid by Landlord, including all fringe
benefits and taxes related thereto paid by Landlord to
employees directly engaged in cleaning of the common areas,
maintenance and repair of the Building, building equipment,
parking areas, and performing the functions of garbage
removal and snow removal, landscaping and security,
including a customary managing agent's fee, or the cost to
Landlord of an independent contractor performing any of such
services;
-4-
<PAGE>
(iv) Any and all supplies and materials utilized by Landlord or
independent contractors of Landlord in the performance of
the items set forth in the paragraph immediately preceding;
(v) Legal and accounting fees and disbursements, and any other
expense or charge of any nature whatsoever which, in
accordance with sound accounting and management principles
with respect to the operation of a first-class office
building would be construed as an operating expense,
excluding, however, taxes, Special Operating-- Costs,
depreciation, interest on and amortization of debt, expenses
for repairs or other work caused by insurable casualties,
expenses incurred in leasing or obtaining new tenants,
expenses incurred for any necessary replacement that is
under warranty, legal expenses incurred in enforcing the
terms of any lease, and any items otherwise properly
constituting such an operating expense to the extent payment
therefor is received from or payable by tenants for services
rendered or performed directly for the account of such
tenants or for which a tenant pays directly.
Notwithstanding any other provision herein to the contrary, it is agreed in
the event the Building is not fully occupied during any calendar year, an
adjustment shall be made in computing the Operating Expenses for such year so
that the Operating Expenses shall be computed for such year as though the
Building had been fully occupied during such year. For the purposes of this
subparagraph, the parties agree that "fully occupied" shall mean that 29,350
square feet of the Building is rented, said square feet representing 95% of the
net leasable space in the Building.
"Special Operating Costs": the aggregate of all expenses paid or incurred
by Landlord in the operation of the Building in connection with supplying water,
electricity, heating, lighting, ventilation, air conditioning and cleaning
services to areas of the Building rented to Tenants that do not supply
themselves with or pay separately for the foregoing services.
Not later than the first day of March (or within a reasonable time
thereafter) in each year during the term of this Lease, and in the year
following the year in which the Lease terminates, Landlord shall deliver to the
Tenant a statement setting forth the amount of Taxes payable or paid by the
Landlord, Operating Expenses and Special Operating Costs, if not previously
billed to Tenant, paid or incurred by Landlord during the immediately preceding
calendar year and a statement of (i) Tenant's Share of the increase over the
Base for Taxes, (ii) Tenant's Share of the increase over the Base for Operating
Expenses and (iii) Tenant's Special Share of the increase over the Base for
Special Operating Costs. Within 30 days after delivery of such statement, Tenant
shall pay to Landlord as Additional Rent, in a lump sum payment, its share as
shown on such statement not theretofore paid by Tenant.
-5-
<PAGE>
In order to provide for current payments on account for the Additional Rent
which may be payable to Landlord pursuant to this Paragraph, Tenant agrees to
make payments therefor in 12 equal monthly installments to be due on the first
day of each month beginning on the first day of the month next following the
month in which the statement described herein relating to the previous year is
delivered to Tenant. The total of such 12 installments shall equal the amount of
Tenant's Share of Additional Rent (arising from increased Taxes, Operating
Expenses and Special Operating Costs) in the preceding year. If the total of
such 12 advance payments exceeds the amount of the Tenant's actual share as
shown by the statement delivered to the Tenant after the close of the year,
Tenant shall receive a corresponding credit toward its next payment or payments
hereunder.
By way of example, with respect to Operating Expenses, for a tenant whose
Tenant's Share is 10%, if the statement received by the tenant at the end of the
first calendar year of the tenant's lease term shows that Taxes, Operating
Expenses and Special Operating Costs in the preceding year totaled $1,200.00
more than the respective bases for Taxes, Operating Expenses and Special
Operating Costs, the tenant would be required to pay $120 (i.e., 10% of $1,200)
on April 1, and, effective April 1, tenant's monthly rental payments will
increase $10 (i.e. $120%12). If the statement received by the tenant in the
second year shows total increase in Taxes, Operating Expenses and Special
Operating Costs of $3,600 over the respective bases, tenant's share would be
$360. Since $120 will have been paid in advance as a result of the $10 increase
in monthly payments, tenant will pay $240 on April 1, and tenant's monthly rent
shall be $30 (i.e., $360%12) more than the amount that would otherwise be due.
Had the increase been less than $1,200 (and, thus, the tenant's share was less
than the amount paid in advance) the tenant would receive an appropriate credit.
An example of the foregoing is shown below:
<TABLE>
<CAPTION>
Monthly
Year and Operating Expenses Tenant Share Due April 1 Installment
------------ ----------- -----------
<S> <C> <C> <C>
2 $1,200 (over base) 10% $120 $10
3 $3,600 (over base) 10% $240 $30
</TABLE>
Tenant and Landlord agree that, for all purposes in any way connected with or
arising out of this paragraph dealing with adjustments of rent, the statement
delivered by Landlord pursuant to this paragraph shall be binding and conclusive
on both parties hereto unless objected to by Tenant within thirty (30) days
after receipt thereof, by notice from Tenant specifying Tenant's objections
thereto. Tenant shall have the right to require the production of Landlord's
books which relate to these items of cost and the right, within said thirty (30)
day period, to deliver notice of disagreement with respect to any items of
Taxes, Special Operating Costs, or Operating Expenses.
8. SECURITY DEPOSIT
-6-
<PAGE>
Tenant has deposited with Landlord the sum of SEVEN THOUSAND EIGHT HUNDRED
EIGHTY FOUR AND 34/100 ($7,884.34) DOLLARS, the receipt of which is hereby
acknowledged. Landlord shall not, unless otherwise required by law, be required
to keep the security deposit separate from its general funds, nor pay interest
to Tenant. If Landlord is required to maintain the security deposit in an
interest bearing account, Landlord shall retain the maximum amount permitted
under applicable law as a bookkeeping and administrative charge. Such deposit
shall be held by Landlord as security during Landlord's build-out of Tenant's
Demised Premises. Upon completion of construction and upon payment by Tenant of
the first month's minimum rental, Landlord shall return the sum of $3,942.17 of
said deposit to Tenant. The remaining deposit of THREE THOUSAND NINE HUNDRED
FORTY TWO AND 17/100 ($3,942.17) DOLLARS shall be held by Landlord as security
for the faithful performance by Tenant of all the terms of this Lease to be
performed and observed. No hypothecation by Tenant of such security deposit
without prior written consent of Landlord shall be binding upon Landlord. If
there shall be any defaults in the payment of rent under this Lease or if Tenant
shall fail to perform any of the other covenants of this Lease, Landlord may, at
its option and without prejudice to any other remedy available to Landlord in
law or in equity, appropriate and apply said security deposit or any part
thereof as may be necessary to cure or correct such default of the Tenant. Upon
notice of such appropriation from Landlord to Tenant, Tenant shall within ten
(10) days thereafter restore such security deposit to the original sum
deposited. If the Tenant shall comply with all of the terms of this Lease, said
security deposit shall be returned in full to the Tenant at the end of the term
of this Lease. In the event of any bankruptcy or reorganization proceedings
under the Bankruptcy Act by Tenant, the security deposit shall be deemed to be
applied first to the payment of rent for all periods prior to the filing of such
proceedings. In no event shall the security deposit be deemed advance payment of
rent by the Tenant.
9. LICENSE TO COMMON AREAS
In order to establish that the Site, and any portion thereof, is and will
continue to remain private property, the Landlord shall have the unrestricted
right in the Landlord's sole discretion, with respect to the entire Site, and/or
any portion thereof owned or controlled by the Landlord, to close the same to
the general public for one (1) day in a fifteen year period. Tenant agrees that
its use of the Demised Premises and the Common Areas on the Site are with
Landlord's permission and consent, and shall not give rise to any claim by
Tenant based on adverse possession or prescriptive easement.
10. BUILDING OPERATIONS/UTILITIES
(a) During the terms of this Lease, and so long as no event of default
shall have occurred and continued beyond any applicable cure period, Landlord,
shall provide hot and cold running water for drinking purposes, electricity for
normal office use, toilet and automatically operated elevator facilities to the
Demised Premises on a round-the-clock basis. Landlord shall also provide heat,
air-conditioning and ventilation (i) in the Demised Premises during "regular
hours" of each "business day" (which as used in this Lease means 7:00 a.m. to
6:00 p.m. Monday through
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Friday and from 8:00 a.m. to 1:00 p.m. on Saturdays other than on federal
holidays) sufficient to maintain the Demised Premises with proper ventilation at
a comfortable temperature level and (ii) in the lobbies of the Building during
regular hours of each business day, sufficient to maintain such lobbies with
proper ventilation at a comfortable temperature level. Heating, air-conditioning
and ventilating controls for the Demised Premises shall be accessible to Tenant
at all times. Tenant shall pay for its pro rata share of such services in
accordance with Paragraph 7 herein. In the event that Tenant shall require heat
or air-conditioning on other days or at other hours, and only in such event,
Tenant shall operate the heat and air-conditioning as necessary to provide the
Demised Premises with such services. Tenant shall pay to Landlord on a monthly
basis the additional cost of such utilities and services as determined by
Landlord.
(b) Landlord shall not be liable to Tenant for any interruption in
service of water, electricity, heating, air conditioning or other utilities and
services or any delay, by the making of any necessary repairs or improvements or
by any other cause beyond Landlord's reasonable control.
(c) Tenant agrees that it will not install any equipment which will
exceed or overload the capacity of any utility facilities and that if any
equipment installed by Tenant-shall require additional utility facilities, the
same shall be installed at Tenant's sole cost and expense in accordance with
plans and specifications subject to approval in writing by Landlord.
11. ADDITIONAL RENT
(a) In addition to the foregoing minimum rent, all other payments and
any other monetary obligations hereunder to be made by Tenant shall be deemed to
be and shall become additional rent hereunder whether or not the same be
designated as such; and shall be due and payable within ten (10) days of receipt
of an invoice therefor or together with the next succeeding installment of rent,
whichever shall first occur. Additional rent shall also include any sales or
rent tax which is or may be chargeable against the Demised Premises or Landlord,
the minimum rent, and/or additional rent as herein defined. Landlord, at its
election, shall have the right to pay or do any act which requires the
expenditure of any sums of money by reason of the failure or neglect of Tenant
to perform any of the provisions of this Lease in regard to the Demised
Premises, and in the event Landlord, shall at its election pay such sums or do
such acts requiring the expenditure of monies, Tenant agrees to pay Landlord,
all such sums, and the sum so paid by Landlord, shall be deemed additional rent
and be payable as such. All installments of minimum rent, additional rent and
all other rent and monetary obligations due hereunder which is not paid within
ten (10) days after the due date thereof, shall bear interest from such due date
through the date of payment at a rate of fifteen percent (15%) per annum, or the
highest rate of interest to which parties such as Landlord and Tenant are then
lawfully permitted to agree in Connecticut. Landlord shall have the same
remedies for failure to pay said interest as for nonpayment of rent.
(b) It is the intention of the parties that the rent payable hereunder
shall be absolutely net to Landlord, so that this Lease shall yield to Landlord
the net annual basic minimum rent specified herein during the term of this
Lease, and that all costs, expenses and obligations of
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every kind and nature whatsoever relating to the Demised Premises shall be paid
by Tenant, except as specifically set forth in this Lease, and shall be deemed
to be and shall become additional rent hereunder whether or not the same be
designated such and Landlord shall have the same remedies for failure to pay
same as for a nonpayment of rent.
12. PLACE OF PAYMENTS
All payments required to be paid shall be made payable to the Landlord, Ann
Street Limited Partnership, c/o Tunxis Management Co. II, P.O. Box 488, One
Liberty Square, New Britain, CT, 06050, or at such other address as Landlord may
designate in writing without any prior notice or demand for the same, except as
provided herein, and without deduction or offset.
13. NO PARTNERSHIP
Landlord shall in no event be construed, held or become in any way or for
any purpose a partner, associate or joint venturer of Tenant or any party
associated with Tenant in the conduct of its business or otherwise.
14. TENANT'S INSTALLATION AND ALTERATIONS
Tenant shall not do any construction work or alterations at the Demised
Premises without first obtaining Landlord's written approval and consent as to
the proposed alterations and as to the proposed contractor to do the work or
alterations. Tenant shall present to Landlord plans and specifications for such
work at the time approval is sought. Tenant shall not commence any such work
without first delivering to the Landlord a policy or policies of worker's
compensation and public liability and property damage insurance, naming Landlord
as additional insured, in limits and with companies reasonably acceptable to
Landlord, in its sole discretion, as well as a Completion Bond in a form
reasonably acceptable to Landlord, in its sole discretion, and issued by a
surety company acceptable to the Landlord. Any alterations, additions,
improvements and fixtures installed or paid for by the Tenant upon the interior
or exterior of the Demised Premises, other than moveable trade fixtures and
decorations, shall upon the expiration or earlier termination of this Lease and
upon Tenant's failure to remove them become the property of the Landlord or, at
Landlord's option, Landlord may require Tenant to remove any or all of the same
and/or restore the Demised Premises to their condition at the commencement of
the term, all at Tenant's sole cost and expense. In any event, Tenant shall
repair all damage caused by the removal of its moveable trade fixtures.
Any review or approval by Landlord of any plans or specifications with
respect to any alteration is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant with respect to adequacy,
correctness or efficiency thereof or otherwise.
15. COMPLIANCE WITH LAWS
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Tenant shall, at its own cost and expense: (a) comply with all governmental
laws, ordinances, covenants, restrictions, orders and regulations affecting the
Entire Premises and the Demised Premises now in force or which hereafter may be
in force including but not limited to the Federal and State hazardous waste laws
and regulations; (b) comply with and execute all rules, requirements and
regulations of the Board of Fire Underwriters, Landlord's and Tenant's insurance
companies and other organizations establishing insurance rates; (c) not suffer,
permit, or commit any waste or nuisance; and (d) install fire extinguishers in
accordance with insurance requirements.
16. SIGNS
Landlord shall provide Tenant, at Landlord's sole cost and expense, signage
of a type and style similar to that of other tenants of the Building. Tenant
agrees not to erect any signs on the Site or the Building or the Demised
Premises and that signage will be as designated by Landlord, in common with
other tenants of the Entire Premises. Tenant also agrees to pay as additional
rent its proportionate share for such signs used in common with other tenants at
the Entire Premises. Other than the foregoing, Tenant shall not place or suffer
to be placed or maintain any sign, outside the Demised Premises. Tenant shall
maintain any such signs or other installation in good condition and repair and
to repair any damage resulting from a sign placed by Tenant on the Entire
Building.
17. ASSIGNMENT
Tenant will not assign, mortgage or encumber this Lease in whole or in
part, nor sublet suffer or permit all or any part of the Demised Premises to be
used by others, without the prior written consent of Landlord in each instance.
Any assignment or sublease made without Landlord's prior written consent shall
be null and void at Landlord's option, and shall be an event of default under
this Lease entitling Landlord to all rights and remedies provided by law and by
this Lease. The consent by Landlord to any assignment or subletting shall not
constitute a waiver of the necessity for such consent to any subsequent
assignment or subletting. This prohibition against assigning or subletting shall
be construed to include a prohibition against any assignment or subletting by
operation of law. If this Lease be assigned, or if the Demised Premises or any
part thereof be underlet or occupied by anybody other than Tenant, Landlord may
collect rent from the assignee undertenant or occupant, and apply the net amount
collected to the rent herein reserved, but no such assignment, underletting,
occupancy or collection shall be deemed a waiver of this covenant, or the
acceptance of the assignee, undertenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained and Tenant agrees to share in any above market rent at the time
of subletting. Notwithstanding any assignment or sublease, Tenant shall remain
primarily liable on this Lease and shall not be released from performing any of
the terms, covenants and conditions of this Lease, but Tenant and such assignee
shall thereafter be jointly and severally liable for the full and faithful
performance of the obligations of Tenant under this Lease.
18. REPAIRS. REPLACEMENTS AND RENEWALS
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Landlord shall not be required to make any repairs replacements, renewals
or improvements of any kind whatsoever upon the Demised Premises, except
structural parts of the Building which do not constitute part of the Demised
Premises, roof and foundation repairs (other than such repairs which are
necessitated by the acts or negligence of Tenant and its employees, servants,
agents and independent contractors-which repairs shall be made at Tenant's
expense); as to such repairs as are necessitated by the negligence of Tenant and
its employees, servants, agents and independent contractors, such repairs shall
be made by Landlord at the sole cost and expense of Tenant. Tenant shall at its
own cost, risk and expense, take good care of and make all other necessary
repairs, replacements and renewals to the interior and exterior (excluding
structural repairs as aforesaid) of the Demised Premises, and the fixtures and
equipment therein and appurtenances thereto, including exterior windows, window
frames, doors, door frames and entrances, floor coverings, non-structural
interior walls, columns and partitions; and lighting, heating, air conditioning,
and plumbing facilities and equipment, and all repairs which are necessitated by
the acts or negligence of Tenant and its employees, servants, agents and
independent contractors. All parts of the interior of the Demised Premises shall
be painted or otherwise decorated by Tenant periodically: Tenant agrees to keep
and maintain in good condition (ordinary maintenance) the mechanical equipment,
the electrical equipment, air conditioning, and heating equipment in the Demised
Premises per the manufacturer, 5 specifications. Any repairs replacements and
renewals shall be performed by contractors approved by Landlord so as to
preserve any and all warranties and maintenance contracts, and guarantees which
might apply to the Demised Premises.
Except as provided herein, Landlord shall have no liability to Tenant nor
shall Tenant's covenants and obligations under this Lease be reduced or abated
in any manner whatsoever by reason of any inconvenience, annoyance, interruption
or injury to business arising from Landlord's making any repairs or changes
which Landlord is required or permitted by this Lease or by any other tenant's
lease or required by law to make in or to any portion of the Demised Premises,
the Building or the Site. Landlord shall nevertheless use its best efforts to
minimize any interference with Tenant's business in the Demised Premises.
19. TENANT'S FAILURE TO REPAIR
If Tenant refuses or neglects to make repairs, replacements and renewals as
aforesaid, Landlord shall have the right, but shall not be obligated, to make
such repairs, replacements, and renewals on behalf of and for the account of
Tenant. In such event, such work shall be paid for in full by Tenant as
additional rent promptly upon receipt of a bill therefor.
20. LIENS
Should any mechanic's or other lien be filed against the Demised Premises,
the Entire Premises or the Building, or any part thereof for any reason
whatsoever by reason of Tenant's acts or omissions or because of a claim against
Tenant, Tenant shall cause the same to be cancelled and discharged of record by
bond or otherwise within ten (10) days after notice by Landlord. Tenant's
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failure to do so shall constitute a material default under this Lease without
the necessity for any further notice by Landlord to Tenant.
21. LIABILITY AND INDEMNITY
Tenant shall indemnify Landlord and save it harmless from suits, actions,
damages, liability and expense in connection with loss of life, bodily or
personal injury or property damage including but not limited to hazardous waste
laws, rules and regulations as to spillage, presence, reporting and costs of
clean-up of same, arising from or out of the use or occupancy of the Demised
Premises or any part thereof, or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors employees servants, invitees, or
licensees whether occurring in or about the Demised Premises or in common areas
and facilities or elsewhere within the Entire Premises, but Tenant shall not be
liable for damage or injury proximately caused by the negligence of Landlord or
its agents, servants or employees, unless such damage or injury is covered by
insurance which Tenant is required to provide or does provide. This obligation
to indemnify shall include reasonable attorneys's fees and investigation costs
and all other reasonable costs, expenses and liabilities from the first notice
that any claim or demand is to be made or may be made. Landlord shall not be
responsible or liable to Tenant or to those claiming by, through or under Tenant
for any loss or damage to either the person or property of Tenant that may be
occasioned by or through the acts or omissions of persons occupying adjacent,
connecting or otherwise adjoining premises. Landlord shall not be responsible or
liable to Tenant for any defect, latent or otherwise, in the Entire Premises or
any of the equipment, machinery, utilities, appliances or apparatus therein, nor
shall Landlord be responsible or liable for any injury, loss or damage to any
person or to any property of Tenant or other person caused by or resulting from
bursting, breakage or by or from leakage steam or snow or ice, running, backing
up, seepage, or the overflow of water or sewerage in any part of said premises
or for any injury or damage caused by or resulting from any defect or act or
omission in the occupancy, construction, operation or use of any of said
premises, the Entire Premises, machinery, apparatus or equipment by any person
or by or from the acts or negligence of any occupant of the premises, including
any other tenant of the Entire Premises. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Demised Premises or in the Entire
Premises or of defects therein, or in any fixtures or equipment.
22. WAIVER OF SUBROGATION
The Landlord and Tenant hereby waive any rights each may have against the
other on account of any loss or damage occasioned to the Landlord or the Tenant,
as the case may be, their respective property, the premises, or its contents or
to other portions of the Site, arising from any risk covered by fire and
extended coverage insurance covering the Demised Premises and/or the Site; and
the parties each, on behalf of their respective insurance companies insuring the
property of either the Landlord or the Tenant against any such loss, waive any
right of subrogation that it may have against the Landlord or the Tenant, as the
case may be. The foregoing waivers of subrogation shall be operative only so
long as available in Connecticut, and only so long as each party has delivered
to the other proof that its insurer has consented to such waiver.
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23. INSURANCE
Tenant further covenants and agrees that from and after the earlier of the
Commencement Date of the term hereof or the date Tenant takes possession of the
Demised Premises, Tenant will carry and maintain, at its sole cost and expense,
the following types of insurance, in the amounts specified-and in the form
hereinafter provided for:
(i) PUBLIC LIABILITY AND PROPERTY DAMAGE. Bodily injury liability insurance
with limits of not less than One Million Dollars ($1,000,000.00) per person and
One Million Dollars ($1,000,000.00) per occurrence insuring against any and all
liability of the insured with respect to said premises or arising out of the
maintenance, use or occupancy thereof, and property damage liability insurance
with a limit of not less than One Million Dollars ($1,000,000.00) per accident
or occurrence. All such bodily injury liability insurance and property damage
liability insurance shall specifically insure the performance by Tenant of the
indemnity agreement as to liability for injury to or death of persons and injury
or damage to property.
(ii) PLATE GLASS. The Tenant shall be responsible for the maintenance of
the plate glass on the premises but shall have the option either to insure the
risk or to self-insure.
(iii) TENANT IMPROVEMENTS. Insurance covering all of Tenant's leasehold
improvements, alterations, additions or improvements, trade fixtures, and
personal property from time to time in, or upon the premises, in an amount not
less than eighty percent (80%) of their full replacement cost from time to time
during the term of this Lease, providing protection against any peril included
within the classification "Fire and Extended Coverage," together with insurance
against sprinkler damage, vandalism and malicious mischief. Any policy proceeds
shall be used for the repair or replacement of the property damaged or destroyed
unless this Lease shall cease and terminate.
(iv) POLICY FORMS. All policies of insurance provided for herein shall be
issued by insurance companies qualified to do business in the State of
Connecticut. Except for subparagraph (iii) herein, all such policies shall be
issued in the names of Landlord and Tenant, and Landlord's first mortgagee or
beneficiary, which policies shall be for the mutual and Joint benefit and
protection of Landlord, Tenant and Landlord's first mortgagee or beneficiary,
and executed copies of such policies of insurance or certificates thereof shall
be delivered to Landlord within ten (10) days after the earlier of the
Commencement Date or the date Tenant takes possession of the Demised Premises
and thereafter, executed copies of renewal policies or certificates thereof
shall be delivered to Landlord within thirty (30) days prior to the expiration
of the term of each such policy. All public liability and property damage
policies shall contain a provision that the Landlord, although named as an
insured, shall nevertheless be entitled to recovery under said policies for any
loss occasioned to it, its servants, agents and employees by reason of the
negligence of the Tenant. As often as any such policy shall expire or terminate,
renewal or additional policies shall be procured and maintained by the Tenant in
like manner and to like extent. All policies of insurance delivered to the
Landlord must contain a provision that the company writing said policy will give
to the Landlord thirty (30)
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days notice in writing in advance of any cancellation or lapse or the effective
date of any reduction in the amounts of insurance. All public liability,
property damage and other casualty policies shall be written as primary
policies, not contributing with and not in excess of coverage which the Landlord
may carry.
Notwithstanding anything to the contrary herein, the Tenant's obligations
to carry the insurance provided for herein may be brought within the coverage of
a so-called blanket policy or policies of insurance carried and maintained by
the Tenant provided that the Landlord and Landlord's first mortgagee or
beneficiary shall be named as additional insured thereunder as their interests
may appear and that the coverage afforded the Landlord will not be reduced or
diminished by reason of the use of such blanket policy of insurance, and
provided further that the requirements set forth herein are otherwise satisfied.
The Tenant agrees to permit the Landlord at all reasonable times to inspect the
policies of insurance of the Tenant covering risks upon the Demised Premises for
which policies or copies thereof are not required to be delivered to the
Landlord.
(v) HAZARD INSURANCE. Landlord shall at all times from and after the
commencement date of the term hereof hold and maintain in effect a policy or
policies of owner's public liability and all risk insurance covering the
building of which the premises are a part, in an amount not less than one
hundred per cent (100%) of full replacement cost (exclusive of the cost of
excavations, foundations and footings) from time to time during the term of this
Lease, providing protection against any peril generally included within the
classification "Fire and Extended Coverage", together with insurance against
sprinkler damage, vandalism, malicious mischief and rental interruption or loss.
Landlord's obligations to carry the insurance provided for herein may be brought
within the coverage of any so-called blanket policy or policies of insurance
carried and maintained by Landlord, provided that the coverage afforded will not
be reduced or diminished by reason of the use of such blanket policy of
insurance.
24. INCREASE IN INSURANCE PREMIUMS
Tenant agrees that it will not at any time during the term of this Lease
carry any stock of goods or do anything in or about the Demised Premises which
will in any way tend to increase the insurance rates for the Building or the
Demised Premises. Tenant agrees to pay to the Landlord forthwith the amount of
any increase in premiums for insurance that may be charged during the term of
this Lease on the amount of insurance to be carried by Landlord on the Building
of which the Demised Premises are a part resulting from the foregoing or from
Tenant doing any act in or about the Demised Premises which does so increase the
insurance rates, whether or not the Landlord shall have consented to such act on
the part of Tenant. If Tenant installs upon the Demised Premises any electrical
equipment which constitutes an overload of the electrical line of the Demised
Premises, Tenant shall at its own cost and expense make whatever changes are
necessary to comply with the requirements of the insurance underwriters and any
governmental authority having jurisdiction thereover, but nothing herein
contained shall be deemed to constitute Landlord's consent to such overloading.
Tenant shall, at its own expense, comply with all requirements, including the
installation of sprinklers, fire extinguishers or an automatic dry chemical
extinguishing system, of
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the insurance underwriters or any governmental authority having jurisdiction
thereover, necessary for the maintenance of reasonable All Risk Type Building
coverage insurance for the premises. In determining whether increased premiums
are the result of Tenant's use, occupancy or vacancy of the Demised Premises, a
schedule issued by the organization making the fire insurance, extended
coverage, vandalism and malicious mischief, special extended coverage or any
all-risk insurance rates for said premises or any rule books issued by the
rating organization or similar bodies or by rating procedures or rules of
Landlord's insurance companies shall be conclusive evidence of the several items
and charges which make up the insurance rates and premiums on the Demised
Premises and the Building. If due to the (a) occupancy, or (b) abandonment or
(c) Tenant's failure to occupy the Demised Premises as herein provided, any
insurance shall be cancelled by the insurance carrier or if the premiums for any
such insurance shall be increased, then in any of such events Tenant shall
indemnify and hold Landlord harmless and shall pay the increased cost of such
insurance. Tenant also shall pay in any such events any increased premium on the
rent insurance that may be carried by Landlord for its protection against loss
through fire or casualty.
25. DESTRUCTION
If the Demised Premises shall be partially damaged by any casualty
insurable under the Tenant's insurance policy, Tenant shall, within sixty (60)
days or upon receipt of the insurance proceeds, whichever is earlier, commence
repair, replacement and renewal of the same, and the minimum rent shall be
abated proportionately as to that portion of the Demised Premises rendered
untenantable. Any such repair, replacement and renewal shall be made based upon
plans and contractors approved in writing by Landlord. If the Demised Premises
(a) by reason of such occurrence is rendered wholly untenantable or (b) should
be damaged as a result of a risk which is not covered by insurance or (c) should
be damaged in whole or in part during the last three (3) months of the term
hereof, or (d) the Entire Premises (whether the Demised Premises are damaged or
not) should be damaged to the extent of fifty percent (50%) or more of the then
replacement value thereof, or if any or all of the Entire Premises or common
areas of the Entire Premises are damaged, whether or not the Demised Premises
are damaged to such an extent that the Entire Premises cannot, in the sole
judgment of Landlord be operated as an integral commercial unit, then and in any
of such events, Landlord may either elect to have Tenant repair the damage or
may cancel this Lease by giving Tenant written notice of cancellation within
sixty (60) days after such event and thereupon this Lease shall expire, and
Tenant shall vacate and surrender the Demised Premises to Landlord. Tenant's
liability for rent upon the termination of this Lease shall cease as of the day
following the event or damage, or Tenant's vacating the Demised Premises,
whichever date is later. In the event Landlord elects to have Tenant repair the
damage insurable under Tenant's policies, any abatement of rent shall end five
(5) days after notice by Landlord to Tenant that the Demised Premises have been
repaired. If the damage is caused by the negligence of Tenant or its employees,
invitees, or agents, there shall be no abatement of rent. Unless this Lease is
terminated by Landlord, Tenant shall repair, replace, renew and refixture the
interior of the Demised Premises in a manner and to at least a condition equal
to that existing prior to its destruction or casualty and the proceeds of all
insurance carried by Tenant on its property and improvements shall be held in
trust by Tenant for the purpose of said repair or replacement. If this Lease is
terminated by Landlord as aforesaid, all proceeds from
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Tenant's insurance coverage in excess of proceeds attributable to the loss of
Tenant's property, shall be disbursed and paid to Landlord, and Tenant hereby
assigns the same to the Landlord.
26. CONDEMNATION
(a) Total: If the whole of the Demised Premises shall be acquired or taken
by eminent domain for any public or quasi-public use or purpose then this Lease
and the term herein shall cease and terminate as of the date of title vesting in
such proceeding.
(b) Partial: If any part of the Demised Premises shall be taken as
aforesaid, and such partial taking shall render that portion not so taken
unsuitable for the business of Tenant (except for the amount of floor space),
then this Lease and the term hereof shall cease and terminate as aforesaid. If
such partial taking is not extensive enough to render the Demised Premises
unsuitable for the business of Tenant, then this Lease shall continue in effect
except that the minimum rent and additional rentals shall be reduced in the same
proportion that the floor area of the Demised Premises taken bears to the
original floor area demised and Landlord shall, upon receipt of the award in
condemnation, make all necessary repairs or alterations to the Entire Premises
so as to constitute the portion of the Entire Premises not taken a complete
architectural unit, but such work shall not exceed the scope of the work to be
done by Landlord in originally constructing said Entire Premises, nor shall
Landlord in any event be required to spend for such work an amount in excess of
the net amount received by Landlord as damages for the part of the Demised
Premises so taken. "Net Amount received by Landlord" shall mean that part of the
award in condemnation after deducting all expenses in connection with the
condemnation proceedings, together with reasonable attorney's fees, which is
free and clear to Landlord of any collection by mortgagees for the value of the
diminished fee.
(c) If this Lease is terminated as provided in this paragraph, the rent
shall be paid up to the day that possession is so taken by public authority and
Landlord shall make an equitable refund of any rent paid by Tenant in advance.
(d) Award: Tenant shall not be entitled to and expressly waives all claim
to any condemnation award for any taking, whether whole or partial, and whether
for diminution in value of the leasehold or to the fee, although Tenant shall
have the right, to the extent that the same shall not reduce Landlord's award,
to claim from the condemner, but not from Landlord, such compensation as may be
recoverable by Tenant in its own right for damage to Tenant's trade fixtures, if
such claim can be made separate and apart from any award to Landlord and without
prejudice to Landlord's award.
27. ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement or any
check or any letter accompanying any check or payment as rent be
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deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy in the Lease or by law provided.
In the event Landlord requires Tenant to submit payments monthly for items
other than the minimum rent (such as additional rent, and real estate tax
payments) and in the event Tenant submits a payment of less than the total
combined amount of all of said payments, then the Landlord shall have the option
to credit said payment toward any of said items it so desires, notwithstanding
any specification of Tenant.
28. DEFAULT
This Lease and the term and estate hereby granted are subject to the
limitation that whenever Tenant shall make an assignment for the benefit of
creditors, or shall file a voluntary petition under any bankruptcy or insolvency
law, or an involuntary petition alleging an act of bankruptcy or insolvency
shall be filed against Tenant or such guarantor under the reorganization
provisions of the United States Bankruptcy Code or under the provisions of any
law of like import, or whenever a petition shall be filed by Tenant, under the
arrangement provisions of the United States Bankruptcy Code or under the
provisions of any law of like import, or whenever a permanent receiver of
Tenant, or of, or for, the property of Tenant shall be appointed, then Landlord
(a) if such event occurs without the acquiescence of Tenant at any time after
the event continues for sixty (60) days, or (b) in any other case at any time
after the occurrence of any such event, may give Tenant a notice of intention to
end the term of this lease at the expiration of five (5) days from the date of
service of such notice of intention, and upon the expiration of said five (5)
day period this Lease and the term and estate hereby granted, whether or not the
term shall theretofore have commenced, shall terminate with the same effects as
if that day were the expiration date of this Lease, but Tenant shall remain
liable for damages as provided below.
This Lease and the term and estate hereby granted are subject to the
further limitations that:
(a) if Tenant shall default in the payment of any installment of
minimum rent, or additional rent, and such default shall continue for ten (10)
days, or
(b) if Tenant shall, whether by action or inaction, be in default of
any of its obligations under this Lease (other than a default in the payment of
minimum rent, or additional rent) and such default shall continue and shall not
be remedied by Tenant within (10) days after Landlord shall have given to Tenant
a notice specifying the same, or, in the case of a default which cannot with due
diligence be cured within a period of ten (10) days or if the default is not of
a nature which cannot be cured within ten (10) days, Tenant shall (i) within
said ten (10) day period advise Landlord of Tenant's intention to take all steps
necessary to remedy such default, (ii) duly commence within said ten (10) day
period, and thereafter diligently prosecute to completion, all steps necessary
to remedy the default and (iii) complete such remedy within a reasonable time
after the date of the said notice to Landlord, or
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(c) if any event shall occur or any contingency shall arise whereby
this Lease or the estate hereby granted or the unexpired balance of the term
hereof would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, or
(d) if Tenant shall vacate or abandon the Premises, then in any of
said cases, Landlord may give to Tenant a notice of intention to end the term of
this Lease at the expiration of ten (10) days from the date of the service of
such notice of intention, and upon the expiration of said ten (10) days this
Lease and the term and estate hereby granted, whether or not the term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the expiration date of this Lease, but Tenant shall remain liable for
damages as provided herein.
If Tenant shall default in the payment of any minimum rent or additional
rent, and such default shall continue for ten (10) days, or if this Lease shall
terminate as provided herein, Landlord or Landlord's agents and employees may
immediately or at any time thereafter re-enter the Demised Premises, or any part
thereof, either by summary process proceedings or by any suitable action or
proceeding at law, and may repossess the same, and may remove any person
therefrom, to the end that Landlord may have, hold and enjoy the Demised
Premises. The word "re-enter", as used herein, is not restricted to its
technical legal meaning. If this Lease is terminated under the provisions
herein, or if Landlord shall re-enter the Demised Premises under the provisions
of this Paragraph, or in the event of the termination of this Lease, or of
re-entry, by or under any summary process or other proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, Tenant
shall thereupon pay to Landlord the minimum rent and additional rent payable up
to the time of such termination of this Lease, or of such recovery of possession
of the Demised Premises by Landlord, as the case may be, and shall also pay to
Landlord damages as provided herein.
Should this Lease at any time be terminated for any breach, in addition to
any other remedies it may have, Landlord may recover from Tenant all damages it
may incur by reason of such breach, including the cost of recovering the Demised
Premises, reasonable attorney's fees, and the worth, at the time of such
termination, of the excess, if any, of the amount of rent and charges equivalent
to rent reserved in this Lease for the remainder of the stated term over the
then reasonable rental value of the Demised Premises for the remainder of the
stated term, all of which amounts shall be immediately due and payable from
Tenant to Landlord. In determining the rent which would be payable by Tenant
hereunder, subsequent to default, the minimum rent for each year of the
unexpired term shall be equal to the average annual minimum rent paid by Tenant
from the date Tenant first became obligated to pay rent hereunder to the time of
default. Should Landlord elect to re-enter, as herein provided, or should it
take possession pursuant to legal proceedings or pursuant to any notice provided
for by law, Landlord may either terminate this Lease, or, without so
terminating, make such alterations and repairs as may be necessary in order to
relet the Demised Premises, and relet said Demised Premises or any part thereof
for such term or terms (which may be for a term extending beyond the term of
this Lease) and at such rental or rentals and upon such other terms and
condition as Landlord in its discretion may deem advisable; upon each such
reletting all rentals received by the Landlord from such reletting shall be
applied first, to the payment of any indebtedness other than
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rent due hereunder from Tenant to Landlord; second, to the payment of any costs
and expenses of such reletting, including brokerage fees and attorneys' fees and
of costs of such alterations and repairs; third, to the payment of rent due and
unpaid hereunder, and the residue, if any, shall be held by Landlord and applied
in payment of future rent as the same may become due and payable hereunder. If
such rentals received from such reletting during any month be less than that to
be paid during that month by Tenant hereunder, Tenant shall pay any deficiency
to Landlord. Such deficiency shall be calculated and paid monthly. No such
re-entry or taking possession of Demised Premises by Landlord shall be construed
as an election on its part to terminate this Lease unless a written notice of
such intention be given to Tenant or unless the termination thereof be decreed
by a court of competent jurisdiction. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for such previous breach. In no event shall Tenant be entitled to receive any
excess of such net rents over the sums payable by Tenant to Landlord hereunder,
nor shall Tenant be entitled in any suit for the collection of damages pursuant
to this subdivision to a credit in respect of any net rents from a reletting,
except to the extent that such net rents are actually received by Landlord.
In case Landlord shall retain an attorney to enforce the provisions of this
Lease or if suit shall be brought for recovery of possession of the Demised
Premises, for the recovery of rent or any other amount due under the provisions
of this Lease, or because of the breach of any covenants herein contained on the
part of Tenant to be kept or performed, Tenant shall pay to Landlord all expense
incurred therefor, including a reasonable attorney's fee.
In the event of a breach or threatened breach by Tenant of any of its
obligations under this Lease, Landlord shall have the right of injunction. The
special remedies to which Landlord may resort hereunder are cumulative and are
not intended to be exclusive of any other remedies to which Landlord may
lawfully be entitled at any time, and Landlord may invoke any remedy allowed at
law or in equity as if specific remedies were not provided for herein.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
so terminated under the provisions of this Paragraph, or under any provision of
law, or had Landlord not re-entered the Demised Premises. Nothing herein
contained shall be construed to limit or preclude recovery by Landlord against
Tenant of any sums or damages to which, in addition to the damages particularly
provided above, Landlord may lawfully be entitled by reason of any default
hereunder on the part of Tenant. Nothing herein contained shall be construed to
limit or prejudice the right of Landlord to prove and obtain as damages by
reason of the termination of this Lease or re-entry on the Demised Premises for
the default of Tenant under this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such amount
be greater than, equal to, or less than any of the sums referred to in this
Paragraph.
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In addition, if this Lease is terminated under the provisions of this
Paragraph, Tenant agrees that:
(a) The Demised Premises then shall be in the same condition as that
in which Tenant has agreed to surrender the same to Landlord at the expiration
of the term hereof; and
(b) Tenant shall have performed prior to any such termination any
covenant of Tenant contained in this Lease for the making of any alteration or
for restoring or rebuilding, replacing, or repairing the Demised Premises or the
Building, or any part thereof; and
(c) For the breach of any covenant of Tenant set forth in this
Paragraph after any grace or cure period has expired, Landlord shall be entitled
immediately, without notice or other action by Landlord, to recover, and Tenant
shall pay, as and for liquidated damages therefor, the cost of performing such
covenant (as reasonably estimated by an independent contractor selected by
Landlord).
The parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other on any matter or matters whatsoever arising out of or in any way connected
with this Lease, the relationship of Landlord and Tenant, Tenant's use or
occupancy of the Demised Premises and/or claim of injury or damage.
Tenant hereby expressly waives any and all rights of redemption granted by
or under any present or future law or laws in the event of Tenant's being
evicted or dispossessed for any cause, or in the event Landlord obtains
possession of the Demised Premises in any manner permitted by law, by reason of
the violation by Tenant of any of the covenants or conditions of this Lease or
otherwise.
Tenant shall not interpose any counterclaim of any kind in any action or
proceeding commenced by Landlord to recover possession of the Demised Premises.
29. ACCESS TO PREMISES
Landlord shall have the right to enter the Demised Premises at all times to
inspect or to exhibit the same to prospective purchasers, mortgagees, and
tenants and to make such repairs, additions, alterations or improvements as
Landlord may deem desirable. Landlord shall be allowed to take all material in,
to and upon said Demised Premises that may be required therefor without the same
constituting an eviction of Tenant in whole or in part and the rents reserved
shall not abate, in whole or in part, while said work is in progress by reason
of loss or interruption of Tenant's business or otherwise and Tenant shall have
no claim for damages. The provisions of this Paragraph shall not be construed to
impose upon Landlord any obligation whatsoever for the maintenance or repair of
the Entire Premises or any part thereof except as otherwise herein specifically
provided. During the six (6) months prior to the expiration of this Lease,
Landlord may place upon the said premises "To Let" signs which Tenant shall
permit to remain thereon.
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30. SUBORDINATION
This Lease and the Tenant's interest hereunder shall be subject and
subordinate to any mortgage, deed of trust, ground or underlying leases or any
method of financing or refinancing now or hereafter placed against the land,
and/or any building, and/or the Demised Premises, and/or the Entire Premises,
now or hereafter built or to be built by Landlord; and to all renewals,
modifications, replacements, consolidations and extensions thereof. This
Paragraph shall be self-operative and no further instruments of subordination
shall be required.
If the holder of record of any mortgage covering the Demised Premises shall
have given prior written notice to Tenant that it is the holder of said first
mortgage and that such notice includes the address at which notices to such
mortgagee are to be sent, then Tenant agrees to give to the holder of record of
such mortgage notice simultaneously with any notice given to Landlord any
default of Landlord as hereinabove provided, and agrees that the holder of
record of such mortgage shall have the right, within sixty (60) days after
receipt of said notice, to correct or remedy such default before Tenant may take
any action under this Lease by reason of such default.
31. ATTORNMENT
Tenant, shall in the event of the sale or assignment of Landlord's interest
in the Entire Premises, Land, or Demised Premises, or in the event of any
proceedings brought for the foreclosure of, or in the event of exercise of the
power of sale under any mortgage made by Landlord covering the Demised Premises,
attorn to the purchaser or foreclosing mortgagee and recognize such purchaser or
foreclosing mortgagee as Landlord under this Lease.
32. ATTORNEY-IN-FACT
Tenant shall, within ten (10) days after written request from Landlord,
execute and deliver to Landlord such instruments to evidence the intent of
Paragraphs 30 and 31. If Tenant does not execute and deliver to Landlord such
instruments to evidence the intent of Paragraphs 30 and 31 within ten (10) days
after written request from Landlord, then Tenant hereby irrevocably appoints
Landlord as attorney-in-fact for Tenant with full power and authority to execute
and deliver such instruments for and in the name of Tenant. If Tenant shall not
have executed and delivered such instruments as aforesaid, and Tenant's actual
execution is required by the party requesting the instrument(s), Landlord may
cancel this Lease without incurring any liability on account thereof and the
term hereby granted is expressly limited accordingly.
Tenant shall from time to time, upon not less than 10 days prior request by
Landlord, deliver to Landlord a statement in writing certifying: (i) that this
Lease is unmodified and in full force and effect (or if there have been
modifications, identifying such modifications and certifying that the Lease, as
modified, is in full force and effect; (ii) the dates to which the Rent has been
paid; (iii) that Landlord is not in default under any provision of this Lease
(or if Landlord is in default, specifying each such default); and (iv) the
address to which notices to Tenant shall be sent; it being understood
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that any such statement so delivered may be relied upon in connection with any
lease, mortgage or transfer.
33. QUIET ENJOYMENT
Tenant, upon paying the rents and performing all of the terms on its part
to be performed, shall peaceably and quietly enjoy the Demised Premises subject,
nevertheless, to the terms of this Lease and to any mortgage, ground lease or
agreements to which this Lease is or may be hereinafter subordinated.
34. FORCE MAJEURE
Landlord shall be excused for the period of any delay in the performance of
any obligations hereunder, when prevented from so doing by cause or causes
beyond Landlord's control which shall include, without limitation, all labor
disputes, civil commotion, war, war-like operations, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, fire or other casualty, inability to obtain any material, services or
financing or through acts of God. Tenant shall similarly be excused for delay in
the performance of obligations hereunder provided:
(a) nothing contained in this Paragraph or elsewhere in this Lease
shall be deemed to excuse or permit any delay in the payment of any sums of
money required hereunder, or any delay in the cure of any default which may be
cured by the payment of money;
(b) no reliance by Tenant upon this Paragraph shall limit or restrict
in any way Landlord's right to self-help as provided in this Lease.
35. END OF TERM
At the expiration of this Lease, Tenant shall surrender the Demised
Premises in the same condition as it was in upon delivery of possession thereto
with or without this Lease, reasonable wear and tear excepted, and shall deliver
all keys and combinations to locks, safes and vaults not removed by Tenant to
Landlord. Before surrendering said premises, Tenant shall remove all its
unattached moveable trade fixtures and decorations, and shall repair any damage
caused thereby. If Tenant fails to remove its property upon the expiration of
this Lease, the said property shall be deemed abandoned and shall become the
property of Landlord, and, at Landlord's option, Landlord may require Tenant to
remove such property and restore the Demised Premises at Tenant's expense, or
Landlord may perform such work itself at Tenant's expense. Tenant's obligations
pursuant to this Paragraph shall survive the end of the term of this Lease.
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36. HOLDING OVER
In the event that the Tenant shall remain in the Demised Premises after the
expiration of the term of this Lease or any extensions thereof without having
executed a new written lease or amendment with the Landlord, such holding over
shall not constitute a renewal or extension of this Lease. The Landlord may, at
its option, elect to treat the Tenant as one who is not removed at the end of
his term, and thereupon be entitled to all the remedies against the Tenant
provided by law in that situation or the Landlord may elect, at its option, to
construe such holding over as a tenancy from month to month, subject to all the
terms and conditions of this Lease, except as to duration thereof, and in that
event, the Tenant shall pay monthly rent in advance at the rate provided herein
as in effect during the last month of the term multiplied by 1.5 for six (6)
months and commencing with the seventh month the rate multiplied by 2.0.
Additional rent shall be paid as invoiced monthly. Tenant shall save, defend,
indemnify and hold Landlord harmless from and against any and all costs,
expenses (including attorney's fees), damages (special, consequential or
otherwise), losses, claims, actions or causes of action arising out of or in
connection with Tenant's failure or omission to timely vacate and surrender the
Demised Premises to Landlord upon the expiration of the term of this Lease.
37. NO WAIVER
Failure of Landlord to insist upon the strict performance of any provision
of this Lease or to exercise any option or any rules and regulations herein
contained shall not be construed as a waiver for the future of any such
provision, rule or option. The receipt by Landlord of rent with knowledge of the
breach of any provision of this Lease shall not be deemed a waiver of such
breach. No provision of this Lease shall be deemed to have been waived unless
such waiver be in writing signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent shall be deemed to be other
than on account of the earliest rent then unpaid nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in this Lease or by law provided, and no waiver
by Landlord in respect to one Tenant shall constitute a waiver in favor of any
other tenant in the Entire Premises.
38. NOTICES
Any notice, demand, request or other instrument which may be or are
required to be given under this Lease shall be delivered in person or sent by
United States Certified or Registered Mail, postage prepaid, and shall be
addressed (a) if to Landlord Ann Street Limited Partnership, c/o Tunxis
Management Co., II, P.O. Box 488, One Liberty Square, New Britain, CT, 06050,
with a copy to William W. Weber, Esq., 24 Cedar Street, New Britain, Connecticut
06052; and (b) if to Tenant, at the Demised Premises. Either party may designate
such other address as shall be given by written notice.
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39. RECORDING
Neither party shall record this Lease, but at the request of either party,
the parties will execute a memorandum or notice thereof in recordable form
satisfactory to both the Landlord and Tenant specifying the date of commencement
and expiration of the term of this Lease and other information required by
statute. Either Landlord or Tenant may then record said memorandum or notice of
Lease.
40. PARTIAL INVALIDITY
If any provision of this Lease or application thereof to any person or
circumstance shall to any extent be invalid, the remainder of this Lease or the
application of such provision to persons or circumstances other than those as to
which it is held invalid shall not be affected thereby and each provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.
41. SUCCESSORS AND ASSIGNS
Except as otherwise expressly provided, all provisions herein shall be
binding upon and shall inure to the benefit of the parties, their successors and
assigns. Each provision to be performed by Tenant shall be construed to be both
a covenant and a condition, and if there shall be more than one Tenant, they
shall be bound jointly and severally, by these provisions. In the event of any
sale of the Entire Premises, or of a lease of Landlord's interest in the Entire
Premises, or of a sale or lease of Landlord's interest in this Lease, Landlord
shall be entirely relieved of all obligations hereunder, and "Landlord" shall
thereafter be deemed to be the landlord in possession of the Demised Premises
from time to time as fee owner or as ground lessee under a ground lease.
42. ENTIRE AGREEMENT, ETC.
This Lease and the Exhibits, Riders and/or Addenda, if any, attached, set
forth the entire agreement between the parties. Any prior conversations or
writings are merged herein and extinguished. No subsequent amendment to this
Lease shall be binding upon Landlord or Tenant unless reduced to writing and
executed by both parties.
43. COVENANTS AND AGREEMENTS OF TENANT
(a) All deliveries or shipments of any kind to and from the Demised
Premises including loading and unloading, shall be made only at such location as
designated by Landlord.
(b) Garbage and refuse shall be kept in the proper container and shall
be placed at the designated location within the Entire Premises for collection.
Tenant shall also abide by any ordinances, rules or regulations regarding
recycling now or hereafter in effect in the City of Hartford. Tenant shall pay
for cost of removal of garbage and refuse as part of its Common Area charges
pursuant to Paragraph 9 herein;
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(c) No radio, television, phonograph or other similar devices, or
aerial attached thereto outside shall be installed without first obtaining in
each instance the Landlord's consent in writing; and if such consent be given,
no such device shall be used in a manner so as to be heard or seen outside of
the Demised Premises;
(d) Tenant shall keep the Demised Premises at a temperature
sufficiently high to prevent freezing of water in pipes and fixtures;
(e) The outside areas immediately adjoining the Demised Premises shall
be kept by Tenant clean and free from snow, ice, dirt and rubbish and Tenant
shall not place, suffer or permit any obstructions in such areas;
(f) Plumbing facilities shall not be used for any other purpose than
that for which they are constructed, and no foreign substance of any kind shall
be thrown therein;
(g) Tenant shall not store any equipment or materials, either
temporarily or permanently, on the outside of the Demised Premises or upon any
area of the Entire Premises or common areas;
(h) In the event that Tenant uses materials, substances, etc. which
are not considered hazardous but which, by there nature, require prudent
standards of conduct, Tenant shall act, at all times, with the necessary care.
44. LIMITATION OF LIABILITY
Anything in this Lease to the contrary notwithstanding, Tenant agrees that
it shall look only and solely to the estate and property of the Landlord in the
Demised Premises, and subject to the prior rights of any mortgagee of the
Premises and subject to the Landlord's rights under a leasehold interest of the
Entire Premises or part thereof, if any, for the collection of any judgment (or
other judicial process) requiring the payment of money by Landlord in the event
of any default or breach by Landlord with respect to any of the terms, covenants
and conditions of this Lease to be observed and/or performed by Landlord, and no
other assets of Landlord shall be subject to levy, execution or other procedures
for the satisfaction of Tenant's remedies. Landlord shall not in any manner
whatsoever have any liability or obligation of any nature for any and all
special and consequential damages incurred or suffered by Tenant and its agents
employees servants guests invitees and independent contractors.
45. CAPTIONS
The captions, numbers and index appearing herein are inserted only as a
matter of convenience and are not intended to define, limit, construe or
describe the scope or intent of any paragraph, nor in any way affect this Lease.
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46. GOVERNING LAW: COMMERCIAL TRANSACTION AND WAIVER
This Lease shall be governed by the laws and statutes of the State of
Connecticut. The Tenant, for itself and for all persons claiming through or
under it, hereby acknowledges that this Lease constitutes a commercial
transaction, and hereby expressly waives any and all rights which are or may be
conferred upon the Tenant by any statute to any notice or hearing prior to a
prejudgment remedy.
47. BROKERS
Landlord and Tenant each represent to the other that The Forsthoffer Group,
Inc. and Mark Polan are the sole brokers involved in this transaction, in
connection with procuring the proposed lease, and are the sole brokers entitled
to a commission. Landlord and Tenant agree to indemnify and hold the other
harmless with respect to claims of any agents or brokers for commissions or
other payment in connection with arranging the subject transaction.
48. PARKING PRIVILEGES
Tenant shall procure five (5) parking spaces in an adjacent surface paved
parking lot for the entire term of this Lease' and any extensions or renewals
thereof. Landlord shall contribute an amount equal to the actual initial cost of
said paved parking spaces ("Landlord's contribution") towards Tenant's parking
expense during the entire term of the Lease, and any extensions or renewals
thereof. Tenant shall, at its sole cost and expense, be responsible for any
parking charges above Landlord's contribution provided for herein.
49. OPTION TO RENT
If this Lease shall be in full force and effect and Tenant shall not be in
default of any of the covenants and provisions hereof, Tenant shall have two (2)
consecutive options to extend the term of this Lease for an additional period of
Two (2) Lease Year each, to commence on the first day immediately following the
expiration of the original term or the then existing term of this Lease. Such
option shall be exercised by Tenant by giving Landlord written advance notice of
its election to so extend said term at least six (6) months prior to the
commencement of such extended option period. Said extensions shall be upon all
covenants, agreements, terms, provisions and conditions set forth in the Lease,
except that the fixed minimum rent under Paragraph 6 of this Lease for each
option period shall be 95% of the then fair market value of the Demised
Premises, but in no event shall the fixed minimum rent be less than the monthly
amount existing at the end of the original term or then existing term of this
Lease. In the event that Tenant does not exercise said option, then this Lease
shall automatically terminate upon expiration of the original term.
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50. TENANT'S RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE
During the first three years of this Lease, provided this Lease is then in
full force and effect and Tenant is not in default of any of the covenants and
provisions hereof, Tenant shall have the right of first refusal with respect to
the leasing of space on the fifth floor of the Building which shall become
available for leasing by Landlord. Such right of first refusal shall be
exercisable and shall be subject to conditions as follows:
(a) Upon receipt of a bona fide offer from another which is acceptable
to Landlord for leasing of all or any part of such space, Landlord shall notify
Tenant of the existence and terms and conditions of such offer, furnishing
Tenant with a correct copy of such offer, and Tenant shall have thirty (30) days
thereafter to notify Landlord that Tenant agrees to lease the same space on the
same terms and conditions as are contained in such offer.
(b) If Tenant declines so to meet such offer, or fails to reply to
Landlord's notice of such offer, within such thirty (30) day period, Landlord
may accept such offer.
(c) If, by its reply notice, Tenant shall agree to meet such offer,
Tenant shall promptly enter into a modification of this Lease with Landlord to
incorporate the subject space in this Lease on the terms and conditions set
forth in such offer.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first written.
Signed, Sealed and Delivered
in the presence of:
LANDLORD:
ANN STREET LIMITED PARTNERSHIP
BY: TUNXIS MANAGEMENT CO., II
Its Sole General Partner
/s/ Jack E. Greenslade /s/ William A. Tomasso
BY
- -------------------------------- ---------------------------------
William A. Tomasso
/s/ Its Vice President
- --------------------------------
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TENANT:
MEDIA DROP-IN PRODUCTIONS, INC.
/s/ Barbara J. Orach
- -------------------------------- BY /s/ Steven M. Saferin
--------------------------------
Steven M. Saferin
/s/ Its President
- --------------------------------
STATE OF CONNECTICUT )
) ss.:
COUNTY OF HARTFORD )
Personally appeared WILLIAM A. TOMASSO, Vice President of TUNXIS MANAGEMENT
CO, II, as sole General Partner of ANN STREET LIMITED PARTNERSHIP, Signer and
Sealer of the foregoing Instrument, and acknowledged the same to be his free act
and deed and the free act and deed of said partnership before me.
---------------------------------
Commissioner of the Superior Court
Notary Public
STATE OF CONNECTICUT )
) ss:
COUNTY OF HARTFORD )
Personally appeared STEVEN M. SAFERIN, President of MEDIA DROP-IN
PRODUCTIONS, INC., Signer and Sealer of the foregoing Instrument, and
acknowledged the same to be his free act and deed and the free act and deed of
said MEDIA DROP-IN PRODUCTIONS, INC., before me.
/s/
----------------------------------
Commissioner of the Superior Court
Notary Public
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<PAGE>
ADDENDUM TO LEASE
ADDENDUM made this 2nd day of July, l992, by and between ANN STREET LIMITED
PARTNERSHIP, a Connecticut limited partnership acting herein by TUNIX MANAGEMENT
CO., II, its General Partner with its office in the Town of New Britain, County
of Hartford and State of Connecticut, (hereinafter referred to as "Landlord"),
and MEDIA DROP-IN PRODUCTIONS, INC., a Delaware corporation with its. office in
the TOWN of Hartford, County of Hartford and State of Connecticut, (hereinafter
referred to as "Tenant").
W I T N E S S E T H
WHEREAS, Landlord and Tenant entered into a Lease dated as of June , 1992
for the premises consisting of approximately 3,379 square feet of space in the
Building known as 199-203 Ann Street, Hartford, Connecticut, hereinafter
referred to as the "Lease"; and
WHEREAS, Landlord and Tenant have agreed to modify certain terms and
conditions of the Lease to reflect changes to the Tenant Improvement work to be
performed by Landlord as detailed in Exhibit B of the Lease;
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the parties agree as follows:
1. Landlord shall not construct the new Demising Walls as outlined on
Exhibit A and Landlord agrees to provide Tenant with a revised Exhibit A, to be
incorporated into the Lease, evidencing the new layout of the Demised Premises.
2. Landlord shall use the existing kitchen cabinets now in on the fourth
floor of the Building for the Demised Premises instead of the originally planned
customed cabinets.
3. Landlord and Tenant agree to share equally in the cost of the Tenant
Improvement work to be performed by Landlord which exceeds the $10.00 per square
foot allowance agreed to between the parties, as follows:
For the entire term of the Lease, Tenant shall pay, as additional
rent, at the annual rate of NINE HUNDRED SEVENTY NINE AND 91/100
($979.9l) DOLLARS payable in advance in equal monthly installments of
EIGHTY ONE AND 66/l00 ($81.66) DOLLARS on the first day of each month
which represents Tenant's fifty percent (50%) share of the excess
Tenant Improvement cost.
4. Every provision, obligation, agreement, covenant, promise, right and
power contained in and under the Lease shall continue in full force and effect,
affected only to the extent of the changes herein set forth.
-1-
<PAGE>
5. This Addendum shall inure to the benefit of and be binding upon the
parties hereto and their respective successors, and assigns.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals on the day and year first above written.
Signed, Sealed and Delivered
in the presence of:
LANDLORD:
ANN STREET LIMITED PARTNERSHIP
BY: TUNXIS MANAGEMENT CO., II
Its Sole General Partner
/s/ Dennis P. Brennan /s/ William A. Tomasso
- -------------------------------- BY
--------------------------------
William A. Tomasso
/s/ Jack E. Greenslade its Vice President
- --------------------------------
TENANT:
MEDIA DROP-IN PRODUCTIONS, INC.
/s/ Curt Gem /s/ Steven M. Saferin
- -------------------------------- BY
---------------------------------
Steven M. Saferin
/s/ Its President
- -------------------------------
STATE OF CONNECTICUT )
) ss.:
COUNTY OF HARTFORD )
Personally appeared WILLIAM A. TOMASSO, Vice President of TUNXIS MANAGEMENT
CO, II, as sole General Partner of ANN STREET LIMITED PARTNERSHIP, Signer and
Sealer of the foregoing Instrument, and acknowledged the same to be his free act
and deed and the free act and deed of said partnership before me.
-----------------------------------
Commissioner of the Superior Court
Notary Public
-2-
<PAGE>
STATE OF CONNECTICUT )
) ss:
COUNTY OF HARTFORD )
Personally appeared STEVEN M. SAFERIN, President of MEDIA DROP-IN
PRODUCTIONS, INC., Signer and Sealer of the foregoing Instrument, and
acknowledged the same to be his free act and deed and the free act and deed of
said MEDIA DROP-IN PRODUCTIONS, INC., before me.
-----------------------------------
Commissioner of the Superior Court
Notary Public
-3-
<PAGE>
LEASE MODIFICATION AGREEMENT
THIS AGREEMENT made as of the 1st day of December, 1992 by and between ANN
STREET LIMITED PARTNERSHIP, a Connecticut limited partnership acting herein by
TUNXIS MANAGEMENT CO., II, its General Partner with its office in the Town of
New Britain, County of Hartford and State of Connecticut, (hereinafter referred
to as "Landlord"), and MEDIA DROP-IN PRODUCTIONS, INC., a Delaware corporation
with its office in the Town of Hartford, County of Hartford and State of
Connecticut, (hereinafter referred to as "Tenant.).
W I T N E S S E T H
WHEREAS, Landlord and Tenant entered into a Lease dated June , 1992 as
modified by a certain Addendum To Lease dated July 2, 1992 (collectively
referred to as the "Lease") for premises consisting of approximately 3,379
square feet of space in the Building known as 199-203 Ann Street, Hartford,
Connecticut; and
WHEREAS, the Landlord desires to lease to Tenant and Tenant desires to
lease from Landlord an additional 1,800 square feet of contiguous space in the
Building known as 199-203 Ann Street, Hartford, Connecticut, as shown and
depicted on Exhibit A, attached hereto and made a part hereof (the "Additional
Space"), subject to the same terms and conditions of the Lease; and
WHEREAS, the parties hereto desire to modify certain terms of the Lease as
hereinafter set forth to reflect the lease of the Additional Space.
NOW THEREFORE, in consideration of the promises and mutual undertakings,
covenants and agreements herein contained, the parties agree as follows:
1. Effective December 1, 1992, the "Demised Premises" of the Lease shall be
modified to include approximately 1,800 square feet as shown and depicted on
Exhibit A, (the "Additional Space").
2. Paragraph 6, Minimum Rent, shall be modified to include the rental rate
for the Additional Space by adding a new subsection b, as follows:
(b) For the entire term of this Lease, the fixed minimum rent for the
Additional Space shall be $104,430.00 payable by Tenant to Landlord, as follows:
(i) The fixed minimum rent for the Additional Space during the
first lease year of this Lease shall be payable by Tenant at
the annual rate of EIGHT THOUSAND ONE HUNDRED NINETY AND
00/100 ($8,190.00) DOLLARS payable in advance in monthly
installments on the 1st day of each month as follows:
-1-
<PAGE>
<TABLE>
<S> <C>
Month 1 through Month 6 $ 557.50
Month 7 through Month 12 $ 807.50
</TABLE>
(ii) The fixed minimum rent for the Additional Space during the
second lease year of this Lease shall be payable by Tenant
at the annual rate of TWELVE THOUSAND SIX HUNDRED NINETY AND
00/100 ($12,690.00) DOLLARS payable in advance in equal
monthly installments of ONE THOUSAND FIFTY SEVEN AND 50/100
($1,057.50) DOLLARS on the 1st day of each month.
(iii) The fixed minimum rent for the Additional Space during the
third lease year of this Lease shall be payable by Tenant at
the annual rate of TWENTY ONE THOUSAND SIX HUNDRED NINETY
AND 00/100 ($21,690.00) DOLLARS payable in advance in equal
monthly installments of ONE THOUSAND EIGHT HUNDRED SEVEN AND
50/100 ($1,807.50) DOLLARS on the 1st day of each month.
(iv) The fixed minimum rent for the Additional Space during the
fourth and fifth lease years of this Lease shall be payable
by Tenant at the annual rate of THIRTY THOUSAND NINE HUNDRED
THIRTY AND 00/100 ($30,930.00) DOLLARS payable in advance in
equal monthly installments of TWO THOUSAND FIVE HUNDRED
SEVENTY SEVEN AND 50/100 ($2,577.50) DOLLARS on the 1st day
of each month.
The existing Paragraph 6(b) of the Lease shall henceforth be Paragraph
6(c).
3. If Tenant exercises its option to renew the term of the Lease pursuant
to Paragraph 49 of the Lease, the annual minimum rental for the entire Demised
Premises, including the Additional Space, shall be determined in accordance with
said Paragraph 49.
4. "Tenant's Share" pursuant to Paragraph 7 of the Lease shall henceforth
be 15.12 percent.
5. Every term, provision, obligation, agreement, covenant, promise, right
and power contained in and under the Lease shall continue in full force and
effect, affected only to the extent of the changes herein set forth.
6. This Modification Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors, and assigns.
TO HAVE AND TO HOLD unto the said Landlord and unto its successors and
assigns forever, to its and their own and proper use and behoof.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto caused these presents to be
signed and sealed the day and year first above recited.
Signed, Sealed and Delivered
in the presence of:
LANDLORD:
ANN STREET LIMITED PARTNERSHIP
BY: TUNXIS MANAGEMENT CO., II
Its Sole General Partner
/s/ Dennis P. Brennan
- ----------------------------------- BY /s/ William A. Tomasso
-----------------------------------
William A. Tomasso
/s/ Keith F. Wolf its Vice President
- -----------------------------------
TENANT:
MEDIA DROP-IN PRODUCTIONS, INC.
/s/ Dennis P. Brennan
- ----------------------------------- BY /s/ Steven M. Saferin
-----------------------------------
Steven M. Saferin
/s/ Keith F. Wolf Its President
- -----------------------------------
STATE OF CONNECTICUT )
) ss.:
COUNTY OF HARTFORD )
Personally appeared WILLIAM A. TOMASSO, Vice President of TUNXIS MANAGEMENT
CO, II, as sole General Partner of ANN STREET LIMITED PARTNERSHIP, Signer and
Sealer of the foregoing Instrument, and acknowledged the same to be his free act
and deed and the free act and deed of said partnership before me.
----------------------------------
Commissioner of the Superior Court
Notary Public
-3-
<PAGE>
STATE OF CONNECTICUT )
) ss:
COUNTY OF HARTFORD )
Personally appeared STEVEN M. SAFERIN, President of MEDIA DROP-IN
PRODUCTIONS, INC., Signer and Sealer of the foregoing Instrument, and
acknowledged the same to be his free act and deed and the free act and deed of
said MEDIA DROP-IN PRODUCTIONS, INC., before me.
-----------------------------------
Commissioner of the Superior Court
Notary Public
-4-
<PAGE>
SECOND LEASE MODIFICATION AGREEMENT
THIS AGREEMENT made as of the 14th day of August, 1997, by and between ANN
STREET LIMITED PARTNERSHIP, a Connecticut limited partnership acting herein by
TUNXIS MANAGEMENT CO., II, its General Partner with its office in the Town of
New Britain, County of Hartford and State of Connecticut, (hereinafter referred
to as "Landlord"), and MEDIA DROP-IN PRODUCTIONS, INC., a Delaware corporation
with its office in the Town of Hartford, County of Hartford and State of
Connecticut, (hereinafter referred to as "Tenant").
W I T N E S S E T H
WHEREAS, Landlord and Tenant entered into a Lease dated June , 1992 as
modified by a certain Addendum To Lease dated July 2, 1992 and as further
modified by a certain Lease Modification Agreement dated as of December 1, 1992
(collectively referred to as the "Lease") for premises consisting of
approximately 5,179 square feet of space in the Building known as 199-203 Ann
Street, Hartford, Connecticut; and
WHEREAS, the parties hereto desire to modify certain terms of the Lease as
hereinafter set forth to reflect the lease of the Additional Space.
NOW THEREFORE, in consideration of the promises and mutual undertakings,
covenants and agreements herein contained, the parties agree as follows:
1. Effective September 1, 1997, the "Demised Premises" of the Lease shall
be modified to exclude the "Additional Space" of approximately 1,800 square
feet. The Demised Premises shall consist of approximately 3,379 square feet of
space as shown and depicted on Exhibit A.
2. Paragraph 4 of the Lease shall be modified to provide that the term of
the Lease shall be extended to December 31, 1999 (the "Termination Date").
3. Paragraph 6(a) of the Lease, shall be modified to add the minimum rent
due for the period September 1, 1997 through December 31, 1999, as follows:
Commencing September 1, 1997 through and including December 31, 1999, the
fixed minimum rent shall be payable by Tenant at the annual rate of FORTY FIVE
THOUSAND SIX HUNDRED SIXTEEN AND 50/100 ($45,616.50) DOLLARS payable in advance
in equal monthly installments of THREE THOUSAND EIGHT HUNDRED ONE AND 38/100
($3,801.38) DOLLARS on the 1st day of each month.
4. Paragraph 6(b) of the Lease shall be deleted in its entirety and shall
be replaced as follows:
-1-
<PAGE>
"(b) The phrase "minimum rent" shall mean the fixed minimum rent above
specified without any set-offs or deductions whatsoever and without any prior
notice or demand by Landlord being required therefor."
5. Paragraph 6(c) of the Lease shall be deleted in its entirety.
6. "Tenant's Share" pursuant to Paragraph 7 of the Lease shall henceforth
be 9.87%.
7. Tenant's "Base for Operating Expenses" and "Base for Special Operating
Expenses" pursuant to Paragraph 7 of the Lease shall be calendar year 1997.
8. Tenant's "Base for Taxes" pursuant to Paragraph 7 of the Lease shall be
the Grand List of October 1, 1996.
9. Paragraph 48, Parking Privileges, of the Lease shall be deleted in its
entirety and replaced as follows:
Tenant shall procure five (5) parking spaces in an adjacent surface paved
parking lot for the entire term of this Lease, the cost of which is included in
the minimum rent payable by Tenant to Landlord.
10. Paragraph 49, Option To Renew, of the Lease, shall be deleted in its
entirety.
11. Paragraph 50, Tenant's Right of First Refusal To Lease Additional
Space, shall be deleted in its entirety and replaced as follows:
50. TENANT'S RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE
During the term of this Lease, provided this Lease is then in full force
and effect and Tenant is not in default of any of the covenants and provisions
hereof, Tenant shall have the right of first refusal with respect to the leasing
of the adjacent 1,800 square feet of space on the fifth floor of the Building
which shall become available for leasing by Landlord. Such right of first
refusal shall be exercisable and shall be subject to conditions as follows:
(a) Upon receipt of a bona fide offer from another which is acceptable to
Landlord for leasing of all or any part of such space, Landlord shall notify
Tenant of the existence of such offer, and Tenant shall have ten (10) days
thereafter to notify Landlord that Tenant agrees to lease the same space on the
same terms and conditions as are contained in this Lease and at the rental rate
of $12.00 per square foot gross.
(b) If Tenant declines, or fails to reply to Landlord's notice of such
offer, within such ten (10) day period, Landlord may accept such offer.
-2-
<PAGE>
(c) If, by its reply notice, Tenant shall agree to lease said space, Tenant
shall promptly enter into a modification of this Lease with Landlord to
incorporate the subject space in this Lease on the terms and conditions set
forth in subsection (a) herein.
12. Every term, provision, obligation, agreement covenant, promise, right
and power contained in and under the Lease shall continue in full force and
effect, affected only to the extent of the changes herein set forth.
13. This Modification Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors, and assigns.
TO HAVE AND TO HOLD unto the said Landlord and unto its successors and
assigns forever, to its and their own and proper use and behoof
IN WITNESS WHEREOF, the parties have hereunto caused these presents to be
signed and sealed the day and year first above recited.
Signed, Sealed and Delivered
in the presence of:
LANDLORD:
ANN STREET LIMITED PARTNERSHIP
BY: TUNXIS MANAGEMENT CO., II
Its Sole General Partner
/s/ /s/ Keith F. Wolf
- --------------------------------- BY
------------------------------------
/s/
- --------------------------------- Its CFO of General Partner, Tunxis
Management Co. II
TENANT:
MEDIA DROP-IN PRODUCTIONS, INC.
/s/ Abigail Lynn /s/ Kenneth M. Przysiecki
- --------------------------------- BY
------------------------------------
Kenneth M. Przysiecki
/s/ Its Chief Financial Officer
- -------------------------------
-3-
<PAGE>
STATE OF CONNECTICUT )
)ss:
COUNTY OF HARTFORD )
Personally appeared , of TUNXIS MANAGEMENT CO, II, as sole General Partner
of ANN STREET LIMITED PARTNERSHIP, Signer and Sealer of the foregoing
Instrument, and acknowledged the same to be his free act and deed and the free
act and deed of said partnership before me.
/s/ Lisa M. Cardello
----------------------------------------
Commissioner of the Superior Court Notary
Public
STATE OF CONNECTICUT )
)ss:
COUNTY OF HARTFORD )
Personally appeared Kenneth Przysiecki, CFO/Secretary of MEDIA DROP-IN
PRODUCTIONS, INC., Signer and Sealer of the foregoing Instrument, and
acknowledged the same to be his free ast and deed and the free act and deed of
said MEDIA DROP-IN PRODUCTIONS, INC., before me.
/s/
----------------------------------------
Commissioner of the Superior Court Notary
Public
-4-
<TABLE> <S> <C>
<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 960,398
<SECURITIES> 0
<RECEIVABLES> 317,598
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<INVENTORY> 417,651
<CURRENT-ASSETS> 1,725,850
<PP&E> 430,623
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0
0
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<CGS> 2,313,831
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<OTHER-EXPENSES> 1,797,631
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